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Accounting Policies | 6 Months Ended
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Nov. 30, 2018
Accounting Policies | 1. ACCOUNTING POLICIES BASIS OF PRESENTATION AND CONSOLIDATION The accompanying unaudited consolidated financial statements include the accounts of Neogen Corporation (“Neogen” or the “Company”) and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included in the accompanying unaudited consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the six-month period ended November 30, 2018 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2019. For more complete financial information, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2018. Share and per share amounts reflect the December 29, 2017 4-for-3 stock split as if it took place at the beginning of the period presented. Recently Adopted Accounting Standards Revenue Recognition On June 1, 2018, we adopted ASU No. 2014-09—Revenue from Contracts with Customers (Topic 606). Refer to the Revenue Recognition section of Note 1 for further information. Classification of Cash Receipts and Payments In August 2016, the FASB issued ASU No. 2016-15—Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted this ASU on June 1, 2018; the impact on our consolidated financial statements was immaterial. Recent Accounting Pronouncements Not Yet Adopted Leases In February 2016, the FASB issued ASU No. 2016-02—Leases to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessor have not significantly changed from previous U.S. GAAP. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018; early adoption is permitted. Modified retrospective application is required with certain practical expedients. We will adopt this ASU on June 1, 2019 and are currently in the process of evaluating our lessee and lessor arrangements to determine the impact of this pronouncement on our consolidated financial condition and results of operations. This evaluation includes a review of revenue through leasing arrangements as well as lease expenses, which are primarily through operating lease arrangements at most of our facilities. Financial Instruments- Credit Losses In June 2016, the FASB issued ASU No. 2016-13—Measurement of Credit Losses on Financial Instruments, which changes how companies measure credit losses on most financial instruments measured at amortized cost and certain other instruments, such as loans, receivables and held-to-maturity debt securities. Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU 2016-13 is effective for fiscal periods beginning after December 15, 2019 and must be adopted as a cumulative effect adjustment to retained earnings. Early adoption is permitted. We do not believe adoption of this guidance will have an impact on our consolidated financial statements. Comprehensive Income Comprehensive income represents net income and any revenues, expenses, gains and losses that, under U.S. generally accepted accounting principles, are excluded from net income and recognized directly as a component of equity. Accumulated other comprehensive income (loss) consists solely of foreign currency translation adjustments. Fair Value of Financial Instruments The carrying amounts of our financial instruments other than cash equivalents and marketable securities, which include accounts receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar instruments. Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. We utilize a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Cash and Cash Equivalents Cash and cash equivalents consist of bank demand accounts, savings deposits, certificates of deposit and commercial paper with original maturities of 90 days or less. The carrying value of these assets approximates fair value due to the short maturity of these instruments and meets the Level 1 criteria. Marketable Securities The Company has marketable securities held by banks or broker-dealers at November 30, 2018, consisting of short-term domestic certificates of deposit and commercial paper rated at least A-2/P-2 with maturities between 91 days and one year. These securities are classified as available for sale. The primary objective of our short-term investment activity is to preserve capital for the purpose of funding operations, capital expenditures and business acquisitions; short-term investments are not entered into for trading or speculative purposes. These securities are recorded at fair value (that approximates cost) based on recent trades of similar securities or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within Other Income on the consolidated statements of income. ESTIMATES AND ASSUMPTIONS The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, accruals, goodwill and other intangible assets. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2018, except for the new revenue recognition standard the Company adopted effective June 1, 2018. See below sections Revenue Recognition and Recently Adopted Accounting Standards for further information on revenue recognition. There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2018. Accounts Receivable Allowance Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit exposure on a regular basis. An allowance for doubtful accounts receivable is established based upon factors surrounding the credit risk of specific customers, historical trends and other information. Collateral or other security is generally not required for accounts receivable. Once a receivable balance has been determined to be uncollectible, that amount is charged against the allowance for doubtful accounts. Inventory The reserve for obsolete and slow-moving inventory is reviewed at least quarterly based on an analysis of the inventory, considering the current condition of the asset as well as other known facts and future plans. The reserve required to record inventory at lower of cost or net realizable value is adjusted as conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations. Goodwill and Other Intangible Assets Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to other identifiable intangible assets. