UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~February 28, 2018.~~

August 31, 2019.

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to

Commission file number

0-17988

Neogen Corporation

(Exact name of registrant as specified in its charter)


~~Michigan~~		~~38-2367843~~
Michigan		38-2367843
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

620 Lesher Place

Lansing, Michigan 48912

(Address of principal executive offices, including zip code)

(517)

372-9200

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


Title of each Class	Trading Symbol(s)	Name of each exchange on which registered

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES

☒

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation

S-T (§

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). YES

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a

non-accelerated

filer (see definition of “accelerated filer and large accelerated filer” in Rule

12b-2

of the Exchange Act):


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐

~~Non-accelerated~~ ~~filer~~ Smaller Reporting Company	☐ ~~(Do not check if a smaller reporting company)~~
Emerging growth company	~~Smaller reporting company~~	☐

~~Emerging growth company~~	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended ~~transaction~~transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act): YES

☐

☒

As of ~~February 28, 2018,~~August 31, 2019 there were ~~51,583,085~~52,422,942 shares of Common Stock outstanding.

Table of Contents

NEOGEN CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION			Page No.
		~~Page No.~~
~~PART I. FINANCIAL INFORMATION~~

Item 1.	Interim Consolidated Financial Statements (unaudited)		2

	Consolidated Balance Sheets – ~~February 28, 2018~~August 31, 2019 and May 31, ~~2017~~2019		2

	Consolidated Statements of Income – Three ~~and nine~~ months ended ~~February 28,~~August 31, 2019 and 2018 ~~and 2017~~		3

	Consolidated Statements of Comprehensive Income – Three ~~and nine~~ months ended ~~February 28,~~August 31, 2019 and 2018 ~~and 2017~~		4

	Consolidated ~~Statement~~Statements of Equity – ~~Nine~~Three months ended ~~February 28,~~August 31, 2019 and 2018		5

	Consolidated Statements of Cash Flows – ~~Nine~~Three months ended ~~February 28,~~August 31, 2019 and 2018 ~~and 2017~~		6

	Notes to Interim Consolidated Financial Statements – ~~February 28, 2018~~August 31, 2019		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1318

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		2025
Item 4.	Controls and Procedures		25

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		26

Item 6.	Exhibits		26

SIGNATURES			27


~~Item 4.~~	~~Controls and Procedures~~ CEO Certification		20

~~PART II. OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~ CFO Certification		21

~~Item 6.~~	~~Exhibits~~		21

~~SIGNATURES~~			22

	~~Certification of Principal Executive Officer~~

	~~Certification of Principal Financial Officer~~

	Section 906 Certification

Table of Contents

PART I – FINANCIAL INFORMATION

~~Item 1.~~

~~Interim Consolidated Financial Statements~~

Item 1. Interim Consolidated Financial Statements

Neogen Corporation and Subsidiaries

Consolidated Balance ~~Sheet~~

Sheets

(in thousands, except share and

per share amounts)

   February 28,
2018 May 31,
2017
   (Unaudited) (Audited)
Assets

Current Assets

Cash and cash equivalents
   $ 82,066 $ 77,567
Marketable securities (at fair value, which approximates cost)
   110,089 66,068
Accounts receivable, less allowance of $1,750 and $2,000
   73,209 68,576
Inventories, net
   77,506 73,144
Prepaid expenses and other current assets
   9,334 7,606


Total Current Assets
   352,204 292,961
Property and Equipment, net
   72,514 61,748
Other Assets

Goodwill
   99,478 104,759
Othernon-amortizable intangible assets
   15,011 14,323
Customer-based intangibles, net of accumulated amortization of $23,846 and $20,846 at February 28, 2018 and May 31, 2017
   33,518 35,983
Othernon-current assets, net of accumulated amortization of $11,893 and $9,931 at February 28, 2018 and May 31, 2017
   22,876 18,635


Total Assets
   $ 595,601 $ 528,409


Liabilities and Equity

Current Liabilities

Accounts payable
   $ 19,654 $ 16,244
Accrued compensation
   5,469 5,002
Income taxes
   960 936
Other accruals
   11,210 13,820


Total Current Liabilities
   37,293 36,002
Deferred Income Taxes
   11,400 17,048
Non-Current Liabilities
   4,973 3,602


Total Liabilities
   53,666 56,652
Commitments and Contingencies (note 9)

Equity

Preferred stock, $1.00 par value, 100,000 shares authorized, none issued and outstanding
   —   —
Common stock, $0.16 par value, 60,000,000 shares authorized, 51,583,085 and 50,932,489 shares issued and outstanding at February 28, 2018 and May 31, 2017, respectively
   8,253 8,149
Additionalpaid-in capital
   197,246 174,742
Accumulated other comprehensive loss
   (5,303 ) (7,203 )
Retained earnings
   341,459 295,926


Total Neogen Corporation Stockholders’ Equity
   541,655 471,614
Non-controlling interest
   280 143


Total Equity
   541,935 471,757


Total Liabilities and Equity
   $ 595,601 $ 528,409


	August 31, 2019			May 31, 2019
Assets	Unaudited			Audited
Current Assets
Cash and cash equivalents	$	56,289		$	41,688
Marketable securities		234,727			225,836
Accounts receivable, less allowance of $1,700 and $1,700 at August 31, 2019 and May 31, 2019, respectively		79,112			82,582
Inventories		87,682			85,992
Prepaid expenses and other current assets		15,738			13,431

Total Current Assets		473,548			449,529
Net Property and Equipment		75,154			74,847
Other Assets
Goodwill		102,883			103,619
Other non-amortizable intangible assets		15,397			15,649
Amortizable intangible and other assets, net of accumulated amortization of $40,127 and $40,835 at August 31, 2019 and May 31, 2019, respectively		54,162			52,096

Total Assets	$	721,144		$	695,740

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	18,345		$	19,063
Accrued compensation		4,796			7,085
Income taxes		4,142			601
Other accruals		13,144			11,502

Total Current Liabilities		40,427			38,251
Deferred Income Taxes		15,501			15,618
Other Non-Current Liabilities		4,910			3,972

Total Liabilities		60,838			57,841
Commitments and Contingencies (note 8)
Equity
Preferred stock, $1.00 par value, 100,000 shares authorized, NaN issued and outstanding		—			—
Common stock, $0.16 par value, 120,000,000 shares authorized, 52,422,942 and 52,216,589 shares issued and outstanding at August 31, 2019 and May 31, 2019, respectively		8,387			8,355
Additional paid-in capital		232,156			221,937
Accumulated other comprehensive loss		(14,136	)		(11,640	)
Retained earnings		433,899			419,247

Total Stockholders’ Equity		660,306			637,899

Total Liabilities and Stockholders’ Equity	$	721,144		$	695,740

See notes to interim consolidated financial statements.

Table of Contents

Neogen Corporation and Subsidiaries

Consolidated Statements of Income (unaudited)

(in thousands, except per share amounts)

   Three Months Ended Nine Months Ended
   February 28, February 28,
   2018    2017 2018 2017
Revenues

Product revenues
   $ 78,142    $ 73,964 $ 244,298 $ 223,170
Service revenues
   17,750    14,421 48,667 39,577




Total Revenues
   95,892    88,385 292,965 262,747
Cost of Revenues

Cost of product revenues
   40,352    38,816 124,785 113,241
Cost of service revenues
   10,019    8,689 27,517 24,556




Total Cost of Revenues
   50,371    47,505 152,302 137,797




Gross Margin
   45,521    40,880 140,663 124,950
Operating Expenses

Sales and marketing
   17,492    15,340 52,331 45,824
General and administrative
   9,280    8,548 29,096 25,094
Research and development
   2,836    2,641 8,901 8,087




Total Operating Expenses
   29,608    26,529 90,328 79,005




Operating Income
   15,913    14,351 50,335 45,945
Other Income

Interest income
   524    271 1,322 690
Other income
   844    1,105 1,913 1,098




Total Other Income
   1,368    1,376 3,235 1,788




Income Before Taxes
   17,281    15,727 53,570 47,733
Provision for Income Taxes
   700    5,350 7,900 16,250




Net Income
   16,581    10,377 45,670 31,483
Net (Income)/Loss Attributable toNon-Controlling Interest
   5    (90 ) (70 ) (163 )




Net Income Attributable to Neogen
   $ 16,586    $ 10,287 $ 45,600 $ 31,320




Net Income Attributable to Neogen Per Share

Basic
   $ 0.32    $ 0.20 $ 0.89 $ 0.62




Diluted
   $ 0.32    $ 0.20 $ 0.88 $ 0.61


	Three Months Ended August 31,
	2019			2018
Revenues
Product revenues	$	81,948		$	82,960
Service revenues		19,476			16,666

Total Revenues		101,424			99,626
Cost of Revenues
Cost of product revenues		42,031			42,950
Cost of service revenues		11,199			9,947

Total Cost of Revenues		53,230			52,897

Gross Margin		48,194			46,729
Operating Expenses
Sales and marketing		17,543			17,233
General and administrative		10,699			10,198
Research and development		3,688			2,819

Total Operating Expenses		31,930			30,250

Operating Income		16,264			16,479
Other Income (Expense)
Interest income		1,510			927
Other expense		(122	)		(269	)

Total Other Income		1,388			658

Income Before Taxes		17,652			17,137
Provision for Income Taxes		3,000			1,900

Net Income	$	14,652		$	15,237

Net Income Per Share
Basic	$	0.28		$	0.29

Diluted	$	0.28		$	0.29

See notes to interim consolidated financial statements.

Table of Contents

Neogen Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)

   Three Months Ended Nine Months Ended
   February 28, February 28,
   2018    2017 2018 2017
Net Income
   $ 16,581    $ 10,377 $ 45,670 $ 31,483
Other comprehensive income (loss), net of tax: currency translation adjustments
   1,163    441 1,900 (3,743 )




Comprehensive income
   17,744    10,818 47,570 27,740
Comprehensive loss (income) attributable tonon-controlling interest
   5    (90 ) (70 ) (163 )




Comprehensive income attributable to Neogen
   $ 17,749    $ 10,728 $ 47,500 $ 27,577


	Three Months Ended
	August 31,
	2019			2018
Net income	$	14,652		$	15,237
Other comprehensive loss, net of tax: currency translation adjustments		(3,058	)		(2,778	)

Other comprehensive income, net of tax: unrealized gain on marketable securities		562			—
Total comprehensive income	$	12,156		$	12,459

See notes to interim consolidated financial statements.

