Welcome to the first quarter fiscal year 2011 earnings announcement conference call. My name is Monica and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I would now like to turn the call over to Jim Herbert. Mr. Herbert, you may begin.

Good morning and welcome to our regular quarterly conference call for investors and analysts. As indicated today, we will be reporting our Neogen's fiscal year 2011 first quarter, which ended on August the 31st. And I would remind you that some of the statements that are made here today could be termed as forward-looking statements. These forward-looking statements, of course, are subject to certain risks and uncertainties and the actual results may differ from those that we discuss today. These risks associated with our business are covered in part in the company's Form 10-K as filed with the Securities and Exchange Commission. In addition to those of you who are joining us today by live telephone conference, I also welcome those who may be joined by way of simulcast on the Worldwide Web. These comments along with some exhibits will be available on for approximately 90 days. Following comments this morning, we will entertain questions from participants who are on the live call and I'm joined today by Lon Bohannon, Neogen's President; and Rick Current, our Chief Financial Officer. Earlier today, Neogen issued a press release announcing the results of our first quarter of the company's new year. And once again, I am pleased to report a record-breaking quarter and I continue to give credit to the team of 600 employees who continue to remember that the toughest thing about a success is that you have to keep on being a success. Our first quarter revenues climbed 33% over the same quarter last year and at same quarter a year ago, that was a nice double-digit increase by the way. Revenues for the quarter were $42 million – $42.9 million as compared to $32.3 million last year. Frankly, the revenues didn't come as a big surprise to management since they came in within about 1% of what our budgeted numbers were. Once again, revenues added to the company's stream of successes, marking this as the 74th quarter and in fact, 79 in which we have shown increased revenues compared to the same quarter a year earlier. That revenue span of record now spans almost 20 years. Even with the expansion in a number of our operating areas, we matched net income to revenues, recording also a net increase of 33% as compared to a year ago. The first quarter net income of $5.8 million translated to $0.25 a share and a little ahead of the analysts' expectations. Actual net income from operations was even better at a 38% increase compared to the prior year. The credit for the outstanding performance this quarter can be shared by both food and animal safety divisions and the various operating units within each of those two groups. For the quarter, we maintained the same balance of revenues between the U.S. and our international sales, with revenues from international sources accounting for about 40% of the total. We maintained that balance, even though currency translation for the quarter detracted from that record due to the increased value of the dollar as compared to both the euro and the pound. These translations accounted for almost $700,000 reduction in revenue as compared to a year earlier and a $500,000 reduction in operating income. Though hurt by the currency translations, our Neogen Europe operations continued to show outstanding growth and on a pound sterling comparison, revenues were up approximately 50% as compared to a year earlier. Even after the translation, Neogen Europe showed a 40% increase as compared to a year earlier. Our Mexico operations provided growth results with revenues there up approximately 70% compared to a year earlier. And that subsidiary, as I think most of you know, is responsible for both our food and animal safety product sales in Mexico. I am also pleased to report that our Brazilian operation is now beginning to gain traction after spending most of the last year in getting Neogen do Brasil qualified to do business in various areas in Brazil and sorting through the product registration issues. This subsidiary should begin to make some noticeable increases in revenues in the quarters ahead. In fact, we will be adding additional product opportunities for the Brazilian operations in the coming months. In the second quarter, we will begin to handle sales of our Dairy Antibiotic Test business on a direct basis rather than through a distributor, and we believe that we will be able to make some notable gains in sales of those products. Also in the third quarter, we will take over direct sales of our cleaner and disinfectant products rather than work through a distributor and expect sales and margins will further add to the growth in Brazil. Brazil, of course, continues to be a greater factor in the world food business. It is now becoming one of the world's chief suppliers of beef, pork, chicken, milk, and soybean. And you may remember that Brazil was one of the very few countries that actually showed an increase in GDP in the last calendar year. The drivers of our domestic market also continued to show good promise for the months ahead. During the last four months, there were 77 food recalls in the U.S. due to food safety issues. This is further evidence of our prediction that food producers and processors will continue to face problems with the safety of the food supply as we increase production to take care of increasing world demand. The biggest recall for the quarter, I'm sure all of you know, related to the salmonella contamination in eggs in which 550 million eggs were recalled from two large production operations in Iowa. It may not be a coincidence that FDA is tightening up on contamination in eggs since the new regulations regarding testing went in place on July the 9th. This whole egg issue relates to contamination of only one species of salmonella that being Salmonella enteritidis. I believe that Neogen has the best and most rapid test available for the detection of this organism in eggs, though sales of that particular test did not have any significant bearing on the performance of our first quarter. What is happening in the egg industry today is a departure from what we have seen in the past, as it is now mandated that egg producing flocks must be tested for the presence of this organism. You may remember that in last quarter's call I indicated that this would be only the second mandated testing program in the U.S., the other one being antibiotic residues in milk. The new FDA regulation mandates that poultry flocks that are producing shell eggs for human consumption must be tested three times during the life of the birds. Testing of chickens is critical in this regulation, since birds that are positive for this salmonella species actually incorporate that organism inside the egg as it's being developed and before the shell is formed. And of course in other proteins, pathogens generally invade the products during processing rather than as part of the production cycle. Because of the attention that's been brought on this massive recall, the FDA has indicated that over the course of the next year, they intend to have inspectors on the farms to observe practices in every poultry operation in the U.S. with over 50,000 laying hens or that accounts for probably roughly about 82% of the U.S. egg production. This regulation means that egg producers are now spending more effort to make certain that chickens don't get infected during the production cycle. This also provides increased opportunity for our animal safety group for sales of cleaners and disinfectants to make certain that farm premises are clean and sale of rodenticides since rats and mice are a chief carrier of disease organisms from one poultry house to another. Proper use of cleaners and disinfectants and rodenticides are on the checklist as FDA inspectors will be visiting these farms in the year ahead. Though FDA already had the authority to enforce these new egg regulations, they are still pending before the Congress, the new Food Safety Enhancement Act, which would increase the FDA authority. You may remember from earlier conversations, this bill was enacted by the House over a year ago now, it was in July of last year the House passed the bill. And it was reported to the floor of the Senate months ago for a vote. Even though there, we believe, is bipartisan support in the Senate, political agendas just seem to stand in the way of passage. Frankly, I have given up trying to predict when the Senate might vote, but certainly with all the public pressure, it shouldn't be too much longer. Looking again at the performance in the first quarter, the performance of our two acquisitions that we made late in last fiscal year helped to drive revenues and income for this first quarter. Last December, we acquired the Tepnel product line from Gen-Probe that added to our already strong product mix for the detection of foodborne allergens. This business, which was located in Wales is now been integrated into our Neogen Europe operations in Scotland and our manufacturing units here in the U.S. Not only did that base business help increase revenues, but we have been successful in also gaining organic growth of these products as compared to the revenues when they were in the hands of the former owner. By the way, 28 of those 77 calls that I mentioned earlier that had taken place in the last 18 weeks were because of undeclared food allergens. Around – at the end of last year, we were also successful in acquiring GeneSeek, a company located in Nebraska and considered to be the leading commercial agriculture genetics laboratory in the U.S. Again, base revenues from that business aided in the first quarter growth and it too though showed a nice organic growth compared to what that business had done in the year earlier. The GeneSeek acquisition actually kind of fits into the good news-bad news category as it relates to the quarter. The terms of that acquisition provided earn-out for the former shareholders based on growth of the business. At the time of the acquisition, we accrued moneys for that earn-out, but it now appears that that growth and therefore the earn-out will be in excess of that earlier accrual. So as a consequence, we recorded an additional $300,000 in this first quarter in anticipation of that larger earn-out. So that $300,000 was another subtraction from operating income in the quarter. The earn-out accrual for GeneSeek, the negative impact of currency translations, and a slight increase in tax rates totaled a difference of about $800,000 in net operating income when compared to the same quarter a year ago. Let me stop at this point and turn the call over to Lon Bohannon, the company's President, who can give you some of the real color on the various areas of our operation during the last quarter. And then I will come back in the end and give you a few of my thoughts on what we see might happen over the next few quarters. Lon?

