UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
February 28, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the Transition Period From
_______________ to _______________
Commission file number 0-17988
NEOGEN CORPORATION
(Exact name of Registrant as specified in its charter)
Michigan 38-2367843
(State or other jurisdiction of (I.R.S. Employer Identification No.)
corporation or organization)
620 Lesher Place
Lansing, Michigan 48912
(517) 372-9200
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
As of April 1, 2002, there were 6,091,000 outstanding shares of Common Stock.
-1-
INDEX
NEOGEN CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Interim Condensed Financial Statements (unaudited)
Consolidated Balance Sheets - February 28, 2002 and May 31, 2001.
Consolidated Statements of Income - Three months and nine months ended
February 28, 2002 and 2001.
Consolidated Statements of Stockholders' Equity - Nine months ended
February 28, 2002.
Consolidated Statements of Cash Flows - Nine months ended
February 28, 2002 and 2001.
Notes to Interim Consolidated Financial Statements - February 28, 2002.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 3. Defaults upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
February 28 May 31
2002 2001
----------- -----------
ASSETS
- ------
CURRENT ASSETS
Cash $ 1,082,000 $ 848,000
Marketable securities 4,681,000 6,334,000
Accounts receivable, net 6,917,000 6,026,000
Inventories 6,857,000 6,974,000
Other current assets 1,407,000 1,397,000
----------- -----------
TOTAL CURRENT ASSETS 20,944,000 21,579,000
PROPERTY AND EQUIPMENT, NET 3,215,000 2,721,000
INTANGIBLE AND OTHER ASSETS - NOTE B
Goodwill, net 11,473,000 7,076,000
Other intangible assets, net 1,331,000 1,077,000
Other assets, net 504,000 569,000
----------- -----------
$37,467,000 $33,022,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,335,000 $ 1,207,000
Other accrued liabilities 1,575,000 2,079,000
Current maturities of long-term notes payable 41,000 49,000
----------- -----------
TOTAL CURRENT LIABILITIES 2,951,000 3,335,000
LONG-TERM NOTES PAYABLE -- 28,000
OTHER LONG-TERM LIABILITIES 322,000 322,000
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value, 100,000
shares authorized, none issued and outstanding -- --
Common stock, $.16 par value,
20,000,000 shares authorized, 6,081,000
shares issued and outstanding at February 28, 2002;
5,824,000 shares issued and outstanding at May 31, 2001 973,000 932,000
Additional paid-in capital 23,543,000 21,560,000
Retained earnings 9,678,000 6,845,000
----------- -----------
34,194,000 29,337,000
----------- -----------
$37,467,000 $33,022,000
=========== ===========
See notes to interim consolidated financial statements.
-3-
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Three Months Ended Nine Months Ended
February 28 February 28
2002 2001 2002 2001
---------------------------- ----------------------------
SALES $ 9,655,000 $ 8,601,000 $ 30,085,000 $ 25,734,000
Cost of goods sold 5,038,000 4,249,000 14,903,000 12,842,000
------------ ------------ ------------ ------------
GROSS MARGIN 4,617,000 4,352,000 15,182,000 12,892,000
OPERATING EXPENSES
Sales and marketing 2,142,000 1,862,000 6,549,000 5,498,000
General and administrative 929,000 1,052,000 3,106,000 3,119,000
Research and development 438,000 501,000 1,491,000 1,376,000
------------ ------------ ------------ ------------
3,509,000 3,415,000 11,146,000 9,993,000
------------ ------------ ------------ ------------
OPERATING INCOME 1,108,000 937,000 4,036,000 2,899,000
OTHER INCOME
Interest income 26,000 95,000 108,000 292,000
Interest expense (1,000) (10,000) (3,000) (31,000)
Other 97,000 61,000 257,000 217,000
------------ ------------ ------------ ------------
122,000 146,000 362,000 478,000
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,230,000 1,083,000 4,398,000 3,377,000
INCOME TAXES 404,000 369,000 1,565,000 1,131,000
------------ ------------ ------------ ------------
NET INCOME $ 826,000 $ 714,000 $ 2,833,000 $ 2,246,000
============ ============ ============ ============
NET INCOME PER SHARE:
Basic $ 0.13 $ 0.12 $ 0.45 $ 0.39
============ ============ ============ ============
Diluted $ 0.13 $ 0.12 $ 0.45 $ 0.39
============ ============ ============ ============
See notes to interim consolidated financial statements.
