Company Quick10K Filing
Neogen
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 53 $4,151
10-Q 2019-12-27 Quarter: 2019-11-30
10-Q 2019-09-26 Quarter: 2019-08-31
10-K 2019-07-30 Annual: 2019-05-31
10-Q 2019-03-29 Quarter: 2019-02-28
10-Q 2018-12-28 Quarter: 2018-11-30
10-Q 2018-10-05 Quarter: 2018-08-31
10-K 2018-07-27 Annual: 2018-05-31
10-Q 2018-03-29 Quarter: 2018-02-28
10-Q 2018-01-05 Quarter: 2017-11-30
10-Q 2017-09-29 Quarter: 2017-08-31
10-K 2017-07-28 Annual: 2017-05-31
10-Q 2017-03-31 Quarter: 2017-02-28
10-Q 2016-12-29 Quarter: 2016-11-30
10-Q 2016-09-30 Quarter: 2016-08-31
10-K 2016-07-29 Annual: 2016-05-31
10-Q 2016-03-31 Quarter: 2016-02-29
10-Q 2016-01-08 Quarter: 2015-11-30
10-Q 2015-09-30 Quarter: 2015-08-31
10-K 2015-07-30 Annual: 2015-05-31
10-Q 2015-04-01 Quarter: 2015-02-28
10-Q 2014-12-30 Quarter: 2014-11-30
10-Q 2014-09-30 Quarter: 2014-08-31
10-K 2014-07-30 Annual: 2014-05-31
10-Q 2014-04-04 Quarter: 2014-02-28
10-Q 2014-01-09 Quarter: 2013-11-30
10-Q 2013-09-30 Quarter: 2013-08-31
10-Q 2013-03-28 Quarter: 2013-02-28
10-Q 2012-12-28 Quarter: 2012-11-30
10-Q 2012-09-28 Quarter: 2012-08-31
10-K 2012-07-30 Annual: 2012-05-31
10-Q 2012-03-30 Quarter: 2012-02-29
10-Q 2011-12-30 Quarter: 2011-11-30
10-Q 2011-09-30 Quarter: 2011-08-31
10-K 2011-07-29 Annual: 2011-05-31
10-Q 2011-03-30 Quarter: 2011-02-28
10-Q 2011-01-06 Quarter: 2010-11-30
10-Q 2010-10-08 Quarter: 2010-08-31
10-K 2010-08-16 Annual: 2010-05-31
10-Q 2010-04-09 Quarter: 2010-02-28
10-Q 2010-01-05 Quarter: 2009-11-30
8-K 2019-12-27 Other Events
8-K 2019-12-23 Earnings, Exhibits
8-K 2019-10-03 Shareholder Vote
8-K 2019-10-01 Other Events
8-K 2019-07-23 Earnings, Exhibits
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 2018-10-04 Shareholder Vote
8-K 2018-09-25 Earnings, Exhibits
8-K 2018-07-17 Earnings, Exhibits
8-K 2018-04-06 Officers, Exhibits
8-K 2018-04-06 Other Events, Exhibits
8-K 2018-03-22 Earnings, Exhibits
8-K 2018-03-06 Officers
8-K 2018-01-03 Earnings, Exhibits
NEOG 2019-11-30
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
EX-31.1 d821157dex311.htm
EX-31.2 d821157dex312.htm
EX-32 d821157dex32.htm

Neogen Earnings 2019-11-30

NEOG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
NEOG 4,151 721 61 416 193 60 91 4,095 46% 44.9 8%
QDEL 2,482 846 336 506 302 69 108 2,453 60% 22.8 8%
IMMU 2,456 478 363 0 0 -344 -301 2,026 0% -6.7 -72%
MYGN 2,016 1,563 474 851 0 5 102 2,157 0% 21.1 0%
LNTH 1,112 390 298 347 177 13 49 1,255 51% 25.8 3%
NTLA 727 352 76 37 37 -89 -84 678 100% -8.1 -25%
QTNT 626 193 215 29 12 -104 -89 -89,908 40% 1,004.8 -54%
VIVO 490 322 134 203 121 26 43 511 60% 11.8 8%
OXFD 370 242 24 66 48 137 96 183 72% 1.9 56%
TRIB 235 152 108 0 0 0 0 228 0%

10-Q
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2018-08-31 0000711377 us-gaap:RetainedEarningsMember 2018-08-31 iso4217:USD xbrli:shares xbrli:pure iso4217:USD xbrli:shares neog:Segment
     
 
 
 
 
 
 
 
 
 
 
 
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
November 30, 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
         
Title of each Class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
            
 
            
 
            
 
 
 
 
 
 
 
 
 
 
 
 
 
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 November 30, 2019 there were
52,710,633
shares of Common Stock outstanding.
 
