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.~~

2021.

☐	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
(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
Common Stock, $0.16 par value per share	NEOG	NASDAQ Global Select Market

N/A

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

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 ☒ NO ☐

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 ☒ NO ☐

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

non-accelerated

filer, a smaller reporting company, or a~~non-accelerated~~ ~~filer (see definition~~an emerging growth company. See the definitions of ~~“accelerated filer and large~~“large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange ~~Act):~~

Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	~~☐ (Do not check if a smaller reporting company)~~	~~Smaller reporting 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 ☐ NO ☒

As of February 28, ~~2018,~~2021 there were ~~51,583,085~~53,511,262 shares of Common Stock outstanding.

Table of Contents

NEOGEN CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


			Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Interim Consolidated Financial Statements (unaudited)	2

	Consolidated Balance Sheets – February 28, ~~2018~~2021 and May 31, ~~2017~~2020	2

	Consolidated Statements of Income – Three and nine months ended February 28, ~~2018~~2021 and ~~2017~~February 29, 2020	3

	Consolidated Statements of Comprehensive Income – Three and nine months ended February 28, ~~2018~~2021 and ~~2017~~February 29, 2020	4

	Consolidated ~~Statement~~Statements of Equity – ~~Nine~~Three and nine months ended February 28, ~~2018~~2021 and February 29, 2020	5

	Consolidated Statements of Cash Flows – Nine months ended February 28, ~~2018~~2021 and ~~2017~~February 29, 2020	6

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

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1320

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2028

Item 4.	Controls and Procedures	2028

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	2129

Item 6.	Exhibits	2129

SIGNATURES		2230

	CEO Certification ~~of Principal Executive Officer~~

	CFO 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


	February 28,			May 31,
	2021			2020
	Unaudited
Assets
Current Assets
Cash and cash equivalents	$	73,482		$	66,269
Marketable securities		279,865			277,404
Accounts receivable, net of allowance of $1,400 and $1,350 at February 28, 2021 and May 31, 2020, respectively		87,241			84,681
Inventories		99,267			95,053
Prepaid expenses and other current assets		15,449			13,999

Total Current Assets		555,304			537,406
Net Property and Equipment		97,981			78,671
Other Assets
Right of use assets		1,269			1,952
Goodwill		133,029			110,340
Other non-amortizable intangible assets		15,441			15,217
Amortizable intangible and other assets, net of accumulated amortization of $50,998 and $44,690 at February 28, 2021 and May 31, 2020, respectively		77,192			53,596

Total Assets	$	880,216		$	797,182

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	23,257		$	25,650
Accrued compensation		7,928			7,735
Income taxes		0			1,456
Other accruals		14,757			13,648

Total Current Liabilities		45,942			48,489
Deferred Income Taxes		21,276			18,125
Other Non-Current Liabilities		5,315			5,391

Total Liabilities		72,533			72,005
Commitments and Contingencies (note 11)		0			0
Equity
Preferred stock, $1.00 par value, 100,000 shares authorized, 0ne issued and outstanding		0			0
Common stock, $0.16 par value, 120,000,000 shares authorized, 53,511,262 and 52,945,841 shares issued and outstanding at February 28, 2021 and May 31, 2020, respectively		8,562			8,471
Additional paid-in capital		290,118			257,693
Accumulated other comprehensive loss		(14,841	)		(19,709	)
Retained earnings		523,844			478,722

Total Stockholders’ Equity		807,683			725,177

Total Liabilities and Stockholders’ Equity	$	880,216		$	797,182

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						Nine Months Ended
	February 28/29,						February 28/29,
	2021			2020			2021			2020
Revenues
Product revenues	$	92,816		$	77,736		$	273,288		$	247,071
Service revenues		23,893			22,133			67,746			62,025

Total Revenues		116,709			99,869			341,034			309,096
Cost of Revenues
Cost of product revenues		49,466			41,068			145,336			128,658
Cost of service revenues		13,394			13,471			38,333			35,888

Total Cost of Revenues		62,860			54,539			183,669			164,546

Gross Margin		53,849			45,330			157,365			144,550
Operating Expenses
Sales and marketing		18,693			17,675			52,938			53,206
General and administrative		15,146			10,789			38,343			32,473
Research and development		4,236			3,823			12,170			11,292

Total Operating Expenses		38,075			32,287			103,451			96,971

Operating Income		15,774			13,043			53,914			47,579
Other Income (Expense)
Interest income		294			1,600			1,571			4,381
Other expense		(91	)		(393	)		(363	)		(832	)

Total Other Income		203			1,207			1,208			3,549

Income Before Taxes		15,977			14,250			55,122			51,128
Provision for Income Taxes		2,600			2,050			10,000			8,000

Net Income	$	13,377		$	12,200		$	45,122		$	43,128

Net Income Per Share
Basic	$	0.25		$	0.23		$	0.85		$	0.82

Diluted	$	0.25		$	0.23		$	0.85		$	0.82

Weighted Average Shares Outstanding
Basic		53,413			52,795			53,132			52,463
Diluted		53,695			53,048			53,384			52,783

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		Income (Loss)			Earnings		Total
Balance at June 1, 2020		52,946	$	8,471	$	257,693	$	(19,709	)	$	478,722	$	725,177
Exercise of options and share-based compensation plan		86		14		5,825		—			—		5,839
Issuance of shares under employee stock purchase plan		9		2		666		—			—		668
Net income for the three months ended August 31, 2020		—		—		—		—			15,860		15,860
Other comprehensive income for the three months ended August 31, 2020		—		—		—		4,002			—		4,002

Balance at August 31, 2020		53,041	$	8,487	$	264,184	$	(15,707	)	$	494,582	$	751,546
Exercise of options and share-based compensation plan		203		32		9,311		—			—		9,343
Net income for the three months ended November 30, 2020		—		—		—		—			15,885		15,885
Other comprehensive income for the three months ended November 30, 2020		—		—		—		621			—		621

Balance at November 30, 2020		53,244	$	8,519	$	273,495	$	(15,086	)	$	510,467	$	777,395
Exercise of options and share-based compensation plan		193		31		10,999		0			0		11,030
Issuance of shares under employee stock purchase plan		10		2		718		0			0		720
Issuance of shares for Megazyme acquisition		64		10		4,906		—			—		4,916
Net income for the three months ended February 28, 2021		—		0		0		0			13,377		13,377
Other comprehensive income for the three months ended February 28, 2021		—		0		0		245			0		245

Balance at February 28, 2021		53,511	$	8,562	$	290,118	$	(14,841	)	$	523,844	$	807,683


							Accumulated
					Additional		Other
	Common Stock				Paid-in		Comprehensive			Retained
	Shares		Amount		Capital		Income (Loss)			Earnings		Total
Balance at June 1, 2019		52,217	$	8,355	$	221,937	$	(11,640	)	$	419,247	$	637,899
Exercise of options and 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
Exercise of options and share-based compensation plan		288		47		12,070		—			—		12,117
Net income for the three months ended November 30, 2019		—		—		—		—			16,276		16,276
Other comprehensive income for the three months ended November 30, 2019		—		—		—		2,218			—		2,218

Balance at November 30, 2019		52,711	$	8,434	$	244,226	$	(11,918	)	$	450,175	$	690,917
Exercise of options and share-based compensation plan		188		31		9,705		—			—		9,736
Issuance of shares under employee stock purchase plan		12		1		606		—			—		607
Net income for the three months ended February 29, 2020		—		—		—		—			12,200		12,200
Other comprehensive loss for the three months ended February 29, 2020		—		—		—		(1,589	)		—		(1,589	)

Balance at February 29, 2020		52,911	$	8,466	$	254,537	$	(13,507	)	$	462,375	$	711,871

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 ended February 28, ~~2018~~2021 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, ~~2018.~~2021. 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 ~~the Company’s~~our Annual Report on Form

10-K

for the fiscal year ended May 31, ~~2017.~~

2020.

