Company Quick10K Filing
Quick10K
Neogen
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$56.67 52 $2,950
10-Q 2019-02-28 Quarter: 2019-02-28
10-Q 2018-11-30 Quarter: 2018-11-30
10-Q 2018-08-31 Quarter: 2018-08-31
10-K 2018-05-31 Annual: 2018-05-31
10-Q 2018-02-28 Quarter: 2018-02-28
10-Q 2017-11-30 Quarter: 2017-11-30
10-Q 2017-08-31 Quarter: 2017-08-31
10-K 2017-05-31 Annual: 2017-05-31
10-Q 2017-02-28 Quarter: 2017-02-28
10-Q 2016-11-30 Quarter: 2016-11-30
10-Q 2016-08-31 Quarter: 2016-08-31
10-K 2016-05-31 Annual: 2016-05-31
10-Q 2016-02-29 Quarter: 2016-02-29
10-Q 2015-11-30 Quarter: 2015-11-30
10-Q 2015-08-31 Quarter: 2015-08-31
10-K 2015-05-31 Annual: 2015-05-31
10-Q 2015-02-28 Quarter: 2015-02-28
10-Q 2014-11-30 Quarter: 2014-11-30
10-Q 2014-08-31 Quarter: 2014-08-31
10-K 2014-05-31 Annual: 2014-05-31
10-Q 2014-02-28 Quarter: 2014-02-28
10-Q 2013-11-30 Quarter: 2013-11-30
8-K 2019-03-26 Earnings, Exhibits
8-K 2019-02-12 Other Events
8-K 2019-01-09 Officers, Exhibits
8-K 2018-12-20 Earnings, Exhibits
8-K 2018-11-30 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-09-25 Earnings, Exhibits
8-K 2018-07-17 Earnings, Exhibits
8-K 2018-04-06 Officers, Exhibits
8-K 2018-03-22 Earnings, Exhibits
8-K 2018-03-06 Officers
8-K 2018-01-03 Earnings, Exhibits
JD JD.com 43,280
VOYA Voya Financial 8,180
MKSI MKS Instruments 5,420
ATGE Adtalem Global Education 2,840
NAVG Navigators Group 2,080
LXFT Luxoft Holding 2,000
ICBK County Bancorp 113
GROW US Global Investors 18
BRN Barnwell Industries 11
NLRT Nogales Resources 0
NEOG 2019-02-28
Part I - Financial Information
Item 1. Interim Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Part I - Financial Information
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 d665348dex311.htm
EX-31.2 d665348dex312.htm
EX-32 d665348dex32.htm

Neogen Earnings 2019-02-28

NEOG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d665348d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2019.

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission file number 0-17988

 

 

Neogen Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Michigan   38-2367843

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification Number)

620 Lesher Place

Lansing, Michigan 48912

(Address of principal executive offices, including zip code)

(517) 372-9200

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ☒    NO  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES  ☒    NO  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (see definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller Reporting Company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    YES  ☐    NO  ☒

As of February 28, 2019, there were 52,120,422 shares of Common Stock outstanding.

 

 

 


Table of Contents

NEOGEN CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

 

     Page No.  

PART I. FINANCIAL INFORMATION

  

Item 1.

  Interim Consolidated Financial Statements (unaudited)      2  
  Consolidated Balance Sheets – February 28, 2019 and May 31, 2018      2  
  Consolidated Statements of Income – Three and nine months ended February 28, 2019 and 2018      3  
  Consolidated Statements of Comprehensive Income – Three and nine months ended February 28, 2019 and 2018      4  
  Consolidated Statement of Equity – Nine months ended February 28, 2019      5  
  Consolidated Statements of Cash Flows – Nine months ended February 28, 2019 and 2018      6  
  Notes to Interim Consolidated Financial Statements – February 28, 2019      7  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      18  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      25  

Item 4.

  Controls and Procedures      25  

PART II. OTHER INFORMATION

  

Item 1.

  Legal Proceedings      26  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      26  

Item 6.

  Exhibits      26  

SIGNATURES

     27  
  CEO Certification   
  CFO Certification   
  Section 906 Certification   

 

1


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Interim Consolidated Financial Statements

Neogen Corporation and Subsidiaries

Consolidated Balance Sheet

(in thousands, except share and

per share amounts)

 

     February 28,
2019
    May 31,
2018
 
     (Unaudited)     (Unaudited)  

Assets

    

Current Assets

    

Cash and cash equivalents

   $ 93,576     $ 83,074  

Marketable securities (at fair value, which approximates cost)

     153,104       127,736  

Accounts receivable, less allowance of $1,700 and $1,550

     80,011       79,086  

Inventories

     84,870       76,005  

Prepaid expenses and other current assets

     11,041       9,888  
  

 

 

   

 

 

 

Total Current Assets

     422,602       375,789  

Net Property and Equipment

     76,453       73,069  

Other Assets

    

Goodwill

     104,077       99,558  

Other non-amortizable intangible assets

     15,658       14,783  

Amortizable customer-based intangibles, net of accumulated amortization of $27,184 and $24,579 at February 28, 2019 and May 31, 2018, respectively

     30,007       31,841  

Other non-current assets, net of accumulated amortization of $12,304 and $12,470 at February 28, 2019 and May 31, 2018, respectively

     23,788       22,969  
  

 

 

   

 

 

 

Total Assets

   $ 672,585     $ 618,009  
  

 

 

   

 

 

 

Liabilities and Equity

    

Current Liabilities

    

Accounts payable

   $ 18,952     $ 20,750  

Accrued compensation

     5,391       6,065  

Income taxes

     —         165  

Other accruals

     9,925       11,708  
  

 

 

   

 

 

 

Total Current Liabilities

     34,268       38,688  

Deferred Income Taxes

     14,211       14,103  

Other Non-Current Liabilities

     4,190       5,043  
  

 

 

   

 

 

 

Total Liabilities

     52,669       57,834  

Commitments and Contingencies (Note 8)

    

Equity

    

Preferred stock, $1.00 par value, 100,000 shares authorized, none issued and outstanding

     —         —    

Common stock, $0.16 par value, 120,000,000 shares authorized, 52,120,422 and 51,735,732 shares issued and outstanding at February 28, 2019 and May 31, 2018, respectively

     8,339       8,278  

Additional paid-in capital

     217,274       202,572  

Accumulated other comprehensive loss

     (9,129     (9,746

Retained earnings

     403,432       359,071  
  

 

 

   

 

 

 

Total Stockholders’ Equity

     619,916       560,175  
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 672,585     $ 618,009  
  

 

 

   

 

 

 

See notes to interim consolidated financial statements.

