U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For fiscal year ended May 31, 2001
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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: 0-17988
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NEOGEN CORPORATION
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(Name of registrant as specified in its charter)
MICHIGAN 38-2367843
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
620 LESHER PLACE, LANSING, MICHIGAN 48912
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(Address of principal executive offices) (Zip Code)
517/372-9200
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $ .16 PAR VALUE
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 ___
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Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K ( )
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The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 31, 2001 was $66,526,000 based on the closing price as
reported by the NASDAQ National Market.
As of July 31, 2001, registrant had 5,919,908 outstanding shares.
DOCUMENTS INCORPORATED BY REFERENCE
THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE PREPARED PURSUANT TO
REGULATION 14A AND FILED IN CONNECTION WITH SOLICITATION OF PROXIES FOR ITS
OCTOBER 5, 2001 ANNUAL MEETING OF SHAREHOLDERS IS INCORPORATED BY REFERENCE INTO
PART III OF THIS FORM 10-K.
PART I
ITEM 1. BUSINESS
General
Neogen Corporation develops, manufactures, and markets a diverse line of
products dedicated to food and animal safety. The Company's food safety segment
consists primarily of diagnostic test kits and related products, including
dehydrated culture media, marketed to food producers and processors to aid in
the detection of foodborne bacteria, natural toxins, food allergens, genetic
modifications, drug residues, pesticide residues, plant disease infections and
levels of general sanitation. The diagnostic test kits are generally less
expensive, easier to use and provide greater accuracy and speed than many of the
conventional diagnostic methods currently in use. The majority of the tests are
disposable, single-use, immunoassay products that rely on Neogen's proprietary
antibodies to produce rapid and accurate test results.
The Company's animal safety segment is primarily engaged in the production and
marketing of products dedicated to animal health. These products include more
than 250 different veterinary instruments used to administer precise amounts of
antibiotics and vaccines helping to reduce drug residues in meat and milk
supplies. This segment also includes a line of consumable products marketed
primarily to veterinarians and distributors serving the animal health industry.
These products include grooming aids, a USDA-approved vaccine to prevent
botulism in horses, a biologic used in the treatment of equine respiratory
infections and a line of premium health care products.
Management's vision is for the Company to become a world leader in development
and marketing of products dedicated to food and animal safety. To meet this
vision, a growth strategy consisting of the following elements has been
developed: (i) increasing sales of existing products; (ii) introducing new
products and product lines; (iii) expanding international sales; and (iv)
acquiring businesses and forming strategic alliances.
The Company was formed as a Michigan corporation in June 1981 and actual
operations began in 1982. The Company's principal executive offices are located
at 620 Lesher Place, Lansing, Michigan 48912-1595 and its telephone number is
(517) 372-9200.
Recent Developments
Government Regulations
Federal regulations concerning food safety and food adulteration have had a
favorable impact on sales of several of the Company's food safety products.
Regulations issued by the U.S. Department of Agriculture and the U.S. Food and
Drug Administration governing federally inspected meat, poultry and seafood
processing plants require implementation of a Hazard Analysis and Critical
Control Points (HACCP) program. HACCP is a prevention-oriented system that
requires plants to identify critical control points along their production lines
and ensure that practices at those points minimize or prevent the likelihood of
bacterial contamination or growth. As HACCP plans continue to be implemented
and refined, Management expects facility environmental testing, product contact
surface testing and end-product testing to increase, resulting in higher sales
for several of the Company's diagnostic test kits.
Acquisitions and Divestitures
A part of Management's growth strategy for the Company has been to acquire
products and businesses that provide access to technology or products that
expand its core business. Since 1982, the Company has made several such
acquisitions. The information below summarizes recent transactions. (See Notes 3
and 13 to Consolidated Financial Statements).
In June 2001, the Company acquired 100% of the common stock of QA Life
Sciences, Inc. in San Diego, California. QA manufactured and marketed diagnostic
devices to the food and beverage industry. QA sales were $700,000 in the twelve
months prior to the acquisition.
In September 2000, the Company purchased certain assets of Squire
Laboratories, Inc. in Revere, Massachusetts. Squire manufactured and marketed a
number of products sold in the equine market. The products have been merged into
the Company's Animal Safety Division. Sales of Squire products in the nine
months following the acquisition totaled $600,000.
On June 2, 2000, the Company purchased substantially all of the assets of
AmVet Pharmaceuticals of Yaphank, New York. AmVet owned formulas for 25
different veterinary products under approximately 40 labels, the majority of
which were sold under the AmVet name. The products acquired were merged into the
Company's Animal Safety Division. Sales of AmVet products in fiscal year 2001
totaled $4,600,000.
-2-
On February 17, 2000, the Company purchased 100% of the outstanding stock of
Acumedia Manufacturers, Inc., with principal offices in Baltimore, Maryland.
Acumedia, an internationally recognized producer of culture media, was a wholly
owned subsidiary of IDEXX Laboratories, Inc. This acquisition gave the Company
an entree to the $300 million world market for dehydrated culture media. It also
provided products that can be supplied to many of the Company's current Food
Safety customers. Sales of Acumedia totaled $3,500,000 in fiscal year 2001, and
$900,000 in fiscal year 2000.
In August 1998, the Company purchased seed cultures, inventories,
manufacturing protocols and a USDA license to manufacture Type B equine botulism
vaccine (BotVax B) from BioPort Corporation of Lansing, Michigan. The
inventories and technology were transferred to the Company's Tampa, Florida
facility where BotVax B is produced for sale to the professional equine market.
Prior to obtaining the manufacturing rights to BotVax B, Neogen marketed this
product under terms of a distribution agreement with the Michigan Department of
Public Health. The distribution rights to BotVax B were among the items
purchased by BioPort from the Michigan Department of Public Health in August
1998. The Company acquired the manufacturing rights to BotVax B primarily to
improve gross margins and ensure availability of future supplies of inventory.
In April 1999, the Company sold its AMPCOR human clinical product line for
approximately $500,000. The sale allowed management to focus resources on growth
opportunities in the Company's primary business segments of food and animal
safety. Sales of human clinical products were not material to the consolidated
sales of the Company. In conjunction with the sale of the AMPCOR human clinical
product line, the Company closed its manufacturing operations for diagnostic
test kits to detect microorganisms in Bridgeport, New Jersey. The Company
consolidated AMPCOR's manufacturing operations into its Lansing, Michigan
facility.
Share Repurchase Program (See Note 11 of the Notes to Consolidated Financial
Statements)
In 2001, the Board of Directors increased its authorization to repurchase
Neogen common stock to 1,000,000 shares. As of July 31, 2001, the Company had
repurchased approximately 627,000 shares in open market and negotiated
transactions. However, there is no guarantee as to whether any additional shares
may be purchased under this program.
Business Strategy
Management's vision is for the Company to become a worldwide leader in
offering products dedicated to food and animal safety. The strategy to achieve
this objective includes the following:
. Increased Sales of Existing Products. Expansion of product offerings in
multiple market segments including: feed and agriculture producers;
veterinarians; grain, nut and spice processors; meat, poultry and egg
processors; seafood processors; animal producers; fruit and vegetable
producers/processors; food service providers; pharmacological research; and
private and public laboratories.
. Introduction of New Products. Continued commitment to research and
development programs. The Company has invested 6% to 7% of revenues in this
area over the past three years. Management plans to continue to leverage the
Company's own internal research and development efforts through strategic
relationships with other organizations and important government contracts and
grants. The majority of the Company's new product development is focused on
expanding disposable product offerings to the Company's current markets.
. Expansion of International Sales. Management believes that the demand
outside the United States for food and animal safety products is at least
equal to demand in this country. The Company will continue to emphasize
international sales as an important factor in its growth. Distribution
channels are being developed to take advantage of markets where there is a
growing need for products such as those manufactured by the Company.
. Acquisitions and Strategic Alliances. In the past, the Company has
expanded its product offerings and technology base through several
acquisitions. It also seeks to expand its products through licensing and
distribution agreements. Management plans to continue to aggressively pursue
strategic acquisitions, and licensing and distribution agreements to enhance
its position in its existing markets, and believes it is more cost effective
to use these strategies rather than to rely solely on internal development of
new products.
Industry Overview
Due to growing concern related to food and animal safety, animal producers,
food producers, processors, pharmaceutical and chemical companies, research
institutions, and regulatory agencies are all experiencing increased pressures
to find more efficient testing and monitoring programs. Management's strategy is
based on its belief that there will be a continued increase in demand for
effective tools to better manage the use of biological products and to detect
harmful residues and microorganisms when present in food, animal feeds, and the
environment, and believes that demand for products to ensure safety in food and
companion animals will continue to grow.
-3-
Industry consulting groups have estimated the total market for testing of food
and environmental safety will be in the range of $600 million within the next
several years. They estimate that a significant portion of this potential market
is represented by firms not testing and tests that are not currently being
conducted. Another significant portion of the market is represented by older,
traditional methods utilizing laborious microbiological techniques, or time
consuming and expensive, chemical analysis. Management believes that a
significant portion of this market potential will shift to rapid, easy to use
and inexpensive test systems, such as those produced by the Company.
Company Markets
Management has focused its strategy on the food safety and animal safety
markets. The Company is marketing and developing several types of diagnostic
tests to aid each of the individual food market areas in detecting natural
toxins, food allergens, drug residues, foodborne bacteria, pesticide residues,
disease infections and levels of general sanitation. The Company also markets a
complete line of veterinary instruments and a line of premium equine health care
products devoted to animal safety. The Company's products are sold into
definable market segments:
Milling and Grain Industries
Corn, wheat, barley, oats, milo, rice, oil seeds and various other minor grain
products become the principal ingredient for a multitude of food products. A
large variety of nuts, along with spices, chocolate, coffee and tea, are also
universally consumed. The safety of these ingredients is a significant source of
concern for snack food producers, pasta manufacturers, flour millers, animal
feed processors, bakeries, baby food producers, brewers, distillers and cereal
manufacturers, just to name a few of those whose livelihood depends upon the
abundance of safe ingredients.
The Company's diagnostic tests are used throughout these industries to monitor
for the presence of harmful natural toxins, food allergens, pesticides and
foodborne bacteria. The Company generally defines this market as products as
they leave the farm gate until they reach the consumer's plate.
Management believes it is the leader in the sale of disposable diagnostic
tests to the milling and grain industries and has a larger selection of products
available to these industries than any of its competitors.
Meat, Poultry and Egg Processors
According to the U.S. Department of Agriculture, there are between 100 and 125
million cattle, hogs and lambs slaughtered in the U.S. each year and over 800
million chickens processed in the United States each year. The principal concern
for meat, poultry and egg safety is contamination by foodborne bacteria.
Management believes that the meat and poultry group offers one of the best
opportunities currently to contribute to the Company's growth. The Company
offers tests for E. coli O157:H7, Salmonella, Campylobacter, and Listeria
bacteria, and several tests to determine the general level of plant sanitation.
Seafood Processors
Seafood is known to cause foodborne illnesses as a result of both natural
toxins and bacteria. The United States Food and Drug Administration has
established mandatory inspection programs for the seafood industry in the U.S.
The Company's tests for this market include a general sanitation rapid test, as
well as tests used to detect the presence of Salmonella, Listeria, sulfites and
histamine, which can result in serious illness or death.
A significant portion of the world's seafood supply now comes from aquaculture
production rather than wild harvest. These producers and processors must also be
concerned about the possibilities of pesticide contamination from runoff water
into their production areas and residues of drugs that may have been used to
ensure fish health during the production process.
