A N N U A L R E P O R T | 2 0 1 9
Our VISION for the FUTURE
Dedicated to food and animal safety.
The mission of
Neogen Corporation
is to be the leading company
in the development and marketing
of solutions for food and animal safety
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A Message from our CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Our Vision for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Management’s Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 10
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated Statements of Comprehensive Income . . . . . . . . 21
Consolidated Statements of Equity . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . 23
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 24
Reports of Independent Registered
Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Management’s Report on Internal Control
Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Comparison of Five Year Cumulative Total Return
and Stock Profile Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Financial Highlights
Amounts in thousands, except per share
Year Ended May 31
Operations:
Total Revenues*
Food Safety Sales*
Animal Safety Sales*
Operating Income
2019
2018
2017
2016
2015
$
414,186 $
397,930 $
358,277 $
317,229
$
213,474
200,712
68,094
194,477
203,453
70,194
170,034
188,243
64,945
145,057
172,172
56,386
Net Income Attributable to Neogen
Basic Net Income Per Share**
Diluted Net Income Per Share**
$
$
$
60,176 $
63,145 $
43,793 $
36,564
$
1.16 $
1.15 $
1 .23 $
0 .87 $
0 .73
$
1 .21 $
0 .86 $
0 .72 $
Average Diluted Shares Outstanding**
52,425
52,149
51,165
50,500
* Revised 2015–2018
** Restated for 2015–2017 due to December 2017 stock split
279,901
129,876
150,025
53,118
33,526
0 .68
0 .67
49,926
TOTAL REVENUES
Dollars in thousands
NET INCOME
Dollars in thousands
TOTAL ASSETS
Dollars in thousands
$ 450,000
$ 65,000
$ 700,000
400,000
350,000
300,000
250,000
200,000
150,000
55,000
45,000
35,000
25,000
15,000
5,000
600,000
500,000
400,000
300,000
200,000
100,000
2015
2016
2017 2018
2019
2015
2016
2017 2018
2019
2015
2016
2017 2018
2019
In thousands
Year Ended May 31
Financial Strength:
2019
2018
2017
2016
2015
Cash and Marketable Securities
$
267,524 $
210,810 $
143,635 $
107,796
$
Working Capital
Total Assets
Long-Term Debt
Equity
411,278
695,740
–
337,101
618,009
–
256,959
528,409
–
219,628
449,940
–
637,899
560,175
471,757
404,161
350,963
1
114,164
205,739
392,181
–
A message from our CEO, John Adent
To our stockholders, employees and friends:
Our former CEO often said “jet airplanes don’t have rear view
mirrors” to remind ourselves that our stakeholders care much
more about where we are going than where we have been .
In this annual report, we detail our vision for Neogen’s 2020
fiscal year and beyond, as we build upon the successes of our
past and move into our future .
But, before we look to the future, a few words about how
we arrived at where we are today, and where we were in our
recently completed 2019 fiscal year .
FY 2019 revenue and net income performance
Revenues for the company for our 2019 fiscal year were
$414,186,000, compared to the prior year’s $397,930,000,
an increase of 4% . Net income for 2019 was $60,176,000, or
$1 .15 per share, compared to the prior year’s $63,145,000,
or $1 .21 per share .
For the year, Neogen was in the same position as other
American companies with a substantial percentage of their
sales coming from outside the United States . The strong
dollar increased our buying power overseas, but hurt our top
and bottom lines when the foreign currencies were converted
to U .S . dollars . In a neutral currency environment for the
year, our sales would have been approximately $8 million
higher, and at the bottom line, we would have reported
approximately 5 .5 cents higher earnings per share for our
2019 fiscal year .
Our fiscal 2019 marked the 28th straight year that Neogen
reported revenue increases as compared to the previous year .
Balance sheet remains strong
Our fiscal 2019 was another strong year for us in generating
cash and further strengthening our balance sheet . We
continue to be debt-free, and we added approximately
2
14% to shareholder equity during the year . These results
allow us to continue to make investments in our business,
including the acquisitions of complementary businesses and
technology, and infrastructure improvements to solidify our
foundation to help drive future growth .
Strength in food safety and genomics business
Our Food Safety business had some impressive results in
the year that were driven by both the capture of additional
market share with existing products, and greater acceptance
in the marketplace of our newer testing technologies . Global
sales of our tests to detect natural toxins increased 15%,
driven by strong sales of test kits in the U .S ., Brazil and
Canada . Sales of our tests for aflatoxins were up 21% for the
year, as we expanded our market share in key geographies,
and grew our new Raptor® test systems worldwide . We
continue to gain strong customer acceptance of our Raptor
platform as it greatly simplifies the entire testing process .
Our pathogen detection product line also had a strong
performance . For the year, we had a 24% increase in global
sales of our test kits to detect foodborne pathogens, including
Listeria and Salmonella . This increase was the result of solid
sales growth of products utilizing our existing technologies
and robust sales for our game-changing Listeria Right Now™ .
The ability to accurately test for Listeria in under one hour
from the time you take the sample to the time you receive
results has delivered tremendous value to our customers .
AccuPoint® Advanced, another of our core Food Safety
product lines that tests for environmental sanitation concerns
in food and beverage processing facilities, also had strong
growth, with revenues increasing 11% . Sales of our test kits to
detect food allergens, including gluten, milk, soy and peanuts,
also continued to grow, with a 7% increase for the year .
Revenues from our worldwide animal genomics business
increased 12% in 2019, largely due to significant increases in
EQUITY
Dollars in thousands
$ 700,000
600,000
500,000
400,000
300,000
200,000
100,000
2015
2016
2017 2018
2019
beef and companion animal testing
in key global markets, such as the
United States, Europe, Brazil and
Australia . As with our natural toxin
and pathogen products, the increase
in our genomics revenue was due to
new products and increased market
penetration with existing products .
We’ve had a number of new product
developments with our genomics
group that have gained almost
immediate acceptance with our
customers . For example, cattle
producers use our improved DNA test
to better predict traits their bulls or
cows will pass on to their offspring,
helping them make more profitable
breeding and ranching decisions .
Strength internationally
Despite the currency issues, our international markets performed well for the
2019 fiscal year, with sales up 11% compared to the prior year . For the year, 40 .1%
of Neogen’s total revenues came from international sources, compared to 37 .6%
in our fiscal 2018 .
In U .S . dollars, our revenues from Brazil were up 16% compared to the prior year
(36% in local currency), led by increases in sales of aflatoxin test kits, forensic test
kits and our genomics services . We recently introduced Neogen’s new indicus
cattle model for genomics testing, which is specific for the unique breed of cattle
in Brazil .
Neogen's flagship international business continues to be our Scotland-based
Neogen Europe operations . For the year, revenues for this group were up 8%
compared to the prior year in U .S . dollars (12% in local currency) . Neogen
Europe acts as the distribution center for all European Union countries, as well
as some countries in Africa and Eastern Europe . One highlight for our 2019 fiscal
year was the integration and harmonization of our culture media operations
in the U .K . with those in the U .S .
Our MISSION
truly MATTERS.
Our Mexico-based operation, which also sells to customers in Central America,
showed a nice increase, up 13% for the year (17% in local currency) . Food Safety
diagnostic test kits in Mexico were up 25% as compared to a year earlier, and
our Animal Safety products, such as cleaners and disinfectants, going into
Central American countries showed some notable increases . While still small,
our China revenues for the year were up about 13% (17% in local currency), and
revenues from our operations in India were almost double from a year ago . We
have high expectations for growth in these countries in the future as we continue
to build out their infrastructures . Revenues from our Australian operation,
acquired in September 2017, exceeded our expectations in its first full fiscal
year as part of Neogen .
Our vision for the future
The opportunities that exist today
have never been better for our overall
business . The United Nations forecasts
that the world population will increase
approximately 25% to 9 .7 billion by the
year 2050 . This population growth will
strain the global food supply and require
larger production and processing facilities .
This means a larger concentration of
animals in small areas, bigger and higher
speed processing plants, and faster
distribution systems . All of these demands
increase the likelihood of animal safety
concerns and food safety problems .
Neogen has new products in the R&D
pipeline that will help address many
of the concerns and problems likely
to arise . At the same time, continued
focus from our sales and marketing
teams should allow us to increase
market share around the world . We
continue to have sufficient cash and
access to credit markets to allow us to
continue to take advantage of acquisition
opportunities as they are identified .
In closing, I would like to thank Jim
Herbert for his leadership since founding
Neogen in 1982 . During Jim’s time here,
he grew the company from nothing to
$400 million in revenues . It’s clear that
Neogen would not be the company it is
today without Jim’s tremendous talent,
vision and drive . He saw a need for what
Neogen could be and he has worked
nonstop, tirelessly, to achieve his dream .
In January 2019, we fully completed the
CEO transition process that began when
I joined the company in July 2017 . I’m
honored and grateful that Jim and the
Board have granted me this opportunity .
Our vision for Neogen’s future is clear .
We will continue to play a key role
in enhancing the safety, quality and
quantity of the global food supply for
our rapidly growing population . Our
mission truly matters — today, tomorrow
and into our foreseeable future .
John E. Adent • President and CEO
3
Our VISION for the FUTURE
Innovative test systems for data-driven decisions. More effective prevention.
Neogen’s mission is to become the
leading company in the development
and marketing of solutions for
food and animal safety.
Since its founding in 1982, Neogen has earned its status
as a market-leading company in the development
and marketing of food safety solutions, including
the rapid and accurate detection of natural toxins,
allergens, pathogens, spoilage microorganisms, and
ATP (for environmental monitoring and control) .
Despite the advancements in food safety practices
and testing, a recent report from the United Nation’s
World Health Organization provided the extent of the
challenge still facing the global food industry in 2019 .
The report stated that every year more than 400,000
people around the world die, and an estimated 600
million people become sick, from the food they eat .
4
Likewise, Neogen has become a market-leading company
in the development and marketing of animal safety
solutions, including innovative animal genomic services,
cutting-edge veterinary needles and syringes, veterinary
instruments, animal healthcare products, and biosecurity
products such as cleaners, disinfectants, rodenticides and
insecticides . All of this helps produce safe animal protein
for our food supplies .
And yet, in 2019 the global livestock industry will lose
millions of animals to genetic and viral diseases, including
numerous outbreaks of avian influenza, foot-and-mouth
disease — and a devastating outbreak of African swine
fever that so far has been seen in China, Mongolia, and
Vietnam, as well as within parts of the European Union .
Clearly, much more work must be done, especially
internationally, and Neogen is perfectly positioned to lead
the way in providing the future’s global solutions for food
and animal safety .
Our vision for the future includes providing food producers,
processors and distributors with innovative tools to
make quicker and more informed data-driven decisions
throughout the global farm-to-fork food chain . Importantly,
our vision also includes the expanded and more effective
use of preventative products and practices that solve global
food supply problems before they can start .
Innovative test systems for
data-driven decisions
The continued growth in the fields of
biotechnology and computer science
has provided food producers and
processors with an unprecedented
amount of data concerning all aspects
of their operations. This rapidly
expanding data-creation trend is only
likely to continue in the future.
Neogen is positioned to help all of
its customers make sense of the new
data — and make quicker and more
informed data-driven decisions.
5
Choosing the best animals for breeding programs
For most food products, the data-driven decision-making
starts very early in the process . Providing the highest
quality and quantity animal protein food products,
including meat, milk and eggs, starts with producers
selecting the best animals for breeding programs .
Neogen’s global animal genomics operations turn a
seemingly impossible task of interpreting an animal’s
genome, which includes billions of nucleotide base
pairs, into easily understandable information . For
example, cattle producers use Neogen Genomics
technology to select the best animals for desirable
traits, such as higher milk production, more tender
steaks, or better disease resistance . These data-
driven decisions result in a food supply that is safer,
healthier and more environmentally efficient to
produce — and more profitable cattle operations .
Neogen has recently enhanced its ability to serve
the global animal genomics market by expanding
its animal genomics laboratory services and
bioinformatics to include locations in the United
States, Scotland, Brazil, Canada, China and Australia .
Neogen serves the beef and dairy cattle, pig, sheep
and poultry markets, and also provides genomic
testing services for aquatic species and even dogs .
In the past year, Neogen also acquired the assets of
Livestock Genetic Services, a company that specialized
in genetic evaluations and data management for
cattle breeding organizations . The acquisition
enhances the company’s in-house genetic evaluation
capabilities, and complements Neogen’s unparalleled
global network of animal genomics laboratories .
6
Creating the accurate results needed to
protect the food supply chain…
The safety and quality of the global food supply is
challenged by contaminants on every step of its
journey from inside the farm gate to the dinner plate .
Contamination can occur in a farmer’s field, such as
corn with a mycotoxin, or anywhere in the processing,
distribution or retail process, such as with Listeria,
or a food allergen in a production environment .
Neogen has led the way with the most comprehensive
range of easy and accurate food safety tests to provide
producers and processors the answers they need to
ensure the safety and quality of their products .
Whether food products originate from a ranch, farm,
field, orchard, sea, or other location, Neogen’s testing
products and services continue to help enhance their
quantity, quality and safety throughout their processing
— whether that process is minimal or extensive .
Neogen offers rapid food safety testing solutions for
foodborne bacteria, including Listeria, Salmonella, and
E. coli; natural toxins, including aflatoxin, deoxynivalenol
(DON) and histamine; food allergens, including
gluten, milk and peanuts; spoilage microorganisms,
including yeast and mold; drug residues, including
antibiotics in milk; and sanitation concerns .
In the past year, sales of the company’s Listeria Right
Now™ test system were almost five times more than
the previous year . It appears that food safety testers are
accepting that it is possible to accurately test for Listeria
in under one hour from the time a sample is taken to the
time the test delivers results — instead of a day or longer .