Our functional currency is the U.S. dollar. We translate our

non-U.S.

operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in other comprehensive income (loss). Gains or losses from foreign currency transactions are included in other income (expense) on our consolidated statement of income.

Recently Adopted Accounting Standards

Financial Instruments - Credit Losses

On June 1, 2020, the Company adopted ASU No.

2016-13—Measurement

of Credit Losses on Financial Instruments, which changes how the Company measures 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 the Company 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. The adoption of this guidance did not have a material impact on our consolidated financial statements due to the Company’s short-term contractual life of receivables and minimal expected losses.

Fair Value Measurements

On June 1, 2020, the Company adopted ASU

2018-13,

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. The adoption of this guidance did not have an impact on our consolidated financial statements.

Cloud Computing Implementation Cost

On June 1, 2020, the Company adopted 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. The adoption of this guidance did not have an impact on our 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.

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.

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, current conditions and other information. Collateral or other security is generally not required for accounts receivable. Once a receivable balance has been determined to be uncollectible, generally after all collection efforts have been exhausted, 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. 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.

Table of Contents

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, restricted stock units (RSUs) 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, an estimate of award forfeitures, 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. For RSUs, we use the intrinsic value method to value the units. To value other equity awards, 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 are the reason for their use. If different models 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 8.

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.

2. CASH AND MARKETABLE SECURITIES

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. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has not experienced losses related to these balances and believes it is not exposed to significant credit risk regarding its cash and cash equivalents. Cash and cash equivalents were $73,482,000 and $66,269,000 at February 28, 2021 and May 31, 2020, respectively. The carrying value of these assets approximates fair value due to the short maturity of these instruments and is classified as Level 1 in the fair value hierarchy.

Marketable Securities

The Company has marketable securities held by banks or broker-dealers at February 28, 2021. Changes in market value are monitored and recorded on a monthly basis; in the event of a downgrade in credit quality subsequent to purchase, the marketable securities investment is evaluated to determine the appropriate action to take to minimize the overall risk to our marketable securities portfolio. These securities are classified as available for sale. The primary objective of management’s short-term investment activity is to preserve capital for the purpose of funding current operations, capital expenditures and business acquisitions; short-term 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 income statement. Adjustments in the fair value of these assets are recorded in other comprehensive income.

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Marketable Securities as of February 28, 2021 and May 31, 2020 are listed below by classification and remaining maturities.


(in thousands)	Maturity	February 28, 2021		May 31, 2020
US Treasuries	0 - 90 days	$	0	$	0
	91 - 180 days		0		0
	181 days - 1 year		0		2,532
	1 - 2 years		0		0
Commercial Paper & Corporate Bonds	0 - 90 days		158,183		133,130
	91 - 180 days		81,850		73,824
	181 days - 1 year		30,189		43,231
	1 - 2 years		1,310		7,839
Certificates of Deposit	0 - 90 days		1,253		1,003
	91 - 180 days		3,550		5,184
	181 days -1 year		3,277		6,069
	1 - 2 years		253		4,592

Total Marketable Securities		$	279,865	$	277,404

The components of marketable securities at February 28, 2021 are as follows:


(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
US Treasuries	$	0	$	0	$	0		$	0
Commercial Paper & Corporate Bonds		271,600		185		(253	)		271,532
Certificates of Deposit		8,284		49		0			8,333

Total Marketable Securities	$	279,884	$	234	$	(253	)	$	279,865

The components of marketable securities at May 31, 2020 are as follows:


(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
US Treasuries	$	2,502	$	30	$	—		$	2,532
Commercial Paper & Corporate Bonds		257,700		347		(23	)		258,024
Certificates of Deposit		16,648		200		—			16,848

Total Marketable Securities	$	276,850	$	577	$	(23	)	$	277,404

3. 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


(in thousands)	February 28, 2021		May 31, 2020
Raw materials	$	46,423	$	45,058
Work-in-process		7,408		6,887
Finished and purchased goods		45,436		43,108

	$	99,267	$	95,053

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Certain agreements with customers include discounts or rebates on the sale of products and services applied retrospectively, such as volume rebates achieved by purchasing a specified purchase threshold of goods and services. We account for these discounts as variable consideration and estimate the likelihood of a customer meeting the threshold in order to determine the transaction price using the most predictive approach. We typically use the most-likely-amount method, for incentives that are offered to individual customers, and the expected-value method, for programs that are offered to a broad group of customers. Variable consideration reduces the amount of revenue that is recognized. Rebate obligations related to customer incentive programs are recorded in accrued liabilities; the rebate estimates are adjusted at the end of each applicable measurement period based on information currently available.

The performance obligations in Neogen’s contracts are generally satisfied well within one year of contract inception. In such cases, management has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. Management has 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. We account for shipping and handling for products as a fulfillment activity when goods are shipped. Shipping and handling costs that are charged to and reimbursed by the customer are recognized as revenues, while the related expenses incurred by Neogen are recorded in sales and marketing expense. Revenue is recognized net of any tax collected from customers; the taxes are subsequently remitted to governmental authorities. Our 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.

The Company derives 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, retailers, livestock producers 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.

Revenues for Neogen’s 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.

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The following table presents disaggregated revenue by major product and service categories for the three and nine month periods ended February 28, 2021 and February 29, 2020:


	Three Months ended February 28/29,				Nine Months ended February 28/29,
(in thousands)	2021		2020		2021		2020
Food Safety
Natural Toxins, Allergens & Drug Residues	$	18,255	$	17,154	$	57,271	$	57,950
Bacterial & General Sanitation		10,333		9,413		31,499		31,345
Culture Media & Other		14,888		11,222		39,577		35,259
Rodenticides, Insecticides & Disinfectants		9,644		7,964		27,230		20,859
Genomics Services		5,304		4,745		14,566		12,961

	$	58,424	$	50,498	$	170,143	$	158,374
Animal Safety
Life Sciences	$	1,399	$	1,376	$	4,122	$	4,901
Veterinary Instruments & Disposables		12,494		10,799		34,843		32,621
Animal Care & Other		8,873		6,667		25,902		20,859
Rodenticides, Insecticides & Disinfectants		18,085		14,558		56,470		47,462
Genomics Services		17,434		15,971		49,554		44,879

	$	58,285	$	49,371	$	170,891	$	150,722

Total Revenues	$	116,709	$	99,869	$	341,034	$	309,096

6. 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 February 28/29,				Nine Months Ended February 28/29,
(in thousands, except per share amounts)	2021		2020		2021		2020
Numerator for basic and diluted net income per share:
Net income attributable to Neogen	$	13,377	$	12,200	$	45,122	$	43,128
Denominator for basic net income per share:
Weighted average shares		53,413		52,795		53,132		52,463
Effect of dilutive stock options and RSUs		282		253		252		320

Denominator for diluted net income per share		53,695		53,048		53,384		52,783
Net income attributable to Neogen per share:
Basic	$	0.25	$	0.23	$	0.85	$	0.82

Diluted	$	0.25	$	0.23	$	0.85	$	0.82

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.~~

4.Contents

7. 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, 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.

