UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2005February 28, 2006
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
Neogen Corporation
(Exact name of registrant as specified in its charter)
Michigan | 38-2364843 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
620 Lesher Place
Lansing, Michigan 48912
(Address of principal executive offices including zip code)
(517) 372-9200
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 file reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as definedor a non-accelerated filer see definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act): YESAct.
Large accelerated filer ¨ Accelerated filer x NONon-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES ¨ NO x NO ¨
As of JanuaryApril 1, 2006, there were 8,269,0008,288,000 outstanding shares of Common Stock.
NEOGEN CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No. | ||||
Item 1. | ||||
Consolidated Balance Sheets - | 1 | |||
2 | ||||
3 | ||||
4 | ||||
Notes to Interim Consolidated Financial Statements – | 5 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8 | ||
Item 3. | ||||
Item 4. | 12 | |||
Item 1. | 13 | |||
Item 1A. | Risk Factors | 13 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 13 | ||
Item 3. | Defaults Upon Senior Securities | 13 | ||
Item 4. | 13 | |||
Item 5. | Other Information | 13 | ||
Item 6. | 13 |
CEO Certification
CFO Certification
Section 906 Certification
PART I – FINANCIAL INFORMATION
ITEM 1. Interim Consolidated Financial Statements (Unaudited)
NEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
November 30, 2005 | May 31, 2005 | February 28, 2006 | May 31, 2005 | |||||||||
(In thousands, except share and per share amounts) | (In thousands, except share and per share amounts) | |||||||||||
ASSETS | ||||||||||||
CURRENT ASSETS | ||||||||||||
Cash | $ | 2,925 | $ | 1,972 | $ | 1,880 | $ | 1,972 | ||||
Marketable securities | 1,008 | — | ||||||||||
Accounts receivable, less allowance of $ 522 and $ 531 | 12,894 | 10,469 | ||||||||||
Accounts receivable, less allowance of $ 518 and $ 531 | 13,498 | 10,469 | ||||||||||
Inventories | 14,845 | 13,796 | 17,077 | 13,796 | ||||||||
Deferred income taxes | 768 | 768 | 768 | 768 | ||||||||
Prepaid expenses and other current assets | 1,068 | 1,374 | 1,743 | 1,374 | ||||||||
TOTAL CURRENT ASSETS | 33,508 | 28,379 | 34,966 | 28,379 | ||||||||
NET PROPERTY AND EQUIPMENT | 12,300 | 12,193 | 14,027 | 12,193 | ||||||||
OTHER ASSETS | ||||||||||||
Goodwill | 18,782 | 18,599 | 30,591 | 18,599 | ||||||||
Other non-amortizable intangible assets | 2,076 | 2,076 | 2,076 | 2,076 | ||||||||
Other non-current assets, net of accumulated amortization of $ 1,047 and $ 1,123 | 2,592 | 2,637 | ||||||||||
Other non-current assets, net of accumulated amortization of $ 1,381 and $ 1,123 | 4,031 | 2,637 | ||||||||||
$ | 69,258 | $ | 63,884 | $ | 85,691 | $ | 63,884 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES | ||||||||||||
Accounts payable | $ | 2,649 | $ | 2,348 | $ | 3,137 | $ | 2,348 | ||||
Accrued compensation | 1,437 | 1,342 | 1,329 | 1,342 | ||||||||
Income taxes | 507 | 339 | 907 | 339 | ||||||||
Other accruals | 1,882 | 1,706 | 2,875 | 1,706 | ||||||||
TOTAL CURRENT LIABILITIES | 6,475 | 5,735 | 8,248 | 5,735 | ||||||||
LONG TERM DEBT | 12,800 | — | ||||||||||
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES | 3,081 | 3,314 | 3,006 | 3,314 | ||||||||
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, 8,265,000 shares issued and outstanding at November 30, 2005; 8,147,000 shares issued and outstanding at May 31, 2005 | 1,322 | 1,304 | ||||||||||
Common stock, $.16 par value, 20,000,000 shares authorized, 8,282,000 shares issued and outstanding at February 28, 2006; 8,147,000 shares issued and outstanding at May 31, 2005 | 1,326 | 1,304 | ||||||||||
Additional paid-in capital | 27,380 | 26,803 | 27,591 | 26,803 | ||||||||
Accumulated other comprehensive income | 55 | 136 | 143 | 136 | ||||||||
Retained earnings | 30,945 | 26,592 | 32,577 | 26,592 | ||||||||
TOTAL STOCKHOLDERS’ EQUITY | 59,702 | 54,835 | 61,637 | 54,835 | ||||||||
$ | 69,258 | $ | 63,884 | $ | 85,691 | $ | 63,884 | |||||
See notes to interim unaudited consolidated financial statements
NEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended November 30, | Six Months Ended November 30, | Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||
(In thousands, except per share amounts) | (In thousands, except per share amounts) | |||||||||||||||||||||||||||||
Net sales | $ | 18,256 | $ | 17,133 | $ | 35,034 | $ | 32,345 | $ | 17,584 | $ | 14,403 | $ | 52,618 | $ | 46,748 | ||||||||||||||
Cost of goods sold | 8,766 | 9,039 | 16,703 | 16,746 | 9,062 | 7,445 | 25,765 | 24,191 | ||||||||||||||||||||||
GROSS MARGIN | 9,490 | 8,094 | 18,331 | 15,599 | 8,522 | 6,958 | 26,853 | 22,557 | ||||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||||||
Sales and marketing | 3,891 | 3,473 | 7,616 | 6,679 | 3,753 | 3,308 | 11,369 | 9,987 | ||||||||||||||||||||||
General and administrative | 1,450 | 1,529 | 2,690 | 2,680 | 1,545 | 1,169 | 4,235 | 3,849 | ||||||||||||||||||||||
Research and development | 802 | 711 | 1,573 | 1,429 | 766 | 704 | 2,339 | 2,133 | ||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||
