UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
August 31, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the Transition Period From
_______________ to _______________
Commission file number 0-17988
NEOGEN CORPORATION
(Exact name of Registrant as specified in its charter)
Michigan 38-2367843
(State or other jurisdiction of (I.R.S. Employer Identification No.)
corporation or organization)
620 Lesher Place
Lansing, Michigan 48912
(517) 372-9200
(Address of 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 Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
As of October 1, 2000, there were 5,682,000 outstanding shares of Common Stock.
INDEX
NEOGEN CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
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ITEM 1. Interim Financial Statements (unaudited)
Consolidated Balance Sheets-August 31, 2000 and May 31, 2000
Consolidated Statements of Income - Three months ended August 31, 2000
and 1999.
Consolidated Statements of Stockholders' Equity - Three months
ended August 31, 2000 and 1999.
Consolidated Statements of Cash Flows - Three months ended
August 31, 2000 and 1999.
Notes to Interim Consolidated Financial Statements - August
31, 2000.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. Interim Financial Statements
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
August 31 May 31
2000 2000
-----------------------------------
ASSETS
CURRENT ASSETS
Cash $ 1,169,000 $ 2,198,000
Marketable securities 5,347,000 8,472,000
Accounts receivable, net 5,888,000 4,877,000
Inventories - note D 5,779,000 5,393,000
Other current assets 837,000 662,000
------------- ------------
TOTAL CURRENT ASSETS 19,020,000 21,602,000
PROPERTY AND EQUIPMENT, NET 2,601,000 2,655,000
INTANGIBLE AND OTHER ASSETS
Goodwill, net 6,108,000 3,892,000
Other assets, net 1,608,000 1,379,000
------------- ------------
$ 29,337,000 $ 29,528,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,875,000 $ 1,743,000
Other accrued liabilities 1,107,000 1,546,000
Current maturities of long-term notes payable 48,000 48,000
------------- ------------
TOTAL CURRENT LIABILITIES 3,030,000 3,337,000
LONG-TERM NOTES PAYABLE 65,000 77,000
OTHER LONG-TERM LIABILITIES 310,000 310,000
STOCKHOLDERS' EQUITY
Common stock:
Par value $.16 per share, 20,000,000
shares authorized, 5,688,000 shares
issued at August 31, 2000; 5,773,000
shares issued at May 31, 2000 910,000 924,000
Additional paid-in capital 20,675,000 21,205,000
Retained-earnings 4,347,000 3,675,000
------------- ------------
25,932,000 25,804,000
------------- ------------
$ 29,337,000 $ 29,528,000
============= ============
See notes to interim consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Three Months Ended August 31
2000 1999
---------------------------
NET SALES $ 8,124,000 $ 5,340,000
Cost of goods sold 4,128,000 2,261,000
----------- -----------
GROSS MARGIN 3,996,000 3,079,000
OPERATING EXPENSES
Sales and marketing 1,847,000 1,358,000
General and administrative 928,000 710,000
Research and development 419,000 333,000
----------- -----------
3,194,000 2,401,000
----------- -----------
INCOME FROM OPERATIONS 802,000 678,000
OTHER INCOME
Interest income 111,000 132,000
Interest expense (10,000) (3,000)
Other 69,000 77,000
----------- -----------
170,000 206,000
----------- -----------
INCOME BEFORE TAXES ON INCOME 972,000 884,000
TAXES ON INCOME 300,000 76,000
----------- -----------
NET INCOME $ 672,000 $ 808,000
=========== ===========
NET INCOME PER SHARE:
Basic $ 0.12 $ 0.14
=========== ===========
Diluted $ 0.12 $ 0.14
=========== ===========
See notes to interim consolidated financial statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Common Stock Additional
----------------------------
Number Paid-In Retained
of Shares Amount Capital Earnings
----------- ------------- --------------- ---------------
Balance at June 1, 2000 5,773,000 $ 924,000 $ 21,205,000 $ 3,675,000
Repurchase of shares (85,000) (14,000) (530,000)
Net income for the
three months ended
August 31, 2000 672,000
---------- ------------- --------------- ---------------
Balance at August 31, 2000 5,688,000 $ 910,000 $ 20,675,000 $ 4,347,000
========== ============= =============== ===============
Balance at June 1, 1999 5,929,000 $ 949,000 $ 22,236,000 $ 601,000
Net income for the
three months ended
August 31, 1999 808,000
---------- ------------- --------------- ---------------
Balance at August 31, 1999 5,929,000 $ 949,000 $ 22,236,000 $ 1,409,000
========== ============= =============== ===============
See notes to interim consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Three Months Ended August 31
