CONTENTS
Financial Highlights ...............................................................1
A Message from Management ...............................................2
Advancing the Science of Food Security ...........4
Management’s Discussion and Analysis of Financial
Condition and Results of Operations .....................................10
Consolidated Balance Sheets ...............................................17
Consolidated Statements of Income .....................................18
Consolidated Statements of Comprehensive Income ..............18
Consolidated Statements of Equity .......................................19
Consolidated Statements of Cash Flows ...............................20
Notes to Consolidated Financial Statements ..........................21
Management’s Report on Internal Control
Over Financial Reporting ......................................................31
Report of Independent Registered
Public Accounting Firm ........................................................31
Comparison of Five Year Cumulative Total Return
and Stock Profile Activity .....................................................32
The mission of
Neogen Corporation
is to be the leading company
in the development and marketing
of solutions for food and animal safety.
Thanks for the legacy, Lon
As Neogen marks its 31st year, we must say thanks to one of the team who helped guide
and mold the company to its market cap of more than $1 billion. Lon Bohannon retired from
Neogen in August 2013 to pursue some opportunities with his family that he had considered
for some time.
Lon joined Neogen in October 1985 as the company’s first financial officer when revenues
were less than $4 million. He helped successfully sell the Neogen dream until the company
became financially successful. Lon then stepped in as president and chief operating officer as
we consistently set quarter after quarter revenue and earnings records. He was a key member
of the team that developed hundreds of new products, made dozens of good acquisitions, and
helped grow the team to more than 800 employees.
Lon’s greatest contribution is the legacy he leaves behind. For several months prior to his
retirement, he helped select Steve Snyder to become the company’s new president and
spent a number of weeks proudly introducing Steve to our people and operations.
Lon, thanks for your role in our success and the legacy you leave.
2014 Neogen Corporation Officers and Directors
OFFICERS
James L. Herbert
Chairman of the Board
Chief Executive Officer
Stephen K. Snyder
President
Chief Operating Officer
Steven J. Quinlan
Vice President
Chief Financial Officer and Secretary
Edward L. Bradley
Vice President, Food Safety
Kenneth V. Kodilla
Vice President, Manufacturing
Jason W. Lilly, Ph.D.
Vice President, Corporate Development
Terri A. Morrical
Vice President, Animal Safety
Mark A. Mozola, Ph.D.
Vice President, Research and Development
Jennifer A. Rice, DVM, Ph.D.
Vice President
Senior Research Director
DIRECTORS
James L. Herbert
Neogen Corporation
Chairman of the Board
Chief Executive Officer
William T. Boehm, Ph.D.
Kroger Company
Former Senior Vice President
President’s Council of Economic Advisors
Former Senior Economist
Richard Crowder, Ph.D.
Virginia Tech University
Thornhill Professor of Agricultural Trade
Office of the U.S. Trade Representative
Former Chief Agricultural Trade Negotiator
A. Charles Fischer
Dow AgroSciences
Former President and CEO
G. Bruce Papesh
Dart, Papesh & Co.
President
Jack C. Parnell
Siller Brothers, Inc.
Chairman of the Board
Siller Helicopters, Inc.
Chairman of the Board
U.S. Department of Agriculture
Former Deputy Secretary
Former Acting Secretary
Thomas H. Reed
Tom Reed & Associates
President
JBS Packerland
Former Senior Vice President
Michigan Livestock Exchange
Former President and CEO
MSU Board of Trustees
Former Chairman
Clayton K. Yeutter, Ph.D.
Hogan Lovells, LLP
Senior Advisor, International Trade
U.S. Department of Agriculture
Former Secretary
Former U.S. Trade Representative
DIRECTOR EMERITUS
Gordon E. Guyer, Ph.D.
Michigan State University
Former President
LEGAL COUNSEL
Lowe Law Firm, P.C.
2375 Woodlake Drive
Suite 380
Okemos, MI 48864
Fraser Trebilcock Davis & Dunlap, P.C.
124 W. Allegan, Suite 1000
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 and Trust Co.
6201 15th Avenue
Brooklyn, NY 11219
ANNUAL MEETING
October 3, 2013
10:00 a.m.
University Club
Michigan State University
3435 Forest Road
Lansing, MI 48909
© Neogen Corporation, 2013. AccuPoint, Acumedia, BetaStar, Ideal, GeneSeek, Igenity, Macleod, Reveal, Soleris and SyrVet are registered trademarks and ANSR, D3 Needles, Genomic Profiler and NeoSEEK are trademarks of
Neogen Corporation, 620 Lesher Place, Lansing, Michigan 48912.
NC014-0813
Financial Highlights
Amounts in thousands, except per share
Years Ended May 31
Operations:
Total Revenues
Food Safety Sales
Animal Safety Sales
Operating Income
2013
2012
2011
2010
2009
$
207,528 $
184,046 $
172,683 $
140,509 $
118,721
106,158
101,370
40,706
91,104
92,942
33,739
85,514
87,169
35,835
76,454
64,055
26,879
61,025
57,696
20,488
13,874
0.63
0.61
22,587
Net Income Attributable to Neogen
Basic Net Income Per Share
Diluted Net Income Per Share
$
$
$
27,190 $
22,513 $
22,839 $
17,521 $
1.14 $
1.12 $
0.96 $
0.94 $
0.99 $
0.96 $
0.78 $
0.76 $
Average Diluted Shares Outstanding
24,327
24,019
23,791
23,091
Total Revenues
Dollars in thousands
Net Income
Dollars in thousands
Total Assets
Dollars in thousands
$ 210,000
190,000
170,000
150,000
130,000
$ 30,000
25,000
20,000
15,000
10,000
$ 300,000
250,000
200,000
150,000
100,000
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
In thousands
Year Ended May 31
Financial Strength:
2013
2012
2011
2010
2009
Cash and Marketable Securities
$
85,369 $
68,645 $
56,083 $
22,806 $
13,842
Working Capital
Total Assets
Long-Term Debt
Equity
150,728
290,558
–
123,962
251,600
–
104,705
219,662
–
68,987
180,233
–
62,520
142,176
–
258,287
219,054
188,978
153,053
128,679
A Message from Management
To our stockholders, employees and friends:
The story of Neogen’s 2013 year got its start in the summer of
2008. Neogen had just recorded revenues of over $100 million
for the first time. We set our goal to double that and exceed $200
million in revenue by the end of 2013. We accomplished that
goal as revenues rose to $207.5 million in five years. That is an
increase of 13% from the prior year.
Net income rose even faster as we ended the year at $27.2 mil-
lion, or 21% over a year earlier. Earnings increased to $1.12 per
share compared to the prior year’s $0.94.
The year also marked a continuation in performance consistency
as the fourth quarter was the 85th quarter in the past 90 quarters
that Neogen reported revenue increases as compared with the
prior year—a record now spanning more than 22 years.
Neogen’s gross margins increased to 52.8% of sales for the
2013 fiscal year as compared to 50.2% in the prior year. Neo-
gen’s management believes that though gross margins are im-
portant, the company should be judged more by its operating
income. Expressed as a percent of sales, operating profits for the
2013 year were 19.6%, which is very near our goal of keeping
this number around 20%. We believe if that number drifts much
below 20%, we need to look harder at cost and efficiencies. If it
climbs much above the 20% mark, we feel we should be increas-
ing our investment for future growth.
Balance Sheet Strong
We continued our effective management of working capital dur-
ing the year. On a percentage basis, both our inventory and ac-
counts receivable balances grew by less than the increase in
revenue. Cash flow generated from operations for the year was
$26,561,000. This allowed us to make several acquisitions and
enhance our plant, property, and equipment to continue to im-
prove efficiencies and maintain growth. Shareholder equity con-
tinued its strong growth at an increase of 18% over a year earlier.
Equity
Dollars in thousands
Food Safety Robust
Our Animal Safety and Food Safety
divisions enjoyed solid growth in
fiscal year 2013. This resulted from
a combination of increased market
share, new product
introductions,
and synergistic acquisitions.
The Food Safety group led in revenue
growth for the year with approximately
$106.2 million in sales—a 16.5% in-
crease from the prior year. As Neogen
develops diagnostic tests for a range
of global food safety concerns, the op-
portunities continue to compound. For
example, natural toxins were an issue
in the U.S. during the 2012 growing
season due to widespread drought,
leading to an outbreak of aflatoxin.
$ 300,000
250,000
200,000
150,000
100,000
2
2009
2010
2011
2012
2013
Conversely, parts of Europe faced cold and wet growing condi-
tions that affected wheat with an outbreak of deoxynivalenol, or
DON. Neogen has diagnostic tests that are considered leaders in
the detection of these toxins, among others.
Additionally, several countries placed an embargo on U.S. pork
related to a concern over a growth promoter that is used in the
U.S. but not approved in many other countries. Neogen was ready
to meet testing demands with a test developed in cooperation
with the drug manufacturer. This test helped U.S. pork producers
quickly calm the fears of their international customers.
Economic Adulteration
The mixing of a lower value product with a higher value one in
an effort to achieve a higher selling price is occurring more fre-
quently as costs for raw materials continue to increase. The horse
meat scandal, which began in early 2013 in the U.K., is only one
example of unscrupulous entities adulterating food—in this case,
mixing horse meat with ground beef. Neogen had the only rapid
test to detect the presence of horse meat and helped processors
as well as retail grocery chains in assuring customers of whole-
some product.
Seldom has a day gone by where there is not a recall of food
products because of pathogens or unlabelled allergens. Neogen
is a global leader in allergen testing and continues to grow its
offering of pathogen tests, which are available on three differ-
ent platforms to allow for detection based on genetic markers or
antibody recognition.
Animal Safety Strong
Revenues from our Animal Safety group also showed solid growth
for the year with an increase of more than 9% compared to the
year prior. Much of that growth came from biocontrol products
that help maintain food safety inside the farm gate. Revenues
from our rodenticide products, which are used by food producers
and processors, showed strong double-digit increases. We also
benefited from revenue increases from one of our small animal
supplements due to a production shortfall by
a competitor.
Our animal genomics business continued
to build strength and has established itself
as one of the leading agricultural genomic
testing labs in the U.S. Our genomic re-
search and bioinformatics has made us an
even more valuable partner to the leading
worldwide swine, poultry, and cattle breed-
ers. During the year, we introduced new
programs for the beef and dairy industries
to aid them in selecting the proper females
for replacement animals in their herds using
a simple hair sample. Both programs assist
producers by giving them actionable results
about economically valuable traits and dis-
ease resistance.
the
Acquisition Opportunities Continue
During
year, Neogen made
acquisitions that will primarily benefit
the Animal Safety business. Last
fall, Neogen acquired the stock of
Macleod® Pharmaceuticals, a producer
of a popular veterinary antibiotic. Sales
were accretive to the top and the bottom
line since most of Macleod’s customers
were also Neogen customers.
In January, Neogen acquired the assets
of Scidera Genomics, an animal genom-
ics business based in Davis, California.
The company was a pioneer in the
development of cattle, poultry, swine,
and canine genetic testing. Most of its
customers had not previously been cus-
tomers of Neogen’s GeneSeek® animal
genomics group. Neogen retained that
business and relocated the company to
its GeneSeek headquarters in Lincoln,
Nebraska.
Four weeks after the close of the 2013 fiscal year, Neogen
acquired the assets of SyrVet® Inc., a 26-year-old supplier of
veterinary instruments to farmers, ranchers, and veterinarians
in more than 30 countries. Once a com-
petitor, SyrVet now brings some key dis-
tribution channels currently not served
by Neogen and also broadens Neogen’s
product offerings.
$ 45,000
Operating Income
Dollars in thousands
James Herbert and Steven Quinlan
Future Even Brighter
As our management looks over the next five years in the plan-
ning process, the future has never been brighter. The worldwide
markets continue to grow as concerns about food safety and
related animal issues increase. Neogen’s re-
search and development group continues to
become stronger and more experienced as
they push new products off of the lab bench
on a regular basis. Our sales and marketing
groups also continue to grow and become
more experienced. With more than 800 em-
ployees, strong cash flow, and no borrowing,
our critical mass should be helpful.