Neogen has also recently introduced a portable version
of its innovative Raptor® Integrated Analysis Platform that
provides the option of performing mycotoxin testing in
the laboratory — or wherever a tester may choose . The
new Raptor Solo is a battery-operated portable version
of the popular Raptor Integrated Analysis Platform . As
with the original benchtop version, the new Raptor is a
test strip reader that provides an easy way to objectively
analyze and store results of Neogen’s mycotoxin tests .
Also in the past year, Neogen acquired Clarus Labs, an
acquisition that provides the company with greater
access to the $400 million global water microbiology
testing market . The acquisition included the patented
Colitag™ water test, which detects dangerous coliform
bacteria (i .e ., bacteria normally found in the intestine),
including E. coli, in water . Colitag also detects
coliforms that have been weakened, but not killed,
by inadequate water treatment efforts — including
microorganisms capable of causing human illness .
7
…and using the results to make data-driven decisions
Regardless of the Neogen product used to produce accurate
test results, those results lead food safety professionals
to make decisions that will affect their operations — and
potentially their consumers and their bottom lines .
In some cases, test results can lead to easy decisions
to protect the safety and quality of food products . For
example, if a dairy producer uses a Neogen product to
test an incoming load of raw milk for the presence of
antibiotics, a positive test will lead the producer to reject
the load, and protect the producer’s operations from
contaminated product .
In other cases, these decisions are not so easy . For example,
when a food processor uses Neogen’s Listeria Right Now
to test the processor’s production environment and
receives a positive test result . Was the detected Listeria the
result of a persistent problem that must be systematically
addressed and remedied by major changes in the
processor’s operations? Or, was the Listeria a transient
problem — a temporary issue that is not likely to recur?
Most of Neogen’s food safety diagnostics are accompanied
by software systems that help testers to objectively analyze
and store their results, and perform analysis on the results
from multiple locations over extended periods .
8
The company also provides continual support and
follow-up training, utilizing a combination of virtual and
on-site training . Neogen’s dedicated technical service
and field application specialists provide around-the-
clock professional technical support should questions
arise about one of its products, or their results . Neogen’s
product lines are also backed by an in-house research and
development staff .
In an effort to further assist its food safety diagnostic
customers interpret their test result data, Neogen recently
signed a development and licensing agreement that will
allow Neogen’s customers exclusive access to an enhanced
version of a risk intelligence platform .
To be marketed under the Neogen Analytics brand, the
innovative platform will enable Neogen customers to
automate food safety workflows, and continuously monitor
and analyze food risk data generated by the company’s
food safety diagnostic products .
By automating and connecting multiple data points
through diagnostic testing in a production facility,
the food safety data analytics platform enables food
producers and processors to harness their data to create
a holistic picture around areas of risk that can guide
operational data-driven decisions .
More effective prevention
Of course, the best way to address a problem in the
global food supply is to prevent it from happening
in the first place . Neogen offers a comprehensive
array of proven products that were developed
to stop problems before they can start .
Veterinary instruments and animal care products
Neogen maintains a leadership role in the
development of precision veterinary drug delivery
instruments to help minimize drug residues that might
otherwise find their way into meat and milk supplies .
The company’s line of patented detectable D3™
Needles greatly lessen the chance that a broken needle
would ever arrive on a dinner plate in a meat product .
Neogen’s reproductive and obstetrical veterinary
instruments protect animals and their offspring
throughout the breeding process, and the company’s
wide range of veterinary pharmaceuticals and
nutritional supplements support animal health .
Biosecurity products
As shown in the recent devastating impact on the
global swine industry by outbreaks of African swine
fever (ASF), the spread of deadly diseases poses
one of biggest threats to the global food supply . The
global demand for high quality pork products has
resulted in the worldwide movement of pigs and
pork products, and as there is no current effective
treatment for ASF, good biosecurity measures
are vital to contain the spread of disease .
Stopping bacterial, viral, or fungal outbreaks
before they can start is a critical goal in food and
animal safety . Neogen produces and markets a
comprehensive line of agricultural biosecurity
products, including
rodenticides,
insecticides, cleaners
and disinfectants, to
help protect livestock
from the spread of
dangerous diseases
in large, integrated
production facilities .
The company’s broad
range of disinfectants
are formulated
to provide the highest quality chemistries and
broadest efficacy for use in all types of animal
care premises, ranging from production livestock
rearing to companion animal veterinary clinics .
Neogen's EPA-approved veterinary disinfectants
kill most major pathogens of concern, including
bacteria, fungi and viruses and have broad germicidal
capabilities to remove infectious agents such as
avian influenza, foot and mouth disease, Aspergillus
fumigatus and porcine reproductive and respiratory
syndrome . Neogen also assists its customers with
step-by-step procedures to properly clean, and then
disinfect, all types of surfaces .
Livestock water safety products
Managing water quality and quantity is one of the
most overlooked best management practices in
animal safety and health . It plays an important role in
digestion and nutrient absorption, and is also essential
for optimal growth and production .
Neogen offers an array of effective cleaners and
disinfectants to first clean agricultural waterlines, and
then treat the water supply to ensure a continuous
flow of fresh, healthy water to livestock .
If the United Nations’ forecast that the world
population will increase to 9.7 billion by 2050 holds
true, Neogen’s mission to be a leading provider of
food and animal safety products and services will
matter even more in the future than it does today.
Neogen stands ready with the right mission
to provide food producers, processors and
distributors with innovative tools to make quicker
and more informed data-driven decisions, as well
as promote the expanded and more effective
use of preventative products and practices.
9
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’s management does not provide forecasts of future financial performance .
While we are optimistic about our long-term prospects, historical financial information may not be indicative of our future financial results .
Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements . Without
limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended
to identify forward-looking statements . There are a number of important factors, including competition, recruitment and dependence
on key employees, impact of weather on agriculture and food production, identification and integration of acquisitions, research and
development risks, patent and trade secret protection, government regulation and other risks detailed in item 1A . RISK FACTORS in
this Form 10-K and 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 Form 10-K 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 we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so,
even if our views change .
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based on the consolidated financial statements that
have been prepared in accordance with accounting principles generally accepted in the United States . 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 disclosure of contingent assets and liabilities . On an ongoing basis, management evaluates the estimates, including
but not limited to, those related to receivable allowances, inventories and 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 .
The following critical accounting policies reflect management’s more significant judgments and estimates used in the preparation of the
consolidated financial statements .
Revenue Recognition
In May 2014, the FASB issued ASU No . 2014-09 — Revenue from Contracts with Customers (Topic 606) . The new standard outlines a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current
revenue recognition guidance, including industry-specific guidance . The core principle of the revenue model is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services . The standard is designed to create greater comparability
for financial statement users across industries and jurisdictions and also requires enhanced disclosures . In April 2016, the FASB issued
Accounting Standards Update No . 2016-10 — Revenue from Contracts with Customers (Topic 606), which amends and adds clarity to
certain aspects of the guidance set forth in ASU 2014-09 related to identifying performance obligations and licensing . The guidance
became effective for the Company on June 1, 2018 . We adopted this standard using the full retrospective approach . This approach was
chosen to provide appropriate comparisons against our prior year financial statements; accordingly, historical information for the years
ended May 31, 2018 and 2017 has been adjusted to conform to the new standard . See Revenue Recognition section of Note 1 to the
consolidated financial statements for further discussion .
Accounts Receivable Allowance
Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit
exposure on a regular basis . An allowance for doubtful accounts receivable is established based upon factors surrounding the credit risk
of specific customers, historical trends and other information . Collateral or other security is generally not required for accounts receivable .
Once a receivable balance has been determined to be uncollectible, that amount is charged against the allowance for doubtful accounts .
Inventory
A reserve for obsolete and slow-moving inventory has been established and 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 may be 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 .
10
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Goodwill and Other Intangible Assets
Goodwill represents the excess purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to
other identifiable intangible assets . Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants
not-to-compete and patents . Customer relationship intangibles are amortized on either an accelerated or straight-line basis, reflecting
the pattern in which the economic benefits are consumed, while all other amortizable intangibles are amortized on a straight-line basis;
intangibles are generally amortized over 5 to 25 years . We review the carrying amounts of goodwill and other non-amortizable intangible
assets annually, or when indications of impairment exist, to determine if such assets may be impaired by performing a quantitative
assessment . If the carrying amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis
and comparison to comparable EBITDA multiples of peer companies, such assets are reduced to their estimated fair value and a charge
is made to operations .
Long-lived Assets
Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for
possible impairment whenever events or changes in business conditions warrant such a review . The carrying value of a long-lived asset
is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset
indicate that the carrying amount of the asset may not be recoverable . In such an event, fair value is determined using discounted cash
flows and, if lower than the carrying value, impairment is recognized through a charge to operations .
Equity Compensation Plans
Share options awarded to employees and shares of stock awarded to employees under certain stock purchase plans are recognized as
compensation expense based on their fair value at grant date . The fair market value of options granted under our 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 may produce different option
values, which in turn would result in higher or lower compensation expense recognized .
To value options, several recognized valuation models exist . None of these models can be singled out as being the best or most correct
one . The model applied by us can handle most of the specific features included in the options granted, which is the reason for its use . If a
different model were used, the option values could differ despite using the same inputs . Accordingly, using different assumptions coupled
with using a different valuation model could have a significant impact on the fair value of employee stock options . Fair value could be either
higher or lower than the number provided by the model applied and the inputs used . Further information on our equity compensation
plans, including inputs used to determine the fair value of options, is disclosed in Notes 1 and 5 to the consolidated financial statements .
Income Taxes
We account for income taxes using the asset and liability method . Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards
and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse . Deferred income tax
expense represents the change in net deferred income tax assets and liabilities during the year .
Our wholly-owned foreign subsidiaries are comprised of Neogen Europe, Lab M Holdings, Quat-Chem, Neogen do Brasil, Rogama
Industria e Comercio Ltda, Neogen Latinoamérica, Neogen Bio-Scientific Technology Co (Shanghai), Neogen Food and Animal Security
(India), Neogen Canada, and Neogen Australasia Pty Limited . Based on historical experience, as well as our future plans, earnings from
these subsidiaries are expected to be re-invested indefinitely for future expansion and working capital needs . Furthermore, our domestic
operations have historically produced sufficient operating cash flow to mitigate the need to remit foreign earnings . On an annual basis,
we evaluate the current business environment and whether any new events or other external changes might require a re-evaluation of
the decision to indefinitely re-invest foreign earnings . At May 31, 2019, unremitted earnings of our foreign subsidiaries were $55,553,000 .
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (U .S . Tax Act) was signed into law making significant changes to the Internal
Revenue Code . Changes include a federal corporate tax rate reduced from 35% to 21% for tax years beginning after December 31, 2017, the
transition of U .S . international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory
deemed repatriation of foreign earnings . The U . S . Tax Act also includes a provision to tax global intangible low-taxed income (GILTI) of
foreign subsidiaries and a deduction for foreign derived intangible income (FDII), both of which became effective for us beginning June 1,
2018 . See Note 6 to the consolidated financial statements for further information .
11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Executive Overview
• Consolidated revenues were $414 .2 million in fiscal 2019, an increase of 4% compared to $397 .9 million in fiscal 2018 . Organic sales
increased 3% .
• Food Safety segment sales were $213 .5 million in fiscal 2019, an increase of 10% compared to $194 .5 million in fiscal 2018 . Organic sales
increased 9%, with the acquisition of Clarus Labs, in August 2018, contributing the remainder of the growth .
• Animal Safety segment sales were $200 .7 million in fiscal 2019, a decrease of 1% compared to $203 .5 million in fiscal 2018 . Organic
sales decreased 2%, with the acquisitions of Neogen Australasia (September 2017), Livestock Genetic Services (September 2018) and
Delta Genomics (January 2019) partially offsetting the decrease .
•
International sales were 40 .1% of total sales in fiscal 2019 compared to 37 .6% of total sales in fiscal 2018 .
• Our effective tax rate was 17 .5% in fiscal 2019 compared to an effective tax rate of 14 .0% in fiscal 2018 .
• Net income was $60 .2 million, or $1 .15 per diluted share, a decrease of 5% compared to $63 .1 million, or $1 .21 per share, in the prior year .
• Cash generated from operating activities in fiscal 2019 was $63 .8 million, compared to $69 .1 million in fiscal 2018 .
Neogen’s results reflect an 11% increase in international sales in fiscal 2019 compared to the prior year . We continue to focus on increasing
our presence and market share throughout the world, while also integrating recent international acquisitions into our product portfolio .
Sales increases for fiscal 2019 compared to the prior year are as follows for each of our international locations:
Neogen Europe (including Lab M & Quat-Chem)
Neogen do Brasil (including Deoxi & Rogama)
Neogen Latinoamérica
Neogen China
Neogen India
Neogen Australasia
Neogen Canada
Revenue % Increase/(Decrease)
USD
8 %
16 %
13 %
13 %
71 %
122 %
(11) %
Revenue % Increase/(Decrease)
Local Currency
12 %
36 %
17 %
17 %
86 %
150 %
(7) %
Currency translation had a negative impact of approximately $8 .0 million on revenues recorded in foreign currencies during fiscal 2019,
as the U .S . dollar strengthened against all the currencies in the countries in which we conduct business . The revenue increase in Europe
was led by a 14% increase in sales of genomics services, primarily in the porcine and bovine markets . Deoxynivalenol (DON) test kit sales
also increased 19% due to increased testing after a DON outbreak in France’s wheat crops in the fall of calendar 2018 . Sales at Quat-Chem
increased 17%, due to increased sales coverage and the introduction of new products into their markets .