Table of Contents

Neogen Corporation and Subsidiaries

Consolidated ~~Statement~~Statements of Equity

(unaudited)

(in thousands)

            Accumulated
         Additional    Other Non-
   Common Stock    Paid-in    Comprehensive Retained controlling
   Shares    Amount    Capital    Income (Loss) Earnings Interest    Total
Balance, May 31, 2017
   50,932    $ 8,149    $ 174,742    $ (7,203 ) $ 295,926 $ 143    $ 471,757
Issuance of shares under share-based compensation plan
   631    101    21,456       21,557
Issuance of shares under employee stock purchase plan
   20    3    1,048       1,051
Conversion of minority interest to retained earnings
            (67 ) 67    —
Net income for the nine months ended February 28, 2018
            45,600 70    45,670
Other comprehensive income
            1,900    1,900










Balance February 28, 2018
   51,583    $ 8,253    $ 197,246    $ (5,303 ) $ 341,459 $ 280    $ 541,935


							Accumulated
					Additional		Other
	Common Stock				Paid-in		Comprehensive			Retained
	Shares		Amount		Capital		(Loss)			Earnings		Total
Balance at May 31, 2019		52,217	$	8,355	$	221,937	$	(11,640	)	$	419,247	$	637,899
Issuance of shares under share-based compensation plan		196		30		9,683							9,713
Issuance of shares under employee stock purchase plan		10		2		536							538
Net income for the three months ended August 31, 2019											14,652		14,652
Other comprehensive loss for the three months ended August 31, 2019								(2,496	)				(2,496	)

Balance at August 31, 2019		52,423	$	8,387	$	232,156	$	(14,136	)	$	433,899	$	660,306


							Accumulated
					Additional		Other
	Common Stock				Paid-in		Comprehensive			Retained
	Shares		Amount		Capital		(Loss)			Earnings		Total
Balance at May 31, 2018		51,736	$	8,278	$	202,572	$	(9,746	)	$	359,071	$	560,175
Issuance of shares under share-based compensation plan		251		40		8,433							8,473
Issuance of shares under employee stock purchase plan		8		2		517							519
Net income for the three months ended August 31, 2018											15,237		15,237
Other comprehensive loss for the three months ended August 31, 2018								(2,778	)				(2,778	)

Balance at August 31, 2018		51,995	$	8,320	$	211,522	$	(12,524	)	$	374,308	$	581,626

See notes to interim consolidated financial statements.

Table of Contents

Neogen Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

   Nine Months Ended
   February 28,
   2018 2017
Cash Flows From Operating Activities

Net Income
   $ 45,670 $ 31,483
Adjustments to reconcile net income to net cash provided from operating activities:

Depreciation and amortization
   12,682 10,691
Share-based compensation
   3,692 3,932
Excess income tax benefit from the exercise of stock options (see note 5)
   —   (3,671 )
Change in operating assets and liabilities, net of business acquisitions:

Accounts receivable
   (4,013 ) 5,916
Inventories
   (3,859 ) (9,460 )
Prepaid expenses and other current assets
   (7,316 ) 717
Accounts payable, accruals and other changes
   (280 ) 5,580


Net Cash Provided By Operating Activities
   46,576 45,188
Cash Flows Used In Investing Activities

Purchases of property, equipment and othernon-current intangible assets
   (16,297 ) (13,002 )
Proceeds from the sale of marketable securities
   211,327 102,957
Purchases of marketable securities
   (255,348 ) (115,117 )
Business acquisitions, net of cash acquired
   (468 ) (34,027 )


Net Cash Used In Investing Activities
   (60,786 ) (59,189 )
Cash Flows From Financing Activities

Exercise of stock options
   18,916 15,844
Excess income tax benefit from the exercise of stock options
   —   3,671


Net Cash Provided By Financing Activities
   18,916 19,515
Effect of Exchange Rates on Cash
   (207 ) (888 )


Net Increase In Cash and Cash Equivalents
   4,499 4,626
Cash And Cash Equivalents At Beginning Of Period
   77,567 55,257


Cash And Cash Equivalents At End Of Period
   $ 82,066 $ 59,883


	Three Months Ended
	August 31,
	2019			2018
Cash Flows From Operating Activities
Net Income	$	14,652		$	15,237
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		4,435			4,271
Share-based compensation		1,543			1,431
Change in operating assets and liabilities, net of business acquisitions:
Accounts receivable		3,390			755
Inventories		(2,132	)		(2,940	)
Prepaid expenses and other current assets		(1,929	)		(3,236	)
Accounts payable, accruals and other changes		3,760			564

Net Cash From Operating Activities		23,719			16,082
Cash Flows For Investing Activities
Purchases of property, equipment and other assets		(6,469	)		(1,918	)
Proceeds from the sale of marketable securities		94,540			73,096
Purchases of marketable securities		(103,432	)		(74,549	)
Business acquisitions, net of cash acquired		—			(4,203	)

Net Cash For Investing Activities		(15,361	)		(7,574	)
Cash Flows From Financing Activities
Exercise of stock options and issuance of employee stock purchase plan shares		8,708			8,992

Net Cash From Financing Activities		8,708			8,992
Effect of Exchange Rates on Cash		(2,465	)		(3,349	)

Net Increase In Cash and Cash Equivalents		14,601			14,151
Cash and Cash Equivalents, Beginning of Period		41,688			83,074

Cash and Cash Equivalents, End of Period	$	56,289		$	97,225

See notes to interim consolidated financial statements.

Table of Contents

NEOGEN CORPORATION AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ACCOUNTING POLICIES

BASIS OF PRESENTATION

AND CONSOLIDATION

The accompanying unaudited consolidated financial statements include the accounts of Neogen Corporation (“Neogen” or the “Company”) and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form

10-Q

and Article 10 of Regulation

S-X.

Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been ~~included.~~included in the accompanying unaudited consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the ~~three and nine month periods~~three-month period ended ~~February 28, 2018~~August 31, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, ~~2018.~~2020. For more complete financial information, these consolidated financial statements should be read in conjunction with the ~~May 31, 2017~~ audited consolidated financial statements and the notes thereto included in our Annual Report on Form

10-K

for the fiscal year ended May 31, 2019.

Recently Adopted Accounting Standards

Leases

On June 1, 2019, the Company adopted ASU No. 2016-02— Leases. Refer to Leases section of Note 1 for further information.

Recent Accounting Pronouncements Not Yet Adopted

Financial Instruments Credit Losses

In June 2016, the FASB issued ASU No. 2016-13—Measurement of Credit Losses on Financial Instruments, which changes how companies measure credit losses on most financial instruments measured at amortized cost and certain other instruments, such as loans, receivables and held-to-maturity debt securities. Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU 2016-13 is effective for fiscal periods beginning after December 15, 2019 and must be adopted as a cumulative effect adjustment to retained earnings; early adoption is permitted. The Company does not believe adoption of this guidance will have an impact on its consolidated financial statements.

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-3, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements of fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company does not believe adoption of this guidance will have an impact on its consolidated financial statements.

Cloud Computing Implementation Cost

In August 2018, the FASB issued ASU 2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company does not believe adoption of this guidance will have an impact on its consolidated financial statements.

Table of Contents

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 of foreign currency translation adjustments and unrealized gains or losses on marketable securities.

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 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.

Cash and Cash Equivalents

Cash and cash equivalents consist of bank demand accounts, savings deposits, certificates of deposit and commercial paper with original maturities of 90 days or less. The carrying value of these assets approximates fair value due to the short maturity of these instruments and meets the Level 1 criteria.

Marketable Securities

The Company has marketable securities held by banks or broker-dealers at August 31, 2019, consisting of short-term domestic certificates of deposit, and commercial paper and U.S. treasuries rated at least A-1/P-1 (short-term) and A/A2 (long-term) with maturities between 91 days and two years. These securities are classified as available for sale. The primary objective of the Company’s investment activity is to preserve capital for the purpose of funding operations, capital expenditures and business acquisitions; investments are not entered into for trading or speculative purposes. These securities are recorded at fair value based on recent trades or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within other income on the consolidated statements of income

ESTIMATES AND ASSUMPTIONS

The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, accruals, goodwill and other 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.

There have been no significant changes to the critical accounting policies and estimates disclosed in the Company’s Annual Report on Form10-K for the fiscal year ended May 31, ~~2017.~~

2019.

There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019.

Table of Contents

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 doubtful accounts 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 charged against the allowance for doubtful accounts.

Inventory

The reserve for obsolete and slow-moving inventory is reviewed at least quarterly based on an analysis of the inventory, considering the current condition of the asset as well as other known facts and future plans. The reserve required to record inventory at lower of cost or net realizable value is adjusted as conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance 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. Customer-based intangibles are amortized on either an accelerated or straight-line basis, reflecting the pattern in which the economic benefits are consumed, while all other amortizable intangibles are amortized on a straight-line basis; intangibles are generally amortized over 5 to 25 years. We review 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 by performing 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 recorded to 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 indicate that the carrying amount of the asset may not be recoverable. 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

Share options awarded to employees and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with 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. The model applied by us can handle most 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 could 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 number provided by the model applied and the inputs used. Further information on our equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 5.

Income Taxes

We account for income taxes using the asset and 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 for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year.

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Leases

In February 2016, the FASB issued ASU No. 2016-02—Leases, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessor have not significantly changed from previous U.S. GAAP. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018; early adoption is permitted. We adopted this ASU on June 1, 2019; the impact on our consolidated financial statements was immaterial.

We lease various manufacturing, laboratory, warehousing and distribution facilities, administrative and sales offices, equipment and vehicles under operating leases. We evaluate our contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, all our leases are classified as operating leases. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option.

Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease. With the adoption of ASC 842, on June 1, 2019 we recognized all leases with terms greater than 12 months in duration on our consolidated balance sheets as right-of-use assets and lease liabilities of approximately $2.0 million as of June 1, 2019. We adopted the standard using the prospective approach and did not retrospectively apply to prior periods. Right-of-use assets are recorded in other assets on our consolidated balance sheets. Current and non-current lease liabilities are recorded in other accruals within current liabilities and other non-current liabilities, respectively, on our consolidated balance sheets.

We have made certain assumptions and judgments when applying ASC 842, the most significant of which are:

We elected the package of practical expedients available for transition that allow us to not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.

We did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset.

For all asset classes, we elected to not recognize a right-of-use asset and lease liability for short-term leases.

For all asset classes, we elected to not separate non-lease components from lease components to which they relate and have accounted for the combined lease and non-lease components as a single lease component.

The determination of the discount rate used in a lease is our incremental borrowing rate that is based on what we would normally pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments.

Supplemental balance sheet information related to operating leases was as follows:


	August 31,
	2019
	(in thousands)
Right of use - assets	$	1,726
Lease liabilities - current		755
Lease liabilities - non-current		982

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The weighted average remaining lease term and weighted average discount rate were as follows:


	August 31,
	2019
Weighted average remaining lease term		2.1 years
Weighted average discount rate		3.5	%

Operating lease expenses are classified as cost of revenues or operating expenses on the Consolidated Statements of Income. The components of lease expense were as follows:


	Three Months Ended
	August 31,
	2019
	(in thousands)
Operating leases	$	240
Short term leases		48

Total lease expense	$	288

Cash paid for amounts included in the measurement of lease liabilities for operating leases included in cash flows from operations on the Statement of Cash Flows were approximately $247,000 for the three months ended August 31, 2019. There were 0 non-cash additions to right-of-use assets obtained from new operating lease liabilities for the three months ended August 31, 2019.

In accordance with the new leases standard, discounted and undiscounted lease payments as of August 31, 2019 were as follows (in thousands):


Years ending May 31,
2020 (1)	$	757
2021		730
2022		230
2023		61
2024		3
2025 and thereafter		—

Total lease payments		1,781
Less: imputed interest		44

Total lease liabilities	$	1,737

(1)	Excluding the three months ended August 31, 2019

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Prior to our adoption of the new leases standard, future minimum lease payments as of May 31, 2019, which were undiscounted, were

as follows (in thousands):


Years ending May 31,
2020	$	1,169
2021		818
2022		260
2023		73
2024		—
2025 and thereafter		—

Total lease payments	$	2,320

Revenue Recognition

The Company determines the amount of revenue to be recognized through application of the following steps:

Identification of the contract with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract; and

Recognition of revenue when, or as, the Company satisfies the performance obligations.