Growing Global Demand
Approximately 40% of Neogen’s 2013
revenue came from sources outside
the U.S. Neogen continues to work with
more than 120 independent distributors
to capitalize on international opportuni-
ties. However, Neogen continues to also
develop its own distribution in countries
of key importance. Neogen’s subsidiary
operations in Mexico and Brazil con-
tinue to gain traction. The strongest
international growth continues to come
from our Neogen Europe subsidiary lo-
cated in Ayr, Scotland. That location now
has over 100 employees and has direct
responsibility for sales in the U.K., Ger-
many, France, and Holland. They also
provide distribution and service for our
distributors in the European Union.
40,000
35,000
30,000
25,000
20,000
Neogen Europe’s growth for the past year was 27% following
a year earlier when growth was 11%. Neogen continued to
expand its Scotland operations by purchasing a 36,000 square
foot historic manor house for administrative and sales person-
nel growth. This is on the same property where the company
owns three other buildings used in research and development,
manufacturing, and service laboratories operations.
Though food and animal safety regulatory
programs continue to expand in many coun-
tries around the world, it is not just the regula-
tory pressures that will account for our future
growth. Our mission, along with the products
and services we provide, will be extremely
important in producing the quantity and qual-
ity of food required in the near future. Though
we have talked about food security for the
last couple of years, you are likely hearing
it from many other sources today. We have
dedicated most of this year’s annual report
to our view of food security and the products
and strategy we will use to address this.
2009
2010
2011
2012
2013
However, do not expect us to change our growth strategy; it
will still come from increased market share, new products, and
acquisitions.
James L. Herbert
Chairman and CEO
Steven J. Quinlan
Vice President and CFO
3
Advancing the Science of Food Security
N eogen’s mission, developed over
three
decades ago, is just as appropriate today: The
mission of Neogen Corporation is to be the leading
company in the development and marketing of
solutions for food and animal safety.
Though Neogen’s products are now critical in
protecting the safety of our food around the world,
they will play an even more critical role in the years
ahead. Demographers estimate that the world’s
population will double from the turn of the century
to reach 9.6 billion by 2050. This fast change in
population growth and structure will drive an
increased focus on food security. Food security is
defined as providing a population with the quantity
and quality of food required to sustain an active life.
It is also estimated that by 2030 the world’s middle
class will grow from 1.8 billion to 4.9 billion, and the
spending of this group will grow from $20 trillion to
$56 trillion. This group will demand better quality
food with its increased spending power.
The hurdles created by food safety and animal
safety will become even more critical in satisfying
the food demands of the world over the next few
decades. Science will clearly be the key to food
security as we are required to produce more food
of higher quality.
Neogen’s ability to discover, develop, and deploy
scientific products has been instrumental in the
company’s growth. That continued advancement of
user-friendly science was a key in Neogen doubling
its revenue growth in the past five years to achieve
revenues of over $200 million in 2013. This year’s
annual report highlights some of the applications
of our science that are making the hurdles of food
safety and animal safety easier to overcome.
4
ADVANCING ANIMAL SAFETY
Neogen views animal safety and food safety as one con-
tinuum that begins inside the farm gate, and continues
all the way to the consumer’s plate. The trend for fewer,
but much larger, farms and ranches has intensified the
need for advanced animal safety products and practices.
Rapidly spreading diseases and poor practices can dev-
astate an animal population and result in lower produc-
tion and poor quality animal protein products.
Neogen uses its own experienced sales force, and a
network of distributors, to reach veterinarians and pro-
fessional animal caregivers primarily in the beef, dairy,
swine, poultry, equine, and companion animal care busi-
nesses. The company offers these animal producers and
caregivers a comprehensive line of products to enhance
animal safety, including:
Biosecurity
Protecting livestock and poultry production facilities from
biological hazards is critical to ensuring the safety, quality
and quantity of food production. Maintaining a facility’s
biosecurity greatly lessens the chance that a rapidly com-
municable disease such as bird flu or hoof-and-mouth
can devastate a poultry or cattle population, respectively.
The company’s comprehensive line of agricultural bios-
ecurity products, including rodenticides, cleaners, disin-
fectants and fly control, help protect livestock from the
spread of dangerous pathogens in large, modern inte-
grated production facilities. Rats and mice remain a seri-
ous threat to food and feedstuffs, and spread disease.
Neogen’s proven line of rodenticides and insect products
are used for effective control of rodent and insect infesta-
tions and are critical components of an overall biosecurity
plan. Pathogens at the farm can travel to the processing
plant and then throughout the food chain.
Veterinary instruments and products
In addition to keeping animal environments clean and
safe, providing animals the best quality care is also criti-
cal to their safety and health.
Neogen’s veterinary instruments and supplies, including
those from its Ideal® Instruments subsidiary and newly
acquired SyrVet Inc. (July 2013), provide the best ani-
mal care practices. The company’s precision veterinary
drug delivery instruments help minimize drug residues
that might otherwise contaminate meat and milk sup-
plies. The company’s line of patented detectable needles
greatly lessen the chance that a broken needle would
ever be found in retail meat products. Neogen’s wide
range of other veterinary supplies, pharmaceuticals and
nutritional supplements also support animal safety.
Animal feed safety
Much like food safety is critical to protect the health of
humans, animal feed safety is critical to the health and
optimal performance of livestock. Gaining and maintain-
ing weight are crucial factors in livestock, milk and egg
production. Contaminated feed can lead to animals re-
fusing to eat or becoming sick if they do eat—both costly
to livestock operations and overall livestock production.
Some toxins in grain and drug feed additives may also
contaminate meat and milk.
Neogen’s advanced test kits for mycotoxins (i.e., mold
toxins) and bacterial pathogens (e.g., Salmonella ) rapidly
and accurately detect the contaminants well before they
reach feed troughs.
Detectable veterinary needles
Ideal’s D3 Needles™ were engineered to be three times
stronger than conventional veterinary needles—and
offer unique detectability at the packing plant should
they ever break off in an animal. The D3’s unprecedented
combination of metal alloys makes the needles both
extraordinarily strong and easily detectable with standard
meat industry metal detectors.
Animal genetics
Neogen’s agrigenomics help livestock and poultry pro-
ducers pick the best available males and females to
produce the next generation of animals. An investigation
of an animal’s profile from animal hair or blood can iden-
tify superior traits to pass on to offspring, along with an
absence of genetic disease or abnormalities.
Neogen’s GeneSeek® and Igenity® genomic products
simply expedite and clarify trait selection. For example,
a cattle rancher can use Neogen’s new Igenity replace-
ment heifer profiler to rapidly and accurately identify
animals more likely to produce calves with superior traits,
such as body composition and fertility, and less likely to
have genetic diseases. This simple and inexpensive test-
ing potentially saves ranchers thousands of dollars spent
on raising inferior animals, since animals as young as
a day old can be tested, and significantly improves the
amount of high quality beef that can be produced using
the same amount of resources.
ADVANCING FOOD SAFETY
To reach each of its worldwide food safety customers and
prospects with expertise and experience, Neogen divides
the food industry into market segments. These markets
include milling and grain, meat and poultry, seafood, fruit
and vegetable, dairy, beverage, food service, nutraceuti-
cal, pet food, and food testing laboratories.
Neogen offers these food producers and processors a
complete line of diagnostics to enhance food quantity
and safety, including products to detect:
Crop disease, toxins and GMOs
Crop growers and processors face numerous challeng-
es with the quantity and quality of their products while
they’re still in the ground, and throughout their distribu-
tion and processing.
Neogen offers plant disease diagnostics for fruits, veg-
etables, and cereals such as wheat. These detect the
early onset of disease, and allow for effective treatment
before it can devastate healthy and profitable crops.
The company’s plant diagnostics now include tests for
more than 250 different viral, bacterial and fungal plant
pathogens.
Neogen’s simple and quick Reveal® Q+ fully quantita-
tive lateral flow tests for mycotoxins, including aflatoxin
and deoxynivalenol (DON), can help prevent the adverse
6
GeneSeek cattle genetic profiling
Neogen’s new GeneSeek Genomic
Profiler™ for cattle reveals an animal’s
genetic potential well before breeding,
as well as the animal’s parentage, and
important genetic trait and disease
information on the animal. The custom,
high density chip features a unique
new design that analyzes nearly 78,000
single nucleotide polymorphisms (SNPs)
selectively chosen from studies on
thousands of animals.
effects that mold toxins can cause if they contaminate
food or animal feed. The company’s Reveal test kits for
genetically-modified (GMO) grains help verify the identity
of certain crops, including corn and soy.
Foodborne pathogens
Protecting the food supply from the severe consequenc-
es of pathogen contamination is one of the most critical
challenges facing food producers and processors.
Neogen’s ANSR™ test system is the quickest and easi-
est testing method to definitively detect pathogen DNA
in food and environmental samples—providing results
in as little as 10 minutes. ANSR and a complementary
line of lateral flow tests for foodborne pathogens such as
E. coli, Salmonella and Listeria, can help ensure the safe-
ty of the food supply. Neogen’s new NeoSEEK™ genomic
system provides fast and precise DNA-definitive confir-
mation for seven strains of Shiga toxin-producing E. coli
(STEC). Its rapid results save producers time and money,
while reducing waste.
Neogen’s Acumedia® subsidiary has provided high qual-
ity dehydrated culture media (DCM) since 1978 for nu-
merous applications. Acumedia produces more than 200
different catalog formulations, and more than 200 dif-
ferent customized formulations, many of which play an
important role in the control of harmful pathogens in food.
Drug residues
Eliminating veterinary drug residues from the food supply
also eliminates their potential adverse effects, including
direct threats to human health, increasing human antibi-
otic resistance, and in the case of milk, inhibiting further
processing.
Neogen’s BetaStar® testing products detect the beta-
lactam group of veterinary antibiotics in milk, and its
BetaStar Combo detects beta-lactams and tetracyclines,
another common group of antibiotics. The company also
offers a line of drug detection tests for feed additives and
antibiotics used in meat and seafood products, including
ractopamine, clenbuterol, and chloramphenicol.
Seafood toxins
Seafood producers face numerous challenges in deliver-
ing safe products either from wild harvest or aquacul-
ture. Keeping seafood wholesome throughout the often
lengthy distribution process is also a challenge. Testing
7
ANSR rapid molecular
pathogen detection
Neogen’s ANSR rapidly detects foodborne
pathogens such as Salmonella and Listeria
by rapidly creating millions of copies of
any target pathogen DNA in a sample, and
then binding molecular beacons to the
created copies. The ANSR reader detects
the fluorescence created when the beacons
bind to target pathogen DNA.
prior to harvest often allows for postponing shipments
until the product is safe.
Neogen offers rapid tests to detect naturally-occurring
toxins in shellfish that cause amnesic shellfish poisoning
and diarrhetic shellfish poisoning. The company’s rapid
tests for sulfites and histamine ensure the safe treatment
of the seafood post-harvest. Sulfites, which are used on
shrimp to keep them fresh, can cause a dangerous aller-
gic reaction if ingested in a sufficient quantity. Histamine
is produced in certain species, including tuna, if they
are not refrigerated properly following harvest. Human
deaths are recorded each year from histamine.
Food allergens
For a growing number of food-allergic people world-
wide, enhancing their food security means ensuring
that their food is free of unlabeled food allergens.
Neogen offers screening and quantitative food allergen
test kits for many allergens, including major food aller-
gens such as milk, eggs, peanuts, soy, crustacea, shell-
fish, and gliadin (gluten). Neogen’s Reveal 3-D food al-
lergen tests are simple, single-step test kits to help stop
the accidental contamination of non-allergenic foods
with unlabeled allergenic residues.
Spoilage organisms
When it comes to feeding a rapidly
growing population, one of the biggest
stumbling blocks is spoilage and waste.
