UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
February 29, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the Transition Period From
_______________ to _______________
Commission file number 0-17988
NEOGEN CORPORATION
(Exact name of Registrant as specified in its charter)
Michigan 38-2367843
(State or other jurisdiction of (I.R.S. Employer Identification No.)
corporation or organization)
620 Lesher Place
Lansing, Michigan 48912
(517) 372-9200
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No___
As of April 1, 2000, there were 5,838,000 outstanding shares of
Common Stock.
INDEX
NEOGEN CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements (unaudited)
SIGNATURES
2
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements (unaudited)
3
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
February 29 May 31
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 1,472,000 $ 1,063,000
Marketable securities 6,667,000 9,604,000
Accounts receivable 5,340,000 3,296,000
Inventories 5,193,000 4,361,000
Other current assets 579,000 960,000
----------- -----------
TOTAL CURRENT ASSETS 19,251,000 19,284,000
PROPERTY AND EQUIPMENT, net of
accumulated depreciation 2,767,000 2,148,000
INTANGIBLE AND OTHER ASSETS
Goodwill, net of accumulated amortization 3,894,000 3,200,000
Other assets, net of accumulated amortization 1,417,000 1,476,000
----------- -----------
$27,329,000 $26,108,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities
of long-term notes payable $ 499,000 $ 49,000
Accounts payable 711,000 842,000
Other accrued liabilities 850,000 1,038,000
----------- -----------
TOTAL CURRENT LIABILITIES 2,060,000 1,929,000
LONG-TERM NOTES PAYABLE 89,000 125,000
OTHER LONG-TERM LIABILITIES 268,000 268,000
STOCKHOLDERS' EQUITY
Preferred stock:
Par value $1.00 per share, 100,000 shares
authorized, none issued
Common stock:
Par value $.16 per share, 20,000,000 shares
authorized, 5,839,000 shares
issued at February 29, 2000; 5,929,000
shares issued at May 31, 1999 934,000 949,000
Additional paid in capital 21,604,000 22,236,000
Retained earnings 2,374,000 601,000
----------- -----------
24,912,000 23,786,000
----------- -----------
$27,329,000 $26,108,000
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
4
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Three Months Nine Months
Ended February 29 Ended February 29
---------------------- ------------------------
2000 1999 2000 1999
---------- ----------- ----------- -----------
SALES $6,276,000 $5,291,000 $17,042,000 $16,928,000
COST OF GOODS SOLD 2,721,000 2,270,000 7,436,000 7,098,000
---------- ---------- ----------- -----------
GROSS MARGIN 3,555,000 3,021,000 9,606,000 9,830,000
EXPENSES
Sales and marketing 1,456,000 1,226,000 4,289,000 3,954,000
General and
administrative 948,000 695,000 2,472,000 2,416,000
Research and development 427,000 383,000 1,185,000 1,205,000
---------- ---------- ----------- -----------
2,831,000 2,304,000 7,946,000 7,575,000
---------- ---------- ----------- -----------
OPERATING INCOME 724,000 717,000 1,660,000 2,255,000
Other Income (expense)
Interest income 144,000 128,000 424,000 379,000
Interest expense (3,000) (4,000) (9,000) (12,000)
Other 57,000 41,000 208,000 209,000
---------- ---------- ----------- -----------
198,000 165,000 623,000 576,000
---------- ---------- ----------- -----------
INCOME BEFORE TAX 922,000 882,000 2,283,000 2,831,000
Income tax 295,000 293,000 510,000 759,000
---------- ---------- ----------- -----------
NET INCOME $ 627,000 $ 589,000 $ 1,773,000 $ 2,072,000
========== ========== =========== ===========
NET INCOME PER SHARE
Basic $ 0.11 $ 0.10 $ 0.30 $ 0.34
========== ========== =========== ===========
Diluted $ 0.11 $ 0.10 $ 0.30 $ 0.33
========== ========== =========== ===========
See notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Common Stock
------------------ Additional Retained-
Number Paid-In Earnings
of Shares Amount Capital (Deficit)
--------- -------- ----------- -----------
Balance at June 1, 1999 5,929,000 $949,000 $22,236,000 $ 601,000
Exercise of options and
warrants 65,000 10,000 275,000
Repurchase of shares (155,000) (25,000) (907,000)
Net income for the
nine months ended
February 29, 2000 1,773,000
--------- -------- ----------- -----------
Balance at February 29, 2000 5,839,000 $934,000 $21,604,000 $ 2,374,000
========= ======== =========== ===========
Balance at June 1, 1998 6,208,000 $993,000 $24,270,000 $(1,653,000)
Exercise of options 36,000 6,000 85,000
Repurchase of shares (229,000) (37,000) (1,556,000)
Net income for the
nine months ended
February 28,1999 2,072,000
--------- -------- ----------- -----------
Balance at February 28, 1999 6,015,000 $962,000 $22,799,000 $ 419,000
========= ======== =========== ===========
See notes to consolidated financial statements.
