UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For fiscal year ended August 31, 1996.
OR
------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 (I.R.S. Employer
or incorporation or Identification No.)
organization)
5501 Oberlin Drive, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 453-8030
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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
---- ----
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of September 30, 1996, was approximately $156,325,079. For the
purposes of this calculation, shares owned by officers, directors and 5%
stockholders known to the Registrant have been deemed to be owned by affiliates.
The number of shares outstanding of the Registrant's Common Stock as of
September 30, 1996, was 30,695,850.
Documents Incorporated by Reference
- -----------------------------------
Portions of the Registrant's Proxy Statement (the "Proxy Statement") for the
Annual Meeting of Stockholders scheduled to be held on December 12, 1996, are
incorporated by reference in Part III.
PART I
ITEM 1. BUSINESS
Mycogen Corporation, a California corporation (the "Company" or the
"Registrant") is a diversified agricultural biotechnology company that develops
and markets technology-based products and provides crop protection services to
control agricultural pests and improve food and fiber production. The Company
has two business segments, both wholly-owned subsidiaries: Agrigenetics, Inc.,
doing business as Mycogen Seeds ("Mycogen Seeds") and Mycogen Crop Protection,
Inc. ("Mycogen Crop Protection"). Mycogen Seeds produces and markets seeds for
major agricultural crops and uses biotechnology and traditional and marker-
assisted breeding techniques to develop improved crop varieties with genetically
enhanced pest-resistance and other value-added characteristics. Mycogen Crop
Protection develops, manufactures and markets microbial and fatty acid based
biopesticide products and operates Soilserv, Inc. ("Soilserv"), a wholly-owned
subsidiary of Mycogen Crop Protection. Detailed financial information regarding
Mycogen Seeds and Mycogen Crop Protection can be found in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Mycogen was originally incorporated in California in December 1982. In
November 1986, the Company reincorporated in Delaware. In October 1995, it
again reincorporated in California. Mycogen's headquarters are located at 5501
Oberlin Drive, San Diego, California 92121-1718; its telephone number is (619)
453-8030. Unless otherwise indicated by the context, "Mycogen" and the
"Company" refer to Mycogen Corporation and its consolidated subsidiaries.
RECENT ACQUISITIONS - In February 1996, Mycogen acquired United AgriSeeds, Inc.,
a Delaware corporation ("UAS"), and a subsidiary of DowElanco. The acquisition
of United AgriSeeds strengthened Mycogen's platform for commercializing
proprietary, genetically-enhanced seed products. In September 1996, after the
end of the Company's fiscal year 1996, Mycogen purchased all of the common stock
of Santa Ursula S.A.A.I.C. e I., the third largest seed company in Argentina,
which does business as Morgan Seeds ("Morgan Seeds"). The acquisition of Morgan
Seeds provides a base from which the Company can develop and commercialize seed
products under the Morgan(R) brand in South America.
STRATEGIC ALLIANCES - In December 1995, the Company entered into a technology
collaboration with Pioneer Hi-Bred International, Inc. ("Pioneer") to develop
multiple transgenic crops with pest resistance.
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In February 1996, the Company, DowElanco and The Lubrizol Corporation
("Lubrizol") completed transactions through which Mycogen acquired DowElanco's
seed business, United AgriSeeds, and DowElanco took a 46% equity interest in
Mycogen. As part of this alliance, Mycogen and DowElanco entered into a
technology agreement to develop and commercialize transgenic traits targeting
agricultural inputs, such as insect resistance, and agricultural outputs, such
as specialty oils and grain.
In October 1996, the Company signed a letter of intent to enter into a
strategic alliance with Verneuil Holding, S.A. ("Verneuil"), a major European
seed company. Under such letter of intent, Mycogen and Verneuil have agreed to
form separate joint ventures to develop and commercialize oil seed crops and
seed corn resistant to European corn borer. The agreements call for Mycogen to
exchange its existing European Seed business and other assets for an 18.75%
interest in Verneuil and to obtain an option to purchase another 16.25% of
Verneuil stock owned by DowElanco.
Further information regarding the Company's strategic alliances and
acquisitions of strategic assets and steps towards developing a global seeds
business is contained in the Summary section of Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Company also is pursuing opportunities to use its intellectual property
technology and expertise to obtain seed germ plasm and other strategic assets.
COMPANY TRADEMARKS - The following are trademarks of the Company:
Mycogen(TM), Mycogen Corporation(R), CellCap(R), Cocciprobe(TM), CropServ(TM),
DeMoss(TM), M(R) and design, Mattch(TM), M-C(TM), M-Pede(R), M-Peril(R), M-
Press(TM), M-Trak(R), MVP(R), Parasitix(TM), ParaVet(TM), Safecide(TM),
Scythe(TM), SoilServ(R), Thinex(TM), XCP(TM) and XPO(TM) are trademarks of
Mycogen Crop Protection.
Agrigenetics(R), Allegro(TM), Chieftan(R), Field and Future(TM), Flavor
Runner(TM), Fresh Runner(TM), G&A(R) and design, Golden Acres(R), GroAgri(R),
Growers(R), Heritage(R), K(R) and design, Keltgen(R), Kow Kandy(R), Lynks(R),
M(R) and design, Mycogen(R), NatureGard(TM), ORO(R), Sigco(R), Totally Managed
Forages(R), Totally Managed Feedstuffs(R) and TMF(TM) are trademarks of Mycogen
Seeds.
Morgan(R) is a trademark of Morgan Seeds.
BUSINESS STRATEGY
The Company's strategy is to continue using biotechnology and other advanced
techniques to develop new and improved products for its seed and crop protection
businesses, and to leverage its technology through strategic transactions to
strengthen and expand those businesses. Mycogen is using its proprietary
Bacillus thuringiensis ("Bt") biotoxin gene technology both to develop
transgenic crop varieties with built-in insect resistance and to expand its
portfolio of biopesticide products. The Company also is using other advanced
plant science technology to develop crop varieties with improved oil,
nutritional and other agronomic characteristics. Mycogen believes that it has a
strong proprietary position for its Bt and plant science technology.
INDUSTRY BACKGROUND
Agricultural biotechnology is creating products that improve crop production;
extend product shelf life; enhance protein, starch and other nutritional
properties; improve yield of compounds such as waxes, esters and oils for
industrial applications and reduce production costs and risks. Mycogen believes
that current and future biological crop protection will manifest itself
principally through genetically engineered, pest-resistant
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crop varieties for large acreage crops such as corn, cotton, soybean, sunflower,
canola and alfalfa, and through spray-on biopesticide products for smaller
acreage crops such as fruits, vegetables and vines.
Seeds that carry built-in pest resistance reduce or eliminate the need for
pesticide applications, significantly reducing production input and labor costs.
Mycogen believes that farmers will use both pest-resistant crop varieties and
spray-on pesticides, including biopesticides, as part of integrated pest
management programs to control pests and to avoid or delay the development of
pest tolerance to any single pest control mechanism.
The Company estimates that U.S. farmers annually purchase approximately $3.5
billion of planting seed, including approximately $1.9 billion of hybrid seed
corn, $890 million of soybean seed, $140 million of alfalfa seed, $100 million
of cotton seed, $74 million of hybrid sorghum seed and $18 million of hybrid
sunflower seed. U.S. farmers annually spend over $6 billion on pesticides to
protect their crops, including $600 million on insecticides to protect corn and
cotton crops alone. Despite these pesticide expenditures, destructive pests
cost U.S. farmers billions of dollars each year in lost yields.
Many chemical pesticides have efficacy, environmental or regulatory
disadvantages. Virtually all major pests have developed tolerance to one or
more classes of chemical insecticides that previously were effective in
controlling them. In addition, chemical pesticides often suppress beneficial
insect populations. As pest populations develop pesticide tolerance, and as
beneficial insect populations are reduced, farmers must apply more chemical
pesticides. This raises environmental and food and worker safety concerns and
ultimately renders the pesticides obsolete.
The Company believes that the use of genetically engineered pest-resistant
crop varieties and biopesticides will continue to increase because they offer
four major advantages over chemical pesticides: 1) they do not contaminate the
environment, soil or ground water; 2) they do not harm beneficial insects that
naturally suppress pest populations; 3) they have unique modes of action that
make them effective against pests that have developed tolerance to chemical
pesticides and 4) they do not leave undesirable residues in food crops.
Furthermore, genetically engineered pest-resistant crop varieties do not require
application of chemical pesticides, thereby saving farmers fuel and labor costs,
reducing trips over the field which decreases the chance of soil compaction and
eliminating the need to coordinate timing of pesticide applications.
Concerns over the safety of chemical pesticides and their impact on the food
supply, environment and agricultural workers have led the EPA to prohibit or
restrict the use of many chemical pesticides. This has created opportunities for
replacement products, including pest-resistant plants and biopesticides.
SEED BUSINESS
Mycogen Seeds is the sixth largest producer and marketer of planting seeds in
the United States. Hybrid seed corn accounts for the majority of Mycogen Seeds'
planting seed sales. Other key seed products include soybean, hybrid sunflower,
hybrid sorghum and alfalfa. Most of these seeds are produced under annual
contracts with independent growers. The seed is dried and treated at Company-
owned production facilities and on a contract basis with third parties and
packaged and sold through an extensive seed sales organization. In North
America and in certain other regions of the world, the Company markets its seeds
under the single brand of "Mycogen(R)".
Mycogen uses traditional and marker-assisted plant breeding to obtain pest
resistance and other value-added characteristics from native plant sources, and
is breeding those characteristics into elite plant parent lines for its seed
products. Seed products incorporating pest resistance and other value-added
characteristics are being commercialized through Mycogen Seeds.
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Mycogen's primary near-term seed product development focus is on corn, cotton,
soybean, sunflower, canola, sorghum and alfalfa, all of which generate
significant seed and/or pesticide sales. In August 1995, the Company received
U.S. Environmental Protection Agency (the "EPA") approval to commercialize corn
hybrids genetically engineered with a Bt gene that causes the plants to produce
a protein that makes them resistant to European corn borer.
RESEARCH, PRODUCTION AND MARKETING - Mycogen Seeds owns or leases research and
production facilities in California, Georgia, Illinois, Indiana, Iowa, Michigan,
Minnesota, Mississippi, Nebraska, Puerto Rico, Texas and Wisconsin. These
facilities, along with contract growing arrangements in the U.S. and Canada,
give the Company the geographic dispersion required to produce and market crop
varieties suitable for virtually all important North American agricultural
regions. Mycogen Seeds markets its seed products in North America through a
network of more than 100 sales managers and approximately 6,300 farmer/sales
representatives and professional agricultural retail outlets. Outside North
America, the Company markets seeds primarily through local distributors. In
France, Italy and Argentina, Mycogen Seeds also produces and markets its
products through wholly-owned subsidiaries.
PRODUCT DEVELOPMENT AND APPLIED TECHNOLOGY - The Company's business strategy is
to develop differentiated, value-added seed products to meet the needs of the
agriculture and food industries. Mycogen believes that by providing seed
products such as corn, cotton, soybean, sunflower, canola and alfalfa with pest-
resistance and other value-added characteristics, it can expand its market
share. The Company also produces specialty vegetable oil from sunflower for AC
Humko Corp. ("AC Humko"), a major supplier of specialty oils and food
ingredients.
In addition to extensive plant breeding programs in corn, soybean, cotton and
sunflower to improve yield and other agronomic characteristics, the Company is
pursuing numerous plant product development and applied technology opportunities
as follows:
PROGRAM COMMERCIAL OPPORTUNITY TARGET CROPS
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Pest Resistance Via Plant Yield improvement and displacement Corn, cotton, soybean,
Transformation and of certain chemical pesticides sunflower, alfalfa, canola
Marker Assisted Breeding and sorghum
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Herbicide Tolerance Via Improved efficiency and weed control Corn, cotton and canola
Plant Transformation
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Nutritional Improvement Nutritional improvement of animal Corn
of Animal Feedstuffs feedstuffs and specialized corn for silage
production
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Specialty Oils Specialty oil and food ingredients Sunflower, corn and
canola
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PEST RESISTANCE VIA PLANT TRANSFORMATION AND MARKER ASSISTED BREEDING - This
program uses advanced plant science and gene technology to transform genetic
material from bacteria, plants and other sources into the genomes of target
crops. Mycogen's primary current focus is on genes isolated from strains of Bt
that cause transformed plants to produce proteins that are toxic to pests. Bt
genes that produce proteins toxic to certain insects and non-insect pests,
including Lepidoptera (worms and moths) and Coleoptera (beetles), have been
isolated, restructured for efficient plant expression and inserted into several
crop varieties. The first product of this development effort is hybrid seed
corn with Bt-based resistance to European corn borer, a pest that costs farmers
in the United States and Europe hundreds of millions of dollars in yield losses
each year. Mycogen Seeds introduced these seeds commercially in 1996 and has
produced significantly larger quantities available for sale in 1997.
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Mycogen, in 1995, entered into a 10-year technology collaboration with Pioneer
to develop Bt-based pest resistance in corn, soybean, canola, sunflower, sorghum
and wheat, which collaboration has allowed Mycogen to accelerate product
development programs in such crops. The Bt gene sequences that produce these
pest-resistance traits are covered by issued or pending patents.
The Company also is developing and marketing products with pest resistance
derived from native plant sources. Using marker-assisted breeding technology,
Mycogen has identified and tracked separate multigenetic resistance traits for
European corn borer. The Company has bred the multigenetic trait for European
corn borer into its elite commercial corn parent lines, and resulting resistant
corn hybrids have been sold commercially for the past four years.
HERBICIDE TOLERANCE VIA PLANT TRANSFORMATION - This program uses advanced plant
science and gene technology to insert genetic material into the genomes of
target crops to enable them to withstand herbicide treatments used to kill weeds
that interfere with production and reduce yield. In April 1996, the California
Court of Appeal affirmed Mycogen Seeds' right to exercise options to license
Monsanto's Roundup Ready(R) herbicide tolerance technology for corn, cotton and
oilseed rape (canola). The Company is in the process of obtaining that
technology from Monsanto and negotiating commercial licenses.
NUTRITIONAL IMPROVEMENT OF ANIMAL FEEDSTUFFS - This program has developed and
launched a new hybrid corn product developed especially for the silage corn
market. Silage corn is used directly as an animal feedstuff. Prior to the
Company's development of these products, it was necessary for farmers interested
in producing corn silage to utilize grain hybrids poorly adapted for this
purpose. The newly developed TMF(TM) (for Totally Managed Feedstuffs) corn
hybrids are characterized by their tall stature, additional leaf material
produced on each stalk and high biomass production per acre. In addition, these
varieties produce large ears and have a high relative proportion of grain in the
resulting silage. Farmers have reported to the Company that silage produced
from these varieties has superior nutritional qualities that contribute to
increased milk and beef production.