As the global population grows, produc-
ers seek ways to make food stay fresh
or shelf-stable longer, which widens the
window in which the product can get
from the farm or factory to the dinner
plate. However, the biggest problems
are often microscopic yeasts, molds
and bacteria that can thwart the pres-
ervation of food, leading to costly losses
for the producer and wasted food.
Neogen’s Soleris® rapid microbial sys-
tem detects spoilage microorganisms
in a fraction of the time needed for tra-
ditional methods, with less labor and handling time. For
example, the Soleris system can detect yeast or mold
in a sample in 48 hours or less—days faster than most
tests. Monitoring for spoilage organisms can help al-
leviate food losses and help producers ensure they are
producing the highest quality products.
Sanitation concerns
Securing the safety of a food product is highly depen-
dent on the surfaces the food touches, such as belts,
conveyors, and filler heads.
Neogen’s AccuPoint® 2 Sanitation Monitoring System
quickly and easily measures the ATP collected from
food contact surfaces or liquids as an indication of the
cleanliness. This inexpensive test provides results in
minutes and allows for surfaces to be recleaned, if nec-
essary, before processing resumes.
Though Neogen’s products are now critical
in safeguarding the safety of our food
around the world, they will play an even
more critical role in the years ahead.
Food adulteration
Preventing the adulteration or substitution of meat or fish
products with non-desirable or cheaper options is impor-
tant for economic, regulatory, health and ethical reasons,
especially where particular species of meat are prohib-
ited by cultural or religious beliefs. Species identification
also helps ensure animals treated with veterinary drugs
not intended for use in food animals don’t make their
way into the consumer food chain.
Neogen’s easy and accurate meat and fish speciation
testing options can be performed on-site, including
F.A.S.T. Species Identification Kits. The F.A.S.T. kits are
simple screening tests that detect the existence of a dif-
ferent species in uncooked meats and meat products
as low as 1%. Neogen also offers a laboratory testing
service that delivers precise quantitative results. Tests
are available for the detection of horse, cow, pig, poultry,
sheep and several other species.
8
Sanitation monitoring with
RFID technology
Neogen’s AccuPoint 2 Sanitation
Monitoring System uses radio frequency
identification (RFID) technology to make
testing in a facility much easier, and an
updated software program to simplify
data creation and interpretation. The
user simply swipes the instrument
near the tag and the site group is read
automatically. With just one swipe, the
instrument can be ready to test.
NeoSEEK Shiga toxin-producing
E. coli (STEC) detection
Neogen’s NeoSEEK™ technology
uses mass spectrometry-based
multiplexing to genetically distinguish
bacteria in a food sample, and then
compares those results with the
known genetic makeup of the target
seven E. coli strains—O26, O45,
O103, O111, O121, O145, and O157.
Like the better known and widely
regulated E. coli O157:H7 strain,
these other six E. coli strains are
known food safety concerns, and
produce Shiga toxins, which are well
known to cause severe illness.
Neogen’s dedicated team of skilled employees with
expertise and experience in multiple scientific food and
animal safety disciplines has led to 31 years of proven
success. Neogen believes that it is perfectly positioned to
continue to advance global food security, and help meet
the increasing demand for higher quality food.
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 intended to identify forward-
looking statements. There are a number of important factors, including competition, recruitment and dependence on key employees, impact of
weather on agriculture and food production, identification and integration of acquisitions, research and development risks, patent and trade secret
protection, government regulation and other risks detailed from time to time in the Company’s reports on file at the Securities and Exchange Com-
mission, 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 statements
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, liabilities, revenues and ex-
penses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including but not
limited to 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 consoli-
dated financial statements.
Revenue Recognition
Revenue from products and services is recognized when a purchase order has been received, the product has been shipped or the service per-
formed, the sales price is fixed and determinable, and collection of any receivable is probable. To the extent customer payment is received before
all recognition criteria has been met, these revenues are initially deferred and later recognized in the period that all recognition criteria has been
met. 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. Collateral or other security is generally not required for accounts receivable. Once a receivable
balance has been determined to be uncollectible, that amount is written off to the allowance for doubtful accounts.
Inventory
A reserve for obsolete and slow moving inventory has been established and is reviewed at least quarterly 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, discon-
tinuance of a product line, replacement products in the marketplace or other competitive situations.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to
other identifiable intangible assets. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants not-
to-compete and patents. Amortizable intangible assets are amortized on either an accelerated or a straight-line basis over five to 20 years. The
Company reviews the carrying amounts of goodwill and other non-amortizable intangible assets annually, or when indications of impairment exist,
to determine if such assets may be impaired. If the Company’s qualitative assessment concludes that it is probable that an impairment exists, or
the Company skips the qualitative assessment, then the Company performs a quantitative assessment. If the carrying amounts of these assets
are deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable EBITDA multiples of peer
companies, such assets are reduced to their estimated fair value and a charge is made to operations.
10
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Long-lived Assets
Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for possible
impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered
impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset are less than the carry-
ing value of the asset. In such an event, fair value is determined using discounted cash flows and, if lower than the carrying value, impairment is
recognized through a charge to operations.
Equity Compensation Plans
ASC 718 – Compensation – Stock Compensation addresses the accounting for share-based employee compensation. Further information on
the Company’s equity compensation plans, including inputs used to determine fair value of options is disclosed in Note 5 to the consolidated
financial statements. ASC 718 requires that share options awarded to employees and shares of stock awarded to employees under certain stock
purchase plans be 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, expected 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 by the Company 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
Total revenue of $207,528,000 in fiscal 2013 represented a 13% increase compared to revenue of $184,046,000 in fiscal 2012. Net income at-
tributable to Neogen for 2013 was $27,190,000, or $1.12 per fully diluted share, compared to $22,513,000, or $0.94 per fully diluted share, in
fiscal 2012. The Company’s percentage of revenues from customers outside the United States was 40.1% of total revenues in 2013 compared to
41.7% of total revenues in 2012. Cash flow from operations for 2013 was $26,561,000, compared to $22,277,000 in 2012, an increase of 19%.
Consolidated gross margins increased from 50.2% in 2012 to 52.8% in 2013, due primarily to shifts in product mix within the Company’s Animal
Safety segment, and to a lesser extent, a higher proportion of overall sales growth derived from the Food Safety segment, which has higher than
average gross margins. Margins improved in the Animal Safety segment as the result of higher sales of a canine thyroid replacement product,
a recovery in rodenticide sales from a weak 2012, and new product revenues from acquisitions, all of which are higher gross margin products
within the segment. Operating expenses as a percentage of revenues increased from 31.9% in 2012 to 33.1% in 2013, as the Company con-
tinued to make investments in personnel and other infrastructure initiatives, which it believes should lead to increased market penetration and
improved operating performance in future periods.
The Animal Safety segment benefitted from acquisitions in 2013, with revenue from acquisitions totaling $5.8 million during the year. The Uniprim
product line of veterinary antibiotics, acquired from Macleod Pharmaceuticals in October 2012, helped to improve gross margins within Animal
Safety. GeneSeek added to its offerings and capabilities with the Igenity acquisition in late fiscal year 2012 and the Scidera acquisition in January
2013.
Neogen Europe recorded a revenue increase of more than 20% in 2013. Sales were particularly strong in Germany, where unusually wet, cool
weather during the fall growing season resulted in a mycotoxin outbreak in the small grain crops; growth in the United Kingdom was due to
increased meat speciation testing in the second half of the year, the result of mislabeled meat products. Neogen Europe also achieved significant
increases in sales of services to genomics customers in the EU. Neogen Latinoamérica and Neogen do Brasil continued to build out their sales
and operations infrastructures, resulting in improved market presence, and recorded revenue gains of more than 10% and 40%, respectively, in
2013 over 2012, albeit from relatively small bases.
Service revenue of $23,394,000 was an increase of 22% over the prior year, primarily the result of the increases in genomic services at Neogen
Europe, which reports within the Food Safety segment; additionally, DNA testing benefitted from the Igenity and Scidera acquisitions during the
year and also from strong market acceptance of new products for the cattle industry.
11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Revenues
Twelve Months Ended
(Dollars in thousands)
Food Safety:
Natural Toxins, Allergens and Drug Residues
Bacterial and General Sanitation
Dehydrated Culture Media and Other
Animal Safety:
Life Sciences and Other
Vaccine
Rodenticides and Disinfectants
Veterinary Instruments and Other
DNA Testing
Total Revenues
May 31, 2013
Increase/
(Decrease)
May 31, 2012
Increase/
(Decrease)
May 31, 2011
$
$
54,723
26,051
25,384
106,158
7,739
2,479
27,130
43,815
20,207
101,370
207,528
20%
6%
22%
17%
(6%)
(11%)
2%
18%
9%
9%
13%
$
$
45,671
24,677
20,756
91,104
8,190
2,772
26,491
36,997
18,492
92,942
184,046
6%
11%
3%
7%
4%
16%
(6%)
21%
3%
7%
7%
$
$
43,108
22,268
20,138
85,514
7,902
2,392
28,226
30,629
18,020
87,169
172,683
Year Ended May 31, 2013 Compared to Year Ended May 31, 2012
The Company’s Food Safety segment revenues were $106.2 million in 2013, 17% higher than 2012, with increases in each major product cat-
egory. Sales of Natural Toxins, Allergens and Drug Residues products increased 20% in 2013 compared to the prior year. The increase was led by
sales of aflatoxin test kits, readers, and accessories, resulting from an outbreak in the United States caused by unusually hot and dry conditions.
Additionally, cool wet growing conditions in Germany in fall 2012 contributed to an outbreak of deoxynivalenol, or DON, in the small grains crop,
and resulted in increased sales of the Company’s test kits to detect the toxin. Allergen test kit revenues continued to achieve solid growth with an
increase of 24% in fiscal 2013 compared to fiscal 2012. This product line had core growth of 16% this year, and also benefitted from a significant
increase in demand for meat speciation testing in Europe in the second half of the year, the result of the discovery of mislabeled meat products.
Originally, horse meat was found in products labeled as beef; further testing also found instances of pork and other meat products in beef. These
are all examples of economic adulteration of food, which has become quite problematic within the food safety industry, and should result in higher
ongoing levels of speciation testing in the future. Also in this category, sales of Drug Residues products, primarily used to determine the presence
of antibiotics in raw fluid milk from dairy animals, increased 3% compared to the prior year.
Sales of Bacterial and General Sanitation products increased 6% in 2013, compared with 2012. Within this category, General Sanitation products,
designed to measure environmental cleanliness, achieved growth of 8%; increased sales of filters and ampoule media products, the result of
increased penetration in the beverage segment, more than offset lower equipment sales to international markets. The Company’s line of pathogen
testing products grew by 6% in 2013; the new ANSR pathogen detection system gained traction during the latter half of the year, assisted by a
focused marketing program.
Dehydrated Culture Media and Other Sales increased 22% for the year. Contributions from genomics service revenues to European customers
resulting from increased sales staffing and the introduction of new service offerings, led the growth in the category. Sales of Acumedia products
to the traditional markets in the U.S. were up 17% over a weak 2012. Additionally, customers affected by the aflatoxin and DON outbreaks sig-
nificantly increased purchases of miscellaneous lab supplies necessary for processing samples, which are recorded in this category.
Revenue for the Animal Safety segment was $101.4 million, an increase of 9% compared to 2012. The acquisitions of Igenity, Macleod Pharma-
ceuticals and Scidera Genomics contributed $5.8 million to revenues in this segment in fiscal 2013.
Life Sciences and Other revenues decreased 6% in FY 13 compared to FY 12. Within this category, racing kits were down 18% due to state lab
closures and consolidations and the continued decline of the racing industry in the U.S. Food residues were down 28% due to lower ractopamine
kit sales from lost business in China as government laboratories there have been purchasing kits made by Chinese manufacturers; further, a
large user of this kit ceased using ractopamine, a feed additive used to promote leanness in animals in its operations, and stopped buying the
Company’s kits. Partially offsetting these losses was a 4% increase in sales to the forensics market. Vaccine revenues decreased 11% compared
to the prior year, the result of a decline in the number of horses in the U.S. and the timing of orders by a large international distributor.
