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What changed in NEOGEN CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NEOGEN CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+389 added−391 removedSource: 10-K (2023-08-15) vs 10-K (2022-07-27)

Top changes in NEOGEN CORP's 2023 10-K

389 paragraphs added · 391 removed · 212 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

99 edited+21 added−37 removed28 unchanged
Biggest changeFrank’s ® , Dy-Fly ® , DX3 ™ , Dyne-O-Might ® , ElectroJac ® , ELISA Technologies (design) ® , EqStim ® , EquiSleeve ® , E-Z Bond ™ , E-Z Catch ® , Farm-Foam ™ , Farmphene ® , Final-Fly-T ® , Fly-Die Defense ™ , Fly-Die Ultra ™ , Fura-Zone ® , GenQuat ™ , Horse Sense ® , Ideal ® , ImmunoRegulin ® , Iodis ® , Jolt ® , LD-44 ® , LD-44T ™ , MACLEOD ® , Maxi Sleeve ® , MaxKlor ® , MegaShot ™ , ® Viroxide Super ™ , Neogen ® Viroxide Super and flask (design) ® , NFZ ™ , Nu Dyne ® , PanaKare ™ , Pantek ™ , Paradefense ® , ParlorMint ™ , Parvosol ® , Peraside ™ , Place Pack ® , PolyPetite ™ , PolyShield ™ , PolySleeve ® , Preserve ® , Preserve International ® , Preserve International(design) ® , Prima ® , Prima Marc ™ , 3 Table of Contents Prima-Shot ™ , Prima Tech ® , Pro-Fix ® , Pro-Flex ® , Promar ™ , Pro-Shot ™ , PRO-TECT 6 MIL ® , Protectus ™ , Provecta Advanced ® , Prozap ® , Prozap (stylized mark w/fancy Z) ™ , PY-75 ™ , Ramik ® , RenaKare ™ , Rodex ™ , Safe-T-Flex ™ , Siloxycide ® , Spectrasol ™ , Squire ® , Standguard ® , Starlicide ® , Stress-Dex ® , SureBond ® , SureKill ® , Swine-O-Dyne ® , Synergize ® , Tetrabase ® , Tetracid ® , Tetradyne ® , ThyroKare ™ , Tri-Hist ® , Paradefense ® , Turbocide ® , Turbocide Gold ® , Uniprim ® , VAP-5 ™ , VAP-20 ™ , Vet-Tie ™ , Vita-15 ™ , War Paint ® , X-185 ™ GENOMICS: Deoxi ™ , Envigor ™ , GeneSeek ® , Genomic Profiler ™ , Genomic Insight for Personalized Care ™ , Igenity ® , Infiniseek ™ , SeekGain ™ , SeekSire ™ , Skimseek ™ , Early Warning ™ LOGOTYPES: BioSentry barn logo ® , BioSentry chicken logo ® , BioSentry pig logo ® , Circular design ® , TurboCide ® (stylized), D3 color mark – red ® Neogen operates in two business areas: the Food Safety and the Animal Safety segments.
Biggest changeFrank’s®, Dy-Fly®, DX3™, Dyne-O-Might®, ElectroJac®, ELISA Technologies (design)®, EqStim®, EquiSleeve™, E-Z Catch®, Farm-Foam™, Final-Fly-T®, Fly-Die Defense™, Fly-Die Ultra™, Fura-Zone®, Gene-Trak®, Horse Sense®, Ideal®, ImmunoRegulin®, Iodis®, Jolt®, LD-44T™, LD-44Z™, MACLEOD®, Maxi Sleeve®, MegaShot™, Viroxide Super™, Neogen® Viroxide Super and flask (design)®, NFZ™, Nu Dyne®, PanaKare™, Paradefense®, Parvosol®, Peraside™, Place Pack®, PolyPetite™, PolyShield™, PolySleeve®, Preserve®, Preserve International®, Preserve International(design)®, Prima®, Prima Marc™, Prima-Shot™, Prima Tech®, Pro-Fix®, Pro-Flex®,Pro-Shot™, Protectus™, Provecta®, Provecta Advanced®, Prozap®, Prozap (stylized mark w/fancy Z)™, PY-75™, Ramik®, RenaKare™, Rodex™, Safe-T-Flex™, Siloxycide®, Squire®, Standguard®, Stress-Dex®, SureBond®, SureKill®, Swine-O-Dyne®, Synergize®, Tetrabase®, Tetracid®, Tetradyne®, ThyroKare™,Tri-Hist®, Triplox™, Paradefense®, Turbocide®, Turbocide Gold®, Uniprim®, VAP-5™, VAP-20™, Vet-Tie™, Vita-15™, War Paint®, X-185™ GENOMICS: Aviandx and Design®, Canine HealthCheck®, Canine HealthCheck and Design®, CatScan and Design®, EarlyBird Sex Identification®, Envigor™, GeneSeek®, Genomic Profiler™, Genomic Insight for Personalized Care™, Igenity®, Infiniseek™, Paw Print Genetics®, Paw Print Pedigrees®, SeekGain™, SeekSire™, Skimseek®, Early Warning™ LOGOTYPES: BioSentry barn logo®, BioSentry chicken logo®, BioSentry pig logo®, Circular design®, TurboCide® (stylized), D3 color mark – red® Neogen operates in two business areas: the Food Safety and Animal Safety segments.
