<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1995
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________________
Commission file number: 0-15881
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MYCOGEN CORPORATION
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3802654
------------------------------------------ ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5501 Oberlin Drive, San Diego, California 92121
------------------------------------------ ----------------------------
(Address of principal executive offices) (Zip Code)
(619) 453-8030
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ____
-----
19,383,879 shares of Common Stock were outstanding as of August 4, 1995.
1
<PAGE>
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Mycogen Corporation
Interim Consolidated Condensed Statements of Operations
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
--------- --------- ---------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net operating revenues:
Unrelated parties............................. $ 33,007 $ 30,950 $ 84,165 $ 82,606
Related party................................. - 48 - 1,116
Contract and other revenues:
Unrelated parties............................. 1,612 2,526 2,581 3,727
Related party................................. 615 1,036 1,219 1,884
--------- --------- ---------- ---------
Total revenues............................ 35,234 34,560 87,965 89,333
--------- --------- ---------- ---------
Costs and expenses:
Cost of operating revenues.................... 23,348 17,499 53,863 48,172
Selling, general and administrative........... 9,000 7,176 17,905 15,737
Research and development...................... 4,936 4,029 9,680 8,281
Amortization of intangible assets............. 2,256 504 2,811 993
--------- --------- ---------- ---------
Total costs and expenses.................... 39,540 29,208 84,259 73,183
--------- --------- ---------- ---------
Operating income (loss) ........................ (4,306) 5,352 3,706 16,150
Interest income and expense, net.............. 46 456 199 1,055
Exchange gain................................. 42 213 180 239
--------- --------- ---------- ---------
Net income (loss)............................... (4,218) 6,021 4,085 17,444
Dividends on preferred stock.................... (379) (361) (754) (718)
--------- --------- ---------- ---------
Net income (loss) applicable to common shares... $ (4,597) $ 5,660 $ 3,331 $ 16,726
========= ========= ========== =========
Net income (loss) per common share:
Primary....................................... $ (.24) $ .30 $ .17 $ .88
========= ========= ========== =========
Assuming full dilution........................ $ (.24) $ .29 $ .17 $ .84
========= ========= ========== =========
Weighted average number of shares:
Primary....................................... 19,315 19,066 19,261 19,051
========= ========= ========== =========
Assuming full dilution........................ 19,315 20,849 19,261 20,830
========= ========= ========== =========
</TABLE>
See accompanying Notes to Interim Consolidated Condensed Financial Statements.
2
<PAGE>
Mycogen Corporation
Consolidated Condensed Balance Sheets
(Dollars in thousands, except par value data)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
Assets (Unaudited) (Note)
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 8,235 $ 9,475
Securities available-for-sale...................................................... 13,730 26,580
Accounts and notes receivable, net of allowances................................... 43,294 11,369
Inventories........................................................................ 28,200 51,697
Prepaid expenses................................................................... 1,189 1,241
--------- ---------
Total current assets............................................................. 94,648 100,362
Net property, plant and equipment.................................................... 49,197 48,069
Net intangible assets................................................................ 17,579 17,961
Other assets......................................................................... 12,177 8,714
--------- ---------
Total assets......................................................................... $ 173,601 $ 175,106
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings.............................................................. $ 10,000 $ 2,000
Accounts payable................................................................... 2,763 12,377
Deferred revenues.................................................................. 3,954 12,898
Other current liabilities.......................................................... 9,352 7,209
--------- ---------
Total current liabilities........................................................ 26,069 34,484
Long-term liabilities................................................................ 3,341 3,534
Minority interest.................................................................... 21,406 21,406
Stockholders' equity:
Senior convertible cumulative preferred stock:
Series A preferred stock, $.001 par value, 3,940 shares authorized; 3,074 and
2,999 shares issued to a related party and outstanding at June 30, 1995 and
December 31, 1994, respectively; aggregate liquidation preference, $30,748 and
$29,993 respectively............................................................. - -
Common stock, $.001 par value, 40,000,000 shares authorized; 19,325,879 and
19,108,489 shares issued and outstanding at June 30, 1995 and
December 31, 1994, respectively.................................................. 19 19
Additional paid in capital......................................................... 216,446 213,428
Deficit............................................................................ (93,680) (97,765)
--------- ---------
Total stockholders' equity....................................................... 122,785 115,682
--------- ---------
Total liabilities and stockholders' equity........................................... $ 173,601 $ 175,106
========= =========
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date.
