UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

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

For the quarterly period ended

November 30, ~~2018.~~

2019

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

For the transition period from
to

Commission file number

0-17988

Neogen Corporation

(Exact name of registrant as specified in its charter)


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

620 Lesher Place

Lansing

Michigan

48912

(Address of principal executive offices, including zip code)

~~(517)~~

(
517
)

372-9200

(Registrant’s telephone number, including area code)

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


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

N/A

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

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

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). YES

☒

☐

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

non-accelerated

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

12b-2

of the Exchange Act):


Large accelerated filer	☒	Accelerated filer	☐

~~Non-accelerated filer~~	☐
Non-accelerated filer	☐	Smaller Reporting Company	☐

Emerging growth company	☐

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

☐

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

12b-2

of the Exchange Act): YES

☐

☒

As of November 30, ~~2018,~~2019 there were ~~52,081,876~~

52,710,633

shares of Common Stock outstanding.

NEOGEN CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


~~PART I. FINANCIAL INFORMATION~~		Page No.
~~Item 1.~~
PART I. FINANCIAL INFORMATION

Item 1.	Interim Consolidated Financial Statements (unaudited)		2

	Consolidated Balance Sheets – November 30, ~~2018~~2019 and May 31, ~~2018~~2019		2

	Consolidated Statements of Income – Three and six months ended November 30, ~~2018~~2019 and ~~2017~~2018		3

	Consolidated Statements of Comprehensive Income – Three and six months ended November 30, ~~2018~~2019 and ~~2017~~2018		4

	Consolidated ~~Statement~~Statements of Equity – Six months ended November 30, 2019 and 2018		5

	Consolidated Statements of Cash Flows – Six months ended November 30, ~~2018~~2019 and ~~2017~~2018		6

	Notes to Interim Consolidated Financial Statements – November 30, ~~2018~~2019		7
~~Item 2.~~
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1918
~~Item 3.~~
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25

Item 4.	Controls and Procedures		25

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		26
~~Item 4.~~
Item 6.	~~Controls and Procedures~~Exhibits		26

~~PART II. OTHER INFORMATION~~

~~Item 1.~~
~~Legal Proceedings~~SIGNATURES			27
~~Item 6.~~	~~Exhibits~~		27

~~SIGNATURES~~			28

	CEO Certification

	CFO Certification

	Section 906 Certification

PART I – FINANCIAL INFORMATION

Item 1. Interim Consolidated Financial Statements

Neogen Corporation and Subsidiaries

Consolidated Balance ~~Sheet~~

Sheets

(in thousands, except share and

per share amounts)

   November 30,
2018 May 31,
2018
   (Unaudited) (Unaudited)
Assets

Current Assets

Cash and cash equivalents
   $ 101,585 $ 83,074
Marketable securities (at fair value, which approximates cost)
   139,385 127,736
Accounts receivable, less allowance of $1,700 and $1,550
   82,282 79,086
Inventories
   79,473 76,005
Prepaid expenses and other current assets
   11,569 9,888


Total Current Assets
   414,294 375,789
Net Property and Equipment
   73,910 73,069
Other Assets

Goodwill
   103,309 99,558
Othernon-amortizable intangible assets
   15,423 14,783
Amortizable customer-based intangibles, net of accumulated amortization of $26,292 and $24,579 at November 30, 2018 and May 31, 2018, respectively
   30,022 31,841
Othernon-current assets, net of accumulated amortization of $11,440 and $12,470 at November 30, 2018 and May 31, 2018, respectively
   23,534 22,969


Total Assets
   $ 660,492 $ 618,009


Liabilities and Equity

Current Liabilities

Accounts payable
   $ 20,555 $ 20,750
Accrued compensation
   5,216 6,065
Income taxes
   1,533 165
Other accruals
   11,456 11,708


Total Current Liabilities
   38,760 38,688
Deferred Income Taxes
   14,144 14,103
OtherNon-Current Liabilities
   5,514 5,043


Total Liabilities
   58,418 57,834
Commitments and Contingencies (Note 8)

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, 52,081,876 and 51,735,732 shares issued and outstanding at November 30, 2018 and May 31, 2018, respectively
   8,334 8,278
Additionalpaid-in capital
   215,615 202,572
Accumulated other comprehensive loss
   (12,234 ) (9,746 )
Retained earnings
   390,359 359,071


Total Stockholders’ Equity
   602,074 560,175


Total Liabilities and Equity
   $ 660,492 $ 618,009


	November 30,			May 31,
	2019			2019
	Unaudited			Audited
Assets
Current Assets
Cash and cash equivalents	$	66,414		$	41,688
Marketable securities		247,191			225,836
Accounts receivable, less allowance of $ 1,700 and $ 1,700 at November 30, 2019 and May 31, 2019, respectively		85,377			82,582
Inventories		86,406			85,992
Prepaid expenses and other current assets		14,795			13,431

Total Current Assets		500,183			449,529
Net Property and Equipment		77,150			74,847
Other Assets
Goodwill		103,610			103,619
Other non-amortizable intangible assets		15,495			15,649
Amortizable intangible and other assets, net of accumulated amortization of $ 41,923 and $ 40,835 at November 30, 2019 and May 31, 2019, respectively		54,153			52,096

Total Assets	$	750,591		$	695,740

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	19,567		$	19,063
Accrued compensation		5,689			7,085
Income taxes		756			601
Other accruals		12,779			11,502

Total Current Liabilities		38,791			38,251
Deferred Income Taxes		15,591			15,618
Other Non-Current Liabilities		5,292			3,972

Total Liabilities		59,674			57,841
Commitments and Contingencies (note 8)
Equity
Preferred stock, $ 1.00 par value, 100,000 shares authorized, NaN issued and outstanding		—			—
Common stock, $ 0.16 par value, 120,000,000 shares authorized, 52,710,633 and 52,216,589 shares issued and outstanding at November 30, 2019 and May 31, 2019, respectively		8,434			8,355
Additional paid-in capital		244,226			221,937
Accumulated other comprehensive loss		(11,918	)		(11,640	)
Retained earnings		450,175			419,247

Total Stockholders’ Equity		690,917			637,899

Total Liabilities and Stockholders’ Equity	$	750,591		$	695,740

See notes to interim consolidated financial statements.

Neogen Corporation and Subsidiaries

Consolidated Statements of Income (unaudited)

(in thousands, except per share amounts)

   Three Months Ended
November 30, Six Months Ended
November 30,
   2018    2017 2018    2017
Revenues

Product revenues
   $ 89,562    $ 84,471 $ 172,522    $ 164,016
Service revenues
   17,536    16,227 34,202    30,891






Total Revenues
   107,098    100,698 206,724    194,907
Cost of Revenues

Cost of product revenues
   47,305    43,252 90,255    84,236
Cost of service revenues
   9,760    9,197 19,707    17,498






Total Cost of Revenues
   57,065    52,449 109,962    101,734






Gross Margin
   50,033    48,249 96,762    93,173
Operating Expenses

Sales and marketing
   18,499    16,793 35,732    32,869
General and administrative
   10,121    10,491 20,319    19,817
Research and development
   3,167    2,967 5,986    6,065






Total Operating Expenses
   31,787    30,251 62,037    58,751






Operating Income
   18,246    17,998 34,725    34,422
Other Income

Interest income
   1,028    429 1,955    798
Other income
   427    626 158    1,069






Total Other Income
   1,455    1,055 2,113    1,867






Income Before Taxes
   19,701    19,053 36,838    36,289
Provision for Income Taxes
   3,650    1,900 5,550    7,200






Net Income
   16,051    17,153 31,288    29,089
Net (Income) Attributable toNon-Controlling Interest
   —      (53 ) —      (75 )






Net Income Attributable to Neogen
   $ 16,051    $ 17,100 $ 31,288    $ 29,014






Net Income Attributable to Neogen Per Share

Basic
   $ 0.31    $ 0.33 $ 0.60    $ 0.57






Diluted
   $ 0.31    $ 0.33 $ 0.60    $ 0.56


	Three Months Ended					Six Months Ended
	November 30,					November 30,
	2019			2018		2019			2018
Revenues
Product revenues	$	87,387		$	89,562	$	169,335		$	172,522
Service revenues		20,416			17,536		39,892			34,202

Total Revenues		107,803			107,098		209,227			206,724
Cost of Revenues
Cost of product revenues		45,559			47,305		87,590			90,255
Cost of service revenues		11,218			9,760		22,417			19,707

Total Cost of Revenues		56,777			57,065		110,007			109,962

Gross Margin		51,026			50,033		99,220			96,762
Operating Expenses
Sales and marketing		17,988			18,499		35,531			35,732
General and administrative		10,985			10,121		21,684			20,319
Research and development		3,781			3,167		7,469			5,986

Total Operating Expenses		32,754			31,787		64,684			62,037

Operating Income		18,272			18,246		34,536			34,725
Other Income (Expense)
Interest income		1,271			1,028		2,781			1,955
Other income (expense)		(317	)		427		(439	)		158

Total Other Income		954			1,455		2,342			2,113

Income Before Taxes		19,226			19,701		36,878			36,838
Provision for Income Taxes		2,950			3,650		5,950			5,550

Net Income	$	16,276		$	16,051	$	30,928		$	31,288

Net Income Per Share
Basic	$	0.31		$	0.31	$	0.59		$	0.60

Diluted	$	0.31		$	0.31	$	0.59		$	0.60

See notes to interim consolidated financial statements.

Neogen Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)

   Three Months Ended
November 30, Six Months Ended
November 30,
   2018    2017 2018 2017
Net income
   $ 16,051    $ 17,153 $ 31,288 $ 29,089
Other comprehensive income (loss), net of tax:

currency translation adjustments
   290    534 (2,488 ) 737




Comprehensive income
   16,341    17,687 28,800 29,826
Comprehensive (income) attributable tonon-controlling interest
   —      (53 ) —   (75 )
Comprehensive income attributable to





Neogen Corporation
   $ 16,341    $ 17,634 $ 28,800 $ 29,751


	Three Months Ended					Six Months Ended
	November 30,					November 30,
	2019			2018		2019			2018
Net income	$	16,276		$	16,051	$	30,928		$	31,288
Other comprehensive income (loss), net of tax:
currency translation adjustments		2,367			290		(691	)		(2,488	)
Other comprehensive income (loss), net of tax:
unrealized gain (loss) on marketable securities		(149	)		—		413			—

Total comprehensive income	$	18,494		$	16,341	$	30,650		$	28,800

See notes to interim consolidated financial statements.