-4-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Common Stock
---------------------------- Additional
Number Paid-In Retained
of Shares Amount Capital Earnings
------------ ------------ ------------ ------------
Balance at June 1, 2001 5,824,000 $ 932,000 $ 21,560,000 $ 6,845,000
Repurchase of shares (28,000) (4,000) (311,000)
Acquisitions 94,000 15,000 1,093,000
Exercise of options 191,000 30,000 1,201,000
Net income for the
nine months ended
February 28, 2002 2,833,000
------------ ------------ ------------ ------------
BALANCE AT FEBRUARY 28, 2002 6,081,000 $ 973,000 $ 23,543,000 $ 9,678,000
============ ============ ============ ============
See notes to interim consolidated financial statements.
-5-
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Nine Months Ended
February 28
2002 2001
------------ ------------
OPERATING ACTIVITIES:
Net income $ 2,833,000 $ 2,246,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 813,000 1,027,000
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable (583,000) (614,000)
Inventories 246,000 (599,000)
Other current assets (10,000) 26,000
Accounts payable (109,000) (76,000)
Other accrued liabilities (445,000) (613,000)
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,745,000 1,397,000
INVESTING ACTIVITIES:
Sales of marketable securities 19,019,000 6,207,000
Purchases of marketable securities (17,366,000) (3,600,000)
Purchases of property and equipment
and other assets (1,398,000) (800,000)
Acquisitions (3,587,000) (4,748,000)
------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES (3,332,000) (2,941,000)
FINANCING ACTIVITIES:
Payments on long-term borrowings (28,000) (36,000)
Net payments for repurchase
of common stock (315,000) (573,000)
Net proceeds from issuance
of common stock 1,164,000 489,000
------------ ------------
NET CASH PROVIDED
BY (USED IN) FINANCING
ACTIVITIES 821,000 (120,000)
------------ ------------
INCREASE (DECREASE) IN CASH 234,000 (1,664,000)
Cash at beginning of period 848,000 2,198,000
------------ ------------
CASH AT END OF PERIOD $ 1,082,000 $ 534,000
============ ============
See notes to interim consolidated financial statements.
-6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (generally accepted accounting principles) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the three and nine month periods
ended February 28, 2002 are not necessarily indicative of the results to be
expected for the fiscal year ending May 31, 2002. For more complete financial
information, these consolidated financial statements should be read in
conjunction with the May 31, 2001 audited consolidated financial statements and
the notes thereto included in the Company's annual report on Form 10-K for the
year ended May 31, 2001.
NOTE B - CHANGE IN ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS.
- -----------------------------------------------------------------------
The Company has adopted Financial Accounting Standards Board SFAS 142 "Goodwill
and Other Intangible Assets" effective June 1, 2001. Under the provisions of the
Statement, goodwill is no longer amortized but instead is reviewed for
impairment at least annually. SFAS 142 provides a six-month transitional period
from the effective date of adoption for Management to perform an assessment of
whether there is an indication that goodwill is impaired. This review was
completed with no indication of impairment of goodwill identified.
