Edgar Filing: GENENCOR INTERNATIONAL INC

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, 2002

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 [X] NO [ ]

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 JULY 31, 2002

COMMON STOCK, PAR VALUE $0.01 PER SHARE 59,780,133

TABLE OF CONTENTS

PAGE

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements....................................................................................
Condensed Consolidated Unaudited Balance Sheets as of June 30, 2002 and December 31, 2001............. 4
Condensed Consolidated Unaudited Statements of Operations for the three and six months
ended June 30, 2002 and 2001 ...................................................................... 5
Condensed Consolidated Unaudited Statements of Cash Flows for the six months ended
June 30, 2002 and 2001............................................................................ 6
Notes to Condensed Consolidated Unaudited Financial Statements........................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................. 25

PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................... 26
Item 2. Changes in Securities and Use of Proceeds.............................................................. 26
Item 3. Defaults Upon Senior Securities........................................................................ 26
Item 4. Submission of Matters to a Vote of Security Holders.................................................... 26
Item 5. Other Information...................................................................................... 27
Item 6. Exhibits and Reports on Form 8-K....................................................................... 27

This Report contains forward-looking statements as defined by the Private
Securities Litigation Reform Act of 1995. These include statements concerning
plans, objectives, goals, strategies, future events or performance and all other
statements which are other than statements of historical fact, including without
limitation, statements containing the words "believes," "anticipates,"
"expects," "estimates," "projects," "will," "may," "might" and words of a
similar nature. The forward-looking statements contained in this Report reflect
the Company's current beliefs and expectations on the date of this Report.
Actual results, performance or outcomes may differ materially from those
expressed in the forward-looking statements. Some of the important factors
which, in the view of the Company, could cause actual results to differ from
those expressed in the forward-looking statements are discussed in Item 2 of
this Report and in the Company's 2001 Annual Report on Form 10-K. The Company
disclaims any obligation to publicly announce any revisions to these
forward-looking statements to reflect facts or circumstances of which the
Company becomes aware after the date hereof.

Unless otherwise specified, all references in this Report to the "Company",
"we", "us", "our", and "ourselves" refer to Genencor International, Inc. and its
subsidiaries.

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

JUNE 30, DECEMBER 31,
2002 2001
--------- ---------

ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 160,115 $ 215,023
Trade accounts receivable, net ............................................ 53,861 47,577
Inventories ............................................................... 57,565 48,382
Other current assets ...................................................... 30,698 23,491
--------- ---------
Total current assets ................................................. 302,239 334,473
Property, plant and equipment, net .......................................... 213,897 207,199
Goodwill .................................................................... 29,881 19,313
Intangible assets, net ...................................................... 37,129 37,832
Other assets ................................................................ 55,207 50,181
--------- ---------
Total assets ......................................................... $ 638,353 $ 648,998
========= =========

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ............................................................. $ 8,427 $ 8,512
Current maturities of long-term debt ...................................... 28,290 28,000
Accounts payable and accrued expenses ..................................... 47,547 47,908
Other current liabilities ................................................. 12,222 16,542
--------- ---------
Total current liabilities ............................................ 96,486 100,962
Long-term debt .............................................................. 85,072 112,419
Other long-term liabilities ................................................. 33,751 27,386
--------- ---------
Total liabilities .................................................... 215,309 240,767
--------- ---------
Redeemable preferred stock:
7 -1/2% cumulative series A preferred stock, without par value, authorized
1 shares, 1 shares issued and outstanding .............................. 166,113 162,475
--------- ---------
Stockholders' equity:
Common stock, par value $0.01 per share, 200,000 shares authorized, 60,038
and 59,941 shares issued at June 30, 2002 and
December 31, 2001, respectively ........................................ 600 599
Additional paid-in capital ................................................ 347,038 345,655
Treasury stock, at cost, 350 shares ....................................... (5,630) (5,630)
Deferred stock-based compensation ......................................... (2,181) (3,517)
Notes receivable for common stock ......................................... (14,647) (14,647)
Accumulated deficit ....................................................... (13,380) (13,466)
Accumulated other comprehensive loss ...................................... (54,869) (63,238)
--------- ---------
Total stockholders' equity ........................................... 256,931 245,756
--------- ---------
Total liabilities, redeemable preferred stock and stockholders' equity $ 638,353 $ 648,998
========= =========

The accompanying notes are an integral part of the condensed
consolidated unaudited financial statements.

GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------- ---------
2002 2001 2002 2001
--------- --------- --------- ---------

Revenues:
Product revenue .......................... $ 85,470 $ 78,514 $ 161,018 $ 153,782
Fees and royalty revenues ................ 5,162 2,835 10,424 5,290
--------- --------- --------- ---------
Total revenues ...................... 90,632 81,349 171,442 159,072
Operating expenses:
Cost of products sold .................... 46,096 43,527 88,214 84,425
Research and development ................. 17,310 15,075 32,942 27,999
Sales, marketing and business development. 8,566 7,832 15,708 13,689
General and administrative ............... 8,264 7,340 16,296 13,822
Amortization of intangible assets ........ 1,327 2,293 2,634 4,690
Restructuring and related charges ........ 85 -- 16,379 --
Other (income)/expense ................... (2,110) (152) (3,457) 696
--------- --------- --------- ---------
Total operating expenses ............ 79,538 75,915 168,716 145,321
--------- --------- --------- ---------
Operating income ........................... 11,094 5,434 2,726 13,751
Non operating expenses/(income):
Interest expense ......................... 2,044 2,611 4,564 5,218
Interest income .......................... (1,311) (2,578) (2,712) (5,695)
--------- --------- --------- ---------
Total non operating expenses/(income) 733 33 1,852 (477)
--------- --------- --------- ---------
Income before income taxes ................. 10,361 5,401 874 14,228
Provision for/(benefit from) income taxes .. 5,578 1,292 (2,850) 3,842
--------- --------- --------- ---------
Net income ................................. $ 4,783 $ 4,109 $ 3,724 $ 10,386
========= ========= ========= =========
Net income available to holders of common
stock ..................................... $ 2,964 $ 2,290 $ 86 $ 6,748
========= ========= ========= =========
Earnings per common share:
Basic ............................... $ 0.05 $ 0.04 $ 0.00 $ 0.11
========= ========= ========= =========
Diluted ............................. $ 0.05 $ 0.04 $ 0.00 $ 0.11
========= ========= ========= =========
Weighted average common shares:
Basic ............................... 59,679 59,913 59,668 59,913
========= ========= ========= =========
Diluted ............................. 60,147 60,938 60,132 61,248
========= ========= ========= =========

The accompanying notes are an integral part of the condensed
consolidated unaudited financial statements.

GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

SIX MONTHS ENDED
JUNE 30,
-------
2002 2001
--------- ---------

Cash flows from operating activities:
Net income .............................................. $ 3,724 $ 10,386
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................... 16,195 17,541
Amortization of deferred stock-based compensation.... 1,567 1,425
Loss on disposition of property, plant
and equipment ...................................... 362 --
Non-cash portion of restructuring and related charges 9,225 --
(Increase) decrease in operating assets:
Trade accounts receivable ........................ (3,401) (3,163)
Inventories ...................................... (3,897) (4,676)
Other assets ..................................... (6,463) 2,194
(Decrease) increase in operating liabilities:
Accounts payable and accrued expenses ............ (6,189) (11,458)
Other liabilities ................................ (936) 1,299
--------- ---------
Net cash provided by operating activities ........ 10,187 13,548
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment .............. (5,852) (8,672)
Purchase of intangible assets ........................... (100) --
Payment to acquire equity securities .................... (3,000) --
Acquisition of business, net of cash acquired ........... (35,809) --
--------- ---------
Net cash used in investing activities ............. (44,761) (8,672)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options ................. 349 135
Proceeds from employee stock purchase plan .............. 795 --
Net payments on revolving credit facility ............... (78) --
Net payments on notes payable of foreign affiliate ...... (82) (121)
Payment of long-term debt ............................... (28,000) --
--------- ---------
Net cash (used in) provided by financing activities (27,016) 14
--------- ---------
Effect of exchange rate changes on cash ................... 6,682 (4,526)
--------- ---------
Net (decrease) increase in cash and cash
equivalents ............................................. (54,908) 364
Cash and cash equivalents -- beginning of period .......... 215,023 200,591
--------- ---------
Cash and cash equivalents -- end of period ................ $ 160,115 $ 200,955
========= =========

The accompanying notes are an integral part of the condensed
consolidated unaudited financial statements.

GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

1 -- BASIS OF PRESENTATION

The condensed consolidated unaudited financial statements should be read
in conjunction with the Company's audited consolidated financial statements and
related footnotes for the year ended December 31, 2001, as included in the
Company's Annual Report on Form 10-K. These 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 conformity with accounting principles generally
accepted in the United States of America 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 of the interim financial statements
have been included therein. The results of operations of any interim period are
not necessarily indicative of the results of operations for the full year.

