UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

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

For the quarterly period ended February ~~28, 2019.~~

29, 2020.

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

For the transition period from
to

Commission file number

0-17988

Neogen Corporation

(Exact name of registrant as specified in its charter)


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

620 Lesher Place

Lansing, Michigan 48912

(Address of principal executive offices, including zip code)

(517)

372-9200

(Registrant’s telephone number, including area code)

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


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

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO

☐

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	☐	Smaller Reporting Company	☐

~~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 February ~~28, 2019,~~29, 2020 there were ~~52,120,422~~52,910,832 shares of Common Stock outstanding.

Table of Contents

NEOGEN CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


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

~~PART I. FINANCIAL INFORMATION~~ Item 1.

~~Item 1.~~	Interim Consolidated Financial Statements (unaudited)		2


	Consolidated Balance Sheets – February ~~28, 2019~~29, 2020 and May 31, ~~2018~~2019		2


	Consolidated Statements of Income – Three and nine months ended February 29, 2020 and February 28, 2019 ~~and 2018~~		3


	Consolidated Statements of Comprehensive Income – Three and nine months ended February 29, 2020 and February 28, 2019 ~~and 2018~~		4

	Consolidated Statements of Equity – Three and nine months ended February 29, 2020 and February 28, 2019		5

	~~Consolidated Statement of Equity – Nine months ended February 28, 2019~~		5

	Consolidated Statements of Cash Flows – Nine months ended February 29, 2020 and February 28, 2019 ~~and 2018~~		6


	Notes to Interim Consolidated Financial Statements – February ~~28, 2019~~29, 2020		7

~~Item 2.~~
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18 19

~~Item 3.~~
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25 27

Item 4.	Controls and Procedures		27

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		28

Item 1A.	Risk Factors		28

Item 6.	Exhibits		28

SIGNATURES			29


~~Item 4.~~	~~Controls and Procedures~~CEO Certification		25


~~PART II. OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~CFO Certification		26


~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~Section 906 Certification		26

~~Item 6.~~	~~Exhibits~~		26

~~SIGNATURES~~			27

	~~CEO Certification~~

	~~CFO Certification~~

	~~Section 906 Certification~~

Table of Contents

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)

   February 28,
2019 May 31,
2018
   (Unaudited) (Unaudited)
Assets

Current Assets

Cash and cash equivalents
   $ 93,576 $ 83,074
Marketable securities (at fair value, which approximates cost)
   153,104 127,736
Accounts receivable, less allowance of $1,700 and $1,550
   80,011 79,086
Inventories
   84,870 76,005
Prepaid expenses and other current assets
   11,041 9,888


Total Current Assets
   422,602 375,789
Net Property and Equipment
   76,453 73,069
Other Assets

Goodwill
   104,077 99,558
Othernon-amortizable intangible assets
   15,658 14,783
Amortizable customer-based intangibles, net of accumulated amortization of $27,184 and $24,579 at February 28, 2019 and May 31, 2018, respectively
   30,007 31,841
Othernon-current assets, net of accumulated amortization of $12,304 and $12,470 at February 28, 2019 and May 31, 2018, respectively
   23,788 22,969


Total Assets
   $ 672,585 $ 618,009


Liabilities and Equity

Current Liabilities

Accounts payable
   $ 18,952 $ 20,750
Accrued compensation
   5,391 6,065
Income taxes
   —   165
Other accruals
   9,925 11,708


Total Current Liabilities
   34,268 38,688
Deferred Income Taxes
   14,211 14,103
OtherNon-Current Liabilities
   4,190 5,043


Total Liabilities
   52,669 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, 120,000,000 shares authorized, 52,120,422 and 51,735,732 shares issued and outstanding at February 28, 2019 and May 31, 2018, respectively
   8,339 8,278
Additionalpaid-in capital
   217,274 202,572
Accumulated other comprehensive loss
   (9,129 ) (9,746 )
Retained earnings
   403,432 359,071


Total Stockholders’ Equity
   619,916 560,175


Total Liabilities and Equity
   $ 672,585 $ 618,009


	February 29, 2020			May 31, 2019
	Unaudited			Un a udited
Assets
Current Assets
Cash and cash equivalents	$	50,774		$	41,688
Marketable securities		277,149			225,836
Accounts receivable, less allowance of $1,400 and $1,700 at February 29, 2020 and May 31, 2019, respectively		80,692			82,582
Inventories		89,244			85,992
Prepaid expenses and other current assets		17,016			13,431

Total Current Assets		514,875			449,529
Net Property and Equipment		78,394			74,847
Other Assets
Goodwill		109,761			103,619
Other non-amortizable intangible assets		15,425			15,649
Amortizable intangible and other assets, net of accumulated amortization of $43,397 and $40,835 at February 29, 2020 and May 31, 2019, respectively		55,046			52,096

Total Assets	$	773,501		$	695,740

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	18,994		$	19,063
Accrued compensation		5,596			7,085
Income taxes		1,479			601
Other accruals		13,066			11,502

Total Current Liabilities		39,135			38,251
Deferred Income Taxes		16,343			15,618
Other Non-Current Liabilities		6,152			3,972

Total Liabilities		61,630			57,841
Commitments and Contingencies (note 8)
Equity
Preferred stock, $1.00 par value, 100,000 shares authorized, 0ne issued and outstanding		—			—
Common stock, $0.16 par value, 120,000,000 shares authorized, 52,910,832 and 52,216,589 shares issued and outstanding at February 29, 2020 and May 31, 2019, respectively		8,466			8,355
Additional paid-in capital		254,537			221,937
Accumulated other comprehensive loss		(13,507	)		(11,640	)
Retained earnings		462,375			419,247

Total Stockholders’ Equity		711,871			637,899

Total Liabilities and Stockholders’ Equity	$	773,501		$	695,740

See notes to interim consolidated financial statements.

Table of Contents

Neogen Corporation and Subsidiaries

Consolidated Statements of Income (unaudited)

(in thousands, except per share amounts)

Three Months Ended
February 28,

Nine Months Ended
February 28,

   2019    2018    2019    2018
Revenues

Product revenues
   $ 77,375    $ 77,184    $ 249,897    $ 241,200
Service revenues
   20,325    17,719    54,527    48,611








Total Revenues
   97,700    94,903    304,424    289,811
Cost of Revenues

Cost of product revenues
   41,902    40,283    132,157    124,520
Cost of service revenues
   11,170    10,019    30,877    27,517








Total Cost of Revenues
   53,072    50,302    163,034    152,037








Gross Margin
   44,628    44,601    141,390    137,774
Operating Expenses

Sales and marketing
   16,722    16,572    52,454    49,442
General and administrative
   10,018    9,280    30,337    29,096
Research and development
   3,249    2,836    9,235    8,901








Total Operating Expenses
   29,989    28,688    92,026    87,439








Operating Income
   14,639    15,913    49,364    50,335
Other Income

Interest income
   1,335    524    3,290    1,322
Other income
   649    844    807    1,913








Total Other Income
   1,984    1,368    4,097    3,235








Income Before Taxes
   16,623    17,281    53,461    53,570
Provision for Income Taxes
   3,550    700    9,100    7,900








Net Income
   13,073    16,581    44,361    45,670
Net (Income) Loss Attributable toNon-Controlling Interest
   —      5    —      (70 )








Net Income Attributable to Neogen
   $ 13,073    $ 16,586    $ 44,361    $ 45,600








Net Income Attributable to Neogen Per Share

Basic
   $ 0.25    $ 0.32    $ 0.86    $ 0.89








Diluted
   $ 0.25    $ 0.32    $ 0.85    $ 0.88


	Three Months Ended					Nine Months Ended
	February 29/28,					February 29/28,
	2020			2019		2020			2019
Revenues
Product revenues	$	77,736		$	77,375	$	247,071		$	249,897
Service revenues		22,133			20,325		62,025			54,527

Total Revenues		99,869			97,700		309,096			304,424
Cost of Revenues
Cost of product revenues		41,068			41,902		128,658			132,157
Cost of service revenues		13,471			11,170		35,888			30,877

Total Cost of Revenues		54,539			53,072		164,546			163,034

Gross Margin		45,330			44,628		144,550			141,390

Operating Expenses
Sales and marketing		17,675			16,722		53,206			52,454
General and administrative		10,789			10,018		32,473			30,337
Research and development		3,823			3,249		11,292			9,235

Total Operating Expenses		32,287			29,989		96,971			92,026

Operating Income		13,043			14,639		47,579			49,364

Other Income (Expense)
Interest income		1,600			1,335		4,381			3,290
Other income (expense)		(393	)		649		(832	)		807

Total Other Income		1,207			1,984		3,549			4,097

Income Before Taxes		14,250			16,623		51,128			53,461
Provision for Income Taxes		2,050			3,550		8,000			9,100

Net Income	$	12,200		$	13,073	$	43,128		$	44,361

Net Income Per Share
Basic	$	0.23		$	0.25	$	0.82		$	0.86

Diluted	$	0.23		$	0.25	$	0.82		$	0.85

See notes to interim consolidated financial statements.

Table of Contents

Neogen Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)

Three Months Ended
February 28,
   Nine Months Ended
February 28,
   2019    2018    2019    2018
Net income
   $ 13,073    $ 16,581    $ 44,361    $ 45,670
Other comprehensive income, net of tax:
currency translation adjustments
   3,105    1,163    617    1,900








Comprehensive income
   16,178    17,744    44,978    47,570
Comprehensive (income) loss attributable tonon-controlling interest
   —      5    —      (70 )








Comprehensive income attributable to Neogen Corporation
   $ 16,178    $ 17,749    $ 44,978    $ 47,500


	Three Months Ended					Nine Months Ended
	February 29/28,					February 29/28,
	2020			2019		2020			2019
Net income	$	12,200		$	13,073	$	43,128		$	44,361
Other comprehensive income (loss), net of tax:
currency translation adjustments		(1,761	)		3,105		(2,452	)		617
Other comprehensive income, net of tax:
unrealized gain on marketable securities		172			—		585			—

Total comprehensive income	$	10,611		$	16,178	$	41,261		$	44,978

See notes to interim consolidated financial statements.