 
 

NEOGEN CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
             
 
 
Page No.
 
         
   
 
 
             
Item 1.
     
2
 
             
 
     
2
 
             
 
     
3
 
             
 
     
4
 
             
 
     
5
 
             
 
     
6
 
             
 
     
7
 
             
Item 2.
     
18
 
             
Item 3.
     
25
 
             
Item 4.
     
25
 
         
   
 
 
             
Item 1.
     
26
 
             
Item 6.
     
26
 
         
   
27
 
             
 
 
CEO Certification
   
 
 
             
 
 
CFO Certification
   
 
 
             
 
 
Section 906 Certification
   
 
 
 
 
 
 
 
 
 
 
 
 
1

PART I – FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements
Neogen Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and
per share amounts)
                 
 
November 30,
 
 
May 31,
 
 
2019
 
 
2019
 
 
Unaudited
 
 
Audited
 
Assets
   
     
 
Current Assets
   
     
 
Cash and cash equivalents
  $
66,414
    $
41,688
 
Marketable securities
   
247,191
     
225,836
 
Accounts receivable, less allowance of $
1,700
and $
1,700
at November 30, 2019 and May 31, 2019, respectively
   
85,377
     
82,582
 
Inventories
   
86,406
     
85,992
 
Prepaid expenses and other current assets
   
14,795
     
13,431
 
                 
Total Current Assets
   
500,183
     
449,529
 
Net Property and Equipment
   
77,150
     
74,847
 
Other Assets
   
     
 
Goodwill
   
103,610
     
103,619
 
Other
non-amortizable
intangible assets
   
15,495
     
15,649
 
Amortizable intangible and other assets, net of accumulated amortization of $
41,923
and $
40,835
at November 30, 2019 and May 31, 2019, respectively
   
54,153
     
52,096
 
                 
Total Assets
  $
750,591
    $
695,740
 
                 
Liabilities and Stockholders’ Equity
   
     
 
Current Liabilities
   
     
 
Accounts payable
  $
19,567
    $
19,063
 
Accrued compensation
   
5,689
     
7,085
 
Income taxes
   
756
     
601
 
Other accruals
   
12,779
     
11,502
 
                 
Total Current Liabilities
   
38,791
     
38,251
 
Deferred Income Taxes
   
15,591
     
15,618
 
Other
Non-Current
Liabilities
   
5,292
     
3,972
 
                 
Total Liabilities
   
59,674
     
57,841
 
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,
52,710,633
and
52,216,589
shares issued and outstanding at November 30, 2019 and May 31, 2019, respectively
   
8,434
     
8,355
 
Additional
paid-in
capital
   
244,226
     
221,937
 
Accumulated other comprehensive loss
   
(11,918
   
(11,640
)
Retained earnings
   
450,175
     
419,247
 
                 
Total Stockholders’ Equity
   
690,917
     
637,899
 
                 
Total Liabilities and Stockholders’ Equity
  $
750,591
    $
695,740
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to interim consolidated financial statements.
 
2

Neogen Corporation and Subsidiaries
Consolidated Statements of Income (unaudited)
(in thousands, except per share amounts)
                                 
 
Three Months Ended
   
Six Months Ended
 
 
November 30,
   
November 30,
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Revenues
   
     
     
     
 
Product revenues
  $
87,387
    $
89,562
    $
169,335
    $
172,522
 
Service revenues
   
20,416
     
17,536
     
39,892
     
34,202
 
                                 
Total Revenues
   
107,803
     
107,098
     
209,227
     
206,724
 
Cost of Revenues
   
     
     
     
 
Cost of product revenues
   
45,559
     
47,305
     
87,590
     
90,255
 
Cost of service revenues
   
11,218
     
9,760
     
22,417
     
19,707
 
                                 
Total Cost of Revenues
   
56,777
     
57,065
     
110,007
     
109,962
 
                                 
Gross Margin
   
51,026
     
50,033
     
99,220
     
96,762
 
Operating Expenses
   
     
     
     
 