6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
Nine Months Ended February 29
2000 1999
---------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,773,000 $ 2,072,000
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Depreciation and amortization 668,000 668,000
Changes in operating assets and liabilities:
Accounts receivable (1,234,000) (455,000)
Inventories 92,000 (13,000)
Other current assets 441,000 (5,000)
Accounts payable (330,000) (90,000)
Other accrued liabilities (196,000) 22,000
------------ ------------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 1,214,000 2,199,000
INVESTING ACTIVITIES:
Purchases of property and equipment
and other assets (639,000) (661,000)
Purchases of marketable securities (22,291,000) (18,954,000)
Proceeds from sale of marketable securities 25,228,000 20,007,000
Acquisitions (2,420,000) (600,000)
------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES (122,000) (208,000)
FINANCING ACTIVITIES:
Payments on long-term borrowings (36,000) (36,000)
Net payments for repurchase
of common stock (932,000) (1,593,000)
Net proceeds from issuance
of common stock 285,000 91,000
------------ ------------
NET CASH USED IN
FINANCING ACTIVITIES (683,000) (1,538,000)
------------ ------------
INCREASE IN CASH AND EQUIVALENTS 409,000 453,000
Cash and equivalents at beginning of period 1,063,000 720,000
------------ ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 1,472,000 $ 1,173,000
============ ============
See notes to consolidated financial statements.
</TABLE>
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a
fair presentation have been included. The results of operations for the nine
months ended February 29, 2000 are not necessarily indicative of the results
to be expected for the fiscal year ending May 31, 2000. For more complete
financial information, these consolidated financial statements should be read
in conjunction with the May 31, 1999 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, 1999.
NOTE B - INCOME PER SHARE
The following table presents the income per share calculations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 29 February 29
------------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for Basic and Diluted
Income Per Share - Net Income $ 627,000 $ 589,000 $1,773,000 $2,072,000
========== ========== ========== ==========
Denominator
Denominator for basic income per share-
weighted average shares 5,913,000 6,052,000 5,919,000 6,145,000
Effect of Dilutive Securities -
stock options and warrants 8,000 41,000 19,000 42,000
---------- ---------- ---------- ----------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed conversions 5,921,000 6,093,000 5,938,000 6,187,000
========== ========== ========== ==========
Basic Income Per Share $ 0.11 $ 0.10 $ 0.30 $ 0.34
========== ========== ========== ==========
Diluted Income Per Share $ 0.11 $ 0.10 $ 0.30 $ 0.33
========== ========== ========== ==========
</TABLE>
8
NOTE C - STOCK REPURCHASE
The Company's board of directors has authorized the purchase of up to 750,000
shares of the Company's common stock. As of March 31, 2000, the Company had
purchased 471,000 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 D - INVENTORIES
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market. The components of inventories are as follows:
February 29, May 31,
2000 1999
----------- ----------
Raw Material $2,896,000 $1,810,000
Work-In-Process 798,000 755,000
Finished Goods 1,499,000 1,796,000
========== ==========
$5,193,000 $4,361,000
========== ==========
NOTE E - ACQUISITIONS
On February 17, 2000, Neogen Corporation purchased 100% of the common stock
of Acumedia Manufacturers, Inc., with principal offices in Baltimore,
Maryland. Acumedia, an internationally recognized producer of culture medias,
was a wholly owned subsidiary of IDEXX Laboratories, Inc.
Consideration for the sale, subject to certain post closing adjustments, was
$2,850,000, which included cash at the closing of $2,400,000 and a one year
7% promissory note of $450,000, and up to $1,000,000 additional payments
based on levels of post closing revenues.
Proforma financial information as if the acquisition of Acumedia had taken
place on June 1, 1998 follows:
Nine Months Ended
February 29, 2000 February 28, 1999
----------------- -----------------
Revenue $19,611,000 $19,736,000
Net Income 1,600,000 1,724,000
Diluted Net Income per Share .27 .28
In August 1998, the Company purchased certain inventory and technology from
BioPort Corporation of Lansing, Michigan. The purchase price consisted of a
single cash payment of $600,000.