Rodenticide and Disinfectant revenues increased by 2% compared to 2012. Rodenticide sales increased 20% due to seasonal conditions, new
product formulations, marketing campaigns, and a prior year that was negatively affected by EPA labeling changes. Almost entirely offsetting
this increase was an 11% decrease in lower-margin sales of cleaners and disinfectants. The decrease was primarily due to competition from
lower-priced generics, particularly internationally, lack of disease outbreak for most of the year, which led to lower demand, and timing of large
international orders.
Veterinary Instruments and Other revenues increased 18% in FY13 compared to FY12. Within this category, the Company benefitted from sales
of the veterinary antibiotic, Uniprim, acquired in the Macleod Pharmaceuticals purchase, and a 113% increase in the small animal supplements
12
Management’s Discussion and Analysis of Financial Condition and Results of Operations
line due to new business captured on canine thyroid replacement products. Partially offsetting these gains were a 27% decrease in vitamin
supplements, due to unusually high prior year sales caused by products coming off backorder and a decline in the number of cattle, and a 13%
decrease in hoof and leg care products, due to lower animal counts and difficult financial conditions in the dairy industry.
DNA Testing revenues increased 9% in 2013 compared to the prior year. The Company gained new business resulting from the Igenity and Sci-
dera Genomics acquisitions and had strong market acceptance of new products for cattle parentage testing in the latter half of the year.
Year Ended May 31, 2012 Compared to Year Ended May 31, 2011
The Company’s Food Safety segment revenues grew by 7% overall in 2012, with increases in each major product category compared to 2011.
Organic revenue growth was 6% in the segment, compared to the prior year. The increase in Natural Toxins, Allergens and Drug Residues of 6%
in 2012 included strong contributions in Drug Residues revenues, primarily tests to determine the presence of antibiotics in dairy animals, which
increased 11% compared to 2011. Natural Toxins test kits revenue increased 1% in 2012 compared to 2011, as increased aflatoxin test kit
revenues, caused by abnormally warm and dry weather conditions in the 2011 growing season, offset year-over-year declines in DON revenues
resulting from an outbreak in the 2010 growing season which did not recur in fiscal year 2011. Allergen product revenues increased by 6%
compared to 2011, as increased worldwide concern over the presence of allergens in finished food products positively affected sales.
Bacterial and General Sanitation revenues increased in 2012 by 11% compared with 2011, marking continued double-digit increases. While
sales of diagnostic test kits to detect pathogens such as E. coli, Listeria and Salmonella remained relatively flat with a 1% increase in product
revenues, Soleris microbial detection instruments and vials, designed to detect the presence of yeasts, molds and other contaminants in foods,
increased by 20% compared to 2011. AccuPoint readers and device sales, used to detect the cleanliness of contact surfaces in food preparation
environments, achieved an 8% increase in product revenues over 2011. Continued market acceptance of these products was strong.
Dehydrated Culture Media and Other revenues increased by 3% in 2012, as declines in domestic traditional dehydrated culture media were offset
with increased international revenues, certain genomics service revenues to a number of European customers and higher shipping revenues.
Animal Safety revenues increased by 7% overall and included minimal revenues from the Igenity acquisition, which closed in May 2012. Life
Sciences and Other revenues increased 4% in 2012 with broad-based increases from existing customers and new key accounts with increases
in OEM Reagent products leading the increases.
Vaccine revenues increased by 16% compared with 2011, as effective marketing programs to animal practitioners resulted in continued utiliza-
tion of the Company’s equine vaccine products.
Rodenticide and Disinfectant revenues decreased by 6% in comparison with 2011 following a year in which revenue increased by 17% due to
a change in the law regarding product packaging for rodenticides, which went into effect on June 4, 2011. This law resulted in strong sales of
rodenticides in the second half of 2011, which the Company believes pulled sales that might otherwise have occurred in 2012 into 2011. The
Company’s line of cleaners and disinfectants continued to be well accepted in the market, and increased 10% in 2012 compared to 2011. The
product line continues to be a strong synergistic fit as it is marketed with the Company’s full line of biosecurity solutions.
Veterinary Instruments and Other products increased 21% for the year due to increased market penetration by several large distributors, both
domestic and international, in 2012. Animal Care products led the revenue increases at 27%, disposable gloves and apparel increased by 25%,
and Ideal Instruments product offerings, such as needles and syringe products, increased by 10% for the year, with broad based increases in
several other product groups.
DNA Testing revenues, resulting from the purchase of GeneSeek, Inc. in April 2010, increased 3% in 2012, compared to 2011. The acquisition
of the Igenity product line in May of 2012 did not contribute significantly in the year.
Cost of Revenues
(Dollars in thousands)
Cost of Revenues
2013
$ 98,034
Increase
2012
Increase
2011
7%
$ 91,621
8%
$ 84,891
Cost of revenues increased 7% in 2013 and 8% in 2012 in comparison with the prior years. This compares with revenue increases of 13% and
7% in 2013 and in 2012, respectively. Expressed as a percentage of revenues, cost of revenues was 47%, 50% and 49% in 2013, 2012, and
2011, respectively. The decrease in cost of revenues, expressed as a percentage of sales, in 2013 compared to 2012 was due to product mix
changes in the Animal Safety segment and higher sales in the Food Safety segment, as a percentage of the total. Margins improved in the Animal
Safety segments as the result of higher sales of a canine thyroid replacement product, recovering rodenticide sales from a weak 2012, and new
product revenues from acquisitions, all of which are higher than average gross margin products within the segment. The increase in cost of goods
sold, expressed as a percentage of sales, in 2012 compared to 2011 was also due to product mix within the Animal Safety segment.
Food Safety gross margins were 64%, 65% and 64% in 2013, 2012 and 2011, respectively. The minor changes in margins between periods
relate primarily to changes in product mix. Food Safety segment sales were 51.2% of overall sales in 2013 compared to 49.5% in both 2012
13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
and 2011. The sales shift towards diagnostic products, which have higher margins, contributed to the Company’s overall gross margin improve-
ment in 2013.
Animal Safety gross margins were 41%, 36% and 37% in 2013, 2012 and 2011, respectively. The improvement in the margins from 2012
to 2013 was due to a shift in product mix resulting from higher sales of small animal supplements, rodenticides and the new Uniprim product
line acquired from Macleod Pharmaceuticals. Additionally, GeneSeek benefitted from higher margins due to new service offerings acquired in
the Igenity and Scidera Genomics purchases. The change in the margins from 2011 to 2012 was primarily due to product mix, as a decline in
rodenticide revenues, which generally have a higher gross margin, were offset by increases in cleaners and disinfectants, which are a lower
margin product.
Operating Expenses
(Dollars in thousands)
Sales and Marketing
General and Administrative
Research and Development
2013
$ 40,791
20,216
7,781
Increase/
(Decrease)
16%
19%
17%
2012
$ 35,026
17,024
6,636
Increase/
(Decrease)
17%
13%
(3%)
2011
$ 30,020
15,112
6,825
Sales and marketing expenses increased by 16% in 2013 and by 17% in 2012, each compared with the prior year. As a percentage of sales,
sales and marketing expense increased to 20% in 2013 from 19% in 2012 and from 17% in 2011. The 2012 and 2013 increases were primar-
ily the result of the significant investment in sales and marketing personnel that the Company announced and undertook beginning in late 2011.
Since 2011, 48 positions have been added, an increase of 26%, consisting of additional field sales, marketing, and technical service personnel.
This investment was designed to improve the Company’s sales and marketing capabilities, increase market penetration and facilitate the Com-
pany’s domestic and international expansion opportunities. Other significant expense increases were for royalties, based on increased sales of
products that require royalty payments; shipping expenses, corresponding to the increase in revenues; higher advertising costs, and marketing
promotions.
General and administrative expenses increased 19% in 2013 compared to 2012 and by 13% in 2012 compared to 2011. The increase in 2013
resulted primarily from increased salaries due to increases in personnel, investments in information technology infrastructure necessary to
support the growth of the Company, increased amortization relating to businesses acquired and legal expenses related to the protection of the
Company’s intellectual property.
Research and development expenses increased 17% in 2013 compared to 2012 and decreased by 3% in 2012 in comparison with 2011. As a
percentage of revenue, these expenses were 4% in 2013, 2012 and 2011. Although some fluctuation in research and development expenses
will occur across periods, management expects research and development expenses to approximate 3% to 5% of revenues. Certain Company
products, particularly on the Animal Safety side of the business, require relatively less investment in research and development expenses. For
those products requiring support by research and development, the Company estimates that it spends 8% to 10% of revenues in its research
and development efforts. The increase in 2013 is the result of the significant costs resulting from the testing and commercialization of the new
products introduced during the year.
Operating Income
(Dollars in thousands)
Operating Income
2013
$ 40,706
Increase/
(Decrease)
2012
Increase/
(Decrease)
2011
21%
$ 33,739
(6%)
$ 35,835
During fiscal year 2013, the Company’s operating income increased by 21% compared to 2012 and decreased in 2012 by 6% when compared
to 2011. As a percentage of revenues, it was 20%, 18% and 21% in 2013, 2012 and 2011 respectively. The increase in operating income in
2013 was driven by the 13% increase in revenues which, when combined with the improved gross margins, more than offset the increased
operating expenses. The decline in operating income in 2012 was due primarily to the increases in selling, general and administrative expenses,
which more than offset the higher gross margins resulting from increased revenue. In general, the Company has been successful in improving its
operating income from revenue and gross margin growth from existing products and acquisitions and through control of manufacturing, distribu-
tion and administrative costs. In each of the last two fiscal years, the Company’s operating expenses have risen, on a percentage basis, faster than
the increase in revenues. This is the result of the investment the Company has been making in its sales, marketing and operations infrastructure,
to position the Company for future growth opportunities.
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Other Income (Expense)
(Dollars in thousands)
Other Income (Expense)
2013
$
435
Increase
2012
335%
$
100
Increase
N/A
2011
$
(640)
Other Income (Expense) consists principally of royalty income, interest income from investing the Company’s excess cash balances, the impact
of foreign currency transactions, adjustments to contingent considerations and other miscellaneous items.
In 2013, Other Income primarily consisted of royalty income totaling $364,000, interest income of $144,000, and $100,000 for the reversal
of the secondary payment obligation relating to the Igenity acquisition, due to lower than projected sales for the first year. This was offset by
$113,000 of secondary payment expense for the final year relating to the GeneSeek acquisition and losses on foreign currency transactions
totaling $166,000.
In 2012, Other Income primarily consisted of royalty income totaling $329,000 in 2012, interest income of $107,000, and $154,000 for the
reversal of the secondary payment obligation relating to the GeneSeek acquisition, due to lower than projected profitability for the year, offset by
losses on foreign currency transactions totaling $531,000.
In 2011, Other Income included a charge of $787,000 related to an increase in the secondary payment obligation for the GeneSeek acquisition
due to the achievement of specified profitability levels, royalty income of $317,000, interest income of $95,000, and gains from foreign currency
transactions of $281,000.
Provision for Income Taxes
(Dollars in thousands)
Provision for Income Taxes
2013
$ 14,100
Increase/
(Decrease)
2012
Increase/
(Decrease)
2011
23%
$ 11,450
(8%)
$ 12,400
The tax provision was 34% of pretax income in 2013, 34% in 2012 and 35% in 2011. Fluctuations in the tax rate from the 35% corporate rate
is primarily due to tax credits related to manufacturing and R & D activities partially offset by the provision for state taxes. At the end of 2011, the
Company was under audit by the Internal Revenue Service for its 2009 fiscal year; in 2012 this audit was expanded to include the 2010 fiscal
year as well. The audit concluded in late 2012 with a small favorable adjustment; thus, amounts totaling $550,000 which had been reserved as
uncertain tax positions were reversed, resulting in an effective tax rate of 33.7% for 2012. Absent this adjustment, the Company’s 2012 tax rate
would have been 35.5%, compared to 34.3% in 2012 and 35.2% in 2011.