Sales and marketing
   
17,988
     
18,499
     
35,531
     
35,732
 
General and administrative
   
10,985
     
10,121
     
21,684
     
20,319
 
Research and development
   
3,781
     
3,167
     
7,469
     
5,986
 
                                 
Total Operating Expenses
   
32,754
     
31,787
     
64,684
     
62,037
 
                                 
Operating Income
   
18,272
     
18,246
     
34,536
     
34,725
 
Other Income (Expense)
   
     
     
     
 
Interest income
   
1,271
     
1,028
     
2,781
     
1,955
 
Other income (expense)
   
(317
   
427
     
(439
)
   
158
 
                                 
Total Other Income
   
954
     
1,455
     
2,342
     
2,113
 
                                 
Income Before Taxes
   
19,226
     
19,701
     
36,878
     
36,838
 
Provision for Income Taxes
   
2,950
     
3,650
     
5,950
     
5,550
 
                                 
Net Income
  $
16,276
    $
16,051
    $
30,928
    $
31,288
 
                                 
Net Income Per Share
   
     
     
     
 
Basic
  $
0.31
    $
0.31
    $
0.59
    $
0.60
 
                                 
Diluted
  $
0.31
    $
0.31
    $
0.59
    $
0.60
 
                                 
 
 
 
 
 
 
 
 
 
 
See notes to interim consolidated financial statements.
 
3

Neogen Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (unaudited)
(in thousands)
                                 
 
Three Months Ended
   
Six Months Ended
 
 
November 30,
   
November 30,
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Net income
  $
16,276
    $
16,051
    $
30,928
    $
31,288
 
Other comprehensive income (loss), net of tax:
   
     
     
     
 
currency translation adjustments
   
2,367
     
290
     
(691
   
(2,488
)
Other comprehensive income (loss), net of tax:
   
     
     
     
 
unrealized gain (loss) on marketable securities
   
(149
   
—  
     
413
     
—  
 
                                 
Total comprehensive income
  $
18,494
    $
16,341
    $
30,650
    $
28,800
 
                                 
 
 
 
 
 
 
 
 
 
See notes to interim consolidated financial statements.
 
4

Neogen Corporation and Subsidiaries
Consolidated Statements of
Equity (unaudited)
(in thousands)
                                                 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
Additional
 
 
Other
 
 
 
 
 
 
Common Stock
   
Paid-in
 
 
Comprehensive
 
 
Retained
 
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Income (Loss)
 
 
Earnings
 
 
Total
 
Balance at May 31, 2019
 
 
52,217
 
 
$
8,355
 
 
$
221,937
 
 
$
(11,640
)
 
$
419,247
 
 
$
637,899
 
Issuance of shares under share-based compensation plan
   
196
     
30
     
9,683
                     
9,713
 
Issuance of shares under employee stock purchase plan
   
10
     
2
     
536
                     
538
 
Net income for the three months ended August 31, 2019
                                   
14,652
     
14,652
 
Other comprehensive loss for the three months ended August 31, 2019
                           
(2,496
)            
(2,496
)
                                                 
Balance at August 31, 2019
 
 
52,423
 
 
$
8,387
 
 
$
232,156
 
 
$
(14,136
)
 
$
433,899
 
 
$
660,306
 
Issuance of shares under share-based compensation plan
   
288
     
47
     
12,070
                     
12,117
 
Net income for the three months ended November 30, 2019
   
 
     
 
     
 
             
16,276
     
16,276
 
Other comprehensive
income
for the three months ended November 30, 2019
   
 
     
 
     
 
     
2,218
     
 
     
2,218
 
                                                 
Balance at November 30, 2019
 
 
52,711
 
 
$
8,434
 
 
$
244,226
 
 
$
(11,918
)
 
$
450,175
 
 
$
690,917
 
                                                 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
for the three months ended August 31, 2018
   
     
     
     
(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
for the three months ended November 30, 2018
   
     
     
     
290
     
     
290
 
                                                 
Balance at November 30, 2018
 
 
52,082
 
 
$
8,334
 
 
$
215,615
 
 
$
(12,234
)
 
$
390,359
 
 
$
602,074
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to interim consolidated financial statements.
 
