UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended November 30, 2001 [ ] 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 January 1, 2002, there were 6,061,000 outstanding shares of Common Stock.
INDEX NEOGEN CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - ------------------------------ ITEM 1. Interim Condensed Financial Statements (unaudited). Consolidated Balance Sheets - November 30, 2001 and May 31, 2001. Consolidated Statements of Income - Three months and six months ended November 30, 2001 and 2000. Consolidated Statements of Stockholders' Equity - Six months ended November 30, 2001. Consolidated Statements of Cash Flows - Six months ended November 30, 2001 and 2000. Notes to Interim Consolidated Financial Statements - November 30, 2001. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. PART II. OTHER INFORMATION - --------------------------- ITEM 1. Legal Proceedings. ITEM 2. Changes in Securities. ITEM 3. Defaults upon Senior Securities. ITEM 4. Submission of Matters to a Vote of Security Holders. ITEM 5. Other Information. ITEM 6. Exhibits and Reports on Form 8-K. SIGNATURES - ---------- - 2 -
PART I. - FINANCIAL INFORMATION ITEM 1. INTERIM CONDENSED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (UNAUDITED) NEOGEN CORPORATION AND SUBSIDIARIES November 30 May 31 2001 2001 ----------- ----------- ASSETS - ------ CURRENT ASSETS Cash $ 502,000 $ 848,000 Marketable securities 4,886,000 6,334,000 Accounts receivable, net 6,845,000 6,026,000 Inventories 6,714,000 6,974,000 Other current assets 1,192,000 1,397,000 ----------- ----------- TOTAL CURRENT ASSETS 20,139,000 21,579,000 PROPERTY AND EQUIPMENT, NET 3,150,000 2,721,000 INTANGIBLE AND OTHER ASSETS - NOTE B Goodwill 11,432,000 7,076,000 Other intangible assets, net 1,232,000 1,077,000 Other assets 527,000 569,000 ----------- ----------- $36,480,000 $33,022,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Accounts payable $ 1,449,000 $ 1,207,000 Other accrued liabilities 1,537,000 2,079,000 Current maturities of long-term notes payable 49,000 49,000 ----------- ----------- TOTAL CURRENT LIABILITIES 3,035,000 3,335,000 LONG-TERM NOTES PAYABLE 4,000 28,000 OTHER LONG-TERM LIABILITIES 322,000 322,000 STOCKHOLDERS' EQUITY Preferred stock, $1.00 par value, 100,000 shares authorized, none issued and outstanding -- -- Common stock, $.16 par value, 20,000,000 shares authorized, 6,045,000 shares issued at November 30, 2001; 5,824,000 shares issued at May 31, 2001 967,000 932,000 Additional paid-in capital 23,300,000 21,560,000 Retained earnings 8,852,000 6,845,000 ----------- ----------- 33,119,000 29,337,000 ----------- ----------- $36,480,000 $33,022,000 =========== =========== See notes to interim consolidated financial statements. - 3 -
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) NEOGEN CORPORATION AND SUBSIDIARIES <TABLE> <CAPTION> Three Months Ended November 30 Six Months Ended November 30 2001 2000 2001 2000 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> SALES $ 10,699,000 $ 9,009,000 $ 20,431,000 $ 17,133,000 Cost of goods sold 5,026,000 4,465,000 9,866,000 8,593,000 ------------ ------------ ------------ ------------ GROSS MARGIN 5,673,000 4,544,000 10,565,000 8,540,000 OPERATING EXPENSES Sales and marketing 2,259,000 1,789,000 4,406,000 3,636,000 General and administrative 1,179,000 1,139,000 2,177,000 2,067,000 Research and development 541,000 456,000 1,053,000 875,000 ------------ ------------ ------------ ------------ 3,979,000 3,384,000 7,636,000 6,578,000 ------------ ------------ ------------ ------------ OPERATING INCOME 1,694,000 1,160,000 2,929,000 1,962,000 OTHER INCOME Interest income 29,000 86,000 82,000 197,000 Interest expense (1,000) (11,000) (2,000) (21,000) Other 83,000 78,000 159,000 156,000 ------------ ------------ ------------ ------------ 111,000 153,000 239,000 332,000 ------------ ------------ ------------ ------------ INCOME BEFORE TAXES ON INCOME 1,805,000 1,313,000 3,168,000 2,294,000 INCOME TAXES 660,000 453,000 1,161,000 762,000 ------------ ------------ ------------ ------------ NET INCOME $ 1,145,000 $ 860,000 $ 2,007,000 $ 1,532,000 ============ ============ ============ ============ NET INCOME PER SHARE Basic $ 0.19 $ 0.15 $ 0.34 $ 0.27 ============ ============ ============ ============ Diluted $ 0.18 $ 0.15 $ 0.32 $ 0.27 ============ ============ ============ ============ </TABLE> See notes to interim consolidated financial statements. - 4 -