See accompanying Notes to Interim Consolidated Condensed Financial Statements.
3
<PAGE>
Mycogen Corporation
Interim Consolidated Condensed Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1995 1994
---------- --------
(Unaudited)
<S> <C> <C>
Operating activities:
Net income................................................... $ 4,085 $ 17,444
Items which did not use cash:
Depreciation .............................................. 2,324 2,655
Amortization of intangible assets.......................... 2,967 993
Other expense (income) not requiring (providing) cash...... 929 (28)
Changes in operating assets and liabilities:
Accounts and notes receivable.............................. (32,731) (31,840)
Inventories................................................ 23,582 16,800
Prepaid expenses........................................... 810 284
Accounts payable........................................... (9,613) (7,157)
Deferred revenues.......................................... (8,944) (2,200)
Other current liabilities.................................. 2,765 707
---------- --------
Cash used in operating activities........................ (13,826) (2,342)
---------- --------
Investing activities:
Proceeds from sales of available-for-sale securities......... 8,162 16,338
Proceeds from maturities of available-for-sale securities.... 5,613 10,862
Purchases of available-for-sale securities................... - (7,497)
Capital expenditures......................................... (4,202) (2,738)
Prepaid contract manufacturing............................... (4,138) (1,216)
Change in intangibles and other assets....................... (1,126) (1,293)
---------- --------
Cash provided by investing activities.................... 4,309 14,456
---------- --------
Financing activities:
Net change in short-term borrowings.......................... 8,000 (16,150)
Payments on long-term borrowings............................. (183) -
Proceeds from sale of common stock........................... 218 512
---------- --------
Cash provided by (used in) financing activities............ 8,035 (15,638)
---------- --------
Effect of exchange rate changes on cash and cash equivalents... 242 249
---------- --------
Decrease in cash and cash equivalents.......................... (1,240) (3,275)
Cash and cash equivalents at beginning of period............... 9,475 9,120
---------- --------
Cash and cash equivalents at end of period..................... $ 8,235 $ 5,845
========== ========
</TABLE>
See accompanying Notes to Interim Consolidated Condensed Financial Statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (continued).
Mycogen Corporation
-------------------
Notes to Interim Consolidated Condensed Financial Statements
Note 1. General
----------------
The accompanying financial statements include the accounts of Mycogen
Corporation, its wholly-owned subsidiaries and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The interim financial statements have been prepared by the
Company, without audit, according to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (which include only normal recurring
adjustments) necessary to state fairly the financial position, results of
operations and cash flows as of and for the periods indicated.
It is suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Annual Report and
Form 10-K of the Company for the fiscal year ended December 31, 1994.
The Company has elected to change its fiscal year end from December 31 to August
31. A Form 10-K will be filed for the three years ending August 31, 1995.
The Company's business is highly seasonal. Operating revenues are expected to
be concentrated principally in the quarters ending March 31 and June 30 as a
result of the North American agricultural growing season. Consequently,
operating revenues and results of operations for the three months and six months
ended June 30, 1995 are not indicative of operating revenues and results to be
expected for a full fiscal year.
Certain prior year amounts have been reclassified to conform to the 1995
presentation.
Note 2. FASB Statement No. 121
-------------------------------
Effective May 1995, the Company elected the early adoption of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." In accordance with the Statement,
prior period financial statements have not been restated to reflect the change
in accounting principle. An impairment loss of $1.6 million was recognized
during the quarter ended June 30, 1995, reducing the carrying amount of a paid-
up, royalty-free, non-exclusive license 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 Statement of
Operations.