A reconciliation of the allocation of intangible assets as reported at May 31,
2001 and at June 1, 2001, following the adoption of SFAS 142, is as follows:
May 31, 2001 Reclassifications June 1, 2001
Gross Gross Gross
Carrying Accumulated Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization Amount Amortization
------------ ------------ ------------ ------------- ------------- ------------
Goodwill $ 8,123,000 $1,047,000 $ 280,000 $ 133,000 $ 8,403,000 $ 1,180,000
Intangible assets with
indefinite lives 614,000 199,000 614,000 199,000
Intangible assets with
finite lives 1,019,000 504,000 1,019,000 504,000
Other assets 2,482,000 836,000 (1,913,000) (836,000) 569,000 -
------------ ------------ ------------ ------------- ------------- ------------
$10,605,000 $1,883,000 $ - $ - $10,605,000 $ 1,883,000
============ ============ ============ ============= ============= ============
-7-
The allocation of assets following SFAS 142 as of June 1, 2001 and February 28,
2002 is summarized in the following table:
June 1, 2001 February 28, 2002
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
----------- ------------ ----------- ------------
Goodwill:
Food Safety $ 841,000 $ 123,000 $ 4,371,000 $ 123,000
Animal Safety 7,562,000 1,057,000 8,282,000 1,057,000
----------- ----------- ----------- -----------
Total 8,403,000 1,180,000 12,653,000 1,180,000
Intangible assets with indefinite lives 614,000 199,000 614,000 199,000
Intangible assets with finite lives:
Licenses 305,000 69,000 801,000 147,000
Covenants not to compete 355,000 171,000 414,000 222,000
Patents 351,000 263,000 351,000 281,000
Other 8,000 1,000 1,000 1,000
----------- ----------- ----------- -----------
1,019,000 504,000 1,567,000 651,000
As provided by SFAS 142, the results of operations of the three and nine-month
periods ended February 28, 2001 have not been restated. If the statement had
been adopted as of June 1, 2000, the effect would have resulted in the reduction
in amortization of $ 99,000 and $ 287,000 in the three and nine-month periods,
respectively. Net income would have been $ 756,000 ($.13, basic and diluted) and
$ 2,418,000 ($.42, basic and diluted) in the three and nine months ended
February 28, 2001, respectively.
Estimated fiscal year amortization expense is as follows: 2002-$144,000;
2003-$139,000; 2004-$119,000; 2005-$80,000 and 2006-$53,000.
NOTE C - CHANGE IN ACCOUNTING FOR 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 adoption of
SFAS 133 did 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.
-8-
NOTE D - EARNINGS PER SHARE
- ---------------------------
The following table presents the calculation of earnings per share:
Three Months Ended Nine Months Ended
February 28 February 28
2002 2001 2002 2001
---------- ---------- ---------- ----------
Basic and Diluted - Earnings per Share
Numerator - Net Income $ 826,000 $ 714,000 $2,833,000 $2,246,000
========== ========== ========== ==========
Denominator:
For basic earnings per share-
Weighted average shares 6,067,000 5,725,000 5,968,000 5,705,000
Effect of dilutive securities-
Stock options and warrants 374,000 245,000 397,000 105,000
---------- ---------- ---------- ----------
For diluted earnings per share-
Adjusted weighted average
shares and assumed conversions 6,441,000 5,970,000 6,365,000 5,810,000
========== ========== ========== ==========
Basic Earnings per Share $ 0.13 $ 0.12 $ 0.45 $ 0.39
========== ========== ========== ==========
Diluted Earnings per Share $ 0.13 $ 0.12 $ 0.45 $ 0.39
========== ========== ========== ==========
NOTE E - STOCK REPURCHASE
- -------------------------
The Company's Board of Directors has authorized the purchase of up to 1,000,000
shares of the Company's Common Stock. As of February 28, 2002, the Company had
purchased 654,000 shares in negotiated and open market transactions. Shares
purchased under this buy-back program will be retired and used to satisfy future
issuance of common stock upon the exercise of outstanding stock options and
warrants.
NOTE F - INVENTORIES
- --------------------
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market. The components of inventories are as follows:
February 28, 2002 May 31, 2001
----------------- ------------
Raw Material $1,995,000 $1,832,000
Work-In-Process 780,000 885,000
Finished Goods 4,082,000 4,257,000
---------- ----------
$6,857,000 $6,974,000
========== ==========
-9-
NOTE G - SEGMENT INFORMATION
- ----------------------------
The Company has two reportable segments: Food Safety and Animal Safety. The Food
Safety segment produces and markets diagnostic test kits and related products
used by food producers and processors to detect harmful natural toxins, drug
residues, foodborne bacteria, food allergens, pesticide residues, disease
infections and levels of general sanitation. The Animal Safety segment is
primarily engaged in the production and marketing of products dedicated to
animal health, including 250 different veterinary instruments and a complete
line of consumable products marketed to veterinarians and distributors serving
the professional equine industry.
These segments are managed separately because they represent strategic business
units that offer different products and require different marketing strategies.
The Company evaluates performance based on total sales and operating income of
the respective segments.
