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
February 28, 2001
[_] 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 (I.R.S. Employer Identification No.)
of 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 April 1, 2001, there were 5,800,000 outstanding shares of Common Stock.
INDEX
NEOGEN CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- -------------------------------
ITEM 1. Interim Condensed Financial Statements (unaudited)
Consolidated Balance Sheets - February 28, 2001 and May 31, 2000
Consolidated Statements of Operations - Three months and nine months
ended February 28, 2001 and February 29, 2000.
Consolidated Statements of Stockholders' Equity - Nine months ended
February 28, 2001.
Consolidated Statements of Cash Flows - Nine months ended February 28,
2001 and February 29, 2000.
Notes to Interim Consolidated Financial Statements - February 28,
2001.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
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 Condensed Financial Statements
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
February 28 May 31
2001 2000
--------------------------------
ASSETS
CURRENT ASSETS
Cash $ 534,000 $ 2,198,000
Marketable securities 5,865,000 8,472,000
Accounts receivable, net 6,072,000 4,877,000
Inventories 6,453,000 5,393,000
Other current assets 636,000 662,000
--------------- --------------
TOTAL CURRENT ASSETS 19,560,000 21,602,000
PROPERTY AND EQUIPMENT, NET 2,722,000 2,655,000
INTANGIBLE AND OTHER ASSETS
Goodwill, net 7,099,000 3,892,000
Other assets, net 1,584,000 1,379,000
--------------- --------------
$ 30,965,000 $ 29,528,000
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,667,000 $ 1,743,000
Other accrued liabilities 932,000 1,546,000
Current maturities of long-term notes payable 49,000 48,000
--------------- --------------
TOTAL CURRENT LIABILITIES 2,648,000 3,337,000
LONG-TERM NOTES PAYABLE 41,000 77,000
OTHER LONG-TERM LIABILITIES 310,000 310,000
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value, 100,000
shares authorized, none issued and outstanding - -
Common stock, $.16 par value,
20,000,000 shares authorized, 5,758,000
shares issued at February 28, 2001;
5,773,000 shares issued at May 31, 2000 921,000 924,000
Additional paid-in capital 21,124,000 21,205,000
Retained earnings 5,921,000 3,675,000
--------------- --------------
27,966,000 25,804,000
--------------- --------------
$ 30,965,000 $ 29,528,000
=============== ==============
See notes to interim consolidated financial statements.
-3-
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Three Months Ended Nine Months Ended
February 28 February 29 February 28 February 29
2001 2000 2001 2000
--------------------------------- ---------------------------------
SALES $ 8,601,000 $ 6,276,000 $ 25,734,000 $ 17,041,000
Cost of goods sold 4,249,000 2,721,000 12,842,000 7,435,000
------------ ------------ ------------- -------------
GROSS MARGIN 4,352,000 3,555,000 12,892,000 9,606,000
OPERATING EXPENSES
Sales and marketing 1,862,000 1,456,000 5,498,000 4,289,000
General and administrative 1,052,000 948,000 3,119,000 2,472,000
Research and development 501,000 427,000 1,376,000 1,185,000
------------ ------------ ------------- -------------
3,415,000 2,831,000 9,993,000 7,946,000
------------ ------------ ------------- -------------
INCOME FROM OPERATIONS 937,000 724,000 2,899,000 1,660,000
OTHER INCOME
Interest income 95,000 144,000 292,000 424,000
Interest expense (10,000) (2,000) (31,000) (9,000)
Other 61,000 56,000 217,000 208,000
------------ ------------ ------------- -------------
146,000 198,000 478,000 623,000
------------ ------------ ------------- -------------
INCOME BEFORE TAXES ON INCOME 1,083,000 922,000 3,377,000 2,283,000