Neogen Corporation and Subsidiaries

Consolidated ~~Statement~~Statements of

Equity (unaudited)

(in thousands)

            Accumulated
         Additional
Paid-in
Capital    Other
Comprehensive
(Loss)
   Common Stock Retained
   Shares    Amount Earnings    Total
Balance at May 31, 2018
   51,736    $ 8,278    $ 202,572    $ (9,746 ) $ 359,071    560,175
Issuance of shares under share-based compensation plan
   338    54    12,526       12,580
Issuance of shares under employee stock purchase plan
   8    2    517       519
Net income for the six months ended November 30, 2018
            31,288    31,288
Other comprehensive (loss)
            (2,488 )    (2,488 )










Balance at November 30, 2018
   52,082    $ 8,334    $ 215,615    $ (12,234 ) $ 390,359    $ 602,074


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

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




Balance at May 31, 2018		51,736	$	8,278	$	202,572	$	(9,746	)	$	359,071	$	560,175
Issuance of shares under share-based compensation plan		251		40		8,433							8,473
Issuance of shares under employee stock purchase plan		8		2		517							519
Net income for the three months ended August 31, 2018											15,237		15,237
Other comprehensive loss for the three months ended August 31, 2018								(2,778	)				(2,778	)

Balance at August 31, 2018		51,995	$	8,320	$	211,522	$	(12,524	)	$	374,308	$	581,626
Issuance of shares under share-based compensation plan		87		14		4,093							4,107
Net income for the three months ended November 30, 2018											16,051		16,051
Other comprehensive income for the three months ended November 30, 2018								290					290

Balance at November 30, 2018		52,082	$	8,334	$	215,615	$	(12,234	)	$	390,359	$	602,074

See notes to interim consolidated financial statements.

Neogen Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

   Six Months Ended
November 30,
   2018 2017
Cash Flows From Operating Activities

Net Income
   $ 31,288 $ 29,089
Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization
   8,597 8,268
Share-based compensation
   2,831 2,666
Change in operating assets and liabilities, net of business acquisitions:

Accounts receivable
   (3,615 ) (5,859 )
Inventories
   (3,787 ) (218 )
Prepaid expenses and other current assets
   (2,025 ) (7,916 )
Accounts payable, accruals and other changes
   (706 ) 1,377


Net Cash From Operating Activities
   32,583 27,407
Cash Flows From Investing Activities

Purchases of property, equipment and othernon-current intangible assets
   (6,720 ) (10,409 )
Proceeds from the sale of marketable securities
   179,839 123,601
Purchases of marketable securities
   (191,488 ) (168,943 )
Business acquisitions, net of cash acquired
   (4,903 ) (468 )


Net From Investing Activities
   (23,272 ) (56,219 )
Cash Flows From Financing Activities

Exercise of stock options and issuance of employee stock purchase plan shares
   10,268 16,395


Net Cash From Financing Activities
   10,268 16,395
Effect of Exchange Rate on Cash
   (1,068 ) (725 )


Net Increase (decrease) In Cash and Cash Equivalents
   18,511 (13,142 )
Cash and Cash Equivalents, Beginning of Period
   83,074 77,567


Cash and Cash Equivalents, End of Period
   $ 101,585 $ 64,425


	Six Months Ended
	November 30,
	2019			2018
Cash Flows From Operating Activities
Net Income	$	30,928		$	31,288
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		8,985			8,597
Share-based compensation		3,155			2,831
Change in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(2,483	)		(3,615	)
Inventories		(103	)		(3,787	)
Prepaid expenses and other current assets		(1,323	)		(2,025	)
Accounts payable, accruals and other changes		1,313			(706	)

Net Cash From Operating Activities		40,472			32,583
Cash Flows For Investing Activities
Purchases of property, equipment and other assets		(12,806	)		(6,720	)
Proceeds from the sale of marketable securities		199,708			179,839
Purchases of marketable securities		(220,528	)		(191,488	)
Business acquisitions, net of cash acquired		—			(4,903	)

Net Cash For Investing Activities		(33,626	)		(23,272	)
Cash Flows From Financing Activities
Exercise of stock options and issuance of employee stock purchase plan shares		19,213			10,268

Net Cash From Financing Activities		19,213			10,268
Effect of Exchange Rates on Cash		(1,333	)		(1,068	)

Net Increase In Cash and Cash Equivalents		24,726			18,511
Cash and Cash Equivalents, Beginning of Period		41,688			83,074

Cash and Cash Equivalents, End of Period	$	66,414		$	101,585

See notes to interim consolidated financial statements.

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 in the accompanying unaudited consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the~~six-month~~ ~~period~~ three and six month

periods

ended November 30, ~~2018~~2019 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, ~~2019.~~2020. For more complete financial information, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form

10-K

for the fiscal year ended May 31, ~~2018.~~

~~Share and per share amounts reflect the December 29, 20174-for-3~~ ~~stock split as if it took place at the beginning of the period presented.~~

2019.

Recently Adopted Accounting Standards

~~Revenue Recognition~~

Leases

On June 1, ~~2018, we~~2019, the Company adopted ASU No.~~2014-09—Revenue~~ ~~from Contracts with Customers (Topic 606).~~

2016-02—

Leases. Refer to ~~the Revenue Recognition~~Leases section of Note 1 for further information.

~~Classification of Cash Receipts and Payments~~

~~In August 2016, the FASB issued ASU No.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. We adopted this ASU on June 1, 2018; the impact on our consolidated financial statements was immaterial.

Recent Accounting Pronouncements Not Yet Adopted

~~Leases~~

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

Financial ~~Instruments-~~Instruments - Credit Losses

In June 2016, the FASB issued ASU No.

2016-13—Measurement

of Credit Losses on Financial Instruments, which changes how companies measure credit losses on most financial instruments measured at amortized cost and certain other instruments, such as loans, receivables and

held-to-maturity

debt securities. Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of

amortized cost that the company expects to collect over the instrument’s contractual life. ASU

2016-13

is effective for fiscal periods beginning after December 15, 2019 and must be adopted as a cumulative effect adjustment to retained ~~earnings. Early~~earnings; early adoption is permitted. ~~We do~~The Company does not believe adoption of this guidance will have an impact on ~~our~~its consolidated financial statements.

Fair Value Measurements

In August 2018, the FASB issued 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. ASU

2018-13

is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company does not believe adoption of this guidance will have an impact on its consolidated financial statements.

Cloud Computing Implementation Cost

In August 2018, the FASB issued ASU 2018-15—Intangible

-Goodwill and Other

Internal-Use

Software (Subtopic

350-40):

Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. ASU

2018-15

Comprehensive Income

Comprehensive income represents net income and any revenues, expenses, gains and losses that, under U.S. generally accepted accounting principles, are excluded from net income and recognized directly as a component of equity. Accumulated other comprehensive income (loss) consists ~~solely~~ of foreign currency translation ~~adjustments.~~

adjustments and unrealized gains or losses on marketable securities.

Fair Value of Financial Instruments

The carrying amounts of ~~our~~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. ~~We utilize~~The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Cash and Cash Equivalents

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

Marketable Securities

The Company has marketable securities held by banks or broker-dealers at November 30, ~~2018,~~2019, consisting of short-term domestic certificates of deposit, and commercial paper and U.S. treasuries rated at least~~A-2/P-2~~

A-1/P-1

(short-term) and A/A2 (long-term) with maturities between 91 days and ~~one year.~~

two years

. These securities are classified as available for sale. The primary objective of ~~our short-term~~the Company’s investment activity is to preserve capital for the purpose of funding 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 ~~(that approximates cost)~~ based on recent trades ~~of similar securities~~ or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within ~~Other Income~~other income on the consolidated statements of income.

ESTIMATES AND ASSUMPTIONS

The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, accruals, goodwill and other intangible assets. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no significant changes to the critical accounting policies and estimates disclosed in ~~our~~the Company’s Annual Report on Form

10-K

for the fiscal year ended May 31, 2018, except for the new revenue recognition standard the Company adopted effective June 1, 2018. See below sections Revenue Recognition and Recently Adopted Accounting Standards for further information on revenue recognition.

2019.

There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed in ~~our~~the Company’s Annual Report on Form

10-K

for the fiscal year ended May 31, ~~2018.~~

2019.

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 ~~receivable~~ is established based upon factors surrounding the credit risk of specific customers, historical trends and other information. Collateral or other security is generally not required for accounts receivable. Once a receivable balance has been determined to be uncollectible, that amount is charged against the allowance for doubtful ~~accounts.~~

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

25 ~~years.~~

years

. We review the carrying amounts of goodwill and other

non-amortizable

intangible assets annually, or when indications of impairment exist, to determine if such assets may be impaired by performing a quantitative assessment. If the carrying amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable EBITDA multiples of peer companies, such assets are reduced to their estimated fair value and a charge is recorded to operations.

~~Long Lived~~

Long-Lived Assets

Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for

possible impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset indicate that the carrying amount of the asset may not be recoverable. In such an event, fair value is determined using discounted cash flows and, if lower than the carrying value, impairment is recognized through a charge to operations.

Equity Compensation Plans

Share options awarded to employees and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with assumptions for inputs such as interest rates, expected dividends, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs used are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different option values, which in turn would result in higher or lower compensation expense recognized. To value options, several recognized valuation models exist. None of these models can be singled out as being the best or most ~~correct one.~~correct. The model applied by us can handle most of the specific features included in the options granted, which is the reason for its use. If a different model were used, the option values could differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options. Fair value could be either higher or lower than the number provided by the model applied and the inputs used. Further information on our equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note ~~5 to the unaudited consolidated financial statements.~~

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 ~~period.~~

year.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law making significant changes to the Internal Revenue Code. Changes include a federal corporate tax rate reduction from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a~~one-time~~ transition tax on the mandatory deemed repatriation of foreign earnings. The Tax Act also includes a provision to tax global intangible low taxed income (“GILTI”) of foreign subsidiaries, which became effective for us beginning June 1, 2018.

Leases

In the fourth quarter of fiscal 2018, we recorded an estimated net charge of $4.8 million related to the Tax Act, due to the impact of the reduction in the tax rate on deferred tax assets and liabilities of $6.0 million, partially offset by $1.2 million of~~one-time~~ transition tax on the deemed repatriation of foreign earnings. Due to the timing of the enactment and the complexity in applying the provisions of the Tax Act, these charges and benefits were recorded based on reasonable estimates and are subject to revisions as we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the Internal Revenue Service. During the month of December 2018, immaterial adjustments to these provisions were recorded to tax expense, within the measurement period under SAB 118.

~~Revenue Recognition~~

~~In May 2014,~~February 2016, the FASB issued ASU No.~~2014-09—Revenue~~ ~~from Contracts with Customers (Topic 606). The new standard outlines~~ 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 ~~single comprehensive model for entities~~liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use ~~in accounting~~the underlying asset for ~~revenue~~the lease term. The recognition, measurement and presentation of expenses and cash flows 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~~a lease by a lessor have not significantly changed from ~~Contracts with Customers (Topic 606), which amends and adds clarity to certain aspects of the guidance set forth in~~previous U.S. GAAP. This ASU~~2014-09~~ ~~related to identifying performance obligations and licensing. The guidance became~~ was effective for ~~the Company~~annualperiods, including interim periods within those annual periods, beginning after December 15, 2018. We adopted this ASU on June 1, ~~2018. The guidance permits two methods of adoption: a full retrospective method to each prior reporting period presented or a modified retrospective approach with~~2019; the cumulative effect of initially applying the guidance recognized at the date of initial application. We adopted this standard using the full retrospective approach. This approach was chosen to provide appropriate comparisons against our prior year financial statements; accordingly, historical information for the year ended May 31, 2018, including interim periods therein, has been adjusted to conform to the new standard.

~~Prior to the adoption, we identified all revenue streams at each significant subsidiary and reviewed contracts to evaluate the~~ impact ~~of adopting the new standard on our revenue recognition policies, procedures and control framework and ultimately~~ on our consolidated financial statements was immaterial.