Essentially all our revenue is generated through contracts with our customers. A performance obligation is a promise in a contract to transfer a product or service to a customer. We generally recognize revenue at a point in time when all our performance obligations under the terms of a contract are satisfied. Revenue is recognized upon transfer of control of promised products and services in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The collectability of consideration on the contract is reasonably assured before revenue is recognized. To the extent that customer payment has been received before all recognition criteria are met, these revenues are initially deferred in other accruals on the balance sheet and the revenue is recognized in the period that all recognition criteria have been met. In certain situations, we provide rebates, marketing support, credits or incentives to selected customers, which are accounted for as variable consideration when estimating the amount of revenue to recognize on a contract. Variable consideration reduces the amount of revenue that is recognized. These variable consideration estimates are updated at the end of each reporting period based on information currently available.

The performance obligations in our contracts are generally satisfied well within one year of the contract inception. In such cases, we have elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. We have elected to utilize the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred because the amortization period for the prepaid costs that would otherwise have been deferred and amortized is one year or less. The Company accounts for shipping and handling for products as a fulfillment activity when goods are shipped. Revenue is recognized net of any tax collected from customers; the taxes are subsequently remitted to governmental authorities. The Company’s terms and conditions of sale generally do not provide for returns of product or reperformance of service except in the case of quality or warranty issues. These situations are infrequent; due to immateriality of the amount, warranty claims are recorded in the period incurred.

We derive revenue from two primary sources—product revenue and service revenue.

Product revenue consists of shipments of:

Diagnostic test kits, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation;

Consumable products marketed to veterinarians and animal health product distributors; and

Rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities.

Revenues for our products are recognized and invoiced when the product is shipped to the customer.

Service revenue consists primarily of:

Genomic identification and related interpretive bioinformatic services; and

Other commercial laboratory services.

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Revenues for our genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service is performed and the results are conveyed to the customer.

Payment terms for products and services are generally 30 to 60 days.

The following table presents disaggregated revenue by major product and service categories for the three month periods ended August 31, 2019 and 2018:


	Three Months ended August 31,
	2019		2018
	(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	20,115	$	18,838
Bacterial & General Sanitation		10,316		10,467
Dehydrated Culture Media & Other		11,279		12,217
Rodenticides, Insecticides & Disinfectants		5,449		6,625
Genomics Services		3,862		4,036

	$	51,021	$	52,183
Animal Safety
Life Sciences	$	1,723	$	2,080
Veterinary Instruments & Disposables		11,336		10,404
Animal Care & Other		6,405		6,398
Rodenticides, Insecticides & Disinfectants		16,718		17,146
Genomics Services		14,221		11,415

	$	50,403	$	47,443

Total Revenues	$	101,424	$	99,626

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2. INVENTORIES

Inventories are stated at the lower of cost, determined onby the

first-in,

first-out

method, or net realizable value. The components of inventories follow:

   February 28,
2018    May 31,
2017
   (in thousands)
Raw materials
   $ 35,774    $ 33,190
Work-in-process
   6,231    4,831
Finished and purchased goods
   35,501    35,123




   $ 77,506    $ 73,144


	August 31,		May 31,
	2019		2019
	(in thousands)
Raw materials	$	42,964	$	41,594
Work-in-process		5,901		5,581
Finished and purchased goods		38,817		38,817

	$	87,682	$	85,992

3. NET INCOME PER SHARE

The calculation of net income per share ~~attributable to Neogen Corporation~~ follows:

   Three Months Ended
February 28,    Nine Months Ended
February 28,
   2018    2017    2018    2017
   (in thousands, except per share amounts)
Numerator for basic and diluted net income per share:

Net income attributable to Neogen
   $ 16,586    $ 10,287    $ 45,600    $ 31,320
Denominator for basic net income per share:

Weighted average shares
   51,537    50,746    51,253    50,438
Effect of dilutive stock options
   700    633    761    723








Denominator for diluted net income per share
   52,237    51,379    52,014    51,161
Net income attributable to Neogen per share:

Basic
   $ 0.32    $ 0.20    $ 0.89    $ 0.62








Diluted
   $ 0.32    $ 0.20    $ 0.88    $ 0.61

~~The Board~~


	Three Months Ended
	August 31,
	2019		2018
	(in thousands, except per share amounts)
Numerator for basic and diluted net income per share:
Net income	$	14,652	$	15,237
Denominator for basic net income per share:
Weighted average shares		52,292		51,806
Effect of dilutive stock options		392		974

Denominator for diluted net income per share		52,684		52,780
Net income per share:
Basic	$	0.28	$	0.29

Diluted	$	0.28	$	0.29

Table of ~~Directors declared a 4 for 3 stock split effective December 29, 2017. All share and per share amounts in this Form10-Q~~ ~~reflect amounts as if the split took place at the beginning of the periods presented.~~

Contents

4. SEGMENT INFORMATION

~~The Company has two~~ AND GEOGRAPHIC DATA

We have 2 reportable segments: Food Safety and Animal Safety. The Food Safety segment is primarily engaged in the development, production and marketing of diagnostic test kits, dehydrated culture media 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 genomic identification and related interpretive bioinformatic services. Additionally, the Animal Safety segment produces and markets rodenticides, ~~cleaners,~~ disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities.

~~Neogen’s~~

Our international operations in the United Kingdom, Mexico, Brazil, China and India originally focused on the Company’s ~~Food Safety~~food safety products, and each of these units reports through the Food Safety segment. In recent years, these operations have expanded to offer ~~the Company’s~~our complete line of products and services, including those usually associated with the Animal Safety segment such as cleaners, disinfectants, rodenticides, insecticides, veterinary instruments and ~~genomic~~genomics services. These additional products and services are managed and directed by existing management and are reported through the Food Safety segment.

The accounting policies of each of the segments are the same as those described in Note 1.

Segment information follows:

   Food
Safety    Animal
Safety    Corporate and
Eliminations
(1)    Total
   (in thousands)
As of and for the three months ended February 28, 2018


Product revenues to external customers
   $ 42,618    $ 35,524    $ —      $ 78,142
Service revenues to external customers
   5,027    12,723    —      17,750








Total revenues to external customers
   47,645    48,247    —      95,892
Operating income (loss)
   8,258    8,493    (838 )    15,913
Total assets
   188,075    215,371    192,155    595,601
As of and for the three months ended February 28, 2017


Product revenues to external customers
   $ 39,318    $ 34,646    $ —      $ 73,964
Service revenues to external customers
   3,631    10,790    —      14,421








Total revenues to external customers
   42,949    45,436    —      88,385
Operating income (loss)
   7,403    7,743    (795 )    14,351
Total assets
   183,419    215,243    108,636    507,298

   Food
Safety    Animal
Safety    Corporate and
Eliminations
(1)    Total
   (in thousands)
For the nine months ended February 28, 2018

Product revenues to external customers
   $ 129,621    $ 114,677    $ —      $ 244,298
Service revenues to external customers
   14,319    34,348    —      48,667








Total revenues to external customers
   143,940    149,025    —      292,965
Operating income (loss)
   25,704    27,691    (3,060 )    50,335
For the nine months ended February 28, 2017

Product revenues to external customers
   $ 112,592    $ 110,578    $ —      $ 223,170
Service revenues to external customers
   10,475    29,102    —      39,577








Total revenues to external customers
   123,067    139,680    —      262,747
Operating income (loss)
   24,286    24,616    (2,957 )    45,945


					Corporate and
	Food		Animal		Eliminations
	Safety		Safety		(1)			Total
	(in thousands)
As of and for the three months ended August 31, 2019
Product revenues to external customers	$	45,877	$	36,071	$	—		$	81,948
Service revenues to external customers		5,144		14,332		—			19,476

Total revenues to external customers		51,021		50,403		—			101,424
Operating income (loss)		9,134		8,300		(1,170	)		16,264
Total assets		207,725		222,403		291,016			721,144
As of and for the three months ended August 31, 2018
Product revenues to external customers	$	46,933	$	36,027	$	—		$	82,960
Service revenues to external customers		5,250		11,416		—			16,666

Total revenues to external customers		52,183		47,443		—			99,626
Operating income (loss)		10,873		6,706		(1,100	)		16,479
Total assets		201,727		212,786		226,413			640,926

(1)	Includes corporate assets, consisting principally of cash and cash equivalents, marketable securities, current and deferred tax accounts and overhead expenses not allocated to specific business segments. Also includes the elimination of intersegment transactions.

The following table presents the Company’s revenue disaggregated by geographic location:


	Three months ended August 31,
	2019		2018
	(in thousands)
Revenues by Geographic Location
Domestic	$	63,340	$	59,846
International		38,084		39,780

Total revenue		101,424		99,626

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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~~our 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. Options vest ratably over three and five year periods and the contractual terms are generally five or ten years. A summary of stock option activity during the ~~nine~~three months ended ~~February 28, 2018~~August 31, 2019 follows:

      Weighted-
      Average
   Shares    Exercise Price
   (in thousands)
Options outstanding June 1, 2017
   2,708    $ 32.88
Granted
   819    59.26
Exercised
   (668 )    28.23
Forfeited
   (144 )    37.31



Options outstanding February 28, 2018
   2,715    41.75


				Weighted-
				Average
(Options in thousands)	Shares			Exercise Price
Options outstanding June 1, 2019		2,385		$	49.37
Granted		—			—
Exercised		(196	)		41.51
Forfeited		(6	)		62.70

Options outstanding August 31, 2019		2,183		$	50.04

During the three ~~and nine~~ month periods ended ~~February 28,~~August 31, 2019 and 2018, ~~and 2017,~~ the Company recorded ~~$1,026,000~~$1,543,000 and ~~$1,198,000 and $3,692,000 and $3,932,000,~~$1,431,000, respectively, of compensation expense related to its share-based awards. ~~On June 1, 2017, the Company adopted ASUNo. 2016-09,~~ which simplifies the accounting for share-based payments to employees. The guidance requires the recognition of the income effects of awards in the income statement when the awards vest or are settled, thus eliminating additional~~paid-in~~ capital pools. The guidance also allows for a policy election to account for forfeitures as they occur, rather than on an estimated basis, and requires that excess tax benefits be classified as an operating activity on the Statement of Cash Flows. The adoption of this ASU increased income tax expense by $331,000 for the three months ended February 28, 2018 as the reduction in the corporate tax rate from the tax reform enacted in December 2017 resulted in a partial reversal of tax benefit previously recorded at the higher corporate rate in the first and second quarters of the current fiscal year; year to date, income tax expense decreased by $3,463,000 as a result of adoption of the ASU.

The weighted-average fair value per share of stock options granted during fiscal ~~2018 and fiscal 2017,~~year 2019, estimated on the date of grant using the Black-Scholes option pricing model, was ~~$14.44 and $11.84, respectively.~~$14.91. The fair value of stock options granted was estimated using the following weighted-average ~~assumptions:~~

   FY 2018 FY 2017
Risk-free interest rate
   1.6% 1.2%
Expected dividend yield
   0.0% 0.0%
Expected stock price volatility
   27.7% 35.2%
Expected option life
   4.0 years 4.0 years

assumptions. NaN options were granted in the first quarter of fiscal year 2020.


	FY 2019
Risk-free interest rate		2.6	%
Expected dividend yield		0.0	%
Expected stock price volatility		27.0	%
Expected option life		3.5 years

The Company has an employee stock purchase plan that provides for employee stock purchases at a 5% discount to market price. The discount is recorded in administrative expense as of the date of purchase.