We have historically been successful at increasing product sales organically, including international growth, and maintain an active acquisition program to identify and capitalize on opportunities to acquire new products, businesses, or technology. Neogen Corporation was formed as a Michigan corporation in June 1981 and operations began in 1982.
We have been historically successful at increasing product sales organically, including international growth, and maintain an active acquisition program to identify and capitalize on opportunities to acquire new products, businesses or technology. Neogen Corporation was formed as a Michigan corporation in June 1981 and operations began in 1982.
Manufacturing of animal health products, pharmacological diagnostic test kits and test kits for drug residues takes place in our FDA-registered facilities in Lexington, Kentucky. In general, manufacturing operations including reagent manufacturing, quality assurance, final kit assembly and packaging are performed by Neogen personnel.
Animal health products. Manufacturing of animal health products, pharmacological diagnostic test kits, and test kits for drug residues takes place in our FDA-registered facilities in Lexington, Kentucky. In general, manufacturing operations including reagent manufacturing, quality assurance, final kit assembly and packaging are performed by Neogen personnel.
The breadth of our product line, the effectiveness of our sales and customer service organizations, and pricing are also components in management’s competitive strategy. Future competition may become even more intense, and could result from the development of new technologies, which could affect the marketability and profitability of Neogen’s products.
The breadth of our product line, the effectiveness of our sales and customer service organizations, and pricing also are components in management’s competitive strategy. Future competition may become even more intense and could result from the development of new technologies, which could affect the marketability and profitability of Neogen’s products.
In most cases, Neogen sales and technical service personnel can offer unique insight into a customer’s numerous safety and quality challenges, and offer testing and other solutions to help the customer overcome those challenges. Competition for pathogen detection products includes traditional methods and antibody and genetic-based platforms; competition for natural toxins and allergen detection products include instrumentation and antibody-based tests.
In most cases, Neogen sales and technical service personnel can offer unique insight into a customer’s numerous safety and quality challenges, and offer testing and other solutions to help the customer overcome those challenges. Competition for pathogen detection products includes traditional methods and antibody and genetic-based platforms; competition for natural toxins and allergen detection products includes instrumentation and antibody-based tests.
For each of our individual products or product lines, we face intense competition from companies ranging from small businesses to divisions of large multinational companies. Some of these organizations have substantially greater financial resources than Neogen. We compete primarily on the basis of ease of use, speed, accuracy and other similar performance characteristics of our products.
For each of our individual products or product lines, we face intense competition from companies ranging from small businesses to divisions of large multinational companies. Some of these organizations have substantially greater financial resources than Neogen. We compete primarily on the basis of ease of use, speed, accuracy and other performance characteristics of our products.
Our diagnostic test kits are generally easier to use and provide greater accuracy and speed than conventional diagnostic methods. The majority of the test kits are disposable, single-use, immunoassay and DNA detection products that rely on proprietary antibodies and RNA and DNA testing methodologies to produce rapid and accurate test results.
Our diagnostic test kits are generally easier to use and provide greater accuracy and speed than conventional diagnostic methods. The majority of these test kits are disposable, single-use, immunoassay and DNA detection products that rely on proprietary antibodies and RNA and DNA testing methodologies to produce rapid and accurate test results.
This includes Neogen’s filter tests, which are a combination of Neogen Filter membrane filtration and Neogen Culture Media ampouled media, and an 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 . Culture media.
This includes Neogen’s filter tests, which are a combination of Neogen Filter membrane filtration and Neogen Culture Media ampouled media, and an 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 . 5 Culture media.