6,143 | 5,713 | 11,879 | 10,788 | 6,064 | 5,181 | 17,943 | 15,969 | |||||||||||||||||||||||
OPERATING INCOME | 3,347 | 2,381 | 6,452 | 4,811 | 2,458 | 1,777 | 8,910 | 6,588 | ||||||||||||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||||||||
Interest income | 27 | 2 | 43 | 4 | 19 | 2 | 62 | 6 | ||||||||||||||||||||||
Interest expense | — | (29 | ) | — | (53 | ) | (115 | ) | (23 | ) | (115 | ) | (75 | ) | ||||||||||||||||
Other | 46 | 218 | 190 | 229 | 42 | 25 | 232 | 254 | ||||||||||||||||||||||
73 | 191 | 233 | 180 | (54 | ) | 4 | 179 | 185 | ||||||||||||||||||||||
INCOME BEFORE INCOME TAXES | 3,420 | 2,572 | 6,685 | 4,991 | 2,404 | 1,781 | 9,089 | 6,773 | ||||||||||||||||||||||
INCOME TAXES | 1,207 | 900 | 2,332 | 1,735 | 772 | 567 | 3,104 | 2,302 | ||||||||||||||||||||||
NET INCOME | $ | 2,213 | $ | 1,672 | $ | 4,353 | $ | 3,256 | $ | 1,632 | $ | 1,214 | $ | 5,985 | $ | 4,471 | ||||||||||||||
NET INCOME PER SHARE | ||||||||||||||||||||||||||||||
Basic | $ | .27 | $ | .21 | $ | .53 | $ | .40 | $ | .20 | $ | .15 | $ | .73 | $ | .55 | ||||||||||||||
Diluted | $ | .26 | $ | .20 | $ | .51 | $ | .38 | $ | .19 | $ | .14 | $ | .70 | $ | .53 | ||||||||||||||
See notes to interim unaudited consolidated financial statements
NEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Retained Earnings | Total | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Retained Earnings | Total | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||
Balance, June 1, 2005 | 8,147 | $ | 1,304 | $ | 26,803 | $ | 136 | $ | 26,592 | $ | 54,835 | 8,147 | $ | 1,304 | $ | 26,803 | $ | 136 | $ | 26,592 | $ | 54,835 | ||||||||||||||
Exercise of options and warrants | 118 | 18 | 577 | 595 | 135 | 22 | 788 | 810 | ||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Net income for the six months ended November 30, 2005 | 4,353 | 4,353 | ||||||||||||||||||||||||||||||||||
Net income for the nine months ended February 28, 2006 | 5,985 | 5,985 | ||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (81 | ) | (81 | ) | 7 | 7 | ||||||||||||||||||||||||||||||
Total comprehensive income ($3,373 in the six months ended November 30, 2004) | 4,272 | |||||||||||||||||||||||||||||||||||
Total comprehensive income ($4,594 in the nine months ended February 28, 2005) | 5,992 | |||||||||||||||||||||||||||||||||||
Balance, November 30, 2005 | 8,265 | $ | 1,322 | $ | 27,380 | $ | 55 | $ | 30,945 | $ | 59,702 | |||||||||||||||||||||||||
Balance, February 28, 2006 | 8,282 | $ | 1,326 | $ | 27,591 | $ | 143 | $ | 32,577 | $ | 61,637 | |||||||||||||||||||||||||
See notes to interim unaudited consolidated financial statements
NEOGEN CORPORATION SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended November 30, | Nine Months Ended February 28, | |||||||||||||||
2005 | 2004 | 2006 | 2005 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 4,353 | $ | 3,256 | $ | 5,985 | $ | 4,471 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | 1,480 | 1,356 | ||||||||||||||
Depreciation and amortization | 953 | 897 | ||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (2,425 | ) | (1,504 | ) | (1,710 | ) | (1,146 | ) | ||||||||
Inventories | (1,049 | ) | 98 | (1,347 | ) | (332 | ) | |||||||||
Prepaid expenses and other current assets | 306 | 68 | ||||||||||||||
Accounts payable and accruals | 740 | 738 | 2,309 | (664 | ) | |||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 2,878 | 3,553 | 6,717 | 3,685 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Sales of marketable securities | 5,017 | 193 | 6,533 | 191 | ||||||||||||
Purchases of marketable securities | (6,025 | ) | — | (6,533 | ) | — | ||||||||||
Purchases of property and equipment and other assets | (1,079 | ) | (1,870 | ) | (1,548 | ) | (2,341 | ) | ||||||||
Payments for business acquisitions | (183 | ) | (874 | ) | (18,546 | ) | (874 | ) | ||||||||
NET CASH USED IN INVESTING ACTIVITIES | (2,270 | ) | (2,551 | ) | (20,094 | ) | (3,024 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Payments on line of credit | — | (1,445 | ) | |||||||||||||
Borrowings (payments) on line of credit | 12,800 | (1,677 | ) | |||||||||||||
Reductions of other long-term liabilities | (250 | ) | — | (325 | ) | — | ||||||||||
Net proceeds from issuance of common stock | 595 | 492 | 810 | 883 | ||||||||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 345 | (953 | ) | 13,285 | (794 | ) | ||||||||||
INCREASE IN CASH | 953 | 49 | ||||||||||||||
DECREASE IN CASH | (92 | ) | (133 | ) | ||||||||||||
CASH AT BEGINNING OF PERIOD | 1,972 | 1,365 | 1,972 | 1,365 | ||||||||||||
CASH AT END OF PERIOD | $ | 2,925 | $ | 1,414 | $ | 1,880 | $ | 1,232 | ||||||||
See notes to interim unaudited consolidated financial statements
NEOGEN CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 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 adjustments) considered necessary for a fair presentation have been included. The results of operations for the sixnine month period ended November 30, 2005February 28, 2006 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2006. For more complete financial information, these consolidated financial statements should be read in conjunction with the May 31, 2005 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, 2005.