2 -- NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." The Company adopted this statement as of January 1, 2002. This
statement requires the recognition of separately identifiable intangible assets.
Furthermore, it establishes amortization requirements based upon the ability of
the intangible assets to provide cash flows. For those intangible assets with
readily identifiable useful lives, amortization will be recorded in the
statement of operations over such lives. Intangible assets, such as goodwill,
which have indefinite lives, will not result in periodic amortization, but must
be tested at least annually for impairment.

With the adoption of SFAS No. 142, the Company reassessed the useful lives
and residual values of all acquired intangible assets to make any necessary
amortization period adjustments. Based on that assessment, goodwill and certain
previously acquired technology were determined to have indefinite useful lives.
There were no adjustments made to the amortization periods or residual values of
other intangible assets. As a result, certain reclassifications were made to
previously issued financial statements to conform to the presentation required
by SFAS No. 142. The Company completed the first step of the transitional
goodwill and indefinite-lived intangible impairment tests and has determined
that no potential impairment exists. As a result, the Company has recognized no
transitional impairment loss to date in fiscal 2002 in connection with the
adoption of SFAS No. 142.

In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 addresses the
accounting for long-lived assets to be disposed of by sale and resulting
implementation issues. This statement requires the measurement of long-lived
assets at the lower of carrying amount or fair value less cost to sell, whether
reported in continuing operations or in discontinued operations. This statement
is effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company adopted SFAS No. 144 as of January 1, 2002. There
was no financial impact as a result of the adoption. The Company will apply its
provisions to future impairments or disposals of long-lived assets as they
occur.

In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, which rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment
of Debt," SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers" and
SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements
and amends SFAS No. 13, "Accounting for Leases." This statement updates,
clarifies and simplifies existing accounting pronouncements. As a result of
rescinding SFAS No. 4 and SFAS No. 64, the criteria in Accounting Principles
Bulletin No. 30 will be used to classify gains and losses from extinguishment of
debt. This statement is effective for financial statements issued for fiscal
years beginning after May 15, 2002. The Company does not expect the adoption of
SFAS No. 145 to have a material impact on the Company's financial position or
its results of operations.

In June 2002, the Financial Accounting Standards Board issued SFAS No.
146, "Accounting for Exit or Disposal Activities." SFAS No. 146 addresses
significant issues regarding the recognition, measurement, and reporting of
costs that are associated with exit and disposal activities, including
restructuring activities that are currently accounted for pursuant to the
guidance that the Emerging Issues Task Force ("EITF") has set forth in EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The scope of SFAS No. 146 also includes costs related to
terminating a contract that is not a capital lease and certain termination
benefits provided to employees under the terms of one-time benefit arrangements.
SFAS No. 146 will be effective for exit or disposal activities that are
initiated after December 31, 2002.

3 -- EARNINGS PER SHARE

SFAS No. 128, "Earnings per Share," 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 net income available to common stockholders, undeclared and unpaid
dividends on redeemable preferred stock of $1,819 and $3,638 were deducted from
net income for each quarter presented and for each six-month period presented,
respectively.

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 net income available to common stockholders of the
Company. As a result of stock options outstanding under the Company's 2002
Omnibus Incentive Plan, successor to the Company's Stock Option and Stock
Appreciation Right Plan, there were dilutive securities for the three and six
months ended June 30, 2002 and 2001. The weighted-average impact of these has
been reflected in the calculation of diluted earnings per share for the
respective periods presented.

The following table reflects the calculation of basic and diluted
earnings per common share:

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2002 2001 2002 2001
-------- -------- -------- --------

Net income ........................... $ 4,783 $ 4,109 $ 3,724 $ 10,386
Less: Accrued dividends on preferred
stock .............................. (1,819) (1,819) (3,638) (3,638)
-------- -------- -------- --------
Net income available to holders of
common stock ...................... $ 2,964 $ 2,290 $ 86 $ 6,748
======== ======== ======== ========

Weighted average common shares:
Basic .............................. 59,679 59,913 59,668 59,913
Effect of stock options ............ 468 1,025 464 1,335
-------- -------- -------- --------
Diluted ............................ 60,147 60,938 60,132 61,248
======== ======== ======== ========
Earnings per common share:
Basic .............................. $ 0.05 $ 0.04 $ 0.00 $ 0.11
======== ======== ======== ========
Diluted ............................ $ 0.05 $ 0.04 $ 0.00 $ 0.11
======== ======== ======== ========

4 -- FEES AND ROYALTY REVENUES

During October 2001, the Company entered into a strategic alliance with
Dow Corning Corporation to create a new, proprietary technology platform for the
development of new biomaterials. During the first six months of 2002, the
Company recorded $5,086 in research funding revenues from this collaboration.

5 -- INVENTORIES

Inventories consist of the following:

JUNE 30, DECEMBER 31,
2002 2001
------- -------

Raw materials ............. $ 7,938 $ 7,526
Work-in-progress .......... 11,497 7,454
Finished goods ............ 38,130 33,402
------- -------
Inventories ............. $57,565 $48,382
======= =======

6 -- GOODWILL AND OTHER INTANGIBLE ASSETS

As discussed in Note 2 above, the Company adopted the provisions of SFAS
No. 142 effective as of January 1, 2002. Accordingly, the Company no longer
amortizes goodwill or other intangible assets with indefinite useful lives. The
Company has identified such other indefinite-lived intangible assets to include
certain previously acquired technology. The Company will periodically evaluate
its indefinite-lived intangible assets for impairment in accordance with the
provisions of SFAS No. 142. The Company also has other intangible assets, such
as patents, licenses, and customer lists, which will continue to be amortized
using the straight-line method.

The following table summarizes the changes in each major class of
intangible assets from January 1, 2002 through June 30, 2002:

INTANGIBLE ASSETS GOODWILL
-------------------------------------- --------
OTHER
AMORTIZABLE
TECHNOLOGY ASSETS TOTAL
---------- ------ -----

Balances, January 1, 2002............. $15,617 $51,890 $67,507 $19,313
Acquired intangible assets.......... - - - 10,389
Foreign currency translation
and other adjustments............. - 2,077 2,077 179
------- -------- -------- -------
Balances: June 30, 2002............... 15,617 53,967 69,584 $29,881
=======
Less: Accumulated
amortization...................... - 32,455 32,455
------- -------- --------
Intangible assets, net.............. $15,617 $21,512 $37,129
======= ======== ========

In conjunction with the acquisition discussed in Note 10, the Company
acquired certain intangible assets during the six months ended June 30, 2002.
The Company is currently in the process of segregating these intangible assets
among the major classes. As such, the estimated value of these intangible assets
has been included in goodwill as of June 30, 2002 and will be reclassified among
the major classes once the Company completes its allocation of the purchase
price.

The following table reflects the comparative net income and earnings per
common share as though the provisions of SFAS No. 142 were in effect for the
three and six months ended June 30, 2002 and 2001:

FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ---------------------
2002 2001 2002 2001
--------- --------- ------ ---------

Net income as reported ............... $ 2,964 $ 2,290 $ 86 $ 6,748
Add back amortization:
Goodwill ($421 and $709 pre-tax) ... -- 261 -- 440
Technology ($581 and $1,419 pre-tax) -- 360 -- 879
--------- --------- ------ ---------
Net income as adjusted ............... $ 2,964 $ 2,911 $ 86 $ 8,067
========= ========= ====== =========

Basic earnings per share:
As reported ....................... $ 0.05 $ 0.04 $ 0.00 $ 0.11
Amortization ...................... -- 0.01 -- 0.02
--------- --------- ------ ---------
As adjusted ....................... $ 0.05 $ 0.05 $ 0.00 $ 0.13
========= ========= ====== =========

Diluted earnings per share:
As reported ....................... $ 0.05 $ 0.04 $ 0.00 $ 0.11
Amortization ...................... -- 0.01 -- 0.02
--------- --------- ------ ---------

As adjusted ....................... $ 0.05 $ 0.05 $ 0.00 $ 0.13
========= ========= ====== =========

Estimated fiscal year amortization expense is as follows:

2002 .......................... $5,200
2003 .......................... 4,400
2004 .......................... 2,800
2005 .......................... 2,300
2006 .......................... 2,300

7 -- STOCKHOLDERS' EQUITY

Accumulated other comprehensive loss consists of the following:

FOREIGN MARKETABLE ACCUMULATED
CURRENCY SECURITIES OTHER
TRANSLATION VALUATION COMPREHENSIVE
ADJUSTMENT ADJUSTMENT LOSS
---------- ---------- ----

Balances, December 31, 2001................ $(62,599) $ (639) $(63,238)
Current period change.................... 9,468 (1,099) 8,369
-------- -------- --------
Balances, June 30, 2002.................... $(53,131) $ (1,738) $(54,869)
======== ======== ========

The change in the marketable securities valuation adjustment for the six
months ended June 30, 2002 of $1,099 ($1,741 pre-tax) relates to unrealized
holding losses on the Company's available-for-sale securities.

