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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO______________
COMMISSION FILE NUMBER 000-31167
GENENCOR INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 16-1362385
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
925 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 846-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------
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 REPORT(S), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS
YES [ ] NO [X]
------------
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS NUMBER OF SHARES OUTSTANDING AT SEPTEMBER 5, 2000
COMMON STOCK, PAR VALUE $.01 PER SHARE 59,906,500
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TABLE OF CONTENTS
<TABLE>
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements........................................................................................
Condensed Consolidated Unaudited Balance Sheets as of June 30, 2000 and December 31, 1999................... 3
Condensed Consolidated Unaudited Statements of Operations for the three and six months ended June 30, 2000
and 1999.................................................................................................. 4
Condensed Consolidated Unaudited Statements of Cash Flows for the six months ended June 30, 2000 and 1999... 5
Notes to Condensed Consolidated Unaudited Financial Statements.............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................................. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................................... 16
Item 2. Changes in Securities and Use of Proceeds................................................................... 16
Item 3. Defaults Upon Senior Securities............................................................................. 17
Item 4. Submission of Matters to a Vote of Security Holders......................................................... 17
Item 5. Other Information........................................................................................... 17
Item 6. Exhibits and Reports on Form 8-K............................................................................ 17
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 52,203 $ 39,331
Trade accounts receivable (less allowance for doubtful accounts of $2,056 in
2000 and $1,814 in 1999).................................................... 47,288 48,081
Inventories.................................................................... 50,220 50,716
Other current assets........................................................... 12,814 20,370
----------- -----------
Total current assets...................................................... 162,525 158,498
Property, plant and equipment, net............................................... 209,935 215,218
Intangible assets, net........................................................... 74,406 80,448
Other assets..................................................................... 47,683 45,136
----------- -----------
Total assets.............................................................. $ 494,549 $ 499,300
=========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable.................................................................. $ 3,963 $ 5,774
Current maturities of long-term debt........................................... -- 10,000
Accounts payable and accrued expenses.......................................... 42,705 43,506
Other current liabilities...................................................... 14,671 16,804
------------ -----------
Total current liabilities................................................. 61,339 76,084
Long-term debt................................................................... 144,263 142,486
Other long-term liabilities...................................................... 25,342 27,669
----------- -----------
Total liabilities......................................................... 230,944 246,239
----------- -----------
Redeemable preferred stock:
7 1/2% cumulative series A preferred stock, without par value, authorized
1,000 shares, 970 shares issued and outstanding............................. 151,563 147,925
Shareholders' equity:
Common stock, par value $0.01 per share, 200,000,000
shares authorized, 51,856,500 and 50,000,000 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively........................... 519 500
Additional paid-in capital..................................................... 209,605 186,326
Deferred stock-based compensation.............................................. (4,923) --
Notes receivable for common stock.............................................. (18,008) --
Accumulated deficit............................................................ (30,507) (48,100)
Accumulated other comprehensive loss........................................... (44,644) (33,590)
----------- -----------
Total shareholders' equity................................................ 112,042 105,136
----------- -----------
Total liabilities, redeemable preferred stock and shareholders' equity.... $ 494,549 $ 499,300
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
3
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GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
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Revenues:
Product revenue ........................................... $ 76,626 $ 75,439 $ 150,266 $ 148,041
Fees and royalty revenues ................................. 3,065 2,109 9,124 4,373
------------ ------------ ------------ ------------
Total revenues ....................................... 79,691 77,548 159,390 152,414
Operating expenses:
Cost of product sold ...................................... 43,263 44,156 85,261 87,656
Research and development .................................. 12,761 11,769 24,585 21,791
Sales, marketing and business
development ............................................ 7,181 6,740 12,846 11,902
General and administrative ................................ 6,846 6,503 12,388 11,403
Amortization of intangible assets ......................... 2,613 2,380 5,285 4,772
Other expense/(income) .................................... 318 250 19 107
------------ ------------ ------------ ------------
Total operating expenses ............................. 72,982 71,798 140,384 137,631
------------ ------------ ------------ ------------
Operating income ............................................ 6,709 5,750 19,006 14,783
Non operating expenses/(income):
Investment income ......................................... (1,531) -- (16,577) --
Interest expense .......................................... 2,610 2,523 5,270 5,026
Interest income ........................................... (784) (175) (1,344) (315)
------------ ------------ ------------ ------------
Total non operating expenses/(income) ................ 295 2,348 (12,651) 4,711
------------ ------------ ------------ ------------
Income before provision for income taxes .................... 6,414 3,402 31,657 10,072
Provision for income taxes .................................. 1,726 849 10,426 2,444
------------ ------------ ------------ ------------
Net income .................................................. $ 4,688 $ 2,553 $ 21,231 $ 7,628
============ ============ ============ ============
Net income available to holders of common stock ........... $ 2,869 $ 734 $ 17,593 $ 3,990
============ ============ ============ ============
Earnings per common share:
Basic .................................................. $ 0.06 $ 0.01 $ 0.35 $ 0.08
============ ============ ============ ============
Diluted ................................................ $ 0.05 $ 0.01 $ 0.33 $ 0.08
============ ============ ============ ============