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

Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease. With the adoption of ASC 842 on June 1, 2019

we recognized all leases with terms greater than 12 months in duration on our consolidated balance sheets as

right-of-use

assets and lease liabilities of approximately $2.0 million

each

as of June 1, 2019. We adopted the standard using the prospective approach and did not retrospectively apply to prior periods.

Right-of-use

assets are recorded in other assets on our consolidated balance sheets. Current and

non-current

lease liabilities are recorded in other accruals within current liabilities and other

non-current

liabilities, respectively, on our consolidated balance sheets.

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

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

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

For all asset classes, we elected to not recognize a

right-of-use

asset and lease liability for short-term leases.

For all asset classes, we elected to not separate

non-lease

components from lease components to which they relate and have accounted for the combined lease and

non-lease

components as a single lease component.

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

Supplemental balance sheet information related ~~disclosures. In our review~~to operating leases was as follows:


	November 30, 2019
	(in thousands)
Right of use - assets	$	2,034
Lease liabilities - current		585
Lease liabilities - non-current		1,456

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


	November 30, 2019
Weighted average remaining lease term		2.5 years
Weighted average discount rate		3.5	%

Operating lease expenses are classified as cost of ~~contracts in each revenue stream, we noted no material impact~~revenues or operating expenses on the

onsolidated

tatements of

ncome. The components of lease expense were as follows:


	Three Months Ended November 30, 2019		Six Months Ended November 30, 2019
	(in thousands)		(in thousands)
Operating leases	$	333	$	573
Short term leases		34		81

Total lease expense	$	367	$	654

Cash paid for amounts included in the ~~implementation~~measurement of lease liabilities for operating leases included in cash flows from operations on the

tatement of

ash

lows were approximately $558,000 for the ~~standard. We determined~~six months ended November 30, 2019. There were

non-cash

additions to

right-of-use

assets obtained from new operating lease liabilities for the ~~impact~~six months ended November 30, 2019.

Undiscounted minimum

lease payments as of ~~adopting the standard on our control framework and noted minimal, insignificant changes to our system and other controls processes.~~

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

~~Product revenue consists primarily of shipments of:~~

November 30, 2019 were as follows:


	Amount
	(in thousands)
Years ending May 31,
2020 (1)	$	589
2021		917
2022		358
2023		169
2024		95
2025 and thereafter		26

Total lease payments		2,154
Less: imputed interest		114

Total lease liabilities	$	2,040

~~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;~~

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

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

~~Service revenue consists primarily of:~~

~~Genomic identification and related interpretive bioinformatic services; and~~

~~Other commercial laboratory services.~~

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

~~Under Topic 606,~~

(1)	Excluding the six months ended November 30, 2019 .

Revenue Recognition

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

Identification of the contract with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price;

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

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

Essentially all our revenue is generated through contracts with our customers. A performance obligation is a promise in a contract to transfer a product or service to a customer. We generally recognize revenue at a point in time when all our performance obligations under the terms of a contract are satisfied. ~~With the adoption of Topic 606, revenue~~Revenue is recognized upon transfer of control of promised products and services in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The collectability of consideration on the contract is reasonably assured before revenue is recognized. To the extent that customer payment has been received before all recognition criteria are met, these revenues are initially deferred in other accruals on the balance sheet and the revenue is recognized in the period that all recognition criteria have been met. In certain situations, we provide rebates, marketing support, credits or incentives to selected customers, which are accounted for as variable consideration when estimating the amount of revenue to recognize on a contract. Variable consideration reduces the amount of revenue that is recognized. These variable consideration estimates are updated at the end of each reporting period based on information currently available.

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

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

Product revenue consists of shipments of:

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

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

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

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

Service revenue consists primarily of:

Genomic identification and related interpretive bioinformatic services; and

Other commercial laboratory services.

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

Payment terms for products and services are generally 30 to 60 days; international terms may be longer.

The following

table presents disaggregated revenue by major product and service categories for the three and six ~~months~~month periods ended November 30, ~~2018~~2019 and ~~2017:~~

   Three Months Ended
November 30,    Six Months Ended
November 30,
   2018    2017    2018    2017
   (in thousands)    (in thousands)
Food Safety

Natural Toxins, Allergens & Drug Residues
   $ 20,571    $ 18,989    $ 39,409    $ 38,153
Bacterial & General Sanitation
   10,822    9,324    21,288    18,443
Culture Media & Other
   12,191    11,041    24,408    21,173
Rodenticides, Insecticides & Disinfectants
   5,943    6,126    12,569    10,817
Genomics Services
   4,223    3,726    8,259    6,911








Animal Safety
   $ 53,750    $ 49,206    $ 105,933    $ 95,497
Life Sciences
   $ 1,891    $ 2,394    $ 3,971    $ 4,820
Veterinary Instruments & Disposables
   11,683    11,687    22,087    22,174
Animal Care & Other
   9,064    8,237    15,617    15,649
Rodenticides, Insecticides & Disinfectants
   18,673    17,786    35,664    35,167
Genomics Services
   12,037    11,388    23,452    21,600








   $ 53,348    $ 51,492    $ 100,791    $ 99,410








Total Revenues
   $ 107,098    $ 100,698    $ 206,724    $ 194,907

~~Restatement of Previously Issued Financial Statements~~

The Company has historically classified certain variable consideration components resulting from volume rebates, distributor support, and other marketing discounts as cost of product revenues or sales and marketing expense in our consolidated financial statements of income. These amounts should have been classified as contra revenue in product or service revenues. The Company had determined in prior periods that the misstatements were clearly immaterial, individually and in the aggregate, to each of the reporting periods affected. The Company began properly classifying these items as contra revenues beginning in the three-month period ended August 31, 2018, the first quarter of the Company’s current fiscal year, and has revised the prior year’s quarter and~~year-to-date~~ periods to conform to the current period presentation. These immaterial adjustments had no impact on our operating income, income before taxes, net income or reported earnings per share, and no change to stockholders’ equity.

2018:

~~The effects of the revisions on the line items within our unaudited consolidated statements of income for the three and six months ended November 30, 2017 are as follows:~~

   Three Months Ended
November 30, 2017    Six Months Ended
November 30, 2017
   As
Previously
Reported    Adjustments As Revised    As
Previously
Reported    Adjustments As Revised
   (in thousands)    (in thousands)
Revenues

Product revenues
   $ 85,590    $ (1,119 ) $ 84,471    $ 166,157    $ (2,141 ) $ 164,016
Service revenues
   16,227    —   16,227    30,916    (25 ) 30,891








Total revenues
   101,817    (1,119 ) 100,698    197,073    (2,166 ) 194,907
Cost of revenues

Cost of product revenues
   43,349    (97 ) 43,252    84,433    (197 ) 84,236
Cost of service revenues
   9,197    —   9,197    17,498    —   17,498








Total cost of revenues
   52,546    (97 ) 52,449    101,931    (197 ) 101,734
Gross margin
   49,271    (1,022 ) 48,249    95,142    (1,969 ) 93,173
Operating expenses

Sales and marketing
   17,815    (1,022 ) 16,793    34,838    (1,969 ) 32,869
Total operating expenses
   31,273    (1,022 ) 30,251    60,720    (1,969 ) 58,751
Operating income
   17,998    —   17,998    34,422    —   34,422

Presented below are the effects of the revisions on the line items within the previously issued unaudited consolidated statements of income for the three and nine months ended February 28, 2018 and the consolidated statements of income for the years ended May 31, 2018 and 2017. Revised consolidated statements of income related to these periods will be presented in the Forms~~10-Q~~ ~~and Form10-K~~ ~~to be filed in the succeeding periods of this fiscal year.~~

   Three Months Ended
February 28, 2018    Nine Months Ended
February 28, 2018
   As
Previously
Reported    Adjustments As Revised    As
Previously
Reported    Adjustments As Revised
   (in thousands)    (in thousands)
Revenues

Product revenues
   $ 78,142    $ (958 ) $ 77,184    $ 244,298    $ (3,098 ) $ 241,200
Service revenues
   17,750    (31 ) 17,719    48,667    (56 ) 48,611








Total revenues
   95,892    (989 ) 94,903    292,965    (3,154 ) 289,811
Cost of revenues

Cost of product revenues
   40,352    (69 ) 40,283    124,785    (265 ) 124,520
Cost of service revenues
   10,019    —   10,019    27,517    —   27,517








Total cost of revenues
   50,371    (69 ) 50,302    152,302    (265 ) 152,037
Gross margin
   45,521    (920 ) 44,601    140,663    (2,889 ) 137,774
Operating expenses

Sales and marketing
   17,492    (920 ) 16,572    52,331    (2,889 ) 49,442
Total operating expenses
   29,608    (920 ) 28,688    90,328    (2,889 ) 87,439
Operating income
   15,913    —   15,913    50,335    —   50,335


	Three Months ended November 30,				Six Months ended November 30,
	2019		2018		2019		2018
	(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	20,681	$	20,571	$	40,796	$	39,409
Bacterial & General Sanitation		11,615		10,822		21,931		21,288
Culture Media & Other		12,757		12,191		24,037		24,408
Rodenticides, Insecticides & Disinfectants		7,447		5,943		12,896		12,569
Genomics Services		4,354		4,223		8,216		8,259

	$	56,854	$	53,750	$	107,876	$	105,933
Animal Safety
Life Sciences	$	1,803	$	1,891	$	3,525	$	3,971
Veterinary Instruments & Disposables		10,486		11,683		21,822		22,087
Animal Care & Other		7,787		8,948		14,193		15,346
Rodenticides, Insecticides & Disinfectants		16,186		18,789		32,904		35,935
Genomics Services		14,687		12,037		28,907		23,452

	$	50,949	$	53,348	$	101,351	$	100,791

Total Revenues	$	107,803	$	107,098	$	209,227	$	206,724

   Year Ended    Year Ended
   May 31, 2018    May 31, 2017
   As
Previously
Reported    Adjustments As
Revised    As
Previously
Reported    Adjustments As
Revised
   (in thousands)    (in thousands)
Revenues

Product revenues
   $ 335,554    $ (4,266 ) $ 331,288    $ 306,512    $ (3,390 ) $ 303,122
Service revenues
   66,698    (56 ) 66,642    55,082    73 55,155








Total revenues
   402,252    (4,322 ) 397,930    361,594    (3,317 ) 358,277
Cost of revenues

Cost of product revenues
   174,067    (342 ) 173,725    156,568    (273 ) 156,295
Cost of service revenues
   37,933    —   37,933    33,058    —   33,058








Total cost of revenues
   212,000    (342 ) 211,658    189,626    (273 ) 189,353
Gross margin
   190,252    (3,980 ) 186,272    171,968    (3,044 ) 168,924
Operating expenses

Sales and marketing
   70,909    (3,980 ) 66,929    62,424    (3,044 ) 59,380
Total operating expenses
   120,058    (3,980 ) 116,078    107,023    (3,044 ) 103,979
Operating income
   70,194    —   70,194    64,945    —   64,945

The revisions had no impact on our audited consolidated balance sheets as of May 31, 2018 and 2017 and no impact on our unaudited consolidated statements of equity or unaudited consolidated statements of cash flows for the three and six months ended November 30, 2017 and the three and nine months ended February 28, 2018.

