Table of Contents
 
 
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 August 31,November 30, 2020.
or
 
☐
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 CorporationCorporation
(Exact name of registrant as specified in its charter)
 
 
 
Michigan
 
38-2367843
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
620 Lesher Place
Lansing, Michigan 48912
(Address of principal executive offices, including zip code)
(517)
372-9200
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each Class
Trading
Symbol(s)
Name of each exchange
on which registered
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each Class
Trading
Symbol(s)
Name of each exchange
on which registered
Common Stock, $0.16 par value per share
NEOG
NASDAQ Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐
Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ☐    No  ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YesYES  ☒    NoNO  ☐
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).    YesYES  ☒    NoNO  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer ☒  Accelerated filer ☐
Non-accelerated
filer		 ☐  Smaller reporting companyReporting 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:    YES  ☐    NoNO  ☒
As of August 31,November 30, 2020 there were
53,041,102
53,244,057
shares of Common Stock outstanding.
 
 
 
Table of Contents
NEOGEN CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
 
   
Page No.
 
PART I. FINANCIAL INFORMATION
  
Item 1.
 
Interim Consolidated Financial Statements (unaudited)
   2 
 
Consolidated Balance Sheets – August 31,November 30, 2020 and May 31, 2020
   2 
 
Consolidated Statements of Income – Three and six months ended August 31,November 30, 2020 and 2019
   3 
 
Consolidated Statements of Comprehensive Income – Three and six months ended August 31,November 30, 2020 and 2019
   4 
 
Consolidated Statements of Equity – Three and six months ended August 31,November 30, 2020 and 2019
   5 
 
Consolidated Statements of Cash Flows – ThreeSix months ended August 31,November 30, 2020 and 2019
   6 
 
Notes to Interim Consolidated Financial Statements – August 31,November 30, 2020
   7 
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   1920 
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
25
Item 4.
Controls and Procedures25
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings26
Item 6.
Exhibits26
SIGNATURES
   27 
Item 4.
 
CEO Certification
Controls and Procedures
  27
PART II. OTHER INFORMATION
Item 1.
 
CFO Certification
Legal Proceedings
  28
Item 6.
 
Exhibits
28
SIGNATURES
29
CEO Certification
CFO Certification
Section 906 Certification
  
 
1
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements
Neogen Corporation and Subsidiaries
Consolidated Balance Sheets (unaudited)
(in thousands, except share and
per share amounts)
 
   
August 31,
   
May 31,
 
   
2020
   
2020
 
Assets
     
Current Assets
     
Cash and cash equivalents
  $60,947
 
 
 
 $66,269 
Marketable securities
   306,539    277,404 
Accounts receivable, less allowance of $1,350 and $1,350 at August 31, 2020 and 
         
May 31, 2020, respectively
  
77,685
 
 
 
 
84,681
 
Inventories
   97,573    95,053 
Prepaid expenses and other current assets
   13,955    13,999 
  
 
 
   
 
 
 
Total Current Assets
   556,699    537,406 
Net Property and Equipment
   80,593    78,671 
Other Assets
     
Right of use assets
   1,756    1,952 
Goodwill
   111,675    110,340 
Other
non-amortizable
intangible assets
   15,366    15,217 
Amortizable intangible and other assets, net of accumulated amortization of $46,773 and $44,690 at August 31, 2020 and May 31, 2020, respectively
   55,503    53,596 
  
 
 
   
 
 
 
Total Assets
  $821,592   $797,182 
  
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
     
Current Liabilities
     
Accounts payable
  $22,537   $25,650 
Accrued compensation
   5,501    7,735 
Income taxes
   4,597    1,456 
Other accruals
   13,807    13,648 
  
 
 
   
 
 
 
Total Current Liabilities
   46,442    48,489 
Deferred Income Taxes
   18,306    18,125 
Other
Non-Current
Liabilities
   5,298    5,391 
  
 
 
   
 
 
 
Total Liabilities
   70,046    72,005 
Commitments and Contingencies (note 8)
 
Equity
     
Preferred stock, $1.00 par value, 100,000 shares authorized, 0ne issued and outstanding
   0    0 
Common stock, $0.16 par value, 120,000,000 shares authorized, 53,041,102 and 52,945,841 shares issued and outstanding at August 31, 2020 and May 31, 2020, respectively
   8,487    8,471 
Additional
paid-in
capital
   264,184    257,693 
Accumulated other comprehensive loss
   (15,707)    (19,709) 
Retained earnings
   494,582    478,722 
  
 
 
   
 
 
 
Total Stockholders’ Equity
   751,546    725,177 
  
 
 
   
 
 
 
Total Liabilities and Stockholders’ Equity
  $821,592   $797,182 
  
 
 
   
 
 
 
   
November 30,
  
May 31,
 
   
2020
  
2020
 
Assets
    
Current Assets
   
Cash and cash equivalents
  $113,867   $66,269 
Marketable securities
   276,898    277,404 
Accounts receivable, less allowance of $1,350 and $1,350 at November 30, 2020 and May 31, 2020, respectively
   79,931    84,681 
Inventories
   92,529    95,053 
Prepaid expenses and other current assets
   15,201    13,999 
          
Total Current Assets
   578,426    537,406 
Net Property and Equipment
   83,774    78,671 
Other assets
   
Right of use assets
   1,540    1,952 
Goodwill
   111,687    110,340 
Other
non-amortizable
intangible assets
   15,378    15,217 
Amortizable intangible and other assets, net of accumulated amortization of $48,546 and $44,690 at November 30, 2020 and May 31, 2020, respectively
   54,821    53,596 
          
Total Assets
  $845,626   $797,182 
          
Liabilities and Stockholders’ Equity
    
Current Liabilities
   
Accounts payable
  $20,697   $25,650 
Accrued compensation
   8,321    7,735 
Income taxes
   476    1,456 
Other accruals
   15,093    13,648 
          
Total Current Liabilities
   44,587    48,489 
Deferred Income Taxes
   18,391    18,125 
Other
Non-Current
Liabilities
   5,253    5,391 
          
Total Liabilities
   68,231    72,005 
Commitments and Contingencies (note 11)
00
Equity
    
Preferred stock, $1.00 par value, 100,000 shares authorized, 0ne issued and outstanding
   0    0 
Common stock, $0.16 par value, 120,000,000 shares authorized, 53,244,057 and 52,945,841 shares issued and outstanding at November 30, 2020 and May 31, 2020, respectively
   8,519    8,471 
Additional
paid-in
capital
   273,495    257,693 
Accumulated other comprehensive loss
   (15,086)    (19,709) 
Retained earnings
   510,467    478,722 
          
Total Stockholders’ Equity
   777,395    725,177 
          
Total Liabilities and Stockholders’ Equity
  $845,626   $
 
797,182 
          
See notes to interim consolidated financial statements.
 
2
Table of Contents
Neogen Corporation and Subsidiaries
Consolidated Statements of Income (unaudited)
(in thousands, except per share amounts)
 
   
Three Months Ended
August 31,
 
   
2020
   
2019
 
Revenues
    
Product revenues
   $87,935   $81,948 
Service revenues
   21,390    19,476 
  
 
 
   
 
 
 
Total Revenues
   109,325    101,424 
Cost of Revenues
    
Cost of product revenues
   46,595    42,031 
Cost of service revenues
   12,428    11,199 
  
 
 
   
 
 
 
Total Cost of Revenues
   59,023    53,230 
  
 
 
   
 
 
 
Gross Margin
   50,302    48,194 
Operating Expenses
    
Sales and marketing
   16,516    17,543 
General and administrative
   11,013    10,699 
Research and development
   3,878    3,688 
  
 
 
   
 
 
 
Total Operating Expenses
   31,407    31,930 
  
 
 
   
 
 
 
Operating Income
   18,895    16,264 
Other Income (Expense)
    
Interest income
   722    1,510 
Other expense
   193    (122) 
  
 
 
   
 
 
 
Total Other Income
   915    1,388 
  
 
 
   
 
 
 
Income Before Taxes
   19,810    17,652 
Provision for Income Taxes
   3,950    3,000 
  
 
 
   
 
 
 
Net Income
  $15,860   $14,652 
  
 
 
   
 
 
 
Net Income Per Share
    
Basic
  $0.30   $0.28 
Diluted
  $0.30   $0.28 
Weighted Average Shares Outstanding
        
Basic
  
 
52,992
 
  
 
52,292
 
Diluted
  
 
53,285
 
  
 
52,684
 
   
Three Months Ended
  
Six Months Ended
 
   
November 30,
  
November 30,
 
   
2020
   
2019
  
2020
   
2019
 
Revenues
       
Product revenues
  $92,537   $87,387  $180,472   $169,335 
Service revenues
   22,463    20,416   43,853    39,892 
                   
Total Revenues
   115,000    107,803   224,325    209,227 
Cost of Revenues
       
Cost of product revenues
   49,275    45,559   95,870    87,590 
Cost of service revenues
   12,511    11,218   24,939    22,417 
                   
Total Cost of Revenues
   61,786    56,777   120,809    110,007 
                   
Gross Margin
   53,214    51,026   103,516    99,220 
Operating Expenses
       
Sales and marketing
   17,729    17,988   34,245    35,531 
General and administrative
   12,184    10,985   23,197    21,684 
Research and development
   4,056    3,781   7,934    7,469 
                   
Total Operating Expenses
   33,969    32,754   65,376    64,684 
                   
Operating Income
   19,245    18,272   38,140    34,536 
Other Income (Expense)
       
Interest income
   555    1,271   1,277    2,781 
Other expense
   (465)
 
   (317)   (272)
 
   (439) 
                   
Total Other Income
   90    954   1,005    2,342 
                   
Income Before Taxes
   19,335    19,226   39,145    36,878 
Provision for Income Taxes
   3,450    2,950   7,400    5,950 
                   
Net Income
  $15,885   $16,276  $31,745   $30,928 
                   
Net Income Per Share
       
Basic
  $0.30   $0.31  $0.60   $0.59 
                   
Diluted
  $0.30   $0.31  $0.60   $0.59 
                   
Weighted Average Shares Outstanding
      
Basic
   53,129    52,557   53,022    52,355 
Diluted
   53,404    52,876   53,300    52,712 
See notes to interim consolidated financial statements.
 