Weighted average common shares outstanding:
Basic .................................................. 51,237,667 50,000,000 50,618,833 50,000,000
============ ============ ============ ============
Diluted ................................................ 53,574,886 50,000,000 52,695,810 50,000,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
4
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GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six months ended June 30,
2000 1999
-------- --------
Cash flows from operating activities:
Net income ........................................... $ 21,231 $ 7,628
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 17,972 17,243
Loss on disposition of property, plant and
equipment ..................................... -- 469
Gain on sale of marketable securities ............ (16,577) --
(Increase) decrease in operating assets:
Trade accounts receivable ..................... (358) (5,761)
Inventories ................................... (905) 5,727
Other assets .................................. (3,001) 1,223
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses ......... 19 (4,742)
Other liabilities ............................. (886) 2,595
-------- --------
Net cash provided by operating activities ..... 17,495 24,382
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment ........... (11,115) (7,561)
Proceeds from the sale of marketable securities ...... 17,568 --
Sale-leaseback of facility ........................... -- 4,194
Other ................................................ -- (2,869)
-------- --------
Net cash provided by (used in) investing
activities..................................... 6,453 (6,236)
-------- --------
Cash flows from financing activities:
Net payments on revolving credit facilities .......... -- 6,000
Net payments on notes payable of Chinese affiliate ... -- (1,300)
Payment of long-term debt ............................ (10,000) --
-------- --------
Net cash (used in) provided by financing
activities .................................... (10,000) 4,700
-------- --------
Effect of exchange rate changes on cash ................ (1,076) (1,497)
-------- --------
Net increase in cash and cash equivalents .............. 12,872 21,349
Cash and cash equivalents-- beginning of period ........ 39,331 12,792
-------- --------
Cash and cash equivalents-- end of period .............. $ 52,203 $ 34,141
======== ========
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
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GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
1 -- BASIS OF PRESENTATION
The condensed consolidated unaudited financial statements for the three
and six month periods ended June 30, 2000 and 1999 should be read in conjunction
with the Company's consolidated financial statements and related footnotes for
the year ended December 31, 1999, as included in the Company's Registration
Statement on Form S-1, as amended, dated July 27, 2000. Such interim financial
statements have been prepared in conformity with the rules and regulations of
the U.S. Securities and Exchange Commission. Certain disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations pertaining to interim financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for fair presentation have been included. The results of operations of
any interim period are not necessarily indicative of the results of operations
for the full year.
2 -- EARNINGS PER SHARE
In 1999, the Company adopted SFAS No. 128, "Earnings per Share," which
requires the disclosure of basic and diluted earnings per share. Basic earnings
per share is computed based on the weighted average number of common shares
outstanding during the period. In arriving at income available to common
shareholders, undeclared and unpaid dividends on redeemable preferred stock of
$1,819 were deducted for each quarter presented.
Diluted earnings per share reflects the potential dilution that could occur
if dilutive securities and other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. As there were no dilutive securities
in 1999, there is no effect on the numerator or denominator between the
computations of basic and diluted earnings per common share in the 1999 periods
presented.
As a result of stock options outstanding under the Company's Stock Option
and Stock Appreciation Right Plan, there were dilutive securities for the three
and six months ended June 30, 2000. The weighted-average impact of these has
been reflected in the calculation of diluted earnings per share for the
respective periods presented.
3 -- INVENTORIES
Inventories consist of the following:
June 30, December 31,
2000 1999
---- ----
Raw materials............................ $ 7,237 $ 5,730
Work-in-progress......................... 8,874 8,024
Finished goods........................... 34,109 36,962
----------- ---------
Inventories............................ $ 50,220 $ 50,716
=========== =========
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GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4 -- NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following:
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June 30, December 31,
2000 1999
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<S> <C> <C>
6.82% senior notes with payments of $28,000 due
annually, commencing in 2002........................... $ 140,000 $ 140,000
Note payable to Gist-Brocades (G-b), as part of
a 1995 acquisition, to finance the Company's
purchase of a note from G-b between a third
party and G-b. Interest at 5% is payable on
the note only to the extent interest is paid
to the Company by the third party. Principal
was paid in a balloon payment in June 2000............. -- 10,000
Notes payable of the Company's Chinese affiliate
with principal payments due in 2000 and 2001.
Interest rates on the notes range from 6.14%
to 6.6%................................................ 3,624 7,586
Other.................................................... 639 674
---------- -----------
144,263 158,260
Less: Current maturities................................. -- (15,774)
---------- -----------
Long-term debt......................................... $ 144,263 $ 142,486
========== ===========
</TABLE>
5 -- SHAREHOLDERS' EQUITY
Accumulated other comprehensive loss consists of the following:
Foreign Marketable Accumulated
Currency Securities Other
Translation Valuation Comprehensive
Adjustment Adjustment Loss
----------- ----------- -------------
Balances, December 31, 1999....... $ (38,061) $ 4,471 $ (33,590)
Current period change........... (7,405) (3,649) (11,054)
---------- --------- ---------
Balances, June 30, 2000........... $ (45,466) $ 822 $ (44,644)
========== ========= =========
The change in the marketable securities valuation adjustment for the
six months ended June 30, 2000 includes a $5,888 ($9,589 pre-tax) reduction of
accumulated other comprehensive loss related to realized gains from the sale of
marketable equity securities. The remaining $2,239 ($3,647 pre-tax) relates to
unrealized holding gains on the Company's available-for-sale securities.
7
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GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
6 -- STOCK OPTION AND STOCK APPRECIATION RIGHT PLAN
On May 3, 2000, the Company issued an additional 273,500 options under the
Genencor International, Inc. Stock Option and Appreciation Right Plan (the Plan)
at an exercise price of $9.70 per share. The Company determined that the
estimated market value of its common stock exceeded the exercise price at the
time of grant. As a result, the Company recorded deferred stock-based
compensation of $2,642 in connection with the option grants. Stock-based
compensation expense will be recognized over the vesting period of three years
beginning in May 2000.