Neogen’s operation in Australia originally focused on providing genomics services and sales of animal safety products and reports through the Animal Safety segment. With the acquisition of Cell BioSciences on February 28, 2020, this operation has expanded to offer our complete line of products and services, including those usually associated with the Food Safety segment. These additional products are managed and directed by existing management at Neogen Australasia and report through the Animal 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


(in thousands)	Food Safety		Animal Safety		Corporate and Eliminations (1)			Total
As of and for the three months ended February 28, 2021
Product revenues to external customers	$	51,965	$	40,851	$	0		$	92,816
Service revenues to external customers		6,459		17,434		0			23,893

Total revenues to external customers		58,424		58,285		0			116,709
Operating income (loss)		7,911		11,657		(3,794	)		15,774
Total assets		287,690		239,179		353,347			880,216
As of and for the three months ended February 29, 2020
Product revenues to external customers	$	44,450	$	33,286	$	—		$	77,736
Service revenues to external customers		6,048		16,085		—			22,133

Total revenues to external customers		50,498		49,371		—			99,869
Operating income (loss)		5,881		8,492		(1,330	)		13,043
Total assets		226,077		219,501		327,923			773,501

(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.

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(in thousands)	Food Safety		Animal Safety		Corporate and Eliminations (1)			Total
As of and for the nine months ended February 28, 2021
Product revenues to external customers	$	151,951	$	121,337	$	0		$	273,288
Service revenues to external customers		18,192		49,554		0			67,746

Total revenues to external customers		170,143		170,891		0			341,034
Operating income (loss)		24,834		36,068		(6,988	)		53,914
As of and for the nine months ended February 29, 2020
Product revenues to external customers	$	141,516	$	105,555	$	—		$	247,071
Service revenues to external customers		16,858		45,167		—			62,025

Total revenues to external customers		158,374		150,722		—			309,096
Operating income (loss)		24,571		26,521		(3,513	)		47,579

(1)	Includes elimination of intersegment transactions.

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


	Three months ended February 28/29,				Nine months ended February 28/29,
(in thousands)	2021		2020		2021		2020
Domestic	$	70,387	$	59,762	$	207,544	$	186,887
International		46,322		40,107		133,490		122,209

Total revenue		116,709		99,869		341,034		309,096

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8. EQUITY COMPENSATION PLANS

~~Qualified~~

Incentive and

non-qualified

options to purchase shares of common stock ~~may be~~have been granted to directors, officers and employees of ~~the~~

~~Company~~Neogen under the terms of the Company’s stock option plans. These options are granted at an exercise price of not less than the fair market value of the stock on the date of grant. 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 months ended February 28, ~~2018~~2021 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

During the three and nine month periods ended February 28, 2018 and 2017, the Company recorded $1,026,000 and $1,198,000 and $3,692,000 and $3,932,000, respectively, of compensation expense related to its share-based awards. On June 1, 2017, the Company adopted ASU~~No. 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.


(Options in thousands)	Shares			Weighted- Average Exercise Price
Options outstanding June 1, 2020		2,162		$	55.96
Granted		261			68.47
Exercised		(491	)		44.91
Forfeited		(179	)		57.58

Options outstanding February 28, 2021		1,753		$	58.41

The weighted-average fair value per share of stock options granted during the first nine months of fiscal ~~2018~~years 2021 and ~~fiscal 2017,~~2020, estimated on the date of grant using the Black-Scholes option pricing model, was ~~$14.44~~$15.41 and ~~$11.84,~~$15.56, respectively.

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.


	FY2021
Risk-free interest rate		0.2	%
Expected dividend yield		0.0	%
Expected stock price volatility		31.3	%
Expected option life		3.25 years

The Company ~~has an employee~~granted 59,125 restricted stock units (RSUs) to directors, officers and employees under the terms of the 2018 Omnibus Incentive Plan in October 2020, which vest ratably over three and

five year periods.

s have a weighted average value of $68.43 per share and will be expensed straight-line over the remaining weighted-average period of 4.49 years. On February 28, 2021 there was $3,144,000 in unamortized compensation cost related to

non-vested

RSUs.

During the three and nine month periods ended February 28, 2021 and February 29, 2020, the Company recorded $1,581,000 and $1,640,000 and $4,773,000 and $4,795,000, respectively, of compensation expense related to its share-based awards.

The Company offers eligible employees the option to purchase ~~plan that provides for employee~~common stock ~~purchases~~ at a 5% discount to the lower of the market ~~price. The~~value of the stock at the beginning or end of each participation period under the terms of the 2011 Employee Stock Purchase Plan; the discount is recorded in general and administrative ~~expense as~~expense. Total individual purchases in any year are limited to 10% 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.compensation.

9. 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~~January 1, ~~2016,~~2020, the Company acquired all of the stock of ~~Quat-Chem Ltd.,~~Productos Quimicos Magiar, a ~~chemical company that manufactures biosecurity~~distributor of Neogen’s Food Safety products ~~based~~for the past 20 years, located in ~~Rochdale, England.~~Argentina. This acquisition gives Neogen a direct sales presence in Argentina. Consideration for the purchase was ~~$21,606,000~~$3,776,000 in net cash, with $3,237,000 paid at closing and $540,000 payable to the former owner on January 1, 2022, and up to ~~$3,778,000~~$979,000 of contingent consideration, ~~due at the end of each of the first two years,~~payable in one year, based onupon 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,~~$603,000, inventory of ~~$1,243,000, land, property~~$446,000, machinery and equipment of ~~$2,526,000,~~$36,000, other current assets of $221,000, accounts payable of ~~$2,197,000, deferred tax liability~~$383,000, other current liabilities of ~~$1,133,000,~~$312,000, contingent consideration accrual of ~~$1,058,000, other current~~ $640,000,

non-current

deferred tax

liabilities of ~~$604,000,non-amortizable~~$441,000, intangible assets of ~~$1,889,000, intangible assets of $6,900,000~~$1,471,000 (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 paid~~February 2021, the former ~~owners $249,000 in~~owner was paid $530,000 of contingent consideration based on the achievement of sales ~~targets~~targets; the remaining $110,000 accrued

but not earned

was

recorded

as a gain in Other Income in the ~~first year, and recorded a credit~~third quarter 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.~~fiscal 2021. This ~~business~~operation continues to operate infrom its current location ~~and is managed by Neogen Europe,~~in Buenos Aires, Argentina, reporting within the Food Safety segment.

It is managed through Neogen’s Latin America

operation.

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On ~~December 27, 2016,~~January 1, 2020, the Company acquired all of the stock of ~~Rogama Industria e Comercio, Ltda.,~~Productos Quimicos Magiar, a ~~company that develops and manufactures rodenticides and insecticides, based near Sao Paulo, Brazil.~~

distributor

of Neogen’s Food Safety products for the past 20 years, located in Uruguay. This acquisition gives Neogen a direct sales presence in Uruguay. Consideration for the purchase was ~~$12,428,000~~$1,488,000 in net cash, with $1,278,000 paid at closing and $210,000 payable to the former owner on January 1, 2022, and up to ~~$2,069,000 of~~$241,000 in contingent consideration, ~~due at the end of each of the first two years,~~payable in one year, based onupon 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 ~~$1,866,000, othernon-current~~ ~~assets of $26,000,~~$280,000, inventory of ~~$960,000, land, property~~$174,000, machinery and equipment of ~~$4,734,000,~~$16,000, other current assets of $68,000, accounts payable of $204,000, other current liabilities of ~~$2,562,000,~~$11,000, contingent consideration accrual of ~~$213,000,~~$159,000,

non-current

deferred tax ~~liability~~liabilities of ~~$1,307,000,non-amortizable~~$99,000, intangible assets of ~~$870,000, intangible assets of $5,112,000~~$398,000 (with an estimated life of~~5-15~~

5-10

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. In February 2021, the former owner was paid $158,000 of contingent consideration based on the achievement of sales targets; the remaining $1,000 accrued

but no

t earned

was recorded as a gain in Other Income in the third quarter of fiscal 2021. This operation continues to operate from its current location in Montevideo, Uruguay, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation.

