-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QOZBxt4eJCMU2WM4UncqUFGxu5+g0cpM0uxElyUQ4+I7M0yn//T2RzWu7gRLBY4t M4JahwGRwbfZdrZnc7MGbw== 0001017062-97-001306.txt : 19970709 0001017062-97-001306.hdr.sgml : 19970709 ACCESSION NUMBER: 0001017062-97-001306 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970708 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MYCOGEN CORP CENTRAL INDEX KEY: 0000813742 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 953802654 STATE OF INCORPORATION: CA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11643 FILM NUMBER: 97637100 BUSINESS ADDRESS: STREET 1: 5501 OBERLIN DR CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6194538030 MAIL ADDRESS: STREET 1: 5501 OBERLIN DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92121 10-Q 1 QUARTERLY REPORT (5-31-97) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 1997 ------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ____________________ Commission file number: 0-15881 ------- MYCOGEN CORPORATION ------------------------------------------------------------------ (Exact name of registrant as specified in its charter) California 95-3802654 - --------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5501 Oberlin Drive, San Diego, California 92121 - ------------------------------------------ ---------------------- (Address of principal executive offices) (Zip Code) (619) 453-8030 --------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ---- ---- 31,086,532 shares of Common Stock were outstanding as of June 30, 1997. Part 1 - FINANCIAL INFORMATION Item 1. Financial Statements Mycogen Corporation Interim Consolidated Condensed Statements of Operations (Amounts in thousands, except per share data)
Three months ended Nine months ended May 31, May 31, 1997 1996 1997 1996 -------- -------- ---------- ---------- (Unaudited) (Unaudited) Net operating revenues....................... $84,324 $78,015 $170,895 $125,639 Contract and other revenues.................. 1,883 2,360 6,341 6,511 ------- ------- -------- -------- Total revenues........................... 86,207 80,375 177,236 132,150 ------- ------- -------- -------- Costs and expenses: Cost of operating revenues................. 52,552 53,406 106,869 83,121 Selling and marketing...................... 11,710 12,075 31,001 25,396 Research and development................... 5,990 5,930 16,571 15,589 General and administrative................. 3,870 4,989 12,129 11,943 Amortization of intangible assets.......... 732 647 2,248 1,731 Special charges............................ 8,563 -- 8,563 22,890 Patent litigation fees..................... 2,229 488 4,362 1,198 Equity in net loss of investees............ -- -- 1,326 -- ------- ------- -------- -------- Total costs and expenses................. 85,646 77,535 183,069 161,868 ------- ------- -------- -------- Operating income (loss)...................... 561 2,840 (5,833) (29,718) Interest income and expense, net........... (604) 810 (671) 1,583 Exchange gain (loss)....................... (15) (129) 23 (106) ------- ------- -------- -------- Net income (loss) before income taxes........ (58) 3,521 (6,481) (28,241) Credit (provision) for income taxes.......... 622 -- (500) -- ------- ------- -------- -------- Net income (loss)............................ 564 3,521 (6,981) (28,241) Dividends on preferred stock................. -- -- -- (578) ------- ------- -------- -------- Net income (loss) applicable to common shares $ 564 $ 3,521 $ (6,981) $(28,819) ======= ======= ======== ======== Net income (loss) per common share: Primary and assuming full dilution......... $ .02 $ .11 $ (.23) $ (1.16) ======= ======= ======== ======== Weighted average number of shares: Primary.................................... 30,943 32,334 30,827 24,816 ======= ======= ======== ======== Assuming full dilution..................... 30,943 32,415 30,827 24,816 ======= ======= ======== ========
See accompanying Notes to Interim Consolidated Condensed Financial Statements. 2 Mycogen Corporation Consolidated Condensed Balance Sheets (Dollars in thousands, except par value data)
May 31, August 31, 1997 1996 (Unaudited) (Note) ---------- ---------- Assets Current assets: Cash and cash equivalents................................ $ 2,600 $ 35,854 Securities available-for-sale............................ 497 32,184 Accounts and notes receivable, net of allowances......... 81,710 30,700 Inventories.............................................. 51,805 37,177 Prepaid expenses......................................... 3,306 1,125 Other current assets..................................... 2,452 755 ---------- ---------- Total current assets.................................. 142,370 137,795 Net property, plant and equipment.......................... 80,997 54,905 Net intangible assets...................................... 33,387 22,581 Other assets............................................... 23,868 12,188 ---------- ---------- Total assets............................................... $ 280,622 $ 227,469 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings.................................... $ 34,002 $ 1,520 Accounts payable......................................... 14,691 8,697 Accrued compensation and related taxes................... 5,454 6,755 Deferred revenues........................................ 12,265 12,101 Other current liabilities................................ 13,682 11,974 ---------- ---------- Total current liabilities............................... 80,094 41,047 Long-term liabilities...................................... 16,187 5,228 Stockholders' equity: Common stock, $.001 par value, 40,000,000 shares authorized; 31,049,173 and 30,678,537 shares issued and outstanding at May 31, 1997 and August 31, 1996, respectively............................................. 31 31 Additional paid-in capital................................ 341,101 330,973 Deficit................................................... (156,791) (149,810) ---------- ---------- Total stockholders' equity.............................. 184,341 181,194 ---------- ---------- Total liabilities and stockholders' equity................ $ 280,622 $ 227,469 ========== ==========