On April 28, 2000, the Board of Directors of the Company allowed certain key
employees to accelerate the exercise of 1,856,500 stock options granted under
the Plan and purchase restricted shares of common stock. The restricted shares
were purchased through the use of notes receivable from the employees. The
vesting provisions of the restricted common stock agreements are the same as
those of stock options under the Plan. The shares purchased are held in escrow
by the Company until the note has been fully paid. The notes receivable are due
and payable over four years. Interest is charged on the notes at a fixed rate of
6.71 percent. The notes receivable contain a provision that allows the Company
to repurchase the restricted common stock under certain conditions. The total
notes receivable for common stock were $18,008.
7 -- INVESTMENT INCOME
During the three month and six month periods ended June 30, 2000, the
Company realized a gain on the sale of marketable securities in the amount of
$1,531 and $16,577, respectively. These amounts are included in investment
income as part of total non operating income for the periods presented.
8 -- INCOME TAXES
The Company's effective income tax rate for the six months ended June 30,
2000 of 33% includes the effect of $16.6 million pre-tax income resulting from
the gain on sale of marketable equity securities in the United States which was
tax-effected at a marginal rate of 38.6%.
9 -- RELATED PARTY TRANSACTIONS
During the three months ended June 30, 2000, the Company made loans to
officers of the Company in accordance with the Senior Management Relocation
Policy for their permanent relocation to the Company's California facility. The
notes reflecting the loans, which totaled $2,856, are non-interest bearing and
mature in five and one-half years. Accordingly, interest income is imputed at
6.71% - 6.80% per year on the notes, with an offset recorded as compensation
expense.
10 -- SUBSEQUENT EVENTS
Additional Stock Options
Between July 1 and July 31, 2000, the Company issued an additional 333,425
stock options at a weighted average exercise price of $13.90 per share. The
Company determined that the estimated market value of its common stock exceeded
the exercise price at the time of grant. As a result, the Company will record
deferred stock-based compensation of $1,822 in conjunction with the option
grants. Stock-based compensation expense will be recognized over the vesting
period of three years beginning in July 2000.
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GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10 -- SUBSEQUENT EVENTS - CONTINUED
Restated Certificate of Incorporation
On July 25, 2000, the Company increased the authorized number of shares of
common stock to 200,000,000 with a par value of $0.01.
Stock Split
On July 25, 2000, the Company effected a one-for-two reverse stock split of
its common stock. All references to share and per share amounts in these
financial statements have been restated retroactively to reflect this split.
Initial Public Offering
The Company completed its initial public offering of 8,050,000 shares of
common stock at $18.00 per share, including 7,000,000 shares of common stock
issued July 28, 2000 in the initial offering and 1,050,000 shares of common
stock issued August 25, 2000 pursuant to the underwriters' over-allotment
option. The combined net proceeds raised by the Company from the initial
offering and the over-allotment option were $133,257.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the notes to those statements included in our Registration
Statement on Form S-1, dated July 27, 2000, as amended, and the unaudited
interim consolidated financial statements included elsewhere in this report.
This discussion may contain forward-looking statements that involve certain
risks and uncertainties. Our actual results could differ materially from those
anticipated by forward-looking information due to many factors, including those
identified below and in our Registration Statement on Form S-1, dated July 27,
2000, as amended.
OVERVIEW
We are engaged in the discovery, development, manufacturing and marketing of
biotechnology products for the industrial chemicals, agriculture and health care
markets. Our current revenues result primarily from the sale of novel enzymes to
the cleaning, grain processing and textile industries, with the remainder from
research funding and technology fees and royalties. We intend to apply our
proven and proprietary technologies and manufacturing capabilities to expand
sales in our existing markets and address new opportunities in the health care,
agriculture and industrial chemicals markets. We have formed, and plan to
continue to form, strategic alliances with market leaders to collaborate with us
to develop and launch products.
We manufacture our products through our eight manufacturing facilities
located in the United States, Finland, Belgium, China and Argentina. We conduct
our sales and marketing activities through our direct sales organizations in the
United States, the Netherlands, Singapore, Japan and Argentina. In 1999, we
derived approximately 60% of our revenues from our foreign operations. To date
in 2000, we have derived approximately 49% of our revenues from our foreign
operations.
SUMMARY OF RESULTS
For the three months ended June 30, 2000, net income available for common
shareholders increased to $2.9 million, or $0.05 per diluted share, from $0.7
million, or $0.01 per diluted share for the three months ended June 30, 1999.
For the six months ended June 30, 2000, net income available for common
shareholders increased to $17.6, or $0.33 per diluted share, from $4.0, or $0.08
per diluted share, for the six months ended June 30, 1999. Net income for both
periods in 2000 was favorably impacted by a gain from the sale of marketable
equity securities. The after-tax impact to net income for these one-time gains
was $0.9 million and $10.2 million for the three and six month periods ended
June 30, 2000, respectively.
RECENT DEVELOPMENTS
In April 2000, we were the sole recipient of a $17 million contract from the
U.S. Department of Energy's National Renewable Energy Laboratory for the
development of an enzymatic process to convert biomass to bioethanol. The
contract will be awarded over three years, and is part of the DOE's Biofuels
Program. The DOE has determined that in order to feasibly convert biomass to
ethanol, costs of cellulase enzymes suitable for biomass hydrolysis would have
to be lowered significantly. We will work to reduce the current cellulase costs.
This will involve a multi-disciplinary effort that integrates the discovery of
novel cellulolytic activities, protein engineering, and overall production
technologies including expression systems, fermentation, recovery, formulation
and manufacturing.
Also during the three months ended June 30, 2000, we expanded our alliance
with The Procter & Gamble Company, as evidenced by three agreements. We are
party to a new research agreement and a new technology transfer agreement, each
dated June 30, 2000. These two agreements expire on June 30, 2003. Together, the
agreements provide a framework for cooperation in areas to be agreed,
particularly laundry and cleaning products. The research agreement provides for
funding of $1.5 million over the term of the agreement. We are also party to a
commercialization agreement dated April 25, 2000 relating to the development of
proteins with reduced allergic potential for skin care products. This agreement
provides for milestone payments up to $5.0 million and commercial terms,
including royalties not to exceed $10 million and product sales, contingent on
the successful development and commercialization of one or more products. This
agreement remains in effect through execution of a supply agreement or
expiration of cooperative product development efforts.