Segment information for the three months ended February 28, 2002 and 2001 was as
follows:
Food Animal Corporate and
Safety Safety Eliminations (1) Total
- ----------------------------------------------------------------------------------------
2002
Net sales to external customers $ 4,760,000 $ 4,895,000 $ -- $ 9,655,000
Operating income 753,000 437,000 (82,000) 1,108,000
Total assets 16,176,000 17,754,000 3,537,000 37,467,000
- ----------------------------------------------------------------------------------------
2001
Net sales to external customers $ 4,009,000 $ 4,592,000 $ -- $ 8,601,000
Operating income 607,000 461,000 (131,000) 937,000
Total assets 10,091,000 14,029,000 6,845,000 30,965,000
- ----------------------------------------------------------------------------------------
Segment information for the nine months ended February 28, 2002 and 2001 was as
follows:
Food Animal Corporate and
Safety Safety Eliminations (1) Total
- ----------------------------------------------------------------------------------------
2002
Net sales to external customers $14,998,000 $15,087,000 $ -- $30,085,000
Operating income 2,666,000 1,897,000 (527,000) 4,036,000
Total assets 16,176,000 17,754,000 3,537,000 37,467,000
- ----------------------------------------------------------------------------------------
2001
Net sales to external customers $12,723,000 $13,011,000 $ -- $25,734,000
Operating income 1,938,000 1,503,000 (542,000) 2,899,000
Total assets 10,091,000 14,029,000 6,845,000 30,965,000
- ----------------------------------------------------------------------------------------
(1) Includes corporate assets, consisting principally of marketable securities,
and overhead expenses not allocated to specific business segments. Also
includes the elimination of intersegment transactions and minority
interests.
-10-
NOTE H - ACQUISITIONS
- ---------------------
As of June 30, 2001, the Company purchased 100% of the common stock of QA Life
Sciences. QA had a product line directed toward testing of food and water. The
purchase price, subject to certain post closing adjustments, was 58,000 shares
of Neogen stock with provision for payment of up to an additional 3,100 issued
shares of Neogen stock based on post closing collections of accounts receivable
and an additional $200,000 based on achievement of specific levels of post
closing revenues. The accounts receivable secondary payment requirements were
met and required share payment was made as of August 31, 2001. The purchase
price and acquisition costs were allocated $129,000 to current assets, $150,000
to the property and equipment and $487,000 to intangible assets. Revenues of QA
Life Sciences in the 12 months prior to the acquisition were less than
$1,000,000.
As of August 1, 2001, the Company purchased for cash substantially all of the
assets of Gene-Trak Systems from Vysis, Inc. Gene-Trak had a product line for
tests of specific bacteria in food. The purchase price and acquisition costs
were allocated $378,000 to current assets, $125,000 to property and equipment
and $3,144,000 to intangible assets. Revenues of Gene-Trak in the 12 months
prior to the acquisition were approximately $3,000,000.
In July 2001 final determination was made of amounts due as secondary payments
to the former owners of AmVet Pharmaceuticals. To satisfy these obligations,
32,388 shares of Neogen stock valued at $416,000 were issued and cash payments
of $133,000 were made.
These transactions were accounted for as purchases under the provision of SFAS
141. Results of operations are included in the consolidated financial statements
beginning with the date of the acquisition. Common Stock was valued at the
closing price on the date of the transaction after allowance for restriction
related to the shares tendered.
NOTE I - LEGAL PROCEEDINGS
- --------------------------
The Company is involved in several legal proceedings, none of which, in the
opinion of Management, is material to the financial statements.
NOTE J - SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
- ----------------------------------------------------------
Three Months Nine Months
Ended February 28 Ended February 28
2002 2001 2002 2001
------------ ------------ ------------- -------------
Cash Paid For:
Income Taxes $ 262,000 $ 100,000 $ 2,170,000 $ 1,375,000
Interest 1,000 2,000 3,000 7,000
-11-
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information in this Management's Discussion and Analysis of Financial
Condition and Results of Operations contains both historical financial
information and forward-looking statements. Neogen does not provide forecasts of
future performance. While management is optimistic about the Company's long-term
prospects, historical financial information may not be indicative of future
financial performance.
The words "anticipate", "believe", "potential", "expect", and similar
expressions used herein are intended to identify forward-looking statements.
