2021 ANNUAL REPORT
The mission of Neogen Corporation
is to be the leading company in the development
and marketing of solutions for food and
animal safety.
TOTAL REVENUES
Dollars in thousands
NET INCOME
Dollars in thousands
(cid:23)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:24)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:25)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:26)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:27)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:28)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:31)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
TOTAL ASSETS
Dollars in thousands
EQUITY
Dollars in thousands
(cid:21)(cid:31)(cid:31)(cid:29)(cid:31)(cid:31)(cid:31)
(cid:22)(cid:31)(cid:31)(cid:29)(cid:31)(cid:31)(cid:31)
(cid:23)(cid:31)(cid:31)(cid:29)(cid:31)(cid:31)(cid:31)
(cid:24)(cid:31)(cid:31)(cid:29)(cid:31)(cid:31)(cid:31)
(cid:25)(cid:31)(cid:31)(cid:29)(cid:31)(cid:31)(cid:31)
(cid:26)(cid:31)(cid:31)(cid:29)(cid:31)(cid:31)(cid:31)
(cid:27)(cid:31)(cid:31)(cid:29)(cid:31)(cid:31)(cid:31)
(cid:28)(cid:31)(cid:31)(cid:29)(cid:31)(cid:31)(cid:31)
(cid:30)(cid:31)(cid:31)(cid:29)(cid:31)(cid:31)(cid:31)
(cid:31)
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
(cid:28)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:26)(cid:28)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:26)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:27)(cid:28)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:27)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:31)(cid:28)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:31)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:31)(cid:29)(cid:30)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:21)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:22)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:23)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:24)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:25)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:26)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:27)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:28)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:31)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
Table of Contents
02 Message from John Adent, CEO
23
Consolidated statements of cash flows
04
Serving our global community
24 Notes to consolidated financial statements
10 Management’s discussion and analysis of
financial condition and results of operations
41
Reports of independent registered public
accounting firm
20
Consolidated balance sheets
42 Management’s report on internal control over
21
Consolidated statements of income
22
Consolidated statements of equity
financial reporting
44
Comparison of five year cumulative total return
and stock profile activity
Financial Highlights
Amounts in thousands, except per share
Year Ended May 31
Operations:
Total Revenues*
Food Safety*
Animal Safety*
Operating Income
2021
2020
2019
2018
2017
$
468,459 $
418,170 $
414,186 $
397,930 $
358,277
234,244
234,215
74,169
212,691
205,479
67,523
213,474
200,712
68,094
194,477
203,453
70,194
170,034
188,243
64,945
43,793
0.43
0.43
Net Income Attributable to Neogen
60,882
59,475
60,176
63,145
Basic Net Income Per Share**
Diluted Net Income Per Share**
$
$
0.57 $
0.57 $
0.57 $
0.56 $
0.58 $
0.57 $
0.62 $
0.61 $
Average Diluted Shares Outstanding**
107,120
105,720
104,850
104,298
102,330
* Revised 2017–2018
** Restated due to June 2021 and December 2017 stock splits
In thousands
Year Ended May 31
Financial Strength:
2021
2020
2019
2018
2017
Cash and Marketable Securities
$
381,087 $
343,673 $
267,524 $
210,810 $
143,635
Working Capital
Total Assets
Long-Term Debt
Equity
537,852
920,192
–
488,917
797,182
–
411,278
695,740
–
337,101
618,009
–
256,959
528,409
–
840,377
725,177
637,899
560,175
471,757
1
A MESSAGE FROM
JOHN ADENT, CEO
To Our Shareholders, Employees, and Friends,
Over the last 18 months, it seems that we’ve faced one unprecedented circumstance
after another, constantly challenging all of us at Neogen to adapt our business
practices and protect our colleagues around the world.
No matter what challenges Neogen has faced throughout the COVID-19 pandemic,
we have remained dedicated to serving our global community. We recognize the
essential role we play in protecting the global food supply and keeping people,
animals, and food safe, especially during a global pandemic.
From farm to fork, Neogen is built to handle these challenges and provide solutions
that make our global community a safer and more secure place.
Rallying Together
Over the last year, we have been put to the test in nearly every way possible, but our employees, partners, suppliers, and customers have all
stepped up and shouldered the challenge. Amid the chaos, we’ve remained flexible, communicative, and innovative, producing solid
results for Neogen.
Within our facilities across the world, we’ve had to adapt to new work environments. From home offices to socially distanced and masked
production and lab environments, our team has rallied to support each other and accomplish our goals. Amid stay-at-home orders in countries
around the world, members of our Neogen team implemented new business practices, all while continuing to create innovative new products
and solutions. Our team has remained motivated and passionate about our mission to be the leading company in the development and
marketing of solutions for food and animal safety, willing to go the extra mile through every up and down.
To help slow the spread of COVID-19, we ramped up the production of disinfectants and sanitizers, making them available outside of our
traditional agricultural and veterinary markets. We were also able to launch several new products that serve as diagnostic and sanitization
tools. In November 2020, we released our new COMPANION™ Foaming Hand Soap, which joined the trusted COMPANION product line as
a personal biosecurity option. We also launched our Early Warning Wastewater Surveillance test for COVID-19, allowing for earlier detection
of the virus before symptoms appear, allowing for earlier quarantine, which limits contact between infected and healthy individuals and
slows the spread of the virus.
Our Marketing and Communications team undertook the mission of educating our customers on the necessity of proper sanitation. The
team has worked diligently to promote our sanitizers, cleaners, disinfectants, and personal protective equipment, helping our customers
to keep the members of their staff and their production areas safe from COVID-19.
Even amid the chaos of a global pandemic, our team was able to successfully launch two next-generation products — Soleris® Next
Generation, a microbial testing system, and AccuPoint® Advanced Next Generation, an ATP sanitation monitoring system. This continued
innovation, even in the face of such adversity, is a true testament to our commitment to providing our customers around the world the
best solutions.
We also welcomed Ireland-based food diagnostics company Megazyme, Ltd. to the Neogen family in December 2020, helping us to
strengthen and expand our relationships with the largest food producers around the world.
Our entire team of over 1,800 employees worldwide came together through video conferences, socially distanced meetings, phone calls,
and emails to help Neogen not only achieve our goals, but to provide extra safety and security for people all around the world in the time
when they needed it the most.
FY 2021 Results Are Strong
While we did not quite know what to expect when operating in the midst of a global health crisis, we are pleased to report strong
financial results. For the 30th consecutive year, Neogen is reporting revenue increases as compared to the previous year, for which our
entire team should be very proud.
Revenues for the company for our 2021 fiscal year were $468,459,000, compared to the prior year’s $418,170,000, an increase of 12%. Net
income for the 2021 fiscal year was $60,882,000, or $0.57 per share, compared to the prior year’s $59,475,000, or $0.56 per share; per share
amounts were adjusted to reflect our 2-for-1 stock split on June 4, 2021.
2
This accomplishment was not without its challenges, as the spread of COVID-19 continued to negatively impact our operating
costs. Supply chain disruptions around the world resulted in significantly higher expenditures on freight, both inbound and
outbound, and labor shortages led to increased personnel costs. We are actively monitoring these costs and have several plans
in place to help mitigate their impact going forward.
Segment Highlights
Despite the challenges and uncertainty we have faced throughout the COVID-19 pandemic, we have seen strong growth across
our segments in fiscal year 2021.
Our Food Safety segment recorded an increase of 10% over fiscal year 2020, demonstrating tremendous resiliency after many
of our core product lines and markets were disrupted around the world. This success was led by strong sales of the Soleris® NG
testing system, the continued growth of our ANSR® Listeria Right Now™ environmental test, and increases in sales of our key
natural toxin and allergen test kits.
The Animal Safety segment rose 13% for the year, an impressive increase, as the prior year results included large sales of sanitizers,
disinfectants, and personal protective equipment to help people around the world slow the spread of COVID-19. These revenue
gains were driven by an increase in worldwide spending on companion animals, especially cats and dogs, as sales of our small
animal supplements and antibiotics rose. We also saw strong sales of vitamin injectables and veterinary instruments, such as
needles and syringes, as well as rodenticides, as rodent populations surged in much of the U.S. throughout the year.
Our worldwide genomics services recorded a 13% increase in revenue, led by the continued growth of companion animal sales.
Our bovine testing services increased due to higher sales to beef associations and dairy artificial insemination companies, and
we saw additional increases in the aquaculture market as we entered a new partnership with a large customer and launched a
number of new tests.
Internationally, we also had a strong showing, with sales increasing by 11% over fiscal year 2020, despite COVID-19-related challenges
throughout most of the year.
In the U.K., we saw an increase of 10%, led by sales of cleaners and disinfectants, including high sales of hand sanitizers to the U.K.
government in the first quarter. Sales volumes in Brazil increased, propelled by higher sales of aflatoxin test kits for corn, culture
media, bovine genomics services, and insect control products. Our China operations reported revenues that more than doubled
for the year, as the continued sales of cleaners and disinfectants remained strong and sales of both bovine and swine genomics
services increased, as breeders rebuilt their herds after the African swine fever outbreak. In Australia, we recorded revenue increases of
78% for the year, partially due to the acquisition of a Food Safety distributor in February 2020, but the team also posted impressive
organic gains in both our Food Safety products and genomics services.
We benefitted from the December 2020 acquisition of Megazyme and, to a lesser extent, our July 2020 acquisition of the StandGuard®
product line. However, excluding these sales, our organic growth for the year was a solid 9%.
Our New Normal
While we are beginning to see some relief due to the rollout of COVID-19 vaccines, we recognize that the pandemic remains a global
issue and, as a global company, we remain vigilant, continually monitoring the spread of any variants and any lockdowns that may
go into effect.
We eagerly await our “new normal” and stand ready for whatever comes our way. While we may never return to the “normal” we
knew back in December 2019, we are looking forward to returning to in-person interactions as employees, traveling to our many
locations, visiting farms and production plants around the globe, and inviting our shareholders, partners, suppliers, customers,
and potential partners back into our buildings in fiscal 2022.
Our dedication to serving our global community is more important now than ever. As businesses and restaurants reopen and
people venture back out into the world, we need to continue ensuring a safe and abundant food supply for all.
I have full faith that Neogen will continue to execute this mission and that we have the right products, services, and people to
make it happen.
Thank you for your continued support.
John Adent
CEO and President
3
Neogen Corporation plays an essential role in protecting the global food
supply each and every day. We have made it our purpose to be involved
in creating solutions for every step of the food chain, from farm to fork, that
ensures the health and safety of people and animals around the world.
This is more important today than ever, as we emerge from a global health
crisis. While we are weathering the storm that is the COVID-19 pandemic,
we recognize that the ripple effects may last well into the future.
We remain well-positioned financially to withstand continued threats to
our business as we continue providing solutions that keep people and
animals around the world safe and healthy.
Our global community depends on us to ensure their food supply is
plentiful and safe to eat. It is our responsibility to provide products and
solutions that allow for every step of the food chain to be secure now
and sustainable into the future. We continue to develop innovative new
solutions that make it easier for those around the world to produce the
highest-quality, safest products possible.
We offer solutions for every aspect of food production. From fast, reliable
genomic solutions and analysis software that helps livestock producers
make the most informed breeding decisions to advanced biosecurity
products that reduce food waste, loss, and antibiotic use; from veterinary
tools that make caring for animals easier and safer, to food safety assays
that test for mycotoxins, allergens, pathogens, antibiotics, and spoilage
microorganisms along the entire production process.
We are here to serve you, no matter where you are in the world, no
matter which part of the food chain you serve, with our products and
experts standing ready to help in any way that they can.
4
For Every Stage, From Genomics:
The abundance and security of our global food supply begin at the
molecular level.
In our state-of-the-art genomics laboratories around the world, we can
interpret the complex animal genome and return easy-to-understand
identity and trait determination and analysis that help producers, breeders,
and researchers make data-driven decisions.
With the help of our genomics solutions, producers can incorporate selective
breeding practices, which allow breeders and producers to select the
best animals with the most desirable traits, helping to ensure sustainable
farming practices.
With laboratories across the world and the ability to serve beef and dairy
cattle, pig, sheep, poultry, and aquatic species producers, Neogen Genomics
offers an unmatched range of services that protect and improve our food
chain at its earliest stages.
To Biosecurity:
The next step in ensuring food safety and security for our global community
is providing solutions that prevent and mitigate the spread of disease and
pests, protecting people, animals, and crops. After all, the best way to prevent
an issue from arising within the global food supply is to prevent it from
happening in the first place.
Neogen offers a comprehensive line of biosecurity products, ranging from
cleaners and disinfectants to insect and rodent control solutions, that all
work to prevent a disease outbreak before it starts.
Throughout the COVID-19 pandemic, our line of EPA-approved cleaners
and disinfectants played a vital role in stopping the spread of disease
within food and animal production facilities, veterinary clinics, and more,
helping to keep workers, doctors, and animals safe and healthy. Designed
with the highest-quality chemistries, our line of cleaners and disinfectants
— including Neogen® Viroxide Super™, the BioSentry® and COMPANION™
product lines, Synergize®, Acid-A-Foam™ EVO, and Quik Clean — are able
to tackle bacteria, fungi, and viruses, maintaining sanitary conditions and
limiting potential hazards.
We also offer water treatment solutions, which maintain water quality
within livestock production facilities, helping to ensure proper digestion
and nutrient absorption, ensuring optimal growth and production while
also eliminating waste.
Our safe and effective line of insect control solutions is available for a variety
of locations, including the home, farm, and ranch. Insects can carry and
transmit disease, contaminate stored food and feed, and can cause stress
and health concerns in animals, so managing them in a proper way is an
important part of protecting the global food supply. Our Prozap® product
line, Surekill®, Catchmaster, and StandGuard® insect control solutions are
available in a variety of application options for the utmost protection for
beef and dairy cattle, poultry, and other production animals from flying
and crawling pests.
5
As carriers of diseases, hosts to parasites, depositors of
contaminants, and with the ability to thrive in small spaces,
rodents are one of the biggest threats to the global food supply.
Every year, rodent damage costs the agriculture industry
millions of dollars worldwide, with damage to crops, stored
food, and farm equipment. Our rodent control solutions are
used to control and eradicate any rodent infestations before
significant damage can be done. Our portfolio includes the
globally trusted Ramik®, Havoc®, Cykill™, Rodex™, Prozap®, and
DeciMax® solutions in several presentations, providing the best
solution for every problem.
To Veterinary Care Products:
Another vital step in keeping our global community and food
chain secure and safe is prevention. We produce trustworthy
and dependable tools that help prevent illness and keep
livestock, poultry, horses, and companion animals healthy.
Our Ideal® and Prima® lines of veterinary tools and over-the-
counter products include surgical instruments, needles,
syringes, reproductive and obstetrical instruments, personal
protective equipment, and more.
Ideal’s D3™ needles are stronger than conventional needles
and are uniquely detectable by metal detectors at meat
processing facilities. For more than 30 years, our wide range
of quality, proven products have been trusted by livestock
producers, veterinarians, and pet owners to keep their
animals healthy.
Ensuring animal health extends further than just tools — we
also offer a comprehensive line of solutions that keep animals
safe and healthy, including antibiotics, diagnostic tools, vaccines,
immunostimulants, injectables, oral supplements, vitamins
and minerals, wound care, and other topical solutions.
We offer the only USDA-approved vaccine for the prevention
of equine botulism Type B, BotVax® B, and our USDA-approved
EqStim® immunostimulant is proven to help combat equine
bacterial and viral respiratory infections.
Our Neogen® Vet pharmaceuticals include PanaKare™, a
digestive aid in replacement therapy due to exocrine pancreatic
insufficiency in dogs and cats; our recently reintroduced
ThyroKare™, an FDA-approved replacement therapy for
diminished thyroid function in dogs; and RenaKare™, a
supplement for potassium deficiency in dogs and cats.