In June 2000, we launched a new product, which is a starch desizing enzyme
for use in the textile industry that works on fabrics sized with starch or
starch derivatives to create stiffness in the materials. The enzyme's broad pH
profile can provide savings in processing time and reduced energy costs to
10
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textile chemical formulators as it allows the combination of previously
separate processes into one step.
In August 2000, we expanded licenses from Medarex, Inc. and licensed a
key patent family from Pharming Group NV. Both developments are important for
advancing our transgenic mouse program. The licenses from Medarex include
rights to develop, generate and use mice with transplanted human cells for
research, development and commercialization of non-antibody therapeutic
products. The licensed Pharming patents cover the insertion of greater than 50
kb DNA into a mammalian cell or animal. We believe that our i-mune(TM)
transgenic mouse model will provide an important tool for the modeling of human
infectious diseases and autoimmune disorders, as well as other diseases
affecting the immune system, and facilitate the development of new products for
the consumer and health care markets.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2000 and 1999
Revenues. Total revenues for the three months ended June 30, 2000 increased
$2.2 million, or 3% to $79.7 million from the three months ended June 30, 1999,
due to increases in both product revenues and fees and royalty revenues.
Product Revenues. Product revenues for the three months ended June 30, 2000
increased $1.2 million, or 2%, to $76.6 million from the three months ended June
30, 1999. In the three months ended June 30, 2000, unit volume grew 9%, while
average prices fell 3%. Volume increased primarily due to increased protease
enzyme sales to our largest customer, sales of a new enzyme based automatic
dishwasher cleaning product, and continued business expansion with our grain
processing and textile customers.
For the three months ended June 30, 2000, product revenues in North America
showed a $3.1 million, or 9%, increase to $37.7 million over the three months
ended June 30, 1999 due primarily to increased protease sales to our largest
customer and increased sales to existing grain processing customers. Revenues in
Asia benefited from increased market penetration. In total, product revenues in
Asia increased $2.1 million, or 29%, to $9.3 million in the three months ended
June 30, 2000. Europe showed a decrease of $5.3 million, or 18%, to $24.0
million primarily driven by the impact of the stronger U.S. dollar against the
Euro and decreased volume with cleaning customers. Latin American product
revenues increased $1.3 million, or 30%, to $5.6 million due to improving
economic conditions impacting our customers in Brazil.
Approximately 30% of our product revenues are denominated in Euros, and the
fluctuations in the currency exchange rate against the U.S. dollar can have a
significant impact on our reported product revenues. However, because we incur
most of the costs associated with our Euro revenues in Euros, the impact on net
income is minimized. In the three months ended June 30, 2000, the strengthening
of the U.S. dollar against foreign currencies caused a reduction in our product
revenues of $2.8 million, or 4% from the three months ended June 30, 1999.
Fees and Royalty Revenues. Our fees and royalty revenues consist primarily
of funded research. Revenues generated from research funding result from
collaborative agreements with various parties, including the U.S. Government,
under which we perform research activities and receive fee based revenues that
partially reimburse us for expenses incurred. Under such agreements, we retain a
proprietary interest in the products and technology developed. Overall, funded
research revenues for the three months ended June 30, 2000 increased $0.8
million, or 40%, to $2.8 million from the three months ended June 30, 1999. Our
funded research revenue as it relates to U.S. Government collaborations
increased $0.7 million, or 175%, to $1.1 million from the three months ended
June 30, 1999 to 2000 primarily due to a new collaboration with the National
Renewable Energy Laboratory for the development of an improved enzymatic
process to convert biomass to bioethanol.
Royalties increased $0.2 million, or 100%, to $0.2 million in the three
months ended June 30, 2000 due to an intellectual property agreement with one of
our customers, which resulted from the resolution of patent infringement issues
during the three months ended March 31, 2000.
Operating Expenses
Cost of Product Sold. Cost of product sold decreased $0.9 million, or 2%, to
$43.3 million in the three months ended June 30, 2000 from the three months
ended June 30, 1999 even though the increased sales volume for the quarter
increased costs $1.0 million. This was based on favorable impacts of
approximately $0.6 million from cost reduction efforts, $1.9 million due to the
impact of the stronger U.S. dollar against foreign currencies, and $0.6 million
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due to a decrease in long-term incentive compensation expense. These decreases
were partially offset by increases in our distribution costs of $1.1 million.
Gross Profit and Margins from Product Sold. Gross profit from product sold
for the three months ended June 30, 2000 increased $2.1 million, or 7%, to $33.4
million from the three months ended June 30, 1999. This increase was caused by
the significant product revenue related factors of a 9% increase due to volume
and a 3% decrease in average prices. These product revenue related factors were
combined with a decrease of 2% in cost of product sold due to the favorable
impacts of cost reduction efforts and reductions in other manufacturing costs,
offset by increases in our distribution costs. This net increase was partially
offset by a $0.9 million reduction in gross profit due to the impact of the
stronger U.S. dollar against foreign currencies. As a result of these factors,
gross margin on product revenue increased to 44% in the three months ended
June 30, 2000 from 41% in the three months ended June 30, 1999.