2. INVENTORIES
Inventories are stated at the lower of cost, determined on the first-in, first-out method, or market. The components of inventories follow:
November 30, 2005 | May 31, 2005 | February 28, 2006 | May 31, 2005 | |||||||||
(In thousands) | (In thousands) | |||||||||||
Raw materials | $ | 5,109 | $ | 5,529 | $ | 5,643 | $ | 5,529 | ||||
Work-in-process | 493 | 721 | 493 | 721 | ||||||||
Finished goods | 9,243 | 7,546 | 10,941 | 7,546 | ||||||||
$ | 14,845 | $ | 13,796 | $ | 17,077 | $ | 13,796 | |||||
3. NET INCOME PER SHARE
The calculation of net income per share follows:
Three Months Ended November 30, | Six Months Ended November 30, | Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||
(In thousands except per share amounts) | (In thousands except per share amounts) | |||||||||||||||||||||||
Numerator for basic and diluted net income per share: | ||||||||||||||||||||||||
Net income | $ | 2,213 | $ | 1,672 | $ | 4,353 | $ | 3,256 | $ | 1,632 | $ | 1,214 | $ | 5,985 | $ | 4,471 | ||||||||
Denominator: | ||||||||||||||||||||||||
Denominator for basic net income per share- weighted average shares | 8,239 | 8,094 | 8,205 | 8,058 | ||||||||||||||||||||
Denominator for basic net income per share - weighted average shares | 8,274 | 8,121 | 8,228 | 8,079 | ||||||||||||||||||||
Effect of dilutive stock options and warrants | 286 | 427 | 265 | 436 | 480 | 440 | 363 | 437 | ||||||||||||||||
Denominator for diluted net income per share | 8,525 | 8,521 | 8,470 | 8,494 | 8,754 | 8,561 | 8,591 | 8,516 | ||||||||||||||||
Net income per share: | ||||||||||||||||||||||||
Basic | $ | .27 | $ | .21 | $ | .53 | $ | .40 | $ | .20 | $ | .15 | $ | .73 | $ | .55 | ||||||||
Diluted | $ | .26 | $ | .20 | $ | .51 | $ | .38 | $ | .19 | $ | .14 | $ | .70 | $ | .53 | ||||||||
4. STOCK REPURCHASE
The Company’s Board of Directors has authorized the purchase of up to 1,250,000 shares of the Company’s Common Stock. As of November 30, 2005,February 28, 2006, the Company has cumulatively purchased 893,000 shares in negotiated and open market transactions. 2000 shares were purchased in 2006 and have been netted against net proceeds from sales of common stock in the Consolidated Financial Statements. Shares purchased under this buy-back program were retired.
5. 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 veterinary instruments and a complete line of consumable products marketed to veterinarians and animal health product distributors. Additionally the Animal Safety segment produces and markets a line of rodenticides to assist in the control of rats and micerodents in and around agricultural, food production and other facilities.
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 November 30,February 28, 2006 and 2005 and 2004 follows:
Food Safety | Animal Safety | Corporate and Eliminations(1) | Total | ||||||||||
(In thousands) | |||||||||||||
Fiscal 2006 | |||||||||||||
Net sales to external customers | $ | 7,813 | $ | 10,443 | $ | — | $ | 18,256 | |||||
Operating income | 1,412 | 2,058 | (123 | ) | 3,347 | ||||||||
Total Assets | 30,700 | 37,072 | 1,486 | 69,258 | |||||||||
Fiscal 2005 | |||||||||||||
Net sales to external customers | $ | 7,476 | $ | 9,657 | $ | — | $ | 17,133 | |||||
Operating income | 788 | 1,747 | (154 | ) | 2,381 | ||||||||
Total Assets | 26,557 | 35,787 | 789 | 63,133 |
Segment information for the six months ended November 30, 2005 and 2004 follows:
Food Safety | Animal Safety | Corporate and | Total | |||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||
Fiscal 2006 | ||||||||||||||||||||||||||
Net sales to external customers | $ | 8,862 | $ | 8,722 | $ | — | $ | 17,584 | ||||||||||||||||||
Operating income | 1,507 | 1,148 | (197 | ) | 2,458 | |||||||||||||||||||||
Total assets | 49,654 | 35,559 | 478 | 85,691 | ||||||||||||||||||||||
Fiscal 2005 | ||||||||||||||||||||||||||
Net sales to external customers | $ | 6,217 | $ | 8,186 | $ | — | $ | 14,403 | ||||||||||||||||||
Operating income | 626 | 1,126 | 25 | 1,777 | ||||||||||||||||||||||
Total assets | 26,223 | 35,729 | 969 | 62,921 | ||||||||||||||||||||||
Segment information for the nine months ended February 28, 2006 and 2005 follows: | Segment information for the nine months ended February 28, 2006 and 2005 follows: | |||||||||||||||||||||||||
Food Safety | Animal Safety | Corporate and Eliminations(1) | Total | Food Safety | Animal Safety | Corporate and | Total | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||
Fiscal 2006 | ||||||||||||||||||||||||||
Net sales to external customers | $ | 15,495 | $ | 19,539 | $ | — | $ | 35,034 | $ | 24,357 | $ | 28,261 | $ | — | $ | 52,618 | ||||||||||
Operating income | 2,941 | 3,883 | (372 | ) | 6,452 | 4,448 | 5,031 | (569 | ) | 8,910 | ||||||||||||||||
Fiscal 2005 | ||||||||||||||||||||||||||
Net sales to external customers | $ | 14,676 | $ | 17,669 | $ | — | $ | 32,345 | $ | 20,893 | $ | 25,855 | $ | — | $ | 46,748 | ||||||||||
