UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549FORM 10-Q
(Mark(Mark One)
[X][X] QUARTERLY REPORT
UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the
Quarterly Period Ended February 28,quarterly period ended August 31, 2002 or[ ] TRANSITION REPORT
UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the
Transition Period From _______________ to _______________transition period from ________to _________Commission file number 0-17988
NEOGEN CORPORATION (ExactNeogen Corporation
(Exact name ofRegistrantregistrant as specified in its charter)Michigan 38-2367843 (State or other jurisdiction of (I.R.S. Employer Identification No.) corporation
Michigan 38-2367843 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number) 620 Lesher Place
Lansing, Michigan 48912(517) 372-9200 (Address
(Address of principal executiveoffices)offices including zip code)(517) 372-9200
(Registrant's telephone number, including area code)Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d)15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to filesuchreports), and (2) has been subject to such filing requirements for the past 90 days.Yes X NoYES [X] NO [ ]As of
AprilOctober 1, 2002, there were6,091,0006,123,000 outstanding shares of Common Stock.-1-INDEXNEOGEN CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. Financial Information Page No. Item 1. Interim Consolidated Financial Statements (unaudited) Consolidated Balance Sheets -
August 31, 2002 and May 31, 20023 Consolidated Statements of Operations -
Three months ended August 31, 2002 and 20014 Consolidated Statements of Stockholders' Equity -
Three months ended August 31, 20025 Consolidated Statements of Cash Flows -
Three months ended August 31, 2002 and 20016 Notes to Interim Consolidated Financial Statements - August 31, 2002 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 Item 4. Controls and Procedures 12 PART II. Other Information Item 1. Legal Proceedings 13 Item 2: Changes in Securities and Use of Proceeds 13 Item 3: Defaults Upon Senior Securities 13 Item 4: Submission of Matters to a Vote of Security Holders 13 Item 5: Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 CEO Certification 15 CFO Certification 16 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 toInterim 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 STATEMENTSNEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)NEOGEN CORPORATIONAugust 31, May 31, 2002 2002 ------------ ------------ ASSETS - ------ CURRENT ASSETS Cash...................................................... $ 1,625,000 $ 2,012,000 Marketable securities..................................... 3,857,000 4,341,000 Accounts receivable, net.................................. 6,912,000 6,462,000 Inventories............................................... 8,949,000 8,683,000 Other current assets...................................... 1,872,000 1,751,000 ------------ ------------ TOTAL CURRENT ASSETS....................... 23,215,000 23,249,000 PROPERTY ANDSUBSIDIARIESEQUIPMENT, NET................................... 4,172,000 3,741,000 GOODWILL, INTANGIBLE ASSETS AND OTHER ASSETS Goodwill.................................................. 11,260,000 11,214,000 Intangible and other assets............................... 2,417,000 1,700,000 ------------ ------------ $ 41,064,000 $ 39,904,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Accounts payable.......................................... $ 2,246,000 $ 2,329,000 Other accrued liabilities................................. 1,758,000 1,635,000 ------------ ------------ TOTAL CURRENT LIABILITIES.................. 4,004,000 3,964,000 LONG-TERM LIABILITIES......................................... 394,000 394,000 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, 6,123,000 shares issued and outstanding at August 31, 2002; 6,108,000 shares issued and outstanding at May 31, 2002........... 980,000 977,000 Additional paid-in capital................................ 23,821,000 23,779,000 Retained earnings......................................... 11,865,000 10,790,000 ------------ ------------ 36,666,000 35,546,000 ------------ ------------ $ 41,064,000 $ 39,904,000 ============ ============
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.
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NEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Three Months Ended August 31, ------------------------ 2002 2001 ----------- ----------- SALES............................... $10,897,000 $ 9,732,000 Cost of goods sold.................. 5,080,000 4,840,000 ----------- ----------- GROSS MARGIN................ 5,817,000 4,892,000 ----------- ----------- OPERATING EXPENSES Sales and marketing............... 2,563,000 2,147,000 General and administrative........ 1,060,000 998,000 Research and development.......... 655,000 512,000 ----------- ----------- 4,278,000 3,657,000 ----------- ----------- OPERATING INCOME............ 1,539,000 1,235,000 ----------- ----------- OTHER INCOME Interest income................... 21,000 53,000 Interest expense.................. -- (1,000) Other............................. 107,000 76,000 ----------- ----------- 128,000 128,000 ----------- ----------- INCOME BEFORE INCOME TAXES.. 1,667,000 1,363,000 INCOME TAXES........................ 592,000 501,000 ----------- ----------- NET INCOME.................. $ 1,075,000 $ 862,000 =========== =========== NET INCOME PER SHARE: Basic............................ $ 0.18 $ 0.14 =========== =========== Diluted.......................... $ 0.17 $ 0.14 =========== ===========
See notes to interim consolidated financial statements.