Research and Development. Research and development expenses primarily
consist of the personnel related, consulting, and facilities costs incurred in
connection with our research activities conducted in Palo Alto, California, and
Leiden, the Netherlands. These expenses increased $1.0 million, or 8%, to $12.8
million in the three months ended June 30, 2000 from the three months ended June
30, 1999 as we continue to increase our investment in technology platforms and
enzyme discovery for new markets, partially offset by a $0.9 million reduction
in long-term incentive compensation expense. As a part of total research and
development expenses, estimated expenses related to research collaborations
partially funded by customers decreased approximately $1.4 million, or 33%, to
$2.9 million in the three months ended June 30, 2000 from the three months ended
June 30, 1999. We currently anticipate that our research and development
expenditures as a percentage of revenues will grow in the near future, as well
as other business expenses related to research and development activities in
conjunction with our growth.
Sales, Marketing and Business Development. Sales, marketing and business
development expenses primarily consist of the personnel related and marketing
costs incurred by our global sales force. Total expenses increased $0.4 million,
or 6%, to $7.2 million in the three months ended June 30, 2000 from the three
months ended June 30, 1999 due to personnel related costs, such as an increase
in salaries and benefits, which were partially offset by a $0.5 million
decrease in long-term compensation expense, and an increase in the reserve for
doubtful accounts at our Chinese affiliate of $0.2 million.
General and Administrative. General and administrative expenses include the
costs of our corporate executive, finance, information technology, legal, human
resources, and communications functions. In total, these expenses increased $0.3
million, or 5%, to $6.8 million in the three months ended June 30, 2000 from the
three months ended June 30, 1999 due primarily to increases in salaries and
benefits of $0.3 million, in third party services of approximately $0.3 million,
and an increase of approximately $0.3 million related to new office space in
Rochester, New York. These increases were partially offset by a $0.6 million
decrease in long-term incentive compensation expense in the three months ended
June 30, 2000 from the three months ended June 30, 1999.
Amortization of Intangible Assets. We amortize our intangible assets,
consisting of patents, licenses, technology and goodwill, on a straight-line
basis over their estimated useful lives, with a weighted average life of 14
years. Amortization expense increased $0.2 million, or 8%, to $2.6 million in
the three months ended June 30, 2000 from the three months ended June 30, 1999
primarily due to goodwill related to the 1999 acquisition of Genencor (Wuxi)
Bio-Products.
Other Expense and Income. Other expense and income relates primarily to
foreign currency exchange gains and losses on transactions denominated in other
than our functional currency.
Deferred Compensation and Other Non-Cash Compensation Charges. We determine
deferred compensation for options granted to employees as the difference between
the grant price and the fair value of our common stock, as estimated for
financial reporting purposes, on the date we granted the options. In connection
with the grant of stock options to employees on May 3, 2000, we recorded
deferred compensation expense of approximately $2.6 million. We recorded this
amount as a component of shareholders' equity and will amortize it as a charge
to operations over the vesting period of the options. In total, amortization of
deferred compensation expense for the three months ended June 30, 2000 was $0.4
million. We included these amounts in cost of product sold and research and
development, sales, marketing and business development, and general and
administrative expenses for all periods presented.
Non Operating Expenses and Income
Investment Income. Investment income represents gains from the sale of
marketable equity securities. In the three months ended June 30, 2000 investment
income increased $1.5 million, or 100%, from the three months ended June 30,1999
due to the sale of marketable equity securities.
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Income Taxes. The effective income tax rate for the three months ended June
30, 2000 was 27% as compared to 25% for the three months ended June 30, 1999.
The effective tax rate for the current quarter increased primarily due to the
$1.5 million pre-tax income resulting from the sale of marketable equity
securities in the United States. This income was tax effected at a marginal rate
of 38.6%.
Comparison of the Six Months Ended June 30, 2000 and 1999
Revenues. Total revenues for the six months ended June 30, 2000 increased
$7.0 million, or 5%, to $159.4 million from 1999, primarily due to an increase
in fees and royalty revenues.
Product Revenues. Product revenues in the six months ended June 30, 2000
increased $2.2 million, or 1%, to $150.3 million from 1999. Without the impact
of the stronger U.S. dollar against foreign currencies in 2000 versus 1999,
product revenues in the six months ended June 30, 2000 would have further
increased by 4%. In the six months ended June 30, 2000, unit volume grew 8%,
while average prices fell 2%. Volume increased primarily due to increased
protease enzyme sales to our largest customer and increased sales volume with
existing grain processing customers.
Regionally, North American product revenues increased $6.9 million, or 11%,
to $72.2 million driven primarily by cleaning and grain processing sales, but
European product revenues declined $10.3 million, or 17%, to $51.1 million due
primarily to lower cleaning sales and the impact of currency exchange rates. In
the six months ended June 30, 2000 our product revenues in Latin America
increased $1.6 million, or 19%, to $9.9 million from 1999 due primarily to
increased sales to our largest Latin American customer. Product revenues in
Asia benefited from increased market penetration and the acquisition of an
ownership interest in Genencor (Wuxi) Bio-Products, which reported $3.9 million
in product revenues in the six months ended June 30, 2000 compared to $1.9
million in 1999.
Fees and Royalty Revenues. Our fees and royalty revenues consist primarily
of funded research and royalties. Overall, funded research revenues in the six
months ended June 30, 2000 increased $1.1 million, or 26%, to $5.3 million from
1999. For the same period, our funded research revenue, as it relates to U.S.
Government collaborations, increased $0.7 million, or 64%, to $1.8 million from
1999 to 2000 primarily due to funding provided by the National Renewable Energy
Laboratory to develop an improved enzymatic process to convert biomass into
bioethanol. For the same period, funded research revenues provided by customers
increased $0.4 million, or 13%, to $3.5 million from 1999 to 2000 primarily due
to an increase in funding under our collaborative research and development
agreement with E.I. du Pont de Nemours and Company to develop and commercialize
a biologically derived intermediate for the production of a new type of
polyester.