To Advanced Diagnostics and Testing:
Should prevention and mitigation efforts fail, having a fast
and efficient testing system is vital to preventing an outbreak
and keeping food and feed safe. From the smallest local
grain operators to the largest, best-known food processors
in the world and numerous regulatory agencies, we offer
solutions for detecting potential hazards or unintended
substances in their products.
Our Food Safety division develops and manufactures tests for:
Mycotoxins: We offer tests to detect the presence of mycotoxins,
including aflatoxin, aflatoxin M1, deoxynivalenol, fumonisin,
ochratoxin, zearalenone, T-2/HT-2 toxin, and ergot alkaloids
to ensure product safety and quality in food and animal feed.
Grain producers and processors of all sizes take advantage of
our Veratox®, Agri-Screen®, Reveal®, Reveal Q+, and Reveal
Q+ MAX tests as part of their quality control practices.
Food allergens: Across the world, producers of cookies,
crackers, candy, ice cream, and many other processed foods
help protect their food-allergic customers from the inadvertent
contamination of products with food allergens including, but
not limited to, peanut, milk, egg, almond, gluten, soy, hazelnut,
and coconut residues. We offer both quantitative — our Veratox®
and BioKits product lines — and qualitative — Reveal, Reveal
3-D, and Alert® — testing options for fast and accurate results.
Dairy antibiotics: Dairy processors must test milk for veterinary
antibiotics. The presence of these drugs above a certain level
presents a public health hazard and an economic risk to
producers, as it limits the milk’s further processing. Our BetaStar®
line of diagnostic tests detects harmful antibiotic contamination
in milk, protecting both the producer and the consumer.
Foodborne pathogens: Meat, poultry, and seafood
processors, fruit and vegetable producers, and many other
market segments need to ensure the products they provide
are safe, which requires them to test for harmful foodborne
pathogens, including E. coli O157:H7, Salmonella, Listeria,
and Campylobacter. Our Reveal tests provide rapid recovery
and detection of pathogens, and our ANSR® pathogen detection
system amplifies the DNA of harmful bacteria in food and
environmental samples to detectable levels in 10 minutes.
Our innovative Listeria Right Now™ test detects the pathogen
in less than 60 minutes without sample enrichment.
6
Spoilage microorganisms: Yeast, mold, and other spoilage microorganisms
threaten the safety and quality of food and other consumer products. In
order to test for sterility, shelf-life, and the quality of raw materials and
finished products, we offer our recently launched Soleris® Next Generation
system. This system is used by food processors to detect specific
microbiological contamination. The sensitivity of the system allows detection
in a fraction of the time needed for traditional methods, with less labor
and handling. Our NeoSeek™ genomics service also plays a role, utilizing
a novel application of 16s metagenomics to determine the full array of
potentially harmful bacteria in a sample.
Seafood contaminants: Maintaining acceptable levels of biotoxins,
histamine, and sulfites within seafood and shellfish is a major responsibility
of seafood and aquaculture processors. Our specialty products for the
seafood market include tests for histamine, a highly allergenic substance
that occurs when certain species of fish, including tuna, begin to decay,
and sulfite, an effective but potentially allergenic shrimp preservative.
Our Reveal lateral flow tests for shellfish toxins include rapid tests to detect
the toxins that cause amnesic, diarrhetic, and paralytic shellfish poisoning.
Waterborne microorganisms: Water is essential to life, and keeping
it clean is a critical part of the global food chain. We offer the food and
beverage industries, including water companies, several platforms for
performing the microbial analysis of water. These include our filter tests,
which are a combination of Neogen Filter membrane filtration and Neogen
Culture Media ampouled media, and our easy-to-use Colitag™ product.
With Colitag, after an incubation period, the sample changes color in
the presence of coliforms and fluoresces in the presence of E. coli.
Food quality diagnostics: Through the December 2020 acquisition
of the Ireland-based company Megazyme, Neogen supplies analytical
solutions used by quality control laboratories in the global food and
beverage industries. Megazyme’s diagnostic assay kits and reagents are
used to measure dietary fiber, polysaccharides, and sugars and acids,
such as lactose, and are used across grain and cereal products, as well
as in the wine, dairy, and food industries.
Sanitation monitoring: Adenosine triphosphate (ATP) monitoring is
considered the gold standard for sanitation monitoring in food and beverage
production facilities, the food service industry, and the healthcare industry.
Our newly launched AccuPoint® Advanced Next Generation rapid sanitation
test detects the presence of ATP, a chemical found in all living cells, and
utilizes bioluminescence to quickly determine if a surface is clean.
7
Our Food Safety division also offers:
Culture media: We seek to provide solutions that enhance the global food supply.
Neogen Culture Media offers culture media and prepared media for varied
purposes, including traditional bacterial testing and the growth of beneficial
bacteria, such as cultures for sausages and beer.
Laboratory services: Neogen has worldwide operations serving our global
community. Our ISO-accredited laboratories offer food safety analysis in the
U.S., United Kingdom, and India, providing a number of fee-for-service tests
for the food and feed industry.
Digital Services: Data, without a way to manage and analyze it, can be
overwhelming and, when not managed properly, can lack effectiveness. Our
new food safety and risk management software-as-a-service platform, Neogen
Analytics, delivers the most comprehensive Environmental Monitoring Program
automation solutions for food companies. The software reduces risk by increasing
visibility to food safety testing results, enhancing the ability to enforce and improve
food safety protocols. Neogen Analytics builds upon innovative technologies like
our AccuPoint Advanced Next Generation and ANSR systems, offering color-
coded floor plan mapping, smart test scheduling, easily filtered and auditable
data management, and corrective actions.
All Around the World
In order to best serve our global community and provide solutions and products
quickly, we maintain company-owned locations both domestically and internationally.
With nine locations in the United States, 16 international locations, and an
extensive network of distributors to reach the countries in which we do not have
a physical presence, Neogen is well-positioned to serve our markets in countries
around the world, with sales in more than 140 countries in fiscal year 2021.
Serving in a Sustainable and Socially Responsible Way
All of us at Neogen pride ourselves on creating innovative products and solutions
that help protect the global food chain and assist in building sustainable operations
around the world.
Sustainability is critical to our mission of protecting the people and animals we
care about and serving our global community responsibly.
Our products enable our customers around the world to be more efficient, compliant,
and sustainable by providing biosecurity and environmental monitoring systems
that assist in the management of harmful microbes, pests, and pathogens that
cause disease, helping to reduce food waste and loss. Enabling a clean and healthy
living environment reduces instance of disease in animals, which can decrease
the use of antibiotics and, in turn, human resistance to medically important
antibiotics. Through our genomics program, we help cultivate sustainable
breeding and farming practices. Neogen products and services assist our customers
in making their businesses more efficient, reducing waste, and increasing the
sustainability of their businesses.
8
Our responsibility to serve our global community is not limited to the products
we sell and the services we offer.
We also are committed to operating in a way that is responsible, socially conscious,
and transparent. We know that our continued growth and the growth of the markets
we serve depends on how we manage the impact we have on our world.
Operating in a sustainable manner is critical to our mission of protecting people and
animals. Doing so benefits Neogen, our employees, customers, and shareholders.
In fiscal year 2021, we placed greater focus on disclosure of our Environmental,
Social, and Governance (ESG) practices, embarking on a journey to codify principles
and programs that make clear our commitment to our employees and our world.
As part of this program, we continue to lean on the Neogen Pillars of Trust —
Openness, Honesty, Credibility, Respect, and Service — which form the platform
that guides us in acting with the utmost integrity in all that we do.
We have articulated an Equity, Diversity, Inclusion, and Belonging (EDIB) strategy,
which involves creating EDIB employee committees that facilitate sharing and
working together to further EDIB initiatives and help us gain feedback regarding
successes and growth opportunities. With this strategy and the commitment
of our leadership team, we foster an inclusive and diverse environment
throughout Neogen.
We also implemented a new Code of Business Conduct and Ethics and a Supplier
Code of Conduct, which details and the responsibilities and expectations for our
employees and directors, as well as partners and others with whom we do business.
Moving forward, we will expand upon these programs, assess and update current
policies and guidelines, and will continue to hold ourselves accountable for the
sustainability, diversity, and transparency of our operations.
Through these programs, we will strengthen not only Neogen but also the global
community we serve.
Growing Together
For 39 years, Neogen has served our markets around the world, building a reputation
of dependability, trust, and care at every step of the global food chain. We have
achieved tremendous success by focusing on our customers and the numerous
industries they represent, growing as they grow, and adapting to the ever-changing
needs of our global community.
Our success, even in challenging times, is a direct reflection of the strength and
diversity of our product portfolio and our dedicated employees. Our comprehensive
solutions continue to drive us forward, and we are dedicated to protecting
people, animals, and food around the world.
As we move forward, we know that we are built to serve our global community.
Neogen will continue to innovate, creating products and offering services that
make the world around us safer and more secure.
9
Management’s discussion and analysis of financial condition and results of operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated
financial statements and related notes appearing elsewhere in this Annual Report.
In addition, any forward-looking statements represent management’s views only as of the day our Annual Report on Form 10-K 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 we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if
our views change.
COVID-19
As we closely monitor the COVID-19 pandemic, our top priority
remains protecting the health and safety of our employees,
their families, and those in our communities. While essential
operations continue in our locations around the world, many of
our non-manufacturing employees continue to work remotely
and travel remains limited. Safety guidelines and procedures,
including social distancing and enhanced cleaning, have been
developed for on-site employees and these policies are regularly
monitored and updated by our internal Emergency Response Team.
In fiscal 2021, the COVID-19 pandemic continued to impact our
business operations and financial results. There has been a
positive impact in sales of our biosecurity product lines, as the
pandemic has created increased demand for these products,
and sales into companion animal markets have benefitted, as
remote work and stay at home orders have driven increased pet
ownership. A number of our food safety diagnostic product lines
have been negatively impacted due to decreased demand in many
of our customers’ businesses, particularly those serving restaurants,
bars and other institutional food service markets; supply chain
difficulties including vendor disruptions, border closures and
shipping issues; and restricted travel, which hinders our ability to
connect with customers. During the current fiscal year, we have
incurred less expense for travel, meals, trade shows and some
other customer-facing marketing activities; higher spend on
shipping, cleaning activities and personal protective equipment
has somewhat offset these savings. We expect the COVID-19
pandemic will continue to impact our business operations and
financial results through the majority of our 2022 fiscal year.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results
of operations are based on the consolidated financial statements
that have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these
financial statements requires that management make estimates
and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, management evaluates
the estimates, including but not limited to, those related to
receivable allowances, inventories and intangible assets. These
estimates are based on historical experience and on various
other assumptions that are believed to be reasonable under the
10
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. Though the impact
of the COVID-19 pandemic to our business and operating results
presents additional uncertainty, we continue to use the best
information available to inform our critical accounting estimates.
Actual results may differ from these estimates under different
assumptions or conditions.
The following critical accounting policy reflects management’s
more significant judgments and estimates used in the preparation
of the 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 year. The determination of income subject
to income tax in each tax paying jurisdiction requires us to apply
transfer pricing guidelines for certain intercompany transactions.
Our tax rate is subject to adjustment over the balance of the year
due to, among other things, income tax rate changes by governments;
the jurisdictions in which our profits are determined to be earned
and taxed; changes in the valuation of our deferred tax assets and
liabilities; adjustments to our interpretation of transfer pricing
standards; changes in available tax credits or other incentives;
changes in stock-based compensation expense; changes in tax
laws or the interpretation of such tax laws; and changes in U.S.
generally accepted accounting principles.
Although we believe our tax estimates are reasonable and we
prepare our tax filings in accordance with all applicable tax laws,
the final determination with respect to any audit, and any related
litigation, could be materially different from our estimates or from
our historical income tax provisions and accruals. The results of
an audit or litigation could have a material effect on operating
results and/or cash flows in the periods for which that determination
is made. In addition, future period earnings may be adversely
impacted by litigation costs, settlements, penalties, and/or
interest assessments.
Our wholly owned foreign subsidiaries are comprised of Neogen Europe, Quat-Chem Ltd, Megazyme Ltd, Megazyme IP, Neogen Italia S.r.l.,
Neogen do Brasil, Rogama Industria e Comercio Ltda, Neogen Latinoamérica, Neogen Argentina, Neogen Uruguay, Neogen Chile SpA,
Neogen Bio-Scientific Technology Co (Shanghai), Neogen Food and Animal Security (India), Neogen Canada and Neogen Australasia
Pty Limited. Based on historical experience, as well as management’s future plans, earnings from these subsidiaries are expected to be
re-invested indefinitely for future expansion and working capital needs. Furthermore, our domestic operations have historically produced
sufficient operating cash flow to mitigate the need to remit foreign earnings. On an annual basis, we evaluate the current business environment
and whether any new events or other external changes might require a re-evaluation of the decision to indefinitely re-invest foreign earnings.
It is not practicable to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.
Results of Operations
Executive Overview
• Consolidated revenues were $468.5 million in fiscal 2021, an increase of 12% compared to $418.2 million in fiscal 2020. Organic
sales overall increased 9% compared to the prior year.
• Food Safety segment sales were $234.2 million in fiscal 2021 compared to $212.7 million in fiscal 2020, an increase of 10%. Organic
sales increased 6%, while the purchase of four former distributors and a small manufacturer (Abtek) in fiscal 2020 and the December
2020 acquisition of Megazyme contributed $8.0 million in revenues.
• Animal Safety segment sales were $234.2 million in fiscal 2021, an increase of 14% compared to $205.5 million in fiscal 2020.
Organic sales rose 13%, with the acquisitions of Cell BioSciences, in fiscal 2020, and StandGuard, in July 2020, contributing the
remainder of the growth.
•
International sales were 39.1% of total sales in fiscal 2021 compared to 39.4% of total sales in fiscal 2020.
• Our effective tax rate was 19.1% in fiscal 2021 compared to an effective tax rate of 17.7% in fiscal 2020.
• Net income was $60.9 million, or $0.57 per diluted share, an increase of 2% compared to $59.5 million, or $0.56 per share, in the
prior year.
• Cash generated from operating activities in fiscal 2021 was $81.2 million, compared to $85.9 million in fiscal 2020.
Neogen’s international revenues were $183.2 million in fiscal 2021, compared to $164.7 million in fiscal 2020. Currency translation
had a negligible impact on revenues for the full year, with gains in the U.K., Italy, China, Australia and Canada almost entirely
offset by negative impact in Brazil, Mexico and Argentina. In a neutral currency environment, sales would have been $3.4 million
higher than reported in the first nine months of fiscal 2021. However, the Brazilian real and Mexican peso strengthened
significantly in the fourth quarter, resulting in an overall positive effect of approximately $3.3 million from currency translations;
the full year impact from currency translations was minimal.
Sales results for fiscal 2021 compared to the prior year are as follows for each of our international locations:
UK Operations
Brazil Operations
Neogen Latinoamerica
Neogen China
Neogen India
Neogen Australasia
Neogen Canada
Revenue Change
USD
Revenue Change
Local Currency
10%
(8%)
9%
101%
4%
78%
14%
4%
15%
13%
89%
7%
61%
9%
11
The revenue increase in U.S. dollars at Neogen Europe was led by
a 22% increase in sales of disinfectant and veterinary products,
primarily due to COVID-19 related sales of hand sanitizer and
disinfectant in the U.K. in the first quarter and strong cleaner and
disinfectant sales throughout the entire year to Asia to mitigate
the impact of African Swine Fever. Partially offsetting this growth
were lower sales of diagnostic test kits due to COVID-19 shutdowns;
additionally, a large portion of sales into European Union countries
from January through May were sold through our Neogen Italia
subsidiary as Brexit created export issues from the U.K.