9
NOTE F - SEGMENT INFORMATION
The Company has two reportable segments: Food Safety and Animal Safety. The
Food Safety segment produces and markets diagnostic test kits and related
products used by food producers and processors to detect harmful natural
toxins, drug residues, foodborne bacteria, food allergens, pesticide
residues, disease infections and levels of general sanitation. The Animal
Safety segment is primarily engaged in the production and marketing of
products dedicated to animal health, including 250 different veterinary
instruments and a complete line of consumable products marketed to
veterinarians and distributors serving the professional equine industry.
These segments are managed separately because they represent strategic
business units that offer different products and require different marketing
strategies. The Company evaluates performance based on total sales and
operating income of the respective segments.
Segment information for the three months ended February 29, 2000 and
February 28, 1999 follows:
<TABLE>
<CAPTION>
Food Animal Corporate &
Safety Safety Eliminations(1) Total
- -----------------------------------------------------------------------------------------
2000
<S> <C> <C> <C> <C>
Net sales to external customers $ 2,855,000 $ 3,421,000 $ $ 6,276,000
Operating income 251,000 746,000 (273,000) 724,000
Total assets 10,006,000 10,675,000 6,648,000 27,329,000
- -----------------------------------------------------------------------------------------
1999
Net sales to external customers $ 2,375,000 $ 2,916,000 $ $ 5,291,000
Operating income 432,000 422,000 (137,000) 717,000
Total assets 6,906,000 10,309,000 8,664,000 25,879,000
- -----------------------------------------------------------------------------------------
Segment information for the nine months ended February 29, 2000 and
February 28, 1999 follows:
<CAPTION>
Food Animal Corporate &
Safety Safety Eliminations(1) Total
- -----------------------------------------------------------------------------------------
2000
Net sales to external customers $ 8,391,000 $ 8,651,000 $ $17,042,000
Operating income 1,249,000 1,095,000 (684,000) 1,660,000
Total assets 10,006,000 10,675,000 6,648,000 27,329,000
- -----------------------------------------------------------------------------------------
1999
Net sales to external customers $ 7,817,000 $ 9,111,000 $ $16,928,000
Operating income 1,429,000 1,383,000 (557,000) 2,255,000
Total assets 6,906,000 10,309,000 8,664,000 25,879,000
<FN>
(1) Includes corporate assets, consisting of marketable securities, and
overhead expenses not allocated to specific business segments. Also
includes the elimination of intersegment transactions and minority
interests.
</TABLE>
10
NOTE G - SUBSEQUENT EVENT
On March 27, 2000, the Company reached settlement with Vicam L.P., Vicam
Management Corporation, and Jack L. Radlo ("Vicam") on all claims against
Vicam not previously settled. The agreement provides for an undisclosed
payment to the Company. The dollar amount of this settlement will be
reflected in the Company's financial statements in the quarter ended May 31,
2000.
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 financial performance. While management is optimistic about the
Company's long-term prospects, historical financial information may not be
indicative of future financial performance.
The words "anticipate", "believe", "potential", "expect" and similar
expressions used herein are intended to identify forward-looking statements.
Forward-looking statements involve certain risks and uncertainties. Various
factors, including competition, recruitment of and dependence on key
employees, impact of weather on agriculture and food production,
identification and integration of acquisitions, research and development
risks, patent and trade secret protection, government regulation and other
risks detailed from time to time in the Company's reports on file at the
Securities and Exchange Commission may cause actual results to differ
materially from those contained in the forward-looking statements.
Three Months Ended February 29, 2000 Compared to Three Months Ended
February 28, 1999.
Total sales for the quarter ended February 29, 2000 increased $985,000, or
19%, compared to the same quarter in the prior year. Sales of products
dedicated to food safety were up $480,000, or 20%, and sales of animal safety
products increased $505,000, or 17%.
The increase in food safety sales was influenced by several factors. Sales of
test kits to detect harmful bacteria such as E. coli O157:H7 and salmonella
continued their strong growth trend with sales up over $495,000 and sales of
products used for the detection of food allergens increased over $40,000.
Sales of diagnostic tests for the detection of mycotoxins declined $35,000.
These products are influenced by the uncertainty of weather conditions, which
impacts growing conditions differently each year. Accordingly, it is not
uncommon for the Company to experience significant year to year fluctuations
in sales of these kits to detect harmful mycotoxins.