 

2


Table of Contents

Neogen Corporation and Subsidiaries

Consolidated Statements of Income (unaudited)

(in thousands, except per share amounts)

 

    

Three Months Ended

February 28,

    

Nine Months Ended

February 28,

 
     2019      2018      2019      2018  

Revenues

           

Product revenues

   $ 77,375      $ 77,184      $ 249,897      $ 241,200  

Service revenues

     20,325        17,719        54,527        48,611  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Revenues

     97,700        94,903        304,424        289,811  

Cost of Revenues

           

Cost of product revenues

     41,902        40,283        132,157        124,520  

Cost of service revenues

     11,170        10,019        30,877        27,517  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Cost of Revenues

     53,072        50,302        163,034        152,037  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross Margin

     44,628        44,601        141,390        137,774  

Operating Expenses

           

Sales and marketing

     16,722        16,572        52,454        49,442  

General and administrative

     10,018        9,280        30,337        29,096  

Research and development

     3,249        2,836        9,235        8,901  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Operating Expenses

     29,989        28,688        92,026        87,439  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Income

     14,639        15,913        49,364        50,335  

Other Income

           

Interest income

     1,335        524        3,290        1,322  

Other income

     649        844        807        1,913  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Other Income

     1,984        1,368        4,097        3,235  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income Before Taxes

     16,623        17,281        53,461        53,570  

Provision for Income Taxes

     3,550        700        9,100        7,900  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income

     13,073        16,581        44,361        45,670  

Net (Income) Loss Attributable to Non-Controlling Interest

     —          5        —          (70
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income Attributable to Neogen

   $ 13,073      $ 16,586      $ 44,361      $ 45,600  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income Attributable to Neogen Per Share

           

Basic

   $ 0.25      $ 0.32      $ 0.86      $ 0.89  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.25      $ 0.32      $ 0.85      $ 0.88  
  

 

 

    

 

 

    

 

 

    

 

 

 

See notes to interim consolidated financial statements.

 

3


Table of Contents

Neogen Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)

 

    

Three Months Ended

February 28,

     Nine Months Ended
February 28,
 
     2019      2018      2019      2018  

Net income

   $ 13,073      $ 16,581      $ 44,361      $ 45,670  

Other comprehensive income, net of tax:
currency translation adjustments

     3,105        1,163        617        1,900  
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income

     16,178        17,744        44,978        47,570  

Comprehensive (income) loss attributable to non-controlling interest

     —          5        —          (70
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income attributable to Neogen Corporation

   $ 16,178      $ 17,749      $ 44,978      $ 47,500  
  

 

 

    

 

 

    

 

 

    

 

 

 

See notes to interim consolidated financial statements.

 

4


Table of Contents

Neogen Corporation and Subsidiaries

Consolidated Statement of Equity (unaudited)

(in thousands)

 

     Common Stock     Additional
Paid-in
    Accumulated
Other
Comprehensive
    Retained         
     Shares     Amount     Capital     (Loss)     Earnings      Total  

Balance at May 31, 2018

     51,736     $ 8,278     $ 202,572     $ (9,746   $ 359,071      $ 560,175  

Issuance of shares under share-based compensation plan

     251       40       8,433       —         —          8,473  

Issuance of shares under employee stock purchase plan

     8       2       517       —         —          519  

Net income for the three months ended August 31, 2018

     —         —         —         —         15,237        15,237  

Other comprehensive (loss)

     —         —         —         (2,778     —          (2,778
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at August 31, 2018

     51,995     $ 8,320     $ 211,522     $ (12,524   $ 374,308      $ 581,626  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Issuance of shares under share-based compensation plan

     87       14       4,093       —         —          4,107  

Net income for the three months ended November 30, 2018

     —         —         —         —         16,051        16,051  

Other comprehensive income

     —         —         —         290       —          290  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at November 30, 2018

     52,082     $ 8,334     $ 215,615     $ (12,234   $ 390,359      $ 602,074  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Issuance of shares under share-based compensation plan

     78       12       4,146       —         —          4,158  

Issuance of shares under employee stock purchase plan

     10       1       640       —         —          641  

Shares repurchased

     (50     (8     (3,127     —         —          (3,135

Net income for the three months ended February 28, 2019

     —         —         —         —         13,073        13,073  

Other comprehensive income

     —         —         —         3,105       —          3,105  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at February 28, 2019

     52,120     $ 8,339     $ 217,274     $ (9,129   $ 403,432      $ 619,916  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

See notes to interim consolidated financial statements.

 

5


Table of Contents

Neogen Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

    

Nine Months Ended

February 28,

 
     2019     2018  

Cash Flows From Operating Activities

    

Net Income

   $ 44,361     $ 45,670  

Adjustments to reconcile net income to net cash from operating activities:

    

Depreciation and amortization

     13,028       12,682  

Share-based compensation

     4,137       3,692  

Change in operating assets and liabilities, net of business acquisitions:

    

Accounts receivable

     (898     (4,013

Inventories

     (8,745     (3,859

Prepaid expenses and other current assets

     (1,463     (7,316

Accounts payable, accruals and other changes

     (7,455     (280
  

 

 

   

 

 

 

Net Cash From Operating Activities

     42,965       46,576  

Cash Flows From Investing Activities

    

Purchases of property, equipment and other non-current intangible assets

     (11,877     (16,297

Proceeds from the sale of marketable securities

     290,827       211,327  

Purchases of marketable securities

     (316,195     (255,348

Business acquisitions, net of cash acquired

     (6,388     (468
  

 

 

   

 

 

 

Net Cash Used In Investing Activities

     (43,633     (60,786

Cash Flows From Financing Activities

    

Exercise of stock options and issuance of employee stock purchase plan shares

     13,752       18,916  

Repurchase of common stock

     (3,135     —    
  

 

 

   

 

 

 

Net Cash From Financing Activities

     10,617       18,916  

Effect of Exchange Rate on Cash

     553       (207
  

 

 

   

 

 

 

Net Increase In Cash and Cash Equivalents

     10,502       4,499  

Cash and Cash Equivalents, Beginning of Period

     83,074       77,567  
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 93,576     $ 82,066  
  

 

 

   

 

 

 

See notes to interim consolidated financial statements.

 

6


Table of Contents

NEOGEN CORPORATION AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION

The accompanying unaudited consolidated financial statements include the accounts of Neogen Corporation (“Neogen” or the “Company”) and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included in the accompanying unaudited consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three and nine month periods ended February 28, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2019. For more complete financial information, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2018.

Share and per share amounts reflect the December 29, 2017 4-for-3 stock split as if it took place at the beginning of the period

presented.

Recently Adopted Accounting Standards

Revenue Recognition

On June 1, 2018, we adopted ASU No. 2014-09—Revenue from Contracts with Customers (Topic 606). Refer to the Revenue Recognition section of Note 1 for further information.

Classification of Cash Receipts and Payments

In August 2016, the FASB issued ASU No. 2016-15—Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted this ASU on June 1, 2018; the impact on our consolidated financial statements was immaterial.

Recent Accounting Pronouncements Not Yet Adopted

Leases

In February 2016, the FASB issued ASU No. 2016-02—Leases to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessor have not significantly changed from previous U.S. GAAP. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Modified retrospective application is required with certain practical expedients. We will adopt this ASU on June 1, 2019 and are currently in the process of evaluating our lessee and lessor arrangements to determine the impact of this pronouncement on our consolidated financial condition and results of operations. This evaluation includes a review of revenue through leasing arrangements as well as lease expenses, which primarily result from operating lease arrangements at most of our facilities.

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

 

7


Table of Contents

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. We do not believe adoption of this guidance will have an impact on our consolidated financial statements.

Comprehensive Income

Comprehensive income represents net income and any revenues, expenses, gains and losses that, under U.S. generally accepted accounting principles, are excluded from net income and recognized directly as a component of equity. Accumulated other comprehensive income (loss) consists solely of foreign currency translation adjustments.

