Cover Page
Cover Page | 3 Months Ended |
Aug. 31, 2019shares | |
Cover [Abstract] | |
Amendment Flag | false |
Document Type | 10-Q |
Document Period End Date | Aug. 31, 2019 |
Document Fiscal Year Focus | 2020 |
Document Fiscal Period Focus | Q1 |
Current Fiscal Year End Date | --05-31 |
Entity Interactive Data Current | Yes |
Entity Current Reporting Status | Yes |
Entity Registrant Name | NEOGEN CORP |
Entity Central Index Key | 0000711377 |
Entity Filer Category | Large Accelerated Filer |
Entity Small Business | false |
Document Quarterly Report | true |
Document Transition Report | false |
Entity Emerging Growth Company | false |
Entity Shell Company | false |
Entity Common Stock, Shares Outstanding | 52,422,942 |
Entity File Number | 0-17988 |
Entity Incorporation, State or Country Code | MI |
Entity Tax Identification Number | 38-2367843 |
Entity Address, Address Line One | 620 Lesher Place |
Local Phone Number | 372-9200 |
Entity Address, State or Province | MI |
Entity Address, City or Town | Lansing |
City Area Code | 517 |
Entity Address, Postal Zip Code | 48912 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Aug. 31, 2019 | May 31, 2019 |
Current Assets | ||
Cash and cash equivalents | $ 56,289 | $ 41,688 |
Marketable securities | 234,727 | 225,836 |
Accounts receivable, less allowance of $1,700 and $1,700 at August 31, 2019 and May 31, 2019, respectively | 79,112 | 82,582 |
Inventories | 87,682 | 85,992 |
Prepaid expenses and other current assets | 15,738 | 13,431 |
Total Current Assets | 473,548 | 449,529 |
Net Property and Equipment | 75,154 | 74,847 |
Other Assets | ||
Goodwill | 102,883 | 103,619 |
Other non-amortizable intangible assets | 15,397 | 15,649 |
Amortizable intangible and other assets, net of accumulated amortization of $40,127 and $40,835 at August 31, 2019 and May 31, 2019, respectively | 54,162 | 52,096 |
Total Assets | 721,144 | 695,740 |
Current Liabilities | ||
Accounts payable | 18,345 | 19,063 |
Accrued compensation | 4,796 | 7,085 |
Income taxes | 4,142 | 601 |
Other accruals | 13,144 | 11,502 |
Total Current Liabilities | 40,427 | 38,251 |
Deferred Income Taxes | 15,501 | 15,618 |
Other Non-Current Liabilities | 4,910 | 3,972 |
Total Liabilities | 60,838 | 57,841 |
Commitments and Contingencies (note 8) | ||
Equity | ||
Preferred stock, $1.00 par value, 100,000 shares authorized, none issued and outstanding | 0 | 0 |
Common stock, $0.16 par value, 120,000,000 shares authorized, 52,422,942 and 52,216,589 shares issued and outstanding at August 31, 2019 and May 31, 2019, respectively | 8,387 | 8,355 |
Additional paid-in capital | 232,156 | 221,937 |
Accumulated other comprehensive loss | (14,136) | (11,640) |
Retained earnings | 433,899 | 419,247 |
Total Stockholders' Equity | 660,306 | 637,899 |
Total Liabilities and Stockholders' Equity | $ 721,144 | $ 695,740 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Aug. 31, 2019 | May 31, 2019 |
Accounts receivable, allowance | $ 1,700 | $ 1,700 |
Accumulated Amortization | $ 40,127 | $ 40,835 |
Preferred stock, par value | $ 1 | $ 1 |
Preferred stock, shares authorized | 100,000 | 100,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.16 | $ 0.16 |
Common stock, shares authorized | 120,000,000 | 120,000,000 |
Common stock, shares issued | 52,422,942 | 52,216,589 |
Common stock, shares outstanding | 52,422,942 | 52,216,589 |
Consolidated Statements of Inco
Consolidated Statements of Income - USD ($) $ in Thousands | 3 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Revenues | ||
Total Revenues | $ 101,424 | $ 99,626 |
Cost of Revenues | ||
Total Cost of Revenues | 53,230 | 52,897 |
Gross Margin | 48,194 | 46,729 |
Operating Expenses | ||
Sales and marketing | 17,543 | 17,233 |
General and administrative | 10,699 | 10,198 |
Research and development | 3,688 | 2,819 |
Total Operating Expenses | 31,930 | 30,250 |
Operating Income | 16,264 | 16,479 |
Other Income (Expense) | ||
Interest income | 1,510 | 927 |
Other expense | (122) | (269) |
Total Other Income | 1,388 | 658 |
Income Before Taxes | 17,652 | 17,137 |
Provision for Income Taxes | 3,000 | 1,900 |
Net Income | $ 14,652 | $ 15,237 |
Net Income Per Share | ||
Basic | $ 0.28 | $ 0.29 |
Diluted | $ 0.28 | $ 0.29 |
Product Revenues | ||
Revenues | ||
Total Revenues | $ 81,948 | $ 82,960 |
Cost of Revenues | ||
Total Cost of Revenues | 42,031 | 42,950 |
Service Revenues | ||
Revenues | ||
Total Revenues | 19,476 | 16,666 |
Cost of Revenues | ||
Total Cost of Revenues | $ 11,199 | $ 9,947 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Net income | $ 14,652 | $ 15,237 |
Other comprehensive loss, net of tax: currency translation adjustments | (3,058) | (2,778) |
Other comprehensive income, net of tax: unrealized gain on marketable securities | 562 | |
Total comprehensive income | $ 12,156 | $ 12,459 |
Consolidated Statements of Equi
Consolidated Statements of Equity - USD ($) $ in Thousands | Total | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive (Loss) | Retained Earnings |
Beginning Balance at May. 31, 2018 | $ 560,175 | $ 8,278 | $ 202,572 | $ (9,746) | $ 359,071 |
Beginning Balance (in shares) at May. 31, 2018 | 51,736,000 | ||||
Issuance of shares under share-based compensation plan | 8,473 | $ 40 | 8,433 | ||
Issuance of shares under share-based compensation plan (in shares) | 251,000 | ||||
Issuance of shares under employee stock purchase plan | 519 | $ 2 | 517 | ||
Issuance of shares under employee stock purchase plan (in shares) | 8,000 | ||||
Net income | 15,237 | 15,237 | |||
Other comprehensive (loss) | (2,778) | (2,778) | |||
Ending Balance at Aug. 31, 2018 | 581,626 | $ 8,320 | 211,522 | (12,524) | 374,308 |
Ending Balance (in shares) at Aug. 31, 2018 | 51,995,000 | ||||
Beginning Balance at May. 31, 2019 | $ 637,899 | $ 8,355 | 221,937 | (11,640) | 419,247 |
Beginning Balance (in shares) at May. 31, 2019 | 52,216,589 | 52,217,000 | |||
Issuance of shares under share-based compensation plan | $ 9,713 | $ 30 | 9,683 | ||
Issuance of shares under share-based compensation plan (in shares) | 196,000 | ||||
Issuance of shares under employee stock purchase plan | 538 | $ 2 | 536 | ||
Issuance of shares under employee stock purchase plan (in shares) | 10,000 | ||||
Net income | 14,652 | 14,652 | |||
Other comprehensive (loss) | (2,496) | (2,496) | |||
Ending Balance at Aug. 31, 2019 | $ 660,306 | $ 8,387 | $ 232,156 | $ (14,136) | $ 433,899 |
Ending Balance (in shares) at Aug. 31, 2019 | 52,422,942 | 52,423,000 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 3 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Cash Flows From Operating Activities | ||
Net Income | $ 14,652 | $ 15,237 |
Adjustments to reconcile net income to net cash from operating activities: | ||
Depreciation and amortization | 4,435 | 4,271 |
Share-based compensation | 1,543 | 1,431 |
Change in operating assets and liabilities, net of business acquisitions: | ||
Accounts receivable | 3,390 | 755 |
Inventories | (2,132) | (2,940) |
Prepaid expenses and other current assets | (1,929) | (3,236) |
Accounts payable, accruals and other changes | 3,760 | 564 |
Net Cash From Operating Activities | 23,719 | 16,082 |
Cash Flows For Investing Activities | ||
Purchases of property, equipment and other assets | (6,469) | (1,918) |
Proceeds from the sale of marketable securities | 94,540 | 73,096 |
Purchases of marketable securities | (103,432) | (74,549) |
Business acquisitions, net of cash acquired | 0 | (4,203) |
Net Cash For Investing Activities | (15,361) | (7,574) |
Cash Flows From Financing Activities | ||
Exercise of stock options and issuance of employee stock purchase plan shares | 8,708 | 8,992 |
Net Cash From Financing Activities | 8,708 | 8,992 |
Effect of Exchange Rates on Cash | (2,465) | (3,349) |
Net Increase In Cash and Cash Equivalents | 14,601 | 14,151 |
Cash and Cash Equivalents, Beginning of Period | 41,688 | 83,074 |