5
<PAGE>
Note 3. Supplemental Schedule of Non-Cash Investing and Financing Activities
-----------------------------------------------------------------------------
Non-cash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- -----------------------
(In thousands) 1995 1994 1995 1994
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
Dividends on preferred stock $ 379 $ 361 $ 754 $ 718
========= ======= ========== =======
Issuance of Company stock
for business acquisition $ 1,350 $ -- $ 1,350 $ --
========= ======= ========== =======
</TABLE>
Note 4. Inventories
--------------------
Inventories are comprised of:
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1995 1994
---------- ----------
<S> <C> <C>
Raw materials and supplies $ 1,063 $ 4,323
Work in process 5,070 8,834
Finished goods 22,067 38,540
---------- ----------
Total $ 28,200 $ 51,697
========== ==========
</TABLE>
Note 5. Accumulated Depreciation and Amortization
-------------------------------------------------
Accumulated depreciation of property, plant and equipment was $15.9 million and
$13.8 million at June 30, 1995 and December 31, 1994, respectively.
Accumulated amortization of intangible assets was $6.4 and $5.8 million at June
30, 1995 and December 31, 1994, respectively.
Note 6. Income Taxes
---------------------
No provision for income tax is recognized for the three and six months ended
June 30, 1995 since the Company anticipates that the effective tax rate for the
eight months ending August 31, 1995 will be zero due to the available net
operating loss carryforwards.
Note 7. Net Income (Loss) Per Common Share
-------------------------------------------
Net income (loss) per common share for the three and six months ended June 30,
1995 is determined by deducting dividends on preferred stock from the net income
(loss) and dividing the net result by the weighted average number of common
shares outstanding during the respective period. Common shares issuable under
stock options and convertible preferred stock are not included in the
computation of net income (loss) per common share because their effect would be
antidilutive or less than 3%.
6
<PAGE>
Net income per common share for the three and six months ended June 30, 1994 is
determined by deducting dividends on preferred stock from net income and
dividing the net result by the weighted average number of common shares
outstanding during the respective period. The dilutive effect of common shares
issuable under stock options was less than 3% and was not included in the
computation of primary earnings per share. Net income per common share assuming
full dilution includes common shares issuable upon the exercise of stock options
and the conversion of preferred stock into common stock. The computation also
excludes the effect of preferred stock dividends.
7
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
SEASONALITY
As a result of the seasonality of the Company's business, revenues, expenses and
income for the three and six months ended June 30 are not indicative of the
revenues, expenses and income or loss to be expected for a full fiscal year.
SUMMARY STATEMENTS OF OPERATIONS
The following table presents selected data in the Interim Consolidated Condensed
Statements of Operations as a percentage of net operating revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 1995 1994 1995 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating revenues $33,007 100.0% $30,998 100.0% $84,165 100.0% $83,722 100.0%
Cost of operating revenues 23,348 70.7% 17,499 56.5% 53,863 64.0% 48,172 57.5%
------- ----- ------- ----- ------- ----- ------- -----
Gross margin $ 9,659 29.3% $13,499 43.5% $30,302 36.0% $35,550 42.5%
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
NET OPERATING REVENUES, COST OF OPERATING REVENUES AND GROSS MARGIN
Net operating revenues for the three and six months ended June 30, 1995
increased slightly to $33.0 million from $31.0 million and to $84.2 million from
$83.7 million for the same periods in 1994, respectively. Crop protection
revenues accounted for $2.2 million and $2.7 million of the increases,
respectively. While the severe flooding in California's Salinas Valley has
resulted in reduced acreage, wet conditions conducive to high weed and disease
pressure have increased crop protection revenues during the first six months of
this year. The full year impact is not yet known as wet conditions have delayed
plantings and may result in the elimination of some of the growers' third crop
rotation which may reduce pesticide applications. Domestic seed revenues were
$1.1 million and $3.9 million lower, respectively, due mainly to lower soybean
and corn sales volume. These declines were partially offset by higher
international revenues.