Note: The balance sheet at August 31, 1996 has been derived from the audited financial statements at that date. See accompanying Notes to Interim Consolidated Condensed Financial Statements. 3 Mycogen Corporation Interim Consolidated Condensed Statements of Cash Flows (Dollars in thousands)
Nine months ended May 31, 1997 1996 ---------- ---------- (Unaudited) (Unaudited) Operating activities: Net Loss...................................................................... $ (6,981) $ (28,241) Items which did not use cash: Special charges............................................................ 6,830 20,890 Depreciation............................................................... 4,298 3,687 Amortization of intangible assets.......................................... 2,249 1,730 Other expense not requiring cash........................................... 2,731 2,208 Changes in operating assets and liabilities: Accounts and notes receivable............................................. (46,453) (23,764) Inventories............................................................... (2,992) 19,792 Prepaid expenses.......................................................... (2,242) (146) Accounts payable.......................................................... 1,552 (5,279) Deferred revenues......................................................... 165 735 Other current liabilities................................................. (2,482) (1,773) ---------- --------- Cash used in operating activities....................................... (43,325) (10,161) ---------- --------- Investing activities: Proceeds from sales of available-for-sale securities.......................... 28,140 28,616 Proceeds from maturities of available-for-sale securities..................... 3,703 1,956 Purchases of available-for-sale securities.................................... - (58,355) Capital expenditures.......................................................... (25,106) (6,202) Business combinations......................................................... (37,083) (1,791) Change in intangibles and other assets........................................ 443 (66) ---------- --------- Cash used in investing activities....................................... (29,903) (35,842) ---------- --------- Financing activities; Net change in short-term borrowings........................................... 22,303 - Proceeds from long-term borrowings............................................ 15,000 - Payments on long-term borrowings.............................................. (102) (4,554) Proceeds from sale of common stock............................................ 2,721 59,568 ---------- --------- Cash provided by financing activities................................... 39,922 55,014 ---------- --------- Effect of exchange rate changes on cash and cash equivalents................... 52 107 ---------- --------- Increase (decrease) in cash and cash equivalents............................... (33,254) 9,118 Cash and cash equivalents at beginning of period............................... 35,854 5,687 ---------- --------- Cash and cash equivalents at end of period..................................... $ 2,600 $ 14,805 ========== =========
See accompanying Notes to Interim Consolidated Condensed Financial Statements. 4 PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements (continued). Mycogen Corporation ------------------- Notes to Interim Consolidated Condensed Financial Statements General - ------- The accompanying financial statements include the accounts of Mycogen Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The interim financial statements have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (which include only normal recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows as of and for the periods indicated. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Annual Report and Form 10-K of the Company for the fiscal year ended August 31, 1996. The Company's business is highly seasonal. Operating revenues are expected to be concentrated principally in the quarters ending in February and May as a result of the North American agricultural growing season. Consequently, operating revenues and results of operations for the three months ended and nine months ended May 31, 1997 are not indicative of operating revenues and results to be expected for a full fiscal year. Reclassifications - ----------------- Certain amounts in the 1996 Consolidated Condensed Financial Statements have been reclassified to conform to the 1997 presentation. DowElanco - --------- As of May 31, 1997, DowElanco owned 17,696,579 shares of the Company's common stock or 57.00%, and may acquire additional shares of the Company's common stock subject to certain restrictions. Acquisition of Morgan Seeds and United AgriSeeds, Inc. - ------------------------------------------------------ In September 1996, the Company purchased all of the stock of Santa Ursula S.A.A.I.C. e I. ("Morgan Seeds"), the third largest seed company in Argentina, for $27 million in cash. Morgan Seeds' principal products are corn and sunflower planting seed. The acquisition of Morgan Seeds was accounted for as a purchase and, accordingly, the assets and liabilities of Morgan Seeds are included in the Consolidated Balance Sheet as of May 31, 1997 and the results of operations from the acquisition date are reflected in the Consolidated Statements of Operations. 5 The following consolidated, pro forma, unaudited summary of operations data for the nine months ended May 31, 1997 and 1996 assumes that the Morgan Seeds acquisition occurred on September 1, 1996 and 1995, respectively, and that the acquisition of United AgriSeeds, Inc. ("UAS") in February 1996 occurred on September 1, 1995.