Cash and Cash Equivalents, End of Period | $ 56,289 | $ 97,225 |
Accounting Policies
Accounting Policies | 3 Months Ended |
Aug. 31, 2019 | |
Accounting Policies | 1. ACCOUNTING POLICIES BASIS OF PRESENTATION AND CONSOLIDATION The accompanying unaudited consolidated financial statements include the accounts of Neogen Corporation (“Neogen” or the “Company”) and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form 10-Q S-X. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included in the accompanying unaudited consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three-month period ended August 31, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2020. For more complete financial information, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K Recently Adopted Accounting Standards Leases On June 1, 2019, the Company adopted ASU No. 2016-02— Leases. Refer to Leases section of Note 1 for further information. Recent Accounting Pronouncements Not Yet Adopted 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. 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 of foreign currency translation adjustments and unrealized gains or losses on marketable securities. Fair Value of Financial Instruments The carrying amounts of the Company’s financial instruments other than cash equivalents and marketable securities, which include accounts receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar instruments. Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. 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. The carrying value of these assets approximates fair value due to the short maturity of these instruments and meets the Level 1 criteria. Marketable Securities The Company has marketable securities held by banks or broker-dealers at August 31, 2019, consisting of short-term domestic certificates of deposit, and commercial paper and U.S. treasuries rated at least A-1/P-1 (short-term) and A/A2 (long-term) with maturities between 91 days and two years. These securities are classified as available for sale. The primary objective of the Company’s investment activity is to preserve capital for the purpose of funding operations, capital expenditures and business acquisitions; investments are not entered into for trading or speculative purposes. These securities are recorded at fair value based on recent trades or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within other income on the consolidated statements of income . ESTIMATES AND ASSUMPTIONS The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, accruals, goodwill and other intangible assets. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to the critical accounting policies and estimates disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019. There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019. Accounts Receivable Allowance Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit exposure on a regular basis. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific customers, historical trends and other information. Collateral or other security is generally not required for accounts receivable. Once a receivable balance has been determined to be uncollectible, that amount is charged against the allowance for doubtful accounts. Inventory The reserve for obsolete and slow-moving inventory is reviewed at least quarterly based on an analysis of the inventory, considering the current condition of the asset as well as other known facts and future plans. The reserve required to record inventory at lower of cost or net realizable value is adjusted as conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations. Goodwill and Other Intangible Assets Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to other identifiable intangible assets. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants not-to-compete non-amortizable Long-Lived Assets Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for possible impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset indicate that the carrying amount of the asset may not be recoverable. In such an event, fair value is determined using discounted cash flows and, if lower than the carrying value, impairment is recognized through a charge to operations. Equity Compensation Plans Share options awarded to employees and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with assumptions for inputs such as interest rates, expected dividends, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs used are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different option values, which in turn would result in higher or lower compensation expense recognized. To value options, several recognized valuation models exist. None of these models can be singled out as being the best or most correct. The model applied by us can handle most of the specific features included in the options granted, which is the reason for its use. If a different model were used, the option values could differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options. Fair value could be either higher or lower than the number provided by the model applied and the inputs used. Further information on our equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 5. 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. 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; early adoption is permitted. We adopted this ASU on June 1, 2019; the impact on our consolidated financial statements was immaterial. We lease various manufacturing, laboratory, warehousing and distribution facilities, administrative and sales offices, equipment and vehicles under operating leases. We evaluate our contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, all our leases are classified as operating leases. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option. Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease. With the adoption of ASC 842, on June 1, 2019 we recognized all leases with terms greater than 12 months in duration on our consolidated balance sheets as right-of-use assets and lease liabilities of approximately $2.0 million as of June 1, 2019. We adopted the standard using the prospective approach and did not retrospectively apply to prior periods. Right-of-use assets are recorded in other assets on our consolidated balance sheets. Current and non-current lease liabilities are recorded in other accruals within current liabilities and other non-current liabilities, respectively, on our consolidated balance sheets. We have made certain assumptions and judgments when applying ASC 842, the most significant of which are: • We elected the package of practical expedients available for transition that allow us to not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842. • We did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset. • For all asset classes, we elected to not recognize a right-of-use asset and lease liability for short-term leases. • For all asset classes, we elected to not separate non-lease components from lease components to which they relate and have accounted for the combined lease and non-lease components as a single lease component. • The determination of the discount rate used in a lease is our incremental borrowing rate that is based on what we would normally pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments. Supplemental balance sheet information related to operating leases was as follows: August 31, 2019 (in thousands) Right of use - assets $ 1,726 Lease liabilities - current 755 Lease liabilities - non-current 982 The weighted average remaining lease term and weighted average discount rate were as follows: August 31, 2019 Weighted average remaining lease term 2.1 years Weighted average discount rate 3.5 % Operating lease expenses are classified as cost of revenues or operating expenses on the Consolidated Statements of