Revenues in Brazil decreased 8% in USD in fiscal 2021 but increased
15% in local currency, as the Brazilian real devalued significantly
against the U.S. dollar during the year. In local currency, sales of
our diagnostic test kits increased 10%, genomics revenues increased
19%, due to new business in the beef market, and insecticides
revenues grew 22%, partially the result of a large tender sale.
Neogen Latinoamerica grew revenues by 9% in USD, with growth
in biosecurity products, veterinary instruments and diagnostic test
kits. China’s sales approximately doubled, from growth in biosecurity
products and genomics services. Neogen Australasia benefitted
from the February 2020 acquisition of a food safety distributor;
organic sales increased 59% at this location in fiscal 2021, from
strength in genomics services for the companion animal and bovine
markets and increased market share of food safety diagnostic
test kits.
Service revenue, which consists primarily of genomics services
sales to animal protein and companion animal markets, was
$92.2 million in fiscal 2021, an increase of 12% over prior fiscal
year sales of $82.6 million. The growth was led by increases in sample
volumes from the global companion animal and commercial
beef markets and the Chinese porcine market, as that country
has begun recovery from its African swine fever outbreak.
Revenues
(Dollars in thousands)
Food Safety:
May 31, 2021
Change
May 31, 2020
Change
May 31, 2019
Year Ended
Natural Toxins, Allergens & Drug Residues
$
76,614
1%
$
76,207
(3%)
$
78,373
Bacterial & General Sanitation
Culture Media & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
Animal Safety:
Life Sciences
Veterinary Instruments & Disposables
Animal Care & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
Total Revenue
44,009
56,922
36,542
20,157
5%
19%
26%
12%
41,780
47,847
28,890
17,967
0%
(4%)
13%
2%
41,966
49,857
25,584
17,694
$
234,244
10%
$
212,691
0%
$
213,474
5,715
48,128
35,897
77,458
67,017
(10%)
12%
26%
13%
14%
6,322
42,941
28,389
68,815
59,012
(20%)
(4%)
(5%)
4%
14%
7,858
44,582
29,941
66,389
51,942
$
$
234,215
468,459
14%
12%
$
$
205,479
418,170
2%
1%
$
$
200,712
414,186
12
Year Ended May 31, 2021 Compared to Year Ended May 31, 2020
Food Safety:
The COVID-19 pandemic, which began in the second half of fiscal 2020, continued to cause difficult operating conditions in many of
our key market segments in fiscal 2021. Shelter in place orders across the U.S. and in most of our international markets, the closure or
reduced output of businesses due to quarantine and/or local legislation, disruption in the supply chain resulting from reduction in end-
market demand and shipping issues, and the inability of some markets to react quickly to these changes, each disrupted our revenues.
Natural Toxins, Allergens & Drug Residues – Sales in this
category increased 1% in fiscal 2021, with a 6% increase in sales
of natural toxin test kits and a 5% increase in our allergens product
line partially offset by a 30% decrease in sales of drug residue
test kits. Sales of drug residue test kits have continued to decline
as we ended an exclusive distributor agreement in Europe and
faced competitive pressure and lower demand due to poor
economic conditions.
Bacterial & General Sanitation – Sales in this category increased
5% in fiscal 2021 compared to the prior year. Sales of products
to detect spoilage organisms in processed foods increased 19% in
fiscal 2021, resulting from sales of our new instrument (Soleris NG),
which launched in the first quarter, and increased consumables
sales from new instrument placements. Sales of our AccuPoint
sanitation monitoring product line were flat as many customers
were shut down or operating at reduced capacity for a portion of
the year, resulting in use of less consumables. A next generation
reader for this product line was launched late in the fourth quarter;
there will be significant sales and marketing focus on this product
line in fiscal 2022. Sales of test kits to detect pathogens decreased
2%, as lower sales of ANSR equipment were only partially offset
by increases from our Listeria Right Now test kit, which grew 21%
in fiscal 2021.
Culture Media & Other – Sales in this category increased 19%
in fiscal 2021 compared to fiscal 2020. Excluding sales from the
December 2020 acquisition of Megazyme, sales increased 8%. This
category includes sales of acquired inventory of non-Neogen
manufactured products from our new businesses in Italy and the
South American southern cone countries; these sales are not
expected to continue long-term. Sales of Neogen Culture Media
increased 1% as new business gained in the U.S. from a COVID-19
vaccine manufacturer offset the loss of some business due to
competitor pricing.
Rodenticides, Insecticides & Disinfectants – Revenues of products
in this category sold through our Food Safety operations increased
26% in fiscal 2021 compared to fiscal 2020, due primarily to continued
strength in cleaners and disinfectant sales in China resulting from
increased demand due to the African swine fever outbreak in that
country and the COVID-19 pandemic. We also benefitted from
strong sales of hand and skin sanitizing products at our U.K.-
based Quat-Chem location in the first quarter of this fiscal year.
Genomics Services – Sales of genomics services sold through
our Food Safety operations increased 12% in fiscal 2021 compared
to the prior year, primarily due to higher sales in the Chinese
porcine and bovine markets.
Animal Safety:
Life Sciences – Sales in this category decreased 10% in fiscal 2021
compared to the same period in the prior year, primarily the result
of lower forensic drug test kit sales to large commercial labs in the
U.S. as the COVID-19 pandemic created less demand for testing;
a reduction in sales of products to the U.S. horse racing industry in
the U.S. also contributed to the decline, as racing activity was down.
Veterinary Instruments & Disposables – Revenues in this category
increased 12% in fiscal 2021 compared to fiscal 2020. Veterinary
instruments sales increased 16% for the year, led by increases in
detectable needles and syringes as we gained new customers and
benefitted from increased demand resulting from higher numbers
of production animals in existing markets. Partially offsetting this
increase was a 9% decline in protective wear sales, as gloves were on
backorder for much of the current year due to COVID related demand.
Animal Care & Other – Sales of these products increased 26% in
fiscal 2021 compared to fiscal 2020; this category includes sales
of food safety products sold through our Australian operation,
the result of a February 2020 acquisition of a distributor. Excluding
these sales, revenues in this category increased 21%. Sales of our
small animal supplements, vitamin injectables, and joint pain
products benefitted from growth in veterinary markets, as the
COVID-19 pandemic has led to an increase in pet ownership,
particularly dogs and cats. Additionally, sales rose for our equine
supplements and antibiotics, due to strong demand in these markets.
This category also includes sales of our thyroid treatment for dogs,
which became available for sale late in the fourth quarter. Partially
offsetting these gains was a 49% decline in sales of dairy supplies
due to the June 2020 termination of an agreement in which we
distributed these products for a large manufacturer of dairy equipment.
Rodenticides, Insecticides & Disinfectants – Sales in this category
increased 13% in fiscal 2021, compared to the prior year. Rodenticide
sales increased 42% as rodent pressure in certain areas of the U.S.
increased significantly. Insecticide sales rose 15%, due in part to
our acquisition of the StandGuard product line for fly control on
July 31, 2020; organic sales in this category increased 7%. Cleaners
and disinfectants sales decreased 15% resulting from lower sales
13
of water treatment products and the transfer of a product line to
our U.K. operation; additionally, opportunistic sales of sanitizing
products in the fourth quarter of the prior year, due to extremely
high demand early in the COVID-19 pandemic, did not continue
at those levels in fiscal 2021.
Genomics Services – Sales in this category increased 14% in
fiscal 2021 compared to fiscal 2020. The growth was led by strong
increases to the U.S. and Australian companion animal markets,
driven by increased pet adoption and higher consumer spending
on pets during the COVID-19 pandemic. Gains in the commercial
beef and beef association markets in the U.S., Canada and Australia
also contributed to the growth, as well as the recent launch of a
new high-density chip for white leg shrimp.
Year Ended May 31, 2020 Compared
to Year Ended May 31, 2019
Food Safety:
The COVID-19 pandemic in the second half of fiscal 2020 resulted
in difficult operating conditions in many of our key market segments.
Shelter in place orders across the U.S. and in a number of our
international markets, the closure or reduced output of businesses
due to quarantine, disruption in the supply chain resulting from
reduction in end-market demand, and the inability of some markets to
react quickly to these changes, each adversely impacted our revenues.
Natural Toxins, Allergens & Drug Residues – Sales in this category
were 3% lower in fiscal 2020 compared to the prior year, driven by
a 30% decline in sales of drug residues test kits, due to lower
demand from a large distributor in Europe. In January 2020, we
ended our exclusive relationship with this distributor and have
begun marketing these products directly into the European market.
Partially offsetting the decrease in drug residue testing, the natural
toxins and allergens product lines each increased 4% for the year.
The natural toxin increase was due to continued new business
earned in Brazil for aflatoxin and DON test kits, partially offset by
lower sales of DON test kits in the U.S. and France, the result of
mild outbreaks in the prior year which did not recur in fiscal 2020.
The allergen test kit increase was primarily the result of strong
gliadin, milk and coconut allergen test kit sales in the U.S. market,
although fourth quarter sales declined 7% due to lower business
with customers supplying restaurants and other food service
organizations, which were adversely impacted by COVID-19.
Bacterial & General Sanitation – Sales in this category were
essentially flat in fiscal 2020 compared to the prior year. Sales
of test kits to detect pathogens decreased 2%, as lower sales of
ANSR equipment were only partially offset by increases from our
Listeria Right Now test kit, which grew 24% in fiscal 2020. Sales of
our AccuPoint sanitation monitoring product line increased 6%,
on increases in both readers and samplers. Sales of products to
detect spoilage organisms in foods decreased 7% in fiscal 2020
on reduced sales of readers and consumable vials during the
year, resulting from lower market demand and customer losses.
Culture Media & Other – Sales in this category decreased 4% in
fiscal 2020 compared to fiscal 2019. This category includes
forensic drug test kits sold within Brazil, which declined significantly
as a large commercial lab customer in that country moved to an
alternative new technology which provided higher throughput.
Culture media revenues declined 5%, due to lower end market
demand from several large customers in the U.S. Higher shipping
revenues, which rose 12% for the year, and lower rebates offered
to certain customers, both of which are reported in this category,
partially offset the lower forensic and culture media revenues.
Rodenticides, Insecticides & Disinfectants – Revenues of
products in this category sold through our Food Safety operations
increased 13% in fiscal 2020 compared to fiscal 2019. This category
was led by increases in sales of cleaners and disinfectants to
customers in Europe, the Middle East and China, partially offset
by a decrease in sales of rodenticides in Central America due to
lower demand from a large distributor, and reduced demand of
cleaners and disinfectants in India, due to a large order in 2019
which did not recur in fiscal 2020.
Genomics Services – Sales of genomics services sold through
our Food Safety operations increased 2% in fiscal 2020 compared
to the prior year, primarily due to higher sales in the European
bovine and equine markets. Partially offsetting this increase
were lower revenues from our genomics operation in Brazil due
to a research project with the Brazilian government from 2019
which did not recur in fiscal 2020.
Animal Safety:
A significant proportion of the Animal Safety products are
marketed and sold through our veterinary distributor network;
this channel was impacted in both fiscal years 2019 and 2020,
as difficult market conditions resulting from increased tariffs
and political uncertainties in our agricultural and animal protein
markets continued. The COVID-19 pandemic in the second half
of fiscal 2020 has exacerbated these market conditions; further,
the market uncertainty resulting from COVID-19 has caused
our larger distributor partners to implement working capital
improvement programs by lowering inventory levels which
14
resulted in lower sales of many products in our animal health
portfolio. Partially offsetting this weakness in the fourth quarter
were higher sales of several of our cleaning and disinfecting
products due to demand caused by the COVID-19 pandemic.
Life Sciences – Sales in this category decreased 20% in fiscal
2020 compared to the same period in the prior year, the result
of lower forensic drug test kit sales to a large commercial lab
in the U.S. serving the Brazilian market, a reduction in sales of
products to the U.S. horse racing industry in the U.S. due to a
decline in domestic racing activity, and the consolidation of
several state laboratories.
Veterinary Instruments & Disposables – Revenues in this
category decreased 4% in fiscal 2020 compared to fiscal 2019.
Veterinary instruments sales were down 7% for the year,
primarily the result of a 20% decline in needles and 3% decline
in syringes, due to lower demand from our largest distributors.
Partially offsetting these decreases, protective wear and
consumables increased 24% for the year, on the strength of a
$956,000 increase in gloves in the fourth quarter of fiscal 2020,
the result of demand caused by the COVID-19 pandemic.
Animal Care & Other – Sales of these products decreased 5%
in fiscal 2020 compared to fiscal 2019. Antibiotics and injectable
vitamin products were down 20% and 15%, respectively, due
primarily to inventory destocking at distributors. Sales of our
biologics product line, marketed primarily into the equine
market, declined 17%, and our equine supplements were also
down 20%, due to lower demand from end customers in this
market. Sales of wound care products rose 9% to partially offset
these losses.
Rodenticides, Insecticides & Disinfectants – Sales in this
category increased 4% in fiscal 2020, compared to the prior year.
The increase was due primarily to a $2.6 million increase in sales
of cleaners and disinfectants for the year, driven in large part by
growth in hand sanitizers, disinfectants, and disinfecting wipes
in the fourth quarter resulting from the COVID-19 pandemic.
Revenues for water disinfection in animal protein production
environments rose 8% over fiscal 2019. Rodenticide sales
increased 1% over the prior year, as strong growth in the retail
market was almost entirely offset by lower sales to agricultural
markets in the northwest U.S., due to lower rodent pressure.
Insecticide revenues declined 2% for the year.
Genomics Services – Sales in this category increased 14%
in fiscal 2020, aided by the acquisition of Livestock Genetics
(September 2018) and Delta Genomics (January 2019);
organic growth in this category was 12%. Strong growth in the
companion animal and commercial beef cattle markets was
partially offset by revenue decreases in the U.S. commercial
dairy market due to weak economic conditions in that market,
resulting from a movement away from dairy milk towards
alternative products.
Cost of Revenues
(Dollars in thousands)
Cost of Revenues
2021
$ 253,403
Change
14%
2020
$ 221,891
Change
0%
2019
$ 222,266
Cost of revenues increased 14% in fiscal 2021 compared to fiscal 2020 and was essentially flat in fiscal 2020 compared to fiscal 2019. This
compares with revenue increases of 12% in fiscal 2021 and 1% in fiscal 2020. Expressed as a percentage of sales, cost of revenues was
54.1%, 53.1% and 53.7% in fiscal years 2021, 2020 and 2019, respectively. Gross margins were 45.9%, 46.9%, and 46.3% for fiscal years
2021, 2020, and 2019, respectively.
Fiscal 2021 – Our overall gross margin declined 100 basis points in fiscal 2021 as pressure on the worldwide supply chain caused by the
COVID-19 pandemic resulted in increased overhead costs; in particular, freight costs on inventory purchases increased 53% in fiscal 2021
compared to the prior year. Additional cost increases resulted from personnel costs, in part from the increased volumes, but also due to
labor shortages, contracted services primarily related to our recently launched instruments, and higher health insurance costs domestically,
as employees and their families utilized elective medical services postponed from the fourth quarter of fiscal 2020 due to COVID-19. To
a lesser extent, the shift in mix within the Food Safety segment towards products with lower gross margins negatively impacted the
consolidated gross margin percentage.
Fiscal 2020 – Our overall gross margin improved 60 basis points in fiscal 2020, primarily from improved gross margin in the Animal
Safety segment and improved efficiencies, resulting from a focus on cost reductions in certain areas. These efforts resulted in a slight
decrease in cost of revenues compared to the prior fiscal year.
15
Food Safety Gross Margins:
Food Safety gross margins were 49.2%, 51.4% and 51.8% in fiscal
years 2021, 2020 and 2019, respectively.