6. ~~NEW ACCOUNTING PRONOUNCEMENTS~~

~~In May 2014, the FASB issued ASU No.2014-09—Revenue~~ from Contracts with Customers (Topic 606). The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. In April 2016, the FASB issued Accounting Standards Update~~No. 2016-10—~~ ~~Revenue from Contracts with Customers (Topic 606), which amends and adds clarity to certain aspects of the guidance set forth in ASU2014-09~~ related to identifying performance obligations and licensing. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The guidance permits two methods of adoption: a full retrospective method to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the guidance recognized at the date of initial application. The Company has formed an internal team to implement the new standard. This team has identified all revenue streams at each significant subsidiary and is currently reviewing contracts to evaluate the potential impact of adopting the new standard on the Company’s revenue recognition policies, procedures and control framework and ultimately on the Company’s consolidated financial statements and related disclosures. The Company will adopt this ASU on June 1, 2018 using the modified retrospective approach.

~~In February 2016, the FASB issued ASU No.2016-02—Leases~~ to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a~~right-of-use~~ asset representing its right to use the underlying asset for the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessor have not significantly changed from previous U.S. GAAP. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018; early adoption is permitted. Modified retrospective application is permitted with certain practical expedients. The Company expects to adopt this ASU on June 1, 2019 and is currently in the process of evaluating its lessee and lessor arrangements to determine the impact of this amendment on its consolidated financial condition and results of operations. This evaluation includes a review of revenue through leasing arrangements as well as lease expenses, which are primarily through operating lease arrangements at most of the Company’s facilities.

~~In March 2016, the FASB issued ASUNo. 2016-09~~ — Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting to provide guidance that changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional~~paid-in~~ capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The Company adopted this standard effective June 1, 2017. Adoption of this ASU increased income tax expense by $331,000 for the three months ended February 28, 2018 as the reduction in the corporate tax rate from the tax reform enacted in December 2017 resulted in a partial reversal of tax benefit previously recorded at the higher corporate rate in the first and second quarters of the current fiscal year; year to date, income tax expense decreased by $3,463,000 as a result of adoption of the ASU.

~~In June 2016, the FASB issued ASU No.2016-13—Measurement~~ of Credit Losses on Financial Instruments, which changes how companies measure credit losses on most financial instruments measured at amortized cost and certain other instruments, such as loans, receivables and held-~~to-maturity~~ debt securities. Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost the Company expects to collect over the instrument’s contractual life. ASU~~2016-13~~ is effective for fiscal periods beginning after December 15, 2019 and must be adopted as a cumulative effect adjustment to retained earnings. Early adoption is permitted. The Company does not believe the adoption of this guidance will have an impact on its consolidated financial statements.

~~In August 2016, the FASB issued ASUNo. 2016-15—~~ ~~Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The amendments in ASU2016-15~~ address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement of Cash Flows. The amendments in ASU~~2016-15~~ are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The Company has not yet adopted this update and is currently evaluating the impact of ASU~~No. 2016-15~~ ~~on its consolidated financial statements.~~

7. BUSINESS AND PRODUCT LINE ACQUISITIONS

The Consolidated Statements of Income reflect the results of operations for business acquisitions since the respective dates of purchase. All are accounted for using the acquisition method. Goodwill recognized in the acquisitions discussed below relates primarily to enhancing the Company’s strategic platform for the expansion of available product offerings.

On ~~December~~August 1, ~~2016,~~2018, the Company acquired the stock of ~~Quat-Chem Ltd.~~Clarus Labs, Inc., a ~~chemical company that manufactures biosecurity products, based in Rochdale, England.~~manufacturer of water testing products. Neogen has distributed Clarus’ Colitag water test to the food and beverage industries since 2004 and this acquisition gives the Company access to sell this product to new markets. Consideration for the purchase was ~~$21,606,000~~$4,204,000 in cash and ~~up to $3,778,000~~$1,256,000 of contingent consideration, due ~~at the end of each of~~semiannually for the first ~~two~~five years, based on an excess net sales formula. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included ~~accounts receivable of $4,684,000,~~ inventory of ~~$1,243,000, land, property~~$32,000, machinery and equipment of ~~$2,526,000,~~$120,000, accounts payable of ~~$2,197,000,~~ $53,000, contingent consideration accrual of $1,256,000,

non-current

deferred tax liability of ~~$1,133,000, contingent consideration accrual of $1,058,000, other current liabilities of $604,000,~~$544,000,

non-amortizable

intangible assets of ~~$1,889,000,~~$878,000, intangible assets of ~~$6,900,000~~$1,487,000 (with an estimated life of

5-15

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. ~~In January 2018, the Company~~Since February 2019, $180,000 has been paid to the former owners ~~$249,000 in~~as contingent consideration ~~based on~~from the ~~achievement~~accrual. Manufacturing of ~~sales targets~~these products was moved to the Company’s Lansing, Michigan location in the first year, and recorded a credit of $255,000 to other income, reducing the contingent consideration accrual by a corresponding amount; $554,000 remains accrued for contingent consideration payable at the end of the second year. This business continues to operate in its current location and is managed by Neogen Europe,October 2018, reporting within the Food Safety segment.

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On ~~December 27, 2016,~~September 4, 2018, the Company acquired the ~~stock~~assets of ~~Rogama Industria e Comercio, Ltda.,~~Livestock Genetic Services, LLC, a Virginia-based company that ~~develops~~specialized in genetic evaluations and ~~manufactures rodenticides~~data management for cattle breeding organizations. Livestock Genetic Services had been a long-time strategic partner of Neogen and ~~insecticides, based near Sao Paulo, Brazil.~~the acquisition enhanced the Company’s

in-house

genetic evaluation capabilities. Consideration for the purchase was ~~$12,428,000~~$1,100,000 in cash, with $700,000 paid at closing and $400,000 payable to the former owner on September 1, 2019, and up to ~~$2,069,000~~$585,000 of contingent consideration, ~~due at~~payable over the ~~end of each of the first two years, based on an excess net sales formula.~~next three years. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included ~~accounts receivable of $1,866,000, othernon-current~~ ~~assets of $26,000, inventory of $960,000, land, property and~~ office

equipment of ~~$4,734,000, current liabilities of $2,562,000,~~$

15,000

, contingent consideration accrual of ~~$213,000,non-current~~ ~~deferred tax liability of $1,307,000,non-amortizable~~$

385,000

, intangible assets of ~~$870,000, intangible assets of $5,112,000 (with~~$

942,000

(with an estimated life of

5-15

years) and the remainder to goodwill~~(non-deductible~~ (deductible to tax purposes). These values are Level 3 fair value measurements.

In September 2019, the former owner was paid the second installment of $400,000 and was also paid $88,000 in contingent consideration based on the achievement of sales targets in the first year.

Services provided by this operation are now performed at the Company’s Lincoln, Nebraska location, reporting within the Animal Safety segment.

On January 1, 2019, the Company acquired the assets of Edmonton, Alberta based Delta Genomics Centre, an animal genomics laboratory in Canada. Delta’s laboratory operations were renamed Neogen Canada and the acquisition was intended to accelerate growth of the Company’s animal genomics business in Canada. Consideration for the purchase was $1,485,000 in cash. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $38,000, machinery and equipment of $371,000, unearned revenue liability of $125,000, intangible assets of $532,000 (with an estimated life of 5 to 10 years) and the remainder to goodwill (deductible for tax purposes). These values are Level 3 fair value measurements. ~~This business continues~~Services provided by this operation continue to ~~operate~~be performed in ~~its current location and is managed by Neogen do Brasil, reporting within the Food Safety segment.~~

On September 1, 2017, the Company acquired the assets of The University of Queensland Animal Genetics Laboratory, an animal genomics laboratory located near Brisbane, Australia. This acquisition is intended to accelerate the growth of the Company’s animal genomics business in Australia and New Zealand. Consideration for the purchase was $2,063,000; $468,000 has been paid in cash with the remainder due in annual installments over the next five years. The preliminary purchase price allocation included inventory of $19,000, equipment of $419,000,~~non-current~~ ~~liabilities of $1,629,000, intangible assets of $850,000 (with an estimated life of5-15~~ ~~years) and the remainder to goodwill(non-deductible~~ ~~for tax purposes). These values are Level 3 fair value measurements. The new business, renamed Neogen Australasia, continues to operate in its current location,~~Edmonton, reporting within the Animal Safety segment.

7. LONG TERM DEBT

~~The Company has~~

We have a financing agreement with a bank providing for ana $15,000,000 unsecured revolving line of credit, ~~of $15,000,000,~~ which ~~expires~~was amended on November 30, 2018 to extend the maturity from September 1, 2019 to September 30, ~~2019.~~2021. There were no0 advances against the line of credit during fiscal ~~year 2017~~2019 and there have been none thus far in fiscal ~~year 2018;~~2020; there was no0 balance outstanding at ~~February 28, 2018.~~August 31, 2019. Interest on any borrowings remained at LIBOR plus 100 basis points (rate under the terms of the agreement was ~~2.82%~~3.08% at ~~February 28, 2018)~~August 31, 2019). 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 ~~February 28, 2018.~~

9.August 31, 2019.

8. 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 currently utilizes a pump and treat remediation strategy, which includes semi-annual monitoring and reporting, consulting, and maintenance of monitoring wells. Neogen expenses these annual costs of remediation, which have ranged from $38,000 to ~~$57,000~~$131,000 per year over the past five years. The Company’s estimated liability for these costs was $916,000 at ~~February 28, 2018~~both August 31, 2019 and May 31, ~~2017,~~2019, measured on an undiscounted basis over an estimated period of 15 years; ~~$54,000~~$100,000 of the liability is recorded within current liabilities and the remainder is recorded within other

non-current

liabilities inon the consolidated balance ~~sheet.~~

sheets. In fiscal 2019, the Company performed an updated Corrective Measures Study (CMS) on the site, per a request from the Wisconsin Department of Natural Resources (WDNR), and is currently in discussion with the WDNR regarding potential alternative remediation strategies going forward. The Company believes that the current pump and treat strategy is appropriate for the site. At this time, the outcome of the review in terms of approach and future costs is unknown, but a change in the current remediation strategy, depending on the alternative selected, could require an increase in the currently recorded liability, with an offsetting charge to operations in the period recorded.

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.

~~10.~~

9. STOCK PURCHASE

~~The Company has a stock repurchase program, authorized by~~

In October 2018, the Company’s Board of Directors passed a resolution canceling the Company’s prior stock buyback program, which had been approved in ~~calendar year~~December 2008, and authorized a new program to purchase, subject to market conditions, up to ~~1,500,000~~3,000,000 shares of the Company’s common stock. ~~As of February 28,~~In December 2018, ~~1,350,632~~the Company purchased 50,000 shares ~~were available to be repurchased~~ under the ~~program. There were no purchases~~program in ~~fiscal year 2017~~negotiated and ~~there~~open market transactions for a total price, including commissions, of $3,134,727. Shares acquired under the program have been ~~none thus far in fiscal year 2018.~~

retired.

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PART I – FINANCIAL INFORMATION

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations contains both historical financial information and forward-looking statements. Neogen does not provide forecasts of future financial performance. While management is optimistic about the Company’s long-term prospects, historical financial information may not be indicative of future financial results.

Safe Harbor and Forward-Looking Statements

Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made throughout this Quarterly Report on Form

10-Q.