Operating income | 2,104 | 2,944 | (237 | ) | 4,811 | 2,730 | 4,070 | (212 | ) | 6,588 |
(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. |
6. STOCK OPTIONS
In December 2004, the FASB issued a revision to Statement No. 123,Share-Based Payment.This revision supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This revision requires companies to recognize the cost of stock options, based on the grant date fair value, granted pursuant to their employees’ stock option plans over the period during which the recipient is required to provide services in exchange for the options, typically the vesting period. Pursuant to the requirements of the Statement, the Company plans to adopt the provisions of the statement during the first quarter of fiscal 2007. The Company has not presently determined a transition method of adoption. The pro forma effect of adopting this Statement is disclosed below and is not expected to have a material impact inon the trend of net income per share.
Three Months Ended November 30, | Six Months Ended November 30, | Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||||
(In thousands except per share amounts) | (In thousands except per share amounts) | |||||||||||||||||||||||||||||||
Net income: | ||||||||||||||||||||||||||||||||
As reported | $ | 2,213 | $ | 1,672 | $ | 4,353 | $ | 3,256 | $ | 1,632 | $ | 1,214 | $ | 5,985 | $ | 4,471 | ||||||||||||||||
Deduct-compensation expense based on fair value method | (223 | ) | (191 | ) | (351 | ) | (377 | ) | (235 | ) | (189 | ) | (586 | ) | (566 | ) | ||||||||||||||||
Pro forma | $ | 1,990 | $ | 1,481 | $ | 4,002 | $ | 2,879 | $ | 1,397 | $ | 1,025 | $ | 5,399 | $ | 3,905 | ||||||||||||||||
Basic net income per share: | ||||||||||||||||||||||||||||||||
As reported | $ | .27 | $ | .21 | $ | .53 | $ | .40 | $ | .20 | $ | .15 | $ | .73 | $ | .55 | ||||||||||||||||
Pro forma | $ | .23 | $ | .18 | $ | .47 | $ | .36 | $ | .17 | $ | .13 | $ | .66 | $ | .48 | ||||||||||||||||
Diluted net income per share: | ||||||||||||||||||||||||||||||||
As reported | $ | .26 | $ | .20 | $ | .51 | $ | .38 | $ | .19 | $ | .14 | $ | .70 | $ | .53 | ||||||||||||||||
Pro forma | $ | .23 | $ | .18 | $ | .47 | $ | .35 | $ | .16 | $ | .12 | $ | .65 | $ | .46 |
7. LEGAL PROCEEDINGS
The Company is subject to certain legal and other proceedings in the normal course of business that, in the opinion of management, will not have a material effect on its future results of operations or financial position.
8. BUSINESS AND PRODUCT LINE ACQUISITIONS
As of October 1, 2004, Neogen Europe, Ltd., the Company’s subsidiary in Scotland, UK, acquired the distribution business of BiologischeAnalysensysteme GmbH (BAG), a privately held company based in Lich, Germany. BAG was a distributor of Neogen Corporation’s products in Germany. BAG’s revenues in the 12 months ended September 30, 2004 were approximately $600,000. Consideration for the acquisition was cash of $448,000. The allocation of the purchase price included inventory of $68,000, equipment of $21,000 and customer based intangibles of $359,000. The acquisition is expected to improve distribution of the Company’s products in Germany.
On October 13, 2004, the Company acquired the UriCon product line of Animal Health Ventures, Inc., a privately held company. UriCon is a product used for the treatment of urinary incontinence in dogs. Consideration for the purchase was cash of $200,000. The allocation of the purchase price included inventory of $23,000 and intangibles of $177,000. The acquisition adds to the Company’s product lines directed toward the treatment of medical disorders in companion animals.
During the second quarter of 2006 a secondary payment in the amount of $183,000 was paid to the former owners of Adgen Ltd. (now Neogen Europe, Ltd.). No additional amounts are contractually due under terms of the Asset Purchase Agreement.
On December 19, 2005, Neogen Corporation purchased certain assets of the dairy antibiotics business of UCB FD Bioproducts, a division of Belgium based UCB Group. The Consolidated Statements of Income reflect the results of operations of UCB FD Bioproducts since the date of purchase. Consideration for the sale, including transaction costs to date of $300,000, was $15,000,000 in cash, plus post closing adjustments and potential secondary payments of up to $4,300,000. The preliminary allocation of the purchase price, subject to finalization of asset valuations, included $1,000,000 of accounts receivable, $1,700,000 of inventory, $500,000 of other current assets, $1,300,000 of fixed assets and $8,900,000 of goodwill and $1,600,000 of other amortizable
intangibles. Other amortizable intangibles have been assigned 10 year lives. The Company is believed to be a strong synergistic fit into Neogen’s overall strategy of providing food and animal safety solutions.