8 -- INCOME TAXES

The effective income tax rate for the six months ended June 30, 2002 was a
326% tax benefit, compared to a 27% tax expense for the six months ended June
30, 2001. The effective rate for the six months ended June 30, 2002 was driven
by anticipated annual tax benefits from operating losses in high tax
jurisdictions, partially offset by taxes on operating income generated in low
tax jurisdictions.

Factors that affect the Company's estimated annual effective income tax rate
include increased research and development expenditures in the United States,
the statutory income tax rates in foreign jurisdictions, amortization of certain
intangible assets and other items which are not deductible for tax purposes, and
research and experimentation tax credits. The rate also included the effect of
the one-time restructuring and related charges. The tax benefit related to these
restructuring and related charges is approximately $6,000 for the six months
ended June 30, 2002. During the six months ended June 30, 2002 and 2001, the
Company was subject to a tax ruling in the Netherlands that reduces the local
effective income tax rate from 35.0% to 17.5%. This ruling will expire in 2005.

9 -- COLLABORATIVE AGREEMENTS

During January 2002, the Company entered into a two-year extendable
collaboration agreement with The Johns Hopkins University for the research of
therapeutic vaccines and other immunotherapies targeting cancers and oncogenic
viruses. Under the agreement, the Company received worldwide licenses to certain
proprietary technologies as well as exclusive commercialization rights to any
products developed through the agreement. This collaboration required the
Company to pay an up front license fee as well as annual royalties. The
agreement also requires certain research and development funding and has
potential for additional milestone payments and royalties on future product
sales.

Also during January 2002, the Company formed a strategic alliance with
Seattle Genetics, Inc., to jointly discover and develop a class of cancer
therapeutics. Under terms of the alliance, the companies will share preclinical
and clinical development costs and have the right to jointly commercialize any
resulting products. The Company has made an equity investment in Seattle
Genetics of $3,000 and agreed to pay certain fees and milestone payments.
Seattle Genetics has also agreed to make certain milestone payments to the
Company.

10 -- ACQUISITION

During February 2002, the Company acquired Enzyme Bio-Systems Ltd. (EBS),
now known as Genencor International Wisconsin, Inc., from Corn Products
International, Inc. for a total cash purchase price of $35,809 and the
assumption of $974 in debt. As part of this transaction, the Company entered
into a seven-year supply agreement for a majority of Corn Products
International, Inc.'s North American enzyme requirements. The acquisition has
been accounted for under the purchase method in accordance with SFAS No. 141,
"Business Combinations." The acquired entity's results of operations have been
consolidated with the Company's results of operations since the acquisition
date. The Company is continuing to evaluate the allocation of the purchase price
for the acquisition, including the segregation of separately identifiable
intangible assets. The Company anticipates that this process will be completed
during the quarter ended September 30, 2002. According to the Company's
preliminary allocation of the purchase price, the net assets acquired consist of
the following as of February 2002:

Working capital ....................... $ 4,100
Property, plant and equipment ......... 22,000
Intangible assets ..................... 10,400
Long-term liabilities ................. (691)
--------
$ 35,809
========

Included in working capital acquired is a provision to restructure the
entity of approximately $1,000, which primarily consists of the employee-related
costs to eliminate 22 positions. All affected employees were notified
immediately of the restructuring plan. As of June 30, 2002, costs totaling
approximately $1,000 had been charged to this restructuring provision.

11 -- RESTRUCTURING AND RELATED CHARGES

During February 2002, as a result of the acquisition of EBS and general
economic conditions in Latin America, including the devaluation of the Argentine
peso, the Company engaged in a plan to restructure its overall supply
infrastructure by ceasing operations at its Elkhart, Indiana plant and
downsizing its Argentine facilities. Approximately 122 positions will be
eliminated as a result of this restructuring. All affected employees were
notified immediately of the restructuring plan. As of June 30, 2002, 96
employees had terminated their employment with the Company.

As a result of the plan, restructuring and related charges of $16,379 were
recorded in the Company's operating earnings in the six months ended June 30,
2002. These charges were primarily driven by employee severance and related
costs of approximately $3,762, costs to dismantle portions of the restructured
facilities of $1,000, costs to terminate long-term utility agreements of $300,
other costs totaling $485, and $9,225 for property, plant and equipment that was
deemed impaired as it would no longer be utilized by the Company after the
restructuring. The impairment charge was determined based on remaining book
value, as the Company believes there is no active market in which to sell the
specific assets. The Company expects full implementation to be completed in the
fourth quarter of 2002. In addition, the Company recorded costs related to the
restructuring, such as those related to the transition of activities between
Elkhart and EBS, of $1,607 as incurred during the six months ended June 30,
2002. At June 30, 2002, the Company had a remaining liability of $3,737 related
to this restructuring.

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 2001 Annual Report
on Form 10-K, and the condensed consolidated unaudited financial statements and
related notes included elsewhere in this report.

OVERVIEW

We are a diversified biotechnology company that develops and delivers
products and/or services to the industrial, consumer, agri-processing and health
care markets. Our current revenues result primarily from the sale of enzyme
products to the cleaning, grain processing and textile industries, with the
remainder from research funding, 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,
agri-processing, industrial and consumer 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 nine 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. For the six
months ended June 30, 2002, as well as the year ended December 31, 2001, we
derived approximately 50% of our revenues from our foreign operations.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets." We adopted this statement as of
January 1, 2002. This statement requires the recognition of separately
identifiable intangible assets. Furthermore, it establishes amortization
requirements based upon the ability of the intangible assets to provide cash
flows. For those intangible assets with readily identifiable useful lives,
amortization will be recorded in the statement of operations over such lives.
Intangible assets, such as goodwill, which have indefinite lives, will not
result in periodic amortization, but must be tested at least annually for
impairment.

With the adoption of SFAS No. 142, we reassessed the useful lives and
residual values of all acquired intangible assets to make any necessary
amortization period adjustments. Based on that assessment, goodwill and certain
previously acquired technology were determined to have indefinite useful lives.
Also, there were no adjustments made to the amortization periods or residual
values of other intangible assets. As a result, certain reclassifications were
made to previously issued financial statements to conform to the presentation
required by SFAS No. 142. We completed the first step of the transitional
goodwill and indefinite-lived intangible impairment tests and have determined
that no potential impairment exists. As a result, we recognized no transitional
impairment loss to date in fiscal 2002 in connection with the adoption of SFAS
No. 142.

In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 addresses the
accounting for long-lived assets to be disposed of by sale and resulting
implementation issues. This statement requires the measurement of long-lived
assets at the lower of carrying amount or fair value less cost to sell, whether
reported in continuing operations or in discontinued operations. This statement
is effective for financial statements issued for fiscal years beginning after
December 15, 2001. We adopted SFAS No. 144 as of January 1, 2002. There was no
financial impact as a result of the adoption. We will apply its provisions to
future impairments or disposals of long-lived assets as they occur.

statement is effective for financial statements issued for fiscal years
beginning after May 15, 2002. The Company does not expect the adoption of SFAS
No. 145 to have a material impact on our financial position or our results of
operations.

SUMMARY OF RESULTS

For the three months ended June 30, 2002, net income available for common
stockholders increased to $3.0 million, or $0.05 per diluted share, from $2.3
million, or $0.04 per diluted share, for the three months ended June 30, 2001.
For the six months ended June 30, 2002, net income available for common
stockholders approximated breakeven compared to $6.7 million, or $0.11 per
diluted share, for the six months ended June 30, 2001. During the six months
ended June 30, 2002, we recorded restructuring and related charges of $16.4
million, or $10.3 million on an after-tax basis. Before these charges, we would
have reported net income available to common stockholders of $10.5 million, or
$0.17 per diluted share for the six months ended June 30, 2002.

RECENT DEVELOPMENTS

During April 2002, we announced that we would develop a clinical
manufacturing facility for therapeutic proteins. In July, we announced the
selection of Rochester, New York as the location of this facility for a variety
of reasons, including: the site's proximity to our global manufacturing and
bioproducts group headquarters, as well as an existing pilot-scale
manufacturing facility; and an incentive package offered by New York State. The
first phase of the facility is expected to open in 2004 for the production of
pharmaceutical grade materials to support pre-clinical and clinical studies of
drug candidates for cancer and other diseases.

Also during April 2002, we appointed a group of scientific advisors (SAB)
to assist us as we continue implementation of our health care strategy. The
four-member SAB provided strategic input to our scientific and business leaders
regarding our health care programs. This was in the context of a comprehensive
internal review in which we evaluated and refined our health care strategy
focusing our resources on a smaller number of programs.