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NEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
See notes to interim consolidated financial statements.
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NEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended August 31, ------------------------ 2002 2001 ----------- ----------- OPERATING ACTIVITIES: Net income............................................. $ 1,075,000 $ 862,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................... 300,000 269,000 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable................................. (450,000) 223,000 Inventories......................................... (266,000) 344,000 Other current assets................................ (121,000) 129,000 Accounts payable.................................... (83,000) 249,000 Other accrued liabilities........................... 123,000 (754,000) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES........... 578,000 1,322,000 INVESTING ACTIVITIES: Sales of marketable securities......................... 8,819,000 8,142,000 Purchases of marketable securities..................... (8,335,000) (5,386,000) Purchases of property and equipment and other assets...................................... (1,494,000) (756,000) Acquisitions........................................... -- (3,587,000) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES................ (1,010,000) (1,587,000) FINANCING ACTIVITIES: Payments on long-term borrowings....................... -- (12,000) Net payments for repurchase of common stock............ (179,000) -- Net proceeds from issuance of common stock............. 224,000 128,000 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES............ 45,000 116,000 ----------- ----------- DECREASE IN CASH........................................... (387,000) (149,000) Cash at beginning of period................................ 2,012,000 848,000 ----------- ----------- CASH AT END OF PERIOD...................................... $ 1,625,000 $ 699,000 =========== ===========
See accompanying notes to the consolidated unaudited financial statements.
NEOGEN CORPORATION AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensedconsolidated 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 periodsperiod ended February 28,August 31, 2002 areis not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2002.2003. For more complete financial information, these consolidated financial statements should be read in conjunction with the May 31, 20012002 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.
2002.
NOTE B - CHANGE IN ACCOUNTING FORINVENTORIES
Inventories are stated at the lower of cost, determined on the first-in, first-out method, or market. The components of inventories are as follows:
August 31, May 31, 2002 2002 ----------- ----------- Raw materials............................. $ 3,323,000 $ 2,969,000 Work-in-process........................... 616,000 589,000 Finished goods............................ 5,010,000 5,125,000 ----------- ----------- $ 8,949,000 $ 8,683,000 =========== ===========
NOTE C - GOODWILL AND OTHER INTANGIBLE ASSETS.
- -----------------------------------------------------------------------
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 impairmentallocation of goodwill identified.
A reconciliation of the allocation ofand other intangible assets as reported at May 31,
2001 and at June 1, 2001, following the adoption of SFAS 142, is as follows:
NOTE D - EARNINGS PER SHARE
- ---------------------------
The following table presents the calculation of earnings per share:
Three Months Ended August 31, ------------------------ 2002 2001 ----------- ----------- Basic and Diluted - Earnings per Share Numerator - Net Income................. $ 1,075,000 $ 862,000 =========== =========== Denominator: For basic earnings per share- Weighted average shares............. 6,116,000 5,950,000 Effect of dilutive securities- Stock options and warrants.......... 249,000 322,000 ----------- ----------- For diluted earnings per share- Adjusted weighted average shares and assumed conversions........... 6,365,000 6,272,000 =========== =========== Basic Earnings per Share.................. $ 0.18 $ 0.14 =========== =========== Diluted Earnings per Share................ $ 0.17 $ 0.14 =========== ===========
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,August 31, 2002, the Company had purchased 654,000669,000 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
========== ==========
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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.
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.
Segment information for the three months ended February 28,August 31, 2002 and 2001 was as follows:
Corporate Food Animal and Safety Safety Elimination(1) Total ----------- ----------- ----------- ----------- 2002andNet sales to external customers. $ 5,850,000 $ 5,047,000 $ -- $10,897,000 Operating income................ 1,236,000 525,000 (222,000) 1,539,000 Total assets.................... 18,018,000 18,408,000 4,638,000 41,064,000 2001was as follows:
(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.
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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 IG - 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 JH - SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
- ----------------------------------------------------------
Three MonthsNine MonthsEndedFebruary 28 Ended February 28August 31, ---------------------- 2002 20012002 2001 ------------ ------------ ------------- ----------------------- ---------- Cash Paid For: IncomeTaxesTaxes......... $262,000400,000 $100,000 $ 2,170,000 $ 1,375,000 Interest250,000 Interest............. -- 1,0002,000 3,000 7,000 -11-PART I.
