Financial HigHligHts
Amounts in thousands, except per share
Years Ended May 31,
Operations:
Total Revenues
Food Safety Sales
Animal Safety Sales
Operating Income
Net Income
Basic Net Income Per Share*
Diluted Net Income Per Share*
2009
2008
2007
2006
2005
$ 118,721
$ 102,418
$ 86,138
$ 72,433
$ 62,756
61,025
57,696
20,488
57,664
44,754
18,019
47,165
38,973
13,504
34,922
37,511
10,805
28,156
34,600
7,452
$ 13,874
$ 12,098
$
$
.95
.92
$
$
.84
.81
$
$
$
9,125
.66
.64
$
$
$
7,029
$ 4,929
.57
.55
$
$
.41
.39
Average Diluted Shares Outstanding*
15,058
14,999
14,162
12,686
12,531
*Restated for the years 2005–2007
total Revenues
Dollars in thousands
net income
Dollars in thousands
total assets
Dollars in thousands
$120,000
100,000
80,000
60,000
40,000
20,000
0
2005
2006
2007
2008
2009
$14,000
12,000
10,000
8,000
6,000
4,000
0
2005
2006
2007
2008
2009
$150,000
120,000
90,000
60,000
30,000
15,000
0
2005
2006
2007
2008
2009
In thousands
May 31,
Financial Strength:
2009
2008
2007
2006
2005
Cash and Cash Equivalents
$
13,842
$ 14,270
$ 13,424
$ 1,959
$ 1,972
Working Capital
Total Assets
Long-Term Debt
62,520
142,176
–
54,495
126,357
–
Stockholders’ Equity
128,679
111,248
41,060
105,284
–
91,945
26,252
88,290
9,955
65,424
22,644
63,884
–
56,623
1
To Our Stockholders, Employees, and Friends,
When we established Neogen’s mission as a pure startup compa-
ny 27 years ago, few of us could fully appreciate the worldwide
scope and size of the markets that would eventually develop.
We saw that food and animal safety would likely grow in impor-
tance and established a mission to provide solutions for food
and animal safety problems.
In the 1980’s, world food systems rapidly developed allowing
for considerable increases in worldwide food production. How-
ever, as food production expanded to meet increased demand,
new issues became apparent related to the quality and safety
of food. As food producers focused on consumers’ demands for
less expensive products, more convenient preparation and year-
round availability of foods once considered only seasonal, we
believed that safety issues would surely develop.
Continued Strong Growth
A world of opportunity has truly developed for food and animal
safety solutions to help meet the requirements of food producers,
processors, and consumers around the world. Neogen’s revenues
increased 16% to $118.7 million for our 2009 fiscal year. The
fourth quarter also marked a continuation in the company’s con-
sistency of performance as it was the 69th quarter in the past 74
to show revenue increases compared to the previous year—a
record now spanning over 18 years.
Net income for the year was almost $13.9 million up 15% com-
pared to last year. This equated to earnings per share of $0.92
as compared to $0.81 last year. Given the challenging year for
a large number of our worldwide customers, management was
pleased with the results.
In addition to the poor economy, we
faced several other factors in FY ’09. Our
overall provision for income taxes went
to 36% as compared to 35% the prior
year. On a pretax basis, income was 17%
higher than last year showing that our
bottom line growth once again exceeded
revenue growth. Neogen does business
in pound sterling, euro, peso, and the
Canadian dollar. As the U.S. dollar showed
strength during most of our fiscal year,
currency translations had an unfavorable
impact equating to approximately $2.7
million reduction in revenue for the year.
Cash Flow Strong
Net cash from operating activities for the
year was almost $11.0 million—up 40%
compared to the prior year. This allowed
the company to make some meaningful
acquisitions and to expand its manu-
facturing capabilities. At year end, the
$21,000
18,000
15,000
12,000
9,000
6,000
3,000
0
2
James Herbert and Lon Bohannon
company had approximately $13.8 million in cash. Neogen also
continued its solid growth in shareholder value, as shareholder
equity increased by 16% for the year.
Growth Strategy Continues
Neogen continued to utilize its four-point growth strategy to
achieve FY ’09 results. The first aspect of this growth strategy
was to gain market share with existing products, and even as
markets served by the company seemed to constrict some dur-
ing the year as a result of the worldwide financial situation,
Neogen was still able to record solid same-store sales increases
in both divisions. Adjusting for the impact
of currency translation, organic growth
was 11%. We believe this indicates a gain
in market share in several markets and
with several of our product lines. This was
particularly noticeable in our sales of di-
agnostic tests to detect the presence of
food allergens, where growth for the year
was up more than 40%.
oPeRating income
Dollars in thousands
New Product Activity Strong
The second leg of the company’s growth
strategy has been the introduction of
new products for our current market base.
Shortly before the beginning of FY ’09, we
identified a number of new product op-
portunities that fit well into Neogen’s
mission. As a result, the size of the com-
pany’s R&D organization has now almost
doubled. Even with an extra $1.0 million
in spending during the year, total R&D ex-
penditures still represent only 4% of reve-
nues. Neogen’s research teams in Michigan,
2005
2006
2007
2008
2009
stocKHolDeRs’ eQuitY
Dollars in thousands
Kentucky, Wisconsin, and Scotland have over 60 research proj-
ects in their FY ’10 plans with many expected to bring new or
improved products to the market within a year.
International Growth Strong
Food production and processing no longer has geographic or
national boundaries. This became evident during Neogen’s
FY ’09 with high profile episodes such as milk products con-
taining melamine and bacterial pathogens in hot peppers. The
third leg of Neogen’s growth strategy is to expand international
revenues. We estimate that over 60% of our potential revenue
opportunities lay outside the U.S.
For FY ’09, the company generated 41% of its total revenues
from sources outside U.S. boundaries as compared to 25% just
5 years ago. The negative impact of currency translations had
a dampening effect on the true accomplishments. For example,
Neogen Europe’s revenue growth based on constant British
pounds was an exceptional 26% in FY ’09. However, when trans-
lated to U.S. dollars, that gain was reduced to 3%. The European
Union countries as well as many areas in
Latin America offer good growth oppor-
tunities again for FY ’10.
Acquisition Strategy Continues
The fourth leg of Neogen’s growth strat-
egy has been to acquire businesses,
product lines, and form strategic alli-
ances to expand the company’s product
offering, market reach, and research ca-
pabilities. Over the course of the past
eight years, Neogen has successfully
completed 15 acquisitions, and all have
been accretive at both the top and bot-
tom line.
In early FY ’09, Neogen completed an
acquisition of a large group of cleaning
and disinfecting products from DuPont®.
In addition, Neogen will also serve as
DuPont’s strategic partner in helping to
develop and market new products to be
used as a part of the food safety efforts
back inside the farm gate. This acquisi-
tion aided the Animal Safety division’s
revenue growth of 29% in FY ’09 com-
pared to the prior year.
$130,000
110,000
90,000
70,000
50,000
30,000
0
2005
2006
It has been a part of Neogen’s ongoing strategy to provide
biosecurity solutions for animal protein producers. Neogen’s
rodenticide products are an important part of that strategy as
rodents are notorious for spreading filth and transferring dis-
ease in animal production units. Though Neogen had a few
products that fit the cleaning and disinfecting area, the addi-
tion of the DuPont products now provides the company with a
complete line of products to provide biosecurity solutions for
animal and protein producers.
Acquisition Strengthens Research
Just prior to the end of FY ’09, Neogen acquired International
Diagnostic Systems (IDS), a Michigan company that had been
competing with Neogen for over 20 years. More importantly, IDS
possessed exceptional diagnostic products and research and de-
velopment capabilities pertaining to violative drugs and drug
residues. Neogen’s existing Sales and Marketing organization
added the majority of these products to their existing offer-
ings. The manufacturing operations have been consolidated into
Neogen production facilities in Lexington, Kentucky and activi-
ties of the IDS research and development group will be fully in-
tegrated with Neogen’s other research and development efforts.
With experience and expertise in acquisitions and their integra-
tion, a strong balance sheet with almost $14 million at year end,
and no bank borrowing, Neogen is well positioned to continue
its acquisition strategy.
Performance Noticed
The company’s performance during the past year did not go
unheeded by the investment community as the price of the
company’s shares maintained a respectable level. In addition
to be selected to the Russell 2000 list, Neogen is now also a
part of the Standard and Poor’s 600 Index.
In July, Fortune Magazine once again
named Neogen to its list of the 100 fast-
est growing small public companies in
America—this time at spot number 21.
The previous month, Fortune had named
Neogen as one of the “40 Stocks to Re-
tire On”—a list that included many of
the world’s largest blue chip corporations.
We were identified as a stock that would
suffer less in the market downturns, but
had an opportunity to exceed the market
during good times. Also, again this year,
Forbes Magazine named Neogen to its list
of the 200 best small public companies in
America—the 7th time in the last 9 years.
Thanks to Employees
The credit for FY ’09 should go to Neogen’s
group of over 500 dedicated employees.
As the worldwide economic recession
deepened, we called upon employees to
improve sales efficiency and asked them
to search diligently for opportunities
where the company could save expenses.
Management challenged all employees to remember that “when
the going gets tough, the tough get going”. Certainly, that
toughness showed through in FY ’09.
2009
2008
2007
Despite the economic uncertainties, we approach our FY ’10
with confidence due to our established products, marketing
strategies, and manufacturing capabilities. We believe these
strengths, along with stable leadership, positions Neogen to
capitalize on the World of Opportunities that lie ahead.
James L. Herbert
Chairman and CEO
Lon M. Bohannon
President and COO
3
for Neogen, the opportunities created by a synergistic product mix that obscures
the line between its Food and Animal Safety Divisions know no boundary.
f or Neogen, a wide range of opportunities exist
at such diverse operations as a sausage maker
in Tennessee, sugarcane processor in Mexico, cat-
tle ranch in Brazil, lettuce farm in California, bak-
ery in Scotland, dairy processor in Belarus, hog
farm in Taiwan, drink bottler in New York, vet-
erinary clinic in Canada, or anywhere food and
animal safety is a concern.