TAXES ON INCOME 369,000 295,000 1,131,000 510,000
------------ ------------ ------------- -------------
NET INCOME $ 714,000 $ 627,000 $ 2,246,000 $ 1,773,000
============ ============ ============= =============
NET INCOME PER SHARE:
Basic $ 0.12 $ 0.11 $ 0.39 $ 0.30
============ ============ ============= =============
Fully Diluted $ 0.12 $ 0.11 $ 0.39 $ 0.30
============ ============ ============= =============
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 (93,000) (15,000) (558,000)
Exercise of options 78,000 12,000 477,000
Net income for the
nine months ended
February 28, 2001 2,246,000
----------- ---------- ------------ ------------
BALANCE AT FEBRUARY 28, 2001 $ 5,758,000 $ 921,000 $ 21,124,000 $ 5,921,000
=========== ========== ============ ============
See notes to interim consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Nine Months Ended
February 28 February 29
2001 2000
------------------------------------
OPERATING ACTIVITIES:
Net income $ 2,246,000 $ 1,773,000
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 1,027,000 668,000
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable (614,000) (1,234,000)
Inventories (599,000) 92,000
Other current assets 26,000 441,000
Accounts payable (76,000) (330,000)
Other accrued liabilities (613,000) (196,000)
-------------- --------------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 1,397,000 1,214,000
INVESTING ACTIVITIES:
Sales of marketable securities 6,207,000 25,228,000
Purchases of marketable securities (3,600,000) (22,291,000)
Purchases of property and equipment
and other assets (800,000) (639,000)
Acquisitions (4,748,000) (122,000)
-------------- --------------
NET CASH USED IN
INVESTING ACTIVITIES (2,941,000) (122,000)
FINANCING ACTIVITIES:
Payments on long-term borrowings (36,000) (36,000)
Net payments for repurchase
of common stock (573,000) (932,000)
Net proceeds from exercise
of options 489,000 285,000
-------------- --------------
NET CASH (USED IN) PROVIDED
FROM FINANCING ACTIVITIES (120,000) 683,000
-------------- --------------
DECREASE IN CASH (1,664,000) (409,000)
Cash at beginning of period 2,198,000 1,063,000
-------------- --------------
CASH AT END OF PERIOD $ 534,000 $ 1,472,000
============== ==============
See notes to interim consolidated financial statements.
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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 and nine month periods
ended February 28, 2001 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 Nine Months Ended
February 28 February 29 November 30
2001 2000 2001 2000
---------------------------- ----------------------------
Basic and Diluted - Earnings per Share
Numerator - Net Income $ 714,000 $ 627,000 $ 2,246,000 $ 1,773,000
=========== =========== =========== ===========
Denominator:
For basic earnings per share-
Weighted average shares 5,725,000 5,913,000 5,705,000 5,919,000
Effect of dilutive securities-
Stock options and warrants 245,000 8,000 105,000 19,000
----------- ----------- ----------- -----------
For diluted earnings per share-
Adjusted weighted average
shares and assumed conversions 5,970,000 5,921,000 5,810,000 5,938,000
=========== =========== =========== ===========
Basic Earnings per Share $ 0.12 $ 0.11 $ 0.39 $ 0.30
=========== =========== =========== ===========
Diluted Earnings per Share $ 0.12 $ 0.11 $ 0.39 $ 0.30
=========== =========== =========== ===========
-7-
NOTE C - STOCK REPURCHASE
- -------------------------
The Company's board of directors has authorized the purchase of up to 1,000,000
shares of the Company's common stock. As of February 28, 2001, the Company had
purchased 627,000 shares in negotiated and open market transactions. Shares
purchased under this buy-back program have been retired.