5

Neogen Corporation and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 
Six Months Ended
 
 
November 30,
 
 
2019
 
 
2018
 
Cash Flows From Operating Activities
   
     
 
Net Income
  $
30,928
    $
31,288
 
Adjustments to reconcile net income to net cash from operating activities:
   
     
 
Depreciation and amortization
   
8,985
     
8,597
 
Share-based compensation
   
3,155
     
2,831
 
Change in operating assets and liabilities, net of business acquisitions:
   
     
 
Accounts receivable
   
(2,483
   
(3,615
)
Inventories
   
(103
   
(3,787
)
Prepaid expenses and other current assets
   
(1,323
   
(2,025
)
Accounts payable, accruals and other changes
   
1,313
     
(706
)
                 
Net Cash From Operating Activities
   
40,472
     
32,583
 
Cash Flows For Investing Activities
   
     
 
Purchases of property, equipment and other assets
   
(12,806
   
(6,720
)
Proceeds from the sale of marketable securities
   
199,708
     
179,839
 
Purchases of marketable securities
   
(220,528
   
(191,488
)
Business acquisitions, net of cash acquired
   
     
(4,903
)
                 
Net Cash For Investing Activities
   
(33,626
   
(23,272
)
Cash Flows From Financing Activities
   
     
 
Exercise of stock options and issuance of employee stock purchase plan shares
   
19,213
     
10,268
 
                 
Net Cash From Financing Activities
   
19,213
     
10,268
 
Effect of Exchange Rates on Cash
   
(1,333
   
(1,068
)
                 
Net Increase In Cash and Cash Equivalents
   
24,726
     
18,511
 
Cash and Cash Equivalents, Beginning of Period
   
41,688
     
83,074
 
                 
Cash and Cash Equivalents, End of Period
  $
66,414
    $
101,585
 
                 
See notes to interim consolidated financial statements.
 
6

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 six month
periods
ended November 30, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2020. For more complete financial information, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form
10-K
for the fiscal year ended May 31, 2019.
Recently Adopted Accounting Standards
Leases
On June 1, 2019, the Company adopted ASU No.
 2016-02—
Leases. Refer to Leases section of Note 1 for further information.
Recent Accounting Pronouncements Not Yet Adopted
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU No.
2016-13—Measurement
of Credit Losses on Financial Instruments, which changes how companies measure credit losses on most financial instruments measured at amortized cost and certain other instruments, such as loans, receivables and
held-to-maturity
debt securities. Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU
2016-13
is effective for fiscal periods beginning after December 15, 2019 and must be adopted as a cumulative effect adjustment to retained earnings; early adoption is permitted. The Company does not believe adoption of this guidance will have an impact on its consolidated financial statements.
Fair Value Measurements
In August 2018, the FASB issued ASU 2018-13—Fair Value
Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements of fair value measurements. ASU
2018-13
is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company does not believe adoption of this guidance will have an impact on its consolidated financial statements.
Cloud Computing Implementation Cost
In August 2018, the FASB issued ASU 2018-15—Intangible
-Goodwill and Other
Internal-Use
Software (Subtopic
350-40):
Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. ASU
2018-15
is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company does not believe adoption of this guidance will have an impact on its consolidated financial statements.
 
7

Comprehensive Income
Comprehensive income represents net income and any revenues, expenses, gains and losses that, under U.S. generally accepted accounting principles, are excluded from net income and recognized directly as a component of equity. Accumulated other comprehensive income (loss) consists of foreign currency translation adjustments and unrealized gains or losses on marketable securities.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments other than cash equivalents and marketable securities, which include accounts receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar instruments.
Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Cash and Cash Equivalents
Cash and cash equivalents consist of bank demand accounts, savings deposits, certificates of deposit and commercial paper with original maturities of 90 days or less. The carrying value of these assets approximates fair value due to the short maturity of these instruments and meets the Level 1 criteria.
Marketable Securities
The Company has marketable securities held by banks or broker-dealers at November 30, 2019, consisting of short-term domestic certificates of deposit, and commercial paper and U.S. treasuries rated at least
A-1/P-1
(short-term) and A/A2 (long-term) with maturities between 91 days and
two years
. These securities are classified as available for sale. The primary objective of the Company’s investment activity is to preserve capital for the purpose of funding operations, capital expenditures and business acquisitions; investments are not entered into for trading or speculative purposes. These securities are recorded at fair value based on recent trades or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within other income on the consolidated statements of income.
ESTIMATES AND ASSUMPTIONS
The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, accruals, goodwill and other intangible assets. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes to the critical accounting policies and estimates disclosed in the Company’s Annual Report on Form
10-K
for the fiscal year ended May 31, 2019.
There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed in the Company’s Annual Report on Form
10-K
for the fiscal year ended May 31, 2019.
 