Nine months ended May 31, ----------------------------- (In thousands, except per share data) 1997 1996 ------------ ------------- Total revenues $ 178,855 $ 171,575 Net loss applicable to common shares $ (6,963) $ (21,482) Net loss per common share $ (.23) $ (.82)
These pro forma results may not be indicative of the results of operations that would have been reported if the transactions had occurred on the dates indicated, or which may be reported in the future. These results do not include a nonrecurring special charge of $2.6 million related to the write-off of acquired in process technology recorded in 1996 as a result of the UAS acquisition. Investment in Verneuil Holding - ------------------------------ In December 1996, the Company exchanged its ownership interest in two European subsidiaries, Mycogen S.A. and Mycogen SRL, and cash of $2.1 million for an 18.75% ownership interest in Verneuil Holding, S.A. ("Verneuil"). The Company obtained a call option whereby Mycogen can purchase an additional 16.25% interest in Verneuil from DowElanco. DowElanco has a put option that may require Mycogen to purchase DowElanco's 16.25% ownership interest in Verneuil after December 1997 if certain conditions are met. Including related investment costs, the investment in Verneuil totaled $9.7 million. The investment was accounted for using the cost method and is included in other assets on the Consolidated Balance Sheet. The European subsidiaries' fiscal 1997 operating results are reported in the Consolidated Statements of Operations as equity in net loss of investees. High Oleic Sunflower Assets - --------------------------- In September 1996, the Company acquired rights to The Lubrizol Corporation's ("Lubrizol") SVO high oleic sunflower oil technology and other assets (mainly inventory) relating to its specialty oil business for $7.6 million. In a related transaction, the Company entered into a supply agreement with AC Humko whereby the Company will produce crude high oleic sunflower oil exclusively for AC Humko in North America. Supplemental Schedule of Non-Cash Investing and Financing Activities - -------------------------------------------------------------------- In conjunction with the acquisition of Morgan Seeds, the investment in Verneuil and the purchase of Lubrizol's SVO high oleic sunflower oil assets in fiscal year 1997 and the acquisition of UAS and the remaining ownership interest in Mycogen Seeds in fiscal year 1996, non-cash investing and financing activities were as follows: 6
Nine months ended May 31, ---------------------------- (In thousands) 1997 1996 ----------- ----------- Business acquisitions and investments: Fair value of assets acquired, other than cash $ 48,741 $ 55,692 Liabilities assumed (15,396) (20,643) Investment in Verneuil 9,693 -- Net assets and liabilities of Mycogen S.A. and Mycogen SRL, excluding cash, exchanged for Verneuil (5,955) -- Liabilities and acquisition costs incurred -- (651) Minority interest purchased from Lubrizol -- 21,406 Common stock issued -- (54,013) ----------- ----------- Net cash paid $ 37,083 $ 1,791 =========== ===========
Other non-cash investing and financing activities are as follows:
Nine months ended May 31, ---------------------------- (In thousands) 1997 1996 ----------- ------------- Technology rights acquired by incurring directly related liabilities $ -- $ 6,000 =========== ============= Dividends on preferred stock $ -- $ 578 =========== ============= Common stock issued upon conversion of convertible preferred stock $ -- $ 31,582 =========== ============= Inventories - ----------- Inventories are comprised of: (In thousands) May 31, 1997 August 31, 1996 ------------ --------------- Raw materials and supplies $ 9,413 $ 3,819 Work in process 8,698 10,810 Finished goods 33,694 22,548 ------------ --------------- Total $ 51,805 $ 37,177 ============ ===============
Accumulated Depreciation and Amortization - ------------------------------------------ Accumulated depreciation of property, plant and equipment was $20.3 million and $17.3 million at May 31, 1997 and August 31, 1996, respectively. Accumulated amortization of intangible assets was $11.2 million and $9.0 million at May 31, 1997 and August 31, 1996, respectively. 7 Short-term Borrowings and Long-term Debt - ---------------------------------------- In February 1997, the Company obtained a $15 million unsecured five-year note bearing interest at 7.5%, payable monthly, with quarterly principal installments due of $750,000. The Company also obtained a $10 million unsecured revolving line of credit. This line, which expires February 1998, provides for short-term borrowings at the bank's prime rate (8.5 % at May 31, 1997) less .5% or at an adjusted Eurodollar rate plus 1%. Additionally, the Company's existing line of credit was increased from $25 million to $40 million. These loan agreements contain certain covenants which include the maintenance of a minimum consolidated tangible net worth, maintenance of certain financial ratios and certain limitations on the incurrence