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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, 2003

 

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 an accelerated filer (as defined in Rule 12B – 2 of the Exchange Act). YES x NO ¨

 

As of January 2, 2004, there were 7,960,000 outstanding shares of Common Stock.

 

Table of Contents

NEOGEN CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

 

     Page No.

PART I. Financial Information

     

Item 1. Interim Consolidated Financial Statements (unaudited)

     

Consolidated Balance Sheets –

    1

November 30, 2003 and May 31, 2003

     

Consolidated Statements of Income –

    2

Three months and six months ended November 30, 2003 and 2002

     

Consolidated Statements of Stockholders’ Equity –

    3

Six months ended November 30, 2003

     

Consolidated Statements of Cash Flows –

    4

Six months ended November 30, 2003 and 2002

     

Notes to Interim Consolidated Financial Statements – November 30, 2003

    5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

    8

Item 3. Quantitative and Qualitative Disclosures About Market Risk

    10

Item 4. Controls and Procedures

    11

PART II. Other Information

     

Item 1. Legal Proceedings

    11

Item 2. Changes in Securities and Use of Proceeds

    11

Item 3. Defaults Upon Senior Securities

    11

Item 4. Submission of Matters to a Vote of Security Holders

    11

Item 5. Other Information

    11

Item 6. Exhibits and Reports on Forms 8-K

    12

Signatures

     

CEO Certification

     

CFO Certification

     

Section 906 Certification

     

 

Table of Contents

PART I – FINANCIAL INFORMATION

 

ITEM 1.   Interim Consolidated Financial Statements (Unaudited)

 

NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

     November 30,
2003
    May 31,
2003
     (In thousands, except
share and per share
amounts)

ASSETS

              

CURRENT ASSETS

              

Cash

    $ 1,739    $ 1,061

Marketable securities

      306      7,836

Accounts receivable, less allowance of of $ 624 and $ 611

      7,933      7,499

Inventories

      12,005      9,840

Deferred income taxes

      694      694

Prepaid expenses and other current assets

      1,433      1,041
    
  

TOTAL CURRENT ASSETS

      24,110      27,971

NET PROPERTY AND EQUIPMENT

      7,596      4,640

OTHER ASSETS

              

Goodwill and other non amortizable intangible assets

      19,787      13,665

Other non-current assets, net of accumulated amortization of $ 721 and $ 860

      2,753      1,760
    
  
     $ 54,246    $ 48,036
    
  

LIABILITIES AND STOCKHOLDERS’ EQUITY

              

CURRENT LIABILITIES

              

Accounts payable

    $ 2,030    $ 3,273

Accruals

      3,352      2,490
    
  

TOTAL CURRENT LIABILITIES

      5,382      5,763

DEFERRED INCOME TAXES

      405      405

BANK LINE OF CREDIT

      3,100      —  

OTHER LONG-TERM LIABILITIES

      458      466

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, 6,359,115 shares issued and outstanding at November 30, 2003; 6,200,486 shares issued and outstanding at May 31, 2003

      1,017      992

Additional paid-in capital

      25,385      24,830

Accumulated other comprehensive income

      77      3

Retained earnings

      18,422      15,577
    
  

TOTAL STOCKHOLDERS’ EQUITY

      44,901      41,402
    
  
     $ 54,246    $ 48,036
    
  

 

See notes to interim consolidated financial statements

 

1

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NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

    

Three Months

Ended

November 30,

   

Six Months

Ended

November 30,

     2003
    2002
    2003
    2002
    

(In thousands, except

per share amounts)

Sales

    $ 13,246    $ 12,592    $ 25,479    $ 23,755

Cost of goods sold

      6,243      5,553      12,216      10,633
    
  
  
  

GROSS MARGIN

      7,003      7,039      13,263      13,122
    
  
  
  

OPERATING EXPENSES

                            

Sales and marketing

      2,803      3,129      5,726      5,958

General and administrative

      1,268      1,032      2,055      2,092

Research and development

      652      842      1,328      1,497
    
  
  