SPECIALTY OILS - Mycogen Seeds has developed sunflower, rape (canola) and corn
with genetically enhanced oil properties. In 1996, the Company acquired rights
to oilseed technology for those three crops that it had developed jointly with
SVO Specialty Products, a subsidiary of Lubrizol. In addition to producing and
marketing seeds for these crops, Mycogen has forward-integrated into production
of crude high oleic sunflower oil for AC Humko. Also in 1996, Mycogen entered
into a collaborative program with DowElanco Canada, Inc., a wholly owned
subsidiary of DowElanco, to conduct a joint breeding program and investigate and
develop value-added traits in canola. The Company has targeted other specialty
oil opportunities that would be of interest to food ingredient
suppliers/purchasers. These projects, currently in a research phase, address
opportunities for reduced or no saturate vegetable oils, new feedstocks for all
natural hard butters where chemical modification (such as hydrogenation) of the
fats, can be reduced or eliminated, and fats tailored for use by the confection
industry as substitutes for cocoa butter.
CROP PROTECTION BUSINESS
Biopesticide products embodying Mycogen's core technology are sold to crop
protection markets through Mycogen Crop Protection. Mycogen intends to broaden
its participation in the crop protection industry by continuing to refine and
apply its technology to better meet the needs of the market and by pursuing
strategic transactions and acquisitions.
BIOPESTICIDE PRODUCTS - The Company currently markets seven environmentally
compatible biopesticide products. These products are based on natural agents
such as microorganisms and fatty acid compounds that, in general, have specific
toxic activity on target pests and are not harmful to mammals, fish, birds and
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beneficial insects. In addition, because biopesticides have unique modes of
action, they often are effective in controlling pests that have developed
tolerance to chemical pesticides.
The Company's Bt-based biopesticides are derived from strains of Bt that
produce proteins that are toxic to specific pests. Mycogen's Bt-based
biopesticides utilize the Company's proprietary CellCap(R) technology, which
encapsulates Bt toxin proteins inside cells of genetically engineered bacteria.
The Company believes that its CellCap(R) encapsulation technology offers two
important advantages over conventional Bt products: 1) it prolongs insecticidal
activity, resulting in superior crop protection and 2) it yields superior
product formulations that facilitate production and application.
The Company's fatty acid based biopesticides are derived from generally
inexpensive natural sources, such as coconut, palm, sunflower and tall oil and
tallow from animal fats. Fatty acid pesticides disrupt or destroy membranes of
soft-bodied insects, weeds and microbial plant pathogens.
BIOPESTICIDE MARKETING AND COMMERCIAL DEVELOPMENT - Mycogen Crop Protection's
marketing and commercial development staff is responsible for commercializing
Mycogen's biopesticides worldwide, and for cooperative development and marketing
efforts in Japan through collaborations with Kubota Corporation ("Kubota") and
Japan Tobacco, Inc. Biopesticide products are sold through established
agricultural product distributors in the U.S. and many other countries. Also,
the Company has entered into a distribution agreement with Farnam Companies,
Inc. to sell its Scythe(R) Herbicide into the U.S. home and garden market.
PRODUCT DEVELOPMENT AND APPLIED TECHNOLOGY - The Company has used two distinct
technologies to develop its biopesticides: Microbial Biopesticide Technology
and Fatty Acid Technology.
MICROBIAL BIOPESTICIDE TECHNOLOGY - Mycogen's microbial bioinsecticide products
and technology are based on two key components: 1) discovery, selection and
enhancement of biotoxins that are active against commercially important pests
and 2) the Company's proprietary CellCap(R) encapsulation delivery system.
Certain naturally occurring microorganisms produce biotoxins that are toxic to
specific pests when ingested. The primary current source of such biotoxins is
varietal strains of Bt. Mycogen researchers have found Bt strains with
pesticidal activity against a broad range of pests. Several Bt strains
discovered by Mycogen and others are active ingredients for commercial pesticide
products.
Unlike chemical pesticides, Bt biotoxins are active only when consumed by the
target pest. Field experience has demonstrated that these products are
effective in controlling some pests that have developed tolerance to certain
chemical pesticides and extensive toxicology testing has shown that Bt biotoxins
are nontoxic to mammals, wildlife and other non-target species, including
certain beneficial insects.
Biotoxins generally degrade rapidly, leaving little or no residue in food,
ground water or soil. While this short duration of activity makes them
environmentally compatible, historically it has limited their practical use as
commercial pesticides. To prolong biotoxin activity in the field, Mycogen
developed and patented the CellCap(R) delivery system, which employs cells that
have been killed and stabilized to serve as microcapsules to protect fragile
biotoxin crystals that have been produced by and accumulated within the cells.
Mycogen has identified Bt strains with pesticidal activity against
caterpillars, beetles, weevils, parasitic plant and animal nematodes, protozoan
pathogens, grubs, mites, liver flukes and adult houseflies.
FATTY ACID TECHNOLOGY - Fatty acids disrupt or destroy cellular membranes of
soft-bodied insects, plants and microbial plant pathogens, such as fungi. The
pesticidal benefits of fatty acids are based on four key properties: 1) they act
rapidly on contact, 2) they have a unique mode of action, 3) they use naturally
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occurring active ingredients and 4) treated areas require limited worker safety
re-entry restrictions. These characteristics make fatty acid pesticides useful
in targeted markets. For example, the contact activity of fatty acids has been
shown to enhance the efficacy of certain synthetic chemical pesticides. By
using tank mixes of fatty acids and other chemicals, growers can reduce
treatment costs, lower the synthetic chemical load on the environment and
prolong the usefulness of their pest control tools by managing resistance.
MICROBIAL BIOPESTICIDE MANUFACTURING - Mycogen's microbial biopesticide products
are manufactured through a large-scale fermentation process. After
fermentation, the mass-produced microorganisms are killed and harvested for
product formulation. These products use virtually the entire fermentation
biomass, very little, if any, purification is required. The concentrated
microorganisms can be processed in either a liquid or dry product formulation.
Product formulations and manufacturing processes for all microbial
biopesticides are developed at Mycogen's San Diego research facility. Once the
basic process is developed, it is scaled up in the Company's pilot plant. This
facility has sufficient capacity to produce quantities of material required for
small scale field trials. Once a process is proven at the pilot plant scale it
is available for transfer to Mycogen's manufacturing facility for commercial
scale-up. To implement a high-yield fermentation process, Mycogen entered into
a long-term exclusive manufacturing agreement with Enzyme Bio-Systems, Ltd.
("EB"), a wholly-owned subsidiary of CPC International, Inc. Under the
manufacturing agreement, EB added dedicated fermentation capacity and certain
equipment at its Beloit, Wisconsin, facility to support the production,
recovery, formulation and packaging of Mycogen's microbial products. Capital
funding of $11.2 million was provided by Mycogen. Mycogen pays EB the actual
costs of manufacturing, plus a fee based on the number of units produced.
BIOPESTICIDE PRODUCTS REGISTERED BY THE EPA FOR COMMERCIAL USE
PRODUCT AND BIOTOXIN TARGET PEST MARKET
M-C(TM)1 (Bt) Army worm, diamond back moth, Various, including vegetables
common cut worm and cotton and cotton
leafworm
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MVP(R) (Bt) Leaf-eating caterpillar pests Cotton, tree fruits and vines
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M-Peril(R) (Bt) European corn borer Corn
(solid granules)
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Mattch(TM) (Bt) Leaf-eating caterpillar pests Vegetables and nursery crops
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M-Pede(R) (Fatty acid) Soft-bodied insects and Fruits, vegetables, grapes and
powdery mildew ornamentals
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Scythe(R) Herbicide Broad spectrum of weeds Horticulture and landscape
(fatty acid) management
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Thinex(TM) (fatty acid) Blossom thinner Apples, pears and stone fruits
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/1/ EPA registration pending.
FATTY ACID PRODUCT MANUFACTURING - Mycogen manufactures its fatty acid based
biopesticide products under short-term toll manufacturing agreements.
MANUFACTURING CAPACITY - The Company believes that its current manufacturers
have adequate capacity to meet Mycogen's product needs for the foreseeable
future, and that the required raw materials for all of its biopesticides are
readily available. Shortages of these raw materials that might materially
affect availability or cost are not anticipated.
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SOILSERV - CROP PROTECTION SERVICES - Soilserv, founded in 1945 and acquired by
Mycogen in 1991, provides customized crop protection services to growers of high
value crops in California and Arizona. Soilserv monitors fields, recommends and
supplies pest control products and applies such products, principally in the
Salinas Valley, California, and Yuma, Arizona, regions, and provides
notifications and files documents regarding pesticide applications as required
by state and local agencies.
Soilserv has developed customized spray rigs and other application equipment
for specific vegetable crops, and uses a proprietary database system to verify
that pesticide recommendations made by its licensed pest control advisors to its
grower customers comply with EPA, state and local government regulations.
Mycogen is evaluating opportunities to provide crop protection services
similar to those offered by Soilserv in other geographic areas where high value
crops are grown.
PATENTS AND PROPRIETARY TECHNOLOGY
As of August 31, 1996, Mycogen held 123 U.S. patents and more than 271 foreign
patents not including patents that have been reassigned or abandoned. The
Company has filed and is pursuing 115 additional patent applications in the
U.S., with corresponding applications pending in other countries. In addition
to patents, the Company relies on trade secrets and proprietary information to
protect its technology.
PLANT SCIENCE PATENTS - As a result of research conducted by Agrigenetics
Corporation, a Delaware corporation (now Mycogen Seeds) in the 1980's, the
Company has applied for, and in some cases been granted, fundamental patents in
key technical areas. Mycogen's patents and patent applications include claims
to a number of plant science inventions and discoveries, such as insect-
resistant plants utilizing Bt genes, plant transformation systems and the
synthesis of Bt genes to optimize expression of pesticidal proteins in plants.
In January 1995, Mycogen received a broad U.S. patent covering its method of
modifying Bt gene sequences to make them resemble those of the plants into which
they are to be inserted. Such modifications improve Bt genes' efficiency in
producing pesticidal proteins. In December 1995, the Company received European
patents covering Mycogen's method of modifying Bt genes to resemble plant genes
and to modified genes and transgenic plant cells developed by using such a
method. Several major crop plants, including corn, cotton, canola, potatoes and
tomatoes, have been transformed with synthetic Bt genes by Mycogen and other
companies, and Bt corn seeds were introduced commercially in 1996. On October
22, 1996, Mycogen received two additional patents relating to synthetic Bt genes
technology. The patents include "composition of matter" claims to modified Bt
genes, plant cells transformed with such genes and transgenic plants and
resulting planting seeds containing the modified genes.
BIOPESTICIDE PATENTS - A number of the Company's issued U.S. patents relate to
its CellCap(R) encapsulation technology. Mycogen's issued patents and patent
applications also include claims to more than 30 specific protein biotoxins and
associated genes, certain insecticidal and nematicidal microorganisms, plant
colonizing microbial delivery systems and certain bioherbicides and related
technology. The Company has a number of issued patents and patent applications
covering certain pesticidal uses of fatty acids by themselves and in combination
with certain chemical pesticides. The Company has licensed certain rights to
its patents and technology in specific fields to corporate partners. Mycogen
has exclusive licenses to a number of issued patents and patent applications in
the U.S. and other countries, and certain trade secret technology relating to
fatty acid pesticides and their use.
PROPRIETARY SEED PRODUCTS - Mycogen's seed products are either hybrid seeds
resulting from a cross of inbred parent lines or varieties produced from a
single parent line. In the case of hybrids, the Company can
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maintain a proprietary position because hybrid seeds progressively lose their
agronomic advantage from generation to generation, and the inbred parent lines
from which hybrids are produced generally are not sold to growers. In the case
of crops that are not produced as hybrids, the Company sells varieties that
breed true from generation to generation. For these crops, the Company relies on
Plant Variety Protection certificates granted by the U.S. government pursuant to
the Plant Variety Protection Act (the "PVPA"), or similar rights granted by
foreign governments. These certificates give the holder certain exclusive rights
for a period of time (18 years under the PVPA) to reproduce the covered variety
and sell it for planting.
Mycogen has filed applications for utility patent protection for certain of
its crop varieties and plant materials to obtain broader utility patent
protection for unique plants that the Company has developed or bioengineered.
UNCERTAINTY OF BIOTECHNOLOGY PATENTS - The status of biotechnology patents is
highly uncertain. A substantial number of patent applications have been filed.
Some issued and pending patents claim basic aspects of genetic engineering
technology related to transformed plants, biopesticides and other areas of
agriculture. Mycogen has royalty-bearing nonexclusive licenses relating to the
use of certain processes employed in recombinant DNA technology, plant
transformation, microbial biopesticide production and other aspects of the
Company's business. If the broad claims of existing and future genetic
engineering patents are upheld, the holders of such patents may be in a position
to require other companies to obtain licenses. There can be no assurance that
licenses the Company may need for its processes or products will be available on
reasonable terms, if at all.
GOVERNMENTAL REGULATION AND PRODUCT REGISTRATION
Agricultural biotechnology comes under the jurisdiction of three federal
regulatory agencies: the Food and Drug Administration ("FDA"), the EPA and the
United States Department of Agriculture ("USDA"). Agency jurisdiction generally
is a function of three factors: 1) the particular substances or products
involved (for example, grains), 2) the uses and other purposes of such products
and 3) the commercial activities involved (for example, research, field testing,
production and distribution).
FDA review of biotechnology products focuses on their intended uses, and is
conducted on a case-by-case basis. Unless a food product or food additive is
generally recognized as safe, based on scientific evaluation by qualified
experts, under the conditions of its intended use, FDA must approve a petition
for the product's intended use before it can be introduced into commerce. FDA's
approval generally includes specified conditions under which the product may be
used.
Field testing, production and marketing of pesticide products are regulated by
federal, state, local and foreign governments. The EPA regulates pesticides in
the U.S. under the Federal Insecticide, Fungicide and Rodenticide Act, as
amended ("FIFRA"). Pesticides also are regulated by the states. Field testing
of nonindigenous microbial biopesticides requires approval of both the EPA and
the USDA's Animal and Plant Health Inspection Service.
The Federal Seed Act defines USDA's regulatory authority over importation and
interstate shipment of agricultural and vegetable seeds. In general, seeds may
not be imported or shipped interstate if they are deemed by USDA to be "noxious
weed" seeds or to contain "noxious weed" seeds above levels prescribed by USDA
or individual states. Thus, to the extent that a seed resulting from a
biotechnology process is adulterated with a "noxious weed" seed, it would be
subject to these regulations. In addition, USDA regulates importation and
interstate movement of "plant pests" and plants that may be or contain "plant
pests" under the Plant Quarantine Act and the Federal Plant Pest Act. Shipment
and field release of a plant that is
10
genetically engineered to contain a "plant pest" is subject to the regulatory
oversight of USDA and of individual states.