During June, as part of our integration of Enzyme Bio-Systems Ltd., we
filed a restated certification of incorporation that, among other things,
changed its name to Genencor International Wisconsin, Inc.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 2002 and 2001

Revenues. Total revenues for the three months ended June 30, 2002 increased
$9.3 million, or 11%, to $90.6 million from the three months ended June 30,
2001, due to increases in both product revenues and fees and royalty revenues.

Product Revenues. Product revenues for the three months ended June 30, 2002
increased $7.0 million, or 9%, to $85.5 million from the three months ended June
30, 2001. Excluding the impact of the stronger U.S. dollar against foreign
currencies, product revenues for the three months ended June 30, 2002 would have
increased by approximately 10% to $86.2 million. For the three months ended June
30, 2002, unit volume/mix increased 12% while average prices fell 2%. Volume
increased primarily due to increased sales volume with our grain milling, fuel
ethanol and textiles customers, partially offset by decreased sales to our
cleaning customers.

Regionally, North American product revenues for the three months ended
June 30, 2002 increased $3.9 million, or 10%, to $41.9 million from the three
months ended June 30, 2001, driven primarily by sales to our grain milling and
fuel ethanol customers, partially offset by decreased protease enzymes sales to
a major customer. Product revenues in Europe, Africa and the Middle East for the
three months ended June 30, 2002 increased $1.6 million, or 6 %, to $28.3
million from the three months ended June 30, 2001, driven primarily by increased
sales to grain milling customers, partially offset by decreased sales to our
cleaning and fabric care customers. Our product revenues in Latin America for
the three months ended June 30, 2002 decreased $1.3 million, or 25%, to $3.8
million from the three months ended June 30, 2001 due primarily to decreased
sales to our cleaning and fabric care customers. Product revenues in the Asia
Pacific region increased $2.8 million, or 32%, to $11.5 million for the three
months ended June 30, 2002 from the three months ended June 30, 2001 due mainly
to increased sales to our grain milling, textiles, and cleaning customers.

Fees and Royalty Revenues. Fees and royalty revenues increased $2.3
million, or 82%, to $5.2 million for the three months ended June 30, 2002 from
the three months ended June 30, 2001, due primarily to an increase in customer
funded research revenues.

Funded research revenues increased $2.4 million, or 92%, to $5.0 million
for the three months ended June 30, 2002, from the three months ended June 30,
2001. Revenues generated by research funding result from collaborative
agreements with various parties, including the U.S. Government, whereby we
perform research activities and receive revenues that partially reimburse us for
expenses incurred. Under such agreements, we retain a proprietary interest in
the products and technology developed. Our funded research revenue as it relates
to U.S. Government collaborations decreased $0.1 million, or 10%, to $0.9
million for the three months ended June 30, 2002 from the three months ended
June 30, 2001. Funded research revenues provided by customers increased $2.5
million to $4.1 million for the three months ended June 30, 2002 from the three
months ended June 30, 2001, primarily driven by funding from a strategic
alliance we entered into with the Dow Corning Corporation during the fourth
quarter of 2001.

Royalties decreased $0.1 million, or 33%, to $0.2 million for the three
months ended June 30, 2002 from the three months ended June 30, 2001.

Operating Expenses

Cost of Products Sold. Cost of products sold increased $2.6 million, or
6%, to $46.1 million for the three months ended June 30, 2002, from the three
months ended June 30, 2001. Our expanded sales volume/mix increased costs $3.0
million along with the sale of higher cost inventories of $1.2 million,
partially offset by reductions due to the impact of the stronger U.S. dollar
against foreign currencies of $1.6 million.

Gross Profit and Margins from Products Sold. Gross profit from products
sold increased $4.4 million, or 13%, to $39.4 million for the three months ended
June 30, 2002 from the three months ended June 30, 2001. This overall increase
was caused by significant product revenue related factors including a 12%
increase in volume/mix processed through our plants, partially offset by an
average price decline of 2%. This net increase in gross profit was also driven
by a $0.8 million increase 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 46.1% for the three months ended June 30, 2002 from 44.6%
for the three months ended June 30, 2001.

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 $2.2 million, or 15%, to $17.3
million for the three months ended June 30, 2002 from the three months ended
June 30, 2001, as we increased our investment in technology and product
development for new markets and hired additional internal staff to support our
health care and other initiatives. As a part of total research and development
expenses, estimated expenses related to research collaborations partially funded
by customers increased $1.4 million, or 58%, to $3.8 million for the three
months ended June 30, 2002 from the three months ended June 30, 2001.

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. These expenses increased $0.8 million,
or 10%, to $8.6 million for the three months ended June 30, 2002 from the three
months ended June 30, 2001, due primarily to increased personnel-related costs,
including salaries, benefits, commissions and travel expenses of $0.3 million
and outside services of $0.6 million, partially offset by decreases in incentive
compensation.

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 $1.0 million, or 14%, to $8.3 million for the three months ended June
30, 2002 from the three months ended June 30, 2001, due primarily to increased
outside services of $1.0 million, personnel-related costs, including salaries,
benefits and travel expenses of $0.1 million, partially offset by decreases in
incentive compensation.

Amortization of Intangible Assets. We amortize our intangible assets,
consisting of patents, licenses and other contractual agreements, on a
straight-line basis over their estimated useful lives. Amortization expense
decreased $1.0 million, or 43%, to $1.3 million for the three months ended June
30, 2002 from the three months ended June 30, 2001 due primarily to the
implementation of SFAS No. 142, "Goodwill and Other Intangible Assets."

Other Expense and Income. Other expense and income relates primarily to
foreign currency exchange gains and losses on transactions denominated in other
than the functional currency of the entity in which the transaction occurred.
Other income for the three months ended June 30, 2002 increased $1.9 million to
$2.1 million from the three months ended June 30, 2001. This increase was due
primarily to gains associated with foreign currency transactions.

Deferred Compensation. We measure deferred compensation for options
granted to employees as the difference between the grant price and the estimated
fair value of our common stock on the date we granted the options. In connection
with the grant of stock options to employees during 2000, amortization of
deferred compensation expense for the three months ended June 30, 2002 was $0.6
million and for the three months ended June 30, 2001 was $0.8 million.

During the fourth quarter of 2001, we converted previously issued SARs to
stock options. As a result, the SARs were canceled and new stock options were
granted at the exercise price and with vesting beginning as of the grant date of
the previously issued SARs. For the new stock options, stock-based compensation
was then calculated as the difference between the exercise price and the
estimated fair value of the new stock options on the conversion date.

In total, amortization of deferred stock-based compensation expense was
$0.7 million and $0.8 million for the three months ended June 30, 2002 and 2001,
respectively, and was reported in our Consolidated Statement of Operations as
follows (in millions):

2002 2001
------ ------

Cost of products sold ............................. $ -- $ --
Research and development .......................... 0.2 0.4
Sales, marketing and business development ......... 0.3 0.2
General and administrative ........................ 0.2 0.2
------ ------
Total amortization of deferred compensation
expense .......................................... $ 0.7 $ 0.8
====== ======

Non Operating Expense and Income

Interest Income. Interest income decreased $1.3 million, or 50%, to $1.3
million for the three months ended June 30, 2002 from the three months ended
June 30, 2001 due mainly to the reduction of our cash balances, discussed below
under the heading " Liquidity and Capital Resources."

Income Taxes. The effective income tax rate for the three months ended
June 30, 2002 was 54%, compared to 24% for the three months ended June 30, 2001.
The effective rate for the three months ended June 30, 2002 is representative of
our most recent assessment of our annual effective income tax rate. Factors that
affect our estimated annual effective income tax rate include increased research
and development expenditures in the United States, the statutory income tax
rates in foreign jurisdictions, amortization of certain intangible assets and
other items which are not deductible for tax purposes, and research and
experimentation tax credits. The rate also included the effect of the one-time
restructuring and related charges. During the three months ended June 30, 2002
and 2001, we were subject to a tax ruling in the Netherlands that reduces the
local effective income tax rate from 35.0% to 17.5%. This ruling will expire in
2005.

Comparison of the Six Months Ended June 30, 2002 and 2001

Revenues. Total revenues for the six months ended June 30, 2002 increased
$12.3 million, or 8%, to $171.4 million from the six months ended June 30, 2001,
due to increases in both product revenues and fees and royalty revenues.

Product Revenues. Product revenues in the six months ended June 30, 2002
increased $7.2 million, or 5%, to $161.0 million from the six months ended June
30, 2001. Excluding the impact of the stronger U.S. dollar against foreign
currencies, product revenues for the six months ended June 30, 2002 would have
increased by approximately 7% to $164.3 million. For the six months ended June
30, 2002, unit volume/mix increased 9% while average prices fell 2%. Volume
increased primarily due to increased protease enzyme sales to a major customer
and increased sales to our grain milling, fuel ethanol and textiles customers,
partially offset by decreased sales to our cleaning customers.