of indebtedness or liens on the Company's assets. Income Taxes - ------------ An income tax credit of $.6 million and a provision for income taxes of $.5 million related to Argentine taxes was recognized for the three and nine months ended May 31, 1997, respectively. The effective tax rate for Argentine income is 33%. A provision for income tax was not recognized for other jurisdictions as the effective tax rate for the current fiscal year for all other jurisdictions is expected to be zero due to the available net operating loss carryforwards. Net Income (Loss) Per Common Share - ---------------------------------- Net income (loss) per common share for the three months ended May 31, 1997 and nine months ended May 31, 1997 and 1996 is determined by dividing the net income (loss) by the weighted average number of common shares outstanding during the respective period. The dilutive effect of common shares issuable under stock options was less than 3% and was not included in the computation of primary earnings per share. Fully diluted and primary earnings per share for the three months ended May 31, 1996 is determined by dividing net income by the weighted average number of common shares outstanding. Common shares issuable under stock options were included in the computation of fully diluted and primary earnings per share as the dilutive effect was greater than 3%. Special Charges - Severance - --------------------------- As a result of the resignation of the Company's Chairman and Chief Executive Officer, Dr. Jerry Caulder, the Company incurred special charges of $8.6 million. Special charges include non-cash stock compensation of $6.9 million and severance and other benefits of $1.7 million. In connection with Dr. Caulder's resignation, Dr. Caulder and DowElanco entered into an agreement whereby Dr. Caulder has the option to sell to DowElanco any shares acquired by Dr. Caulder through the surrender of his stock options to the Company. This option becomes available upon Dr. Caulder's resignation from the board of directors of Mycogen and expires after six months. According to SEC rules, variable accounting as described in APB 25 must be applied to those options where vesting was accelerated. According to variable plan accounting, those options must be "marked to market" each quarter. For the three months ended May 31, 1997, these charges totaled $1.9 million based on the revaluation of 389,445 options to $23.50, the closing price of the Company's stock at May 31, 1997. The Company will incur charges or credits each quarter based on fluctuations in the value of the Company's stock. 8 Subsequent Event - ---------------- In June 1997, the Company entered into a unsecured revolving financing agreement with DowElanco which allows the Company to borrow up to $50 million. This agreement, which expires April 1, 1998, provides for short-term borrowings at DowElanco's rate of borrowing (5.76% at May 31, 1997) plus .125%. 9 PART I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS Acquisitions In September 1996, the Company acquired all of the shares of common stock of Morgan Seeds for $27.0 million in cash. Morgan Seeds is the third largest seed company in Argentina, ranking number two in corn and number four in sunflower. Morgan Seeds also exports corn, sunflower and sorghum planting seeds to distributors in Mexico and South America. In September 1996, the Company acquired rights to Lubrizol's high oleic sunflower oil technology and other assets (mainly inventory) relating to its specialty oil business for $7.6 million. In a related transaction, the Company entered into a supply agreement with AC Humko whereby the Company will produce crude high oleic sunflower oil exclusively for AC Humko in North America. In December 1996, the Company exchanged its ownership interest in two European subsidiaries and cash for a total investment in Verneuil of $9.7 million representing an 18.75% ownership interest. The Company obtained a call option whereby Mycogen can purchase an additional 16.25% interest in Verneuil from DowElanco. DowElanco has a put option that may require Mycogen to purchase DowElanco's 16.25% ownership interest in Verneuil after December 1997 if certain conditions are met. The European subsidiaries' fiscal 1997 results through December 1996 are reported in the Consolidated Statements of Operations as equity in net loss of investees. These acquisitions affect the comparability of 1997 to 1996 Consolidated Condensed Financial Statements. Seasonality The Company's businesses are highly seasonal as described in each segment summary. Revenues, expenses, income and losses for the three and nine months ended May 31, 1997 are not indicative of the revenues, expenses and income or losses to be expected for a full fiscal year. Summary Mycogen develops and markets value-added planting seeds for major agricultural crops and environmentally compatible biopesticide products and provides crop protection services to control pests and improve food and fiber production. The Company is organized into