The information in this Management's Discussion and Analysis of Financial Condition and Results of Operations contains both historical financial information and forward-looking statements. Neogen does not provide forecasts of future performance. While management is optimistic about the Company's long-term prospects, historical financial information may not be indicative of future financial performance.

Safe Harbor and Forward-Looking Statements

Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made throughout this Quarterly Report on Form 10-Q. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors, including competition, recruitment and dependence on key employees, impact of weather on agriculture and food production, identification and integration of acquisitions, research and development risks, patent and trade secret protection, government regulation and other risks detailed from time to time in the Company's reports on file at the Securities and Exchange Commission, that could cause Neogen Corporation's results to differ materially from those indicated by such forward-looking statements, including those detailed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations."

In addition, any forward-looking statements represent management's views only as of the day this Quarterly Report on Form 10-Q was first filed with the Securities and Exchange Commission and should not be relied upon as representing management's views as of any subsequent date. While management may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, even if its views change.

Critical Accounting Policies and Estimates

The discussion and analysis of the Company's 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 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 and estimates reflect management's more significant judgments and estimates used in the preparation of the consolidated financial statements:

Revenue Recognition

Revenue from sales of products is recognized at the time title of goods passes to the buyer and the buyer assumes the risks and rewards of ownership, which is generally at the time of shipment. Where right of return exists, allowances are made at the time of sale to reflect expected returns based on historical experience.

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 possible losses on accounts receivable is established based upon factors surrounding the credit risk of specific customers, historical trends and other information, such as changes in overall changes in customer credit and general credit conditions. Actual collections can differ from historical experience, and if economic or business conditions deteriorate significantly, adjustments to these reserves could be required.

Inventory

A reserve for obsolescence is established based on an analysis of the inventory taking into account the current condition of the asset as well as other known facts and future plans. The amount of reserve required to record inventory at lower of cost or market may be adjusted as condition's change. Product obsolescence may be caused by shelf life expiration, discontinuation of a product line, or replacement products in the market place or other competitive situations.

Valuation of Intangible Assets and Goodwill

Management assesses goodwill and other non-amortizable intangible assets for possible impairment on no less often than an annual basis. This test was performed in the fourth quarter of fiscal 2008 and it was determined that no impairment exists. In the event of changes in circumstances that indicate the carrying value of these assets may not be recoverable, management will make an assessment at any time. Factors that could cause an impairment review to take place would include:

• Significant underperformance relative to expected historical or projected future operating results.

• Significant changes in the use of acquired assets or strategy of the Company.

• Significant negative industry or economic trends.

When management determines that the carrying value of intangible assets may not be recoverable based on the existence of one or more of the above indicators of impairment, the carrying value of the reporting unit's net assets is compared to the projected discounted cash flows of the reporting unit using a discount rate commensurate with the risk inherent in the Company's current business model. If the carrying amounts of these assets are not recoverable based upon a discounted cash flow analysis, such assets are reduced by the estimated shortfall of fair value to recorded value. Changes to the discount rate or projected cash flows used in the analysis can have a significant impact on the results of the impairment test.

Equity Compensation Plans

Financial Accounting Standards Board Statement No. 123(R), "Share-Based Payment", (SFAS 123(R)) addresses the accounting for share-based employee compensation. Further information on the Company's equity compensation plans, including inputs used to determine fair value of options is disclosed in Note 6 to the consolidated financial statements. SFAS 123(R) requires that share options awarded to employees and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company's stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model using assumptions for inputs such as interest rates, expected dividends, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs used are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different option values, which in turn would result in higher or lower compensation expense recognized.

To value options, several recognized valuation models exist. None of these models can be singled out as being the best or most correct one. The model applied is able to handle some 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 would 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 ones produced by the model applied and the inputs used.

New Accounting Pronouncements

See note 7 to Interim Consolidated Financial Statements.