Thank you, Jim and I too would like to welcome everyone listening on the conference call, as well as those joining us by way of the Internet. And as Jim already stated, Neogen issued a press release earlier today reporting yet another quarter of record-breaking operating results. And like Jim, I do think it's important to recognize the outstanding efforts of Neogen's team of more than 600 employees. It really is these individuals who are primarily responsible for Neogen's consistent and what is now really an amazing track record of growth of quarterly earnings and revenues. Jim has already commented on the first quarter total revenues of $42.9 million and net income of $5.8 million, each of which represented a growth rate of 33% compared to the first quarter of last year. I guess I would also point out that this growth was a nice combination of sales contributed by acquisitions, as well as solid organic sales growth that achieved 14.4% in the first quarter. So with that as a backdrop, let me discuss a few of the highlights in our food safety and animal safety segments that led to that outstanding first quarter performance. I am going to begin by discussing performance at our animal safety division. The animal safety group actually led our overall sales growth from a percentage standpoint in the first quarter with an increase of 39%. That amounted to revenues of $20.7 million in the first quarter. The acquisition of GeneSeek contributed significantly to the growth, but a number of animal safety product lines achieved stellar increases in sales. For example, diagnostic test kits to detect drugs of abuse in forensic applications were 45% higher than the prior year, while sales of research diagnostic test kits were up 28%. Virtually all of what I referred to is our traditional animal safety product lines experience sales growth in the first quarter compared to last year. I believe the 35% increase in sales of our line of Ideal veterinary instruments was especially noteworthy, as were the 10% increase in sales of our Kane [ph] line of disposable OB gloves, supplies, and apparel products. I think most of our listeners will recall that the primary end-users for veterinary instruments in that Kane product line are typically involved in some aspect of production of animal protein. This market segment was hit especially hard by the recession. The recovery there has been very slow and a deliberate process. And consequently, it was gratifying to see two of our product lines that are used by customers in this segment showed some exceptional growth in the first quarter. Another product line that achieved some outstanding growth in the first quarter was our Kare line of small animal supplements which was 57% higher than last year. This particular product line, which provides treatment for thyroid, renal, urinary, and pancreatic disorders in companion animals – we anticipate that the growth in this area will continue to achieve solid percentage increases as we move through the remainder of this fiscal year. Our strategy for positioning rodenticides and our line of cleaners and disinfectants as important intervention strategies to help address food safety issues inside the farm gate also continues to pay dividend. The egg recall mentioned earlier by Jim is a perfect example of the important role that rodenticides and cleaners and disinfectants can play in helping to prevent foodborne illnesses caused by harmful bacteria like Salmonella enteritidis or viruses like avian influenza. A number of published reports associated with this particular egg recall have identified numerous problems and violations related to inadequate pest control and evidence of poor cleaning and sanitation conditions. As it becomes more and more apparent that intervention products can play a critical role in addressing food safety inside the farm gate, our animal safety division continues to capture market share and recognize significantly higher sales of rodenticides, as well as cleaners and disinfectants to animal protein production facilities. Turning my attention to food safety division, I am very pleased to report that this group continued its recent trend of significant growth with the first quarter sales of $22.3 million, representing an increase of 27%. This particular sales growth was very broad based across almost all market segments and product lines, aided by the significant contribution of the Tepnel BioKits product line acquisition, along with solid 17% organic growth, sales of test kits to detect food allergens led the overall food safety sales increase with first quarter sales almost double from one year ago. Sales of dehydrated culture media to customers who repackage the media for what we call traditional users including diagnostic applications in pharmaceutical and clinical markets was not far behind with sales more than 50% higher than the prior year. Sales of products used for the detection of specific pathogens, including our Reveal product line of E. coli, salmonella, and listeria, were up 20% in the first quarter. Food safety test systems used for general sanitation monitoring purposes sold under the AccuPoint brand name also achieved an increase of 20% in the first quarter, while sales of diagnostic test kits used to detect mycotoxins like aflatoxin, fumonisin, and DON or vomitoxin were 32% higher than for the same first quarter last year. Finally, Neogen's line of diagnostic test for general microorganisms, which includes our Soleris line of unique instruments and test vials that detect spoilage and indicator organisms, also experienced an exceptional first quarter with growth of 23%. In fact, the only significant food safety product line to report a decline in sales compared to last year was our BetaStar line of tests used to detect dairy antibiotic residues. The 7% decline in this area was primarily due to currency translation and we have estimated that unit volume for this product line was actually above last year for the quarter. In addition, I think there is reason for further optimism for the BetaStar line as we look ahead. We are making progress on getting our BetaStar U.S. product approved. That will provide significant new opportunities in the domestic milk testing market. I fully admit that this process has been agonizingly slow. It's been fraught with a number of restarts and rework of studies, but we do believe the end is finally in sight and we will be in a position to relaunch this important new product sometime in the third quarter of this fiscal year. We are also taking measures to improve and increase our marketing efforts in certain key geographic regions including Brazil, as Jim mentioned in his comments, where we believe there are significant opportunities for sales growth for the BetaStar product line. I'm going to talk a little bit about margins. I would say that our ongoing effort to identify cost savings and implement productivity improvements continue to yield positive results. I am sure those of you who saw today's press release recognize that the 33% increase in revenues resulted in a 38% increase in operating profit for the first quarter. Neogen once again was able to leverage fixed costs and control expenses to maximize operating profit, which came in at 22.4% of sales and that represents our best mark ever for this important financial measure. I can assure that we will continue to spend significant time and energy on efforts to improve operating systems and productivity as we simultaneously work to improve the quality of our product offerings. The last area I would like to cover in my comments relates to the strength of our balance sheet and the outstanding first quarter cash flow derived from operations. Again, for those of you who saw our press release, you no doubt recognize that our accounts receivable and inventory levels on August 31st were $1.6 million lower than they were at May 31st in spite of the fact that our sales continued to grow at an accelerating rate. This strong management of working capital helped contribute to an outstanding quarter of positive cash flow. Our administrative and operations teams are to be commended for their superior efforts to manage our investment in receivables and inventories. I think Neogen's balance sheet and especially our cash balance at the end of the first quarter, combined with the excellent financial ratios, no long-term debt is likely the envy of many companies in today's volatile economic environment. Our strong balance sheet places Neogen in an excellent position to take advantage of acquisition opportunities and to make the necessary investments in R&D, sales and marketing, our capital equipment that will help us drive future sales growth. And in terms of that future sales growth, I can tell you that management is excited about the prospects for Neogen as we push forward to our short-term goal of reaching $200 million in annual sales by our 2013 fiscal year. At this time, I would like to turn the call back over to Jim Herbert for some closing remarks.