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:
February 28, 2001 May 31, 2000
----------------- -------------
Raw Material $ 2,365,000 $ 2,207,000
Work-In-Process 743,000 678,000
Finished Goods 3,345,000 2,508,000
----------------- -------------
$ 6,453,000 $ 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 February 28, 2001 and February
29, 2000 was as follows:
Corporate
Food Animal And
Safety Safety Eliminations (1) Total
=========================================================================================================================
2001
Net sales from external customers $ 4,009,000 $ 4,592,000 $ - $ 8,601,000
Operating income 607,000 461,000 (131,000) 937,000
Total assets 10,091,000 14,029,000 6,845,000 30,965,000
=========================================================================================================================
2000
Net sales from external customers $ 2,855,000 $ 3,421,000 $ - $ 6,276,000
Operating income 251,000 746,000 (273,000) 724,000
Total assets 10,006,000 10,675,000 6,648,000 27,329,000
=========================================================================================================================
Segment information for the nine months ended February 28, 2001 and February 29,
2000 was as follows:
Corporate
Food Animal And
Safety Safety Eliminations (1) Total
=========================================================================================================================
2001
Net sales from external customers $ 12,723,000 $ 13,011,000 $ - $ 25,734,000
Operating income 1,938,000 1,503,000 (542,000) 2,899,000
Total assets 10,091,000 14,029,000 6,845,000 30,965,000
=========================================================================================================================
2000
Net sales from external customers $ 8,391,000 $ 8,650,000 $ - $ 17,041,000
Operating income 1,249,000 1,095,000 (684,000) 1,660,000
Total assets 10,006,000 10,675,000 6,648,000 27,329,000
=========================================================================================================================
(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.
-9-
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 three and nine months ended
February 29, 2000 as if the acquisition of Acumedia had taken place on June 1,
1999 follows:
Three Months Ended Nine Months Ended
February 29, 2000 February 29, 2000
------------------ -----------------
Revenues $6,912,000 $19,469,000
Net Income 517,000 $1,378,000
Earnings Per Share - Basic and Diluted $0.09 $0.23
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 achieving levels of post closing revenues.
Sales of AmVet products are expected to approximate $4,000,000 in the year ended
May 31, 2001.
On September 1, 2000, the Company acquired Squire Laboratories. The purchase
price was $1,000,000 paid in cash. Sales of Squire products are expected to
approximate $1,000,000 over the 12 months following the acquisition.
-10-
PART I. FINANCIAL INFORMATION
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 and Nine Months Ended February 28, 2001 Compared to Three Months
- -----------------------------------------------------------------------------
and Nine Months Ended February 29, 2000.
- ----------------------------------------
Total sales increased $2,325,000 or 37.0% in the February 2001 quarter compared
to the February 2000 quarter and were up $8,693,000 or 51.0% in the nine months
ended February 28, 2001 as compared to the first nine months of 2000. Sales of
products dedicated to food safety were up 40.4% for the quarter and 51.6% for
the nine-month period, and sales of animal safety products were up 34.2% for the
quarter and 50.4% for the nine-month period.
Sales of test kits for the detection of naturally occurring mycotoxins such as
Aflatoxin and DON (Vomitoxin) increased $300,000 for the quarter and $500,000
for the nine-month period. 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 the Company's investment in sales and
marketing has resulted in gains in market share in this market segment. Sales of
tests to detect harmful bacteria, such as E. coli 0157:H7, Salmonella, Listeria,
and for general sanitation, increased 23.5% for the quarter and 48.8% for the
nine-month period. The sales came as the Company has continued to penetrate this
rapidly growing market. Sales of Acumedia Manufacturers, Inc, which was acquired
in the third quarter of fiscal 2000, and is reported as part of this segment,
added revenues of $2,300,000 for the nine-month period.
In the February 2001 Quarter sales of animal safety products were comparable to
the prior year with the exception of BotVax B and Immunovet (EqStim(R)), which
had revenue declines from the prior year totaling $500,000. The decline in
BotVax B revenues arose as a matter of timing with heavy shipments of backlogged
product in the third quarter of the prior year. EqStim(R) sales were down
$350,000 year to date. Management has continued to review the Immunovet product
lines and explore marketing alternatives to return this product to its former
growth. Revenues from the products of AmVet Pharmaceuticals and Squire
Laboratories, which were acquired on June 2, 2000 and September 1, 2000,
respectively, continue to equal or better expectations. Sales of Amvet and
Squire products totaled $3,300,000 for the nine-month period.