Regionally, North American product revenues for the six months ended June
30, 2002 increased $4.0 million, or 5%, to $78.0 million from the six months
ended June 30, 2001, driven primarily by sales to our grain milling and fuel
ethanol processing customers, partially offset by decreased protease enzymes
sales to a major customer and sales to our cleaning and fabric care customers.
Product revenues in Europe, Africa and the Middle East for the six months ended
June 30, 2002 increased $2.9 million, or 5 %, to $56.1 million from the six
months ended June 30, 2001, driven primarily by increased protease enzymes sales
to a major customer and sales to textiles customers. Our product revenues in
Latin America for the six months ended June 30, 2002 decreased $2.9 million, or
31%, to $6.5 million from the six months ended June 30, 2001 due primarily to
decreased sales to our cleaning and fabric care customers. Product revenues in
the Asia Pacific region increased $3.2 million, or 19%, to $20.4 million for the
six months ended June 30, 2002 from the six months ended June 30, 2001, due
mainly to increased sales to our grain milling, textiles and cleaning customers.

Fees and Royalty Revenues. Fees and royalty revenues increased $5.1
million, or 96%, to $10.4 million for the six months ended June 30, 2002 from
the six months ended June 30, 2001, due primarily to an increase in customer
funded research revenues.

Funded research revenues for the six months ended June 30, 2002 were $9.8
million compared to $4.7 million for the six months ended June 30, 2001.
Revenues generated by research funding result from collaborative agreements with
various parties, including the U.S. Government, whereby we perform research
activities and receive revenues that partially reimburse us for expenses
incurred. Under such agreements, we retain a proprietary interest in the
products and technology developed. Our funded research revenue as it relates to
U.S. Government collaborations increased $0.1 million, or 6%, to $1.9 million
for the six months ended June 30, 2002 from the six months ended June 30, 2001
primarily due to funding provided by the National Renewable Energy Laboratory to
develop an enzymatic process to convert biomass into bioethanol. Funded research
revenues provided by customers increased $5.0 million to $7.9 million for the
six months ended June 30, 2002 from the six months ended June 30, 2001,
primarily driven by funding from a strategic alliance we entered into with the
Dow Corning Corporation during the fourth quarter of 2001.

Royalties remained consistent for the six months ended June 30, 2002 with
the six months ended June 30, 2001 at $0.5 million.

Operating Expenses

Cost of Products Sold. Cost of products sold increased $3.8 million, or
5%, to $88.2 million for the six months ended June 30, 2002 from the six months
ended June 30, 2001. Our expanded sales volume/mix increased costs $5.3 million
along with the sale of higher cost inventories of $2.1 million, partially offset
by reductions due to the impact of the stronger U.S. dollar against foreign
currencies of $3.6 million.

Gross Profit and Margins from Products Sold. Gross profit from products
sold increased $3.4 million, or 5%, to $72.8 million for the six months ended
June 30, 2002 from the six months ended June 30, 2001. This overall increase was
caused by significant product revenue related factors including a 9% increase in
volume/mix processed through our plants, partially offset by an average price
decline of 2%. This net increase in gross profit was also driven by a $0.3
million increase 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 45.2% for the six months ended June 30, 2002 from 45.1% for the six
months ended June 30, 2001.

Research and Development. Research and development expenses increased $4.9
million, or 18%, to $32.9 million for the six months ended June 30, 2002 from
the six months ended June 30, 2001 as we increased our investment in technology
and product development for new markets and hired additional internal staff to
support our health care and other initiatives. As a part of total research and
development expenses, estimated expenses related to research collaborations
partially funded by customers increased $3.4 million, or 81%, to $7.6 million
for the six months ended June 30, 2002 from the six months ended June 30, 2001.

Sales, Marketing and Business Development. Sale, marketing and business
development expenses increased $2.0 million, or 15%, to $15.7 million for the
six months ended June 30, 2002 from the six months ended June 30, 2001,
primarily due to increased personnel-related costs, including salaries,
benefits, commissions and travel expenses of $0.8 million, employee programs of
$.04 million, incentive compensation of $0.1 million and outside service costs
of $0.4 million.

General and Administrative. General and administrative expenses increased
$2.5 million, or 18%, to $16.3 million for the six months ended June 30, 2002
from the six months ended June 30, 2001, due primarily to increased outside
service costs of $2.1 million and personnel-related costs, including salaries,
benefits, and travel expenses of $0.3 million.

Amortization of Intangible Assets. Amortization expense decreased $2.1
million, or 45%, to $2.6 million for the six months ended June 30, 2002 from the
six months ended June 30, 2001 due primarily to the implementation of SFAS No.
142, "Goodwill and Other Intangible Assets."

Other Expense and Income. Other income for the six months ended June 30,
2002 was $3.5 million as compared to $0.7 million of expense for the six months
ended June 30, 2001. This difference in income of $4.2 million was primarily due
to an increase in Argentine peso and Euro-driven foreign currency transaction
gains during the six months ended June 30, 2002.

Deferred Compensation. We measure deferred compensation for options granted
to employees as the difference between the grant price and the estimated fair
value of our common stock on the date we granted the options. In connection with
the grant of stock options to employees during 2000, amortization of deferred
compensation expense for the six months ended June 30, 2002 was $1.2 million and
for the six months ended June 30, 2001 was $1.4 million.

In total, amortization of deferred stock-based compensation expense was
$1.6 million and $1.4 million for the six months ended June 30, 2002 and 2001,
respectively, and was reported in our Consolidated Statement of Operations as
follows (in millions):

2002 2001
------ ------

Cost of products sold ............................. $ 0.2 $ 0.1
Research and development .......................... 0.3 0.5
Sales, marketing and business development ......... 0.7 0.4
General and administrative ........................ 0.4 0.4
------ ------
Total amortization of deferred compensation expense $ 1.6 $ 1.4
====== ======

Non Operating Expense and Income

Interest Income. Interest income decreased $3.0 million, or 53%, to $2.7
million for the six months ended June 30, 2002 from the six months ended June
30, 2001 due mainly to the reduction of our cash balances, discussed below under
the heading " Liquidity and Capital Resources."

Income Taxes. The effective income tax rate for the six months ended June
30, 2002 was a 326% tax benefit, compared to a 27% tax expense for the six
months ended June 30, 2001. The effective rate for the six months ended June 30,
2002 was driven by anticipated annual tax benefits from operating losses in high
tax jurisdictions, partially offset by taxes on operating income generated in
low tax jurisdictions. Factors that affect our estimated annual effective income
tax rate include increased research and development

expenditures in the United States, the statutory income tax rates in foreign
jurisdictions, amortization of certain intangible assets and other items which
are not deductible for tax purposes, and research and experimentation tax
credits. The rate also included the effect of the one-time restructuring and
related charges. The tax benefit related to these restructuring and related
charges is approximately $6.0 million for the six months ended June 30, 2002.
During the six months ended June 30, 2002 and 2001, we were subject to a tax
ruling in the Netherlands that reduces the local effective income tax rate from
35.0% to 17.5%. This ruling will expire in 2005.

ACQUISITION

During February 2002, we acquired EBS from Corn Products International,
Inc. for a total cash purchase price of $35.8 million and the assumption of $1.0
million in debt. As part of this transaction, we entered into a seven-year
supply agreement for a majority of Corn Products International, Inc.'s North
American enzyme requirements. The acquisition has been accounted for under the
purchase method in accordance with SFAS No. 141, "Business Combinations." The
acquired entity's results of operations have been consolidated with our results
of operations since the acquisition date. We are continuing to evaluate the
allocation of the purchase price for the acquisition, including the segregation
of separately identifiable intangible assets. We anticipate that this process
will be completed during the quarter ended September 30, 2002. According to our
preliminary allocation of the purchase price, the net assets acquired consist of
the following as of February 2002 (in millions):

Working capital ............. $ 4.1
Property, plant and equipment 22.0
Intangible assets ........... 10.4
Long-term liabilities ....... (0.7)
-------
$ 35.8
=======

Included in working capital acquired is a provision to restructure the
entity of approximately $1.0 million, which primarily consists of the
employee-related costs to eliminate 22 positions. All affected employees were
notified immediately of the restructuring plan. As of June 30, 2002, costs
totaling approximately $1.0 million had been charged to this restructuring
provision.

RESTRUCTURING AND RELATED CHARGES

During February 2002, as a result of the acquisition of EBS and general
economic conditions in Latin America, including the devaluation of the Argentine
peso, we engaged in a plan to restructure our overall supply infrastructure by
ceasing operations at our Elkhart, Indiana plant and downsizing our Argentine
facilities. Approximately 122 positions will be eliminated as a result of this
restructuring. All affected employees were notified immediately of the
restructuring plan. As of June 30, 2002, 96 employees had terminated their
employment with us.