Income. The components of lease expense were as follows: Three Months Ended August 31, 2019 (in thousands) Operating leases $ 240 Short term leases 48 Total lease expense $ 288 Cash paid for amounts included in the measurement of lease liabilities for operating leases included in cash flows from operations on the Statement of Cash Flows were approximately $247,000 for the three months ended August 31, 2019. There were no non-cash additions to right-of-use assets obtained from new operating lease liabilities for the three months ended August 31, 2019. In accordance with the new leases standard, discounted and undiscounted lease payments as of August 31, 2019 were as follows (in thousands): Years ending May 31, 2020 (1) $ 757 2021 730 2022 230 2023 61 2024 3 2025 and thereafter — Total lease payments 1,781 Less: imputed interest 44 Total lease liabilities $ 1,737 (1) Excluding the three months ended August 31, 2019 Prior to our adoption of the new leases standard, future minimum lease payments as of May 31, 2019, which were undiscounted, were as follows (in thousands): Years ending May 31, 2020 $ 1,169 2021 818 2022 260 2023 73 2024 — 2025 and thereafter — Total lease payments $ 2,320 Revenue Recognition The Company determines the amount of revenue to be recognized through application of the following steps: • Identification of the contract with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, the Company satisfies the performance obligations. Essentially all our revenue is generated through contracts with our customers. A performance obligation is a promise in a contract to transfer a product or service to a customer. We generally recognize revenue at a point in time when all our performance obligations under the terms of a contract are satisfied. Revenue is recognized upon transfer of control of promised products and services in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The collectability of consideration on the contract is reasonably assured before revenue is recognized. To the extent that customer payment has been received before all recognition criteria are met, these revenues are initially deferred in other accruals on the balance sheet and the revenue is recognized in the period that all recognition criteria have been met. In certain situations, we provide rebates, marketing support, credits or incentives to selected customers, which are accounted for as variable consideration when estimating the amount of revenue to recognize on a contract. Variable consideration reduces the amount of revenue that is recognized. These variable consideration estimates are updated at the end of each reporting period based on information currently available. The performance obligations in our contracts are generally satisfied well within one year of the contract inception. In such cases, we have elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. We have elected to utilize the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred because the amortization period for the prepaid costs that would otherwise have been deferred and amortized is one year or less. The Company accounts for shipping and handling for products as a fulfillment activity when goods are shipped. Revenue is recognized net of any tax collected from customers; the taxes are subsequently remitted to governmental authorities. The Company’s terms and conditions of sale generally do not provide for returns of product or reperformance of service except in the case of quality or warranty issues. These situations are infrequent; due to immateriality of the amount, warranty claims are recorded in the period incurred. We derive revenue from two primary sources—product revenue and service revenue. Product revenue consists of shipments of: • Diagnostic test kits, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation; • Consumable products marketed to veterinarians and animal health product distributors; and • Rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities. Revenues for our products are recognized and invoiced when the product is shipped to the customer. Service revenue consists primarily of: • Genomic identification and related interpretive bioinformatic services; and • Other commercial laboratory services. Revenues for our genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service is performed and the results are conveyed to the customer. Payment terms for products and services are generally 30 to 60 days. The following table presents disaggregated revenue by major product and service categories for the three month periods ended August 31, 2019 and 2018: Three Months ended August 31, 2019 2018 (in thousands) Food Safety Natural Toxins, Allergens & Drug Residues $ 20,115 $ 18,838 Bacterial & General Sanitation 10,316 10,467 Dehydrated Culture Media & Other 11,279 12,217 Rodenticides, Insecticides & Disinfectants 5,449 6,625 Genomics Services 3,862 4,036 $ 51,021 $ 52,183 Animal Safety Life Sciences $ 1,723 $ 2,080 Veterinary Instruments & Disposables 11,336 10,404 Animal Care & Other 6,405 6,398 Rodenticides, Insecticides & Disinfectants 16,718 17,146 Genomics Services 14,221 11,415 $ 50,403 $ 47,443 Total Revenues $ 101,424 $ 99,626 |
Inventories
Inventories | 3 Months Ended |
Aug. 31, 2019 | |
Inventories | 2. INVENTORIES Inventories are stated at the lower of cost, determined by the first-in, first-out August 31, May 31, 2019 2019 (in thousands) Raw materials $ 42,964 $ 41,594 Work-in-process 5,901 5,581 Finished and purchased goods 38,817 38,817 $ 87,682 $ 85,992 |
Net Income per Share
Net Income per Share | 3 Months Ended |
Aug. 31, 2019 | |
Net Income per Share | 3. NET INCOME PER SHARE The calculation of net income per share follows: Three Months Ended August 31, 2019 2018 (in thousands, except per share amounts) Numerator for basic and diluted net income per share: Net income $ 14,652 $ 15,237 Denominator for basic net income per share: Weighted average shares 52,292 51,806 Effect of dilutive stock options 392 974 Denominator for diluted net income per share 52,684 52,780 Net income per share: Basic $ 0.28 $ 0.29 Diluted $ 0.28 $ 0.29 |
Segment Information and Geograp
Segment Information and Geographic Data | 3 Months Ended |
Aug. 31, 2019 | |
Segment Information and Geographic Data | 4. SEGMENT INFORMATION AND GEOGRAPHIC DATA We have 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, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation. The Animal Safety segment is primarily engaged in the development, production and marketing of products dedicated to animal safety, including a complete line of consumable products marketed to veterinarians and animal health product distributors; this segment also provides genomic identification and related interpretive bioinformatic services. Additionally, the Animal Safety segment produces and markets rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities. Our international operations in the United Kingdom, Mexico, Brazil, China and India originally focused on the Company’s food safety products, and each of these units reports through the Food Safety segment. In recent years, these operations have expanded to offer our complete line of products and services, including those usually associated with the Animal Safety segment such as cleaners, disinfectants, rodenticides, insecticides, veterinary instruments and genomics services. These additional products and services are managed and directed by existing management and are reported through the Food Safety segment. The accounting policies of each of the segments are the same as those described in Note 1. Segment information follows: Corporate and Food Animal Eliminations Safety Safety (1) Total (in thousands) As of and for the three months ended August 31, 2019 Product revenues to external customers $ 45,877 $ 36,071 $ — $ 81,948 Service revenues to external customers 5,144 14,332 — 19,476 Total revenues to external customers 51,021 50,403 — 101,424 Operating income (loss) 9,134 8,300 (1,170 ) 16,264 Total assets 207,725 222,403 291,016 721,144 As of and for the three months ended August 31, 2018 Product revenues to external customers $ 46,933 $ 36,027 $ — $ 82,960 Service revenues to external customers 5,250 11,416 — 16,666 Total revenues to external customers 52,183 47,443 — 99,626 Operating income (loss) 10,873 6,706 (1,100 ) 16,479 Total assets 201,727 212,786 226,413 640,926 (1) Includes corporate assets, consisting principally of cash and cash equivalents, marketable securities, current and deferred tax accounts and overhead expenses not allocated to specific business segments. Also includes the elimination of intersegment transactions. The following table presents the Company’s revenue disaggregated by geographic location: Three months ended 2019 2018 (in thousands) Revenues by Geographic Location Domestic $ 63,340 $ 59,846 International 38,084 39,780 Total revenue 101,424 99,626 |