two business units, Seed and Crop Protection. Varying climatic conditions can shift revenues between quarters. Operating revenues and seed costs are impacted by weather. Weather can influence pest populations, deliveries, the effectiveness of pesticides and seeds, seed production yields, commodity prices, growers' planting decisions and other factors affecting revenues and costs. Operating revenues also depend on a number of other factors, including market acceptance of products, competition and U.S. and foreign government policies that affect crop acreage and farm income. Planted acreage is a key factor in determining volumes of seed, crop protection services and biopesticide products purchased by growers. Weather, competition, regulation and other external factors may affect Mycogen's ability to increase operating revenues and achieve profitability. The Company must also continue to invest in the commercialization of existing products, the discovery and development of new products and in the enforcement of the Company's intellectual property rights, so the trend in losses from operations may continue if revenues do not increase. 10 Segment Operating Revenues and Income (Loss)
Three months ended May 31, Nine months ended May 31, (In thousands) 1997 1996 1997 1996 ---------- ---------- ------------ ----------- Operating Revenues: Seed............................ $ 73,945 $ 66,092 $ 146,518 $ 98,148 Crop Protection................. 10,789 12,879 24,787 28,447 Intersegment Sales.................. (410) (956) (410) (956) ---------- ---------- ------------ ----------- Total $ 84,324 $ 78,015 $ 170,895 $ 125,639 ========== ========== ============ =========== Income (Loss) Seed.................................. $ 11,714 $ 2,746 $ 13,240 $ (3,125) Crop Protection....................... 974 1,047 (784) (1,178) Intersegment Sales.................... (68) (161) (68) (161) ---------- ---------- ------------ ----------- Total operations 12,620 3,632 12,388 (4,464) Patent litigation fees................ (2,229) (488) (4,362) (1,198) Corporate............................. (1,266) (304) (3,970) (1,166) Special charges....................... (8,563) -- (8,563) (22,890) Equity loss in investees............. -- -- (1,326) -- Net interest and other................ (619) 681 (648) 1,477 ---------- ---------- ------------ ----------- Net income (loss) before income taxes............. (58) 3,521 (6,481) (28,241) Credit (provision) for for income taxes.................... 622 -- (500) -- ---------- ---------- ------------ ----------- Net income (loss) $ 564 $ 3,521 $ (6,981) $ (28,241) ========== ========== ============ ===========
While the Company's operations have improved significantly, net income (loss) has been negatively impacted by increased patent litigation fees, general corporate expenses, net interest expense and provision for income taxes. Seed revenues and operations have improved largely due to the acquisition of Morgan Seeds and UAS, and the integration of UAS into Mycogen's seed operation. Additionally, domestic seed gross margins are 42% for the nine months ended May 31, 1997 compared to 35% for the prior period. The majority of this improvement is attributable to a decrease in discards and obsolescence in 1997. Seed revenues are discussed in more detail under the caption Seed Operating Revenues. The improvements in Crop Protection operations are attributable to lower expenses which have more than offset the impact of lower revenues. The Company's results have been negatively impacted by legal fees and expenses associated with enforcing its intellectual property rights. The Company is currently a party to numerous separate actions arising out of disputes over patent and license rights for insect resistance and herbicide tolerance technology in plants. The Company will continue to assert and enforce its positions in these matters and, therefore, will continue to incur significant associated expenses. General corporate expenses have increased mainly due to the Company's decision to redirect certain administrative and research resources from the segments to pursue acquisitions of 11 biotechnology assets, to develop strategic alliances, to represent the Company's position in various industry groups and to engage in other corporate activities. Current year's special charges include non-cash stock compensation of $6.9 million and severance and other benefits of $1.7 million related to the resignation of the Company's Chief Executive Officer. Last year's special charges are comprised of write-downs of seed production facilities and acquired in-process technology. Equity loss in investees reflects expenses incurred by the Company's European subsidiaries during this fiscal year through the date that they were transferred to Verneuil. Net interest expense has increased due to cash used for business acquisitions and higher working capital needs as a result of acquisitions and capital expenditures. The provision for income taxes relates to the interim period income reported by Argentine subsidiaries.