For Neogen, opportunity exists wherever con-
sumers sit down to eat with the expectation that
their meals are free of dangerous bacteria, natural
toxins, unlabeled food allergens, veterinary anti-
biotic residues, spoilage organisms, rodent filth,
broken bits of veterinary instruments, or any oth-
er contaminant that poses an immediate or long-
term risk.
Seizing these seemingly limitless food and ani-
mal safety opportunities, wherever they may ex-
ist, is what has driven Neogen since its found-
ing in 1982. It has driven Neogen to assemble
an outstanding team of research and development
experts who collaborate with university and in-
dustry partners to develop innovative, real-world
solutions to real-world problems both within and
outside the farm gate. It has driven Neogen to
assemble a superior team of sales and marketing
professionals, and distribution partners, to reach
each of its worldwide markets with expertise and
experience.
a “one-stop shop” >
Neogen is perfectly positioned to
seize the world of opportunity now
and into the future.
5
Neogen’s “one-stop shop” mix of diagnostic and preven-
tative products is perhaps best illustrated by examples of
how Neogen’s comprehensive and complementary line of
food and animal safety products work together.
DaiRY PRoDucts
Nowhere is the synergy between Neogen’s food safety
and animal safety solutions more apparent than in the
worldwide dairy market. Neogen’s Ideal® reproductive
and obstetrical veterinary instruments, and Ag-Tek®
gloves and apparel, protect cows and their calves, as
well as veterinary practitioners, throughout the breed-
ing and calving process. The company’s rodenticides,
cleaners, and disinfectants help ensure a safe dairy
production environment, and its needles and sy-
ringes deliver precise dosages of needed medications.
Neogen’s wide range of veterinary pharmaceuticals
and nutritional supplements support the health of the
dairy herd.
The safety and quality of dairy products is ensured by
Neogen’s comprehensive offering of Food Safety test-
ing products. The company’s quick and easy BetaStar®
and TetraStar® diagnostic tests ensure harmful antibi-
otic drug residues are not in milk. Neogen’s microbial
tests, including its innovative Soleris® spoilage or-
ganism test system, validate the effectiveness of pas-
teurization processes, and help ensure that products
such as yogurt retain their freshness throughout their
stated shelf lives.
The company’s AccuPoint® sanitation monitoring sys-
tem, and other environmental tests, reduce the risk of
product contamination. Where production facilities pro-
duce both dairy and non-dairy products, such as juice
or soy milk, Neogen’s food allergen tests help protect
allergic consumers from the accidental ingestion of un-
labeled food allergens, such as milk and soy.
animal PRotein PRoDucts
Neogen protects the safety of animal protein products
on farms and ranches, and throughout every processing
step on the way to the consumer. Neogen offers both
durable and disposable veterinary syringes, as well as
aluminum and polypropylene hub needles, to deliver
precise medicinal dosing. Neogen’s D3 Needles™ are
three times stronger than standard needles, and have
a patented technology that makes them detectable us-
ing standard meat processing plant metal detectors.
The company’s comprehensive line of Hacco agricultur-
al biosecurity products, including rodenticides, clean-
ers, and disinfectants, help protect livestock from the
spread of dangerous pathogens in large, modern in-
tegrated production facilities. Rats and mice remain
a serious threat to food and feedstuffs, and spread
disease. Neogen’s proven line of rodenticides is used
for effective control of rodent infestations and is of-
ten a critical component of an overall biosecurity plan.
Pathogens at the farm can travel to the processing
plant and then throughout the food chain.
Neogen’s innovative mycotoxin diagnostic tests pre-
vent the severe consequences of animals ingest-
ing feed contaminated with natural toxins. Neogen’s
Reveal® tests for aflatoxin, DON, and four other myco-
toxins are the quickest and easiest tests available, and
provide results in as little as 2 minutes. Neogen’s line
of rapid mycotoxin tests has more official third-party
approvals than any competitor.
As the animal protein products move closer to the con-
sumer, Neogen’s Reveal and GeneQuence® foodborne
bacteria diagnostic tests for Salmonella, E. coli O157:H7,
and Listeria, and tests for veterinary drugs in meat, help
prevent these health threats from ever reaching a din-
ner table.
Neogen’s Acumedia® subsidiary has been a premier
manufacturer of high quality dehydrated culture me-
dia since 1978 for industrial, biotech, food safety, and
life science applications. Acumedia produces over 200
different formulations, and well over 160 different cus-
tomized formulations, that help identify microorgan-
isms or even provide the feedstock for producers to
produce vaccine biologics.
PoultRY & egg PRoDucts
Neogen’s preventative products, including cleaners,
disinfectants and rodenticides, help ensure the safety
of poultry and egg facilities from dangerous pathogens,
such as avian influenza and Salmonella, before they
infect large populations of production flocks. Neogen’s
acquisition of animal health disinfectants and cleaners
from DuPont in 2008 further broadened Neogen’s com-
prehensive list of preventative products it can offer
to animal producers and veterinary clinics. Stopping a
bacterial, viral, or fungal outbreak before it can start
is a critical goal in food and animal safety.
Neogen expands R&D staff, efforts
Neogen is executing its plan that was first announced early in its 2009 fiscal year to
double its research and development efforts by hiring approximately two dozen additional
R&D personnel.
“The organizational structure of our research and development groups has served us well
throughout Neogen’s 27-year history. However, as we now plan to double our revenues
toward $200 million, the need to also double our R&D efforts became obvious,” said James
Herbert, Neogen’s chairman and CEO in announcing the plan. “With the rapid expansion of
our revenue and worldwide presence have come a tremendous number of new opportuni-
ties for product development. Seizing those opportunities will require an expanded R&D structure and staff to develop these products in
an expedient fashion.”
The expansion in R&D activities supported both Neogen’s food safety and animal safety progress. Most of the staff expansion occurred in
Neogen’s Lansing, Mich., laboratories, but also supported the development of new products for the Lexington, Ky.-based Animal Safety
Division, as well as the research teams in Randolph, Wisc., and Ayr, Scotland.
As Neogen’s 2010 fiscal year begins, that effort is paying off. Our research teams in Lansing, Lexington, Scotland, and Wisconsin have nu-
merous research projects in this year’s plans. Many of these are expected to bring new or improved products during the current fiscal year.
“New product opportunities that fit Neogen’s mission of food and animal safety have greatly expanded in the past year,” said Herbert. “As
the world has become smaller in terms of food imports and exports, and as regulations regarding food and animal safety are becoming
more stringent throughout the world, there are a tremendous number of opportunities to enhance Neogen’s growth.”
8
The company’s quick and easy diagnostics for mold
toxins help ensure the safety of poultry feed, and its
complete line of veterinary products have many applica-
tions for poultry and egg producers. Neogen’s test for
a specific microbial pathogen, Salmonella enteritidis,
monitors egg production facilities for the presence of
a dangerous bacterium with the ability to exist within
an eggshell, and is expected to gain widespread use
under recently announced FDA regulations.
As poultry and egg products move through processing
facilities, Neogen’s specific foodborne bacteria tests,
general microbial tests, dehydrated culture media, food
allergen tests, and sanitation monitoring tests, help
ensure the safety of the products as they get closer to
the table.
As the consequences of contaminated products reach-
ing consumers have become even more apparent over
the years, the role of effective sanitation has gained
scrutiny. Gone are the days when good attempts at
cleaning food contact surfaces sufficed. Food produc-
tion contact surfaces must now be verified clean before
further production can take place. Neogen’s AccuPoint®
ATP Sanitation Monitoring System has emerged as a
leader in quickly and accurately verifying cleanliness.
FooD cRoPs
In addition to offering products that help ensure the
health and safety of food and food-producing animals
inside the farm gate, Neogen offers a full line of diag-
nostic products for food crops while still on the farm,
and throughout their distribution and processing.
Neogen’s Adgen plant disease diagnostics for fruits,
vegetables, and cereals such as wheat, detect the early
onset of disease, and allow for its effective treatment
before it can devastate healthy and profitable crops.
The company’s plant diagnostics, offered primarily
through its Scotland-based Neogen Europe subsidiary,
now includes tests for more than 250 different viral,
bacterial and fungal plant pathogens.
The company’s rodenticides protect orchards and har-
vested crops from the severe damage and contamina-
tion a rodent outbreak can cause. Neogen’s pathogen
tests help ensure that farm fertilization practices have
not contaminated crops with dangerous bacteria, in-
cluding E. coli O157:H7. Neogen’s extremely easy-to-
use Agri-Screen® Ticket helps ensure that crops do not
contain harmful residual levels of agricultural pesticides.
As food crops move outside of the farm gate, Neogen’s
diagnostics help ensure their safety and quality all
the way to the consumer. The company’s mycotoxin
tests keep contaminated grain out of cereals and bak-
ery products; its spoilage organism tests prevent such
quality concerns as yeast and mold from contaminating
a wide variety of food and nutraceutical products; and
its food allergen tests prevent such allergenic threats
as peanuts and hazelnuts from accidentally contami-
nating a non-allergenic product.
Neogen’s Reveal® lateral flow tests for food allergens
provide accurate and clear results in as little as 10
minutes. Veratox® (quantitative) and Alert® (screen-
ing) tests for peanut, egg, milk, almond, soy, hazelnut,
and gliadin (gluten) residues require minimal training,
and provide rapid test results.
Neogen believes that the companies that will thrive
in the future are the ones that create solutions,
and seize opportunities—wherever they may exist.
With 27 years of proven success, and a dedicated team
of skilled employees with expertise and experience in
multiple scientific and business disciplines, Neogen
believes that it is perfectly positioned to seize the
world of opportunity now and into the future.
Neogen named to Fortune’s list of 40 stocks ‘to retire on’
In 2009, Fortune Magazine named Neogen as a selection in its annual list of the “40 best stocks
to retire on.” Fortune first launched its Fortune 40 list in 2002, stating: “We wanted to assemble
a diversified, dependable portfolio of stocks for the long term—a selection that could soar when
the market did but also hold steady during darker times.”