3
Neogen Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (unaudited)
(in thousands)
 
   
Three Months Ended
August 31,
 
   
2020
   
2019
 
Net income
  $15,860   $14,652 
Other comprehensive income (loss), net of tax: foreign currency translations
   4,121    (3,058) 
Other comprehensive income (loss), net of tax: unrealized gain (loss) on marketable securities
   (119)    562 
Total comprehensive income
 
$
19,862
 
 
$
12,156
 
   
Three Months Ended
  
Six Months Ended
 
   
November 30,
  
November 30,
 
   
2020
   
2019
  
2020
   
2019
 
Net income
  $15,885   $16,276  $31,745   $30,928 
Other comprehensive income (loss), net of tax: foreign currency translations
   938    2,367   5,059    (691) 
Other comprehensive income (loss), net of tax: unrealized gain (loss) on marketable securities
   (317)    (149)   (436)    413 
                   
Total comprehensive income
  $
 
16,506   $
 
18,494  $
 
36,368   $
 
30,650 
                   
See notes to interim consolidated financial statements.
 
4
Table of Contents
Neogen Corporation and Subsidiaries
Consolidated Statements of
Equity (unaudited)
(in thousands)
 
              
Accumulated
       
          
Additional

Paid-in

Capital
   
Accumulated
Other

Comprehensive

(Loss)
  
Retained

Earnings
               
Additional
   
Other
       
  
Common Stock
       
Common Stock
   
Paid-in
   
Comprehensive
 
Retained
     
  
Shares
   
Amount
   
Total
   
Shares
   
Amount
   
Capital
   
Income (Loss)
 
Earnings
   
Total
 
Balance, June 1, 2020
  52,946  $8,471  $257,693 $(19,709)
 
 $478,722  $725,177   
 
52,946
 
  
$
 
8,471
 
  
$
 
257,693
 
  
$
(19,709
) 
 
$
 
478,722
 
  
$
 
725,177
 
Exercise of options and share-based compensation expense
  86   14   5,825  
—  
 
—  
  5,839    86    14    5,825    —   —    5,839 
Issuance of shares under employee stock purchase plan
  9   2   666  
—  
 
—  
  668    9    2    666    —   —    668 
Net income for the three months ended August 31, 2020
 
—  
 
  
 
—  
 
  
 
—  
 
—  
  15,860   15,860    —    —    —    —   15,860    15,860 
Other comprehensive income for the three months ended August 31, 2020
 
—  
 
  
 
—  
 
  
 
—  
  4,002  
—  
 
  4,002    —    —    —    4,002   —    4,002 
 
 
  
 
  
 
  
 
  
 
  
 
                          
Balance, August 31, 2020
  53,041  $8,487    $264,184    $(15,707)
 
 $494,582  $751,546   
 
53,041
 
  
$
8,487
 
  
$
264,184
 
  
$
(15,707
) 
 
$
494,582
 
  
$
751,546
 
Exercise of options and share-based compensation expense
   203    32    9,311    —   —    9,343 
Net income for the three months ended November 30, 2020
   —    —    —    —   15,885    15,885 
Other comprehensive income for the three months ended November 30, 2020
   —    —    —    621   —    621 
                         
Balance, November 30, 2020
  
 
53,244
 
  
 
8,519
 
  
 
273,495
 
  
$
(15,086
) 
 
$
510,467
 
  
$
777,395
 
                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 1, 2019
  
 
52,217
 
  
$
8,355
 
  
$
221,937
 
  
$
(11,640
) 
 
$
419,247
 
  
$
637,899
 
Exercise of options and share-based compensation plan
   196    30    9,683    —     —      9,713 
Issuance of shares under employee stock purchase plan
   10    2    536    —     —      538 
Net income for the three months ended August 31, 2019
   —      —    —    —   14,652    14,652 
Other comprehensive loss for the three months ended August 31, 2019
   —      —    —    (2,496)   —    (2,496) 
                         
Balance, August 31, 2019
  
 
52,423
 
  
$
8,387
 
  
$
232,156
 
  
$
(14,136
) 
 
$
433,899
 
  
$
660,306
 
Exercise of options and share-based compensation plan
   288    47    12,070    —     —      12,117 
Net income for the three months ended November 30, 2019
   —      —      —      —     16,276    16,276 
Other comprehensive income for the three months ended November 30, 2019
   —      —      —      2,218   —      2,218 
                         
Balance, November 30, 2019
  
 
52,711
 
  
8,434
 
  
244,226
 
  
(11,918
) 
 
450,175
 
  
690,917
 
                         
                                                                          
        
Additional

Paid-in

Capital
  
Accumulated
Other

Comprehensive

(Loss)
       
  
Common Stock
  
Retained

Earnings
    
  
Shares
  
Amount
  
Total
 
Balance, June 1, 2019
  52,217  $8,355  $221,937  $(11,640)  $419,247  $637,899 
Exercise of options and share-based compensation expense
  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,
 August 31, 2019
  52,423  $8,387  $232,156  $(14,136)  $433,899  $660,306 
See notes to interim consolidated financial statements.
 
5
Table of Contents
Neogen Corporation and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 
   
Three Months Ended
August 31,
 
   
2020
   
2019
 
Cash Flows From Operating Activities
    
Net Income
  $15,860   $14,652 
Adjustments to reconcile net income to net cash from operating activities:
    
Depreciation and amortization
   4,720    4,435 
Share-based compensation
   1,681    1,543 
Change in operating assets and liabilities, net of business acquisitions:
    
Accounts receivable
   8,350    3,390 
Inventories
   (1,319)    (2,132) 
Prepaid expenses and other current assets
   (1,045)    (1,929) 
Accounts payable, accruals and other changes
   (3,113)    3,760 
  
 
 
   
 
 
 
Net Cash From Operating Activities
   25,134    23,719 
Cash Flows For Investing Activities
    
Purchases of property, equipment and other non-current intangible assets
   (4,248)    (6,469) 
Proceeds from the sale of marketable securities
   139,184    94,540 
Purchases of marketable securities
   (168,318)    (103,432) 
Business acquisitions, net of cash acquired
   (2,350)    — 
  
 
 
   
 
 
 
Net Cash For Investing Activities
   (35,732)    (15,361) 
Cash Flows From Financing Activities
    
Exercise of stock options and issuance of employee stock purchase plan shares
   5,095    8,708 
  
 
 
   
 
 
 
Net Cash From Financing Activities
   5,095    8,708 
Effect of Foreign Exchange Rates on Cash
   181    (2,465) 
  
 
 
   
 
 
 
Net Increase (Decrease) In Cash and Cash Equivalents
   (5,322)    14,601 
Cash and Cash Equivalents, Beginning of Period
   66,269    41,688 
  
 
 
   
 
 
 
Cash and Cash Equivalents, End of Period
  $60,947   $56,289 
  
 
 
   
 
 
 
   
Six Months Ended
 
   
November 30,
 
   
2020
   
2019
 
Cash Flows From Operating Activities
    
Net Income
  $31,745   $30,928 
Adjustments to reconcile net income to net cash from operating activities:
    
Depreciation and amortization
   9,523    8,985 
Share-based compensation
   3,192    3,155 
Change in operating assets and liabilities, net of business acquisitions:
    
Accounts receivable
   6,662    (2,483) 
Inventories
   4,063    (103) 
Prepaid expenses and other current assets
   (2,080)    (1,323) 
Accounts payable, accruals and other changes
   (5,581)    1,313 
          
Net Cash From Operating Activities
   47,524    40,472 
Cash Flows For Investing Activities
    
Purchases of property, equipment and other
non-current
intangible assets
   (11,092)    (12,806) 
Proceeds from the sale of marketable securities
   309,030    199,708 
Purchases of marketable securities
   (308,524)    (220,528) 
Business acquisitions, net of cash acquired
   (2,350)    — 
          
Net Cash For Investing Activities
   (12,936)    (33,626) 
Cash Flows From Financing Activities
    
Exercise of stock options and issuance of employee stock purchase plan shares
   12,658    19,213 
          
Net Cash From Financing Activities
   12,658    19,213 
Effect of Foreign Exchange Rates on Cash
   352    (1,333) 
          
Net Increase In Cash and Cash Equivalents
   47,598    24,726 
Cash and Cash Equivalents, Beginning of Period
   66,269    41,688 
          
Cash and Cash Equivalents, End of Period
  $113,867   $66,414 
          
See notes to interim consolidated financial statements.
 
6
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-month periodthree and six month periods ended August 31,November 30, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2021. 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, 2020.
Our functional currency is the U.S. dollar. We translate our
non-U.S.
operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in other comprehensive income (loss). Gains or losses from foreign currency transactions are included in other income (expense) on our consolidated statement of income.incom
e
.
Recently Adopted Accounting Standards
Financial Instruments—Credit Losses
On June 1, 2020, the Company adopted ASU No.
2016-13—Measurement
of Credit Losses on Financial Instruments, which changes how the Company measures credit losses on most financial instruments measured at amortized cost and certain other instruments, such as loans, receivables and
held-to-maturity
debt securities. Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires the Company to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the Company expects to collect over the instrument’s contractual life. The adoption of this guidance did not have a material impact on our consolidated financial statements due to the Company’s short-term contractual life of receivables and minimal expected losses.
Fair Value Measurements
On June 1, 2020, the Company adopted ASU
2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements of fair value measurements. The adoption of this guidance did not have an impact on our consolidated financial statements.
Cloud Computing Implementation Cost
On June 1, 2020, the Company adopted ASU
2018-15,
Intangible-Goodwill and Other
Internal-Use
Software (Subtopic
350-40):
Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. The adoption of this guidance did not have an impact on our consolidated financial statements.
 