Animal Producers
The animal production industry promotes food safety even while the animal is
inside the farm gate. The Company manufactures and markets 250 different
products that are used to administer animal health. Developed to provide more
precise drug delivery, these instruments help minimize the presence of animal
health drugs that might find their way into the meat and milk supply.
The Company also markets a vaccine, immunostimulant, specialized testing
service, and a line of premium health care products that are sold to the
professional animal health market. The Company's line of diagnostic tests to
detect drugs of abuse in racing animals are sold virtually throughout the world.
Most animal racing jurisdictions perform post-race tests on horses and
greyhounds to make certain the animals' performance was not altered by some
drug.
-4-
Fruit and Vegetable Producers/Processors
As with animals, significant portions of food safety begin inside the farm
gate where plant production takes place. The Company manufactures and markets a
group of diagnostic tests that are used by fruit and vegetable producers, as
well as greenhouse and ornamental plant producers, to detect the presence of
certain infectious diseases. These diseases affect crop production and can play
a major role in the quality and safety of the final food products.
This industry's testing arises from the potential presence of harmful residues
that might affect the safety of its products. The residues that require rapid
and inexpensive test kits include foodborne bacteria, natural toxins, and
pesticides. Several of the Company's products meet these industry needs and
others are being developed.
Pharmacological Research
The Company sells a limited number of products used by the pharmaceutical
research industry. Since these products can be manufactured in the same
facilities as used to produce the Company's test kits, utilizing the same
equipment and personnel, the Company has continued to support this market
activity.
As a part of its immunoassay diagnostics test development programs, the
Company has discovered methods to manufacture unique, stable enzymes used in
test color development. The Company now markets these products to research
laboratories and other commercial diagnostic kit manufacturers around the world.
Private and Public Laboratories
Private laboratories purchase diagnostic tests from the Company to provide
testing services to most of the market areas indicated in this section. These
private laboratories perform tests for firms which do not wish to do their own
testing internally. Public laboratories generally use the Company's test for
regulatory purposes. As an example, the U.S. Department of Agriculture uses
several of the Company's natural toxin test kits to determine the quality and
safety of grain products. The Company's test kit for the detection of E. coli
O157:H7 is used by the Food Safety Inspection Service to monitor for the
presence of this harmful bacteria in a number of laboratory locations. The
Company's bacteria tests are used by government animal pathology labs to aid in
determining causes of animal health problems.
Products
Food Safety
The Company has developed and markets a number of food safety diagnostic test
kits generally characterized as immunoassay products that rely on the Company's
proprietary antibodies. Generally, the test kits are faster, less expensive,
require less laboratory equipment and less technical capabilities than
conventional testing methods.
The Company's food safety test kits aimed at the detection of harmful
foodborne bacteria are marketed under the Company's trade name Reveal(R).
Current tests in this one-step simple format are used to detect the presence of
Salmonella, Salmonella enteritidis, Listeria, and E. coli O157:H7. Neogen
markets tests for Campylobacter, Salmonella and E. coli O157 under its Alert(R)
trade name. Company scientists are developing test kits for other harmful
bacteria. Through a marketing arrangement with Biotrace International PLC, the
Company distributes the Uni-Lite(R) XCEL, an instrument used to monitor general
sanitation levels. The Company also has marketing rights from Orion Diagnostica
to distribute four different tests for microbiological contamination, including
yeast and fungi.
The Company's Veratox(R) and Agri-Screen(R) diagnostic tests are used by the
food industry to detect levels of naturally-occurring toxins. These products
include both qualitative and quantitative tests for aflatoxin, DON, T-2 toxin,
zearalenone, ochratoxin, histamine and fumonisin. The Company's Agri-Screen
Ticket(R) test is used to detect harmful residues of a large number of plant
pesticides. The seafood industry uses the Company's Alert for Sulfites to make
certain sulfite levels do not exceed federal regulatory levels.
The Company also markets qualitative and quantitative tests to detect minute
levels of food allergens under the trade names Veratox and Alert. Currently,
tests are available for milk, peanut and egg residues, three of the most common
of all food allergies.
Marketed under the trade name Alert, the Company has several diagnostic tests
that are used to detect plant diseases. These quick tests identify the presence
of pythium, phytophthora, rhizoctonia, xanthamonas, and sclerotina. The kits are
used as an early detection device, and as a tool to limit fungicide
applications.
-5-
Following its acquisition of Acumedia Manufacturers, Inc. in February 2000,
the Company significantly expanded its presence in the dehydrated culture media
market. Standard and special formulation dry culture media products are marketed
to petri plate producers, laboratories, and other users on a world-wide basis
using direct sales, distributors and the food safety sales organization.
Sales of food safety products accounted for approximately 48%, 49% and 45% of
the Company's total revenues for fiscal years ended May 31, 2001, 2000 and 1999
respectively. (See Note 10 to the Consolidated Financial Statements).
Animal Safety
The Company markets 70 high sensitivity immunoassay tests for up to 200 drugs
of abuse in animals and residues in meat. These include tests for narcotic
analgesics, stimulants, depressants, tranquilizers, anesthetics, steroids and
diuretics. Neogen also provides a testing service for equine veterinarians to
detect EPM which affects the central nervous system of horses, and can be fatal.
In addition, the Company markets BotVax B, the only USDA approved vaccine for
the prevention of Type B botulism in horses, and a line of approximately 70
premium health care products sold to the animal health market. Neogen also
produces and markets EqStim(R) and ImmunoRegulin(R), biologic products used as
immunostimulants to help fight infections in horses and dogs.
Through its wholly owned subsidiary Ideal Instruments, Inc., the Company
markets a complete line of veterinary instruments and animal health delivery
systems. Ideal offers approximately 300 different products, over 100 of which
are instruments used to deliver animal health products, such as antibiotics and
vaccines. Most of the remaining instruments are used in obstetrics and surgery.
Included among these products is a line of disposable syringes and needles
presently custom manufactured, and imported by Ideal.
The veterinary instruments product line is designed to provide better control
of animal health products, thereby reducing the likelihood of antibiotic and
pharmaceutical residues contaminating meat or milk products. At the same time,
the use of quality, high precision delivery instruments helps producers improve
efficiency.
The Company also has several products used for the detection of biologically-
active substances in humans by researchers and pharmaceutical companies for
biomedical research purposes. These tests are used to detect cyclic nucleotides,
hormones, leukotrienes, prostaglandins and steroids. Under the trademarks K-Blue
and K-Gold, the Company sells reagents used by diagnostic test kit
manufacturers.
In fiscal years ended May 31, 2001, 2000 and 1999, sales of animal safety
products as a percentage of total revenues were 52%, 51% and 55%, respectively.
(See Note 10 to the Consolidated Financial Statements).
Research and Development
Management maintains a strong commitment to the Company's research and
development. The Company's product development efforts are focused on the
enhancement of existing product lines and in development of new products based
on the Company's existing technologies. The Company employs 20 individuals in
its research and development department, including immunologists, chemists,
engineers and microbiologists. Research and development expenditures were
approximately $1.8 million, $1.6 million and $1.6 million, representing 5%, 7%
and 7%, of total revenues in fiscal 2001, 2000 and 1999, respectively.
Management currently intends to maintain its research and development
expenditures at approximately 5% to 6% of total revenues.
The Company has ongoing development projects for new immunoassay diagnostic
tests for the food safety, animal safety and pharamacologics markets, as well as
engineering projects for new and improved veterinary instruments. Management
expects that these products will be available for marketing in late fiscal year
2002 to 2004.
Collaboration with Academic Institutions
Since the Company's inception, a substantial amount of university developed
applied research has been identified in its area of interest. These
relationships are used in three strategic ways: (i) the technology is
transferred from the scientist or university to the Company for the completion
of development from the precursor findings or laboratory prototypes; (ii) the
Company seeks out and contracts with university researchers to aid its own staff
in a part of the development activities for products previously identified by
the Company; and (iii) new products developed by the Company are tested in
laboratories on a widespread geographic basis prior to the products' market
releases. Management believes its research strategy has enabled it to produce
better products, faster and more cost effectively than if the research,
development and testing were done exclusively by Company employees in Company
facilities.
-6-
Other Collaboration Efforts
Portions of certain technologies utilized in some products marketed by the
Company were acquired from or developed in collaboration with affiliated
partnerships, independent scientists, governmental units, universities, and
other third parties. The Company has entered into agreements with these parties
which provide for the payment of royalties based upon sales of products which
utilize the pertinent technology. For fiscal 2001, 2000 and 1999, royalty
expense under these agreements amounted to $987,000, $752,000, and $780,000,
respectively.
Sales and Marketing
The Company's sales efforts are organized according to market segments rather
than by product or geographic orientation. The Company's sales and technical
service organizations understand their customers' businesses and are
knowledgeable on how the Company's various products can be used within those
industries. Close relationships built with individual customers also help in the
identification of new products.
During the fiscal year ended May 31, 2001, the Company had more than 5,000
customers for its products. Since many of these customers are distributors, the
total number of end users of the Company's products is considerably larger.
Sales to international markets in fiscal 2001 accounted for 23% of the Company's
consolidated revenues. (See Note 10 of the Notes to the Company's Consolidated
Financial Statements). No single distributor or customer accounted for more than
10% of the Company's revenues in any of the past three years.
The Company markets, sells and services its products in more than 100
countries through its own sales force, as well as through distributors in
certain geographic areas. Approximately 70 employees, or 31% of the Company's
total workforce, are engaged in these sales and marketing activities. The
Company operates its sales and distribution organization differently for given
markets and products as summarized below:
Food Safety Products. The Company has separately organized sales forces that
focus on the key industries in the food area. This group handles both sales and
technical services of the Company's disposable test kits. In the U.S. these
products are sold directly to end-users. Sales organizations are maintained for:
milling and grocery; feed and agriculture; meat and poultry; fruits and
vegetables; food service; laboratories; seafood; dairy and beverage; and
dehydrated culture media.
Animal Safety Products. The Company maintains separately organized sales
forces that focus on the professional animal health and veterinary instruments.
Products for the professional animal health market are handled by a sales force
who sell directly to veterinarians and also work through established
distributors selling to this market. The Company also has a sales force
specifically dedicated to marketing its veterinary instruments through a network
of domestic and international distributors.
International Sales. Virtually all of the Company's sales to customers
outside of the United States and Canada are handled by distributors, who
typically market the Company's products, as well as other products that are used
by the same customer base. The Company is expanding distribution channels in
South and Central America, Europe and Asia. Sales offices are not maintained
outside the U.S.
Proprietary Protection And Approvals
Patents and trademarks are applied for whenever appropriate. Since its
inception, the Company has acquired and received more than 50 patents and
trademarks, and has several pending patents and trademarks. The patents expire
at various times over the next 20 years.
Management believes that the Company has adequate protection as to proprietary
rights for its products. However, it is aware that substantial research has
taken place at universities, governmental agencies and other companies
throughout the world and that numerous patent applications have been filed and
that numerous patents have been issued. In addition, patent litigation is not
uncommon. Accordingly, there can be no assurance that the Company's existing
patents will be sufficient to protect completely the Company's proprietary
rights.
The Company uses trade secrets as proprietary protection in numerous of its
food and animal safety products. In many cases, the Company has developed unique
antibodies capable of detecting microorganisms and residues at minute levels.
The supply of these antibodies, and the proprietary techniques utilized for
their development, may offer better protection than the filing of patents. Such
proprietary reagents are kept in secure facilities and stored in more than one
location to circumvent their destruction by natural disaster or other means.
-7-
One of the major areas affecting the success of biotechnology development
involves the time, costs and uncertainty surrounding regulatory approvals.