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants not-to-compete and patents. Customer-based intangibles are amortized on either an accelerated or straight-line basis, reflecting the pattern in which the economic benefits are consumed, while all other amortizable intangibles are amortized on a straight-line basis; intangibles are generally amortized over 5 to 25 years. We review the carrying amounts of goodwill and other non-amortizable intangible assets annually, or when indications of impairment exist, to determine if such assets may be impaired by performing a quantitative assessment. If the carrying amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable EBITDA multiples of peer companies, such assets are reduced to their estimated fair value and a charge is recorded to operations. Long Lived Assets Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for possible impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset indicate that the carrying amount of the asset may not be recoverable. In such an event, fair value is determined using discounted cash flows and, if lower than the carrying value, impairment is recognized through a charge to operations. Equity Compensation Plans Share options awarded to employees and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with assumptions for inputs such as interest rates, expected dividends, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs used are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different option values, which in turn would result in higher or lower compensation expense recognized. To value options, several recognized valuation models exist. None of these models can be singled out as being the best or most correct one. The model applied by us can handle most of the specific features included in the options granted, which is the reason for its use. If a different model were used, the option values could differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options. Fair value could be either higher or lower than the number provided by the model applied and the inputs used. Further information on our equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 5 to the unaudited consolidated financial statements. Income Taxes We account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income tax assets and liabilities during the period. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law making significant changes to the Internal Revenue Code. Changes include a federal corporate tax rate reduction from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Tax Act also includes a provision to tax global intangible low taxed income (“GILTI”) of foreign subsidiaries, which became effective for us beginning June 1, 2018. In the fourth quarter of fiscal 2018, we recorded an estimated net charge of $4.8 million related to the Tax Act, due to the impact of the reduction in the tax rate on deferred tax assets and liabilities of $6.0 million, partially offset by $1.2 million of one-time transition tax on the deemed repatriation of foreign earnings. Due to the timing of the enactment and the complexity in applying the provisions of the Tax Act, these charges and benefits were recorded based on reasonable estimates and are subject to revisions as we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the Internal Revenue Service. During the month of December 2018, immaterial adjustments to these provisions were recorded to tax expense, within the measurement period under SAB 118. Revenue Recognition In May 2014, the FASB issued ASU No. 2014-09—Revenue from Contracts with Customers (Topic 606). The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. In April 2016, the FASB issued Accounting Standards Update No. 2016-10— Revenue from Contracts with Customers (Topic 606), which amends and adds clarity to certain aspects of the guidance set forth in ASU 2014-09 related to identifying performance obligations and licensing. The guidance became effective for the Company on June 1, 2018. The guidance permits two methods of adoption: a full retrospective method to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the guidance recognized at the date of initial application. We adopted this standard using the full retrospective approach. This approach was chosen to provide appropriate comparisons against our prior year financial statements; accordingly, historical information for the year ended May 31, 2018, including interim periods therein, has been adjusted to conform to the new standard. Prior to the adoption, we identified all revenue streams at each significant subsidiary and reviewed contracts to evaluate the impact of adopting the new standard on our revenue recognition policies, procedures and control framework and ultimately on our consolidated financial statements and related disclosures. In our review of contracts in each revenue stream, we noted no material impact in the implementation of the standard. We determined the impact of adopting the standard on our control framework and noted minimal, insignificant changes to our system and other controls processes. We derive revenue from two primary sources — product revenue and service revenue. Product revenue consists primarily of shipments of:
| • |  | Diagnostic test kits, culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation;
| • |  | Consumable products marketed to veterinarians 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.
Service revenue consists primarily of:
| • |  | Genomic identification and related interpretive bioinformatic services; and
| • |  | Other commercial laboratory services.