2. INVENTORIES

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

first-in,

first-out

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

   November 30,
2018    May 31,
2018
   (in thousands)
Raw materials
   $ 36,563    $ 36,702
Work-in-process
   7,601    5,993
Finished and purchased goods
   35,309    33,310




   $ 79,473    $ 76,005


	November 30,		May 31,
	2019		2019
	(in thousands)
Raw materials	$	43,316	$	41,594
Work-in-process		6,077		5,581
Finished and purchased goods		37,013		38,817

	$	86,406	$	85,992

3. NET INCOME PER SHARE

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

   Three Months Ended    Six Months Ended
   November 30,    November 30,
   2018    2017    2018    2017
   (in thousands, except per share amounts)
Numerator for basic and diluted net income per share:

Net income attributable to Neogen
   $ 16,051    $ 17,100    $ 31,288    $ 29,014
Denominator for basic net income per share:

Weighted average shares
   52,019    51,264    51,820    51,109
Effect of dilutive stock options
   572    697    721    669








Denominator for diluted net income per share
   52,591    51,961    52,541    51,778
Net income attributable to Neogen per share:

Basic
   $ 0.31    $ 0.33    $ 0.60    $ 0.57








Diluted
   $ 0.31    $ 0.33    $ 0.60    $ 0.56


	Three Months Ended				Six Months Ended
	November 30,				November 30,
	2019		2018		2019		2018
	(in thousands, except per share amounts)
Numerator for basic and diluted net income per share:
Net income attributable to Neogen	$	16,276	$	16,051	$	30,928	$	31,288
Denominator for basic net income per share:
Weighted average shares		52,557		52,019		52,355		51,820
Effect of dilutive stock options		319		572		357		721

Denominator for diluted net income per share		52,876		52,591		52,712		52,541
Net income attributable to Neogen per share:
Basic	$	0.31	$	0.31	$	0.59	$	0.60

Diluted	$	0.31	$	0.31	$	0.59	$	0.60

4. SEGMENT INFORMATION AND GEOGRAPHIC DATA

We have ~~two~~

reportable segments: Food Safety and Animal Safety. The Food Safety segment is primarily engaged in the development, production and marketing of diagnostic test kits, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation. The Animal Safety segment is primarily engaged in the development, production and marketing of products dedicated to animal safety, including a complete line of consumable products marketed to veterinarians and animal health product distributors; this segment also provides genomic identification and related interpretive bioinformatic services. Additionally, the Animal Safety segment produces and markets rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities.

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 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 genomics services. These additional products and services are managed and directed by existing management and are reported through the Food Safety segment.

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

Segment information follows:

   Food
Safety    Animal
Safety    Corporate and
Eliminations
(1)    Total
   (in thousands)
As of and for the three months ended November 30, 2018


Product revenues to external customers
   $ 48,256    $ 41,306    $ —      $ 89,562
Service revenues to external customers
   5,494    12,042    —      17,536








Total revenues to external customers
   53,750    53,348    —      107,098
Operating income (loss)
   10,342    9,057    (1,153 )    18,246
Total assets
   201,291    218,231    240,970    660,492
As of and for the three months ended November 30, 2017—Revised (2)


Product revenues to external customers
   $ 44,367    $ 40,104    $ —      $ 84,471
Service revenues to external customers
   4,839    11,388    —      16,227








Total revenues to external customers
   49,206    51,492    —      100,698
Operating income (loss)
   8,668    10,529    (1,199 )    17,998
Total assets
   175,836    215,099    190,093    581,028


					Corporate and
	Food		Animal		Eliminations
	Safety		Safety		(1)			Total
	(in thousands)
As of and for the three months ended November 30, 2019
Product revenues to external customers	$	51,188	$	36,199	$	—		$	87,387
Service revenues to external customers		5,666		14,750		—			20,416

Total revenues to external customers		56,854		50,949		—			107,803
Operating income (loss)		9,556		9,729		(1,013	)		18,272
Total assets		212,928		224,058		313,605			750,591

As of and for the three months ended November 30, 2018
Product revenues to external customers	$	48,256	$	41,306	$	—		$	89,562
Service revenues to external customers		5,494		12,042		—			17,536

Total revenues to external customers		53,750		53,348		—			107,098
Operating income (loss)		10,342		9,057		(1,153	)		18,246
Total assets		201,291		218,231		240,970			660,492

(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.


					Corporate and
	Food		Animal		Eliminations
	Safety		Safety		(1)			Total
	(in thousands)
As of and for the six months ended November 30, 2019
Product revenues to external customers	$	97,065	$	72,270	$	—		$	169,335
Service revenues to external customers		10,810		29,082		—			39,892

Total revenues to external customers		107,875		101,352		—			209,227
Operating income (loss)		18,690		18,029		(2,183	)		34,536

As of and for the six months ended November 30, 2018
Product revenues to external customers	$	95,189	$	77,333	$	—		$	172,522
Service revenues to external customers		10,744		23,458		—			34,202

Total revenues to external customers		105,933		100,791		—			206,724
Operating income (loss)		21,215		15,763		(2,253	)		34,725

~~(2)~~

(1)

Segment revenues for the three months ended November 30, 2017 have been revised as discussed in Note 1. For the three months ended November 30, 2017, product revenues were reduced by $354,000 in the Food Safety segment and $765,000 in the Animal Safety segment; service revenues were unchanged in the Food Safety segment and in the Animal Safety segment.

   Food
Safety    Animal
Safety    Corporate and
Eliminations
(1)    Total
   (in thousands)
For the six months ended November 30, 2018

Product revenues to external customers
   $ 95,189    $ 77,333    $ —      $ 172,522
Service revenues to external customers
   10,744    23,458    —      34,202








Total revenues to external customers
   105,933    100,791    —      206,724
Operating income (loss)
   21,215    15,763    (2,253 )    34,725
For the six months ended November 30, 2017—Revised (2)


Product revenues to external customers
   $ 86,206    $ 77,810    $ —      $ 164,016
Service revenues to external customers
   9,291    21,600    —      30,891








Total revenues to external customers
   95,497    99,410    —      194,907
Operating income (loss)
   17,446    19,198    (2,222 )    34,422

~~(1)~~

Includes ~~the~~ elimination of intersegment ~~transactions.~~

transactions

~~(2)~~

Segment revenues for the six months ended November 30, 2017 have been revised as discussed in Note 1. For the six months ended November 30, 2017, product revenues were reduced by $798,000 in the Food Safety segment and $1,343,000 in the Animal Safety segment; service revenues were unchanged in the Food Safety segment and reduced by $25,000 in the Animal Safety segment.

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

   Three Months ended    Six Months Ended
   November 30,    November 30,
   2018    2017    2018    2017
   (in thousands)    (in thousands)
Revenues by Geographic Location

Domestic
   $ 65,033    $ 62,452    $ 124,879    $ 122,588
International
   42,065    38,246    81,845    72,319








Total revenue
   107,098    100,698    206,724    194,907


	Three months ended				Six months ended
	November 30,				November 30,
	2019		2018		2019		2018
	(in thousands)				(in thousands)
Revenues by Geographic Location
Domestic	$	63,317	$	65,033	$	126,657	$	124,879
International		44,486		42,065		82,570		81,845

Total revenue		107,803		107,098		209,227		206,724

5. EQUITY COMPENSATION PLANS

Qualified and

non-qualified

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

Company under the terms of our stock option plans. These options are granted at an exercise price of not less than the fair market value of the stock on the date of grant. Options vest ratably over three and

five year

periods and the contractual terms are generally five or ~~10 years.~~

ten years

. A summary of stock option activity during the six months ended November 30, ~~2018~~2019 follows:

   Shares    Weighted-
Average
Exercise Price
Options outstanding June 1, 2018
   2,497,124    $ 42.63
Granted
   525,750    62.93
Exercised
   (340,023 )    29.49
Forfeited
   (91,620 )    45.87



Options outstanding November 30, 2018
   2,591,231    48.40


(Options in thousands)	Shares			Weighted- Average Exercise Price
Options outstanding June 1, 2019		2,385		$	49.37
Granted		561			63.91
Exercised		(493	)		39.01
Forfeited		(51	)		56.26

Options outstanding November 30, 2019		2,402		$	54.76

During the three and six month periods ended November 30, ~~2018~~2019 and ~~2017,~~2018, the Company recorded $1,612,000 and $1,400,000 and ~~$1,264,000~~$3,155,000 and $2,831,000, ~~and $2,666,000,~~ respectively, of compensation expense related to its share-based awards.

The weighted-average fair value per share of stock options granted during

the first six months of

fiscal year ~~2018 and fiscal 2019,~~20

, estimated on the date of grant using the Black-Scholes option pricing model, was ~~$14.47 and $14.91, respectively.~~$15.56. The fair value of stock options granted was estimated using the following weighted-average assumptions.

   FY 2019 FY 2018
Risk-free interest rate
   2.6 % 1.6 %
Expected dividend yield
   0.0 % 0.0 %
Expected stock price volatility
   27.0 % 27.2 %
Expected option life
   3.5 years 4.0 years


	FY 20 20
Risk-free interest rate		1.9%
Expected dividend yield		0.0%
Expected stock price volatility		29.4%
Expected option life		3.5 years

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

6. 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 September 1, 2017, the Company acquired the assets of The University of Queensland Animal Genetics Laboratory, an animal genomics laboratory located near Brisbane, Australia. This acquisition is intended to accelerate the growth of the Company’s animal genomics business in Australia and New Zealand. Consideration for the purchase was $2,063,000; $468,000 was paid in cash on the acquisition date with the remainder due in annual installments over the next five years. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $19,000, equipment of $419,000,~~non-current~~ ~~liabilities of $1,629,000, intangible assets of $902,000 (with an estimated life of5-15~~ ~~years) and the remainder to goodwill(non-deductible~~ for tax purposes). These values are Level 3 fair value measurements. The new business, renamed Neogen Australasia, continues to operate in its current location, reporting within the Animal Safety segment.

On August 1, 2018, the Company acquired the stock of Clarus Labs, Inc., a manufacturer of water testing products. Neogen has distributed Clarus’ Colitag water test to the food and beverage industries since 2004 ~~and~~

;

this acquisition ~~gives~~

has given

the Company ~~access~~

the ability

to sell this product to new markets. Consideration for the purchase was $4,204,000 in cash and approximately ~~$1.3~~$1,256,000 million of contingent consideration, due ~~at the end of each of~~semiannually for the first five years, based on an excess net sales formula. The ~~preliminary~~final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $32,000, machinery and equipment of $120,000, accounts payable of $53,000, contingent consideration accrual of $1,256,000,

non-current

deferred tax liability of ~~$426,000,~~$544,000,

non-amortizable

intangible assets of ~~$750,000,~~$878,000, intangible assets of ~~$1,100,000~~$1,487,000 (with an estimated life of~~5-15~~

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value

measurements. Since February 2019, $180,000 has been paid to the former owners as contingent consideration from the accrual. Manufacturing of these products was moved to the Company’s Lansing, Michigan location in October 2018, reporting within the Food Safety segment.