Royalties increased to $3.7 million in the six months ended June 30, 2000
from $0.1 million for the same period in 1999 due primarily to the favorable
resolution of a patent infringement issue with a customer, for which one-time
royalties of $3.5 million were received during the first quarter of 2000. These
one-time royalties pertain to previous sales, using patented technology, made by
the customer to third parties. The related intellectual property agreement
provides for future royalties.
Operating Expenses
Cost of Product Sold. Cost of product sold decreased $2.4 million, or 3%, to
$85.3 million in the six months ended June 30, 2000 from 1999 even though
increased sales volume increased costs $2.2 million. This was driven primarily
by favorable impacts of cost reduction efforts of approximately $2.5 million,
reductions due to the impact of the stronger U.S. dollar against foreign
currencies of $4.2 million, and a decrease in long-term incentive compensation
expense of $0.5 million. These reductions were partially offset by increases in
our distribution costs of $2.4 million and in other costs of approximately
$0.2 million.
Gross Profit and Margins from Product Sold. Gross profit from product sold
in the six months ended June 30, 2000 increased $4.6 million, or 8%, to $65.0
million from 1999. This increase was caused by significant product revenue
related factors including an 8% increase due to unit volume and an average
price decline of 2%. These product revenue related factors were combined with
a decrease of 3% in cost of product sold due to the favorable impacts of cost
reduction efforts and other reductions in our manufacturing costs offset by
increases in our distribution costs. This net increase was partially offset by
a $2.3 million decrease due to the impact of the stronger U.S. dollar against
foreign currencies. As a result of these factors, gross margin on product
revenue increased to 43% in the six months ended June 30, 2000 from 41% in 1999.
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Research and Development. These expenses increased $2.8 million, or 13%, to
$24.6 million in the six months ended June 30, 2000 from 1999 as we increased
our investment in technology platforms and product discovery for new markets.
The increase from 1999 was partially offset by a decrease in long-term incentive
compensation expense of $0.9 million. As a part of total research and
development expenses, estimated expenses related to research collaborations
partially funded by customers decreased approximately $1.0 million, or 13%, to
$6.6 million in the six months ended June 30, 2000 from 1999.
Sales, Marketing and Business Development. Total expenses increased $0.9
million, or 8%, to $12.8 million in the six months ended June 30, 2000 from
1999, primarily due to an increase in personnel related costs, such as salaries
and benefits, which were partially offset by a $0.4 million decrease in
long-term incentive compensation expense, and an increase in the reserve for
doubtful accounts at our Chinese affiliate of $0.2 million.
General and Administrative. These expenses increased $1.0 million, or 9%, to
$12.4 million in the six months ended June 30, 2000 from 1999 due primarily to
increased salaries and benefits of $0.5 million, increased third party services
of $0.4 million, and increased costs related to new office space in Rochester,
New York of approximately $0.5 million. These increases were partially offset by
decreased long-term incentive compensation expense.
Amortization of Intangible Assets. Amortization expense increased $0.5
million, or 10%, to $5.3 million in the six months ended June 30, 2000 from 1999
due primarily to amortization of goodwill resulting from the acquisition of
Genencor (Wuxi) Bio-Products Company, Ltd.
Other Expense and Income. Other expense and income relates primarily to
foreign currency exchange gains and losses on transactions denominated in other
than our functional currency.
Deferred Compensation and Other Non-Cash Compensation Charges. We determine
deferred compensation for options granted to employees as the difference between
the grant price and the fair value of our common stock, as estimated for
financial reporting purposes, on the date we granted the options. In connection
with the grant of stock options to employees during the six months ended June
30, 2000, we recorded deferred compensation expense of approximately $5.3
million. We recorded this amount as a component of shareholders' equity and will
amortize it as a charge to operations over the vesting period of the options. In
total, amortization of deferred compensation expense for the six months ended
June 30, 2000 was $0.4 million. We included these amounts in cost of product
sold and research and development, sales, marketing and business development,
and general and administrative expenses for all periods presented.
Non Operating Expense and Income
Investment Income. Investment income represents gains from the sale of
marketable equity securities for the six months ended June 30, 2000. Investment
income increased $16.6 million, or 100%, from the same period in 1999 due to the
sale of marketable equity securities.
Income Taxes. Several factors affected our effective income tax rate in
2000, including the statutory income tax rate in foreign jurisdictions,
amortization of intangible assets which is not deductible for tax purposes, and
research and experimental tax credits. For the six months ended June 30, the
effective income tax rate for 2000 was 33% compared with 24% during the same
period in 1999. For the six months ended June 30, 2000, the effective rate
includes the effect of the $16.6 million pre-tax income resulting from the sale
of marketable equity securities and a $3.5 million pre-tax gain from the
settlement of certain patent infringent issues, both in the United States.
These items were tax effected at a marginal rate of 38.6%. We are subject to a
tax ruling in the Netherlands that reduces the local effective income tax rate
from 35% to 17.5%. This ruling will expire at the end of 2005.
LIQUIDITY AND CAPITAL RESOURCES
Our funding needs consist primarily of capital expenditures, research and
development activities, sales and marketing expenses, and general corporate
purposes. We have financed our operations primarily through cash from the sale
of products, research and development funding from partners, government grants,
and short-term and long-term borrowings.
We believe that our current cash balances plus funds to be provided from our
current year operating activities will satisfy our funding needs over the next
twelve months. We believe that the proceeds from our initial public offering in
July 2000, including those received from the underwriters' exercise of their
over-allotment option in August 2000, plus funds to be provided from our
operating activities will adequately fund our anticipated long-term needs
thereafter. Factors that could negatively impact our cash position include,
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but are not limited to, future levels of product, fees and royalty revenues,
expense levels, capital expenditures, acquisitions, and foreign currency
exchange rate fluctuations.