USDA and various states also regulate production and distribution of crop
seeds under the Federal Seed Act and state seed acts, which require that
commercial seed products meet certain purity and labeling requirements.
Similarly, plant inoculants are subject to regulation under various state acts
that establish labeling and effectiveness standards.
Genetically altered plants that have pesticidal traits, such as the ability to
produce pesticidal proteins, are regulated by the EPA under FIFRA with respect
to their pesticidal properties. The EPA requires completion of certain tests
prior to registration of a pesticidal plant to ensure that such plants pose no
risk to human health or the environment.
SEASONALITY OF BUSINESS
Information regarding the seasonality of Mycogen's business can be found in
the Summary section of Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
BACKLOG
Mycogen's distribution and marketing practices do not require an extraordinary
amount of working capital. The Company maintains inventory to meet customer
requirements. Mycogen Crop Protection and Mycogen Seeds do not manufacture
biopesticide and seed products against a backlog of firm orders, and instead,
inventory levels are geared primarily to projections of future demand. The
Company generally is not dependent upon one customer or a group of customers and
has no material contracts with the U.S. government or with any state, local or
foreign government.
RESEARCH AND DEVELOPMENT
Mycogen's product development programs involve a significant level of research
and development activity. Company sponsored research and development expenses
totaled $19.2 million for Mycogen's fiscal year ended August 31, 1996. For the
two comparable fiscal years ended August 31, the Company-sponsored research and
development expenses were $18.2 million in 1995, and $13.5 million in 1994.
COMPETITION
The Company faces intense competition. Competition in planting seeds is based
primarily on price, crop yields, other crop performance characteristics,
including crop resistance to disease and pests, and customer service.
Competition in biopesticides is based primarily on efficacy, price, ease of
application and safety.
COMPETITION IN SEEDS - Mycogen believes that it has three categories of
competitors in planting seeds: large, multinational seed companies, smaller
regional seed companies and agricultural biotechnology companies engaged in the
development of new, genetically engineered crop varieties.
The planting seed industry is dominated by large multinational companies
located in the U.S. and Europe. These include Pioneer, the world's largest seed
company, DeKalb Genetics Corporation ("DeKalb"), Sandoz Holding AG, Ciba-Geigy
Corporation, Limagrain and others. These firms generally operate throughout the
world and have substantial financial and marketing resources, as well as
extensive research, plant breeding and production facilities and expertise.
Some of these companies and a number of others have significant
11
plant biotechnology research programs to develop new crop varieties that are
genetically enhanced for increase yield, pest- or disease-resistance and other
value-added characteristics.
COMPETITION IN BIOPESTICIDES - Mycogen believes that it has three categories of
competitors in biopesticides: large chemical pesticide companies, established
companies with biopesticide product lines and other companies developing new
biopesticide products. The pesticide industry is dominated by large chemical
companies located in the U.S. and Europe. These firms generally operate
throughout the world and have extensive financial and marketing resources as
well as extensive product registration experience and highly efficient
manufacturing capabilities. Some chemical pesticide companies have added
biopesticide products to their product lines. These include Abbott
Laboratories, Sandoz A.G. and Ciba-Geigy Corporation, all of which are large
multinational firms with substantial financial resources and, in certain cases,
large-scale fermentation manufacturing capabilities and extensive experience in
formulating biopesticide products.
HUMAN RESOURCES
As of August 31, 1996, the Company had 887 employees. The Company's
management believes that it maintains positive relations with its employees.
ITEM 2. PROPERTIES
The Company owns its principal executive and administrative facilities located
in San Diego, California. In addition, Mycogen owns its principal biopesticide
research and development facilities located in San Diego, California, that are
used by Mycogen Crop Protection. The Company also owns office, warehouse and
formulation facilities located in Salinas, California, as well as several
smaller satellite facilities in the Salinas area, that are used by Soilserv.
Mycogen's seed production, conditioning and storage facilities are located in
the U.S., Argentina, France and Italy. The Company owns and maintains seed
research, production, warehouse, distribution or administrative space in the
U.S. at the following principal locations which are used primarily by Mycogen
Seeds: Marshalltown and Vinton, Iowa; Breckenridge, Hastings and Olivia,
Minnesota; Leland, Mississippi; York, Nebraska; Dumas, Texas and Prescott,
Wisconsin. Mycogen is currently building executive and administrative
facilities for Mycogen Seeds in Eagan, Minnesota, which is scheduled to be
completed in November 1996. In addition, Mycogen Seeds leases field plant
research and storage facilities in Woodland, California; Griffin, Georgia;
Lincoln and Savoy, Illinois; Indianapolis, Indiana; Huxley and Schaller, Iowa;
Grand Island, Nebraska; Plainview, Texas and Arlington and DeForest, Wisconsin.
Mycogen Seeds also operates facilities for seed research, production,
warehouse, distribution or administrative space at the following foreign
locations: Buenos Aires, Colon, Laguna Blanca, Sampacho, San Isidro and Venado
Tuerto, Argentina; Chatham, Ontario, Canada; Blois, Pau, and Toulouse, France;
Ferrara, Italy and Santa Isabel, Puerto Rico.
The Company believes that its present facilities are adequate to maintain its
businesses.
ITEM 3. LEGAL PROCEEDINGS
On May 19, 1995, Mycogen's subsidiary, Mycogen Plant Science, Inc. ("MPSI"),
filed suit in Federal District Court in San Diego, California, claiming that
Monsanto Company's ("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 still are pending.
12
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 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
plants insect-resistant.
On April 30, 1996, DeKalb filed suit in Federal District Court in Rockford,
Illinois, claiming that Mycogen's, Ciba Seeds' and Pioneer's Bt seed corn
products infringe DeKalb's patents covering Bt insect resistance and glufosinate
herbicide tolerance in corn. On May 1, 1996, Mycogen Seeds filed a declaratory
judgment action in Federal District Court in San Diego, stating that its Bt seed
corn does not infringe DeKalb's patents. That case was transferred to Rockford,
Illinois, for consolidation with the DeKalb lawsuits against Mycogen.
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 affirmed 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.
On July 23, 1996, DeKalb filed suit in Rockford, Illinois, against Mycogen and
Ciba Seeds for infringement of US Patents 5,538,877 and 5,538,880 relating to
insect resistant and herbicide resistant corn. On August 27, 1996, DeKalb
amended its July 23rd lawsuit to add newly issued patent 5,550,318.
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 ("DP&L") 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 to 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.
This litigation is not expected to have a material adverse effect on the
Company's business or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal year 1996.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of Mycogen Corporation trades on The Nasdaq Stock Market
under the symbol "MYCO." Following are high and low trade prices for Mycogen
Corporation common stock, as reported by Nasdaq.
Year ended August 31, 1996 High Low
4th Quarter............. 18 1/2 13
3rd Quarter............. 20 15
2nd Quarter............. 19 1/2 11 3/4
1st Quarter............. 14 1/4 9 1/2
Year ended August 31, 1995 High Low
4th Quarter............. 11 1/4 7 3/4
3rd Quarter............. 10 3/4 8
2nd Quarter............. 12 7 7/8
1st Quarter............. 10 1/2 9 1/4
At September 30, 1996, there were 3,555 holders of record of the Company's
common stock. No dividends have been declared or paid on the common stock. The
Company has no intention of paying dividends on common stock in the foreseeable
future.
14
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SELECTED FINANCIAL DATA
(In thousands, except per share data)
EIGHT
MONTHS
ENDED YEAR ENDED
YEARS ENDED AUGUST 31,/1/ AUGUST 31, DECEMBER 31,
----------------------------------------------- ----------- ------------
1996/2/ 1995 1994/2/ 1993/2/ 1992 1991/2/
-------- -------- -------- -------- ----------- ------------
(unaudited)
Net Operating Revenues $146,800 $106,169 $104,383 $112,583 $ 23,427 $ 13,218
Total Revenue 155,589 113,218 112,760 118,011 24,630 18,312
Net Loss Applicable to
Common Shares (47,636)/3/ (15,946) $(33,234)/3/ (27,514)/3/ (3,030)/4/ (3,305)
Net Loss Per Common Share (1.81)/3/ (.83) (1.81)/3/ (1.69)/3/ (.21)/4/ (.27)
Cash, Cash Equivalents and
Securities Available-for-Sale 68,038 17,600 37,887 66,314 66,456 75,835
Total Assets 227,469 159,608 165,726 201,533 112,714 114,540
Long-Term Liabilities 5,228 3,291 1,207 1,141 1,256 1,041
Redeemable Preferred Stock - - - 40,897 - -
Stockholders' Equity 181,194 113,703 125,406 107,885 105,207 107,011
/1/ In May 1995, Mycogen Corporation changed its fiscal year end from December
31 to August 31 and has elected to restate the results for the three ended
August 31, 1995 .
/2/ The acquisitions of UAS in 1996, Mycogen Seeds in 1993, 1994 and 1996 and
Soilserv in 1991 affect the comparability of the Selected Financial Data.
/3/ Net loss in 1996, 1994 and 1993 includes special charges of $25.2 million,
36.4 million and $23.7 million, respectively, as discussed in further
detail in the Notes to Consolidated Financial Statements.
/4/ Net loss in 1992 includes charges of $2.1 million for a patent litigation
settlement.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from
projections in forward-looking statements as a result of many factors. Varying
climatic conditions can shift revenues between quarter. Weather also can affect
operating revenues, seed costs, pest populations, the effectiveness of
pesticides and seeds, seed production yields, commodity prices and growers'
planting decisions. 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.
These and other factors may affect Mycogen's ability to increase operating
revenues and achieve profitability. The Company also must continue to invest in
commercializing existing products and in discovery and development of new
products, so the trend in losses from operations may continue.
The Company's businesses are highly seasonal. Seed operating revenues are
concentrated mainly in the second and third fiscal quarters which end February
and May. Crop Protection operating revenues are concentrated mainly in the
third and fourth quarters which end in May and August.
RESULTS OF OPERATIONS
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.
Mycogen's Seed business, doing business as Mycogen Seeds, markets a complete
line of planting seeds for major agricultural crops. It ranks fourth in North
America hybrid seed corn sales and among the top five in soybean, hybrid
sunflower, hybrid sorghum and alfalfa. Using both traditional breeding and
advanced biotechnology techniques, the Company is moving rapidly to augment and
improve the genetic makeup of major corps to produce seed products that give
growers value-added performance characteristics.
Mycogen's Cop Protection business, Mycogen Crop Protection, develops,
manufactures and markets biopesticide products and provides crop protection
services to growers of high value crops in California and Arizona.
In December 1982, Mycogen was formed to use genetic engineering to develop
environmentally compatible biological alternatives to chemical pesticides. In
January 1990, the Company acquired a line of fatty acid based pesticides to
complement its line of microbial products. In August 1991, it acquired Soilserv,
a provider of crop protection services to growers in California and Arizona, to
establish a revenue base and to gain experience in crop protection practices.
During this time, Mycogen continued to discover and develop a library of Bt
genes sequences that code for production of protein biotoxins with pesticidal
activity.
In December 1992, Mycogen acquired 51% of the Agrigenetics division of
Lubrizol, which now does business as Mycogen Seeds. The acquisition was driven
by the opportunity to pool Mycogen's and Lubrizol's
16
respective Bt gene technology and plant science patent estates and technological
expertise to develop pest resistant crops. Such crops are developed by inserting
synthetic Bt genes into plant cells. Plants regenerated from those transformed
cells produce proteins that protect them from damage by certain pests. Once
fixed in plant parent lines, this pest-resistance trait is carried in planting
seeds that are produced and marketed as value-added products.
In December 1993, the Company acquired an additional 29.5% of Mycogen Seeds,
and in January 1996, the Company acquired Lubrizol's remaining 19.5% ownership
interest in Mycogen Seeds. As a result of the additional acquisition in 1993,
the Company expensed, as special charges, certain acquired in-process
technologies which totaled $26.6 million for the fiscal year ended August 1994.
In August 1993, the Company combined certain biopesticide discovery and plant
science research programs to accelerate development of pest-resistant crops and
completely restructured Mycogen Seeds. When Mycogen acquired Agrigenetics, Inc.,
it consisted of four independent seed companies selling products under ten
different brand names. In some areas, these independent seed companies competed
against each other with the same products. Their businesses were based mainly on
marketing seed products developed from publicly available parent lines as lower
priced alternatives to premium priced seed products sold by other companies.
Volumes and margins had declined each year and inventory was increasing and
aging. Mycogen decided to consolidate these separate companies into one, Mycogen
Seeds. The Company consolidated administration, production, sales, marketing and
general management at the headquarters of the largest of the four companies in
Prescott, Wisconsin. Mycogen also decided to eliminate all of the existing brand
names and commercialize all seed products under the Mycogen(R) brand, to
eliminate overlapping sales territories and to replace older, lower value
generic products with new, proprietary, value-added products. These changes
resulted in restructuring charges totaling $9.8 million for the fiscal year
ended August 1994.
This consolidation in 1993 improved efficiency and reduced expenses. The
number of separate seed corn products was reduced from 270 to approximately 90,
and the number of farmer/dealers, at that time, was reduced from more than 5,000
to approximately 2,600. However, the elimination of familiar brands, heavy
turnover in the sales force and repositioning of Mycogen Seeds from a discounter
to a marketer of proprietary, value-added products under a new brand created
significant disruption in the business, and seed volumes and market share
declined in 1995. Additionally, Mycogen Seeds' 1995 sales performance was
adversely affected by a reduction in planted acres in many keys territories and
crops. All of these negative factors contributed to lower sales in 1995.
Mycogen entered into two major strategic alliances during fiscal year 1996:
. In December 1995, Mycogen and Pioneer completed a technology sharing
agreement which will allow Mycogen to accelerate development of seed
products for several pest-resistant crops. Under the agreement, Pioneer
purchased three million shares of the Company's common stock for $30 million
and has provided $10 million in research and development funding. Pioneer
will provide an additional $11 million in funding near the end of 1998. The
two companies also agreed to conduct a joint program to develop Bt pest-
resistance technology for corn, soybean, sunflower, sorghum, canola and
wheat.