NOTE I - ADOPTION OF FINANCIAL INFORMATION
ACCOUNTING STANDARDS BOARD STATEMENT NO. 144 AND STATUS OF OTHER RECENT STATEMENTS
Effective July 1, 2002, the Company adopted FAS Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." FAS Statement No. 144 includes more stringent requirements for classifying assets available for disposal and expands the scope of activities that will require discontinued operations reporting. The adoption of this standard did not have a material effect on the Company's financial position or results of operations.
Other recently issued FAS statements are currently under review by management, but are not expected to have a material effect on the Company's financial position or results of operations upon implementation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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.
Critical Accounting Changes
- ------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued StatementPolicies and Estimates
Management's Discussion and Analysis of Financial Accounting Standards ("SFAS") 142 "GoodwillCondition and OtherResults of Operations is based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities. Management believes the critical accounting policies and areas that require the most significant judgements and estimates to be used in the preparation of the consolidated financial statements are revenue recognition, allowance for doubtful accounts, inventory valuation, and the assessment of the possible impairment of Goodwill and other intangible assets.
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.
Allowances for Doubtful Accounts
Allowances for doubtful accounts are maintained based on historical payment patterns, aging of accounts receivable and actual write- off history. 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.
Inventory Valuation
The Company writes down its inventory for estimated obsolescence equal to the cost of the inventory. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations.
Goodwill and Intangible Assets." As allowed under the Standard, the Company has adopted SFAS 142 as of
June 1, 2001. SFAS 142 requiresAssets
Management assesses goodwill and intangible assets with indefinite
useful lives tofor possible impairment on no longer be amortized, but instead be tested for impairment at
least annually.
Withless often than an annual basis. In the adoptionevent 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 Bcircumstances which indicate the carrying value of these assets may not be recoverable, this assessment may take place at any time. Factors that could cause an impairment review to the
financial statements. Notake place would include:
- Significant underperformance relative to expected historical or projected future operating results.
- Significant changes in the amortization periodsuse of acquired assets or residual values
were determined tostrategy of the Company.
- Significant negative industry or economic trends.
When management determines that the carrying value of intangible assets may not be necessary.
SFAS 142 provides a six-month transitional period fromrecoverable based on the effective dateexistence of adoption for Management to perform an assessmentone or more of whether there is an
indication that goodwill is impaired. This review was completed with no
indicationthe above indicators of impairment, of goodwill identified.
Additionally, the Company adoptedcarrying value is compared to a value determined based on projected discounted cash flows using a discount rate commensurate with 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 isrisk inherent 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 orCompany's current business model. Any impairment identified in this computation is given current recognition in any unissued financial position.
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Three Months and Nine Months Ended February 28,August 31, 2002 Compared to Three Months - -----------------------------------------------------------------------------
and Nine Months Ended February 28,August 31, 2001
- ---------------------------------------
Total revenues increased $1,054,000$1,165,000 or 12% in the FebruaryAugust 2002 quarter compared to the FebruaryAugust 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.quarter. Revenues from sales of products dedicated to Food Safety were up 19% for the
quarter and for the nine-month period18% and revenues from sales of Animal Safety products were up 7% for6%. Exclusive of the effects of sales of products from businesses purchased in the August 2001 quarter, and 16% for the nine-month period.
total sales increased 11.4%.
The increase in Food Safety revenue of $901,000 came from increases in sales of test kits for the detection of harmful bacteria such asE. coli O157:H7,Salmonella, andListeria which increased 37%25% in the quarter and 36% in the nine-month period and
from salesquarter. 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.46%. 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
Animal Safety revenues includeincreased $264,000 in comparison with the revenues from the August 2001 quarter. Increases included a nearly 100% increase in the sales of comparable productsEqStim immunostimulant. EqStim is being used by veterinarians to boost the immune response of $4,400,000 forhorses infected with the quarter and
$13,900,000 forWest Nile virus. Sales of Specialty Needles were down in comparison with the nine months ended February 28, 2002.
A 40% increase in sales of the Triple Crown productsprior year by $204,000 or 60% due to two separate customers who placed large orders in the quarterprior year and the
nine-month period contributed to the increase in Animal Safety revenue. Although
a number of Triple Crown products have shown good growthdid not repeat these orders in the current year,year. Sales of BotVax B were down by $194,000 or 56%. In the products forAugust 2001 quarter sales were abnormally high as the treatmentCompany was filling backorders from prior quarters. Sales of woundsdiagnostic and quantitative test kits to detect drugs of abuse in animals have had outstanding growth.and animal products, increased by $102,000 or 17% in comparison with the prior year. This growth resulted17% increase arose principally from marketing and sales emphasis on these particularincreases in testing of meat 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 FebruaryAugust 2002 quarter declined to 48% from 51% in the
February 2001 quarter and increased to 51% in the nine months ended February 28,
200253% from 50% in 2001.the August 2001 quarter. Food Safety gross margins decreasedincreased to 57%61% from 62%58% and Animal Safety gross margins decreasedincreased to 39%44% from 41% for the quarter ended
February 28, 2002.43%. These decreasesincreases in margins resulted from changes in product mix and other third quarter adjustments in 2001.
the leverage from higher levels of production.