After adjusting for a 15% devaluation of the real against the dollar, sales in Brazil increased 16%, led by a 90% increase in sales of natural
toxins test kits, as we gained significant new business from customers testing for the presence of aflatoxin in corn . Sales of forensic test kits,
used for required drug testing of commercial drivers in Brazil, increased significantly due to business that shifted from U .S . labs to labs in
Brazil and increased demand from commercial laboratories located in Brazil . Neogen Latinoamérica grew revenues by 13%, with gains
across most product lines, in particular mycotoxins and culture media, and increased sales in both Mexico and Central America .
Service revenue, which consists primarily of genomics services to animal protein and companion animal markets, was $74 .7 million in
fiscal 2019, an increase of 12% over prior fiscal year sales of $66 .6 million, aided by the acquisitions of Neogen Australasia (September
2017), Livestock Genetics (September 2018) and Delta Genomics (January 2019); service revenues increased 9% organically . The growth
was led by increases in sample volumes from the global beef and companion animal markets and porcine and bovine markets in Europe .
12
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Revenues
(Dollars in thousands)
Food Safety:
May 31, 2019
Increase/
(Decrease)
Year Ended
May 31, 2018
Increase/
(Decrease)
May 31, 2017
Natural Toxins, Allergens & Drug Residues
$
78,373
Bacterial & General Sanitation
Culture Media & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
Animal Safety:
Life Sciences
Veterinary Instruments & Disposables
Animal Care & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
41,966
49,857
25,584
17,694
213,474
7,858
44,582
29,941
66,389
51,942
200,712
7%
10%
13%
7%
16%
10%
(25)%
(7)%
(3)%
(2)%
11%
(1)%
$
72,962
3%
$
70,926
38,156
44,271
23,821
15,267
194,477
10,411
47,749
30,930
67,646
46,717
203,453
10%
12%
75%
34%
14%
7%
15%
11%
(3)%
18%
8%
34,706
39,367
13,620
11,415
170,034
9,704
41,693
27,891
69,429
39,526
188,243
Total Revenue
$ 414,186
4%
$ 397,930
11%
$
358,277
Year Ended May 31, 2019 Compared to Year Ended May 31, 2018
FOOD SAFETY:
Natural Toxins, Allergens & Drug Residues – Sales in this category increased 7% in fiscal 2019 compared to the prior year . For the natural
toxins and allergens product lines, test kit sales increased 15% and 7%, respectively, for the year . The natural toxin increase was due to
new business earned in Brazil for aflatoxin test kits, and higher sales of deoxynivalenol (DON) test kits in the U .S . and France, the result of
mild outbreaks . These increases were partially offset by a 5% decrease in sales of drug residues test kits, due to lower demand in Europe .
Bacterial & General Sanitation – Sales in this category increased 10% in fiscal 2019 compared to the prior year . Sales of test kits to detect
pathogens increased 24%, as we continued to gain new business with our Listeria Right Now test kit that launched in fiscal 2018 . Sales
of our AccuPoint sanitation monitoring product line increased 11%, with samplers up 13%, as we increased our market share . Sales of
products to detect spoilage organisms in foods increased 3% .
Culture Media & Other – Sales in this category increased 13% in fiscal 2019 compared to fiscal 2018 . Sales of Neogen Culture Media, formerly
marketed as the Acumedia and Lab M brands, increased 7%, aided in part by the August 2018 acquisition of Clarus Labs, which consists
of the Colitag product and reports in the culture media product line . Excluding new business from the acquisition, sales in the Neogen
Culture Media product line increased 4% . This category also includes forensic test kits sold within Brazil, which increased significantly as
business shifted from labs in the U .S . in the prior year (reported in the Animal Safety segment) to labs in Brazil and increased demand from
commercial laboratories in that country .
Rodenticides, Insecticides & Disinfectants – Revenues of products in this category sold through our Food Safety operations increased 7%
in fiscal 2019 . This category was led by increases in sales of cleaners and disinfectants to customers in Europe, China and India, partially
offset by lower sales of insecticides in Brazil due to a large government tender in fiscal 2018 which did not recur in fiscal 2019 .
Genomics Services – Sales of genomics services sold through our Food Safety operations increased 16% in fiscal 2019 compared to the
same period in the prior year, primarily due to higher sales in the European porcine and bovine markets . We also benefitted from a large,
non-recurring research project with the Brazilian government, and the commercialization of a new service offering for a type of cattle
specific to the Brazilian market .
13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ANIMAL SAFETY:
A high proportion of the Animal Safety products are marketed and sold through our veterinary distributor network; this channel was soft
in 2019, with sluggish end market demand, caused in part by increased tariffs and political uncertainties in our markets . We were also
negatively impacted by inventory destocking at our largest distributor partners .
Life Sciences – Sales in this category decreased 25% in fiscal 2019 compared to the same period in the prior year, as approximately $2 .4
million of forensic test kit revenues shifted to our operations in Brazil, which are reported in the Food Safety segment . This testing was
performed by commercial labs in the U .S . in the prior fiscal year, but has since moved to commercial labs located in Brazil .
Veterinary Instruments & Disposables – Revenues in this category decreased 7% in fiscal 2019 compared to fiscal 2018 . Protective wear
and consumables decreased 17%, resulting from poor economic conditions in the commercial dairy production market . Veterinary
instruments sales were down 4% for the year, however, this product line had a very strong increase in fiscal 2018, with sales up 23% in that
period compared to the prior year . A 19% decline in detectable needles was partially offset by strong increases in disposable syringes and
aluminum and poly hub needles .
Animal Care & Other – Sales of these products decreased 3% in fiscal 2019 . Wound care and injectable vitamin products were down
13% and 6%, respectively, due to inventory destocking at distributors; dairy supplies that we distribute were down 5%, due to poor
economic conditions in the commercial dairy production market . Additionally, we spent more on promotional programs and rebates
with distributors, which are recorded as contra revenues within this category, in fiscal 2019 than in the prior year . Partially offsetting these
losses were a 12% increase in sales of our biologics product line and a 7% increase in supplements and other care products, both due to
increased demand from end customers in the companion animal and equine markets .
Rodenticides, Insecticides & Disinfectants – Sales in this category decreased 2% in fiscal 2019, compared to the same period in the prior
year . The decrease was due primarily to the full year impact of toll manufacturing business lost in the third quarter of fiscal year 2018 .
Additionally, rodenticide sales declined due to poor weather conditions causing lower demand and a weak U .S . animal protein market
partially caused by tariff issues .
Genomics Services – Sales in this category increased 11% in fiscal 2019, aided by the acquisitions of Neogen Australasia (September
2017), Livestock Genetics (September 2018) and Delta Genomics (January 2019); organic growth in this category was 7% . Strong growth
in the beef cattle and companion animal markets was partially offset by revenue decreases in U .S . poultry and porcine markets, despite
increases in sample volumes, resulting from a shift to lower priced chips and services . Additionally, poor economic conditions in the U . S .
commercial dairy production market resulted in lower revenues from that market .
Year Ended May 31, 2018 Compared to Year Ended May 31, 2017
FOOD SAFETY:
Natural Toxins, Allergens & Drug Residues – Sales in this category increased 3% in fiscal 2018 compared to the prior year . For the allergens
and dairy drug residues product lines, test kit sales increased 12% and 13%, respectively, for the year . These increases were partially offset
by a 26% decrease in sales of deoxynivalenol (DON) test kits, as prior year outbreaks of DON in corn crops in the U .S ., Canada and Europe
did not recur in fiscal 2018 .
Bacterial & General Sanitation – Sales in this category increased 10% in fiscal 2018, led by strong sales of our AccuPoint sanitation
monitoring product line which increased 18% on strength in both reader equipment and consumable supplies . Sales of test kits to detect
pathogens increased 16%, led by growth in Listeria products, including our new Listeria Right Now test kit that launched earlier in the fiscal
year . Additionally, sales of our product line to detect spoilage organisms in processed foods increased 2% .
Culture Media & Other – Sales in this category increased 12% in fiscal 2018 compared to fiscal 2017 . Sales of Neogen Culture Media,
formerly marketed as the Acumedia and Lab M brands, increased 19%, due to continued strength in products manufactured at Lab M
in the U .K . and a large non-recurring order from a U .S . customer . This category also includes sales of forensic test kits sold through our
Brazilian subsidiary, which decreased by 39% in fiscal 2018 . Demand in fiscal 2017 was extremely high, due to a new requirement for drug
testing of commercial truck drivers, however, sales of these kits in Brazil have decreased in fiscal 2018 due to increased competition and
customer losses caused by conversion to different testing methods .
Rodenticides, Insecticides & Disinfectants – Sales of products in this category sold through our Food Safety operations increased 75%
in fiscal 2018; excluding the December 2016 acquisitions of Quat-Chem and Rogama, organic growth was 2% . The increase was primarily
due to a nonrecurring large sale of insecticides by Rogama to a government health organization . Cleaner and disinfectants sold through
Food Safety operations were negatively impacted by termination of a distribution agreement in January 2017, which resulted in a decline
in sales for those distributed products of $859,000 in fiscal 2018 .
Genomics Services – Sales of genomics services sold through our Food Safety operations increased 34% in fiscal 2018 compared to the
same period in the prior year, primarily due to market share increases, particularly in the beef and dairy cattle markets, and incremental
business with a large poultry producer, in Europe .
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ANIMAL SAFETY:
Life Sciences – Sales in this category increased 7% in fiscal 2018 compared to fiscal 2017, due to increased volumes of forensic test kits
sold to commercial labs in the U .S .
Veterinary Instruments & Disposables – Revenues in this category increased 15% in fiscal 2018, led by a 20% increase in sales of syringes,
as we gained new customers in the retail and custom solutions markets . Sales of our patented detectable needles increased 23%, aided
by strong sales to customers in Europe, including Russia .
Animal Care & Other – Sales of these products increased 11% in fiscal 2018, due to higher sales of PanaKare, our pancreatic replacement
therapy, which benefitted from competitor backorders in fiscal 2018 . Additionally, results from fiscal 2017 included sales credits totaling
$1 .1 million in the first quarter as we removed our canine thyroid product from the market, after the FDA approved a new drug application
for a competitive product .
Rodenticides, Insecticides & Disinfectants – Sales in this category decreased 3% in fiscal 2018, compared to the same period in the prior
year . The January 2017 termination of a distribution agreement with a manufacturer of cleaners and disinfectants resulted in lost sales of
those distributed products totaling $4 .7 million within this category . Partially offsetting this loss, sales of rodenticides increased 11% due
to market share gains in the U .S .
Genomics Services – Sales in this category increased 18% in fiscal 2018; excluding the September 2017 acquisition of Neogen Australasia,
organic growth was 11% . The growth was led by increases in sales to the global beef and dairy cattle and companion animal markets and
higher volumes from a large poultry customer .
Cost of Revenues
(Dollars in thousands)
Cost of Revenues
2019
$ 222,266
Increase
5%
2018
$ 211,658
Increase
12%
2017
$ 189,353
Cost of revenues increased 5% in fiscal 2019 and 12% in fiscal 2018 in comparison with the prior years . This compares with revenue
increases of 4% in fiscal 2019 and 11% in fiscal 2018 . Expressed as a percentage of sales, cost of revenues was 53 .7%, 53 .2% and 52 .9% in
fiscal years 2019, 2018 and 2017, respectively .
Fiscal 2019 – Both Food Safety and Animal Safety margins decreased in fiscal 2019, primarily due to a product mix shift towards lower
margin products within each segment, and to a lesser extent, the strength of the U .S . dollar, which rose against all of the currencies in
the countries in which we operate, and resulted in higher cost of sales in our international operations, which pay for their inventory in
U .S . dollars . A higher overall proportion of Food Safety revenues, which have higher than average gross margins, partially offset the lower
margins within each segment .
Fiscal 2018 – Improvements in Animal Safety gross margins, resulting from raw material cost reductions and favorable mix were offset by
higher product costs in the Food Safety segment resulting from lower sales of our mycotoxin test kits, which have higher gross margins,
and a change in mix caused by the Quat-Chem and Rogama acquisitions . These businesses have product lines with gross margins lower
than the average gross margins in this segment . Depreciation expense, resulting from the investment of machinery and equipment at
several manufacturing locations, increased $872,000 in fiscal 2018 .
Food Safety Gross Margins:
Food Safety gross margins were 51 .8%, 52 .4% and 55 .0% in fiscal years 2019, 2018 and 2017, respectively .
Fiscal 2019 – Food Safety gross margins decreased 60 basis points in fiscal 2019, primarily the result of a shift in product mix at our
international operations; in fiscal 2019, these operations sold a higher proportion of lower margin traditional Animal Safety products
such as cleaners and disinfectants . In addition, gross margins were also negatively impacted by the strength of the U .S . dollar relative to
the international currencies in which we operate, particularly in Brazil, Europe, and Mexico, where the real, pound and peso declined in
value against the U .S . dollar by 15%, 3%, and 4%, respectively . These international operations report through the Food Safety segment .
Increases in higher margin product lines such as our diagnostic and forensic test kits partially offset these decreases .
Fiscal 2018 – Our fiscal 2018 results reflect the full year impact of lower gross margins from revenues contributed by the recent acquisitions
of Quat-Chem and Rogama . Excluding these businesses, Food Safety gross margins would have been 330 basis points higher in fiscal 2018 .
Additionally, the decrease in sales of higher margin forensic test kits through our Brazilian subsidiary, due to increased competition, and
lower sales of mycotoxin test kits, due to a DON outbreak in the prior year which did not recur in fiscal 2018, adversely impacted gross
margins in this segment .
Animal Safety Gross Margins:
Animal Safety gross margins were 40 .6%, 41 .4% and 40 .1% in fiscal years 2019, 2018 and 2017, respectively .