Table of Contents

Neogen Corporation and Subsidiaries

Consolidated ~~Statement~~Statements of

Equity (unaudited)

(in thousands)

   Common Stock Additional
Paid-in Accumulated
Other
Comprehensive Retained
   Shares Amount Capital (Loss) Earnings    Total
Balance at May 31, 2018
   51,736 $ 8,278 $ 202,572 $ (9,746 ) $ 359,071    $ 560,175
Issuance of shares under share-based compensation plan
   251 40 8,433 —   —      8,473
Issuance of shares under employee stock purchase plan
   8 2 517 —   —      519
Net income for the three months ended August 31, 2018
   —   —   —   —   15,237    15,237
Other comprehensive (loss)
   —   —   —   (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
   —   —   —   290 —      290




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




Issuance of shares under share-based compensation plan
   78 12 4,146 —   —      4,158
Issuance of shares under employee stock purchase plan
   10 1 640 —   —      641
Shares repurchased
   (50 ) (8 ) (3,127 ) —   —      (3,135 )
Net income for the three months ended February 28, 2019
   —   —   —   —   13,073    13,073
Other comprehensive income
   —   —   —   3,105 —      3,105




Balance at February 28, 2019
   52,120 $ 8,339 $ 217,274 $ (9,129 ) $ 403,432    $ 619,916


							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
Issuance of shares under share-based compensation plan		188		31		9,705		—			—		9,736
Issuance of shares under employee stock purchase plan		12		1		606		—			—		607
Net income for the three months ended February 29, 2020		—		—		—		—			12,200		12,200
Other comprehensive loss for the three months ended February 29 , 2020		—		—		—		(1,589	)		—		(1,589	)

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


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

Balance at August 31, 2018		51,995		$	8,320		$	211,522		$	(12,524	)	$	374,308	$	581,626
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
Issuance of shares under share-based compensation plan		78			12			4,146			—			—		4,158
Issuance of shares under employee stock purchase plan		10			1			640			—			—		641
Shares repurchased		(50	)		(8	)		(3,127	)		—			—		(3,135	)
Net income for the three months ended February 28, 2019		—			—			—			—			13,073		13,073
Other comprehensive loss for the three months ended February 28, 2019		—			—			—			3,105			—		3,105

Balance at February 28, 2019		52,120		$	8,339		$	217,274		$	(9,129	)	$	403,432	$	619,916

See notes to interim consolidated financial statements.

Table of Contents

Neogen Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

Nine Months Ended
February 28,

   2019 2018
Cash Flows From Operating Activities

Net Income
   $ 44,361 $ 45,670
Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization
   13,028 12,682
Share-based compensation
   4,137 3,692
Change in operating assets and liabilities, net of business acquisitions:

Accounts receivable
   (898 ) (4,013 )
Inventories
   (8,745 ) (3,859 )
Prepaid expenses and other current assets
   (1,463 ) (7,316 )
Accounts payable, accruals and other changes
   (7,455 ) (280 )


Net Cash From Operating Activities
   42,965 46,576
Cash Flows From Investing Activities

Purchases of property, equipment and othernon-current intangible assets
   (11,877 ) (16,297 )
Proceeds from the sale of marketable securities
   290,827 211,327
Purchases of marketable securities
   (316,195 ) (255,348 )
Business acquisitions, net of cash acquired
   (6,388 ) (468 )


Net Cash Used In Investing Activities
   (43,633 ) (60,786 )
Cash Flows From Financing Activities

Exercise of stock options and issuance of employee stock purchase plan shares
   13,752 18,916
Repurchase of common stock
   (3,135 ) —


Net Cash From Financing Activities
   10,617 18,916
Effect of Exchange Rate on Cash
   553 (207 )


Net Increase In Cash and Cash Equivalents
   10,502 4,499
Cash and Cash Equivalents, Beginning of Period
   83,074 77,567


Cash and Cash Equivalents, End of Period
   $ 93,576 $ 82,066


	Nine Months Ended February 29/28,
	2020			2019
Cash Flows From Operating Activities
Net Income	$	43,128		$	44,361
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		13,542			13,028
Share-based compensation		4,795			4,137
Change in operating assets and liabilities, net of business acquisitions:
Accounts receivable		3,841			(898	)
Inventories		(2,238	)		(8,745	)
Prepaid expenses and other current assets		(3,119	)		(1,463	)
Accounts payable, accruals and other changes		301			(7,455	)

Net Cash From Operating Activities		60,250			42,965

Cash Flows For Investing Activities
Purchases of property, equipment and other assets		(16,322	)		(11,877	)
Proceeds from the sale of marketable securities		300,448			290,827
Purchases of marketable securities		(351,002	)		(316,195	)
Business acquisitions, net of cash acquired		(9,701	)		(6,388	)

Net Cash For Investing Activities		(76,577	)		(43,633	)

Cash Flows From Financing Activities
Exercise of stock options and issuance of employee stock purchase plan shares		27,915			13,752
Repurchase of common stock		—			(3,135	)

Net Cash From Financing Activities		27,915			10,617

Effect of Exchange Rates on Cash		(2,502	)		553

Net Increase In Cash and Cash Equivalents		9,086			10,502
Cash and Cash Equivalents, Beginning of Period		41,688			83,074

Cash and Cash Equivalents, End of Period	$	50,774		$	93,576

See notes to interim consolidated financial statements.

Table of Contents

NEOGEN CORPORATION AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION

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

10-Q

and Article 10 of Regulation

S-X.

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

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included in the accompanying unaudited consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three and nine month periods ended February ~~28, 2019~~29, 2020 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. 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 primarily result from 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~~The Company does not believe adoption of this guidance will have a

material

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

Cloud Computing Implementation Cost

In August 2018, the FASB issued ASU

2018-15—Intangible-Goodwill

and Other

Internal-Use

Software (Subtopic

350-40):

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

2018-15

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

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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. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The ~~carrying value of~~Company has never experienced any losses related to these ~~assets approximates fair value due~~balances and believes it is not exposed to ~~the short maturity of these instruments~~significant credit risk regarding its cash and ~~meets the Level 1 criteria.~~

cash equivalents.

Marketable Securities

The Company has marketable securities held by banks or broker-dealers at February ~~28, 2019,~~29, 2020, consisting of short-term domestic certificates of deposit, and commercial paper and U.S. treasuries rated at least ~~A1/P1~~

A-1/P-1

(short-term) and A/A2 (long-term) with maturities between 91 days and two years. These securities are classified as available for sale. The primary objective of ~~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 the 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.

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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.

Inventory

The reserve for obsolete and slow-moving inventory is reviewed at least quarterly based on an analysis of the inventory, considering the current condition of the asset as well as other known facts and future plans. The reserve required to record inventory at lower of cost or net realizable value is adjusted as conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations.

Goodwill and Other Intangible Assets

Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to other identifiable intangible assets. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants

not-to-compete

and patents. Customer-based intangibles are amortized on either an accelerated or straight-line basis, reflecting the pattern in which the economic benefits are consumed, while all other amortizable intangibles are amortized on a straight-line basis; intangibles are generally amortized over 5 to 25 years. We review the carrying amounts of goodwill and other

non-amortizable

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

~~Long Lived~~

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.~~

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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 were subject to revisions as we completed our analysis of the Tax Act, collected and prepared necessary data, and interpreted any additional guidance issued by the Internal Revenue Service. Prior to December 22, 2018, immaterial adjustments to these provisions were recorded to income 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 on June 1,~~annual periods, including interim periods within those annual periods, beginning after December 15, 2018. We adopted this ~~standard using~~ASU on June 1, 2019; 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:


	February 29, 2020
	(in thousands)
Right of use - assets	$	1,755
Lease liabilities - current		325
Lease liabilities - non-current		1,467

Table of ~~contracts in each revenue stream, we noted no material impact~~Contents

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


	February 29, 2020
Weighted average remaining lease term		2.4 years
Weighted average discount rate		3.5%

Operating lease expenses are classified as cost of revenues or operating expenses on the consolidated statements of income. The components of lease expense were as follows:


	Three Months Ended February 29, 2020		Nine Months Ended February 29, 2020
	(in thousands)		(in thousands)
Operating leases	$	316	$	889
Short term leases		25		106

Total lease expense	$	341	$	995

Cash paid for amounts included in the ~~implementation~~measurement of lease liabilities for operating leases included in cash flows from operations on the ~~standard. We determined~~statement of cash flows were approximately $868,000 for the ~~impact~~nine months ended February 29, 2020. There were 0

non-cash

additions to

right-of-use

assets obtained from new operating lease liabilities for the nine months ended February 29, 2020.

Undiscounted minimum lease payments as of ~~adopting the standard on our control framework and noted minimal, insignificant changes~~February 29, 2020 were as follows:


	Amount
	(in thousands)
Years ending May 31,
2020 (1)	$	289
2021		915
2022		358
2023		168
2024		94
2025 and thereafter		26

Total lease payments		1,850
Less: imputed interest		58

Total lease liabilities	$	1,792

(1)	Excluding the nine months ended February 29, 2020.

The aggregate amount of future minimum annual rental payments applicable to ~~our system and other controls processes.~~

~~Under Topic 606, the~~noncancelable leases as of May 31, 2019 were as follows:


	Future Minimum Lease Payments
	(in thousands)
Years ending May 31,
2020	$	1,112
2021		810
2022		297
2023		101
Thereafter		0

	$	2,320

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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 of 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 of 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 ~~select~~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 ~~primarily~~ of shipments of:

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

Consumable products marketed to veterinarians ~~retailers, livestock producers~~ and animal health product distributors; and

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

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

Service revenue consists primarily of:

Genomic identification and related interpretive bioinformatic services; and

Other commercial laboratory services.

Revenues for 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.~~

days; international terms may be longer.

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The following table presents disaggregated revenue by major product and service categories for the three and nine ~~months ended February 28, 2019 and 2018:~~

Three Months Ended
February 28,

Nine Months Ended
February 28,

   2019    2018    2019    2018
   (in thousands)    (in thousands)
Food Safety

Natural Toxins, Allergens & Drug Residues
   $ 18,612    $ 16,807    $ 58,021    $ 54,960
Bacterial & General Sanitation
   9,519    8,992    30,807    27,435
Culture Media & Other
   11,893    10,179    36,302    31,353
Rodenticides, Insecticides & Disinfectants
   5,953    7,359    18,521    18,175
Genomics Services
   5,136    3,976    13,395    10,887








   $ 51,113    $ 47,313    $ 157,046    $ 142,810
Animal Safety

Life Sciences
   $ 1,823    $ 2,769    $ 5,794    $ 7,589
Veterinary Instruments & Disposables
   10,682    10,630    32,769    32,804
Animal Care & Other
   6,823    7,245    22,439    22,894
Rodenticides, Insecticides & Disinfectants
   13,256    14,255    48,921    49,422
Genomics Services
   14,003    12,691    37,455    34,292








   $ 46,587    $ 47,590    $ 147,378    $ 147,001








Total Revenues
   $ 97,700    $ 94,903    $ 304,424    $ 289,811

~~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 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.