Animal Safety Gross Margins:
Animal Safety gross margins were 42.6%, 42.3% and 40.6% in fiscal
years 2021, 2020 and 2019, respectively.
Fiscal 2021 – Food Safety margins decreased 220 basis points in
fiscal 2021, primarily due to higher sales of equipment such as the
Soleris NG, which was launched in the current year and has lower
gross margins than our diagnostic test kits, and cleaners and
disinfectants sold through our China location, which reports through
the Food Safety segment. We were also negatively impacted by
increased freight, labor and other overhead costs throughout
the segment.
Fiscal 2020 – Food Safety margins decreased 40 basis points in
fiscal 2020, primarily due to lower sales of higher margin forensic
test kits in Brazil, and the continued strength of the U.S. dollar
against currencies in the countries in which we operate; our
international operations pay for their inventory primarily in U.S.
dollars. In a neutral currency environment, Food Safety segment
sales would have been $5.4 million higher in fiscal 2020.
Fiscal 2021 – Animal Safety gross margins increased by 30 basis
points, primarily from strong sales of higher margin rodenticide
and companion animal products and cost efficiencies; somewhat
offsetting these gains, gross margin in this segment was negatively
impacted by higher freight costs as rates to bring product into
inventory rose significantly during the year, from both domestic
and international sources.
Fiscal 2020 – Animal Safety gross margins increased by 170 basis
points, driven by increased sales of higher margin disinfectant
products, particularly in the fourth quarter of the year as a result
of the COVID-19 pandemic, which caused heavy demand for our
sanitizing products. In addition, a mix shift towards genomics services
for the companion animal markets, which have higher gross margins
within the genomics business, contributed to the improvement.
Operating Expenses
(Dollars in thousands)
Sales and Marketing
General and Administrative
Research and Development
$
2021
73,443
51,197
16,247
Change
5%
15%
10%
$
2020
69,675
44,331
14,750
Change
(1%)
9%
15%
$
2019
70,230
40,791
12,805
Total Operating Expense
$ 140,887
9%
$ 128,756
4%
$ 123,826
Overall operating expenses increased by 9% in fiscal 2021 and 4% in fiscal 2020, each compared to the prior year. These increases compare
to revenue increases of 12% and 1%, respectively, for each comparative period.
Sales and Marketing
Sales and marketing expenses increased by 5% in fiscal 2021 compared to fiscal 2020 and decreased 1% in fiscal 2020 compared to the
prior year. As a percentage of sales, sales and marketing expense was 15.7%, 16.7% and 17.0% in fiscal years 2021, 2020 and 2019, respectively.
Fiscal 2021 – The $3.8 million, or 5%, increase in sales and marketing expenses in fiscal 2021 resulted primarily from increases in employee
compensation expenses such as salaries, bonuses, and commissions, reflecting the increase in sales for the year, as well as increased
headcount as we returned to normal staffing levels. In addition, shipping costs rose in line with revenues, health insurance costs rose
as employees and their families resumed receiving medical treatment and procedures which had been deferred in the fourth quarter of
the prior fiscal year. Advertising and outside services also increased to support the launch of a number of new products during the year,
most notably the Soleris NG and Accupoint NG readers. Partially offsetting these increases was $3 million in decreased spending for
travel and meals and entertainment for the year, the result of travel restrictions and reductions in face-to-face sales activities in most of
our markets for the majority of the year. Travel and in person customer meetings did begin to pick up in some geographic areas in the
second half of fiscal 2021 as COVID-19 restrictions were eased.
Fiscal 2020 – The $550,000 decline in sales and marketing expenses in fiscal 2020 was driven by a $1.3 million, or 7.4%, decline in spending
in this category in the fourth quarter of the year, caused by a reduction in business travel, meals and entertainment, trade shows, and
related marketing expenses, as the COVID-19 global pandemic resulted in strict travel restrictions and reductions in face to face sales
activities in many of our markets during the quarter. Partially offsetting these declines were higher compensation and related fringe
benefits, the result of increased headcount, increased shipping expenses, and higher regulatory expense due to product registration
efforts in our international markets.
16
General and Administrative:
General and administrative expenses rose 15% in fiscal 2021
compared to fiscal 2020 and by 9% in fiscal 2020 compared to
fiscal 2019. As a percentage of sales, general and administrative
expense was 10.9%, 10.6% and 9.8% in fiscal years 2021, 2020
and 2019, respectively.
Fiscal 2021 – In fiscal 2021, we spent $3.1 million on strategic
consulting, legal and other professional fees related to acquisition
activity for businesses which we were ultimately not successful
in acquiring. Excluding these costs, the increase in general and
administrative expense in fiscal 2021 was 8%. Other increases in
the current year included compensation increases due to increased
headcount, including the addition of a number of senior
management positions, incremental amortization expenses
(non-cash) resulting from recent acquisitions, and higher levels
of depreciation (non-cash) and related software and licensing
costs from continued investments in information technology
infrastructure and applications. Increases in this cost category
resulting from the Megazyme acquisition totaled $957,000.
Fiscal 2020 – Higher stock-based compensation costs and a
significant uptick in legal fees, driven in part from the number of
acquisitions completed during the year, resulted in the overall
9% expense increase. In addition, the Company continued to
invest in information technology infrastructure, network capabilities
and e-commerce initiatives. This resulted in higher depreciation
on IT-related hardware and increased license fees on software
investments. These increases were somewhat offset by a reduction
in outside consulting. General and administrative expenses at five
new company locations, the result of acquisitions in the second
half of fiscal 2020, totaled $520,000.
Research and Development:
Research and development expenses increased 10% in fiscal 2021
and 15% in fiscal 2020, each compared to the prior year. As a
percentage of revenue, these expenses were 3.5% in fiscal year
2021, 3.5% in fiscal year 2020 and 3.1% in fiscal year 2019; we expect
to spend between 3% and 4% of total revenue on research and
development annually as we continue to make investments in
our future growth.
Fiscal 2021 – The 10% increase in research and development
expenses in fiscal 2021 was primarily the result of increased
compensation expense, resulting from scheduled annual increases
and additional headcount from the Megazyme acquisition, project
expense relating to new product innovation, spending with outside
partners on the new readers launched in this fiscal year, and testing
and approval costs for new product development.
Fiscal 2020 – The 15% increase in research and development
expenses in fiscal 2020 was primarily the result of continued
spending with development partners for two new readers,
launched in fiscal 2021. Increased compensation expense, resulting
from investments in people as we heighten the development
capabilities of the group, higher depreciation expense from
continued investment in analytical equipment, and an increase
in contracted services also contributed to the expense growth.
Operating Income
(Dollars in thousands)
Operating Income
2021
74,169
$
Change
10%
$
2020
67,523
Change
(1%)
2019
68,094
$
Our operating income rose 10% in fiscal 2021 compared to fiscal 2020 and decreased by 1% in fiscal 2020 compared to fiscal 2019. Expressed
as a percentage of revenues, operating income was 15.8%, 16.1% and 16.4% in fiscal years 2021, 2020 and 2019, respectively.
Gross margins rose by $18.8 million, or 10% in fiscal 2021; this increase was partially offset by an increase of $12.1 million, or 9%, in operating
expenses, resulting in a $6.6 million, or 10%, increase in operating income compared to fiscal 2020.
Gross margins rose by $4.4 million in fiscal 2020; the increase was more than offset by an overall increase of $4.9 million, or 4.0%, in operating
expenses, resulting in a 1% decrease in operating income compared to fiscal 2019.
17
Other Income (Expense)
Other Income (Expense) for the previous three fiscal years consisted of the following:
(Dollars in thousands)
Interest income (net of expense)
Foreign currency transactions
Royalty income
Licenses and settlements
Quat-Chem contingent consideration
Deoxi contingent consideration
Magiar contingent consideration
Livestock Genomics contingent consideration
Other
Total Other Income
2021
1,614
(541)
-
9
-
-
111
37
(131)
1,099
$
$
2020
5,992
(1,178)
1
(38)
-
-
-
-
5
4,782
$
$
2019
4,683
(1,279)
150
672
422
(10)
-
-
227
4,865
$
$
Interest income declined by $4.4 million in fiscal 2021 compared to fiscal 2020, despite higher cash and marketable securities balances,
as yields on fixed income securities declined significantly during the year; the U.S. Federal Reserve intervened in markets to lower rates
to stimulate the economy during the COVID-19 pandemic. Interest income rose in fiscal year 2020 compared to fiscal 2019, due to higher
cash balances and rising interest rates during most of fiscal 2020. The loss from foreign currency translations in fiscal years 2021, 2020
and 2019 is primarily the result of the changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate;
the dollar strengthened against most of these currencies in all three years.
In fiscal 2021, we received proceeds of $309,000 for a property loss settlement and recorded $300,000 of expense resulting from a legal
settlement with a vendor. Additionally, adjustments to contingent consideration accruals resulted in $148,000 of income. In fiscal 2020, we
took a charge to expense and recorded a reserve of $600,000 to provide for potential fines or penalties resulting from an administrative
subpoena issued by the U.S. Treasury Department’s Office of Foreign Asset Control. This was partially offset by a $483,000 gain resulting
from a settlement with the Brazilian government related to sales taxes charged over several years, and proceeds received for a property
loss settlement. In fiscal 2019, gains were recognized on insurance proceeds received for property loss settlements; additionally, adjustments
were made to Quat-Chem and Deoxi contingent consideration amounts based on the level of achievement of revenue targets for the
acquired businesses in that fiscal year.
Provision for Income Taxes
(Dollars in thousands)
2021
Change
2020
Change
2019
Provision for Income Taxes
$ 14,386
12%
$ 12,830
0%
$ 12,783
Income tax expense for fiscal 2021 was $14,386 million, an effective tax rate of 19.1%, compared to income tax expense of $12.8 million
in 2020, an effective tax rate of 17.7%. For fiscal 2019, income tax expense of $12.8 million represented an effective tax rate of 17.5%.
Differences from the U. S. statutory rate of 21% to our effective rate are primarily due to provisions in the U.S. Tax Act and the exercise of
stock options. Please refer to Note 6 to the consolidated financial statements for more information.
Net Income and Income Per Share
(Dollars in thousands—except per share data)
Net Income
Net Income Per Share—Basic
Net Income Per Share—Diluted
2021
Change
2020
Change
2019
$ 60,882
2%
$ 59,475
(1%)
$ 60,176
0.57
0.57
0.57
0.56
0.58
0.57
Net income increased 2% in fiscal 2021 compared to fiscal 2020, primarily due to the $6.7 million increase in operating income. The
increase in operating income was partially offset by lower other income and higher tax expense for the year.
Net income decreased $701,000 in fiscal 2020 compared to fiscal 2019, primarily due to the $654,000 decrease in in pre-tax income.
18
Future Operating Results
Neogen Corporation’s future operating results involve a number
of risks and uncertainties. Actual events or results may differ
materially from those discussed in this report. Factors that could
cause or contribute to such differences include, but are not limited
to, the factors discussed below as well as those discussed elsewhere
in this report. Management’s ability to grow the business in the
future depends upon our ability to successfully implement various
strategies, including:
• developing, manufacturing and marketing new products
with new features and capabilities, and having those new
products successfully accepted in the marketplace;
• expanding our markets by fostering increased use of our
products by customers;
• maintaining or increasing gross and net operating margins
in changing cost environments;
• strengthening operations and sales and marketing
activities in geographies outside of the U.S.;
• developing and implementing new technology development
strategies; and
•
identifying and completing acquisitions that enhance existing
product categories or create new products or services.
Financial Condition and Liquidity
On May 31, 2021, we had $75.6 million in cash and cash equivalents,
$305.5 million in marketable securities, and net working capital of
$537.9 million. For the year ended May 31, 2021, cash generated from
operating activities was $81.2 million, compared to $85.9 million
generated in fiscal 2020; proceeds from stock option exercises
provided an additional $34.6 million of cash. For the same period,
additions to property, equipment and other non-current assets
were $26.7 million and business acquisitions used cash of $52.0
million. We have a financing agreement with a bank providing
for an unsecured revolving line of credit of $15.0 million, which
expires on November 30, 2023. There were no advances against
this line of credit during fiscal years 2021, 2020 and 2019, and no
balance outstanding at May 31, 2021 and 2020.
Net accounts receivable at May 31, 2021 were $91.8 million, compared
to $84.7 million at May 31, 2020; the increase is primarily due to
the increased sales in the fourth quarter of fiscal 2021 compared
to the corresponding period a year ago. Our days sales outstanding,
a measurement of the time it takes to collect receivables, improved
to 66 days at May 31, 2021 compared to 68 days at May 31, 2020.
We have been carefully monitoring our customer receivables as the
COVID-19 pandemic has spread across our global markets; to date,
although there has been some slowdown in collections, we have
not experienced an appreciable increase in bad debt write offs.
Inventory balances were $100.7 million at May 31, 2021, an increase
of $5.6 million, or 6%, compared to $95.1 million at May 31, 2020;
excluding inventory from the Megazyme acquisition in December
2020, our inventory is flat compared to a year ago. While we took
proactive measures over the last 18 months to ensure adequate
supply of inventory during the COVID-19 pandemic, we have also
continued to focus on improving inventory turns across the business.
Neogen has been consistently profitable and has generated strong
cash flow from operations during each of the past three fiscal years.
However, our cash on hand and current borrowing capacity may
not be sufficient to meet our cash requirements to commercialize
products currently under development or our future plans to acquire
additional businesses, technology and products that fit within
our strategic plan. Accordingly, we may be required, or may choose,
to issue equity securities or enter into other financing arrangements
for a portion of our future capital needs.
We are subject to certain legal and other proceedings in the normal
course of business that have not had, and, in the opinion of
management, are not expected to have, a material effect on our
results of operations or financial position.
Contractual Obligations
As of May 31, 2021, we have the following contractual obligations due by period:
(Dollars in thousands)
Long-Term Debt
Operating Leases
Unconditional Purchase Obligations (1)
Total
Less than
one year
1–3 years
3–5 years
$
–
$
–
$
–
$
2,574
1,313
84,265
83,773
1,219
488
$ 86,839
$ 85,086
$
1,707
$
–
42
4
46
More than
5 years
$
$
–
–
–
–
(1) Unconditional purchase obligations are primarily purchase orders for future inventory and capital equipment purchases.
New Accounting Pronouncements
See discussion of any New Accounting Pronouncements in Note 1 to consolidated financial statements.