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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 of foreign currency translation adjustments and unrealized gains andor losses on our marketable securities.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments other than cash equivalents and marketable securities, which include accounts receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar instruments.
Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own
assumptions.
ESTIMATES AND ASSUMPTIONS
The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, accruals, goodwill and other intangible assets. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Accounts Receivable Allowance
Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit exposure on a regular basis. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific customers, historical trends current economic conditions and other information. Collateral or other security is generally not required for accounts receivable. Once a receivable balance has been determined to be uncollectible, generally after all collection efforts have been exhausted, that amount is charged against the allowance for doubtful accounts.
Inventory
The reserve for obsolete and slow-moving inventory is reviewed at least quarterly based on an analysis of the inventory, considering the current condition of the asset as well as other known facts and future plans. The reserve required to record inventory at lower of cost or net realizable value is adjusted as conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to other identifiable intangible assets. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants
names
, covenants not-to-compete
8
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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
non- amortizable intangible assets annually, or when indications of impairment exist, to determine if such assets may be impaired. If the carrying amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable EBITDA multiples of peer companies, such assets are reduced to their estimated fair value and a charge is recorded to operations.
8
Long-Lived Assets
Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for
possible impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset indicate that the carrying amount of the asset may not be recoverable. In such an event, fair value is determined using discounted cash flows and, if lower than the carrying value, impairment is recognized through a charge to operations.
Equity Compensation Plans
Share options awarded to employees, restricted stock units (RSUs) and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with assumptions for inputs such as interest rates, expected dividends, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs used are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different option values, which in turn would result in higher or lower compensation expense recognized. For RSUs, we use the intrinsic value method to value the units. To value options,other equity awards, several recognized valuation models exist. Noneexist; none of these models can be singled out as being the best or most correct. The model applied by us can handle most of the specific features included in the options granted, which isare the reason for itstheir use. If a different modelmodels 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 5.8.
Income Taxes
We account for income taxes using the asset and liability method. Under this method, deferred income tax
ssets
assets and liabilities are
determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year.
2. CASH AND MARKETABLE SECURITIES
Cash and Cash Equivalents
Cash and cash equivalents consist of bank demand accounts, savings deposits, certificates of deposit and commercial paper with
original
maturities of 90 days or less. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has not experienced losses related to these balances and believes it is not exposed to significant credit risk regarding its cash and cash equivalents. Cash and cash equivalents were $60,947,000$113,867,000 and $66,269,000 at August 31,November 30, 2020 and May 31, 2020, respectively. The carrying value of these assets approximates fair value due to the short maturity of these instruments and is classified as Level 1 in the fair value hierarchy.
9
Marketable Securities
The Company has marketable securities held by banks or broker-dealers at August 31,November 30, 2020. Changes in market value are monitored and recorded on a monthly basis; in the event of a downgrade in credit quality subsequent to purchase, the marketable securitysecurities investment is evaluated to determine the appropriate action to take to minimize the overall risk to our marketable securitysecurities portfolio.
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These securities are classified as available for sale. The primary objective of management’s short-term investment activity is to preserve capital for the purpose of funding current operations, capital expenditures and business acquisitions; short-term investments are not entered into for trading or speculative purposes. These securities are recorded at fair value based on recent trades or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within other income on the income statement. Adjustments in the fair value of these assets are recorded in other comprehensive income.incom
e
.
Marketable Securities as of August 31,November 30, 2020 and May 31, 2020 are listed below by classification and remaining maturities.
 
(in thousands)
  
Maturity
  
August 31,
2020
 
  
May 31,
2020
 
US Treasuries
  
0—90 days
  
$
0  
 
  
$
0  
 
 
  
91—180 days
  
 
2,516
 
  
 
0  
 
 
  
181 days—1 year
  
 
0  
 
  
 
2,532
 
 
  
1—2 years
  
 
0  
 
  
 
0  
 
Commercial Paper & Corporate Bonds
  
0—90 days
  
 
120,055
 
  
 
133,130
 
 
  
91—180 days
  
 
93,239
 
  
 
73,824
 
 
  
181 days—1 year
  
 
63,668
 
  
 
43,231
 
 
  
1—2 years
  
 
10,012
 
  
 
7,839
 
Certificates of Deposit
  
0—90 days
  
 
4,908
 
  
 
1,003
 
 
  
91—180 days
  
 
1,257
 
  
 
5,184
 
 
  
181 days—1 year
  
 
8,338
 
  
 
6,069
 
 
  
1—2 years
  
 
2,546
 
  
 
4,592
 
 
  
 
  
 
 
 
  
 
 
 
Total Marketable Securities
  
 
  
$
306,539
 
  
$
277,404
 
 
  
 
  
 
 
 
  
 
 
 
       
November 30,
   
May 31,
 
(in thousands)
  
Maturity
   
2020
   
2020
 
US Treasuries
   0 - 90 days   $0   $0 
    91 - 180 days    0    0 
    181 days - 1 year    0    2,532 
    1 - 2 years    0    0 
Commercial Paper & Corporate Bonds
   0 - 90 days    114,237    133,130 
    91 - 180 days    132,758    73,824 
    181 days - 1 year    15,978    43,231 
    1 - 2 years    1,830    7,839 
Certificates of Deposit
   0 - 90 days    4,012    1,003 
    91 - 180 days    2,260    5,184 
    181 days - 1 year    4,553    6,069 
    1 - 2 years    1,270    4,592 
                
Total Marketable Securities
       $            276,898   $            277,404 
                
The components of marketable securities at August 31,November 30, 2020 are as follows:
 
(in thousands)
  
Amortized
Cost
 
  
Unrealized
Gains
 
  
Unrealized
Losses
 
  
Fair Value
 
US Treasuries
  
$
2,502
 
  
$
14
 
  
$
—
 
  
$
2,516
 
Commercial Paper & Corporate Bonds
  
 
286,211
 
  
 
820
 
  
 
(57
) 
  
 
286,974
 
Certificates of Deposit
  
 
16,911
 
  
 
138
 
  
 
—
 
  
 
17,049
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total Marketable Securities
  
$
305,624
 
  
$
972
 
  
$
(57
) 
  
$
306,539
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
Amortized
   
Unrealized
   
Unrealized
     
(in thousands)
  
Cost
   
Gains
   
Losses
   
Fair Value
 
US Treasuries
  $—   $—   $—   $— 
Commercial Paper & Corporate Bonds
   264,616    338    (151)    264,803 
Certificates of Deposit
   12,009    86    —    12,095 
                     
Total Marketable Securities
  $276,625   $424   $(151)   $276,898 
                     
The components of marketable securities at May 31, 2020 are as follows:
 
(in thousands)
  
Amortized
Cost
 
  
Unrealized
Gains
 
  
Unrealized
Losses
 
  
Fair Value
 
US Treasuries
  
$
2,502
 
  
$
30
 
  
$
—
 
  
$
2,532
 
Commercial Paper & Corporate Bonds
  
 
257,700
 
  
 
347
 
  
 
(23
) 
  
 
258,024
 
Certificates of Deposit
  
 
16,648
 
  
 
200
 
  
 
—
 
  
 
16,848
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total Marketable Securities
  
$
276,850
 
  
$
577
 
  
$
(23
) 
  
$
277,404
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
Amortized
   
Unrealized
   
Unrealized
     
(in thousands)
  
Cost
   
Gains
   
Losses
   
Fair Value
 
US Treasuries
  $2,502   $30   $—   $2,532 
Commercial Paper & Corporate Bonds
   257,700    347    (23)    258,024 
Certificates of Deposit
   16,648    200    —    16,848 
                     
Total Marketable Securities
  $276,850   $577   $(23)   $277,404 
                     
 
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3. 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:
 
(in thousands)
  
August 31,
2020
 
  
May 31,
2020
 
Raw materials
  
$
47,589
 
  
$
45,058
 
Work-in-process
  
 
6,323
 
  
 
6,887
 
Finished and purchased goods
  
 
43,661
 
  
 
43,108
 
 
  
 
 
 
  
 
 
 
 
  
$97,573
 
  
$95,053
 
 
  
 
 
 
  
 
 
 
   
November 30,
   
May 31,
 
(in thousands)
  
2020
   
2020
 
Raw materials
  $45,269   $45,058 
Work-in-process
   6,020    6,887 
Finished and purchased goods
   41,240    43,108 
           
   $92,529   $      95,053 
           
4. LEASES
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 of 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.
Topic ASC 842 requires the Company to 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.
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. Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease.
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 (i.e. leases with a term of 12 months or less).
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.
 
•
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 (i.e. leases with a term of 12 months or less).
•
For all asset classes, we elected to not separate
non-lease
components from lease components to which they relate and have accounted for the combined lease and
non-lease
components as a single lease component.
•
The determination of the discount rate used in a lease is our incremental borrowing rate that is based on what we would normally pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments.
Supplemental balance sheet information related to operating leases was as follows:
   
November 30,
   
May 31,
 
(in thousands)
  
2020
   
2020
 
Right of use - assets
  $1,540   $        1,952 
Lease liabilities - current
   444    1,054 
Lease liabilities -
non-current
   1,062    913 

1
1
(in thousands)
  
August 31,
2020
   
May 31,
2020
 
Right of use—assets
   $1,756  
$
1,952
 
Lease liabilities—current
   803  
 
1,054
 
Lease liabilities—non-current
   966  
 
913
 
The weighted average remaining lease term and weighted average discount rate were as follows:
 
(in thousands)
  
August 31,
2020
  
May 31,
2020
 
Weighted average remaining lease term
  
 
2.4 years
 
 
 
2.5 years
 
Weighted average discount rate
  
 
3.2
% 
 
 
3.2
% 
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November 30,
2020
  
May 31,
2020
 
Weighted average remaining lease term
   2.4 years   2.5 years 
Weighted average discount rate
   3.1%   3.2% 
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:follow
s
:
 
   
August 31,
 
(in thousands)
  
2020
 
  
2019
 
Operating leases
  $205   $240 
Short term leases
   44    48 
  
 
 
   
 
 
 
Total lease expense
  $249   $288 
  
 
 
   
 
 
 
   
Three Months Ended November 30,
   
Six Months Ended November 30,
 
(in thousands)
  
        2020        
   
        2019        
   
        2020        
   
        2019        
 
Operating leases
  $440   $333   $645   $573 
Short term leases
   16    34    60    81 
                     
Total lease expense
  $456   $367   $705   $654 
                     
Cash paid for amounts included in the measurement of lease liabilities for operating leases included in cash flows from operations on the statement of cash flows were approximately $
643,000
$304,000
and $247,000$558,000 for the threesix months ended August 31,November 30, 2020 and 2019, respectively. There were
no
non-cash
additions to
right-of-use
assets obtained from new operating lease liabilities for either period.
the six months ended November 30, 2020.
Undiscounted future minimum lease payments as of August 31,November 30, 2020 were as follows (in thousands):
 
Years ending May 31,  
Amount
 
2021 (1)
  $789 
2022
   553 
2023
   292 
2024
   145 
2025
   43 
2026 and thereafter
   0 
  
 
 
 
Total lease payments
   1,822 
Less: imputed interest
   (97) 
  
 
 
 
Total lease liabilities
  $1,725 
  
 
 
 
   
Amount
 
Years ending May 31, 2021 (1)
  $444 
2022
   613 
2023
   338 
2024
   169 
2025
   44 
2026 and thereafter
   0 
Total lease payments
   1,608 
Less: imputed interest
   101 
      
Total lease liabilities
  $1,507 
      
 
(1)
Excluding the threesix months ended August 31, 2020
.
November 30, 2020.
 