The increase in sales of animal safety products is primarily due to increased
sales for three products. Sales of the Company's vaccine to prevent type B
botulism in horses increased $220,000, due to the return of availability
during the February 29, 2000 quarter. The Company awaited approval by USDA
during much of the second and third fiscal quarters. Conditional approvals
were received in January and February 2000. The Company is currently working
with USDA to devise testing protocols to reduce the chance for product
outages in the future. Additionally, sales increases were experienced with
the Company's equine respiratory pharmaceutical products (33%) and drug
detection products (20%). The respiratory products increases followed
promotions implemented during the quarter and the drug detection products
increases have arisen because of demand following renewed interest in
maintaining the integrity of horse racing.
11
Cost of goods sold increased $450,000. As a percentage of sales, cost of
goods sold increased from 42.9% to 43.4% due to the overall mix of product
sold.
Sales and marketing expenses increased $230,000 as a result of adding sales
and marketing personnel to expand sales activities both domestically and
internationally.
General and administrative expense increased principally due to legal fees
incurred in connection with the Vicam litigation (see Legal Proceedings).
Administrative salaries have increased following the addition of senior level
personnel to assist with managing the growth and strategic direction of the
Company.
The growth in research and development follows the Company's commitment to
the investment in future product development.
Other income increased $30,000 because of greater levels of invested funds.
Nine Months Ended February 29, 2000 Compared to Nine Months Ended
February 28, 1999.
Total sales for the nine months ended February 29, 2000 increased $115,000,
or .7%, compared to the same period of the prior year. Sales of products
dedicated to food safety were up $575,000, or 7%, and sales of animal safety
products declined $460,000, or 5%.
The increase in food safety sales was affected by a number of factors. Sales
of test kits to detect harmful bacteria such as E. coli O157:H7 and
salmonella continued their strong growth trend with sales up $1,230,000.
Sales of products used for the detection of food allergens also increased
over $100,000. The sales growth in these two areas offset sales declines in
two other areas. In the fourth quarter of last fiscal year, the Company sold
its human clinical product line. As a result, there were no human clinical
product sales in the first nine months this year compared to $460,000 in
sales of human clinical products during the same period last year. Sales of
diagnostic tests for the detection of mycotoxins declined $470,000 compared
to the prior year primarily as a result of decreased sales for aflatoxin and
vomitoxin test kits. It is not uncommon for the Company to experience
significant year to year fluctuations in sales of these kits.
The decline in sales of animal safety products is primarily due to lower
sales for two products. Sales of the Company's vaccine to prevent type B
botulism in horses declined $200,000, due exclusively to a shortage in
product availability. As discussed previously in this Form 10-Q, the Company
is currently working with USDA to prevent such shortages in the future.
Additionally, a customer for specialty needles used to introduce unique
marinades into meats is no longer purchasing product from the Company. Sales
of this product decreased $700,000 as a result of this change.
Cost of goods sold increased $340,000. As a percentage of sales, cost of
goods sold increased from 41.9% to 43.6% due to the overall mix of products
sold.
Sales and marketing expenses increased $335,000 as a result of adding sales
and marketing personnel to expand sales activities both domestically and
internationally.
The Company's effective tax rate was approximately 22% in the nine months
ended February 29, 2000 due to the availability of tax credit carryforwards,
which were used to offset federal income taxes.
12
Financial Condition and Liquidity
At February 29, 2000, the Company had $8,100,000 in cash and marketable
securities, working capital of $17,200,000 and stockholders' equity of
$24,900,000. In addition, the Company has unused bank lines of credit
totaling $10,000,000. Cash and marketable securities decreased $2,500,000
during the nine months ended February 29, 2000, with $1,200,000 of cash
generated by operations offset by the purchase of Acumedia and stock
repurchases.
At February 29, 2000, the Company had no material commitments for capital
expenditures. Inflation and changing prices are not expected to have a
material effect on the Company's operations.
Although cash and marketable securities are generally considered adequate,
management believes that these resources may not be sufficient to meet the
Company's cash requirements to commercialize products currently under
development or its plans to acquire additional technology and products that
fit within the Company's mission statement. Accordingly, the Company may be
required to issue equity securities or enter into other financing
arrangements for a portion of its future capital needs.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEOGEN CORPORATION
4/17/00 /s/ James L. Herbert
- ------- -----------------------------------------
Date James L. Herbert
President
4/17/00 /s/ Richard R. Current
- ------- -----------------------------------------
Date Richard R. Current
Vice President - Chief Financial Officer