Equity Compensation Plans
Equity Compensation Plans | 3 Months Ended |
Aug. 31, 2019 | |
Equity Compensation Plans | 5. EQUITY COMPENSATION PLANS Qualified and non-qualified Company under the terms of our stock option plans. These options are granted at an exercise price of not less than the fair market value of the stock on the date of grant. Options vest ratably over three five Weighted- Average (Options in thousands) Shares Exercise Price Options outstanding June 1, 2019 2,385 $ 49.37 Granted — — Exercised (196 ) 41.51 Forfeited (6 ) 62.70 Options outstanding August 31, 2019 2,183 $ 50.04 During the three month periods ended August 31, 2019 and 2018, the Company recorded $1,543,000 and $1,431,000, respectively, of compensation expense related to its share-based awards. The weighted-average fair value per share of stock options granted during fiscal year 2019, estimated on the date of grant using the Black-Scholes option pricing model, was $14.91. The fair value of stock options granted was estimated using the following weighted-average assumptions. No options were granted in the first quarter of fiscal year 2020. FY 2019 Risk-free interest rate 2.6 % Expected dividend yield 0.0 % Expected stock price volatility 27.0 % Expected option life 3.5 years The Company has an employee stock purchase plan that provides for employee stock purchases at a 5% discount to market price. The discount is recorded in administrative expense as of the date of purchase. |
Business and Product Line Acqui
Business and Product Line Acquisitions | 3 Months Ended |
Aug. 31, 2019 | |
Business and Product Line Acquisitions | 6. BUSINESS AND PRODUCT LINE ACQUISITIONS The Consolidated Statements of Income reflect the results of operations for business acquisitions since the respective dates of purchase. All are accounted for using the acquisition method. Goodwill recognized in the acquisitions discussed below relates primarily to enhancing the Company’s strategic platform for the expansion of available product offerings. On 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 $1,256,000 of contingent consideration, due semiannually for the first five years, based on an excess net sales formula. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $32,000, machinery and equipment of $120,000, accounts payable of $53,000, contingent consideration accrual of $1,256,000, non-current non-amortizable 5-15 (non-deductible On September 4, 2018, the Company acquired the assets of Livestock Genetic Services, LLC, a Virginia-based company that specialized in genetic evaluations and data management for cattle breeding organizations. Livestock Genetic Services had been a long-time strategic partner of Neogen and the acquisition enhanced the Company’s in-house equipment of $ , contingent consideration accrual of $ , intangible assets of $ (with an estimated life of 5-15 years) and the remainder to goodwill (deductible to 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 was 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. |
Long Term Debt
Long Term Debt | 3 Months Ended |
Aug. 31, 2019 | |
Long Term Debt | 7. LONG TERM DEBT We have a financing agreement with a bank providing for a $15,000,000 unsecured revolving line of credit, which was amended on November 30, 2018 to extend the maturity from September 1, 2019 to September 30, 2021. There were no advances against the line of credit during fiscal 2019 and there have been none thus far in fiscal 2020; there was no balance outstanding at August 31, 2019. Interest on any borrowings remained at LIBOR plus 100 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Aug. 31, 2019 | |
Commitments and Contingencies | 8. COMMITMENTS AND CONTINGENCIES The Company is involved in environmental remediation and monitoring activities at its Randolph, Wisconsin manufacturing facility and accrues for related costs when such costs are determined to be probable and estimable. The Company currently utilizes a pump and treat remediation strategy, which includes semi-annual monitoring and reporting, consulting, and maintenance of monitoring wells. Neogen expenses these annual costs of remediation, which have ranged from $38,000 to $131,000 per year over the past five years. The Company’s estimated liability for these costs was $916,000 at both August 31, 2019 and May 31, 2019, measured on an undiscounted basis over an estimated period of 15 years; $100,000 of the liability is recorded within current liabilities and the remainder is recorded within other non-current 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. |
Stock Purchase
Stock Purchase | 3 Months Ended |
Aug. 31, 2019 | |
Stock Purchase | 9. STOCK PURCHASE In October 2018, the Company’s Board of Directors passed a resolution canceling the Company’s prior stock buyback program, which had been approved in December 2008, and authorized a new program to purchase, subject to market conditions, up to 3,000,000 shares of the Company’s common stock. In December 2018, the Company purchased 50,000 shares under the 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. |
Accounting Policies (Policies)
Accounting Policies (Policies) | 3 Months Ended |
Aug. 31, 2019 | |
Basis of Presentation and Consolidation | BASIS OF PRESENTATION AND CONSOLIDATION The accompanying unaudited consolidated financial statements include the accounts of Neogen Corporation (“Neogen” or the “Company”) and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form 10-Q S-X. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included in the accompanying unaudited consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three-month period ended August 31, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2020. For more complete financial information, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K |
Recently Adopted Accounting Standards | Recently Adopted Accounting Standards Leases On June 1, 2019, the Company adopted ASU No. 2016-02— Leases. Refer to Leases section of Note 1 for further information. |
Recent Accounting Pronouncements Not Yet Adopted | Recent Accounting Pronouncements Not Yet Adopted 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. 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 Comprehensive income represents net income and any revenues, expenses, gains and losses that, under U.S. generally accepted accounting principles, are excluded from net income and recognized directly as a component of equity. Accumulated other comprehensive income (loss) consists of foreign currency translation adjustments and unrealized gains or losses on marketable securities. |
Fair Value of Financial Instruments | 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 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. The carrying value of these assets approximates fair value due to the short maturity of these instruments and meets the Level 1 criteria. |