RESULTS OF OPERATIONS

Executive Overview

Neogen Corporation revenues increased by 15% in the second quarter to $31.2 million and by 20% to $60.0 million for the six-month period ended November 30, 2008 when compared to the prior year. Food Safety sales increased by 6% and 10% in the quarter and in the six-month period ended November 30, 2008, respectively. Animal Safety sales increased by 24% and 33% in the quarter and in the six-month period ended November 30, 2008, respectively. Exclusive of the revenues from the Kane Enterprises, Rivard and DuPont acquisitions, overall revenues increased 5% and 8% in the second quarter and year-to-date periods, respectively. Gross margins decreased from 52.1% in the November 2007 quarter to 51.7% in the November 2008 quarter and declined from 52.8% to 51.6% on a year-to-date basis. The effects of changes in currency values, product mix and acquisitions were the most significant contributors in the reduction in gross margins. Operating margins increased in the quarter and six-month periods from 17.6% to 18.8% and from 18.6% to 19.2% respectively. The gains were the result of continuing cost control efforts and the effect of the acquisitions.

Three and six months ended November 30, 2008, compared to the three and six months ended November 30, 2007.

                                                              Three Months Ended November 30
                                                                                 Increased
                                                         2008         2007      (Decreased)       %
Food Safety
Natural Toxins, Allergens & Drugs Residues            $    7,764    $  7,472   $         292       4 %
Bacteria and General Sanitation                            5,012       3,996           1,016      25 %
Dehydrated Culture Media and Other                         2,603       3,006            (403 )   -13 %

                                                          15,379      14,474             905       6 %

Animal Safety
Life Science & Equine Vaccines                             2,338       1,864             474      25 %
Rodenticides and Disinfectants                             5,695       3,414           2,281      67 %
Veterinary Instruments and Other                           7,775       7,458             317       4 %

                                                          15,808      12,736           3,072      24 %

Total Sales                                           $   31,187    $ 27,210   $       3,977      15 %


                                                               Six Months Ended November 30
                                                                                 Increased
                                                         2008         2007      (Decreased)       %
Food Safety
Natural Toxins, Allergens & Drug Residues             $   15,802    $ 14,574   $       1,228       8 %
Bacteria and General Sanitation                            9,563       8,262           1,301      16 %
Dehydrated Culture Media and Other                         5,563       5,396             167       3 %

                                                          30,928      28,232           2,696      10 %
Animal Safety
Life Science & Equine Vaccines                             4,175       3,667             508      14 %
Rodenticides and Disinfectants                            10,569       6,234           4,335      70 %
Veterinary Instruments and Other                          14,320      11,985           2,335      19 %

                                                          29,064      21,886           7,178      33 %

Total Sales                                           $   59,992    $ 50,118   $       9,874      20 %

In the Food Safety Segment, Natural Toxins, Allergens and Drug Residues product revenues increased 4% in the second quarter and 8% on a year-to-date basis. These increases were broad based, and were led by increases in test kits to detect allergens in food. While unit volumes grew at higher percentage rates than reported sales growth, they were offset by the effects of changes in the value of currencies (Euro and Pound Sterling) versus the US Dollar. Bacteria and General Sanitation product revenues increased 25% in the quarter and 16% in the six-month period. These increases were particularly concentrated in the Soleris product line as its optical microbial detection technology continued its strong sales growth. This technology is enjoying widespread acceptance by customers in the dairy, meat, dressings and nutraceutical markets. Dehydrated Culture Media and Other product revenues declined 13% in the three-month period and increased 3% in the six-month period. The decrease followed a difficult comparison in which revenues grew by 42% in the same quarter of the prior year. In general, constant dollar unit sales growth (exclusive of currency fluctuations) were broad based with effective selling programs in place for the markets Neogen serves. In addition, Neogen's wide product offerings continue to be well accepted in the marketplace and the Company is benefitting from accelerating worldwide concerns about the safety of food.