17
. In February 1996, Mycogen and DowElanco entered into a strategic alliance
to build a global seeds business capable of conventional breeding as well
as genetic engineering and to develop seed products with value added
performance characteristics and qualities important to down-stream users of
grain and vegetable oils. Mycogen received $26.4 million in cash and all of
the shares of UAS, DowElanco's seed subsidiary, in exchange for 4,453,334
shares of common stock. As a result of this transaction, DowElanco's
purchase of 9,502,348 shares of Mycogen stock from Lubrizol and subsequent
purchases in the open market totaling 658,420 shares, DowElanco owns, as of
August 31, 1996, approximately 48% of the Company's outstanding common
stock.
These collaborations provided resources that allowed Mycogen to acquire other
strategic assets and accelerate steps toward its objective of developing a
global seeds business, as follows:
. In January 1996, the Company purchased rights from a subsidiary of Lubrizol
for $8.0 million, giving Mycogen freedom to commercialize its technology in
certain oil seed crops.
. During fiscal 1996, Mycogen spent $8.7 million to upgrade seed production
facilities. These upgrades will allow the Company to produce high quality
seed products and reduce production costs.
. In September 1996, the Company entered into a long-term supply agreement
with AC Humko to provide crude high oleic sunflower oil. High oleic oil
increases product shelf life, which is an important quality for food
processors. In conjunction with this agreement, Mycogen acquired Lubrizol's
remaining interest in oil seed technology and related assets for $7.6
million in cash.
. In September 1996, Mycogen purchased all of the common stock of Morgan
Seeds for $27 million in cash. Morgan Seeds is the third largest seed
company in Argentina, and will provide a base from which Mycogen can
develop and commercialize seed products under the Morgan(R) brand in South
America.
. In October 1996, Mycogen signed a letter of intent to enter into a
strategic alliance with Verneuil, a major European seed company. Mycogen
and Verneuil agreed to form separate joint ventures to develop and
commercialize oil seed crops and seed corn resistant to European corn
borer. Additionally, Mycogen will exchange its European seeds business and
other assets for an 18.75% ownership interest in Verneuil. The alliance
would provide a platform for commercializing Mycogen's seed technology in
Europe.
Mycogen's goals for fiscal 1996 were to reverse the decline in Seed operating
revenues by increasing sales of new, proprietary, value-added corn hybrids, and
to take advantage of its improved biopesticide cost position of its microbial
products. Seed operating revenues, excluding the acquisition of UAS, increased
20% due to an estimated 12% increase in planted U.S. corn acres and higher sales
of its new NatureGard(TM) hybrid seed corn with genetically enhanced insect-
resistance and Totally Managed Feedstuffs(TM) silage corn. Crop protection
operating revenues were up 12% and revenues from microbial based biopesticide
products were up 31%.
18
However, Mycogen's initiatives to build a global seeds company had a negative
effect on 1996 financial results in the following areas:
. Seed quality has become very important as Mycogen transitions from
discount-priced generics to premium priced, value-added, proprietary
products. Therefore, the Company raised quality standards to enhance
performance of its new products. As a result, seed discards were higher
than anticipated and the Company experienced shortages in some of its new
premium products. The amount of quality discards recorded in 1996 totaled
$3.0 million; the demand for these products was high, therefore, revenues
and profits were adversely affected by the Company's inability to provide
more seed.
. Mycogen recorded special charges totaling $25.2 million, related mainly to
write-offs of in-process technology and obsolete or redundant facilities as
a result of its acquisitions. Charges for amortization of other intangibles
acquired also were higher.
. Mycogen recorded over $6.7 million in excess and obsolete seed inventory
write-downs as a result of replacing older generic products with the new
proprietary products.
. Mycogen also incurred increased expenses related to bringing the Mycogen
Seeds and UAS organizations together and upgrading the Mycogen Seeds'
management team to bring experience in managing value-added, proprietary
products. Mycogen Seeds spent approximately $5.4 million in unbudgeted
operating expenses for items such as recruiting, relocation and severance,
publicity, training and other programs supporting this effort.
Mycogen will continue to pursue acquisitions and joint ventures to build its
seeds business globally. The Company's strategy is focused on establishing and
strengthening its presence in the world's largest and most productive growing
regions by the year 2000, so that it will have production and distribution in
place to broadly commercialize second generation insect-resistant and other
value-added products coming out of its R&D pipeline.
19
SEGMENT OPERATING REVENUES AND OPERATING LOSS
Years ended August 31,
(In thousands) 1996 1995 1994
------------- ---------- ----------
Operating Revenues
Seed
Corn $ 52,855 $ 28,537 $ 32,020
Soybean 16,136 8,794 10,386
Sunflower 6,576 10,376 9,888
Sorghum 8,950 4,042 4,903
Other 5,634 3,506 4,591
International 11,884 10,074 8,541
------------- ---------- ----------
102,035 65,329 70,329
------------- ---------- ----------
Crop Protection
Soilserv 36,019 32,887 29,139
Biopesticides 9,867 7,953 4,915
------------- ---------- ----------
45,886 40,840 34,054
------------- ---------- ----------
Intersegment (1,121) - -
------------- ---------- ----------
------------- ---------- ----------
Total Operating Revenues $ 146,800 $ 106,169 $ 104,383
============= ========== ==========
Operating Income (Loss)
Seed (47,818)* (11,922) (45,052)*
Crop Protection 316 (2,336) (859)
Corporate (2,527) (1,259) (2,894)
Intersegment (120) - -
------------- ---------- ----------
Total Operating Loss $ (50,149) $ (15,517) $ (48,805)
============= ========== ==========
*The net operating loss for the Seed segment includes special charges of $25.2
million and $36.4 million in 1996 and 1994, respectively.
SEED SEGMENT
FISCAL YEAR ENDED AUGUST 1996 COMPARED TO 1995
OPERATING REVENUES: Seed operating revenues for the fiscal year ended August
1996, were $102 million, compared to $65.3 million for fiscal 1995. The
acquisition of UAS accounted for $23.6 million of the increase, primarily in
corn and soybean seed sales. The remaining increase of $13.1 million or 20% is
attributable mainly to higher volumes, as follows:
. Higher planted corn acreage in 1996 and increased sales of NatureGard(TM)
corn hybrids with Bt or native corn borer resistance and Totally Managed
Feedstuffs(TM) silage corn accounted for the majority of a $7.6 million, or
20%, increase in seed corn revenue.
20
. Sorghum volumes increased over 80%, generating $4.6 million in increased
revenue. This increase is largely attributable to droughts in Texas, Kansas
and North Dakota that damaged winter wheat crops, causing wheat acreage to
be replanted with sorghum.
. Soybean revenues increased $1.8 million, largely due to a more aggressive
sales and marketing focus in 1996 and cooler, wetter weather in certain
areas, which caused some farmers to plant soybean instead of corn.
. Offsetting these increases were lower domestic sunflower sales of $3.9
million due to lower acreage planted in 1996 as a result of heavy disease
pressure in North Dakota and higher wheat and corn prices.
. International operating revenues increased $1.8 million, or 18%, mainly due
to higher sales of sunflower seed in Argentina and seed corn in Europe.
OPERATING LOSS: Seed operating losses for the fiscal year ended August 1996,
excluding special charges of $25.2 million, increased $10.7 million compared to
fiscal 1995. This deterioration in operating results, excluding UAS, is
attributable primarily to a $5.2 million increase in sales and promotional
expenses associated with the increase in sales volumes, legal fees of $2.4
million incurred to enforce the Company's patent position and lower gross
margins of $1.8 million.
Excluding UAS, higher gross margins from higher sales volumes were reduced by
higher seed costs and higher product discards and obsolescence ("D&O"). Corn
seed costs were $3 per unit higher due to low production yields. D&O increased
by $5.8 million due to higher quantities of seed that did not pass quality
standards and higher quantities of excess and obsolete seed inventory.
The Company currently is a party to seven separate litigations 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 defend
its positions in these matters, and therefore, will continue to incur
significant legal expenses.
SPECIAL CHARGES: Special charges recognized during 1996 totaled $25.2 million.
Those charges are mainly comprised of impairment losses and exit costs of $14.4
million related to the disposal and sale of certain corn production plant assets
and write-offs of acquired in-process technology totaling $10.3 million,
including $7.2 million for oil seed technology rights acquired from Lubrizol and
$3.1 million related to the acquisition of UAS. The Company is still evaluating
programs related to that oil seed technology and has not yet committed
significant funding. The Company expects that it will need to spend
approximately $2.5 million over the next three to five years to commercialize
the UAS technology. The estimated funding and related efforts are within the
normal course of research efforts typically required by UAS's breeding and
development programs.
21
FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994
OPERATING REVENUES: Seed operating revenues for the fiscal year ended August
1995, were $65.3 million compared to $70.3 million for the fiscal year ended
August 1994. The net $5.0 million decrease in revenues was attributable mainly
to lower volumes, as follows:
. Corn acres planted industry-wide decreased 10% from 1994 to 1995, due to a
cool, wet spring which caused growers either to not plant or to shift to
other crops. The Company's corn volumes decreased 12%. Although soybean
acres industry-wide were estimated to have been flat from 1994 to 1995, the
Company's soybean volumes were down 15%. Corn and soybean seed were the
products most impacted by the Company's decisions to consolidate marketing
under a single brand and reduce the number of hybrids offered and the size
of its farmer/dealer network.
. Sunflower revenues increased a net 5%, or $.5 million. Higher sales of
confection sunflower and high oleic sunflower to a related party more than
offset a 13% decline in oil sunflower volume. This decline in oil sunflower
was due to disease and government programs which caused growers in certain
territories where the Company has a strong market presence to shift
plantings from sunflower to wheat and canola.
. Sales volumes for other seed products, mainly sorghum and alfalfa, also
were lower. Sorghum acreage continued to decline and shift to other crops,
such as cotton. The Company believes that, as a result of the relatively
mild winter in fiscal 1995, an unusual amount of pasture survived the
normal winter kill, which resulted in lower alfalfa sales.
. International revenues increased 18%, or $1.5 million, due to higher corn
and sunflower sales, mainly in France.
OPERATING LOSS: Seed operating loss for the fiscal year ended August 1995, was
$11.9 million compared to $8.7 million (excluding special charges of $36.4
million) for the fiscal year ended August, 1994. Gross profit was $4.3 million
lower, due mainly to lower sales volumes and higher cost of operating revenues
as a percent of sales. Cost of operating revenues was higher, due mainly to
obsolescence as a result of repositioning corn inventory from non-proprietary
hybrids to new value-added hybrids. Lower sales volumes were also responsible
for increased unit fixed costs and costs incurred to dispose of excess and poor
quality inventory. Expenses were slightly lower. Higher research and
development expenses were partially offset by lower selling, marketing, general
and administrative expenses resulting from a company-wide restructuring and
lower provisions for doubtful accounts.
CROP PROTECTION SEGMENT
FISCAL YEAR ENDED AUGUST 1996 COMPARED TO 1995
OPERATING REVENUES: Crop Protection operating revenues increased by $5 million
from 1995 to 1996, as follows:
. Soilserv operating revenues were $3.1 million higher than last year due to
heavy insect pressure in Salinas Valley that increased sales of aerial
applications and higher penetration of crop protection markets in Arizona.
22
. Biopesticide operating revenues were up $1.9 million, due to sales of new
products, Mattch(TM) bioinsecticide and Scythe(R) bioherbicide, higher
international sales of MVP(R) bioinsecticide and higher sales of MVP(R)
concentrate to Kubota Corporation ("Kubota"). Lower sales of M-Pede(R) and
M-Trak(R) bioinsecticides in North America, attributable to the
introduction of new products by competitors, partially offset those
increases.
OPERATING INCOME: 1996 operating results improved $2.7 million due to improved
gross margins of $3.8 million attributable to higher sales volumes coupled with
lower biopesticide manufacturing costs. Higher operating expenses reduced
operating income by $.8 million.
FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994
OPERATING REVENUES: Crop Protection operating revenues for the fiscal year
ended August 1995, were $40.8 million compared to $34.1 million for fiscal 1994,
as follows:
. Soilserv operating revenues were up $3.7 million in fiscal 1995 due to the
flooding in California's Salinas Valley during the second quarter,
resulting in heavy insect and disease pressure that increased the demand
for Soilserv's aerial pesticide applications.
. Biopesticide operating revenues were up $3.0 million, or 62%, due to the
introduction of Scythe(R) herbicide and increases in sales of MVP(R) for
control of heliothis in cotton and M-Peril(R) for control of European corn
borer in corn. International sales of biopesticides increased due to
expanded sales of MVP(R) liquid in Asia and MVP(R) concentrate to Kubota.
OPERATING LOSS: Crop Protection operating losses for the fiscal year ended
August, 1995, were $2.3 million, compared to $.9 million for fiscal 1994. The
increase in operating losses was due mainly to a $1.6 million write-down of crop
protection technology resulting from the discontinuation of a certain product
development program. Contract and other revenues declined $1.5 million. These
decreases were partially offset by higher margins. Soilserv margins improved in
total and as a percent of sales due to higher volumes.
CORPORATE
FISCAL YEAR ENDED AUGUST 1996 COMPARED TO 1995
The increase of $1.3 million in the Corporate operating loss was due to higher
compensation and bonuses and expenses related to general research and
development activities.
FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994
The reduction of $1.6 million in the Corporate operating loss from $2.9
million in 1994 to $1.3 million in 1995 was due to lower general and
administrative expenses resulting from the consolidation and allocation of
Corporate general and administrative resources to the Seed business during the
1993 restructuring of Mycogen Seeds' operations.
23
NON-OPERATING ITEMS
INTEREST INCOME AND EXPENSE, NET
Interest income and expense, net, increased $1.5 million to $2.4 million in
fiscal 1996 due to higher net interest income as a result of more cash available
for investment during the year. Interest income and expense, net, decreased
$1.4 million to $.9 million in 1995. The decrease was due mainly to less cash
available for investment and higher levels of borrowing under the Company's line
of credit during 1995.
OTHER INCOME
Other income of $.7 million was recognized in 1996 upon receipt of a
litigation settlement.
MINORITY INTEREST
Effective December 31, 1993, the Company agreed to purchase the remaining
19.46% ownership interest in Mycogen Seeds from Lubrizol. Lubrizol's minority
interest in Mycogen Seeds was recorded at the minimum agreed upon purchase price
and Mycogen Seeds operating results have been recognized since that time as if
the Company owned 100% of Mycogen Seeds. Therefore, no minority interest was
recognized for periods after December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and securities available-for-sale
increased by $50.4 million to $68 million during the fiscal year ended August
1996. This increase was primarily due to proceeds of $30 million, $26.4 million
and $3.5 million from the sale of common stock to Pioneer, DowElanco and
employees, respectively, and $10 million in research funding from Pioneer.