Fiscal 2019 – Animal Safety gross margins decreased 80 basis points in fiscal 2019, primarily the result of lower volumes in higher margin
products such as diagnostics, animal care products, instruments and rodenticides . Forensic test kit revenues in Animal Safety declined as
15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
a large U .S . commercial laboratory transferred sample testing to its locations in Brazil, which we service through our Brazilian operation,
reporting in the Food Safety segment . We also had strong growth in sales of genomics services in our Australian operations; gross margins
in this operation are lower than historical Animal Safety margins due to higher chip costs and lack of scale . Partially offsetting these lower
margins were increased margins in the U .S . genomics operations, based primarily on improved input costs and increased sales of higher
margin services to the bovine and companion animal markets .
Fiscal 2018 – The improvement in gross margin percentage from fiscal 2017 to fiscal 2018 was primarily due to raw material cost reductions
in our genomics business . We also benefitted from increased sales of forensic test kits and other higher margin products and decreased
sales of lower margin distributed cleaners and disinfectants resulting from the termination of a distribution agreement in January 2017 .
Operating Expenses
(Dollars in thousands)
Sales and Marketing
General and Administrative
Research and Development
Total Operating Expense
$
2019
70,230
40,791
12,805
Increase
5%
7%
18%
$
2018
66,929
38,294
10,855
Increase
13%
12%
5%
$
2017
59,380
34,214
10,385
$ 123,826
7%
$ 116,078
12%
103,979
Overall operating expenses increased by 7% in fiscal 2019 and 12% in fiscal 2018, each compared to the prior year . These increases
compare to revenue increases of 4% and 11%, respectively, in each comparative period .
Sales and Marketing:
Sales and marketing expenses increased by 5% in fiscal 2019 and 13% in fiscal 2018, each compared to the prior year . As a percentage of
sales, sales and marketing expense was 17 .0%, 16 .8% and 16 .6% in fiscal years 2019, 2018 and 2017, respectively .
Fiscal 2019 – Salaries and commissions increased by 4% in 2019, and drove the 5% increase in overall sales and marketing expenses;
shipping expenses increased 11%, the result of higher rates and an increase in air shipments . Other increases were the result of higher
trade show, exhibit and sponsorship costs, and provision for bad debts . Partially offsetting these increases were lower promotion and
consulting expenses .
Fiscal 2018 – Salaries and commissions expense rose 9% in fiscal 2018, while travel expense increased 12% . Other significant increases
include shipping expense, distributor support and promotion programs, federal and state product registrations and royalty expense .
Approximately $1 .2 million of the increase in sales and marketing expense resulted from the Quat-Chem, Rogama and Neogen Australasia
acquisitions .
General and Administrative:
General and administrative expenses rose 7% in fiscal 2019 compared to fiscal 2018 and by 12% in fiscal 2018 compared to fiscal 2017 . As
a percentage of sales, general and administrative expense was 9 .8%, 9 .6% and 9 .5% in fiscal years 2019, 2018 and 2017, respectively .
Fiscal 2019 – Higher salary and stock-based compensation costs were the primary drivers of the overall 7% expense increase . In addition,
higher depreciation and license fees on IT-related hardware and software investments, increased training, recruiting and legal fees
contributed to the increased expense . These increases were somewhat offset by a $427,000 reduction in amortization expense, as certain
intangible assets from past acquisitions were fully amortized during the year .
Fiscal 2018 – The 12% increase was primarily the result of higher salaries, due to additional headcount as well as compensation increases .
Higher legal and professional fees and additional amortization of intangible assets, due to our recent acquisitions, also contributed to the
increase compared to fiscal 2017 .
Research and Development:
Research and development expenses increased 18% in fiscal 2019 and 5% in fiscal 2018, each compared to the prior year . As a percentage
of revenue, these expenses were 3 .1% in fiscal year 2019, 2 .7% in fiscal year 2018 and 2 .9% in fiscal year 2017; we expect to spend
approximately 3% of total revenue on research and development annually .
Fiscal 2019 – The 18% increase in research and development expenses in fiscal 2019 was primarily the result of development spending
for next generation products and increases in expenditures to obtain regulatory approvals for a number of new products . Higher
salaries expense, resulting from increased headcount and compensation increases, and increased depreciation expense, resulting from
investments in analytical and testing equipment, accounted for the remainder of the increase .
Fiscal 2018 – In fiscal 2018, higher compensation costs were partially offset by lower levels of consulting and other outside services .
16
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Operating Income
(Dollars in thousands)
Operating Income
2019
68,094
$
Increase
(3)%
2018
70,194
$
Increase
8%
2017
64,945
$
Our operating income decreased by 3% in fiscal 2019 compared to fiscal 2018, and increased by 8% in fiscal 2018 compared to fiscal 2017 .
Expressed as a percentage of revenues, operating income was 16 .4%, 17 .6% and 18 .1% in fiscal years 2019, 2018 and 2017, respectively .
The 3% decrease in operating income for fiscal 2019 was due primarily to overall operating expense increases of $7 .7 million, up 7%, which
compared to a gross margin increase of $5 .6 million .
The 8% increase in operating income for fiscal 2018 was due to the 11% increase in sales, offset by slightly lower gross margins due to
product mix shifts, and operating expenses which rose by 12% over fiscal 2017 .
Other Income (Expense)
Other Income (Expense) for the previous three fiscal years consisted of the following:
(Dollars in thousands)
Interest income (net of expense)
Foreign currency transactions
Royalty income
Licenses and insurance settlements
Quat-Chem contingent consideration
Deoxi contingent consideration
Neogen India contingent consideration
Other
Total Other Income (Expense)
2019
4,683
(1,279)
150
672
422
(10)
–
227
4,865
$
$
2018
2,043
274
147
360
255
(42)
–
234
3,271
$
$
2017
838
(40)
171
660
–
(14)
32
81
1,728
$
$
The increase in interest income in fiscal years 2019 and 2018, each compared to the prior year, is the result of higher cash balances and
rising interest rates during the two-year period . The loss from foreign currency translations in fiscal 2019 is primarily the result of the
changes in the value of foreign currencies relative to the U .S . dollar in countries in which we operate; the dollar strengthened against all
of these currencies in 2019 . In fiscal 2019 and 2018, gains were recognized on insurance proceeds received for property loss settlements;
in fiscal 2017, we terminated a licensing agreement and recognized a gain of $660,000 . Other Income in fiscal 2019 and 2018 included
the adjustment of Quat-Chem and Deoxi contingent consideration based on the level of achievement of revenue targets for the acquired
businesses in each of those fiscal years .
Provision for Income Taxes
(Dollars in thousands)
Provision for Income Taxes
2019
$
12,783
Increase
25%
2018
Increase
2017
$
10,250
(55)%
$
22,700
Income tax expense for fiscal 2019 was $12 .8 million, an effective tax rate of 17 .5%, compared to income tax expense of $10 .3 million in
2018, an effective tax rate of 14 .0% . For fiscal 2017, income tax expense of $22 .7 million represented an effective tax rate of 34 .0% .
The U .S . Tax Act reduced the statutory income tax rate from 35% to 21% in December 2017 . During fiscal 2019, we utilized the 21% statutory
rate for the entire year to compute our income tax expense, whereas the statutory rate in fiscal 2018 was a blended rate of 29 .2% and fiscal
2017 was calculated using the previous statutory rate of 35% .
Differences from the U . S . statutory rate to our effective rate are primarily due to provisions in the U .S . Tax Act and the exercise of stock
options . Please refer to Note 6 to the consolidated financial statements for more information .
Net Income and Income Per Share
(Dollars in thousands—except per share data)
2019
Increase
Net Income Attributable to Neogen
Net Income Per Share—Basic
Net Income Per Share—Diluted
$ 60,176
1.16
1.15
(5)%
2018
$ 63,145
1 .23
1 .21
Increase
44%
2017
$ 43,793
0 .87
0 .86
Net income decreased by 5% in fiscal 2019 as compared to fiscal 2018 . This is due to the increase in our effective tax rate in fiscal 2019 and,
to a lesser extent, a 1% decrease in pre-tax income .
Net income increased by 44% in fiscal 2018, significantly aided by U .S . tax reform enacted in December 2017 and a change in accounting
for stock-based compensation .
17
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Future Operating Results
Neogen Corporation’s future operating results involve a number of risks and uncertainties . Actual events or results may differ materially
from those discussed in this report . Factors that could cause or contribute to such differences include, but are not limited to, the factors
discussed below as well as those discussed elsewhere in this report . Management’s ability to grow the business in the future depends
upon our ability to successfully implement various strategies, including:
• developing, manufacturing and marketing new products with new features and capabilities, and having those new products successfully
accepted in the marketplace;
• expanding our markets by fostering increased use of our products by customers;
• maintaining or increasing gross and net operating margins in changing cost environments;
• strengthening operations and sales and marketing activities in geographies outside of the U .S .;
• developing and implementing new technology development strategies; and
• identifying and completing acquisitions that enhance existing product categories or create new products or services .
FINANCIAL CONDITION AND LIQUIDITY
On May 31, 2019, we had $41 .7 million in cash and cash equivalents, $225 .8 million in marketable securities and working capital of $411 .3
million . For the year ended May 31, 2019, cash generated from operating activities was $63 .8 million, compared to $69 .1 million generated
in fiscal 2018; proceeds from stock option exercises provided an additional $17 .0 million of cash . For the same period, additions to
property and equipment were $14 .7 million and business acquisitions used cash of $6 .4 million . We have a financing agreement with a
bank providing for an unsecured revolving line of credit of $15 .0 million, which was amended in November 2018 to extend the expiration to
September 30, 2021 . There were no advances against this line of credit during fiscal years 2019, 2018 and 2017, and no balance outstanding
at May 31, 2019 and 2018 .
Accounts receivable at May 31, 2019 were $82 .6 million, compared to $79 .1 million at May 31, 2018; the increase is primarily due to the
increase in revenues . Days sales outstanding, a measurement of the time it takes to collect receivables, was 61 days at May 31, 2019
compared to 60 days at May 31, 2018 . All customer accounts are actively managed and no losses in excess of amounts reserved are
currently expected .
Inventory balances were $86 .0 million at May 31, 2019, an increase of $10 .0 million, or 13%, compared to $76 .0 million at May 31, 2018 .
During fiscal 2019, we increased inventory levels of products that are sold into our European markets, to enhance our ability to serve
these markets in the event of a disorderly Brexit . While Brexit has been postponed to October 2019, we will continue to monitor and adjust
our inventory levels as necessary . Excluding the impacts of the increase related to Brexit, inventory levels rose 8% . All operations are
participating in programs to improve inventory turns in fiscal 2020, while ensuring adequate safety stocks to minimize backorders .
Neogen has been consistently profitable and has generated strong cash flow from operations during each of the past three fiscal years .
However, our cash on hand and current borrowing capacity may not be sufficient to meet our cash requirements to commercialize
products currently under development or our future plans to acquire additional businesses, technology and products that fit within our
strategic plan . Accordingly, we may be required, or may choose, to issue equity securities or enter into other financing arrangements for a
portion of our future capital needs .
We are subject to certain legal and other proceedings in the normal course of business that have not had, and, in the opinion of
management, are not expected to have, a material effect on our results of operations or financial position .
18
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Contractual Obligations
As of May 31, 2019, we have the following contractual obligations due by period:
(Dollars in thousands)
Long-Term Debt
Operating Leases
Unconditional Purchase Obligations (1)
2,320
54,583
$ 56,903
(1) Unconditional purchase obligations are primarily purchase orders for future inventory and capital equipment purchases .
50,410
$ 51,522
Total
Less than
one year
$
–
$
–
1,112
$
1–3 years
–
1,106
3,231
4,337
$
$
3–5 years
–
102
934
1,036
$
$
More than
5 years
–
–
8
8
$
New Accounting Pronouncements
See discussion of any New Accounting Pronouncements in Note 1 to Consolidated Financial Statements .
19
Neogen Corporation and Subsidiaries: Consolidated Balance Sheets
ASSETS (In thousands)
Current Assets
Cash and cash equivalents
Marketable securities
Accounts receivable, less allowance of $1,700 and $1,550 at May 31, 2019 and 2018, respectively
Inventories
Prepaid expenses and other current assets
Total Current Assets
Property and Equipment
Land and improvements
Buildings and improvements
Machinery and equipment
Furniture and fixtures
Construction in progress
Less accumulated depreciation
Net Property and Equipment
Other Assets
Goodwill
Other non-amortizable intangible assets
Amortizable intangible assets, net of accumulated amortization of
$40,835 and $37,049 at May 31, 2019 and 2018, respectively
Total Other Assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY (In thousands, except share and per share)
Current Liabilities
Accounts payable
Accruals
Accrued compensation
Income taxes
Other accruals
Total Current Liabilities
Deferred Income Taxes
Other Non-Current Liabilities
Total Liabilities
Commitments and Contingencies (Note 7)
Equity
Preferred stock, $1 .00 par value – shares authorized 100,000; none issued and outstanding
Common stock, $0 .16 par value – shares authorized 120,000,000; 52,216,589 and
51,735,732 shares issued and outstanding at May 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
20
May 31
2019
2018
$
41,688
225,836
82,582
85,992
13,431
449,529
5,324
46,205
82,752
3,895
2,294
140,470
65,623
74,847
103,619
15,649
52,096
171,364
$
83,074
127,736
79,086
76,005
9,888
375,789
4,730
44,008
74,911
3,568
2,654
129,871
56,802
73,069
99,558
14,938
54,655
169,151
$ 695,740
$
618,009
May 31
2019
2018
$
19,063
$
20,750
7,085
601
11,502
38,251
15,618
3,972
57,841
6,065
165
11,708
38,688
14,103
5,043
57,834
–
–
8,355
221,937
(11,640)
419,247
637,899
8,278
202,572
(9,746)
359,071
560,175
$ 695,740
$
618,009
See accompanying notes to consolidated financial statements .