As of June 30, 2000, cash and cash equivalents totaled $52.2 million, which
we invested in short-term instruments including commercial paper, institutional
money market funds and bank deposits. The net proceeds from our offering of
$133.3 million, including $17.6 million from the exercise of the underwriters'
over-allotment option in August 2000, are also invested in short-term
instruments.
Cash provided by operations was $17.5 million and $24.4 million for the
first six months of 2000 and 1999, respectively. The decrease of $6.9 million in
the first six months of 2000 from the first six months of 1999 was generated
principally by operating earnings, net of non-cash items such as depreciation
and amortization, and changes in operating assets and liabilities.
Cash provided by investing activities was $6.5 million in the first six
months of 2000 compared to a use of $6.2 million during the first six months of
1999. This difference of $12.7 million was driven by proceeds from the sale of
marketable securities in 2000, offset by one-time events that occurred during
1999, such as completion of a sale/leaseback transaction, the acquisition of
Genencor (Wuxi) Bio-Products, and an equity investment of $1.5 million in
Prodigene, Inc. Capital expenditures totaled $11.1 million in 2000 compared with
$7.6 million in 1999. A significant portion of this spending included process
improvement projects at our manufacturing and research and development
facilities and information technology enhancements.
Cash used in financing activities of $10.0 million during the first six
months of 2000 resulted from the June 2000 payment of a long-term note to
Gist-Brocades (G-b) related to the 1995 acquisition of the G-b enzyme business.
Cash provided by financing activities was $4.7 million in 1999, driven primarily
by an increase in our outstanding borrowings on our revolving credit facilities.
There were no dividends paid to common shareholders for the first six months of
2000 and 1999. We currently intend to retain future earnings to finance the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of our board of directors and will depend upon our
financial condition, results of operations, capital requirements, general
business conditions and other factors that the board of directors may deem
relevant, including covenants in our debt instruments that may limit our ability
to declare and pay cash dividends on our capital stock. Covenants in our senior
note agreement restrict the payment of dividends or other distributions in cash
or other property to the extent the payment puts us in default of these
covenants. Such covenants include, but are not limited to, maintaining a debt to
total capitalization of at least 55% and a maximum ratio of debt to EBITDA of
3.5:1.
We currently have a $30.0 million line of credit with a commercial bank,
which is available for general corporate purposes. At June 30, 2000 there were
no borrowings under the agreement. The line of credit matures on the earlier of
November 6, 2000, or when we execute a new revolving credit agreement. Before
the existing line of credit matures, we intend to execute a new agreement. Our
long-term debt consists primarily of $140.0 million in senior notes issued in
1996 to certain institutional investors. These notes bear interest at 6.82% and
are payable in annual installments of $28.0 million commencing in March 2002. We
are currently in compliance with all of the financial covenants included in the
senior note agreement.
MARKET RISK
Foreign currency risk and interest rate risk are the primary sources of our
market risk. Foreign operations, mainly denominated in Euros, accounted for
approximately 49% of our 2000 revenues. We believe that we mitigate our risk due
to foreign currency exchange rate fluctuation by our strategy of locating our
manufacturing facilities so that the costs are denominated in the same currency
as our product revenues. We manage the foreign currency exposures that remain
through the use of foreign currency forward contracts and currency options. We
do not use these instruments for speculative purposes.
As of June 30, 2000, cash and short-term investments totaled $52.2 million.
Of this amount, $20.1 million was denominated in Euros. Our short-term debt
outstanding was not significant as of June 30, 2000. To the extent U.S. dollar
and Euro interest rates decline, the return on the cash investments would also
decline. To the extent such deposits remain outstanding, we will be subject to
risks associated with future foreign exchange fluctuations. If we were to borrow
from our line of credit, our cost of short-term debt would be sensitive to
changes in the general level of interest rates in the United States.
Our subsidiary based in the Netherlands, which adopted the Euro as its
functional currency, has average annual U.S. Dollar and Japanese Yen denominated
revenues of approximately $40.0 million and $4.0 million, respectively. We use
foreign currency forward contracts and currency options to hedge these
anticipated revenues. At June 30, 2000, we had total Japanese Yen denominated
forward contracts of approximately $0.6 million. We had U.S. dollar
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denominated option contracts with a principal value of approximately $25.1
million. We also use option contracts to hedge Euro denominated intercompany
transactions. As of June 30, 2000, the principal value of these contracts was
approximately $10.1 million. All of these contracts mature between July 15 and
December 15, 2000.
Interest Rates
Our interest income is sensitive to changes in the general level of interest
rates primarily in the United States and Europe. In this regard, changes in the
U.S. dollar and Euro currency rates affect the interest earned on our cash
equivalents, short-term investments, and long-term investments.
Foreign Currency Exposure
We conduct business throughout the world. To date, we have derived
approximately 49% of our 2000 revenues and approximately 47% of our operating
income from foreign operations. Economic conditions in countries where we
conduct business and changing foreign currency exchange rates affect our
financial position and results of operations. We are exposed to changes in
exchange rates in Europe, Latin America and Asia. The Euro presents our most
significant foreign currency exchange risk. Changes in foreign currency exchange
rates, especially the strengthening of the U.S. dollar, may have an adverse
effect on our financial position and results of operations as they are expressed
in U.S. dollars.
Management monitors foreign currency exposures and may in the ordinary
course of business enter into foreign currency forward contracts or options
contracts related to specific foreign currency transactions or anticipated cash
flows. These contracts are generally for periods of less than nine months and
are not material. We do not hedge the translation of financial statements of
consolidated subsidiaries that maintain their local books and records in foreign
currencies.
