- Quarterly Report
- Quarterly Report
Quarterly report for the quarter ended February 29, 1996
March 26, 1996
To Our Shareowners:
The second quarter brought many important, and mostly positive, developments for Mycogen. On the plus side, revenues were up 30% over the same period a year ago, demonstrating the progress we've made in turning our technology into products and a growing business. That technology also enabled us to finalize a collaboration to develop insect-resistant crops with Pioneer Hi-Bred, the world's largest seed company, and an even more significant strategic alliance with DowElanco, a major marketer of agricultural products. Both companies have taken large equity positions in Mycogen, and both figure prominently in our plans for building the company. On the minus side, some of our competitors have made news with their efforts to use patent claims to try to interfere with commercialization of our first genetically engineered seed corn products with built-in insect-resistance. And, although we're encouraged by the revenue growth noted above, seed profit margins aren't where they need to be. Therefore, we're focusing more attention and resources on improving seed operations to push that growth down to the bottom line. Following is a mid-year overview of these and other key issues.
Patents & litigation - We hate to divert resources and management energy for litigation and other activities required to assert and defend our position, but there is a positive message here, too. New products, such as ours, that make farmers more productive and add value to crops, are creating tremendous growth opportunities. Many companies are fighting for a piece of that pie, so Mycogen, with its coveted technology assets, will continue to be a target of various tactics by would-be competitors. While these claims and counter claims have caused confusion and concern, we do not believe that Mycogen will be blocked from bringing our technology to market and building our business. Our patent position is strong, and we're optimistic that claims still pending in the patent office will further strengthen our position.
Seeds - Seed revenues for the quarter were up 29% from last year, thanks both to increased volumes -- particularly in seed corn, our number one product -- and to improved product mix. We've tightened seed quality standards to ensure that Mycogen® brand products match or exceed the best in the industry, which has meant disposing of inventory that didn't pass muster. That, along with high commodity prices and low plant utilization, has raised seed costs and depressed profit margins. We're now revamping our entire seed production system to improve product quality and efficiency for 1996 production. This includes closing some existing plants, investing up to $10 million to modernize others, and shifting corn production to two state-of-the-art facilities we acquired from DowElanco. Special charges reflected in the accompanying statement of operations include $12.6 million for plant closures and $9.8 million to write off "in-process" seed technology acquired from Lubrizol and DowElanco.
Crop Protection - Both our Soilserv crop protection services business and biopesticide product sales are off to a fast start. Crop protection segment revenues were up 24% over last year's second quarter, and are running well ahead of plan for the year to date. Our new Scythe™ herbicide for turf and specialty markets and Mattch™ bioinsecticide for vegetables are doing well, and orders from Kubota for the active ingredient we supply for its Guardjet® bioinsecticide in Japan are higher than expected. A key factor in the sales growth and improved prospects for our microbial products is our improved cost position as a result of the investment we made two years ago in a new fermentation and packaging facility.
Outlook - Although we will not reach our aggressive goal of being profitable on an operating basis this year, our target of 20% revenue growth is within reach. We believe that the steps we are now taking to improve seed product quality and reduce costs for our 1996 production will provide the foundation we need to translate that positive revenue trend into profits in 1997 and significant earnings growth in the years ahead.
We appreciate your support.
| Jerry Caulder Chairman & Chief Executive Officer |
Carl Eibl President & Chief Operating Officer |
Mycogen Corporation
Interim Consolidated Condensed Statements of Operations
(Amounts in thousands, except per share data)
Three months ended Six months ended
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
____________ ____________ ____________ ____________
(Unaudited) (Unaudited)
Revenues:
Net operating revenues:
Seed segment $ 30,930 $ 23,908 $ 32,056 $ 24,504
Crop protection segment 4,645 3,753 15,568 12,666
____________ ____________ ____________ ____________
35,575 27,661 47,624 37,170
Contract and other revenues 2,580 1,715 4,151 3,611
____________ ____________ ____________ ____________
Total revenues 38,155 29,376 51,775 40,781
____________ ____________ ____________ ____________
Costs and expenses:
Cost of operating revenues 23,445 16,997 31,269 23,242
Operating expenses 16,811 13,589 30,174 26,293
Special charges 22,890 - 22,890 -
____________ ____________ ____________ ____________
Total costs and expenses 63,146 30,586 84,333 49,535
____________ ____________ ____________ ____________
Operating loss (24,991) (1,210) (32,558) (8,754)
Interest and other, net 641 371 796 900
____________ ____________ ____________ ____________
Net loss (24,350) (839) (31,762) (7,854)
Dividends on preferred stock (194) (373) (578) (742)
____________ ____________ ____________ ____________
Net loss applicable to
common shares $ (24,544) $ (1,212) $ (32,340) $ (8,596)
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Net loss per common share$ (1.00) $ (.06) $ (1.47) $ (.45)
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Weighted average number of
shares 24,426 19,138 21,937 19,118
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