Unaudited pro forma financial information, as if the acquisition of the dairy antibiotics business had taken place on June 1, 2004 is as follows:
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||
(In thousands except per share amounts) | ||||||||||||
Revenue | $ | 17,584 | $ | 16,581 | $ | 57,013 | $ | 53,608 | ||||
Net Income | 1,632 | 1,498 | 6,564 | 5,390 | ||||||||
Diluted net income per share | $ | 0.19 | $ | 0.17 | $ | 0.77 | $ | 0.64 |
On February 17, 2006, Neogen Corporation purchased the common stock of Centrus International, Inc., a wholly owned subsidiary of Eastman Chemical Company, of Kingsport, Tennessee. The Consolidated Statements of Income reflect the results of operations of Centrus International, Inc. since the date of purchase. Consideration consisted of $3,300,000 in cash. The preliminary allocation of the purchase price included accounts receivable of $300,000, inventory of $200,000, fixed assets of $200,000 and intangible assets of $2,900,000 and assumed liabilities of $300,000. Centrus produces Soleris™, a user-friendly, rapid optical testing system that accurately detects microbial contamination and represents a synergistic fit with Neogen’s Food Safety solutions. Centrus sales in the 12 month period ended December 31, 2005 (prior to the acquisition) was $2,800,000. On a pro forma basis Neogen net income prior to the acquisition would not be materially affected.
9. LONG TERM DEBT
On December 19, 2005, the Company executed a financing agreement with a bank (no amounts($12,800,000 drawn at November 30, 2005 or May 31, 2005)February 28, 2006) providing for an unsecured revolving line of credit of $17,500,000. Interest is at LIBOR plus 95 basis points (rate under the terms of the agreement was 5.24%5.52% at November 30, 2005)February 28, 2006). Financial covenants include maintaining specified funded debt to EBITDA and debt service ratios as well as specified levels of tangible net worth, all of which are complied with at November 30, 2005.February 28, 2006. Maturity is December 1, 2007. The agreement replaced an existing credit facility with another bank.
10. GRANT FROM INGHAM COUNTY
The Company has a $500,000 grant from Ingham County that is restricted for the purchase of machinery and equipment at its location in Lansing, Michigan. The grant is repayable in cash plus interest to the extent not offset by allowances for new employees hired in Lansing over a period of 6 years. Grant monies received from the County for eligible purchases are recognized as a long-term liability. The liability is reduced and other income is recognized for the allowances granted as eligible new employees are hired. The Company has recognized other income of $40,000$50,000 and $220,000$30,000 related to the grant in the three month period ended November 30, 2005periods and 2004 respectively.
11. SUBSEQUENT EVENT
On December 20, 2005, Neogen Corporation purchased the dairy antibiotic business (primarily accounts receivable, inventory, certain fixed assets$90,000 and intangible assets) of Belgium based UCB. The Company expects to operate the business at its present location in Spain for approximately 60 days at which time it expects to integrate the operation into its USA facilities.
The consideration for the sale subject to certain additional post closing adjustments, was $14.7 million in cash plus payments for certain current assets and transaction costs. Additional contingent payments may be payable based on future events related to performance. Aggregate additional consideration is limited to $4.3 million. The source of the cash consideration was available cash balances and borrowings under the Company’s credit facility.
Sales of the acquired business approximated $8.5 million$250,000 in the yearnine month periods ended December 31, 2004.February 28, 2006 and 2005, respectively.
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.
Safe Harbor and Forward-Looking Statements
Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made throughout this Quarterly Report on
Form 10-Q. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. There are a number of important 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, that could cause Neogen Corporation’s results to differ materially from those indicated by such forward-looking statements, including those detailed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
In addition, any forward-looking statements represent management’s views only as of the day this Quarterly Report on Form 10-Q was first filed with the Securities and Exchange Commission and should not be relied upon as representing management’s views as of any subsequent date. While management may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, even if its views change.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of the Company’s financial condition and results of operations are based on the consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including those related to receivable allowances, inventories and intangible assets. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The following critical accounting policies reflect management’s more significant judgments and estimates used in the preparation of the consolidated financial statements.
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, which 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.
Accounts Receivable Allowance
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, such as changes in overall changes in customer credit and general credit conditions. Actual collections can differ from historical experience, and if economic or business conditions deteriorate significantly, adjustments to these reserves could be required.
Inventory
A reserve for obsolescence is established based on an analysis of the inventory taking into account the current condition of the asset as well as other known facts and future plans. The amount of reserve required to record inventory at lower of cost or market may be adjusted as condition’s change. Product obsolescence may be caused by shelf life expiration, discontinuation of a product line, or replacement products in the market place or other competitive situations.
Valuation of Intangible Assets and Goodwill
Management assesses goodwill and other non-amortizable intangible assets for possible impairment on no less often than an annual basis. This test was performed in the fourth quarter of fiscal 2005 and it was determined that no impairment exists. In the event of changes in circumstances that indicate the carrying value of these assets may not be recoverable, management will make an assessment at any time. Factors that could cause an impairment review to take place would include:
When management determines that the carrying value of intangible assets may not be recoverable based on the existence of one or more of the above indicators of impairment, the carrying value is compared to a value determined based on projected discounted cash flows using a discount rate commensurate with the risk inherent in the Company’s current business model. Any impairment identified in this computation is given current recognition in any unissued financial statements. Changes to the discount rate used in the analysis or discounted cash flows can have a significant impact on the results of the impairment test.