12
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2
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5. REVENUE RECOGNITION
We determineThe 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 Neogen’s revenue is generated through contracts with its customers. A performance obligation is a promise in a contract to transfer a product or service to a customer. We generally recognized revenue at a point in time when all of our performance obligations under the terms of a contract are satisfied. Revenue is recognized upon transfer of control of promised products and services in an amount that reflects the consideration we expect 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.
Certain agreements with customers include discounts or rebates on the sale of products and services applied retrospectively, such as volume rebates achieved by purchasing a specified purchase threshold of goods and services. We account for these discounts as variable consideration and estimate the likelihood of a customer meeting the threshold in order to determine the transaction price using the most predictive approach. We typically use the most-likely-amount method, for incentives that are offered to individual customers, and the expected-value method, for programs that are offered to a broad group of customers. Variable consideration reduces the amount of revenue that is recognized. Rebate obligations related to customer incentive programs are recorded in accrued liabilities; the rebate estimates are adjusted at the end of each applicable measurement period based on information currently available.
The performance obligations in Neogen’s contracts are generally satisfied well within one year of contract inception. In such cases, management has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. Management has elected to utilize the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred because the amortization period for the prepaid costs that would otherwise have been deferred and amortized is one year or less. We account for shipping and handling for products as a fulfillment activity when goods are shipped. Shipping and handling costs that are charged to and reimbursed by the customer are recognized as revenues, while the related expenses incurred by Neogen are recorded in sales and marketing expense. Revenue is recognized net of any tax collected from customers; the taxes are subsequently remitted to governmental authorities. Our terms and conditions of sale generally do not provide for returns of product or reperformance of service except in the case of quality or warranty issues. These situations are infrequent; due to immateriality of the amount, warranty claims are recorded in the period incurred.
The Company derives revenue from two primary sources—sources - product revenue and service revenue.
Product revenue consists of shipments of:
Diagnostic test kits, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation;
 
Consumable products marketed to veterinarians, retailers, livestock producers and animal health product distributors; and
 
•
Diagnostic test kits, culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation;
•
Consumable products marketed to veterinarians, 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
 
•
Genomic identification and related interpretive bioinformatic services; and
•
Other commercial laboratory services.
Revenues for Neogen’s genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service is performed and the results are conveyed to the customer.
1
3
Payment terms for products and services are generally 30 to 60 days.
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The following table presents disaggregated revenue by major product and service categories for the three and six month periods ended August 31,November 30, 2020 and 2019:
   
Three Months ended November 30,
   
Six Months ended November 30,
 
(in thousands)
  
2020
   
2019
   
2020
   
2019
 
Food Safety
                    
Natural Toxins, Allergens & Drug Residues
  $20,001   $20,681   $39,016   $40,796 
Bacterial & General Sanitation
   11,235    11,615    21,166    21,931 
Culture Media & Other
   13,296    12,757    24,689    24,037 
Rodenticides, Insecticides & Disinfectants
   7,978    7,447    17,586    12,896 
Genomics Services
   5,024    4,354    9,262    8,216 
                     
   $57,534   $56,854   $111,719   $107,876 
Animal Safety
                    
Life Sciences
  $1,398   $1,803   $2,723   $3,525 
Veterinary Instruments & Disposables
   11,974    10,486    22,349    21,822 
Animal Care & Other
   9,371    7,787    17,029    14,193 
Rodenticides, Insecticides & Disinfectants
   18,471    16,186    38,385    32,904 
Genomics Services
   16,252    14,687    32,120    28,907 
                     
   $57,466   $50,949   $112,606   $101,351 
                     
Total Revenues
  $115,000   $107,803   $224,325   $209,227 
                     
 
   
Three Months ended
August 31,
 
(in thousands)
  
2020
   
2019
 
Food Safety
    
Natural Toxins, Allergens & Drug Residues
  $19,015   $20,115 
Bacterial & General Sanitation
   9,931    10,316 
Culture Media & Other
   11,393    11,279 
Rodenticides, Insecticides & Disinfectants
   9,608    5,449 
Genomics Services
   4,238    3,862 
  
 
 
   
 
 
 
  $54,185   $51,021 
Animal Safety
    
Life Sciences
  $1,325   $1,723 
Veterinary Instruments & Disposables
   10,375    11,336 
Animal Care & Other
   7,658    6,405 
Rodenticides, Insecticides & Disinfectants
   19,914    16,718 
Genomics Services
   15,868    14,221 
  
 
 
   
 
 
 
  $55,140   $50,403 
  
 
 
   
 
 
 
Total Revenues
  $109,325   $101,424 
  
 
 
   
 
 
 
6. NET INCOME PER SHARE
The calculation of net income per share follows:
 
   
Three Months Ended
 
   
August 31,
 
(in thousands, except
 
per share amounts)
  
2020
   
2019
 
Numerator for basic and diluted net income per share:
    
Net income attributable to Neogen
  $15,860   $14,652 
Denominator for basic net income per share:
    
Weighted average shares
   52,992    52,292 
Effect of dilutive stock options
   293    392 
  
 
 
   
 
 
 
Denominator for diluted net income per share
   53,285    52,684 
Net income attributable to Neogen per share:
    
Basic
  $0.30   $0.28 
  
 
 
   
 
 
 
Diluted
  $0.30   $0.28 
  
 
 
   
 
 
 
   
Three Months Ended
November 30,
   
Six Months Ended
November 30,
 
(in thousands, except per share amounts)
  
2020
   
2019
   
2020
   
2019
 
Numerator for basic and diluted net income per share:
                    
Net income attributable to Neogen
  $    15,885   $    16,276   $    31,745   $    30,928 
Denominator for basic net income per share:
                    
Weighted average shares
   53,129    52,557    53,022    52,355 
Effect of dilutive stock options and RSUs   275    319    278    357 
                     
Denominator for diluted net income per share
   53,404    52,876    53,300    52,712 
Net income attributable to Neogen per share:
                    
Basic
  $0.30   $0.31   $0.60   $0.59 
                     
Diluted
  $0.30   $0.31   $0.60   $0.59 
                     
 
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7. SEGMENT INFORMATION AND GEOGRAPHIC DATA
We have 2 reportable segments: Food Safety and Animal Safety. The Food Safety segment is primarily engaged in the development, production and marketing of diagnostic test kits, culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation. The Animal Safety segment is primarily engaged in the development, production and marketing of products dedicated to animal safety, including a complete line of consumable products marketed to veterinarians and animal health product distributors; this segment also provides genomic identification and related interpretive bioinformatic services. Additionally, the Animal Safety segment produces and markets rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities.
Our international operations in the United Kingdom, Mexico, Brazil, China and India originally focused on the Company’s food safety 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.
Neogen’s operation in Australia originally focused on providing genomics services and sales of animal safety products and reports through the Animal Safety segment. With the acquisition of Cell BioSciences in February 2020, this operation has expanded to offer our complete line of products and services, including those usually associated with the Food Safety segment. These additional products are managed and directed by existing management at Neogen Australasia and report through the Animal Safety segment.
The accounting policies of each of the segments are the same as those described in Note 1.
Segment information follows:
 
           
Corporate and
     
   
Food
   
Animal
   
Eliminations
     
(in thousands)
  
Safety
   
Safety
   
(1)
   
Total
 
As of and for the three months ended August 31, 2020
        
Product revenues to external customers
  $48,663   $39,272   $—   $87,935 
Service revenues to external customers
   5,522    15,868    —    21,390 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenues to external customers
   54,185    55,140    —    109,325 
Operating income (loss)
   7,963    12,165    (1,233)    18,895 
Total assets
   225,716    228,390    367,486    821,592 
As of and for the three months ended August 31, 2019
        
Product revenues to external customers
  $45,877   $36,071   $—     $81,948 
Service revenues to external customers
   5,144    14,332    —      19,476 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenues to external customers
   51,021    50,403    —      101,424 
Operating income (loss)
   9,134    8,300    (1,170)    16,264 
Total assets
   207,725    222,403    291,016    721,144 
           
Corporate and
     
   
Food
   
Animal
   
Eliminations
     
(in thousands)
  
Safety
   
Safety
   
(1)
   
Total
 
As of and for the three months ended November 30, 2020
      
Product revenues to external customers
  $51,323   $41,214   $—  $92,537 
Service revenues to external customers
   6,211    16,252    —   22,463 
                   
Total revenues to external customers
   57,534    57,466    —   115,000 
Operating income (loss)
   8,960    12,246    (1,961)   19,245 
Total assets
   226,735    228,126    390,765   845,626 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of and for the three months ended November 30, 2019
      
Product revenues to external customers
  $51,188   $36,199   $—    $87,387 
Service revenues to external customers
   5,666    14,750    —     20,416 
                   
Total revenues to external customers
   56,854    50,949    —     107,803 
Operating income (loss)
   9,556    9,729    (1,013)   18,272 
Total assets
   212,928    224,058    313,605   750,591 

(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.
1
5
           
Corporate and
     
   
Food
   
Animal
   
Eliminations
     
(in thousands)
  
Safety
   
Safety
   
(1)
   
Total
 
As of and for the six months ended November 30, 2020
       
Product revenues to external customers
  $99,986   $80,486   $—  $180,472 
Service revenues to external customers
   11,733    32,120    —   43,853 
                   
Total revenues to external customers
   111,719    112,606    —   224,325 
Operating income (loss)
   16,923    24,411    (3,194)   38,140 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of and for the six months ended November 30, 2019
       
Product revenues to external customers
  $97,065   $72,270   $—    $ 169,335 
Service revenues to external customers
   10,811    29,081    —     39,892 
                   
Total revenues to external customers
   107,876    101,351    —     209,227 
Operating income (loss)
   18,690    18,029    (2,183)   34,536 

(1)
Includes elimination of intersegment transactions.
The following table presents the Company’s revenue disaggregated by geographic location:
 
   
Three months ended
August 31,
 
(in thousands)
  
2020
   
2019
 
Domestic
  $67,324   $63,340 
International
   42,001    38,084 
  
 
 
   
 
 
 
Total revenue
   109,325    101,424 
  
 
 
   
 
 
 
   
Three months ended
   
Six months ended
 
   
November 30,
   
November 30,
 
(in thousands)
  
2020
   
2019
   
2020
   
2019
 
Domestic
  $69,832   $63,317   $ 137,156   $ 126,657 
International
   45,168    44,486    87,169    82,570 
                    
Total revenue
   115,000    107,803    224,325    209,227 
                    
 
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8. EQUITY COMPENSATION PLANS
Incentive and
non-qualified
options to purchase shares of common stock have been granted to directors, officers and employees of Neogen under the terms of the Company’s stock option plans. These options are granted at an exercise price of not less than the fair market value of the stock on the date of grant. Options vest ratably
over
three and five year periods and the contractual terms are generally five or ten years. A summary of stock option activity during the three
six
 months ended August 31,November 30, 2020 follows:
 
       
Weighted-
 
       
Average
 
(Options in thousands)
  
Shares
   
Exercise Price
 
Options outstanding June 1, 2020
   2,162   $55.96 
Granted
   0    0 
Exercised
   (86)    48.39 
Forfeited
   (7)    57.81 
  
 
 
   
Options outstanding August 31, 2020
   2,069   $56.27 
During the three month periods ended August 31, 2020 and 2019, the Company recorded $1,681,000 and $1,543,000, respectively, of compensation expense related to its share-based awards.
       