Neogen Corporation and Subsidiaries: Consolidated Statements of Income
(In thousands, except per share)
Revenues
Product revenues
Service revenues
Total Revenues
Cost of Revenues
Cost of product revenues
Cost of service revenues
Total Cost of Revenues
Gross Margin
Operating Expenses
Sales and marketing
General and administrative
Research and development
Total Operating Expenses
Operating Income
Other Income
Interest income, net
Royalty income
Other, net
Total Other Income
Income Before Income Taxes
Provision for Income Taxes
Net Income
Net Income Attributable to Non-controlling Interest
Net Income Attributable to Neogen
Net Income Attributable to Neogen per Share
Basic
Diluted
Year ended May 31
2019
2018
2017
$ 339,439
$
331,288
$
303,148
74,747
414,186
179,660
42,606
222,266
191,920
70,230
40,791
12,805
123,826
68,094
4,683
150
32
4,865
72,959
12,783
60,176
–
66,642
397,930
173,725
37,933
211,658
186,272
66,929
38,294
10,855
116,078
70,194
2,043
147
1,081
3,271
73,465
10,250
63,215
(70)
$
60,176
$
63,145
$
$
1.16
1.15
$
$
1 .23
1 .21
$
$
$
55,129
358,277
156,295
33,058
189,353
168,924
59,380
34,214
10,385
103,979
64,945
838
171
719
1,728
66,673
22,700
43,973
(180)
43,793
0 .87
0 .86
See accompanying notes to consolidated financial statements .
Neogen Corporation and Subsidiaries: Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive loss, net of tax: foreign currency translations
Comprehensive income
Comprehensive loss attributable to non-controlling interest
Year ended May 31
2019
2018
2017
$
60,176
$
63,215
$
43,973
(1,894)
58,282
–
(2,543)
60,672
(70)
(3,257)
40,716
(180)
Comprehensive income attributable to Neogen
$
58,282
$
60,602
$
40,536
See accompanying notes to consolidated financial statements .
21
Purchase of minority interest
Net income for 2018
Other comprehensive loss
Balance, May 31, 2018
Exercise of options, share-based
compensation
Issuance of shares under
employee stock purchase plan
Shares repurchased
Net income for 2019
Other comprehensive loss
Neogen Corporation and Subsidiaries: Consolidated Statements of Equity
(In thousands, except shares)
Shares
Amount
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Non-controlling
Interest
Total
Equity
Balance, May 31, 2016
50,090,252
$
8,014
$ 147,996
$
(3,946) $
252,133
$
(37)
$ 404,160
Exercise of options, share-based
compensation and $3,922
income tax benefit
Issuance of shares under
817,284
131
26,589
employee stock purchase plan
24,953
4
Purchase of minority interest
Net income for 2017
Other comprehensive loss
921
(764)
43,793
180
(3,257)
26,720
925
(764)
43,973
(3,257)
Balance, May 31, 2017
50,932,489
8,149
174,742
(7,203)
295,926
143
471,757
Exercise of options, share-based
compensation
Issuance of shares under
781,116
125
26,992
employee stock purchase plan
22,127
4
1,048
(210)
63,145
(213)
70
(2,543)
27,117
1,052
(423)
63,215
(2,543)
51,735,732
8,278
202,572
(9,746)
359,071
–
560,175
512,527
82
21,335
18,330
(50,000)
3
(8)
1,157
(3,127)
60,176
(1,894)
21,417
1,160
(3,135)
60,176
(1,894)
Balance, May 31, 2019
52,216,589
$ 8,355
$ 221,937
$ (11,640) $
419,247
$
–
$ 637,899
See accompanying notes to consolidated financial statements .
22
Neogen Corporation and Subsidiaries: Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization
Deferred income taxes
Share-based compensation
Excess income tax benefit from the exercise of stock options
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accruals and other changes
Net Cash From Operating Activities
Cash Flows Used In Investing Activities
Purchases of property, equipment and other non-current intangible assets
Proceeds from the sales of marketable securities
Purchases of marketable securities
Business acquisitions, net of cash acquired
Net Cash Used In Investing Activities
Cash Flows From Financing Activities
Exercise of stock options and other
Repurchase of common stock
Excess income tax benefit from the exercise of stock options
Purchase of non-controlling minority interest
Net Cash From Financing Activities
Effect of Exchange Rate on Cash
Net (Decrease) Increase In Cash and Cash Equivalents
Cash And Cash Equivalents, Beginning of Year
Cash And Cash Equivalents, End of Year
Supplementary Cash Flow Information
Income taxes paid, net of refunds
Year ended May 31
2019
2018
2017
$
60,176
$
63,215
$
43,973
17,624
1,197
5,543
–
(4,025)
(10,437)
(3,569)
(1,461)
(1,206)
63,842
(14,661)
339,225
(437,324)
(6,388)
(119,148)
17,034
(3,135)
–
–
13,899
21
(41,386)
83,074
17,058
(2,996)
4,909
–
(10,233)
(2,647)
(2,275)
4,381
(2,281)
69,131
(20,946)
299,751
(361,419)
(468)
(83,082)
23,261
–
–
(423)
22,838
(3,380)
5,507
77,567
14,691
(292)
5,261
(3,922)
5,035
(6,970)
812
(1,691)
3,377
60,274
(14,578)
149,226
(162,755)
(34,029)
(62,136)
21,148
–
3,922
–
25,070
(898)
22,310
55,257
$
41,688
$
83,074
$
77,567
$
13,027
$
14,966
$
17,704
See accompanying notes to consolidated financial statements .
23
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Neogen Corporation develops, manufactures and markets a diverse line of products and services dedicated to food and animal safety .
Basis of Consolidation
The consolidated financial statements include the accounts of Neogen Corporation and its subsidiaries, all of which are wholly-owned as
of May 31, 2019 . Neogen Latinoamérica was 100% owned as of May 31, 2019 and May 31, 2018; Neogen purchased all shares owned by the
minority interest owner on December 31, 2017, which increased its ownership in Neogen Latinoamérica from 90% to 100% . For Neogen
do Brasil, the Company purchased the 10% owned by two minority interest owners on February 28, 2017, which increased its ownership
interest to 100% . Non-controlling interest represents the non-controlling owners’ proportionate share in the equity of these subsidiaries;
the non-controlling owners’ proportionate share in the income or losses of the subsidiaries is subtracted from, or added to, Neogen’s net
income to calculate the net income attributable to Neogen Corporation .
All intercompany accounts and transactions have been eliminated in consolidation .
Share and per share amounts reflect the December 29, 2017 4-for-3 stock split as if it took place at the beginning of the period presented .
Recently Adopted Accounting Standards
Revenue Recognition
On June 1, 2018, the Company adopted ASU No . 2014-09—Revenue from Contracts with Customers (Topic 606) . Refer to the Revenue
Recognition section of Note 1 to the consolidated financial statements for further information .
Classification of Cash Receipts and Payments
In August 2016, the FASB issued ASU No . 2016-15—Classification of Certain Cash Receipts and Cash Payments (a consensus of the
Emerging Issues Task Force) . The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are
required to present a statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement of Cash Flows .
The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years . The Company adopted this ASU on June 1, 2018; the impact on its consolidated financial statements
was immaterial .
Recent Accounting Pronouncements Not Yet Adopted
Leases
In February 2016, the FASB issued ASU No . 2016-02—Leases to increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements . A lessee
should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset
representing its right to use the underlying asset for the lease term . The recognition, measurement and presentation of expenses and
cash flows arising from a lease by a lessor have not significantly changed from previous U .S . GAAP . This ASU is effective for annual periods,
including interim periods within those annual periods, beginning after December 15, 2018 . Modified retrospective application is required
with certain practical expedients . The Company will adopt this ASU on June 1, 2019 . The Company has performed a review of its lessee
and lessor arrangements, including revenue through leasing programs as well as lease expenses, which primarily result from operating
lease arrangements at most of the Company’s facilities . The Company will record a right-of-use (ROU) asset and corresponding lease
liability on the balance sheet in the first quarter of fiscal 2020 and has determined the impact of this pronouncement on its consolidated
financial condition and results of operations is immaterial .
Financial Instruments- Credit Losses
In June 2016, the FASB issued ASU No . 2016-13—Measurement of Credit Losses on Financial Instruments, which changes how companies
measure credit losses on most financial instruments measured at amortized cost and certain other instruments, such as loans, receivables
and held-to-maturity debt securities . Rather than generally recognizing credit losses when it is probable that the loss has been incurred,
the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis
of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life .
ASU 2016-13 is effective for fiscal periods beginning after December 15, 2019 and must be adopted as a cumulative effect adjustment
to retained earnings . Early adoption is permitted . The Company does not believe adoption of this guidance will have an impact on its
consolidated financial statements .
Fair Value Measurements
In August 2018, the FASB issued ASU 2018-3, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure
Requirements for Fair Value Measurement, which modifies the disclosure requirements of fair value measurements . ASU 2018-13 is
effective for fiscal years beginning after December 15, 2019 and early adoption is permitted . The Company does not believe adoption of
this guidance will have an impact on its consolidated financial statements .
24
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Cloud Computing Implementation Cost
In August 2018, the FASB issued ASU 2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting
for implementation costs in cloud computing arrangements . ASU 2018-15 is effective for fiscal years beginning after December 15, 2019
and early adoption is permitted . The Company does not believe adoption of this guidance will have an impact on its consolidated financial
statements .
Comprehensive Income
Comprehensive income represents net income and any revenues, expenses, gains and losses that, under U .S . generally accepted accounting
principles, are excluded from net income and recognized directly as a component of equity . Accumulated other comprehensive income
(loss) consists solely of foreign currency translation adjustments .
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments other than cash equivalents and marketable securities, which include accounts
receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar instruments .
Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants exclusive of any transaction costs . The Company utilizes a fair value hierarchy based upon
the observability of inputs used in valuation techniques as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions .
Cash and Cash Equivalents
Cash and cash equivalents consist of bank demand accounts, savings deposits, certificates of deposit and commercial paper with original
maturities of 90 days or less . Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed
federally insured limits . The Company has never experienced any 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 $41,688,000 and $83,074,000 at May 31,
2019 and 2018, respectively . The carrying value of these assets approximates fair value due to the short maturity of these instruments and
meets the Level 1 criteria . Cash held by foreign subsidiaries was $8,711,000 and $7,101,000 at May 31, 2019 and 2018, respectively .
Marketable Securities
The Company has marketable securities held by banks or broker-dealers at May 31, 2019, consisting of short-term domestic certificates of
deposit of $17,682,000 and commercial paper rated at least A-1/P-1 (short-term) and A/A2 (long-term) with maturities between 91 days and
two years of $208,154,000 . Total outstanding marketable securities at May 31, 2019 was $225,836,000; there were $127,736,000 in marketable
securities outstanding at May 31, 2018 . 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 operations, capital expenditures and business acquisitions; short-
term investments are not entered into for trading or speculative purposes . These securities are recorded at fair value (that approximates
cost) based on recent trades or pricing models and therefore meet the Level 2 criteria . Interest income on these investments is recorded
within Other Income on the income statement .
Marketable Securities as of May 31,2019 and 2018 are listed below by classification and remaining maturities .
U .S . Treasuries
Commercial Paper
Certificates of Deposit
Maturity
0 –9 0 days
91 – 180 days
181 days – 1 year
1 – 2 years
0 –9 0 days
91 – 180 days
181 days – 1 year
1 – 2 years
0 –9 0 days
91 – 180 days
181 days – 1 year
1 – 2 years
Year ended May 31
$
2019
2,470,000
–
2,435,000
2,505,000
84,338,000
47,960,000
34,369,000
34,078,000
7,732,000
5,000,000
750,000
4,199,000
$
2018
19,910,000
–
–
–
47,740,000
32,673,000
–
–
5,446,000
8,747,000
13,220,000
–
Total Marketable Securities
$ 225,836,000
$ 127,736,000
25
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Use of Estimates
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 and Concentrations of Credit Risk
Financial instruments which potentially subject Neogen to concentrations of credit risk consist principally of accounts receivable .
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 on accounts receivable is established based upon factors surrounding the
credit risk of specific customers, historical trends and other information . Collateral or other security is generally not required for accounts
receivable . Once a receivable balance has been determined to be uncollectible, that amount is charged against the allowance for doubtful
accounts . No customer accounted for more than 10% of accounts receivable at May 31, 2019 or 2018, respectively . The activity in the
allowance for doubtful accounts was as follows:
(In thousands)
Begining Balance
Provision
Recoveries
Write-offs
Ending Balance
$
2019
1,550
263
38
(151)
Year ended May 31
$
2018
2,000
152
40
(642)
$
2017
1,500
645
25
(170)
$
1,700
$
1,550
$
2,000
Inventories
Inventories are stated at the lower of cost or net realizable value, determined on the first-in, first-out method . The components of
inventories were as follows:
(In thousands)
Raw materials
Work-in-process
Finished goods
Year ended May 31
2019
41,594
5,581
38,817
85,992
$
$
2018
36,702
5,993
33,310
76,005
$
$
The Company’s inventories are analyzed for slow moving, expired and obsolete items on a quarterly basis and the valuation allowance is
adjusted as required . The valuation allowance for inventory was $2,250,000 and $2,200,000 at May 31, 2019 and 2018, respectively .