On January 9, 2020, the Company acquired

all

of the stock of Diessechem Srl, a distributor of food and feed diagnostics for the past 27 years, located in Italy. This acquisition gives Neogen a direct sales presence in Italy. Consideration for the purchase was $3,455,000 in net cash. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $780,000, inventory of $5,000, other current assets of $160,000, accounts payable of $140,000, other current liabilities of $305,000,

non-current

deferred tax liabilities of $294,000, intangible assets of $1,225,000 (with an estimated life of

5-10

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. This ~~business~~operation continues to operate infrom its current location ~~and is managed by Neogen do Brasil,~~in Milan, Italy, reporting within the Food Safety segment.

It is managed through Neogen’s

Scotland

operation.

On ~~September 1, 2017,~~January 31, 2020, the Company acquired all of the ~~assets~~stock of ~~The University~~Abtek Biologicals Limited, a

manufacturer

and supplier of ~~Queensland Animal Genetics Laboratory, an animal genomics laboratory located near Brisbane, Australia.~~culture media supplements and microbiology technologies. This acquisition ~~is intended to accelerate the growth of~~enhances the Company’s ~~animal genomics business in Australia and New Zealand.~~culture media product line offering for the worldwide industrial microbiology markets. Consideration for the purchase was ~~$2,063,000; $468,000 has been paid~~$1,401,000 in net cash, with $1,282,000 paid at closing and $119,000 payable to the ~~remainder due in annual installments over the next five years.~~former owner on January 31, 2021. The ~~preliminary~~final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $135,000, inventory of ~~$19,000,~~$207,000, machinery and equipment of ~~$419,000,non-current~~$105,000, prepayments of $6,000, accounts payable of $118,000, other current liabilities of ~~$1,629,000,~~$34,000,

non-current

deferred tax liabilities of $92,000, intangible assets of ~~$850,000~~$484,000 (with an estimated life of~~5-15~~

5-10

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,~~final $119,000 owed was paid to the former owner in January 2021. This manufacturing operation continues to operate infrom its current location in Liverpool, England, reporting within the Food Safety segment. It is managed through Neogen’s Scotland operation.

On February 28, 2020, the Company acquired the assets of Cell BioSciences, an Australian distributor of food safety and industrial microbiology products. This acquisition gives Neogen a direct sales presence across Australasia for its entire product portfolio. Consideration for the purchase was $3,768,000 in cash, with $3,596,000 paid at closing and $172,000 payable in one year. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $420,000, unearned revenue liability of $13,000, intangible assets of $1,338,000 (with an estimated life of 3 to 10 years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. The final $172,000 owed was paid t

the former owner in March 2021. The business operates in Gatton, Australia, reporting within the Australian operations in the Animal Safety segment.

On March 26, 2020, the Company acquired the assets of Chile-based Magiar Chilena, a distributor of

food

animal

and plant diagnostics, including Neogen products. This acquisition gives Neogen a direct sales presence in Chile. Consideration for the purchase was $400,000 in cash, with $350,000 paid at closing and $50,000 payable to the former owner on March 26, 2021. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $164,000, machinery and equipment of $53,000, and intangible assets of $183,000 (with an estimated life of

5-10

years). The business is operated from its current location in Santiago, Chile, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation.

Table of Contents

On July 31, 2020, the Company acquired the U.S. (including territories) rights to Elanco’s StandGuard

Pour-on

for horn fly and lice control in beef cattle, and related assets. This product line fits in well with Neogen’s existing agricultural insecticide portfolio and organizational capabilities. Consideration for the purchase was $2,351,000 in cash, all paid at closing. The preliminary purchase price allocation, based upon the fair value of these assets determined using the income approach, included inventory of $51,000 and intangible assets of $2,300,000 (with an estimated life of 15 years). This product line is currently being toll manufactured for the Company but is eventually expected to be manufactured at Neogen’s operation in Iowa; the sales are reported within the Animal Safety segment.

On December 30, 2020, the Company acquired all of the stock of Megazyme, Ltd, an Ireland-based company, and its wholly owned U.S. subsidiary, Megazyme, Inc. Megazyme is a manufacturer and supplier of diagnostic assay kits and enzymes to measure dietary fiber, complex carbohydrates and enzymes in food and beverages as well as animal feeds. This acquisition will allow Neogen to expand its commercial relationships across food, feed and beverage companies, and provide additional food quality diagnostic products to commercial labs and food science research institutions. Consideration for the purchase was net cash of $39.8 million paid at closing, $8.6 million of cash payable in two installments in two and four years, $4.9 million of stock issued at closing, and up to $2.5 million of contingent consideration, payable in two installments over the next year, based upon an excess net sales formula. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $1,339,000, inventory of $5,619,000, net property, plant and equipment of $12,141,000, prepayments of $69,000, accounts payable of $4,000, other current liabilities of $2,405,000, contingent consideration accrual of $2,458,000,

non-current

deferred tax liabilities of $2,389,000, intangible assets of $19,461,000 (with an estimated life of

5-10

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. In February 2021, the former owner was paid $1,229,000 for the first installment of contingent consideration, based upon the achievement of sales targets. The Irish company continues to operate from its current location in Bray, Ireland, reporting within the Food Safety segment and is managed through Neogen’s Scotland operation. The U.S. company’s business is managed by our Lansing-based Food Safety team.

For each acquisition listed above, the revenues and net income were not considered material and were therefore not disclosed.

10. 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 on September~~was amended in the second quarter to extend the expiration to November 30, ~~2019.~~2023. There were no 0

advances against the line of credit during fiscal ~~year 2017~~2020 and there have been none thus far in fiscal ~~year 2018;~~2021; there was no 0

balance outstanding at February 28, ~~2018.~~2021. Interest on any borrowings ~~remained~~is calculated at LIBOR plus 100 basis points (rate under the terms of the agreement was ~~2.82%~~1.12% at February 28, ~~2018)~~2021). 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.~~

9.2021.

11. 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 both February 28, ~~2018~~2021 and May 31, ~~2017,~~2020, 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 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 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. STOCK PURCHASE~~

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

Table of Directors in calendar year 2008, to purchase, subject to market conditions, up to 1,500,000 shares of the Company’s common stock. As of February 28, 2018, 1,350,632 shares were available to be repurchased under the program. There were no purchases in fiscal year 2017 and there have been none thus far in fiscal year 2018.

Contents

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~~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, widespread outbreak of an illness, including the

COVID-19

pandemic, 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~~

COVID-19

As we closely monitor the

COVID-19

pandemic, our top priority remains protecting the health and ~~Estimates~~

~~The discussion~~safety of our employees. While essential operations continue in our locations around the world, the majority of our

non-manufacturing

employees continue to work remotely and ~~analysis~~travel remains restricted. Safety guidelines and procedures, including social distancing and enhanced cleaning, have been developed for

on-site

employees and these policies are regularly monitored and updated by our internal Emergency Response Team.

In the third quarter of fiscal 2021, the

COVID-19

pandemic continued to impact our business operations and financial results. There has been a positive impact in sales of our biosecurity product lines, as the pandemic has created increased demand for these products, and sales into companion animal markets have benefitted, as remote work and stay at home orders have driven increased pet ownership. A number of our food safety diagnostic product lines have been negatively impacted due to decreased demand in many of our customers’ businesses, particularly those serving restaurants, bars and other institutional food service markets; supply chain difficulties including vendor disruptions, border closures and shipping issues; and restricted travel, which hinders our ability to connect with customers. During the current fiscal year, we have incurred less expense for travel, meals, trade shows and some other customer-facing marketing activities; higher spend on shipping and personal protective equipment has somewhat offset these savings. We expect the

COVID-19

pandemic will continue to impact our business operations and financial results through

at least

the end of our current fiscal year.