~~The effects of the revisions on the line items within our unaudited consolidated statements of income for the three and nine months ended February 28, 2018 are as follows:~~

   Three Months Ended    Nine Months Ended
   February 28, 2018    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

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

   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 nine month periods ended February 29, 2020 and February 28, ~~2018.~~

2019:


	Three Months ended February 2 9 /2 8 ,				Nine Months ended February 2 9 /2 8 ,
	2020		2019		2020		2019
	(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	17,154	$	18,612	$	57,950	$	58,021
Bacterial & General Sanitation		9,413		9,519		31,345		30,807
Culture Media & Other		11,222		11,893		35,259		36,302
Rodenticides, Insecticides & Disinfectants		7,964		5,953		20,859		18,521
Genomics Services		4,745		5,136		12,961		13,395

	$	50,498	$	51,113	$	158,374	$	157,046
Animal Safety
Life Sciences	$	1,376	$	1,823	$	4,901	$	5,794
Veterinary Instruments & Disposables		10,799		10,682		32,621		32,769
Animal Care & Other		6,667		6,554		20,859		21,900
Rodenticides, Insecticides & Disinfectants		14,558		13,525		47,462		49,460
Genomics Services		15,971		14,003		44,879		37,455

	$	49,371	$	46,587	$	150,722	$	147,378

Total Revenues	$	99,869	$	97,700	$	309,096	$	304,424

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:

   February 28,
2019    May 31,
2018
   (in thousands)
Raw materials
   $ 38,944    $ 36,702
Work-in-process
   6,758    5,993
Finished and purchased goods
   39,168    33,310




   $ 84,870    $ 76,005


	February 29,		May 31,
	2020		2019
	(in thousands)
Raw materials	$	42,243	$	41,594
Work-in-process		5,402		5,581
Finished and purchased goods		41,599		38,817

	$	89,244	$	85,992

3. NET INCOME PER SHARE

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

   Three Months Ended
February 28,    Nine Months Ended
February 28,
   2019    2018    2019    2018
   (in thousands, except per share amounts)
Numerator for basic and diluted net income per share:

Net income attributable to Neogen
   $ 13,073    $ 16,586    $ 44,361    $ 45,600
Denominator for basic net income per share:

Weighted average shares
   52,071    51,537    51,849    51,253
Effect of dilutive stock options
   401    700    599    761








Denominator for diluted net income per share
   52,472    52,237    52,448    52,014
Net income attributable to Neogen per share:

Basic
   $ 0.25    $ 0.32    $ 0.86    $ 0.89








Diluted
   $ 0.25    $ 0.32    $ 0.85    $ 0.88


	Three Months Ended				Nine Months Ended
	February 29/28,				February 29/28,
	2020		2019		2020		2019
	(in thousands, except per share amounts)
Numerator for basic and diluted net income per share:
Net income attributable to Neogen	$	12,200	$	13,073	$	43,128	$	44,361
Denominator for basic net income per share:
Weighted average shares		52,795		52,071		52,463		51,849
Effect of dilutive stock options		253		401		320		599

Denominator for diluted net income per share		53,048		52,472		52,783		52,448
Net income attributable to Neogen per share:
Basic	$	0.23	$	0.25	$	0.82	$	0.86

Diluted	$	0.23	$	0.25	$	0.82	$	0.85

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4. SEGMENT INFORMATION AND GEOGRAPHIC DATA

We have ~~two~~2 reportable segments: Food Safety and Animal Safety. The Food Safety segment is primarily engaged in the development, production and marketing of diagnostic test kits, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation. The Animal Safety segment is primarily engaged in the development, production and marketing of products dedicated to animal safety, including a complete line of consumable products marketed to veterinarians ~~retailer, livestock producers~~ 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 ~~selling~~ 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 February 28, 2019


Product revenues to external customers
   $ 44,790    $ 32,585    $ —      $ 77,375
Service revenues to external customers
   6,323    14,002    —      20,325








Total revenues to external customers
   51,113    46,587    —      97,700
Operating income (loss)
   8,339    7,338    (1,038 )    14,639
Total assets
   204,570    221,335    246,680    672,585
As of and for the three months ended February 28, 2018 - Revised (2)


Product revenues to external customers
   $ 42,286    $ 34,898    $ —      $ 77,184
Service revenues to external customers
   5,027    12,692    —      17,719








Total revenues to external customers
   47,313    47,590    —      94,903
Operating income (loss)
   8,258    8,493    (838 )    15,913
Total assets
   188,075    215,371    192,155    595,601


	Food Safety		Animal Safety		Corporate and Eliminations (1)			Total
	(in thousands)
As of and for the three months ended February 29, 2020
Product revenues to external customers	$	44,450	$	33,286	$	—		$	77,736
Service revenues to external customers		6,048		16,085		—			22,133

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

As of and for the three months ended February 28, 2019
Product revenues to external customers	$	44,790	$	32,585	$	—		$	77,375
Service revenues to external customers		6,323		14,002		—			20,325

Total revenues to external customers		51,113		46,587		—			97,700
Operating income (loss)		8,339		7,338		(1,038	)		14,639
Total assets		204,570		221,335		246,680			672,585

(1)

Includes corporate assets, consisting principally of cash and cash equivalents, marketable

securities

, current and deferred tax accounts and overhead expenses not allocated to specific business segments. Also includes the elimination of intersegment transactions.

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	Food Safety		Animal Safety		Corporate and Eliminations (1)			Total
	(in thousands)
As of and for the nine months ended February 29, 2020
Product revenues to external customers	$	141,516	$	105,555	$	—		$	247,071
Service revenues to external customers		16,858		45,167		—			62,025

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

As of and for the nine months ended February 28, 2019
Product revenues to external customers	$	139,979	$	109,918	$	—		$	249,897
Service revenues to external customers		17,067		37,460		—			54,527

Total revenues to external customers		157,046		147,378		—			304,424
Operating income (loss)		29,554		23,101		(3,291	)		49,364

~~(2)~~

Revenues for the three months ended February 28, 2018 have been revised as discussed in Note 1. For the three months ended February 28, 2018, product revenues were reduced by $332,000 in the Food Safety segment and $626,000 in the Animal Safety segment; service revenues were unchanged in the Food Safety segment and were reduced by $31,000 in the Animal Safety segment.

   Food
Safety    Animal
Safety    Corporate and
Eliminations
(1)    Total
   (in thousands)
For the nine months ended February 28, 2019

Product revenues to external customers
   $ 139,979    $ 109,918    $ —      $ 249,897
Service revenues to external customers
   17,067    37,460    —      54,527








Total revenues to external customers
   157,046    147,378    —      304,424
Operating income (loss)
   29,554    23,101    (3,291 )    49,364
For the nine months ended February 28, 2018 - Revised (2)


Product revenues to external customers
   $ 128,491    $ 112,709    $ —      $ 241,200
Service revenues to external customers
   14,319    34,292    —      48,611








Total revenues to external customers
   142,810    147,001    —      289,811
Operating income (loss)
   25,704    27,691    (3,060 )    50,335

(1)

Includes ~~the~~ elimination of intersegment transactions.

~~(2)~~

Revenues for the nine months ended February 28, 2018 have been revised as discussed in Note 1. For the nine months ended February 28, 2018, product revenues were reduced by $1,130,000 in the Food Safety segment and $1,968,000 in the Animal Safety segment; service revenues were unchanged in the Food Safety segment and reduced by $56,000 in the Animal Safety segment.

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

   Three Months ended
February 28,    Nine Months Ended
February 28,
   2019    2018    2019    2018
   (in thousands)    (in thousands)
Revenues by Geographic Location

Domestic
   $ 57,422    $ 57,825    $ 182,298    $ 180,414
International
   40,278    37,078    122,126    109,397








Total revenue
   97,700    94,903    304,424    289,811


	Three months ended				Nine months ended
	February 29/28,				February 29/28,
	2020		2019		2020		2019
	(in thousands)				(in thousands)
Revenues by Geographic Location
Domestic	$	59,762	$	57,422	$	186,887	$	182,298
International		40,107		40,278		122,209		122,126

Total revenue		99,869		97,700		309,096		304,424

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5. EQUITY COMPENSATION PLANS

Qualified and

non-qualified

options to purchase shares of common stock may be granted to directors, officers and employees of the Company under the terms of our stock option plans. These options are granted at an exercise price of not less than the fair market value of the stock on the date of grant. Options vest ratably over three and five year periods and the contractual terms are generally five or ten years. A summary of stock option activity during the nine months ended February ~~28, 2019~~29, 2020 follows:

   Shares    Weighted-
Average
Exercise Price
Options outstanding June 1, 2018
   2,497,124    $ 42.63
Granted
   526,750    62.92
Exercised
   (418,598 )    30.76
Forfeited
   (105,835 )    46.50



Options outstanding February 28, 2019
   2,499,441    48.78


				Weighted-
				Average
(Options in thousands)	Shares			Exercise Price
Options outstanding June 1, 2019		2,385		$	49.37
Granted		561			63.91
Exercised		(686	)		40.07
Forfeited		(56	)		56.67

Options outstanding February 29, 2020		2,204		$	55.77

During the three and nine month periods ended February 29, 2020 and February 28, 2019, ~~and 2018,~~ the Company recorded $1,640,000 and $1,306,000 and ~~$1,026,000~~$4,795,000 and $4,137,000, ~~and $3,692,000,~~ respectively, of compensation expense related to its share-based awards.