RESULTS OF OPERATIONS
Executive Overview
On an overall basis, the Company had a 7% increase inTotal revenues increased 22% in the November 2005February 2006 quarter compared to the November 2004February 2005 quarter with revenue increasesFood Safety segment products increasing 43% and Animal Safety segment products increasing 7%. On a nine month year to date basis, total revenues increased 13% with 17% in eachthe Food Safety segment and 9% in Animal Safety. Exclusive of the Company’s segments.third quarter acquisitions of the dairy antibiotics business and of Centrus International, consolidated revenue was up 9% for the quarter and year to date. Exclusive of the acquisitions Food Safety revenue increased 5% with gainsrevenues were up 13% for the February 2006 quarter and 8% for the nine months year to date. These increases represented continued improvements in sales of the Natural ToxinCompany’s products both domestically and Allergen product lines as well as the Dehydrated Culture Media and Other Product categories. Animal Safety revenues increased by 8% with gains across all product categories. For the six-month period, overall revenues were up 8% with Food Safety revenue up 6% and Animal Safety up 11%, with explanationsinternationally.
Gross margins for the increases similar toFebruary 2006 quarter were comparable with those of the secondFebruary 2005 quarter. Margins, however, were down almost 400 basis points from the November quarter of the 2006 fiscal year. This decrease was due to the February 2006 quarter revenues that were less than the November quarter and the effects of integration costs of the acquisitions. On a nine month year to date basis, gross margins have increased to 51% from 48% in comparable period of the prior year. The margin increases result from the effects of consolidations made in the prior year and strong cost controls throughout the Company.
Gross margin increases were primarily affected by efficiency increases following operating consolidations over the past two fiscal years and positive product mix as greater levels of higher margin products were sold in both the three and six month periods. Operating and netNet income increased 34% both in the February 2006 quarter ascompared to the February 2005 quarter and on a nine month year to date basis compared to the prior year periods as a resultyear. The February 2006 quarter represented the fourth consecutive quarter of increases in net income in excess of 30% when compared to the same quarter of the combined effects of theprior year. These increases in net income arose from additional sales, increases in gross margins and from management’s continued controlcontrols of other costs.
See the discussions below for more detailed analysis of the results forof the Company’s operations for the three and sixnine month periods ended November 30, 2005February 28, 2006 as compared to the same three and sixnine month periods of the prior year.
Three and SixNine Months Ended November 30, 2005February 28, 2006 Compared to Three and SixNine Months Ended November 30, 2004February 28, 2005
Three Months Ended November 30, | Six Months Ended November 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||
2005 | 2004 | Increase (Decrease) | 2005 | 2004 | Increase (Decrease) | Three Months Ended February 28, | Increase (Decrease) (Dollars in Thousands) | Nine Months Ended February 28, | Increase (Decrease) | |||||||||||||||||||||||||||||||||||||||||||
(Dollars in Thousands) | 2006 | 2005 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||
Food Safety | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Natural Toxins & Allergens | $ | 3,412 | $ | 2,943 | $ | 469 | 16 | % | $ | 6,538 | $ | 5,826 | $ | 712 | 12 | % | $ | 4,838 | $ | 2,430 | $ | 2,408 | 99 | % | $ | 11,375 | $ | 8,256 | $ | 3,119 | 38 | % | ||||||||||||||||||||
Bacteria & General Sanitation | 2,351 | 2,593 | (242 | ) | (9 | )% | 4,816 | 5,185 | (369 | ) | (7 | )% | 2,181 | 2,252 | (71 | ) | (3 | )% | 7,036 | 7,436 | (400 | ) | (5 | )% | ||||||||||||||||||||||||||||
Dry Culture Media & Other | 2,050 | 1,940 | 110 | 6 | % | 4,141 | 3,665 | 476 | 13 | % | 1,843 | 1,535 | 308 | 20 | % | 5,946 | 5,201 | 745 | 14 | % | ||||||||||||||||||||||||||||||||
7,813 | 7,476 | 337 | 5 | % | 15,495 | 14,676 | 819 | 6 | % | |||||||||||||||||||||||||||||||||||||||||||
8,862 | 6,217 | 2,645 | 43 | % | 24,357 | 20,893 | 3,464 | 17 | % | |||||||||||||||||||||||||||||||||||||||||||
Animal Safety | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Life Sciences Drug Detections & Vaccines | 1,952 | 1,667 | 285 | 17 | % | 3,632 | 3,329 | 303 | 9 | % | 1,694 | 1,524 | 170 | 11 | % | 5,326 | 4,852 | 474 | 10 | % | ||||||||||||||||||||||||||||||||
Rodenticides & Disinfectants | 3,419 | 3,350 | 69 | 2 | % | 6,746 | 5,769 | 977 | 17 | % | 2,135 | 2,342 | (207 | ) | (9 | )% | 8,881 | 8,111 | 770 | 9 | % | |||||||||||||||||||||||||||||||
Veterinary Instruments & Other | 5,072 | 4,640 | 432 | 9 | % | 9,161 | 8,571 | 590 | 7 | % | 4,893 | 4,320 | 573 | 13 | % | 14,054 | 12,892 | 1,162 | 9 | % | ||||||||||||||||||||||||||||||||
10,443 | 9,657 | 786 | 8 | % | 19,539 | 17,669 | 1,870 | 11 | % | 8,722 | 8,186 | 536 | 7 | % | 28,261 | 25,855 | 2,406 | 9 | % | |||||||||||||||||||||||||||||||||
Total Sales | $ | 18,256 | $ | 17,133 | $ | 1,123 | 7 | % | $ | 35,034 | $ | 32,345 | $ | 2,689 | 8 | % | $ | 17,584 | $ | 14,403 | $ | 3,181 | 22 | % | $ | 52,618 | $ | 46,748 | $ | 5,870 | 13 | % | ||||||||||||||||||||