19
Neogen Corporation and Subsidiaries: Consolidated Balance Sheets
ASSETS (In thousands)
Current Assets
Cash and cash equivalents
Marketable securities
Accounts receivable, less allowance of $1,400 and $1,350 at May 31, 2021 and 2020, respectively
Inventories
Prepaid expenses and other current assets
$
Total Current Assets
Property and Equipment
Land and improvements
Buildings and improvements
Machinery and equipment
Furniture and fixtures
Construction in progress
Less accumulated depreciation
Net Property and Equipment
Other Assets
Right of use assets
Goodwill
Other non-amortizable intangible assets
Amortizable intangible assets, net of accumulated amortization of
$53,462 and $44,690 at May 31, 2021 and 2020, respectively
Other non-current assests
Total Other Assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY (In thousands, except shares and per share)
Current Liabilities
Accounts payable
Accruals
Accrued compensation
Income taxes
Other accruals
Total Current Liabilities
Deferred Income Taxes
Other Non-Current Liabilities
Total Liabilities
Commitments and Contingencies (Note 7)
Stockholders’ Equity
Preferred stock, $1.00 par value – shares authorized 100,000; none issued and outstanding
Common stock, $0.16 par value — shares authorized 120,000,000; 107,468,304 and
105,891,682 shares issued and outstanding at May 31, 2021 and 2020, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total Neogen Corporation and Subsidiaries Stockholders' Equity
Total Liabilities and Stockholders' Equity
20
May 31
2021
2020
75,602
305,485
91,823
100,701
17,840
591,451
7,783
72,754
108,194
6,270
3,261
198,262
(97,809)
100,453
2,477
131,476
15,545
76,771
2,019
228,288
$
66,269
277,404
84,681
95,053
13,999
537,406
5,456
48,881
90,351
4,324
4,968
153,980
(75,309)
78,671
1,952
110,340
15,217
51,364
2,232
181,105
May 31
2021
2020
$
23,900
$
25,650
11,251
1,848
16,600
53,599
21,917
4,299
79,815
7,735
1,456
13,648
48,489
18,125
5,391
72,005
–
–
17,195
294,953
(11,375)
539,604
840,377
$ 920,192
16,943
249,221
(19,709)
478,722
725,177
$ 797,182
$ 920,192
$ 797,182
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
Neogen Corporation and Subsidiaries: Consolidated Statements of Income
REVENUES (In thousands, except per share)
Product revenues
Service revenues
Total Revenues
Cost of Revenues
Cost of product revenues
Cost of service revenues
Total Cost of Revenues
Gross Margin
Operating Expenses
Sales and marketing
General and administrative
Research and development
Total Operating Expenses
Operating Income
Other Income
Interest income, net
Royalty income
Other, net
Total Other Income
Income Before Income Taxes
Provision for Income Taxes
Net Income
Net Income per Share
Basic
Diluted
Weighted Average Shares Outstanding
Basic
Diluted
$
2021
376,302
92,157
468,459
201,348
52,055
253,403
215,056
73,443
51,197
16,247
140,887
74,169
1,614
-
(515)
1,099
75,268
14,386
60,882
Year Ended May 31
$
2020
335,539
82,631
418,170
173,566
48,325
221,891
196,279
69,675
44,331
14,750
128,756
67,523
5,992
-
(1,210)
4,782
72,305
12,830
59,475
$
2019
339,439
74,747
414,186
179,660
42,606
222,266
191,920
70,230
40,791
12,805
123,826
68,094
4,683
150
32
4,865
72,959
12,783
60,176
$
$
0.57
0.57
$
$
0.57
0.56
$
$
0.58
0.57
106,499
107,120
105,100
105,720
103,776
104,850
See accompanying notes to consolidated financial statements.
Neogen Corporation and Subsidiaries: Consolidated Statements of
Comprehensive Income
(In thousands)
Net Income
Other comprehensive income (loss), net of tax: foreign currency translations
Other comprehensive income (loss), net of tax: unrealized gain on marketable securities
Comprehensive income
Year Ended May 31
2021
2020
2019
$
60,882
$
59,475
$
60,176
8,602
(268)
(8,495)
426
(1,894)
–
$
69,216
$
51,406
$
58,282
See accompanying notes to consolidated financial statements.
21
Neogen Corporation and Subsidiaries: Consolidated Statements of Equity
(In thousands, except shares)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Equity
Balance, June 1, 2018
103,471,464
$ 16,555
$ 194,295
$
(9,746)
$ 359,071
$ 560,175
Exercise of options and share-based
compensation expense
Issuance of shares under
employee stock purchase plan
Shares repurchased
Net income for 2019
Other comprehensive loss
Balance, May 31, 2019
Exercise of options and share-based
compensation expense
Issuance of shares under
1,025,054
164
21,253
36,660
(100,000)
–
–
6
(16)
–
–
1,154
(3,119)
–
–
–
–
–
–
–
–
–
21,417
1,160
(3,135)
60,176
60,176
(1,894)
–
(1,894)
104,433,178
16,709
213,583
(11,640)
419,247
637,899
1,415,348
227
34,452
–
–
–
–
34,679
1,193
59,475
59,475
(8,069)
–
(8,069)
employee stock purchase plan
43,156
Net income for 2020
Other comprehensive loss
–
–
7
–
–
1,186
–
–
Balance, May 31, 2020
105,891,682
16,943
249,221
(19,709)
478,722
725,177
Exercise of options and share-based compensation
expense
Issuance of shares under
employee stock purchase plan
Issuance of shares for
Megazyme acquisition
Net income for 2021
Other comprehensive gain
Balance, May 31, 2021
1,410,948
226
39,454
38,406
6
1,382
127,268
20
4,896
–
–
–
–
–
–
–
–
–
–
–
–
–
39,680
1,388
4,916
60,882
60,882
8,334
–
8,334
107,468,304
$ 17,195
$ 294,953
$ (11,375)
$ 539,604
$ 840,377
See accompanying notes to consolidated financial statements.
22
Neogen Corporation and Subsidiaries: Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization
Deferred income taxes
Share-based compensation
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accruals and other changes
Net Cash From Operating Activities
Cash Flows Used For Investing Activities
Purchases of property, equipment and other non-current intangible assets
Proceeds from the maturities of marketable securities
Purchases of marketable securities
Business acquisitions, net of cash acquired
Net Cash Used For Investing Activities
Cash Flows From Financing Activities
Exercise of stock options and other
Payment of contingent consideration
Repurchase of common stock
Net Cash From Financing Activities
Effects of Foreign Exchange Rate on Cash
Net Increase (Decrease) In Cash and Cash Equivalents
Cash And Cash Equivalents, Beginning of Year
Cash And Cash Equivalents, End of Year
Supplementary Cash Flow Information
Income taxes paid, net of refunds
Year ended May 31
2021
2020
2019
$
60,882
$
59,475
$
60,176
21,041
(640)
6,437
(2,595)
2,450
(3,386)
(3,206)
106
81,089
(26,712)
764,597
(792,678)
(50,771)
(105,564)
34,631
(1,087)
–
33,544
264
9,333
66,269
18,396
1,601
6,468
(2,881)
(10,011)
(1,017)
6,745
7,102
85,878
(24,052)
406,731
(458,300)
(13,164)
(88,785)
29,405
–
–
29,405
(1,917)
24,581
41,688
17,624
1,197
5,543
(4,025)
(10,437)
(3,569)
(1,461)
(1,206)
63,842
(14,661)
339,225
(437,324)
(6,388)
(119,148)
17,034
–
(3,135)
13,899
21
(41,386)
83,074
$
75,602
$
66,269
$
41,688
$
14,966
$
7,364
$
13,027
See accompanying notes to consolidated financial statements.
23
Neogen Corporation and Subsidiaries: Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Nature of Operations
Neogen Corporation develops, manufactures and markets a diverse line of products and services dedicated to food and animal safety.
Basis of Consolidation
The consolidated financial statements include the accounts of Neogen Corporation and its subsidiaries, all of which are wholly-owned
as of May 31, 2021.
All intercompany accounts and transactions have been eliminated in consolidation.
Share and per share amounts reflect the June 4, 2021 2-for-1 stock split as if it took place at the beginning of the periods presented.
Functional Currency
Our functional currency is the U.S. dollar. We translate our non-
U.S. operations’ assets and liabilities denominated in foreign
currencies into U.S. dollars at current rates of exchange as of the
balance sheet date and income and expense items at the average
exchange rate for the reporting period. Translation adjustments
resulting from exchange rate fluctuations are recorded in other
comprehensive income (loss). Gains or losses from foreign currency
transactions are included in other income (expense) on our
consolidated statement of income.
Recently Adopted Accounting Standards
Financial Instruments - Credit Losses
On June 1, 2020, the Company adopted ASU No. 2016-13—
Measurement of Credit Losses on Financial Instruments, which
changes how the Company measures 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 the Company 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. The
adoption of this guidance did not have a material impact on our
consolidated financial statements due to the Company’s short-
term contractual life of receivables and minimal expected losses.
Fair Value Measurements
On June 1, 2020, the Company adopted 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.
The adoption of this guidance did not have an impact on our
consolidated financial statements.
Cloud Computing Implementation Cost
On June 1, 2020, the Company adopted 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. The adoption of this guidance did not have an impact
on our consolidated financial statements.
Recent Accounting Pronouncements
Not Yet Adopted
Reference Rate Reform
In March 2020, FASB issued Update 2020-04, Reference Rate Reform
(Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting. This update provides temporary optional
expedients to applying the reference rate reform guidance to
contracts that reference LIBOR or another reference rate expected
to be discontinued. Under this update, contract modifications
resulting in a new reference rate may be accounted for as a
continuation of the existing contract. This guidance is effective
upon issuance of the update and applies to contract modifications
made through December 31, 2022. We will adopt this standard
when LIBOR is discontinued. We are evaluating the impact the
new standard will have on our consolidated financial statements
and related disclosures but do not anticipate a material impact.
Income Tax Simplification
In December 2019, the Financial Accounting Standards Board
(“FASB”) issued Update 2019-12, Income Taxes (“Topic 740”)
as part of its Simplification Initiative. This guidance provides
amendments to simplify the accounting for income taxes by
removing certain exceptions to the general principles in Topic
740. The amendments also improve consistent application
of and simplify GAAP for other areas of Topic 740 by clarifying
and amending existing guidance. This guidance is effective for
annual and interim reporting periods beginning after December
15, 2020, and early adoption is permitted. We plan to adopt
during the first quarter of 2021, and we expect an immaterial
impact to our consolidated financial statements.
24
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 stockholders’ equity. Accumulated
other comprehensive income (loss) consists of foreign currency translation adjustments and unrealized gains and losses on our
marketable securities.
Changes in our Accumulated Other Comprehensive Income (Loss) (“AOCI”) balances, net of tax, were as follows:
(In thousands)
Balance, May 31, 2019
Other comprehensive income (loss)
Balance, May 31, 2020
Other comprehensive income (loss)
Balance, May 31, 2021
Foreign Currency
Translation Adjustments
Unrealized Gain on
Marketable Securities
$
$
$
$
(11,640)
(8,495)
(20,135)
8,602
(11,533)
$
$
-
426
426
(268)
158
Total AOCI
(11,640)
(8,069)
(19,709)
8,334
(11,375)
$
$
$
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. Cash and cash equivalents
are maintained at financial institutions and, at times, balances
may exceed federally insured limits. The Company has not
experienced losses related to these balances and believes it is not
exposed to significant credit risk regarding its cash and cash
equivalents. Cash and cash equivalents were $75,602,000 and
$66,269,000 at May 31, 2021 and 2020, respectively. The carrying
value of these assets approximates fair value due to the short
maturity of these instruments and is classified as Level 1 in the fair
value hierarchy. Cash held by foreign subsidiaries was $15,246,000
and $13,060,000 at May 31, 2021 and 2020, respectively.
Marketable Securities
The Company has marketable securities held by banks or broker-
dealers at May 31, 2021, consisting of short-term domestic
certificates of deposit of $5,785,000 and commercial paper and
corporate bonds rated at least A-1/P-1 (short-term) and A/A2 (long-
term) with original maturities between 91 days and two years of
$299,700,000. Total outstanding marketable securities at May 31,
2021 were $305,485,000; there were $277,404,000 in marketable
securities outstanding at May 31, 2020. Changes in market value
are monitored and recorded on a monthly basis; in the event of
a downgrade in credit quality subsequent to purchase, the
marketable security investment is evaluated to determine the
appropriate action to take to minimize the overall risk to our
marketable security portfolio. As these securities are highly rated
and short-term in nature, they have very little credit risk; therefore,
the Company does not believe a reserve for expected credit losses
on marketable securities is material. These securities are classified
as available for sale. The primary objective of management’s 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 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 our consolidated statements of income.
Adjustments in the fair value of these assets are recorded in
other comprehensive income.
25
Marketable Securities as of May 31, 2021 and 2020 are listed below by classification and remaining maturities.
(In thousands)
U.S. Treasuries
Commercial Paper & Corporate Bonds
Certificates of Deposit
Total Marketable Securities
Maturity
0 – 90 days
91 – 180 days
181 days – 1 year
1 – 2 years
0 – 90 days
91 – 180 days
181 days – 1 year
1 – 2 years
0 – 90 days
91 – 180 days
181 days – 1 year
1 – 2 years
2021
–
–
–
–
106,631
78,727
87,590
26,752
3,262
1,260
1,263
–
305,485
$
$
The components of marketable securities as of May 31, 2021 are as follows:
(In thousands)
U.S. Treasuries
Commercial Paper & Corporate Bonds
Certificates of Deposit
Total Marketable Securities
Amortized Cost
–
$
299,524
5,755
305,279
$
Unrealized Gains
–
$
209
30
239
$
Unrealized Losses
$
$
–
(33)
–
(33)
The components of marketable securities as of May 31, 2020 are as follows:
(In thousands)
U.S. Treasuries
Commercial Paper & Corporate Bonds
Certificates of Deposit
Total Marketable Securities
Amortized Cost
2,502
$
257,700
16,648
276,850
$
$
Unrealized Gains
30
347
200
577
$
Unrealized Losses
$
$
–
(23)
–
(23)
May 31
$
$
$
$
$
$
2020
–
–
2,532
–
133,130
73,824
43,231
7,839
1,003
5,184
6,069
4,592
277,404
Fair Value
–
299,700
5,785
305,485
Fair Value
2,532
258,024
16,848
277,404
Use of Estimates
The preparation of these consolidated 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. We believe that these estimates have the greatest potential
impact on our financial statements, so we consider them to be our critical accounting policies and estimates. 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.
Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use
the best information available to inform our critical accounting estimates. Actual results may differ from these estimates under different
assumptions or conditions.
Accounts Receivable and Concentrations of Credit Risk
Financial instruments which potentially subject Neogen to concentrations of credit risk consist principally of accounts receivable. Management
attempts to minimize credit risk by reviewing customers’ credit histories before extending credit and by monitoring credit exposure on
a regular basis. Collateral or other security is generally not required for accounts receivable. We maintain an allowance for customer
accounts that reduces receivables to amounts that are expected to be collected. In estimating the allowance for doubtful accounts,
management considers relevant information about past events, current conditions and reasonable and supportable forecasts that affect
the collectability of financial assets. Once a receivable balance has been determined to be uncollectible, generally after all collection efforts
have been exhausted, that amount is charged against the allowance for doubtful accounts. No customer accounted for more than 10%
of accounts receivable May 31, 2021 or 2020, respectively.
26
The activity in the allowance for doubtful accounts was as follows:
(In thousands)
Beginning Balance
Provision
Recoveries
Write-offs
Ending Balance
2021
1,350
239
139
(328)
1,400
$
$
May 31
2020
1,700
393
49
(792)
1,350
$
$
2019
1,550
263
38
(151)
1,700
$
$
Inventories
Inventories are stated at the lower of cost or net realizable value, determined on the first-in, first-out method. The components
of inventories were as follows:
(In thousands)
Raw materials
Work-in-process
Finished goods
May 31
2021
47,588
6,412
46,701
100,701
$
$
2020
45,058
6,887
43,108
95,053
$
$
The Company’s inventories are analyzed for slow moving, expired and obsolete items on a quarterly basis and the valuation
allowance is adjusted as required within cost of sales expense. The valuation allowance for inventory was $3,100,000 and
$2,850,000 at May 31, 2021 and 2020, respectively.
Property and Equipment
Property and equipment is stated at cost. Expenditures for major
improvements are capitalized while repairs and maintenance are
charged to expense as incurred. Depreciation is provided on the
straight-line method over the estimated useful lives of the respective
assets, which are generally seven to 39 years for buildings and
improvements and three to ten years for furniture, fixtures, machinery
and equipment. Depreciation expense was $13,288,000, $11,907,000
and $11,315,000 in fiscal years 2021, 2020 and 2019, respectively.