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) NEOGEN CORPORATION AND SUBSIDIARIES <TABLE> <CAPTION> Common Stock ------------------------- Additional Number Paid-In Retained of Shares Amount Capital Earnings ------------ ---------- ------------- ------------- <S> <C> <C> <C> <C> Balance at June 1, 2001 5,824,000 $ 932,000 $ 21,560,000 $ 6,845,000 Exercise of options and warrants 155,500 24,000 958,000 Acquisitions 93,500 15,000 1,093,000 Repurchase of shares (28,000) (4,000) (311,000) Net income for the six months ended November 30, 2001 2,007,000 ------------ ---------- ------------- ------------- BALANCE AT NOVEMBER 30, 2001 6,045,000 $ 967,000 $ 23,300,000 $ 8,852,000 ============ ========== ============= ============= </TABLE> See notes to interim consolidated financial statements. - 5 -
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NEOGEN CORPORATION AND SUBSIDIARIES <TABLE> <CAPTION> Six Months Ended November 30 2001 2000 ------------ ------------ <S> <C> <C> OPERATING ACTIVITIES Net income $ 2,007,000 $ 1,532,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 498,000 672,000 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (511,000) (419,000) Inventories 390,000 8,000 Other current assets 205,000 (11,000) Accounts payable 5,000 (276,000) Other accrued liabilities (542,000) (436,000) ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 2,052,000 1,070,000 INVESTING ACTIVITIES Sales of marketable securities 12,088,000 4,712,000 Purchases of marketable securities (10,640,000) (1,247,000) Purchases of property and equipment and other assets (902,000) (480,000) Acquisitions (3,587,000) (4,748,000) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (3,041,000) (1,763,000) FINANCING ACTIVITIES Payments on long-term borrowings (24,000) (24,000) Net payments for repurchase of common stock (315,000) (573,000) Net proceeds from issuance of common stock 982,000 ------------ ------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 643,000 (597,000) ------------ ------------ DECREASE IN CASH (346,000) (1,290,000) Cash at beginning of period 848,000 2,198,000 ------------ ------------ CASH AT END OF PERIOD $ 502,000 $ 908,000 ============ ============ </TABLE> See notes to interim consolidated financial statements. - 6 -
NOTES TO INTERIM 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 three and six month periods ended November 30, 2001 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2002. For more complete financial information, these consolidated financial statements should be read in conjunction with the May 31, 2001 audited consolidated financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended May 31, 2001. NOTE B - CHANGE IN ACCOUNTING FOR GOODWILL - ------------------------------------------ The Company has adopted Financial Accounting Standards Board SFAS 142 "Goodwill and other intangible assets" effective June 1, 2001. Under the provisions of the Statement, goodwill is no longer amortized but instead is reviewed for impairment at least annually. SFAS 142 provides a six-month transitional period from the effective date of adoption for Management to perform an assessment of whether there is an indication that goodwill is impaired. This review was completed with no indication of impairment of goodwill identified. A reconciliation of the allocation of intangible assets as reported at May 31, 2001 and at June 1, 2001, following the adoption of SFAS 142, is as follows: <TABLE> <CAPTION> May 31, 2001 Reclassifications June 1, 2001 Gross Gross Gross Carrying Accumulated Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization Amount Amortization ----------- ----------- ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> Goodwill $8,123,000 $ 1,047,000 $ 280,000 $ 133,000 $8,403,000 $ 1,180,000 Intangible assets with indefinite lives 614,000 199,000 614,000 199,000 Intangible assets with finite lives 1,019,000 504,000 1,019,000 504,000 Other assets 2,482,000 836,000 (1,913,000) (836,000) 569,000 - ----------- ----------- ---------- ---------- ----------- ----------- $10,605,000 $ 1,883,000 $ - $ - $10,605,000 $ 1,883,000 =========== =========== ========== ========== =========== =========== </TABLE> - 7 -
The allocation of assets following SFAS 142 as of June 1, 2001 and November 30, 2001 is summarized in the following table: <TABLE> <CAPTION> June 1, 2001 November 30, 2001 Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Goodwill: Food Safety $ 841,000 $ 123,000 $ 4,368,000 $ 123,000 Animal Safety 7,562,000 1,057,000 8,244,000 1,057,000 ----------- ----------- ----------- ----------- Total 8,403,000 1,180,000 12,612,000 1,180,000 Intangible assets with indefinite lives 614,000 199,000 614,000 199,000 Intangible assets with finite lives: Licenses 305,000 69,000 649,000 122,000 Covenants not to compete 355,000 171,000 414,000 204,000 Patents 351,000 263,000 351,000 271,000 Other 8,000 1,000 1,000 1,000 ----------- ----------- ----------- ----------- 1,019,000 504,000 1,415,000 598,000 </TABLE> As provided by SFAS 142, the results of