8

Accounts Receivable Allowance
Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit exposure on a regular basis. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific customers, historical trends and other information. Collateral or other security is generally not required for accounts receivable. Once a receivable balance has been determined to be uncollectible, that amount is charged against the allowance for doubtful accounts
.
Inventory
The reserve for obsolete and slow-moving inventory is reviewed at least quarterly based on an analysis of the inventory, considering the current condition of the asset as well as other known facts and future plans. The reserve required to record inventory at lower of cost or net realizable value is adjusted as conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to other identifiable intangible assets. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants
not-to-compete
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. 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.
 
9

Income Taxes
We account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are
 
determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year.
Leases
In February 2016, the FASB issued ASU No. 2016-02—Leases, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessor have not significantly changed from previous U.S. GAAP. This ASU was effective for annualperiods, including interim periods within those annual periods, beginning after December 15, 2018. We adopted this ASU on June 1, 2019; the impact on our consolidated financial statements was immaterial.
We lease various manufacturing, laboratory, warehousing and distribution facilities, administrative and sales offices, equipment and vehicles under operating leases. We evaluate our contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, all our leases are classified as operating leases. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option.
Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease. With the adoption of ASC 842 on June 1, 2019
,
we recognized all leases with terms greater than 12 months in duration on our consolidated balance sheets as
right-of-use
assets and lease liabilities of approximately $2.0 million
each
as of June 1, 2019. We adopted the standard using the prospective approach and did not retrospectively apply to prior periods.
Right-of-use
assets are recorded in other assets on our consolidated balance sheets. Current and
non-current
lease liabilities are recorded in other accruals within current liabilities and other
non-current
liabilities, respectively, on our consolidated balance sheets.
We have made certain assumptions and judgments when applying ASC 842, the most significant of which are:
  We elected the package of practical expedients available for transition that allow us to not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.
 
 
 
 
 
 
 
 
 
 
  We did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset.
 
 
 
 
 
 
 
 
 
 
  For all asset classes, we elected to not recognize a
right-of-use
asset and lease liability for short-term leases.
 
 
 
 
 
 
 
 
 
 
  For all asset classes, we elected to not separate
non-lease
components from lease components to which they relate and have accounted for the combined lease and
non-lease
components as a single lease component.
 
 
 
 
 
 
 
 
 
 
  The determination of the discount rate used in a lease is our incremental borrowing rate that is based on what we would normally pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments.
Supplemental balance sheet information related to operating leases was as follows:
         
 
November 30,
2019
 
 
(in thousands)
 
Right of use - assets
  $
 
 
2,034
 
Lease liabilities - current
   
585
 
Lease liabilities -
non-current
   
1,456
 
 
 
 
 
 
 
 
 
1
0

The weighted average remaining lease term and weighted average discount rate were as follows:
         
 
November 30,
2019
 
Weighted average remaining lease term
   
2.5
 years
 
Weighted average discount rate
   
3.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating lease expenses are classified as cost of revenues or operating expenses on the
c
onsolidated
s
tatements of
i
ncome. The components of lease expense were as follows:
                 
 
Three
Months Ended
November 30,
2019
 
 
Six
Months Ended
November 30,
2019
 
 
(in thousands)
 
 
(in thousands)
 
Operating leases
 
$
  
333
 
 
$
  
573
 
Short term leases
 
 
34
 
 
 
81
 
 
 
 
 
 
 
 
 
 
Total lease expense
 
$
367
 
 
$
654
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash paid for amounts included in the measurement of lease liabilities for operating leases included in cash flows from operations on the
s
tatement of
c
ash
f
lows were approximately $558,000 for the six months ended November 30, 2019. There were
no
non-cash
additions to
right-of-use
assets obtained from new operating lease liabilities for the six months ended November 30, 2019.
Undiscounted minimum
lease payments as of November 30, 2019 were as follows:
         
 
 
Amount
 
 
 
(in thousands)
 
Years ending May 31,
   
 
2020 (1)
 
$
589
 
2021
   
917
 
2022
   
358
 
2023
   
169
 
2024
   
95
 
2025 and thereafter
   
26
 
         
Total lease payments
   
2,154
 
Less: imputed interest
   
114
 
         
Total lease liabilities
  $
 
 
2,040
 
         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Excluding the six months ended November 30, 2019
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
1
1

Revenue Recognition
The Company determines the amount of revenue to be recognized through application of the following steps:
 
Identification of the contract with a customer;
 
 
 
 
 
 
 
 
 
 
 
 
Identification of the performance obligations in the contract;
 
 
 
 
 
 
 
 
 
 
 
 
Determination of the transaction price;
 
 
 
 
 
 
 
 
 
 
 
 
Allocation of the transaction price to the performance obligations in the contract; and
 
 
 
 
 
 
 
 
 
 
 
 
Recognition of revenue when, or as, the Company satisfies the performance obligations.
 