Fair Value of Financial Instruments

The carrying amounts of our 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. We utilize 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 February 28, 2019, consisting of short-term domestic certificates of deposit and commercial paper rated at least A1/P1 (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 our short-term investment activity is to preserve capital for the purpose of funding operations, capital expenditures and business acquisitions; short-term investments are not entered into for trading or speculative purposes. These securities are recorded at fair value (that approximates cost) based on recent trades of similar securities 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 our Annual Report on Form 10-K for the fiscal year ended May 31, 2018, except for the new revenue recognition standard the Company adopted effective June 1, 2018. See the below sections Revenue Recognition and Recently Adopted Accounting Standards for further information on revenue recognition.

There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2018.

 

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Accounts Receivable Allowance

Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit exposure on a regular basis. An allowance for doubtful accounts receivable is established based upon factors surrounding the credit risk of specific customers, historical trends and other information. Collateral or other security is generally not required for accounts receivable. Once a receivable balance has been determined to be uncollectible, that amount is charged against the allowance for doubtful accounts.

Inventory

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 and patents. Customer-based intangibles are amortized on either an accelerated or straight-line basis, reflecting the pattern in which the economic benefits are consumed, while all other amortizable intangibles are amortized on a straight-line basis; intangibles are generally amortized over 5 to 25 years. We review the carrying amounts of goodwill and other non-amortizable intangible assets annually, or when indications of impairment exist, to determine if such assets may be impaired by performing a quantitative assessment. If the carrying amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable EBITDA multiples of peer companies, such assets are reduced to their estimated fair value and a charge is recorded to operations.

Long Lived Assets

Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for possible impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset indicate that the carrying amount of the asset may not be recoverable. In such an event, fair value is determined using discounted cash flows and, if lower than the carrying value, impairment is recognized through a charge to operations.

Equity Compensation Plans

Share options awarded to employees and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under 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 one. The model applied by us can handle most of the specific features included in the options granted, which is the reason for its use. If a different model were used, the option values could differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options. Fair value could be either higher or lower than the number provided by the model applied and the inputs used. Further information on our equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 5 to the unaudited consolidated financial statements.

Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income tax assets and liabilities during the period.

 

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On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law making significant changes to the Internal Revenue Code. Changes include a federal corporate tax rate reduction from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Tax Act also includes a provision to tax global intangible low taxed income (“GILTI”) of foreign subsidiaries, which became effective for us beginning June 1, 2018. In the fourth quarter of fiscal 2018, we recorded an estimated net charge of $4.8 million related to the Tax Act, due to the impact of the reduction in the tax rate on deferred tax assets and liabilities of $6.0 million, partially offset by $1.2 million of one-time transition tax on the deemed repatriation of foreign earnings. Due to the timing of the enactment and the complexity in applying the provisions of the Tax Act, these charges and benefits were recorded based on reasonable estimates and were subject to revisions as we completed our analysis of the Tax Act, collected and prepared necessary data, and interpreted any additional guidance issued by the Internal Revenue Service. Prior to December 22, 2018, immaterial adjustments to these provisions were recorded to income tax expense, within the measurement period under SAB 118.

Revenue Recognition

In May 2014, the FASB issued ASU No. 2014-09—Revenue from Contracts with Customers (Topic 606). The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. In April 2016, the FASB issued Accounting Standards Update No. 2016-10—Revenue from Contracts with Customers (Topic 606), which amends and adds clarity to certain aspects of the guidance set forth in ASU 2014-09 related to identifying performance obligations and licensing. The guidance became effective for the Company on June 1, 2018. We adopted this standard using the full retrospective approach. This approach was chosen to provide appropriate comparisons against our prior year financial statements; accordingly, historical information for the year ended May 31, 2018, including interim periods therein, has been adjusted to conform to the new standard.

Prior to the adoption, we identified all revenue streams at each significant subsidiary and reviewed contracts to evaluate the impact of adopting the new standard on our revenue recognition policies, procedures and control framework and ultimately on our consolidated financial statements and related disclosures. In our review of contracts in each revenue stream, we noted no material impact in the implementation of the standard. We determined the impact of adopting the standard on our control framework and noted minimal, insignificant changes to our system and other controls processes.

Under Topic 606, the Company determines the amount of revenue to be recognized through application of the following steps:

 

   

Identification of the contract with a customer;

 

   

Identification of the performance obligations in the contract;

 

   

Determination of the transaction price;

 

   

Allocation of the transaction price to the performance obligations in the contract; and

 

   

Recognition of revenue when or as the Company satisfies the performance obligations.

Essentially all of 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 of our performance obligations under the terms of a contract are satisfied. With the adoption of Topic 606, revenue is recognized upon transfer of control of promised products and services in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The collectability of consideration on the contract is reasonably assured before revenue is recognized. To the extent that customer payment has been received before all recognition criteria are met, these revenues are initially deferred in other accruals on the balance sheet and the revenue is recognized in the period that all recognition criteria have been met. In certain situations, we provide rebates, marketing support, credits or incentives to select customers, which are accounted for as variable consideration when estimating the amount of revenue to recognize on a contract. Variable consideration reduces the amount of revenue that is recognized. These variable consideration estimates are updated at the end of each reporting period based on information currently available.

The performance obligations in our contracts are generally satisfied well within one year of 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.

 

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We derive revenue from two primary sources — product revenue and service revenue.

Product revenue consists primarily of shipments of:

 

   

Diagnostic test kits, culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation;

 

   

Consumable products marketed to veterinarians retailers, livestock producers and animal health product distributors; and

 

   

Rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities.

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 and nine months ended February 28, 2019 and 2018:

 

    

Three Months Ended

February 28,

    

Nine Months Ended

February 28,

 
     2019      2018      2019      2018  
     (in thousands)      (in thousands)  

Food Safety

           

Natural Toxins, Allergens & Drug Residues

   $ 18,612      $ 16,807      $ 58,021      $ 54,960  

Bacterial & General Sanitation

     9,519        8,992        30,807        27,435  

Culture Media & Other

     11,893        10,179        36,302        31,353  

Rodenticides, Insecticides & Disinfectants

     5,953        7,359        18,521        18,175  

Genomics Services

     5,136        3,976        13,395        10,887  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 51,113      $ 47,313      $ 157,046      $ 142,810  

Animal Safety

           

Life Sciences

   $ 1,823      $ 2,769      $ 5,794      $ 7,589  

Veterinary Instruments & Disposables

     10,682        10,630        32,769        32,804  

Animal Care & Other

     6,823        7,245        22,439        22,894  

Rodenticides, Insecticides & Disinfectants

     13,256        14,255        48,921        49,422  

Genomics Services

     14,003        12,691        37,455        34,292  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 46,587      $ 47,590      $ 147,378      $ 147,001  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Revenues

   $ 97,700      $ 94,903      $ 304,424      $ 289,811  
  

 

 

    

 

 

    

 

 

    

 

 

 

Restatement of Previously Issued Financial Statements

The Company has historically classified certain variable consideration components resulting from volume rebates, distributor support, and other marketing discounts as cost of revenues or sales and marketing expense in our consolidated financial statements of income. These amounts should have been classified as contra revenue in product or service revenues. The Company had determined in prior periods that the misstatements were clearly immaterial, individually and in the aggregate, to each of the reporting periods affected. The Company began properly classifying these items as contra revenues beginning in the three month period ended August 31, 2018, the first quarter of the Company’s current fiscal year, and has revised the prior year’s quarter and year to date periods to conform to the current period presentation. These immaterial adjustments had no impact on our operating income, income before taxes, net income or reported earnings per share, and no change to stockholders’ equity.