Property and Equipment
Property and equipment is stated at cost . Expenditures for major improvements are capitalized while repairs and maintenance are
charged to expense . Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets, which
are generally seven to 39 years for buildings and improvements and three to ten years for furniture, fixtures, machinery and equipment .
Depreciation expense was $11,315,000, $10,315,000 and $8,783,000 in fiscal years 2019, 2018 and 2017, respectively .
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to
other identifiable intangible assets . Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants
not-to-compete and patents . Amortizable intangible assets are amortized on either an accelerated or a straight-line basis, generally over
5 to 25 years . Management reviews the carrying amounts of goodwill and other non-amortizable intangible assets annually, or when
indications of impairment exist, to determine if such assets may be impaired by performing a quantitative assessment . If the carrying
amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable
earnings multiples of peer companies, such assets are reduced to their estimated fair value and a charge is made to operations . The
remaining weighted-average amortization period for intangibles was 10 years and 11 years at May 31, 2019 and May 31, 2018, respectively .
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
26
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset
are less than the carrying value of the asset . 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 .
Reclassifications
Certain amounts in the fiscal 2018 and 2017 financial statements have been reclassified to conform with the fiscal 2019 presentation .
Equity Compensation Plans
At May 31, 2019, the Company had stock option plans which are described more fully in Note 5 to the consolidated financial statements .
The weighted-average fair value per share of stock options granted during fiscal years 2019, 2018 and 2017, estimated on the date of grant
using the Black-Scholes option pricing model, was $14 .91, $14 .47 and $11 .89, respectively . The fair value of stock options granted was
estimated using the following weighted-average assumptions:
Risk-free interest rate
Expected dividend yield
Expected stock volatility
Expected option life
2019
2.6%
0.0%
27.0%
3.5 years
Year ended May 31
2018
1 .6%
0 .0%
27 .7%
4 .0 years
2017
1 .2%
0 .0%
35 .2%
4 .0 years
The risk-free interest rate for periods within the expected life of options granted is based on the United States Treasury yield curve in
effect at the time of grant . Expected stock price volatility is based on historical volatility of the Company’s stock . The expected option life,
representing the period of time that options granted are expected to be outstanding, is based on historical option exercise and employee
termination data . Prior to the fiscal 2017 grants, Neogen recognized the fair value of stock options using the accelerated method over their
requisite service periods which management has determined to be the vesting periods; for options granted in fiscal years 2019, 2018 and
2017, the Company recognized the fair value of stock options using the straight-line method .
Shipping and Handling Costs
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; these expenses totaled $13,503,000, $12,147,000 and $10,185,000 in
fiscal years 2019, 2018 and 2017, respectively .
Income Taxes
The Company accounts for income taxes using the asset and liability method . Under this method, deferred income tax assets and liabilities
are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards
and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse . Deferred income tax
expense represents the change in net deferred income tax assets and liabilities during the year .
The Company’s wholly-owned foreign subsidiaries are comprised of Neogen Europe, Lab M Holdings, Quat-Chem, Neogen do Brasil,
Rogama Industria e Comercio Ltda, Neogen Latinoamérica, Neogen Bio-Scientific Technology Co (Shanghai), Neogen Food and Animal
Security (India), Neogen Canada, and Neogen Australasia Pty Limited . Based on historical experience, as well as management’s future plans,
earnings from these subsidiaries are expected to be re-invested indefinitely for future expansion and working capital needs . Furthermore,
Neogen’s domestic operations have historically produced sufficient operating cash flow to mitigate the need to remit foreign earnings . On
an annual basis, the Company evaluates the current business environment and whether any new events or other external changes might
require a re-evaluation of the decision to indefinitely re-invest foreign earnings . At May 31, 2019, unremitted earnings of the Company’s
foreign subsidiaries were $55,553,000 .
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “U .S . Tax Act”) was signed into law making significant changes to the Internal
Revenue Code . Changes include a federal corporate tax rate reduced from 35% to 21% for tax years beginning after December 31, 2017, the
transition of U .S . international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory
deemed repatriation of foreign earnings . The U . S . Tax Act also includes a provision to tax global intangible low-taxed income (GILTI) of
foreign subsidiaries and a deduction for foreign derived intangible income (FDII), both of which became effective for us beginning June 1,
2018 . See Note 6 to the consolidated financial statements for further information .
Research and Development Costs
Research and development costs, which consist primarily of compensation costs, administrative expenses and new product development,
among other items, are expensed as incurred .
Advertising Costs
Advertising costs are expensed as incurred and totaled $1,471,000, $1,411,000 and $1,426,000 in fiscal years 2019, 2018 and 2017, respectively .
27
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Net Income Attributable to Neogen per Share
Basic net income per share is based on the weighted average number of common shares outstanding during each year . Diluted earnings
per share is based on the weighted average number of common shares and dilutive potential common shares outstanding . Our dilutive
potential common shares outstanding during the years result entirely from dilutive stock options . The following table presents the net
income per share calculations:
(In thousands, except per share)
Numerator for basic and diluted net income per share –
Net income attributable to Neogen
Denominator for basic net income per share – Weighted average shares
Effect of dilutive stock options
Denominator for diluted net income per share
Net income attributable to Neogen per share
Basic
Diluted
2019
60,176
51,888
537
52,425
1.16
1.15
$
$
$
Year ended May 31
2018
$
$
$
63,145
51,358
791
52,149
1 .23
1 .21
2017
43,793
50,544
621
51,165
0 .87
0 .86
$
$
$
At May 31, 2019, 5,000 shares were excluded from the computation of diluted net income per share, as the option exercise prices exceeded
the average market price of the common shares . In 2018 and 2017, all shares were included in the computation .
Revenue Recognition
On June 1, 2018, Neogen adopted ASC Topic 606—Revenue from Contracts with Customers (Topic 606) . This guidance outlines a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current
revenue recognition guidance, including industry-specific guidance . The core principle of the revenue model is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services . Neogen adopted this standard using the full retrospective
approach . This approach was chosen to provide appropriate comparisons against the Company’s prior year financial statements;
accordingly, historical information for the years ended May 31, 2018 and 2017 has been adjusted to conform to the new standard .
The adoption of Topic 606 did not have a material impact on the consolidated financial statements .
Under Topic 606, the Company determines the amount of revenue to be recognized through application of the following steps:
•
•
Identification of the contract with a customer;
Identification of the performance obligations in the contract;
• Determination of the transaction price;
• Allocation of the transaction price to the performance obligations in the contract; and
• Recognition of revenue when or as the Company satisfies the performance obligations .
Essentially all of 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 . The Company generally recognizes revenue at a point in time when all of its performance
obligations under the terms of a contract are satisfied . With the adoption of Topic 606, revenue is recognized upon transfer of control
of promised products and services in an amount that reflects the consideration the Company expects to receive in exchange for those
products or services . The collectability of consideration on the contract is reasonably assured before revenue is recognized . To the extent
that customer payment has been received before all recognition criteria are met, these revenues are initially deferred in other accruals
on the balance sheet and the revenue is recognized in the period that all recognition criteria have been met . In certain situations, Neogen
provides rebates, marketing support, credits or incentives to select customers, which are accounted for as variable consideration when
estimating the amount of revenue to recognize on a contract . Variable consideration reduces the amount of revenue that is recognized .
These variable consideration estimates are updated at the end of each reporting period based on information currently available .
The performance obligations in 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 . The Company accounts for shipping and handling for products as a fulfillment activity when goods are
shipped . Revenue is recognized net of any tax collected from customers; the taxes are subsequently remitted to governmental authorities .
The Company’s terms and conditions of sale generally do not provide for returns of product or reperformance of service except in the case
of quality or warranty issues . These situations are infrequent; due to immateriality of the amount, warranty claims are recorded in the
period incurred .
28
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
The Company derives revenue from two primary sources — product revenue and service revenue .
Product revenue consists primarily of shipments 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;
• 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 .
Revenue for Neogen’s products are recognized and invoiced when the product is shipped to the customer .
Service revenue consists primarily of:
• Genomic identification and related interpretive bioinformatic services; and
• Other commercial laboratory services .
Revenues for Neogen’s genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service
is performed and the results are conveyed to the customer .
Payment terms for products and services are generally 30 to 60 days .
The following table presents disaggregated revenue by major product and service categories for the years ended May 31, 2019 and 2018:
(Dollars in thousands)
Food Safety:
May 31, 2019
Increase/
(Decrease)
Year Ended
May 31, 2018
Increase/
(Decrease)
Natural Toxins, Allergens & Drug Residues
$
78,373
Bacterial & General Sanitation
Culture Media & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
Animal Safety:
Life Sciences
Veterinary Instruments & Disposables
Animal Care & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
Total Revenue
41,966
49,857
25,584
17,694
213,474
7,858
44,582
29,941
66,389
51,942
200,712
$ 414,186
7%
10%
13%
7%
16%
10%
(25)%
(7)%
(3)%
(2)%
11%
(1)%
4%
$
72,962
38,156
44,271
23,821
15,267
194,477
10,411
47,749
30,930
67,646
46,717
203,453
$ 397,930
See Note 9 to the consolidated financial statements for disaggregated revenues by geographical location .
3%
10%
12%
75%
34%
14%
7%
15%
11%
(3)%
18%
8%
11%
May 31, 2017
$
70,926
34,706
39,367
13,620
11,415
170,034
9,704
41,693
27,891
69,429
39,526
188,243
$
358,277
29
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Revision of Previously Issued Financial Statements
The Company has historically classified certain variable consideration components resulting from volume rebates, distributor support, and
other marketing discounts as cost of revenues or sales and marketing expense in its consolidated financial statements of income . These
amounts should have been classified as contra revenue in product or service revenues . The Company had determined in prior periods that
the misstatements were clearly immaterial, individually and in the aggregate, to each of the reporting periods affected . The Company began
properly classifying these items as contra revenues beginning in the fiscal year ended May 31, 2019 and has revised the financials for prior
fiscal years 2018 and 2017 to conform to the current period presentation . These immaterial adjustments had no impact on the Company’s
operating income, income before taxes, net income or reported earnings per share, and no change to stockholders’ equity .
Presented below are the effects of the revisions on the line items within our previously issued consolidated statements of income for the
years ended May 31, 2018 and 2017 . Revised consolidated statements of income related to these periods are presented in this Form 10-K .
Revenues:
Product revenues
Service revenues
Total revenues
Cost of revenues:
Cost of product revenues
Cost of service revenues
Total cost of revenues
Gross margin
Operating expenses:
Sales and marketing
Total operating expenses
Year Ended May 31, 2018
Year Ended May 31, 2017
As Previously
Reported
Adjustments
(in thousands)
As Revised
As Previously
Reported
Adjustments
(in thousands)
As Revised
$
335,554
$
(4,266)
$
331,288
$
306,512
$
(3,390)
$
303,148
66,698
402,252
174,067
37,933
212,000
190,252
70,909
120,058
(56)
(4,322)
(342)
–
(342)
66,642
397,930
173,725
37,933
211,658
55,082
361,594
156,568
33,058
189,626
73
(3,317)
(273)
–
(273)
55,129
358,277
156,295
33,058
189,353
(3,980)
186,272
171,968
(3,044)
168,924
(3,980)
(3,980)
66,929
116,078
62,424
107,023
(3,044)
(3,044)
59,380
103,979
Operating income
$
70,194
$
–
$
70,194
$
64,945
$
–
$
64,945
The revisions had no impact on our audited consolidated balance sheets as of May 31, 2018 and 2017 and no impact on our audited
consolidated statements of equity or audited consolidated statements of cash flows for the fiscal years ended May 31, 2018 and 2017 .
2. GOODWILL AND OTHER INTANGIBLE ASSETS
Management has completed the annual impairment analysis of goodwill and intangible assets with indefinite lives using a quantitative
assessment as of the first day of the fourth quarter of fiscal years 2019, 2018 and 2017, respectively, and determined that recorded amounts
were not considered impaired and that no write-down was necessary .
The following table summarizes goodwill by reportable segment:
(In thousands)
Balance, May 31, 2017
Goodwill acquired
Goodwill adjustments and/or currency (1)
Balance, May 31, 2018
Goodwill acquired
Goodwill adjustments and/or currency (1)
Balance, May 31, 2019
(1) Includes final purchase price allocation adjustment .
$
Food Safety
45,920
–
(5,919)
40,001
3,796
(1,244)
42,553
$
$
$
Animal Safety
58,839
757
(39)
59,557
1,196
313
61,066
$
$
Total
$ 104,759
757
(5,958)
99,558
4,992
(931)
$ 103,619
$
At May 31, 2019, non-amortizable intangible assets included licenses of $569,000, trademarks of $13,717,000 and other intangibles
of $1,363,000 . At May 31, 2018, non-amortizable intangible assets included licenses of $569,000, trademarks of $12,989,000 and other
intangibles of $1,380,000 .
30
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Amortizable intangible assets consisted of the following and are included in customer-based intangibles and other non-current assets
within the consolidated balance sheets:
(In thousands)
Licenses
Covenants not to compete
Patents
Customer-based intangibles
Other product and service-related intangibles
Balance, May 31, 2019
Licenses
Covenants not to compete
Patents
Customer-based intangibles
Other product and service-related intangibles
Balance, May 31, 2018
Gross
Carrying
Amount
9,813
862
8,158
57,634
16,464
92,931
9,491
801
9,693
56,420
15,299
91,704
$
$
$
$
Less
Accumulated
Amortization
$
3,182
542
3,570
28,017
5,524
40,835
2,523
483
5,013
24,579
4,451
37,049
$
$
$
Net
Carrying
Amount
6,631
320
4,588
29,617
10,940
52,096
6,968
318
4,680
31,841
10,848
54,655
$
$
$
$
Amortization expense for intangibles totaled $6,309,000, $6,743,000 and $5,908,000 in fiscal years 2019, 2018, and 2017, respectively . The
estimated amortization expense for each of the five succeeding fiscal years is as follows: $6,664,000 in 2020, $6,025,000 in 2021, $5,673,000
in 2022, $5,299,000 in 2023 and $4,989,000 in 2024 . The amortizable intangible assets useful lives are 2 to 20 years for licenses, 5 to 13
years for covenants not to compete, 5 to 25 years for patents, 5 to 20 years for customer-based intangibles and 5 to 20 years for other
product and service-related intangibles, which primarily consist of product formulations . All definite-lived intangibles are amortized on a
straight-line basis with the exception of definite-lived customer-based intangibles and product and service-related intangibles, which are
amortized on either a straight-line or an accelerated basis .