Marketable Securities | Marketable Securities The Company has marketable securities held by banks or broker-dealers at August 31, 2019, consisting of short-term domestic certificates of deposit, and commercial paper and U.S. treasuries rated at least A-1/P-1 (short-term) and A/A2 (long-term) with maturities between 91 days and two years. These securities are classified as available for sale. The primary objective of the Company’s investment activity is to preserve capital for the purpose of funding operations, capital expenditures and business acquisitions; investments are not entered into for trading or speculative purposes. These securities are recorded at fair value based on recent trades or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within other income on the consolidated statements of income . |
Estimates and Assumptions | ESTIMATES AND ASSUMPTIONS The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, accruals, goodwill and other intangible assets. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to the critical accounting policies and estimates disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019. There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019. |
Accounts Receivable Allowance | Accounts Receivable Allowance Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit exposure on a regular basis. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific customers, historical trends 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 | Inventory The reserve for obsolete and slow-moving inventory is reviewed at least quarterly based on an analysis of the inventory, considering the current condition of the asset as well as other known facts and future plans. The reserve required to record inventory at lower of cost or net realizable value is adjusted as conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations. |
Goodwill and Other Intangible Assets | Goodwill 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 non-amortizable |
Long-Lived Assets | 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 | Equity Compensation Plans Share options awarded to employees and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with assumptions for inputs such as interest rates, expected dividends, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs used are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different option values, which in turn would result in higher or lower compensation expense recognized. To value options, several recognized valuation models exist. None of these models can be singled out as being the best or most correct. The model applied by us can handle most of the specific features included in the options granted, which is the reason for its use. If a different model were used, the option values could differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options. Fair value could be either higher or lower than the number provided by the model applied and the inputs used. Further information on our equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 5. |
Income Taxes | 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. |
Leases | 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; early adoption is permitted. We adopted this ASU on June 1, 2019; the impact on our consolidated financial statements was immaterial. We lease various manufacturing, laboratory, warehousing and distribution facilities, administrative and sales offices, equipment and vehicles under operating leases. We evaluate our contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, all our leases are classified as operating leases. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option. Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease. With the adoption of ASC 842, on June 1, 2019 we recognized all leases with terms greater than 12 months in duration on our consolidated balance sheets as right-of-use assets and lease liabilities of approximately $2.0 million as of June 1, 2019. We adopted the standard using the prospective approach and did not retrospectively apply to prior periods. Right-of-use assets are recorded in other assets on our consolidated balance sheets. Current and non-current lease liabilities are recorded in other accruals within current liabilities and other non-current liabilities, respectively, on our consolidated balance sheets. We have made certain assumptions and judgments when applying ASC 842, the most significant of which are: • We elected the package of practical expedients available for transition that allow us to not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842. • We did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset. • For all asset classes, we elected to not recognize a right-of-use asset and lease liability for short-term leases. • For all asset classes, we elected to not separate non-lease components from lease components to which they relate and have accounted for the combined lease and non-lease components as a single lease component. • The determination of the discount rate used in a lease is our incremental borrowing rate that is based on what we would normally pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments. Supplemental balance sheet information related to operating leases was as follows: August 31, 2019 (in thousands) Right of use - assets $ 1,726 Lease liabilities - current 755 Lease liabilities - non-current 982 The weighted average remaining lease term and weighted average discount rate were as follows: August 31, 2019 Weighted average remaining lease term 2.1 years Weighted average discount rate 3.5 % Operating lease expenses are classified as cost of revenues or operating expenses on the Consolidated Statements of Income. The components of lease expense were as follows: Three Months Ended August 31, 2019 (in thousands) Operating leases $ 240 Short term leases 48 Total lease expense $ 288 Cash paid for amounts included in the measurement of lease liabilities for operating leases included in cash flows from operations on the Statement of Cash Flows were approximately $247,000 for the three months ended August 31, 2019. There were no non-cash additions to right-of-use assets obtained from new operating lease liabilities for the three months ended August 31, 2019. In accordance with the new leases standard, discounted and undiscounted lease payments as of August 31, 2019 were as follows (in thousands): Years ending May 31, 2020 (1) $ 757 2021 730 2022 230 2023 61 2024 3 2025 and thereafter — Total lease payments 1,781 Less: imputed interest 44 Total lease liabilities $ 1,737 (1) Excluding the three months ended August 31, 2019 Prior to our adoption of the new leases standard, future minimum lease payments as of May 31, 2019, which were undiscounted, were as follows (in thousands): Years ending May 31, 2020 $ 1,169 2021 818 2022 260 2023 73 2024 — 2025 and thereafter — Total lease payments $ 2,320 |