Currently, the Company has several products requiring regulatory approval
including BotVax B, EqStim and Immuno-Regulin. On a combined bases, sales for
these products amounted to approximately 6.4% of total sales in fiscal year
2001. The Company's strategy is to select technical and proprietary products
which do not require mandatory approval to be marketed.
The Company does utilize third party validations on many of its disposable
test kits as a marketing tool to provide its customers with the proper
assurances. These include validation by the Association of Official Analytical
Chemists, independently administered third-party, multi-laboratory collaborative
studies, and approvals by the U.S. Federal Grain Inspection Service and the U.S.
Food Safety Inspection Service for use of Company products in their
laboratories.
Manufacturing
The Company manufactures its products in Lansing, Michigan; Lexington,
Kentucky; Schiller Park, Illinois; Baltimore, Maryland; and Tampa, Florida.
There are currently approximately 80 full-time employees assigned to
manufacturing in these five locations. All locations generally operate on a one-
shift basis, but could be increased to a two-shift basis. Management believes it
could increase the current output of its primary product lines by more than 50%
using the current space available with minimal amounts of additional capital
equipment.
Manufacturing diagnostic tests for natural toxins, microorganisms, food
allergens, pesticides and plant disease diagnostic tests takes place in Lansing,
Michigan. Proprietary monoclonal and polyclonal antibodies for the Company's
diagnostic kits are produced on a regular schedule in the Company's immunology
laboratories in Lansing. Other reagents are similarly prepared by the chemistry
group. These component parts are then transferred to another building, where
final kit assembly and quality assurance are conducted, and shipping takes
place.
Manufacture of pharmacological diagnostic test kits, test kits for drug
residues and animal health products take place in Lexington, Kentucky. All other
manufacturing operations, including preparation of other reagents, quality
assurance and final kit assembly, are performed by Neogen personnel in the
Lexington facilities.
The Company's Schiller Park, Illinois, facility distributes veterinary
instruments that are produced and assembled in the facility from parts produced
at the facility or by local or international suppliers. Some instruments are
purchased as finished parts and require no additional procedures prior to sale.
The Baltimore, Maryland facility is an FDA-approved manufacturing plant
devoted to the production of dehydrated culture media products. Products are
blended following strict formulations or custom blended to customer
specification and shipped direct to customers from the Baltimore facility.
The Tampa, Florida facility is a USDA-approved manufacturing plant devoted to
the production of the biologic products EqStim(R) and ImmunoRegulin(R). P. acnes
seed cultures are added to media and then subjected to several stages of further
processing resulting in a product that is filled and packaged within the Tampa
facility. Final product is then shipped to Neogen's Lexington facilities for
inventory and distribution to customers. The Company's BoxVax B vaccine is also
produced in the Tampa facility, utilizing Type B botulism seed cultures and a
traditional fermentation process.
The Company purchases component parts and raw materials from over 200
suppliers. Though many of these supplies are purchased from a single source in
order to achieve the greatest volume discounts, the Company believes it has
identified acceptable alternative suppliers for all of its components and raw
materials.
Shipments of products are generally accomplished within a 48-hour turnaround
time. As a result of this quick response time, the Company's backlog of
unshipped orders at any given time is not significant.
Competition
Management knows of no competitor that is pursuing its fundamental strategy of
developing a full line of products, ranging from disposable tests and dehydrated
culture media to veterinary instruments for a large number of food safety and
animal safety concerns. However, the Company does have competitors for each of
its primary product lines. The Company competes with a large number of companies
ranging from very small businesses to divisions of large companies. Many of
these firms have substantially greater financial resources than the Company.
-8-
Academic institutions and other public and private research organizations are
also conducting research activities and may commercialize products on their own
or through joint ventures. The existence of competing products or procedures
that may be developed in future years may adversely affect the marketability of
the products developed by the Company.
Management believes that it maintains inventory levels and sells its products
under terms and conditions that are normal for companies against which the
Company competes. The Company competes primarily on the basis of ease of use,
speed, accuracy, and other similar performance characteristics of its products.
The breadth of the Company's product line, the effectiveness of its sales and
customer service organizations and pricing are also components in its
competitive plan. Management is not aware of any factors within its product
lines that place the Company in a negative competitive position relative to its
competitors.
Governmental Regulation
A significant portion of the Company's products and revenues are affected by
the regulations of various domestic and foreign government agencies, including
the U.S. Department of Agriculture and the U.S. Food and Drug Administration.
Changes in these regulations could affect revenues.
The Company's development and manufacturing processes involve the use of
certain hazardous material, chemicals and compounds. Management believes that
the Company's safety features for handling and disposing of such commodities
comply with the standards prescribed by local, state and federal regulations.
The Company's cost to comply with these regulations is not significant and the
Company has no reason to believe that any such future legislation or rules would
be materially adverse to its business.
Employees
Currently, the Company employs approximately 250 full-time persons. None of
the employees are covered by collective bargaining agreements. There have been
no work stoppages or slow downs due to labor-related problems. Management
believes that its relationship with its employees is good. All employees having
access to proprietary information have executed confidentially agreements with
the Company.
Insurance
The Company maintains insurance in amounts and types which Management believes
to be reasonable in its industry.
ITEM 2. PROPERTIES
The Company owns three separate buildings located in Lansing, Michigan. A
26,000 square foot brick building located at 620 Lesher Place is used for the
Company's corporate administrative offices, along with sales and marketing
offices and research facilities for food safety. A 14,000 square foot brick
building located at 600 Lesher Place is used primarily for production of food
safety diagnostic test kits. The Company also owns a facility comprising 1,100
square feet within one block of the existing corporate headquarters used for
various administrative functions including temporary office space and records
storage.
Veterinary instrument manufacturing operations are housed in a 34,000 square
foot building located at 9355 West Byron Street in Schiller Park, Illinois. The
Company entered into a three-year, non-cancelable operating lease for this
property effective January 1, 2001. The lease agreement provides for annual
lease payments of $138,600 for the first year with annual increases of
approximately 4% thereafter for the remainder of the lease.
Animal safety sales and marketing and research are located in 23,000 square
feet of leased space in a three-story building at 628 Winchester in Lexington,
Kentucky. The Company entered into a five-year, non-cancelable operating lease
for the space effective July 1, 1993. Effective July 1, 1999, the lease was
amended to extend the term of the lease to August 31, 2001 and to provide for
annual lease payments, including all utilities, of $102,000. Upon expiration of
the lease of this facility, Management believes it can renegotiate a lease on
the current facility or relocate to a comparable facility with lease terms
similar to those currently enjoyed. No significant disruption of operations
would be expected in the event of a move to an alternative facility.
Animal Safety manufacturing takes place in 16,000 square feet of leased space
at 2040 Creative Drive in Lexington, Kentucky. The lease covering the space is a
non-cancelable operating lease requiring annual payments of $65,600 through 2006
and $68,000 in 2007.
Dehydrated culture media manufacturing takes place in an FDA licensed
facility. The operations are located in 12,600 square feet of leased space at
9601 Pulaski Park Drive, Baltimore, Maryland. The five year lease, effective
July 1, 1998, was assumed as part of the acquisition of Acumedia by the Company.
The lease provides for annual payments beginning at $75,600 and increasing to
$81,412 in the last year of the lease.
-9-
The Company leases 5,200 square feet at 5910 Breckenridge Center Parkway in
Tampa, Florida where the manufacturing of three animal safety products takes
place. This USDA-approved facility is subject to a three-year non-cancelable
operating lease that expires on September 30, 2001. The lease provides for
annual payments of $31,422 in year one increasing 4% in years two and three
along with payments for operating expenses and property taxes estimated to be
$13,625 annually subject to increases based on actual costs incurred.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company is involved in certain legal
proceedings, none of which, in the opinion of the management is material to the
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
-10-
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the NASDAQ National Market under the symbol
"NEOG". The following table sets for, the fiscal periods indicated, the high and
low sales prices for the Common Stock as reported on the NASDAQ National Market.
High Low
-------- ---------
Fiscal Year Ended May 31, 2001
First Quarter ............................................................ $ 7.125 $5.500
Second Quarter ............................................................ 10.375 6.125
Third Quarter ............................................................ 13.438 7.125
Fourth Quarter ............................................................ 15.000 8.750
Fiscal Year Ended May 31, 2000
First Quarter ............................................................ $ 7.250 $6.000
Second Quarter ............................................................ 7.500 5.875
Third Quarter ............................................................ 6.750 5.000
Fourth Quarter ............................................................ 8.250 5.375
As of July 31, 2001, there were approximately 500 stockholders of record of
Common Stock, which the Company believes represents a total of approximately
6,000 beneficial holders. The Company has never paid any cash dividends on its
Common Stock and is prohibited from doing so under terms of its financial
agreements. It does not anticipate paying any cash dividends in the foreseeable
future.
-11-
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, for the fiscal periods indicated, selected
consolidated financial data derived from the Company's audited Consolidated
Financial Statements for each of the fiscal years ended May 31, 1997 through
2001. This information should be read in conjunction with the Consolidated
Financial Statements, related notes and other financial information included
herein.
Years Ended May 31
------------------
1997(1) 1998(1) 1999(1) 2000(1) 2001(1)
------- ------- ------- ------- -------
Income Statement Data: (In thousands, except per share data)
Food Safety Sales $ 8,605 $ 8,419 $ 10,069 $ 11,634 $ 16,717
Animal Safety Sales 6,654 10,069 12,110 11,878 18,178
--------- -------- -------- -------- --------
Total Sales 15,259 18,488 22,179 23,512 34,895
Cost of Sales 6,201 7,960 9,477 10,860 17,157
Sales and Marketing 4,197 4,910 5,311 6,102 7,596
General and Administrative 2,230 2,716 3,207 2,587 4,039
Research and Development 1,320 1,424 1,640 1,600 1,838
--------- -------- -------- -------- --------
Operating Income 1,311 1,478 2,544 2,363 4,265
Other Income
Litigation Settlement --- --- --- 1,100 ---
Interest and Other 564 897 104 821 605
--------- -------- -------- -------- --------
Net Income Before Tax 1,875 2,375 2,648 4,284 4,870
Provision for Income Taxes 63 127 393 1,210 1,700
--------- -------- -------- -------- --------
Net Income $ 1,812 $ 2,248 $ 2,255 $ 3,074 $ 3,170
========= ======== ======== ======== ========
Net Income Per Share (basic) $ 0.33 $ 0.36 $ 0.37 $ 0.52 $ 0.55
Net Income Per Share (diluted) $ 0.32 $ 0.35 $ 0.37 $ 0.52 $ 0.54
Common Shares Outstanding (diluted) 5,649 6,397 6,141 5,922 5,916
May 31
------
1997(1) 1998(1) 1999(1) 2000(1) 2001(1)
------- ------- ------- ------- -------
Balance Sheet Data: (In thousands)
Cash and Marketable Securities $ 13,044 $ 10,589 $ 10,667 $ 10,670 $ 7,182
Working Capital 17,265 17,192 17,355 18,264 18,244
Total Assets 23,148 25,413 26,108 29,529 33,022
Long-Term Debt 208 174 126 77 28
Stockholders' Equity 21,013 23,609 23,786 25,804 29,337
(1) The periods presented are not comparable due a secondary offering of
Company stock in fiscal year 1997, the sale of a product line, the closing
of manufacturing facilities and the change in effective federal income tax
rate in fiscal year 1999 to 2001, the litigation settlement in 2000 and
several acquisitions. (See Notes to Consolidated Financial Statements).
(2) The Company has not declared or paid any dividends for any of the periods
presented above.
ITEM 7. 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 financial 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.