Weighted-
 
       
Average
 
(Options in thousands)
  
Shares
   
Exercise Price
 
Options outstanding June 1, 2020
   2,162   $55.96 
Granted
   202    68.47 
Exercised
   (294)    42.04 
Forfeited
   (160)    57.26 
           
Options outstanding November 30, 2020
   1,910   $59.29 
The weighted-average fair value per share of stock options granted during the first six months of fiscal yearyears 2021 and 2020, estimated on the date of grant using the Black-Scholes option pricing model, was $15.56. The$15.41 and $15.56, respectively.The fair value of stock options granted was estimated using the following weighted-average assumptions. No options were granted in the first quarter of fiscal year 2021.
 
   
FY 20202021
Risk-free interest rate
  1.9% 0.2%
Expected dividend yield
  0.0% 0.0%
Expected stock price volatility
  29.4% 31.3%
Expected option life
  
3.5
3.25 years
The company granted 59,125 restricted stock units
(RSUs)
to directors, officers and employees under the terms of the 2018 Omnibus Incentive Plan in October 2020, which vest ratably over three and five year periods. The current units have a weighted average value of $68.43 per share and will be expensed straight-line over the remaining weighted-average period of 4.72 years. On November 30, 2020 there was $3,262,000 in unamortized compensation cost related to
non-vested
RSUs.
During the three and six month periods ended November 30, 2020 and 2019, the Company recorded $1,511,000 and $1,612,000 and $3,192,000 and $3,155,000, respectively, of compensation expense related to its share-based awards.
The Company offers eligible employees the option to purchase common stock at a
5%
discount to the lower of the market value of the stock at the beginning or end of each participation period under the terms of the 2011 Employee Stock Purchase Plan; the discount is recorded in general and administrative expense. Total individual purchases in any year are limited to 10% of compensation.
9. BUSINESS AND PRODUCT LINE ACQUISITIONS
The Consolidated Statements of Income reflect the results of operations for business acquisitions since the respective dates of purchase. All are accounted for using the acquisition method. Goodwill recognized in the acquisitions discussed below relates primarily to enhancing the Company’s strategic platform for the expansion of available product offerings.
On January 1, 2020, the Company acquired all of the stock of Productos Quimicos Magiar, a distributor of Neogen’s Food Safety products for the past 20 years, located in Argentina. This acquisition gives Neogen a direct sales presence in Argentina. Consideration for the purchase was $3,776,000 in net cash, with $3,237,000 paid at closing and $540,000 payable to the former owner on January 1, 2022, and up to $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 $441,000, intangible assets of $1,471,000 (with an estimated life of
5-10
years) and the remainder to goodwill
(non-deductible
(non-deductible for tax purposes). These values are Level 3 fair value measurements. This operation continues to operate from its current location in Buenos Aires, Argentina, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation.
 
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On January 1, 2020, the Company acquired all of the stock of Productos Quimicos Magiar, a distributor of Neogen’s Food Safety products for the past 20 years, located in Uruguay. This acquisition gives Neogen a direct sales presence in Uruguay. Consideration for the purchase was $1,488,000 in net cash, with $1,278,000 paid at closing and $210,000 payable to the former owner on January 1, 2022, and up to $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, $159,000,
non-current
deferred tax liabilities of $99,000, intangible assets of $398,000 (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 continues to operate from its current location in Montevideo, Uruguay, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation.
On January 9, 2020, the Company acquired
all of
the stock of Diessechem Srl, a distributor of food and feed diagnostics for the past 27 years, located in Italy. This acquisition gives Neogen a direct sales presence in Italy. Consideration for the purchase was $3,455,000 in net cash. The 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 current assets of $160,000, accounts payable of $140,000, other current liabilities of $305,000,
non-current
deferred tax liabilities of $294,000, intangible assets of $1,225,000 (with an estimated life of
5-10
years) and the remainder to goodwill
(non-deductible
for tax purposes). These values are Level 3 fair value measurements. This operation continues to operate from its current location in Milan, Italy, reporting within the Food Safety segment. It is managed through Neogen’s Scotland operation.
On January 31, 2020, the Company acquired
all of
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 $1,401,000 in net cash, with $1,282,000 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 $92,000, intangible assets of $484,000 (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 continues to operate from its current location in Liverpool, England, reporting within the Food Safety segment. It is managed through Neogen’s Scotland operation.
On February 28, 2020, the Company acquired the assets of Cell BioSciences, an Australian distributor of food safety and industrial microbiology products. This acquisition gave Neogen a direct sales presence across Australasia for its entire product portfolio. Consideration for the purchase was $3,768,000 in cash, with $3,596,000 paid at closing and $172,000 payable in one year. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $420,000, unearned revenue liability of $13,000, intangible assets of $1,338,000 (with an estimated life of 3 to 10 years) and the remainder to goodwill
(non-deductible
for tax purposes). The business operates in Gatton, Australia, reporting within the Australian operations in the Animal Safety segment.
On March 26, 2020, the Company acquired the assets of Chile-based Magiar Chilena, a distributor of food, animal and plant diagnostics, including Neogen products. This acquisition gives Neogen a direct sales presence in Chile. Consideration for the purchase was $400,000 in cash, with $350,000 paid at closing and $50,000 payable to the former owner on March 26, 2021. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $164,000, machinery and equipment of $53,000, and intangible assets of $183,000 (with an estimated life of
5-10
years). The business is operated from its current location in Santiago, Chile, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation.
On July 31, 2020, the Company acquired the U.S. (including territories) rights to Elanco’s StandGuard
Pour-on
for horn fly and lice control in beef cattle, and related assets. This product line fits in well with Neogen’s existing agricultural insecticide portfolio and organizational capabilities. Consideration for the purchase was $2,351,000 in cash, all paid at closing. The preliminary purchase price allocation, based upon the fair value of these assets determined using the income approach, included inventory of $51,000 and intangible assets of $2,300,000 (with an estimated life of 15 years). This product line is currently being toll manufactured for the Company but is
eventually
expected to be manufactured at Neogen’s operation in Iowa
,
Iowa; the sales are reported within the Animal Safety segment.
For each acquisition listed above, the revenues and net income were not considered material and were therefore not disclosed.​​​​​​​
 
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10. LONG TERM DEBT
We have a financing agreement with a bank providing for a $15,000,000
unsecured revolving line of credit, which
expires
on September was amended in the second quarter to extend the expiration to November 30, 2021.2023
. There were 0 advances against the line of credit during fiscal 2020 and there have been none thus far in fiscal 2021; there was 0 balance outstanding at August 31,November 30, 2020.
Interest on any borrowings remained is calculated
at LIBOR plus 100 basis points (rate under the terms of the agreement was 1.20% 1.19%
at August 31, November 30,
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 August 31,November 30, 2020.
11. COMMITMENTS AND CONTINGENCIES
The Company is involved in environmental remediation and monitoring activities at its Randolph, Wisconsin manufacturing facility and accrues for related costs when such costs are determined to be probable and estimable. The Company currently utilizes a pump and treat remediation strategy, which includes semi-annual monitoring and reporting, consulting, and maintenance of monitoring wells. Neogen expenses these annual costs of remediation, which have ranged from $38,000 to $131,000 per year over the past five years. The Company’s estimated liability for these costs was $916,000 at both August 31,November 30, 2020 and May 31, 2020, 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. In fiscal 2019, the Company performed an updated Corrective Measures Study (CMS) on the site, per a request from the Wisconsin Department of Natural Resources (WDNR), and is in discussion with the WDNR regarding potential alternative remediation strategies going forward. The Company believes that the current pump and treat strategy is appropriate for the site. At this time, the outcome of the review in terms of approach and future costs is unknown, but a change in the current remediation strategy, depending on the alternative selected, could require an increase in the recorded liability, with an offsetting charge to operations in the period recorded.
The Company is subject to certain legal and other proceedings in the normal course of business that, in the opinion of management, should not have a material effect on its future results of operations or financial position.
 
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PART I – FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations contains both historical financial information and forward-looking statements. Neogen does not provide forecasts of future financial performance. While management is optimistic about the Company’s long-term prospects, historical financial information may not be indicative of future financial results.
Safe Harbor and Forward-Looking Statements
Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made throughout this Quarterly Report on Form
10-Q.
For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward lookingforward-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, effects of the ongoing
COVID-19
pandemic on our business, identification and integration of acquisitions, research and development risks, patent and trade secret protection, government regulation and other risks detailed from time to time in the Company’s reports on file at the Securities and Exchange Commission, that could cause Neogen Corporation’s results to differ materially from those indicated by such forward-looking statements, including those detailed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
In addition, any forward-looking statements represent management’s views only as of the day this Quarterly Report on Form
10-Q
was first filed with the Securities and Exchange Commission and should not be relied upon as representing management’s views as of any subsequent date. While management may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, even if its views change.
COVID-19
As we closely monitor the
COVID-19
pandemic, our top priority remains protecting the health and safety of our employees. While essential operations continue in our locations around the world, the majority of our
non-manufacturing
and distribution employees continue to work remotely and travel remains restricted. Safety guidelines and procedures, including social distancing and enhanced cleaning, have been developed for
on-site
employees and these policies are regularly monitored and updated by our internal Emergency Response Team.
In the second quarter of fiscal 2021, the
COVID-19
pandemic continued to impact our business operations and financial results. There has been a positive impact in sales of our Biosecurity product lines, as the pandemic has created increased demand for these products, and sales into Companion Animal markets have benefitted, as remote work and stay at home orders have driven increased pet ownership. A number of our food safety diagnostic product lines have been negatively impacted due to decreased demand in many of our customers’ businesses, particularly those serving restaurants, bars and other institutional food service markets; supply chain difficulties including vendor disruptions, border closures and shipping issues; and restricted travel, which hinders our ability to connect with customers. We expect the
COVID-19
pandemic will continue to impact our business operations and financial results through the end of our current fiscal year.
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Executive Overview
 
Consolidated revenues were $109.3$115.0 million in the firstsecond quarter of fiscal 2021, an increase of 8%7% compared to $101.4$107.8 million in the firstsecond quarter of fiscal 2020. Organic sales increased 6%growth in the second quarter of fiscal 2021 was 5%. For the six month period, consolidated revenues were $224.3 million, an increase of 7% compared to $209.2 million in the same period in the prior fiscal year. On a year to date basis, organic sales rose 5%.
 