2000 1999
---------------------------------------
OPERATING ACTIVITIES:
Net income $ 672,000 $ 808,000
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 332,000 224,000
Changes in operating assets and
liabilities:
Accounts receivable (494,000) (175,000)
Inventories 6,000 166,000
Other current assets (175,000) (104,000)
Accounts payable 132,000 (174,000)
Other accrued expenses (439,000) (192,000)
----------------- -----------------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 34,000 553,000
INVESTING ACTIVITIES:
Sales of marketable securities 3,212,000 7,561,000
Purchases of marketable securities (87,000) (7,809,000)
Purchases of property and equipment
and other assets (298,000) (248,000)
Acquisitions (3,334,000) -
----------------- -----------------
NET CASH USED IN
INVESTING ACTIVITIES (507,000) (496,000)
FINANCING ACTIVITIES:
Payments on long-term borrowings (12,000) (12,000)
Net payments for repurchase
of common stock (544,000) -
----------------- -----------------
NET CASH USED IN
FINANCING ACTIVITIES (556,000) (12,000)
----------------- -----------------
INCREASE (DECREASE) IN CASH (1,029,000) 45,000
Cash at beginning of period 2,198,000 1,063,000
----------------- -----------------
CASH AT END OF PERIOD $ 1,169,000 $ 1,108,000
================= =================
See notes to interim consolidated financial statements.
-6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the three months ended August 31,
2000 are not necessarily indicative of the results to be expected for the fiscal
year ending May 31, 2001. For more complete financial information, these
consolidated financial statements should be read in conjunction with the May 31,
2000 audited consolidated financial statements and the notes thereto included in
the Company's annual report on Form 10-K for the year ended May 31, 2000.
NOTE B - EARNINGS PER SHARE
- ---------------------------
Earnings per share is calculated according to Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share". The following table presents
the earnings per share calculations in conformance with SFAS No. 128.
Three months
Ended August 31
2000 1999
------------------ -----------------
Basic and Diluted - Earnings per Share
Numerator - Net Income $ 672,000 $ 808,000
================== =================
Denominator:
For basic earnings per share-
Weighted average shares 5,731,000 5,929,000
Effect of dilutive securities-
Stock options and warrants 10,000 30,000
------------------ -----------------
For diluted earnings
per share - adjusted weighted
average shares and assumed conversions 5,741,000 5,959,000
================== =================
Basic Earnings per Share $ 0.12 $ 0.14
================== =================
Diluted Earnings per Share $ 0.12 $ 0.14
================== =================
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NOTE C - STOCK REPURCHASE
- -------------------------
The Company's board of directors has authorized the purchase of up to 750,000
shares of the Company's common stock. As of August 31, 2000, the Company had
purchased 619,000 shares in negotiated and open market transactions. Shares
purchased under this buy-back program will be retired and used to satisfy future
issuance of common stock upon the exercise of outstanding stock options and
warrants.
NOTE D - INVENTORIES
- --------------------
Inventories are stated at the lower of cost, determined on the first-in, first-
out method, or market. The components of inventories are as follows:
August 31, 2000 May 31, 2000
--------------- ------------
Raw Material $ 2,665,000 $ 2,207,000
Work-In-Process 832,000 678,000
Finished Goods 2,282,000 2,508,000
--------------- ------------
$ 5,779,000 $ 5,393,000
=============== ============
NOTE E - SEGMENT INFORMATION
- ----------------------------
The Company has two reportable segments: Food Safety and Animal Safety. The Food
Safety segment produces and markets diagnostic test kits and related products
used by food producers and processors to detect harmful natural toxins, drug
residues, foodborne bacteria, food allergens, pesticide residues, disease
infections and levels of general sanitation. The Animal Safety segment is
primarily engaged in the production and marketing of products dedicated to
animal health, including 250 different veterinary instruments and a complete
line of consumable products marketed to veterinarians and distributors serving
the professional equine industry.
These segments are managed separately because they represent strategic business
units that offer different products and require different marketing strategies.