Gross margins totaled $9.7 million and $30.3 million for the three and six
months ended June 30, 1995, compared to $13.5 million and $35.6 million for the
same periods in 1994, respectively. As a percentage of net operating revenues,
gross margins decreased from 43.5% to 29.3% and from 42.5% to 36.0% for the
three and six months ended June 30, 1995 and 1994, respectively, due mainly to a
$3.0 million write-down of obsolete corn inventory and $.3 million in higher
corn costs due to royalties on silage corn. Gross margins in 1994 were favorably
impacted by the 1993 lower of cost or market adjustment related to seed corn
inventory which accounts for $.9 million of the decrease in gross margins for
the six months ended June 30, 1995 compared to the same period in 1994. Lower
soybean volume had an $.8 million negative impact on gross margins due to less
overhead absorption and additional costs incurred to dispose of excess
inventory. The remainder of the decrease relates primarily to a less favorable
sales mix on higher volumes of international seed and crop protection products
and services.
CONTRACT AND OTHER REVENUES
Contract and other revenues decreased to $2.2 million and $3.8 million for the
three and six months ended June 30, 1995 from $3.6 million and $5.6 million for
the same periods in 1994, respectively, due primarily to one-time license fees
received in the second quarter of 1994.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $1.8 million to $9.0
million and $2.2 million to $17.9 million for the three and six months ended
June 30, 1995, from $7.2 million and $15.7 million for the same periods in 1994,
respectively. The increase is due mainly to $1.1 million of credits recorded in
the second quarter of 1994 for excess accruals, and higher sales and marketing
efforts in Europe, severance costs, and the timing of certain selling expenses.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $4.9 million and $9.7 million for
the three and six months ended June 30, 1995, from $4.0 million and $8.3 million
for the same periods in 1994, respectively. The increase is due to primarily to
higher plant sciences commercial development and research efforts.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets increased $1.7 million and $1.8 million for
the three and six months ended June 30, 1995, from the same periods in 1994 to
$2.3 million and $2.8 million, respectively. The increase reflects a $1.6
million write-down of crop protection technology.
INTEREST INCOME AND EXPENSE, NET
Interest income and expense, net, decreased to $.1 million and $.2 million for
the three and six months ended June 30, 1995, from $.5 million and $1.1 million
for the same periods in 1994, respectively, due primarily to lower cash balances
available for investment, higher levels of borrowing and higher interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and securities available-for-sale
decreased by $14.1 million to $22.0 million during the six months ended June 30,
1995. This decrease was due primarily to prepaid contract manufacturing costs
of $4.1 million, the purchase of land and buildings for $2.5 million, other
capital expenditures which totaled $1.7 million and cash used in operations of
$13.8 million primarily for working capital needs, which are highly seasonal.
Higher accounts receivable and lower accounts payable and deferred revenues were
somewhat offset by lower inventory. Payments for seed inventories are
principally made during December through March while cash from seed sales is
received mainly during July through September. The exact timing of payments for
seed inventories and collections for seed sales are influenced by farmer's
economic conditions and the Company's and competitors discount programs. This
decrease was offset by net proceeds from the Company's line of credit facility
totaling $8.0 million. The Company has a $25 million bank line of credit
facility to fund portions of its seasonal working capital needs, of which $15.0
million was unused at June 30, 1995.
Dividends on the Series A preferred stock are cumulative and are payable
quarterly to Lubrizol in additional shares of preferred stock. Starting in
December 1997 and thereafter, the dividends are payable in cash. Also, the
Company has agreed to purchase the remaining ownership interest of MPS from
Lubrizol for additional Common Stock or, after November 2000, for cash at a
price between $21.4 million and $26.3 million. The Company plans to pursue an
acquisition strategy to complement existing technologies. It is anticipated
that any acquisitions would be financed with existing cash, stock or debt.