On September 4, 2018, the Company acquired the assets of Livestock Genetic Services, LLC, a Virginia-based company that ~~specializes~~specialized in genetic evaluations and data management for cattle breeding organizations. Livestock Genetic Services ~~has~~had been a long-time strategic partner of Neogen and the acquisition ~~will enhance~~enhanced the Company’s

in-house

genetic evaluation capabilities. Consideration for the purchase was $1,100,000 in cash, with $700,000 paid at closing and $400,000 payable to the former owner on

September 1, 2019

, and ~~approximately $385,000~~up to $585,000 of contingent consideration, payable over the next three years. The ~~preliminary~~final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included office equipment of $15,000, contingent consideration accrual of $385,000, intangible assets of ~~$860,000~~$942,000 (with an estimated life of~~5-15~~

years) and the remainder to goodwill (deductible to tax purposes). These values are Level 3 fair value measurements. In September 2019, the former owner was paid the second installment of $400,000 and was also paid $107,000 in contingent consideration based on the achievement of sales targets in the first year. Services provided by this operation are now performed at the Company’s Lincoln, Nebraska location, reporting within the Animal Safety segment.

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

7. LONG TERM DEBT

We have a financing agreement with a bank providing for a $15,000,000 unsecured revolving line of credit, which was amended on November 30, 2018 to extend the maturity from

September 1, 2019

September 30, ~~2019 to September 30, 2021.~~2021

. There were no

advances against the line of credit during fiscal ~~2018~~2019 and there have been none thus far in fiscal ~~2019;~~2020; there was no

balance outstanding at November 30, ~~2018.~~2019. Interest on any borrowings remained at

LIBOR plus 100 basis points ~~(rate~~

(rate under the terms of the agreement was ~~3.51%~~2.70% at November 30, ~~2018)~~2019). Financial covenants include maintaining specified levels of tangible net worth, debt service coverage, and funded debt to EBITDA, each of which the Company was in compliance with at November 30, ~~2018.~~

2019.

8. COMMITMENTS AND CONTINGENCIES

The Company is involved in environmental remediation and monitoring activities at its Randolph, Wisconsin manufacturing facility and accrues for related costs when such costs are determined to be probable and estimable. The Company currently utilizes a pump and treat remediation strategy, which includes semi-annual monitoring and reporting, consulting, and maintenance of monitoring wells. Neogen expenses these annual costs of remediation, which have ranged from $38,000 to ~~$74,000~~$131,000 per year over the past

five ~~years.~~years

. The Company’s estimated liability for these costs was $916,000 at both November 30, ~~2018~~2019 and May 31, ~~2018,~~2019, measured on an undiscounted basis over an estimated period of 15 years; $100,000 of the liability is recorded within current liabilities and the remainder is recorded within other

non-current

liabilities on the consolidated balance sheets. ~~During the second quarter of~~In fiscal 2019, the ~~Company’s environmental consultant~~Company performed an updated Corrective Measures Study (CMS) on the ~~Randolph~~ site, per a request from the Wisconsin Department of Natural ~~Resources. Based on~~Resources (WDNR), and is currently in discussion with the ~~results~~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 ~~study, the Company plans to continue~~review in terms of approach and future costs is unknown, but a change in the current remediation ~~and monitoring program,~~strategy, depending on the alternative selected, could require an increase in the currently recorded liability, with ~~no changes proposed.~~

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.

9. STOCK PURCHASE

In October 2018, the Company’s Board of Directors passed a resolution canceling the Company’s prior stock buyback program, which had been approved in December 2008, and authorized a new program to purchase, subject to market conditions, up to 3,000,000 shares of the Company’s common stock. ~~As of November 30, 2018, there had been no purchases of common stock in the current fiscal year under either program.~~ In December 2018, the Company purchased 50,000 shares under the ~~new~~ program in negotiated and open market transactions for a total price, including commissions, of $3,134,727. Shares ~~purchased~~acquired under the program have been retired.

PART I – FINANCIAL INFORMATION

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 ~~our~~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 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.

Executive Overview

Consolidated revenues were $107.8 million in the second quarter of fiscal 2020, an increase of 1% compared to $107.1 million in the second quarter of fiscal ~~2019, an increase of 6% compared to $100.7 million~~2019. Organic sales growth in the second quarter of fiscal ~~2018. Organic sales in the second quarter also increased 6%.~~2020 was flat. For the six month period, consolidated revenues were ~~$206.7~~$209.2 million, an increase of 6%1% compared to ~~$194.9~~$206.7 million in the same period in the prior fiscal year. On a year to date basis, organic sales ~~increased 5%~~also rose 1%.

Food Safety segment sales were ~~$53.8~~$56.9 million in the second quarter of the current fiscal year, an increase of 9%6% compared to ~~$49.2~~$53.8 million in the same period of the prior year. ~~Organic sales~~There were no contributions from acquisitions in this segment ~~also increased 9%, with a minor contribution from~~in the ~~August 1, 2018 acquisition of Clarus Labs.~~second quarter. For the year to date, Food Safety segment sales were ~~$105.9~~$107.9 million, an increase of ~~11%~~2% compared to ~~$95.5~~$105.9 million in the same period of the prior fiscal year; the organic sales increase was also ~~11%.~~

2%, with a minor contribution in the first quarter from the August 1, 2018 acquisition of Clarus Labs.

Animal Safety segment sales were $50.9 million in the second quarter of fiscal 2020, a decrease of 4% compared to $53.3 million in the second quarter of fiscal ~~2019, an increase of 4% compared to $51.5 million in the second quarter of fiscal 2018.~~2019. Organic sales in this segment ~~also increased 4%~~decreased 5% in the second quarter, with a minor contribution from the ~~September~~January 1, ~~2018~~2019 acquisition of ~~Livestock Genetic Services.~~Delta Genomics. For the six month period, Animal Safety segment sales were ~~$100.8~~$101.4 million, an increase of 1% compared to ~~$99.4~~$100.8 million in the same period a year ago. Year to date organic sales were flat, after excluding three months ofrevenues from the September 1, ~~2017~~2018 acquisition of ~~Neogen Australasia and one month of the~~ Livestock Genetic Services and six months revenues from the January 1, 2019 Delta Genomics acquisition.

International sales in the second quarter of fiscal ~~2019~~2020 were ~~39%~~41% of total sales compared to ~~38%~~39% of total sales in the second quarter of fiscal ~~2018.~~2019. For the year to date, fiscal ~~2019~~2020 international sales were ~~40%~~39% of total sales compared to ~~37%~~40% of total sales in the same period of the prior year.

Our effective tax rate in the second quarter was ~~18.5%~~15.3% compared to an effective tax rate of ~~10.0%~~18.5% in the prior year second quarter; the fiscal ~~2019~~2020 year to date effective tax rate was ~~15.1%~~16.1% compared to 15.1% for the same period a year to date effective tax rate of 19.8% in the prior fiscal year. The U.S. statutory rate is 21% in the current fiscal year and was 35% in the first six months of fiscal 2018. Differences from the statutory rate are primarily due to tax deductions resulting from stock option exercises, provisions included in the corporate tax reform, and state and local taxes.

ago.

Net income for the quarter ended November 30, ~~2018~~2019 was ~~$16.1~~$16.3 million, or $0.31 per diluted share, ~~a decrease~~an increase of 6%1% compared to ~~$17.1~~$16.1 million, or ~~$0.33~~$0.31 per share in the same period in the prior year. For the year to date, net income was ~~$31.3~~$30.9 million, or ~~$0.60~~$0.59 per share, ~~an increase~~a decrease of 8%1% compared to prior year to date net income of ~~$29.0~~$31.3 million, or ~~$0.56~~$0.60 per diluted share.

Cash provided from operating activities in the first six months of fiscal ~~2019~~2020 was ~~$32.6~~$40.5 million, compared to ~~$27.4~~$32.6 million in the first half of fiscal ~~2018.~~

2019.

Neogen’s results reflect an increase in international sales of ~~10%~~6% in the second quarter of fiscal ~~2019~~2020 and ~~13%~~1% for the year to date, each compared to the same respective periods in the prior year. ~~We continue to focus on increasing~~The rate of growth in our ~~presence~~international operations in the current fiscal year has been adversely impacted by currency devaluations in a number of the countries in which we operate and ~~market share throughout~~ the ~~world, while also integrating recent international acquisitions into our product portfolio. Sales fluctuations~~loss of forensics business in Brazil. Revenue changes, denominated in both the U.S. dollar and as reported in the local currency, for the three and six month periods of fiscal ~~2019~~2020 compared to the same respective periods in the prior year are as follows for each of our international locations:

   Three Months Ended Six Months Ended
   November 30, 2018 November 30, 2018
   Revenue
% Increase/(Decrease)
USD Revenue
% Increase/(Decrease)
Local Currency Revenue
% Increase
USD Revenue
% Increase
Local Currency
Neogen Europe (including Lab M & Quat-Chem)
   8 % 10 % 13 % 13 %
Neogen do Brasil (including Deoxi & Rogama)
   6 % 29 % 23 % 48 %
Neogen Latinoamerica
   (7 )% (2 )% 9 % 15 %
Neogen China
   1 % 6 % 4 % 6 %
Neogen India
   83 % 105 % 81 % 99 %


	Three Months Ended						Six Months Ended
	November 30, 2019						November 30, 2019
	Revenue			Revenue			Revenue			Revenue
	% Increase/(Decrease)			% Increase/(Decrease)			% Increase			% Increase
	USD			Local Currency			USD			Local Currency
Neogen Europe (including Lab M & Quat-Chem)		7	%		10	%		1	%		5	%
Neogen do Brasil (including Deoxi & Rogama)		20	%		27	%		0	%		4	%
Neogen Latinoamerica		5	%		5	%		5	%		5	%
Neogen China		40	%		43	%		10	%		14	%
Neogen India		(1	)%		(3	)%		8	%		7	%
Neogen Canada		329	%		334	%		181	%		184	%
Neogen Australasia		18	%		25	%		20	%		27	%

Currency translations reduced revenues by approximately ~~$2.0~~$1.0 million in the second quarter of fiscal ~~2019~~2020 compared to the same quarter a year ago, and $2.1 million for the year to date compared to the same period last year, primarily due to the increased strength of the U.S. dollar relative to the British pound, the Brazilian real ~~the British pound,~~ and the ~~Mexican peso. For~~Australian dollar.

The 7% increase in second quarter revenues at our Neogen Europe operations was led by a 15% increase in sales of Neogen Culture Media products, a 9% increase in sales of cleaners and disinfectants and a 48% increase in sales of aflatoxin test kits, due to increased

market share and an outbreak in Africa; revenues increased 1% for the year to date ~~currency translations reduced revenues by approximately $3.3 million~~period. Sales in Brazil increased 20% in the second quarter, as a large

non-recurring

sale of insecticides offset the loss of forensics test kit business, due to a large commercial laboratory converting their testing protocol to a higher throughput method. For the six month period, sales at our Brazilian operations were flat compared to the prior year.