Table of Contents

Executive Overview

Consolidated revenues were $116.7 million in the third quarter of fiscal 2021, an increase of 17% compared to $99.9 million in the third quarter of fiscal 2020. Organic sales growth in the third quarter of fiscal 2021 was 13%. For the nine month period, consolidated revenues were $341.0 million, an increase of 10% compared to $309.1 million in the same period in the prior fiscal year. On a year to date basis, organic sales rose 8%.

Food Safety segment sales were $58.4 million in the third quarter of fiscal 2021, an increase of 16% compared to $50.5 million in the same period a year ago. Organic sales in this segment increased 11% for the comparative period, with revenues from the acquisitions of Neogen Italia (January 2020), Neogen Argentina (January 2020), Neogen Uruguay (January 2020), Abtek (January 2020), Neogen Chile (March 2020) and Megazyme (December 2020) providing the remainder of the ~~Company’s financial condition and results~~increase in revenues for the segment. For the year to date, Food Safety segment sales were $170.1 million, an increase of ~~operations are based on the consolidated financial statements that have been prepared in accordance with accounting principles generally accepted~~7% compared to $158.4 million in the ~~United States. The preparation~~same period 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~~prior fiscal year; the ~~estimates, including, but not limited~~organic sales increase was 4% for the comparative period, with the acquisitions listed above providing the additional contributions 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~~revenue.

Animal Safety segment sales were ~~no significant changes to the contractual obligations or contingent liabilities and commitments disclosed~~$58.3 million in the ~~Company’s Annual Report on Form10-K~~third quarter of fiscal 2021, an increase of 18% compared to $49.4 million in the third quarter of fiscal 2020. Organic sales in this segment rose 16% in the third quarter, with additional contribution from the August 2020 acquisition of the StandGuard product line. For the nine month period, Animal Safety segment sales were $170.9 million, an increase of 13% compared to $150.7 million in the same period a year ago. Year to date organic sales rose 12%, with revenues from the StandGuard acquisition contributing the difference.

International sales in the third quarter of fiscal 2021 were 40% of total sales compared to 40% of total sales in the third quarter of fiscal 2020. For the year to date, fiscal 2021 international sales were 39% of total sales compared to 40% of total sales in the same period of the prior year.

Our effective tax rate in the third quarter was 16.3% compared to an effective tax rate of 14.4% in the prior year third quarter; the fiscal 2021 year to date effective tax rate was 18.1% compared to 15.6% for the ~~fiscal~~same period a 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~~ago.

Net income 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~~2021 was $13.4 million, ~~an increase of 8%,~~ or ~~$7.5 million,~~$0.25 per diluted share, compared to ~~revenues of $88.4~~$12.2 million, ~~for~~or $0.23 per diluted share in the same period in the prior year. For the year to date, ~~period, revenues were $293.0~~net income was $45.1 million, an increase of ~~12%, or $30.3 million,~~5% compared to ~~revenues~~prior year to date net income of ~~$262.7 million~~$43.1 million. Earnings per fully diluted share for the year to date was $0.85 compared to $0.82 per diluted share for the same period in the prior year.

Cash provided from operating activities 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~~2021 was $57.9 million, compared to ~~$10.3~~$60.3 million in the same period of fiscal 2020.

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International sales were $46.3 million in the third quarter of fiscal ~~year 2017. Earnings per share for the third quarter~~2021, an increase of ~~fiscal 2018 were $0.32~~15% compared to ~~$0.20 per share in~~ the same period a year ~~ago. Net earnings~~ago; 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~~international sales were ~~favorably impacted by tax reform, excess tax benefits from stock option exercises, and the favorable conclusion~~$133.5 million, an increase of ~~an IRS audit.~~

~~Food Safety segment revenues increased 11% and Animal Safety segment revenues increased 6% for the three month period ended February 28, 2018, each~~9% compared to the same period in the prior year. For the current quarter, strength in genomics services and biosecurity products in China and genomics services in Australia drove the increase, slightly offset by a net negative currency impact of approximately $150,000. The rate of growth in our international revenues in the current fiscal year to date has been adversely impacted by currency devaluations in a number of the countries in which we operate and lower sales of our drug residue test kits by our largest European distributor. Revenue changes, denominated in both the U.S. dollar and as reported in the local currency, for the three and nine month periods of fiscal 2021 compared to the same respective periods in the prior year are as follows for each of our international locations:


	Three Months Ended						Nine Months Ended
	February 28, 2021,						February 28, 2021,
	Revenue			Revenue			Revenue			Revenue
	% Inc (Dec)			% Inc (Dec)			% Inc (Dec)			% Inc (Dec)
	USD			Local Currency			USD			Local Currency
UK Companies		9	%		4	%		13	%		9	%
Brazil Operations		(11	)%		12	%		(11	)%		17	%
Neogen Latinoamerica		7	%		14	%		6	%		17	%
Neogen China		125	%		109	%		97	%		88	%
Neogen India		(6	)%		(3	)%		2	%		7	%
Neogen Canada		38	%		33	%		2	%		1	%
Neogen Australasia		95	%		73	%		81	%		69	%

Currency translations reduced comparative revenues by approximately $150,000 in the third quarter of fiscal 2021 compared to the same period last year, as continued weakness in the Brazilian real and the Mexican peso relative to the U.S. dollar were almost entirely offset by recovery of the euro and pound. For the year to date, comparative revenues were $3.4 million lower due to currency translations, due entirely to the devaluation of the Brazilian real and the Mexican peso relative to the U.S. dollar, somewhat offset by the strengthening of the euro and pound, and to a lesser extent, the Chinese yuan and the Australian dollar. Combined revenues at our U.K. operations increased 4% in local currency in the third quarter, as lower economic activity caused by the

COVID-19

pandemic resulted in sluggish sales performance across the organization; after adjusting for the increased strength of the euro and pound, revenues rose 9% in U.S. dollars. For the year to date, the 9% revenue increase in local currency was primarily from biosecurity products, the result of a large sale of hand sanitizer to the U.K. government’s health organization in the first quarter of this fiscal year; in U.S. dollars, the increase was 13%.

Sales in Brazil increased 12% in local currency in this year’s third quarter, the ~~overall organic~~result of 10% growth in food safety diagnostic test kits and genomics revenues, and a 17% increase in insecticides due to delivery on a large tender order. For the nine month period, sales at our Brazilian operations increased 17% compared to the prior year on the strength of a 29% increase in sales of insecticides; after adjusting for the currency devaluation, revenues declined 11% in U.S. dollars. Neogen Latinoamerica sales rose 14% for the third quarter in local currency, primarily due to increases in biosecurity products and food safety diagnostic kit sales; after adjusting for devaluation of the peso, the revenue increase was 7%~~; organic growth~~ in U.S. dollars. Neogen China’s revenues approximately doubled for both the ~~Food Safety~~three and ~~Animal Safety segments was 9%~~nine month periods, due to increased demand of biosecurity products and ~~5%, respectively.~~genomics services. The ~~acquisitions of Rogama, purchased inmid-December~~ ~~2016, and~~ Neogen Australasia location benefited in ~~September 2017, contributed $1.6 million~~both the comparative quarter and year to date periods from the ~~overall~~February 2020 acquisition of a food safety distributor; the organic revenue ~~growth~~increase at this location was 64% in the third ~~quarter. Food Safety segment revenues increased 17%~~quarter and ~~Animal Safety segment revenues increased 7%~~55% for the year to date ~~period. Overall organic~~period as this operation also recorded strong sales ~~increased 7% for~~growth of genomics services in the ~~year to date period; the organic increases were 9% for the Food Safety segment~~bovine, companion animal 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~~sheep markets.