Net Income and Net Income Per Share
(Dollars in thousands, except per share data)
2013
Increase
2012
Decrease
2011
Net Income
Net Income Per Share – Basic
Net Income Per Share – Diluted
$ 27,190
$
$
1.14
1.12
21%
$ 22,513
(1%)
$ 22,839
$
$
0.96
0.94
$
$
0.99
0.96
Net income increased by 21% in 2013 and decreased by 1% in 2012 in comparison with the prior year. As a percentage of revenue, net income
was 13% in 2013, 12% in 2012 and 13% in 2011.
Future Operating Results
Neogen Corporation’s future operating results involve a number of risks and uncertainties. Actual events or results may differ materially 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 or increasing 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
•
Identifying and completing acquisitions that enhance existing product categories or create new products or services
15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition and Liquidity
On May 31, 2013, the Company had $50,032,000 in cash and cash equivalents, $35,337,000 in marketable securities, and working capital of
$150,728,000. The Company has a financing agreement with a bank providing for an unsecured revolving line of credit of $12,000,000 that
expires on September 1, 2014. There were no advances against this line of credit during 2013, 2012 and 2011 and no balance outstanding at
May 31, 2013 and 2012. For the year ended May 31, 2013, cash generated from operating activities was $26,561,000; proceeds from stock
option activity provided an additional $12,646,000 of cash. For the same period, additions to property and equipment, and business acquisitions
used cash of $8,897,000 and $13,318,000, respectively.
Accounts receivable increased by $3,085,000, or 9%, compared to May 31, 2012, primarily due to the increase in revenues. These accounts are
being actively managed and no losses thereon in excess of amounts reserved are currently expected. Days sales outstanding, a measurement of
the time it takes to collect receivables, decreased from 60 days at May 31, 2012 to 57 days at May 31, 2013.
Inventory levels increased by $3,323,000, or 9%, in 2013 compared to 2012. Increases were due primarily to the need to support higher sales
volumes. During 2013, the Company continued programs aimed at improving inventory turnover and expects to maintain those programs into
the future.
In December 2012, Neogen Europe purchased Oswald Hall, a 36,000 square foot building in Ayr, Scotland, for approximately $1,500,000 to
accommodate its future growth needs. The Company completed construction of a warehouse in Randolph, Wisconsin in early 2012. It also pur-
chased a 132,000 square foot warehouse facility in Lexington, Kentucky in August 2011 for $4.9 million. These facilities are generally believed
to be adequate to support the Company’s existing operations in the near term.
Neogen has been profitable from operations for its last 81 quarters and has generated positive cash flow from operations during this period.
However, the Company’s cash on hand and current borrowing availability may not be sufficient to meet the Company’s cash requirements to
commercialize products currently under development or its plans to acquire additional businesses, technology and products that fit within the
Company’s strategic plan. 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, have not
had, and are not expected to have, a material effect on its results of operations or financial position.
Contractual Obligations
The Company has the following contractual obligations due by period:
(In thousands)
Long-Term Debt
Operating Leases
Unconditional Purchase Obligations
$
Total
0
1,803
33,365
Less than
one year
$
0
467
32,865
$ 35,168
$
33,332
1–3 years
3–5 years
$
$
0
493
500
993
$
$
0
337
0
337
More than
5 years
$
$
0
506
0
506
New Accounting Pronouncements
See discussion of any New Accounting Pronouncements in Note 1 to Consolidated Financial Statements.
16
Neogen Corporation and Subsidiaries: Consolidated Balance Sheets
Assets (In thousands)
Current Assets
Cash and cash equivalents
Marketable securities
Accounts receivable, less allowance of $900 and $800 at May 31, 2013 and 2012
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
Construction in progress
Less accumulated depreciation
Net Property and Equipment
Other Assets
Goodwill
Other non-amortizable intangible assets
Amortizable customer-based intangibles, net of accumulated amortization of
$9,446 and $7,111 at May 31, 2013 and 2012
Other non-current assets, net of accumulated amortization of $4,222 and $3,578
at May 31, 2013 and 2012
Total Other Assets
Liabilities and Equity (In thousands, except share and per share)
Current Liabilities
Accounts payable
Accruals
Compensation and benefits
Federal income taxes
Other
Total Current Liabilities
Deferred Income Taxes
Other Long-Term Liabilities
Total Liabilities
Commitments and contingencies (note 7)
Equity
Year ended May 31
$
2012
49,045
19,600
35,652
34,992
1,328
3,324
143,941
1,439
20,657
27,508
1,410
590
51,604
21,671
29,933
53,052
5,270
10,826
$
2013
50,032
35,337
38,737
38,315
1,462
4,564
168,447
1,669
22,779
33,060
1,021
1,561
60,090
25,745
34,345
59,491
6,660
12,345
9,270
87,766
$ 290,558
8,578
77,726
$ 251,600
$
9,212
$
10,760
3,227
165
5,115
17,719
12,449
2,103
32,271
2,756
809
5,654
19,979
9,974
2,593
32,546
Preferred stock, $1.00 par value - shares authorized 100,000; none issued and outstanding
Common stock, $0.16 par value - shares authorized 60,000,000; 24,056,014 and
23,619,761 shares issued and outstanding at May 31, 2013 and 2012
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total Neogen Corporation and Subsidiaries Stockholders’ Equity
Non-controlling interest
Total Equity
–
–
3,849
101,859
(1,372)
153,885
258,221
66
258,287
$ 290,558
3,779
89,592
(1,227)
126,695
218,839
215
219,054
$ 251,600
See accompanying notes to consolidated financial statements.
17
Neogen Corporation and Subsidiaries: Consolidated Statements of Income
(In thousands, except per share)
Revenues
Product revenues
Service revenues
Total Revenues
Cost of Revenues
Cost of product revenues
Cost of service revenues
Total Cost of Revenues
Gross Margin
Operating Expenses
Sales and marketing
General and administrative
Research and development
Operating Income
Other Income (Expense)
Interest income
Royalty income
Change in purchase consideration
Other, net
Income Before Income Taxes
Provision for Income Taxes
Net Income
Net Loss (Income) Attributable to Noncontrolling Interest
Net Income Attributable to Neogen
Net Income Attributable to Neogen Per Share
Basic
Diluted
Year ended May 31
2013
2012
2011
$ 184,134
$ 164,910
$ 154,664
23,394
207,528
19,136
184,046
18,019
172,683
$
84,045
$
78,823
$
72,839
13,989
98,034
109,494
40,791
20,216
7,781
68,788
40,706
144
364
(14)
(59)
435
41,141
14,100
27,041
149
12,798
91,621
92,425
35,026
17,024
6,636
58,686
33,739
107
329
154
(490)
100
33,839
11,450
22,389
124
$
27,190
$
22,513
12,052
84,891
87,792
30,020
15,112
6,825
51,957
35,835
95
317
(787)
(265)
(640)
35,195
12,400
22,795
44
22,839
$
$
1.14
1.12
$
$
0.96
0.94
$
$
0.99
0.96
See accompanying notes to consolidated financial statements.
Neogen Corporation and Subsidiaries: Consolidated Statements of Comprehensive
Income
(In thousands)
Net Income
Other Comprehensive Loss, Net of Tax: Currency Translation Adjustments
Other Comprehensive Loss
Comprehensive Income
Comprehensive Loss (Income) Attributable to Noncontrolling Interest
Comprehensive Income Attributable to Neogen Corporation
18
2013
27,041
(145)
(145)
26,896
149
27,045
Year ended May 31
2012
22,389
(833)
(833)
21,556
124
21,680
2011
22,795
1,282
1,282
24,077
44
24,121
See accompanying notes to consolidated financial statements.
Neogen Corporation and Subsidiaries: Consolidated Statements of Equity
(In thousands, except shares)
Shares
Amount
Common Stock
Accumulated
Other
Comprehensive
Income (Loss)
Additional
Paid-In Capital
Retained
Earnings
Noncontrolling
Interest
Total Equity
Balance, May 31, 2010
22,625,399
$
3,621
$ 69,550
$
(1,676)
$ 81,343
$ 383
$ 153,221
Exercise of options and
warrants, including
share-based compensation
and $2,992 income tax
benefit
Issuance of shares under
Employee Stock Purchase
Plan
Comprehensive income:
Net income (loss) for 2011
Other comprehensive loss
646,953
103
11,283
18,252
3
415
11,386
418
22,795
1,282
22,839
(44)
1,282
Balance, May 31, 2011
23,290,604
$
3,727
$ 81,248
$
(394)
$ 104,182
$ 339
$ 189,102
Exercise of options and
warrants, including
share-based compensation
and $1,829 income tax
benefit
Issuance of shares under
Employee Stock Purchase
Plan
Comprehensive income:
Net income (loss) for 2012
Other comprehensive loss
315,013
14,144
50
2
7,837
507
7,887
509
22,389
(833)
22,513
(124)
(833)
Balance, May 31, 2012
23,619,761
$
3,779
$ 89,592
$
(1,227)
$ 126,695
$ 215
$ 219,054
Exercise of options and
warrants, including
share-based compensation
and $3,113 income tax
benefit
Issuance of shares under
Employee Stock Purchase
Plan
Comprehensive income:
Net income (loss) for 2013
Other comprehensive loss
421,328
14,925
68
2
11,733
534
11,801
536
27,041
(145)
27,190
(149)
(145)
Balance, May 31, 2013
24,056,014
$
3,849
$ 101,859
$
(1,372)
$ 153,885
$
66
$ 258,287
See accompanying notes to consolidated financial statements.
19
Neogen Corporation and Subsidiaries: Consolidated Statements of Cash Flows
(In thousands)
Net income
2013
2012
2011
$
27,041
$
22,389
$
22,795
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization
Deferred income taxes
Share-based compensation
Excess income tax benefit from the exercise of stock options
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
Net cash from operating activities
Cash flows used in investing activities
Purchases of property, equipment and other noncurrent assets
Proceeds from the sale of marketable securities
Purchases of marketable securities
Business acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities
Exercise of options
Excess income tax benefit from the exercise of stock options
Increase (decrease) in other long-term liabilities
Net cash from financing activities
Effect of exchange rate on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplement cash flow information
Income taxes paid, net of refunds
7,411
287
3,064
(3,113)
(2,674)
(2,082)
(1,505)
(1,417)
(451)
26,561
(8,897)
67,039
(82,776)
(13,318)
(37,952)
9,533
3,113
(155)
12,491
(113)
987
49,045
6,173
1,340
2,455
(1,829)
(7,204)
(3,093)
1,497
2,330
(1,781)
22,277
(12,413)
72,270
(71,631)
(4,011)
(15,785)
5,797
1,829
(750)
6,876
(167)
13,201
35,844
5,329
2,253
2,237
(2,992)
(903)
(434)
499
1,196
(1,137)
28,843
(7,796)
40,076
(60,315)
–
(28,035)
10,259
2,992
(1,217)
12,034
196
13,038
22,806
$
50,032
$
49,045
$
35,844
$
8,986
$
6,445
$
9,863
See accompanying notes to consolidated financial statements.
20
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
1. Summary of Accounting Policies
Nature of Operations
Neogen Corporation develops, manufactures, and markets a diverse line of products and services dedicated to food and animal safety.
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 Latinoamérica S.A.P.I. DE C.V., which is 60% owned, and Neogen do Brasil, which is 92% owned.
Noncontrolling interest represents the noncontrolling owner’s proportionate share in the equity of the Company’s majority owned subsidiaries. The
noncontrolling owner’s proportionate share in the income or losses of the Company’s majority owned subsidiaries is subtracted from or added to,
net income to calculate the net income attributable to Neogen Corporation.