~~The increase in revenues at~~ At Neogen ~~Europe was led by a 30% increase in sales of genomics services, primarily in the porcine and bovine markets; genomics~~Latinoamerica, sales increased ~~28%~~5% for ~~the year to date. Neogen Europe also had strong sales of our products to detect spoilage organisms in processed foods, due to equipment placements, and~~~~Listeria~~ ~~Right Now. At Neogen do Brasil, sales of natural toxins test kits increased 62% and 73% for~~both the three and six ~~months,~~month periods, respectively, ~~both~~as compared to the same periods a year ago, as we continued to gain significant new business testing for the presence of aflatoxin in corn. Sales of forensic test kits increased 166% in the second quarter and year to date sales more than tripled over the prior year, ~~due to increased demand from commercial laboratories located in Brazil~~with broad based strength across the diagnostics business somewhat offset by lower sales of cleaners and ~~business that shifted from U.S. labs to labs in Brazil.~~

disinfectants throughout the distribution channel.

Service revenue was ~~$17.5~~$20.4 million in the second quarter of fiscal ~~2019,~~2020, an increase of 8%16% over prior year second quarter revenues of ~~$16.2~~$17.5 million, including a minor contribution from the ~~September 2018~~January 1, 2019 acquisition of ~~Livestock Genetics Services.~~Delta Genomics. For the six month period, service revenue was ~~$34.2~~$39.9 million, an increase of ~~11%~~17% over prior year revenues of ~~$30.9~~$34.2 million. Year to date revenues were aided by the ~~Livestock Genetics Services~~Delta Genomics acquisition and the September ~~2017~~2018 acquisition of ~~Neogen Australasia.~~Livestock Genetic Services. The growth in both the quarter and year to date periods was led by strong increases of genomic testing revenues to the companion animal market, and to a lesser extent, increases in ~~sales of genomic services to the~~our global beef ~~markets,~~ and ~~porcine markets in Europe.~~

dairy cattle markets.

Revenues

   Three Months Ended November 30,
   2018    2017    Increase/
(Decrease)    %
   (in thousands)
Food Safety

Natural Toxins, Allergens & Drug Residues
   $ 20,571    $ 18,989    $ 1,582    8 %
Bacterial & General Sanitation
   10,822    9,324    1,498    16 %
Culture Media & Other
   12,191    11,041    1,150    10 %
Rodenticides, Insecticides & Disinfectants
   5,943    6,126    (183 )    (3 )%
Genomics Services
   4,223    3,726    497    13 %







   $ 53,750    $ 49,206    $ 4,544    9 %
Animal Safety

Life Sciences
   $ 1,891    $ 2,394    $ (503 )    (21 )%
Veterinary Instruments & Disposables
   11,683    11,687    (4 )    0 %
Animal Care & Other
   9,064    8,237    827    10 %
Rodenticides, Insecticides & Disinfectants
   18,673    17,786    887    5 %
Genomics Services
   12,037    11,388    649    6 %







   $ 53,348    $ 51,492    $ 1,856    4 %







Total Revenues
   $ 107,098    $ 100,698    $ 6,400    6 %

   Six Months Ended November 30,
   2018    2017    Increase/
(Decrease)    %
   (in thousands)
Food Safety

Natural Toxins, Allergens & Drug Residues
   $ 39,409    $ 38,153    $ 1,256    3 %
Bacterial & General Sanitation
   21,288    18,443    2,845    15 %
Culture Media & Other
   24,408    21,173    3,235    15 %
Rodenticides, Insecticides & Disinfectants
   12,569    10,817    1,752    16 %
Genomics Services
   8,259    6,911    1,348    20 %







   $ 105,933    $ 95,497    $ 10,436    11 %
Animal Safety

Life Sciences
   $ 3,971    $ 4,820    $ (849 )    (18 )%
Veterinary Instruments & Disposables
   22,087    22,174    (87 )    0 %
Animal Care & Other
   15,617    15,649    (32 )    0 %
Rodenticides, Insecticides & Disinfectants
   35,664    35,167    497    1 %
Genomics Services
   23,452    21,600    1,852    9 %







   $ 100,791    $ 99,410    $ 1,381    1 %







Total Revenues
   $ 206,724    $ 194,907    $ 11,817    6 %


	Three Months Ended November 30,
					Increase/
	2019		2018		(Decrease)			%
	(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	20,681	$	20,571	$	110			1	%
Bacterial & General Sanitation		11,615		10,822		793			7	%
Culture Media & Other		12,757		12,191		566			5	%
Rodenticides, Insecticides & Disinfectants		7,447		5,943		1,504			25	%
Genomics Services		4,354		4,223		131			3	%

	$	56,854	$	53,750	$	3,104			6	%
Animal Safety
Life Sciences	$	1,803	$	1,891	$	(88	)		(5	)%
Veterinary Instruments & Disposables		10,486		11,683		(1,197	)		(10	)%
Animal Care & Other		7,787		8,948		(1,161	)		(13	)%
Rodenticides, Insecticides & Disinfectants		16,186		18,789		(2,603	)		(14	)%
Genomics Services		14,687		12,037		2,650			22	%

	$	50,949	$	53,348	$	(2,399	)		(4	)%

Total Revenues	$	107,803	$	107,098	$	705			1	%


	Six Months Ended November 30,
					Increase/
	2019		2018		(Decrease)			%
	(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	40,796	$	39,409	$	1,387			4	%
Bacterial & General Sanitation		21,931		21,288		643			3	%
Culture Media & Other		24,037		24,408		(371	)		(2	)%
Rodenticides, Insecticides & Disinfectants		12,896		12,569		327			3	%
Genomics Services		8,216		8,259		(43	)		(1	)%

	$	107,876	$	105,933	$	1,943			2	%
Animal Safety
Life Sciences	$	3,525	$	3,971	$	(446	)		(11	)%
Veterinary Instruments & Disposables		21,822		22,087		(265	)		(1	)%
Animal Care & Other		14,193		15,346		(1,153	)		(8	)%
Rodenticides, Insecticides & Disinfectants		32,904		35,935		(3,031	)		(8	)%
Genomics Services		28,907		23,452		5,455			23	%

	$	101,351	$	100,791	$	560			1	%

Total Revenues	$	209,227	$	206,724	$	2,503			1	%

Food Safety

Natural Toxins, Allergens & Drug Residues –

Sales in this category increased 8%1% and 3%4% for the three and six month periods ended November 30, ~~2018,~~2019, respectively, compared to the same periods in the prior year. ~~For~~In the second quarter, ~~natural toxin test kit revenues increased 17%, due to strong sales of aflatoxin test kits in Brazil and DON test kits and readers in Canada, and~~ sales of our allergens product line increased 6%13% and natural toxin test kit revenues increased 3%. ~~This was partially~~These increases were almost entirely offset by a ~~6% decrease~~29% decline in drug residue test kits resulting from lower demand at our European distributor. We have modified our contract with this distributor; effective January 1, 2020 they will be designated a

non-exclusive

distributor of our dairy drug residue test kits. For the six month period, sales of our allergens product line increased 11% and natural toxins test kit revenues increased 6%, while sales of drug residue test kits ~~caused by lower demand in Europe and timing of distributor orders.~~

declined 18%.

Bacterial & General Sanitation –

Revenues in this category increased ~~16%~~7% in the second quarter and ~~15%~~3% for the year to date, both compared to the same periods in the prior year. In the second quarter, sales of our AccuPoint sanitation monitoring product line increased 21% on higher sales of both equipment and related samplers; sales of test kits to detect pathogens increased ~~24%~~11%, as we continued to gain new business with our

Listeria

Right Now test kit that launched in fiscal 2018. Sales of products to detect spoilage organisms in processed foods ~~increased 24%~~decreased 9%, due primarily to ~~equipment placements and related consumables, and~~backorders of readers from our primary supplier, which resulted in lower sales of equipment. For the year to date, sales of our AccuPoint ~~sanitation monitoring~~ product line increased 16% and pathogen test kit revenues increased 6%, while sales of products to detect spoilage organisms decreased 12%.

Culture Media & Other –

Sales in this category increased ~~10%~~5% in the quarter ended November 30, ~~2018~~2019 compared to the second quarter in the prior year; for the ~~year to date increase is 15%~~six month period, sales decreased 2%. ~~In the second quarter, sales~~Sales of Neogen Culture Media ~~formerly marketed as~~increased 9% and 3% for the ~~Acumedia~~quarter and ~~Lab M brands, increased 8%, aided in part by the August 2018 acquisition of Clarus Labs, which consists of the Colitag product and reports in the culture media product line.~~year to date periods, respectively. This category also includes forensic test kits sold within Brazil, which ~~increased~~decreased significantly in both the second quarter and for the year to date ~~due~~as a large customer moved to ~~increased demand from commercial laboratories in that country and~~ a ~~shift in business from labs in the U.S. to labs in Brazil.~~

higher throughput testing method.

Rodenticides, Insecticides & Disinfectants –

Revenues in this category ~~decreased 3%~~increased 25% in the second quarter of fiscal ~~2019~~2020 compared to the same period a year ago, due primarily to ~~order timing~~three

non-recurring

sales of ~~rodenticides from customers in Mexico, as those sales were strong in the first quarter. Partially offsetting this were increases of disinfectant sales~~insecticide products to ~~customers in Europe, China~~governmental agencies and ~~India. Year to date revenues increased 16% due to~~ the strength of ~~rodenticide sales~~disinfectant products in ~~Mexico. The~~China, the result of increased demand in the pork market caused by the African swine fever virus outbreak in that country. For the year to date, increase also included the final shipment of a large insecticide order in the first quarter to a government health organization in Brazil; we do not believe this business, which was part of a bid won in fiscal 2018, will recur in fiscal 2019.

~~Genomics Services –~~~~Sales~~sales in this category increased ~~13% and 20%~~3%, as the prior year first quarter included a large

non-recurring

insecticide sale.

Genomics Services –

Sales of genomics services sold through our international Food Safety operations increased 3% for the three ~~and six~~ month ~~periods~~period ended November 30, ~~2018, respectively. The increase came primarily from higher~~2019; revenues decreased 1% for the six month period. Currency had a negative impact on sales in ~~the European porcine and bovine markets; lower sales in Mexico partially offset this increase due to a large research project completed in the second quarter of fiscal 2018 that did not recur~~both comparative periods in the current ~~year.~~

fiscal year as the U.S. dollar has strengthened against both the British pound and the Brazilian real; the Company has sizable genomics revenues in each of those currencies.

Animal Safety

Life Sciences –

Sales in this category decreased ~~21%~~5% in the second quarter, as compared to the same period in the prior ~~year, as a portion of forensic test kit sales shifted to our operations in Brazil. The products were formerly served by our Animal Safety operation in Lexington, KY. For~~year; for the year to date, the decrease in this product line is ~~18%~~11%.

The prior year included sales to a commercial laboratory customer that were transferred to our Brazilian operation during the second quarter of fiscal 2019.

Veterinary Instruments & Disposables –

Revenues in this category ~~were flat compared to the prior year,~~decreased 10% for ~~both~~ the three ~~and six~~ month ~~periods~~period ended November 30, ~~2018. Protective wear~~2019; for the year to date, sales decreased ~~25%~~1%. For both the quarter and year to date periods, growth in disposable syringes and marking products due to market share gains was more than offset by decreased sales of various types of needles.