The weighted-average fair value per share of stock options granted during the first nine months of fiscal ~~years 2019 and fiscal 2018,~~2020, estimated on the date of grant using the Black-Scholes option pricing model, was ~~$14.91 and $14.44, 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 2020
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~~2004; 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 million~~$1,256,000 of contingent consideration, due semiannually for the first five years, based on an excess net sales formula. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included 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 $878,000, intangible assets of $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. InSince February 2019, ~~$90,000 was~~$270,000 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 ~~for~~to tax purposes). These values are Level 3 fair value measurements. In September 2019, the former owner was paid the

$400,000

installment of

the purchase

price owed

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.

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On January 1, 2019, the Company acquired the assets of Edmonton, ~~Alberta-based~~Alberta based Delta Genomics Centre, an animal genomics laboratory in Canada. Delta’s laboratory operations were renamed Neogen Canada and the acquisition iswas intended to accelerate growth of the Company’s animal genomics business in Canada. Consideration for the purchase was $1,485,000 in cash. The ~~preliminary~~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 ~~$186,000~~$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 operation continue to be performed in ~~its current location,~~Edmonton, reporting within the Animal Safety segment.

On January 1, 2020, the Company acquired the stock of Productos Quimicos Magiar, a distributor of Neogen’s Food Safety products for the past 20 years, located in Argentina. Consideration for the purchase was $4,286,000 in net cash

with $3,786,000 paid at closing and $540,000 payable to the former owner on January 1, 2022, and up to $979,000 of contingent consideration, payable in one year, based upon an excess net sales formula.

The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $603,000, inventory of $446,000, machinery and equipment of $36,000,

other current assets of

$221,000, accounts payable of $383,000, other current liabilities of $312,000

, contingent consideration accrual of $640,000

non-current

deferred tax liabilities of $

384,000

, intangible assets of $

1,282,000

(with an estimated life of

5-10

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. This operation continue

to operate from its current location in Buenos A

res, Argentina, reporting within the Food Safety segment. It

managed through

Neogen

’s Latin America operation.

On January 1, 2020, the Company acquired the stock of Productos Quimicos Magiar, a distributor of Neogen’s Food Safety products for the past 20 years, located in Uruguay. Consideration for the purchase was $1,596,000 in net cash

with $1,386,000 paid at closing and $210,000 payable to the former owner on January 1, 2022, and up to $241,000 in contingent consideration, payable in one year, based upon an excess net sales formula.

The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $

280,000

, inventory of $

174,000

, machinery and equipment of $

16,000

other current assets

of $

68,000

, accounts payable of $

204,000

, other current liabilities of $

11,000

contingent consideration accrual of $159,000,

non-current

deferred tax liabilities of $

125,000

, intangible assets of $

498,000

(with an estimated life of

5-10

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. This operation continue

to operate from its current location in Montevideo, Uruguay, reporting within the Food Safety segment. It

managed through

Neogen

’s Latin America operation.

On January 9, 2020, the Company acquired the stock of Diessechem Srl, a distributor of food and feed diagnostics for the past 27 years, located in Italy. Consideration for the purchase was $3,455,000 in net cash. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $780,000, inventory of $5,000,

other curre

assets

of $189,000, accounts payable of $140,000, other current liabilities of $334,000,

non-current

deferred tax liabilities of $203,000, intangible assets of $780,000 (with an estimated life of

5-10

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. This operation continue

to operate from its current location in Milan, Italy, reporting within the Food Safety segment. It

managed through Neogen’s Scotland operation.

On January 31, 2020, the Company acquired the stock of Abtek Biologicals Limited, a manufacturer and supplier of culture media supplements and microbiology technologies. This acquisition enhances the Company’s culture media product line offering for the worldwide industrial microbiology markets. Consideration for the purchase was $1,339,000

in net cash, with $1,220,000 paid at closing and $119,000 payable to the former owner on January 31, 2021.

The preliminary purchase price allocation, based upon

the fair

value of these assets and liabilities determined using the income approach, included accounts receivable of $

135,000

, inventory of $

207,000

, machinery and equipment of $

105,000

, prepayments of $

6,000

, accounts payable of $

118,000

, other current liabilities of $

34,000

non-current

deferred tax liabilities of $

101,000

, intangible assets of $

435,000

(with an estimated life of

5-10

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. This manufacturing operation will continue to operate from its current location in Liverpool, England, reporting within the Food Safety segment. It

managed through

Neogen

’s Scotland operation.

On February 28, 2020, the Company acquired the assets of Cell BioSciences, an Australian distributor of food safety and industrial microbiology products. This acquisition gives Neogen a direct sales presence across Australasia for its entire product portfolio. Consideration for the purchase was $3,443,000 in cash. Due to the timing of the transaction, the preliminary purchase price allocation was not complete at the time of filing. The business

operated under Neogen’s name in Melbourne, Australia, reporting within the Animal Safety segment.

Subsequent to the end of the quarter, on March 26, 2020, the Company acquired the assets of Chile-based Magiar Chilena, a distributor of food, animal, and plant diagnostics, including Neogen products. Consideration for the purchase was $400,000 in cash, with $350,000 paid at closing and $50,000 payable to the former owner on March 26, 2021. Due to the timing of the transaction, the preliminary purchase price allocation was not complete at the time of filing. The business will be operated from its current location in Santiago, Chile, reporting within the Food Safety segment. It will be managed through Neogen’s Latin America operation.

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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 ~~30,~~1, 2019 to September 30, 2021. There were no0 advances against the line of credit during fiscal ~~2018~~2019 and there have been ~~none~~0ne thus far in fiscal ~~2019;~~2020; there was no0 balance outstanding at February ~~28, 2019.~~29, 2020. Interest on any borrowings is

ill be charged

at LIBOR plus 100 basis points (rate under the terms of the agreement was ~~3.58%~~2.51% at February ~~28, 2019)~~29, 2020). Financial covenants include maintaining specified levels of tangible net worth, debt service coverage, and funded debt to EBITDA, each of which the Company was in compliance with at February ~~28, 2019.~~

29, 2020.

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. The Company’s estimated liability for these costs was $916,000 at both February ~~28, 2019~~29, 2020 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. 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.

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PART I – FINANCIAL INFORMATION

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

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

The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations contains both historical financial information and forward-looking statements. Neogen does not provide forecasts of future financial performance. While management is optimistic about ~~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 Form10-Q. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be ~~forward looking~~forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. There are a number of important factors, including competition, recruitment and dependence on key employees, impact of weather on agriculture and food production, identification and integration of acquisitions, research and development risks, patent and trade secret protection, government regulation, widespread outbreak of an illness, including the COVID-19 pandemic, and other risks detailed from time to time in the Company’s reports on file at the Securities and Exchange Commission, that could cause Neogen Corporation’s results to differ materially from those indicated by such forward-looking statements, including those detailed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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

10-Q

was first filed with the Securities and Exchange Commission and should not be relied upon as representing management’s views as of any subsequent date. While management may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, even if its views change.

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Executive Overview

Consolidated revenues were $99.9 million in the third quarter of fiscal 2020, an increase of 2% compared to $97.7 million in the third quarter of fiscal ~~2019, an increase of 3% compared to $94.9 million~~2019. Organic sales growth in the third quarter of fiscal ~~2018. Organic sales in the third quarter also increased 3%~~2020 was 1%. For the ~~nine month~~year to date period, consolidated revenues were ~~$304.4~~$309.1 million, an increase of 5%2% compared to ~~$289.8~~$304.4 million in the same period in the prior fiscal year. ~~On a year to date basis, organic~~Organic sales ~~increased 4%.~~

rose 1% for the nine month period.

Food Safety segment sales were ~~$51.1~~$50.5 million in the third quarter of the current fiscal year, ~~an increase~~a decline of 8%1% compared to ~~$47.3~~$51.1 million in the same period of the prior year. Organic sales ~~in this segment also increased 8%, with a minor contribution~~declined 3% during the quarter; contributions from four acquisitions executed during the ~~August 1, 2018 acquisition of Clarus Labs.~~quarter totaled $990,000. For the year to date, Food Safety segment sales were ~~$157.0~~$158.4 million, an increase of ~~10%~~1% compared to ~~$142.8~~$157.0 million in the same period of the prior fiscal year; ~~the organic~~excluding acquisitions, sales ~~increase was also 10%.~~

were flat.

Animal Safety segment sales were $49.4 million in the third quarter of fiscal 2020, an increase of 6% compared to $46.6 million in the third quarter of fiscal ~~2019, a decrease of 2% compared to $47.6 million in the third quarter of fiscal 2018.~~2019. Organic sales in this segment ~~decreased 3%~~also rose 6% in the third quarter, with only a minor ~~contributions~~contribution from ~~the September 1, 2018 acquisition of Livestock Genetic Services and~~ the January 1, 2019 acquisition of Delta Genomics. For the ~~nine month period,~~year to date, Animal Safety segment sales were ~~$147.4~~$150.7 million, ~~flat~~an increase of 2% compared to ~~$147.0~~$147.4 million in the same period a year ago. Year to date organic sales decreased 1%, after excluding three months of the September 1, 2017 acquisition of Neogen Australasia, six months of the Livestock Genetic Services acquisition and two months of the Delta Genomics acquisition.

also increased 2%.

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

sales.

Our effective tax rate in the third quarter was ~~21.4%~~14.4% compared to ~~an effective tax rate of 4.1%~~21.4% in the prior year third quarter; the fiscal ~~2019~~2020 year to date effective tax rate was ~~17.0%~~15.6% compared to 17.0% for the same period a year to date effective tax rate of 14.7% in the prior fiscal year. The U.S. statutory rate is 21% in the current fiscal year and was 35% from June 1, 2017 until December 22, 2017, with the reminder of the prior fiscal year third quarter taxed at 21%. 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. Additionally, the third quarter of the prior year included a favorable adjustment to income tax expense to adjust deferred tax balances due to the decrease in the U.S. statutory tax rate.

ago.

Net income for the quarter ended February ~~28, 2019~~29, 2020 was ~~$13.1~~$12.2 million, or ~~$0.25~~$0.23 per diluted share, a decrease of ~~21%~~7% compared to ~~$16.6~~$13.1 million, or ~~$0.32~~$0.25 per share in the same period in the prior year. For the year to date, net income was ~~$44.4~~$43.1 million, or ~~$0.85~~$0.82 per ~~diluted~~ share, a decrease of 6%3% compared to prior year to date net income of ~~$45.6~~$44.4 million, or ~~$0.88~~$0.85 per diluted share.