 
 
 
 
 
 
 
 
 
 
Essentially all our revenue is generated through contracts with our customers. A performance obligation is a promise in a contract to transfer a product or service to a customer. We generally recognize revenue at a point in time when all our performance obligations under the terms of a contract are satisfied. Revenue is recognized upon transfer of control of promised products and services in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The collectability of consideration on the contract is reasonably assured before revenue is recognized. To the extent that customer payment has been received before all recognition criteria are met, these revenues are initially deferred in other accruals on the balance sheet and the revenue is recognized in the period that all recognition criteria have been met. In certain situations, we provide rebates, marketing support, credits or incentives to selected customers, which are accounted for as variable consideration when estimating the amount of revenue to recognize on a contract. Variable consideration reduces the amount of revenue that is recognized. These variable consideration estimates are updated at the end of each reporting period based on information currently available.
The performance obligations in our contracts are generally satisfied well within one year of the contract inception. In such cases, we have elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. We have elected to utilize the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred because the amortization period for the prepaid costs that would otherwise have been deferred and amortized is one year or less. The Company accounts for shipping and handling for products as a fulfillment activity when goods are shipped. Revenue is recognized net of any tax collected from customers; the taxes are subsequently remitted to governmental authorities. The Company’s terms and conditions of sale generally do not provide for returns of product or reperformance of service except in the case of quality or warranty issues. These situations are infrequent; due to immateriality of the amount, warranty claims are recorded in the period incurred.
We derive revenue from two primary sources - product revenue and service revenue.
Product revenue consists of shipments of:
 
Diagnostic test kits, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation;
 
 
 
 
 
 
 
 
 
 
 
 
Consumable products marketed to veterinarians and animal health product distributors; and
 
 
 
 
 
 
 
 
 
 
 
 
Rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities.
 
 
 
 
 
 
 
 
 
 
 
Revenues for our products are recognized and invoiced when the product is shipped to the customer.
Service revenue consists primarily of:
 
Genomic identification and related interpretive bioinformatic services; and
 
 
 
 
 
 
 
 
 
 
 
 
Other commercial laboratory services.
 
 
 
 
 
 
 
 
 
 
 
Revenues for our genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service is performed and the results are conveyed to the customer.
Payment terms for products and services are generally 30 to 60 days; international terms may be longer.
 
12

The following
 
table presents disaggregated revenue by major product and service categories for the three and six month periods ended November 30, 2019 and 2018:
                                 
 
Three Months ended November 30,
   
Six Months ended November 30,
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
(in thousands)
 
Food Safety
 
 
 
 
 
 
 
 
 
 
 
 
Natural Toxins, Allergens & Drug Residues
 
$
20,681
    $
20,571
   
$
40,796
    $
39,409
 
Bacterial & General Sanitation
   
11,615
     
10,822
     
21,931
     
21,288
 
Culture Media & Other
   
12,757
     
12,191
     
24,037
     
24,408
 
Rodenticides, Insecticides & Disinfectants
   
7,447
     
5,943
     
12,896
     
12,569
 
Genomics Services
   
4,354
     
4,223
     
8,216
     
8,259
 
                                 
  $
56,854
    $
53,750
    $
107,876
    $
105,933
 
Animal Safety
 
 
 
 
 
 
 
 
 
 
 
 
Life Sciences
 
$
1,803
    $
1,891
   
$
3,525
    $
3,971
 
Veterinary Instruments & Disposables
   
10,486
     
11,683
     
21,822
     
22,087
 
Animal Care & Other
   
7,787
     
8,948
     
14,193
     
15,346
 
Rodenticides, Insecticides & Disinfectants
   
16,186
     
18,789
     
32,904
     
35,935
 
Genomics Services
   
14,687
     
12,037
     
28,907
     
23,452
 
                                 
  $
50,949
    $
53,348
    $
101,351
    $
100,791
 
                                 
Total Revenues
  $
  
107,803
    $
  
107,098
    $