Forward-looking statements involve certain risks and uncertainties. Various
factors, including competition, recruitment and dependence on key employees,
impact of weather on agriculture and food production, identification and
integration of acquisitions, research and development risks, patent and trade
secret protection, government regulation and other risks detailed from time to
time in the Company's reports on file at the Securities and Exchange Commission
may cause actual results to differ materially from those contained in the
forward-looking statements.
Accounting Changes
- ------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 142 "Goodwill and Other Intangible
Assets." As allowed under the Standard, the Company has adopted SFAS 142 as of
June 1, 2001. SFAS 142 requires goodwill and intangible assets with indefinite
useful lives to no longer be amortized, but instead be tested for impairment at
least annually.
With the adoption of SFAS 142, Management reviewed classifications, useful
lives, and residual lives of all acquired intangible assets. Following this
review, changes in classification were made as described in Note B to the
financial statements. No changes in the amortization periods or residual values
were determined to be necessary.
SFAS 142 provides a six-month transitional period from the effective date of
adoption for Management to perform an assessment of whether there is an
indication that goodwill is impaired. This review was completed with no
indication of impairment of goodwill identified.
Additionally, the Company adopted the provisions of SFAS 133, as amended, as of
June 1, 2001. This statement, which establishes accounting and reporting
standards for derivative instruments and for hedging activities, did not have a
significant impact on the financial position or results of operations of the
Company.
Effective July 1, 2002, the Company will adopt FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." FASB Statement
No. 144 supersedes FASB Statement No. 121 as well as certain provisions of APB
30. The main objective of FASB Statement No. 144 is to clarify certain
provisions of FASB Statement No. 121 relating to impairment of long-lived
assets. FASB Statement No. 144 also includes more stringent requirements for
classifying assets available for disposal and expands the scope of activities
that will require discontinued operations reporting. The Company is in the
process of determining the impact of adopting FASB Statement No. 144 and whether
it will have a material effect on our results of operations or financial
position.
-12-
Three Months and Nine Months Ended February 28, 2002 Compared to Three Months
- -----------------------------------------------------------------------------
and Nine Months Ended February 28, 2001
- ---------------------------------------
Total revenues increased $1,054,000 or 12% in the February 2002 quarter compared
to the February 2001 quarter and were up $4,351,000 or 17% in the nine months
ended February 28, 2002 as compared to the first nine months of fiscal 2001.
Revenues from sales of products dedicated to Food Safety were up 19% for the
quarter and for the nine-month period and, revenues from sales of Animal Safety
products were up 7% for the quarter and 16% for the nine-month period.
The increase in Food Safety revenue came from increases in sales of test kits
for the detection of harmful bacteria such as E. coli O157:H7, Salmonella, and
Listeria which increased 37% in the quarter and 36% in the nine-month period and
from sales of test kits for the detection of allergens in food which increased
83% in the current quarter and 65% for the nine-month period. While markets for
both of these products are growing, Management believes that a substantial
amount of the growth has come from additional market penetration. Food Safety
revenues include sales of comparable products of $4,400,000 for the quarter and
$13,900,000 for the nine months ended February 28, 2002.
A 40% increase in sales of the Triple Crown products in the quarter and the
nine-month period contributed to the increase in Animal Safety revenue. Although
a number of Triple Crown products have shown good growth in the current year,
the products for the treatment of wounds in animals have had outstanding growth.
This growth resulted from marketing and sales emphasis on these particular
products. The initial deliveries under the 3-year agreement to provide
veterinary instruments to Tractor Supply Company contributed $500,000 of sales
in the February 2002 quarter. Sales of the Company's newly introduced D3 Needles
contributed $700,000 of revenue year to date with most of the sales coming in
the first six months of the year. Quarter to quarter sales fluctuations are
expected during the introductory phase of a new product. In the third quarter of
2001 and the period of nine months ended February 28, 2001, revenues included
$120,000 and $550,000, respectively, of sales of Geomycin, a product that has
been discontinued because of low gross margins. Lastly, $400,000 of customer
orders were not filled at February 28, 2002 because of products on backorder
from vendors.