In its 2009 fiscal year, Neogen was also selected for the Russell 2000 and Standard & Poor’s
SmallCap 600 indexes, and was named to Fortune Magazine’s annual list of America’s 100 Fast-
est Growing Small Public Companies, and to Forbes Magazine’s annual list of the 200 Best Small
Companies in America for the fourth consecutive year and seventh time in the last nine years.
9
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 Corporation management 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 results.
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 in-
tended to identify forward-looking statements. There are a number of important factors, including competition, recruitment and depen-
dence 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 Report on Form 10-K 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 state-
ments 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, liabili-
ties, 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 conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replace-
ment products in the marketplace or other competitive situations
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 2009 and it was determined that no impairment exists. There was also no
impairment indicated for 2008 or 2007. 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:
• Significant under performance relative to expected historical or projected future operating results.
• Significant changes in the use of acquired assets or strategy of the Company.
• Significant negative industry or economic trends.
10
management’s Discussion anD analYsis oF Financial conDition anD Results oF oPeRations
When management determines that the carrying value of definite-lived intangible assets may not be recoverable based on the existence
of one or more of the above indicators of impairment, the carrying value of the reporting unit’s net assets is compared to its fair value
using undiscounted future cash flows of the reporting unit. If the carrying amounts of these assets are greater than the amount of
undiscounted future cash flows, such assets are reduced to their estimated fair value.
Equity Compensation Plans
Financial Accounting Standards Board Statement No. 123(R), “Share-Based Payment”, (SFAS 123(R)) addresses the accounting for
share-based employee compensation. Further information on the Company’s equity compensation plans, including inputs used to de-
termine fair value of options is disclosed in Note 5 to the consolidated financial statements. SFAS 123(R) requires that share options
awarded to employees and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation
expense based on their fair value at grant date. The fair market value of options granted under the Company’s stock option plans was
estimated on the date of grant using the Black-Scholes option-pricing model using assumptions for inputs such as interest rates, ex-
pected dividends, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs
used are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce
different option values, which in turn would result in higher or lower compensation expense recognized.
To value options, several recognized valuation models exist. None of these models can be singled out as being the best or most correct
one. The model applied is able to handle some of the specific features included in the options granted, which is the reason for its use.
If a different model were used, the option values would differ despite using the same inputs. Accordingly, using different assumptions
coupled with using a different valuation model could have a significant impact on the fair value of employee stock options. Fair value
could be either higher or lower than the ones produced by the model applied and the inputs used.
Results oF oPeRations
Executive Overview
For the 2009 fiscal year the Company reported a 16% increase in revenues as compared to the prior fiscal year and a continuation of the
its record of profitability. Revenues for 2009 were $118,721,000, up from $102,418,000. The 2009 results reflect changes in currency
exchange rates that had an unfavorable impact of $2.7 million on net sales denominated in foreign currencies. Net income per share
was $0.92 in 2009, compared to $0.81 in the prior year. Both revenues and net income for the 2009 year established new all-time
highs. These results came in a very difficult business environment. The Company’s mission has shown some resilience to the economic
downturn and importantly for the first time in any fiscal year and despite the worldwide turmoil in economic and currency markets, the
Company’s percentage of sales from customers outside the United States exceeded 40% of total revenues. Cash flow from operations
for 2009 improved $3.1 million when compared to 2008 as the Company has implemented procedures and systems to better manage
inventory and other current asset levels.
Comparing the 2009 performance of the Company’s Scotland-based subsidiary to the prior year using British pounds, Neogen Europe
recorded an exceptional 26% revenue gain. However, when Neogen Europe’s 2009 revenues were translated into U.S. dollars in consoli-
dation, its revenue gain was reduced to 3%. On a positive basis two acquisitions were completed during the year that added $9,748,000
to total income. The Company also acquired a majority position in its distributor in Mexico. While the Mexican acquisition had little
effect on reported results in the current year, it is expected that it will add significantly to future growth.
Consolidated gross margins decreased 2% in 2009 to 50% from the effects of currency fluctuations, costs of integrating the acquisition
of the disinfectant products and product mix. A reduction of operating expenses as a percentage of revenues resulted in only a 300
basis point decrease in operating margins and a 14% overall increase in dollars of operating margin.
The Company’s financial performance continued to gain increased notice in the investment community in the past year, as it was se-
lected for the Russell 2000 and Standard & Poor’s SmallCap 600 indexes, and was named to Fortune Magazine’s annual list of America’s
100 Fastest Growing Small Public Companies, and to Forbes Magazine’s annual list of the 200 Best Small Companies in America for the
fourth consecutive year and seventh time in the last nine years.
11
management’s Discussion anD analYsis oF Financial conDition anD Results oF oPeRations
Revenues
(Dollars in thousands)
Food safety:
Natural Toxins, Allergens and Drug Residues
Bacterial and General Sanitation
Dry Culture Media and Other
animal safety:
Life Sciences and Other
Vaccine
Rodenticides and Disinfectants
Veterinary Instruments and Other
Total Revenues
Twelve Months Ended
may 31, 2009
Increase/
(Decrease)
May 31, 2008
Increase/
(Decrease)
May 31, 2007
$ 30,667
18,539
11,819
61,025
5,730
2,207
20,491
29,268
57,696
$ 118,721
6 %
10 %
1 %
6 %
3 %
–
99 %
10 %
29 %
16 %
$ 29,036
16,866
11,762
57,664
5,567
2,197
10,318
26,672
44,754
$ 102,418
15 %
24 %
42 %
22 %
13 %
(25 % )
(6 % )
32 %
15 %
19 %
$ 25,238
13,626
8,304
47,165
4,922
2,938
10,926
20,187
38,973
$ 86,138
The Company’s Food Safety segment recorded a completely organic, broad-based 2009 revenue increase of 6% to $61,025,000. Adjust-
ing for the impact of currency translation, organic growth was 11%.
The increase in Natural Toxins, Allergens & Drug Residues resulted from contributions of the food allergen product line that had another
outstanding year of growth, with sales increasing by more than 40%. The dramatic increase in sales of each of Neogen’s allergen tests
is attributable to food producers increasing efforts to ensure that inadvertent allergenic ingredients do not contaminate non-allergenic
foods. Sales of Food Safety’s oldest product line, its rapid tests to detect natural toxins in grain, also saw significant improvement for
the year, as tests for aflatoxin and deoxynivalenol (DON) improved by 10% compared to the prior year. Sales of these products, among
all of the Company’s products, are most affected by weather. However, continued world wide interest in toxin levels in human food and
animal feed has positively affected sales. These were offset by an almost 10% decrease in revenues from drug residue tests principally
as the result of currency changes.
Bacteria & General Sanitation sales had a good year despite several products that require a capital investment, including AccuPoint®
readers and Soleris™ microbial detection instruments, that slowed in 2009 due to the impact of the economic downturn. However, sales
of associated disposable AccuPoint samplers and Soleris vials increased sharply—providing evidence of the continued use and accep-
tance of these unique Food Safety products.
Dry Culture Media & Other were steady during the year as a result of the continued efforts of the sales and marketing staff in executing
their sales plan, following a large increase in the prior year.
Revenues from the Company’s Animal Safety segment grew 29% in 2009 compared to the prior year. While the successful integration of
the acquired DuPont line of disinfectants and cleaners, and IDS drug residue diagnostics, contributed the majority of Animal Safety’s
revenue growth for the year, sales of existing product lines achieved organic growth of 4% for the year.
Many of the products Life Sciences & Other in this category are sold into the world wide eventing animal industry. These customers have
been highly affected by the economic downturn. Management believes that any increase in this category is positive.
In total, revenues for the sales of vaccine products in FY 2009 were the same as in FY 2008, but sales of the vaccine to prevent equine
botulism increased nearly 20%. Sales of immunostimulant injectibles offset the increases. This decrease was due to the difficult eco-
nomic environment in FY 2009 as these products are used heavily in the hobby equine market.
Increases in Rodenticide & Disinfectants came principally as Animal Safety was able to capitalize on the acquisition of the disinfectant
products from DuPont to drive agricultural disinfectants and cleaner products to near double-digit growth for the year. Sales of the
new disinfectant products themselves exceeded expectations in their first year by more than 10%. Domestic sales of rodenticides also
experienced strong growth of 11% for the year led by market share gains in agronomic markets.
Sales increases in the Veterinary Instrument & Other category were broad based but included significant contributions from the dispos-
ables product lines, experiencing widespread increases in the integrator and retail markets. 2008 increases included sales from the Kane
acquisition but were offset partially by declining sales in equine supplements and certain wound care products.
12
management’s Discussion anD analYsis oF Financial conDition anD Results oF oPeRations
In FY 2008, sales of Natural Toxins, Allergens & Drug Residues increased by 15% in comparison with FY 2007. Increases were broad
based and resulted from deeper penetration in both the US and International markets following a year in which sales grew by 52%.
Bacterial & General Sanitation products increased by 24% in FY 2008, as the AccuPoint ATP general sanitation test continued to gain
momentum, domestically and internationally.
Dry Culture Media & Other Sales increased by 42% in FY 2008 as compared with FY 2007, as the Company focused their efforts on cus-
tomer service and resolution of customer operating problems that resulted in steep sales increases for the year. Acumedia experienced
gains in the sales for scientific related uses and experienced gains within the products for detection of E.coli in water.
Within the Animal Safety segment, sales of Life Sciences and Other Products increased by 13% in fiscal year 2008 in comparison with
fiscal year 2007. Increases in 2008 were due to new direct international customers and instrument placements for forensic customers,
sales of substrates and diagnostic research kits. Vaccine sales decreased by 25% in 2008 due to the timing of purchases by key domestic
and international distributor purchasers.
Sales of Hacco Rodenticides and Hess and Clark disinfectants decreased by 6% in fiscal 2008. Revenue decreases were due to cycli-
cal downturns in the rodenticide market. In general, mild and dry weather conditions in the western United States have led to fewer
infestations in 2008.