Well, thanks, Lon. I am sure you can tell from Lon's comments that real key to our success has been his group taking the advantage of our growth strategy and these synergetic acquisitions and the market demand by converting those into top line and bottom line successes. My closing comments will be brief. Despite the uncertainties that we still face in the worldwide financial situation, I believe that the drivers of our business area all still clearly in place. As a result, I think we will continue to be successful in the quarters ahead by following those same growth strategies that we have used in prior quarters. The first of those is to continue to gain market share. I believe that not only will most of our markets grow as we look out to the rest of the year, but given our current momentum, I believe that we should be able to still gain some more share in those markets. The second piece of that growth strategy has been to continue to provide new products to our current market base. The productivity of our R&D group continues to be good. And in the quarters ahead, we will continue to be adding some products to our offering, as well at the same time improve our existing products to consistently meet the industry's demand. Now, the third piece of the plan is to continue our record of synergistic acquisitions. As Lon pointed out, we certainly have the balance sheet capability to do that. The company did not make any acquisitions in the first quarter of 2011, but we are continuing to see some new acquisition opportunities develop. We have got several on the radar screen now, but we can't predict whether we will complete acquisitions of any of them until we can further establish their value to Neogen and our ability to successfully and rapidly integrating those opportunities. We will continue to make sure that our areas of growth are not only applicable to the U.S., but also to help make us – to help us increase our international revenues since we believe that our revenue opportunities are perhaps twice as large outside the U.S. as they are domestically. And then despite our success, we will guard against complacency. I believe that our organization is poised to follow the title that's on this year's Annual Report, never better, never satisfied. And speaking of that Annual Report, let me remind you that our Annual Meeting of Shareholders will be held on Thursday, October the 7th here in Lansing and let me make certain to issue yet an additional invitation to all shareholders to attend the meeting. In the meantime, our proxy statements are in the hands of shareholders and we would encourage all shareholders to complete those proxies and return them to us as soon as possible. That concludes our prepared comments for the morning. We will now open the conference call for any questions from participants.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Steven Crowley of Craig-Hallum. Please go ahead.