For this purpose, 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 Commission, that could cause Neogen Corporation’s results to differ materially from those indicated by such forward-looking statements, including those detailed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In addition, any forward-looking statements represent management’s views only as of the day this Quarterly Report on Form

10-Q

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~~

Table 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~~Contents

Executive Overview

Consolidated revenues were $101.4 million in the ~~United States. The preparation~~first quarter of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, 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, accruals, goodwill and other 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.

~~There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed in the Company’s Annual Report on Form10-K~~ ~~for the~~ fiscal ~~year ended May 31, 2017.~~

~~The Company adopted ASUNo. 2016-09~~ ~~related to share-based compensation on June 1, 2017. (See Note 5 Equity Compensation Plans for further discussion).~~

On December 22, 2017, the Tax Cuts and Jobs Act, (“the Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company will compute its income tax for the fiscal year ending May 31, 2018 using a blended Federal Tax Rate of 29.2%.

In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.

As of February 28, 2018, the Company was able to determine a reasonable estimate for certain effects of tax reform and recorded that estimate as a provisional amount. The provisional remeasurement of the deferred tax assets and liabilities resulted in a $5.6 million discrete tax benefit. In addition, the Company was required to estimate its cumulative unrepatriated foreign earnings and profits and

calculate estimated tax owed on those earnings and profits; this tax was provisionally estimated at $2.7 million. The provisional remeasurement and repatriation amounts are anticipated to change as more data becomes available allowing more accurate computations of the amounts.

~~There have been no other material changes to the critical accounting policies and estimates disclosed in the Company’s Annual Report on Form10-K~~ ~~for the fiscal year ended May 31, 2017.~~

~~Executive Overview~~

~~Revenues for the Company for the third quarter ended February 28, 2018 were $95.9 million,~~2020, an increase of ~~8%, or $7.5 million,~~2% compared to ~~revenues~~$99.6 million in the first quarter of ~~$88.4~~fiscal 2019. Organic sales increased 1%.

Food Safety segment sales were $51.0 million in the first quarter of the current fiscal year, a decrease of 2% compared to $52.2 million in the same period of the prior year. Organic sales in this segment also decreased 2%, after excluding a minor contribution from the August 1, 2018 acquisition of Clarus Labs.

Animal Safety segment sales were $50.4 million in the first quarter, an increase of 6% compared to prior year first quarter sales of $47.4 million. Organic sales in this segment increased 5%, with the acquisitions of Livestock Genetics (September 2018) and Delta Genomics (January 2019) providing the remainder of the increase.

International sales in the first quarter of fiscal 2020 were 37.5% of total sales compared to 39.9% of total sales in the first quarter of fiscal 2019.

Our effective tax rate in the first quarter of fiscal 2020 was 17.0% compared to an effective tax rate of 11.1% in the prior year first quarter. The prior year’s first quarter effective tax rate was lower primarily due to tax benefits from stock options.

Net income for the quarter ended August 31, 2019 was $14.7 million, or $0.28 per diluted share, a decrease of 4% compared to $15.2 million, or $0.29 per share, for the same period in the prior year. ~~For~~

Cash generated from operating activities in the ~~year to date period, revenues were $293.0 million, an increase~~first quarter of ~~12%, or $30.3~~fiscal 2020 was $23.7 million, compared to ~~revenues of $262.7~~$16.1 million in the first ~~nine months of fiscal year 2017. Net income attributable to Neogen for the third~~ quarter of fiscal ~~2018 increased 61% to $16.6 million, compared to $10.3 million~~2019.

Neogen’s results reflect a 4% decrease in international sales in the ~~third~~first quarter of fiscal ~~year 2017. Earnings per share for the third quarter of fiscal 2018 were $0.32~~2020 compared to $0.20 per share in the same period a year ago. Net earnings for the third quarter were favorably impacted by adjustments resulting from tax reform legislation enacted in December 2017. For the first nine months of the current fiscal year, net income attributable to Neogen increased 46% to $45.6 million, or $0.88 per fully diluted share, compared to $31.3 million, or $0.61, for the same period in the prior fiscal year. ~~For the year to date period, net earnings were favorably~~International growth in this quarter was adversely impacted by ~~tax reform, excess tax benefits from stock option exercises,~~currency rates, the loss of forensics business in Brazil and a large prior year

non-recurring

government sale, also in Brazil. Revenue changes, expressed in percentages, in the first quarter of fiscal 2020 compared to the same quarter in the prior year are as follows for each of our international locations:


	Revenue			Revenue
	% Inc (Dec)			% Inc (Dec)
	USD			Local Currency
Neogen Europe (including Lab M & Quat-Chem)		(4	)%		1	%
Neogen do Brasil (including Deoxi & Rogama)		(16	)%		(15	)%
Neogen Latinoamerica		5	%		5	%
Neogen China		(18	)%		(14	)%
Neogen India		22	%		24	%
Neogen Canada		98	%		99	%
Neogen Australasia		21	%		30	%

Currency translations reduced comparative revenues by approximately $1.2 million in the first quarter of fiscal 2020 compared to the same quarter a year ago, primarily due to increased strength of the U.S. dollar relative to the British pound and the ~~favorable conclusion~~Australian dollar. Neogen Europe’s 4% decline in revenue in the first quarter was primarily due to a 2% decrease in sales of natural toxins test kits; prior year sales in this category were enhanced due to a mild deoxynivalenol (DON) outbreak in France that contributed to increased testing in that period. Additionally, the first quarter of fiscal 2019 included a large equipment sale that did not recur in the current year. Partially offsetting these declines were strong sales of cleaners and disinfectants.

At our Brazilian operations, the prior year first quarter included the final shipment of a large

non-recurring

insecticide order to a government health organization. Additionally, forensic sales in Brazil decreased significantly due to lost business from a large commercial laboratory that converted their testing protocol to

a higher throughput method

. Partially offsetting these lower revenues, sales of our aflatoxin test kits rose 57% as we continued to gain market share of corn testing in Brazil. At Neogen Latinoamerica, the growth in the first quarter was led by sales of natural toxins test kits due to market share gains

, partially offset by lower sales of biosecurity products

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Service revenue, which consists primarily of genomics services to animal protein and companion animal markets, was $19.5 million in the first quarter of fiscal 2020, an ~~IRS audit.~~

increase of 17% over prior year first quarter revenues of $16.7 million, with minor contributions from the acquisitions of Livestock Genetics (September 2018) and Delta Genomics (January 2019). The growth was led by increases of genomic testing service revenues to the companion animal and global beef and dairy cattle markets.

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Revenues


	Three Months ended August 31,
					Increase/
	2019		2018		(Decrease)			%
	(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	20,115	$	18,838	$	1,277			7	%
Bacterial & General Sanitation		10,316		10,467		(151	)		(1	)%
Culture Media & Other		11,279		12,217		(938	)		(8	)%
Rodenticides, Insecticides & Disinfectants		5,449		6,625		(1,176	)		(18	)%
Genomics Services		3,862		4,036		(174	)		(4	)%

	$	51,021	$	52,183	$	(1,162	)		(2	)%
Animal Safety
Life Sciences	$	1,723	$	2,080	$	(357	)		(17	)%
Veterinary Instruments & Disposables		11,336		10,404		932			9	%
Animal Care & Other		6,405		6,398		7			0	%
Rodenticides, Insecticides & Disinfectants		16,718		17,146		(428	)		(2	)%
Genomics Services		14,221		11,415		2,806			25	%

	$	50,403	$	47,443	$	2,960			6	%

Total Revenues	$	101,424	$	99,626	$	1,798			2	%

Food Safety ~~segment revenues~~

Natural Toxins, Allergens & Drug Residues –

Sales in this category increased ~~11%~~7% in the first quarter of fiscal 2020, led by a 9% increase in sales of natural toxins test kits primarily due to market share gains of aflatoxin kits in Brazil. Sales of allergen test kits increased 8% while sales of dairy drug residue test kits decreased 3%.

Bacterial & General Sanitation –

Revenues in this category decreased 1% in the first quarter, due to lower equipment sales compared to the first quarter of the prior year, resulting from backorders of equipment from our primary supplier. Partially offsetting the decrease was a 12% increase in sales of our environmental sanitation product line and ~~Animal Safety segment revenues increased 6% for~~a 20% increase in sales of

Listeria

test kits, as we continue to increase market share with our

Listeria

Right Now test kit.

Culture Media & Other –

Sales in this category decreased 8% in the ~~three month period ended February 28, 2018, each~~first quarter of fiscal 2020 compared to the same period in the prior year. ~~For the quarter, the overall organic~~This category includes sales ~~increase was 7%; organic growth~~of forensic test kits sold within Brazil, which decreased significantly, as a large customer moved to

a higher throughput method

. Sales of Neogen Culture Media were down 4%, due primarily to order timing from a number of international distributors and large U.S. customers.

Rodenticides, Insecticides & Disinfectants –

Sales of products in this category sold through our Food Safety operations decreased 18% in the ~~Food Safety and Animal Safety segments was 9% and 5%, respectively. The acquisitions of Rogama, purchased inmid-December~~ 2016, and Neogen Australasia, in September 2017, contributed $1.6 million to the overall revenue growth in the third quarter. Food Safety segment revenues increased 17% and Animal Safety segment revenues increased 7% for the year to date period. Overall organic sales increased 7% for the year to date period; the organic increases were 9% for the Food Safety segment and 6% for the Animal Safety segment. The previously discussed acquisitions, and Quat-Chem, purchased on December 1, 2016, contributed $11.1 million to the overall sales increase for the nine month period.

~~International sales were $37.4 million in the third~~first quarter of fiscal ~~2018,~~2020. The decrease was due primarily to the final shipment of a large

non-recurring

insecticide order to a government health organization in Brazil in the first quarter of the prior year. A decline in disinfectant sales in Central America and rodenticide sales in Mexico, both due to order timing from distributors, also contributed to the decrease in this category in the first quarter. Partially offsetting this was a 6% increase in sales at U.K.-based Quat-Chem and an increase in sales of disinfectant products in China, the result of increased demand in the pork market caused by the African swine fever virus outbreak in that country.

Genomics Services –

Sales of genomics services sold through our Food Safety operations decreased 4% in the quarter ended August 31, 2019. The decrease is due to lower sales in China, as testing in the pork industry declined due to animal losses suffered as the result of the African swine fever virus. The strengthening of the U.S. dollar against the British pound also contributed to the decline; in local currency, genomics sales through our Neogen Europe operation increased 4%.

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Animal Safety

Life Sciences –

Sales in this category decreased 17% in the first quarter. The prior year first quarter included sales to a commercial laboratory customer that were transferred to our Brazilian operation in the second quarter of fiscal 2019.

Veterinary Instruments & Disposables –

Revenues in this category increased 9% in the first quarter of fiscal 2020, led by growth in disposable syringes and marking products due to market share gains, offsetting a 17% decrease in detectable needles.

Animal Care & Other –

Sales of these products were flat in the first quarter as compared to the same period a year ago. Promotional programs with distributors are recorded as a contra revenue within this category. Adjustments to these amounts, which can vary from quarter to quarter, resulted in a higher reduction of revenue in the current year first quarter than in the prior year. Offsetting this, sales of our animal care product lines increased 10%.