Veterinary Instruments & Other sales increased in 2008 by 32% in large part due to increases related to the Kane Enterprises acquisition.
cost oF gooDs solD
(Dollars in thousands)
Cost of Goods Sold
2009
increase
2008
Increase
2007
$ 59,288
21%
$ 49,185
18%
$ 41,575
Cost of goods sold increased by 21% in 2009 and by 18% in 2008 in comparison with the prior year. This compares against a 16% and
19% increase in revenues in 2009 and in 2008. Expressed as a percentage of revenues, cost of goods sold was 50%, 48% and 48% in
2009, 2008, and 2007 respectively. 2009 margins were adversely affected by the effects of currency conversion and the DuPont dis-
infectant acquisition, as the Company has not completed the transition to make the products in-house. The transition is expected to
conclude in Fiscal Year 2010.
Food Safety gross margins were 63%, 63% and 60% in 2009, 2008 and 2007, respectively. Changes in margins between periods relate
primarily to changes in product mix. Margins improved from 2007 as the effects of efficiencies resulting from investments in manufac-
turing facilities and the change to automate the manufacture of the ATP product.
Animal Safety gross margins were 37%, 38% and 41% in 2009, 2008 and 2007, respectively. Changes in margins between periods relate
primarily to product mix, including the disinfectants acquired from DuPont. Gross margins in this segment were also adversely affected
by a fall in rodenticide margins resulting from changes in commodity cost that have been difficult to reflect in prices.
oPeRating exPenses
(Dollars in thousands)
Sales and Marketing
General and Administrative
Research and Development
2009
increase
2008
Increase
2007
$ 22,906
11,484
4,555
11%
$ 20,648
12%
$ 18,463
5%
25%
10,927
3,639
17%
10%
9,301
3,295
Sales and marketing expense categories increased by 11% in 2009 and by 12% in 2008 as compared with the prior year. As a percentage
of sales, sales and marketing expense declined to 19% in 2009 as compared to 20% in 2008 and 2007. Management plans to continue
to expand the Company’s sales and marketing efforts both domestically and internationally and currently expects related expenses to
remain approximately 20% as expressed as a percentage of sales.
General and administrative expenses increased by 5% in 2009 and by 17% in 2008. These expenses have remained between 10% and
11% over the past three fiscal years. Increases in 2009 and 2008 resulted primarily from the acquisitions as well as due to increased
levels of operations and added amortization related to businesses acquired.
Research and development expenses increased by 25% in 2009 and 10% in 2008 in comparison with 2008 and 2007. As a percentage
of revenue these expenses were 4% in each of the years ended May 31, 2009, 2008 and 2007, respectively. Although some fluctuation
in research and development expenses will occur, management expects research and development expenses to approximate 4% to 6% of
revenues over time. These expenses approximate 8% to 10% of revenues from products and product lines that are supported by research
and development. Certain Company products require relatively less in research and development expenses.
13
management’s Discussion anD analYsis oF Financial conDition anD Results oF oPeRations
oPeRating income
(Dollars in thousands)
Operating Income
2009
increase
2008
Increase
2007
$ 20,488
14%
$ 18,019
33%
$ 13,504
During fiscal year 2009 and 2008, the Company’s operating income increased by 14% and 33% as compared to the respective prior
year. As a percentage of revenues it was 17%, 18% and 16% in 2009, 2008 and 2007 respectively. The Company has been successful
in improving its operating income in 2009 and 2008 from revenue growth from existing products and acquisitions and from control of
manufacturing and distribution costs.
otHeR income (net)
(Dollars in thousands)
2009
increase
2008
Increase
2007
Other Income — Interest and Other (Net)
$ 1,136
137%
$
479
29%
$
371
Other income increased by 137% in comparison with 2008 and increased by 29% in 2008 in comparison with 2007. Interest revenue
is a result of the Company’s increase in cash and cash equivalent position in the periods offset by decreased interest rates. Investment
earnings were $258,000 in 2009, $442,000 in fiscal 2008 and $373,000 in 2007. In 2009 other income also included $300,000 from a
one time royalty payment, $125,000 from a royalty payment expected to continue and $400,000 of gains from currency transaction. In
general no such other income was earned in 2008 or 2007.
FeDeRal anD state income taxes
(Dollars in thousands)
2009
increase
2008
Increase
2007
Federal and State Income Taxes
$ 7,750
21%
$ 6,400
35%
$ 4,750
Expressed as a percentage of income before tax, the tax provision was 36% in 2009, 35% in 2008 and 34% in 2007. Fluctuations in
tax provision result from the increase of the company’s federal tax rate to 35%, the localities where income is earned in any year and
tax credits.
net income anD net income PeR sHaRe
(Dollars in thousands, except per share data)
2009
increase
2008
Increase
2007
Net Income
Net Income Per Share - Basic
Net Income Per Share - Diluted
$ 13,874
$
$
.95
.92
15%
$ 12,098
33%
$ 9,125
$
$
.84
.81
$
$
.66
.64
Net income and net income per share increased by 15% in 2009 and 33% in 2008 in comparison with the prior year. As a percentage of
revenue, net income was 12%, 12% and 11% in 2009, 2008 and 2007 respectively. All of the above factors contributed to the increase
in net income.
FutuRe oPeRating Results
Neogen Corporation’s future operating results involve a number of risks and uncertainties. Actual events or results may differ materi-
ally from those discussed in this report. Factors that could cause or contribute to such differences include, but are not limited to, the
factors discussed below as well as those discussed elsewhere in this report. Management’s ability to grow the business in the future
depends upon its ability to successfully implement various strategies, including:
• developing, manufacturing and marketing new products with new features and capabilities;
• expanding the Company’s markets by fostering increased use of Company products by customers;
• maintaining gross and net operating margins in changing cost environments;
• strengthening sales and marketing activities in geographies outside of the U.S.;
• developing and implementing new technology development strategies; and
• identifying and completing acquisitions that enhance existing businesses or create new business areas.
14
management’s Discussion anD analYsis oF Financial conDition anD Results oF oPeRations
Financial conDition anD liQuiDitY
On May 31, 2009, the Company had $13,842,000 in cash and cash equivalents, working capital of $62,520,000 and stockholders’ equity
of $128,679,000. In addition to cash and cash equivalents, a bank line with unused borrowings of $10,000,000 was available if neces-
sary to support ongoing operations or to make acquisitions.
Cash and cash equivalents decreased $428,000 during 2009. Cash provided from operations was $10,985,000 and stock option exercise
proceeds provided an additional $2,916,000 of cash. Additions to property and equipment and other non-current assets used cash of
$2,836,000. Property additions approximated the provision for depreciation in 2009.
Accounts receivable increased $4,075,000 or 21% when compared to May 31, 2008. This resulted from increased sales, as a result of
organic sales growth and acquisitions and some lengthening of average days outstanding. These accounts are being actively managed
and no losses thereon in excess of amounts reserved are currently expected. Days sales outstanding increased from 58 days at May 31,
2008 to 60 days at May 31, 2009.
Inventory levels increased 13% or $3,564,000 in 2009 as compared to 2008. The change in inventory came from increases related to
higher levels of sales, inventory of acquired companies, new product introductions in food safety and increases to help provide for
inventory cost stability and to aid in assurance of supplies in tightening markets. The Company has maintained a strategy of shipping
inventory to many of its customers on a same day basis. Sufficient levels of inventory are maintained to assure that this strategy can be
achieved. Late in 2009 and continuing into the new year the Company has instituted programs aimed at reducing inventory. Inventory
was reduced $1.5 million in the 4th fiscal quarter.
The Company has no construction in progress and facilities are generally believed to be adequate to support existing operations in the
short run.
Neogen has been profitable from operations for its last 65 quarters and has generated positive cash flow from operations during the
period. However, the Company’s current funds 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 or may choose to issue equity securities or enter into other financing arrangements for a
portion of the Company’s future capital needs.
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 results of operations or financial position.
contRactual obligations
The Company has the following contractual obligations due by period:
(Dollars in thousands)
Long-Term Debt
Operating Leases
Total
Less than
one year
1–3 years
3–5 years
More than
5 years
$
–
$
–
$
–
$
–
$
305,000
158,000
147,000
–
–
Unconditional Purchase Obligations
13,529,000
13,529,000
–
$ 13,834,000
$ 13,687,000
$
147,000
$
–
$
neW accounting PRonouncements
See discussion of any New Accounting Pronouncements in Note 1 to Consolidated Financial Statements.
–
–
–
–
15
neogen coRPoRation anD subsiDiaRies: consoliDateD balance sHeets
May 31,
Assets
current assets
Cash and cash equivalents
Accounts receivable, less allowance of $600,000 and $500,000
at May 31, 2009 and 2008
Inventories
Deferred income taxes
Prepaid expenses and other current assets
total current assets
Property and equipment
Land and improvements
Buildings and improvements
Machinery and equipment
Furniture and fixtures
Less accumulated depreciation
net Property and equipment
other assets
Goodwill
Other non-amortizable intangible assets
Customer based intangibles, net of accumulated amortization of
$2,861,000 and $1,988,000 at May 31, 2009 and 2008
Other non-current assets, net of accumulated amortization of
$1,663,000 and $1,373,000 at May 31, 2009 and 2008
total other assets
Liabilities and Stockholders’ Equity
current liabilities
Accounts payable
Accruals
Compensation and benefits
Federal income taxes
Other
total current liabilities
Deferred income taxes
other long-term liabilities
total liabilities
stockholders’ equity
2009
2008
$ 13,842,000
$ 14,270,000
23,363,000
31,363,000
200,000
2,998,000
19,384,000
27,799,000
1,225,000
2,953,000
71,766,000
65,631,000
1,175,000
11,184,000
17,008,000
806,000
30,173,000
13,115,000
1,146,000
10,735,000
15,295,000
818,000
27,994,000
11,105,000
17,058,000
16,889,000
39,717,000
3,730,000
30,617,000
3,435,000
6,143,000
6,139,000
3,762,000
3,646,000
53,352,000
43,837,000
$ 142,176,000
$ 126,357,000
$ 3,909,000
$ 6,505,000
2,519,000
667,000
2,151,000
9,246,000
2,725,000
1,526,000
2,025,000
302,000
2,304,000
11,136,000
2,329,000
1,644,000
13,497,000
15,109,000
Preferred stock, $1.00 par value - shares authorized 100,000; none issued and outstanding
Common stock, $0.16 par value - shares authorized 30,000,000; 14,736,886 and 14,518,277
–
–
shares issued and outstanding at May 31, 2009 and 2008
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
total stockholders’ equity
2,358,000
63,162,000
(430,000 )
63,589,000
2,323,000
58,789,000
421,000
49,715,000
128,679,000
111,248,000
$ 142,176,000
$ 126,357,000
See accompanying notes to consolidated financial statements.