Seed Operating Revenues Three months ended May 31, Nine months ended May 31, (In thousands) 1996 ---------------------------- 1997 1996 1997 Reported Pro forma --------- ------------- ---------- ----------- ----------- Domestic Seed: Corn.......................... $ 30,753 $ 33,336 $ 64,761 $ 50,906 $ 63,475 Soybean....................... 13,255 11,946 20,979 15,683 17,905 Sunflower..................... 5.945 5,423 6,640 7,664 7,782 Sorghum and other............. 9,535 9,474 12,497 13,706 15,653 Argentina........................ 4,834 83 22,384 831 23,119 Specialty oil.................... 8,633 -- 16,854 -- -- Other international.............. 990 5,830 2,403 9,358 9,358 --------- --------- ---------- ----------- ----------- Total $ 73,945 $ 66,092 $ 146,518 $ 98,148 $ 137,292 ========= ========= ========== =========== ===========
Domestic corn and soybean revenues are ahead of last year due mainly to the February 1996 acquisition of UAS and its integration into the Company's North American seed operations. According to the Company's pro forma revenue estimates, which assumes that the acquisitions of UAS and Morgan Seeds occurred at the beginning of fiscal 1996, corn revenues are consistent with the prior year and soybean revenues are $3.1 million ahead of last year. Corn volumes are slightly down from last year on a pro-forma basis, however, higher average corn prices offset the decrease in volume. Corn prices are higher due to a higher mix of value-added products, primarily consisting of NatureGard(TM) hybrids, which are sold at a premium. Full season corn units, after returns, are expected to be at or slightly ahead of last year on a pro forma basis. The increase in soybean revenues is primarily the result of commodity price increases. Sunflower revenues have decreased due to flooding experienced at the Company's Breckenridge facility and throughout the upper Midwest region. Grain sorghum revenues decreased $1.5 million from last year's record levels due mainly to the lack of availability of planting seed. Proforma 1996 other revenues includes $1.2 million of equipment sales and contract production which has been discontinued. The acquisition of Morgan Seeds in September 1996 added $21 million in revenues which, on a pro forma basis, was slightly lower than last year. The specialty oil revenues are comprised mainly of high oleic sunflower oil sales to AC Humko. A long-term supply contract with AC Humko initially calls for Mycogen to sell planting seed at a margin and oil at cost, with AC Humko absorbing oil production risk. The agreement contemplates a transition to fixed pricing, allowing Mycogen to earn a margin on oil. European and 12 other international revenues declined due to the exchange of Mycogen's European subsidiaries for an investment in Verneuil. The majority of Seed operating revenues are recorded during the second and third fiscal quarters. Second and third quarter operating revenues also include estimates of seed product returns and the fourth quarter includes adjustments to reconcile those earlier estimates. Crop Protection Operating Revenues
Three months ended May 31, Nine months ended May 31, (In thousands) 1997 1996 1997 1996 --------- ------------ ----------- ----------- SoilServ....................... $ 7,514 $ 9,797 $ 18,779 $ 22,023 Biopesticides.................. 3,275 3,082 6,008 6,424 --------- ------------ ----------- ----------- Total $ 10,789 $ 12,879 $ 24,787 $ 28,447 ========= ============ =========== ===========
Soilserv sales decreased $3.2 million for the nine months and $2.3 million for the three month below last year's record levels due to pricing pressures from fresh vegetable growers. Lower sales of MVP(R) powder to Kubota accounted for the Biopesticides' revenue decline. The majority of Crop Protection revenues are recorded during the third and fourth fiscal quarters. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and securities available-for-sale decreased by $64.9 million to $3.1 million during the nine months ended May 31, 1997. The acquisition of Morgan Seeds and SVO's high oleic assets and the investment in Verneuil accounted for $37.1 million of this decrease. Cash used for operating activities of $43.3 million and capital expenditures of $25.1 million also contributed to the decrease. Proceeds of $15 million from long- term borrowings, $22.3 from short-term borrowings and $2.7 million from the sale of common stock offset a portion of the decrease. The Company has two bank lines of credit of $40 million and $10 million, which expire November 1997 and February 1998, respectively, to fund portions of its seasonal working capital needs, of which $22 million was unused at May 31, 1997. Additionally, the Company