Cash provided from operating activities in the first nine months of fiscal ~~2019~~2020 was ~~$43.0~~$60.3 million, compared to ~~$46.6~~$43.0 million in the ~~first three quarters~~same period of fiscal ~~2018.~~

2019.

~~Neogen’s results reflect an increase~~

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International sales were flat in ~~international sales of 9% in~~both the third quarter of fiscal ~~2019~~2020 and ~~12%~~ for the year to date, each compared to the same respective ~~period~~periods in the prior year. ~~We continue to focus on increasing~~The rate of growth in our ~~presence~~international revenues in the current fiscal year has been adversely impacted by currency devaluations in a number of the countries in which we operate, lower sales of our drug residue test kits by our largest European distributor, 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 nine 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
February 28, 2019

Nine Months Ended
February 28, 2019

   Revenue
% Increase/(Decrease)
USD Revenue
% Increase/(Decrease)
Local Currency Revenue
% Increase
USD Revenue
% Increase
Local Currency
Neogen Europe (including Lab M & Quat-Chem)
   11 % 18 % 12 % 15 %
Neogen do Brasil (including Deoxi & Rogama)
   (9 )% 5 % 10 % 31 %
Neogen Latinoamerica
   19 % 22 % 12 % 17 %
Neogen China
   9 % 15 % 6 % 9 %
Neogen India
   94 % 115 % 86 % 104 %


	Three Months Ended February 29, 2020						Nine Months Ended February 29, 2020
	Revenue			Revenue			Revenue			Revenue
	% Increase/(Decrease) USD			% Increase/(Decrease) Local Currency			% Increase USD			% Increase Local Currency
UK Companies		5	%		4	%		3	%		5	%
Brazilian Companies		(16	)%		(6	)%		(5	)%		1	%
Neogen Latinoamerica		15	%		11	%		8	%		7	%
Neogen China		37	%		41	%		20	%		24	%
Neogen India		18	%		19	%		11	%		11	%
Neogen Canada		75	%		73	%		135	%		135	%
Neogen Australasia		7	%		12	%		15	%		22	%

Currency translations reduced comparative revenues by approximately ~~$2.5 million~~$357,000 in the third quarter of fiscal ~~2019~~2020 compared to the same quarter a year ago, and by $2.5 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 and the Australian dollar for each period. The Mexican peso and the British pound strengthened relative to the ~~Australian~~U.S. dollar during the third quarter of 2020.

The 5% increase in third quarter revenues at our Neogen Europe operations included a 24% increase in sales of cleaners, disinfectants and veterinary instruments, offset somewhat by a 9% decline in culture media products, due to orders delayed into the ~~Mexican peso.~~fourth quarter and lower demand; sales of our allergen test kits increased 7%. For the year to date ~~currency translations reduced revenues by approximately $5.8 million~~period, overall sales increased 3%. Sales in Brazil declined 16% in the third quarter, primarily from the loss of forensics test kit business, due to a large commercial laboratory converting their testing protocol to a higher throughput method, and lower sales of genomics services due to a large sale in the prior year period which did not recur. Partially offsetting these declines was a large

non-recurring

sale of insecticides to a government agency. For the nine month period, sales at our Brazilian operations decreased 5% compared to the prior year.

~~The increase~~ At Neogen Latinoamerica, sales increased 15% for the third quarter compared to the prior year, with strong sales of rodenticides in ~~revenues at Neogen Europe~~Mexico and broad based strength across the diagnostics business during the period; for the year to date, strong diagnostics test kit sales were somewhat offset by lower sales of cleaners and disinfectants. Robust sales of cleaners and disinfectants in China in the third quarter of fiscal ~~2019 was led by an 18%~~2020, due in part to the

COVID-19

pandemic, drove the 38% increase in revenue and offset lower sales of ~~genomics services, primarily~~diagnostic test kit sales in the ~~porcine and bovine markets; genomics sales increased 24%~~period; for the year to ~~date. Neogen Europe continues to have strong sales of test kits to detect deoxynivalenol (DON) in grain, due to~~date, revenues increased testing after a DON outbreak in France’s wheat crops in the fall of 2018. At Neogen do Brasil, sales of natural toxins test kits increased 36% and 64% for the three and nine months, respectively, both compared to the same periods a year ago, as we gained significant new business testing for the presence of aflatoxin in corn. Sales of forensic test kits increased significantly in the third quarter and year to date20% over the prior year periods due to business that shifted from U.S. labs to labs in Brazil and increased demand from commercial laboratories located in Brazil. Neogen Latinoamerica’s third quarter sales increase of 19% was led by a 64% increase in sales of AccuPoint sanitation monitoring products, due to increased market share.

year.

Service revenue was ~~$20.3~~$22.1 million in the third quarter of fiscal ~~2019,~~2020, an increase of ~~15%~~9% over prior year third quarter revenues of ~~$17.7~~$20.3 million, including a minor ~~contributions~~contribution from the ~~acquisitions~~January 1, 2019 acquisition of ~~Livestock Genetics Services and~~ Delta Genomics. For the nine month period, service revenue was ~~$54.5~~$62.0 million, an increase of ~~12%~~14% over prior year revenues of ~~$48.6~~$54.5 million. Year to date service revenues were aided by the ~~Livestock Genetics Services and~~ Delta Genomics ~~acquisitions~~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 domestic companion animal market, and to a lesser extent, increases in ~~sales of genomic services to the~~our global beef ~~markets,~~ and ~~porcine and bovine markets in Europe.~~

dairy cattle markets.

Table of Contents

Revenues

   Three Months Ended February 28,
   2019    2018    Increase/
(Decrease)    %
   (in thousands)
Food Safety

Natural Toxins, Allergens & Drug Residues
   $ 18,612    $ 16,807    $ 1,805    11 %
Bacterial & General Sanitation
   9,519    8,992    527    6 %
Culture Media & Other
   11,893    10,179    1,714    17 %
Rodenticides, Insecticides & Disinfectants
   5,953    7,359    (1,406 )    (19 )%
Genomics Services
   5,136    3,976    1,160    29 %







   $ 51,113    $ 47,313    $ 3,800    8 %
Animal Safety

Life Sciences
   $ 1,823    $ 2,769    $ (946 )    (34 )%
Veterinary Instruments & Disposables
   10,682    10,630    52    0 %
Animal Care & Other
   6,823    7,245    (422 )    (6 )%
Rodenticides, Insecticides & Disinfectants
   13,256    14,255    (999 )    (7 )%
Genomics Services
   14,003    12,691    1,312    10 %







   $ 46,587    $ 47,590    $ (1,003 )    (2 )%







Total Revenues
   $ 97,700    $ 94,903    $ 2,797    3 %







   Nine Months Ended February 28,
   2019    2018    Increase/
(Decrease)    %
   (in thousands)
Food Safety

Natural Toxins, Allergens & Drug Residues
   $ 58,021    $ 54,960    $ 3,061    6 %
Bacterial & General Sanitation
   30,807    27,435    3,372    12 %
Culture Media & Other
   36,302    31,353    4,949    16 %
Rodenticides, Insecticides & Disinfectants
   18,521    18,175    346    2 %
Genomics Services
   13,395    10,887    2,508    23 %







   $ 157,046    $ 142,810    $ 14,236    10 %
Animal Safety

Life Sciences
   $ 5,794    $ 7,589    $ (1,795 )    (24 )%
Veterinary Instruments & Disposables
   32,769    32,804    (35 )    0 %
Animal Care & Other
   22,439    22,894    (455 )    (2 )%
Rodenticides, Insecticides & Disinfectants
   48,921    49,422    (501 )    (1 )%
Genomics Services
   37,455    34,292    3,163    9 %







   $ 147,378    $ 147,001    $ 377    0 %







Total Revenues
   $ 304,424    $ 289,811    $ 14,613    5 %


	Three Months Ended February 29/28,
	2020		2019		Increase/ (Decrease)			%
			(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	17,154	$	18,612	$	(1,458	)		(8	)%
Bacterial & General Sanitation		9,413		9,519		(106	)		(1	)%
Culture Media & Other		11,222		11,893		(671	)		(6	)%
Rodenticides, Insecticides & Disinfectants		7,964		5,953		2,011			34	%
Genomics Services		4,745		5,136		(391	)		(8	)%

	$	50,498	$	51,113	$	(615	)		(1	)%

Animal Safety
Life Sciences	$	1,376	$	1,823	$	(447	)		(25	)%
Veterinary Instruments & Disposables		10,799		10,682		117			1	%
Animal Care & Other		6,667		6,554		113			2	%
Rodenticides, Insecticides & Disinfectants		14,558		13,525		1,033			8	%
Genomics Services		15,971		14,003		1,968			14	%

	$	49,371	$	46,587	$	2,784			6	%

Total Revenues	$	99,869	$	97,700	$	2,169			2	%

Nine Months Ended
February 29/28,

2020

2019

Increase/
(Decrease)

%

(in thousands)

Food Safety

Natural Toxins, Allergens & Drug Residues
$
57,950
$
58,021
$
(71
)
0
%
Bacterial & General Sanitation

31,345

30,807

538

2
%
Culture Media & Other

35,259

36,302

(1,043
)
(3
)%
Rodenticides, Insecticides & Disinfectants

20,859

18,521

2,338

13
%
Genomics Services

12,961

13,395

(434
)
(3
)%

$
158,374
$
157,046
$
1,328

1
%

Animal Safety

Life Sciences
$
4,901
$
5,794
$
(893
)
(15
)%
Veterinary Instruments & Disposables

32,621

32,769

(148
)
0
%
Animal Care & Other

20,859

21,900

(1,041
)
(5
)%
Rodenticides, Insecticides & Disinfectants

47,462

49,460

(1,998
)
(4
)%
Genomics Services

44,879

37,455

7,424

20
%

$
150,722
$
147,378
$
3,344

2
%

Total Revenues
$
309,096
$
304,424
$
4,672

2
%

22
Table of Contents

Food Safety

Natural Toxins, Allergens & Drug Residues –

Sales in this category ~~increased 11%~~decreased 8% and 6%were flat for the ~~three and~~ nine month ~~periods~~period ended February ~~28, 2019,~~29, 2020, respectively, compared to the same periods in the prior year. ~~For~~In the third quarter, sales of drug residue test kits were down 47%, resulting from lower demand at our European distributor. Effective January 1, 2020, we have modified our contract with this distributor to eliminate their exclusive distribution of our dairy drug residue test kits and we have begun selling this product line directly to end customers through Neogen Europe. Partially offsetting this decrease, sales of our allergens product line and natural toxin test kit revenues both increased ~~17%, due to new business for aflatoxin test kits in Brazil and DON test kits in~~4%. For the ~~U.S. and France, the result of mild outbreaks. Sales of drug residue test kits, including dairy antibiotics, increased 8% and~~nine month period, sales of our allergens product line increased ~~7%. For the year to date period,~~8% and natural ~~toxin~~toxins test kit ~~sales~~revenues increased ~~12%~~5%, ~~sales of our allergens product line increased 6% and~~while sales of drug residue test kits ~~decreased 7%, the result of lower demand in Europe.~~

declined 29%.