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. Amortizable
intangible assets are amortized on either an accelerated or a straight-
line basis, generally over 5 to 25 years. Management reviews 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. In evaluating goodwill
for impairment, we have the option to first assess the qualitative
factors to determine whether it is more likely than not that the fair
value of the reporting unit is less than its carrying amount as a
basis for determining whether it is necessary to perform the
goodwill impairment test. In contrast, we can opt to bypass the
qualitative assessment for any reporting unit in any period and
proceed directly to assessing the fair value of all of our reporting
units and compare the fair value of the reporting unit to carrying
value to determine if any impairment is necessary. Doing so does
not preclude us from performing the qualitative assessment in
any subsequent period. In the fourth quarter of fiscal 2021, we elected
to bypass the qualitative approach that allows the assessment
of qualitative factors to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying
amount and instead proceeded directly to assessing the fair
value of all of our reporting units and comparing the fair values
of the reporting units to the carrying values to determine if any
impairment is necessary.
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 earnings multiples of peer companies, such assets
are reduced to their estimated fair value and a charge is made to
operations. No goodwill impairments were identified during the
years ended May 31, 2021, 2020 and 2019, respectively. The remaining
weighted-average amortization period for intangibles was 10 years
and 9 years at May 31, 2021 and May 31, 2020, respectively.
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 are less than the carrying value of the asset. 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. No impairments of long-lived
assets were identified during the years ended May 31, 2021, 2020
and 2019, respectively.
27
Reclassifications
Certain immaterial amounts in the fiscal 2020 and 2019 consolidated financial statements have been reclassified to conform with the fiscal
2021 presentation.
Equity Compensation Plans
At May 31, 2021, the Company had stock option plans which are described more fully in Note 5 to the consolidated financial statements.
We measure stock-based compensation at the grant date, based on the estimated fair value of the award, and recognize the cost (net
of estimated forfeitures) as compensation expense on a straight-line basis over the requisite service period. Our stock-based compensation
expense is reflected in general and administrative expense in our consolidated statements of income.
The weighted-average fair value per share of stock options granted during fiscal years 2021, 2020 and 2019, estimated on the date of grant
using the Black-Scholes option pricing model, was $7.71, $7.78 and $7.46, respectively.
The fair value of stock options granted was estimated using the following weighted-average assumptions:
2021
0.2%
0.0%
31.3%
3.25 years
Year ended May 31
2020
1.9%
0.0%
29.4%
3.5 years
2019
2.6%
0.0%
27.0%
3.5 years
Our wholly-owned foreign subsidiaries are comprised of Neogen
Europe, Quat-Chem Ltd, Megazyme Ltd, Megazyme IP, Neogen Italia
S.r.l., Neogen do Brasil, Rogama Industria e Comercio Ltda, Neogen
Latinoamérica, Neogen Argentina, Neogen Uruguay, Neogen Chile
SpA, Neogen Bio-Scientific Technology Co (Shanghai), Neogen Food
and Animal Security (India), Neogen Canada, and Neogen Australasia
Pty Limited. Based on historical experience, as well as management’s
future plans, earnings from these subsidiaries are expected to be
re-invested indefinitely for future expansion and working capital
needs. Furthermore, our domestic operations have historically
produced sufficient operating cash flow to mitigate the need to remit
foreign earnings. On an annual basis, we evaluate the current
business environment and whether any new events or other
external changes might require a re-evaluation of the decision
to indefinitely re-invest foreign earnings. It is not practicable to
determine the income tax liability that would be payable if such
earnings were not reinvested indefinitely.
Research and Development Costs
Research and development costs, which consist primarily of
compensation costs, administrative expenses and new product
development, among other items, are expensed as incurred.
Advertising Costs
Advertising costs are expensed within sales and marketing as
incurred and totaled $1,687,000, $1,454,000 and $1,471,000 in
fiscal years 2021, 2020 and 2019, respectively.
Risk-free interest rate
Expected dividend yield
Expected stock volatility
Expected option life
The risk-free interest rate for periods within the expected life of
options granted is based on the United States Treasury yield curve
in effect at the time of grant. Expected stock price volatility is
based on historical volatility of the Company’s stock. The expected
option life, representing the period of time that options granted
are expected to be outstanding, is based on historical option
exercise and employee termination data. We include recent
historical experience in estimating our forfeitures. As employees
terminate, grant tranches expire or as forfeitures are known,
estimated expense is adjusted to actual. For options granted in
fiscal years 2021, 2020 and 2019, the Company recorded charges
in general and administrative expense based on the fair value
of stock options using the straight-line method over the vesting
period, generally five years.
The Company also issues restricted stock units (RSUs), which
are described more fully in Note 5 to the consolidated financial
statements. The RSUs generally vest over three to five years and
have a weighted average value of $34.21 in fiscal 2021, which
was the first year this type of award was issued.
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.
28
Net Income per Share
Basic net income per share is based on the weighted average number of common shares outstanding during each year. Diluted
earnings per share is based on the weighted average number of common shares and dilutive potential common shares
outstanding. Our dilutive potential common shares outstanding during the years result entirely from dilutive stock options.
The following table presents the net income per share calculations:
(In thousands, except per share)
Numerator for basic and diluted net income per share – Net income
Denominator for basic net income per share – Weighted average shares
Effect of dilutive stock options
Denominator for diluted net income per share
Net income per share
Basic
Diluted
2021
60,882
106,499
621
107,120
$
Year Ended May 31
2020
59,475
105,100
620
105,720
$
2019
60,176
103,776
1,074
104,850
0.57
0.57
$
$
0.57
0.56
$
$
0.58
0.57
$
$
$
At May 31, 2021, no potential shares from option exercises were
excluded from the computation of diluted net income per share,
as the option exercise prices did not exceed the average market
price of the common shares. At May 31, 2020, 56,000 potential
shares were excluded from the computation. At May 31, 2019,
10,000 potential shares were excluded from the computation.
Leases
On June 1, 2019, we adopted Topic 842 using the prospective
approach and did not retrospectively apply to prior periods. Topic
842 requires the Company to 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. Upon adoption of Topic 842, 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. 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. 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.
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 of 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.
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 (i.e. leases
with a term of 12 months or less).
• 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 our estimate of
what we would normally pay to borrow on a collateralized basis
over a similar term an amount equal to the lease payments.
29
Supplemental balance sheet information related to operating leases was as follows:
(In thousands)
Right of use – assets
Lease liabilities – current
Lease liabilities – non-current
Year Ended
May 31, 2021
2,477
$
Year Ended
May 31, 2020
1,952
$
1,285
1,207
1,054
913
The weighted average remaining lease term and weighted average discount rate were as follows:
Weighted average remaining lease term
Weighted average discount rate
May 31, 2021
May 31, 2020
2 years
2.0%
2.5 years
3.2%
Operating lease expenses are classified as cost of revenues or operating expenses on the consolidated statements of income.
The components of lease expense were as follows:
(In thousands)
Operating leases
Short term leases
Total lease expense
Year Ended
May 31, 2021
1,352
$
134
1,486
$
Year Ended
May 31, 2020
1,207
$
166
1,373
$
Cash paid for amounts included in the measurement of lease
liabilities for operating leases included in cash flows from
operations on the statement of cash flows was approximately
$1,397,000, $1,178,000 and $1,633,000 for the years ended
May 31, 2021, 2020 and 2019, respectively. There were no
non-cash additions to right-of-use assets obtained from new
operating lease liabilities for the year ended May 31, 2021.
Maturities of operating lease liabilities as of May 31, 2021 are as follows:
Amount
1,313
$
874
345
42
–
2,574
(82)
2,492
$
$
(In thousands)
Years ending May 31, 2022
2023
2024
2025
2026 and thereafter
Total lease payments
Less: imputed interest
Total lease liabilities
30
Revenue Recognition
We determine 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 Neogen’s revenue is generated through contracts
with its customers. A performance obligation is a promise in a
contract to transfer a product or service to a customer. We generally
recognized revenue at a point in time when all of our performance
obligations under the terms of a contract are satisfied. Revenue is
recognized upon transfer of control of promised products or
services in an amount that reflects the consideration we expect 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.
Certain agreements with customers include discounts or rebates
on the sale of products and services applied retrospectively, such
as volume rebates achieved by purchasing a specified purchase
threshold of goods and services. We account for these discounts
as variable consideration and estimate the likelihood of a customer
meeting the threshold in order to determine the transaction price
using the most predictive approach. We typically use the most-
likely-amount method, for incentives that are offered to individual
customers, and the expected-value method, for programs that are
offered to a broad group of customers. Variable consideration reduces
the amount of revenue that is recognized. Rebate obligations related
to customer incentive programs are recorded in accrued liabilities;
the rebate estimates are adjusted at the end of each applicable
measurement period based on information currently available.
The performance obligations in Neogen’s contracts are generally
satisfied well within one year of contract inception. In such cases,
management has elected the practical expedient to not adjust
the promised amount of consideration for the effects of a significant
financing component. Management has 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. We account for shipping and
handling for products as a fulfillment activity when goods are
shipped. Shipping and handling costs that are charged to and
reimbursed by the customer are recognized as revenues, while
the related expenses incurred by Neogen are recorded in sales
and marketing expense; these expenses totaled $15,180,000,
$13,514,000 and $13,503,000 in fiscal years 2021, 2020 and 2019,
respectively. Revenue is recognized net of any tax collected from
customers; the taxes are subsequently remitted to governmental
authorities. Our 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.
The Company derives 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.
Revenue for Neogen’s 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 Neogen’s 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.
31
The following table presents disaggregated revenue by major product and service categories for the years ended May 31, 2021,
2020 and 2019:
(Dollars in thousands)
Food Safety:
2021
Change
2020
Change
2019
Year Ended May 31
Natural Toxins, Allergens & Drug Residues
$
76,614
Bacterial & General Sanitation
Culture Media & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
Animal Safety:
Life Sciences
Veterinary Instruments & Disposables
Animal Care & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
44,009
56,922
36,542
20,157
$ 234,244
5,715
48,128
35,897
77,458
67,017
234,215
1%
5%
19%
26%
12%
10%
(10%)
12%
26%
13%
14%
14%
$
76,207
41,780
47,847
28,890
17,967
212,691
6,322
42,941
28,389
68,815
59,012
205,479
Total Revenue
$ 468,459
12%
$
418,170
(3%)
0%
(4%)
13%
2%
0%
(20%)
(4%)
(5%)
4%
14%
2%
1%
$
78,373
41,966
49,857
25,584
17,694
213,474
7,858
44,582
29,941
66,389
51,942
200,712
$
414,186
See Note 9 to the consolidated financial statements for disaggregated revenues by geographical location.
2. Goodwill and Other Intangible Assets
Management completed the annual impairment analysis of goodwill and intangible assets with indefinite lives using a quantitative
assessment as of the first day of the fourth quarter of fiscal years 2021, 2020 and 2019, respectively, and determined that recorded
amounts were not impaired and that no write-down was necessary.
The following table summarizes goodwill by reportable segment:
(In thousands)
Balance, May 31, 2019
Goodwill acquired
Goodwill and/or currency adjustments (1)
Balance, May 31, 2020
Goodwill acquired
Goodwill and/or currency adjustments (1)
Balance, May 31, 2021
Food Safety
Animal Safety
Total
$
42,553
$
61,066
$
103,619
6,254
(1,592)
47,215
18,775
1,832
2,095
(36)
63,125
–
529
8,349
(1,628)
110,340
18,775
2,361
$
67,822
$
63,654
$
131,476
(1) Includes final purchase price allocation adjustments and currency adjustments for goodwill recorded at international locations.
At May 31, 2021, non-amortizable intangible assets included licenses of $569,000, trademarks of $13,752,000 and other intangibles of
$1,224,000. At May 31, 2020, non-amortizable intangible assets included licenses of $569,000, trademarks of $13,424,000 and other
intangibles of $1,224,000.
32
Amortizable intangible assets consisted of the following and are included in customer-based intangibles and other non-
current assets within the consolidated balance sheets:
(In thousands)
Licenses
Covenants not to compete
Patents
Customer-based intangibles
Other product and service-related intangibles
Balance, May 31, 2021
Licenses
Covenants not to compete
Patents
Customer-based intangibles
Other product and service-related intangibles
Balance, May 31, 2020
Gross
Carrying
Amount
16,913
1,006
8,363
76,384
27,567
130,233
10,346
706
8,509
59,847
16,646
96,054
$
$
Less
Accumulated
Amortization
$
$
4,580
571
4,243
35,209
8,859
53,462
3,330
407
4,118
29,898
6,937
44,690
Net
Carrying
Amount
12,333
435
4,120
41,175
18,708
76,771
7,016
299
4,391
29,949
9,709
51,364
$
$
Amortization expense for intangibles totaled $7,753,000, $6,489,000
and $6,309,000 in fiscal years 2021, 2020, and 2019, respectively.
The estimated amortization expense for each of the five succeeding
fiscal years is as follows: $8,331,000 in 2022, $7,639,000 in 2023,
$7,335,000 in 2024, $7,007,000 in 2025 and $6,943,000 in 2026.
The amortizable intangible assets useful lives are 2 to 20 years
for licenses, 2 to 13 years for covenants not to compete, 5 to 25
years for patents, 5 to 20 years for customer-based intangibles
and 5 to 20 years for other product and service-related intangibles,
which primarily consist of product formulations. All definite-
lived intangibles are amortized on a straight-line basis with the
exception of definite-lived customer-based intangibles and product
and service-related intangibles, which are amortized on either a
straight-line or an accelerated basis.
3. Business Combinations
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 described below relates
primarily to enhancing the Company’s strategic platform for the
expansion of available product offerings.
Fiscal 2019
On August 1, 2018, the Company acquired all of 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; this acquisition has given the Company the
ability to sell this product to new markets. Consideration for the
purchase was $4,204,000 in cash and $1,256,000 of contingent
consideration, due semiannually for the first five years, based on
an excess net sales formula. The final purchase price allocation,
based upon the fair value of these assets and liabilities determined
using the income approach, included inventory of $32,000,
machinery and equipment of $120,000, accounts payable of
$53,000, contingent consideration accrual of $1,256,000, non-
current deferred tax liability of $544,000, 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. Since February 2019, $450,000 has been 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.
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 had been a long-time
strategic partner of Neogen and the acquisition enhanced 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 up to $585,000 of contingent consideration, payable
over the next three years. The final 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
$942,000 (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. In September 2019, the former owner
was paid the $400,000 installment of the purchase price owed and
was also paid $107,000 in contingent consideration based on the
achievement of sales targets in the first year. In November 2020,
the former owner was paid $100,000 in contingent consideration
based on the achievement of sales targets in the second year; the
accrual was adjusted to the expected payment for the final year
and, as a result, $37,000 was recorded as a gain in Other Income.
Services provided by this operation are now performed at the
Company’s Lincoln, Nebraska location, reporting within the Animal
Safety segment.
33
On January 1, 2019, the Company acquired the assets of
Edmonton, Alberta based Delta Genomics Centre, an animal
genomics laboratory in Canada. Delta’s laboratory operations
were renamed Neogen Canada and the acquisition was intended
to accelerate growth of the Company’s animal genomics business
in Canada. Consideration for the purchase was $1,485,000 in cash.
The final purchase price allocation, based upon the fair value of
these assets and liabilities determined using the income approach,
included inventory of $38,000, machinery and equipment of
$371,000, unearned revenue liability of $125,000, intangible assets
of $532,000 (with an estimated life of 5 to 10 years) and the remainder
to goodwill (deductible for tax purposes). These values are Level
3 fair value measurements. Services provided by this operation
continue to be performed in Edmonton, reporting within the Animal
Safety segment.
Fiscal 2020
On January 1, 2020, the Company acquired all of the stock of
Productos Quimicos Magiar, a distributor of Neogen’s Food Safety
products for the past 20 years, located in Argentina. This acquisition
gives Neogen a direct sales presence in Argentina. Consideration
for the purchase was $3,776,000 in net cash, with $3,237,000 paid
at closing and $540,000 payable to the former owner on January
1, 2022, and up to $979,000 of contingent consideration, payable
in one year, based upon 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
accounts receivable of $603,000, inventory of $446,000, machinery
and equipment of $36,000, other current assets of $221,000, accounts
payable of $383,000, other current liabilities of $312,000, contingent
consideration accrual of $640,000, non-current deferred tax liabilities
of $441,000, intangible assets of $1,471,000 (with an estimated
life of 5-10 years) and the remainder to goodwill (non-deductible for
tax purposes). These values are Level 3 fair value measurements.