-12-
Results of Operations
REVENUES (Dollars in Thousands) 2001 Increase 2000 Increase 1999
(Decrease)
- ------------------------------------------------------------------------------------------------------------------------------
Product Sales:
Food Safety $16,717 44% $11,634 16% $10,069
Animal Safety 18,178 53% 11,878 (2%) 12,110
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $34,895 48% $23,512 6% $22,179
- ------------------------------------------------------------------------------------------------------------------------------
In 2001, sales of food safety products increased 44% due to a full year of
sales of Acumedia, the Company's dehydrated culture media company which was
purchased in February 2000 and therefore reported a part year of sales in 2000
and from increases in the Company's sales of test kits to detect harmful
bacteria in food. Sales of products marketed to detect mycotoxins in grains had
a modest increase in sales due to the relative absence of weather conditions
that promote the occurrence of mold in commodity crops.
In 2000, sales of food safety products increased 16% due to an increase in
sales of the newly introduced general sanitation product line, $900,000 of sales
from Acumedia, and a 22% increase in sales of test kits to detect harmful
bacteria in food, partially offset by a decrease of revenues of $650,000 from
AMPCOR Diagnostics, Inc. that was sold in late 1999. Some of the products
marketed to detect mycotoxins in grains had declines in sales as a result of the
same factors that affected sales in 2001.
In 2001, animal safety sales increased 53%. These increases were related to
the Company's June 1, 2000 acquisition of AmVet Pharmaceuticals and the
September 1, 2000 acquisition of Squire Laboratories and the effect that the
Company's distribution had in expanding these sales by over $1,000,000 over the
sales rate of those organizations in the year before acquisition. In addition,
sales of Triple Crown products increased by $700,000 and sales of the newly
introduced Electric Doser and needles sold to major animal health companies
added new revenue sources.
In 2000, animal safety sales decreased 2%. Sales of Vetoquinol and Triple
Crown products contributed $400,000 in increased sales. Other products
experiencing improved sales in 2000 included the Company's drug detection
products that increased almost 13% and the products of Ideal Instruments, which
increased 14%, exclusive of specialty needle products used to inject spices and
marinades into meat and poultry which decreased over $700,000 because of the
loss of a single customer.
COST OF GOODS SOLD (Dollars in Thousands) 2001 Increase 2000 Increase 1999
- ----------------------------------------------------------------------------------------------------------------------------
Cost of Goods Sold $17,157 58% $10,860 15% $9,477
- ----------------------------------------------------------------------------------------------------------------------------
Cost of goods sold increased 58% in 2001, compared to a 48% increase in
revenues, and 15% in 2000, compared to a 6% increase in revenues, principally
from increased sales of products with higher raw material costs such as those
from Biotrace, Acumedia, AmVet and Squire. Expressed as a percentage of sales,
cost of goods sold was 49% in 2001, 46% in 2000 and 43% in 1999. The percentages
subsequent to 1999 were higher for the same reasons as outlined above.
Food safety gross margins were 56%, 60%, and 57% in 2001, 2000 and 1999,
respectively. Margins in this segment in 1999 were affected by the sales and
cost of sales related to the AMPCOR clinical product line that was eliminated in
consolidation. Without that product line included in the segment, segment gross
margins in 1999 would have been 69%. Margins decreased in 2000 and 2001 because
of Biotrace and Acumedia products which have lower gross margins. Animal safety
gross margins were 45%, 47% and 46% in 2001, 2000, and 1999, respectively. The
fiscal year 2001 acquisition of AmVet (many of the products of which are sold
through distribution channels at a lower gross margin), and Squire Laboratories
were the largest contributors to the change in gross margins between the
periods.
OPERATING EXPENSES (Dollars in Thousands) 2001 Increase 2000 Increase 1999
(Decrease)
- ----------------------------------------------------------------------------------------------------------------------------
Sales and Marketing $7,596 24% $6,102 15% $5,311
General and Administrative 4,039 56% 2,587 (19%) 3,207
Research and Development 1,838 15% 1,600 (2%) 1,640
- ----------------------------------------------------------------------------------------------------------------------------
Many sales and marketing expense categories increased in 2001 and 2000
including salaries, fringe, royalties, commissions, trade shows and travel. The
increases in 2000 and 2001 compared to 1999 are the result of continued
expansion of sales activities both domestically and internationally to gain
wider distribution of products dedicated to food and animal safety. As a
percentage of sales, this category of expenses has decreased from 26% of sales
in 2000 to 22% of sales in 2001 as the economies of scale have allowed greater
leverage of these expenditures. The Company plans to continue to expand its
sales and marketing efforts in the future, but does not expect related expenses
to increase as a percentage of sales.
-13-
The increase in General and Administrative expense in 2001 was the result
of additional expenses, such as accounting and other overall supervision
necessary to service the Company's higher levels of operations and the absence
of the Vicam litigation expense recovery that was recognized in 2000. As a
percentage of sales, general and administrative expenses increased marginally
primarily because 2000 expenses were lower than normal because of the legal
settlement. The decrease in General and Administrative expense in 2000 was the
result of the recovery of legal fees in the Vicam litigation. Other factors that
affected this category of expense in 2000 included expenses related to
employment of additional personnel, particularly in accounting, offset by a
recovery of certain state taxes.
Management believes that research and development is critical to the
Company's future and expects to continue to incur expenses at approximately the
current percentage of revenue. Certain of the Company's products such as those
of Acumedia, AmVet, Triple Crown and Squire require relatively less amounts of
research and development. Management expects that research and development
expenditures as a percentage of revenues of other products such as food safety
test kits, drug detection and certain veterinary instruments and needles, and
other products, will be between 8% and 10%.
During fiscal 2001, the Company's operating income increased by
approximately $1,900,000 principally from increases in sales of existing and
newly acquired products while not incurring comparable increases in rates of
expenditures for support of those sales. The decrease in operating income in
2000 as compared to 1999 resulted from the opposite situation as the Company
increased expenses, particularly in marketing and sales but revenues did not
increase at the same rate.
OTHER INCOME (Dollars in Thousands) 2001 Increase 2000 Increase 1999
(Decrease)
- -----------------------------------------------------------------------------------------------------------------------
Other Income:
Litigation Settlement $ -- n/a $1,100 n/a $ --
Interest and Other 605 (26%) 821 689% 104
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $ 605 (69%) $1,921 1747% $ 104
- -----------------------------------------------------------------------------------------------------------------------
Other income decreased in 2001, principally due to the absence of the
litigation settlement that was the significant factor that increased this
category in 2000. Additionally, in 2001 the Company had less interest earning
assets following the cash purchases of Amvet and Squire and rates of interest
earnings were lower in the second half of fiscal 2001.
Other income increased significantly in 2000. This was due to improved
interest earnings due to higher rates and the settlement of the Vicam
litigation. Additionally, 1999 other income was reduced from the recognition of
a $629,000 loss on sale of the Company's human clinical product line and related
fourth quarter charge for closure of a manufacturing facility. (See Note 3 of
Notes to Consolidated Financial Statements).
The Company's effective Federal Income Tax rate has historically been
significantly less than the statutory rate because of available net operating
loss and credit carryovers. These items have been substantially utilized and the
rate is expected to be at combined Federal and State statutory rates of
approximately 36% in future years. The 2001 tax rate increased to 35% from 28%
in 2000 and 15% in 1999 as a result of these factors.
NET INCOME and NET INCOME PER SHARE 2001 Increase 2000 Increase 1999
(Dollars in Thousands- Except Per Share Data)
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $3,170 3% $3,074 36% $2,255
Net Income Per Share - Basic $ .55 $ .52 $ .37
Net Income Per Share - Diluted $ .54 $ .52 $ .37
- ---------------------------------------------------------------------------------------------------------------------------
In Management's opinion, the Company is not involved in any material
adverse legal proceedings.
-14-
Financial Condition and Liquidity
- ---------------------------------
On May 31, 2001 the Company had approximately $7,200,000 in cash and
marketable securities, working capital of $18,200,000 and stockholders' equity
of $29,300,000. In addition, the Company had unused bank lines of credit
totaling $10,000,000.
Cash and marketable securities decreased $3,500,000 during fiscal 2001.
Cash provided from operations of almost $2,500,000, was offset by the aggregate
of the acquisitions of AmVet Pharmaceuticals and Squire Laboratories for a total
of $4,700,000, and the use of $1,000,000 for purchases of property, equipment
and other assets.
Accounts receivable increased $1,100,000 or 24% when compared to May 31,
2000. This resulted from increased sales during the year, including a 40%
increase in the fourth quarter of 2001 when compared to the fourth quarter of
2000.
Inventory levels also increased 30% during the year to service increased
sales to customers of almost 50% for the year. Management continues to
successfully maintain inventory growth at a rate less the growth in sales while
maintaining high levels of customer service.
Increases in property and equipment principally resulted from normal
purchases during the year.
Goodwill increases resulted from the acquisitions of AmVet and Squires.
The decrease in accounts payable is due to and higher than normal accruals
of legal fees related to the Vicam litigation in 2000.
Current maturities of long-term debt in 2000 included a $450,000 note
issued as part of the acquisition of Acumedia. The note was paid in February
2001.
Other than the note issued in connection with the Acumedia acquisition, and
a mortgage with a balance of less than $100,000, the Company had no borrowed
funds during fiscal 2001. At May 31, 2001, the Company had no material
commitments for capital expenditures. Inflation and changing prices have not had
and are not expected to have a material effect on the Company's operations.
Neogen has been profitable for 32 of its last 33 quarters and has generated
positive cash from operations during the period. Management believes that the
Company's cash and marketable securities at May 31, 2001, along with available
bank lines of credit and cash expected to be generated from 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.
New Accounting Standards
- ------------------------
SFAS 133, as amended by SFAS 137 and SFAS 138, established accounting and
reporting standards for derivative instruments and for hedging activities. The
Company adopted SFAS 133 as amended, effective June 1, 2001 (the first day of
its fiscal year ending May 31, 2002). The adoption of SFAS 133 will not have a
significant impact on the financial position or results of operations of the
Company because the Company currently has no derivative instruments or hedging
activities.
Under SFAS 142, goodwill amortization ceases upon adoption of the new
standard. The rules also require an initial goodwill impairment assessment in
the year of adoption and annual impairment tests thereafter. The Company expects
to adopt this Statement effective June 1, 2001. Goodwill amortization of
approximately $364,000 was recognized in the May 31, 2001 fiscal year. At this
time no determination of any impairment charges which could result from the
adoption of this Statement has been made.
ITEM 7 (A). 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.
-15-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEOGEN CORPORATION
AND SUBSIDIARIES
CONTENTS
INDEPENDENT AUDITORS' REPORTS 17-18
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 19-20
Statements of Income 21
Statements of Stockholders' Equity 22
Statements of Cash Flows 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24-41
-16-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Neogen Corporation
Lansing, Michigan
We have audited the accompanying consolidated balance sheet of Neogen
Corporation and subsidiaries as of May 31, 2001, and the related consolidated
statements of income, stockholders' equity and cash flows for the year then
ended. Our audit also included the financial statement schedule listed in the
Index at Item 14. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Neogen Corporation
and subsidiaries at May 31, 2001, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Lansing, Michigan
July 20, 2001
-17-
Report Of Independent Certified Public Accountants
To the Board of Directors
Neogen Corporation
Lansing, Michigan
We have audited the accompanying consolidated balance sheet of Neogen
Corporation and subsidiaries as of May 31, 2000 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the two
years in the period ended May 31, 2000. We have also audited the schedule listed
in Item 14 (b) for each of the two years in the period ended May 31, 2000. These
financial statements and the schedule are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement and schedule presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Neogen Corporation
and subsidiaries at May 31, 2000 and the results of operations and cash flows
for each of the two years in the period ended May 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein for each of the two years in the period ended
May 31, 2000.