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 accounting
principles, are excluded from net income and recognized directly as a component of equity. Accumulated other comprehensive income (loss)
consists solely of foreign currency translation adjustments.
Accounts Receivable and Concentrations of Credit Risk
Financial instruments that 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. Once a receivable balance
has been determined to be uncollectible, that amount is written off to the allowance for doubtful accounts. No customer accounted for more
than 10% of accounts receivable at May 31, 2013. One customer accounted for more than 10% of accounts receivable at May 31, 2012. As of
May 31, 2012, the balance due from that customer was $3,785,000, approximately 10% of the total of all outstanding accounts receivable. The
activity in the allowance for doubtful accounts was as follows:
Year ended May 31
Beginning balance
Provision
Recoveries
Write-offs, net
Ending balance
$
2013
800,000
193,033
24,029
(117,062)
$
2012
800,000
90,821
12,211
(103,032)
$
2011
600,000
446,346
88,175
(334,521)
$
900,000
$
800,000
$
800,000
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments other than cash equivalents and marketable securities, which include accounts
receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar instruments.
Fair Value Measurements
Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the
observability of inputs used in valuation techniques as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2:
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
21
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Cash and Cash Equivalents
Cash and cash equivalents consist of bank demand accounts, savings deposits, certificates of deposit and commercial paper with original maturi-
ties of 90 days or less. Cash and cash equivalents were $50,032,000 and $49,045,000 at May 31, 2013 and 2012, respectively. The carrying
value of these assets approximates fair value due to the short maturity of these instruments and meet the Level 1 criteria.
Marketable Securities
The Company has marketable securities held by banks or broker-dealers consisting of short-term domestic certificates of deposit of $13,348,000
and commercial paper rated at least A-2/P-2 with maturities between 91 days and one year of $21,989,000. Outstanding marketable securi-
ties at May 31, 2013 were $35,337,000; there were $19,600,000 marketable securities outstanding at May 31, 2012. These securities are
classified as held for sale. The primary objective of the Company’s short-term investment activity is to preserve capital for the purpose of fund-
ing operations, capital expenditures and business acquisitions; short-term investments are not entered into for trading or speculative purposes.
These securities are recorded at fair values (that approximate carrying value) based on recent trades or pricing models and therefore meet the
Level 2 criteria.
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 follows:
(In thousands)
Raw materials
Work-in-process
Purchased finished goods
2013
$
16,587
3,583
18,145
2012
$
13,997
2,110
18,885
$
38,315
$
34,992
No less frequently than quarterly, inventory is analyzed for slow moving and obsolete inventory and the valuation allowance is adjusted as required.
Write-offs against the allowance are not separately identified. The valuation allowance for inventory was $1,250,000 and $1,100,000 at May
31, 2013 and 2012, respectively.
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 39 years for buildings and improvements and three to 10 years for furniture, fixtures, machinery and equipment. Depreciation expense was
$4,417,000, $3,646,000 and $3,185,000 in 2013, 2012 and 2011, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to
other identifiable intangible assets. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants not-
to-compete and patents. Amortizable intangible assets are amortized on either an accelerated or a straight-line basis over five to 20 years. The
Company reviews the carrying amounts of goodwill and other non-amortizable intangible assets annually, or when indications of impairment exist,
to determine if such assets may be impaired. If the Company’s qualitative assessment concludes that it is probable that an impairment exists, or
the Company skips the qualitative assessment, then the Company performs a quantitative assessment. If the carrying amounts of these assets
are deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable EBITDA multiples of peer com-
panies, such assets are reduced to their estimated fair value and a charge is made to operations. The remaining weighted-average amortization
period for customer based intangibles and other intangible is 12 and 13 years, respectively, at May 31, 2013 and May 31, 2012.
Long-lived Assets
Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for possible
impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered
impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset are less than the car-
rying value of the asset. In such an event, fair value is determined using discounted cash flows and if lower than the carrying value, impairment
is recognized through a charge to operations.
Reclassifications
Certain amounts in the 2012 and 2011 financial statements have been reclassified to conform to the 2013 presentation.
22
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Stock Options
At May 31, 2013, the Company had stock option plans which are described more fully in Note 5.
The weighted-average fair value per share of stock options granted during 2013, 2012 and 2011, estimated on the date of grant using the
Black-Scholes option pricing model, was $13.81, $10.41 and $8.66 respectively. The fair value of stock options granted was estimated using
the following weighted-average assumptions:
Year ended May 31
Risk-free interest rate
Expected dividend yield
Expected stock price volatility
Expected option life
2013
1.2%
0%
39.2%
2012
1.2%
0%
36.4%
4.0 years
4.0 years
2011
1.7%
0%
35.8%
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 products and services is recognized when a purchase order has been received, the product has been shipped or the service has
been performed, the sales price is fixed and determinable, and collection of any resulting receivable is probable. To the extent customer payment
is received before all recognition criteria has been met, these revenues are initially deferred and later recognized in the period that all recogni-
tion criteria has been met. 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 revenues, while the related expenses
incurred by the Company are recorded in sales and marketing expense; these expenses totaled $6,856,000, $5,940,000 and $5,211,000 in
2013, 2012 and 2011, 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 ef-
fect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income
tax assets and liabilities during the year.
The Company’s foreign subsidiaries are comprised of Neogen Europe (wholly-owned subsidiary), Neogen Latinoamérica (60% owned by Neogen)
and Neogen do Brasil (92% owned by Neogen). Based on historical experience as well as the Company’s future plans, earnings from these sub-
sidiaries are expected to be re-invested indefinitely for future expansion and working capital needs. Furthermore, the Company’s domestic opera-
tions have historically produced sufficient operating cash flow to mitigate the need to remit foreign earnings. On an annual basis, the Company
evaluates the current business environment and whether any new events or other external changes might require a re-evaluation of the decision
to indefinitely re-invest foreign earnings. At May 31, 2013, unremitted earnings of the foreign subsidiaries were $13,419,000.
Research and Development Costs
Research and Development costs are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred and totaled $1,055,000, $1,001,000 and $677,000 in 2013, 2012 and 2011, respectively.
23
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Net Income Attributable to Neogen Per Share
Basic net income per share is based on the weighted average number of common shares outstanding during each year. Diluted earnings 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 (In thousands, except per share),
2013
2012
2011
Numerator for basic and diluted net income per share
Net income attributable to Neogen
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
$ 27,190
$ 22,513
$ 22,839
23,845
482
24,327
$
$
1.14
1.12
23,466
553
24,019
$
$
0.96
0.94
23,007
784
23,791
$
$
0.99
0.96
In 2012 and 2011, 52,300 and 12,000 options were excluded from the computations of net income per share as the option exercise prices ex-
ceeded the average market price of the common shares. In 2013, no options were excluded as the average market price exceeded the exercise
price for all options outstanding.
New Accounting Pronouncements
In June 2011, the FASB issued an accounting standards update titled Presentation of Comprehensive Income. This update eliminates the current
option to report other comprehensive income and its components in the statement of changes in equity. An entity can elect to present items of
net income and other comprehensive income in one continuous statement or in two separate consecutive statements. Each component of net
income and each component of other comprehensive income, together with totals for comprehensive income and its two parts, net income and
other comprehensive income, must be displayed under either alternative. The Company adopted the update in the first quarter of its fiscal 2013;
the adoption affected the presentation of its financial statements, but did not have an impact on the results of the Company’s operations.
In September 2011, the FASB issued an accounting standards update titled Intangibles—Goodwill and Other: Testing Goodwill for Impairment.
This update gives the option of performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount and, in some cases, skip the two-step impairment test. The adoption of this update did not have a material
effect on the Company’s consolidated financial statements.
In July 2012, the FASB issued an accounting standard update titled Intangibles—Goodwill and Other: Testing Indefinite Lived Intangible Assets for
Impairment. This update gives the option of performing a qualitative assessment to determine whether it is more likely than not that the fair value
of the intangible amount is less than its carrying amount and, in some cases, skip the quantitative impairment test. This standard is effective for
fiscal years beginning after September 15, 2012, and early adoption is permitted. The early adoption of this update did not have a material effect
on the Company’s consolidated financial statements.
2. Goodwill and Other Intangible Assets
The Company follows the provisions of ASC 350 – Intangibles Goodwill and Other (ASC 350). ASC 350 prohibits the amortization of goodwill and
intangible assets with indefinite lives and the Company reviews these intangibles for impairment annually and whenever events or changes in
circumstances indicate its carrying value may not be recoverable. Management has completed the annual impairment analysis of goodwill and
intangible assets with indefinite lives as prescribed by ASC 350 as of the first day of the fourth quarter of 2013 and determined that recorded
amounts were not impaired and that no write-down was necessary.
The following table summarizes goodwill by reportable segment:
(In thousands)
Balance, May 31, 2011
Goodwill acquired
Balance, May 31, 2012
Goodwill acquired
Balance, May 31, 2013
24
Food Safety
16,696
–
16,696
–
$ 16,696
Animal Safety
34,888
1,468
36,356
6,439
$ 42,795
Total
51,584
1,468
53,052
6,439
$ 59,491
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
At May 31, 2013, non-amortizable intangible assets included licenses of $569,000, trademarks of $4,867,000 and a customer relationship
intangible of $1,224,000. At May 31, 2012, non-amortizable intangible assets included licenses of $555,000, trademarks of $3,491,000 and a
customer relationship intangible of $1,224,000.
Amortizable intangible assets consisted of the following and are included in customer-based intangibles and other noncurrent assets within the
consolidated balance sheets:
(In thousands)
Licenses
Covenants not to compete
Patents
Customer relationship intangibles
Other product and service related intangibles
Balance, May 31, 2013
Licenses
Covenants not to compete
Patents
Customer relationship intangibles
Other product and service related intangibles
Balance, May 31, 2012
Gross
Carrying
Amount
$ 4,165
334
5,184
21,791
3,783
$ 35,257
$ 3,814
282
4,497
17,212
725
$ 26,530
Less
Accumulated
Amortization
$ 1,409
186
2,363
9,446
264
$ 13,668
$ 1,066
127
1,951
7,109
2
$ 10,255
Net Carrying
Amount
$ 2,756
148
2,821
12,345
3,519
$ 21,589
$ 2,748
155
2,546
10,103
723
$ 16,275
Amortization expense for intangibles totaled $2,994,000, $2,527,000 and $2,144,000 in 2013, 2012, and 2011, respectively. The estimated
amortization expense for each of the five succeeding years is as follows: $3,070,000 in 2014, $2,808,000 in 2015, $2,568,000 in 2016,
$2,231,000 in 2017 and $2,048,000 in 2018. The amortizable intangible assets useful lives are five to 20 years for licenses, five years for
covenants not to compete, five to 20 years for patents, and 12 to 20 years for customer-based intangibles. All definite lived intangibles are am-
ortized on a straight line basis with the exception of definite lived customer-based intangibles and product and service-related intangibles which
are amortized on an accelerated basis.