Rodenticides, Insecticides & Disinfectants –

Sales in this category decreased 2% in the first quarter of fiscal 2020 compared to the same period in the prior year. ~~Expressed~~Rodenticide sales were down 8%, as ~~a percentage~~demand declined due to weak rodent pressure in certain areas of the U.S. Insecticide sales increased 6%, and cleaners and disinfectants sales were flat as growth in the U.S. was offset by lower sales to international distributors.

Genomics Services –

Sales in this category increased 25% in the first quarter, aided by minor contributions from the Livestock Genetics (September 2018) and Delta Genomics (January 2019) acquisitions; organic growth in this category was 21%. The growth was led by increases of sales ~~international sales were 39.0% in~~to the quarter, compared to 36.3% in the third quarter a year ago. For the year to date, international sales were $110.5 million, an increase of 20%; international sales were 37.7% of total sales in the current year to date periodcompanion animal and ~~35.1% in the prior year. For each comparative period, international revenue increases were the result of the acquisitions of Quat-Chem (England), Rogama (Brazil)~~beef and ~~Neogen Australasia (Australia),~~dairy cattle markets, and to a lesser extent, ~~revenue increases at existing Company locations. Currency translation had a positive effect on international revenues of approximately $1.9 million~~sheep testing business in Australia.

Gross Margin

Gross margin was 47.5% in the ~~third~~first quarter of fiscal ~~2018 as the pound, euro, and peso were stronger on average against the dollar than~~2020 compared to 46.9% in the same ~~period~~quarter a year ~~ago; for~~ago. Animal Safety gross margins improved by 130 basis points, primarily the ~~year to date period, the positive revenue impact was $2.5 million.~~

~~Revenues at Neogen Europe~~result of increased ~~16% in U.S. dollars~~gross margins in the ~~third quarter compared to the same period~~domestic genomics testing service business, while gross margins in the prior year; for the nine month period, sales rose 10%. For the quarter, a 39% increase in genomics revenues offset lower mycotoxin test kit sales, as last year’s deoxynivalenol (DON) outbreak in corn crops in western Europe did not repeat in the current year. For the year to date period, genomics sales increased 34% and helped to offset lower DON test kit sales. Sales at Lab M, the Company’s subsidiary in England, increased 20% in the third quarter and 25% for the nine month period, as its culture media products continued to be integrated into Neogen’s global sales and marketing channels. Neogen Latinoamerica recorded a sales increase of 19% in the third quarter; Food Safety products increased 21% and Animal Safety products increased 17%, with broad-based gains recorded in both categories. For the year to date, revenues rose 18%, with Food Safety products and increases in genomics services providing the majority of the increase. Revenues at Neogen do Brasil declined 2% in the year’s third quarter, as a decrease in forensic test kit sales resulting from increased competition and customer losses caused by conversion to different testing methods more than offset increased sales of mycotoxin and dairy drug residue test kits. For the year to date, revenues increased 18%. Neogen China sales increased 28% in the third quarter and 21% for the year to date period, each compared to the same periods in the prior year; for each period, increases were driven by strength in genomics services and animal safety products. Revenues for Neogen India declined 37% for the quarter, as a large cleaner and disinfectant order in the prior year’s third quarter did not repeat; for the year to date, revenues were flat, as higher sales of Food Safety products and testing services were almost entirely offset by the cleaner and disinfectant revenue from last year’s third quarter which did not repeat this year.

Service revenue was $17.8 million in the quarter ended February 28, 2018, an increase of $3.4 million, or 24%, compared to $14.4 million in the third quarter of the prior year. For the year to date period, service revenue was $48.7 million, an increase of $9.1 million, or 23%, compared to $39.6 million in the prior year. The growth, for both the quarter and year to date periods, was led by increases in sales to the global cattle and companion animal markets, increased testing volumes with a large poultry customer and, to a lesser extent, revenues from the acquisition of Neogen Australasia, in September 2017.

~~Revenues~~

   Three Months ended February 28,
         Increase/
   2018    2017    (Decrease)    %
      (in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues
   $ 16,807    $ 16,453    $ 354    2 %
Bacterial & General Sanitation
   8,992    8,348    644    8 %
Dehydrated Culture Media & Other
   10,511    10,383    128    1 %
Rodenticides, Insecticides & Disinfectants
   7,359    5,040    2,319    46 %
Genomics Services
   3,976    2,725    1,251    46 %







   $ 47,645    $ 42,949    $ 4,696    11 %
Animal Safety
Life Sciences
   $ 2,769    $ 2,332    $ 437    19 %
Veterinary Instruments & Disposables
   10,630    10,000    630    6 %
Animal Care & Other
   7,535    6,311    1,224    19 %
Rodenticides, Insecticides & Disinfectants
   14,590    16,111    (1,521 )    (9 )%
Genomics Services
   12,723    10,682    2,041    19 %







   $ 48,247    $ 45,436    $ 2,811    6 %







Total Revenues
   $ 95,892    $ 88,385    $ 7,507    8 %







   Nine Months ended February 28,
         Increase/
   2018    2017    (Decrease)    %
      (in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues
   $ 54,960    $ 53,090    $ 1,870    4 %
Bacterial & General Sanitation
   27,435    25,340    2,095    8 %
Dehydrated Culture Media & Other
   32,483    29,792    2,691    9 %
Rodenticides, Insecticides & Disinfectants
   18,175    7,088    11,087    156 %
Genomics Services
   10,887    7,757    3,130    40 %







   $ 143,940    $ 123,067    $ 20,873    17 %
Animal Safety
Life Sciences
   $ 7,589    $ 7,261    $ 328    5 %
Veterinary Instruments & Disposables
   32,804    29,281    3,523    12 %
Animal Care & Other
   24,056    21,563    2,493    12 %
Rodenticides, Insecticides & Disinfectants
   50,228    52,796    (2,568 )    (5 )%
Genomics Services
   34,348    28,779    5,569    19 %







   $ 149,025    $ 139,680    $ 9,345    7 %







Total Revenues
   $ 292,965    $ 262,747    $ 30,218    12 %

~~The Company’s~~ Food Safety segment revenues were $47.6 million in the quarter ended February 28, 2018, an increase of 11% compared to the same period in the prior year. For the nine month period, Food Safety revenues increased 17% to $143.9 million. Organic growth for the segment was 9% for both the quarter and year to date periods, with the acquisition of Rogama, occurringrose by 50 basis points, on ~~December 21, 2016, contributing the remainder of the growth.~~

Natural Toxins, Allergens & Drug Residues sales increased 2% in the third quarter; revenues for the year to date period increased 4%. Sales of dairy drug residue kits, used to detect the presence of antibiotics in raw milk, increased 29% in the third quarter as new products continued to gain share, particularly in international markets; for the year to date period, dairy drug residue test kit revenues rose 15%. Allergen test kit sales increased 14% and 13% in the three and nine month periods ended February 28, 2018, respectively, as product recalls relating to allergenic contamination of food continued to expand the market. Sales of test kits to detect the presence of natural toxins in grain crops decreased 17% in the third quarter. An 11% increase in aflatoxin test kit sales, due to moderate

outbreaks in U.S. and Brazilian corn crops, was offset by a 41% decrease in sales of deoxynivalenol (DON) test kits, as prior year outbreaks of DON in corn crops in the U.S., Canada and Europe did not recur in the current year. For the year to date period,higher sales of natural toxin test kits, ~~decreased 7%.~~

~~Bacterial & General Sanitation sales increased 8% in both the three~~ and nine month periods ended February 28, 2018. Within this category, the Company’s AccuPoint sanitation monitoring product line increased 18% in the third quarter and 19% for the year to date period, on sales strength in both reader equipment and consumable supplies. Sales of test kits to detect pathogens increased 22% in the third quarter, led by strength in~~Listeria~~ ~~products, including the Company’s new~~~~Listeria~~ ~~Right Now test kit that launched earlier in the fiscal year. The Company also benefitted from strong~~decreased sales of equipment used with the Company’s ANSR line of test kits to detect various pathogens, as the Company gained new customers; overall pathogen revenues increased 14% for the year to date period. Revenues for the Company’s consumable product lines to detect spoilage organisms in processed foods decreased 2% in the current quarter but increased 3% for the nine month period.

Dehydrated Culture Media & Other sales increased 1% in the third quarter. This category includes forensic test kits sold through the Company’s Brazilian subsidiary. Demand for these kits from customers located in Brazil had increased dramatically in the prior year due to a new requirement for drug testing of commercial truck drivers, however, sales of these kits in Brazil have decreased in the current year as a result of increased competition and customer losses caused by conversion to different testing methods. In the third quarter, the Company’s worldwide Lab M sales increased 21% and Acumedia sales increased 6%.

Sales of Rodenticides, Insecticides & Disinfectants products sold through the Company’s Food Safety operations increased 46% in the third quarter; the organic sales increase in this category was 29%. For the nine month period, sales increased $11.1 million; excluding first year sales of the Quat-Chem and Rogama acquisitions, the year to date sales increase was 16%. In the third quarter, the increase was primarily due to Rogama shipping a large order resulting from a government contract; this sale is unlikely to recur in the next 12 months. The increase in sales was partially offset by termination of a distribution agreement in January 2017, which resulted in a decline in sales for those distributed products of $143,000 in the third quarter and $859,000 for the year to date.

~~Genomics Services revenue recorded in the Food Safety segment increased 46% and 40% for the three and nine month periods, respectively, due primarily to growth of these services in Europe.~~

~~Sales for the Company’s Animal Safety segment~~lower margin products.

Operating Expenses

Operating expenses were $48.2 million in the third quarter, an increase of 6% over the same period a year ago. Revenues for the nine month period increased 7% to $149 million compared to $139.7 million in the prior year. Organic growth in this segment was 5% and 6% in the three and nine month periods, respectively; the Neogen Australasia acquisition in September 2017 contributed the remainder of the growth. Sales of Life Sciences products increased 19% in the third quarter, partially due to order timing, and have risen 5% for the year to date period. The Company has increased volumes of forensic test kits sold to commercial labs in the U.S.

Veterinary Instruments & Disposables revenues increased 6% and 12% for the three and nine month periods, respectively. For both periods, the increase is primarily the result of strength in detectable needles, syringes and animal marking products. Sales of Animal Care & Other products increased 19% in the quarter ended February 28, 2018, compared to the same period in the prior year; the year to date increase was 12%. The increase in the current year is due to market share gains of supplements for companion animals and vitamin injectables, and increased sales of vaccines to a large distributor; additionally, last year’s results included sales credits totaling $1.1$31.9 million in the first quarter ~~as the Company removed its canine thyroid product from its distribution channels, after the FDA approved a new drug application for a competitive product.~~

~~Rodenticides, Insecticides & Disinfectants sales decreased 9% in the quarter and 5% for the year~~of fiscal 2020, compared to ~~date period, as the termination of a distribution agreement with a manufacturer of cleaners and disinfectants in January 2017 resulted in lost sales for those distributed products of $1.4~~$30.3 million in the ~~third~~first quarter of fiscal 2019, an increase of $1.6 million, or 6%. Sales and marketing expenses were $17.5 million, compared to $17.2 million in last year’s first quarter, an increase of 2%, in line with the ~~current fiscal year~~revenue increase. General and ~~$3.9 million for the year to date period. These losses were offset by an 11% increase in rodenticide sales~~administrative expense increased $501,000, or 5%, in the ~~third~~first quarter, asprimarily due to increased legal and professional fees, depreciation related to investments in information technology, and higher stock-based compensation expense. Research and development expense was $3.7 million in the ~~Company gained incremental business with several large customers; year to date sales rose by 9%.~~

~~Genomics Services increased 19% in both the third~~first quarter, ~~and year to date periods, respectively, each~~an increase of $869,000 compared to the same period in the prior year. The ~~growth for both periods~~increase is primarily the result of development spending on a number of new products, which are expected to be launched in late fiscal 2020 and early fiscal 2021.