Manufacturing and shipment of devices used for animal injections, topical applications and oral administration occurs in Kenansville, North Carolina. Veterinary biologics. Neogen maintains a Lansing-based USDA-approved manufacturing facility devoted to the production of the biologic products EqStim and ImmunoRegulin.
Manufacturing of devices used for animal injections, topical applications and oral administration occurs in Kenansville, North Carolina. Veterinary biologics. Neogen maintains a Lansing-based USDA-approved manufacturing facility devoted to the production of the biologic products EqStim and ImmunoRegulin.
Neogen markets a broad line of veterinary instruments and animal health delivery systems under the Ideal brand name. Approximately 250 different products are offered, many of which are used to deliver animal health products, such as antibiotics and vaccines.
Veterinary instruments. Neogen markets a broad line of veterinary instruments and animal health delivery systems primarily under the Ideal brand name. Approximately 250 different products are offered, many of which are used to deliver animal health products, such as antibiotics and vaccines.
Neogen’s international operations in the U.K., Mexico, Guatemala, Brazil, Argentina, Uruguay, Chile, China and India originally focused on food safety products, and each of these units reports through the Food Safety segment.
Neogen’s international operations in the U.K., Europe, Mexico, Guatemala, Brazil, Argentina, Uruguay, Chile, China and India originally focused on food safety products, and each of these units reports through the Food Safety segment.
Top NeogenVet products include PanaKare, a digestive aid that serves as a replacement therapy where digestion of protein, carbohydrate and fat is inadequate due to exocrine pancreatic insufficiency; Natural Vitamin E-AD, which aids in the prevention and treatment of vitamin deficiencies in swine, cattle and sheep; RenaKare, a supplement for potassium deficiency in cats and dogs; and ThryroKare, a supplement used as replacement therapy for dogs with diminished thyroid function.
Top NeogenVet products include PanaKare, a digestive aid that serves as a replacement therapy where digestion of protein, carbohydrate and fat is inadequate due to exocrine pancreatic insufficiency; Natural Vitamin E-AD, which aids in the prevention and treatment of vitamin deficiencies in swine, cattle and sheep; RenaKare, a supplement for potassium deficiency in cats and dogs; and ThyroKare, a supplement used as replacement therapy for dogs with diminished thyroid function.
Neogen offers several rodenticide active ingredients including diphacinone, bromethalin, brodifacoum and zinc phosphide, formulated with food grade ingredients to generate the highest acceptance and most palatable bait possible. Cleaners and disinfectants. Used in animal and food production facilities, Neogen’s cleaners and disinfectants, including 904 Disinfectant, Acid-A-Foam, Synergize, BioPhene, Neogen Viroxide Super, and Companion, prevent disease outbreaks.
Neogen offers several active ingredients, including diphacinone, bromethalin, brodifacoum and zinc phosphide, formulated with food-grade ingredients to generate the highest acceptance and most palatable bait possible. Cleaners and disinfectants. Used in animal and food production facilities, Neogen’s cleaners and disinfectants, including Synergize, 904 Disinfectant, Acid-A-Foam, BioPhene, Neogen Viroxide Super, and Companion, can prevent disease outbreaks.
ITEM 1. BUSINESS Neogen Corporation and subsidiaries develop, manufacture and market a diverse line of products and services dedicated to food and animal safety.
ITEM 1. BUSINESS Neogen Corporation and its subsidiaries develop, manufacture, and market a diverse line of products and services dedicated to food and animal safety.
P.acnes seed cultures are added to media and then subjected to several stages of further processing resulting in a finished product that is filled and packaged within the facility. Our BotVax B vaccine is also produced in the Lansing facility utilizing Type B botulism seed cultures and a traditional fermentation process.
P.acnes seed cultures are added to media and then subjected to several stages of further processing resulting in a finished product that is filled and packaged within the facility. Our BotVax B vaccine also is produced in the Lansing facility using Type B botulism seed cultures and a traditional fermentation process.
We have no warning letters based on any review of these products or facility inspections, no recalls on any of these products, and are not aware of any reason why we could not manufacture and market such products in the future. Other animal safety and food safety products generally do not require additional registrations or approvals.
We have no warning letters based on any review of these products or facility inspections and are not aware of any reason why we could not manufacture and market such products in the future. 14 Other animal safety and food safety products generally do not require additional registrations or approvals.