Gross margins in the February 2002 quarter declined to 48% from 51% in the
February 2001 quarter and increased to 51% in the nine months ended February 28,
2002 from 50% in 2001. Food Safety gross margins decreased to 57% from 62% and
Animal Safety gross margins decreased to 39% from 41% for the quarter ended
February 28, 2002. These decreases in margins resulted from changes in product
mix and other third quarter adjustments in 2001.
Sales and marketing expenses increased $280,000 but remained at 22% of revenues
when compared to February 2001 quarter, and increased $1,051,000 to 22% of
revenues from 21% for the nine-month period. These expenses rose in relation to
sales increases. On a divisional basis, sales expenses were comparable to the
prior year.
General and administrative expenses decreased to 10% of revenues from 12% both
in the February 2001 quarter and on a year to date basis as compared to the
first nine months of the prior year. The decrease in percentage of revenue
relationship reflects the generally fixed nature of general and administrative
expenses and the effect of the change in accounting for amortization of
goodwill. On a divisional basis, general and administrative expenses were
comparable to the prior year.
-13-
The effect of the change in accounting for amortization of goodwill resulted in
the reduction of $99,000 of amortization in the quarter and $287,000 in
amortization in the nine-month period as compared to the prior year.
Research and development expenses in the February 2002 quarter decreased $63,000
to 4.5% of revenue from 5.8% in the February 2001 quarter. For the nine-month
period, research and development expense increased $115,000, however, as a
percentage of revenues remained at 5%. Although on a quarter to quarter basis,
some fluctuations of research and development expense will occur, Management
expects research and development expense to approximate 5% of revenues over
time. These expenditures approximate 8% to 10% of revenues from products and
product lines that are supported by research and development.
Other income decreased in the February 2002 quarter and nine-month period as
compared to the prior year periods, principally as a result of the reduction in
interest income, as rates have decreased, and because of reductions in the level
of cash available for investment, following the use of cash for acquisitions
during the year.
The federal and state tax rates in the third quarter of 2002 decreased to 33%
from 34% in the third quarter of the prior year. For the nine month period tax
rates increased to 36% from 34%. The changes in tax rates reflect the timing of
accounting recognition of research and development and extraterritorial credits.
Financial Condition and Liquidity
- ---------------------------------
At February 28, 2002, the Company had $5,800,000 in cash and marketable
securities, working capital of $18,000,000, and stockholders' equity of
$34,200,000. In addition, unused bank lines totaled $10,000,000. Cash and
marketable securities decreased in the nine-month period ended February 28, 2002
with cash generated by operations of $2,745,000 and $1,200,000 of cash from
exercise of stock options offset by cash expended for the acquisitions of
Gene-Trak and property and equipment.
Accounts receivable were $900,000 higher at February 28, 2002 than at May 31,
2001 with average days in net accounts receivable increasing from 59 to 64 days.
Although the Company has experienced an increase in average days of accounts
receivable outstanding, Management believes that recorded allowances for
accounts receivable are adequate to provide for accounts that may be written
off. Inventories at February 28, 2002 decreased slightly from May 31, 2001 with
continued strong management of this asset. The decrease in current liabilities
results from the timing of payments.
At February 28, 2002, the Company had no material commitments for capital
expenditures, with the exception of approximately $1.2 million committed to
purchase and furnish a new manufacturing facility adjacent to the Company's
Lansing, Michigan location. The expenditure will be financed with available
cash. Inflation and changing prices are not expected to have a material effect
on operations.
Management believes that the Company's existing cash and marketable securities
at February 28, 2002, along with its available bank lines of credit and cash
expected to be generated from future operations, will be sufficient to fund
activities for the foreseeable future. However, existing cash and marketable
securities may not be sufficient to meet the Company's cash requirements to
commercialize products currently under development or its plans to acquire other
organizations, technologies or 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.
-14-
PART I. FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relate 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 investing 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in several legal proceedings, none of which, in the
opinion of the management, is material to the financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
None
(b) Reports on Form 8-K Filed in Quarterly Period Ended February 28, 2002.
The Company did not file any reports on Form 8-K in the quarterly period ended
February 28, 2002.
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEOGEN CORPORATION
04/12/02 /s/ James L. Herbert
- -------- --------------------
Date James L. Herbert
President
04/12/02 /s/ Richard R. Current
- -------- ----------------------
Date Richard R. Current
Vice President & Chief Financial Officer
-16-