Congratulations on the excellent quarter, guys. This is Matt Hewitt calling in for Steve.

Hi, Matt.

Hi, Matt.

Good morning, Matt.

First question, I know that over the last year you guys have benefited from DON test kits. I believe you were expecting a little bit of a tail here in Q1. What are your expectations for that business going forward and if it has in fact maybe ended in this first quarter, how do you anticipate offsetting some of that high margin revenue?

Well, this is Lon, Matt and thanks for the question. Last year was – that particular harvest year, particularly for corn, was an unusual year from a contamination of DON or vomitoxin standpoint. We did continue to see – I think as we reported in July, we have continued to see a tail from that corn inventory and harvest from last year in the first quarter of this year and sales there have continued to be strong. I think as we move through the rest of this year and the new harvest comes in, we will have to see how clean it is and that will have some impact. It's very difficult to predict those kinds of things until you start seeing the impact of that harvest and start seeing some test results. I think it's safe to say that there is not going to be as much DON this year. I think we pretty much know that and we actually budgeted for that. I think we have seen actually some pockets of aflatoxin out there in certain areas and so we have seen some sales of that particular test that have been pretty strong in the early harvest numbers. But I think that this – the – in order to replace those sales, I mean, that's the – one of the advantages of Neogen Corporation is that we do have a broad array of diagnostic products and we have opportunities for growth in a number of product lines. I made the – a point in my comments that that first quarter growth was really broad based in a lot of different markets and a lot of different products and we think those kinds of opportunities are out there and this puts a little greater challenge on us to make sure we realize those opportunities in other areas to offset what will likely be a lower year this year of testing for DON. But we think those opportunities exist and that we can do that with other product lines.

All right. Just one more and then I will jump back in the queue. You mentioned that you are starting to see – it's been slow, but you are starting to see some improvement in the animal protein market. Where do you think we are as far as getting back to maybe a more normalized growth pattern in those end markets? Are we still early innings or maybe we are back halfway? Just give us a sense for where those markets are and possibly where you are in the growth trajectory.

Well, there have been – I think they are beginning to recover. It depends on what you are talking about, whether it's – we are looking at poultry, we are looking at eggs, we are looking at milk, we are looking at beef, and so each of those have got their own cycles. But we are beginning to see some recovery there. I think we are all kind of looking to see what the grain price is going to be, what the harvest is coming up, what it's going to cost to feed the animals that are going to produce this protein. But there has been a – there was a lot of adjustments that were made over the course of last 12 months. I haven’t looked at the numbers from last month, but I think still our beef cattle breeding herd is probably the lowest it's been in two or three decades. So the prices are going to be okay. There is not going to be – prices still coming into the market in the futures market for feeder cattle look good coming into the fall. We are totally out of the woods, but I believe we are beginning to see the cash flow improve, plus the fact that there was some pent-up demand of people who wanted to buy things and maybe even needed to buy things and there wasn't sufficient cash flow to take care of it. So I'm not trying to paint a rosy picture, but I think it's a more neutral picture as far as that market is concerned as we move out through the next nine months.

All right. Thank you. I will jump back in the queue.

Our next question comes from Marco Rodriguez of Stonegate Securities. Please go ahead.

Good morning, guys. Thanks for taking my questions. I was wondering if – was there anything that you guys did in the quarter, whether it be actual marketing efforts or anything of that nature, that helped lead to the increase year-over-year?

We just worked a little harder like we usually do and had a few more people working than we did last year. No, there weren’t – if you are asking – Lon can fill in on this, but we didn't have any booking programs, we didn't go out with any specials. We weren't trying to do anything to either capture market space or space in the warehouse during the quarter. It was – Lon, you can add to that, but I think it was really nothing different.