These proceeds were reduced by cash used to pay off $4.7 million of long-term
debt, cash paid to Lubrizol for technology rights of $2 million, cash paid to
DowElanco of $1.8 million in connection with the acquisition of UAS and capital
expenditures which totaled $13.9 million. The Company has a $25 million bank
line of credit facility, which expires November 30, 1996. The credit facility
is used to fund portions of the Company's seasonal working capital needs; $23.5
million was unused as of August 31, 1996. The Company is currently
renegotiating the terms, including an extension, of its credit facility.
In December 1995, the Company signed a definitive agreement for a technology
collaboration with Pioneer. Under the agreement, Pioneer purchased three
million shares of the Company's common stock for $30 million and provided $10
million in research and development funding. Pioneer will provide an additional
$11 million in funding near the end of 1998.
In January 1996, Lubrizol converted its entire interest in shares of preferred
stock into 1,815,274 shares of Mycogen common stock and sold its 19.46%
ownership interest in Mycogen Seeds to the Company for 1,538,008 shares of
common stock. The Company also purchased certain rights in oil seed technology
from a subsidiary of Lubrizol for $8.0 million. The Company made an initial
payment of $2.0 million and will pay $2.5 million and $3.5 million in January
1997 and 1998, respectively. In February 1996, the Company issued common stock
to DowElanco in exchange for $26.4 million in cash and all of the shares in UAS.
During fiscal 1996, the Company invested $8.7 million to upgrade seed
production facilities, and expects to invest another $19.8 million during fiscal
1997 to add additional seed processing capacity. The Company also invested $1.1
million in fiscal 1996 to build a new headquarters for Mycogen Seeds and expects
to spend about $3.0 million during the first quarter of fiscal 1997 to complete
construction. Other capital expenditures totaled $4.1 million for fiscal 1996,
and are expected to total $6.0 million during fiscal 1997.
24
In September 1996, the Company purchased all of the common stock of Morgan
Seeds for $27 million in cash and acquired Lubrizol's remaining interest in oil
seed technology and certain related assets for $7.6 million in cash. The
Company will continue to pursue an aggressive acquisition and joint venture
strategy for both the Seed and Crop Protection business units.
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 also will 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 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, may also be 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 line 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements appearing after the signature
page of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
25
PART III
Certain information required by Part III is omitted from this report in that
the Company will file the Proxy Statement pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report, and
certain information included therein is incorporated herein by reference. Only
those sections of the Proxy Statement which specifically address the items set
forth herein are incorporated by reference. Such incorporation does not include
the Compensation Committee Report or the Performance Graph included in the Proxy
Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors. The information under the caption "Election
of Directors," appearing in the Proxy Statement, is incorporated herein by
reference.
(b) Identification of Executive Officers. The information under the headings
"Executive Officers" and "Responsibilities and Business Experience of Executive
Officers," appearing in the Proxy Statement, is incorporated herein by
reference.
(c) Compliance with Section 16(a) of the Exchange Act. Based solely upon a
review of Forms 3, 4 and 5 and amendments thereto furnished to the Registrant
and upon written representations of all individuals required to file forms
pursuant to Section 16(a), the Registrant knows of no such individual that
failed to file Forms 3, 4 and 5 on a timely basis during the last fiscal year,
except as set forth under the heading "Compliance with Section 16(a) of the
Exchange Act" appearing in the Proxy Statement. The information under such
heading is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation" appearing in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the headings "Principal Stockholders" and "Executive
Compensation-Security Ownership of Directors and Management as of September 30,
1996," appearing in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the headings "Election of Directors," "Executive
Compensation" and "Certain Relationships and Related Transactions" appearing in
the Proxy Statement is incorporated herein by reference.
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Report of Ernst and Young LLP, Independent
Auditors. See Index to Financial Statements at page 32 of this Form 10-K.
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
(c) Exhibits:
SEQUENTIALLY
NUMBERED
DESCRIPTION PAGE
2.1 Agreement and Plan of Merger of Mycogen Corporation, a --
Delaware corporation, and Mycogen California, Inc., a California
corporation. Incorporated by reference from Exhibit 3.4 to the
Registrant's Form 8-K, filed on November 28, 1995.
3.1 Articles of Incorporation of the Registrant. Incorporated by --
reference from Exhibit 2.1 to the Registrant's Form 8-K, filed on
November 28, 1995.
3.2 Bylaws of the Registrant. Incorporated by reference from Exhibit --
3.2 to the Registrant's Form 8-K, filed on
November 28, 1995.
4.1 Reference is made to Exhibits 3.1 and 3.2 above. --
4.2 Specimen Common Stock Certificate, $0.001 par value.
Incorporated by reference from Exhibit 4.1 to the Registrant's Form --
8-K, filed on November 28, 1995.
4.3 Amended and Restated Rights Agreement by and between Registrant --
and Bank of Boston. Incorporated by reference from Exhibit 4.2 to
the Registrant's Form 8-K, filed on November 28, 1995.
4.4 Amendment to the Rights Agreement. Incorporated by reference
from Exhibit 4.1 to the Registrant's Form 8-K, filed on March 22,
1996. --
10.1 Registration Rights Agreement under Stock Purchase Agreement
dated March 6, 1989. Incorporated by reference from Exhibit 10.2
to the Registrant's Form 10-K for the year ended September 30,
1989, filed on December 28, 1989. --
10.2 Limited Partnership Agreement of MJT BH/BT Partnership, L.P.,
dated March 6, 1989, between Mycosub/BH, Inc. and JT Biotech
USA, Inc., with certain confidential portions omitted. Incorporated
by reference from Exhibit 10.9 to the Registrant's Form 10-K for
the year ended September 30, 1989, filed on December 28, 1989. --
27
10.3 Limited Partnership Agreement of MJT BA Partnership, L.P., dated
March 6, 1989, between Mycosub/BA, Inc. and JT Biotech USA
Inc., with certain confidential portions omitted. Incorporated by
reference from Exhibit 10.15 to the Registrant's Form 10-K for the
year ended September 30, 1989, filed on December 28, 1989. --
10.4 Registrant's 1995 Employee Stock Purchase Plan. Incorporated by
reference from Exhibit 10.1 to the Registrant's Registration
Statement on Form S-8, Registration No. 333-00901, filed on
February 13, 1996. --
10.5 Employee Stock Purchase Plan Summary and Prospectus.
Incorporated by reference from Exhibit 10.2 to the Registrant's
Registration Statement on Form S-8, Registration No. 333-00901,
filed on February 13, 1996. --
10.6 Registrant's Restricted Stock Issuance Plan. Incorporated by
reference from Exhibit 28.1 to the Registrant's Registration
Statement on Form S-8, Registration No. 33-40349, filed on May 3,
1991. --
10.7 Form of Agreements pertaining to Restricted Stock Issuance Plan.
Incorporated by reference from exhibit 28.2 to the Registrant's
Registration Statement on form S-8, Registration No. 33-40349,
filed on May 3, 1991. --
10.8 Amendment No. 1 to Registrant's Restricted Stock Issuance Plan.
Incorporated by reference from Exhibit 10.2 to the Registrant's
Registration Statement on Form S-8, Registration No. 333-00899,
filed on February 13, 1996. --
10.9 Form of Indemnity Agreement between the Registrant and each of
its directors. Incorporated by reference from Exhibit 10.1 to the
Registrant's Form 8-K, filed on November 28, 1995. --
10.10 Manufacturing Agreement dated September 15, 1988 between the
Registrant and International Bio-Synthetics, Inc. (with certain
confidential portions omitted). Incorporated by reference from
Exhibit 10.19 to the Registrant's Form 10-K for the year ended
September 30, 1988, filed on December 23, 1988. --
10.11 Registrant's 1992 Stock Option Plan. Incorporated by reference
from Exhibit 28.1 to the Registrant's Registration Statement on
Form S-8, Registration Statement No. 33-55508, filed on
December 9, 1992. --
10.12 Form of Agreements pertaining to 1992 Stock Option Plan.
Incorporated by reference from Exhibits 28.2, 28.3, 28.4 and 28.5
to the Registrant's Registration Statement on
Form S-8, Registration No. 33-55508, filed on
December 9, 1992. --
28
10.13 Amendment No. 1 to 1992 Stock Option Plan. Incorporated by
reference from Exhibit 10.1 to the Registrant's Registration
Statement on Form S-8, Registration No. 333-00899, filed on
February 13, 1996. --
10.14 Revolving Credit Note of the Registrant to Harris Trust and Savings
Bank ("Harris Bank") dated August 5, 1994. Incorporated by
reference from Exhibit 10.34 to the Registrant's Form 10-K for
the year ended December 31, 1994, filed on March 3, 1995. --
10.15 Revolving Credit Agreement between the Registrant and Harris
Bank dated August 5, 1994. Incorporated by reference from Exhibit
10.35 to the Registrant's Form 10-K for the year ended December
31, 1994, filed on March 3, 1995. --
10.16 Guaranty Agreement from the Registrant to Harris Bank dated
August 5, 1994. Incorporated by reference from Exhibit 10.36 to
the Registrant's Form 10-K for the year ended December 31, 1994,
filed on March 3, 1995. --
10.17 Form of Employment/Severance Agreement between the Registrant
and certain executive officers of the Registrant. 55
10.18 Manufacturing Agreement dated December 1, 1993, between the
Registrant and EB,with certain confidential portions omitted.
Incorporated by reference from Exhibit 10.44 to the Registrant's
Form 10-K for the year ended December 31, 1994, filed on
March 3, 1995. --
10.19 Agreement for Exchange of Insect Control Technology and Patent
Rights dated July 14, 1993, between the Registrant and Ciba Seeds
with certain confidential portions omitted. Incorporated by
reference from Exhibit 10.45 to the Registrant's Form 10-K for
the year ended December 31, 1994, filed
on March 3, 1995. --
10.20 Collaboration Agreement dated as of December 13, 1995, by and
between Mycogen Seeds and Pioneer. Confidential treatment has
been requested regarding certain portions of this agreement. 73
10.21 Mycogen Corporation Common Stock Purchase Agreement dated as
of December 13, 1995, by and between the Registrant and Pioneer
Overseas Corporation, an Iowa corporation ("Pioneer Overseas"). 108
10.22 Registration Rights Agreement dated December 13, 1995, by and
between the Registrant and Pioneer Overseas. 121
10.23 Exchange and Purchase Agreement dated as of January 15, 1996, by
and among the Registrant, Mycogen Seeds, DowElanco and UAS.
Incorporated by reference from Exhibit 2.1 to the Registrant's
Form 8-K, filed on February 27, 1996. --
29
21.1 Soilserv, Inc., a California corporation. --
21.2 Mycogen Plant Science, Inc., a Delaware corporation. --
21.3 Agrigenetics, Inc., a Delaware corporation, doing business as
Mycogen Seeds. --
21.4 Mycogen Crop Protection, Inc., a California corporation. --
21.5 United AgriSeeds, Inc., a Delaware corporation. --
21.6 Santa Ursula, S.A.A.I.C. e I., an Argentina corporation, doing
business as Morgan Seeds. --
* The Company's Notice of Annual Meeting and Proxy Statement
dated on or about November 3, 1996. --
23 Consent of Ernst & Young LLP, Independent Auditors. 136
24 Power of Attorney. 138
27 Financial Data Schedule. 52
99 Purchase Agreement dated February 15,1995, by and among the
Registrant, Mycogen Seeds and DP&L. Incorporated by reference
from Exhibit 99.1 to the Registrant's Form 8-K, filed on
April 20, 1995. --
* Supplemental Information: Copies of the Registrant's Proxy Statement for the
Annual Meeting of Stockholders and copies of the form of proxy to be used at
such Annual Meeting will be furnished to the Securities and Exchange Commission
prior to the time they are distributed to the stockholders.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: November 8, 1996 By:/s/ JERRY CAULDER
------------------
Jerry Caulder
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ JERRY CAULDER Chairman, Chief November 8, 1996
- ----------------------------- Executive Officer and Director
(Jerry Caulder) (Principal Executive Officer)
/s/ THOMAS J. CABLE Director November 8, 1996
- -----------------------------
(Thomas J. Cable*)
/s/ PERRY GEHRING Director November 8, 1996
- -----------------------------
(Perry Gehring*)
/s/ JOHN. L. HAGAMAN Director November 8, 1996
- -----------------------------
(John L. Hagaman*)
/s/ DAVID H. RAMMLER Director November 8, 1996
- -----------------------------
(David H. Rammler*)
/s/ WILLIAM C. SCHMIDT Director November 8, 1996
- -----------------------------
(William C. Schmidt*)
/s/ A. JOHN SPEZIALE Director November 8, 1996
- -----------------------------
(A. John Speziale*)
/s/ G. WILLIAM TOLBERT Director November 8, 1996
- -----------------------------
(G. William Tolbert*)
/s/ W. WAYNE WITHERS Director November 8, 1996
- -----------------------------
(W. Wayne Withers*)
/s/ JAMES A. BAUMKER Vice President and Chief November 8, 1996
- ----------------------------- Financial Officer
(James A. Baumker) (Principal Financial and
Accounting Officer)
*By James A. Baumker under power of attorney.
31
MYCOGEN CORPORATION
INDEX TO FINANCIAL STATEMENTS
Consolidated Statements of Operations for the years ended
August 31, 1996, 1995 and 1994...................................................... 33
Consolidated Balance Sheets as of August 31, 1996 and 1995............................ 34
Consolidated Statements of Stockholders' Equity for the years ended
August 31, 1996, 1995 and 1994...................................................... 35
Consolidated Statements of Cash Flows for the years ended
August 31, 1996, 1995 and 1994...................................................... 36
Notes to Consolidated Financial Statements............................................ 37
Schedule II - Valuation and Qualifying Accounts for the years ended August 31, 1996
and 1995............................................................................ 50
Report of Ernst & Young LLP, Independent Auditors..................................... 51
All other schedules required by this item have been omitted due to full
disclosure in the Consolidated Financial Statements or related footnotes or due
to inapplicability of the item.
32
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
1996 1995 1994
-------- ---------- ----------
Net operating revenues:
Unrelated parties..................... $145,401 $ 103,701 $ 102,449
Related party......................... 1,399 2,468 1,934
Contract and other revenues...........