Food Safety segment sales were $54.2$57.5 million in the firstsecond quarter of the current fiscal year,2021, an increase of 6%1% compared to $51.0$56.9 million in the same period of the prior year.a year ago. Organic sales in this segment rose 4%decreased 1% for the comparative period, with revenues from the acquisitions of Neogen Italia (January 2020), Neogen Argentina (January 2020), Neogen Uruguay (January 2020), Abtek (January 2020) and Neogen Chile (March 2020) providing the remainderincrease in revenues for the segment. For the year to date, Food Safety segment sales were $111.7 million, an increase of 4% compared to $107.9 million in the same period of the increase.prior fiscal year; the organic sales increase was 1% for the comparative period, with the acquisitions listed above providing the additional contributions to revenue.
 
Animal Safety segment sales were $55.1$57.5 million in the firstsecond quarter of fiscal 2021, an increase of 9%13% compared to prior year first$50.9 million in the second quarter sales of $50.4 million.fiscal 2020. Organic sales in this segment increased 8%,rose 11% in the second quarter, with additional contribution from the acquisitionsAugust 2020 acquisition of Cell BioSciences (February 2020) and the StandGuard product lineline. For the six month period, Animal Safety segment sales were $112.6 million, an increase of 11% compared to $101.4 million in the same period a year ago. Year to date organic sales rose 10%, with revenues from Elanco (August 2020) providing the remainder ofStandGuard acquisition contributing the increase.difference.
 
International sales in the firstsecond quarter of fiscal 2021 were 38.4%39% of total sales compared to 37.5%41% of total sales in the firstsecond quarter of fiscal 2020. For the year to date, fiscal 2021 international sales were also 39% of total sales compared to 39% of total sales in the same period of the prior year.
 
TheOur effective tax rate in the firstsecond quarter of fiscal 2021 was 19.9%17.8% compared to 17.0%an effective tax rate of 15.3% in the prior year first quarter. The increase insecond quarter; the fiscal 2021 year to date effective tax rate for this quarter was due primarily to lower tax benefits from the exercise of stock options and reduced benefit from foreign derived income, each18.9% compared to 16.1% for the same period a year ago.
 
Net income for the quarter ended August 31,November 30, 2020 was $15.9 million, or $0.30 per diluted share, an increase of 8% compared to $14.7$16.3 million, or $0.28$0.31 per diluted share forin the same period in the prior year. For the year to date, net income was $31.7 million, or $0.60 per diluted share, an increase of 3% compared to prior year to date net income of $30.9 million, or $0.59 per diluted share.
 
Cash generatedprovided from operating activities in the first quartersix months of fiscal 2021 was $25.1$47.5 million, compared to $23.7$40.5 million in the first quarterhalf of fiscal 2020.
Neogen’s results reflect a 10% increase in internationalInternational sales rose 2% in the firstsecond quarter of fiscal 2021 and increased 6% for the year to date, each compared to the same respective period in the prior year. Revenue changes, expressed in percentages, infor the first quarterthree and six month periods of fiscal 2021 compared to the same quarterrespective periods in the prior year are as follows for each of our international locations:
 
  
Revenue
% Inc (Dec)
USD
 
Revenue
% Inc (Dec)
Local Currency
   
Three Months Ended
 
Six Months Ended
U.K. Operations
   21%  17% 
  
November 30, 2020
 
November 30, 2020
  
Revenue
 
Revenue
 
Revenue
 
Revenue
  
% Inc (Dec)
 
% Inc (Dec)
 
% Inc (Dec)
 
% Inc (Dec)
  
USD
 
Local Currency
 
USD
 
Local Currency
U.K Operations
  9% 6% 15% 12%
Brazil Operations
   1%  38%   (22)% 4% (11)% 19%
Neogen Latinoamerica
   (2)%  13%   13% 23% 6% 18%
Neogen China
   105%  106%   59% 51% 77% 72%
Neogen India
   10%  18%   5% 8% 7% 12%
Neogen Canada
   (11)%  (10)%   (17)% (17)% (14)% (14)%
Neogen Australasia
   67%  63%   81% 71% 74% 67%
Currency translations reduced comparative revenues by approximately $2.1$1.2 million in the firstsecond quarter of fiscal 2021 and $3.3 million for the year to date, both compared to the same quarterperiods a year ago, primarily due to the increased strength of the U.S. dollar relative to the Brazilian real and the Mexican peso. Combined revenues at our U.K. operations increased 21%9% in the second quarter, resulting from ongoing strength in biosecurity products as the
COVID-19
pandemic has continued to drive sales; the 15% year to date revenue increase was also primarily from biosecurity products as there was a large shipmentsale of hand sanitizers to the U.K. government’s health organization and strong cleaner & disinfectant sales to China, Africa and the Middle East. Histamine test kits sales also contributed to the growth, due to increased business from tuna producers.
At our Brazilian operations, fiscal 2021 first quarter sales increased 38% in local currency and included a large
non-recurring
insecticide sale to a government health organization. Additionally, sales were strong across our entire portfolio of products, including rodenticides, genomics services, dairy drug residue test kits and aflatoxin test kits, however negative currency translations lowered the overall growth to 1%. At Neogen Latinoamerica, the growth in local currency in the first quarter of this fiscal year.
21
Sales in Brazil decreased 22% in this year’s second quarter, as a large sale of insecticides in the prior year second quarter did not recur this year, and as a result of adverse currency impact due to the 25% devaluation of the real against the dollar; in local currency, sales rose 4%. For the six month period, sales at our Brazilian operations decreased 11% compared to the prior year, but increased 19% in local currency. Neogen Latinoamerica sales rose 13% for the second quarter, primarily due to increases in biosecurity products and genomics services, which offset some weakness in our food safety diagnostic kit markets caused by the
COVID-19
pandemic; this operation was ledalso negatively impacted by currency as the revenue increase in local currency was 23%. The Neogen Australasia location benefitted from the February 2020 acquisition of a food safety distributor; the organic revenue increase at this location was 53% in the second quarter and 51% for the year to date period as this operation also recorded strong sales growth of cleaners, disinfectantsgenomics services in the bovine, companion animal and sanitizers.sheep markets.
Service revenue which consists primarily of genomics services to animal protein and companion animal markets, was $21.4$22.5 million in the firstsecond quarter of fiscal 2021, an increase of 10% over prior year firstsecond quarter revenues of $19.5$20.4 million. For the six month period, service revenue was $43.9 million, also an increase of 10% over prior year revenues of $39.9 million. The growth in the quarter was led by increases of genomics revenues to the U.S. companion animal market and the bovine, companion animal and Australian sheep markets somewhat offset by lower sales of services to domestic commercial beef and dairy producers, due to delays in sample receipts caused by the
Covid-19
pandemic and poor economic conditionsAustralia; we also had strong growth in genomics revenues in the commercial dairy markets.Chinese porcine and bovine markets as that country is recovering from the
COVID-19
and African swine fever outbreaks.
 
20
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Revenues
 
  
Three Months Ended November 30,
 
  
Three Months ended August 31,
           
Increase/
     
(in thousands)
  
2020
   
2019
   
Increase/
(Decrease)
   
%
   
2020
   
2019
   
(Decrease)
   
%
 
Food Safety
                
Natural Toxins, Allergens & Drug Residues
  $19,015   $20,115   $(1,100)    (5)%   $20,001   $20,681   $(680)    (3)% 
Bacterial & General Sanitation
   9,931    10,316    (385)    (4)%    11,235    11,615    (380)    (3)% 
Culture Media & Other
   11,393    11,279    114    1%    13,296    12,757    539    4% 
Rodenticides, Insecticides & Disinfectants
   9,608    5,449    4,159    76%    7,978    7,447    531    7% 
Genomics Services
   4,238    3,862    376    10%    5,024    4,354    670    15% 
  
 
   
 
   
 
     
 
   
 
   
 
   
  $54,185   $51,021   $3,164    6%   $57,534   $56,854   $680    1% 
Animal Safety
                
Life Sciences
  $1,325   $1,723   $(398)    (23)%   $1,398   $1,803   $(405)    (22)% 
Veterinary Instruments & Disposables
   10,375    11,336    (961)    (8)%    11,974    10,486    1,488    14% 
Animal Care & Other
   7,658    6,405    1,253    20%    9,371    7,787    1,584    20% 
Rodenticides, Insecticides & Disinfectants
   19,914    16,718    3,196    19%    18,471    16,186    2,285    14% 
Genomics Services
   15,868    14,221    1,647    12%    16,252    14,687    1,565    11% 
  
 
   
 
   
 
     
 
   
 
   
 
   
  $55,140   $50,403   $4,737    9%   $57,466   $50,949   $6,517    13% 
  
 
   
 
   
 
     
 
   
 
   
 
   
Total Revenues
  $109,325   $101,424   $7,901    8%   $115,000   $107,803   $7,197    7% 
  
 
   
 
   
 
     
 
   
 
   
 
   
   
Six Months Ended November 30,
 
               
Increase/
     
(in thousands)
  
2020
     
2019
     
(Decrease)
   
%
 
Food Safety
            
Natural Toxins, Allergens & Drug Residues
  $39,016     $40,796     $(1,780)    (4)% 
Bacterial & General Sanitation
   21,166      21,931      (765)    (3)% 
Culture Media & Other
   24,689      24,037      652    3% 
Rodenticides, Insecticides & Disinfectants
   17,586      12,896      4,690    36% 
Genomics Services
   9,262      8,216      1,046    13% 
  
 
 
     
 
 
     
 
 
   
  $111,719     $107,876     $3,843    4% 
Animal Safety
            
Life Sciences
  $2,723     $3,525     $(802)    (23)% 
Veterinary Instruments & Disposables
   22,349      21,822      527    2% 
Animal Care & Other
   17,029      14,193      2,836    20% 
Rodenticides, Insecticides & Disinfectants
   38,385      32,904      5,481    17% 
Genomics Services
   32,120      28,907      3,213    11% 
  