Revenue Recognition | Revenue Recognition The Company determines the amount of revenue to be recognized through application of the following steps: • Identification of the contract with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, the Company satisfies the performance obligations. Essentially all our revenue is generated through contracts with our customers. A performance obligation is a promise in a contract to transfer a product or service to a customer. We generally recognize revenue at a point in time when all our performance obligations under the terms of a contract are satisfied. Revenue is recognized upon transfer of control of promised products and services in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The collectability of consideration on the contract is reasonably assured before revenue is recognized. To the extent that customer payment has been received before all recognition criteria are met, these revenues are initially deferred in other accruals on the balance sheet and the revenue is recognized in the period that all recognition criteria have been met. In certain situations, we provide rebates, marketing support, credits or incentives to selected customers, which are accounted for as variable consideration when estimating the amount of revenue to recognize on a contract. Variable consideration reduces the amount of revenue that is recognized. These variable consideration estimates are updated at the end of each reporting period based on information currently available. The performance obligations in our contracts are generally satisfied well within one year of the contract inception. In such cases, we have elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. We have elected to utilize the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred because the amortization period for the prepaid costs that would otherwise have been deferred and amortized is one year or less. The Company accounts for shipping and handling for products as a fulfillment activity when goods are shipped. Revenue is recognized net of any tax collected from customers; the taxes are subsequently remitted to governmental authorities. The Company’s terms and conditions of sale generally do not provide for returns of product or reperformance of service except in the case of quality or warranty issues. These situations are infrequent; due to immateriality of the amount, warranty claims are recorded in the period incurred. We derive revenue from two primary sources—product revenue and service revenue. Product revenue consists of shipments of: • Diagnostic test kits, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation; • Consumable products marketed to veterinarians and animal health product distributors; and • Rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities. Revenues for our products are recognized and invoiced when the product is shipped to the customer. Service revenue consists primarily of: • Genomic identification and related interpretive bioinformatic services; and • Other commercial laboratory services. Revenues for our genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service is performed and the results are conveyed to the customer. Payment terms for products and services are generally 30 to 60 days. The following table presents disaggregated revenue by major product and service categories for the three month periods ended August 31, 2019 and 2018: Three Months ended August 31, 2019 2018 (in thousands) Food Safety Natural Toxins, Allergens & Drug Residues $ 20,115 $ 18,838 Bacterial & General Sanitation 10,316 10,467 Dehydrated Culture Media & Other 11,279 12,217 Rodenticides, Insecticides & Disinfectants 5,449 6,625 Genomics Services 3,862 4,036 $ 51,021 $ 52,183 Animal Safety Life Sciences $ 1,723 $ 2,080 Veterinary Instruments & Disposables 11,336 10,404 Animal Care & Other 6,405 6,398 Rodenticides, Insecticides & Disinfectants 16,718 17,146 Genomics Services 14,221 11,415 $ 50,403 $ 47,443 Total Revenues $ 101,424 $ 99,626 |
Accounting Policies (Tables)
Accounting Policies (Tables) | 3 Months Ended |
Aug. 31, 2019 | |
Supplemental balance sheet information related to operating leases | Supplemental balance sheet information related to operating leases was as follows: August 31, 2019 (in thousands) Right of use - assets $ 1,726 Lease liabilities - current 755 Lease liabilities - non-current 982 |
Weighted average remaining lease term and weighted average discount rate | The weighted average remaining lease term and weighted average discount rate were as follows: August 31, 2019 Weighted average remaining lease term 2.1 years Weighted average discount rate 3.5 % |
Components of lease expense | The components of lease expense were as follows: Three Months Ended August 31, 2019 (in thousands) Operating leases $ 240 Short term leases 48 Total lease expense $ 288 |
Discounted and undiscounted lease payments | In accordance with the new leases standard, discounted and undiscounted lease payments as of August 31, 2019 were as follows (in thousands): Years ending May 31, 2020 (1) $ 757 2021 730 2022 230 2023 61 2024 3 2025 and thereafter — Total lease payments 1,781 Less: imputed interest 44 Total lease liabilities $ 1,737 (1) Excluding the three months ended August 31, 2019 |
Future minimum lease payments | Prior to our adoption of the new leases standard, future minimum lease payments as of May 31, 2019, which were undiscounted, were as follows (in thousands): Years ending May 31, 2020 $ 1,169 2021 818 2022 260 2023 73 2024 — 2025 and thereafter — Total lease payments $ 2,320 |
Disaggregated Revenue | The following table presents the Company’s revenue disaggregated by geographic location: Three months ended 2019 2018 (in thousands) Revenues by Geographic Location Domestic $ 63,340 $ 59,846 International 38,084 39,780 Total revenue 101,424 99,626 |
Operating Segments | |
Disaggregated Revenue | The following table presents disaggregated revenue by major product and service categories for the three month periods ended August 31, 2019 and 2018: Three Months ended August 31, 2019 2018 (in thousands) Food Safety Natural Toxins, Allergens & Drug Residues $ 20,115 $ 18,838 Bacterial & General Sanitation 10,316 10,467 Dehydrated Culture Media & Other 11,279 12,217 Rodenticides, Insecticides & Disinfectants 5,449 6,625 Genomics Services 3,862 4,036 $ 51,021 $ 52,183 Animal Safety Life Sciences $ 1,723 $ 2,080 Veterinary Instruments & Disposables 11,336 10,404 Animal Care & Other 6,405 6,398 Rodenticides, Insecticides & Disinfectants 16,718 17,146 Genomics Services 14,221 11,415 $ 50,403 $ 47,443 Total Revenues $ 101,424 $ 99,626 |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Aug. 31, 2019 | |
Inventories | Inventories are stated at the lower of cost, determined by the first-in, first-out August 31, May 31, 2019 2019 (in thousands) Raw materials $ 42,964 $ 41,594 Work-in-process 5,901 5,581 Finished and purchased goods 38,817 38,817 $ 87,682 $ 85,992 |
Net Income per Share (Tables)
Net Income per Share (Tables) | 3 Months Ended |
Aug. 31, 2019 | |
Calculation of Net Income Per Share | The calculation of net income per share follows: Three Months Ended August 31, 2019 2018 (in thousands, except per share amounts) Numerator for basic and diluted net income per share: Net income $ 14,652 $ 15,237 Denominator for basic net income per share: Weighted average shares 52,292 51,806 Effect of dilutive stock options 392 974 Denominator for diluted net income per share 52,684 52,780 Net income per share: Basic $ 0.28 $ 0.29 Diluted $ 0.28 $ 0.29 |
Segment Information and Geogr_2
Segment Information and Geographic Data (Tables) | 3 Months Ended |
Aug. 31, 2019 | |
Segment Information | Segment information follows: Corporate and Food Animal Eliminations Safety Safety (1) Total (in thousands) As of and for the three months ended August 31, 2019 Product revenues to external customers $ 45,877 $ 36,071 $ — $ 81,948 Service revenues to external customers 5,144 14,332 — 19,476 Total revenues to external customers 51,021 50,403 — 101,424 Operating income (loss) 9,134 8,300 (1,170 ) 16,264 Total assets 207,725 222,403 291,016 721,144 As of and for the three months ended August 31, 2018 Product revenues to external customers $ 46,933 $ 36,027 $ — $ 82,960 Service revenues to external customers 5,250 11,416 — 16,666 Total revenues to external customers 52,183 47,443 — 99,626 Operating income (loss) 10,873 6,706 (1,100 ) 16,479 Total assets 201,727 212,786 226,413 640,926 (1) Includes corporate assets, consisting principally of cash and cash equivalents, marketable securities, current and deferred tax accounts and overhead expenses not allocated to specific business segments. Also includes the elimination of intersegment transactions. |