Service revenue was $23.9 million in the third quarter of fiscal ~~2018,~~2021, an increase of ~~17%~~8% over prior year third quarter revenues of $22.1 million. For the nine month period, service revenue was $67.7 million, an increase of 9% over prior year revenues of $62.0 million. The growth in each comparative period was led by increases of genomics revenues in the bovine, companion animal and sheep markets in Australia and strong growth in genomics revenues in the Chinese porcine and bovine markets as the country recovers from the

COVID-19

and African swine fever outbreaks. Additionally, for the year to date period, genomics testing in the domestic bovine and companion animal veterinary markets contributed to the growth.

Table of Contents

Revenues


	Three Months Ended February 28/29,
					Increase/
(in thousands)	2021		2020		(Decrease)		%
Food Safety
Natural Toxins, Allergens & Drug Residues	$	18,255	$	17,154	$	1,101		6	%
Bacterial & General Sanitation		10,333		9,413		920		10	%
Culture Media & Other		14,888		11,222		3,666		33	%
Rodenticides, Insecticides & Disinfectants		9,644		7,964		1,680		21	%
Genomics Services		5,304		4,745		559		12	%

	$	58,424	$	50,498	$	7,926		16	%
Animal Safety
Life Sciences	$	1,399	$	1,376	$	23		2	%
Veterinary Instruments & Disposables		12,494		10,799		1,695		16	%
Animal Care & Other		8,873		6,667		2,206		33	%
Rodenticides, Insecticides & Disinfectants		18,085		14,558		3,527		24	%
Genomics Services		17,434		15,971		1,463		9	%

	$	58,285	$	49,371	$	8,914		18	%

Total Revenues	$	116,709	$	99,869	$	16,840		17	%


	Nine Months Ended February 28/29,
					Increase/
(in thousands)	2021		2020		(Decrease)			%
Food Safety
Natural Toxins, Allergens & Drug Residues	$	57,271	$	57,950	$	(679	)		(1	)%
Bacterial & General Sanitation		31,499		31,345		154			0	%
Culture Media & Other		39,577		35,259		4,318			12	%
Rodenticides, Insecticides & Disinfectants		27,230		20,859		6,371			31	%
Genomics Services		14,566		12,961		1,605			12	%

	$	170,143	$	158,374	$	11,769			7	%
Animal Safety
Life Sciences	$	4,122	$	4,901	$	(779	)		(16	)%
Veterinary Instruments & Disposables		34,843		32,621		2,222			7	%
Animal Care & Other		25,902		20,859		5,043			24	%
Rodenticides, Insecticides & Disinfectants		56,470		47,462		9,008			19	%
Genomics Services		49,554		44,879		4,675			10	%

	$	170,891	$	150,722	$	20,169			13	%

Total Revenues	$	341,034	$	309,096	$	31,938			10	%

Table of Contents

Food Safety

Natural Toxins, Allergens

& Drug Residues –

Sales in this category increased 6% for the three month period ended February 28, 2021 and decreased 1% for the year to date, each compared to the same ~~period~~periods in the prior year. ~~Expressed~~In the third quarter, sales of natural toxins increased 14% as recent pet food recalls in the U.S. have driven demand for increased testing. The allergens product line increased 3% while drug residues sales decreased 10%, as we work to recover lost business with our

in-house

sales team, which replaced an exclusive European distributor approximately a ~~percentage~~year ago. The 1% decline on a year to date basis is due to lower sales of ~~sales, international~~drug residue test kits in the first half of our fiscal year; additionally, natural toxins sales were ~~39.0%~~flat in the ~~quarter, compared~~first six months of the year due to ~~36.3%~~relatively clean crops during harvest season.

Bacterial

& General Sanitation –

Revenues in this category increased 10% in the third quarter and were flat for the year to date, both compared to the same periods in the prior year. In the third quarter, sales of products to detect spoilage organisms in processed foods increased 19%, resulting from sales of our new instrument (Soleris NG), which launched in the first quarter, and increased consumables sales from new instrument placements. Sales of our AccuPoint sanitation monitoring product line increased 5%; we plan to launch a ~~year ago.~~next generation of reader for this product line in the fourth quarter at which time there will be significant sales and marketing focus on these products. Sales of products to detect pathogens increased 8%, as we continue to gain new business with sales of our

Listeria

Right Now test kit. For the year to date, ~~international~~strong sales of our Soleris NG instrument and the associated consumables were ~~$110.5 million, an increase~~offset by a small decline in sales of ~~20%; international~~our AccuPoint product line and a 7% decrease in pathogen sales, ~~were 37.7% of total~~primarily due to high equipment sales in the ~~current~~second quarter of the prior fiscal year.

Culture Media

& Other –

Sales in this category increased 33% in the quarter ended February 28, 2021 compared to the third quarter in the prior year; for the nine month period, sales increased 12%. Excluding sales from the December acquisition of Megazyme, sales in this category increased 16% and 7% for the three and nine month periods, respectively. This category includes sales of personal protective equipment, primarily gloves, as well as hand sanitizers and sanitizing wipes; these products experienced short-term increased demand in new markets due to shortages caused by the

COVID-19

pandemic which is not expected to recur. This category also includes sales of acquired inventory of

non-Neogen

manufactured products from our new businesses in Italy and the South American southern cone countries; these sales are not expected to continue long-term. Sales of Neogen Culture Media increased 11% in the third quarter as we gained new business from a

COVID-19

vaccine manufacturer; for the year to date period, ~~and 35.1%~~culture media sales were flat.

Rodenticides, Insecticides

& Disinfectants –

Revenues in the prior year. For each comparative period, international revenue increases were the result of the acquisitions of Quat-Chem (England), Rogama (Brazil) and Neogen Australasia (Australia), and to a lesser extent, revenue increases at existing Company locations. Currency translation had a positive effect on international revenues of approximately $1.9 millionthis category increased 21% in the third quarter of fiscal ~~2018 as the pound, euro, and peso were stronger on average against the dollar than~~2021 compared to the same period a year ~~ago; for~~ago, due primarily to continued strength in cleaners and disinfectant sales in China resulting from increased demand due to the African swine fever outbreak in that country and the

COVID-19

pandemic. For the year to date, ~~period,~~sales in this category increased 31%, as the ~~positive revenue impact~~first quarter also included strong sales of hand and skin sanitizing products at our U.K. based Quat-Chem operation.

Genomics Services –

Sales of genomics services sold through our international Food Safety operations increased 12% for both the three and nine month periods ended February 28, 2021. The increase for both periods was ~~$2.5 million.~~

~~Revenues at Neogen Europe~~primarily from sales increases in China, due to increased ~~16%~~testing in ~~U.S. dollars~~the pork industry, gains in beef and dairy cattle testing and project work in aquaculture.

Animal Safety

Life Sciences –

Sales in this category increased 2% in the third quarter, compared to the same period in the prior ~~year;~~year, but was down 16% for the year to date. The increase for the third quarter is due to increased sales of reagents and substrates; for the year to date, sales of forensic kits to commercial laboratories declined as the labs processed fewer samples due to slowdowns resulting from the

COVID-19

pandemic.

Veterinary Instruments

& Disposables –

Revenues in this category increased 16% and 7% for the three and nine month periods ended February 28, 2021, respectively, led by large increases in detectable needles and syringes, as we gained new customers and benefitted from increased demand resulting from higher numbers of production animals in existing markets. In the third quarter, sales of disposable gloves increased significantly, as these products had previously been on backorder.