Food Safety segment sales of Natural Toxinnatural toxin and Allergenallergen products increased 16%99% in the NovemberFebruary 2006 quarter and 12%38% on a nine month year to date basis. Exclusive of sales of dairy antibiotic testing products from the business acquired in December 2005, this category of sales would have increased 23% for the sixquarter and 15% on a nine month period mainly as a result ofyear to date basis. These increases arose from increased customer utilization of the Allergenallergen test kit products and from higher levels of test kit sales for aflatoxinnatural toxins because of contaminated corn following geographicgrain contamination resulting from unfavorable weather conditions in certain areas of the USA.events. Product lines related to Bacteriabacterial and General Sanitationgeneral sanitation products decreased by 9%3% in the NovemberFebruary 2006 quarter and by 7% in5% for the sixnine month year to date period as a result of competitioncontinued competitive pressures in the bacteria testing markets. Revenues related to Dehydrated Culture Mediadehydrated culture media and Otherother products increased by 6%18% in the NovemberFebruary quarter and 13%14% in the sixnine month year to date period as the company continued to increase market penetration in both domestic and international markets.
Animal Safety segment revenuesales of life science, drug detection and vaccine products increased by 11% in eachthe February 2006 quarter and by 10% on a nine month year to date basis, with strong increases in the life sciences and vaccine product groups in the quarter and in all product groups for the nine month year to date basis. Rodenticide and disinfectant product sales decreased by 9% in the February 2006 quarter, but increased by 9% on the nine month year to date basis. The decreases in the current quarter resulted from less usage due to the unusually mild winter in most of the product categories. Life Science, Drug DetectionUSA. Nine month year to date sales were aided by revenues from products sold to assist in the control of an outbreak of voles in the northwest USA. Veterinary instrument and Vaccine productother sales increased by 17% in13% for the NovemberFebruary 2006 quarter and by 9% in the six-month period with increases in nearly all of the products that comprise this product group. Rodenticide and Disinfectant product sales increased by 2% in the quarter and by 17% on a nine month year to date basis as the company experienced opportunities for Neogen’s zinc phosphate product to help control a population explosion of voles in the Pacific Northwest. Veterinary Instrument and Other sales increased by 9% for the quarter and by 7% in the six month period as a result of the improvementimprovements in sales of over-the-counter veterinary products both to farm and ranch retailers, and the company’sCompany’s OTC distributor network. Sales of the company’sCompany’s nitrofurazone topical wound treatment product, also included in this category, increased as a result of a key FDA approval.
Gross margins in the November 2005February 2006 quarter increased from 47% inwere unchanged at 48% when compared to the prior year to 52% in the current year and increased from 48% to 52% on a year-to-date basis.51% in the nine month year to date period. Food Safety segment margins increaseddecreased to 56% from 54% to 60%57% in the second fiscalFebruary quarter and increased to 58% from 56% in the nine month year to 60% on a year-to-date basis.date period. Animal Safety grosssegment margins decreased from 42% to 40% in the February quarter and increased from 42% to 46%44% in both the quarter and for the six-monthnine month year to date period. The overall increaseschanges in gross margins both in the three-monthquarter and six-monththe nine month year to date periods were as athe result of better utilization of the manufacturing facilities, changes in product mix and improved product sales mix.costs of integration of the dairy antibiotic business. In each of the two most recently completed fiscal years, the companyCompany significantly expanded its Food and Animal Safety production facilities and relocated several operations to accommodate expanded production capability with the objective to provide greaterof increasing operating efficiencies. The gross margin of eachmargins of the divisions waswere affected by the same factors that served to increaseidentified as affecting the overall gross margins of the Company.
SalesIn the February 2006 quarter sales and marketing expenses increased by $418,000 or from 20%$445,000 but decreased to 21% of revenues from 23% in the second quarter.prior year. On a year-to-datenine month year to date basis sales and marketingthese expenses increased $936,000$1,382,000 or from 21% to 22% of revenues.revenues from 21% in the prior year. Food Safety sales and marketing expenses increased by $46,000$330,000 for the February 2006 quarter but remained atdecreased from 29% of revenues to 24% and increased $676,000 on a nine month year to date basis but decreased from 26% when comparedof revenues to the 2004 quarter. For the six-month period Food25%. Animal Safety sales and marketing expenses increased by $346,000 but increased from 25% to 26% of related revenues. Animal Safety sales and marketing expenses$116,000 for the secondFebruary 2006 quarter increased by $372,000 and increased from 16%17% of revenues to 18% of related revenues. For the sixand increased $706,000 on a nine month period Animal Safety salesyear to date basis and marketing expense increased by $590,000 or from 17% to 18% of revenues.revenues to 19%. The levels of these expenditures tend to vary with levels of sales and are within the Company’smanagement’s expectations and historical relationship range.