In the Animal Safety Segment, Life Science and Equine Vaccine product revenues increased 25% in the second quarter and 14% for the year-to-date periods. Revenues in this category increased for the three and six-month periods as a result of increased sales to existing customers and instrument sales to forensic customers and expanded domestic distribution vaccines. Rodenticide and Disinfectant revenues increased by 67% in the quarter and by 70% on a year-to-date basis. Rodenticides and Disinfectant revenues increased for the three and six-month periods following the acquisition of a disinfectant product line from DuPont. On an organic basis revenues in this category decreased in the three-month period by 2% but increased on a year-to-date basis by 5%. Veterinary Instrument and Other product revenues increased by 4% in the quarter and by 19% in the first six months of the fiscal year. Revenues for products in this category were up following the acquisitions of Kane Enterprises and Rivard, market share gains for instruments, syringes, wound care products and due to gain with customers selling directly in the retail market. Exclusive of the revenues acquired in the Kane, Rivard and Dupont acquisitions, revenues of Animal Safety products increased 3% in the second quarter over the prior year and by 8% in the six-month period.

In general, while the Company believes it is resistant to economic issues facing the general economy, it is not immune. Management continues to actively monitor product sales and information from the markets in order to make any needed and appropriate adjustments in operations as soon as market changes become apparent.

Gross margins decreased from 52.1% in the prior year to 51.7% in the second quarter of FY-09 and declined from 52.8% to 51.6% for the year-to-date period. These changes in the second quarter resulted from product mix, the effect of the Kane, Rivard and DuPont acquisitions and changes in value relationships of the Euro and the Pound Sterling and the US Dollar.

Operating margins increased in the quarter and the six-month period from 17.6% to 18.8% and from 18.6% to 19.2% respectively. The gains resulted from continued cost control efforts, economies of scale with added revenues, all net of the effect of changes in gross margins. The company has had some increases in raw material costs and has been able to recover a portion though increases in sales prices. The Company continues to be committed to adjusting prices to protect margins.

Sales and Marketing expense as a percentage of revenues decreased in the second quarter from 20.1% to 19.3% and decreased on a year to date basis from 20.2% to 19.4%. The decrease in selling cost as a percent of revenue reflects the increased revenues without a commensurate increase in selling and distribution costs.

General and Administrative expense as a percentage of revenues declined in the second fiscal quarter from 10.5% to 9.7% and from 10.4% to 9.4% on a year-to-date basis. Changes in administrative expense as a percentage of revenue represent the effect of increased revenues without a commensurate increase in expenses.

Research and Development expense increased in absolute dollars but remained unchanged as a percentage of revenue at 3.9% in both the quarter and 3.6% in the six-month period. Research and development expenditures are generally independent of quarter-to-quarter changes in revenue.

Financial Condition and Liquidity

Proceeds of $1,990,000 were realized with the exercise of 202,000 stock options and the issuance of 5,000 shares under the Employee Stock Purchase Plan during the six months ended November 30, 2008. Despite increases in accounts receivable, and inventories, $5,117,000 cash was generated from operations. Inflation and changing prices do not generally have a material effect on operations. Cash used in the formation of a Mexican subsidiary company and in the DuPont acquisition amounted to approximately $7,672,000.

As of November 30, 2008, Cash and Cash Equivalents consisted of funds used to support current operations and certificates of deposit with maturities of 90 days or less.

Days of sales in accounts receivable have remained approximately level over the past ten quarters. This is indicative of the management of the growth of accounts receivable on a basis approximating the growth in revenues over the periods. Inventory turnover has declined from approximately 2.25 times to 1.9 times cost of sales over the past four years. As the Company's international sales have increased from 25% to over 40% and it has sourced additional product from outside the USA, by necessity it has begun to carry greater levels of inventory. Currently systems and procedures are being installed that are expected to assist in increasing inventory turnover over future periods to more closely approximate historical levels.

Management believes that the Company's existing cash balances at November 30, 2008, along with available borrowings under its credit facility and cash expected to be generated from future operations, will be sufficient to fund activities for the foreseeable future. However, existing cash and borrowing capacity may not be sufficient to meet the Company's cash requirements to commercialize products currently under development or its plans to acquire other organizations, technologies or products that fit within its mission statement. Accordingly, the Company may be required to issue equity securities or enter into other financing arrangements for a portion of its future financing needs.