operations of the three and six-month periods ended November 30, 2000 have not been restated. If the statement had been adopted as of June 1, 2000, the effect would have resulted in the reduction in amortization of $96,000 and $188,000 in the three and six-month periods, respectively. Net income would have been $956,000 ($.17, basic and diluted) and $1,720,000 ($.30, basic and diluted) in the three months six months ended November 30, 2000, respectively. Estimated fiscal year amortization expense is as follows: 2002-$144,000; 2003-$139,000; 2004-$119,000; 2005-$80,000 and 2006-$53,000. NOTE C - CHANGE IN ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - ------------------------------------------------------------------------------- SFAS 133, as amended by SFAS 137 and SFAS 138, established accounting and reporting standards for derivative instruments and for hedging activities. The Company adopted SFAS 133 as amended, effective June 1, 2001. The adoption of SFAS 133 will not have a significant impact on the financial position or results of operations of the Company because the Company currently has no derivative instruments or hedging activities. - 8 -
NOTE D - EARNINGS PER SHARE - --------------------------- The following table presents the calculation of earnings per share: <TABLE> <CAPTION> Three Months Six Months Ended November 30 Ended November 30 2001 2000 2001 2000 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Basic and Diluted - Earnings per Share Numerator - Net Income $1,145,000 $ 860,000 $2,007,000 $1,532,000 ========== ========== ========== ========== Denominator: For basic earnings per share- Weighted average shares 5,956,000 5,680,000 5,919,000 5,710,000 Effect of dilutive securities- Stock options and warrants 447,000 85,000 409,000 41,000 ---------- ---------- ---------- ---------- For diluted earnings per share- Adjusted weighted average shares and assumed conversions 6,403,000 5,765,000 6,328,000 5,751,000 ========== ========== ========== ========== Basic Earnings per Share $ 0.19 $ 0.15 $ 0.34 $ 0.27 ========== ========== ========== ========== Diluted Earnings per Share $ 0.18 $ 0.15 $ 0.32 $ 0.27 ========== ========== ========== ========== </TABLE> - 9 -
NOTE E - STOCK REPURCHASE - ------------------------- The Company's board of directors has authorized the purchase of up to 1,000,000 shares of the Company's common stock. As of November 30, 2001, the Company had purchased 654,000 shares in negotiated and open market transactions. Shares purchased under this buy-back program will be retired and used to satisfy future issuance of common stock upon the exercise of outstanding stock options and warrants. NOTE F - INVENTORIES - -------------------- Inventories are stated at the lower of cost, determined on the first-in, first-out method, or market. The components of inventories are as follows: November 30, 2001 May 31, 2001 ----------------- ------------ Raw Material $ 1,516,000 $ 1,832,000 Work-In-Process 882,000 885,000 Finished Goods 4,316,000 4,257,000 ----------------- ------------ $ 6,714,000 $ 6,974,000 ================= ============ NOTE G - SEGMENT INFORMATION - ---------------------------- The Company has two reportable segments: Food Safety and Animal Safety. The Food Safety segment produces and markets diagnostic test kits and related products used by food producers and processors to detect harmful natural toxins, drug residues, foodborne bacteria, food allergens, pesticide residues, disease infections and levels of general sanitation. The Animal Safety segment is primarily engaged in the production and marketing of products dedicated to animal health, including 250 different veterinary instruments and a complete line of consumable products marketed to veterinarians and distributors serving the professional animal health industry. These segments are managed separately because they represent strategic business units that offer different products and require different marketing strategies. Management evaluates performance based on total sales and operating income of the respective segments. - 10 -