 

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The effects of the revisions on the line items within our unaudited consolidated statements of income for the three and nine months ended February 28, 2018 are as follows:

 

     Three Months Ended      Nine Months Ended  
     February 28, 2018      February 28, 2018  
     As
Previously
Reported
     Adjustments     As
Revised
     As
Previously
Reported
     Adjustments     As
Revised
 
     (in thousands)      (in thousands)  

Revenues

               

Product revenues

   $ 78,142      $ (958   $ 77,184      $ 244,298      $ (3,098   $ 241,200  

Service revenues

     17,750        (31     17,719        48,667        (56     48,611  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total revenues

     95,892        (989     94,903        292,965        (3,154     289,811  

Cost of revenues

               

Cost of product revenues

     40,352        (69     40,283        124,785        (265     124,520  

Cost of service revenues

     10,019        —         10,019        27,517        —         27,517  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total cost of revenues

     50,371        (69     50,302        152,302        (265     152,037  

Gross margin

     45,521        (920     44,601        140,663        (2,889     137,774  

Operating expenses

               

Sales and marketing

     17,492        (920     16,572        52,331        (2,889     49,442  

Total operating expenses

     29,608        (920     28,688        90,328        (2,889     87,439  

Operating income

     15,913        —         15,913        50,335        —         50,335  

Presented below are the effects of the revisions on the line items within our previously issued consolidated statements of income for the years ended May 31, 2018 and 2017. Revised consolidated statements of income related to these periods are presented in this Form 10-Q and the Form 10-K to be filed in the succeeding period of this fiscal year.

 

     Year Ended      Year Ended  
     May 31, 2018      May 31, 2017  
     As
Previously
Reported
     Adjustments     As
Revised
     As
Previously
Reported
     Adjustments     As
Revised
 
     (in thousands)      (in thousands)  

Revenues

               

Product revenues

   $ 335,554      $ (4,266   $ 331,288      $ 306,512      $ (3,390   $ 303,122  

Service revenues

     66,698        (56     66,642        55,082        73       55,155  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total revenues

     402,252        (4,322     397,930        361,594        (3,317     358,277  

Cost of revenues

               

Cost of product revenues

     174,067        (342     173,725        156,568        (273     156,295  

Cost of service revenues

     37,933        —         37,933        33,058        —         33,058  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total cost of revenues

     212,000        (342     211,658        189,626        (273     189,353  

Gross margin

     190,252        (3,980     186,272        171,968        (3,044     168,924  

Operating expenses

               

Sales and marketing

     70,909        (3,980     66,929        62,424        (3,044     59,380  

Total operating expenses

     120,058        (3,980     116,078        107,023        (3,044     103,979  

Operating income

     70,194        —         70,194        64,945        —         64,945  

The revisions had no impact on our audited consolidated balance sheets as of May 31, 2018 and 2017 and no impact on our unaudited consolidated statements of equity or unaudited consolidated statements of cash flows for the three and nine month periods ended February 28, 2018.

 

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2. INVENTORIES

Inventories are stated at the lower of cost, determined by the first-in, first-out method, or net realizable value. The components of inventories follow:

 

     February 28,
2019
     May 31,
2018
 
     (in thousands)  

Raw materials

   $ 38,944      $ 36,702  

Work-in-process

     6,758        5,993  

Finished and purchased goods

     39,168        33,310  
  

 

 

    

 

 

 
   $ 84,870      $ 76,005  
  

 

 

    

 

 

 

3. NET INCOME PER SHARE

The calculation of net income per share attributable to Neogen Corporation follows:

 

     Three Months Ended
February 28,
     Nine Months Ended
February 28,
 
     2019      2018      2019      2018  
     (in thousands, except per share amounts)  

Numerator for basic and diluted net income per share:

           

Net income attributable to Neogen

   $ 13,073      $ 16,586      $ 44,361      $ 45,600  

Denominator for basic net income per share:

           

Weighted average shares

     52,071        51,537        51,849        51,253  

Effect of dilutive stock options

     401        700        599        761  
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator for diluted net income per share

     52,472        52,237        52,448        52,014  

Net income attributable to Neogen per share:

           

Basic

   $ 0.25      $ 0.32      $ 0.86      $ 0.89  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.25      $ 0.32      $ 0.85      $ 0.88  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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, 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 retailer, livestock producers 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 selling 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:

 

     Food
Safety
     Animal
Safety
     Corporate and
Eliminations
(1)
     Total  
     (in thousands)  

As of and for the three months ended February 28, 2019

 

        

Product revenues to external customers

   $ 44,790      $ 32,585      $ —        $ 77,375  

Service revenues to external customers

     6,323        14,002        —          20,325  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues to external customers

     51,113        46,587        —          97,700  

Operating income (loss)

     8,339        7,338        (1,038      14,639  

Total assets

     204,570        221,335        246,680        672,585  

As of and for the three months ended February 28, 2018 - Revised (2)

 

        

Product revenues to external customers

   $ 42,286      $ 34,898      $ —        $ 77,184  

Service revenues to external customers

     5,027        12,692        —          17,719  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues to external customers

     47,313        47,590        —          94,903  

Operating income (loss)

     8,258        8,493        (838      15,913  

Total assets

     188,075        215,371        192,155        595,601  

 

  (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.

  (2)

Revenues for the three months ended February 28, 2018 have been revised as discussed in Note 1. For the three months ended February 28, 2018, product revenues were reduced by $332,000 in the Food Safety segment and $626,000 in the Animal Safety segment; service revenues were unchanged in the Food Safety segment and were reduced by $31,000 in the Animal Safety segment.

 

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     Food
Safety
     Animal
Safety
     Corporate and
Eliminations
(1)
     Total  
     (in thousands)  

For the nine months ended February 28, 2019

           

Product revenues to external customers

   $ 139,979      $ 109,918      $ —        $ 249,897  

Service revenues to external customers

     17,067        37,460        —          54,527  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues to external customers

     157,046        147,378        —          304,424  

Operating income (loss)

     29,554        23,101        (3,291      49,364  

For the nine months ended February 28, 2018 - Revised (2)

 

        

Product revenues to external customers

   $ 128,491      $ 112,709      $ —        $ 241,200  

Service revenues to external customers

     14,319        34,292        —          48,611  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues to external customers

     142,810        147,001        —          289,811  

Operating income (loss)

     25,704        27,691        (3,060      50,335  

 

  (1)

Includes the elimination of intersegment transactions.

  (2)

Revenues for the nine months ended February 28, 2018 have been revised as discussed in Note 1. For the nine months ended February 28, 2018, product revenues were reduced by $1,130,000 in the Food Safety segment and $1,968,000 in the Animal Safety segment; service revenues were unchanged in the Food Safety segment and reduced by $56,000 in the Animal Safety segment.