may borrow funds of up to $50 million from DowElanco. Any amounts borrowed from DowElanco would be due April 1, 1998 or within 30 days if requested by DowElanco. During the nine months ended May 31, 1997, the Company invested $13.5 million to upgrade seed production facilities and to add seed production capacity and expects to invest another $9.9 million during the remainder of fiscal 1997. During the first quarter, the Company spent $3.7 million for completion of Mycogen Seeds' new headquarters. During the fourth quarter, the Company plans to invest $1 million for a new business system and expects to invest another $7 million in fiscal 1998. Other capital expenditures are expected to total $9.7 million for fiscal 1997. The Company is involved in various actions related to its patent positions and plans to continue to spend resources as required to enforce its intellectual property rights. The Company's success will depend in part on its ability to obtain U.S. and foreign patent protection for its products. To date, Mycogen has obtained numerous patents and has filed a large number of patent applications in the United States and foreign jurisdictions relating to the Company's technology. There can be no assurance that issued patent claims will be sufficient to protect the Company's technology. The commercial success of the Company will also depend in part on the Company's ability to avoid infringing patents issued to competitors. If licenses are required, there can be no assurance that the 13 Company will be able to obtain such licenses on commercially favorable terms, if at all. Litigation, which can result in substantial cost to the Company, is also necessary to enforce the Company's intellectual property rights or to determine the scope and validity of third-party proprietary rights. The Company anticipates that its current cash position, revenue from operations and contract and other revenues, and funds from its existing lines of credit will be sufficient to finance working capital and capital requirements for the immediate future. However, the Company's capital requirements may vary as a result of competitive and technological developments, the timing of regulatory approval for new products and the terms and conditions of any future strategic transactions. If such requirements change, the Company may need to raise additional capital. However, there can be no assurance that the Company can raise additional capital under favorable terms, if at all. 14 PART II - OTHER INFORMATION Item 3. Legal Proceedings On February 28, 1994, the U.S. Patent Office notified Mycogen's subsidiary, Mycogen Plant Science, Inc. ("MPSI"), that an interference had been declared with MPSI's broad application (USSN: 06/535,354) on Bacillus thuringiensis ("Bt") insect resistant plants and Monsanto Company's ("Monsanto") narrow application on Bt insect resistant tomatoes. On May 19, 1995, MPSI filed suit in Federal District Court in San Diego, California, claiming that Monsanto use of synthetic Bt genes to develop and sell seeds for insect-resistant plants infringes Mycogen's U.S. patent covering the process used to synthesize Bt genes. Certain claims within that suit were dismissed by the court in 1995, and others are still pending. On October 31, 1995, Plant Genetic Systems NV ("PGS") filed suit in the Central District of North Carolina, claiming that Bt corn seed products developed by Mycogen and Ciba Seeds infringe PGS's U.S. patent covering plants containing truncated Bt genes. On August 13, 1996, PGS amended its lawsuit against Mycogen by adding newly issued U.S. patent 5,545,565 relating to the truncated Bt(2) gene sequence. On March 19, 1996, Monsanto filed suit in Federal District Court in Wilmington, Delaware, claiming that Mycogen's and Ciba Seeds' Bt corn products infringe Monsanto's U.S. patent covering a modified Bt DNA sequence used to make insect-resistant plants. On April 3, 1996, the California Court of Appeal, Fourth Appellate District, reversed a San Diego County Superior Court ruling in a case brought by MPSI against Monsanto in December 1993, and ruled that MPSI is entitled to exercise options to license certain herbicide tolerance and insect resistance technology for plants from Monsanto. On May 8, 1996, Mycogen filed suit in Superior Court in San Diego, seeking actual and punitive damages for breach of contract and interference with Mycogen's seed business as a result of Monsanto's refusal to honor a contract to license certain herbicide tolerance and insect resistance technology to Mycogen Seeds. The trial is scheduled for October 1997. On April 30, 1996, DeKalb Genetics ("Dekalb") filed suit in Federal District Court in Rockford, Illinois, claiming that Mycogen's