16
neogen coRPoRation anD subsiDiaRies: consoliDateD statements oF income
Year Ended May 31
net sales
cost of goods sold
gross margin
operating expenses
Sales and marketing
General and administrative
Research and development
operating income
other income
Interest income
Royalty income
Other
income before income taxes
Provision for income taxes
net income
net income Per share
Basic
Diluted
2009
2008
2007
$ 118,721,000
59,288,000
$ 102,418,000
49,185,000
$ 86,138,000
41,575,000
59,433,000
53,233,000
44,563,000
22,906,000
11,484,000
4,555,000
20,648,000
10,927,000
3,639,000
18,463,000
9,301,000
3,295,000
38,945,000
35,214,000
31,059,000
20,488,000
18,019,000
13,504,000
248,000
429,000
459,000
1,136,000
21,624,000
7,750,000
442,000
–
37,000
479,000
358,000
–
13,000
371,000
18,498,000
6,400,000
13,875,000
4,750,000
$ 13,874,000
$ 12,098,000
$ 9,125,000
$
$
0.95
0.92
$
$
0.84
0.81
$
$
0.66
0.64
See accompanying notes to consolidated financial statements.
17
neogen coRPoRation anD subsiDiaRies: consoliDateD statements oF stocKHolDeRs’ eQuitY
Common Stock
Shares
Amount
Additional
Paid-in Capital
Other
Income (Loss)(1)
Retained
Earnings
Total
Stockholders’
Equity
Balance, June 1, 2006
12,465,936
$ 1,994,000
$ 34,853,000
$
85,000
$ 28,492,000
$ 65,424,000
Issuance of Common Stock
975,000
156,000
12,838,000
12,994,000
Exercise of options and
warrants, net of share based
compensation, including
$460,000 income tax benefit
Issuance of shares under Employee
Stock Purchase Plan
Comprehensive income:
Net income for 2007
Foreign currency translation
adjustments
Total comprehensive income
565,586
90,000
3,825,000
14,284
3,000
183,000
3,915,000
186,000
9,125,000
9,125,000
301,000
301,000
9,426,000
Balance, May 31, 2007
14,020,806
2,243,000
51,699,000
386,000
37,617,000
91,945,000
Exercise of options and
warrants, net of share based
compensation, including
$747,000 income tax benefit
Issuance of shares under Employee
Stock Purchase Plan
Comprehensive income:
Net income for 2008
Foreign currency translation
adjustments
Total comprehensive income
482,960
78,000
6,865,000
14,511
2,000
225,000
6,943,000
227,000
12,098,000
12,098,000
35,000
35,000
12,133,000
Balance, May 31, 2008
14,518,277
2,323,000
58,789,000
421,000
49,715,000
111,248,000
Exercise of options and
warrants, net of share based
compensation, including
$682,000 income tax benefit
Issuance of shares under Employee
Stock Purchase Plan
Repurchase of Common Stock
Comprehensive income:
Net income for 2009
Foreign currency translation
adjustments
Total comprehensive income
255,188
41,000
4,992,000
5,033,000
13,210
(49,789 )
2,000
(8,000 )
296,000
(915,000 )
298,000
(923,000 )
13,874,000
13,874,000
(851,000 )
(851,000 )
13,023,000
balance, may 31, 2009
14,736,886
$ 2,358,000
$ 63,162,000
$ (430,000)
$ 63,589,000
$ 128,679,000
See accompanying notes to consolidated financial statements.
(1) Other represents accumulated other comprehensive income (loss).
18
neogen coRPoRation anD subsiDiaRies: consoliDateD statements oF casH FloWs
Year Ended May 31
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided
2009
2008
2007
$ 13,874,000
$ 12,098,000
$ 9,125,000
from operating activities:
Depreciation and amortization
Deferred income taxes
Share based compensation
Excess income tax benefit from the exercise of
stock options
Other
Changes in operating assets and liabilities, net of
business acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accruals and other changes
3,890,000
1,550,000
1,967,000
(682,000)
–
3,516,000
2,840,000
450,000
813,000
1,892,000
1,293,000
(747,000)
253,000
(460,000 )
367,000
(4,075,000)
(3,698,000)
(49,000)
(3,869,000)
(6,364,000)
(122,000)
(2,648,000)
1,666,000
856,000
(900,000)
(1,798,000 )
(1,490,000 )
(553,000 )
1,675,000
(1,654,000 )
Net Cash From Operating Activities
10,985,000
7,873,000
10,158,000
Cash Flows Used In Investing Activities
Purchases of property, equipment and other noncurrent
assets
Business acquisitions, net of cash acquired
Net Cash Used In Investing Activities
Cash Flows From (Used In) Financing Activities
Net proceeds from issuance of common stock
Exercise of options
Repurchase of common stock
Payments on long-term debt
Excess income tax benefit from the exercise of stock options
Increase (Decrease) in other long-term liabilities
(2,836,000)
(2,471,000)
(4,704,000)
(11,134,000)
(13,970,000)
(10,147,000)
(12,618,000)
–
(4,704,000)
–
–
2,916,000
5,060,000
(923,000)
–
682,000
(118,000)
–
–
747,000
(216,000)
12,994,000
2,441,000
–
(9,955,000)
460,000
71,000
Net Cash From Financing Activities
2,557,000
5,591,000
6,011,000
Net Increase (Decrease) In Cash
Cash And Cash Equivalents At Beginning Of Year
(428,000)
846,000
14,270,000
13,424,000
11,465,000
1,959,000
Cash And Cash Equivalents At End Of Year
$ 13,842,000
$ 14,270,000
$ 13,424,000
Supplemental Cash Flow Information
Income taxes paid, net of refunds
$ 7,386,000
$ 7,475,000
$ 3,295,000
See accompanying notes to consolidated financial statements.
19
neogen coRPoRation anD subsiDiaRies: notes to consoliDateD Financial statements
1. summaRY oF accounting Policies
Nature of Operations
Neogen Corporation develops, manufactures, and sells a diverse line of products dedicated to food safety testing and animal health
applications.
Basis of Consolidation
The consolidated financial statements include the accounts of Neogen Corporation and its subsidiaries (collectively, the Company ), all
of which are wholly owned, with the exception of Neogen Latinoamerica S.A.P.I. DE C.V. which is 60% owned.
All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual
results could differ from these estimates.
Comprehensive Income
Comprehensive income represents net income and any revenues, expenses, gains and losses that, under U.S. generally accepted ac-
counting principles, are excluded from net income and recognized directly as a component of stockholders’ equity. Accumulated other
comprehensive income (loss) consists solely of foreign currency translation adjustments.
Accounts Receivable and Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable.
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. Collateral or other security is generally not required for
accounts receivable. Only one customer accounted for more than 10% of accounts receivable at May 31, 2009 and 2008. As May 31,
2009 and 2008 the balance due from that customer was $2,879,000 or 12.3% and $2,536,000 or 12.8%, respectively of the total of all
outstanding accounts receivables.
The Company maintains a valuation allowance for accounts receivable of $600,000 at May 31, 2009 and $500,000 at May 31, 2008 and
2007. Expenses related to uncollectable accounts and allowance adjustments were $199,000, $54,000 and $30,000 in the years ended
May 31, 2009, 2008 and 2007 respectively. Write-offs were $99,000, $54,000 and $60,000 in the years ended May 31, 2009, 2008 and
2007 respectively.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable, and accrued expenses
approximate fair value based on either their short maturity or current terms for similar instruments.
Cash and Cash Equivalents
Cash and cash equivalents are used to support current operations and may be invested to take advantage of short-term investment op-
portunities. The Company invests in only high quality, Federally insured certificates of deposit with original maturity dates of less than
90 days and corporate commercial paper in 2008. The cost of these assets approximate fair market value at May 31, 2009 and 2008.
Cash equivalents were $5,344,000 and $12,185,000 at May 31, 2009 and 2008, respectively.
Inventories
Inventories are stated at the lower of cost, determined on the first-in, first-out method, or market. The components of inventories were
as follow:
Raw materials
Work-in-process
Finished and purchased finished goods
2009
2008
$ 11,183,000
$ 10,278,000
703,000
19,477,000
$ 31,363,000
598,000
16,923,000
$ 27,799,000
No less frequently than quarterly, inventory is analyzed for slow moving and obsolete inventory and the valuation allowance adjusted
as required. Write offs against the allowance are not separately identifiable. The valuation allowance for inventory was $1,025,000,
$700,000 and $510,000 at May 31, 2009, 2008 and 2007.
20
neogen coRPoRation anD subsiDiaRies: notes to consoliDateD Financial statements
Property and Equipment
Property and equipment is stated at cost. Expenditures for major improvements are capitalized while repairs and maintenance are
charged to expense. Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets, which
are generally seven to thirty-nine years for buildings and improvements and three to five years for furniture, machinery and equipment.
Depreciation expense was $2,560,000, $2,360,000, and $1,901,000 in 2009, 2008 and 2007, respectively.