As a result of the plan, restructuring and related charges of $16.4
million were recorded in our operating earnings in the six months ended June 30,
2002. These charges were primarily driven by employee severance and related
costs of approximately $3.8 million, costs to dismantle portions of the
restructured facilities of $1.0 million, costs to terminate long-term utility
agreements of $0.3 million, other costs totaling $0.5 million, and $9.2 million
for property, plant and equipment that was deemed impaired as it would no longer
be utilized by us after the restructuring. The impairment charge was determined
based on remaining book value, as we believe there is no active market in which
to sell the specific assets. We expect full implementation to be completed in
the fourth quarter of 2002. In addition, we recorded costs related to the
restructuring, such as those related to the transition of activities between the
Elkhart and EBS facilities, of $1.6 million as incurred during the six months
ended June 30, 2002. At June 30, 2002, we had a remaining liability of $3.7
million related to this restructuring.

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, the sale of common stock, research and development funding from
partners, government grants, and short-term and long-term borrowings.

We believe that our current cash and cash equivalent balances plus funds
to be provided from our current year operating activities, together with those
available under our lines of credit, will satisfy our funding needs for at least
the next twelve months. Factors that could negatively impact our cash position
include, 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, 2002, cash and cash equivalents totaled $160.1 million. The
funds were invested in short-term instruments, including A1-P1 rated commercial
paper, master notes, U.S. treasury bills, institutional money market funds,
auction rate preferred securities and bank deposits.

Cash provided by operations was $10.2 million and $13.5 million for the
six months ended June 30, 2002 and 2001, respectively. The decrease of $3.3
million in 2002 from 2001 was generated principally by operating income, net of
non-cash items such as depreciation and amortization, and changes in operating
assets and liabilities.

Cash used by investing activities was $44.8 million and $8.7 million for
the six months ended June 30, 2002 and 2001, respectively. This increase of
$36.1 million was driven primarily by the EBS acquisition of $35.8 million and
the equity investment in Seattle Genetics, Inc. of $3.0 million during the six
months ended June 30, 2002. Capital expenditures for the six months ended June
30, 2002 were $5.9 million in 2002 compared with $8.7 million in 2001. A
significant portion of the capital spending included process improvement
projects at our manufacturing and research and development facilities and
information technology enhancements.

Cash used by financing activities was $27.0 million for the six months
ended June 30, 2002. For the six months ended June 30, 2001 cash provided by
financing activities was less than $0.1 million. This difference of
approximately $27.0 million was primarily driven by the 2002 payment on our
long-term debt of $28.0 million. No dividends were paid to common stockholders
during the six months ended June 30, 2002 and 2001. We currently intend to
retain future earnings to finance the expansion of our business. Any future
determination to pay cash dividends to our common stockholders 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 no greater than 55% and a maximum ratio of debt to
earnings before interest, taxes, depreciation and amortization (EBITDA) of
3.5:1.

As of June 30, 2002, we had a $60.0 million revolving credit facility with
a syndicate of banks, which is available for general corporate purposes. The
facility, which consists of two separate credit agreements, makes available to
us $40.0 million of committed borrowings pursuant to a credit agreement that
expires on January 31, 2004, and $20.0 million of committed borrowings pursuant
to a 364-day credit agreement that expires on January 30, 2003. The combined
facility carries facility fees of 0.35% on the amount of unborrowed principal
under the $40.0 million agreement and 0.30% under the $20.0 million agreement.
As of July 31, 2002, there were no borrowings under either facility.

Our long-term debt consists primarily of the 6.82% senior notes issued in
1996 to certain institutional investors. The remaining principal amount of these
notes is $112.0 million. Annual installment payments of $28.0 million commenced
on March 30, 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. To date, foreign operations, mainly denominated in Euros,
account for approximately 50% of our 2002 revenues. We believe that we mitigate
this risk by 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, currency options and off-setting currency loans

where deemed appropriate. We do not use these instruments for speculative
purposes. We recorded a gain of $0.2 million in the statement of operations for
the six months ended June 30, 2002 from foreign currency contracts.

As of June 30, 2002, cash and cash equivalents totaled $160.1 million. Of
this amount, $72.5 million was denominated in Euros. The remainder, or $87.6
million, was primarily denominated in U.S. dollars. Other than the second
installment of $28.0 million due on March 30, 2003 under our 6.82% senior notes
discussed under the heading "Liquidity and Capital Resources" in this Report,
short-term debt outstanding at June 30, 2002 was not significant. To the extent
U.S. dollar and Euro interest rates fluctuate either up or down, the return on
the cash investments will also fluctuate. To the extent such Euro cash
investments remain outstanding, we will be subject to the risks of future
foreign exchange fluctuations and the impact on the translation of these cash
investments into U.S. dollars.

Interest Rates

Our interest income is sensitive to changes in the general level of
short-term 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. Our interest expense is generated primarily from fixed rate debt,
the $112.0 million 6.82% senior notes outstanding at June 30, 2002, which mature
evenly in installments of $28.0 million per year commencing March 30, 2003.

On January 31, 2002, we entered into an interest rate swap contract to pay
a variable rate of interest based on the six month London Interbank Offered Rate
(LIBOR) and receive fixed rates of interest at 6.82% on a $28.0 million notional
amount of our long-term indebtedness. On May 14, 2002 we entered into an
interest rate swap contract to pay a variable rate of interest based on the six
month London Interbank Offered Rate (LIBOR) and receive fixed rates of interest
at 6.82% on an additional $28.0 million notional amount of our long-term
indebtedness. These contracts will mature on March 30, 2004. Together these
contracts effectively converted 50% of our fixed rate debt to floating rate
debt. Both financial instruments are entered with major banks and thus are not
considered to be subject to significant counter-party credit risk. In accordance
with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities",
these interest rate swap contracts that hedge the senior notes had no effect on
the statement of operations and were not material to the balance sheet at June
30, 2002. On July 31, 2002 we sold the swap contracts for approximately a $1.0
million gain. The gain will be amortized against interest expense over the
original maturity date of the swaps.

Foreign Currency Exposure

We conduct business throughout the world. To date, we have derived
approximately 50% of our 2002 revenues and approximately all of our 2002
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 exposure 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.

Our manufacturing and administrative operations for Latin America are
located in Argentina. During 2001, severe economic conditions, which have lasted
for several years, resulted in a year-end devaluation of the Argentine Peso. As
a result, our subsidiary, which has an Argentine Peso functional currency,
reported lower U.S. dollar net assets due to the translation impact resulting
from the devaluation. Due to the fact that a significant part of our Latin
American revenues were denominated in U.S. dollars, our statement of operations
reflected a $2.6 million foreign currency gain from the remeasurement of related
accounts receivable as of June 30, 2002.

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 generally cover periods of nine months or less 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.

RISK FACTORS

If any of the following risks actually occur, they could harm our
business, financial condition, and/or results of operations.

IF WE FAIL TO DEVELOP PRODUCTS FOR THE HEALTH CARE AND AGRI-PROCESSING MARKETS,
THEN WE MAY NEVER ACHIEVE A RETURN ON OUR RESEARCH AND DEVELOPMENT EXPENDITURES
OR REALIZE PRODUCT REVENUES FROM THESE MARKETS.

A key element of our business strategy is to utilize our technologies for
the development and delivery of products to the health care market and new
segments of the agri-processing market. We intend to significantly increase our
investment in research and development to develop products for these markets.
The successful development of products is highly uncertain and is dependent on
numerous factors, many of which are beyond our control, and may include the
following:

- The product may be ineffective or have undesirable side effects in
preliminary and commercial testing or, specifically in the health care
area, in preclinical and clinical trials;

- The product may fail to receive necessary governmental and regulatory
approvals, or the government may delay regulatory approvals significantly;

- The product may not be economically viable because of manufacturing costs
or other factors;

- The product may not gain acceptance in the marketplace; or

- The proprietary rights of others or competing products or technologies for
the same application may preclude us from commercializing the product.

Due to these factors we may never achieve a return on our research and
development expenditures or realize product revenues from the health care and
new agri-processing markets that we are targeting.

IF WE FAIL TO ENTER INTO STRATEGIC ALLIANCES WITH PARTNERS IN OUR TARGET MARKETS
OR INDEPENDENTLY RAISE ADDITIONAL CAPITAL, WE WILL NOT HAVE THE RESOURCES
NECESSARY TO CAPITALIZE ON ALL OF THE MARKET OPPORTUNITIES AVAILABLE TO US.

We do not currently possess the resources necessary to independently
develop and commercialize products for all of the market opportunities that may
result from our technologies. We intend to form strategic alliances with
industry leaders in our target markets to gain access to funding for research
and development, expertise in areas we lack and distribution channels. We may
fail to enter into the necessary strategic alliances or fail to commercialize
the products anticipated from the alliances. Our alliances could be harmed if:

- We fail to meet our agreed upon research and development objectives;

- We disagree with our strategic partners over material terms of the
alliances, such as intellectual property or manufacturing rights; or

- Our strategic partners become competitors or enter into agreements with
our competitors.