Bacterial & General Sanitation –

Revenues in this category ~~increased 6%~~decreased 1% in the third quarter and ~~12%~~increased 2% for the year to date, both compared to the same periods in the prior year. In the third quarter, sales of ~~test kits to detect pathogens increased 16%, and rose 27% for the year to date, as we continued to gain new business with our~~~~Listeria~~~~Right Now test kit that launched in fiscal 2018, and sales of~~ our AccuPoint sanitation monitoring product line increased ~~11% for~~5% on higher sales of both equipment and related samplers; sales of test kits to detect pathogens decreased 7%, in part due to higher equipment sales in the ~~quarter and~~prior year ~~to date periods.~~third quarter. Sales of products to detect spoilage organisms in processed foods decreased 3%, due to lack of availability of certain consumable vials because of manufacturing issues, which have since been resolved. For the year to date, sales of our AccuPoint product line increased 13% and pathogen test kit revenues increased 2%, while sales of products to detect spoilage organisms decreased 10%.

Culture Media & Other –

Sales in this category decreased 6% in the quarter ended February 29, 2020 compared to the third quarter ~~due to higher equipment placements~~ in the prior year; for the nine month period, sales ~~of this product line increased 7%.~~

~~Culture Media~~ ~~& Other –~~ ~~Sales in this category increased 17% in the quarter ended February 28, 2019 compared to the third quarter in the prior year; the year to date increase is 16%~~decreased 3%. ~~In the third quarter, sales~~Sales of Neogen Culture Media ~~formerly marketed as~~decreased 7% and were flat for the ~~Acumedia~~quarter and ~~Lab M brands, increased 5%, aided in part by the August 2018 acquisition of Clarus Labs, which consists of the Colitag product and reports~~year to date periods, respectively. The decrease in the ~~culture media product line.~~third quarter is primarily due to order timing and lower end market demand. This category also includes forensic test kits sold within Brazil, which ~~increased~~decreased significantly in both the third quarter and for the year to date ~~periods due~~as a large customer moved to a ~~shift in business~~higher throughput testing method. For both periods, this category also benefitted from ~~labs~~lower rebate payments to a European distributor in the ~~U.S. to labs in Brazil and increased demand from commercial laboratories in that country.~~

current fiscal year.

Rodenticides, Insecticides & Disinfectants –

Revenues in this category ~~decreased 19%~~increased 34% in the third quarter of fiscal ~~2019~~2020 compared to the same period a year ago, primarily from strength of disinfectant products in China due to the

COVID-19

outbreak. The quarter was also aided by a large~~one-time~~ sale of rodenticides in Mexico and the final shipment of a

non-recurring

sale of insecticide products to a governmental agency in Nicaragua. For the year to date, sales in this category increased 8%.

Genomics Services –

Sales of genomics services sold through our international Food Safety operations decreased 8% for the three month period ended February 29, 2020; revenues decreased 3% for the nine month period. For each comparative period, the decrease was caused primarily by lower sample volumes in our Brazilian genomics operations, resulting from a large government order in the prior year ~~at Rogama~~which has not recurred in the current year. Currency also negatively impacted revenues in the current fiscal year as both the British pound and the Brazilian real have weakened relative to the U.S. dollar. The Company has sizable genomics revenues in the U.K. and in Brazil, ~~resulting from a government contract. Partially offsetting this were increases of disinfectant sales to customers in Europe, China~~where the pound and ~~India. Year to date revenues increased 2%.~~

~~Genomics Services –~~~~Sales in this category increased 29% and 23% for~~real, respectively, are the three and nine month periods, ended February 28, 2019, respectively. The increase for both the third quarter and year to date periods was primarily from higher sales in the European porcine and bovine markets; additionally, the third quarter benefited from a large research project with the Brazilian government.

functional currencies.

Animal Safety

Life Sciences –

Sales in this category decreased ~~34%~~25% in the third quarter, as compared to the same period in the prior year, as approximately $740,000 of forensic test kit sales shifted to our operations in Brazil, which are reported in the Food Safety Segment. The products were formerly served by our Animal Safety operation in Lexington, KY. Additionally, revenuesyear; for ~~two large customers in the forensics market were down in the third quarter due to order timing. For~~ the year to date, the decrease in this product line ~~was 24%~~is 15%.

The prior year included sales to a commercial laboratory customer which did not recur in fiscal 2020. Additionally, sales of substrates and reagents declined significantly in the third quarter, the result of order timing from a large customer.

Veterinary Instruments & Disposables –

Revenues in this category increased 1% for the three month period ended February 29, 2020; for the year to date, sales were ~~flat compared to the prior year, for~~flat. For both the ~~three~~quarter and ~~nine month~~year to date periods, ~~ended February 28, 2019. Protective wear~~growth in marking and ~~consumables sales decreased 36% in the third quarter, resulting from continued poor economic conditions in the commercial dairy production market; this decline~~other disposable products was essentially offset by ~~a 12% increase in veterinary instruments~~decreased sales ~~led by strength in~~of various types of needles, ~~and syringes.~~

due to high inventory levels at our largest distributors.

Animal Care & Other –

Sales of these products ~~decreased 6%~~increased 2% in the third quarter and 2%decreased 5% for the year to date. ~~Promotional programs with distributors are recorded as a contra revenue within this category.~~ In the third quarter, ~~of the current fiscal year, several annual promotional programs ended and the final adjustments~~animal care revenues decreased 4% due to ~~estimates previously recorded resulted in a higher reduction of revenues than in the prior year. Partially offsetting these adjustments was a 13% increase in~~lower sales to our larger U.S. distributors while sales of ~~vaccines.~~

~~Rodenticides, Insecticides~~ ~~& Disinfectants –~~Revenues in this category decreased 7% and 1% for the three and nine month periods ended February 28, 2019, respectively. In the third quarter, rodenticide sales decreased 28%, the result of poor weather conditions causing lower demand and a weak U.S. animal protein market partially caused by tariff issues; the year to date decrease was 6% due to the loss of toll manufacturing business from the first half of the prior year. Also in the third quarter, cleaner and disinfectant sales grew 18% due to increased demand from international customers.disposable dairy supplies rose 5%. For the year to date ~~cleaner~~period, animal care revenues were 4% lower than the prior year, while dairy supplies were 2% lower. Timing of adjustments to promotional programs with distributors, which are recorded as contra revenues within this category, also contributed to the year to date decline.

Table of Contents

Rodenticides, Insecticides & Disinfectants –

Revenues in this category increased 8% for the three month period ended February 29, 2020, but decreased 4% for the year to date period. For the quarter, rodenticide sales rose 26% on the success of retail marketing programs and ~~disinfectant~~insecticide sales ~~increased 4%~~were up 5%.

These gains for the three month period were partially offset by a 1% decline in sales of cleaners and disinfectants. For the year to date, rodenticides were down 2%, insecticides were down 6%, and cleaners and disinfectants declined 5%.

Genomics Services –

Sales in this category increased ~~10%~~14% in the third quarter and 9%20% for the year to date period, both compared to the prior ~~year. The third quarter increase included minor contributions from~~year; the September 2018 acquisition of Livestock ~~Genetics~~Genetic Services and the January 2019 acquisition of Delta Genomics ~~acquisitions while~~contributed a minor amount of the ~~year to date increase included those acquisitions and three months of sales from the September 2017 acquisition of Neogen Australasia. For~~growth in this category. The growth in both the three and nine month periods was the result of significant volume increases 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, and ~~companion animal markets was offset by revenue~~

~~decreases in U.S. poultry and~~ porcine ~~markets, despite increases in sample volumes, resulting from a shift to lower priced chips and services.~~

markets.

Gross Margin

Gross margin was ~~45.7%~~45.4% in the third quarter of fiscal ~~2019~~2020 compared to ~~47.0%~~45.7% in the same quarter a year ago. The ~~decline~~change in gross margin ~~for the three month period~~ is due primarily to ~~stronger growth in our international markets, which were adversely impacted by currency fluctuations, and~~ a ~~shift~~change in product mix ~~within both the Food Safety and~~resulting from a higher proportion of sales from the Animal Safety ~~segments, with higher revenue increases on product lines with~~segment, which have lower gross margins than products sold through the ~~historical averages within these segments.~~Food Safety segment. Gross margin for the nine month period ended February ~~28, 2019~~29, 2020 was ~~46.4%~~46.8% compared to ~~47.5%~~46.4% in the same period of the prior year, ~~for~~primarily the ~~same reasons.~~

result of higher gross margins within the Animal Safety segment resulting from a 250 basis point margin improvement in the domestic genomics service business, due to a significant increase in revenues in the companion animal testing business, which have higher gross margins than other services within this business.

Operating Expenses

Operating expenses were ~~$30.0~~$32.3 million in the third quarter, ~~of fiscal 2019,~~ compared to ~~$28.7~~$30.0 million in the same quarter of the prior year, an increase of ~~$1.3 million, or 5%~~8%. Sales and marketing expenses ~~increased 1%~~rose $953,000, or 6%, ~~as increases in~~primarily due to personnel related expenses, and higher shipping, regulatory and ~~contracted services were almost entirely offset by lower promotional and advertising expenses. For the year to date, sales and marketing expenses have increased 6%.~~product registration costs. General and administrative expense ~~increased $738,000,~~rose $771,000, or 8%, ~~for the third quarter,~~ resulting from increases in ~~share-based~~stock based compensation expense, personnel costs, legal and professional fees resulting from acquisitions completed in the quarter, and depreciation related to investments in information technology. Research and development expense was $3.8 million in the third quarter, an increase of $574,000, or 18%, compared to the same period in the prior year. The increase is primarily the result of development spending and outside services relating to a number of new products, which are expected to be launched in late fiscal 2020 or early fiscal 2021.