Goodwill and Intangible Assets
Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts allocated
to other intangible assets. In general, goodwill is amortizable for tax purposes over 15 years. Other intangible assets include customer
relationships’ trademarks, licenses, trade names and patents. Amortizable intangible assets are amortized on either an accelerated or a
straight-line basis over five to twenty years. The Company reviews the carrying amounts of goodwill and other non-amortizable intan-
gible assets annually to determine if such assets may be impaired. If the carrying amounts of these assets are deemed to be less than
fair value based upon a discounted cash flow analysis, such assets are reduced to their estimated fair value. The remaining weighted-
average amortization period for customer based intangibles and other intangibles is 10.5 and 10.1 years respectively at May 31, 2009.
Long-lived Assets
Management reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in business condi-
tions indicate that the carrying amount of the assets may not be recoverable. Impairment is first evaluated by comparing the carrying
value of the long-lived assets to undiscounted future cash flows over the remaining useful life of the assets. If the undiscounted cash
flows are less than the carrying value of the assets, the fair value of the long-lived assets is determined, and if lower than the carrying
value, impairment is recognized.
Reclassifications
Certain amounts in the 2008 and 2007 financial statements have been reclassified to conform to the 2009 presentation.
Stock Options
At May 31, 2009, the Company had stock option plans that are described more fully in Note 5.
The weighted-average fair value per share of options granted during 2009, 2008 and 2007, estimated on the date of grant using the
Black-Scholes option pricing model, was $8.16, $6.91 and $5.69, respectively. The fair value of options granted was estimated using
the following weighted-average assumptions:
Risk-free interest rate
Expected dividend yield
Expected stock price volatility
Expected option life
2009
2.9%
0%
32.8%
4.0 years
2008
4.6%
0%
34.2%
4.0 years
2007
4.7%
0%
46.5%
4.0 years
The risk-free interest rate for periods within the expected life of options granted is based on the United States Treasury yield curve in
effect at the time of grant. Expected stock price volatility is based on historical volatility of the Company’s stock. The expected option
life, representing the period of time that options granted are expected to be outstanding, is based on historical option exercise and
employee termination data. The Company recognizes the cost of stock options using the accelerated method over their requisite service
periods which the Company has determined to be the vesting periods.
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 generally is 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.
Shipping and Handling Costs
Shipping and handling costs that are charged to and reimbursed by the customer are recognized as sales, while the related expenses
incurred by the Company are recorded in sales and marketing expense and totaled $4,266,000, $3,888,000 and $3,426,000 in 2009,
2008 and 2007, respectively.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the
21
neogen coRPoRation anD subsiDiaRies: notes to consoliDateD Financial statements
change in net deferred income tax assets and liabilities during the year.
No provision has been made for United States federal income taxes that may result from future remittances of the undistributed earn-
ings of foreign subsidiaries because it is expected that such earnings will be reinvested overseas indefinitely. At May 31, 2009 retained
earnings of the UK subsidiary were $4,273,000.
Research and Development Costs
Research and Development costs are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred and totaled $603,000, $424,000 and $393,000 in 2009, 2008 and 2007, respectively.
Net Income Per Share
Basic net income per share is based on the weighted average number of common shares outstanding during each year. Diluted earn-
ings per share is based on the weighted average number of common shares and dilutive potential common shares outstanding. The
Company’s dilutive potential common shares outstanding during the years result entirely from dilutive stock options and warrants. The
following table presents the net income per share calculations:
Year ended May 31,
Numerator for basic and diluted net income per share
Net income
Denominator
Denominator for basic net income per share weighted
average shares
Effect of dilutive stock options and warrants
Denominator for diluted net income per share
Net income per share
Basic
Diluted
2009
2008
2007
$ 13,874,000 $ 12,098,000 $
9,125,000
14,669,000
389,000
15,058,000
14,474,000
13,791,000
525,000
370,500
14,999,000
14,161,500
$
$
0.95 $
0.92 $
0.84 $
0.81 $
0.66
0.64
In 2009, approximately 278,000 options were excluded from the computations of net income per share as the option prices exceeded
the average market price of the common shares. No options were excluded in 2008 or 2007.
New Accounting Pronouncements
In December 2007, SFAS No. 141 “Business Combinations (revised 2007)” (SFAS 141(R)) was issued. The revision is intended to con-
verge rulemaking and reporting under U.S. Generally Accepted Accounting Principles (GAAP) with international accounting rules. SFAS
141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141( R) when adopted on
June 1, 2009 is not expected to affect existing accounting for acquisitions.
SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial
statements. Its intention is to eliminate the diversity in practice regarding the accounting for transactions between and entity and
noncontrolling interests. The Company is required to adopt the provisions of both SFAS 141 (R) and SFAS 160 simultaneously at the
beginning of fiscal 2010. Earlier adoption is prohibited. SFAS 160 when adopted on June 1, 2009, is not expected to have a material
impact on the Company’s results of operations or financial position.
In April 2009 the FASB issued FSP No. FAS 107-1: “Disclosures about Fair Value of Financial Instruments” to require disclosures about
fair value of financial instruments for interim and annual reporting periods of publicly traded companies. The Company will adopt FSP
FAS 107-1 during the quarter ended in August 31, 2009. The statement is not expected to have any impact on the Company’s results
of operations or financial position.
In May 2009, the FASB issued SFAS No. 165: “Subsequent Events,” which establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. It requires
the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS No. 165 is effec-
tive for interim or annual financial periods ending after June 15, 2009. The adoption of this standard during the quarter ended August
22
neogen coRPoRation anD subsiDiaRies: notes to consoliDateD Financial statements
31, 2009 is not expected to have any impact on the Company’s results of operations or financial position.
2. gooDWill anD otHeR intangible assets
The Company follows the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 prohibits the amortization
of goodwill and intangible assets with indefinite lives and requires that the Company evaluate these intangibles for impairment on an
annual basis. Management has completed the required annual impairment tests of goodwill and intangible assets with indefinite lives
as prescribed by SFAS No. 142 as of the first day of the fourth quarter of 2009 and determined that recorded amounts were not impaired
and that no write-down was necessary.
The following table summarizes goodwill by business segment:
Balance, June 1, 2007
Goodwill acquired
Balance, May 31, 2008
Goodwill acquired
balance, may 31, 2009
Food Safety
$ 12,397,000
4,000
12,401,000
114,000
Animal Safety
$ 12,051,000
6,165,000
18,216,000
8,986,000
Total
$ 24,448,000
6,169,000
30,617,000
9,100,000
$ 12,515,000
$ 27,202,000
$ 39,717,000
At May 31, 2009, non-amortizable intangible assets included licenses of $554,000, trademarks of $1,952,000 and customer relationship
intangibles of $1,224,000. At May 31, 2008, non-amortizable assets consisted of licenses of $370,000, trademarks of $1,841,000 and
customer relationship intangibles of $1,224,000.
Other amortizable intangible assets consisted of the following and are included in customer based intangible and other noncurrent as-
sets within the consolidated balance sheets:
Licenses
Covenants not to compete
Patents
Customer relationship intangibles
Balance, May 31, 2008
Licenses
Covenants not to compete
Patents
Customer relationship intangibles
Balance, May 31, 2009
Gross Carrying
Amount
Less Accumulated
Amortization
Net Carrying
Amount
$
1,101,000
$
525,000
$
576,000
95,000
3,007,000
8,127,000
$
12,330,000
$
1,225,000
$
$
70,000
3,513,000
9,004,000
63,000
785,000
1,988,000
3,361,000
583,000
35,000
1,045,000
2,861,000
$
$
32,000
2,222,000
6,139,000
8,969,000
642,000
35,000
2,468,000
6,143,000
$
13,812,000
$
4,524,000
$
9,288,000
Amortization expense for other intangibles totaled $1,330,000, $1,156,000 and $939,000 in 2009, 2008 and 2007, respectively. The es-
timated amortization expense for each of the five succeeding years is as follows: $1,403,000 in 2010, $1,313,000 in 2011, $1,244,000
in 2012, $1,177,000 in 2013, and $1,109,000 in 2014. The other amortizable intangible assets useful lives are 5 to 20 years for licenses,
5 years for covenants not to compete, 5 to 17 years for patents, and 12 to 20 years for customer relationship intangibles. All intangibles
are amortized on a straight line basis with the exception of customer based intangibles which are amortized on an accelerated basis.
3. business acQuisitions
The Consolidated Statements of Income reflect the results of operations for business acquisitions since the respective dates of purchase.
All are accounted for using the purchase method.
On August 24, 2007, Neogen Corporation purchased the operating assets of Brandon, South Dakota based Kane Enterprises, Inc. Con-
sideration for the purchase, including additional net current assets of $800,000, consisted of $6,600,000 of cash. The allocation of
the purchase price consisted of $600,000 in accounts receivables, $1,775,000 in inventory, $55,000 in fixed assets, $4,350,000 in
goodwill and other intangible assets (estimated useful lives of 5-15 years) and $180,000 in assumed liabilities. The acquisition has
been integrated into the Lexington, Kentucky operations and is a strong synergistic fit with the Company’s Animal Safety product line.
23
neogen coRPoRation anD subsiDiaRies: notes to consoliDateD Financial statements
On December 3, 2007, Neogen Corporation purchased the operating assets of Winnipeg, Manitoba based Rivard Instruments Inc., a
manufacturer of veterinary instruments. Consideration for the purchase was cash of $3,469,000. The preliminary allocation of the
purchase price consisted of $468,000 in inventory, $5,000 in fixed assets and $2,996,000 in goodwill and other intangible assets (esti-
mated useful lives of 13-17 years). The acquisition has been integrated into the Lexington, Kentucky operations is a strong synergistic
fit with the Company’s Animal Safety product line.
On June 30, 2008, Neogen Corporation purchased a disinfectant business from DuPont Animal Health Solutions. The products of this
business are used in animal health hygiene applications. Assets acquired include 14 different product formulations, associated regis-
trations, patents, trademarks, and other intangibles (estimated useful lives of 5-15 years). As a part of the acquisition the Company
obtained the right to distribute certain other related DuPont products in North America. DuPont will distribute certain of the newly
acquired Neogen products in certain international markets. Consideration for the purchase was $7,000,000 with potential additional
payments of up to $5,000,000 based upon future revenues. On a preliminary basis, the purchase price has been assigned to intangible
assets.