and Ciba Seeds' Bt seed corn products infringe DeKalb's patents covering Bt insect resistance and glufosinate herbicide tolerance in corn. On July 23, 1996, DeKalb filed a second suit in Rockford, Illinois, against Mycogen and Ciba Seeds for infringement of U.S. patents 5,538,877 and 5,538,880 relating to insect resistant and herbicide resistant corn. On August 27, 1996, DeKalb amended its July 23, 1996 lawsuit to add newly issued U.S. patent 5,550,318. On August 15, 1996, MPSI filed in Federal District Court in Wilmington, Delaware, an action to reverse a ruling of the Board of Patent Appeals and Interferences that a Monsanto truncated Bt gene patent application does not have claims covering the same invention as a truncated Bt gene patent application filed by MPSI. 15 On October 22, 1996, Mycogen filed suit in Federal District Court in Wilmington, Delaware, claiming that insect-resistant seed products developed and marketed by Monsanto, DeKalb and Delta & Pine Land Company infringe new U.S. patents issued to Mycogen that cover modification of Bt genes for plant expression, introduction of modified Bt genes into plant cells, and plants and seeds produced from cells transformed with modified Bt genes. The suit seeks an injunction to bar development or sale of Bt seed products as well as damages arising out of sales of those companies' Bt seed products. On November 7, 1996, the U.S. Patent Office notified MPSI that an interference had been declared with MPSI's issued U.S. patent 5,380,831 and two other patent applications owned by Monsanto. Monsanto was forced to elect one application to proceed in the interference. This interference proceeding relates to methods of making synthetic Bt genes for expression in plants. On January 21, 1997, Mycogen filed suit against Ecogen, Inc. in Federal District Court in Wilmington, Delaware for patent infringement of Mycogen's U.S. patents 5,188,960 and 5,126,133 relating to Cry1F Bt toxins. This technology relates to Mycogen Crop Protection's biopesticide products. On June 11, 1997, the patent office declared an interference between Mycogen's U.S. patent 5,188,960 and an application filed by Ecogen, Inc. Management's analysis of the effect of these legal proceedings is discussed in the Segment Operating Revenues and Income (Loss) section of the MD&A. Item 6. Exhibits and Reports on Form 8-K. a) Exhibits Exhibit 11 - Statement re Computation of Per Share Earnings Exhibit 27 - Financial Data Schedule b) Reports on Form 8-K None SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Mycogen Corporation ------------------- (Registrant) Date: July 3, 1997 /s/ James. A. Baumker ------------ --------------------- James A. Baumker Vice President and Chief Financial Officer 16 EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 Mycogen Corporation Exhibit 11 Statements re Computation of Per Share Earnings (Amounts in thousands, except per share data)
Three months ended May 31, Nine months ended May 31, 1997 1996 1997 1996 ---------- ----------- --------- ----------- Net income (loss) applicable to common shares.......... $ 564 $ 3,521 $ (6,981) $ (28,819) ========== =========== ========= ========== Weighted average number of shares outstanding: Average common shares.................................. 30,943 30,575 30,827 24,816 Stock option equivalent shares......................... 2,287 1,759 --(1) --(1) ---------- ----------- --------- ---------- Average common shares for computation of primary net income (loss) per common share........................ 33,230(2) 32,334 30,827 24,816 Additional stock option equivalent shares.............. 130 81 --(1) --(1) ---------- ----------- --------- ---------- Average shares for computation of net income (loss) per common share assuming full dilution............... 33,360(2) 32,415 30,827 24,816 ========== =========== ========= ========== Net income (loss) per common share: Primary............................................... $ .02 $ .11 $ (.23) $ (1.16) ========== =========== ========= ========== Assuming full dilution............................... $ .02 $ .11 $ (.23) $ (1.16) ========== =========== ========= ==========
(1) Additional shares from stock option equivalents were not included in the calculation of net income (loss) per common share where the effect was antidilutive. (2) This calculation is submitted in accordance with Securities Exchange Act of 1934 Release No. 9083 although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS AUG-31-1997 MAY-31-1997 2,600 497 81,710 0 51,805 142,370 101,302 20,305 280,622 80,094 0 0 0 31 341,101 280,622 170,895 177,236 106,869 106,869 0 0 0 (6,481) (500) (6,981) 0 0 0 (6,981) (.23) (.23)
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