Revenues for our genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service is performed and the results are conveyed to the customer. Under Topic 606, the Company determines the amount of revenue to be recognized through application of the following steps:
| • |  | Identification of the contract with a customer;
| • |  | Identification of the performance obligations in the contract;
| • |  | Determination of the transaction price;
| • |  | Allocation of the transaction price to the performance obligations in the contract; and
| • |  | Recognition of revenue when or as the Company satisfies the performance obligations.
Essentially all our revenue is generated through contracts with our customers. A performance obligation is a promise in a contract to transfer a product or service to a customer. We generally recognize revenue at a point in time when all our performance obligations under the terms of a contract are satisfied. With the adoption of Topic 606, revenue is recognized upon transfer of control of promised products and services in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The collectability of consideration on the contract is reasonably assured before revenue is recognized. To the extent that customer payment has been received before all recognition criteria are met, these revenues are initially deferred in other accruals on the balance sheet and the revenue is recognized in the period that all recognition criteria have been met. In certain situations, we provide rebates, marketing support, credits or incentives to selected customers, which are accounted for as variable consideration when estimating the amount of revenue to recognize on a contract. Variable consideration reduces the amount of revenue that is recognized. These variable consideration estimates are updated at the end of each reporting period based on information currently available. The performance obligations in our contracts are generally satisfied well within one year of the contract inception. In such cases, we have elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. We have elected to utilize the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred because the amortization period for the prepaid costs that would otherwise have been deferred and amortized is one year or less. The Company accounts for shipping and handling for products as a fulfillment activity when goods are shipped. Revenue is recognized net of any tax collected from customers; the taxes are subsequently remitted to governmental authorities. The Company’s terms and conditions of sale generally do not provide for returns of product or reperformance of service except in the case of quality or warranty issues. These situations are infrequent; due to immateriality of the amount, warranty claims are recorded in the period incurred. The following table presents disaggregated revenue by major product and service categories for the three and six months ended November 30, 2018 and 2017:
|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
|  | (in thousands) |  |  | (in thousands) |
Food Safety |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Natural Toxins, Allergens & Drug Residues |  | $ | 20,571 |  |  | $ | 18,989 |  |  | $ | 39,409 |  |  | $ | 38,153 |
Bacterial & General Sanitation |  |  | 10,822 |  |  |  | 9,324 |  |  |  | 21,288 |  |  |  | 18,443 |
Culture Media & Other |  |  | 12,191 |  |  |  | 11,041 |  |  |  | 24,408 |  |  |  | 21,173 |
Rodenticides, Insecticides & Disinfectants |  |  | 5,943 |  |  |  | 6,126 |  |  |  | 12,569 |  |  |  | 10,817 |
Genomics Services |  |  | 4,223 |  |  |  | 3,726 |  |  |  | 8,259 |  |  |  | 6,911 |
Animal Safety |  | $ | 53,750 |  |  | $ | 49,206 |  |  | $ | 105,933 |  |  | $ | 95,497 |
Life Sciences |  | $ | 1,891 |  |  | $ | 2,394 |  |  | $ | 3,971 |  |  | $ | 4,820 |