3. BUSINESS COMBINATIONS
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 described below relates primarily to enhancing
the Company’s strategic platform for the expansion of available product offerings .
Fiscal 2017
On December 1, 2016, the Company acquired the stock of Quat-Chem Ltd ., a chemical company that manufactures biosecurity products,
based in Rochdale, England . Consideration for the purchase was $21,606,000 in cash and up to $3,778,000 of contingent consideration,
due at the end of each of the first two years, based on an excess net sales formula . The final purchase price allocation, based upon the
fair value of these assets and liabilities determined using the income approach, included accounts receivable of $4,684,000, inventory of
$1,243,000, land, property and equipment of $2,526,000, accounts payable of $2,197,000, deferred tax liability of $1,758,000, contingent
consideration accrual of $1,058,000, other current liabilities of $604,000, non-amortizable intangible assets of $1,889,000, intangible assets
of $6,900,000 (with an estimated life of 5-15 years) and the remainder to goodwill (non-deductible for tax purposes) . These values are
Level 3 fair value measurements . In January 2018, Neogen paid the former owners $249,000 in contingent consideration based on the
achievement of sales targets in the first year, and recorded a credit of $255,000 to Other Income, reducing the contingent consideration
accrual by a corresponding amount; $554,000 remained accrued for contingent consideration payable at the end of the second year . In
January 2019, Neogen paid the former owners $184,000 in contingent consideration based on the achievement of sales targets in the
second year; the remaining accrual balance was adjusted to Other Income . This business continues to operate in its current location and
is managed by Neogen Europe, reporting within the Food Safety segment .
On December 27, 2016, the Company acquired the stock of Rogama Industria e Comercio, Ltda ., a company that develops and manufactures
rodenticides and insecticides, based near São Paulo, Brazil . Consideration for the purchase was $12,423,000 in cash and up to $2,069,000
of contingent consideration, due at the end of each of the first two years, based on an excess net sales formula . The final purchase price
allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable
of $1,866,000, other non-current assets of $26,000, inventory of $960,000, land, property and equipment of $4,734,000, current liabilities
of $2,562,000, contingent consideration accrual of $213,000, deferred tax liability of $2,034,000, non-amortizable intangible assets of
$870,000, intangible assets of $5,112,000 (with an estimated life of 5-15 years) and the remainder to goodwill (deductible for tax purposes) .
These values are Level 3 fair value measurements . In April 2018, Neogen paid the former owners $130,000 in contingent consideration
based on the achievement of sales targets in the first year . The contingent consideration accrual was reduced by the same amount;
$83,000 remained accrued for contingent consideration payable at the end of the second year . In April 2019, the Company paid the former
owners $23,000 in contingent consideration based on the achievement of sales targets in the second year; the remaining accrual balance
was adjusted to Other Income . This business continues to operate in its current location and is managed by Neogen do Brasil, reporting
within the Food Safety segment .
31
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Fiscal 2018
On September 1, 2017, the Company acquired the assets of The University of Queensland Animal Genetics Laboratory, an animal genomics
laboratory located near Brisbane, Australia . This acquisition is intended to accelerate the growth of Neogen’s animal genomics business
in Australia and New Zealand . Consideration for the purchase was $2,063,000; $468,000 was initially paid in cash with the remainder due
in annual installments over the next five years . The final purchase price allocation, based upon the fair value of these assets and liabilities
determined using the income approach, included inventory of $19,000, equipment of $419,000, non-current liabilities of $1,629,000,
intangible assets of $902,000 (with an estimated life of 5-15 years) and the remainder to goodwill (non-deductible for tax purposes) . These
values are Level 3 fair value measurements . The business, renamed Neogen Australasia, continues to operate in its current location,
reporting within the Animal Safety segment .
Fiscal 2019
On August 1, 2018, the Company acquired the stock of Clarus Labs, Inc ., a manufacturer of water testing products . Neogen has distributed
Clarus’ Colitag water test to the food and beverage industries since 2004 and this acquisition gives the Company access to sell this product
to new markets . Consideration for the purchase was $4,204,000 in cash and approximately $1 .3 million of contingent consideration,
due semiannually for the first five years, based on an excess net sales formula . The final purchase price allocation, based upon the fair
value of these assets and liabilities determined using the income approach, included inventory of $32,000, machinery and equipment
of $120,000, accounts payable of $53,000, contingent consideration accrual of $1,256,000, non-current deferred tax liability of $544,000,
non-amortizable intangible assets of $878,000, intangible assets of $1,487,000 (with an estimated life of 5-15 years) and the remainder
to goodwill (non-deductible for tax purposes) . These values are Level 3 fair value measurements . In February 2019, $90,000 was paid to
the former owners as contingent consideration from the accrual . Manufacturing of these products was moved to the Company’s Lansing,
Michigan location in October 2018, reporting within the Food Safety segment .
On September 4, 2018, the Company acquired the assets of Livestock Genetic Services, LLC, a Virginia-based company that specializes in
genetic evaluations and data management for cattle breeding organizations . Livestock Genetic Services has been a long-time strategic
partner of Neogen and the acquisition enhances the Company’s in-house genetic evaluation capabilities . Consideration for the purchase
was $1,100,000 in cash, with $700,000 paid at closing and $400,000 payable to the former owner on September 1, 2019, and approximately
$385,000 of contingent consideration, payable over the next three years . The final purchase price allocation, based upon the fair value
of these assets and liabilities determined using the income approach, included office equipment of $15,000, contingent consideration
accrual of $385,000, intangible assets of $942,000 (with an estimated life of 5-15 years) and the remainder to goodwill (deductible for tax
purposes) . These values are Level 3 fair value measurements . Services provided by this operation are now performed at the Company’s
Lincoln, Nebraska location, reporting within the Animal Safety segment .
On January 1, 2019, the Company acquired the assets of Edmonton, Alberta-based Delta Genomics Centre, an animal genomics
laboratory in Canada . Delta’s laboratory operations were renamed Neogen Canada and the acquisition is intended to accelerate growth
of the Company’s animal genomics business in Canada . Consideration for the purchase was $1,485,000 in cash . The final purchase price
allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $38,000,
machinery and equipment of $371,000, unearned revenue liability of $125,000, intangible assets of $532,000 (with an estimated life of 5 to
10 years) and the remainder to goodwill (deductible for tax purposes) . These values are Level 3 fair value measurements . Services provided
by this operation continue to be performed in Edmonton, reporting within the Animal Safety segment .
4. LONG-TERM DEBT
The Company has a financing agreement with a bank providing for a $15,000,000 unsecured revolving line of credit, which was amended
on November 30, 2018 to extend the maturity from September 30, 2019 to September 30, 2021 . There were no advances against the line of
credit during fiscal years 2019 and 2018; there was no balance outstanding at May 31, 2019 . Interest on any borrowings is LIBOR plus 100
basis points (rate under the terms of the agreement was 3 .49% at May 31, 2019) . Financial covenants include maintaining specified levels of
tangible net worth, debt service coverage, and funded debt to EBITDA, each of which the Company was in compliance with at May 31, 2019 .
32
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
5. EQUITY COMPENSATION PLANS
Incentive and non-qualified options to purchase shares of common stock may be 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 . Remaining shares available for grant under stock option plans were 3,997,000, 1,913,000 and 2,525,000
at May 31, 2019, 2018 and 2017, respectively . Options vest ratably over three and five-year periods and the contractual terms are generally
five or ten years .
(Options in thousands)
Outstanding at May 31, 2016 (875 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2017 (661 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2018 (508 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2019 (617 exercisable)
The following is a summary of stock options outstanding at May 31, 2019:
Weighted-Average
Exercise Price
Weighted-Average
Grant Date Fair Value
7 .97
$
11 .89
6 .77
9 .17
9 .51
14 .47
8 .20
11 .12
11 .44
14 .91
8 .92
12 .42
12.70
$
27 .53
40 .68
22 .82
32 .04
32 .88
59 .37
28 .18
39 .57
42 .63
62 .92
31 .28
47 .08
49.37
$
$
Options
2,775
828
(827)
(77)
2,699
829
(821)
(208)
2,499
527
(513)
(128)
2,385
(Options in thousands)
$
Range of
Exercise price
10 .17–37 .26
37 .27–40 .91
40 .92–59 .78
59 .79–61 .56
61 .57–68 .96
Options Outstanding
Average Contractual
Life (in years)
1 .7
2 .8
4 .0
3 .5
4 .5
3 .2
$
Weighted Average
Exercise Price
32 .07
40 .45
51 .03
60 .43
63 .03
49 .37
Options Exercisable
Number
290
147
54
124
2
617
$
Weighted Average
Exercise Price
30 .62
40 .44
49 .19
60 .43
68 .36
40 .68
Number
575
492
172
614
532
2,385
The weighted average exercise price of shares that were exercisable at May 31, 2019 and 2018 was $40 .68 and $31 .23, respectively .
Compensation expense related to share-based awards was $5,543,000, $4,909,000 and $5,261,000 in fiscal years 2019, 2018 and 2017,
respectively . Remaining compensation cost to be expensed in future periods for non-vested options was $15,880,000 at May 31, 2019, with
a weighted average expense recognition period of 3 .4 years .
(In thousands)
Aggregate intrinsic value of options outstanding
Aggregate intrinsic vaue of options exercisable
Aggregate intrinsic value of options exercised
$
Year Ended May 31
2018
82,649
22,572
25,844
$
2019
22,798
10,222
21,382
$
2017
39,388
13,929
18,067
Common stock totaling 365,395 of the 712,500 authorized shares are reserved for issuance under the terms of the 2011 Employee Stock
Purchase Plan . The plan gives 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; the discount is recorded in general and administrative expense . Total
individual purchases in any year are limited to 10% of compensation . Shares purchased by employees were 18,330 in fiscal 2019, 22,127
in fiscal 2018 and 24,953 in fiscal 2017 .
33
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
6. INCOME TAXES
Income before income taxes by source consists of the following amounts:
(In thousands)
U .S .
Foreign
The provision for income taxes consists of the following:
(In thousands)
Current:
U .S . Taxes
Foreign
Deferred
Provision for Income Taxes
Year Ended May 31
2019
58,479
14,480
72,959
2018
62,310
11,155
73,465
$
$
2017
$
55,171
11,502
$
66,673
Year Ended May 31
2018
2019
2017
8,451
3,758
574
12,783
$
10,129
$
20,259
3,066
(2,945)
2,514
(73)
$
10,250
$
22,700
$
$
$
$
The reconciliation of income taxes computed at the U .S . federal statutory tax rate to income tax expense is as follows:
(In thousands)
Tax at U .S . statutory rate
Section 199 domestic production deduction
Global intangible low-taxed income (GILTI)
Foreign derived intangible income deduction (FDII)
Foreign rate differential
Subpart F income
Tax benefits on stock-based compensation
FIN 48 reserve adjustments
Provision for state income taxes, net of federal benefit
Remeasurement of deferred taxes
Transition tax on foreign earnings and profits
Tax credits
Other
Year Ended May 31
2019
15,321
–
840
(1,531)
495
842
(2,586)
13
1,251
–
–
(1,726)
(136)
12,783
$
$
2018
2017
$
21,459
$
23,336
(1,167)
(1,057)
–
–
(461)
816
(4,816)
(1,035)
975
(6,022)
1,223
(1,151)
429
–
–
(1,247)
996
(535)
576
972
–
–
(1,213)
872
$
10,250
$
22,700
On June 1, 2017, the Company adopted ASU No . 2016-09—Compensation-Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting, which simplifies the accounting for share-based payments to employees . The guidance requires the
recognition of the income effects of awards in the income statement when the awards vest or are settled, thus eliminating additional
paid-in capital pools . The guidance also allows for a policy election to account for forfeitures as they occur, rather than on an estimated
basis, and requires that excess tax benefits be classified as an operating activity on the Statement of Cash Flows . The adoption of this ASU
decreased income tax expense by $2 .6 million in fiscal 2019 and by $4 .8 million in fiscal 2018 .
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the U .S . Tax Act) was signed into law, making significant changes to the Internal
Revenue Code . Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning
after December 31, 2017, the transition of U .S . international taxation from a worldwide tax system to a territorial system, and a one-time
transition tax on the mandatory deemed repatriation of foreign earnings . The U .S . Tax Act also includes a provision to tax global intangible
low-taxed income (GILTI) of foreign subsidiaries and a deduction for foreign derived intangible income (FDII), both of which became
effective for the Company beginning June 1, 2018 .
In fiscal 2018, the Company recorded a net benefit of $4 .8 million related to the U .S . Tax Act, due to the impact of the reduction in the tax
rate on deferred tax assets and liabilities of $6 .0 million, partially offset by $1 .2 million of one-time transition tax on the deemed repatriation
of foreign earnings . In fiscal 2019, the Company finalized its calculation of these amounts and recorded immaterial adjustments to income
tax expense; the Company also recorded expense of $840,000 related to GILTI and a tax benefit of $1 .5 million related to FDII .