BDO SEIDMAN, LLP
Troy, Michigan
July 14, 2000
-18-
Neogen Corporation And Subsidiaries
Consolidated Balance Sheets
May 31, 2001 2000
- ---------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash $ 848,000 $ 2,198,000
Marketable securities (Note 2) 6,334,000 8,472,000
Accounts receivable, less allowance for doubtful accounts of
$467,000 and $361,000 6,026,000 4,877,000
Inventories 6,974,000 5,393,000
Prepaid expenses and other current assets 1,397,000 662,000
- ---------------------------------------------------------------------------------------------------------
Total Current Assets 21,579,000 21,602,000
Property and Equipment
Land and improvements 97,000 91,000
Buildings and improvements 1,482,000 1,345,000
Machinery and equipment 5,591,000 4,963,000
Furniture and fixtures 472,000 462,000
- ---------------------------------------------------------------------------------------------------------
7,642,000 6,861,000
Less accumulated depreciation 4,921,000 4,205,000
- ---------------------------------------------------------------------------------------------------------
Net Property and Equipment 2,721,000 2,656,000
Intangible and Other Assets
Goodwill, net of accumulated amortization of $1,047,000 and
$683,000 7,076,000 3,892,000
Other assets, net of accumulated amortization of $836,000 and
$662,000 1,646,000 1,379,000
- ---------------------------------------------------------------------------------------------------------
Total Intangible and Other Assets 8,722,000 5,271,000
- ---------------------------------------------------------------------------------------------------------
$33,022,000 $29,529,000
=========================================================================================================
-19-
Neogen Corporation And Subsidiaries
Consolidated Balance Sheets
May 31, 2001 2000
- ---------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,207,000 $ 1,743,000
Accruals
Compensation and benefits 878,000 633,000
Income taxes 1,036,000 430,000
Other 165,000 33,000
Current maturities of long-term debt (Note 5) 49,000 499,000
- ---------------------------------------------------------------------------------------------------------
Total Current Liabilities 3,335,000 3,338,000
Long-Term Debt, less current maturities (Note 5) 28,000 77,000
Other Long-Term Liabilities 322,000 310,000
- ---------------------------------------------------------------------------------------------------------
Total Liabilities 3,685,000 3,725,000
Commitments and Contingencies (Notes 3 and 8)
Stockholders' Equity (Notes 6 and 11)
Preferred stock, $1.00 par value, shares authorized - -
100,000, none issued and outstanding
Common stock, $.16 par value, shares authorized 20,000,000;
issued and outstanding 5,823,520 and 5,773,187 932,000 924,000
Additional paid-in capital 21,560,000 21,205,000
Retained earnings 6,845,000 3,675,000
- ---------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 29,337,000 25,804,000
- ---------------------------------------------------------------------------------------------------------
$33,022,000 $29,529,000
=========================================================================================================
See accompanying notes to consolidated financial statements.
-20-
Neogen Corporation and Subsidiaries
Consolidated Statements of Income
Year Ended May 31, 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Net Sales $34,895,000 $23,512,000 $22,179,000
Cost of Goods Sold 17,157,000 10,860,000 9,477,000
- ----------------------------------------------------------------------------------------------------------------
Gross Margin 17,738,000 12,652,000 12,702,000
Operating Expenses
Sales and marketing 7,596,000 6,102,000 5,311,000
General and administrative (Note 4) 4,039,000 2,587,000 3,207,000
Research and development 1,838,000 1,600,000 1,640,000
- ----------------------------------------------------------------------------------------------------------------
13,473,000 10,289,000 10,158,000
- ----------------------------------------------------------------------------------------------------------------
Operating Income 4,265,000 2,363,000 2,544,000
Other Income (Expense)
Interest income 376,000 561,000 494,000
Interest expense (32,000) (12,000) (16,000)
Litigation settlement (Note 4) - 1,100,000 -
Loss on sale of product line (Note 3) - - (629,000)
Other 261,000 272,000 255,000
- ----------------------------------------------------------------------------------------------------------------
605,000 1,921,000 104,000
- ----------------------------------------------------------------------------------------------------------------
Income Before Taxes On Income 4,870,000 4,284,000 2,648,000
Taxes On Income (Note 7) 1,700,000 1,210,000 393,000
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 3,170,000 $ 3,074,000 $ 2,255,000
================================================================================================================
Basic Earnings Per Share $ .55 $ .52 $ .37
Diluted Earnings Per Share $ .54 $ .52 $ .37
================================================================================================================
See accompanying notes to consolidated financial statements.
-21-
Neogen Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years Ended May 31, 2001, 2000 and 1999
Additional Retained
Common Stock Paid-In Earnings
----------------------------------
Shares Amount Capital (Deficit)
- ----------------------------------------------------------------------------------------------------------------------
Balance, June 1, 1998 6,208,179 $993,000 $24,270,000 $(1,654,000)
Exercise of options 35,800 6,000 85,000 -
Repurchase of common stock (Note 11) (314,700) (50,000) (2,119,000) -
Net income for the year - - - 2,255,000
- ----------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1999 5,929,279 949,000 22,236,000 601,000
Exercise of options and warrants 64,931 10,000 259,000 -
Repurchase of common stock (Note 11) (221,023) (35,000) (1,290,000) -
Net income for the year - - - 3,074,000
- ----------------------------------------------------------------------------------------------------------------------
Balance, May 31, 2000 5,773,187 924,000 21,205,000 3,675,000
Exercise of options 141,600 23,000 913,000 -
Repurchase of common stock (Note 11) (91,267) (15,000) (558,000) -
Net income for the year - - - 3,170,000
- ----------------------------------------------------------------------------------------------------------------------
Balance, May 31, 2001 5,823,520 $932,000 $21,560,000 $ 6,845,000
======================================================================================================================
See accompanying notes to consolidated financial statements.
-22-
Neogen Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended May 31, 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 3,170,000 $ 3,074,000 $ 2,255,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,302,000 946,000 879,000
Loss on sale of product line - - 629,000
Changes in operating assets and liabilities,
net of acquisitions
Accounts receivable (568,000) (736,000) (312,000)
Inventories (1,120,000) 143,000 343,000
Prepaid expenses and other current assets (735,000) 299,000 (443,000)
Accounts payable (536,000) 850,000 264,000
Accrued expense and other liabilities 983,000 100,000 67,000
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 2,496,000 4,676,000 3,682,000
Cash Flows From Investing Activities
Proceeds from marketable securities 10,399,000 31,415,000 25,388,000
Purchases of marketable securities (8,262,000) (30,283,000) (25,123,000)
Purchases of property, equipment and other assets (1,099,000) (920,000) (877,000)
Acquisitions (4,748,000) (2,648,000) (600,000)
- ---------------------------------------------------------------------------------------------------------------------
Net Cash (Used In) Investing Activities (3,710,000) (2,436,000) (1,212,000)
Cash Flows From Financing Activities
Net proceeds from issuance of common shares 936,000 269,000 91,000
Repurchase of common stock (573,000) (1,325,000) (2,169,000)
Payments on long-term borrowings (499,000) (49,000) (49,000)
- ---------------------------------------------------------------------------------------------------------------------
Net Cash (Used In) Financing Activities (136,000) (1,105,000) (2,127,000)
- ---------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash (1,350,000) 1,135,000 343,000
Cash, at beginning of year 2,198,000 1,063,000 720,000
- ---------------------------------------------------------------------------------------------------------------------
Cash, at end of year $ 848,000 $ 2,198,000 $ 1,063,000
=====================================================================================================================
See accompanying notes to consolidated financial statements.
-23-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Nature of Operations
Accounting Policies
Neogen Corporation and subsidiaries (the
Company) develop, manufacture, and sell a
diverse line of products dedicated to food and
animal safety. The Company's products are
currently used for animal health applications
and food safety testing.
Basis of Consolidation
The consolidated financial statements include
the accounts of Neogen Corporation, Ideal
Instruments, Inc. (Ideal), Acumedia
Manufacturing, Inc. (Acumedia), and two
majority owned companies which are general
partners for research limited partnerships. The
investments in and income from partnerships are
not significant to the consolidated financial
statements.
All significant intercompany accounts and
transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally
accepted in the United States of America
requires management to make estimates and
assumptions that affect the reported amounts of
(1) assets and liabilities and the disclosure
of contingent assets and liabilities as of the
date of the financial statements, and (2)
revenues and expenses during the reporting
period. Actual results could differ from these
estimates.
Concentrations of Credit Risk
Financial instruments which potentially subject
the Company to concentrations of credit risk
consist principally of accounts receivable.
Management attempts to minimize credit risk by
reviewing customers' credit history before
extending credit and by monitoring credit
exposure on a regular basis. An allowance for
possible losses on accounts receivable is
established based upon factors surrounding the
credit risk of specific customers, historical
trends and other information.
-24-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Fair Values of Financial Instruments
The carrying amounts of accounts receivable,
accounts payable, accrued expenses, and current
maturities of long-term debt approximate fair
value because of the short maturity of these
items.
The carrying amounts of long-term debt issued
pursuant to the Company's bank credit
agreements approximate fair value because the
interest rates on these instruments change with
market rates.
Marketable Securities
All marketable securities are classified as
available-for-sale and are available to support
current operations or to take advantage of
other investment opportunities. These
securities are stated at estimated fair market
value. The cost of securities sold is based on
the specific identification method and interest
earned is included in other income.
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:
2001 2000
-----------------------------------------------
Raw materials $1,832,000 $2,207,000
Work-in-process 885,000 678,000
Finished goods 4,257,000 2,508,000
-----------------------------------------------
$6,974,000 $5,393,000
-----------------------------------------------
-25-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Derivative Instruments and Hedging Activities
SFAS 133, as amended by SFAS 137 and SFAS 138,
established accounting and reporting standards
for derivative instruments and for hedging
activities. The Company adopted SFAS 133 as
amended, effective June 1, 2001 (the first day
of its fiscal year ending May 31, 2002). The
adoption of SFAS 133 will not have a
significant impact on the financial position or
results of operations of the Company because
the Company currently has no derivative
instruments or hedging activities.
Property and Equipment
Property and equipment is stated at cost.
Expenditures for major improvements are
capitalized while repairs and maintenance are
charged to expense. Depreciation is provided on
the straight-line method over the estimated
useful lives of the respective assets,
generally ten to thirty years for buildings and
improvements and three to ten years for
furniture, machinery and equipment.
Depreciation expense was $767,000, $657,000,
and $542,000 in 2001, 2000 and 1999,
respectively.
Intangible Assets
Goodwill represents the excess of acquisition
costs over the estimated fair value of net
assets acquired. Goodwill is amortized on a
straight-line basis over periods ranging from
fifteen to twenty-five years.
Other intangible assets, consisting primarily
of covenants not to compete, licenses and
patents, are recorded at fair value at the date
of acquisition. These intangible assets are
amortized on a straight-line basis over periods
ranging from five to seventeen years.
During July 2001, SFAS 142, "Goodwill and Other
Intangible Assets" was issued by the Financial
Accounting Standards Board. Under SFAS 142,
goodwill amortization ceases upon adoption of
the new standard. The rules also require an
initial goodwill impairment assessment in the
year of adoption and annual impairment test
thereafter. The Company expects to adopt this
Statement effective June 1, 2001. Goodwill
amortization of approximately $364,000 was
-26-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
recognized in the May 31, 2001 fiscal year. At
this time no determination of any impairment
charges which could result from the adoption of
this Statement has been made.