Unrelated parties..................... 5,160 4,334 4,888
Related parties....................... 3,629 2,715 3,489
-------- ---------- ----------
Total Revenues....................... 155,589 113,218 112,760
-------- ---------- ----------
Costs and expenses:
Cost of operating revenues............ 93,508 66,966 62,712
Selling and marketing................. 37,791 23,544 25,307
General and administrative............ 22,062 13,190 16,825
Research and development.............. 23,645 21,181 18,171
Amortization of intangible assets..... 3,514 3,854 2,172
Special charges....................... 25,218 - 36,378
-------- ---------- ----------
Total costs and expenses............ 205,738 128,735 161,565
-------- ---------- ----------
Operating loss......................... (50,149) (15,517) (48,805)
Interest income and expense, net...... 2,435 914 2,328
Exchange gain......................... 2 160 215
Other non-operating income............ 654 - -
Minority interest..................... - - 14,632
-------- ---------- ----------
Net loss............................... (47,058) (14,443) (31,630)
Dividends on preferred stock........... (578) (1,503) (1,604)
-------- ---------- ----------
Net loss applicable to common shares... $(47,636) $ (15,946) $ (33,234)
======== ========== ==========
Net loss per common share.............. $ (1.81) $ (.83) $ (1.81)
======== ========== ==========
Weighted average number of shares...... 26,275 19,225 18,377
======== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
33
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except par value data)
AUGUST 31,
ASSETS 1996 1995
---------- ----------
Current assets:
Cash and cash equivalents......................... $ 35,854 $ 5,687
Securities available-for-sale..................... 32,184 11,913
Accounts and notes receivable, net of allowances.. 30,700 27,402
Inventories....................................... 37,177 33,633
Prepaid expenses.................................. 1,880 1,267
---------- ----------
Total current assets............................. 137,795 79,902
Net property, plant and equipment................... 54,905 49,646
Net intangible assets............................... 22,581 17,759
Other assets........................................ 12,188 12,301
---------- ----------
Total assets........................................ $ 227,469 $ 159,608
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............................. $ 1,520 $ -
Accounts payable.................................. 8,697 6,760
Accrued compensation and related taxes............ 6,755 3,553
Deferred revenues................................. 12,101 5,670
Other current liabilities......................... 11,974 5,225
---------- ----------
Total current liabilities........................ 41,047 21,208
Long-term liabilities............................... 5,228 3,291
Minority interest................................... - 21,406
Commitments
Stockholders' equity:
Common stock, $.001 par value, 40,000,000 shares
authorized; 30,678,537 and 19,400,764 shares
issued and outstanding at August 31, 1996 and
1995, respectively................................ 31 19
Additional paid-in capital......................... 330,973 216,436
Deficit............................................ (149,810) (102,752)
---------- ----------
Total stockholders' equity....................... 181,194 113,703
---------- ----------
Total liabilities and stockholders' equity.......... $ 227,469 $ 159,608
========== ==========
See accompanying Notes to Consolidated Financial Statements
34
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS STOCKHOLDERS' EQUITY
(In thousands)
SHARES OF
SERIES A COMMON STOCK ADDITIONAL TOTAL
PREFERRED NUMBER PAID-IN STOCKHOLDERS'
STOCK OF SHARES AMOUNT CAPITAL DEFICIT EQUITY
------------ --------- ------- ----------- ---------- ------------
Balance at August 31, 1993 - 16,995 $ 17 $ 164,547 $ (56,679) $ 107,885
Issuance of common stock for:
Employee stock plans................ - 104 - 939 - 939
Business acquisition................ - 2,000 2 20,498 - 20,500
Compensation related to employee
stock plans......................... - - - 396 - 396
Preferred stock dividend accrual..... - - - (642) - (642)
Reclassificaton of preferred stock... 3 - - 28,539 - 28,539
Cumulative effect of change in
accounting for investments in debt
and equity securities............... - - - 559 - 559
Change in unrealized gains and losses
on securities available-for-sale.... - - - (1,174) - (1,174)
Net loss............................. - - - - (31,630) (31,630)
Cumulative translation adjustment.... - - - 34 - 34
------------ --------- ------- ----------- ---------- ------------
Balance at August 31, 994 3 19,099 19 213,696 (88,309) 125,406
Issuance of common stock for
employee stock plans................ - 148 - 436 - 436
Compensation related to employee
stock plans......................... - - - 148 - 148
Issuance of common stock for
business acquisition................ - 154 - 1,350 - 1,350
Change in unrealized gains and losses
on securities available-for-sale.... - - - 478 - 478
Net loss............................. - - - - (14,443) (14,443)
Cumulative translation adjustment.... - - - 328 - 328
------------ --------- ------- ----------- ---------- ------------
Balance at August 31, 1995 3 19,401 19 216,436 (102,752) 113,703
Issuance of common stock for:
Private offering.................... - 3,000 3 29,997 - 30,000
Employee stock plans................ - 472 1 3,500 - 3,501
Compensation related to employee
stock plans......................... - - - 689 - 689
Issuance of common stock for
business acquisitions............... - 5,991 6 80,406 - 80,412
Conversion of Preferred Stock........ (3) 1,815 2 (2) - -
Change in unrealized gains and losses
on securities available-for-sale.... - - - (167) - (167)
Net loss............................. - - - - (47,058) (47,058)
Cumulative translation adjustment.... - - - 114 - 114
------------ --------- ------- ----------- ---------- ------------
Balance at August 31, 1996 - 30,679 $ 31 $ 330,973 $ (149,810) $ 181,194
============ ========= ======= =========== ========== ============
See accompanying Notes to Consolidated Financial Statements
35
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED AUGUST 31,
1996 1995 1994
---------- ---------- ----------
Operating activities:
Net loss............................................ $ (47,058) $ (14,443) $(31,630)
Items which did not use cash:
Depreciation....................................... 4,862 4,851 4,329
Amortization of intangible assets.................. 3,514 3,854 2,172
Amortization of prepaid contract manufacturing..... 702 284 -
Compensation related to employee stock plans....... 689 148 396
Special charges.................................... 23,218 - 26,636
Minority interest.................................. - - (14,632)
Provision for doubtful accounts.................... 1,990 292 3,179
Loss on disposal of assets......................... 361 693 344
Changes in operating assets and liabilities:
Accounts and notes receivable...................... 8,432 (3,293) (2,180)
Inventories........................................ 14,179 (1,834) 6,368
Prepaid expenses................................... 53 (346) 430
Accounts payable................................... (5,328) 3,014 (1,366)
Deferred revenues.................................. (1,815) 989 2,298
Other liabilities.................................. 4,332 (669) (310)
---------- ---------- --------
Cash provided by (used in) operating activities... 8,131 (6,460) (3,966)
---------- ---------- --------
Investing activities:
Proceeds from sales of available-for-sale
securities 33,675 8,972 33,258
Proceeds from maturities of available-for-sale
securities 4,159 21,049 29,483
Purchases of available-for-sale securities......... (58,272) (12,250) (34,753)
Capital expenditures............................... (13,889) (6,566) (4,259)
Net cash paid for business combinations............ (1,791) - (7,000)
Prepaid contract manufacturing..................... (286) (8,825) (2,079)
Change in intangibles and other assets............. 1,596 (1,842) (2,578)
---------- --------- --------
Cash provided by (used in) investing activities... (34,808) 538 12,072
---------- --------- --------
Financing activities:
Proceeds from short-term borrowings................ 1,520 - -
Proceeds from long-term debt....................... - 2,500 -
Payments on long-term debt......................... (4,678) (248) (10)
Redemption of preferred stock...................... - - (10,000)
Proceeds from sale of common stock................. 59,900 435 939
---------- --------- --------
Cash provided by (used in) financing activities... 56,742 2,687 (9,071)
---------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents....................................... 102 241 96
---------- --------- --------
Increase (decrease) in cash and cash equivalents..... 30,167 (2,994) (869)
Cash and cash equivalents at beginning of year....... 5,687 8,681 9,550
---------- --------- --------
Cash and cash equivalents at end of year............. $ 35,854 $ 5,687 $ 8,681
========== ========= ========
See accompanying Notes to Consolidated Financial Statements.
36
MYCOGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are bracketed in the following
Notes to Consolidated Financial Statements. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
BASIS OF CONSOLIDATION
[The accompanying financial statements include the accounts of Mycogen
Corporation and its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.]
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements have
been reclassified to conform to the 1996 presentation.
ACQUISITION OF UAS AND PURCHASE OF LUBRIZOL'S INTEREST IN MYCOGEN SEEDS
In February 1996, the Company issued 4,453,334 shares of common stock to
DowElanco in exchange for $26.4 million in cash and all of the shares in
DowElanco's seed business, UAS. The principal seed products of UAS are corn and
soybean. The acquisition of UAS was accounted for as a purchase and,
accordingly, the results of operations of UAS from the date of acquisition are
reflected in the consolidated financial statements of the Company. The total
purchase price aggregated $34.5 million, of which $3.1 million was allocated to
in-process technology and was written-off upon acquisition.
On December 31, 1993, the Company exchanged $7.0 million in cash and two
million shares of the Company's common stock for an additional 29.5% ownership
of Mycogen Seeds, and in January 1996, the Company acquired Lubrizol's remaining
19.46% ownership interest in Mycogen Seeds by issuing 1,538,008 shares of common
stock. The purchase price totaled $48.9 million for these two transactions.
The following consolidated, pro forma, unaudited summary of operations data
assumes that the acquisition of UAS occurred on September 1, 1995 and 1994 and
the exchange for an additional ownership interest in Mycogen Seeds occurred on
September 1, 1993.
Years ended August 31,
----------------------------------------
(In thousands, except per share data) 1996 1995 1994
- ---------------------------------------- ---------- ---------- ----------
Total revenues $ 172,623 $ 146,873 $ 112,760
Net loss applicable to common shares $ (43,555) $ (13,301) $ (18,567)
Net loss per common share $ (1.54) $ (.56) $ (.97)
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
37
not include the nonrecurring special charges of $3.1 million recognized in 1996
and $26.6 million recognized in 1994 related to the write-off of acquired in-
process technology.
SUPPLEMENTAL CASH FLOW INFORMATION
In conjunction with the acquisitions of UAS and the remaining ownership in
Mycogen Seeds in 1996, an acquisition in 1995, the exchange for an additional
ownership interest in Mycogen Seeds in 1994 and adjustments to the 1993 purchase
price of Mycogen Seeds in 1994, cash and noncash investing and financing
activities were allocated as follows:
Years ended August 31,
---------------------------------------
(In thousands) 1996 1995 1994
- ---------------------------------------- ---------- --------- ----------
Business acquisitions:
Fair value of assets acquired, other $ 55,957 $ 1,350 $ 26,188
than cash
Liabilities assumed (20,886) -
Liabilities and acquisition costs (673) -
incurred
Minority interest purchased from 21,406 - (1,688)
Lubrizol
Common stock issued (54,013) (1,350) (20,500)
Preferred stock returned 3,000
---------- --------- ---------
Net cash paid for acquisitions $ 1,791 $ - $ 7,000
========== ========= =========
Other cash and noncash investing and financing activities were as follows:
Years ended August 31,
---------------------------------------
(In thousands) 1996 1995 1994
- ---------------------------------------- ------------ --------- ----------
Common stock issued upon conversion of
convertible preferred stock $ 31,582 $ - $ -
Technology rights acquired by incurring
directly related liabilities $ 6,000 $ - $ -
Dividends on preferred stock $ 578 $ 1,503 $ 1,604
Cash payments for interest $ 263 $ 389 $ 254
INDUSTRY SEGMENTS AND FOREIGN OPERATIONS
The Company is organized into two major segments, Seed and Crop Protection.
Seed segment revenues are derived mainly from sales of planting seeds in North
America and Europe. The six principal product lines are corn, soybean,
sunflower, sorghum, other and international. Crop Protection segment revenues
are derived from customized crop protection services provided by Soilserv in
California and Arizona and sales of biopesticide products mainly in North
America and Japan. Operating revenues and seed costs are impacted by weather.
Weather can influence pest populations, the effectiveness of pesticides and
seeds, seed production yields, commodity prices, growers' planting decisions and
other factors impacting revenues and costs. Operating revenues are also
dependent on a number of other factors, including the degree of market
acceptance of products, the strength of competition in the marketplace and U.S.
and foreign government policies which can affect crop acreage and farmer income.
Acres planted determine quantities of planting seed, crop protection services
and biopesticide products purchased by growers.
38
Financial information by segment is as follows:
Years ended August 31,
----------------------------------------
(In thousands) 1996 1995 1994
- ----------------------------------- ----------- ---------- ----------
Net Operating Revenues
Seed $ 102,035 $ 65,329 $ 70,329
Crop Protection 45,886 40,840 34,054
Intersegment Elimination (1,121) - -
----------- ---------- ----------
Total $ 146,800 $ 106,169 $ 104,383
=========== ========== ==========
Contract and Other revenues
Seed $ 7,639 $ 5,606 $ 5,486
Crop Protection 1,040 1,363 2,891
Corporate 110 80 -
----------- ---------- ----------
Total $ 8,789 $ 7,049 $ 8,377
=========== ========== ==========
Research and Development Expenses
Seed $ 18,604 $ 14,827 $ 12,156
Crop Protection 4,816 6,354 6,015
Corporate 225 - -
----------- ---------- ----------
Total $ 23,645 $ 21,181 $ 18,171
=========== ========== ==========
Operating Income (Loss)
Seed $ (47,818) $ (11,922) $ (45,052)
Crop Protection 316 (2,336) (859)
Corporate (2,527) (1,259) (2,894)
Intersegment Elimination (120) - -
----------- ---------- ----------
Total $ (50,149) $ (15,517) $ (48,805)
=========== ========== ==========
Identifiable Assets
Seed $ 108,404 $ 87,238
Crop Protection 40,210 41,994
Corporate 78,976 30,376
Intersegment Elimination (121) -
----------- ----------
Total $ 227,469 $ 159,608
========== ==========
Depreciation and Amortization
Seed $ 4,592 $ 4,199 $ 3,789
Crop Protection 2,808 3,381 1,815
Corporate 976 1,125 897
----------- ---------- ----------
Total $ 8,376 $ 8,705 $ 6,501
========== ========== ==========
Capital Expenditures
Seed $ 11,987 $ 3,263 $ 2,776
Crop Protection 597 213 955
Corporate 1,305 3,090 528
----------- ---------- ----------
Total $ 13,889 $ 6,566 $ 4,259
========== ========== ==========
39
Operating revenues, net of estimated returns, are recognized when the product
is shipped to the customer or the service is provided.
The assets and liabilities of non-U.S. subsidiaries are translated into U.S.
dollars at exchange rates in effect at the balance sheet date. Operating
results are translated at weighted average exchange rates in effect during the
period. Net unrealized translation adjustments are recorded as a separate
component of stockholders' equity. Foreign currency exchange gains and losses
are included in the determination of net loss. Foreign operations and export
sales were not significant for the years ended August 31, 1996, 1995 and 1994.