New strategic alliances that we enter into, if any, may conflict with the
business objectives of our current strategic partners and negatively impact
existing relationships. In addition, to capitalize on the market opportunities
we have identified, we may need to seek additional capital, either through
private or public offerings of debt or equity securities. Due to market and
other conditions beyond our control, we may not be able to raise additional
capital on acceptable terms or conditions, if at all.

IF THE DEMAND FOR PROTEIN DEGRADING ENZYMES DECREASES OR IF MAJOR CUSTOMERS
REDUCE OR TERMINATE BUSINESS WITH US, OUR REVENUES COULD SIGNIFICANTLY DECLINE.

Our largest selling family of products, protein degrading enzymes, or
proteases, accounted for approximately 57% of our 2001 revenues. If the demand
for proteases decreases or alternative proteases render our products
noncompetitive, our revenues could significantly decline.

In addition, our five largest customers collectively accounted for over
57% of our 2001 product revenues with our largest customer, The Procter & Gamble
Company, accounting for over 35% of such revenues. Our five largest customers in
2001 were Benckiser N.V., Cargill, Incorporated, the FinnFeeds Division of
Danisco A/S, The Procter & Gamble Company, and Unilever N.V. Any one of these
customers may reduce their level of business with us. Should any of our largest
customers decide to reduce or terminate business with us, our revenues and
profitability could decline significantly.

We have arrangements of various durations with our major customers and are
routinely involved in discussions regarding the status of these relationships.
These discussions may lead to extensions or new commercial arrangements, or may
be unsuccessful. Our customer relationships involve uncertainty by virtue of
economic conditions, customer needs, competitive pressures, our production
capabilities and other factors. Consequently, our customer base will change over
time as will the nature of our relationships with individual customers,
including major customers.

WE INTEND TO ACQUIRE BUSINESSES, TECHNOLOGIES AND PRODUCTS, BUT WE MAY FAIL TO
REALIZE THE ANTICIPATED BENEFITS OF SUCH ACQUISITIONS, AND WE MAY INCUR COSTS
THAT COULD HAVE A SIGNIFICANT NEGATIVE IMPACT ON OUR PROFITABILITY.

In the future, we may acquire other businesses, technologies and products
that we believe are a strategic fit with our business. If we undertake any
transaction of this sort, we may not be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire without a
significant expenditure of operating, financial and management resources, if at
all. Further, we may fail to realize the anticipated benefits of any acquisition
including our recent acquisition of EBS. Future acquisitions could dilute our
stockholders' interest in us and could cause us to incur substantial debt,
expose us to contingent liabilities and could negatively impact our
profitability.

IF WE FAIL TO SECURE ADEQUATE INTELLECTUAL PROPERTY PROTECTION OR BECOME
INVOLVED IN AN INTELLECTUAL PROPERTY DISPUTE, IT COULD SIGNIFICANTLY HARM OUR
FINANCIAL RESULTS AND ABILITY TO COMPETE.

The patent positions of biotechnology companies, including our patent
positions, can be highly uncertain and involve complex legal and factual
questions and, therefore, enforceability is uncertain. We will be able to
protect our proprietary rights from unauthorized use by third parties only to
the extent that we protect our technologies with valid and enforceable patents
or as trade secrets. We rely in part on trade secret protection for our
confidential and proprietary information by entering into confidentiality
agreements and non-disclosure policies with our employees and consultants.
Nonetheless, confidential and proprietary information may be disclosed, and
others may independently develop substantially equivalent information and
techniques or otherwise gain access to our trade secrets.

We file patent applications in the United States and in foreign countries
as part of our strategy to protect our proprietary products and technologies.
The loss of significant patents or the failure of patents to issue from pending
patent applications that we consider significant could impair our operations. In
addition, third parties could successfully challenge, invalidate or circumvent
our issued patents or patents licensed to us so that our patent rights would not
create an effective competitive barrier. Further, we may not obtain the patents
or licenses to technologies that we will need to develop products for our target
markets. The laws of some foreign countries may also not protect our
intellectual property rights to the same extent as United States law.

Extensive litigation regarding patents and other intellectual property
rights is common in the biotechnology industry. In the ordinary course of
business, we periodically receive notices of potential infringement of patents
held by others and patent applications that may mature to patents held by
others. The impact of such claims of potential infringement, as may from time to
time become known to the Company, is difficult to assess. In the event of an
intellectual property dispute, we may become involved in litigation.
Intellectual property litigation can be expensive and may divert management's
time and resources away from our operations. The outcome of any such litigation
is inherently uncertain. Even if we are successful, the litigation can be costly
in terms of dollars spent and the diversion of management time.

If a third party successfully claims an intellectual property right to
technology we use, it may force us to discontinue an important product or
product line, alter our products and processes, pay license fees, pay damages
for past infringement or cease certain activities. Under these circumstances, we
may attempt to obtain a license to this intellectual property; however, we may
not be able to do so on commercially reasonable terms, or at all. In addition,
regardless of the validity of such a claim, its mere existence may affect the
willingness of one or more customers to use or continue to use our products and,
thereby, materially impact us.

Those companies with which we have entered or may enter into strategic
alliances encounter similar risks and uncertainties with respect to their
intellectual property. To the extent that any such alliance companies suffer a
loss or impairment of their respective technologies, we may suffer a
corresponding loss or impairment that may materially and adversely affect our
investments.

IF WE FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, WE MAY NOT BE ABLE TO
ACHIEVE OUR STATED CORPORATE OBJECTIVES.

Our ability to manage our anticipated growth, if realized, effectively
depends on our ability to attract and retain highly qualified executive officers
and technology and business personnel. In particular, our product development
programs depend on our ability to attract and retain highly skilled researchers.
Competition for such individuals is intense. If we fail to attract and retain
qualified individuals, we will not be able to achieve our stated corporate
objectives.

FOREIGN CURRENCY FLUCTUATIONS AND ECONOMIC AND POLITICAL CONDITIONS IN FOREIGN
COUNTRIES COULD CAUSE OUR REVENUES AND PROFITS TO DECLINE.

In 2001, we derived approximately 50% of our revenues from our foreign
operations. Our foreign operations generate sales and incur expenses in local
currency. As a result, we are exposed to a market risk related to unpredictable
interest rates and foreign currency exchange rate fluctuations. We recognize
foreign currency gains or losses arising from our operations in the period
incurred. As a result, currency fluctuations between the U.S. dollar and the
currencies in which we do business could cause our revenues and profits to
decline.

Product revenues denominated in Euros accounted for approximately 21% of
total product revenues for 2001, and the fluctuations in the currency exchange
rate against the U.S. dollar can have a significant impact on our reported
product revenues.

We expect to continue to operate in foreign countries and that our
international sales will continue to account for a significant percentage of our
revenues. As such, we are subject to certain risks arising from our
international business operations that could be costly in terms of dollars
spent, the diversion of management's time, and revenues and profits, including:

- Difficulties and costs associated with staffing and managing foreign
operations;

- Unexpected changes in regulatory requirements;

- Difficulties of compliance with a wide variety of foreign laws and
regulations;

- Changes in our international distribution network and direct sales
forces;

- Political trade restrictions and exchange controls;

- Political, social, or economic unrest;

- Labor disputes including work stoppages, strikes and embargoes;

- Inadequate and unreliable services and infrastructure;

- Import or export licensing or permit requirements; and

- Greater risk on credit terms and long accounts receivable collection
cycles in some foreign countries.

WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CAUSING INVESTOR LOSSES.

A large portion of our expenses, including expenses for facilities,
equipment and personnel, are relatively fixed. Accordingly, if product revenue
declines or does not grow as we anticipate or non-product revenue declines due
to the expiration or termination of strategic alliance agreements or the failure
to obtain new agreements or grants, we may not be able to correspondingly reduce
our operating expenses in any particular quarter. Our quarterly revenue and
operating results have fluctuated in the past and are likely to do so in the
future. If our operating results in some quarters fail to meet the expectations
of stock market analysts and investors, our stock price would likely decline.
Some of the factors that could cause our revenue and operating results to
fluctuate include:

- The ability and willingness of strategic partners to commercialize
products derived from our technology or containing our products on
expected timelines;

- Our ability to successfully commercialize products developed
independently and the rate of adoption of such products;

- Fluctuations in consumer demand for products containing our
technologies or products, such as back to school sales of blue jeans
and other denim products, resulting in an increase in textile
processing enzymes, and fluctuations in laundry detergent use due to
promotional campaigns run by consumer products companies; and

- Fluctuations in geographic conditions including currency and other
economic conditions such as economic crises in Latin America or
Asia.

We also have incurred significant one-time charges within given quarters,
such as those incurred in conjunction with restructuring activities and
recognized investment income from sales of available-for-sale marketable
securities.