Veterinary Instruments & Disposables |  |  | 11,683 |  |  |  | 11,687 |  |  |  | 22,087 |  |  |  | 22,174 |
Animal Care & Other |  |  | 9,064 |  |  |  | 8,237 |  |  |  | 15,617 |  |  |  | 15,649 |
Rodenticides, Insecticides & Disinfectants |  |  | 18,673 |  |  |  | 17,786 |  |  |  | 35,664 |  |  |  | 35,167 |
Genomics Services |  |  | 12,037 |  |  |  | 11,388 |  |  |  | 23,452 |  |  |  | 21,600 |
|  | $ | 53,348 |  |  | $ | 51,492 |  |  | $ | 100,791 |  |  | $ | 99,410 |
Total Revenues |  | $ | 107,098 |  |  | $ | 100,698 |  |  | $ | 206,724 |  |  | $ | 194,907 |
Restatement of Previously Issued Financial Statements The Company has historically classified certain variable consideration components resulting from volume rebates, distributor support, and other marketing discounts as cost of product revenues or sales and marketing expense in our consolidated financial statements of income. These amounts should have been classified as contra revenue in product or service revenues. The Company had determined in prior periods that the misstatements were clearly immaterial, individually and in the aggregate, to each of the reporting periods affected. The Company began properly classifying these items as contra revenues beginning in the three-month period ended August 31, 2018, the first quarter of the Company’s current fiscal year, and has revised the prior year’s quarter and year-to-date periods to conform to the current period presentation. These immaterial adjustments had no impact on our operating income, income before taxes, net income or reported earnings per share, and no change to stockholders’ equity. The effects of the revisions on the line items within our unaudited consolidated statements of income for the three and six months ended November 30, 2017 are as follows:
|  | Three Months Ended November 30, 2017 |  |  | Six Months Ended November 30, 2017 |
|  | As Previously Reported |  |  | Adjustments |  |  | As Revised |  |  | As Previously Reported |  |  | Adjustments |  |  | As Revised |
|  | (in thousands) |  |  | (in thousands) |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product revenues |  | $ | 85,590 |  |  | $ | (1,119 | ) |  | $ | 84,471 |  |  | $ | 166,157 |  |  | $ | (2,141 | ) |  | $ | 164,016 |
Service revenues |  |  | 16,227 |  |  |  | — |  |  |  | 16,227 |  |  |  | 30,916 |  |  |  | (25 | ) |  |  | 30,891 |
Total revenues |  |  | 101,817 |  |  |  | (1,119 | ) |  |  | 100,698 |  |  |  | 197,073 |  |  |  | (2,166 | ) |  |  | 194,907 |
Cost of revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of product revenues |  |  | 43,349 |  |  |  | (97 | ) |  |  | 43,252 |  |  |  | 84,433 |  |  |  | (197 | ) |  |  | 84,236 |
Cost of service revenues |  |  | 9,197 |  |  |  | — |  |  |  | 9,197 |  |  |  | 17,498 |  |  |  | — |  |  |  | 17,498 |
Total cost of revenues |  |  | 52,546 |  |  |  | (97 | ) |  |  | 52,449 |  |  |  | 101,931 |  |  |  | (197 | ) |  |  | 101,734 |
Gross margin |  |  | 49,271 |  |  |  | (1,022 | ) |  |  | 48,249 |  |  |  | 95,142 |  |  |  | (1,969 | ) |  |  | 93,173 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 17,815 |  |  |  | (1,022 | ) |  |  | 16,793 |  |  |  | 34,838 |  |  |  | (1,969 | ) |  |  | 32,869 |
Total operating expenses |  |  | 31,273 |  |  |  | (1,022 | ) |  |  | 30,251 |  |  |  | 60,720 |  |  |  | (1,969 | ) |  |  | 58,751 |
Operating income |  |  | 17,998 |  |  |  | — |  |  |  | 17,998 |  |  |  | 34,422 |  |  |  | — |  |  |  | 34,422 |
Presented below are the effects of the revisions on the line items within the previously issued unaudited consolidated statements of income for the three and nine months ended February 28, 2018 and the consolidated statements of income for the years ended May 31, 2018 and 2017. Revised consolidated statements of income related to these periods will be presented in the Forms 10-Q and Form 10-K to be filed in the succeeding periods of this fiscal year.