Yes, I think Jim is right. We spend a lot of time in the budget process at the end of our fiscal years and planning for our new years and trying to make sure that we have got resources identified and allocated to those areas where we think the best opportunities exist for growth. So it really is, if you do a good job in that, it's a matter of working the plan. And so we have got a plan in place and we are working that plan and it certainly yielded very positive results in the first quarter. It's not to say that you don't have to make changes as you go through the year and take advantage of opportunities that might come and make changes, but it – I think our – I think we have got some experienced employees, we have got a good operations group to support a very aggressive sales and marketing team and they are having success out there working the plans that we put in place for this fiscal year.

Okay. And then are the – is the GeneSeek and the BioKits, are those acquisitions now fully integrated or can you provide some color as far as where you are maybe?

Yes. They are fully integrated. The BioKits operations that were in Deeside, Wales, we have closed that. It was a leased facility. We have closed that facility, we were fortunate to be able to sublet the remaining lease that we had on it without any real severe economic disadvantage and then relocated that business to either our operations in Ayr, Scotland or to those here. And I think as I indicated in my opening comments, it's been a little bit of a surprise how much organic growth that we picked up on those. When you start these integration processes, you want to look, make sure you've got adequate inventory to take care of the business that you have acquired and you got a little bit in for some – hoped for early growth. Though our typical strategy in an acquisition is we spend the first six months protecting what we bought and from there, we start looking at how we might increase revenues. In the case of the Deeside operations or the – that group of diagnostics, it took off pretty quick with some additional sales. Because our sales organization who hadn't had a chance to sell it before, we put a lot more boots on the ground. The GeneSeek operation is very interesting. That was one that was pretty easy to integrate, because we didn't change anything and don't anticipate changing anything. We are growing to the point that we are going to have to have a little more space, but that space is available to us in Lincoln, Nebraska. So we got them integrated from an accounting standpoint. The whole team is there. Every member of that team that runs that business so successfully is there and excited about where we are and where we are going and the whole area of genomics continues to get more and more play I think is – like a lot of people like us have seen that is one of the intervention methods to help not only in improving food supply, but maybe so more important sometimes in the food safety and intervention programs to try to genetically move away from some disease problems that could become foodborne disease problems. So we are pleased with where we are.

Good, okay. And then just lastly, a couple of housekeeping items. You guys mentioned the good progress you guys have made on working capital. And I was wondering if you have any target for accounts receivable and inventory turns and then what was cash flow from operations and CapEx for the quarter? I'll jump back in the queue. Thanks, guys.

Yes, I can answer those questions. Target wise, we have been on receivables around 60 days, which I think for a company with 40% of its sales overseas, that's a reasonable target. We have actually worked that down in this quarter to 55 days. So it's doing well and I am pleased with those. On inventory, always an elusive thing. We are almost down or just slightly above two times turns on inventory corporately. And that was – we certainly commend our operations group for that progress. Whether we can get more, given in this company we have an almost religious fever for having no back orders, it – those will have to be balanced out. And then the cash flow from operations was $11.5 million and we spent $1.5 million on capital and other assets. So that kind of gives you the feel for where all that cash came from that's on the balance sheet. I looked at the first cut on the balance sheet and I knew revenues were up 33%. I looked at the inventory levels comparing where we were three months ago and I thought they transposed the numbers. I couldn't believe that we were up 33% in revenues and yet our inventories were over $1 million. So a lot of credit there goes to Ed Bradley and Terri Morrical's people. And I knew they were working on it. But they kind of surprised me how much they got done.

Thanks, guys.

Our next question comes from Scott Gleason of Stephens. Please go ahead.

Yes, this is Trey Cobb for Scott. First, maybe based on the egg recall, could you give us an idea of what the actual contribution was from salmonella testing? And then maybe if you could talk about how you size that total market opportunity going forward?

I'll take the bat on that one. It was negligible. We do have – the real testing procedure is just beginning in the field. Beginning on July 9, anybody that had – that has any hens of a certain age has to start to test those laying hens. But that spreads out over an entire year. At this point, the industry doesn't know whether they are going to do those – that testing in their own laboratories or whether they are going to send it to outside laboratories. It would appear that probably some of both. The procedures there today for testing is a very laborious test in which it takes several days. Without fear of being a little bit insensitive, what happens is they drag a big swab through the manure pits underneath each layer of cages and then those big gauze pads full of chicken manure go off to a laboratory and they are tested for the presence of this salmonella organism. If they are found to be positive, then there is next precautions that are being made. But that procedure just really gets started. Again, the method that has been approved that has been approved that's been used is one of those what I call old Louis Pasteur method that's been around for a long time. It's you grow it up, you incubate it, you look at it under a microscope and you figure out what's there. Our test which is the rapid test, specifically for Salmonella enteritidis, doesn't recognize the salmonella because that's not what they want to find, has been through a lot of validations. It's a test, frankly, that we have had around for a while and they just hadn’t been a market for it. It's now going through the final throws final throes of approval by the AOAC organization. Once approved by AOAC, because a memorandum of understanding between AOAC and the Food and Drug Administration, it would be deemed to be approved by the Food and Drug Administration. We think when that happens, then there will be a lot of shift from the older methods to using something that's more rapid like our product. How big is the market going to be? You know, when we talk about the size and number of laying hens, you got to remember that a lot of these hens are on farms with a million birds. So you are not talking sometimes about that many farms or that many houses. You will have to test – they will have to test three times in the life of the flock. And then if they happen to find it positive, a couple of things can happen. They go back and test the eggs to see if the eggs are positive. If they find that to be the case, they can retest in hopes of being able to come up with a negative so that those eggs can then go into the shell egg market or into the carton as you are accustomed to seeing in the grocery store. Otherwise, they have to go through further processing and that means they go to a breaking plant, they are broken out of the shell, they are pasteurized at that point, any salmonella that's there is obviously killed in the pasteurization process and it works pretty good, expect for the fact that that breaker stock eggs is worth less than the grade A shell eggs that go to the grocery store. So we really don't know how big it's going to be. We understand that market pretty well. Several of us have some background there. And we think that whatever there is to take, we should get more than our share or at least our just share and we think it's good. But it's just beginning to get started. But we have people that are using the tests now, even though it's not yet officially approved for FDA purposes. It can be used for certain purposes without approval. So it will – I think we are beginning to see a number of things happen as a result of the fallout of that egg recall as we look out over the next three months.