Long-lived Assets
Management reviews the carrying values of its
long-lived assets for possible impairment
whenever events or changes in business
conditions indicate that the carrying amount of
the assets may not be recoverable. Impairment
is evaluated on the basis of undiscounted
future cash flows from operations before
interest for the remaining useful life of the
assets. If necessary, impairment will be
measured based on the difference between
discounted future cash flows and the net book
value of the related assets. Any long-lived
assets held for disposal are reported at the
lower of these carrying amounts or fair value
less costs to sell.
Revenue Recognition
Revenue from sales of products is recognized at
the time title of goods passes to the buyer and
the buyer assumes the risks and rewards of
ownership. This is generally at the time of
shipment. Where right of return exists,
allowances are made at the time of sale to
reflect expected returns based on historical
experience.
Research and Development
Research and development expenditures are
charged to operations as incurred.
Earnings Per Share
Basic earnings per share is based on the
weighted average number of common shares
outstanding during the year. Diluted earnings
per share is based on the weighted average
number of common shares and dilutive potential
common shares outstanding during the year. The
Company's dilutive potential common shares
outstanding during the year result entirely
from dilutive stock options and warrants. The
following table presents the earnings per share
calculations:
-27-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Year Ended May 31, 2001 2000 1999
-------------------------------------------------------------------------------------------
Numerator for Basic and Diluted
Earnings Per Share
Net income $3,170,000 $3,074,000 $ 2,255,000
===========================================================================================
Denominator
Denominator for basic earnings per
share - weighted average shares 5,731,712 5,905,623 6,099,129
Effect of Dilutive Securities
Stock options and warrants 184,254 16,859 41,734
-------------------------------------------------------------------------------------------
Dilutive Potential Common Stock
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 5,915,966 5,922,482 6,140,863
===========================================================================================
Basic Earnings Per Share $ .55 $ .52 $ .37
===========================================================================================
Diluted Earnings Per Share $ .54 $ .52 $ .37
===========================================================================================
Options to purchase 35,400, 616,200, and 441,100
shares of common stock at prices ranging from
$9.25 to $13.25, $6.50 to $13.25, and $7.13 to
$13.25 in 2001, 2000, and 1999, respectively,
were outstanding, but were excluded from the
computation of diluted earnings per share because
the options' exercise prices were greater than
the average market price of the common shares.
2. Marketable The Company currently invests in only high
Securities quality, short-term investments with maturity
dates of less than one year, which are classified
as available-for-sale. As such, there were no
significant differences between amortized cost
and estimated fair market value at May 31, 2001
and 2000. Additionally, since investments are
short-term and are generally allowed to mature,
realized gains and losses for both years have
been minimal. At May 31, 2001 and 2000,
marketable securities consisted of corporate debt
securities.
-28-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
3. Acquisitions and On February 17, 2000, Neogen Corporation
Divestitures purchased 100% of the common stock of Acumedia
with principal offices in Baltimore, Maryland.
Acumedia is an internationally recognized
producer of culture media. The acquisition was
accounted for using the purchase method.
Consideration for the purchase, including
direct acquisition related expenses, was
$3,098,000, which included cash payments and a
one year 7% promissory note of $450,000 (see
Note 5). The purchase price was allocated
$1,943,000 to current assets, $414,000 to
property and equipment, and $1,191,000 to
intangible assets.
Unaudited pro forma financial information for
the year ended May 31, 2000, as if the
acquisition of Acumedia had taken place on June
1, 1999 is as follows:
----------------------------------------------
Revenues $26,081,000
Net income 2,901,000
----------------------------------------------
Basic and Diluted
Earnings Per Share $ .49
==============================================
These unaudited pro forma results have been
prepared for comparative purposes only and
include certain adjustments, such as additional
amortization expense as a result of goodwill
and the related effect on income tax expense.
They do not purport to be indicative of the
results of operations that actually would have
resulted had the acquisition occurred on the
date indicated, or that may result in the
future. On June 2, 2000, the Company acquired
substantially all of the assets of AmVet
Pharmaceuticals, a distributor of animal health
products. The acquisition was accounted for
using the purchase method.
The purchase price, subject to certain post
closing adjustments, was $3,715,000 paid in
cash, plus additional payments in July 2001,
resulting from the post closing adjustments of
$170,000 and 32,388 shares
-29-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
of common stock. The initial purchase price was
allocated $909,000 to current assets $10,000 to
property and equipment and $2,796,000 to
intangible assets. Sales of AmVet products were
to approximately $4,600,000 in the year ended
May 31, 2001.
On September 1, 2000, the Company acquired
certain assets of Squire Laboratories, a
manufacturer and distributor of animal health
products. The acquisition was accounted for
using the purchase method. The purchase price
was $1,033,000 paid in cash. The purchase price
was allocated $133,000 to current assets,
$127,000 to property and equipment and $773,000
to intangible assets. Sales of Squire products
approximated $800,000 over the 9 months
following the acquisition.
Following the acquisitions, the assets of AmVet
and Squire were moved to the Company's facility
in Lexington, Kentucky, and combined with the
Company's Animal Safety Division.
In the fourth quarter of fiscal 1999, the
Company sold its AMPCOR human clinical product
line and related assets in exchange for notes
receivable of approximately $500,000, the
majority of which is due in monthly
installments through April 2004. In connection
with the asset sale, the Company closed the
AMPCOR facility located in Bridgeport, New
Jersey and moved its remaining AMPCOR
manufacturing operations for diagnostic test
kits to detect microorganisms to the Company's
headquarters in Lansing, Michigan. As a result
of the asset sale and related facility closure,
the Company recorded a loss of $629,000.
Included in the loss was approximately $200,000
related to lease obligations, employee
severance costs and other expenses incurred to
close the facility. Sales of human clinical
products were not material to the consolidated
sales of the Company in 1999.
4. Litigation Settlement In the fourth quarter of fiscal 2000, the
Company reached a settlement with Vicam L.P.,
Vicam Management Corporation, and Jack C. Radlo
("Vicam") on all claims against Vicam not
previously settled. The settlement included
reimbursement of $900,000 to Neogen for legal
and professional fees and expenses, and
$1,100,000 to settle all claims.
-30-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The reimbursement of legal and professional fees
and expenses was netted against general and
administrative expenses in fiscal 2000, which
included approximately $750,000 of such expenses.
5. Notes Payable and The Company and its subsidiaries have available
Long-Term Debt working capital lines-of-credit and borrowing
arrangements with banks totalling $2,500,000. At
May 31, 2001 and 2000, there were no borrowings
outstanding on these lines. These arrangements
bear interest at rates ranging from the prime
rate less .50% to the prime rate (7.0% at May 31,
2001), and are collateralized by substantially
all assets of the Company and its subsidiaries.
In addition, the Company maintains an unsecured
acquisition line-of-credit in the amount of
$7,500,000 at the prime rate less .50%. At May
31, 2001 and 2000 there were no borrowings on
this line.
Long-term debt consisted of the following:
2001 2000
----------------------------------------------------------
7% Note payable $ - $ 450,000
Term note payable 77,000 126,000
----------------------------------------------------------
77,000 576,000
Less current maturities 49,000 499,000
----------------------------------------------------------
Total Long-Term Debt $ 28,000 $ 77,000
==========================================================
The term note, which is payable in sixty monthly
installments of $4,056 plus interest at the prime
rate less .50%, is due in fiscal 2003 and is
collateralized by substantially all the assets of
Neogen.
The terms of certain financing agreements
contain, among other provisions, the requirements
to meet certain financial ratios and levels of
working capital and tangible net worth, and
restrict the payment of dividends.
Maturities of long-term debt are: 2002 -$49,000;
and 2003 - $28,000.
-31-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
6. Stock Options and The Company maintains stock option plans (the
Stock Warrants Plans) under which qualified and non-qualified
options to purchase shares of common stock may be
granted to eligible directors, members of the
Scientific Review Council, officers, or employees of
the Company at an exercise price of not less than
the fair market value of the stock on the date of
grant. The number of shares authorized for issuance
under the Plans is 2,459,375. At May 31, 2001,
options have been granted with three to five year
vesting schedules and option terms of five to ten
years. A total of 911,500 shares were available for
future grants under the Plans.
The Company applies Accounting Principles Board
Opinion No. 25 in accounting for its stock option
plans. Accordingly, no compensation cost has been
recognized for the Plans. Had compensation expense
for the Company's stock option plans been determined
based on the fair value at the grant dates
consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would
have been the following pro forma amounts:
2001 2000 1999
----------------------------------------------------------------------
Net Income
As reported $3,170,000 $3,074,000 $ 2,255,000
Pro forma 2,797,000 2,627,000 1,918,000
Earnings Per Share
As reported:
Basic $ .55 $ .52 $ .37
Diluted .54 .52 .37
Pro forma:
Basic .49 .44 .31
Diluted .47 .44 .31
======================================================================
-32-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The following is a summary of the Plans' activity:
Weighted Average
Shares Exercise Price
-------------------------------------------------------------------------------------------
Outstanding at June 1, 1998 (209,544 exercisable) 526,900 $ 7.03
Granted 161,500 7.05
Exercised (35,800) 2.71
Forfeited (52,900) 7.47
-------------------------------------------------------------------------------------------
Outstanding at May 31, 1999 (265,518 exercisable) 599,700 7.25
Granted 198,500 6.44
Exercised (21,666) 3.55
Forfeited (70,500) 6.80
-------------------------------------------------------------------------------------------
Outstanding at May 31, 2000 (295,182 exercisable) 706,034 7.18
Granted 216,000 6.31
Exercised (141,600) 6.67
Forfeited (1,900) 7.29
-------------------------------------------------------------------------------------------
Outstanding at May 31, 2001 (286,777 exercisable) 778,534 $ 7.03
===========================================================================================
The fair value of each option granted is
estimated on the date of grant using the Black-
Scholes option pricing model with the following
weighted-average assumptions for grants in 2001,
2000 and 1999, respectively: dividend yield of
0%; expected volatility of 61.0%, 51.0% and
52.0%; risk free interest rates of 6.1% , 5.7%,
and 5.2%; and expected lives of four years.
The weighted-average grant date fair value of
options granted in 2001, 2000 and 1999 was $2.70,
$2.97 and $3.24, respectively.
-33-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The following is a summary of stock options
outstanding at May 31, 2001:
Options Outstanding Options Exercisable
-------------------------------------------- ----------------------------
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Price Number Life (Years) Price Number Price
-------------------------------------------------------------------------------------------
$ 4.63- 6.88 486,334 4.3 $ 6.36 101,923 $ 6.37
7.13- 9.25 258,800 3.3 7.59 151,454 7.67
11.31-13.25 33,400 4.3 12.31 33,400 12.31
-------------------------------------------------------------------------------------------
$ 4.63-13.25 778,534 4.0 $ 7.03 286,777 $ 7.75
===========================================================================================
The weighted-average exercise price of the
295,182 shares which were exercisable at May 31,
2000 and 265,518 shares which were exercisable at
May 31, 1999 was $7.37 and $6.72, respectively.
The following table summarizes warrant activity
for the years ended May 31, 2001, 2000 and 1999.
All warrants are exercisable for unregistered
common stock of the Company and expire through
2010.