YEAR 2000 COMPLIANCE
As of June 30, 2000, we had not experienced any Year 2000 related disruption
in the operation of our business. We cannot be sure, however, that all potential
Year 2000 problems involving our business or the business of our customers have
become apparent. We continue to monitor our technological operations to evaluate
whether there are any indications that Year 2000 problems may still impact our
business. Given the general uncertainty regarding Year 2000 issues, Year 2000
issues may have a material adverse effect on our business. We spent
approximately $0.8 million in Year 2000 related remediation costs. These costs
did not have a material effect on our results of operations and financial
condition and we do not anticipate that we will incur these types of costs in
the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information presented in Item 2 of Part I of this Report on Form 10-Q
under the heading "Market Risk" is hereby incorporated by reference.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 28, 2000, the Board of Directors of the Company allowed certain key
employees to accelerate the exercise of 1,856,500 stock options granted under
the Genencor International, Inc. Stock Option and Appreciation Right Plan and
purchase restricted shares of common stock.
A Registration Statement on Form S-1 (File No. 333-36452) relating to the
initial public offering of our common stock was declared effective by the
Securities and Exchange Commission on July 27, 2000. The underwriters'
over-allotment purchase option was completed on August 25, 2000.
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In the aggregate, we sold 8,050,000 shares, which includes 1,050,000
shares for the underwriters' over-allotment option, in the offering for gross
proceeds of $144.9 million. The managing underwriters of the offering were
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities Inc.,
Credit Suisse First Boston Corporation and Salomon Smith Barney Inc.
In connection with the offering, we incurred total expenses of $11.6
million, including underwriting discounts and commissions of $10.1 million and
other expenses estimated at approximately $1.5 million. After expenses, our net
proceeds from the offering were approximately $133.3 million. No expenses were
paid or payments made to our directors, officers, or affiliates or 10% owners of
any class of our equity securities. We have invested the net proceeds of the
offering in short-term securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
SEE INDEX TO EXHIBITS
B. REPORTS ON FORM 8-K
NONE
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GENENCOR INTERNATIONAL, INC.
Date September 11, 2000 By: /s/ Raymond J. Land
------------------ -------------------
Raymond J. Land
Senior Vice President and
Chief Financial Officer
Date September 11, 2000 By: /s/ Darryl L. Canfield
------------------ ----------------------
Darryl L. Canfield
Vice President and Corporate
Controller
(Chief Accounting Officer)
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INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession
Not applicable.
(3) (i) Form of Restated Certificate of Incorporation is incorporated
herein by reference to Exhibit 3.3 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (Registration No.
333-36452) filed on July 24, 2000.
(ii) Form of Amended and Restated Bylaws is incorporated herein by
reference to Exhibit 3.4 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-36452)
filed on July 24, 2000.
(4) Instruments defining the rights of securities holders, including
indentures
(a) The documents listed under (3) are incorporated herein by
reference.
(b) Form of Specimen Common Stock Certificate is incorporated herein
by reference to Exhibit 4.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-36452)
filed on July 24, 2000.
(c) Note Agreement for the $140,000,000 6.82% Senior Notes due 2006
between the Company and the purchasers identified therein, dated
March 28, 1996 is incorporated herein by reference to Exhibit 4.2
to Amendment No. 1 to the Company's Registration Statement on
Form S-1 (Registration No. 333-36452) filed on June 26, 2000.
(d) Line of Credit Offering Letter for a $30,000,000 Line of Credit
between the Company and The Chase Manhattan Bank, dated May 4,
2000 is incorporated herein by reference to Exhibit 4.3 to
Amendment No. 1 to the Company's Registration Statement on Form
S-1 (Registration No. 333-36452) filed on June 26, 2000.
(e) $10 million Promissory Note by the Company in favor of
Gist-Brocades International B.V., dated June 2, 1995 is
incorporated herein by reference to Exhibit 4.4 to Amendment No.
1 to the Company's Registration Statement on Form S-1
(Registration No. 333-36452) filed on June 26, 2000.
(10) Material Contracts
(a) Stockholder Agreement between the Company, Eastman Chemical
Company and Danisco A/S, dated July 25, 2000 is incorporated
herein by reference to Exhibit 10.5 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (Registration No.
333-36452) filed on July 26, 2000.
(b) Research Agreement between the Company and The Procter & Gamble
Company, dated June 30, 2000 is incorporated herein by reference
to Exhibit 10.11 to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-36452) filed on July
24, 2000.
(c) Technology Transfer Agreement between the Company and The Procter
& Gamble Company, dated June 30, 2000 is incorporated herein by
reference to Exhibit 10.12 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-36452)
filed on July 24, 2000.
(d) Commercialization Agreement between the Company and The Procter &
Gamble Company, dated April 25, 2000 is incorporated herein by
reference to Exhibit 10.13 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-36452)
filed on July 24, 2000.
(e) National Renewable Energy Laboratory Letter Subcontract, dated
April 18, 2000, between Midwest Research Institute acting through
its National Renewable Energy Laboratory Division and the Company
is incorporated herein by reference to Exhibit 10.27 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 333-36452) filed on June 26, 2000.
(f) License Agreement, dated May 17, 2000, between Energy Biosystems
Corporation and the Company is incorporated herein by reference
to Exhibit 10.30 to Amendment No. 5 to the Company's Registration
Statement on Form S-1 (Registration No. 333-36452) filed on July
27, 2000.
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(11) Statement re computation of per share earnings
Unaudited Statement Regarding Computation of Per Share Earnings
is included herein as Exhibit 11.
(15) Letter re unaudited interim financial information
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to a vote of security
holders
Not applicable.
(23) Consents of experts and counsel
Not applicable.
(24) Power of Attorney
Not applicable.
(27) Financial Data Schedule
The Financial Data Schedule is included herein as Exhibit 27.
(99) Additional Exhibits
Not applicable.
20