IF WE ARE SUBJECT TO A COSTLY PRODUCT LIABILITY DAMAGE CLAIM OR AWARD, OUR
PROFITS COULD DECLINE.

We may be held liable if any product we develop, or any product that a
third party makes with the use or incorporation of any of our products, causes
injury or is found otherwise unsuitable during product testing, manufacturing,
marketing or sale. Our current product liability insurance may not cover our
potential liabilities. Inability to obtain sufficient insurance coverage in the
future at an acceptable cost or otherwise to protect against potential liability
claims could prevent or inhibit the commercialization of products developed by
us or our strategic partners. If a third party sues us for any injury caused by
our products, our liability could exceed our insurance coverage amounts and
total assets and our profits could decline.

IF WE ARE SUBJECT TO COSTLY ENVIRONMENTAL LIABILITY DUE TO THE USE OF HAZARDOUS
MATERIALS IN OUR BUSINESS, OUR PROFITS COULD DECLINE.

Our research and development processes involve the controlled use of
hazardous materials, including chemical, radioactive and biological materials.
Our operations also generate hazardous waste. We cannot eliminate entirely the
risk of contamination or the discharge of hazardous materials and any resultant
injury from these materials. Federal, state, local and foreign laws and
regulations govern the use, manufacture, storage, handling and disposal of these
materials. Third parties may sue us for any injury or contamination that results
from our use or the third party's use of these materials. Any accident could
partially or completely shut down our research and manufacturing facilities and
operations. In addition, if we are required to comply with any additional
applicable environmental laws and regulations, we may incur additional costs,
and any such current or future environmental regulations may impair our
research, development or production efforts.

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. CHANGE IN SECURITIES AND USE OF PROCEEDS

The information presented in Item 2 of Part I of this Report on Form 10-Q
under the heading "Liquidity and Capital Resources" is hereby incorporated by
reference. The Company's Registration Statement on Form S-1 (Registration No.
333-36452) was effective as of July 27, 2000.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders of the Company was held on May 30,
2002. At that meeting, the stockholders elected directors, approved the Genencor
International, Inc. 2002 Omnibus Incentive Plan, and approved the selection of
PricewaterhouseCoopers LLP as independent auditors for the fiscal year ended
December 31, 2002. The total votes at the meeting were as follows:

(i) To elect directors to serve a three-year term.

Votes
----------------------------------
Nominee For Withheld
-------------------- ---------- --------

Soren Bjerre-Nielsen 58,281,667 168,729

Joseph A. Mollica 58,279,939 170,457

Gregory O. Nelson 58,268,219 182,177

James P. Rogers 58,276,592 173,804

There were no broker non-votes.

Directors whose term in office continued after the meeting:

Term expiring in 2003: Bruce C. Cozadd, W. Thomas
Mitchell, Norbert G. Riedel

Term expiring in 2004: Juha Kurkinen, Theresa K. Lee,
Robert H. Mayer

(ii) To approve the Genencor International, Inc. 2002 Omnibus Incentive
Plan.

Votes
-----------------------------------------------------
For Against Abstain
-----------------------------------------------------

53,679,897 1,688,249 16,145

There were 3,086,105 broker non-votes.

(iii) To approve the selection of PricewaterhouseCoopers LLP as
independent auditors for the fiscal year ending December
31, 2002.

Votes
-----------------------------------------------------
For Against Abstain
-----------------------------------------------------

58,282,969 161,313 6,114

There were no broker non-votes.

ITEM 5. OTHER INFORMATION

In light of the enactment of the Sarbanes-Oxley Act of 2002 on July 30,
2002 as well as other reform measures proposed by the Securities and Exchange
Commission and the NASDAQ Stock Market, the Company will continue to review the
impact of these laws and regulations on the Company's policies and practices
including, but not limited to, real-time reporting, board and committee
composition and charters, loans to executive officers, insider trading and
related disclosures, auditor independence and audit review procedures, and code
of conduct and corporate governance policies, and the Company expects to
implement and timely report any material changes, if any, to its policies or
practices which may be deemed necessary or required under these reform measures
as enacted or adopted.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. EXHIBITS
See Index to Exhibits

b. REPORTS ON FORM 8-K
None

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.

August 14, 2002 By: /s/ Raymond J. Land
---------------- -----------------------
Date Raymond J. Land
Senior Vice President and
Chief Financial Officer

August 14, 2002 By: /s/ Darryl L. Canfield
---------------- -----------------------
Date Darryl L. Canfield
Vice President and Corporate
Controller (Chief Accounting
Officer)

INDEX TO EXHIBITS

(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession Not applicable.

(3) Articles of Incorporation and By-laws

3.1 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.

3.2 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

4.1 Exhibit 3.1 to this Report is incorporated herein by reference.

4.2 Exhibit 3.2 to this Report is incorporated herein by reference.

4.3 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.

4.4 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.

4.5 $32,000,000 Three Year Credit Agreement dated as of January 31, 2001
among the Company, the Lenders party thereto and The Chase Manhattan
Bank, as Administrative Agent, is incorporated herein by reference
to Exhibit 4.1 to the Company's Registration Statement on Form S-8
(Registration No. 333-61450) filed on May 23, 2001.

4.6 $16,000,000 364-Day Credit Agreement dated as of January 31, 2001
among the Company, the Lenders party thereto and The Chase Manhattan
Bank, as Administrative Agent, is incorporated herein by reference
to Exhibit 4.2 to the Company's Registration Statement on Form S-8
(Registration No. 333-61450) filed on May 23, 2001.

4.7 Amendment No. 1 dated as of April 20, 2001 to the $32,000,000 Three
Year Credit Agreement dated as of January 31, 2001 among the
Company, the Lenders party thereto and The Chase Manhattan Bank, as
Administrative Agent, is incorporated herein by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-8
(Registration No. 333-61450) filed on May 23, 2001.

4.8 Amendment No. 1 dated as of April 20, 2001 to the $16,000,000
364-Day Credit Agreement dated as of January 31, 2001 among the
Company, the Lenders party thereto and The Chase Manhattan Bank, as
Administrative Agent, is incorporated herein by reference to Exhibit
4.4 to the Company's Registration Statement on Form S-8
(Registration No. 333-61450) filed on May 23, 2001.

4.9 Amendment No. 2 dated as of January 31, 2002 to the $16,000,000
364-Day Credit Agreement dated as of January 31, 2001 among the
Company, the Lenders party thereto and The Chase Manhattan Bank, as
Administrative Agent, is incorporated herein by reference to Exhibit
4.9 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.

4.10 Letter Agreement dated as of January 31, 2002 among JP Morgan Chase
Bank, ABN AMRO Bank, NV, the Bank of New York, Credit Suisse First
Boston and the Company regarding Credit Agreements dated as of
January 31, 2001 and Acquisition of Enzyme Bio-Systems is
incorporated herein by reference to Exhibit 4.10 to the Company's
Annual Report on Form 10-K for the year ended December 31, 2001.

(10) Material Contracts

Not applicable.

(11) Statement re computation of per share earnings

Not included as a separate exhibit as computation can be determined from
Note 3 to the financial statements included in this Report under Item 1.

(15) Letter re unaudited interim financial information

Common
Stock or any securities convertible into or exchangeable or exercisable for or
repayable with Common Stock, whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise.

The foregoing sentence shall not apply to (i) offers, sales,
gifts, assignments or transfers of shares of Common Stock or options to purchase
shares of Common Stock made to (A) members of the immediate family of the
undersigned, (B) corporations, partnerships, limited liability companies or
other entities to the extent such entities are wholly-owned by the undersigned
and/or members of the immediate family of the undersigned, (C) charitable
organizations, or (D) pledges of shares of Common Stock to a bank or other
financial institution, solely to the extent that in the case of clauses (A),
(B), (C) and (D) each recipient agrees to be bound by the restrictions set forth
herein, (ii) transfers of shares of Common Stock or options to purchase shares
of Common Stock made to any trust for the direct or indirect benefit of the
undersigned or any party listed in (i) above, provided that the trustee of the
trust agrees to be bound by the restrictions set forth herein, or (iii) the
exercise of options and transfers of shares of Common Stock to the Offeror used
to pay taxes applicable to the exercise of options and reloading those options
in accordance with the Offeror's stock option arrangements.

It is understood that, if the Offeror notifies you that it
does not intend to proceed with the proposed offering, if the Purchase Agreement
does not become effective by May 31, 2002, or if the Purchase Agreement (other
than the provisions thereof which survive termination) shall terminate or be
terminated prior to payment for and delivery of the Securities, the undersigned
will be, immediately and without any further action, released from the
obligations under this letter agreement.

Very truly yours,

Signature:
--------------------------------------------
Print Name:
--------------------------------------------

C-1

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.

(99) Additional Exhibits

*99.1 Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of
the United States Code.

-------------------

* Exhibits filed with this Report.