Animal Care & Other –

Sales of these products decreased 13% in the second quarter ~~resulting from poor economic conditions in the dairy market; this decline was offset by a 7% increase in veterinary instruments sales, led by strength in needles~~ and ~~syringes.~~

~~Animal Care~~ ~~& Other –~~~~Sales of these products increased 10% in the second quarter but were flat~~8% for the year to date. ~~For~~In the second quarter, ~~the growth was led by small~~ animal ~~supplements, which rose 49%, and antibiotics, up 24%~~care revenues decreased 14% due to ~~order~~lower sales to our larger U.S. distributors. For the year to date period, timing ~~from~~of adjustments to promotional programs with distributors, which are recorded as a ~~large distributor. The increase in~~contra revenue within this category, also contributed to the ~~second quarter was offset by an overall decrease in the first quarter, primarily due to order timing from large distributors.~~

decline.

Rodenticides, Insecticides & Disinfectants –

Revenues in this category ~~increased 5%~~decreased 14% and 1%8% for the three and six month periods ended November 30, ~~2018,~~2019, respectively. InFor the ~~second~~ quarter, ~~insecticides sales increased 22% due to new private label business and increased demand in the U.S. Cleaners and disinfectants increased 7%, due to market share gains in the U.S., while~~ rodenticide sales were ~~flat, with new business earned offset~~down 8% and insecticide sales were down 30%, as demand declined due to weak rodent and insect pressure in certain areas of the U.S. Disinfectant sales were down 14% due to reduced demand by ~~the loss of toll manufacturing business from the prior year.~~

our larger U.S. distributors as they worked to lower their inventory levels.

Genomics Services –

Sales in this category increased 6%22% in the second quarter and 9%23% for the year to date period, both compared to the prior year; the ~~year to date increase was aided by three months of sales from the~~ September ~~2017~~2018 acquisition of ~~Neogen Australasia. For~~Livestock Genetic Services and the January 2019 acquisition of Delta Genomics contributed to a minor amount of the growth in this category. The growth in both the three and six month periods was led by significant increases of sales to the companion animal market due to product uptake at a large customer and, to a lesser extent, continued growth in the beef and dairy cattle, ~~markets was offset by revenue decreases in U.S. poultry~~ and porcine ~~markets, resulting from a shift to lower priced chips~~markets. Growth in our Australian genomics business was strong as well, up 14% for both the three and ~~services.~~

six month periods.

Gross Margin

Gross margin was ~~46.7%~~47.3% in the second quarter of fiscal ~~2019~~2020 compared to ~~47.9%~~46.7% in the same quarter a year ago. The ~~decline~~improvement in gross margin is due to ~~product mix~~a greater proportion of sales from the Food Safety segment, which have higher gross margins than the Animal Safety segment; increased gross margins on the domestic genomics service business within the Animal Safety segment ~~with higher revenue increases on product lines with lower gross margins than~~also contributed to the ~~historical average within this segment.~~improvement. Gross margin for the six month period ended November 30, ~~2018~~2019 was ~~46.8%~~47.4% compared to ~~47.8%~~46.8% in the same period of the prior year, for the same reasons.

Operating Expenses

Operating expenses were ~~$31.8~~$32.8 million in the second quarter, compared to ~~$30.3~~$31.8 million in the same quarter of the prior year, an increase of ~~$1.5 million,~~$967,000, or 5%3%. Sales and marketing expenses ~~increased $1.7 million,~~decreased $511,000, or ~~10%~~3%, primarily due to ~~increases~~decreases in ~~salaries~~commissions, shipping and ~~related personnel costs, shipping expense,~~other variable expenses tied to revenues, and a reduction in bad debt expense due to the ~~prior year~~ reversal of reserves for collected receivables. General and administrative expense ~~decreased $370,000,~~increased $864,000, or 4%9%, ~~which includes recognition of $240,000 of state economic incentive credits~~resulting from increases in ~~the current quarter; no credits were recognized~~stock-based compensation expense, legal and professional fees, and depreciation related to investments in information technology. Additionally, prior year expense in the second quarter was reduced by economic incentive credits received in Lincoln for an expansion project; these incentive credits were much lower in this year’s second quarter. Research and development expense was $3.8 million in the second quarter, an increase of $615,000, or 19%, compared to the same period in the prior year. The ~~largest~~increase is primarily the result of development spending on a number of new products, which are expected to be launched in late fiscal 2020 or early fiscal 2021.

Operating expenses for the six month period ended November 30, 2019 were $64.7 million, an increase of $2.6 million, or 4%, compared to the prior year. Driving the increase were research and development spending increases of $1.5 million, or 25%, due primarily to new product development, and a $1.4 million, or 7%, increase in general and administrative ~~were salaries, stock option~~expense. The increase in general and administrative expense ~~and recruiting fees, offset by a decrease in outside contracted services related to IT projects, and lower amortization expense due toone-time~~ ~~adjustments related to acquisition valuations recorded in the second quarter of the prior year. Research and development expense increased $200,000, or 7%,~~was led by ~~increases~~increased stock based compensation expense, higher legal and professional fees, and an increase in ~~salaries and personnel related costs. For the year to date, operating expenses increased $3.3 million, or 6%.~~

depreciation expense.

Operating Income

Operating income was ~~$18.2~~$18.3 million in the second quarter of fiscal ~~2019,~~2020, compared to ~~$18.0~~$18.2 million in the same period of the prior year; year to date operating income was ~~$34.7~~$34.5 million compared to ~~$34.4~~$34.7 million in the prior year. Expressed as a percentage of sales, operating income was ~~17.0%~~16.9% for the second quarter and ~~16.8%~~16.5% for the year to date, compared to ~~17.9%~~17.0% and ~~17.7%~~16.8%, respectively, in the prior year. The small decline in operating margin percentage for each period in the current fiscal year was the result of operating expenses that increased more than the ~~lower~~ gross margin ~~percentage.~~

improvement.

Other Income

   Three Months Ended    Six Months Ended
   November 30,    November 30,
(dollars in thousands)
   2018    2017    2018    2017
Interest income (net of expense)
   $ 1,028    $ 429    $ 1,955    $ 798
Foreign currency transactions
   (72 )    497    (458 )    962
Royalty income
   37    75    59    75
Deoxi contingent consideration
   —      (50 )    (9 )    (99 )
Quat-Chem contingent consideration
   422    —      422    —
Other
   40    104    144    131








Total Other Income
   $ 1,455    $ 1,055    $ 2,113    $ 1,867


	Three Months Ended						Six Months Ended
	November 30,						November 30,
(dollars in thousands)	2019			2018			2019			2018
Interest income (net of expense)	$	1,271		$	1,028		$	2,781		$	1,955
Foreign currency transactions		(352	)		(72	)		(469	)		(458	)
Royalty income		—			37			1			59
Deoxi contingent consideration		—			—			—			(9	)
Quat-Chem contingent consideration		—			422			—			422
Other		35			40			29			144

Total Other Income	$	954		$	1,455		$	2,342		$	2,113

The increase in interest income in both the three and six month periods of fiscal ~~2019~~2020 compared to the same periods a year ago was the result of higher cash and marketable securities ~~balances and rising interest rates on those~~ balances. Other ~~income~~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 second quarter of fiscal ~~2019~~2020 was $3.0 million, an effective tax rate of 15.3%, compared to $3.7 million, an effective tax rate of 18.5% ~~compared to $1.9 million, an effective tax rate of 10.0%~~, in the same period of the prior year. Corporate tax reform enacted in December 2017 reduced the U.S. statutory income tax rate from 35% to 21%. The second quarter of the prior year included a credit of $3.8 million to federal income tax expense for tax benefits resulting from the exercise of stock options; this credit was $484,000 in the current year second quarter. The timing of stock option exercises by quarter is due to a tranche of options that expired in the first quarter of fiscal 2019; a different tranche expired in the second quarter in fiscal 2018. For the first six months of fiscal 2019, income tax expense was $5.6 million compared to $7.2 million in the prior year; the year to date effective tax rate was 15.1%, compared to an effective tax rate of 19.8% in the prior fiscal year. For the year to date, ~~period, the Company recorded a total credit of $2.8 million to federal~~ income tax expense ~~for tax benefits resulting from~~was $6.0 million, an effective rate of 16.1%, in fiscal 2020 and $5.6 million, an effective rate of 15.1%, in fiscal 2019. For each period, the ~~exercise~~primary difference between the statutory rate of ~~stock options, compared to $4.2 million in~~21% and the ~~prior year.~~

~~Net Income~~

~~Net income was $16.1 million in~~effective rates recorded is the ~~second quarter of fiscal 2019, compared to $17.1 million in the same period in the prior year. Earnings in the prior year quarter included $4.2 million in tax benefits~~benefit resulting from the exercise of stock options; this benefit was $1,204,000 in the second quarter of fiscal 2020 compared to $484,000 in the ~~current~~second quarter of the prior year. For the year ~~quarter.~~to date, the benefit was $1,973,000 in fiscal 2020 compared to $2,774,000 in fiscal 2019; the prior year first quarter had significant stock option exercise due to a higher stock price and the timing of the expiration of the 2013 grant in August 2018.

Net Income

Net income was $16.3 million in the second quarter of fiscal 2020, compared to $16.1 million in the same period in the prior year. The improvement in earnings for this year’s second quarter was the result of the decrease in the effective tax rate, which was caused by increased tax benefits resulting from the exercise of stock options, due to higher option activity in the second quarter of this fiscal year compared to the same period a year ago. For the year to date, net income ~~increased 8%~~decreased 1% from ~~$29.0~~$31.3 million to ~~$31.3~~$30.9 million; six month net income in fiscal 2020 was ~~favorably~~negatively impacted by ~~corporate~~a higher effective tax ~~reform, partially offset by lower overall benefit from the exercise of stock options.~~

rate.

Financial Condition and Liquidity

The overall cash, cash equivalents and marketable securities position of Neogen was ~~$241.0~~$313.6 million at November 30, ~~2018,~~2019, compared to ~~$210.8~~$267.5 million at May 31, 2018. Approximately ~~$32.6~~$40.5 million was generated from operations during the first six months of fiscal ~~2019.~~2020. Net cash proceeds of ~~$10.3~~$19.2 million were realized from the exercise of stock options and issuance of shares under our Employee Stock Purchase Plan during the first six months of fiscal ~~2019.~~2020. We spent ~~$6.7~~$12.8 million for property, equipment and other

non-current

assets in the first six months of fiscal ~~2019.~~

~~Accounts~~2020.

Net accounts receivable balances were ~~$82.3~~$85.4 million at November 30, ~~2018,~~2019, an increase of ~~$3.2~~$2.8 million, compared to ~~$79.1~~$82.6 million at May 31, ~~2018.~~2019. Days sales outstanding, a measurement of the time it takes to collect receivables, were 65 days at November 30, 2019, compared to 61 days at May 31, 2019 and 63 days at November 30, ~~2018, compared~~2018. The increase in time to ~~64 days at August 31, 2018 and 60 days at May 31, 2018;~~collection is primarily the result of the increase in ~~the current year is attributable to the higher levels of sales at our~~ international ~~operations,~~revenues, which generally take ~~more time~~longer to collect. All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected.

Net inventory balances were ~~$79.5~~$86.4 million at November 30, ~~2018,~~2019, an increase of ~~$3.5 million, or 5%,~~$414,000, compared to a May 31, ~~2018~~2019 balance of ~~$76.0 million; the increase is attributable to our increased revenues.~~$86.0 million. We actively monitor our inventory levels and balance the need for adequate levels of product availability to minimize backorders with a desire to improve inventory turnover and efficiency levels. We have continued ~~with our~~ active programs to improve our turnover in fiscal ~~2019.~~

2020.