Warrant
Shares Price
-------------------------------------------------------------------------------------------
Outstanding Warrants at June 1, 1998 43,265 $ 4.82
Warrants exercised during the year - -
Warrants expiring during the year - -
-------------------------------------------------------------------------------------------
Outstanding Warrants at May 31, 1999 43,265 4.82
Warrants exercised during the year (43,265) 4.82
Warrants granted during the year 8,000 6.25
-------------------------------------------------------------------------------------------
Outstanding Warrants at May 31, 2000 8,000 6.25
Warrants exercised during the year - -
Warrants granted during the year 21,000 6.44
-------------------------------------------------------------------------------------------
Outstanding Warrants at May 31, 2001 29,000 $ 6.39
===========================================================================================
-34-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
7. Taxes On Income The provision for taxes on income consisted of
the following:
2001 2000 1999
-------------------------------------------------------------------------------------------
Current:
Federal $1,905,100 $1,180,000 $ 367,000
State 177,400 30,000 26,000
Deferred (382,500) - -
--------------------------------------------------------------------------------------------
Taxes on Income $1,700,000 $1,210,000 $ 393,000
============================================================================================
Deferred income taxes reflect the tax effects of
temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used for
income tax purposes. Significant components of
the Company's deferred tax liabilities and assets
as of May 31, 2001 and 2000 are as follows:
2001 2000
-------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment $ 98,000 $ 193,000
Losses of affiliated partnerships 15,000 35,000
-------------------------------------------------------------------------------------------
Total Deferred Tax Liabilities 113,000 228,000
Deferred tax assets:
Inventory and accounts receivable 444,000 274,000
Accruals 51,500 232,000
-------------------------------------------------------------------------------------------
Total Deferred Assets 495,500 506,000
Valuation Allowance for Deferred
Tax Assets - (278,000)
-------------------------------------------------------------------------------------------
Net Deferred Tax Assets 495,500 228,000
-------------------------------------------------------------------------------------------
Net Deferred Tax (1) $ 382,500 $ -
===========================================================================================
(1) Included in Prepaid expenses and other current
assets on the Consolidated Financial Statements.
-35-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The reconciliation of income taxes computed at
the U.S. federal statutory tax rates to income
tax expense for the years ended May 31, 2001,
2000 and 1999 is as follows:
2001 2000 1999
----------------------------------------------------------------------------------
Tax at U.S. statutory rates $ 1,656,000 $1,456,000 $ 900,000
Adjustment of valuation
allowance (278,000) (34,000) (387,000)
Prior year adjustments 208,000 (171,000) (137,000)
Tax credits - (60,000) -
Provision for State Income
Tax 114,000 19,000 17,000
---------------------------------------------------------------------------------
Taxes on Income $ 1,700,000 $1,210,000 $ 393,000
---------------------------------------------------------------------------------
8. Commitments and
Contingencies The Company has agreements with related research
limited partnerships and unrelated third parties
which provide for the payment of royalties on the
sale of certain products. Royalty expense,
primarily to related research limited
partnerships, under the terms of these agreements
for 2001, 2000 and 1999 was $987,000, $752,000
and $780,000, respectively.
The Company leases office and manufacturing
facilities under noncancelable operating leases.
Rent expense for 2001, 2000 and 1999 was
$392,000, $298,000 and $302,000, respectively.
Future minimum rental payments for these leases
are as follows: 2002 - $314,000, 2003 - $294,000,
2004 -$72,000, 2005 - $66,000, 2006 - $67,000,
2007 and thereafter, $108,000.
The Company is involved in certain legal
proceedings, none of which, in the opinion of
management, is material to the financial
statements.
-36-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
9. Defined Contribution The Company maintains a defined contribution
Benefit Plan 401(k) benefit plan covering substantially
all employees. Employees are permitted to
defer up to 15% of compensation, with the
Company matching 100% of the first 3%
deferred and 50% of the next 2% deferred. The
Company's expense under this plan was
$200,000, $152,000 and $117,000 for the years
ended May 31, 2001, 2000 and 1999,
respectively.
10. 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, pesticide residues, 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 animal
health product distributors.
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. The accounting policies of the
segments are the same as those described in
Note 1, Summary of Accounting Policies.
-37-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Segment information for the years ended May 31, 2001,
2000 and 1999 was as follows:
Food Animal Corporate and
Safety Safety Eliminations (1) Total
-------------------------- --------------------------------------------------------------------------------
2001
Net sales to external customers $16,717,000 $18,178,000 $ - $34,895,000
Operating income 2,369,000 2,594,000 (698,000) 4,265,000
Depreciation and amortization 566,000 736,000 - 1,302,000
Interest income - - 376,000 376,000
Income taxes 806,000 882,000 12,000 1,700,000
Total assets 10,106,000 16,199,000 6,717,000 33,022,000
Expenditures for long-lived assets 569,000 530,000 - 1,099,000
----------------------------------------------------------------------------------------------------------------------
2000
Net sales to external customers $11,634,000 $11,878,000 $ - $23,512,000
Operating income 1,593,000 1,364,000 (594,000) 2,363,000
Depreciation and amortization 428,000 518,000 - 946,000
Litigation settlement - - 1,100,000 1,100,000
Interest income - 2,000 559,000 561,000
Income taxes 451,000 328,000 431,000 1,210,000
Total assets 10,758,000 10,383,000 8,388,000 29,529,000
Expenditures for long-lived assets 395,000 525,000 - 920,000
----------------------------------------------------------------------------------------------------------------------
1999
Net sales to external customers $10,069,000 $12,110,000 $ - $22,179,000
Operating income 1,513,000 1,754,000 (723,000) 2,544,000
Depreciation and amortization 379,000 500,000 - 879,000
Interest income 2,000 - 492,000 494,000
Loss on sale of product line (629,000) - - (629,000
Income taxes 213,000 297,000 (117,000) 393,000
Total assets 6,444,000 9,768,000 9,896,000 26,108,000
Expenditures for long-lived assets 535,000 342,000 - 877,000
----------------------------------------------------------------------------------------------------------------------
(1) Includes corporate assets, consisting of marketable securities,
and overhead expenses not allocated to specific business
segments. Also includes the elimination of intersegment
transactions and minority interests.
-38-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The Company has no long-lived assets outside of the
United States and no significant foreign operations.
Export sales amounted to $8,100,000 or 23% of
consolidated sales in 2001, $4,800,000 or 20% in 2000
and $4,900,000 or 22% in 1999, respectively, and were
derived primarily in the geographic areas of South and
Central America, Canada, Asia and Europe. The Company
does not have sales to any single foreign country or
any single customer exceeding 10% of consolidated
sales.
11. 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 May 31, 2001, the Company had
purchased 626,990 shares in negotiated and open market
transactions for a total price, including commissions,
of approximately $4,067,000. Shares purchased under
this buy-back program are retired or used to satisfy
future issuance of common stock upon the exercise of
outstanding stock options and warrants.
12. Supplemental Cash paid for income taxes totaled $1,507,000,
Disclosure of Cash $681,000, and $749,000 in 2001, 2000 and 1999,
Flows Information respectively. Cash paid for interest totaled $32,000,
$12,000 and $16,000 in 2001, 2000 and 1999,
respectively.
Non-Cash Investing and Financing Activities
In February 2000, the Company acquired Acumedia for
cash and a $450,000 note payable.
In the fourth quarter of fiscal 1999, the Company sold
its AMPCOR human clinical product line and related
assets in exchange for term notes receivable of
approximately $500,000.
-39-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
13. Subsequent On June 30, 2001, the Company acquired all of the stock
Events of QA Life Sciences, in a purchase transaction. The
purchase price, subject to certain post closing
adjustments, was 58,000 shares of Neogen Stock, with
provisions for up to an additional $200,000 to be paid
to QA's former owners based on the achievement of
specified levels of post closing revenues.
Immediately following the acquisition the operations of
QA Life Sciences were moved to the Company's facilities
in Baltimore, Maryland, and Lansing, Michigan, where
they were combined with the Food Safety Division.
14. Summary of Fiscal Quarter Ended
-----------------------------------------------
Quarterly Data August November February May
(Unaudited) 2000 2000 2001 2001
------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Net sales $8,124 $ 9,009 $ 8,601 $ 9,161
Gross margin 3,996 4,544 4,352 4,846
Net income 672 860 714 924
Basic earnings per share .12 .15 .12 .16
Diluted earnings per share .12 .15 .12 .15
Market price of common stock
High $7.125 $10.375 $13.438 $15.000
Low 5.500 6.125 7.125 8.750
====================================================================================
-40-
Neogen Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Fiscal Quarter Ended
-----------------------------------------------
August November February May
1999 1999 2000 2000
----------------------------------------------------------------------
(Dollars in thousands, except per share data)
Net sales $5,340 $ 5,425 $ 6,276 $ 6,471
Gross margin 3,079 2,972 3,555 3,046
Net income 808 339 627 1,300
Basic earnings per .14 .06 .11 .22
share
Diluted earnings per .14 .06 .11 .22
share
Market price of
common stock
High $7.250 $ 7.500 $ 6.750 $ 8.250
Low 6.000 5.875 5.000 5.375
======================================================================
The Quarter ended May 31, 2000 includes the
litigation settlement discussed in Note 4.
-41-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
Changes In Accountants
The Board of Directors and Audit Committee of Neogen Corporation (the
"Company") approved the termination of the Company's relationship with BDO
Seidman, LLP ("BDO") as its independent accountants and auditors of record
effective April 23, 2001.
In connection with the audits of the Company's financial statements for each
of the three fiscal years ended 1998, 1999, and 2000 and for unaudited interim
period through April 23, 2001, there were no disagreements or reportable events
with BDO on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which if not resolved to
the satisfaction of BDO, would have caused BDO to make reference to the matter
in its report. BDO's report on the Company's financial statements for either of
the past two years was not adverse, nor did it disclaim opinion nor was it
modified as to uncertainties, audit scope, or accounting principles.
On April 24, 2001, Deloitte & Touche ("Deloitte") of Lansing, Michigan was
engaged as the Company's independent auditors for the fiscal year ending May 31,
2001. The Company has not retained Deloitte during any of the previous years to
consult on the application of accounting principles, or on its engagement since
June 1997.
Disagreements With Accountants On Accounting And Financial Disclosure
There were no disagreements or reportable events with Deloitte following its
appointment.
Other Information Required By Part III
Certain information required by Part III has been omitted from this Report
since the Company will file a definitive proxy statement pursuant to Regulation
14A (the "Proxy Statement") not later than 120 days after the end of the fiscal
year covered by this Report, and certain information included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and executive officers
required by this Item is incorporated by reference to the Company's Proxy
Statement to be filed within 120 days of May 31, 2001.
OFFICERS AND OTHER KEY INDIVIDUALS OF THE REGISTRANT
The officers of the Company are elected by and serve at the discretion of the
Board of Directors. The Board of Directors has also named a Scientific Review
Council to serve at the pleasure of the Board. The Scientific Review Council
meets several times annually to review the research progress of the Company and
to recommend or approve new research and product development activities of the
Company. The names and occupations of the Company's officers and other key
individuals are set forth below.
Year Joined
Name Position with the Company the Company
---- ------------------------- -----------
Lon M. Bohannon Vice President, Chief Operating Officer, Director 1985
Edward L. Bradley Vice President 1994
Richard R. Current Vice President, Chief Financial Officer 1999
James L. Herbert Chairman, President, Chief Executive Officer, Director 1982
Joseph M. Madden, Ph.D. Vice President, Scientific Affairs 1997
Anthony E. Maltese Vice President, Corporate Development 1999
Brinton M. Miller, Ph.D. Senior Vice President 1984
Terri A. Morrical Vice President 1992
Thomas H. Reed Secretary, Director 1995
Gerald S. Traynor Vice President 1990
Paul S. Satoh, Ph.D. Vice President, Diagnostic Research & Development 1998
David A. Wall Vice President, Diagnostic Manufacturing 1998
-42-
There are no family relationships among officers. Information concerning the
executive officers of the Company follows:
James L. Herbert, age 61, has been President, Chief Executive Officer, and a
director of the Company since he joined Neogen in June, 1982. In 1999, he
assumed the additional position of Chairman of the Board. He previously held
the position of Corporate Vice President of DeKalb Ag Research, a major
agricultural genetics and energy company. He has management experience in
animal biologics, specialized chemical research, medical instruments,
aquaculture, animal nutrition, and poultry and livestock breeding and
production.