Segment information for the three months ended November 30, 2001 and 2000 was as follows: <TABLE> <CAPTION> Corporate Food Animal and Safety Safety Eliminations (1) Total - -------------------------------------------------------------------------------------------------------------------------- 2001 <S> <C> <C> <C> <C> Net sales to external customers $ 5,290,000 $ 5,409,000 $ - $ 10,699,000 Operating income 1,007,000 915,000 (228,000) 1,694,000 Total assets 14,286,000 16,927,000 5,267,000 36,480,000 - -------------------------------------------------------------------------------------------------------------------------- 2000 Net sales to external customers $ 4,325,000 $ 4,684,000 $ - $ 9,009,000 Operating income 639,000 753,000 (232,000) 1,160,000 Total assets 9,920,000 14,843,000 4,988,000 29,751,000 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> Segment information for the six months ended November 30, 2001 and 2000 was as follows: <TABLE> <CAPTION> Corporate Food Animal and Safety Safety Eliminations (1) Total - -------------------------------------------------------------------------------------------------------------------------- 2001 <S> <C> <C> <C> <C> Net sales to external customers $ 10,239,000 $ 10,192,000 $ - $ 20,431,000 Operating income 1,913,000 1,460,000 (444,000) 2,929,000 Total assets 14,286,000 16,927,000 5,267,000 36,480,000 - -------------------------------------------------------------------------------------------------------------------------- 2000 Net sales to external customers $ 8,714,000 $ 8,419,000 $ - $ 17,133,000 Operating income 1,331,000 1,042,000 (411,000) 1,962,000 Total assets 9,920,000 14,843,000 4,988,000 29,751,000 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> (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. - 11 -
NOTE H - ACQUISITIONS - --------------------- As of June 30, 2001, the Company purchased 100% of the common stock of QA Life Sciences. QA has a product line directed toward testing of food and water. The purchase price, subject to certain post closing adjustments, was 58,000 shares of Neogen stock with provision for payment of up to an additional 3,100 issued shares of Neogen stock based on post closing collections of accounts receivable and an additional $200,000 based on achievement of specific levels of post closing revenues. The accounts receivable secondary payment requirements were met and required share payment was made as of August 31, 2001. The purchase price and acquisition costs were allocated $129,000 to current assets, $150,000 to the property and equipment and $487,000 to intangible assets. Revenues of QA Life Sciences in the 12 months prior to the acquisition were less than $1,000,000. As of August 1, 2001, the Company purchased for cash substantially all of the assets of Gene-Trak Systems from Vysis, Inc. Gene-Trak has a product line for tests of specific bacteria in food. The purchase price and acquisition costs were allocated $378,000 to current assets, $125,000 to property and equipment and $3,144,000 to intangible assets. Revenues of Gene-Trak in the 12 months prior to the acquisition were approximately $3,000,000. In July 2001 final determination was made of amounts due as secondary payments to the former owners of AmVet Pharmaceuticals. To satisfy these obligations, 32,388 shares of Neogen stock valued at $416,000 were issued and cash payments of $133,000 were made. These transactions were accounted for as purchases under the provision of SFAS 141. Results of operations are included in the consolidated financial statements beginning with the date of the acquisition. Common Stock was valued at the closing price on the date of the transaction after allowance for restriction related to the shares tendered. NOTE I - LEGAL PROCEEDINGS - -------------------------- The Company is involved in several legal proceedings, none of which, in the opinion of Management is material to the financial statements. NOTE J - SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION - ---------------------------------------------------------- <TABLE> <CAPTION> Three Months Six Months Ended November 30 Ended November 30 2001 2000 2001 2000 ----------------- ------------------- -------------------- ------------------ <S> <C> <C> <C> <C> Cash Paid For: Income Taxes $ 708,000 $ 73,000 $ 1,908,000 $ 1,349,000 Interest 1,000 10,000 2,000 21,000 </TABLE> - 12 -
PART I. FINANCIAL INFORMATION 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. The words "anticipate", "believe", "potential", "expect", and similar expressions used herein are intended to identify forward-looking statements. Forward-looking statements involve certain risks and uncertainties. Various factors, including competition, recruitment and dependence on key employees, impact of weather on agriculture and food production, identification and integration of acquisitions, research and development risks, patent and trade secret protection, government regulation and other risks detailed from time to time in the Company's reports on file at the Securities and Exchange Commission may cause actual results to differ materially from those contained in the forward-looking statements. Accounting Changes - ------------------ In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 142 "Goodwill and Other Intangible Assets." As allowed under the Standard, the Company has adopted SFAS 142 as of June 1, 2001. SFAS 