On June 3, 2008, Neogen Corporation formed a subsidiary in Mexico, Neogen Latinoamerica S.A.P.I. DE C.V. to acquire its former dis-
tributor. The new business is 40% owned by Neogen Corporation’s former Mexican distributor in Mexico, with the remainder owned
by Neogen. The new company will distribute the Company’s food and animal safety products throughout Mexico. The consideration of
$672,000 was allocated $462,000 to current assets, $30,000 to fixed assets and the remainder to intangible assets (estimated useful
lives of 10 years).
On May 4, 2009, Neogen Corporation acquired International Diagnostics Systems Corporation, a St. Joseph, Michigan based developer,
manufacturer and marketer of test kits to detect drug residues in food and animal feed, and drugs in forensic and animal samples.
International Diagnostic Systems reported sales of $2 million in its most recently completed fiscal year prior to the acquisition. The pre-
liminary allocation included net current assets of $498,000 and intangible assets of $2,964,000 (estimated useful lives of 5-15 years).
4. long-teRm Debt
The Company has a financing agreement with a bank (nothing drawn at May 31, 2009) providing for an unsecured revolving line of credit
of $10,000,000 that matures on December 1, 2010. Interest is at LIBOR plus 125 basis points (rate under the terms of the agreement
was 1.57% at May 31, 2009). Financial covenants include maintaining specified funded debt to EBITDA and debt service ratios, each of
which the Company is in compliance with at May 31, 2009.
5. eQuitY comPensation Plans
Qualified and non-qualified options to purchase shares of common stock may be granted to directors, officers and employees of the
Company under the terms of the Company’s stock option plans at an exercise price of not less than the fair market value of the stock
on the date of grant. The number of shares initially authorized for issuance under current and now expired plans total 5,074,219.
Remaining shares available for grant under stock option plans were 723,000, 983,000 and 599,000 at May 31, 2009, 2008 and 2007,
respectively. Options vest and the contractual terms are generally five years.
Outstanding at June 1, 2006 (867,947 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2007 (688,011 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2008 (517,983 exercisable)
Granted
Exercised
Forfeited
Shares
1,842,158
322,500
(636,018)
(14,939)
1,513,701
389,756
(473,189)
(20,791)
1,409,477
278,000
(260,201)
(17,765)
Weighted-Average
Exercise Price
$
9.35
13.53
7.28
9.43
11.10
20.54
9.02
14.03
14.36
27.16
10.85
8.60
outstanding at may 31, 2009 (555,299 exercisable)
1,409,511
$ 17.51
24
neogen coRPoRation anD subsiDiaRies: notes to consoliDateD Financial statements
The following is a summary of stock options outstanding at May 31, 2009:
Options Outstanding
Options Exercisable
Range of
Exercise Price
$
3.33–3.67
6.35–7.41
10.13–13.63
20.33–27.28
Number
3,752
8,625
744,353
652,781
Average Remaining
Contractual Life
Weighted Average
Exercise Price
Number
Weighted Average
Exercise Price
0.85
$
2.79
2.88
5.32
3.55
6.95
12.59
23.33
17.51
3,752
$
8,625
464,426
78,496
555,299
$
3.50
6.95
12.28
20.67
13.33
$
3.33–27.28
1,409,511
4.00
$
The weighted-average exercise price of shares that were exercisable at May 31, 2008 and 2007 was $11.35 and $9.72, respectively.
The aggregate intrinsic value of options outstanding and options exercisable was $10,826,000 and $5,869,000 at May 31, 2007,
$16,879,000 and $7,762,000 at May 31, 2008 and $7,850,000 and $4,855,000 at May 31, 2009. The aggregate intrinsic value of options
exercised during the year was $6,547,000 in 2007 and $6,783,000 in 2008 and $4,099,000 in 2009. Remaining compensation cost for
non-vested shares was $2,323,000 at May 31, 2009.
The following table summarizes warrant activity with non-employees that are expensed at fair value upon grant. All warrants are
exercisable for common stock of the Company and expire through 2012.
Outstanding warrants at June 1, 2006
Warrants exercised during the year
Warrants granted during the year
Warrants forfeited during the year
Outstanding warrants at May 31, 2007
Warrants exercised during the year
Outstanding warrants at May 31, 2008
Warrants exercised during the year
Warrants forfeited during the year
Shares
81,938
(9,375)
12,000
(3,750)
80,813
(26,813)
54,000
(15,750)
(3,750)
Weighted-Average
Exercise Price
$
9.69
6.99
13.53
9.43
10.58
8.14
11.79
10.83
10.13
outstanding warrants at may 31, 2009
34,500
$ 12.60
Common stock totaling 39,954 of the 100,000 originally authorized shares are reserved for issuance under the terms of the 2002 Em-
ployee Stock Purchase Plan. The plan gives eligible employees the option to purchase common stock (total purchases in any year are
limited to 10% of compensation) at 95% of the lower of the market value of the stock at the beginning or end of each participation
period. Shares purchased by employees were 13,210, 14,511 and 9,523 in 2009, 2008 and 2007, respectively.
6. income taxes
The provision for income taxes consisted of the following:
Year ended May 31,
Current:
U.S. Federal
Foreign
State (Credit)
Deferred
2009
2008
2007
$ 5,200,000
$
5,200,000
$ 3,739,000
500,000
500,000
1,550,000
400,000
350,000
450,000
250,000
(52,000 )
813,000
$ 7,750,000
$
6,400,000
$ 4,750,000
25
neogen coRPoRation anD subsiDiaRies: notes to consoliDateD Financial statements
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for finan-
cial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred income tax
liabilities and assets are as follows:
May 31,
Deferred income tax liabilities
Depreciation and amortization
Prepaids
Other
Deferred income tax assets
Inventories and accounts receivable
Acquired net operating loss carry forwards
Accrued liabilities and other
2009
2008
$ (4,079,000)
$ (3,066,000)
(229,000)
(451,000)
(4,759,000)
844,000
229,000
1,161,000
2,234,000
(128,000)
(148,000)
(3,342,000)
735,000
100,000
1,403,000
2,238,000
Net deferred income tax liabilities
$ (2,525,000)
$
(1,104,000)
The acquired net operating loss carry forwards resulted in a deferred tax asset of $229,000, of which $100,000 will expire in 2011 and
$129,000 will expire in 2019.
The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is as follows:
Year ended May 31,
Tax at U.S. statutory rates
Tax credits and other
Provisions for state income taxes, net of
federal benefit
2009
$ 7,600,000
(180,000 )
330,000
$ 7,750,000
2008
$ 6,374,000
(194,000 )
220,000
$ 6,400,000
2007
$ 4,756,000
28,000
(34,000 )
$ 4,750,000
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on June 1,
2007. The adoption of FIN 48 had no significant affect on the financial statements. The Company has no significant accrual for unrec-
ognized tax benefits at May 31, 2009. Should the accrual of any interest of penalties relative to unrecognized tax benefits be necessary,
such accruals will be reflected within income tax accounts. For the majority of tax jurisdictions, the Company is no longer subject to
U.S. Federal, State and local or non U.S. income tax examinations by tax authorities for fiscal years before 2006.
7. commitments anD contingencies
The Company is involved in environmental remediation and monitoring activities at its Randolph, Wisconsin manufacturing facility and
accrues for related costs when such costs are determined to be probable and estimable. The Company is currently expensing annual
costs of remediation of approximately $90,000. The Company’s estimated liability for this expense of $916,000 at May 31, 2009 is
recorded within other long term liabilities in the consolidated balance sheet.
The Company has agreements with unrelated third parties that provide for the payment of royalties on the sale of certain products.
Royalty expense under the terms of these agreements for was $1,184,000, $1,231,000 and $1,124,000 for 2009, 2008 and 2007, re-
spectively.
The Company leases office and manufacturing facilities under noncancelable operating leases. Rent expense for 2009, 2008 and 2007
was $336,000, $326,000 and $346,000, respectively. Future minimum rental payments for these leases over the remaining terms are as
follows: 2010 - $158,000; 2011 - $99,000; and 2012 - $48,000.
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.
26
neogen coRPoRation anD subsiDiaRies: notes to consoliDateD Financial statements
8. DeFineD contRibution beneFit Plan
The Company maintains a defined contribution 401(k) benefit plan covering substantially all employees. Employees are permitted to
defer up to IRS limits, with the Company matching 100% of the first 3% deferred and 50% of the next 2% deferred. The Company’s
expense under this plan was $542,000, $476,000 and $409,000 in 2009, 2008 and 2007, respectively.
9. 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, foodborne bacteria, allergens and
levels of general sanitation. The Animal Safety segment is primarily engaged in the production and marketing of products dedicated
to animal health, including a complete line of consumable products marketed to veterinarians and animal health product distributors.
Additionally, the Animal Safety segment produces and markets rodenticides and disinfectants to assist in control of rodents and disease
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 differ-
ent marketing strategies. The Company evaluates performance based on total sales and operating income of the respective segments.
The accounting policies of the segments are the same as those described in Note 1.