The following table presents the Company’s revenue disaggregated by geographic location:

 

     Three Months ended
February 28,
     Nine Months Ended
February 28,
 
     2019      2018      2019      2018  
     (in thousands)      (in thousands)  

Revenues by Geographic Location

           

Domestic

   $ 57,422      $ 57,825      $ 182,298      $ 180,414  

International

     40,278        37,078        122,126        109,397  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     97,700        94,903        304,424        289,811  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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5. EQUITY COMPENSATION PLANS

Qualified and non-qualified options to purchase shares of common stock may be granted to directors, officers and employees of the 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 and five year periods and the contractual terms are generally five or ten years. A summary of stock option activity during the nine months ended February 28, 2019 follows:

 

     Shares      Weighted-
Average
Exercise Price
 

Options outstanding June 1, 2018

     2,497,124      $ 42.63  

Granted

     526,750        62.92  

Exercised

     (418,598      30.76  

Forfeited

     (105,835      46.50  
  

 

 

    

Options outstanding February 28, 2019

     2,499,441        48.78  

During the three and nine month periods ended February 28, 2019 and 2018, the Company recorded $1,306,000 and $1,026,000 and $4,137,000 and $3,692,000, respectively, of compensation expense related to its share-based awards.

The weighted-average fair value per share of stock options granted during fiscal years 2019 and fiscal 2018, estimated on the date of grant using the Black-Scholes option pricing model, was $14.91 and $14.44, respectively. The fair value of stock options granted was estimated using the following weighted-average assumptions.

 

     FY 2019     FY 2018  

Risk-free interest rate

     2.6     1.6

Expected dividend yield

     0.0     0.0

Expected stock price volatility

     27.0     27.2

Expected option life

     3.5 years       4.0 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.

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 September 1, 2017, the Company acquired the assets of The University of Queensland Animal Genetics Laboratory, an animal genomics laboratory located near Brisbane, Australia. This acquisition is intended to accelerate the growth of the Company’s animal genomics business in Australia and New Zealand. Consideration for the purchase was $2,063,000; $468,000 was paid in cash on the acquisition date with the remainder due in annual installments over the next five years. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $19,000, equipment of $419,000, non-current liabilities of $1,629,000, intangible assets of $902,000 (with an estimated life of 5-15 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. The new business, renamed Neogen Australasia, continues to operate in its current location, reporting within the Animal Safety segment.

On August 1, 2018, the Company acquired the stock of Clarus Labs, Inc., a manufacturer of water testing products. Neogen has distributed Clarus’ Colitag water test to the food and beverage industries since 2004 and this acquisition gives the Company access to sell this product to new markets. Consideration for the purchase was $4,204,000 in cash and approximately $1.3 million of contingent consideration, due semiannually for the first five years, based on an excess net sales formula. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $32,000, machinery and equipment of $120,000, accounts payable of $53,000, contingent consideration accrual of $1,256,000, non-current deferred tax liability of $426,000, non-amortizable intangible assets of $878,000, intangible assets of $1,487,000 (with an estimated life of 5-15 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. In February 2019, $90,000 was paid to the former owners as contingent consideration from the accrual. Manufacturing of these products was moved to the Company’s Lansing, Michigan location in October 2018, reporting within the Food Safety segment.

 

 

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On September 4, 2018, the Company acquired the assets of Livestock Genetic Services, LLC, a Virginia-based company that specializes in genetic evaluations and data management for cattle breeding organizations. Livestock Genetic Services has been a long-time strategic partner of Neogen and the acquisition will enhance the Company’s in-house genetic evaluation capabilities. Consideration for the purchase was $1,100,000 in cash, with $700,000 paid at closing and $400,000 payable to the former owner on September 1, 2019, and approximately $385,000 of contingent consideration, payable over the next three years. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included office equipment of $15,000, contingent consideration accrual of $385,000, intangible assets of $860,000 (with an estimated life of 5-15 years) and the remainder to goodwill (deductible for tax purposes). These values are Level 3 fair value measurements. Services provided by this operation are now performed at the Company’s Lincoln, Nebraska location, reporting within the Animal Safety segment.

On January 1, 2019, the Company acquired the assets of Edmonton, Alberta-based Delta Genomics Centre, an animal genomics laboratory in Canada. Delta’s laboratory operations were renamed Neogen Canada and the acquisition is intended to accelerate growth of the Company’s animal genomics business in Canada. Consideration for the purchase was $1,485,000 in cash. The preliminary 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 $186,000 (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 its current location, reporting within the Animal Safety segment.

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 30, 2019 to September 30, 2021. There were no advances against the line of credit during fiscal 2018 and there have been none thus far in fiscal 2019; there was no balance outstanding at February 28, 2019. Interest on any borrowings is LIBOR plus 100 basis points (rate under the terms of the agreement was 3.58% at February 28, 2019). Financial covenants include maintaining specified levels of tangible net worth, debt service coverage, and funded debt to EBITDA, each of which the Company was in compliance with at February 28, 2019.

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 expenses annual costs of remediation, which have ranged from $38,000 to $74,000 per year over the past five years. The Company’s estimated liability for these costs was $916,000 at February 28, 2019 and May 31, 2018, measured on an undiscounted basis over an estimated period of 15 years; $100,000 of the liability is recorded within current liabilities, and the remainder is recorded within other non-current liabilities on the consolidated balance sheets. During the second quarter of fiscal 2019, the Company’s environmental consultant performed an updated Corrective Measures Study on the Randolph site, per a request from the Wisconsin Department of Natural Resources. Based on the results of the study, the Company plans to continue the current remediation and monitoring program, with no changes proposed.

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.

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 new program in negotiated and open market transactions for a total price, including commissions, of $3,134,727. Shares purchased under the program have been retired.

 

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PART I – FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Safe Harbor and Forward-Looking Statements

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

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

 

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Executive Overview

 

   

Consolidated revenues were $97.7 million in the third quarter of fiscal 2019, an increase of 3% compared to $94.9 million in the third quarter of fiscal 2018. Organic sales in the third quarter also increased 3%. For the nine month period, consolidated revenues were $304.4 million, an increase of 5% compared to $289.8 million in the same period in the prior fiscal year. On a year to date basis, organic sales increased 4%.

 

   

Food Safety segment sales were $51.1 million in the third quarter of the current fiscal year, an increase of 8% compared to $47.3 million in the same period of the prior year. Organic sales in this segment also increased 8%, with a minor contribution from the August 1, 2018 acquisition of Clarus Labs. For the year to date, Food Safety segment sales were $157.0 million, an increase of 10% compared to $142.8 million in the same period of the prior fiscal year; the organic sales increase was also 10%.

 

   

Animal Safety segment sales were $46.6 million in the third quarter of fiscal 2019, a decrease of 2% compared to $47.6 million in the third quarter of fiscal 2018. Organic sales in this segment decreased 3% in the third quarter, with minor contributions from the September 1, 2018 acquisition of Livestock Genetic Services and the January 1, 2019 acquisition of Delta Genomics. For the nine month period, Animal Safety segment sales were $147.4 million, flat compared to $147.0 million in the same period a year ago. Year to date organic sales decreased 1%, after excluding three months of the September 1, 2017 acquisition of Neogen Australasia, six months of the Livestock Genetic Services acquisition and two months of the Delta Genomics acquisition.

