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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 August 31, 2004

 

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 October 1, 2004, there were 8,090,000 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 - August 31, 2004 and May 31, 2004

   1

Consolidated Statements of Income – Three months ended August 31, 2004 and 2003

   2

Consolidated Statements of Stockholders’ Equity – Three months ended August 31, 2004

    3

Consolidated Statements of Cash Flows – Three months ended August 31, 2004 and 2003

    4

Notes to Interim Consolidated Financial Statements – August 31, 2004

    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

   11

Item 4. Controls and Procedures

   12

PART II. Other Information

    

Item 1. Legal Proceedings

   12

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

   12

Item 3. Defaults Upon Senior Securities

   12

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

   12

Item 5. Other Information

   12

Item 6. Exhibits

   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)

 

     August 31,
2004
    May 31,
2004
     (In thousands, except share
and per share amounts)

ASSETS

              

CURRENT ASSETS

              

Cash

    $ 1,554    $ 1,365

Marketable securities

      31      331

Accounts receivable, less allowance of $ 563 and $ 571

      10,357      9,924

Inventories

      12,383      12,374

Deferred income taxes

      651      651

Prepaid expenses and other current assets

      1,266      1,630
    
  

TOTAL CURRENT ASSETS

      26,242      26,275

NET PROPERTY AND EQUIPMENT

      11,328      10,952

OTHER ASSETS

              

Goodwill

      18,617      18,617

Other non-amortizable intangible assets

      675      675

Other non-current assets, net of accumulated amortization of $ 935 and $ 864

      3,371      3,456
    
  
     $ 60,233    $ 59,975
    
  

LIABILITIES AND STOCKHOLDERS’ EQUITY

              

CURRENT LIABILITIES

              

Accounts payable

    $ 2,829    $ 3,063

Accrued compensation

      1,126      1,220

Federal income taxes

      193      —  

Other accruals

      1,338      1,373
    
  

TOTAL CURRENT LIABILITIES

      5,486      5,656

LONG-TERM DEBT

      2,400      3,900

OTHER LONG-TERM LIABILITIES

      2,551      2,577

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, 8,086,917 shares issued and outstanding at August 31, 2004; 8,010,222 shares issued and outstanding at May 31, 2004

      1,294      1,282

Additional paid-in capital

      26,164      25,785

Accumulated other comprehensive income

      78      99

Retained earnings

      22,260      20,676
    
  

TOTAL STOCKHOLDERS’ EQUITY

      49,796      47,842
    
  
     $ 60,233    $ 59,975
    
  

 

See notes to interim unaudited consolidated financial statements

 

1

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NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

     Three Months Ended
August 31,
     2004
     2003
     (In thousands, except
per share amounts)

Net sales

    $ 15,212     $ 12,233

Cost of goods sold

      7,707       5,973
    
 

GROSS MARGIN

      7,505       6,260

OPERATING EXPENSES

               

Sales and marketing

      3,206       2,923

General and administrative

      1,151       787

Research and development

      718       676
    
 
       5,075       4,386
    
 

OPERATING INCOME

      2,430       1,874

OTHER INCOME (EXPENSE)

               

Interest income

      2       23

Interest expense

      (24 )     —  

Other

      11       85
    
 
       (11 )     108
    
 

INCOME BEFORE INCOME TAXES

      2,419       1,982

INCOME TAXES

      835       680
    
 

NET INCOME

    $ 1,584     $ 1,302
    
 

NET INCOME PER SHARE

               

Basic

    $ .20     $ .17
    
 

Diluted

    $ .19     $ .16
    
 

 

See notes to interim unaudited consolidated financial statements

 

2

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NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

 

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

Balance, June 1, 2004

    8,010    $ 1,282    $ 25,785    $ 99     $ 20,676    $ 47,842  

Exercise of options and warrants

    77      12      379                     391  

Comprehensive income:

                                           

Net income for the three months ended August 31, 2004

                                 1,584      1,584  

Foreign currency translation adjustments

                         (21 )            (21 )
                                      

Total comprehensive income

                                        1,563  
    
  
  
  
 
  

Balance, August 31, 2004

    8,087    $ 1,294    $ 26,164    $ 78     $ 22,260    $ 49,796  
    
  
  
  
 
  

 

See notes to interim unaudited consolidated financial statements

 

3

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NEOGEN CORPORATION SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

     Three Months Ended
August 31,
  
     2004
     2003
  
     (In thousands)  

OPERATING ACTIVITIES:

                 

Net income

    $ 1,584     $ 1,302  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                 

Depreciation and amortization

      434       302  

Changes in operating assets and liabilities:

                 

Accounts receivable

      (433 )     327  

Inventories

      (9 )     (463 )

Prepaid expenses and other current assets

      364       (291 )

Accounts payable and accruals

      (170 )     (1,264 )
    
 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

      1,770       (87 )

CASH FLOWS USED IN INVESTING ACTIVITIES:

                 

Sales of marketable securities

      300       18,113  

Purchases of marketable securities

      —         (18,369 )

Purchases of property and equipment and other assets

      (772 )     (313 )
    
 

NET CASH USED IN INVESTING ACTIVITIES

      (472 )     (569 )

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:

                 

Payments on long-term debt

      (1,500 )     —    

Net proceeds from issuance of common stock

      391       135  
    
 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

      (1,109 )     135  
    
 

INCREASE (DECREASE) IN CASH

      189       (521 )

CASH AT BEGINNING OF PERIOD

      1,365       1,061  
    
 

CASH AT END OF PERIOD

    $ 1,554     $ 540  
    
 

 

See notes to interim unaudited consolidated financial statements

 

4

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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 August 31, 2004 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2005. For more complete financial information, these consolidated financial statements should be read in conjunction with the May 31, 2004 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, 2004.

 

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:

 

     August 31,
2004
    May 31,
2004
     (In thousands)

Raw materials

    $ 6,135    $ 5,487

Work-in-process

      562      526

Finished goods

      5,686      6,361
    
  
     $ 12,383    $ 12,374
    
  

 

3. NET INCOME PER SHARE

 

The calculation of net income per share follows:

 

     Three Months Ended
August 31,
     2004
    2003
     (In thousands except
per share amounts)

Numerator for basic and diluted net income per share:

              

net income

    $ 1,584    $ 1,302
    
  

Denominator:

              

Denominator for basic net income per share - weighted average shares

      8,023      7,778

Effect of dilutive stock options and warrants

      445      433
    
  

Denominator for diluted net income per share

      8,468      8,211
    
  

Net income per share:

              

Basic

    $ .20    $ .17
    
  

Diluted

    $ .19    $ .16
    
  

 

On January 2, 2004, the Company paid a 5 for 4 stock split in the form of a stock dividend. All share and net income per share amounts have been retroactively restated to reflect the split as if it took place at the beginning of the periods presented.

 

5

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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 August 31, 2004, the Company has purchased 871,000 shares in negotiated and open market transactions. Shares purchased under this buy-back program were retired. There were no shares repurchased in the three months ended August 31, 2004 or 2003.

 

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 mice 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 August 31, 2004 and 2003 follow:

 

     Food
Safety
    Animal
Safety
   

Corporate

and
Eliminations(1)

     Total
     (In thousands)

Fiscal 2005

                             

Net sales to external customers

    $ 7,200    $ 8,012