 
 
     
 
 
     
 
 
   
  $112,606     $101,351     $11,255    11% 
  
 
 
     
 
 
     
 
 
   
Total Revenues
  $224,325     $209,227     $15,098    7% 
  
 
 
     
 
 
     
 
 
   
23
Food Safety
Natural Toxins, Allergens
 & Drug Residues –
Sales in this category decreased 5%3% and 4% for the three and six month periods ended November 30, 2020, respectively, compared to the same periods in the firstprior year. In the second quarter, sales of fiscal 2021 due primarily to a 34% decrease inour drug residue test kits the result of lowerdeclined 27% as demand for these products in our European dairy markets. In January 2020,Eastern Europe weakened and we endedtransition from selling through an exclusive relationship with our European distributor to an
in-house
sales team. The allergens product line increased 1% and have begun directly marketing these products to end customers. Saleshas been negatively impacted by competitive pressure and
COVID-19,
as many of our naturalcustomers have experienced production disruptions and slowdowns. Natural toxin test kits rose 1%, as higher sales of ochratoxin, fumonisin and histamine test kitskit revenues were almost entirely offset by lower aflatoxin test kit sales in U.S. dollars, the result of negative currency translations on increased volumes of aflatoxin test kits in Brazil; in local currency, aflatoxin test kits sales in Brazil rose 9%. Allergen kit sales decreased 3% compared to last year’s first quarter,flat, primarily resulting from lower demand from many customers who were temporarily closed or operating at lower capacity due to the
COVID-19
pandemic, and from competitive pressure.relatively clean crops during this harvest season.
Bacterial
 & General Sanitation –
Revenues in this category decreased 4%3% in both the second quarter and for the year to date, compared to the same periods in the firstprior year. In the second quarter, due to a 7% decrease in sales of our environmental sanitation product line and a 19% decrease in sales of pathogen test kits. Partially offsetting the decrease was an 85% increase in sales of our next generation Soleris NG system, usedproducts to detect spoilage organisms such as yeast and molds in processed foods;foods increased 5%, resulting from sales of our new instrument which launched in the first quarter. Sales of our AccuPoint sanitation monitoring product line decreased 8%; we plan to launch a next generation of reader for this system was introducedproduct line towards the end of the third quarter at which time there will be significant sales and marketing focus on these products. Sales of products to detect pathogens decreased 8%, primarily due to strong equipment sales in late July, and the initial market response has been positive. The Company’s innovative
Listeria Right Now
system also continues to gain market acceptance, recording a 9% increase in sales over the prior year’s second quarter. For the year period.to date, sales of products to detect spoilage organisms increased 10%, on strong equipment sales, while sales of our AccuPoint product line decreased 7% and pathogen test kit revenues decreased 13%.
Culture Media
 & Other –
Sales in this category rose 1%increased 4% in the first quarter of fiscal 2021ended November 30, 2020 compared to the same periodsecond quarter in the prior year.year; for the six month period, sales increased 3%. This category includes sales of veterinary personal protective equipment, primarily gloves, as well as hand sanitizers and sanitizing wipes; these products experienced increased demand in new markets due to shortages caused by the
COVID-19
pandemic. This category also includes sales of acquired inventory of
non-Neogen
manufactured products from our new businesses in Italy and the Southern Cone countries; these sales are not expected to continue long-term. Sales of Neogen Culture Media were down 10%,decreased 3% and 6% for the quarter and year to date periods, respectively, primarily due primarily to continued weakness in end demand at a number of our large U.S. customers.
Rodenticides, Insecticides
 & Disinfectants –
Sales of productsRevenues in this category increased 76%7% in the firstsecond quarter of fiscal 2021 compared to last year’s first quarter. The increase wasthe same period a year ago, due primarily to continued strength in cleaners and disinfectants in China resulting from increased demand from the African swine fever outbreak in that country and the
COVID-19
pandemic; there was also a 73% increaselarge sale of rodenticides to a distributor in Mexico. The growth in the current year second quarter was partially offset by large
non-recurring
sales of insecticide products to governmental agencies in Brazil in the prior year. For the year to date, sales in this category increased 36%, as the first quarter included strong sales of hand and skin sanitizing products at our U.K. based Quat-Chem operation and a large
non-recurringone-time
insecticide order recorded at our Brazil operation, to a government health organization. Additionally, sales of cleaners and disinfectants into China more than doubled, primarily due to increased demand resulting from the African swine fever outbreak in that country and the
COVID-19
pandemic.operation.
Genomics Services –
Sales of genomics services sold through our international Food Safety operations rose 10%increased 15% and 13% for the three and six month periods ended November 30, 2020, respectively. The increase for both periods was primarily from sales increases in the first quarter of fiscal 2021, compared to the same period last year, as genomics services in China, more than doubled, due to increased testing in the pork industry, gains in beef and dairy cattle testing and project work in aquaculture.
21
Table of Contents
Animal Safety
Life Sciences –
Sales in this category decreased 23%22% in the firstsecond quarter, compared to the same period in the prior year; for the year to date, the decrease in this product line is 23%. The decline in both periods is due primarily to lower sales of drug test kits to commercial laboratories, as they processed fewer samples due to slowdowns from the
COVID-19
pandemic.
Veterinary Instruments
 & Disposables –
Revenues in this category decreased 8%increased 14% for the three month period ended November 30, 2020, led by large increases in detectable needles, as we gained new customers, and syringes, resulting from increased demand in existing markets. For the year to date period sales increased 2%, due to lower demand of these products in the first quarter of fiscal 2021, due to lower sales of needles, syringes, marking products and hoof and leg care products toat our larger animal health distributors, the result of lower end market demand.distributors.
Animal Care
 & Other –
Sales of these products increased 20% in both the first quarter compared to the same period a year ago. Within the animal care product lines,three and six month periods ended November 30, 2020, respectively. For both periods, sales of our vitamin injectables, equine supplements and joint pain products increased 31% duringbenefitted from growth in veterinary markets, as the period.
COVID-19
pandemic has led to an increase in pet ownership. Partially offsetting these increases,gains was a decline in sales of our dairy supply products decreased 25%supplies of 57% and 41% for the quarter and year to date periods, respectively, due to the June 2020 termination of an agreement in which we distributed these types of products for a large manufacturer of dairy equipment, effective June 2020.equipment.
24
Rodenticides, Insecticides
 & Disinfectants –
SalesRevenues in this category rose 19% inincreased 14% for the first quarter of fiscal 2021 compared to the samethree month period in the prior year, drivenended November 30, 2020, led by a 47%24% increase in rodenticide sales into new markets as rodent pressure in certain areas of the U.S. increased significantly. Insecticide sales rose 6%,10% in the quarter, due in part to our acquisition of the StandGuard product line from Elanco on July 31, 2020. Cleaners and disinfectants sales rose 1%increased 4% as growth in hand sanitizer products in the U.S. was offset by lower sales of water treatment products and the transfer of $325,000a product line to our U.K. operation. Sales of disinfectant products.these products for the year to date period increased 17%, as compared to a year ago, for the same reasons.
Genomics Services –
Sales in this category increased 12%11% in both the firstsecond quarter and the year to date periods, each compared to the prior year. The growth in both the three months,and six month periods was led by increasedincreases of sales to the companion animal market indue to product uptake at a large U.S. customer, driven by increased pet adoptions and higher consumer spending on pets during the
COVID-19
pandemic. In the U.S., and to a lesser extent,second quarter, we also benefitted from gains in sheep and beef testing in Australia, higher sales to bovine breed associations in the U.S. and the recent launch of a new high density chip for whiteleg shrimp. Partially offsetting these gains was a 12% decrease in sales to domestic commercial beef and dairy cattle producers, due to delays in sample receipts caused by the
Covid-19
pandemic and poor economic conditions in the commercial dairy markets, and reduced sales to a large poultry customer due to their move to one of our lower density, lower cost, chips.
Gross Margin
Gross margin was 46.0%46.3% in the firstsecond quarter of fiscal 2021 compared to 47.5%47.3% in the same quarter a year ago, dueago. The change in large part to agross margin is the result of the shift in product mixthe proportion of overall sales from the Animal Safety segment, which have lower average gross margins than the Food Safety segment; additionally, sales increases within the Food Safety segment resultingwere from significantly increased sales ofproduct lines, such as genomics and biosecurity products, withwhich have lower than average gross margins such as cleaners and disinfectants from our European and Chinese operations and insecticides from our Brazilian operation. Additionally,than the impactdiagnostic test kits sold in that segment. For the year to date, gross margin was 46.1% compared to 47.4% in the same period of the stronger dollar relative toprior year, for the Brazilian real and Mexican peso during the period, and increased duties and freight charges adversely impacted Food Safety gross margins. Animal Safety gross margins improved by 290 basis points, primarily the result of a 47% increase in rodenticide sales, a higher gross margin product, a 31% increase in sales of disinfectant products such as hand sanitizers and improved efficiencies in our Australian operations from higher throughput resulting from the acquisition of Cell Biosciences in February of 2020.same reasons.
Operating Expenses
Operating expenses were $31.4$34.0 million in the firstsecond quarter, of fiscal 2021, compared to $31.9$32.8 million in the firstsame quarter of fiscalthe prior year, an increase of $1.2 million, or 4%. For the six month period ended November 30, 2020, a decreaseoperating expenses were $65.4 million, an increase of $500,000,$692,000, or 2%.1%, compared to the prior year. Sales and marketing expenses were $16.5 million,decreased $259,000 in the second quarter, or 1%, primarily due to decreases in travel, trade shows and other customer facing activities as a declineresult of $1.0 million, or 6%, compared to $17.5 million in last year’s first quarter, as the
COVID-19
pandemic restricted travel worldwide, lowering expenses by $900,000. Additionally, trade showpandemic; for the year to date, sales and marketing expenses were $353,0004% lower than the first quarter of fiscal 2020, as all of the tradeshows we participate in were cancelled or moved to virtual formats due to the pandemic. Partially offsetting these lower expenses was a $1.0 million increase in compensation costs, the result of increased headcount and higher commissions and quarterly bonuses, reflective of the revenue increases.
same period last year. General and administrative expenses were $11.0expense increased $1.2 million, an increase of $314,000, or 2.9%11%, compared to $10.7in the second quarter, resulting primarily from $1 million in last year’s first quarter, primarily due to a $372,000 increase in compensation expense, the result of higher headcount and salaries, increasedspending on strategic consulting, legal and other professional fees depreciation related to investmentsacquisition activity for businesses which we were not ultimately successful in information technology,acquiring. Year to date, general and higher stock-based compensation expense.administrative expenses increased 7%. Research and development expense was $3.9$4.1 million in the firstsecond quarter, of fiscal 2021, an increase of $191,000$275,000, or 7%, compared to the same period in the prior year, withyear. The increase is primarily the increase due primarilyresult of outside services for continued development spending on several new products, which have either been recently launched or are expected to third party services and approval costs related to new product development. The Companybe launched a next generation system to detect spoilage organisms in processed foods, the Soleris NG, in the first quartersecond half of fiscal 2021.
For the year to date, research and development expenses increased 6% over the same period last year, for the same reasons.
Operating Income
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Operating income was $18.9$19.2 million in the firstsecond quarter of fiscal 2021, compared to $16.3$18.3 million in the same period of the prior year; year to date operating income was $38.1 million compared to $34.5 million in the prior year. Expressed as a percentage of revenue,sales, operating income was 17.3%16.7% for the second quarter and 17.0% for the year to date, compared to 16.0%16.9% and 16.5%, respectively, for the same periods in last year’s first quarter.the prior year. The improvementslight decline in operating margin percentage for the current fiscal year second quarter was due primarily to the decline in the gross margin percentage. For the year to date, the increased operating margin percentage is the result of the increase in revenues and lowerdue to operating expenses forwhich increased less than the quarter.overall gross margin.
Other Income
 