Operating expenses for the nine month period ended February 29, 2020 were $97.0 million, an increase of $4.9 million, or 5%, compared to the prior year. Driving the increase were research and development spending increases of $2.1 million, or 22%, due primarily to new product development, and a $2.1 million, or 7%, increase in general and administrative expense. The increase in general and administrative expense was led by increased stock based compensation expense, higher legal and professional fees, and training costs. For the year to date, general and administrative expenses have risen by 4%. Research and development expense increased $413,000, or 15%, primarily the result of contracted services supporting new product development. For the year to date, research and development expense has increased 4%, and overall operating expenses for the Company increased $4.6 million, or 5%.

an increase in depreciation expense.

Operating Income

Operating income was ~~$14.6~~$13.0 million in the third quarter of fiscal ~~2019,~~2020, compared to ~~$15.9~~$14.6 million in the same period of the prior year; year to date operating income was ~~$49.4~~$47.6 million compared to ~~$50.3~~$49.4 million in the prior year. Expressed as a percentage of sales, operating income was ~~15.0%~~13.1% for the third quarter ~~of fiscal 2019 compared to 16.8% in last year’s third quarter;~~and 15.4% for the year to date, ~~operating income was 16.2%,~~ compared to ~~17.4%~~15.0% and 16.2%, respectively, in the prior ~~fiscal~~ year. The decline in operating margin percentage for each period in the current fiscal year was primarily the result of ~~the lower gross margin percentage, and to a lesser extent,~~ operating expenses ~~which rose at a rate greater~~that increased more than ~~or equal to~~ the rate of revenue growth.

Additionally, in the third quarter of fiscal 2020, the gross margin percentage declined by 30 basis points; for the year to date, the gross margin percentage has increased by 40 basis points.

Table of Contents

Other Income

   Three Months Ended    Nine Months Ended
   February 28,    February 28,
(dollars in thousands)
   2019    2018    2019    2018
Interest income (net of expense)
   $ 1,335    $ 524    $ 3,290    $ 1,322
Foreign currency transactions
   104    179    (354 )    1,140
Royalty income
   —      —      60    78
Deoxi contingent consideration
   —      (49 )    (9 )    (148 )
Quat-Chem contingent consideration
   —      255    422    255
Other
   545    459    688    588








Total Other Income
   $ 1,984    $ 1,368    $ 4,097    $ 3,235


	Three Months Ended					Nine Months Ended
	February 29/28					February 29/28
(dollars in thousands)	2020			2019		2020			2019
Interest income (net of expense)	$	1,600		$	1,335	$	4,381		$	3,290
Foreign currency transactions		(420	)		104		(889	)		(354	)
Royalty income		—			—		1			60
Deoxi contingent consideration		—			—		—			(9	)
Quat-Chem contingent consideration		—			—		—			422
Other		28			545		56			688

Total Other Income	$	1,208		$	1,984	$	3,549		$	4,097

The increase in interest income in both the three and nine month periods of fiscal 2020 compared to the same periods a year ago was the result of higher cash and marketable securities balances. Other expense resulting from foreign currency transactions was primarily the result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate.

Income Tax Expense

Income tax expense in the third quarter of fiscal ~~2019~~2020 was $2.1 million, an effective tax rate of 14.4%, compared to $3.6 million, an effective tax rate of 21.4% ~~compared to $0.7 million, an effective tax rate of 4%~~, in the same period of the prior year. InFor the year to date, income tax expense was $8.0 million, an effective rate of 15.6%, in fiscal 2020 and $9.1 million, an effective rate of 17.0%, in fiscal 2019. For each period, the primary difference between the statutory rate of 21% and the effective rates recorded is the benefit resulting from the exercise of stock options; this benefit was $781,000 in the third quarter of fiscal 2020 compared to $291,000 in the third quarter of the prior year, the Company recorded favorable tax adjustments totaling $2.9 million as the result of corporate tax reform enacted in December 2017, which reduced the U.S. statutory income tax rate from 35% to 21%. For the first nine months of fiscal 2019, income tax expense was $9.1 million compared to $7.9 million in the prior year; the year to date effective tax rate was 17.0%, compared to an effective tax rate of 14.7% in the prior fiscal year. For the year to date, ~~period,~~ the ~~Company recorded a total credit~~benefit was $2,754,000 in fiscal 2020 compared to $3,065,000 in fiscal 2019. For both periods in the current fiscal year, adjustments to research and development credits and other deductions related to the Tax Reform Act of ~~$3.0 million to federal~~2017 resulted in lower effective income tax expense for tax benefits resulting from the exercise of stock options, compared to $3.4 million in the prior year. In the first half of fiscal 2018, the Company also reversed a total of $816,000 from its reserve for uncertain tax positions, which had been accrued in prior fiscal years, with a corresponding credit to federal income tax expense, due to the conclusion of an IRS audit for fiscal years 2014, 2015, and 2016.

rates.

Net Income

Net income was ~~$13.1~~$12.2 million in the third quarter of fiscal ~~2019,~~2020, a 7% decrease compared to ~~$16.6~~$13.1 million in the same period in the prior year. ~~Earnings~~The change in earnings for this year’s third quarter was the result of lower pretax income, offset somewhat by the decrease in the ~~prior year quarter were favorably impacted by the lower~~effective tax ~~expense resulting from the corporate tax reform and revaluation of deferred tax balances in that quarter.~~rate. For the year to date, net income ~~was~~decreased 3% from $44.4 million ~~compared~~ to ~~$45.6 million in~~$43.1 million; for the ~~same~~nine month period, ~~last year; the $1.2 million decline~~current year net income was ~~due to the~~also negatively impacted by lower pretax income, offset somewhat by a lower effective tax ~~expense in the prior year.~~

rate.

Financial Condition and Liquidity

The overall cash, cash equivalents and marketable securities position of Neogen was ~~$246.7~~$327.9 million at February ~~28, 2019,~~29, 2020, compared to ~~$210.8~~$267.5 million at May 31, ~~2018.~~2019. Approximately ~~$43.0~~$60.3 million was generated from operations during the first nine months of fiscal ~~2019.~~2020. Net cash proceeds of ~~$13.8~~$27.9 million were realized from the exercise of stock options and issuance of shares under our Employee Stock Purchase Plan during the first nine months of fiscal ~~2019.~~2020. We spent ~~$11.9~~$16.3 million for property, equipment and other

non-current

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

2020, and approximately $9.7 million on acquisitions during the same period.

Net accounts receivable balances were ~~$80.0~~$80.7 million at February ~~28, 2019, an increase~~29, 2020, a decrease of ~~$0.9~~$1.9 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 66 days at February 29, 2020, compared to 61 days at May 31, 2019 and 68 days at February 28, 2019, compared to 63 days at November 30, 2018, 64 days at August 31, 2018 and 60 days at May 31, 2018; the increase in the current year is primarily attributable to the higher levels of sales at our international operations, which generally take more time to collect.2019. All customer accounts are actively managed and no losses in excess of amounts reserved are currently ~~expected.~~

expected; attention is being paid to the potential negative impact of COVID-19 on our customers’ ability to pay their bills.

Table of Contents

Net inventory balances were ~~$84.9~~$89.2 million at February ~~28, 2019,~~29, 2020, an increase of ~~$8.9~~$3.2 million ~~or 12%,~~ compared to a May 31, ~~2018~~2019 balance of ~~$76.0 million; the increase is due to lower than forecasted sales at the end of the quarter, and to higher levels necessary to support the business.~~$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 in place to improve our turnover in fiscal ~~2019.~~

2020; however, during the year we have increased inventory levels at our European operations to mitigate potential supply chain disruptions from a disorderly Brexit. Also, during the third quarter, in anticipation of possible supply disruptions due to the

COVID-19

pandemic, we reviewed our inventories of key raw materials and adjusted levels upward in some instances to ensure product availability.

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 ~~efficiency improvements.~~

cost efficiencies.

Management believes that our existing cash and marketable securities balances at February ~~28, 2019,~~29, 2020, 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~~execute our 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.

The

COVID-19

pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

Table of Contents

PART I – FINANCIAL INFORMATION

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk~~

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 February ~~28, 2019)~~29, 2020) 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, the Canadian dollar, the Argentine peso and the ~~Canadian dollar.~~Uruguayan peso. 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, Italy, Brazil, Mexico, Argentina, Uruguay, China, India, Canada, and Australia where the functional currency is the British pound sterling, euro, Brazilian real, Mexican peso, Argentine peso, Uruguay peso, Chinese yuan, Indian rupee, Canadian dollar and the Australian dollar respectively, and also transacts business throughout Europe in the euro. The Company’s investments in foreign subsidiaries are considered to be long-term.

PART I – FINANCIAL INFORMATION

~~Item 4. Controls and Procedures~~

~~Evaluation of Disclosure Controls and Procedures~~

Item 4.

Controls and Procedures

Evaluation

of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of February ~~28, 2019~~29, 2020 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 February ~~28, 2019~~29, 2020 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Table of Contents

PART II – OTHER INFORMATION

~~Item 1. Legal Proceedings~~

Subsequent to the end of the third quarter, the Company settled a dispute with PerkinElmer, Bioo Scientific and Richard E. Calk, Jr., the former President and Chief Operating Officer of Neogen, regarding non-compliance with the terms of Mr. Calk’s non-competition agreement following his departure from Neogen in September, 2017. Per the terms of a court order, entered into on March 15, 2019, Mr. Calk was ordered to strictly comply with the non-competition clause of his separation agreement with the Company through September 1, 2019, and PerkinElmer and Bioo Scientific are prohibited from either directly or indirectly rehiring or engaging Mr. Calk for a period of 18 months.

Item 1.

Legal Proceedings

The Company is subject to ~~other~~ 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 2. Unregistered Sales~~

Item 1A.

Risk Factors

Other than the risk factors set forth below, there have been no material changes from the risk factors disclosed in our Annual Report on Form
10-K
for the fiscal year ended May 31, 2019.