3. Business Combinations
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 April 1, 2010, Neogen Corporation acquired GeneSeek, Inc. of Lincoln, Nebraska, a leading commercial agricultural genetic laboratory. Gen-
eSeek’s technology employs high-resolution DNA genotyping for identity and trait analysis in a variety of important animal and agricultural plant
species. Consideration for the purchase was $14,050,000 in cash and secondary payment obligations of up to $7,000,000. The allocation of the
purchase price included accounts receivable of $1,923,000, inventory of $1,512,000, fixed assets of $847,000, current liabilities of $905,000,
deferred tax liabilities of $2,530,000, secondary payment liabilities of $3,583,000, intangible assets of $6,802,000 (with estimated lives of
five-20 years) and the remainder to goodwill (not deductible for tax purposes). The allocation was generally based on the fair value of these assets
determined using the income approach. These fair value measurements were based on significant inputs not observable in the market and thus
represent Level 3 fair value measurements. The secondary payment was based upon future operating results of the GeneSeek business through
2013, and payable annually over a three-year period, measured at fair value, and is considered a Level 3 fair value measurement. The Company
recorded a charge within other income (expense) of approximately $787,000 for the year ended May 31, 2011, representing the increase from its
original estimate in fair value of the secondary payment liability. As of May 31, 2011, the balance of the secondary payment liability recorded was
approximately $4,370,000. A payment of $1,856,000 was made in June 2011 to the former owners of GeneSeek, comprised of $1,537,000 for
the first year contingent payment and an additional $319,000 for inventory purchased post acquisition and settlement of other liabilities. In 2012,
the Company reversed $154,000 of the secondary payment liability, based on a lower calculated second year payout than had been estimated
at May 31, 2011 due to lower 2012 earnings. In May 2012, the second year payment of $1,263,000 was made to the former owners. The third
and final payment of $1,500,000 was made in May 2013. The acquisition has been integrated into the Animal Safety segment.
25
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
On June 21, 2011, Neogen Corporation acquired the assets of VeroMara seafood testing laboratory for approximately $813,000 in cash and a
potential secondary payment of approximately $200,000 from its parent company, GlycoMar Ltd. Formerly based in Oban, Scotland, VeroMara
offered commercial testing for the shellfish and salmon aquaculture industries, including tests for shellfish toxins, general foodborne pathogens,
including E. coli, noroviruses, and salmon husbandry. VeroMara recorded revenues of approximately $800,000 (U.S.) in its most recently com-
pleted fiscal year prior to acquisition. The acquisition has been integrated into the Company’s Food Safety segment at its Ayr, Scotland location.
On May 1, 2012, the Company purchased the assets of the Igenity animal genomics business from Merial Limited. Consideration for the purchase,
which was determined through arm’s length negotiations, was $3,200,000 in cash and included allocations of net current assets of $110,000,
fixed assets of $340,000, $600,000 accrued for secondary consideration, intangible assets of $2,036,000 and the remainder to goodwill. Dur-
ing the year, the Company paid $500,000 for data sets included in the secondary consideration. The allocation was generally based on the fair
value of these assets determined using the income approach. These fair value measurements were based on significant inputs not observable in
the market and thus represent Level 3 fair value measurements. In the past, GeneSeek conducted the genetic testing of samples for Igenity, and
Igenity used the information with its extensive bioinformatics system to identify the animal’s positive or negative traits. The Igenity business was
moved to GeneSeek’s operations in Lincoln, Nebraska, and operates as part of Neogen’s GeneSeek subsidiary, within the Animal Safety segment.
In May 2013, the Company reversed the remaining $100,000 of the secondary consideration accrual to Other Income, as the business did not
attain the revenue level stipulated for the year.
On October 1, 2012, Neogen Corporation acquired the stock of Macleod Pharmaceuticals, Inc., of Fort Collins, Colorado. Macleod is the manufacturer
of Uniprim, a leading veterinary antibiotic. The product is widely distributed throughout the U.S., and is also available in Canada through an exclusive
distribution agreement. Consideration for the purchase was $9,918,000 in net cash and $100,000 accrued for secondary consideration. The pur-
chase price allocation, based upon the fair value of these assets determined using the income approach, included accounts receivable of $353,000,
inventory of $1,238,000, fixed assets of $300,000, current liabilities of $82,000, deferred tax liabilities of $2,054,000, secondary payment liabilities
of $100,000, intangible assets of $5,542,000 and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value
measurements. Macleod operates as a subsidiary of Neogen Corporation, reporting within the Animal Safety segment.
On January 2, 2013, Neogen Corporation acquired the assets of Scidera Genomics, LLC, an animal genomics business based in Davis, California.
The company, formerly operated as MetaMorphix, Inc., or MMI Genomics, performs parentage testing and trait analysis primarily for the cattle
and canine industries. Consideration for the purchase was $3,400,000 in cash. The preliminary purchase price allocation included current as-
sets of $35,000, fixed assets of $246,000, intangible assets of $1,570,000 and the remainder to goodwill. These values are Level 3 fair value
measurements. This business reports within the Animal Safety segment.
On July 1, 2013, Neogen Corporation acquired the assets of SyrVet, Inc., a veterinary business based in Waukee, Iowa. SyrVet offered a product
line similar to Neogen’s Ideal Instruments line of veterinary instruments with 30% of their sales coming from international markets, primarily in
Mexico and Latin America. Consideration for the purchase was $10,012,000 in cash and secondary payment liability of up to $1,500,000.
Goodwill recognized in the acquisitions discussed above relates primarily to enhancing the Company’s strategic platform for the expansion of
available product offerings.
4. Long-Term Debt
The Company has a financing agreement with a bank providing for an unsecured revolving line of credit of $12,000,000 which matures on Sep-
tember 1, 2014. There were no advances against this line of credit during 2013, 2012 and 2011 and no balance outstanding at May 31, 2013
and 2012. Interest is at LIBOR plus 100 basis points (rate under the terms of the agreement was 1.19% at May 31, 2013). Financial covenants
include maintaining specified levels of tangible net worth, debt service coverage, and funded debt to EBITDA, each of which the Company was in
compliance with at May 31, 2013 and May 31, 2012.
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. These options are granted at an exercise price of not less than the fair market value of the
stock on the date of grant. Remaining shares available for grant under stock option plans were 818,000, 1,108,000 and 397,000 at May 31,
2013, 2012 and 2011, respectively. Options vest ratably over three and five year periods and the contractual terms are generally five or 10 years.
(In thousands, except for share price)
Outstanding at May 31, 2010 (729 exercisable)
Granted
Exercised
Forfeited
26
Shares
1,998
293
(627)
(90)
Weighted-Average
Exercise Price
Weighted-Average
Fair Value
14.14
28.50
9.83
18.22
4.72
8.66
3.98
5.84
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
(In thousands, except for share price)
Outstanding at May 31, 2011 (509 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2012 (575 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2013 (499 exercisable)
Shares
Weighted-Average
Exercise Price
Weighted-Average
Fair Value
1,574
316
(320)
(27)
1,543
306
(438)
(16)
1,395
17.77
34.59
12.44
16.62
22.34
43.00
15.91
29.50
28.82
$
5.71
10.41
4.39
5.39
6.95
13.81
5.14
9.11
9.00
$
The following is a summary of stock options outstanding at May 31, 2013:
Options Outstanding
Options Exercisable
Range of
Exercise Price
$ 6.75–19.17
19.18–19.94
19.95–34.37
34.38–42.39
42.40–43.00
Number
225,912
287,066
295,017
283,250
303,500
1,394,745
Average Remaining
Contractual Life
1.97
1.62
3.44
3.75
4.99
3.23
Weighted-Average
Exercise Price
15.03
$
19.55
28.10
34.76
43.00
28.82
$
Number
164,192
155,071
124,981
55,048
0
499,292
$
Weighted-Average
Exercise Price
13.85
19.55
27.25
35.01
0
21.31
$
The weighted-average exercise price of shares that were exercisable at May 31, 2013 and 2012 was $21.31 and $16.59, respectively. The
weighted-average grant-date fair value of options granted in 2013, 2012, and 2011 was $13.81, $10.41 and $8.66, respectively.
The aggregate intrinsic value of options outstanding and options exercisable was $35,778,000 and $16,557,000, respectively, at May 31, 2013,
$25,617,000 and $12,855,000 respectively, at May 31, 2012 and $42,607,000 and $16,040,000 respectively, at May 31, 2011. The aggre-
gate intrinsic value of options exercised during the year was $12,519,000 in 2013, $8,226,000 in 2012 and $15,262,000 in 2011. Remaining
compensation cost to be expensed in future periods for non-vested options was $4,096,000 at May 31, 2013, with a weighted average expense
recognition period of 3.2 years.
The following table summarizes warrant activity with non-employees that were expensed at fair value upon grant. All warrants were exercisable
for common stock of the Company and expired in 2012.
(In thousands except for share price)
Outstanding warrants at May 31, 2010
Warrants exercised during the year
Warrants forfeited during the year
Outstanding warrants at May 31, 2011
Warrants exercised during the year
Warrants forfeited during the year
Outstanding warrants at May 31, 2012
Shares
29
(20)
(2)
7
(2)
(5)
–
Weighted-Average
Exercise Price
8.48
8.30
8.18
9.02
9.02
9.02
$
–
Common stock totaling 43,539 of the 225,000 originally authorized shares are reserved for issuance under the terms of the 2002 Employee
Stock Purchase Plan. An additional 250,000 shares are also reserved for issuance under the terms of the 2011 Employee Stock Purchase Plan.
The plan gives eligible employees the option to purchase common stock at a 5% discount to the lower of the market value of the stock at the
beginning or end of each participation period. Total individual purchases in any year are limited to 10% of compensation. Shares purchased by
employees were 14,925, 14,144 and 18,252 in 2013, 2012 and 2011, respectively.
27
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
6. Income Taxes
The provision for income taxes consisted of the following:
Year ended May 31 (In thousands),
Current
U.S. Taxes
Foreign
Deferred
2013
12,959
854
287
14,100
$
$
2012
9,520
587
1,343
11,450
$
$
2011
9,336
811
2,253
12,400
$
$
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial 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:
Year ended May 31 (In thousands),
Deferred income tax liabilities
Indefinite and long-lived assets
Prepaids
Deferred income tax assets
Inventories and accounts receivable
Acquired net operating loss carryforwards
Accrued liabilities and other
Net deferred income tax liabilities
2013
(13,953)
(333)
(14,286)
1,228
0
2,071
3,299
(10,987)
$
$
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 (In thousands),
Tax at U.S. statutory rates
Tax credits and other
Provisions for state income taxes, net of federal benefit
2013
14,400
(980)
680
14,100
$
$
2012
11,900
(755)
305
11,450
$
$
2012
(11,238)
(365)
(11,603)
1,149
19
1,789
2,957
(8,646)
2011
12,300
(145)
245
12,400
$
$
$
$
At the end of 2011, the Company was under audit by the Internal Revenue Service for its 2009 fiscal year; in 2012 this audit was expanded to
include the 2010 fiscal year as well. The audit concluded in late 2012 with a slight favorable adjustment; thus, amounts totaling $550,000 that
had been reserved as uncertain tax positions were reversed in the fourth quarter of 2012, resulting in an effective tax rate of 33.7% for 2012.
Absent this adjustment, the Company’s 2012 tax rate would have been 35.5%, compared to 34.3% in 2013 and 35.2% in 2011.
The Company has no significant accrual for unrecognized tax benefits at May 31, 2013. Should the accrual of any interest or 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 2010.
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
which have ranged from $50,000 to $105,000 per year over the past five years. The Company’s estimated liability for these costs of $916,000 at
May 31, 2013 and 2012, measured on an undiscounted basis over an estimated period of 15 years, is recorded within other long-term liabilities
in the consolidated balance sheet.
In August 2011, the Company purchased a facility in Lexington, Kentucky for $4,950,000. This purchase provides the Company an additional
128,000 square feet of office, production and warehouse space to accommodate near-term expansion needs. Currently, a portion of the building
is leased to outside parties. Lease rental income is expected to be $104,000 for 2014, $38,000 for 2015 and $3,000 for 2016.
In December 2012, the Company purchased a 36,000 square foot facility adjacent to the Company’s facility on the campus of the Scottish Agri-
cultural College in Ayr, Scotland for approximately $1.5 million.
The Company has agreements with unrelated third parties that provide for the payment of license fees and royalties on the sale of certain products.
License fees and royalty expense under the terms of these agreements was $1,837,000, $1,371,000 and $1,561,000 for 2013, 2012 and 2011,
respectively.
The Company has agreements with unrelated third parties that provide for guaranteed minimum royalty payments to be paid by the Company for
28
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
certain technologies, as follows: 2014 - $907,000, 2015 - $1,007,000, 2016 - $1,157,000, and 2017 and later - $1,157,000.
