To Our Shareowners
With farmers across the country stepping up planting to meet growing demand for America's agricultural products, Mycogen is well positioned for growth and progress. The second quarter and mid-year financial results reported below reflect substantial revenue growth driven both by growing acceptance of Mycogen's products and by the acquisitions we've made to expand sales globally. Equally encouraging is the headway our business units are making toward bringing that top line growth through to the bottom line. Although heavy legal expenses for patent litigation and interference proceedings and other non-operating items may keep us from reaching our goal of full-year profitability, we believe that year-to-date operating results demonstrate the growing strength of our business. Following is an update on recent developments.
DowElanco Alliance - DowElanco continues to increase its ownership stake in Mycogen and now holds about 56% of our common stock. In the past few months, it has acquired more than one million shares from Japan Tobacco and Kubota in private transactions and purchased a substantial number of shares in the open market. Under the terms of our agreement, DowElanco is permitted to increase its position to 60% ownership by February 1998, and to 65% by February 1999. After that, there is no ownership ceiling, but if DowElanco should reach 80% ownership, the agreement requires that it make a tender offer for all remaining shares outstanding. At the March Board meeting, Nickolas D. Hein, DowElanco's Vice President, Global Growth, was elected to Mycogen's board, replacing John Hagaman, DowElanco's President and CEO, who resigned from the board.
Seed Sales - Orders for hybrid seed corn, Mycogen Seeds' number one product, are running ahead of last year, but deliveries are behind schedule because of the heavy snowfall that paralyzed ground transportation in the upper Midwest earlier in the year. If we're successful in getting caught up by planting time, we will meet our objective of maintaining seed corn unit sales volume while consolidating the United AgriSeeds brands into Mycogen
Patents & Litigation - As noted above, Mycogen is involved in several lawsuits over intellectual property rights for technology used to develop pest-resistant herbicide-tolerant crops. While this litigation is expensive and demands management time and energy that we would rather devote to building the business, we view it as a necessary long-term investment in establishing and maintaining a strong proprietary position for the core technology that will drive Mycogen's growth in the years ahead. DowElanco shares our commitment to this effort and is providing valuable assistance to see it through.
Outlook - With our strong patent position, growing pipeline of new, technology-based products and cornerstone partnerships with DowElanco and Pioneer Hi-Bred in place, we continue to focus on strengthening and expanding Mycogen's global production and distribution infrastructure. Please recognize that our forward-looking statements are based on projections and estimates relating to the economy and the seed and crop protection industries. Various factors may cause actual results to vary significantly from our expectations. These include the impact of weather on deliveries, planting and sales; competitive and regulatory actions, intellectual property positions and fluctuations in crop acreage and commodity prices. We are grateful for your support.
| Jerry Caulder
Chairman & Chief Executive Officer | Carl Eibl
President & Chief Operating Officer |
Mycogen Corporation Condensed Consolidated Statements of Operations (In thousands, except per share data) Three months ended Six months ended February 28, February 29, February 28, February 29, 1997 1996 1997 1996 (Unaudited) (Unaudited) Revenues: Net operating revenues: Seed segment $65,671 $30,930 $72,573 $32,056 Crop protection segment 4,610 4,645 13,998 15,568 ------- ------- ------- ------- 70,281 35,575 86,571 47,624 Contract and other revenues 2,048 2,580 4,458 4,151 ------- ------- ------- ------- Total revenues 72,329 38,155 91,029 51,775 ------- ------- ------- ------- Costs and expenses: Cost of operating revenues 44,169 21,892 54,317 29,715 Operating expenses 22,668 17,654 40,973 31,018 Patent litigation fees 1,519 710 2,133 710 Special charges - 22,890 - 22,890 ------- ------- ------- ------- Total costs and expenses 68,356 63,146 97,423 84,333 ------- ------- ------- ------- Operating income (loss) 3,973 (24,991) (6,394) (32,558) Interest and other, net (168) 641 (29) 796 ------- ------- ------- ------- Net income (loss) before income taxes 3,805 (24,350) (6,423) (31,762) Provision for income taxes 1,122 - 1,122 - ------- ------- ------- ------- Net income (loss) 2,683 (24,350) (7,545) (31,762) Dividends on preferred stock - (194) - (578) ------- ------- ------- ------- Net income (loss) applicable to common shares $2,683 $(24,544) $(7,545) $(32,340) ======= ======= ======= ======= Net income (loss) per common share: Primary and assuming full dilution $ .08 $ (1.00) $ (.25) $ (1.47) ======= ======= ======= ======= Weighted average number of shares: Primary 33,136 24,426 30,768 21,937 ======= ======= ======= ======= Assuming full dilution 33,554 24,426 30,768 21,937 ======= ======= ======= =======