Thomas H. Reed, age 56, was elected to the Board of Directors in October 1995
and was elected Secretary in October 1999. Mr. Reed is group Vice President of
Packerland Packing Company, Vice President of MLE Marketing, a division of
Southern States Cooperative, Inc., and prior to assuming that position, he
served as President and Chief Executive Officer for Michigan Livestock Exchange.
Mr. Reed is a member of the Board of Directors of the National Livestock
Producers Association and is a former chairman of the Michigan State University
Board of Trustees.
Dr. Brinton M. Miller, age 74, joined the Company in January 1984 as Vice
President of Research and Development. He presently serves on a part-time
basis, as the Company's Senior Vice President. Prior to joining Neogen, Dr.
Miller held numerous research management positions during his 27-year career
with Merck, Sharp and Dohme Laboratories.
Lon M. Bohannon, age 48, joined the Company in October 1985 as Vice President
of Finance, was promoted to Chief Financial Officer in June 1987, was promoted
to Vice President Administration and Chief Financial Officer in November 1994,
was elected to the Board of Directors in October 1996, and was named Chief
Operating Officer in September 1999. He is responsible for all Company
operations except research, finance, and corporate development. A CPA, he was
Administrative Controller for Federal Forge, Inc., a metal forging and stamping
firm, from March 1980 until October 1985, and a member of the public accounting
firm of Ernst & Young from June 1975 to March 1980.
Gerald S. Traynor, age 66, joined Neogen in July 1990 as General Manager for
Ideal Instruments, Inc. He was promoted to Vice President of Instrument
Development and Manufacturing in January 1991 with responsibility for the
Company's veterinary instrument and electronic instrument manufacturing
operations. He was Vice President of Manufacturing for Martin Yale Industries
for three years before joining Neogen and filled the same position for The
Hedman Company from 1983-1987. Earlier, he served 16 years in various
manufacturing management positions at ITT.
Terri A. Morrical, age 36, joined Neogen Corporation on September 1, 1992 as
part of the Company's acquisition of WTT, Incorporated. She currently serves as
Vice President and General Manager of the Company's Lexington division and is
responsible for all sales pertaining to animal safety. Mrs. Morrical graduated
from Miami University in 1986. From 1986 to 1991, she was Controller for Freeze
Point Cold Storage Systems and concurrently served in the same capacity for
Powercore, Inc. In 1990, she joined WTT, Incorporated as VP/CFO and then became
President, the position she held at the time Neogen acquired the business.
Edward L. Bradley, age 41, joined Neogen in February 1995 as Vice President of
Sales and Marketing for AMPCOR Diagnostics, Inc. In June 1996, he was made a
Vice President of Neogen Corporation. Currently, Mr. Bradley is responsible for
all sales and marketing activities focused on food safety products on a
worldwide basis. From 1988 to 1995, Mr. Bradley served in several sales and
marketing capacities for Mallinckrodt Animal Health, including the position of
National Sales Manager responsible for 40 employees in its Food Animal Products
Division. Prior to joining Mallinckrodt, he held several sales and marketing
positions for Stauffer Chemical Company.
Dr. Joseph M. Madden, age 52, joined Neogen in December 1997 as Vice President
of Scientific Affairs after retiring from the Food and Drug Administration as
its Microbiology Strategic Manager. He joined the FDA in 1978 and spent his
first 10 years as a research microbiologist for the agency. Dr. Madden has
served on numerous committees on food safety, including his current appointment
to the National Advisory Committee on Microbiological Criteria for Foods. He is
regarded by regulatory agencies and the food industry as being one of the
nation's top experts on both scientific and regulatory issues relating to food
safety.
Dr. Paul S. Satoh, age 64, became Neogen's Vice President for Research and
Development in March 1998 after having spent 26 years as a senior scientist and
research manager at Pharmacia & Upjohn Inc. Dr. Satoh joined Neogen after
serving nearly six years on the Company's Scientific Review Council as an
immunology specialist. At Upjohn, Dr. Satoh also taught immunopharmacology at
the University of Michigan in Ann Arbor, and general studies in chemistry and
social issues in biology at Western Michigan University. His most recent
positions at Pharmacia & Upjohn included senior scientist in drug metabolism
research and senior scientist for strategic information analysis and competitive
intelligence.
David A. Wall, age 53, joined Neogen Corporation in October 1998 as Vice
President and General Manager of Ampcor Diagnostics Incorporated. In May 1999,
he assumed his current position as Vice President of Diagnostic Manufacturing
and Quality Control. Before joining Neogen, he served as Manager of the
immunodiagnostics operations for REMEL, Inc. in Augusta, GA, a position he held
since 1992. Prior to that, Mr. Wall served as founder, President and Chairman
of the Board for Medical Diagnostic Technologies Inc. also in Augusta. Earlier,
Mr. Wall served as Laboratory Director for Zeus Scientific, Inc. and in the
early 1980's participated in the development of the first commercially available
test for Legionnaire's Disease.
-43-
Anthony E. Maltese, age 58, joined Neogen on June 1, 1999 as Manager of
Corporate Development. He was promoted to Vice President in October, 2000.
Prior to joining Neogen, Mr. Maltese served as Vice President of Business
Development for Creatogen Biosciences, GmbH of Angsburg, Germany. From 1990 to
1998, he worked in production and special project management positions for
REMEL, Inc. including Manager of Business Development. Prior to REMEL, Mr.
Maltese spent 20 years at Difco Laboratories, where he served in several
management positions in the areas of purchasing, technical sales support,
production and research.
Richard R. Current, age 57, joined the Company in November 1999 as Vice
President and Chief Financial Officer. Prior to joining Neogen, Mr. Current
served as Executive Vice President and Chief Financial Officer of Integral
Vision, Inc. from 1994 to 1999 and as Vice President and Chief Financial Officer
of the Shane Group, Inc., a privately held company from 1991 to 1994. Mr.
Current was associated with the public accounting firm of Ernst & Young for 24
years and served as Managing Partner of the Lansing, Michigan office from 1986
to 1991.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed within 120 days of May 31, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed within 120 days of May 31, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jack C. Parnell, a Company Director, is a governmental relations advisor to
the law firm of Kahn, Soares & Conway. Kahn, Soares & Conway has been retained
by the Company to represent it in governmental relations matters. The Company
pays Kahn, Soares & Conway a monthly fee of $1,750 for ten hours of consulting.
The agreement with Kahn, Soares & Conway is terminable by either party at the
end of any month.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Exhibits. The Exhibits listed on the accompanying Index to Exhibits
immediately following the signatures are filed as part of, or
incorporated by reference into, this Report.
(b) Schedule II - Valuation and Qualifying Accounts. Schedules are not filed
because there is no respective financial statement caption, full disclosure
is provided in the financial statements and related footnotes or the test
is not met.
(c) Reports on Form 8-K. The Company filed a report on April 23, 2001 on Form
8-K reporting under Item 45 changes in registrant's certifying accountant.
-44-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ James L. Herbert /s/ Richard R. Current
--------------------------- ----------------------------------
James L. Herbert, President Richard R. Current, Vice President
Chief Executive Officer Chief Financial Officer
Dated: August 27, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ James L. Herbert Chairman, Board of Directors, August 27, 2001
- -------------------------- President, Chief Executive Officer,
James L. Herbert Director (Principal Executive Officer)
/s/ Lon M. Bohannon Vice President and Chief Operating Officer August 27, 2001
- --------------------------
Lon M. Bohannon
* Secretary and Director
- --------------------------
Thomas H. Reed
* Director
- --------------------------
Herbert D. Doan
* Director
- --------------------------
Robert M. Book
* Director
- --------------------------
Gordon E. Guyer, Ph.D.
* Director
- --------------------------
G. Bruce Papesh
* Director
- --------------------------
Leonard E. Heller, Ph.D.
* Director
- --------------------------
Jack C. Parnell
*By: /s/ James L. Herbert August 27, 2001
---------------------
James L. Herbert, Attorney-in-fact
-45-
Neogen Corporation
Annual Report on Form 10-K
Year Ended May 31, 2001
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3 (a) (1) Articles of Incorporation, as restated
3 (a) (1) By-Laws, as amended
10 (a) (2) Neogen Research Limited Partnership II/Neogen
Corporation Agreement for the Sale of Patent
Rights and Related Know How, dated October 14,
1988
10 (c) (6) Neogen 1997 Stock Option Plan
10 (d) (7) Tenner Incorporated/AMPCOR Diagnostics, Inc. Asset
Purchase Agreement, dated April 28, 1999
10 (e) (5) Neogen Corporation/United States Department of
Agriculture License Agreement, dated June 29, 1994
10 (g) (2) Neogen Research Limited Partnership II First
Amended and Restated Partnership Agreement, dated
December 30, 1985
10 (h) (7) Neogen/BioPort Corporation Product Purchase
Agreement dated May 22, 1998
10 (j) (3) Amended and Restated Incentive Stock Option Plan
II and Sample Individual Incentive Stock Option
Agreement
10 (k) (4) Neogen/International Diagnostic Systems Asset
Purchase Agreement, dated June 27, 1995
10 (m) (7) Amendment to ELISA Technologies Lease Agreement
10 (o) (6) NBD Bank Loan Documents
10 (p) (6) Comerica Bank Loan Documents
10 (t) (1) Stock Purchase Agreement between Registrant and
IDEXX Laboratories, Inc., dated February 17, 2000
10 (v) (8) Neogen/AmVet Asset Purchase Agreement, dated June
2, 2000
10 (x) (8) Amendment to Neogen Stock Option Plan
10 (y) (9) Asset Purchase Agreement Between Registrant and
Squire Laboratories, Inc. dated September 1, 2000.
21 List of Subsidiaries
23 Independent Auditors' Consents
24 Power of Attorney (included on Signature Page)
(1) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q dated February 29, 2000.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-18 (No. 33-29844C) filed July 17, 1989 and
amended on August 17, 1989 and August 22, 1989, which Registration became
effective August 30, 1989.
(3) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended May 31, 1992.
(4) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1995.
(5) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-2 (No. 333-12193) filed September 17, 1996
and amended on October 18, 1996, which Registration became effective
October 22, 1996.
(6) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1998.
(7) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended May 31, 1999.
(8) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended May 31, 2000.
(9) Incorporated by reference to the exhibit filed with the Registrant's Report
on Form 10-Q dated August 31, 2000.
-46-
Neogen Corporation and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
Balance Charged To Balance
at Beginning Costs and at End
Description of Year Expenses Acquisition Write-Offs of Year
- -----------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts:
Year Ended May 31:
2001 $361,000 $223,000 $100,000 (1) $217,000 $467,000
2000 166,000 162,000 90,000 (2) 57,000 361,000
1999 227,000 6,000 67,000 166,000
- -----------------------------------------------------------------------------------------------------------
(1) Acquisition of AmVet Pharmaceuticals on June 1, 2000.
(2) Acquisition of Acumedia Manufacturers on February 17, 2000.
-47-