CASH, CASH EQUIVALENTS AND SECURITIES AVAILABLE-FOR-SALE
The Company invests its excess cash in U.S. government securities,
certificates of deposit and debt instruments of financial institutions and
corporations with strong credit ratings. The Company has established guidelines
that maintain safety and liquidity and match maturities to anticipated cash
requirements. These guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates.
[All debt securities are classified as available-for-sale and are carried at
fair value, with unrealized gains and losses reported in a separate component of
stockholders' equity. The cost of debt securities is adjusted for amortization
of premiums and accretion of discounts to maturity. The amortization, along
with realized gains and losses, interest and dividends are included in interest
income. The cost of securities sold is based on the specific identification
method.]
Gross realized gains on sales of available-for-sale securities totaled $10,000
and $162,000 for the years ended August 31, 1995 and 1994, respectively and
gross realized losses totaled $77,000, $110,000 and $15,000 for the years ended
August 31, 1996, 1995, and 1994 respectively. Available-for-sale securities are
summarized as follows:
August 31, 1996
------------------------------------------------------------
Gross Gross
unrealized unrealized Estimated
(In thousands) Cost gains losses fair value
- ---------------------------- --------- ---------- ---------- -------------
Securities of the U.S.
government and its
agencies $ 18,753 $ - $ (211) $ 18,542
Corporate debt securities 13,734 - (92) 13,642
--------- ---------- ---------- -------------
Total $ 32,487 $ - $ (303) $ 32,184
========= ========== ========== =============
August 31, 1995
------------------------------------------------------------
Gross Gross
unrealized unrealized Estimated
(In thousands) Cost gains losses fair value
- ---------------------------- --------- ---------- ---------- -------------
Securities of the U.S.
government and its
agencies $ 11,046 $ - $ (128) $ 10,918
Corporate debt securities 1,004 - (9) 995
--------- ---------- ---------- -------------
Total $ 12,050 $ - $ (137) $ 11,913
========= ========== ========== =============
40
Available-for-sale securities with original maturities of three months or less
that were classified as cash equivalents totaled $31,328,000 as of August 31,
1996; there were none as of August 31, 1995. The amortized cost and estimated
fair value of available-for-sale securities, by contractual maturity, are as
follows:
August 31, 1996
----------------------------
Estimated
(In thousands) Cost fair value
- ----------------------------- --------- ------------
Due in one year or less $11,034 $10,999
Due after one year through
five years 15,990 15,803
Mortgage-backed securities 5,463 5,382
------- -------
Total $32,487 $32,184
======= =======
Based upon management's intention to hold these securities as available for
sale at any time for use in operations, all available-for-sale securities are
classified as current even though the actual maturity may extend beyond one
year.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable at August 31 are comprised of:
(In thousands) 1996 1995
- ---------------------------------- ------- -------
Trade accounts receivable $30,219 $27,902
Notes and other receivables 4,282 2,085
------- -------
34,501 29,987
Allowance for doubtful accounts (3,801) (2,585)
------- -------
$30,700 $27,402
======= =======
At August 31, 1996, the significant concentration of the Company's trade
receivables were from farmers located in the united states and various foreign
countries whose ability to pay is dependent upon the agribusiness economics
prevailing in that specific area of the world. As a result, no significant
geographic concentration of credit risk exists.
INVENTORIES
[Seed inventories, which comprise 86% of total inventories at August 31, 1996
and 1995, are stated at the lower of average cost or market. All other
inventories are stated at the lower of first-in first-out cost, or market.]
Inventories at August 31 are comprised of:
(In thousands) 1996 1995
- ----------------------------- ------- -------
Raw materials and supplies $ 3,819 $ 5,895
Work in process 10,810 3,578
Finished goods 22,548 24,160
------- -------
$37,177 $33,633
======= =======
Planting seed is produced by independent growers who contract specific acreage
for the production of seed for the Company. The compensation of the independent
growers is determined based on yield,
41
contracted acreage and commodity prices. The commitment for grower compensation
is accrued as seed is delivered to the Company. The Company's growers select
market prices throughout the year to establish selling prices for seed crops
grown for the Company. The Company follows a policy, common in the industry, of
hedging certain of these seed inventory purchase commitments to minimize risk
due to market price fluctuations. Gains and losses on these contracts are
recorded as adjustments to inventory cost when the contracts are closed. At
August 31, 1996, the Company had short-term futures contracts totaling $13.7
million for the purchase of commodities (principally soybean and corn) at
various dates during 1996. The fair value of these contracts at August 31, 1996,
was $14.4 million. at August 31, 1996, the Company had entered into short-term
contracts totaling $3.5 million for the sale of commodities (principally corn).
At August 31, 1996, the Company had an unrealized loss on these contracts
totaling $280,000.
Production of hybrid seed involves various environmental risks. The parental
inbred lines which are used in production are more sensitive to adverse
conditions than are commercial hybrids grown by farmers. Weather is the most
significant variable. Unfavorable weather can adversely affect seed supplies
and unit costs. To protect against these risks, the seed segment maintains
multiple production locations spread geographically in addition to maintaining
certain levels of inventory that are available for sale during the subsequent
planting season. While the Company believes that its inventory values are
realizable, risks exist that may render portions of the Company's inventory
obsolete or excess. The risk factors include weather and poor planting
conditions that may delay, prevent or change the planting of certain crops, U.S.
and foreign government policies which can affect crop acreage and farmer income
and the introduction of hybrids by competitors that may render the Company's
hybrids obsolete.
PROPERTY, PLANT AND EQUIPMENT
[Property, plant and equipment is recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives, ranging from 15
to 30 years for buildings and improvements and 3 to 15 years for machinery and
equipment. Amortization of leasehold improvements is provided using the
straight-line method over the shorter of the life of the respective lease or
estimated useful life of the asset.] Property, plant and equipment at August 31
is comprised of:
(In thousands) 1996 1995
- ------------------------------- -------- --------
Land and improvements $ 4,901 $ 5,173
Buildings and improvements 26,452 24,385
Machinery and equipment 30,171 33,627
Leasehold improvements 424 646
Construction in progress 10,281 2,519
-------- --------
72,229 66,350
Accumulated depreciation and
amortization (17,324) (16,704)
-------- --------
$ 54,905 $ 49,646
======== ========
42
INTANGIBLE ASSETS
[Intangible assets are amortized using the straight-line method over each
asset's estimated useful life ranging from three to twenty-five years.]
Intangible assets at August 31 are comprised of:
1996
Useful ---------------------------------------------
Life Accumulated
(in thousands) in years Cost Amortization Net Value
- ----------------------------------- --------- --------------- ------------
Goodwill 25 $10,267 $(1,979) $ 8,288
Purchased technology 3-15 8,802 (3,451) 5,351
Patents 10 6,686 (1,126) 5,560
Non-compete agreement 5-7 2,681 (2,173) 508
Customer base 10 2,386 (131) 2,255
Assembled work force 5 726 (107) 619
------- ------- -------
$31,548 $(8,967) $22,581
======= ======= =======
1996
Useful ---------------------------------------------
Life Accumulated
(in thousands) in years Cost Amortization Net Value
- ----------------------------------- ------- --------------- ------------
Goodwill 25 $10,342 $(1,638) $ 8,704
Purchased technology 3-15 5,584 (2,832) 2,752
Patents 10 5,909 (649) 5,260
Non-compete agreement 5-7 2,732 (1,689) 1,043
------- ------- -------
$24,567 $(6,808) $17,759
======= ======= =======
[The carrying value of tangible and other long-lived assets are reviewed upon
a change in market conditions or business strategy. If the projected net cash
flows from product revenues, royalty or license income at that time are less
than the carrying value of the asset, a charge for impairment is recognized to
reduce the carrying value of the intangible asset to its fair value.]
OTHER ASSETS
The Company has an exclusive manufacturing agreement through 2010 for certain
of its biopesticide products. Under the terms of the agreement, the Company
will pay for the actual cost of manufacturing, excluding depreciation, plus a
fee based on the actual number of units produced. Additionally, the Company
paid $11.2 million to the manufacturer to fund the construction of a
manufacturing facility. This payment has been classified as an other asset
which is being amortized over the life of the agreement. Accumulated
amortization totaled $984,000 and $284,000 at August 31, 1996 and 1995,
respectively.
LINE OF CREDIT
The Company has available a $25 million unsecured revolving bank line of
credit, of which $1.5 million was outstanding at August 31, 1996. This line,
which expires November 30, 1996, provides for short-term borrowings in U.S.
dollars at the bank's prime rate (8.25% at August 31, 1996) plus .5% or in
Eurodollars at an adjusted Eurodollar rate (5.875% at August 31, 1996) plus 2%.
On an annual basis, the Company is required to pay a fee of .1% of the total
commitment and a commitment fee of .25% on the unused portion. The credit
agreement contains certain covenants which include the maintenance of a minimum
consolidated net worth, maintenance of certain financial ratios, certain
limitations on the incurrence of indebtedness or liens on the Company's assets
and maintenance of a minimum cash, cash equivalents and securities available-
for-sale balance of $10 million.
43
LONG-TERM LIABILITIES
Long-term liabilities (amounts due after one year) at August 31 are as
follows:
(In thousands) 1996 1995
- ---------------------------------------- --------- --------
Liability for purchased technology $ 6,000 $ --
Pension and other liabilities 2,470 1,767
Unsecured note payable to bank -- 2,262
---------- ---------
8,470 4,029
Less current portion included in
current liabilities (3,242) (738)
---------- ---------
Total long-term liabilities $ 5,228 $ 3,291
========== =========
RETIREMENT PLANS
The Company has a tax deferred retirement and savings plan under Section
401(k) of the Internal Revenue Code whereby eligible employees may defer up to
20% of their gross pay through payroll deductions and contribute it to the plan.
The Company has the option to match a portion of the savings contributions as
prescribed in the plan not to exceed 3% of gross pay. Effective January 1,
1994, Mycogen Seeds' 401(k) plan was combined with the Company's 401(k) plan.
Matching contributions to these plans during the years ended August 31, 1996,
1995 and 1994 totaled $521,000, $531,000 and $489,000, respectively.
COMMITMENTS
At August 31, 1996, the Company had operating lease commitments on certain
premises, machinery and office equipment which expire at various dates through
2001. Minimum future commitments under non-cancelable lease agreements having
terms in excess of one year total: 1997, $559,000; 1998, $392,000; 1999,
$332,000; 2000, $161,000; 2001, $86,000 and thereafter, $11,000. The Company
also leases equipment and other facilities on a month-to-month basis. Rent
expense under operating leases totaled $2.4 million, $2.0 million, and $1.8
million for the years ended 1996, 1995 and 1994, respectively.
NET LOSS PER COMMON SHARE
Net loss per common share is determined by deducting dividends on preferred
stock from net loss and dividing the net result by the weighted average number
of common shares outstanding during the year. Common shares issuable under
common stock equivalents and convertible preferred stock are not included in the
computation of net loss per common share because their effect was not dilutive.
44
STOCK INCENTIVE PLANS
Directors and key employees have been issued Mycogen stock options under the
Company's 1992 and 1983 Stock Option Plans, as amended. Information about the
status of the plans is presented below:
Shares Average Price
------------------------------
Balance at August 31, 1993 2,868,820) $ 11.90
Granted 158,500) $ 10.66
Exercised (51,037) $ 9.28
Canceled (175,164) $ 12.95
Balance at August 31, 1994 2,801,119) $ 11.81
Granted 3,208,103) $ 8.63
Exercised (14,193) $ 7.92
Canceled (2,687,843) $ 12.00
Balance at August 31, 1995 3,307,186) $ 8.59
Granted 1,266,500 $ 14.50
Exercised (346,122) $ 9.15
Canceled (109,614) $ 9.30
-------------
Balance at August 31, 1996 4,117,950 $ 10.34
=============
In December 1994, the Company, at the election of the option holder, repriced
2,209,603 outstanding options through cancellation of options with an average
exercise price of $12.62 and a regrant of new options at an exercise price of
$8.50. The new options vest in equal monthly installments over a new 36-month
period measured from December 1994. Of the 4,117,950 outstanding options,
1,570,190 were exercisable and vested as of August 31, 1996. As of August 31,
1996, a total of 5,943,819 shares of common stock were reserved for future
issuance under the plans and 1,825,869 shares of common stock were available for
future grants.
Pursuant to the Company's 1990 Restricted Stock Issuance Plan, officers were
awarded a total of 96,000 and 96,500 shares of restricted stock in 1996 and
1995, respectively. As of August 31, 1996, a total of 27,500 shares of common
stock were reserved for future issuance under the plan. Compensation expense
related to these stock plans was $689,000, $148,000 and $396,000 in 1996, 1995
and 1994, respectively. Unamortized deferred compensation expense with respect
to restricted stock issued aggregated $1,517,000 and $837,000 at August 31, 1996
and 1995, respectively.
Pursuant to the Company's 1995 and 1988 Employee Stock Purchase Plans,
employees purchased 32,669 shares at an average price of $9.99 per share, 42,334
shares at an average price of $7.65 per share and 53,264 shares at an average
price of $8.74 per share in 1996, 1995 and 1994, respectively. As of August 31,
1996, there were 226,899 shares of common stock reserved for future issuance
under the Plan.
[FASB Statement No. 123, "Accounting for Stock-Based Compensation" prescribes
new requirements for stock-based compensation. The application of this
Statement will be effective beginning with the Company's 1997 fiscal year-end.
As allowed under Statement No. 123, the Company intends to continue accounting
for stock compensation under APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Therefore, the Company does not believe adoption of this Statement
will have an impact on its consolidated financial statements. In accordance
with Statement No. 123, the Company will present pro-forma disclosures of net
income and earnings per share as if the Statement had been applied.]
45
STOCKHOLDER RIGHTS PLAN
In October 1995, the Company entered into an Amended and Restated Rights
Agreement ("the Rights Agreement") which amended and restated the 1992
Stockholder Rights Agreement. The Rights Agreement provides for the distribution
of a preferred stock purchase right (a "Right") as a dividend for each share of
the Company's common stock held of record immediately prior to a third party
tendering to purchase 25% or more of the Company's common stock. Under certain
conditions involving an acquisition by any person or group of 25% or more of the
Company's common stock, the Rights entitle the holders (other than the 25%
holder) to purchase one one-hundredths of a Preferred share upon payment of an
exercise price per Right. The exercise price is currently $65.00; however, the
purchase price is subject to adjustment under certain conditions. In addition,
in the event of certain business combinations, the Rights permit the purchase of
the common stock of an acquirer at a 50% discount. Under certain conditions, the
Rights may be redeemed by the Company's Board of Directors at a price of $.01
per Right. The Rights have no voting privileges and are attached to and
automatically trade with the Company's common stock. Unless extended, the Rights
will expire on February 20, 2002.