Operating Income

Operating income was led by increases in sales to the global cattle and companion animal markets, higher volumes from a large poultry customer and, to a lesser extent, revenues from the acquisition of Neogen Australasia, in September 2017.

~~Gross Margin~~

~~Gross margin was 47.5%~~$16.3 million in the ~~third~~first quarter, ~~of fiscal 2018~~ compared to 46.3% in the same quarter a year ago. Gross margins for the quarter were positively impacted by lower costs inputs at the Company’s genomics operations and favorable product mix towards higher margin diagnostic and animal care products; this improvement was somewhat offset by lower sales of mycotoxin test kits due to a prior year outbreak of DON in corn crops in the U.S. and western Europe, which did not recur in the current fiscal year. Gross margin for the nine month period ended February 28, 2018 was 48.0% compared to 47.6%$16.5 million in the same period of the prior year. Gross margins for the year to date were positively impacted by improved raw material costs at the Company’s genomics operations and favorable product mix towards higher margin diagnostic and animal care products; this improvement was somewhat offset by mix

changes resulting from the three most recent acquisitions (Rogama, Quat-Chem and Neogen Australasia), all of which have gross margins that are lower than the historical average for the Company, and lower sales of mycotoxin test kits due to a prior year outbreak of DON in corn crops in the U.S. and western Europe, which did not recur in the current fiscal year.

~~Operating Expenses~~

~~Operating expenses were $29.6 million in the third quarter, compared to $26.5 million in the same quarter of last fiscal year, an~~

increase of $3.1 million, or 12%. Sales and marketing expenses were $17.5 million, compared to $15.3 million in last year’s third quarter, an increase of 14%, primarily due to increases in salaries and related personnel costs, shipping expense, and higher advertising expenses in support of new product launches. General and administrative expense increased $700,000, or 9%, in the third quarter; increases in amortization of acquired intangible assets, IT consulting, and higher salary expenses were partially offset by lower stock based compensation expense resulting from forfeitures due to employee retirements and reduced legal expenses. In last year’s third quarter, the Company closed on two acquisitions, while there were none in this year’s third quarter. For the year to date period, research and development expense increased 7% in the third quarter to a total of $2.8 million. Increases were due to increases in compensation, higher depreciation resulting from investments in laboratory equipment, and projects relating to product improvements and new product development. For the year to date, research and development expenses increased 10%. Operating expenses for the nine month period were $90.3 million, an increase of $11.3 million, or 14% over the same period last fiscal year. The recent acquisitions accounted for $2.8 million of the increase.

~~Operating Income~~

~~Operating income was $15.9 million in the third quarter, an increase of $1.5 million, or 11%, compared to operating income of~~

~~$14.4 million in~~ the prior year. Expressed as a percentage of revenue, operating income was ~~16.6%~~16.0% compared to ~~16.2%~~16.5% in last year’s

~~third~~ first quarter. The ~~improvement~~decline in operating margin percentage for the comparative quarter was primarily the result of ~~higher gross margins offset somewhat by operating expenses which rose more than~~ the ~~rate of the overall revenue increase. For the nine months ended February 28, 2018, operating income was $50.3 million, an~~ increase ~~of $4.4 million, or 10%, compared to operating income of $45.9 million for the same period last year. Expressed as a percentage of revenue, year to date operating income was 17.2% compared to 17.5%~~in research and development spending in the ~~prior year.~~

current quarter.

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Other Income ~~and Income Tax~~

~~Other~~


	Three Months ended August 31,
(dollars in thousands)	2019			2018
Interest income (net of expense)	$	1,510		$	927
Foreign currency transactions		(117	)		(386	)
Royalty income		1			22
Deoxi contingent consideration		—			(9	)
Other		(7	)		104

Total Other Income	$	1,387		$	658

The increase in interest income ~~was $1.4 million for both~~in the ~~third~~first quarter of fiscal 2018 and the same period in 2017. Components of other income in this year’s third quarter included $525,000 of interest income, $360,000 from an insurance settlement, $179,000 in currency gains and a $255,000 gain recorded on the settlement of contingent consideration related2020 compared to the ~~Quat-Chem acquisition. Last year’s fiscal third~~prior year first quarter ~~included a gain~~is the result of higher cash and marketable securities balances

and higher yields on those balances.

Other expense resulting from foreign currency transactions is primarily the ~~settlement~~result of ~~a licensing agreement~~changes in the value of $660,000, currency gains of $442,000, and interest income of $271,000. For the year to date period in fiscal 2018, other income was $3.2 million, primarily comprised of $1.3 million of interest income, currency gains of $1.1 million, $360,000 from an insurance settlement, $255,000 gain recorded on the settlement of contingent consideration relatedforeign currencies relative to the ~~Quat-Chem acquisition, and $78,000~~dollar in countries in which we operate; all of ~~royalty income. For~~ the ~~same period~~currencies in ~~fiscal 2017, other income was $1.8 million, which included interest income of $691,000, gain on~~those countries depreciated against the ~~settlement of a licensing agreement of $660,000, currency gains of $263,000, and royalty income of $79,000.~~

dollar during the comparative quarters.

Income Tax Expense

Income tax expense infor the ~~third~~first quarter of fiscal 2020 was ~~$700,000, an effective tax rate of 4%, compared to prior year third quarter expense of $5.4~~$3.0 million, an effective tax rate of 34%. The Company recorded favorable tax adjustments totaling $2.9 million during the quarter as the result of tax reform passed in the U.S. in December 2017. The tax reform reduced the statutory federal income tax rate from 35%17.0%, compared to ~~21%, and also resulted in other adjustments to income tax expense. The Company will compute its income tax for the fiscal~~prior year ending May 31, 2018 using a blended Federal Tax Rate of 29.2%. Accordingly, first and second quarter income previously subject to tax at the 35% Federal Tax Rate benefitted from the 29.2% Federal Tax Rate. As required by generally accepted accounting principles, the Company revalued its net deferred tax liabilities during the quarter to reflect the lower rate, resulting in a credit to income tax expense of $5.6 million. In addition, the Company was required to estimate its cumulative unrepatriated foreign earnings and profits and calculate tax owed on those earnings and profits during the third quarter. This tax was estimated at $2.7$1.9 million, ~~and the amount was recorded as federal income tax expense; payment of the tax is permitted over an eight year period.~~

~~For the first nine months of fiscal 2018, income tax expense was $7.9 million compared to $16.3 million in the prior year; the current year to date effective tax rate was 15%, compared to~~ an effective tax rate of ~~34%~~11.1%. For each quarter, the primary difference between the statutory rate of 21% and the effective rates recorded is the benefit resulting from the exercise of stock options; this benefit was $769,000 in the first quarter of fiscal 2020 compared to $2.3 million in the first quarter of the prior year.

Net Income

Net income was $14.7 million in the first quarter of fiscal ~~year. For~~2020, compared to $15.2 million in the ~~year to date period, the lower effective rate is primarily~~first quarter of fiscal 2019. The decline in earnings was the result of the ~~tax reform passed~~increase in the ~~U.S. in December 2017 as discussed in the preceding paragraph. Additionally, during the year the Company has recorded credits of $3.4 million to federal income~~effective tax ~~expense for excess~~rate, which was caused by decreased tax benefits resulting from the exercise of stock options, due to lower option exercise activity in the ~~adoption of ASU2016-09;~~ ~~refer to Note 5 of the Company’s Consolidated Financial Statements for further information. In the second~~first quarter of this fiscal ~~2018, an IRS examination of~~year compared to the ~~Company’s federal income tax returns for fiscal years 2014, 2015 and 2016 was concluded. As~~same period a result of the favorable outcome of the audit, the Company reversed a total of $816,000 from its reserve for uncertain tax positions, which had been accrued in prior fiscal years, with a corresponding credit to federal income tax expense.

~~Net Income~~

~~Net income attributable to Neogen increased 61% from $10.3 million to $16.6 million for the three month period ended February 28,~~

~~2018. For the~~ year to date period, net income was $45.6 million, a 46% increase over prior year net income of $31.3 million. Pre tax income increases of 10% for the quarter and 12% for the year to date were favorably impacted by the effects of tax reform, excess tax benefits from the exercise of stock options, and positive results from the IRS examination that concluded during the year’s second quarter.

ago.

Financial Condition and Liquidity

The overall cash, cash equivalents and marketable securities position of ~~the Company~~Neogen was ~~$192.2~~$291.0 million at ~~February 28, 2018~~August 31, 2019, compared to ~~$143.6~~$267.5 million at May 31, ~~2017.~~2019. Approximately ~~$46.5~~$23.7 million was generated from operations during the first ~~nine~~three months of fiscal ~~2018.~~2020. Net cash proceeds of ~~$18.9~~$8.7 million were realized from the exercise of stock options and issuance of shares under ~~the Company’s employee stock purchase plan~~our Employee Stock Purchase Plan during the ~~same period. The Company~~first quarter. We spent ~~$16.3~~$6.5 million for property, equipment and other

non-current

assets ~~during~~in the first ~~nine~~three months of fiscal ~~2018.~~

~~Accounts~~2020.

Net accounts receivable balances were ~~$73.2~~$79.1 million at ~~February 28, 2018, an increase~~August 31, 2019, a decline of ~~$4.6~~$3.5 million, ~~or 7%,~~ compared to ~~$68.6~~$82.6 million at May 31, ~~2017, less than the increase in revenue.~~2019. Days sales outstanding, a measurement of the time it takes to collect receivables, were 6364 days at ~~February 28, 2018~~August 31, 2019, compared to 6061 days at May 31, ~~2017.~~2019 and 64 days at August 31, 2018. All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected.

Net inventory balances were ~~$77.5~~$87.7 million at ~~February 28, 2018,~~August 31, 2019, an increase of ~~$4.4~~$1.7 million, or 6%2%, compared to ~~$73.1 million at~~ May 31, ~~2017. The Company~~2019 balances of $86.0 million. We actively ~~monitors its~~monitor our inventory levels, and ~~balances~~balance the need for adequate levels of product availability to minimize backorders with a desire to improve inventory ~~turnover and efficiency levels. Formal~~turns. We have continued with our active programs ~~have been instituted~~to improve our turnover in fiscal ~~2018 to improve inventory turnover.~~

2020.

Inflation and changing prices are not expected to have a material effect on operations, as management believes it will continue to be successful in offsetting increased input costs with price increases and/or cost efficiencies.

Table of Contents

Management believes that ~~the Company’s~~our existing cash and marketable securities balances at ~~February 28, 2018~~August 31, 2019, along with available borrowings under its credit facility and cash expected to be generated from future operations, will be sufficient to fund activities for the foreseeable future. However, existing cash and borrowing capacity may not be sufficient to meet ~~the Company’s~~our cash requirements to commercialize products currently under development or its plans to acquire other organizations, technologies or products that fit within ~~the Company’s~~our mission statement. Accordingly, ~~the Company~~we may choose to issue equity securities or enter into other financing arrangements for a portion of ~~its~~our future financing needs.