 

   

International sales in the third quarter of fiscal 2019 were 41% of total sales compared to 39% of total sales in the third quarter of fiscal 2018. For the year to date, fiscal 2019 international sales were 40% of total sales compared to 38% of total sales in the same period of the prior year.

 

   

Our effective tax rate in the third quarter was 21.4% compared to an effective tax rate of 4.1% in the prior year third quarter; the fiscal 2019 year to date effective tax rate was 17.0% compared to the year to date effective tax rate of 14.7% in the prior fiscal year. The U.S. statutory rate is 21% in the current fiscal year and was 35% from June 1, 2017 until December 22, 2017, with the reminder of the prior fiscal year third quarter taxed at 21%. Differences from the statutory rate are primarily due to tax deductions resulting from stock option exercises, provisions included in the corporate tax reform, and state and local taxes. Additionally, the third quarter of the prior year included a favorable adjustment to income tax expense to adjust deferred tax balances due to the decrease in the U.S. statutory tax rate.

 

   

Net income for the quarter ended February 28, 2019 was $13.1 million, or $0.25 per diluted share, a decrease of 21% compared to $16.6 million, or $0.32 per share in the same period in the prior year. For the year to date, net income was $44.4 million, or $0.85 per diluted share, a decrease of 6% compared to prior year to date net income of $45.6 million, or $0.88 per share.

 

   

Cash provided from operating activities in the first nine months of fiscal 2019 was $43.0 million, compared to $46.6 million in the first three quarters of fiscal 2018.

Neogen’s results reflect an increase in international sales of 9% in the third quarter of fiscal 2019 and 12% for the year to date, each compared to the same respective period in the prior year. We continue to focus on increasing our presence and market share throughout the world, while also integrating recent international acquisitions into our product portfolio. Sales fluctuations in the three and nine month periods of fiscal 2019 compared to the same respective periods in the prior year are as follows for each of our international locations:

 

    

Three Months Ended

February 28, 2019

   

Nine Months Ended

February 28, 2019

 
     Revenue
% Increase/(Decrease)
USD
    Revenue
% Increase/(Decrease)
Local Currency
    Revenue
% Increase
USD
    Revenue
% Increase
Local Currency
 

Neogen Europe (including Lab M & Quat-Chem)

     11     18     12     15

Neogen do Brasil (including Deoxi & Rogama)

     (9 )%      5     10     31

Neogen Latinoamerica

     19     22     12     17

Neogen China

     9     15     6     9

Neogen India

     94     115     86     104

 

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Currency translations reduced revenues by approximately $2.5 million in the third quarter of fiscal 2019 compared to the same quarter a year ago, primarily due to increased strength of the U.S. dollar relative to the Brazilian real, the British pound, the Australian dollar and the Mexican peso. For the year to date, currency translations reduced revenues by approximately $5.8 million compared to the prior year.

The increase in revenues at Neogen Europe for the third quarter of fiscal 2019 was led by an 18% increase in sales of genomics services, primarily in the porcine and bovine markets; genomics sales increased 24% for the year to date. Neogen Europe continues to have strong sales of test kits to detect deoxynivalenol (DON) in grain, due to increased testing after a DON outbreak in France’s wheat crops in the fall of 2018. At Neogen do Brasil, sales of natural toxins test kits increased 36% and 64% for the three and nine months, respectively, both compared to the same periods a year ago, as we gained significant new business testing for the presence of aflatoxin in corn. Sales of forensic test kits increased significantly in the third quarter and year to date over the prior year periods due to business that shifted from U.S. labs to labs in Brazil and increased demand from commercial laboratories located in Brazil. Neogen Latinoamerica’s third quarter sales increase of 19% was led by a 64% increase in sales of AccuPoint sanitation monitoring products, due to increased market share.

Service revenue was $20.3 million in the third quarter of fiscal 2019, an increase of 15% over prior year third quarter revenues of $17.7 million, including minor contributions from the acquisitions of Livestock Genetics Services and Delta Genomics. For the nine month period, service revenue was $54.5 million, an increase of 12% over prior year revenues of $48.6 million. Year to date revenues were aided by the Livestock Genetics Services and Delta Genomics acquisitions and the September 2017 acquisition of Neogen Australasia. The growth was led by increases in sales of genomic services to the global beef markets, and porcine and bovine markets in Europe.

 

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Revenues

 

     Three Months Ended February 28,  
     2019      2018      Increase/
(Decrease)
     %  
     (in thousands)         

Food Safety

           

Natural Toxins, Allergens & Drug Residues

   $  18,612      $  16,807      $ 1,805        11

Bacterial & General Sanitation

     9,519        8,992        527        6

Culture Media & Other

     11,893        10,179        1,714        17

Rodenticides, Insecticides & Disinfectants

     5,953        7,359        (1,406      (19 )% 

Genomics Services

     5,136        3,976        1,160        29
  

 

 

    

 

 

    

 

 

    
   $ 51,113      $ 47,313      $ 3,800        8

Animal Safety

           

Life Sciences

   $ 1,823      $ 2,769      $ (946      (34 )% 

Veterinary Instruments & Disposables

     10,682        10,630        52        0

Animal Care & Other

     6,823        7,245        (422      (6 )% 

Rodenticides, Insecticides & Disinfectants

     13,256        14,255        (999      (7 )% 

Genomics Services

     14,003        12,691        1,312        10
  

 

 

    

 

 

    

 

 

    
   $ 46,587      $ 47,590      $ (1,003      (2 )% 
  

 

 

    

 

 

    

 

 

    

Total Revenues

   $ 97,700      $ 94,903      $ 2,797        3
  

 

 

    

 

 

    

 

 

    
     Nine Months Ended February 28,  
     2019      2018      Increase/
(Decrease)
     %  
     (in thousands)         

Food Safety

           

Natural Toxins, Allergens & Drug Residues

   $ 58,021      $ 54,960      $ 3,061        6

Bacterial & General Sanitation

     30,807        27,435        3,372        12

Culture Media & Other

     36,302        31,353        4,949        16

Rodenticides, Insecticides & Disinfectants

     18,521        18,175        346        2

Genomics Services

     13,395        10,887        2,508        23
  

 

 

    

 

 

    

 

 

    
   $ 157,046      $ 142,810      $ 14,236        10

Animal Safety

           

Life Sciences

   $ 5,794      $ 7,589      $ (1,795      (24 )% 

Veterinary Instruments & Disposables

     32,769        32,804        (35      0

Animal Care & Other

     22,439        22,894        (455      (2 )% 

Rodenticides, Insecticides & Disinfectants

     48,921        49,422        (501      (1 )% 

Genomics Services

     37,455        34,292        3,163        9
  

 

 

    

 

 

    

 

 

    
   $ 147,378      $ 147,001      $ 377        0
  

 

 

    

 

 

    

 

 

    

Total Revenues

   $  304,424      $  289,811      $  14,613        5
  

 

 

    

 

 

    

 

 

    

 

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Food Safety

Natural Toxins, Allergens & Drug Residues – Sales in this category increased 11% and 6% for the three and nine month periods ended February 28, 2019, respectively, compared to the same periods in the prior year. For the third quarter, natural toxin test kit revenues increased 17%, due to new business for aflatoxin test kits in Brazil and DON test kits in the U.S. and France, the result of mild outbreaks. Sales of drug residue test kits, including dairy antibiotics, increased 8% and sales of our allergens product line increased 7%. For the year to date period, natural toxin test kit sales increased 12%, sales of our allergens product line increased 6% and sales of drug residue test kits decreased 7%, the result of lower demand in Europe.