And I would just echo Jim's comments that it's in the very early stages. I will tell you that from a marketing and sales standpoint, we are treating it as though it will be a significant opportunity and we have got a very focused and detailed sales and marketing program and I don't want to forget about the fact that there – the comment that Jim made that this opens up some opportunities at these facilities for our cleaners and disinfectants and rodenticides on the animal safety side. So it's a very nice food safety back inside the farm gate, as well as a good opportunity for our diagnostic test that Jim talked about. So I think it's just a matter of time to get this all shook out and figure out exactly what that market will be.

Okay. And then can you give us what the organic growth rate was in animal safety? It looked to us like it was somewhere in the 15% to 17% range.

Animal safety was 7.1% growth.

Okay. And then maybe for Rick, operating margins were up significantly, obviously the 22.4%. Where could those go from here with an extra $10 million in incremental revenues and kind of where do you see those maxing out?

Let me answer that. I don't want to get me overcommitted. Our goal has been, and I think many of you heard us say before, that you judge this company not based on its gross margins but based on its operating margin. And our goal has been to run operating margins at a 20% level. And we have been doing pretty good in the last several quarters to get within striking distance of that, 19-point-something along. But on the other hand, do we want it to be 25%? Yes. But I think if we let it be 25%, we are leaving behind some things at the top line. We are very content to run at a 20% operating margin, so long as we can continue to grow the revenues at the top line. And sometimes when you are introducing new products, bringing on new acquisitions, those in the early days will slow up the operating profit growth. So we want to continue to drive the business going forward in the same balanced fashion that we have done in the past. So are we going to be looking at a 25% operating profit? Probably not, if we are probably not moving the top line fast enough.

Okay. Thanks and congratulations on the quarter.

You bet.

Thank you.

Our next question comes from Steve O'Neil's line of Hilliard Lyons. Steve O'Neil: Good morning.

Good morning.

Hi, Steve. Steve O'Neil: Just a few follow-up questions. Actually, you all discussed the mycotoxin business. So I'm going to – I guess, I want to ask about that a little bit more. Can you – I mean, it's been hot and dry in the south, I'm not sure that's been the case in the Northern United States. Can you kind of characterize the weather conditions that have persisted in the growing regions?

Well, I guess I would – I will take a stab at that first. We get that report at every monthly operational meeting from the manager that works and heads up our mycotoxin sales efforts in the feed and grain industry. Generally speaking, across the big part of the Midwest, I would say that we had fairly favorable growing conditions for most of the year and I did – I have seen recently – Jim alluded to this somewhere in his comments or an answer to his questions, but recently I have seen that the yields are now expected to be a little bit less than what were previously forecasted and that has driven up the price of corn. But I would say – my comments earlier exactly where I think we are at, we do not anticipate seeing the levels of DON in the corn crop that we saw last year. I think the corn crop is going to be pretty good. We have seen, as I also said before, pockets of aflatoxin. But in general, I think this was a pretty favorable year from a growing condition standpoint in the Midwest.

The hot, dry conditions that we had across part of the Southeast, it's still kind of early. I know the scouts are out there, they probably got things figured out now. But we still got – we have been getting a lot of wet weather in a lot of places, so there is still a lot of – I don't remember what the report was last week on percent harvested, but we have still got most of that corn crop obviously still in the field. I think the Carolinas, as Ed Bradley tells me that they are seeing pockets in the Carolinas where it's been hot and dry, and probably some spots in Georgia. But those states don't produce a lot of corn either. They produce a lot of corn, but compared to the overall national crop, you still got what we call I states, Illinois, Iowa, Indiana, is where the real grain belt is. And I think there is probably some spotted areas there, maybe with some aflatoxin. But there usually is. So I guess I would say from what I hear at this point, I wouldn't term this to be of course clean crop, but I think we might term it to be an average crop as far as the conditions coming out. Steve O'Neil: Well, I guess I shouldn't assume a shift during the year from the vomitoxin to the aflatoxin. That maybe a little more mild this year?