Ideal’s D3 Needles are stronger than conventional veterinary needles and are uniquely detectable by metal detectors at meat processing facilities — a potential market advantage in the safety-conscious beef and swine industries. Neogen’s Prima Tech product line consists of highly accurate devices used by farmers, ranchers and veterinarians to inject animals, provide topical applications and to use for oral administration.
Ideal’s D3 and D3X Needles are stronger than conventional veterinary needles and are detectable by metal detectors at meat processing facilities — a potential market advantage in the safety-conscious beef and swine industries. Neogen’s Prima product line consists of highly accurate devices used by farmers, ranchers and veterinarians to inject animals, provide topical applications and use for oral administration.
To the extent some of our products may now, or in the future, embody technologies protected by patents or trade secrets of others, we may need to obtain licenses to use such technologies to continue to sell the products. These licenses may not be available on commercially reasonable terms.
To the extent some of our products may now, or in the future, embody technologies protected by patents of others, we may need to obtain licenses to use such technologies to continue to sell the products. These licenses may not be available on commercially reasonable terms.
One of the major areas affecting the success of biotechnology development involves the time, cost and uncertainty surrounding regulatory approvals. Neogen products requiring regulatory approval, which we currently have in place, include BotVax B, EqStim, ImmunoRegulin, Uniprim and BetaStar.
One of the major areas affecting the success of biotechnology and pharmaceutical development involves the time, cost and uncertainty surrounding regulatory approvals. Neogen products requiring regulatory approval, which we currently have in place, include BotVax B, EqStim, ImmunoRegulin and Uniprim.
Our NeoSeek genomics services utilize a novel application of metagenomics to determine all bacteria in a sample, without introducing biases from culture media, and without the need to generate a bacterial isolate for each possible microbe in a sample. Sanitation monitoring.
Our NeoSeek genomics services utilize a novel application of metagenomics to determine all bacteria in a sample, without introducing biases from culture media, and without the need to generate a bacterial isolate for each possible microbe in a sample.
Management expects that a number of these products will be commercially available at various times during fiscal years 2023 and 2024. Certain technologies used in some products manufactured and marketed by Neogen were acquired from or developed in collaboration with affiliated partners, independent scientists, governmental agencies, universities and other third parties.
Management expects that a number of these products will be commercially available at various times during fiscal years 2024 and 2025. Certain technologies used in some products manufactured and marketed by Neogen were acquired from or developed in collaboration with partners, independent scientists, governmental agencies, universities and other third parties.
The distributors provide local training and technical support, perform market research and promote Company products within designated countries around the world. Sales to customers outside the United States accounted for 39.7%, 39.1%, and 39.4% of our total revenues for fiscal years ended May 31, 2022, 2021 and 2020, respectively.
The distributors provide local training and technical support, perform market research and promote Company products within designated countries around the world. Sales to customers outside the United States accounted for 48.4%, 39.7%, and 39.1% of our total revenues for fiscal years ended May 31, 2023, 2022 and 2021, respectively.
Manufacturing of diagnostic tests for the detection of natural toxins, pathogens, food allergens, dairy antibiotics, spoilage organisms and pesticides, final kit assembly, quality assurance and shipping takes place at our facilities in Lansing, Michigan. Proprietary monoclonal and polyclonal antibodies for Neogen’s diagnostic kits are produced on a regular schedule in our immunology laboratories in Lansing.
Manufacturing of diagnostic tests for the detection of natural toxins, pathogens, food allergens and spoilage organisms, final kit assembly, quality assurance and shipping takes place at our facilities in Lansing, Michigan. Proprietary monoclonal and polyclonal antibodies for Neogen’s diagnostic kits are produced on a regular schedule in our immunology laboratories in Lansing.
The world’s largest producers of cookies, crackers, candy, ice cream and many other processed foods use our Veratox, Alert, Reveal, Reveal 3-D and BioKits testing products to help protect their food-allergic customers from the inadvertent contamination of products with food allergens, including but not limited to peanut, milk, egg, almond, gliadin (gluten), soy, hazelnut and coconut residues. Dairy antibiotics.
Food allergens. The world’s largest producers of cookies, crackers, candy, ice cream and many other betaprocessed foods use our Veratox, Alert, Reveal, Reveal 3-D and BioKits testing products to help protect their food-allergic customers from the inadvertent contamination of products with food allergens, including but not limited to peanut, milk, egg, almond, gliadin (gluten), soy, hazelnut and coconut residues.