General and administrative expenses decreased $79,000increased $376,000 for the secondFebruary 2006 quarter and decreased fromor to 9% to 8% of revenues in comparison with the prior year.from 8%. On a six-monthnine month year to date basis general and administrativethese expenses increased only $10,000 and stayed$386,000, but remained at 8% of revenues. General and administrative expenses are generally fixed in relation to revenues.
Research and development expense increased by $91,000$62,000 for the November 2005February 2006 quarter in comparison with the prior year and remained atbut decreased to 4% of revenues. For the six-month periodrevenues from 5%. On a nine month year to date basis these expenses increased by $144,000 and also remained at$206,000 but decreased to 4% of revenues.revenues from 5%. Management expects research and development expense to approximate 4-6% of revenues4% to 6% over time. These expenses approximate 8% to 10% of revenues from sales of products and product lines supported by research and development.
Other income as compared to the prior year quarter and nine month year to date periods decreased in the November 2005 quarter by $118,000 and increased by $53,000 for the six-month period.is comparable. Other income in both years has been affected by the timingis reported net of other income recognizedinterest expense related to forgiveness of certain payments dueborrowing under local government grants and interest related to debt that was paid off in late in fiscal 2005.the Company’s long term borrowing arrangements.
Federal and state income tax rates used in the computation of income tax expense in the periods remainedare comparable to those inof the prior year.
Financial Condition and Liquidity
At November 30, 2005,February 28, 2006, the Company had $3,933,000$1,880,000 in cash, and marketable securities, working capital of $27,033,000almost $27,000,000 and stockholders’ equity of $59,702,000. In addition, available bank lines totaled $17,500,000.over $61,000,000.
Accounts receivable were $2,425,000$3,000,000 greater than at May 31, 2005. Increases came from $1,300,000 of balances related to acquisitions and other increases related to greater levels of sales. Days outstanding in account receivablesaccounts receivable increased from 56 days at May 31, 2005 to 6061 days at November 30, 2005.February 28, 2006. The number of days outstanding are effected by the relative percentage of foreign sales and the timing of domestic sales. Days outstanding are considered to be within the normal range when compared to the days outstanding at Neogen Corporation over the lastpast several years. Management believes that the recorded allowance is adequate to provide for accounts that may become uncollectable. Inventories at November 30, 2005February 28, 2006 have increased by $1,049,000 from$3,300,000 as compared to May 31, 2005. InventoryIncreases come from $1,900,000 of balances related to acquisitions and other increases related to the maintenance of higher levels have increased proportionally with increases in revenues.of inventory for customer service. Inventory levels are considered to be adequate to service expected sales during the thirdfourth quarter ofor fiscal 2006 and beyond. The increase in current liabilities of $740,000 results fromis related to the timing of payments.
Inflation and changing prices are not expected to have a material effect on operations.
Management believes that the Company’s existing cash as of November 30, 2005,balances at February 28, 2006, along with available borrowings under its available bank revolving line of credit facility and cash expected to be generated from future operations, will be sufficient to fund activities for the foreseeable future. However, existing cash and bank linesborrowing capacity 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 capitalfinancing needs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has minimal interest rate and foreign exchange rate risk exposure and no long-term fixed rate investments or borrowings. The Company’s primary interest rate risk is due to potential fluctuations of interest rates for variable rate borrowings.
Generally, sales are denominated in U.S. dollars; however, becauseBecause Neogen markets and sells its products throughout the world, it could be significantly affected by weak economic conditions in foreign markets that could reduce demand for its products. Sales in certain foreign countries as well as certain expenses related to those sales are transacted in currencies other than the U.S. dollar. The Company’s operating results are primarily exposed to changes in exchange rates between the U.S. dollar and the British Pound and Euro. When the U.S. dollar weakens against foreign currencies, the dollar value of sales denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs.
Neogen has assets, liabilities and operations outside of the United States that are located primarily in Ayr, Scotland where the function currency is the British Pound. The Company’s investment in its foreign subsidiary is considered long-term, accordingly, it does not hedge the net investment or engage in other foreign currency hedging activities due to the insignificance of these balances to the Company as a whole.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures - An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of November 30, 2005February 28, 2006 was carried out under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Vice President and Chief Financial Officer (“the Certifying Officers”). Based on that evaluation, the Certifying Officers concluded that the Company’s disclosure controls and procedures are effective to bring to the attention of the Company’s management the relevant information necessary to permit an assessment of the need to disclose material developments and risks pertaining to the Company’s business in its periodic filings with the Securities and Exchange Commission. There was no change to the Company’s internal control over financial reporting during the secondthird quarter of fiscal 2006 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company is subject to certain legal and other proceedings in the normal course of business that, in the opinion of management, will not have effect on its future results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company was held on October 13, 2005. The matter voted upon and the results of the vote follow:
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Items 1A, 2, 3, 4 and 5 are not applicable and have been omitted.
(a) Exhibit Index
31.1 | – | Certification of Chief Executive Officer pursuant to Rule 13a – 14 (a). | ||
31.2 | – | Certification of Chief Financial Officer pursuant to Rule 13 a – 14 (a). | ||
32. | – | Certification pursuant to 18 U.S.C. section 1350. |
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 | ||
(Registrant) | ||
Dated: | ||
/s/ | ||
James L. Herbert | ||
President and Chief Executive Officer | ||
Dated: | ||
/s/ | ||
Richard R. Current | ||
Vice President and Chief Financial Officer |
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