Bacterial & General Sanitation – Revenues in this category increased 6% in the third quarter and 12% for the year to date, both compared to the same periods in the prior year. In the third quarter, sales of test kits to detect pathogens increased 16%, and rose 27% for the year to date, as we continued to gain new business with our Listeria Right Now test kit that launched in fiscal 2018, and sales of our AccuPoint sanitation monitoring product line increased 11% for both the quarter and year to date periods. Sales of products to detect spoilage organisms in processed foods decreased 6% in the third quarter, due to higher equipment placements in the prior year; for the nine month period, sales of this product line increased 7%.

Culture Media & Other – Sales in this category increased 17% in the quarter ended February 28, 2019 compared to the third quarter in the prior year; the year to date increase is 16%. In the third quarter, sales of Neogen Culture Media, formerly marketed as the Acumedia and Lab M brands, increased 5%, aided in part by the August 2018 acquisition of Clarus Labs, which consists of the Colitag product and reports in the culture media product line. This category also includes forensic test kits sold within Brazil, which increased significantly in both the third quarter and for the year to date periods due to a shift in business from labs in the U.S. to labs in Brazil and increased demand from commercial laboratories in that country.

Rodenticides, Insecticides & Disinfectants – Revenues in this category decreased 19% in the third quarter of fiscal 2019 compared to the same period a year ago, due to a large one-time sale in the prior year at Rogama in Brazil resulting from a government contract. Partially offsetting this were increases of disinfectant sales to customers in Europe, China and India. Year to date revenues increased 2%.

Genomics Services – Sales in this category increased 29% and 23% for the three and nine month periods, ended February 28, 2019, respectively. The increase for both the third quarter and year to date periods was primarily from higher sales in the European porcine and bovine markets; additionally, the third quarter benefited from a large research project with the Brazilian government.

Animal Safety

Life Sciences – Sales in this category decreased 34% in the third quarter, as compared to the same period in the prior year, as approximately $740,000 of forensic test kit sales shifted to our operations in Brazil, which are reported in the Food Safety Segment. The products were formerly served by our Animal Safety operation in Lexington, KY. Additionally, revenues for two large customers in the forensics market were down in the third quarter due to order timing. For the year to date, the decrease in this product line was 24%.

Veterinary Instruments & Disposables – Revenues in this category were flat compared to the prior year, for both the three and nine month periods ended February 28, 2019. Protective wear and consumables sales decreased 36% in the third quarter, resulting from continued poor economic conditions in the commercial dairy production market; this decline was offset by a 12% increase in veterinary instruments sales, led by strength in needles and syringes.

Animal Care & Other – Sales of these products decreased 6% in the third quarter and 2% for the year to date. Promotional programs with distributors are recorded as a contra revenue within this category. In the third quarter of the current fiscal year, several annual promotional programs ended and the final adjustments to estimates previously recorded resulted in a higher reduction of revenues than in the prior year. Partially offsetting these adjustments was a 13% increase in sales of vaccines.

Rodenticides, Insecticides & Disinfectants – Revenues in this category decreased 7% and 1% for the three and nine month periods ended February 28, 2019, respectively. In the third quarter, rodenticide sales decreased 28%, the result of poor weather conditions causing lower demand and a weak U.S. animal protein market partially caused by tariff issues; the year to date decrease was 6% due to the loss of toll manufacturing business from the first half of the prior year. Also in the third quarter, cleaner and disinfectant sales grew 18% due to increased demand from international customers. For the year to date, cleaner and disinfectant sales increased 4%.

Genomics Services – Sales in this category increased 10% in the third quarter and 9% for the year to date period, both compared to the prior year. The third quarter increase included minor contributions from the Livestock Genetics and Delta Genomics acquisitions while the year to date increase included those acquisitions and three months of sales from the September 2017 acquisition of Neogen Australasia. For both the three and nine month periods, growth in the beef cattle and companion animal markets was offset by revenue

decreases in U.S. poultry and porcine markets, despite increases in sample volumes, resulting from a shift to lower priced chips and services.

 

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Gross Margin

Gross margin was 45.7% in the third quarter of fiscal 2019 compared to 47.0% in the same quarter a year ago. The decline in gross margin for the three month period is due to stronger growth in our international markets, which were adversely impacted by currency fluctuations, and a shift in product mix within both the Food Safety and the Animal Safety segments, with higher revenue increases on product lines with lower gross margins than the historical averages within these segments. Gross margin for the nine month period ended February 28, 2019 was 46.4% compared to 47.5% in the same period of the prior year, for the same reasons.

Operating Expenses

Operating expenses were $30.0 million in the third quarter of fiscal 2019, compared to $28.7 million in the same quarter of the prior year, an increase of $1.3 million, or 5%. Sales and marketing expenses increased 1%, as increases in shipping and contracted services were almost entirely offset by lower promotional and advertising expenses. For the year to date, sales and marketing expenses have increased 6%. General and administrative expense increased $738,000, or 8%, for the third quarter, resulting from increases in share-based compensation expense, legal and professional fees, and training costs. For the year to date, general and administrative expenses have risen by 4%. Research and development expense increased $413,000, or 15%, primarily the result of contracted services supporting new product development. For the year to date, research and development expense has increased 4%, and overall operating expenses for the Company increased $4.6 million, or 5%.

Operating Income

Operating income was $14.6 million in the third quarter of fiscal 2019, compared to $15.9 million in the same period of the prior year; year to date operating income was $49.4 million compared to $50.3 million in the prior year. Expressed as a percentage of sales, operating income was 15.0% for the third quarter of fiscal 2019 compared to 16.8% in last year’s third quarter; for the year to date, operating income was 16.2%, compared to 17.4%, respectively, in the prior fiscal year. The decline in operating margin percentage for each period in the current fiscal year was primarily the result of the lower gross margin percentage, and to a lesser extent, operating expenses which rose at a rate greater than or equal to the rate of revenue growth.

Other Income

 

     Three Months Ended      Nine Months Ended  
     February 28,      February 28,  

(dollars in thousands)

   2019      2018      2019      2018  

Interest income (net of expense)

   $ 1,335      $ 524      $ 3,290      $ 1,322  

Foreign currency transactions

     104        179        (354      1,140  

Royalty income

     —          —          60        78  

Deoxi contingent consideration

     —          (49      (9      (148

Quat-Chem contingent consideration

     —          255        422        255  

Other

     545        459        688        588  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Other Income

   $ 1,984      $ 1,368      $ 4,097      $ 3,235  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income Tax Expense

Income tax expense in the third quarter of fiscal 2019 was $3.6 million, an effective tax rate of 21.4% compared to $0.7 million, an effective tax rate of 4%, in the same period of the prior year. In the third quarter of the prior year, the Company recorded favorable tax adjustments totaling $2.9 million as the result of corporate tax reform enacted in December 2017, which reduced the U.S. statutory income tax rate from 35% to 21%. For the first nine months of fiscal 2019, income tax expense was $9.1 million compared to $7.9 million in the prior year; the year to date effective tax rate was 17.0%, compared to an effective tax rate of 14.7% in the prior fiscal year. For the year to date period, the Company recorded a total credit of $3.0 million to federal income tax expense for tax benefits resulting from the exercise of stock options, compared to $3.4 million in the prior year. In the first half of fiscal 2018, the Company also reversed a total of $816,000 from its reserve for uncertain tax positions, which had been accrued in prior fiscal years, with a corresponding credit to federal income tax expense, due to the conclusion of an IRS audit for fiscal years 2014, 2015, and 2016.