Disaggregated Revenue | The following table presents the Company’s revenue disaggregated by geographic location: Three months ended 2019 2018 (in thousands) Revenues by Geographic Location Domestic $ 63,340 $ 59,846 International 38,084 39,780 Total revenue 101,424 99,626 |
Equity Compensation Plans (Tabl
Equity Compensation Plans (Tables) | 3 Months Ended |
Aug. 31, 2019 | |
Stock Option Activity | A summary of stock option activity during the three months ended August 31, 2019 follows: Weighted- Average (Options in thousands) Shares Exercise Price Options outstanding June 1, 2019 2,385 $ 49.37 Granted — — Exercised (196 ) 41.51 Forfeited (6 ) 62.70 Options outstanding August 31, 2019 2,183 $ 50.04 |
Fair Value of Stock Options Granted, Estimated using Weighted-Average Assumptions | The fair value of stock options granted was estimated using the following weighted-average assumptions. FY 2019 Risk-free interest rate 2.6 % Expected dividend yield 0.0 % Expected stock price volatility 27.0 % Expected option life 3.5 years |
Accounting Policies - Additiona
Accounting Policies - Additional Information (Detail) - USD ($) | 3 Months Ended | |
Aug. 31, 2019 | Jun. 01, 2019 | |
Significant Accounting Policies [Line Items] | ||
Products and services, payment terms | 30 to 60 days | |
Operating lease right of use asset | $ 1,726,000 | $ 2,000,000 |
Operating lease liability | 1,737,000 | $ 2,000,000 |
Operating lease payments | 247,000 | |
Right of use assets in exchange of lease liability | $ 0 | |
Minimum | ||
Significant Accounting Policies [Line Items] | ||
Marketable securities, maturity period | 91 days | |
Finite lived intangible assets, useful life | 5 years | |
Maximum | ||
Significant Accounting Policies [Line Items] | ||
Marketable securities, maturity period | 2 years | |
Finite lived intangible assets, useful life | 25 years |
Supplemental Balance Sheet Info
Supplemental Balance Sheet Information Related to Operating Leases (Detail) - USD ($) $ in Thousands | Aug. 31, 2019 | Jun. 01, 2019 |
Right of use - assets | $ 1,726 | $ 2,000 |
Lease liabilities - current | 755 | |
Lease liabilities - non-current | $ 982 |
Weighted Average Remaining Leas
Weighted Average Remaining Lease Term and Weighted Average Discount Rate (Detail) | Aug. 31, 2019 |
Weighted average remaining lease term | 2 years 1 month 6 days |
Weighted average discount rate | 3.50% |
Components of Lease Expense (De
Components of Lease Expense (Detail) $ in Thousands | 3 Months Ended |
Aug. 31, 2019USD ($) | |
Operating leases | $ 240 |
Short term leases | 48 |
Total lease expense | $ 288 |
Discounted and Undiscounted Lea
Discounted and Undiscounted Lease Payments (Detail) - USD ($) $ in Thousands | Aug. 31, 2019 | Jun. 01, 2019 | |
2020 | [1] | $ 757 | |
2021 | 730 | ||
2022 | 230 | ||
2023 | 61 | ||
2024 | 3 | ||
Total lease payments | 1,781 | ||
Less: imputed interest | 44 | ||
Total lease liabilities | $ 1,737 | $ 2,000 | |
[1] | Excluding the three months ended August 31, 2019 |
Future Minimum Lease Payments (
Future Minimum Lease Payments (Detail) $ in Thousands | May 31, 2019USD ($) |
2020 | $ 1,169 |
2021 | 818 |
2022 | 260 |
2023 | 73 |
Total lease payments | $ 2,320 |
Disaggregated Revenue (Detail)
Disaggregated Revenue (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Disaggregation of Revenue [Line Items] | ||
Total Revenues | $ 101,424 | $ 99,626 |
Food Safety | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 51,021 | 52,183 |
Food Safety | Natural Toxins, Allergens & Drug Residues | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 20,115 | 18,838 |
Food Safety | Bacterial & General Sanitation | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 10,316 | 10,467 |
Food Safety | Dehydrated Culture Media & Other | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 11,279 | 12,217 |
Food Safety | Rodenticides, Insecticides & Disinfectants | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 5,449 | 6,625 |
Food Safety | Genomics Services | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 3,862 | 4,036 |
Animal Safety | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 50,403 | 47,443 |
Animal Safety | Life Sciences | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 1,723 | 2,080 |
Animal Safety | Veterinary Instruments & Disposables | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 11,336 | 10,404 |
Animal Safety | Animal Care & Other | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 6,405 | 6,398 |
Animal Safety | Rodenticides, Insecticides & Disinfectants | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | 16,718 | 17,146 |
Animal Safety | Genomics Services | ||
Disaggregation of Revenue [Line Items] | ||
Total Revenues | $ 14,221 | $ 11,415 |
Inventories (Detail)
Inventories (Detail) - USD ($) $ in Thousands | Aug. 31, 2019 | May 31, 2019 |
Inventory [Line Items] | ||
Raw materials | $ 42,964 | $ 41,594 |
Work-in-process | 5,901 | 5,581 |
Finished and purchased goods | 38,817 | 38,817 |
Inventories | $ 87,682 | $ 85,992 |
Calculation of Net Income Per S
Calculation of Net Income Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Earnings Per Share [Line Items] | ||
Numerator for basic and diluted net income per share - Net income | $ 14,652 | $ 15,237 |
Denominator for basic net income per share - Weighted average shares | 52,292 | 51,806 |
Effect of dilutive stock options | 392 | 974 |
Denominator for diluted net income per share | 52,684 | 52,780 |
Net income per share: | ||
Basic | $ 0.28 | $ 0.29 |
Diluted | $ 0.28 | $ 0.29 |
Segment Information and Geogr_3
Segment Information and Geographic Data - Additional Information (Detail) | 3 Months Ended |
Aug. 31, 2019Segment | |
Segment Reporting Information [Line Items] | |
Number of reportable segments | Segment | 2 |
Segment Information and Geogr_4
Segment Information and Geographic Data (Detail) - USD ($) $ in Thousands | 3 Months Ended | |||
Aug. 31, 2019 | Aug. 31, 2018 | May 31, 2019 | ||
Segment Reporting Information [Line Items] | ||||
Product revenues to external customers | $ 101,424 | $ 99,626 | ||
Operating income (loss) | 16,264 | 16,479 | ||
Total assets | 721,144 | 640,926 | $ 695,740 | |
Operating Segments | Food Safety | ||||
Segment Reporting Information [Line Items] | ||||
Product revenues to external customers | 51,021 | 52,183 | ||
Operating income (loss) | 9,134 | 10,873 | ||
Total assets | 207,725 | 201,727 | ||
Operating Segments | Animal Safety | ||||
Segment Reporting Information [Line Items] | ||||
Product revenues to external customers | 50,403 | 47,443 | ||
Operating income (loss) | 8,300 | 6,706 | ||
Total assets | 222,403 | 212,786 | ||
Product Revenues | ||||
Segment Reporting Information [Line Items] | ||||
Product revenues to external customers | 81,948 | 82,960 | ||
Product Revenues | Operating Segments | Food Safety | ||||
Segment Reporting Information [Line Items] | ||||
Product revenues to external customers | 45,877 | 46,933 | ||
Product Revenues | Operating Segments | Animal Safety | ||||
Segment Reporting Information [Line Items] | ||||
Product revenues to external customers | 36,071 | 36,027 | ||
Service Revenues | ||||
Segment Reporting Information [Line Items] | ||||
Product revenues to external customers | 19,476 | 16,666 | ||
Service Revenues | Operating Segments | Food Safety | ||||
Segment Reporting Information [Line Items] | ||||
Product revenues to external customers | 5,144 | 5,250 | ||
Service Revenues | Operating Segments | Animal Safety | ||||
Segment Reporting Information [Line Items] | ||||
Product revenues to external customers | 14,332 | 11,416 | ||
Corporate and Eliminations | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Operating income (loss) | [1] | (1,170) | (1,100) | |
Total assets | [1] | $ 291,016 | $ 226,413 | |