The Company evaluates performance based on total sales and operating income of
the respective segments.
-8-
Segment information for the three months ended August 31, 2000 and 1999 was as
follows:
Corporate
Food Animal and
Safety Safety Eliminations (1) Total
- --------------------------------------------------------------------------------------------------------------------------
2000
Net sales from external customers $ 4,389,000 $ 3,735,000 $ - $ 8,124,000
Operating income (loss) 692,000 289,000 (179,000) 802,000
Total assets 10,431,000 13,579,000 5,327,000 29,337,000
- --------------------------------------------------------------------------------------------------------------------------
1999
Net sales from external customers $ 2,651,000 $ 2,689,000 $ - $ 5,340,000
Operating income (loss) 602,000 260,000 (184,000) 678,000
Total assets 6,981,000 9,789,000 9,768,000 26,538,000
- --------------------------------------------------------------------------------------------------------------------------
(1) Includes corporate assets, consisting principally of marketable securities,
and overhead expenses not allocated to specific business segments. Also
includes the elimination of intersegment transactions and minority
interests.
NOTE F - ACQUISITIONS
- ---------------------
On February 17, 2000, the Company purchased 100% of the common stock of Acumedia
Manufacturers, Inc., an internationally recognized manufacturer of culture
media. The acquisition was accounted for using the purchase method.
Unaudited proforma financial information for the quarter ended August 31, 1999
as if the acquisition of Acumedia had taken place on June 1, 1999 follows:
Revenues $6,309,000
Net Income 678,000
Earnings Per Share - Basic and Diluted $0.11
On June 2, 2000, the Company acquired substantially all of the assets of AmVet
Pharmaceuticals of Yaphank, New York. The purchase price, subject to certain
post closing adjustments, was $3,400,000 paid in cash, with provisions for up to
an additional $1,000,000 based upon specified levels of post closing revenues.
Sales of AmVet products may total as much as $3,500,000 in the year ended May
31, 2001.
NOTE G - SUBSEQUENT EVENT
- -------------------------
On September 1, 2000, the Company acquired Squire Laboratories. The purchase
price was approximately $1,000,000 paid in cash. Sales of Squire products could
total $1,000,000 over the 12 months following the acquisition.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information in this Management's Discussion and Analysis of Financial
Condition and Results of Operations contains both historical financial
information and forward-looking statements. Neogen does not provide forecasts of
future performance. While management is optimistic about the Company's long-term
prospects, historical financial information may not be indicative of future
financial performance.
The words "anticipate", "believe", "potential", "expect", and similar
expressions used herein are intended to identify forward-looking statements.
Forward-looking statements involve certain risks and uncertainties. Various
factors, including competition, recruitment and dependence on key employees,
impact of weather on agriculture and food production, identification and
integration of acquisitions, research and development risks, patent and trade
secret protection, government regulation and other risks detailed from time to
time in the Company's reports on file at the Securities and Exchange Commission
may cause actual results to differ materially from those contained in the
forward-looking statements.
Three Months Ended August 31, 2000 Compared to Three Months Ended August 31,
- ----------------------------------------------------------------------------
1999.
- -----
Total sales for the quarter ended August 31, 2000 increased $2,784,000 or 52.1%
compared to the same quarter in 1999. Sales of products dedicated to food safety
were up 65.9% and sales of animal safety products were up 38.6%.
The increase in food safety sales came from increases in sales of comparable
products of 38.6%. Additionally, sales of the Company's newly acquired
dehydrated culture media subsidiary, Acumedia, sales of which are reported as
part of this segment, added $721,000 of additional revenues. Sales of test kits
for the detection of naturally occurring mycotoxins such as Aflatoxin and DON
(Vomitoxin) increased 7.7% as compared to the first quarter of 1999. These sales
increases came during a year without the presence of adverse weather conditions
that in some years cause significant demand fluctuations. It is believed that
Company's investment in sales and marketing has resulted in gains in market
share. Sales of test kits to detect harmful bacteria, such as E. coli 0157:H7,
Salmonella and Listeria, increased 105.9% as compared to the prior year. The
sales came as the Company has continued to penetrate this rapidly growing
market.