SENIOR CONVERTIBLE CUMULATIVE PREFERRED STOCK, SERIES A
In January 1996, Lubrizol converted 3,158 shares of the Company's Series A
Senior Convertible Cumulative Preferred Stock, representing their entire
interest in preferred stock, into 1,815,274 shares of common stock at a rate of
$17.398 per share which was based on a premium of 25% over the average closing
price of the Company's common stock for the 60 days prior to the conversion. At
August 31, 1996, there were 3,940 shares authorized for issuance of the
Company's Series A Preferred Stock, $.001 par value, and no outstanding shares.
The changes in the number of shares of preferred stock issued and the aggregate
liquidation preference are as follows:
Aggregate
Number of Liquidation
(In thousands, except share data) Shares Preference
- --------------------------------- ------------ -----------
Balance at August 31, 1994 2,950 $ 29,501
Preferred stock dividend accrual 150 1,503
------------ ---------
Balance at August 31, 1995 3,100 31,004
Preferred stock dividend accrual 58 578
Conversion to common stock 3,158 (31,582)
------------ ---------
Balance at August 31, 1996 -- $ --
============ =========
CONTRACT AND OTHER REVENUES
[Research and other contract revenues are recorded as earned based on the
percentage of completion basis or on the performance requirements of the
contracts. Payments in excess of amounts earned are deferred. Research costs are
expensed as incurred.] Costs and expenses related to research contracts totaled
$4.4 million, $3.0 million and $4.7 million in 1996, 1995 and 1994,
respectively.
RELATED PARTY TRANSACTIONS
In December 1995, the Company entered into an agreement with Pioneer to
develop transgenic crops with insect resistance. Under the agreement, Pioneer
purchased 3,000,000 shares of the Company's common stock for $30 million and
provided $10 million in research and development funding. Pioneer will provide
an additional $11 million in funding near the end of 1998. Pioneer will receive
non-exclusive rights to all Bt crop protection technology and associated
technologies co-developed by the Company and Pioneer during the next 10 years.
The COmpany and Pioneer are able to market their own products resulting from the
collaboration, royalty-free, in North America. Pioneer will pay a royalty to
Mycogen for jointly developed
46
technology that it markets through seed products outside of North America. The
Company has exclusive worldwide rights to license jointly developed technology
to third parties. No proprietary seed lines will be shared by the companies.
Contract revenues recognized under this agreement totaled $2.4 million in 1996.
Deferred revenues of $7.6 million are included in the Consolidated Balance Sheet
at August 31, 1996. At August 31, 1996, Pioneer owned 3,000,000 shares of common
stock of the Company or 9.78% of the Company's outstanding shares of common
stock.
Lubrizol, a related party through February 1996, provided to Mycogen Seeds
funding for research and development projects related to planting seeds that
yield plants capable of producing oils with special characteristics. Related
party research revenues under these agreements totaled $1.2 million, $2.6
million and $3.3 million in 1996, 1995 and 1994, respectively. Mycogen Seeds
was the exclusive supplier of specified planting seed to a division of Lubrizol
and managed the production of crops from such planting seed through September
1996. Related party operating revenues recognized under this arrangement
through February 1996, totaled $1.4 million, $2.5 million and $1.9 million in
1996, 1995 and 1994, respectively.
In January 1996, the Company agreed to acquire certain rights in oil seed
technology from Lubrizol for $8.0 million. The Company made an initial payment
of $2.0 million and will pay $2.5 million and $3.5 million in January 1997 and
1998, respectively.
In February 1996, Lubrizol sold its entire interest in the Company, 9,502,348
shares of common stock or 36.58% of the Company's outstanding shares of common
stock, to DowElanco. DowElanco is a joint venture partnership between Dow
Chemical and Eli Lilly and Company engaged in the discovery, development,
manufacture and distribution of agricultural products used in crop protection
and production, and for industrial pest control. As of August 31, 1996,
DowElanco owned 14,614,102 shares of the Company's common stock, or 47.64% of
the Company's outstanding shares of common stock, and may acquire additional
shares of the Company's common stock subject to certain restrictions.
SPECIAL CHARGES
In connection with the acquisition of UAS and the rights in oil seed
technology from Lubrizol in 1996 and the acquisition of an additional ownership
interest in Mycogen Seeds in 1994, $10.3 million and $26.6 million,
respectively, of the purchase price was allocated to certain technologies not
yet completed and, therefore, was written-off as acquired in-process technology
as of the respective acquisition dates.
The Company's Seed segment recognized impairment losses and exit costs
totaling $13.4 million and $1.0 million, respectively, during 1996 as a result
of management's decision to dispose of or sell certain corn production plants
and related assets that did not meet quality production standards in connection
with a plan to upgrade the quality of seed production. The production plants not
sold in fiscal 1996 are expected to be sold during fiscal 1997. The fair values
of the assets were based on letters of intent from prospective buyers and
management estimates. The impairment losses and exit costs are included in
special charges in the Consolidated Statement of Operations. The carrying amount
of the assets held for sale total $1.1 million, of which $.7 million is included
in other current assets and $.4 million is included in other long-term assets in
the Consolidated Balance Sheet at August 31, 1996. Exit costs totaling $.7
million are included in other current liabilities at August 31, 1996.
During 1995, an impairment loss of $1.6 million was recognized by the Crop
Protection segment, reducing the carrying amount of a paid-up, royalty-free,
non-exclusive license included in purchased technology to its fair value as a
result of the discontinuation of a certain product development program. The
fair value was determined using discounted cash flow projections for this
product. The impairment loss is included in amortization expense in the
Consolidated Statement of Operations.
In December 1993, the Company consolidated certain manufacturing locations and
eliminated certain brand names and hybrids. This resulted in restructuring
charges during 1994 of $9.8 million for excess and
47
obsolete inventories, plant shut-down and the termination of Mycogen Seeds'
pension plan which is included in special charges in the consolidated statement
of operations.
INCOME TAXES
[The Company accounts for income taxes under the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes."] At August 31, 1996, the
Company has a federal tax net operating loss carryforward of approximately $66.8
million and a California net operating loss carryforward of approximately $12.1
million. The Company has federal and state research tax credit carryforwards
totaling approximately $2.7 million and $.5 million, respectively. The federal
tax loss and credit carryforwards will expire in years 1997 through 2011 unless
previously utilized. California tax loss and credit carryforwards, if not
utilized, will expire in years 1997 through 2001. The Company also has a
capital loss carryforward of $2.6 million which will expire in 1999 if not
utilized.
At August 31, 1996 and 1995, approximately $3.5 million and $1.5 million,
respectively, of the deferred tax assets relate to tax benefits associated with
the exercise or disqualifying disposition of stock options. Such benefits are
credited to additional paid-in capital when realized.
Foreign taxable income has been eliminated through the use of net operating
losses in the countries where the income was generated.
The Company incurred a change in ownership, as defined by Internal Revenue
Code Section 382, during 1996. Such change of ownership could limit the use in
any one year of the full amount of the net operating loss and tax credit
carryforwards previously described. However, the Company believes that the
limitation will not have a material impact upon the utilization of its
carryforwards. The Company's use of its net operating loss and tax credit
carryforwards could be further limited in the event of future cumulative changes
in stock ownership.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of August 31 are as
follows:
(In thousands) 1996 1995
- -------------------------------------------- ---------- ----------
Deferred tax assets:
Net operating loss carryforwards $ 24,120 $ 18,761
Tax basis of inventory greater than book 4,532 2,787
Reserve for impaired assets 6,150 -
Research credit carryforwards 3,247 3,418
Deferred revenue 3,131 -
Capitalized research expenditures 3,016 2,571
In-process technology 2,706 -
Tax basis of receivables greater than book 1,455 1,177
Capital loss carryforward 1,073 1,073
Other items with tax basis greater
than book - 1,309
---------- ----------
Total deferred tax assets 49,430 31,096
Less: Valuation allowance (46,633) (30,499)
---------- ----------
Net deferred tax assets 2,797 597
Tax depreciation in excess of book (2,473) -
Other net deferred tax liabilities (324) (597)
---------- ----------
Net deferred taxes $ - $ -
========== ==========
48
Due to the uncertainty surrounding the future realization of the deferred tax
assets, a valuation allowance of $46.6 million was included as a reduction of
deferred tax assets August 31, 1996.
For financial reporting purposes, net income (loss) before dividends on
preferred stock for the years ended August 31 includes the following components:
(In thousands) 1996 1995 1994
- ------------------------ ---------- ---------- ----------
Pretax income (loss):
United States $(44,440) $(17,785) $(29,474)
Foreign (2,618) 3,342 (2,156)
---------- ---------- ----------
$(47,058) $(14,443) $(31,630)
========== ========== ==========
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense for the
years ended August 31 is:
1996 1995 1994
--------- -------- --------
Tax at U.S. statutory rate 35 % 35 % 35 %
Effect of net operating losses (35)% (35)% (35)%
--------- -------- --------
0 % 0 % 0 %
========= ======== ========
SUBSEQUENT EVENTS
In September 1996, the Company purchased Morgan Seeds, Argentina's third
largest seed company, for $27 million in cash. Morgan Seeds' principal products
are corn and sunflower planting seed. The acquisition will be accounted for as
a purchase as of the acquisition date.
In September 1996, the Company acquired Lubrizol's technology and assets
relating to specialty sunflowers, including high oleic sunflowers, as well as
technology and assets relating to high oleic and high erucic rapeseed for $7.6
million. In a related transaction, the Company entered into a supply agreement
with AC Humko where by the Company will produce crude high oleic sunflower oil
exclusively for AC Humko in North America. AC Humko, a subsidiary of Associated
British Foods, is a supplier of specialty oils and shortenings, non-dairy
creamers and cheese products to the food processor, food service and retail food
industries.
In October 1996, the Company signed a letter of intent to exchange its
ownership interest in its two European subsidiaries, Mycogen S.A. and Mycogen
SRL, and other assets for an 18.75% ownership interest in Verneuil. The
transaction is subject to the completion of definitive agreements and is
expected to be completed by December 1996.
49
MYCOGEN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
(In thousands)
- ------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of period expenses accounts Deductions period
- ------------------------------------------------------------------------------------------------------
Year ended August 31, 1996
- --------------------------
Allowance for doubtful accounts $2,585 $1,990 $ -- $ (774)/1/ $3,801
Inventory allowances $4,288 $9,737 $ -- $(4,506)/2/ $9,519
Year ended August 31, 1995
- --------------------------
Allowance for doubtful accounts $3,915 $ 292 $ -- $(1,622)/1/ $2,585
Inventory allowances $2,099 $4,602 $ -- $(2,413)/2/ $4,288
/1/ Amount relates to accounts receivable written off.
/2/ Amount relates to inventory written off.
50
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Mycogen Corporation
We have audited the accompanying consolidated balance sheets of Mycogen
Corporation as of August 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended August 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Mycogen
Corporation at August 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
San Diego, California
October 11, 1996
51
MYCOGEN CORPORATION
EXHIBIT 27
FINANCIAL DATA SCHEDULE
FISCAL YEAR END: AUGUST 31, 1996
(In thousands, except per share data)
YEAR ENDED
AUGUST 31, 1996
----------------
Cash and cash items 35,854
Marketable securities 32,184
Notes and accounts receivable-trade 34,501
Allowances for doubtful accounts 3,801
Inventory 37,177
Total Current Assets 137,795
Property, Plant and Equipment 72,229
Accumulated depreciation 17,324
Total Assets 227,469
Total current liabilities 41,047
Bonds, mortgages, and similar debts -
Preferred stock-mandatory redemption -
Preferred stock-no mandatory redemption -
Common Stock 31
Other stockholders' equity 330,973
Total liabilities and stockholders'
equity 227,469
Net sales of tangible products 146,800
Total revenues 155,589
Cost of tangible goods sold 93,508
Total costs and expenses applicable to
sales and revenues 93,508
Other costs and expenses -
Provision for doubtful accounts and
notes 1,990
Interest and amortization of debt
discount -
Income before taxes and other items (47,058)
Income tax expense -
Income/loss continuing operations (47,058)
Discontinued operations -
Extraordinary items -
Cumulative effect-changes in
accounting principles -
Net income or loss (47,058)
Earnings per share-primary (1.81)
Earnings per share-fully diluted (1.81)
52
MYCOGEN CORPORATION
QUARTERLY FINANCIAL DATA
(UNAUDITED)
(In thousands, except per share data) Quarter Ended
- ------------------------------------------------------------------------------------
First Second Third Fourth
1996:
Net operating revenues $12,049 $ 35,575 $78,015 $ 21,161
Cost of operating revenues 7,824 21,891 53,406 10,387
Gross profit 4,225 13,684 24,609 10,774
Contract and other revenues 1,571 2,580 2,360 2,278
Operating expenses 13,363 41,255 24,129 33,483
Operating income (loss) (7,567) (24,991) 2,840 (20,431)
Non-operating income 155 641 681 1,614
Dividends on preferred stock 384 194 -- --
Net income (loss) applicable to commmon
shares (7,796) (24,544) 3,521 (18,817)
Net income (loss) per common share (.40) (1.00) .11 (.61)
1995:
Net operating revenues $ 9,509 $ 27,661 $55,869 $ 13,130
Cost of operating revenues 6,245 15,637 34,052 11,032
Gross profit 3,264 12,024 21,817 2,098
Contract and other revenues 1,896 1,715 1,971 1,467
Operating expenses 12,704 14,949 16,512 17,604
Operating income (loss) (7,544) (1,210) 7,276 (14,039)
Non-operating income 529 371 63 111
Dividends on preferred stock 369 373 378 383
Net income (loss) applicable to common
shares (7,384) (1,212) 6,961 (14,311)
Net income (loss) per common share (.39) (.06) .36 (.74)
The Company's fiscal quarters end in November, February, May and August.
53
COPIES OF FORM 10-K
Shareowners may reach Mycogen's Investor Relations group by calling (800) 745-
7475, between the hours of 7:30 a.m. and 4:30 p.m., Pacific time, via e-mail at
info@mycogen.com, by telefax at (619) 453-0142, or by writing to Investor
Relations, Mycogen Corporation, 5501 Oberlin Drive, San Diego, CA 92121-1718.
News releases, product information, Securities and Exchange Commission filings
including forms 10-K, 10-Q and 8-K and other company information are also
available on Mycogen's Worldwide Web site: http://www.mycogen.com.
ANNUAL MEETING
The Annual Meeting of Mycogen Corporation will be held at 10 a.m. on December
12, 1996, in the Corn Conference room at the Company's headquarters located at
5501 Oberlin Drive, San Diego, California. All shareowners are cordially
invited to attend.
54