Animal Care

& Other –

Sales of these products increased 33% in the third quarter and 24% for the year to date, respectively. For both periods, sales of our small animal supplements, vitamin injectables, and joint pain products benefitted from growth in veterinary markets, as the

COVID-19

pandemic has led to an increase in pet ownership, particularly dogs and cats. Additionally, sales rose for our equine supplements and antibiotics, due to strong demand in these markets. Partially offsetting these gains were declines in sales of dairy supplies of 64% and 49% for the quarter and year to date periods, respectively, due to the June 2020 termination of an agreement in which we distributed these types of products for a large manufacturer of dairy equipment.

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Rodenticides, Insecticides

& Disinfectants –

Revenues in this category increased 24% and 19% for the three and nine month periods ended February 28, 2021, respectively. The growth in the quarter was led by a 79% increase in rodenticide sales as rodent pressure in certain areas of the U.S. increased significantly; year to date, rodenticide sales have increased 45%. Insecticide sales rose 14% in the quarter, due in large part to our acquisition of the StandGuard product line for fly control on July 31, 2020. For the year to date, the increase was 10%. Cleaners and disinfectants sales decreased 9% resulting from lower sales of water treatment products and the transfer of a product line to our U.K. operation. Sales of these products for the year to date period were flat compared to a year ago, with increased sales of hand sanitizer products in the first half of our fiscal year offsetting the decline in water treatment products.

Genomics Services –

Sales in this category increased 9% in the third quarter and 10% for the year to date periods, each compared to the prior year. The growth in the three month period was led by gains in beef and companion animal testing in Australia, and commercial beef and beef associations in the U.S. and Canada. For the year to date, we also benefitted from strong increases in sales to the U.S. companion animal veterinary market, driven by increased pet adoptions and higher consumer spending on pets during the

COVID-19

pandemic, as well as the recent launch of a new high density chip for whiteleg shrimp.

Gross Margin

Gross margin was 46.1% in the third quarter of fiscal 2021 compared to 45.4% in the same quarter a year ago. The improvement in gross margin is primarily the result of increased rodenticide sales within the Animal Safety segment; these products have higher gross margins within this segment. Gross margins for the Food Safety segment were flat for the third quarter compared to last year’s third quarter. For the year to date, gross margin was also 46.1% compared to 46.8% in the same period of the prior year. The lower gross margin percentage for the year to date is the result of a shift in the proportion of overall sales to the Animal Safety segment, which have lower average gross margins than the Food Safety segment; additionally, sales increases within the Food Safety segment were from product lines, such as genomics and biosecurity products, which have lower gross margins than the diagnostic test kits sold in that segment.

Operating Expenses

Operating expenses were $38.1 million in the third quarter, compared to $32.3 million in the same quarter of the prior year, an increase of $5.8 million, or 18%. For the nine month period ~~sales rose 10%.~~ended February 28, 2021, operating expenses were $103.5 million, an increase of $6.5 million, or 7%, compared to the prior year. Sales and marketing expenses increased $1.0 million, or 6%, in the third quarter, primarily due to increased compensation and higher shipping costs, offset somewhat by continued lower spending on travel, meetings, trade shows and other customer facing activities as a result of the

COVID-19

pandemic. For the ~~quarter, a 39%~~year to date, sales and marketing expenses were $270,000 lower than the same period last year, also due to

COVID-19

pandemic restrictions.

General and administrative expense was $15.1 million, an 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~~of $4.4 million, or 40%, in the third quarter, resulting primarily from $2.1 million in spending on strategic consulting, legal and other professional fees related to acquisition activity for businesses which we were ultimately not successful in acquiring. Other increases in the quarter were for incremental amortization expenses

(non-cash)

primarily for recent acquisitions,

non-deal

related legal fees for a number of corporate matters, and reduced economic incentives recognized from state and local governments. Year to date, general and administrative expenses were $38.3 million, an increase of 18% compared to the same period last year, with $3.1 million incurred in unsuccessful acquisition activities the largest component of the increase. Other year-over-year increases were higher performance-based compensation expenses due to higher revenue and improved operating results compared to the prior year, amortization expense primarily related to recent acquisitions and

non-deal

legal expenses.

Research and development expense was $4.2 million in the third quarter, an increase of $413,000, or 11%, compared to the same period in the prior year. The increase is primarily the result of spending on outside services for the continued development of several new products, which have either been recently launched or are expected to be launched in the fourth quarter of fiscal 2021. For the year to date, research and development expenses increased 8% over the same period last year, for the same reasons.

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Operating Income

Operating income was $15.8 million in the third quarter of fiscal 2021, compared to $13.0 million in the same period of the prior year; year to date operating income was $53.9 million compared to $47.6 million in the prior year. Expressed as a percentage of sales, operating income was 13.5% for the third quarter and 15.8% for the year to date, compared to 13.1% and 15.4%, respectively, for the same periods in the prior year. The improvement in margin percentage for the current fiscal year third quarter was due primarily to the increased revenues and 70 basis point improvement in gross margin percentage, offset somewhat by increased operating expenses, caused in part by the $2.1 million in acquisition related expenses.

Other Income


	Three Months Ended						Nine Months Ended
	February 28/29,						February 28/29,
(in thousands)	2021			2020			2021			2020
Interest income (net of expense)	$	294		$	1,600		$	1,571		$	4,381
Foreign currency transactions		(118	)		(420	)		(374	)		(889	)
Insurance settlement		—			—			309			1
Legal settlement		—			—			(300	)		—
Contingent consideration		111			—			111			—
Other		(84	)		27			(109	)		56

Total Other Income	$	203		$	1,207		$	1,208		$	3,549

The decrease in interest income in both the three and nine month periods of fiscal 2021 compared to the same periods a year ago was the result of a significant reduction in rates earned on marketable securities balances. Other expense resulting from foreign currency transactions was primarily the result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate.

Income Tax Expense

Income tax expense in the third quarter of fiscal 2021 was $2.6 million, an effective tax rate of 16.3%, compared to $2.1 million, an effective tax rate of 14.4%, in the same period of the prior year. For the year to date, income tax expense was $10.0 million, an effective rate of 18.1%, in fiscal 2021 and $8.0 million, an effective rate of 15.6%, in fiscal 2020. For each period, ~~genomics sales increased 34%~~the primary difference between the U.S. statutory rate of 21% and ~~helped to offset lower DON test kit sales. Sales at Lab M,~~ the ~~Company’s subsidiary in England, increased 20%~~effective rates recorded is the benefit resulting from the exercise of stock options; this benefit was $1,083,000 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, eachfiscal 2021 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~~$781,000 in the third quarter of the prior year. For the year to date, ~~period, service revenue~~the benefit was ~~$48.7 million, an increase of $9.1 million, or 23%,~~$2,564,000 in fiscal 2021 compared to ~~$39.6 million~~$2,754,000 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, occurring 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, 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 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 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%.2020. The increase in the ~~current year is due to market share gains of supplements~~effective tax rate 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 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 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 million in the third quarter of the current fiscal year and $3.9 million for the year to date period. These losses were offset by an 11% increase in rodenticide sales in the third quarter as the Company gained incremental business with several large customers; year to date sales rose by 9%.

~~Genomics Services increased 19% in~~ both the third quarter and year to date periods, ~~respectively,~~ each compared to the same period in the prior ~~year. The growth for both periods~~year, is the result of increased taxes at international operations, higher state tax provisions and a lower projected U.S. deduction in fiscal 2021 relating to foreign derived income.

