Neogen reports record quarter

CONTACT: Richard R. Current, Vice President & CFO, 517/372-9200

LANSING, Mich., Jan. 7, 2004 – Neogen Corporation (Nasdaq: NEOG) today announced that second quarter net income increased 10% to $1,543,000 from $1,401,000 in the prior year. Adjusted for the December 5-for-4 stock split, net income per share was $0.19 in the second quarter compared to $0.18 for the same period of the prior year.

Second quarter revenues were $13,246,000 — the first time quarterly revenues have exceeded $13 million. Quarterly revenues were 5% greater than the prior year, and $25,479,000 for the first six months, up 7% as compared to the prior year’s same six-month period. For the first six months, net income increased 15% to $2,845,000, or to $0.34 from $0.31 on a post-split, per-share basis.

The quarter is the 43rd consecutive profitable quarter from operations for the Company, and the 48th quarter of the past 52 quarters to show increased revenues.

“We are proud to once again deliver on the trust we’ve earned with our shareholders and customers by reporting yet another record quarter,” said James Herbert, Neogen’s president. “In light of last year’s outstanding second quarter when we posted an overall 22% revenue increase, and 29% for our food safety division, we knew this quarter would present difficult quarterly comparisons. We’re very pleased to report that the growth momentum continues.”

Neogen’s Animal Safety Division led the Company’s second quarter revenue increase, with sales up 11% from FY 2003 to FY 2004. Sales of the division’s veterinary pharmaceuticals were up sharply, as were its sales of veterinary instruments. Neogen’s Food Safety Division sales increased slightly on a quarter-to-quarter comparison, led by increases in sales of its diagnostic tests to detect food allergens, and sales of its Acumedia dehydrated culture media.

“We continue to be very optimistic regarding prospects for future growth within our Food Safety Division,” said Lon Bohannon, Neogen’s chief operating officer. “In the prior year twin outbreaks of mycotoxins in grain commodities and E. coli in beef created an unusual market for the sale of our diagnostic testing products. Matching last year’s revenue performance in a much more normal sales environment this year provides solid evidence of our ability to grow our core business.”

As Neogen’s acquisitions of Hacco and Hess & Clark from United Agri Products were not effective until Nov. 21, just four business days prior to the close of the second quarter, revenues from the two companies were not significant to Neogen’s second quarter results. Hacco, a manufacturer of rodenticides, had revenues of approximately $8 million in its most recently completed fiscal year. Ashland, Ohio-based Hess & Clark’s primary products are disinfectants to rid pathogenic organisms from animal production and food processing facilities, and proprietary antibacterials for animals. In its previous fiscal year, Hess & Clark’s annual revenues for these products were approximately $2 million.

In December, Neogen announced that its Board of Directors approved a 5-for-4 stock split. With the split, shareholders of record on Dec. 22, 2003, received one additional share of stock for each four shares held. The stock split was effected in the form of a stock dividend that was paid in newly issued common stock on Dec. 31, 2003. As of Dec. 15, 2003, Neogen had 6,400,000 shares of common stock outstanding. After the stock split, the Company had 8,000,000 shares of common stock outstanding.

In its second quarter, Neogen received additional recognition for its performance. In its Oct. 27, 2003 issue, Forbes Magazine named Neogen to its annual list of the 200 Best Small Companies in America for the third time. The Forbes list is based on growth in sales, earnings, and return on equity for the past five years, and the latest 12 months.

“We are pleased any time we receive independent recognition of our company’s solid performance, and especially when it comes from a source as trusted as Forbes,” said Herbert. “The list provides the investment community with another tool to identify solid performers for possible investment.”

Neogen Corporation develops and markets products dedicated to food and animal safety. The Company’s Food Safety Division markets dehydrated culture media, and diagnostic test kits to detect foodborne bacteria, natural toxins, genetic modifications, food allergens, drug residues, plant diseases and sanitation concerns. Neogen’s Animal Safety Division markets a complete line of diagnostics, veterinary instruments, veterinary pharmaceuticals, nutritional supplements, disinfectants, and rodenticides.

NEOGEN CORPORATION UNAUDITED SUMMARIZED CONSOLIDATED OPERATING DATA
(In thousands, except for per share and percentages)
Quarter ended Nov. 30 Nine months ended Nov. 30
2003 2002 2003 2002
Revenue
 Food Safety $7,130 $7,085 $14,028 $13,155
 Animal Safety 6,116 5,507 11,451 10,600
Total revenue 13,246 12,592 25,479 23,755
Cost of sales 6,243 5,553 12,216 10,633
Gross margin 7,003 7,039 13,263 13,122
Operating expenses
 Sales & Marketing 2,803 3,129 5,726 5,958
 Administrative 1,268 1,032 2,055 2,092
 Research & Development 652 842 1,328 1,497
Total operating expenses 4,723 5,003 9,109 9,547
Operating income 2,280 2,036 4,154 3,575
Other income (expense) 64 121 172 249
Income before tax 2,344 2,157 4,326 3,824
Income tax 801 756 1,481 1,348
Net income $1,543 $1,401 $2,845 $2,476
Net income per diluted share $0.19 $0.18 $0.34 $0.31
Other information
 Shares to calculate per share (1) 8,302 7,946 8,260 7,951
 Deprecation & amortization $316 $325 $618 $625
 Interest income        
 Gross margin (% of sales) 52.9% 55.9% 52.1% 55.2%
 Operating income (% of sales) 17.2% 16.2% 16.3% 15.0%
 Revenue increase vs. FY 2003 5.2% 7.3%
 Net income increase vs. FY 2003 10.1% 14.9%
NEOGEN CORPORATION SUMMARIZED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
Nov. 30
2003
May 31
2003
Assets
Current Assets
 Cash & investments $2,045 $8,897
 Accounts receivable 7,933 7,499
 Inventory 12,005 9,840
 Other current assets 2,127 1,735
Total current assets 24,110 27,971
Property & equipment 7,596 4,640
Goodwill & other assets 22,540 15,425
Total assets $54,246 $48,036
Liabilities & Equity
Current liabilities $5,382 $5,763
Long-term line of credit 3,100  
Other long-term liabilities 863 871
Stockholders' equity
shares outstanding 7,949 in Nov. & 7,750 in May
44,901 41,402
Total liabilities & equity $54,246 $48,036

Certain portions of this news release that do not relate to historical financial information constitute forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties. Actual future results and trends may differ materially from historical results or those expected depending on a variety of factors listed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s most recently filed Form 10-K.