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

Management believes that our existing cash and marketable securities balances at November 30, ~~2018,~~2019, along with available borrowings under 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 our cash requirements to commercialize products currently under development or its plans to acquire other organizations, technologies or products that fit within our mission statement. Accordingly, we may choose to issue equity securities or enter into other financing arrangements for a portion of our future financing needs.

PART I – FINANCIAL INFORMATION

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. Our primary interest rate risk is due to potential fluctuations of interest rates for variable rate borrowings (no long-term borrowings at November 30, ~~2018)~~2019) and short-term investments.

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

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

PART I – FINANCIAL INFORMATION

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of November 30, ~~2018~~2019 was carried out under the supervision and with the participation of the Company’s management, including the President & Chief Executive 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 ~~Control~~Controls over Financial Reporting

No changes in our ~~controls~~control over financial reporting were identified as having occurred during the quarter ended November 30, ~~2018~~2019 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

~~Item~~

tem 6. Exhibits

(a) Exhibit Index



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


	10			Amended and Restated Credit Agreement dated as of November 30, 2018 between Registrant and ~~JPMorgan~~JP Morgan Chase N.A. (incorporated by reference to Exhibit 10.A toof the registrant’s Form8-K filed on December 6, 2018).


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


	31.2			Certification of 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)

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

SIGNATURES

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


	~~NEOGEN CORPORATION~~
	~~(Registrant)~~
~~Dated: December 28, 2018~~

		~~/s/ John E. Adent~~ NEOGEN CORPORATION
		(Registrant)
Dated: December 27, 2019

		/s/ John E. Adent
		~~President & Chief Executive Officer~~ John E. Adent
		~~(Principal~~ President & Chief Executive ~~Officer)~~


~~Dated: December 28, 2018~~
	Officer
		~~/s/ Steven J. Quinlan~~ (Principal Executive Officer)
Dated: December 27, 2019

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


	November 30, 2018			May 31, 2018
	(Unaudited)			(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	101,585		$	83,074
Marketable securities (at fair value, which approximates cost)		139,385			127,736
Accounts receivable, less allowance of $1,700 and $1,550		82,282			79,086
Inventories		79,473			76,005
Prepaid expenses and other current assets		11,569			9,888

Total Current Assets		414,294			375,789
Net Property and Equipment		73,910			73,069
Other Assets
Goodwill		103,309			99,558
Othernon-amortizable intangible assets		15,423			14,783
Amortizable customer-based intangibles, net of accumulated amortization of $26,292 and $24,579 at November 30, 2018 and May 31, 2018, respectively		30,022			31,841
Othernon-current assets, net of accumulated amortization of $11,440 and $12,470 at November 30, 2018 and May 31, 2018, respectively		23,534			22,969

Total Assets	$	660,492		$	618,009

Liabilities and Equity
Current Liabilities
Accounts payable	$	20,555		$	20,750
Accrued compensation		5,216			6,065
Income taxes		1,533			165
Other accruals		11,456			11,708

Total Current Liabilities		38,760			38,688
Deferred Income Taxes		14,144			14,103
OtherNon-Current Liabilities		5,514			5,043

Total Liabilities		58,418			57,834
Commitments and Contingencies (Note 8)
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, 52,081,876 and 51,735,732 shares issued and outstanding at November 30, 2018 and May 31, 2018, respectively		8,334			8,278
Additionalpaid-in capital		215,615			202,572
Accumulated other comprehensive loss		(12,234	)		(9,746	)
Retained earnings		390,359			359,071

Total Stockholders’ Equity		602,074			560,175

Total Liabilities and Equity	$	660,492		$	618,009


	Three Months Ended November 30,					Six Months Ended November 30,
	2018		2017			2018		2017
Revenues
Product revenues	$	89,562	$	84,471		$	172,522	$	164,016
Service revenues		17,536		16,227			34,202		30,891

Total Revenues		107,098		100,698			206,724		194,907
Cost of Revenues
Cost of product revenues		47,305		43,252			90,255		84,236
Cost of service revenues		9,760		9,197			19,707		17,498

Total Cost of Revenues		57,065		52,449			109,962		101,734

Gross Margin		50,033		48,249			96,762		93,173
Operating Expenses
Sales and marketing		18,499		16,793			35,732		32,869
General and administrative		10,121		10,491			20,319		19,817
Research and development		3,167		2,967			5,986		6,065

Total Operating Expenses		31,787		30,251			62,037		58,751

Operating Income		18,246		17,998			34,725		34,422
Other Income
Interest income		1,028		429			1,955		798
Other income		427		626			158		1,069

Total Other Income		1,455		1,055			2,113		1,867

Income Before Taxes		19,701		19,053			36,838		36,289
Provision for Income Taxes		3,650		1,900			5,550		7,200

Net Income		16,051		17,153			31,288		29,089
Net (Income) Attributable toNon-Controlling Interest		—		(53	)		—		(75	)

Net Income Attributable to Neogen	$	16,051	$	17,100		$	31,288	$	29,014

Net Income Attributable to Neogen Per Share
Basic	$	0.31	$	0.33		$	0.60	$	0.57

Diluted	$	0.31	$	0.33		$	0.60	$	0.56


							Accumulated
					Additional Paid-in Capital		Other Comprehensive (Loss)
	Common Stock									Retained
	Shares		Amount							Earnings		Total
Balance at May 31, 2018		51,736	$	8,278	$	202,572	$	(9,746	)	$	359,071		560,175
Issuance of shares under share-based compensation plan		338		54		12,526							12,580
Issuance of shares under employee stock purchase plan		8		2		517							519
Net income for the six months ended November 30, 2018											31,288		31,288
Other comprehensive (loss)								(2,488	)				(2,488	)

Balance at November 30, 2018		52,082	$	8,334	$	215,615	$	(12,234	)	$	390,359	$	602,074


	Three Months Ended November 30, 2017							Six Months Ended November 30, 2017
	As Previously Reported		Adjustments			As Revised		As Previously Reported		Adjustments			As Revised
	(in thousands)							(in thousands)
Revenues
Product revenues	$	85,590	$	(1,119	)	$	84,471	$	166,157	$	(2,141	)	$	164,016
Service revenues		16,227		—			16,227		30,916		(25	)		30,891

Total revenues		101,817		(1,119	)		100,698		197,073		(2,166	)		194,907
Cost of revenues
Cost of product revenues		43,349		(97	)		43,252		84,433		(197	)		84,236
Cost of service revenues		9,197		—			9,197		17,498		—			17,498

Total cost of revenues		52,546		(97	)		52,449		101,931		(197	)		101,734
Gross margin		49,271		(1,022	)		48,249		95,142		(1,969	)		93,173
Operating expenses
Sales and marketing		17,815		(1,022	)		16,793		34,838		(1,969	)		32,869
Total operating expenses		31,273		(1,022	)		30,251		60,720		(1,969	)		58,751
Operating income		17,998		—			17,998		34,422		—			34,422


	Three Months Ended February 28, 2018							Nine Months Ended February 28, 2018
	As Previously Reported		Adjustments			As Revised		As Previously Reported		Adjustments			As Revised
	(in thousands)							(in thousands)
Revenues
Product revenues	$	78,142	$	(958	)	$	77,184	$	244,298	$	(3,098	)	$	241,200
Service revenues		17,750		(31	)		17,719		48,667		(56	)		48,611

Total revenues		95,892		(989	)		94,903		292,965		(3,154	)		289,811
Cost of revenues
Cost of product revenues		40,352		(69	)		40,283		124,785		(265	)		124,520
Cost of service revenues		10,019		—			10,019		27,517		—			27,517

Total cost of revenues		50,371		(69	)		50,302		152,302		(265	)		152,037
Gross margin		45,521		(920	)		44,601		140,663		(2,889	)		137,774
Operating expenses
Sales and marketing		17,492		(920	)		16,572		52,331		(2,889	)		49,442
Total operating expenses		29,608		(920	)		28,688		90,328		(2,889	)		87,439
Operating income		15,913		—			15,913		50,335		—			50,335


	Year Ended							Year Ended
	May 31, 2018							May 31, 2017
	As Previously Reported		Adjustments			As Revised		As Previously Reported		Adjustments			As Revised
	(in thousands)							(in thousands)
Revenues
Product revenues	$	335,554	$	(4,266	)	$	331,288	$	306,512	$	(3,390	)	$	303,122
Service revenues		66,698		(56	)		66,642		55,082		73			55,155

Total revenues		402,252		(4,322	)		397,930		361,594		(3,317	)		358,277
Cost of revenues
Cost of product revenues		174,067		(342	)		173,725		156,568		(273	)		156,295
Cost of service revenues		37,933		—			37,933		33,058		—			33,058

Total cost of revenues		212,000		(342	)		211,658		189,626		(273	)		189,353
Gross margin		190,252		(3,980	)		186,272		171,968		(3,044	)		168,924
Operating expenses
Sales and marketing		70,909		(3,980	)		66,929		62,424		(3,044	)		59,380
Total operating expenses		120,058		(3,980	)		116,078		107,023		(3,044	)		103,979
Operating income		70,194		—			70,194		64,945		—			64,945


	Food Safety		Animal Safety		Corporate and Eliminations (1)			Total
	(in thousands)
As of and for the three months ended November 30, 2018
Product revenues to external customers	$	48,256	$	41,306	$	—		$	89,562
Service revenues to external customers		5,494		12,042		—			17,536

Total revenues to external customers		53,750		53,348		—			107,098
Operating income (loss)		10,342		9,057		(1,153	)		18,246
Total assets		201,291		218,231		240,970			660,492

As of and for the three months ended November 30, 2017—Revised (2)
Product revenues to external customers	$	44,367	$	40,104	$	—		$	84,471
Service revenues to external customers		4,839		11,388		—			16,227

Total revenues to external customers		49,206		51,492		—			100,698
Operating income (loss)		8,668		10,529		(1,199	)		17,998
Total assets		175,836		215,099		190,093			581,028


	Shares			Weighted- Average Exercise Price
Options outstanding June 1, 2018		2,497,124		$	42.63
Granted		525,750			62.93
Exercised		(340,023	)		29.49
Forfeited		(91,620	)		45.87

Options outstanding November 30, 2018		2,591,231			48.40


	FY 2019			FY 2018
Risk-free interest rate		2.6	%		1.6	%
Expected dividend yield		0.0	%		0.0	%
Expected stock price volatility		27.0	%		27.2	%
Expected option life		3.5 years			4.0 years


	Three Months Ended						Six Months Ended
	November 30, 2018						November 30, 2018
	Revenue % Increase/(Decrease) USD			Revenue % Increase/(Decrease) Local Currency			Revenue % Increase USD			Revenue % Increase Local Currency
Neogen Europe (including Lab M & Quat-Chem)		8	%		10	%		13	%		13	%
Neogen do Brasil (including Deoxi & Rogama)		6	%		29	%		23	%		48	%
Neogen Latinoamerica		(7	)%		(2	)%		9	%		15	%
Neogen China		1	%		6	%		4	%		6	%
Neogen India		83	%		105	%		81	%		99	%