142 requires goodwill and intangible assets with indefinite useful lives to no longer be amortized, but instead be tested for impairment at least annually. With the adoption of SFAS 142, Management reviewed classifications, useful lives, and residual lives of all acquired intangible assets. Following this review, changes in classification were made as described in Note B. No changes in the amortization periods or residual values were determined to be necessary. SFAS 142 provides a six-month transitional period from the effective date of adoption for Management to perform an assessment of whether there is an indication that goodwill is impaired. This review was completed with no indication of impairment of goodwill identified. Additionally, the Company adopted the provisions of SFAS 133, as amended, as of June 1, 2001. This statement, which establishes accounting and reporting standards for derivative instruments and for hedging activities, did not have a significant impact on the financial position or results of operations of the Company. - 13 -
Three Months and Six Months Ended November 30, 2001 Compared to Three Months and - -------------------------------------------------------------------------------- Six Months Ended November 30, 2000 - ---------------------------------- Total sales increased $1,690,000 or 19% in the November 2001 quarter as compared to the November 2000 quarter, and were up $3,298,000 or 19% in the six months ended November 30, 2001 as compared to the first six months of the 2001 fiscal year. Sales of products dedicated to Food Safety were up 22% for the quarter and 18% for the six-month period, and sales of Animal Safety products were up 15% for the quarter and 21% for the six-month period as compared to the applicable periods of fiscal 2001. The increase in Food Safety sales includes increases in sales of comparable products of 14% for the quarter and 10% for the six months. Sales of test kits for the detection of naturally occurring mycotoxins, such as aflatoxin and DON (vomitoxin) increased marginally for the quarter and for the six-month period. These sales increases came during a year without the presence of adverse weather conditions that in some years have resulted in significant demand fluctuations. It is believed that the Company's investment in sales and marketing has resulted in gains in market share. Sales of test kits to detect harmful bacteria such as E. coli O157:H7, Salmonella, and Listeria increased 50% for the quarter and 36% for the six-month period. The sales came as the Company has continued to penetrate this rapidly growing market. The increase in Animal Safety sales for the quarter and six-month period came from increased sales of comparable products. In the quarter, sales of all Animal Safety product lines increased compared to the prior year with the exception of sales of the Company's vaccine for Botulism B, which while selling at a normal rate was compared to a two-quarter delivery rate in the second quarter of last year following the resolution of production and supply problems. Additionally, current year sales are compared against prior year second quarter sales, which include almost $400,000 of sales of a now discontinued product. Finally, sales of Eqstim(R), an immunostimulant, declined as a result of heightened competition in the marketplace. Increases came in sales of durable veterinary instruments of 36%, and in the Company's Triple Crown product line which increased 38%. Veterinary instrument sales included sales of the Company's new stronger and more detectable needle, which has initially been directed toward the swine market. Sales of Triple Crown products increased as a result of focused efforts of the distribution organization. Sales for the six-month period followed a similar pattern with the exception that sales of the Botulism B vaccine product showed an increase of 19% compared to the year earlier. Gross margin in the November 2001 quarter increased to 53% from 50% in the November 30, 2000 quarter, and to 52% in the six months ended November 30, 2001 from 50% in 2000. Food Safety margins increased in the quarter and six-month period as a result of product mix and the addition of higher margin products from the QA Life Sciences and Gene-Trak acquisitions. Animal Safety margins were unchanged in the quarter and six-month periods. Sales and marketing expenses increased $470,000 or 26% from the November 2000 quarter and $770,000 or 21% for the six-month period. These expenses rose in relation to sales increases. As a percentage of sales, these expenses rose 1% in both the quarter and the six-month period. On a divisional basis, sales expenses were comparable to the prior year. - 14 -