The Company leases office and manufacturing facilities under noncancelable operating leases. Rent expense for 2013, 2012 and 2011 was
$657,000, $495,000 and $477,000, respectively. Future minimum rental payments for these leases over their remaining terms are as follows:
2014 - $467,000, 2015 - $247,000, 2016 - $247,000, and 2017 and later - $843,000.
The Company is subject to certain legal and other proceedings in the normal course of business that, in the opinion of management, should not
have a material effect on its future results of operations or financial position.
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 $863,000, $760,000 and $733,000 in 2013, 2012 and 2011, respectively.
9. Segment Information
The Company has two reportable segments: Food Safety and Animal Safety. The Food Safety segment is primarily engaged in the development,
production and marketing of 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 development, production
and marketing of products dedicated to animal safety, including a complete line of consumable products marketed to veterinarians and animal
health product distributors; this segment also provides genetic identification and related interpretive bioinformatic services. 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 different mar-
keting 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:
(In thousands)
2013
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Interest income
Income taxes
Total assets
Expenditures for long-lived assets
2012
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Interest income
Income taxes
Total assets
Expenditures for long-lived assets
Food Safety
Animal Safety
Corporate and
Eliminations (1)
$
$
102,971
3,187
106,158
27,366
3,874
0
9,182
93,079
6,046
90,460
644
91,104
23,932
3,500
0
7,795
62,227
4,633
$
$
81,163
20,207
101,370
15,858
3,537
0
4,770
121,908
2,851
74,450
18,492
92,942
12,039
2,673
0
3,589
106,987
7,780
$
$
0
0
0
(2,518)
0
144
148
75,571
0
0
0
0
(2,232)
0
107
66
82,386
0
$
$
Total
184,134
23,394
207,528
40,706
7,411
144
14,100
290,558
8,897
164,910
19,136
184,046
33,739
6,173
107
11,450
251,600
12,413
$
2011
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Interest income
Income taxes
Total assets
Expenditures for long-lived assets
(1) Includes corporate assets, including cash and cash equivalents, marketable securities, current and deferred tax accounts, and overhead expenses not allocated to specific business segments. Also
154,664
18,019
172,683
35,835
5,329
95
12,400
219,662
7,796
0
0
0
(1,812)
0
95
(627)
50,457
0
85,514
0
85,514
24,305
3,251
0
8,410
78,373
4,908
69,150
18,019
87,169
13,342
2,078
0
4,617
90,832
2,888
$
$
$
includes the elimination of intersegment transactions and noncontrolling interests.
29
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Revenues to customers located outside the United States amounted to $83,171,000 or 40.1% of consolidated revenues in 2013, $76,672,000
or 41.7% in 2012 and $72,724,000 or 42.1% in 2011 and were derived primarily in various countries throughout Europe, Canada, and the
geographic areas of South and Central America and Asia. No customer represented revenues in excess of 10% of consolidated net sales in
any of the three years. The United States based operations represent 95% of the Company’s long-lived assets as of May 31, 2013 and 96% as
May 31, 2012.
10. Stock Repurchase
In December 2008, the Company’s Board of Directors authorized a program to purchase, subject to market conditions, up to 750,000 shares of
the Company’s common stock. As of May 31, 2011, 74,684 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 2013 or 2012. Shares purchased under the
program were retired.
11. Summary of Quarterly Data (Unaudited)
Quarter Ended
(In thousands, except per share)
August 2012
November 2012
February 2013
May 2013
Net sales
Gross margin
Net income
Basic net income per share
Diluted net income per share
$ 49,729
26,494
6,714
0.28
0.28
$ 50,737
27,306
6,793
0.29
0.28
$ 51,055
27,313
6,652
0.28
0.27
Quarter Ended
$ 56,007
28,381
7,031
0.29
0.29
(In thousands, except per share)
August 2011
November 2011
February 2012
May 2012
Net sales
Gross margin
Net income
Basic net income per share
Diluted net income per share
$ 45,697
22,977
6,004
0.26
0.25
$ 44,891
22,657
5,237
0.22
0.22
$ 44,912
22,892
5,244
0.22
0.22
$ 48,546
23,899
6,028
0.26
0.25
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.
30
Reports
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rules 13-a-15(f) and 15d-15(f). Under the supervision and with the participation of the company’s management, including the Chief Executive
Officer and Chief Financial Officer, an evaluation was conducted as to the effectiveness of internal control over financial reporting as of May 31,
2013, based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, management concluded that internal control over financial reporting was effective as of May 31, 2013. The
effectiveness of internal control over financial reporting as of May 31, 2013, has been audited by Ernst & Young, LLP, an independent registered
public accounting firm, as stated in its attestation report, which is included in Item 8 and is incorporated into this Item 9A by reference.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting were identified as having occurred during the quarter ended May 31, 2013 that have
materially affected, or are reasonably likely to materially affect, internal control financial reporting.
James L. Herbert
Chairman and CEO
Steven J. Quinlan
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 and Subsidiaries’ internal control over financial reporting as of May 31, 2013, 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 financial 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 perform-
ing 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 re-
porting and the preparation of financial statements for external purposes in accordance with generally accepted accounting 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 transac-
tions 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 prevention 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, projections of any evalu-
ation 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 and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of May
31, 2013, 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 bal-
ance sheets of Neogen Corporation and Subsidiaries as of May 31, 2013 and May 31, 2012, and the related consolidated statements of income,
comprehensive income, equity, and cash flows for each of the three years in the period ended May 31, 2013, and our report dated July 30, 2013
expressed an unqualified opinion thereon.
Grand Rapids Michigan
July 30, 2013
31
Neogen Corporation and Subsidiaries: Comparison of Five Year Cumulative Total Return
and Stock Profile Activity*
$ 400
350
300
250
200
150
100
50
0
May 2008
Neogen Corporation
NASDAQ Composite
NASDAQ Medical Equipment
May 2009
May 2010
May 2011
May 2012
May 2013
* Among Neogen Corporation*, The NASDAQ Composite Index, and The NASDAQ Medical Equipment Index. $100 invested on May 31, 2008 in stock or index, including reinvestment
of dividends. Fiscal year ending May 31.
May 31 of:
2008
2009
2010
2011
2012
2013
Neogen Corporation
NASDAQ Composite
NASDAQ Medical Equipment
$ 100.00 $ 83.68 $ 146.41 $ 255.35 $ 221.75 $ 310.19
100.00
100.00
70.23
60.94
89.88
87.58
115.07
109.22
115.70
109.32
143.89
119.77
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Stock Profile Activity
Neogen Common Stock is traded on the NASDAQ Global Select Market under the symbol NEOG. The following table sets forth, for the fiscal
periods indicated, the high and low sales prices for the Common Stock as reported on the NASDAQ Stock Market.
Year Ended
High
Low
May 31, 2013
Fourth Quarter
$ 56.73
$ 45.99
Third Quarter
Second Quarter
First Quarter
48.78
45.95
47.80
44.57
38.64
37.93
May 31, 2012
Fourth Quarter
$ 39.88
$ 33.78
Third Quarter
Second Quarter
36.16
39.90
30.14
32.08
First Quarter
47.80
32.68
Holders: As of July 30, 2013, there were approximately 356 stockholders of record of Common Stock that management believes represents a total
of approximately 7,391 beneficial holders.
Dividends: Neogen has never paid any cash dividends on its Common Stock and does not anticipate paying any cash dividends in the foreseeable
future.
32
CONTENTS
Financial Highlights ...............................................................1
A Message from Management ...............................................2
Advancing the Science of Food Security ...........4
Management’s Discussion and Analysis of Financial
Condition and Results of Operations .....................................10
Consolidated Balance Sheets ...............................................17
Consolidated Statements of Income .....................................18
Consolidated Statements of Comprehensive Income ..............18
Consolidated Statements of Equity .......................................19
Consolidated Statements of Cash Flows ...............................20
Notes to Consolidated Financial Statements ..........................21
Management’s Report on Internal Control
Over Financial Reporting ......................................................31
Report of Independent Registered
Public Accounting Firm ........................................................31
Comparison of Five Year Cumulative Total Return
and Stock Profile Activity .....................................................32
The mission of
Neogen Corporation
is to be the leading company
in the development and marketing
of solutions for food and animal safety.
Thanks for the legacy, Lon
As Neogen marks its 31st year, we must say thanks to one of the team who helped guide
and mold the company to its market cap of more than $1 billion. Lon Bohannon retired from
Neogen in August 2013 to pursue some opportunities with his family that he had considered
for some time.
Lon joined Neogen in October 1985 as the company’s first financial officer when revenues
were less than $4 million. He helped successfully sell the Neogen dream until the company
became financially successful. Lon then stepped in as president and chief operating officer as
we consistently set quarter after quarter revenue and earnings records. He was a key member
of the team that developed hundreds of new products, made dozens of good acquisitions, and
helped grow the team to more than 800 employees.
Lon’s greatest contribution is the legacy he leaves behind. For several months prior to his
retirement, he helped select Steve Snyder to become the company’s new president and
spent a number of weeks proudly introducing Steve to our people and operations.
Lon, thanks for your role in our success and the legacy you leave.
2014 Neogen Corporation Officers and Directors
OFFICERS
James L. Herbert
Chairman of the Board
Chief Executive Officer
Stephen K. Snyder
President
Chief Operating Officer
Steven J. Quinlan
Vice President
Chief Financial Officer and Secretary
Edward L. Bradley
Vice President, Food Safety
Kenneth V. Kodilla
Vice President, Manufacturing
Jason W. Lilly, Ph.D.
Vice President, Corporate Development
Terri A. Morrical
Vice President, Animal Safety
Mark A. Mozola, Ph.D.
Vice President, Research and Development
Jennifer A. Rice, DVM, Ph.D.
Vice President
Senior Research Director
DIRECTORS
James L. Herbert
Neogen Corporation
Chairman of the Board
Chief Executive Officer
William T. Boehm, Ph.D.
Kroger Company
Former Senior Vice President
President’s Council of Economic Advisors
Former Senior Economist
Richard Crowder, Ph.D.
Virginia Tech University
Thornhill Professor of Agricultural Trade
Office of the U.S. Trade Representative
Former Chief Agricultural Trade Negotiator
A. Charles Fischer
Dow AgroSciences
Former President and CEO
G. Bruce Papesh
Dart, Papesh & Co.
President
Jack C. Parnell
Siller Brothers, Inc.
Chairman of the Board
Siller Helicopters, Inc.
Chairman of the Board
U.S. Department of Agriculture
Former Deputy Secretary
Former Acting Secretary
Thomas H. Reed
Tom Reed & Associates
President
JBS Packerland
Former Senior Vice President
Michigan Livestock Exchange
Former President and CEO
MSU Board of Trustees
Former Chairman
Clayton K. Yeutter, Ph.D.
Hogan Lovells, LLP
Senior Advisor, International Trade
U.S. Department of Agriculture
Former Secretary
Former U.S. Trade Representative
DIRECTOR EMERITUS
Gordon E. Guyer, Ph.D.
Michigan State University
Former President
LEGAL COUNSEL
Lowe Law Firm, P.C.
2375 Woodlake Drive
Suite 380
Okemos, MI 48864
Fraser Trebilcock Davis & Dunlap, P.C.
124 W. Allegan, Suite 1000
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 and Trust Co.
6201 15th Avenue
Brooklyn, NY 11219
ANNUAL MEETING
October 3, 2013
10:00 a.m.
University Club
Michigan State University
3435 Forest Road
Lansing, MI 48909
© Neogen Corporation, 2013. AccuPoint, Acumedia, BetaStar, Ideal, GeneSeek, Igenity, Macleod, Reveal, Soleris and SyrVet are registered trademarks and ANSR, D3 Needles, Genomic Profiler and NeoSEEK are trademarks of
Neogen Corporation, 620 Lesher Place, Lansing, Michigan 48912.
NC014-0813