Net Income

Net 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%~~$13.4 million in the third quarter of fiscal ~~2018~~2021, 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%$12.2 million in the same period ofin 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.10%. For the year to date, ~~period, research and development expense increased 7% in the third quarter to a total~~net income 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$45.1 million was an increase of ~~$11.3~~5% from $43.1 million ~~or 14% over~~earned in 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% compared to 16.2% in last year’s~~

third quarter. The improvement 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 the prior year.~~

~~Other Income and Income Tax~~

Other income was $1.4 million for both the third 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 related to the Quat-Chem acquisition. Last year’s fiscal third quarter included a gain on the settlement of a licensing agreement 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 related to the Quat-Chem acquisition, and $78,000 of royalty income. For the same period in fiscal 2017, other income was $1.8 million, which included interest income of $691,000, gain on the settlement of a licensing agreement of $660,000, currency gains of $263,000, and royalty income of $79,000.

Income tax expense in the third quarter was $700,000, an effective tax rate of 4%, compared to prior year third quarter expense of $5.4 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% to 21%, and also resulted in other adjustments to income tax expense. The Company will compute its income tax for the fiscal 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 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% in the prior fiscal year. For the year to date period, the lower effective rate is primarily the result of the tax reform passed 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 tax expense for excess tax benefits from the exercise of stock options, due to the adoption of ASU~~2016-09;~~ refer to Note 5 of the Company’s Consolidated Financial Statements for further information. In the second quarter of fiscal 2018, an IRS examination of the Company’s federal income tax returns for fiscal years 2014, 2015 and 2016 was concluded. As 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~~$353.3 million at February 28, ~~2018~~2021, compared to ~~$143.6~~$343.7 million at May 31, ~~2017.~~2020. Approximately ~~$46.5~~$59.1 million was generated from operations during the first nine months of fiscal ~~2018.~~2021. Net cash proceeds of ~~$18.9~~$22.8 million were realized from the exercise of stock options and issuance of shares under ~~the Company’s employee stock purchase plan during the same period. The Company spent $16.3 million for property, equipment and othernon-current~~ ~~assets~~our Employee Stock Purchase Plan during the first nine months of fiscal ~~2018.~~

~~Accounts~~2021. We spent $19.4 million for property, equipment and other

non-current

assets in the first nine months of fiscal 2021, and a total of $52.0 million on acquisitions.

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Net accounts receivable balances were ~~$73.2~~$87.2 million at February 28, ~~2018,~~2021, an increase of ~~$4.6~~$2.6 million, ~~or 7%,~~ compared to ~~$68.6~~$84.7 million at May 31, ~~2017, less than the increase in revenue.~~2020. Days sales outstanding, a measurement of the time it takes to collect receivables, were 6365 days at February 28, ~~2018~~2021, compared to 6068 days at May 31, ~~2017. All~~2020 and 66 days at February 29, 2020. We have been carefully monitoring our customer receivables as the

COVID-19

pandemic has spread across our global markets; to date, we have not experienced an appreciable increase in bad debt write offs. We did provide an additional $100,000 at May 31, 2020 in our allowance for bad debts to account for potential write offs related to

COVID-19;

we will continue to actively manage our customer accounts ~~are actively managed~~ and ~~no losses in excess of amounts reserved are currently expected.~~

adjust the allowance account as circumstances change.

Net inventory ~~balances were $77.5~~was $99.3 million at February 28, ~~2018,~~2021, an increase of ~~$4.4~~$4.2 million, ~~or 6%,~~ compared to ~~$73.1 million at~~a May 31, ~~2017. The Company actively monitors its~~2020 balance of $95.1 million; excluding the amount recorded from the December 2020 acquisition of Megazyme, inventory ~~and balances the need for adequate product availability to minimize backorders with a desire to improve~~is down $1.4 million. We increased inventory ~~turnover and efficiency levels. Formal programs have been instituted~~levels in fiscal ~~2018~~2020 to ~~improve~~ensure we had adequate supplies of critical raw and finished products in the event our supply chain was adversely impacted by the

COVID-19

pandemic and Brexit, however we have now put programs in place to lower inventory ~~turnover.~~

levels, while not adversely impacting customers.

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.

Management believes that ~~the Company’s~~our existing cash and marketable securities balances at February 28, ~~2018~~2021, along with available borrowings under ~~its~~our 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 that are 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 or issue equity securities for all, or 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 borrowings at February 28, 2018) 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~~Mexican peso, Brazilian real, ~~the Mexican peso, the~~ Chinese yuan, Australian dollar, and to a lesser extent, the Indian rupee, ~~the~~ Canadian dollar, Argentine peso, Uruguayan peso and Chilean peso; there is also exposure to a change in exchange rate between the British pound sterling and the ~~Australian dollar.~~euro. 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~~invoiced amounts can be positively or negatively affected by changes in exchange rates 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.

collection.

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

As discussed in ITEM 1A. RISK FACTORS of the Form

10-K

annual filing, our financial condition and results of operations could be adversely affected by currency fluctuations.

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~~2021 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~~2021 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Table of Contents


	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


	Nine Months Ended
	February 28/29,
	2021			2020
Cash Flows From Operating Activities
Net Income	$	45,122		$	43,128
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		15,107			13,542
Share-based compensation		4,773			4,795
Change in operating assets and liabilities, net of business acquisitions:
Accounts receivable		1,019			3,841
Inventories		3,328			(2,238	)
Prepaid expenses and other current assets		(1,908	)		(3,119	)
Accounts payable, accruals and other changes		(8,321	)		301

Net Cash From Operating Activities		59,120			60,250
Cash Flows For Investing Activities
Purchases of property, equipment and other non-current intangible assets		(19,393	)		(16,322	)
Proceeds from the sale of marketable securities		602,233			300,448
Purchases of marketable securities		(604,694	)		(351,002	)
Business acquisitions, net of cash acquired		(52,000	)		(9,701	)

Net Cash For Investing Activities		(73,854	)		(76,577	)
Cash Flows From Financing Activities
Exercise of stock options and issuance of employee stock purchase plan shares		22,801			27,915

Net Cash From Financing Activities		22,801			27,915
Effect of Foreign Exchange Rates on Cash		(854	)		(2,502	)

Net Increase In Cash and Cash Equivalents		7,213			9,086
Cash and Cash Equivalents, Beginning of Period		66,269			41,688

Cash and Cash Equivalents, End of Period	$	73,482		$	50,774


	Amount
Years ending May 31, 2021 (1)	$	133
2022		601
2023		347
2024		176
2025		47
2026 and thereafter		0

Total lease payments		1,304
Less: imputed interest		84

Total lease liabilities	$	1,220


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

10.1		Amended and Restated Credit Agreement dated as of November 30, 2016 between Registrant and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.A of the Registrant’s Form 8-K filed on December 7, 2016)

10.2		First Amendment to 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)

10.3		Second Amendment to Amended and Restated Credit Agreement dated as of November 30, 2020 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 17, 2020)

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

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

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

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

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)


~~Dated: March 29, 2018~~		/s/ John E. Adent
	John E. Adent
		~~/s/ James L. Herbert~~ President & Chief Executive Officer
		~~James L. Herbert~~
		~~Executive Chairman~~
		(Principal Executive 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


	February 28, 2021			May 31, 2020
Weighted average remaining lease term		2.4 years			2.5 years
Weighted average discount rate		3.0	%		3.2	%


	Three Months Ended February 28/29,				Nine Months Ended February 28/29,
(in thousands)	2021		2020		2021		2020
Operating leases	$	372	$	316	$	1,017	$	889
Short term leases		17		25		76		106

Total lease expense	$	389	$	341	$	1,093	$	995


	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


				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


	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	%


~~Dated: March 29, 2018~~

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