General and administrative expenses increased $40,000 or 4% from the November 2000 quarter, and $110,000 or 5% for the six-month period. As a percentage of revenue, these expenses decreased from 13% to 11% in the quarter, and from 12% to 11% in the six-month period. The increase in dollar expenses consisted principally of personnel additions and similar costs necessary to provide accounting and other administrative functions for the greater level of operations, offset principally by reductions in amortization. General and administrative expense by division is consistent with the prior year. The effect of the change in accounting for amortization resulted in the reduction of $96,000 of amortization in the quarter and $188,000 in amortization in the six-month period as compared to the prior year. Research and development expenses increased $85,000 or 19% from the November 2000 quarter, and $178,000 or 20% for the six-month period. As a percentage of revenues, Research and development expenses remained constant during the periods. The federal and state tax rates in the second quarter of 2001 increased to 36.6% from 34.5% in the prior year. For the six-month period, tax rates increased to 36.7% from 33.2% in the prior year. The tax provision of the prior year was favorably affected by tax credits carried over from earlier years and operating loss carryforwards for state purposes. No further credit or other carryforwards are available. Other income decreased in the November 2001 quarter and six-month period, principally as a result of the reduction in interest income from invested balances following the acquisitions consummated in the first quarter, and as a result of significant reductions in interest rates. Financial Condition and Liquidity - --------------------------------- At November 30, 2001, the Company had $5,388,000 in cash and marketable securities, working capital of $17,104,000 and stockholders' equity of $33,119,000. In addition, the Company has unused bank lines totaling $10,000,000. Cash and marketable securities decreased in the six months ended November 30, 2001 with cash generated by operations of $2,052,000 offset by cash expended for Gene-Trak, property additions and other assets. Accounts receivable were $800,000 higher at November 30, 2001 than at May 31 due primarily to the Gene-Trak acquisition and increases in sales during the period. Inventories decreased $300,000 at November 30, 2001 compared to May 31. This resulted from continued strong management of this asset despite the acquisitions and an increase in the level of operations. The decrease in current liabilities results from timing of payments. At November 30, 2001, 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. Management believes that the Company's existing cash and marketable securities at November 30, 2001, along with its available bank lines of credit and cash expected to be generated from future operations, will be sufficient to fund activities for the foreseeable future. However, existing cash and marketable securities may not be sufficient to meet the Company's cash requirements to commercialize products currently under development or its plans to acquire 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 the Company's future capital needs. - 15 -
PART I. FINANCIAL INFORMATION ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company's exposure to market risk for changes in interest rates relates to its portfolio of marketable securities. The Company has no significant borrowings. Interest rate risk is managed by investing in high-quality issuers and seeking to avoid principal loss of invested funds by limiting default risk and market risk. The Company manages default risks by investing in only high-credit-quality securities and by responding appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. - 16 -
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in several legal proceedings, none of which, in the opinion of the Management, is material to the financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of the Company was held on October 5, 2001. The matters voted upon and the results of the vote follow: 1) Election of Directors FOR Robert M. Book 5,221,272 Leonard E. Heller 5,231,572 Jack C. Parnell 5,220,572 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit Index None (b) Reports on Form 8-K Filed in Quarterly Period Ended November 30, 2001. The Company did not file any reports on Form 8-K in the quarterly period ended November 30, 2001. - 17 -
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 /s/ James L. Herbert -------------------- Date 1/14/02 James L. Herbert President /s/ Richard R. Current ---------------------- Date 1/14/02 Richard R. Current Vice President & Chief Financial Officer - 18 -