The widespread outbreak of ~~Equity Securities~~an illness or any other communicable disease, or any other public health crisis, could adversely affect our business, results of operations and ~~Use of Proceeds~~

~~Purchases of Equity Securities~~financial condition.

We could be negatively impacted by the ~~Issuer~~

widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, an outbreak of a new strain of coronavirus

(“COVID-19”)

began in Wuhan, Hubei Province, China. In March 2020, the World Health Organization declared

COVID-19

a pandemic. The

COVID-19

pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The ~~following table summarizes shares repurchased pursuant~~extent of the impact of the

COVID-19

pandemic on our operational and financial performance, including our ability to execute our ~~share repurchase program during~~business strategies and initiatives in the ~~three months ended February 28, 2019 (in thousands except for price per share):~~

Period    Total Number
of Shares
Purchased Average Price
Paid per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Programs Approximate
Number of Shares
that May Yet Be
Purchased Under
the Programs
December 1, 2018 - December 31, 2018
   50 $ 62.69 50 2,950
January 1, 2019 - January 31, 2019
   —   —   —   —
February 1, 2019 - February 28, 2019
   —   —   —   —


Total
   50 $ 62.69 50 2,950

~~Item 6. Exhibits~~

expected time frame, will depend on future developments, including the duration and spread of the pandemic and related restrictions on travel and transports, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

Item 6.

Exhibits

(a) Exhibit Index


3
	3	Articles of Incorporation, as restated (incorporated by reference to Exhibit 3 to the registrant’s Form10-Q filed on December 28, 2018)

10
	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~~
	31.1	Certification of Chief Executive Officer pursuant to Rule13a-14(a).

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

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

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

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

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

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

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

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

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

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

Table of Contents

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: April 3, 2020
~~NEOGEN CORPORATION~~
~~(Registrant)~~

~~Dated: March 29, 2019~~

~~Dated: March 29, 2019~~

Dated: April 3, 2020


	February 28, 2019			May 31, 2018
	(Unaudited)			(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	93,576		$	83,074
Marketable securities (at fair value, which approximates cost)		153,104			127,736
Accounts receivable, less allowance of $1,700 and $1,550		80,011			79,086
Inventories		84,870			76,005
Prepaid expenses and other current assets		11,041			9,888

Total Current Assets		422,602			375,789
Net Property and Equipment		76,453			73,069
Other Assets
Goodwill		104,077			99,558
Othernon-amortizable intangible assets		15,658			14,783
Amortizable customer-based intangibles, net of accumulated amortization of $27,184 and $24,579 at February 28, 2019 and May 31, 2018, respectively		30,007			31,841
Othernon-current assets, net of accumulated amortization of $12,304 and $12,470 at February 28, 2019 and May 31, 2018, respectively		23,788			22,969

Total Assets	$	672,585		$	618,009

Liabilities and Equity
Current Liabilities
Accounts payable	$	18,952		$	20,750
Accrued compensation		5,391			6,065
Income taxes		—			165
Other accruals		9,925			11,708

Total Current Liabilities		34,268			38,688
Deferred Income Taxes		14,211			14,103
OtherNon-Current Liabilities		4,190			5,043

Total Liabilities		52,669			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, 120,000,000 shares authorized, 52,120,422 and 51,735,732 shares issued and outstanding at February 28, 2019 and May 31, 2018, respectively		8,339			8,278
Additionalpaid-in capital		217,274			202,572
Accumulated other comprehensive loss		(9,129	)		(9,746	)
Retained earnings		403,432			359,071

Total Stockholders’ Equity		619,916			560,175

Total Liabilities and Equity	$	672,585		$	618,009


	Three Months Ended February 28,				Nine Months Ended February 28,
	2019		2018		2019		2018
Revenues
Product revenues	$	77,375	$	77,184	$	249,897	$	241,200
Service revenues		20,325		17,719		54,527		48,611

Total Revenues		97,700		94,903		304,424		289,811
Cost of Revenues
Cost of product revenues		41,902		40,283		132,157		124,520
Cost of service revenues		11,170		10,019		30,877		27,517

Total Cost of Revenues		53,072		50,302		163,034		152,037

Gross Margin		44,628		44,601		141,390		137,774
Operating Expenses
Sales and marketing		16,722		16,572		52,454		49,442
General and administrative		10,018		9,280		30,337		29,096
Research and development		3,249		2,836		9,235		8,901

Total Operating Expenses		29,989		28,688		92,026		87,439

Operating Income		14,639		15,913		49,364		50,335
Other Income
Interest income		1,335		524		3,290		1,322
Other income		649		844		807		1,913

Total Other Income		1,984		1,368		4,097		3,235

Income Before Taxes		16,623		17,281		53,461		53,570
Provision for Income Taxes		3,550		700		9,100		7,900

Net Income		13,073		16,581		44,361		45,670
Net (Income) Loss Attributable toNon-Controlling Interest		—		5		—		(70	)

Net Income Attributable to Neogen	$	13,073	$	16,586	$	44,361	$	45,600

Net Income Attributable to Neogen Per Share
Basic	$	0.25	$	0.32	$	0.86	$	0.89

Diluted	$	0.25	$	0.32	$	0.85	$	0.88


	Common Stock						Additional Paid-in			Accumulated Other Comprehensive			Retained
	Shares			Amount			Capital			(Loss)			Earnings		Total
Balance at May 31, 2018		51,736		$	8,278		$	202,572		$	(9,746	)	$	359,071	$	560,175
Issuance of shares under share-based compensation plan		251			40			8,433			—			—		8,473
Issuance of shares under employee stock purchase plan		8			2			517			—			—		519
Net income for the three months ended August 31, 2018		—			—			—			—			15,237		15,237
Other comprehensive (loss)		—			—			—			(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		—			—			—			290			—		290

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

Issuance of shares under share-based compensation plan		78			12			4,146			—			—		4,158
Issuance of shares under employee stock purchase plan		10			1			640			—			—		641
Shares repurchased		(50	)		(8	)		(3,127	)		—			—		(3,135	)
Net income for the three months ended February 28, 2019		—			—			—			—			13,073		13,073
Other comprehensive income		—			—			—			3,105			—		3,105

Balance at February 28, 2019		52,120		$	8,339		$	217,274		$	(9,129	)	$	403,432	$	619,916


	Three Months Ended							Nine Months Ended
	February 28, 2018							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


	February 28, 2019		May 31, 2018
	(in thousands)
Raw materials	$	38,944	$	36,702
Work-in-process		6,758		5,993
Finished and purchased goods		39,168		33,310

	$	84,870	$	76,005


	Shares			Weighted- Average Exercise Price
Options outstanding June 1, 2018		2,497,124		$	42.63
Granted		526,750			62.92
Exercised		(418,598	)		30.76
Forfeited		(105,835	)		46.50

Options outstanding February 28, 2019		2,499,441			48.78


	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 February 28, 2019						Nine Months Ended February 28, 2019
	Revenue % Increase/(Decrease) USD			Revenue % Increase/(Decrease) Local Currency			Revenue % Increase USD			Revenue % Increase Local Currency
Neogen Europe (including Lab M & Quat-Chem)		11	%		18	%		12	%		15	%
Neogen do Brasil (including Deoxi & Rogama)		(9	)%		5	%		10	%		31	%
Neogen Latinoamerica		19	%		22	%		12	%		17	%
Neogen China		9	%		15	%		6	%		9	%
Neogen India		94	%		115	%		86	%		104	%


	Three Months Ended February 28,
	2019		2018		Increase/ (Decrease)			%
	(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	18,612	$	16,807	$	1,805			11	%
Bacterial & General Sanitation		9,519		8,992		527			6	%
Culture Media & Other		11,893		10,179		1,714			17	%
Rodenticides, Insecticides & Disinfectants		5,953		7,359		(1,406	)		(19	)%
Genomics Services		5,136		3,976		1,160			29	%

	$	51,113	$	47,313	$	3,800			8	%
Animal Safety
Life Sciences	$	1,823	$	2,769	$	(946	)		(34	)%
Veterinary Instruments & Disposables		10,682		10,630		52			0	%
Animal Care & Other		6,823		7,245		(422	)		(6	)%
Rodenticides, Insecticides & Disinfectants		13,256		14,255		(999	)		(7	)%
Genomics Services		14,003		12,691		1,312			10	%

	$	46,587	$	47,590	$	(1,003	)		(2	)%

Total Revenues	$	97,700	$	94,903	$	2,797			3	%


	Nine Months Ended February 28,
	2019		2018		Increase/ (Decrease)			%
	(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	58,021	$	54,960	$	3,061			6	%
Bacterial & General Sanitation		30,807		27,435		3,372			12	%
Culture Media & Other		36,302		31,353		4,949			16	%
Rodenticides, Insecticides & Disinfectants		18,521		18,175		346			2	%
Genomics Services		13,395		10,887		2,508			23	%

	$	157,046	$	142,810	$	14,236			10	%
Animal Safety
Life Sciences	$	5,794	$	7,589	$	(1,795	)		(24	)%
Veterinary Instruments & Disposables		32,769		32,804		(35	)		0	%
Animal Care & Other		22,439		22,894		(455	)		(2	)%
Rodenticides, Insecticides & Disinfectants		48,921		49,422		(501	)		(1	)%
Genomics Services		37,455		34,292		3,163			9	%

	$	147,378	$	147,001	$	377			0	%

Total Revenues	$	304,424	$	289,811	$	14,613			5	%


	Three Months Ended					Nine Months Ended
	February 28,					February 28,
(dollars in thousands)	2019		2018			2019			2018
Interest income (net of expense)	$	1,335	$	524		$	3,290		$	1,322
Foreign currency transactions		104		179			(354	)		1,140
Royalty income		—		—			60			78
Deoxi contingent consideration		—		(49	)		(9	)		(148	)
Quat-Chem contingent consideration		—		255			422			255
Other		545		459			688			588

Total Other Income	$	1,984	$	1,368		$	4,097		$	3,235


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Approximate Number of Shares that May Yet Be Purchased Under the Programs
December 1, 2018 - December 31, 2018		50	$	62.69		50		2,950
January 1, 2019 - January 31, 2019		—		—		—		—
February 1, 2019 - February 28, 2019		—		—		—		—

Total		50	$	62.69		50		2,950

/s/ John E. Adent

John E. Adent

President & Chief Executive Officer

(Principal Executive Officer)