Yes, remember that vomitoxin comes about with wet, cold weather and aflatoxin comes about with hot, dry weather. So this would have been more of a – of course, we got a lot of the vomitoxin last year, pretty late in season when we got the early frost. And the crop was still exposed. So we are not through all that yet. But they plant the crop earlier this year, Steve. So it got in the ground probably three weeks earlier I guess on average. So we are further on than we were, so the crop is less susceptible to probably – the major crop is probably less susceptible to vomitoxin than it might have been last year. Steve O'Neil: Lon, can you provide the increase in the quarter for the rodenticides and the disinfectants, please?

Yes, I don't know if we have – how we break those categories out. Overall, our Hako [ph] operations, which really we combined both of those in that group, was about 1% ahead of last year. Now, the primary reason for that is because the cleaners and disinfectants going international were below prior year. And that was due exclusively the timing of shipments to distributors for those products and also we took a pretty conservative approach managing those receivables, particularly we had some large orders that were going into Latin America where we did not ship product that we could have waiting for payment from the customers. So that was – that's where we ended up on rodenticides and disinfectants. Steve O'Neil: Okay.

– a good number of orders, a high level of orders into the – into this quarter.

By the way, those payments – so you are not left in suspense, those payments did come in. But we were a little nervous about them at that time. Steve O'Neil: Okay.

Not nervous, just cautious. Steve O'Neil: And just any comment on the vaccines and biologicals in the animal safety segment?

Those are high margin markets – high margin products that are manufactured in a USDA and CDC approved facility. They are up about 5%, if remember right. So we continue to see steady growth there. We continue to look for opportunities to take advantage of that particular facilities and since we have got some excess capacity where we might be able to do some unique other biologicals or total manufacturing and we think we will continue to grow that product line and are interested doing it, because it does have such high margins. Steve O'Neil: Okay. Just a few – and I have a few just housekeeping items on the P&L. Where would the earn-outs – the additional earn-outs have been reported? Would that be in G&A?

No, that is in other income and expense. Steve O'Neil: I guess –

– over the operating margin line. Steve O'Neil: I think that answers my second question, which was why the other income was negative. And then lastly, where – in your segment reporting that you are using in your 10-Q filing for the animal safety, what – in what part of that segment is GeneSeek?

It's actually going to be reported as a line by itself. Steve O'Neil: Oh, okay. So – okay. And then just trying to adjust – you mentioned 7% organic growth on animal safety. That would imply $4.5 million or so in sales from acquisitions and if my memory serves, that should be IDS and GeneSeek. I'm not forgetting something, am I?

Yes, it's not IDS where – that operation has been with us for over a year. GeneSeek would have been contribution to – from an acquisition standpoint for the animal safety side of what you might be seeing. And the Tepnel what we sometime refer to as BioKits product line, primarily for allergen detection, is the acquisition that's contributing to food safety sales growth. Steve O'Neil: Okay. So would – then GeneSeek would have contributed $4.5 million to first quarter sales?

That would be correct. Steve O'Neil: The reason I ask is at the time of the acquisition, I think you indicated that the – I think the sales of GeneSeek were just about $13 million. So you are running at a – appears to be a much higher quarterly rate than as indicated by that number unless there is some seasonality in the business that I don't know about.

There is some seasonality in that business. When it gets cold, you don't have to test as many of those animals. Steve O'Neil: Okay. So this would be a seasonally higher period for GeneSeek then?

Yes, probably. And realize, this is new to us so – as far as knowing all of the intricacies. Can you multiply last – please don't multiply first quarter by four – Steve O'Neil: That was the nature of my question.

Right. Steve O'Neil: That's all I had. I will get back in the queue. Thank you.

(Operator Instructions). Our next question comes from Greg Halter of the Great Lakes Review. Please go ahead.

Yes. Good morning, about to be afternoon.

Hi, Greg.

If one were to multiply that number by four, would there be future earn-outs for GeneSeek?

Yes.

Okay. And I wondered if you could speak to the opportunity that you have in the health care market, what potential may be there, what products, what areas that may have a focus, and if you would do that on your own or through distributors, partners, or how we may attack that market, if it is a market.

Well, the question is primarily related to our AccuPoint general sanitation line. I mean, we think there is probably some opportunities there. Obviously, that's not a market that we are core in or understand from the standpoint of our sales and marketing efforts. Because of some of the issues related to insurance reimbursements over hospital acquired infections, the need for that kind of technology to check general sanitation is worth taking a look at, and that's what we are doing. But if it develops into something and it's not a significant part of our business, if it develops into something, then we will have to partner with somebody who understands that marketplace that can carry that technology and really reach it from a sales and marketing standpoint. So that – we are investigating it and taking a look at it, and putting a little effort into it, because potentially there is a market there, but it's not the kind of thing that we are looking at when we do our forecast for growth. We are focusing on those food and animal safety markets that we know a lot more about.

And I would echo that. As I've said in the past, don't go buy Neogen stock based on what you think we are going to do in the hospital market. There could be some good opportunity out there, but we have been successful for 20 years and stand pretty close to the, one that we know and we know where we are going and you don't have to see us make any – we still got plenty of opportunity ahead of us in food and animal safety. So we are after – go out and try something crazy when we don't need to.

Okay. Well, it's definitely served you well so far. You spent $1.5 million on capital expenditures and I think other assets you said, Rick. What would the budget be for the full year?