Foreign tax credits, primarily offsetting taxes associated with Subpart F and GILTI income, were $1,296,000, $791,000 and $729,000 in fiscal
years 2019, 2018 and 2017, respectively . The Company’s U .S . R & D credit was $430,000 in fiscal 2019 and $422,000 in fiscal years 2018 and
2017 .
34
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes . Significant components of our deferred income tax liabilities and
assets are as follows:
(In thousands)
Deferred income tax liabilities
Indefinite and long-lived assets
Prepaid expenses
Deferred income tax assets
Stock options
Inventories and accounts receivable
Tax loss carryforwards
Valuation allowance on tax loss carryforwards
Accrued expenses and other
Year Ended May 31
2019
2018
$
(18,963)
$
(17,503)
(586)
(19,549)
(573)
(18,076)
1,497
1,315
417
(407)
1,109
3,931
1,489
1,593
134
–
757
3,973
Net deferred income tax liabilities
$
(15,618)
$
(14,103)
The Company is no longer subject to examination by the Internal Revenue Service for 2016 and earlier tax years .
7. 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 May 31, 2019 and 2018, 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 in the consolidated balance sheet . In fiscal 2019, the Company performed an updated Corrective Measures Study (CMS)
on the site, per a request from the Wisconsin Department of Natural Resources (WDNR), and is currently in discussion with the WDNR
regarding potential alternative remediation strategies going forward . The Company believes that the current pump and treat strategy is
appropriate for the site . At this time, the outcome of the review in terms of approach and future costs is unknown, but a change in the
current remediation strategy, depending on the alternative selected, could require an increase in the recorded liability, with an offsetting
charge to operations in the period recorded .
The Company has agreements with unrelated third parties that provide for the payment of license fees and royalties on the sale of
certain products . Royalty expense, recorded in sales and marketing, under the terms of these agreements was $2,795,000, $2,876,000
and $2,659,000 for fiscal years 2019, 2018 and 2017, respectively . Some of these agreements provide for guaranteed minimum royalty
payments to be paid each fiscal year by the Company for certain technologies . Future minimum royalty payments are as follows: 2020—
$183,000, 2021—$191,000, 2022—$114,000, 2023—$109,000 and 2024—$109,000 .
Neogen leases office and manufacturing facilities under non-cancelable operating leases . Rent expense for fiscal years 2019, 2018 and
2017 was $871,000, $799,000 and $729,000, respectively . Future fiscal year minimum rental payments for these leases over their remaining
terms are as follows: 2020—$1,112,000, 2021—$810,000, 2022—$297,000, 2023—$101,000, and 2024 and later—$0 .
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 .
8. DEFINED CONTRIBUTION BENEFIT PLAN
The Company maintains a defined contribution 401(k) benefit plan covering substantially all domestic employees . Employees are
permitted to defer compensation up to IRS limits, with Neogen matching 100% of the first 3% of deferred compensation and 50% of
the next 2% deferred . Neogen’s expense under this plan was $1,361,000, $1,325,000, and $1,259,000 in fiscal years 2019, 2018 and 2017,
respectively .
35
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
9. SEGMENT INFORMATION
The Company has two reportable segments: Food Safety and Animal Safety . The Food Safety segment is primarily engaged in the
development, production and marketing of diagnostic test kits 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 .
Neogen’s international operations in the United Kingdom, Mexico, Brazil, China and India originally focused on the sales and marketing
of our Food Safety products, and each of these units reports through the Food Safety segment . In recent years, these operations have
expanded to offer the Company’s complete line of products and services, including those usually associated with the Animal Safety
segment such as cleaners, disinfectants, rodenticides, insecticides, veterinary instruments and genomics services . These additional
products and services are managed and directed by existing management and are reported through the Food Safety segment .
The accounting policies of each of the segments are the same as those described in Note 1 .
Segment information is as follows:
(In thousands)
Fiscal 2019
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Total assets
Expenditures for long-lived assets
Fiscal 2018
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Total assets
Expenditures for long-lived assets
Fiscal 2017
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Total assets
Expenditures for long-lived assets
Food Safety
Animal Safety
Corporate and
Eliminations (1)
$ 190,675
$ 148,764
$
22,799
213,474
39,020
9,525
206,267
8,916
51,948
200,712
33,875
8,099
221,950
5,745
$ 174,553
$
156,735
$
19,924
194,477
34,561
9,083
186,570
10,538
46,718
203,453
39,529
7,975
220,629
10,408
$
154,431
$
148,717
$
15,603
170,034
33,971
7,088
190,895
10,332
39,526
188,243
34,841
7,603
210,927
4,246
–
–
–
(4,801)
–
267,523
–
–
–
–
(3,896)
–
210,810
–
–
–
–
(3,867)
–
126,587
–
Total
$ 339,439
74,747
414,186
68,094
17,624
695,740
14,661
$ 331,288
66,642
397,930
70,194
17,058
618,009
20,946
$ 303,148
55,129
358,277
64,945
14,691
528,409
14,578
(1) Includes corporate assets, including 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 and non-controlling
interests .
The following table presents the Company’s revenue disaggregated by geographical location:
(In thousands)
Revenues by Geographic Location
Domestic
International
Total revenue
36
Year ended May 31
2019
2018
$ 248,304
165,882
414,186
$ 248,236
149,694
397,930
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
10. STOCK REPURCHASE
In October 2018, the Company’s Board of Directors passed a resolution canceling the Company’s prior stock buyback program, which
had been approved in December 2008, and authorized a new program to purchase, subject to market conditions, up to 3,000,000 shares
of the Company’s common stock . In December 2018, the Company purchased 50,000 shares under the new program in negotiated and
open market transactions for a total price, including commissions, of $3,134,727 . Shares acquired under the program have been retired .
11. SUMMARY OF QUARTERLY DATA (UNAUDITED)
(In thousands, except per share)
Total revenues
Gross margin
Net income
Basic net income per share
Diluted net income per share
(In thousands, except per share)
Total revenues
Gross margin
Net income
Net income attributable to Neogen
Basic net income per share
Diluted net income per share
Quarter Ended
August 2018
November 2018
February 2019
May 2019
$
99,626
$ 107,098
$
97,700
$
109,762
46,729
15,237
0 .29
0 .29
50,033
16,051
0 .31
0 .31
Quarter Ended
44,628
13,073
0 .25
0 .25
August 2017 November 2017
$ 100,698
$
48,249
17,153
17,100
0 .33
0 .33
94,209
44,924
11,936
11,914
0 .23
0 .23
February 2018
$
94,903
44,601
16,581
16,586
0 .32
0 .32
50,530
15,815
0 .31
0 .30
May 2018
$ 108,120
48,498
17,545
17,545
0 .34
0 .33
Quarterly net income per share is based on weighted-average shares outstanding and potentially dilutive stock options for the specific
period, and as a result, will not necessarily aggregate to total net income per share as computed for the year as disclosed in the consolidated
statements of income .
37
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Neogen Corporation
Lansing, Michigan
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Neogen Corporation (the “Company”) and subsidiaries as of May
31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three
years in the period ended May 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”) . In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at May
31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2019, in
conformity with accounting principles generally accepted in the United States of America .
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company's internal control over financial reporting as of May 31, 2019, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated
July 30, 2019 expressed an unqualified opinion thereon .
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management . Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits . We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U .S . federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB .
We conducted our audits in accordance with the standards of the PCAOB . Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error
or fraud .
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks . Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements . Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements . We believe that our audits provide a reasonable basis for our opinion .
We have served as the Company’s auditor since 2014 .
BDO USA, LLP
Grand Rapids, Michigan
July 30, 2019
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Exchange Act Rules 13-a-15(f) and 15d-15(f) . Under the supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, an evaluation was conducted as to the effectiveness of internal control over financial reporting
as of May 31, 2019, based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) . Based on that evaluation, management concluded that internal control over financial
reporting was effective as of May 31, 2019 . The effectiveness of internal control over financial reporting as of May 31, 2019 has been audited
by BDO USA, LLP, an independent registered public accounting firm, as stated in its attestation report, which is included on the following
page and is incorporated into this Item 9A by reference .
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting were identified as having occurred during the year ended May 31, 2019 that
have materially affected, or are reasonably likely to materially affect, internal control over financial reporting .
John E. Adent, President and CEO
Steven J. Quinlan, Vice President and CFO
38
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Neogen Corporation
Lansing, Michigan
Opinion on Internal Control over Financial Reporting
We have audited Neogen Corporation’s (the “Company’s”) internal control over financial reporting as of May 31, 2019, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO criteria”) . In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of May 31, 2019, based on the COSO criteria .
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated balance sheets of the Company as of May 31, 2019 and 2018, the related consolidated statements of income,
comprehensive income, equity, and cash flows for each of the three years in the period ended May 31, 2019, and the related notes and
our report dated July 30, 2019 expressed an unqualified opinion thereon .
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal
Control over Financial Reporting” . Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit . We are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with U .S . federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB .
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB . Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects . Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk . Our audit also included performing such other procedures as we considered necessary in
the circumstances . We believe that our audit provides a reasonable basis for our opinion .
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles . A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements .
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements . Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate .
BDO USA, LLP
Grand Rapids, Michigan
July 30, 2019
39
Neogen Corporation and Subsidiaries: Comparison of Five Year Cumulative Total Return
and Stock Profile Activity
The graph below matches Neogen Corporation’s cumulative 5-Year total shareholder return on common stock with the cumulative
total returns of the NASDAQ Composite index and the NASDAQ Medical Equipment index . The graph tracks the performance of a $100
investment in our common stock and in each index (with the reinvestment of all dividends) from May 31, 2014 to May 31, 2019 .
Neogen Corporation
NASDAQ Composite
NASDAQ Medical Equipment
$300
250
200
150
100
50
0
May 2014
May 2015
May 2016
May 2017
May 2018
May 2019
Neogen Corporation
NASDAQ Composite
NASDAQ Medical Equipment
2014
2015
2016
2017
2018
2019
$ 100 .00
100 .00
100 .00
$ 123 .68
120 .89
127 .63
$ 130 .64
119 .47
134 .41
$ 167 .48
151 .43
176 .32
$ 267 .13
183 .75
249 .17
$ 198.82
186.02
244.73
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
May 31 of:
Market Information
Neogen Common Stock is traded on the NASDAQ Global Select Market under the symbol NEOG .
Holders
As of June 30, 2019, there were approximately 249 stockholders of record of Common Stock and management believes there are a total of
approximately 10,000 beneficial holders .
Dividends
Neogen has never paid cash dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future .
© Neogen Corporation, 2019 . Neogen, AccuPoint and Raptor, are registered trademarks and Colitag, D3 Needles, and Listeria Right Now are trademarks of Neogen Corporation,
620 Lesher Place, Lansing, Michigan 48912 USA .
94351_AR19_0819
40
Neogen Corporation Officers and Directors
OFFICERS
John E. Adent
President
Chief Executive Officer
Steven J. Quinlan
Vice President
Chief Financial Officer and Secretary
Stewart W. Bauck, DVM, Ph.D.
Vice President, Agrigenomics
Joseph A. Corbett
Vice President, Animal Safety
Sales and Operations
Robert S. Donofrio, Ph.D.
Vice President, Food Safety R&D
Shane M. Fitzwater
Vice President, Animal Safety Operations
Jerome L. Hagedorn
Vice President, Food Safety Operations
Melissa K. Herbert
Vice President, Government
and Industry Affairs
Jason W. Lilly, Ph.D.
Vice President, International Business
Terri A. Morrical
Vice President, Animal Safety
DIRECTORS
James L. Herbert
Neogen Corporation
Chairman of the Board
William T. Boehm, Ph.D.
Kroger Company
Former Senior Vice President
President’s Council of
Economic Advisors
Former Senior Economist
James C. Borel
E .I . DuPont de Nemours
Former Executive Vice President
Ronald D. Green, Ph.D.
University of Nebraska–Lincoln
Chancellor
G. Bruce Papesh
Dart, Papesh & Co .
President
Jack C. Parnell
Siller Brothers, Inc .
Chairman of the Board
Siller Helicopters, Inc .
Chairman of the Board
U .S . Department of Agriculture
Former Deputy Secretary
Former Acting Secretary
State of California
Former Secretary of Agriculture
Thomas H. Reed
Tom Reed & Associates
President
JBS Packerland
Former Senior Vice President
Michigan Livestock Exchange
Former President and CEO
MSU Board of Trustees
Former Chairman
James P. Tobin
Monsanto
Former Vice President
Darci L. Vetter
Edelman
General Manager and Vice Chair
for Food, Agriculture and Trade
Former Chief Agricultural Negotiator
for the U .S . Trade Representative
Form 10-K and the Company’s
Code of Ethics
Copies of Form 10-K and the Company’s
Code of Ethics will be provided upon
request without charge to persons
directing their request to:
Neogen Corporation
Attention: Investor Relations
620 Lesher Place
Lansing, MI 48912
Annual Meeting
October 3, 2019 at 10:00 a .m .
University Club
Michigan State University
3435 Forest Road
Lansing, MI 48910
Independent Registered
Public Accounting Firm
BDO USA, LLP
200 Ottawa Avenue N .W .
Suite 300
Grand Rapids, MI 49503
Stock Transfer Agent
and Registrar
American Stock Transfer and Trust Co .
6201 15th Avenue
Brooklyn, NY 11219
Legal Counsel
Lowe Law Firm, P .C .
2375 Woodlake Drive
Suite 380
Okemos, MI 48864
620 Lesher Place, Lansing, MI 48912 USA
800-234-5333 (USA/Canada) • 517-372-9200
neogen-info@neogen.com • neogen.com
NASDAQ: NEOG