The increase in animal safety sales came from increases in sales of comparable
products of $214,000 or 7.9%. Sales of the products of AmVet Pharmaceuticals
which was acquired on June 2, 2000 totaled $828,000 in the quarter. Sales for
most of the Company's product lines were comparable to those of the prior year
with the exception of sales of EqStim(R), an immunostimulant, which declined in
2000 due to what are believed to be short-term market conditions.
Gross margins decreased from 57.7% in 1999 to 49.2% in 2000. This change in
margins resulted principally from the acquisitions of Acumedia and AmVet both of
which have inherently lower margin product lines. To a lesser extent margins
decreased from the effect of other changes in product sales mix.
-10-
Sales and marketing expenses increased $490,000 from the first quarter in 1999.
These expenses rose in relation to sales increases, however, because at least in
part the distribution costs related to Acumedia and Am-Vet are less than the
distribution costs of the Company's historical products, sales and marketing
costs as a percentage of sales decreased from 25.4% to 22.7%.
General and administrative expenses increased $218, 000 or 30.7% from the 1999
quarter. As a percentage of revenue these costs decreased from 13.3% to 11.4%.
The increase in dollar costs consisted principally of personnel additions and
similar costs necessary to provide accounting and other administrative functions
for the significantly greater level of sales.
Research and development expenses increased $86,000 or 25.8%. As a percentage of
revenues, research and development expenses decreased from 6.2% to 5.2%.
Acumedia and AmVet do not require high levels of research and development so it
should be expected that while absolute dollars will increase as research
professionals continue to provide service to the Company's historical product
lines, expenditures as a percentage of sales will likely decrease.
Other income decreased in the 2000 quarter principally as a result of the
reduction in interest following the purchase of AmVet.
The tax rate in the first quarter of 2000 increased to nearly 31% of income
before income taxes from less than 10% in the prior year. Beginning in the year
2000, the Company has reached a fully taxable status for the first time in its
existence.
Financial Condition and Liquidity
- ---------------------------------
At August 31, 2000, the Company had $6,516,000 in cash and marketable
securities, working capital of $15,590,000 and stockholders' equity of
$25,932,000. In addition, the Company has bank lines of credit totaling
$10,000,000 with no borrowings against these lines. Cash and marketable
securities decreased during the first quarter with cash generated by operations
offset by $3,334,000 of cash expended for AmVet and other assets and for the
repurchase of common stock.
Accounts receivable were $1,011,000 higher at August 31, 2000 than at May 31 due
primarily to significant increases in sales during the quarter. Inventories
increased $386,000 at August 31, 2000 compared to May 31. This resulted from
continued strong management of this asset despite the AmVet acquisition and the
increase in the level of operations. The decrease in current liabilities
resulted from timing of payments, principally those related to federal income
taxes.
At August 31, 2000, the Company had no material commitments for capital
expenditures. Inflation and changing prices are not expected to have a material
effect on the Company's operations.
Management believes that the Company's existing cash and marketable securities
at August 31, 2000, along with its available bank lines of credit and cash
expected to be generated from future operations, will be sufficient to fund
activities for the foreseeable future. However, existing cash and marketable
securities may not be sufficient to meet the Company's cash requirements to
commercialize products currently under development or its plans to acquire
additional technology and products that fit within the Company's mission
statement. Accordingly, the Company may be required to issue equity securities
or enter into other financing arrangements for a portion of the Company's future
capital needs.
-11-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company is involved in several legal proceedings, none of which, in the
opinion of the management is material to the financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibit Index
-------------
Exhibit 10.1 - Asset Purchase Agreement between registrants and Squire
Laboratories, Inc. dated June 2, 2000.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K Filed in Quarterly Period Ended August 31, 2000.
--------------------------------------------------------------------
The Company filed reports on June 16, 2000 on Form 8-K reporting the acquisition
of AmVet Pharmaceuticals and on August 14, 2000 reporting under Item 7 financial
information of business to be acquired.
-12-
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.
NEOGEN CORPORATION
10/11/00 /s/ James L. Herbert
- -------- --------------------
Date James L. Herbert
President
10/11/00 /s/ Richard R. Current
- -------- ----------------------
Date Richard R. Current
Vice President & Chief Financial Officer
-13-
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 ASSET PURCHASE AGREEMENT BETWEEN REGISTRANTS AND SQUIRE
LABORATORIES, INC. DATED JUNE 2, 2000.
27 FINANCIAL DATA SCHEDULE
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