Sales and marketing expenses increased $280,000 but remained at 22%$416,000 to 24% of revenues when compared to February22% in the August 2001 quarter, and increased $1,051,000 to 22% of
revenues from 21% for the nine-month period.quarter. These expenses rose due to additional marketing efforts and expenditures in relationsupport of expected sales increases later in fiscal 2003. As a percentage of revenues Food Safety sales and marketing was 26% of sales in both periods, while Animal Safety increased from 18% to sales increases. On a divisional basis, sales expenses were comparable to the
prior year.
21%.
General and administrative expenses decreased toincreased by $62,000 but remained at 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.revenues. 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.expenses. On a divisional basis, general and administrative expenses were comparable to the prior year.
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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 FebruaryAugust 2002 quarter decreased $63,000increased $143,000 to 4.5%6% of revenue from 5.8%5% in the FebruaryAugust 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% to 6% 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 FebruaryAugust 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 duringlate in the year.
first quarter of 2001.
The federal and state tax rates in the thirdfirst quarter of 2002 decreased to 33%35% from 34%37% in the thirdfirst 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,August 31, 2002, the Company had $5,800,000$5,500,000 in cash and marketable securities, working capital of $18,000,000,$19,200,000, and stockholders' equity of $34,200,000.$36,700,000. In addition, unused bank lines totaled $10,000,000. Cash and marketable securities decreased in the nine-monththree-month period ended February 28,August 31, 2002 with cash generated by operations of $2,745,000$578,000, and $1,200,000$224,000 of cash from exercise of stock options offset by cash expended for the acquisitions of Gene-Trakintangible assets and property and equipment.
Accounts receivable were $900,000$450,000 higher at February 28,August 31, 2002 than at May 31, 20012002 with average days in net accounts receivable increasing from 5951 to 6455 days. Although the Company has experienced anThe increase in average days of accounts
receivable outstanding is considered to be a normal fluctuation and Management believes that recorded allowances for
accounts receivable are adequate to provide for accounts that may be written
off.become uncollectable. Inventories at February 28,August 31, 2002 decreased slightly from May 31, 2001 with
continued strong management of this asset.2002. The decreaseincrease in current liabilities results from the timing of payments.
At February 28,August 31, 2002, the Company had no material commitments for capital expenditures, with the exception of approximately $1.2 million$400,000 committed to purchasebuilding improvements and furnishfurnishing of 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,August 31, 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.
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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 relaterelates 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 investinginvested 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.
ITEM 4. CONTROLS AND PROCEDURES
Safe-harbor, forward-looking statements:
The discussion in items 2 and 3 above contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of Neogen Corporation and subsidiaries. These forward-looking statements involve certain risks and uncertainties. No assurance can be given that any such matters will be realized. Important factors that could cause actual results to differ materially from those contemplated by such forward-looking statements include:
- Competitive conditions
- General economic conditions that are less favorable than expected
- 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 deregulation
- Effectiveness of marketing and advertising campaigns
- Future tax legislation, or regulatory or judicial positions
- Information and technology advances
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.
Items 2, 3, 4 and 5 are not applicable and have been omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
None
Exhibit 99.1 - Certification by James L. Herbert pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 - Certification by Richard R. Current pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K Filed in Quarterly Period Ended February 28,August 31, 2002.
The Company did not file any reports on Form 8-K in the quarterly period ended February 28,August 31, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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/
NEOGEN CORPORATION | |
(Registrant) | |
Dated: October 14, 2002
By: | /s/ James L. Herbert | ||
James L. Herbert | |||
President & Chief Executive Officer |
Dated: October 14, 2002
By: | /s/ Richard R. Current | ||
Richard R. Current | |||
Vice President & Chief Financial Officer |
I, James L. Herbert, - -------- --------------------
Datecertify that:
Date: October 14, 2002
/S/ James L. Herbert
James L. Herbert
President 04/12/02 /s/&
Chief Executive Officer
Neogen Corporation
I, Richard R. Current, - -------- ----------------------
Datecertify that:
Date: October 14, 2002
/S/ Richard R. Current
Richard R. Current
Vice President &
Chief Financial Officer
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Neogen Corporation