9
<PAGE>
The Company anticipates that its current cash position, funds from its
existing line of credit, interest income and revenue from operations and
collaborative agreements 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.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Mycogen's subsidiary, Mycogen Plant Sciences, filed suit for patent infringement
on May 19, 1995 against Monsanto Company in Federal District Court in San Diego,
California. The patent infringement action claims that Monsanto's use of
synthetic Bacillus thuringiensis (Bt) genes to develop and sell plants and seeds
for insect-resistant crops infringes Mycogen's patent covering the process used
to synthesize Bt genes. The suit also contains state law claims relating to
Monsanto's published statements disparaging Mycogen's patents and technology.
The patent infringement claim seeks an injunction halting Monsanto's development
and commercialization of plants and seeds using the process covered by Mycogen's
patent. The state law claims seek unspecified damages.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit 11 - Statements re Computation of Per Share Earnings. See
Exhibit 11 attached hereto.
Exhibit 27 - Financial Data Schedule. See Exhibit 27 attached
hereto.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mycogen Corporation
-------------------
(Registrant)
Date: August 8, 1995 /s/ James A. Baumker
-------------- ---------------------------------------
James A. Baumker
Controller and Chief Accounting Officer
Date: August 8, 1995 /s/ Carlton J. Eibl
-------------- ---------------------------------------
Carlton J. Eibl
Executive Vice President
Finance and Legal
11
<PAGE>
Mycogen Corporation
Exhibit 11
Statements re Computation of Per Share Earnings
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
----------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Net income (loss)..................................... $ (4,218) $ 6,021 $ 4,085 $ 17,444
Dividends on preferred stock.......................... (379) (361) (754) (718)
----------- ---------- ---------- --------
Net income (loss) applicable to common shares......... (4,597) 5,660 3,331 16,726
Adjustment for dividends on preferred stock........... - (1) 361 - (1) 718
----------- ---------- ---------- --------
Net income (loss) for computation assuming
full dilution....................................... $ (4,597) $ 6,021 $ 3,331 $ 17,444
=========== ========== ========== ========
Weighted average number of shares outstanding:
Average common shares for computation
of primary net income (loss) per common share (2)... 19,315 19,066 19,261 19,051
Stock option equivalent shares........................ - (2) 174 - (2) 176
Conversion of preferred shares........................ - (1) 1,609 - (1) 1,602
----------- ---------- ---------- --------
Average shares for computation of net income (loss)
per common share assuming full dilution............. 19,315 20,849 19,261 20,829
=========== ========== ========== ========
Net income (loss) per common share:
Primary............................................. $ (.24) $ .30 $ .17 $ .88
=========== ========== ========== ========
Assuming full dilution.............................. $ (.24) $ .29 $ .17 $ .84
=========== ========== ========== ========
</TABLE>
(1) Additional shares from the conversion of preferred stock and respective
adjustments for preferred stock dividends were not included in the calculation
assuming full dilution where the effect was antidilutive or the dilutive effect
was less than 3%.
(2) Additional shares from stock option equivalents were not included in the
calculation of net income (loss) per common share where the effect was
antidilutive or the dilutive effect was less than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 8,235
<SECURITIES> 13,730
<RECEIVABLES> 46,111
<ALLOWANCES> 2,817
<INVENTORY> 28,200
<CURRENT-ASSETS> 94,648
<PP&E> 65,578
<DEPRECIATION> 15,872
<TOTAL-ASSETS> 173,601
<CURRENT-LIABILITIES> 26,069
<BONDS> 0
<COMMON> 19
0
0
<OTHER-SE> 216,446
<TOTAL-LIABILITY-AND-EQUITY> 122,785
<SALES> 84,165
<TOTAL-REVENUES> 87,965
<CGS> 53,863
<TOTAL-COSTS> 53,863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 654
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,085
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,085
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