CapEx is budgeted at $6 million.

All right. Thank you very much.

Our next question comes from Bill Butler [ph] of (inaudible).

Yes. Congratulations to the entire Neogen team.

Thanks, Bill.

Your headquarters must be running out of baseballs since you keep hitting them over the fence, right?

Well, somebody keeps throwing them at us. You know, you have got to do something with them.

I – my question was related to the press release where you talk about the ample cash can provide for the pursuit of a wide variety of growth strategies. And obviously, you are speaking to potential acquisitions there. And I know you mentioned some of the directions, but could you give some more color about what gaps in your product line you might wish to fulfill?

In due respect, I'm going to decline answering that question. And I'm not trying to be cute. We are looking at some things. As many of our good investors like you who are on the phone to find more about our company, we also realize that all of our competitors are probably listening at the same time and I don't think it's too smart to lay out your game plan as to which direction you are going. I can say that – 18 acquisitions that we have done in the last 10 years, they have all been synergistic in some fashion or another. I think maybe some people looked around in the very beginning when we did the rodenticide business, they wanted to know how's that synergistic and I think our vision was good there. I think it's obviously proving to be synergistic. We will be looking at some of those kinds of things, but we won't be running in front of the big guys. We are not going to take on Pfizer or Merck or somebody else. We think there are plenty of niche opportunities. But I just really would prefer not to disclose much more of that strategy.

Thank you.

Our next question comes from Ken Rees [ph] of (inaudible).

Hi, Jim. Hello.

Hello. Hi, Ken.

Long time, no talk.

Hi, Ken.

How are you? I have clients that own your stock at $1.52 and they want gift a lot of it to the church right now, but I'm telling them to hang on to it. So what do you think?

I don't want to stand in the way of the church, but I might need all the help I could get from that direction, Ken.

I don't want to talk about the weather, I don't want to talk about anything else. In what, $560 million market cap right now?

I think it's a little higher than that. It's about (Multiple Speakers).

Okay.

Ken, I don't think we know – I have no idea how the market operates as far as pricing stock. I used to think I knew, but I think we are going to continue to grow and we are going to continue doing what we were doing.

Well, here is the thing. Ed Bradley says (inaudible). I mean, is the bottom line on the company that – what would be a good price for you to sell your company?

Probably $1 billion –

You know what I'm talking about. I don't want to talk about the weather or anything like that.

No, it's just kind of interesting, Ken. I talked to one of our significant shareholders the other day and a large fund and encouraged that his basis was pretty low and maybe he might consider taking a little profit out and I said I thought that the stock was going to decline in price, but just in good prudence and his comment was, "Well, if I take it out, what the hell am I going to do with it? Put in the bank at a tenth of 1%"? So it's an unusual time out there.

I mean, let me ask you a question. Who would be an ultimate buyer of your company?

I am not going to answer that.

All right. Thank you very much.

All right. Thank you.

Our last question comes from Joseph Poston [ph] of Wells Fargo. Please go ahead.

Well, I made it last again.

Congratulations.

Hi, Joe.

Listen. To keep the baseball analogy going on, I am curious where you are getting all the hickory bats from because you are not hitting these things out maple bats, no question.

No, you are right.

Jim, it was in line – it was so startling to most of us when we learned about the scope of this egg recall. Was there really no inspection for salmonella going on, on what they were shipping out the factory door?

Remember that in this country, there is with the exception of now the new egg law and exception to milk, there is no required mandated testing. It is against the law to sell an adulterated product, but there is no law that says you have to test. So they were clearly – these weren’t necessarily bad guys. They just got caught in a bad situation and I think that there is probably some more out there just like that. That's the reason that the regulation was put in is because that's the way we are going to get rid of this Salmonella enteritidis that's in eggs. And I think it's also interesting, we have got FDA inspectors who the first time are going on farms and inspecting farms. These guys have been accustomed to wearing white coats and going into pharmaceutical plants and laboratories. So they are seeing quite a shock when they walk into a farm operation and they smell manure and they see flies and they see evidence where rodents have been. The pendulum is likely going to over-swing for a while and we clearly are working on this side of the industry here and have worked with some programs with some of the very largest major egg producers and helping them design programs that we think that will help them meet the FDA programs when those inspections start. But cleaning up those farms is going to get to be important and it's something that ought to have been done anyway.

What is the vector that gets this inside the egg, though?

Well, it gets inside the bird's body. So the bird itself is infected with the organism. And when the egg forms, I don't want to carry you through the physiology of egg formation, but when that egg forms, the yolk breaks loose and it begins to form – circulating in that same area, this bacterial organism which finds its way inside this in the yolk or the albumin of the egg and then and as it progresses over several days, a shell is formed around that, then the egg is laid. So that's how it gets into the egg. So the only way you control it is to make sure that the flocks themselves are clean.

Thank you very much.

That concludes our questions. Would you like to make any closing remarks?

Well, thank you all for those of you who joined us on the conference call this morning. We do appreciate your continued support to our company and our efforts. And I would remind you of the Annual Meeting coming up here in a few weeks and also strongly encourage that if you have control or know where there are proxies that have not been voted, well, we sure like to see those get voted here over the next few days. And good day and we look forward to talking to you in the next three months if not before.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.