   
Three Months ended August 31,
 
(dollars in thousands)
  
2020
   
2019
 
Interest income (net of expense)
  $722   $1,510 
Foreign currency transactions
   175    (117) 
Royalty income
   —      1 
Other
   18    (7) 
  
 
 
   
 
 
 
Total Other Income
  $915   $1,387 
  
 
 
   
 
 
 
   
Three Months Ended
   
Six Months Ended
 
   
November 30,
   
November 30,
 
(dollars in thousands)
  
2020
   
2019
   
2020
   
2019
 
Interest income (net of expense)
  $555   $1,271   $1,277   $2,781 
Foreign currency transactions
   (432)    (352)    (256)    (469) 
Insurance settlement
   309    —      —      —   
Legal settlement
   (300)    —        —   
Other
   (42)    35    (16)    30 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total Other Income
  $90   $954   $1,005   $2,342 
  
 
 
   
 
 
   
 
 
   
 
 
 
The reductiondecrease in interest income in both the first quarterthree and six month periods of fiscal 2021 compared to the priorsame periods a year isago was the result of lower yieldsa significant reduction in rates earned on our cash and marketable securities balances, as interest rates dropped significantly in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020.balances. Other incomeexpense resulting from foreign currency transactions iswas the result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate; during the first quarter of 2021, the pound and the euro rose relative to the dollar, while the peso and the real declined. In the first quarter of fiscal 2020, all of the currencies in those countries depreciated against the dollar.operate.
25
Income Tax Expense
Income tax expense forin the firstsecond quarter of fiscal 2021 was $3.95$3.5 million, an effective tax rate of 19.9%17.8%, compared to prior year first quarter income tax expense of $3.0 million, an effective tax rate of 17.0%.15.3%, in the same period of the prior year. For the year to date, income tax expense was $7.4 million, an effective rate of 18.9%, in fiscal 2021 and $6.0 million, an effective rate of 16.1%, in fiscal 2020. For each quarter,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 $421,000$1,060,000 in the firstsecond quarter of fiscal 2021 compared to $769,000$1,204,000 in the firstsecond quarter of the prior year. TheFor the year to date, the benefit was $1,481,000 in fiscal 2021 compared to $1,973,000 in fiscal 2020. The increase in the effective tax rate for both the second quarter and year to date periods is the result of lower due to the decreased volume ofbenefit from stock option exercises, during the comparative periods,increased taxes at international operations and a reductionlower projected U.S. deduction in benefit realized, on average, for each transaction. Additionally, we recorded a lower tax benefit in the first quarter of fiscal 2021 relating to foreign derived income, compared to the prior year first quarter.income.
Net Income
Net income was $15.9 million in the firstsecond quarter of fiscal 2021, an increase of 8.2% compared to $14.6$16.3 million earned in the firstsame period in the prior year. The decline in earnings for this year’s second quarter of fiscal 2020. The increased earnings werewas the result of higher sales and gross margins, and decreased operating expenses, which offset the $950,0000 increase in the effective tax rate. For the year to date, net income taxes.increased 3% from $30.9 million to $31.7 million; six month net income in fiscal 2021 was also negatively impacted by a higher effective tax rate.
Financial Condition and Liquidity
The overall cash, cash equivalents and marketable securities position of Neogen was $367.5$390.8 million at August 31,November 30, 2020, compared to $343.7 million at May 31, 2020. Approximately $25.1$47.5 million was generated from operations during the first threesix months of fiscal 2021. Net cash proceeds of $5.1$12.7 million were realized from the exercise of stock options and issuance of shares under our Employee Stock Purchase Plan during the first quarter.six months of fiscal 2021. We spent $4.2$11.1 million for property, equipment and other
non-current
assets in the first three monthshalf of fiscal 2021.
Net accounts receivable balances were $77.7$79.9 million at August 31,November 30, 2020, a declinedecrease of $7.0$4.8 million, compared to $84.7 million at May 31, 2020. Days sales outstanding, a measurement of the time it takes to collect receivables, were 61 days at August 31,November 30, 2020, compared to 68 days at May 31, 2020 and 6465 days at August 31,November 30, 2019. We have been carefully monitoring our customer receivables as the
COVID-19
pandemic has spread across our global markets; to date, we have not experienced an appreciable increase in bad debt write offs. We did provide an additional $100,000 at May 31, 2020 in our allowance for bad debts to account for potential write offs related to
COVID-19,COVID-19;
andwe will continue to actively manage our customer accounts and adjust the allowance account as circumstances change.
23
Table of Contents
Net inventory balances were $97.6was $92.5 million at August 31,November 30, 2020, an increasea decrease of $2.5$2.6 million, or 3%, compared to a May 31, 2020 balancesbalance of $95.1 million. We increased inventory levels in fiscal 2020 to ensure we have adequate supplies of critical raw and finished products in the event our supply chain is adversely impacted by the
COVID-19
pandemic and Brexit.Brexit, however we have programs in place to lower inventory levels in areas where it will not adversely affect customers.
Inflation and changing prices are not expected to have a material effect on operations, as management believes it will continue to be successful in offsetting increased input costs with price increases and/or cost efficiencies.
Management believes that our existing cash and marketable securities balances at August 31,November 30, 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 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.
 
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Table of Contents
PART I – FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have interest rate and foreign exchange rate risk exposure but no long-term fixed rate investments or borrowings. Our primary interest rate risk is due to potential fluctuations of interest rates for 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, euro, Mexican peso, Brazilian real, Chinese yuan, Australian dollar and to a lesser extent, the Indian rupee, Canadian dollar, Argentine peso, Uruguayan peso and Chilean peso; there is also exposure to a change in exchange rate between the British pound sterling and the euro. When the U.S. dollar weakens against foreign currencies, the dollar value of revenues denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs. Additionally, previously invoiced amounts can be positively or negatively affected by changes in exchange rates in the course of collection.
Neogen has assets, liabilities and operations outside of the U.S., located in Scotland, England, Italy, Brazil, Mexico, Argentina, Uruguay, Chile, China, India, Canada and Australia where the functional currency is the British pound sterling, euro, Brazilian real, Mexican peso, Argentine peso, Uruguayan peso, Chilean peso, Chinese yuan, Indian rupee, Canadian dollar and Australian dollar, respectively. Our investments in foreign subsidiaries are considered to be long-term. As discussed in ITEM 1A. RISK FACTORS of the Form
10-K
annual filing, our financial condition and results of operations could be adversely affected by currency fluctuations.
PART I – FINANCIAL INFORMATION
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2020November 30, 2019 was carried out under the supervision and with the participation of the Company’s management, including the President & Chief Executive Officer and the Vice President & Chief Financial Officer (“the Certifying Officers”). Based on the evaluation, the Certifying Officers concluded that the Company’s disclosure controls and procedures are effective.
Changes in Internal Controls over Financial Reporting
No changes in our control over financial reporting were identified as having occurred during the quarter ended August 31,November 30, 2020 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
 
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Table of Contents
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to legal and other proceedings in the normal course of business. In the opinion of management, the outcomes of these matters are not expected to have a material effect on the Company’s future results of operations or financial position.
I
tem
 6. Exhibits
(a) Exhibit Index
 
103  Articles of Incorporation, as restated (incorporated by reference to Exhibit 3 to the Registrant’s Form 10-Q filed on December 28, 2018)
10.1Amended and Restated Credit Agreement dated as of November 30, 2016 between Registrant and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.A of the Registrant’s Form 8-K filed on December 7, 2016)
10.2First Amendment to Amended and Restated Credit Agreement dated as of November 30, 2018 between Registrant and JP Morgan Chase N.A. (incorporated by reference to Exhibit 10.A of the registrant’sRegistrant’s Form 8-K filed on December 6, 2018).
10.3Second Amendment to Amended and Restated Credit Agreement dated as of November 30, 2020 between Registrant and JP Morgan Chase N.A. (incorporated by reference to Exhibit 10.A of the Registrant’s Form 8-K filed on December 17, 2020)
31.1  Certification of PrincipalChief Executive Officer pursuant to Rule 13a-14(a).
31.2  Certification of PrincipalChief Financial Officer pursuant to Rule 13a-14(a).
32  Certification Pursuantpursuant to 18 U.S.C. Sectionsection 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS  Inline XBRL Instance Document
101.SCH  Inline XBRL Taxonomy Extension Schema Document
101.CAL  Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF  Inline XBRL Taxonomy Extension Definition Document
101.LAB  Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE  Inline XBRL Taxonomy Extension Presentation Linkbase Document
104EX-104  Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
Items 1A, 2, 3, 4, and 5 are not applicable or removed or reserved and have been omitted.
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
NEOGEN CORPORATION
(Registrant)
Dated: December 29, 2020
Dated: September 30, 2020
/s/ John E. Adent
John E. Adent
President & Chief Executive Officer
(Principal Executive Officer)
Dated: December 29, 2020
Dated: September 30, 2020
/s/ Steven J. Quinlan
Steven J. Quinlan
Vice President & Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
 
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