  
       4,723      5,003      9,109      9,547
    
  
  
  

OPERATING INCOME

      2,280      2,036      4,154      3,575
    
  
  
  

OTHER INCOME

                            

Interest income

      20      25      43      46

Other

      44      96      129      203
    
  
  
  
       64      121      172      249
    
  
  
  

INCOME BEFORE INCOME TAXES

      2,344      2,157      4,326      3,824

INCOME TAXES

      801      756      1,481      1,348
    
  
  
  

NET INCOME

    $ 1,543    $ 1,401    $ 2,845    $ 2,476
    
  
  
  

NET INCOME PER SHARE:

                            

Basic

    $ .20    $ .18    $ .36    $ .32
    
  
  
  

Diluted

    $ .19    $ .18    $ .34    $ .31
    
  
  
  

 

See notes to interim consolidated financial statements

 

2

Table of Contents

NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

 

     Common Stock
    Additional
Paid-in
Capital
    Accumulated
Other
Comprehensive
Income
    Retained
Earnings
     
     Shares
    Amount
             Total
     (In thousands)

Balance, June 1, 2003

    6,200    $ 992    $ 24,830    $ 3    $ 15,577    $ 41,402

Exercise of options and warrants

    159      25      555                    580

Comprehensive income:

                                        

Net income for the six months ended November 30, 2003

                                2,845      2,845

Foreign currency translation adjustments

                         74             74
                                     

Total comprehensive income

                                       2,919
    
  
  
  
  
  

Balance, November 30, 2003

    6,359    $ 1,017    $ 25,385    $ 77    $ 18,422    $ 44,901
    
  
  
  
  
  

 

See notes to interim consolidated financial statements

 

3

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NEOGEN CORPORATION SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

    

Six Months

Ended

November 30,

  
     2003
     2002
  
     (In thousands)  

OPERATING ACTIVITIES:

                 

Net income

    $ 2,845     $ 2,476  

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Depreciation and amortization

      618       625  

Changes in operating assets and liabilities, net of acquisitions:

                 

Accounts receivable

      (312 )     (410 )

Inventories

      (712 )     (364 )

Prepaid expenses and other current assets

      (337 )     (51 )

Accounts payable

      (1,243 )     (644 )

Accruals

      (424 )     979  
    
 

NET CASH PROVIDED BY OPERATING ACTIVITIES

      435       2,611  

CASH FLOWS FROM INVESTING ACTIVITIES:

                 

Sales of marketable securities

      39,044       16,155  

Purchases of marketable securities

      (31,514 )     (17,686 )

Purchases of property and equipment and other assets

      (933 )     (1,693 )

Acquisitions

      (10,034 )     —    
    
 

NET CASH USED IN INVESTING ACTIVITIES

      (3,437 )     (3,224 )

CASH FLOWS FROM FINANCING ACTIVITIES:

                 

Proceeds from borrowing on line of credit

      3,100       —    

Net payments for repurchase of common stock

      —         (485 )

Net proceeds from issuance of common stock

      580       232  
    
 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

      3,680       (253 )
    
 

INCREASE (DECREASE) IN CASH

      678       (866 )

CASH AT BEGINNING OF PERIOD

      1,061       2,012  
    
 

CASH AT END OF PERIOD

    $ 1,739     $ 1,146  
    
 

 

See notes to interim consolidated financial statements

 

4

Table of Contents

NEOGEN CORPORATION AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENT (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 accruals) considered necessary for a fair presentation have been included. The results of operations for the three month period ended November 30, 2003 is not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2004. For more complete financial information, these consolidated financial statements should be read in conjunction with the May 31, 2003 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, 2003.

 

The Company previously classified shipping revenue as an offset to the related expense in sales and marketing in the consolidated statements of income. Beginning June 1, 2003, these amounts have been classified as revenue. Previously reported fiscal year 2003 revenue and sales and marketing expense balances have been reclassified to conform with fiscal year 2004 presentation.

 

2. 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:

 

     November 30,
2003