-11-
Gross margins in the February 2001 quarter declined to 50.6% from 56.6% in the
February 2000 quarter and to 50.1% in the nine months ended February 28, 2001
from 56.4% in 2000. This change in margins resulted principally from the
acquisitions of Acumedia, AmVet and Squires, which have lower margin product
lines. To a lesser extent margins decreased from the effect of changes in
product sales mix, including changes in levels of sales of BotVax B in the
quarter.
Sales and marketing expenses increased $406,000 or 21.6% from the February 2000
quarter and $1,209,000 or 28.2% for the nine-month period. These expenses rose
in partial relation to sales increases. However, because the distribution costs
related to Acumedia, AmVet and Squires are less than the distribution costs of
the Company's historical products, sales and marketing costs as a percentage of
sales decreased from 23.2% to 21.6% in the quarter and from 25.2% to 21.4% in
the nine-month period.
General and administrative expenses increased $104,000 or 11% from the February
2000 quarter and $647,000 or 26.2% for the nine-month period. As a percentage of
revenue these costs decreased from 15.1% to 12.2% in the quarter and from 14.5%
to 12.1% in the nine-month period. 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 operations.
Research and development expenses increased $74,000 or 17.3% from the February
quarter of 2000 and $191,000 or 16.1% for the nine-month period. As a percentage
of revenues, research and development expenses decreased from 6.8% to 5.8% for
the quarter and from 6.9% to 5.3% for the nine-month period. Acumedia, AmVet and
Squires do not require significant levels of research and development so it
should be expected that while absolute dollars will increase in support of the
Company's historical product lines, expenditures as a percentage of total sales
will likely decrease.
Other income decreased in the February 2001 quarter and nine-month period
principally as a result of the reduction in interest income from invested
balances following the acquisitions consummated over the past several quarters.
Beginning in the second quarter of the 2000 fiscal year, the Company reached a
fully taxable status for the first time. The changes in effective tax rates
between the periods are entirely related to this factor.
Financial Condition and Liquidity
- ---------------------------------
At February 28, 2001, the Company had $6,399,000 in cash and marketable
securities, working capital of $16,912,000 and stockholders' equity of
$27,966,000. In addition, unused bank lines totaled $10,000,000. Cash and
marketable securities decreased in the nine months ended February 28, 2001 with
cash generated by operations of $1,397,000 offset by cash expended for AmVet,
Squires and other assets and for the repurchase of common stock.
Accounts receivable were $614,000 higher at February 28, 2001 than at May 31 due
primarily to the AmVet and Squire Acquisitions and significant increases in
sales during the period. Inventories increased $599,000 at February 28, 2001
compared to May 31. This resulted from continued strong management of this asset
despite the acquisitions and an increase in the level of operations. The
decrease in current liabilities results from timing of payments.
At February 28, 2001, 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.
-12-
Management believes that the Company's existing cash and marketable securities
at February 28, 2001, 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.
PART I. FINANCIAL INFORMATION
ITEM 3. Quantitative and Qualitative Disclosures about Market Risks.
The Company's exposure to market risk for changes in interest rates relates to
its portfolio of marketable securities. The Company has no significant
borrowings. Interest rate risk is managed by investing in high-quality issuers
and seeking to avoid principal loss of invested funds by limiting default risk
and market risk. The Company manages default risks by investing in only high-
credit-quality securities and by responding appropriately to a significant
reduction in a credit rating of any investment issuer or guarantor. The
portfolio includes only marketable securities with active secondary or resale
markets to ensure portfolio liquidity.
-13-
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
None
(b) Reports on Form 8-K Filed in Quarterly Period Ended February 28, 2001.
----------------------------------------------------------------------
The Company did not file any reports on Form 8-K in the quarterly period ended
February 28, 2001.
-14-
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
04/12/01 /s/ James L. Herbert
- -------- --------------------
Date James L. Herbert
President
04/12/01 /s/ Richard R. Current
- -------- ----------------------
Date Richard R. Current
Vice President & Chief Financial Officer
-15-