 

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Net Income

Net income was $13.1 million in the third quarter of fiscal 2019, compared to $16.6 million in the same period in the prior year. Earnings in the prior year quarter were favorably impacted by the lower tax expense resulting from the corporate tax reform and revaluation of deferred tax balances in that quarter. For the year to date, net income was $44.4 million, compared to $45.6 million in the same period last year; the $1.2 million decline was due to the lower tax expense in the prior year.

Financial Condition and Liquidity

The overall cash, cash equivalents and marketable securities position of Neogen was $246.7 million at February 28, 2019, compared to $210.8 million at May 31, 2018. Approximately $43.0 million was generated from operations during the first nine months of fiscal 2019. Net cash proceeds of $13.8 million were realized from the exercise of stock options and issuance of shares under our Employee Stock Purchase Plan during the first nine months of fiscal 2019. We spent $11.9 million for property, equipment and other non-current assets in the first nine months of fiscal 2019.

Net accounts receivable balances were $80.0 million at February 28, 2019, an increase of $0.9 million, compared to $79.1 million at May 31, 2018. Days sales outstanding, a measurement of the time it takes to collect receivables, were 68 days at February 28, 2019, compared to 63 days at November 30, 2018, 64 days at August 31, 2018 and 60 days at May 31, 2018; the increase in the current year is primarily attributable to the higher levels of sales at our international operations, which generally take more time to collect. All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected.

Net inventory balances were $84.9 million at February 28, 2019, an increase of $8.9 million, or 12%, compared to a May 31, 2018 balance of $76.0 million; the increase is due to lower than forecasted sales at the end of the quarter, and to higher levels necessary to support the business. We actively monitor our inventory levels and balance the need for adequate levels of product availability to minimize backorders with a desire to improve inventory turnover and efficiency levels. We have continued with our active programs to improve our turnover in fiscal 2019.

Inflation and changing prices are not expected to have a material effect on operations, as management believes it will continue to be successful in offsetting increased input costs with price increases and/or efficiency improvements.

Management believes that our existing cash and marketable securities balances at February 28, 2019, along with available borrowings under our credit facility and cash expected to be generated from future operations, will be sufficient to fund activities for the foreseeable future. However, existing cash and borrowing capacity may not be sufficient to meet our cash requirements to commercialize products currently under development or its plans to acquire other organizations, technologies or products that fit within our mission statement. Accordingly, we may choose to issue equity securities or enter into other financing arrangements for a portion of our future financing needs.

 

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PART I – FINANCIAL INFORMATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have interest rate and foreign exchange rate risk exposure but no long-term fixed rate investments or borrowings. Our primary interest rate risk is due to potential fluctuations of interest rates for variable rate borrowings (no long-term borrowings at February 28, 2019) and short-term investments.

Foreign exchange risk exposure arises because we market and sell our products throughout the world. Revenues in certain foreign countries as well as certain expenses related to those revenues are transacted in currencies other than the U.S. dollar. Our operating results are exposed to changes in exchange rates between the U.S. dollar and the British pound sterling, the euro, the Brazilian real, the Mexican peso, the Chinese yuan, the Australian dollar, and to a lesser extent, the Indian rupee and the Canadian dollar. When the U.S. dollar weakens against foreign currencies, the dollar value of revenues denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs. Additionally, previously recognized revenues in the course of collection can be affected positively or negatively by changes in exchange rates. The Company enters into forward contracts to help mitigate the economic impact of fluctuations in certain currency exchange rates. These contracts are adjusted to fair value through earnings.

Neogen has assets, liabilities and operations outside of the United States, located in Scotland, England, Brazil, Mexico, China, India, Canada, and Australia where the functional currency is the British pound sterling, Brazilian real, Mexican peso, Chinese yuan, Indian rupee, Canadian dollar and the Australian dollar, respectively, and transacts business throughout Europe in the euro. The Company’s investments in foreign subsidiaries are considered to be long-term.

PART I – FINANCIAL INFORMATION

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2019 was carried out under the supervision and with the participation of the Company’s management, including the President & Chief Executive Officer and the Vice President & Chief Financial Officer (“the Certifying Officers”). Based on the evaluation, the Certifying Officers concluded that the Company’s disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

No changes in our controls over financial reporting were identified as having occurred during the quarter ended February 28, 2019 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

 

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Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Subsequent to the end of the third quarter, the Company settled a dispute with PerkinElmer, Bioo Scientific and Richard E. Calk, Jr., the former President and Chief Operating Officer of Neogen, regarding non-compliance with the terms of Mr. Calk’s non-competition agreement following his departure from Neogen in September, 2017. Per the terms of a court order, entered into on March 15, 2019, Mr. Calk was ordered to strictly comply with the non-competition clause of his separation agreement with the Company through September 1, 2019, and PerkinElmer and Bioo Scientific are prohibited from either directly or indirectly rehiring or engaging Mr. Calk for a period of 18 months.

The Company is subject to other legal and other proceedings in the normal course of business. In the opinion of management, the outcomes of these matters are not expected to have a material effect on the Company’s future results of operations or financial position.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

The following table summarizes shares repurchased pursuant to our share repurchase program during the three months ended February 28, 2019 (in thousands except for price per share):

 

Period    Total Number
of Shares
Purchased
    Average Price
Paid per Share
    Total Number of
Shares Purchased as
Part of Publicly
Announced Programs
    Approximate
Number of Shares
that May Yet Be
Purchased Under
the  Programs
 

December 1, 2018 - December 31, 2018

     50     $ 62.69       50       2,950  

January 1, 2019 - January 31, 2019

     —         —         —         —    

February 1, 2019 - February 28, 2019

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     50     $ 62.69       50       2,950  
  

 

 

   

 

 

   

 

 

   

 

 

 

Item 6. Exhibits

(a) Exhibit Index

 

3    Articles of Incorporation, as restated (incorporated by reference to Exhibit 3 to the registrant’s Form 10-Q filed on December 28, 2018)
10    Amended and Restated Credit Agreement dated as of November  30, 2018 between Registrant and JPMorgan Chase N.A. (incorporated by reference to Exhibit 10.A to the registrant’s Form 8-K filed on December 6, 2018).
31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32    Certification pursuant to 18 U.S.C. section 1350
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

Items 1A, 2, 3, 4, and 5 are not applicable or removed or reserved and have been omitted.

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

NEOGEN CORPORATION
            (Registrant)

Dated: March 29, 2019

 

/s/ John E. Adent

John E. Adent
President & Chief Executive Officer
(Principal Executive Officer)

Dated: March 29, 2019

 

/s/ Steven J. Quinlan

Steven J. Quinlan
Vice President & Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

 

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