[1] | Includes corporate assets, consisting principally of cash and cash equivalents, marketable securities, current and deferred tax accounts and overhead expenses not allocated to specific business segments. Also includes the elimination of intersegment transactions. |
Disaggregated Revenue by Geogra
Disaggregated Revenue by Geographic Location (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Revenues by Geographic Location [Line Items] | ||
Total revenue | $ 101,424 | $ 99,626 |
Domestic | ||
Revenues by Geographic Location [Line Items] | ||
Total revenue | 63,340 | 59,846 |
International | ||
Revenues by Geographic Location [Line Items] | ||
Total revenue | $ 38,084 | $ 39,780 |
Equity Compensation Plans - Add
Equity Compensation Plans - Additional Information (Detail) - USD ($) | 3 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Weighted-average fair value per share of stock options granted | $ 14.91 | |
Compensation expense related to share based awards | $ 1,543,000 | $ 1,431,000 |
Options granted | 0 | |
Employee Stock Purchase Plan | 2011 Employee Stock Purchase Plan | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Annual maximum limit percentage of compensation to purchase shares | 5.00% | |
Minimum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock option vesting period | 3 years | |
Stock option contractual terms | 5 years | |
Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock option vesting period | 5 years | |
Stock option contractual terms | 10 years |
Stock Option Activity (Detail)
Stock Option Activity (Detail) shares in Thousands | 3 Months Ended |
Aug. 31, 2019$ / sharesshares | |
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |
Shares Outstanding, Beginning Balance | shares | 2,385 |
Shares, Exercised | shares | (196) |
Shares, Forfeited | shares | (6) |
Shares Outstanding, Ending Balance | shares | 2,183 |
Weighted-Average Exercise Price, Beginning Balance | $ / shares | $ 49.37 |
Weighted-Average Exercise Price, Exercised | $ / shares | 41.51 |
Weighted-Average Exercise Price, Forfeited | $ / shares | 62.70 |
Weighted-Average Exercise Price, Ending Balance | $ / shares | $ 50.04 |
Fair Value of Stock Options Gra
Fair Value of Stock Options Granted, Estimated using Weighted-Average Assumptions (Detail) | 3 Months Ended |
Aug. 31, 2019 | |
Schedule of Weighted Average Assumptions for Fair Values of Stock Options [Line Items] | |
Risk-free interest rate | 2.60% |
Expected dividend yield | 0.00% |
Expected stock price volatility | 27.00% |
Expected option life (in years) | 3 years 6 months |
Business and Product Line Acq_2
Business and Product Line Acquisitions - Additional Information (Detail) - USD ($) | Sep. 01, 2019 | Jan. 01, 2019 | Sep. 04, 2018 | Aug. 01, 2018 | Feb. 28, 2019 | Aug. 31, 2019 |
Minimum | ||||||
Business Acquisition [Line Items] | ||||||
Finite lived intangible assets, useful life | 5 years | |||||
Maximum | ||||||
Business Acquisition [Line Items] | ||||||
Finite lived intangible assets, useful life | 25 years | |||||
Clarus Labs Inc. | ||||||
Business Acquisition [Line Items] | ||||||
Cash consideration for purchase of business | $ 4,204,000 | |||||
Contingent consideration potential payment | 1,256,000 | |||||
Purchase price allocation for inventory | 32,000 | |||||
Purchase price allocation for land, property and equipment | 120,000 | |||||
Allocation of purchase price for contingent consideration potential payment | 1,256,000 | |||||
Purchase price allocation for intangible assets | 1,487,000 | |||||
Purchase price allocation for non-amortizable intangible assets | 878,000 | |||||
Purchase price allocation for accounts payable | 53,000 | |||||
Purchase price allocation for deferred tax liability | $ 544,000 | |||||
Contingent consideration paid | $ 180,000 | |||||
Clarus Labs Inc. | Minimum | ||||||
Business Acquisition [Line Items] | ||||||
Finite lived intangible assets, useful life | 5 years | |||||
Clarus Labs Inc. | Maximum | ||||||
Business Acquisition [Line Items] | ||||||
Finite lived intangible assets, useful life | 15 years | |||||
Livestock Genetic Services LLC | ||||||
Business Acquisition [Line Items] | ||||||
Cash consideration for purchase of business | $ 1,100,000 | |||||
Contingent consideration potential payment | 585,000 | |||||
Allocation of purchase price for contingent consideration potential payment | 385,000 | |||||
Purchase price allocation for intangible assets | 942,000 | |||||
Cash payable to former owner for purchase of business | 400,000 | |||||
Cash paid for purchase of business | $ 700,000 | |||||
Cash payable to former owner for purchase of business, due date | Sep. 1, 2019 | |||||
Purchase price allocation for office equipment | $ 15,000 | |||||
Livestock Genetic Services LLC | Subsequent Event | ||||||
Business Acquisition [Line Items] | ||||||
Contingent consideration paid | $ 88,000 | |||||
Second installment paid | $ 400,000 | |||||
Livestock Genetic Services LLC | Minimum | ||||||
Business Acquisition [Line Items] | ||||||
Finite lived intangible assets, useful life | 5 years | |||||
Livestock Genetic Services LLC | Maximum | ||||||
Business Acquisition [Line Items] | ||||||
Finite lived intangible assets, useful life | 15 years | |||||
Edmonton Albertabased Delta Genomics Centre [Member] | ||||||
Business Acquisition [Line Items] | ||||||
Cash consideration for purchase of business | $ 1,485,000 | |||||
Purchase price allocation for inventory | 38,000 | |||||
Purchase price allocation for land, property and equipment | 371,000 | |||||
Purchase price allocation for intangible assets | 532,000 | |||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Deferred Revenue | $ 125,000 | |||||
Edmonton Albertabased Delta Genomics Centre [Member] | Minimum | ||||||
Business Acquisition [Line Items] | ||||||
Finite lived intangible assets, useful life | 5 years | |||||
Edmonton Albertabased Delta Genomics Centre [Member] | Maximum | ||||||
Business Acquisition [Line Items] | ||||||
Finite lived intangible assets, useful life | 10 years |
Long Term Debt - Additional Inf
Long Term Debt - Additional Information (Detail) - USD ($) | 1 Months Ended | 3 Months Ended | |
Nov. 29, 2018 | Aug. 31, 2019 | May 31, 2020 | |
Debt Instrument [Line Items] | |||
Unsecured revolving line of credit, total amount available | $ 15,000,000 | ||
Unsecured revolving line of credit, maturity date | Sep. 1, 2019 | Sep. 30, 2021 | |
Unsecured revolving line of credit, interest terms | LIBOR plus 100 basis points | ||
Unsecured revolving line of credit, interest rate | 3.08% | ||
Unsecured revolving line of credit, balance outstanding | $ 0 | ||
Unsecured revolving line of credit, advances | $ 0 | ||
Libor Plus | Unsecured Revolving Line of Credit | |||
Debt Instrument [Line Items] | |||
Unsecured revolving line of credit, spread | 1.00% | ||
During Fiscal 2020 | |||
Debt Instrument [Line Items] | |||
Unsecured revolving line of credit, advances | $ 0 |
Commitments and Contingencies -
Commitments and Contingencies - Additional Information (Detail) - USD ($) | 3 Months Ended | |
Aug. 31, 2019 | May 31, 2019 | |
Commitments and Contingencies Disclosure [Line Items] | ||
Environmental remediation expense, period of remediation, years | 5 years | |
Estimated liability costs of remediation | $ 916,000 | $ 916,000 |
Estimated liability, measurement period, years | 15 years | |
Estimated liability costs of remediation, current | $ 100,000 | |
Minimum | ||
Commitments and Contingencies Disclosure [Line Items] | ||
Environmental remediation expense | 38,000 | |
Maximum | ||
Commitments and Contingencies Disclosure [Line Items] | ||
Environmental remediation expense | $ 131,000 |
Stock Purchase - Additional Inf
Stock Purchase - Additional Information (Detail) - USD ($) | 1 Months Ended | |
Dec. 31, 2018 | Oct. 31, 2018 | |
Stock Repurchase Program [Line Items] | ||
Shares authorized to purchase | 3,000,000 | |
Cost of repurchased shares, including commissions | $ 3,134,727 | |
Number of shares repurchased | 50,000 |