In February 2021, the former owner was paid $530,000 of contingent
consideration based on the achievement of sales targets; the
remaining $110,000 accrued but not earned was recorded as a gain
in Other Income in the third quarter of fiscal 2021. This operation
continues to operate from its current location in Buenos Aires,
Argentina, reporting within the Food Safety segment. It is managed
through Neogen’s Latin America operation.
On January 1, 2020, the Company acquired all of the stock of
Productos Quimicos Magiar, a distributor of Neogen’s Food Safety
products for the past 20 years, located in Uruguay. This acquisition
gives Neogen a direct sales presence in Uruguay. Consideration
for the purchase was $1,488,000 in net cash, with $1,278,000 paid
at closing and $210,000 payable to the former owner on January
1, 2022, and up to $241,000 in contingent consideration, payable
in one year, based upon 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
34
accounts receivable of $280,000, inventory of $174,000,
machinery and equipment of $16,000, other current assets of
$68,000, accounts payable of $204,000, other current liabilities of
$11,000, contingent consideration accrual of $159,000, non-current
deferred tax liabilities of $99,000, intangible assets of $398,000 (with
an estimated life of 5-10 years) and the remainder to goodwill
(non-deductible for tax purposes). These values are Level 3 fair
value measurements. In February 2021, the former owner was paid
$158,000 of contingent consideration based on the achievement of
sales targets; the remaining $1,000 accrued but not earned was
recorded as a gain in Other Income in the third quarter of fiscal
2021. This operation continues to operate from its current location
in Montevideo, Uruguay, reporting within the Food Safety segment.
It is managed through Neogen’s Latin America operation.
On January 9, 2020, the Company acquired all of the stock of
Diessechem Srl, a distributor of food and feed diagnostics for the
past 27 years, located in Italy. This acquisition gives Neogen a direct
sales presence in Italy. Consideration for the purchase was
$3,455,000 in net cash. The final purchase price allocation, based
upon the fair value of these assets and liabilities determined using
the income approach, included accounts receivable of $780,000,
inventory of $5,000, other current assets of $160,000, accounts
payable of $140,000, other current liabilities of $305,000, non-
current deferred tax liabilities of $294,000, intangible assets of
$1,225,000 (with an estimated life of 5-10 years) and the remainder
to goodwill (non-deductible for tax purposes). These values are
Level 3 fair value measurements. This operation continues to operate
from its current location in Milan, Italy, reporting within the Food
Safety segment. It is managed through Neogen’s Scotland operation.
On January 31, 2020, the Company acquired all of the stock of
Abtek Biologicals Limited, a manufacturer and supplier of culture
media supplements and microbiology technologies. This acquisition
enhances the Company’s culture media product line offering for
the worldwide industrial microbiology markets. Consideration for
the purchase was $1,401,000 in net cash, with $1,282,000 paid at
closing and $119,000 payable to the former owner on January 31,
2021. The final purchase price allocation, based upon the fair value
of these assets and liabilities determined using the income approach,
included accounts receivable of $135,000, inventory of $207,000,
machinery and equipment of $105,000, prepayments of $6,000,
accounts payable of $118,000, other current liabilities of $34,000,
non-current deferred tax liabilities of $92,000, intangible assets of
$484,000 (with an estimated life of 5-10 years) and the remainder
to goodwill (non-deductible for tax purposes). These values are
Level 3 fair value measurements. The final $119,000 owed was paid
to the former owner in January 2021. This manufacturing operation
continues to operate from its current location in Liverpool, England,
reporting within the Food Safety segment. It is managed through
Neogen’s Scotland operation.
On February 28, 2020, the Company acquired the assets of Cell
BioSciences, an Australian distributor of food safety and industrial
microbiology products. This acquisition gives Neogen a direct
sales presence across Australasia for its entire product portfolio.
Consideration for the purchase was $3,768,000 in cash, with
$3,596,000 paid at closing and $172,000 payable in one year. The
final purchase price allocation, based upon the fair value of these
assets and liabilities determined using the income approach,
included inventory of $420,000, unearned revenue liability of
$13,000, intangible assets of $1,338,000 (with an estimated life of
3 to 10 years) and the remainder to goodwill (non-deductible for
tax purposes). These values are Level 3 fair value measurements.
The final $172,000 owed was paid to the former owner in March
2021. The business operates in Gatton, Australia, reporting within
the Australian operations in the Animal Safety segment.
On March 26, 2020, the Company acquired the assets of Chile-
based Magiar Chilena, a distributor of food, animal and plant
diagnostics, including Neogen products. This acquisition gives
Neogen a direct sales presence in Chile. Consideration for the
purchase was $400,000 in cash, with $350,000 paid at closing
and $50,000 payable to the former owner on March 26, 2021. The
final purchase price allocation, based upon the fair value of these
assets and liabilities determined using the income approach,
included inventory of $164,000, machinery and equipment of
$53,000, and intangible assets of $183,000 (with an estimated life
of 5-10 years). The business is operated from its current location
in Santiago, Chile, reporting within the Food Safety segment. It is
managed through Neogen’s Latin America operation.
Fiscal 2021
On July 31, 2020, the Company acquired the U.S. (including territories)
rights to Elanco’s StandGuard Pour-on for horn fly and lice control
in beef cattle, and related assets. This product line fits in well with
Neogen’s existing agricultural insecticide portfolio and organizational
capabilities. Consideration for the purchase was $2,351,000 in cash,
all paid at closing. The final purchase price allocation, based upon
the fair value of these assets determined using the income
approach, included inventory of $51,000 and intangible assets
of $2,300,000 (with an estimated life of 15 years). This product
line is currently being toll manufactured for the Company but is
eventually expected to be manufactured at Neogen’s operation
in Iowa; the sales are reported within the Animal Safety segment.
On December 30, 2020, the Company acquired all of the stock of
Megazyme, Ltd, an Ireland-based company, and its wholly-owned
subsidiaries, U.S.-based Megazyme, Inc. and Ireland-based Megazyme
IP. Megazyme is a manufacturer and supplier of diagnostic assay
kits and enzymes to measure dietary fiber, complex carbohydrates
and enzymes in food and beverages as well as animal feeds. This
acquisition will allow Neogen to expand its commercial relationships
across food, feed and beverage companies, and provide additional
food quality diagnostic products to commercial labs and food
science research institutions. Consideration for the purchase was
net cash of $39.8 million paid at closing, $8.6 million of cash
placed in escrow payable to the former owner in two installments
in two and four years, $4.9 million of stock issued at closing, and
up to $2.5 million of contingent consideration, payable in two
installments over the next year, based upon an excess net sales
formula. The preliminary purchase price allocation, based upon
the fair value of these assets and liabilities determined using the
income approach, included accounts receivable of $1,376,000,
inventory of $5,595,000, net property, plant and equipment of
$12,599,000, prepayments of $69,000, accounts payable of $4,000,
other current liabilities of $1,815,000, contingent consideration
accrual of $2,458,000, non-current liabilities of $319,000, non-
current deferred tax liabilities of $3,306,000, intangible assets of
$22,945,000 (with an estimated life of 15-20 years) and the remainder
to goodwill (non-deductible for tax purposes). These values are
Level 3 fair value measurements. In February 2021, the former
owner was paid $1,229,000 for the first installment of contingent
consideration, based upon the achievement of sales targets. The
Irish companies continue to operate from their current locations
in Bray, Ireland, reporting within the Food Safety segment and
are managed through Neogen’s Scotland operation. The U.S.
company’s business is managed by our Lansing-based Food
Safety team.
For each acquisition listed above, the revenues and net income
were not considered material and were therefore not disclosed.
4. Long-Term Debt
The Company has a financing agreement with a bank providing
for a $15,000,000 unsecured revolving line of credit, which was
amended in the second quarter to extend the expiration to
November 30, 2023. There were no advances against the line of
credit during fiscal years 2021 and 2020; there was no balance
outstanding at May 31, 2021. Interest on any borrowings is LIBOR
plus 100 basis points (rate under the terms of the agreement
was 1.06% at May 31, 2021). See Note 1, Recent Accounting
Pronouncements Not Yet Adopted, for information on reference
rate reform. Financial covenants include maintaining specified
levels of tangible net worth, debt service coverage, and funded
debt to EBITDA; the Company believes it was in compliance with
these covenants at May 31, 2021.
35
5. Equity Compensation Plans
Incentive and non-qualified options to purchase shares of
common stock have been granted to directors, officers and
employees of Neogen under the terms of the Company’s stock
option plans. These options were granted at an exercise price
of not less than the fair market value of the stock on the date of
grant. Remaining shares available for grant under stock option
plans were 6,355,000, 7,002,000 and 7,994,000 at May 31, 2021,
2020 and 2019, respectively. Options vest ratably over three and
five-year periods and the contractual terms are generally five or
ten years.
(Options in thousands)
Outstanding at May 31, 2018 (1,016 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2019 (1,234 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2020 (972 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2021 (643 exercisable)
The following is a summary of stock options outstanding at May 31, 2021:
Options
$
Weighted-Average
Exercise Price
21.32
31.46
15.64
23.54
24.69
31.96
20.12
28.72
27.98
34.23
24.38
28.99
30.38
$
4,998
1,054
(1,026)
(256)
4,770
1,124
(1,438)
(132)
4,324
403
(1,389)
(381)
2,957
$
Weighted-Average
Grant Date Fair Value
5.72
7.46
4.46
6.21
6.35
7.78
5.53
7.10
6.98
7.71
6.31
7.20
7.36
$
(Options in thousands)
Range of Exercise Price
$10.75 – $20.00
$20.01 – $30.00
$30.01 – $31.50
$31.51 – $32.00
$32.01 – $35.28
Options Outstanding
Average
Contractual Life
(in years)
3.1
1.8
2.1
3.4
4.1
2.8
Weighted-Average
Exercise Price
15.65
$
22.55
30.87
31.95
34.07
$
30.38
Number
54
376
1,150
898
479
2,957
Options Exercisable
Number
51
150
299
101
42
643
Weighted-Average
Exercise Price
15.45
$
23.07
30.76
31.95
33.53
28.10
$
The weighted average exercise price of shares subject to options that were exercisable at May 31, 2020 and 2019 was $24.47
and $20.34, respectively.
Compensation expense related to share-based awards was $6,437,000, $6,468,000 and $5,543,000 in fiscal years 2021, 2020 and
2019, respectively. Remaining compensation cost to be expensed in future periods for non-vested options was $15,131,000 at
May 31, 2021, with a weighted average expense recognition period of 3.1 years.
(In thousands)
Aggregate intrinsic value of options outstanding
Aggregate intrinsic value of options exercisable
Aggregate intrinsic value of options exercised
Year Ended May 31
2021
46,667
11,617
22,349
$
$
$
2020
32,988
10,814
19,597
$
$
$
2019
22,798
10,222
21,382
$
$
$
The Company granted 118,250 restricted stock units (RSUs) to directors, officers and employees under the terms of the 2018 Omnibus
Incentive Plan in October 2020, which vest ratably over three and five year periods. RSUs have a weighted average value of $34.21 per
share and will be expensed straight-line over the remaining weighted-average period of 4.24 years. On May 31, 2021 there was $3,064,000 in
unamortized compensation cost related to non-vested RSUs.
36
The Company offers eligible employees the option to purchase common stock at a 5% discount to the lower of the market value of the
stock at the beginning or end of each participation period under the terms of the 2011 Employee Stock Purchase Plan; the discount is
recorded in general and administrative expense. Total individual purchases in any year are limited to 10% of compensation. Shares purchased
by employees through this program were 38,406 in fiscal 2021, 43,156 in fiscal 2020 and 36,660 in fiscal 2019. As of May 31, 2021, common
stock totaling 649,228 of the 1,425,000 authorized shares remained reserved for issuance under the plan.
6. Income Taxes
Income before income taxes by source consists of the following amounts:
(In thousands)
U.S.
Foreign
The provision for income taxes consists of the following:
(In thousands)
Current:
Domestic
Federal
Change in tax-related uncertainties
State
Foreign
Deferred:
Domestic
Federal
State
Foreign
2021
55,753
19,515
75,268
$
$
Year Ended May 31
2020
62,329
9,976
72,305
$
$
2019
58,479
14,480
72,959
$
$
Year Ended May 31
2021
2020
2019
$
6,981
$
6,886
$
7,173
(75)
2,147
4,875
479
44
(65)
269
1,262
2,475
1,964
195
(221)
13
1,265
3,758
1,031
98
(555)
Provision for Income Taxes
$
14,386
$
12,830
$
12,783
The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is as follows:
(In thousands)
Tax at U.S. statutory rate
Permanent differences
Global intangible low-taxed income (GILTI)
Foreign derived intangible income deduction (FDII)
Foreign rate differential
Subpart F income
Tax benefits on stock-based compensation
Changes in tax contingencies - Increase/(Release)
Provision for state income taxes, net of federal benefit
Tax credits
Other
Income Tax Expense
Year Ended May 31
2021
2020
2019
$
15,806
$
15,184
$
15,321
292
2,064
(1,210)
669
628
(2,651)
(76)
1,601
(3,298)
561
14,386
$
360
438
(1,120)
(182)
634
(1,998)
269
1,412
(1,417)
(750)
(56)
840
(1,531)
495
842
(2,586)
13
1,251
(1,726)
(80)
$
12,830
$
12,783
37
Foreign tax credits, primarily offsetting taxes associated with Subpart
F and GILTI income, were $2,753,000, $945,000 and $1,296,000
in fiscal years 2021, 2020 and 2019, respectively. The Company’s
research and development credits were $545,000, $472,000 and
$430,000 in fiscal years 2021, 2020 and 2019, respectively.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of our deferred income tax liabilities and assets are as follows:
(In thousands)
Deferred income tax liabilities
Indefinite and long-lived assets
Prepaid expenses
Deferred income tax assets
Stock options
Inventories and accounts receivable
Tax loss carryforwards
Accrued expenses and other
Valuation allowance on tax loss carryforwards
Net deferred income tax liabilities
The Company has the following net operating loss carryforwards:
(In thousands)
U.S.
Foreign
May 31
2021
2020
$
(25,072)
(721)
(25,793)
$
(20,867)
(795)
(21,662)
1,106
2,081
662
568
(541)
3,876
(21,917)
$
1,479
1,336
484
657
(419)
3,537
(18,125)
$
May 31, 2021
Expiry
$
$
345
1,938
2,283
2037 to indefinite
2024 to 2039
We are subject to income taxes in the U.S. (federal and state) and
in numerous foreign jurisdictions. Significant judgment is required
in evaluating our tax positions and determining our provision for
income taxes. During the ordinary course of business, there are
transactions and calculations for which the ultimate tax determination
is uncertain. We establish reserves for tax-related uncertainties
based on estimates of whether, and the extent to which, additional
taxes will be due. These reserves are established when we believe
that certain positions might be challenged despite our belief that
our tax return positions are fully supportable. We adjust these
reserves in light of changing facts and circumstances, such as
the outcome of tax audits. The provision for income taxes includes
the impact of reserve provisions and changes to reserves that are
considered appropriate.
The reconciliation of our tax-related uncertainties is as follows:
(In thousands)
Beginning balance
Increase/(decrease) related to prior periods
Increase to current period
Ending balance
2021
May 31
2020
880
$
611
$
(272)
197
805
$
56
213
880
$
2019
598
(106)
119
611
$
$
The Company is no longer subject to examination by the Internal Revenue Service for fiscal year 2017 and preceding years.