|  | Three Months Ended February 28, 2018 |  |  | Nine Months Ended February 28, 2018 |
|  | As Previously Reported |  |  | Adjustments |  |  | As Revised |  |  | As Previously Reported |  |  | Adjustments |  |  | As Revised |
|  | (in thousands) |  |  | (in thousands) |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product revenues |  | $ | 78,142 |  |  | $ | (958 | ) |  | $ | 77,184 |  |  | $ | 244,298 |  |  | $ | (3,098 | ) |  | $ | 241,200 |
Service revenues |  |  | 17,750 |  |  |  | (31 | ) |  |  | 17,719 |  |  |  | 48,667 |  |  |  | (56 | ) |  |  | 48,611 |
Total revenues |  |  | 95,892 |  |  |  | (989 | ) |  |  | 94,903 |  |  |  | 292,965 |  |  |  | (3,154 | ) |  |  | 289,811 |
Cost of revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of product revenues |  |  | 40,352 |  |  |  | (69 | ) |  |  | 40,283 |  |  |  | 124,785 |  |  |  | (265 | ) |  |  | 124,520 |
Cost of service revenues |  |  | 10,019 |  |  |  | — |  |  |  | 10,019 |  |  |  | 27,517 |  |  |  | — |  |  |  | 27,517 |
Total cost of revenues |  |  | 50,371 |  |  |  | (69 | ) |  |  | 50,302 |  |  |  | 152,302 |  |  |  | (265 | ) |  |  | 152,037 |
Gross margin |  |  | 45,521 |  |  |  | (920 | ) |  |  | 44,601 |  |  |  | 140,663 |  |  |  | (2,889 | ) |  |  | 137,774 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 17,492 |  |  |  | (920 | ) |  |  | 16,572 |  |  |  | 52,331 |  |  |  | (2,889 | ) |  |  | 49,442 |
Total operating expenses |  |  | 29,608 |  |  |  | (920 | ) |  |  | 28,688 |  |  |  | 90,328 |  |  |  | (2,889 | ) |  |  | 87,439 |
Operating income |  |  | 15,913 |  |  |  | — |  |  |  | 15,913 |  |  |  | 50,335 |  |  |  | — |  |  |  | 50,335 |
|  | Year Ended |  |  | Year Ended |
|  | May 31, 2018 |  |  | May 31, 2017 |
|  | As Previously Reported |  |  | Adjustments |  |  | As Revised |  |  | As Previously Reported |  |  | Adjustments |  |  | As Revised |
|  | (in thousands) |  |  | (in thousands) |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product revenues |  | $ | 335,554 |  |  | $ | (4,266 | ) |  | $ | 331,288 |  |  | $ | 306,512 |  |  | $ | (3,390 | ) |  | $ | 303,122 |
Service revenues |  |  | 66,698 |  |  |  | (56 | ) |  |  | 66,642 |  |  |  | 55,082 |  |  |  | 73 |  |  |  | 55,155 |
Total revenues |  |  | 402,252 |  |  |  | (4,322 | ) |  |  | 397,930 |  |  |  | 361,594 |  |  |  | (3,317 | ) |  |  | 358,277 |
Cost of revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of product revenues |  |  | 174,067 |  |  |  | (342 | ) |  |  | 173,725 |  |  |  | 156,568 |  |  |  | (273 | ) |  |  | 156,295 |
Cost of service revenues |  |  | 37,933 |  |  |  | — |  |  |  | 37,933 |  |  |  | 33,058 |  |  |  | — |  |  |  | 33,058 |
Total cost of revenues |  |  | 212,000 |  |  |  | (342 | ) |  |  | 211,658 |  |  |  | 189,626 |  |  |  | (273 | ) |  |  | 189,353 |
Gross margin |  |  | 190,252 |  |  |  | (3,980 | ) |  |  | 186,272 |  |  |  | 171,968 |  |  |  | (3,044 | ) |  |  | 168,924 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 70,909 |  |  |  | (3,980 | ) |  |  | 66,929 |  |  |  | 62,424 |  |  |  | (3,044 | ) |  |  | 59,380 |
Total operating expenses |  |  | 120,058 |  |  |  | (3,980 | ) |  |  | 116,078 |  |  |  | 107,023 |  |  |  | (3,044 | ) |  |  | 103,979 |
Operating income |  |  | 70,194 |  |  |  | — |  |  |  | 70,194 |  |  |  | 64,945 |  |  |  | — |  |  |  | 64,945 |
The revisions had no impact on our audited consolidated balance sheets as of May 31, 2018 and 2017 and no impact on our unaudited consolidated statements of equity or unaudited consolidated statements of cash flows for the three and six months ended November 30, 2017 and the three and nine months ended February 28, 2018.

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- Definition The entire disclosure for the general note to the financial statements for the reporting entity which may include, descriptions of the basis of presentation, business description, significant accounting policies, consolidations, reclassifications, new pronouncements not yet adopted and changes in accounting principles. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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