Table of Contents

PART I – FINANCIAL INFORMATION

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk~~

~~The Company has~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have interest rate and foreign exchange rate risk exposure but no long-term fixed rate investments or borrowings. ~~The Company’s~~Our primary interest rate risk is due to potential fluctuations of interest rates for variable rate borrowings (no long-term borrowings at ~~February 28, 2018)~~August 31, 2019) and short-term investments.

Foreign exchange risk exposure arises because ~~the Company markets~~we market and ~~sells its~~sell our products throughout the world. Revenues in certain foreign countries as well as certain expenses related to those revenues are transacted in currencies other than the U.S. dollar. ~~The Company’s~~Our operating results are exposed to changes in exchange rates between the U.S. dollar and the British pound sterling, the euro, the Brazilian real, the Mexican peso, the Chinese yuan, the Australian dollar, and to a lesser extent, the Indian rupee ~~the Canadian dollar,~~ and the ~~Australian~~Canadian dollar. When the U.S. dollar weakens against foreign currencies, the dollar value of revenues denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs. Additionally, previously recognized revenues in the course of collection can be affected positively or negatively by changes in exchange rates. The Company enters into forward contracts to help mitigate the economic impact of fluctuations in certain currency exchange rates. These contracts are adjusted to fair value through earnings.

Neogen has assets, liabilities and operations outside of the United States, located in Scotland, England, Brazil, Mexico, China, India, Canada, and Australia where the functional currency is the British pound sterling, Brazilian real, Mexican peso, Chinese yuan, Indian rupee, Canadian dollar and the Australian dollar respectively, and ~~also~~ transacts business throughout Europe in the euro. The Company’s investments in foreign subsidiaries are considered to be ~~primarily~~ long-term.

PART I – FINANCIAL INFORMATION

~~Item 4.~~

~~Controls and Procedures~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of ~~the Company’s~~our disclosure controls and procedures as of ~~February 28, 2018~~August 31, 2019 was carried out under the supervision and with the participation of the Company’s management, including the President & Chief Executive ~~Chairman~~Officer and the Vice President & Chief Financial Officer (“the Certifying Officers”). Based on the evaluation, the Certifying Officers concluded that the Company’s disclosure controls and procedures are effective.

Changes in Internal Controls over Financial Reporting

No changes in our control over financial reporting were identified as having occurred during the quarter ended ~~February 28, 2018~~August 31, 2019 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Table of Contents

PART II – OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings~~

Item 1. Legal Proceedings

The Company is subject to ~~certain~~ legal and other proceedings in the normal course of business. In the opinion of management, the outcomes of these matters are not expected to have a material effect on ~~its~~the Company’s future results of operations or financial position.

~~Item 6.~~

~~Exhibits~~

tem 6. Exhibits

(a) Exhibit Index



~~31.1~~
	3	Articles of Incorporation, as restated (incorporated by reference to Exhibit 3 to the registrant’s Form 10-Q filed on December 28, 2018)

	10	Amended and Restated Credit Agreement dated as of November 30, 2018 between Registrant and JP Morgan Chase N.A. (incorporated by reference to Exhibit 10.A of the registrant’s Form 8-K filed on December 6, 2018)

	31.1	Certification of ~~Principal~~Chief Executive Officer pursuant to Rule13a-14(a).

~~31.2~~
	31.2	Certification of ~~Principal~~Chief Financial Officer pursuant to Rule13a-14(a).

32
	32	Certification pursuant to 18 U.S.C. section 1350

~~101.INS~~
	101.INS	Inline XBRL Instance Document

~~101.SCH~~
	101.SCH	Inline XBRL Taxonomy Extension Schema Document

~~101.CAL~~
	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

~~101.DEF~~
	101.DEF	Inline XBRL Taxonomy Extension Definition Document

~~101.LAB~~
	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

~~101.PRE~~
	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

	EX-104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101

Items 1A, 2, 3, 4, and 5 are not applicable or removed or reserved and have been omitted.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		NEOGEN CORPORATION
		(Registrant)

Dated: ~~March 29, 2018~~ September 26, 2019

		/s/ ~~James L. Herbert~~ John E. Adent
	~~James L. Herbert~~	John E. Adent
		President & Chief Executive ~~Chairman~~Officer
		(Principal Executive Officer)

Dated: ~~March 29, 2018~~ September 26, 2019

		/s/ Steven J. Quinlan
		Steven J. Quinlan
		Vice President & Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)


	February 28, 2018			May 31, 2017
	(Unaudited)			(Audited)
Assets
Current Assets
Cash and cash equivalents	$	82,066		$	77,567
Marketable securities (at fair value, which approximates cost)		110,089			66,068
Accounts receivable, less allowance of $1,750 and $2,000		73,209			68,576
Inventories, net		77,506			73,144
Prepaid expenses and other current assets		9,334			7,606

Total Current Assets		352,204			292,961
Property and Equipment, net		72,514			61,748
Other Assets
Goodwill		99,478			104,759
Othernon-amortizable intangible assets		15,011			14,323
Customer-based intangibles, net of accumulated amortization of $23,846 and $20,846 at February 28, 2018 and May 31, 2017		33,518			35,983
Othernon-current assets, net of accumulated amortization of $11,893 and $9,931 at February 28, 2018 and May 31, 2017		22,876			18,635

Total Assets	$	595,601		$	528,409

Liabilities and Equity
Current Liabilities
Accounts payable	$	19,654		$	16,244
Accrued compensation		5,469			5,002
Income taxes		960			936
Other accruals		11,210			13,820

Total Current Liabilities		37,293			36,002
Deferred Income Taxes		11,400			17,048
Non-Current Liabilities		4,973			3,602

Total Liabilities		53,666			56,652
Commitments and Contingencies (note 9)
Equity
Preferred stock, $1.00 par value, 100,000 shares authorized, none issued and outstanding		—			—
Common stock, $0.16 par value, 60,000,000 shares authorized, 51,583,085 and 50,932,489 shares issued and outstanding at February 28, 2018 and May 31, 2017, respectively		8,253			8,149
Additionalpaid-in capital		197,246			174,742
Accumulated other comprehensive loss		(5,303	)		(7,203	)
Retained earnings		341,459			295,926

Total Neogen Corporation Stockholders’ Equity		541,655			471,614
Non-controlling interest		280			143

Total Equity		541,935			471,757

Total Liabilities and Equity	$	595,601		$	528,409


	Three Months Ended					Nine Months Ended
	February 28,					February 28,
	2018		2017			2018			2017
Revenues
Product revenues	$	78,142	$	73,964		$	244,298		$	223,170
Service revenues		17,750		14,421			48,667			39,577

Total Revenues		95,892		88,385			292,965			262,747
Cost of Revenues
Cost of product revenues		40,352		38,816			124,785			113,241
Cost of service revenues		10,019		8,689			27,517			24,556

Total Cost of Revenues		50,371		47,505			152,302			137,797

Gross Margin		45,521		40,880			140,663			124,950

Operating Expenses
Sales and marketing		17,492		15,340			52,331			45,824
General and administrative		9,280		8,548			29,096			25,094
Research and development		2,836		2,641			8,901			8,087

Total Operating Expenses		29,608		26,529			90,328			79,005

Operating Income		15,913		14,351			50,335			45,945

Other Income
Interest income		524		271			1,322			690
Other income		844		1,105			1,913			1,098

Total Other Income		1,368		1,376			3,235			1,788

Income Before Taxes		17,281		15,727			53,570			47,733
Provision for Income Taxes		700		5,350			7,900			16,250

Net Income		16,581		10,377			45,670			31,483
Net (Income)/Loss Attributable toNon-Controlling Interest		5		(90	)		(70	)		(163	)

Net Income Attributable to Neogen	$	16,586	$	10,287		$	45,600		$	31,320

Net Income Attributable to Neogen Per Share
Basic	$	0.32	$	0.20		$	0.89		$	0.62

Diluted	$	0.32	$	0.20		$	0.88		$	0.61


	Three Months Ended February 28,				Nine Months Ended February 28,
	2018		2017		2018		2017
	(in thousands, except per share amounts)
Numerator for basic and diluted net income per share:
Net income attributable to Neogen	$	16,586	$	10,287	$	45,600	$	31,320
Denominator for basic net income per share:
Weighted average shares		51,537		50,746		51,253		50,438
Effect of dilutive stock options		700		633		761		723

Denominator for diluted net income per share		52,237		51,379		52,014		51,161

Net income attributable to Neogen per share:
Basic	$	0.32	$	0.20	$	0.89	$	0.62

Diluted	$	0.32	$	0.20	$	0.88	$	0.61


	Food Safety		Animal Safety		Corporate and Eliminations (1)			Total
	(in thousands)
As of and for the three months ended February 28, 2018
Product revenues to external customers	$	42,618	$	35,524	$	—		$	78,142
Service revenues to external customers		5,027		12,723		—			17,750

Total revenues to external customers		47,645		48,247		—			95,892
Operating income (loss)		8,258		8,493		(838	)		15,913
Total assets		188,075		215,371		192,155			595,601

As of and for the three months ended February 28, 2017
Product revenues to external customers	$	39,318	$	34,646	$	—		$	73,964
Service revenues to external customers		3,631		10,790		—			14,421

Total revenues to external customers		42,949		45,436		—			88,385
Operating income (loss)		7,403		7,743		(795	)		14,351
Total assets		183,419		215,243		108,636			507,298


	FY 2018	FY 2017
Risk-free interest rate	1.6%	1.2%
Expected dividend yield	0.0%	0.0%
Expected stock price volatility	27.7%	35.2%
Expected option life	4.0 years	4.0 years


	Three Months ended February 28,
					Increase/
	2018		2017		(Decrease)			%
			(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	16,807	$	16,453	$	354			2	%
Bacterial & General Sanitation		8,992		8,348		644			8	%
Dehydrated Culture Media & Other		10,511		10,383		128			1	%
Rodenticides, Insecticides & Disinfectants		7,359		5,040		2,319			46	%
Genomics Services		3,976		2,725		1,251			46	%

	$	47,645	$	42,949	$	4,696			11	%
Animal Safety
Life Sciences	$	2,769	$	2,332	$	437			19	%
Veterinary Instruments & Disposables		10,630		10,000		630			6	%
Animal Care & Other		7,535		6,311		1,224			19	%
Rodenticides, Insecticides & Disinfectants		14,590		16,111		(1,521	)		(9	)%
Genomics Services		12,723		10,682		2,041			19	%

	$	48,247	$	45,436	$	2,811			6	%

Total Revenues	$	95,892	$	88,385	$	7,507			8	%


	Nine Months ended February 28,
					Increase/
	2018		2017		(Decrease)			%
			(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	54,960	$	53,090	$	1,870			4	%
Bacterial & General Sanitation		27,435		25,340		2,095			8	%
Dehydrated Culture Media & Other		32,483		29,792		2,691			9	%
Rodenticides, Insecticides & Disinfectants		18,175		7,088		11,087			156	%
Genomics Services		10,887		7,757		3,130			40	%

	$	143,940	$	123,067	$	20,873			17	%
Animal Safety
Life Sciences	$	7,589	$	7,261	$	328			5	%
Veterinary Instruments & Disposables		32,804		29,281		3,523			12	%
Animal Care & Other		24,056		21,563		2,493			12	%
Rodenticides, Insecticides & Disinfectants		50,228		52,796		(2,568	)		(5	)%
Genomics Services		34,348		28,779		5,569			19	%

	$	149,025	$	139,680	$	9,345			7	%

Total Revenues	$	292,965	$	262,747	$	30,218			12	%