Segment information is as follows:
Food Safety
Animal Safety
Corporate
and Eliminations (1)
Total
2009
Net sales to external customers
Operating income
Depreciation and amortization
Interest income
Income taxes
Total assets
Expenditures for long-lived assets
2008
Net sales to external customers
Operating income
Depreciation and amortization
Interest income
Income taxes
Total assets
Operating income
Depreciation and amortization
Interest income
Income taxes
Total assets
$ 61,025,000
14,943,000
2,717,000
–
5,356,000
61,322,000
1,882,000
$ 57,664,000
14,245,000
2,495,000
–
$ 57,696,000
$
–
$ 118,721,000
6,786,000
(1,241,000 )
20,488,000
1,173,000
–
2,432,000
–
248,000
(38,000 )
3,890,000
248,000
7,750,000
69,559,000
11,295,000
142,176,000
954,000
$ 44,754,000
$
4,972,000
1,021,000
–
–
–
2,836,000
$ 102,418,000
(1,198,000 )
18,019,000
–
442,000
(426,000 )
3,516,000
442,000
6,400,000
5,060,000
1,766,000
60,951,000
52,236,000
13,170,000
126,357,000
9,619,000
1,952,000
–
4,845,000
888,000
–
3,383,000
1,704,000
–
–
2,471,000
$ 86,138,000
(960,000 )
13,504,000
–
358,000
(337,000 )
2,840,000
358,000
4,750,000
Expenditures for long-lived assets
1,850,000
621,000
2007
Net sales to external customers
$ 47,165,000
$ 38,973,000
$
55,426,000
39,104,000
10,754,000
105,284,000
Expenditures for long-lived assets
3,692,000
1,012,000
–
4,704,000
(1) Includes corporate assets, including cash and cash equivalents and current and deferred tax accounts, and overhead expenses not allocated to specific business segments. Also includes
the elimination of intersegment transactions and minority interests.
27
neogen coRPoRation anD subsiDiaRies: notes to consoliDateD Financial statements
Sales to customers located outside the United States amounted to $48,678,000 or 41% of consolidated sales in 2009, $39,333,000 or
38% in 2008 and $32,727,000 or 38% in 2007 and were derived primarily in the geographic areas of South and Central America, and
Canada, Asia and Europe. Revenues from one Food Safety distributor customer were 9.8% in 2009 and 11.9% in 2008 of total revenues.
No other customer represented revenues in excess of 10% of consolidated net sales. The United States based operations represent 97%
of the Company’s long-lived assets as of May 31, 2008 and 2009.
10. stocK RePuRcHase
In December 2008, the Company’s Board of Directors rescinded an existing program and authorized a new program to purchase, subject
to market conditions, up to 500,000 shares of the Company’s common stock. As of May 31, 2009, 49,789 cumulative shares have been
purchased in negotiated and open market transactions for a total price, including commissions, of approximately $923,000. There were
no purchases in 2008 or 2007 under the rescinded program. Shares purchased under the program were retired.
11. summaRY oF QuaRteRlY Data (unauDiteD)
Net sales
Gross margin
Net income
Basic net income per share
Diluted net income per share
Net sales
Gross margin
Net income
Basic net income per share
Diluted net income per share
August 2007
November 2007
February 2008
May 2008
Quarter Ended
In thousands, except per share data
$
22,909
$
27,210
$
25,180
$
12,297
3,011
.21
.21
14,171
3,254
.23
.22
Quarter Ended
12,663
2,658
.19
.18
27,119
14,102
3,175
.22
.21
August 2008
November 2008
February 2009
May 2009
In thousands, except per share data
$
28,805
$
31,187
$
27,840
$
14,804
3,733
.26
.25
16,125
3,901
.27
.26
13,027
2,823
.19
.19
30,889
15,477
3,417
.23
.22
Quarterly net income per share is based on weighted-average shares outstanding and potentially dilutive stock options and warrants for
the specific period, and as a result, will not necessarily aggregate to total net income per share as computed for the year as disclosed
in the consolidated statements of income.
28
RePoRts
management’s RePoRt on inteRnal contRol oveR Financial RePoRting
The Board of Directors and Shareholders of Neogen Corporation,
The management of Neogen Corporation is responsible for establishing and maintaining adequate internal control over financial re-
porting, as such term is defined in Exchange Act Rules 13a-15(f). Neogen Corporation’s internal control system was designed to provide
reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published
financial statements.
Neogen Corporation’s management assessed the effectiveness of the Company’s internal control over financial reporting as of May
31, 2009 under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-
Integrated Framework. Based on that assessment, management believes that, as of May 31, 2009 the Company’s internal control over
financial reporting is effective.
James L. Herbert
Chairman and CEO
August 14, 2009
Richard R. Current
Vice President and CFO
RePoRt oF inDePenDent RegisteReD Public accounting FiRm
The Board of Directors and Shareholders of Neogen Corporation,
We have audited Neogen Corporation’s internal control over financial reporting as of May 31, 2009, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Neogen Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for
its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Report on
Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over fi-
nancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted account-
ing principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding preven-
tion or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, pro-
jections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Neogen Corporation maintained, in all material respects, effective internal control over financial reporting as of May
31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Neogen Corporation as of May 31, 2009 and 2008, and the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the three years in the period ended May 31, 2009, and our report dated August 14, 2009
expressed an unqualified opinion thereon.
Grand Rapids Michigan, August 14, 2009
29
RePoRts
RePoRt oF inDePenDent RegisteReD Public accounting FiRm
The Board of Directors and Stockholders of Neogen Corporation,
We have audited the accompanying consolidated balance sheets of Neogen Corporation and subsidiaries (the Company) as of May 31,
2009 and 2008, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in
the period ended May 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Neogen Corporation and subsidiaries at May 31, 2009 and 2008, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended May 31, 2009, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of Neogen Corporation’s internal control over financial reporting as of May 31, 2009, based on criteria established in In-
ternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated August 14, 2009 expressed an unqualified opinion thereon.
Grand Rapids Michigan, August 14, 2009
30
neogen coRPoRation anD subsiDiaRies: comPaRison oF Five YeaR cumulative total RetuRn
anD stocK PRoFile activitY
comparison of Five Year cumulative total Return*
Among Neogen Corporation, The NASDAQ Composite Index,
and The NASDAQ Medical Equipment Index
Neogen Corporation
NASDAQ Composite
NASDAQ Medical Equipment
5/05
5/06
5/07
5/08
5/09
$300
250
200
150
100
50
0
5/04
*$100 invested on May 31, 2004 in stock or index, including reinvestment of dividends. Fiscal year ending May 31.
Neogen Corporation
NASDAQ Composite
NASDAQ Medical Equipment
5/04
$100.00
100.00
100.00
5/05
$91.47
104.91
108.12
5/06
5/07
5/08
5/09
$128.87
$172.96
$249.59
$208.84
113.08
121.21
136.66
140.36
132.60
141.40
92.61
93.69
The stock price performance included in this graph is not indicative of future stock price performance.
stocK PRoFile activitY
The Company’s common stock is traded in the over-the-counter market and quoted in the NASDAQ National Market
System under the symbol NEOG. Price ranges reported are based on inter-dealer sale quotations, as reported by NASDAQ,
without adjustments for markups, markdowns, or commissions typically paid by retail investors, and may not represent
actual transactions. No cash dividends have ever been paid, and the Company does not currently anticipate paying cash
dividends in the foreseeable future. As of July 31, 2009, there were approximately 525 stockholders of record of Com-
mon Stock that management believes represents a total of approximately 5,625 beneficial holders.
Year ended
High
low
may 31, 2009
Fourth Quarter
$ 23.97
$ 16.50
Third Quarter
Second Quarter
First Quarter
27.56
31.95
28.50
19.66
19.10
22.20
may 31, 2008
Fourth Quarter
$ 27.99
$ 23.89
Third Quarter
Second Quarter
28.50
27.93
20.35
20.20
First Quarter
22.12
17.24
31
neogen coRPoRation oFFiceRs anD DiRectoRs
oFFiceRs
James l. Herbert
Chairman of the Board
Chief Executive Officer
lon m. bohannon
President
Chief Operating Officer
Richard R. current
Vice President
Chief Financial Officer & Secretary
edward l. bradley
Vice President, Food Safety
Kenneth v. Kodilla
Vice President
Manufacturing
Joseph m. madden, Ph.D.
Vice President
Scientific Affairs
anthony e. maltese
Vice President
Corporate Development
terri a. morrical
Vice President
Animal Safety
mark a. mozola, Ph.D.
Vice President
Research and Development
Paul s. satoh, Ph.D.
Vice President
Basic and Exploratory Research
DiRectoRs
James l. Herbert
Neogen Corporation
Chairman of the Board
Chief Executive Officer
lon m. bohannon
Neogen Corporation
President
Chief Operating Officer
Robert m. book
Agrivista, Inc.
President
Elanco Products Company
Former Vice President
a. charles Fischer
Dow AgroSciences
Former President & CEO
gordon e. guyer, Ph.D.
Michigan State University
Former President
g. bruce Papesh
Dart, Papesh & Co.
President
Jack c. Parnell
Kahn, Soares & Conway
U.S. Department of Agriculture
Former Deputy Secretary
thomas H. Reed
JBS Packerland
Special Assistant to the President
clayton K. Yeutter, Ph.D.
Hogan & Hartson, LLP
Senior Advisor, International Trade
U.S. Department of Agriculture
Former Secretary
legal council
lowe law Firm, P.c.
2375 Woodlake Drive
Suite 380
Okemos, MI 48864
Fraser trebilcock Davis & Dunlap, P.c.
1000 Michigan National Tower
Lansing, MI 48933
inDePenDent RegisteReD Public
accounting FiRm
ernst & Young, llP
171 Monroe Avenue NW
Suite 1000
Grand Rapids, MI 49503
FoRm 10-K anD tHe comPanY’s
coDe oF etHics
Copies of Form 10-K and the Company’s
Code of Ethics will be provided upon request
without charge to persons directing their
request to:
Neogen Corporation
Attention: Investor Relations
620 Lesher Place
Lansing, MI 48912
stocK tRansFeR agent anD
RegistRaR
American Stock Transfer & Trust Co.
6201 15th Avenue
Brooklyn, NY 11219
annual meeting
10:00 a.m.
October 8, 2009
University Club of Michigan State University
3435 Forest Road
Lansing, MI 48909
© Neogen Corporation, 2009. AccuPoint, Acumedia, Ag-Tek, Alert, BetaStar, GeneQuence, Ideal, Neogen, Reveal, Soleris, TetraStar and Veratox are registered trademarks, and D3
Detectable Needles is a trademark of Neogen Corporation, Lansing, Mich. All other trademakrs are properties of their respective companies.
NE008-0809
32