7. Commitments and Contingencies
The Company is involved in environmental remediation and
monitoring activities at its Randolph, Wisconsin manufacturing
facility and accrues for related costs when such costs are determined
to be probable and estimable. The Company currently utilizes
a pump and treat remediation strategy, which includes semi-
annual monitoring and reporting, consulting, and maintenance
of monitoring wells. We expense these annual costs of remediation,
which have ranged from $38,000 to $131,000 per year over the
past five years. The Company’s estimated remaining liability for
these costs was $916,000 at both May 31, 2021 and 2020, measured
38
on an undiscounted basis over an estimated period of 15 years.
In fiscal 2019, the Company performed an updated Corrective
Measures Study on the site, per a request from the Wisconsin
Department of Natural Resources (WDNR), and is currently in
discussion with the WDNR regarding potential alternative
remediation strategies going forward. The Company believes
that the current pump and treat strategy is appropriate for the
site. However, the Company has agreed to a pilot study in which
chemical reagents are injected into the ground in an attempt to
reduce on-site contamination, and is currently working with its
consultant to design the system. At this time, the outcome of the
pilot study is unknown, but a change in the current remediation
strategy, depending on the alternative selected, could result in an
increase in future costs and ultimately, an increase in the currently
recorded liability, with an offsetting charge to operations in the
period recorded. The Company has recorded $300,000 as a current
liability, and the remaining $616,000 is recorded in other non-
current liabilities in the consolidated balance sheet.
On March 6, 2020, the Company received an administrative subpoena
from the U.S. Treasury Department’s Office of Foreign Assets Control
(OFAC) regarding activities or transactions involving parties located
in Iran. The Company subsequently conducted an internal
investigation under the direction of outside legal counsel and
disclosed information concerning certain genomic testing services
provided to an unrelated U.S.-based party engaged in veterinary
activities involving an Iranian party. The Company continues to
cooperate with OFAC’s investigation and is currently examining
whether certain of these activities may be eligible for OFAC General
Licenses authorizing agricultural and veterinary activities.
In addition to responding to the administrative subpoena, the
Company is implementing additional compliance measures to
prevent inadvertent dealings with restricted countries or parties.
These measures will further enhance the Company’s international
trade compliance program, which is designed to assure that the
Company does not conduct business directly or indirectly with
any countries or parties subject to U.S. economic sanctions and
export control laws. Although it is too early to predict what action,
if any, that OFAC will take, the Company does not currently have
any reason to believe that OFAC’s pending investigation will have
a material impact on its operations, the results of operations for
any future period, or its overall financial condition. In fiscal 2020,
the Company took a charge to expense and recorded a reserve
of $600,000 to provide for potential fines or penalties on this matter.
At this time, the Company believes that it is adequately reserved
for this issue.
The Company has agreements with unrelated third parties that
provide for the payment of royalties on the sale of certain products.
Royalty expense, recorded in sales and marketing, under the terms
of these agreements was $2,129,000, $2,524,000 and $2,795,000
for fiscal years 2021, 2020 and 2019, respectively. Some of these
agreements provide for guaranteed minimum royalty payments
to be paid each fiscal year by the Company for certain technologies.
Future minimum royalty payments are as follows: 2022—$115,000,
2023—$110,000, 2024—$110,000, 2025—$110,000 and 2026—$85,000.
The Company is subject to certain legal and other proceedings in
the normal course of business that, in the opinion of management,
are not expected to have a material effect on its future results of
operations or financial position.
8. Defined Contribution Benefit Plan
The Company maintains a defined contribution 401(k) benefit
plan covering substantially all domestic employees. Employees
are permitted to defer compensation up to IRS limits, with Neogen
matching 100% of the first 3% of deferred compensation and 50%
of the next 2% of deferred compensation. In the first quarter of
fiscal 2021, the Company suspended the 401(k) match, while we
assessed the potential financial impact of COVID-19 on the Company.
The match was restored in September 2020. Neogen’s expense
under this plan was $1,204,000, $1,535,000, and $1,361,000 in
fiscal years 2021, 2020 and 2019, respectively.
9. Segment Information
The Company has 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 and related products used by food producers and
processors to detect harmful natural toxins, foodborne bacteria,
allergens and levels of general sanitation. The Animal Safety
segment is primarily engaged in the development, production
and marketing of products dedicated to animal safety, including
a complete line of consumable products marketed to veterinarians
and animal health product distributors; this segment also provides
genomic identification and related interpretive bioinformatic
services. Additionally, the Animal Safety segment produces and
markets rodenticides, disinfectants, and insecticides to assist in
the control of rodents, insects and disease in and around agricultural,
food production and other facilities.
Neogen’s international operations in the United Kingdom, Mexico,
Brazil, China and India originally focused on the sales and marketing
of our food safety products, and each of these units reports through
the Food Safety segment. In recent years, these operations have
expanded to offer the Company’s 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.
Neogen’s operation in Australia originally focused on providing
genomics services and sales of animal safety products and reports
through the Animal Safety segment. With the acquisition of Cell
BioSciences in February 2020, this operation has expanded to offer
our complete line of products and services, including those
39
usually associated with the Food Safety segment. These additional
products are managed and directed by existing management at
Neogen Australasia and report through the Animal Safety segment.
The accounting policies of each of the segments are the same as
those described in Note 1.
Segment information is as follows:
(In thousands)
Fiscal 2021
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Total assets
Expenditures for long-lived assets
Fiscal 2020
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Total assets
Expenditures for long-lived assets
Fiscal 2019
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Total assets
Food Safety
Animal Safety
Corporate and
Eliminations (1)
Total
$ 209,104
$ 167,198
$
25,140
234,244
33,725
11,575
295,065
13,730
67,017
234,215
48,685
9,466
244,039
12,982
$ 189,893
$ 145,646
$
22,798
212,691
33,526
10,173
222,331
15,867
59,833
205,479
39,051
8,223
231,178
8,185
$ 190,675
$ 148,764
$
22,799
213,474
39,020
9,525
206,267
51,948
200,712
33,875
8,099
221,950
–
–
–
(8,241)
–
381,088
–
–
–
–
(5,054)
–
343,673
–
–
–
–
(4,801)
–
267,523
$ 376,302
92,157
468,459
74,169
21,041
920,192
26,712
$ 335,539
82,631
418,170
67,523
18,396
797,182
24,052
$ 339,439
74,747
414,186
68,094
17,624
695,740
Expenditures for long-lived assets
(1) Includes corporate assets, including 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 and non-controlling interests.
8,916
5,745
–
14,661
The following table presents the Company’s revenue disaggregated by geographical location:
(In thousands)
Domestic
International
Total revenue
Year ended May 31
2021
$ 285,262
183,197
$ 468,459
2020
$ 253,458
164,712
$ 418,170
10. Stock Repurchases
In October 2018, the Company’s Board of Directors passed a
resolution terminating 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 6,000,000 shares of the Company’s common
stock. In December 2018, the Company purchased 100,000 shares
under the new program in open market transactions for a total
price, including commissions, of $3,134,727. Shares acquired
under the program were retired. A total of 5,900,000 shares of
common stock remained available for repurchase under this
program as of May 31, 2021.
40
11. Summary of Quarterly Data (Unaudited)
(In thousands, except per share)
Total revenue
Gross margin
Net income
Basic net income per share
Diluted net income per share
Total revenue
Gross margin
Net income
Basic net income per share
Diluted net income per share
August 2020
109,325
$
50,302
15,860
0.15
0.15
August 2019
101,424
$
48,194
14,652
0.14
0.14
Quarter Ended
November 2020
$
115,000
53,214
15,885
0.15
0.15
$
February 2021
116,709
53,849
13,377
0.13
0.12
Quarter Ended
November 2019
$
107,803
51,026
16,276
0.15
0.15
$
February 2020
99,869
45,330
12,200
0.12
0.11
$
$
May 2021
127,425
57,691
15,760
0.15
0.15
May 2020
109,074
51,729
16,347
0.15
0.15
Quarterly net income per share is based on weighted-average shares outstanding and potentially dilutive stock options for
the specific period and as a result, will not necessarily aggregate to total net income per share as computed for the year as
disclosed in the consolidated statements of income.
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Neogen Corporation
Lansing, Michigan
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Neogen Corporation (the “Company”) as of May 31, 2021 and 2020,
the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years
in the period ended May 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at May 31, 2021 and
2020, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2021, in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company’s internal control over financial reporting as of May 31, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated
July 30, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
41
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on
the accounts or disclosures to which it relates it relates.
Evaluation of the Accounting for Income Taxes
As described in Notes 1 and 6 to the consolidated financial statements, the Company recorded income tax expense related to U.S. and
Foreign tax paying jurisdictions totaling $14.39 million for the year ended May 31, 2021. International components of U.S. income taxes
have a significant impact on total income tax expense including global intangible low-taxed income and Subpart F income representing
$2.69 million of expense and foreign derived intangible income deduction and foreign tax credits which provide income tax benefit of
$3.96 million. The Company’s accounting for income taxes involves the application of tax regulations in each of the tax paying jurisdictions
in which it operates. The determination of income subject to income tax in each tax paying jurisdiction requires management to apply
transfer pricing guidelines for certain intercompany transactions. Additionally, the Company is entitled to claim foreign tax credits for
taxes paid in international tax paying jurisdictions. Management’s assumptions and allocations used in the determination of the foreign
tax credits are based on current interpretations of complex income tax regulations and can have a material effect on the calculation of
U.S. income taxes.
We identified the assumptions and allocations used to calculate international components of U.S. income taxes to be a critical audit
matter. These assumptions and allocations include: (i) technical merit of tax positions including considerations related to transfer pricing
guidelines for certain intercompany transactions, and (ii) allocation methodologies that are subjective in nature. Auditing these assumptions
and allocations involved subjective auditor judgment due to the complexity and the extent of specialized knowledge needed.
The primary procedures we performed to address this critical audit matter included:
• Assessing the design and testing operating effectiveness of certain controls over the Company’s income tax provision process,
including controls over the identification and application of tax laws over earnings from multiple tax jurisdictions and the
process to assess the technical merits of tax positions taken.
• Evaluating the reasonableness and appropriateness of the data used to develop the assumptions and allocations made by
management against relevant evidence obtained in other areas of the audit.
• Utilizing professionals with specialized skills and knowledge in taxation to evaluate the Company’s application of the applicable tax
laws, the technical merit of tax positions taken, and the reasonableness of the Company’s apportionment methodologies used.
We have served as the Company’s auditor since 2014.
Grand Rapids, Michigan
July 30, 2021
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Exchange Act Rules 13-a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, an evaluation was conducted as to the effectiveness of internal control over financial reporting
as of May 31, 2021, based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that internal control over financial
reporting was effective as of May 31, 2021. The effectiveness of internal control over financial reporting as of May 31, 2021 has been audited by
BDO USA, LLP, an independent registered public accounting firm, as stated in its attestation report, which is included on the following
page and is incorporated into this Item 9A by reference.
John E. Adent, President and CEO
Steven J. Quinlan, Vice President and CFO
42
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting were identified as having occurred during the quarter ended May 31, 2021
that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Neogen Corporation
Lansing, Michigan
Opinion on Internal Control over Financial Reporting
We have audited Neogen Corporation’s (the “Company’s”) internal control over financial reporting as of May 31, 2021, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of May 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated balance sheets of the Company as of May 31, 2021 and 2020, the related consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flows for each of the three years in the period ended May 31, 2021, and the related notes and
our report dated July 30, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Grand Rapids, Michigan
July 30, 2021
43
Neogen Corporation and Subsidiaries: Comparison of Five Year Cumulative Total
Return and Stock Profile Activity
The graph below matches Neogen Corporation’s cumulative 5-Year total shareholder return on common stock with the cumulative
total returns of the NASDAQ Composite index and the NASDAQ Medical Equipment index. The graph tracks the performance of a $100
investment in our common stock and in each index (with the reinvestment of all dividends) from 5/31/2016 to 5/31/2021.
Neogen Corporation
NASDAQ Composite
NASDAQ Medical Equipment
$350
250
300
200
175
125
100
50
May 2016
May 2017
May 2018
May 2019
May 2020
May 2021
Neogen Corporation
NASDAQ Composite
NASDAQ Medical Equipment
May 31
$
2016
100.00 $
100.00
100.00
2017
2018
2019
2020
128.20 $
126.75
133.48
204.47 $
153.80
188.69
152.18 $
155.70
184.23
192.34 $
200.33
224.92
2021
249.30
292.39
312.79
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Market Information
Neogen Common Stock is traded on the NASDAQ Global Select Market under the symbol NEOG.
Holders
As of June 30, 2021, there were approximately 221 stockholders of record of Common Stock and management believes there are a total
of approximately 10,000 beneficial holders.
Dividends
Neogen has never paid cash dividends on its Common Stock.
© Neogen Corporation, 2021. Neogen, AccuPoint, Agri-Screen, Alert, ANSR, BetaStar, BotVax, DeciMax, EqStim, Ideal, Prima, Prozap, Raptor, Ramik, Reveal, Soleris, StandGuard, SureKill, Synergize and Veratox are
registered trademarks and Acid-A-Foam, COMPANION, Colitag, Cykill, D3 Needles, NeoSeek, PanaKare, RenaKare, Right Now, Rodex, ThyroKare, and Viroxide Super are trademarks of Neogen Corporation, 620 Lesher Place,
Lansing, Michigan 48912 U.S. BioSentry is a registered trademark of BioSentry, Inc. Havoc is a registered trademark of Syngenta.
44
Officers
John E. Adent
President and Chief Executive Officer
Joseph A. Corbett
Vice President, Animal Safety Sales
Robert S. Donofrio, Ph.D.
Vice President, Research and Development
Shane M. Fitzwater
Vice President, Animal Safety Operations
Jerome L. Hagedorn
Vice President, North American Operations
Douglas E. Jones
Vice President, Chief Commercial Officer
Jason W. Lilly, Ph.D.
Vice President, International Business
Julie L. Mann
Vice President, Chief Human Resources Officer
Marylinn Munson
Vice President, Agrigenomics
Steven J. Quinlan
Vice President, Chief Financial Officer
Amy M. Rocklin, Ph.D.
Vice President, General Counsel and
Corporate Secretary
Form 10-K and the Company’s
Code of Ethics
Copies of Form 10-K and the Company’s Code
of Ethics will be provided upon request without
charge to persons directing their request to:
Neogen Corporation
Attention: Investor Relations
620 Lesher Place
Lansing, MI 48912
Annual Meeting
October 7, 2021 at 10:00 a.m.
www.virtualshareholdermeeting.com/NEOG2021
Directors
James C. Borel
Chairman of the Board
E.I.DuPont de Nemours
Former Executive Vice President
William T. Boehm, Ph.D.
Kroger Company
Former Senior Vice President
President’s Council of Economic Advisors
Former Senior Economist
Ronald D. Green, Ph.D.
University of Nebraska–Lincoln
Chancellor
Ralph A. Rodriguez
Summit Partners
Executive-in-Residence
James P. Tobin
Monsanto
Former Vice President
Darci L. Vetter
Edelman
General Manager and Vice Chair for Food,
Agriculture and Trade
Former Chief Agricultural Negotiator for
the U.S. Trade Representative
Catherine E. Woteki, Ph.D.
Biocomplexity Institute at the University of Virginia
Distinguished Institute Professor
Former Undersecretary for the USDA’s Research,
Education, and Economics Mission
Independent Registered Public
Accounting Firm
BDO USA, LLP
200 Ottawa Avenue N.W.
Suite 300
Grand Rapids, MI 49503
Stock Transfer Agent and Registrar
American Stock Transfer and Trust Co.
6201 15th Avenue
Brooklyn, NY 11219
NASDAQ: NEOG