Hoof care, disposables and artificial insemination supplies are marketed to the dairy and veterinary industries. Rodenticides. Neogen’s comprehensive line of proven rodenticides, sold under brand names such as Ramik and Havoc, effectively address rodent problems of any size and serve as a critical component of an overall biosecurity plan for animal protein production operations.
Hoof care, disposables and artificial insemination supplies are marketed to the dairy and veterinary industries. Rodent control products. Neogen’s comprehensive line of proven rodent control products, sold under brand names such as Ramik, CyKill and Havoc, effectively address rodent problems of any size and serve as a critical component of an overall biosecurity plan for animal protein production operations.
Our sites have injury prevention programs, and we strive to build on our safety culture. Our procedures emphasize the need for the cause of injuries to be investigated and for action plans to be implemented to mitigate potential recurrence. Our safety programs have resulted in strong safety performance. 13 Table of Contents
Our sites have injury prevention programs, and we strive to build on our safety culture. Our procedures emphasize the need for the cause of injuries to be investigated and for action plans to be implemented to mitigate potential recurrence. Our safety programs have resulted in strong safety performance.
As of May 31, 2022, there were approximately 1,039 full-time employees assigned to manufacturing operations and providing of services in these locations, operating on multiple shift schedules; with occasional 24/7 production during high demand periods. Future demand increases could be accommodated by adding shifts.
As of May 31, 2023, there were approximately 1,168 full-time employees assigned to manufacturing operations and providing services in these locations, operating on multiple shift schedules, with occasional 24/7 production during high-demand periods. Future demand increases could be accommodated by adding shifts.
Certain animal health products and veterinary instruments that are purchased finished or that are toll manufactured by third party vendors are warehoused and shipped from our Lexington facilities. Some veterinary instruments are produced in our facilities in Lansing, and are generally then shipped to Lexington for distribution to customers.
Certain animal health products and veterinary instruments that are purchased finished or that are toll manufactured by third-party vendors are warehoused and shipped from our Kentucky facilities. Some veterinary instruments are produced in our facilities in Lansing and are then shipped to Kentucky for distribution to customers.
Neogen’s SureKill line of products is used by professionals to control a variety of insects and the Company’s StandGuard Pour-on solution, acquired in July 2020, is used for horn fly and lice control in beef cattle. Animal genomics services.
Neogen’s SureKill line of products is used by professionals to control a variety of insects, and the Company’s StandGuard Pour-on solution is used for horn fly and lice control in beef cattle. Animal genomics services.
Neogen’s highly effective insecticides utilize environmentally friendly technical formulas, and several are approved for use in food establishments and by pest control professionals in a wide range of environments. The Company’s Prozap insecticide brand is used in the large animal production industry, particularly with dairy and equine producers.
Neogen’s highly effective insect control products utilize environmentally friendly technical formulas, and several are approved for use in food establishments and by pest control professionals in a wide range of environments. The Company’s Prozap insect control brand is used in the large animal production industry, particularly with dairy and equine producers.
The products are also used in the veterinary clinic market to maintain sanitary conditions and limit the potential hazards of bacteria, fungi and viruses. Neogen’s water line cleaner and disinfectant products, including Peraside, NeoKlor, AquaPrime and Siloxycide, are used to clean water lines and provide continuous disinfection of a livestock facility’s water supply. Insecticides.
The products are also used in the veterinary clinic market to maintain sanitary conditions and limit the potential hazards of bacteria, fungi and viruses. Neogen’s water line cleaner and disinfectant products, including Peraside, NeoKlor, AquaPrime and Siloxycide, are used to clean water lines and provide continuous disinfection of a livestock facility’s water supply. 7 Insect control products.
Management believes we could increase the current output of our primary product lines by more than 30% using the current space available; however, to do so would require investment in additional equipment. Food safety diagnostics.
Management believes we could increase the current output of our primary product lines by using the current space available. However, to do so would require investment in additional equipment. Food safety diagnostics.
Generally, final assembly and shipment of diagnostic test kits to customers in Europe is performed in our Ayr, Scotland facility. Most of the Company’s food safety 10 Table of Contents diagnostic instruments and readers are produced by third-party vendors to our specifications, quality tested in Lansing, and then shipped to customers.
Generally, the final assembly and shipment of diagnostic test kits to customers in Europe is performed in our Ayr, Scotland facility. Many of the Company’s food safety diagnostic instruments and readers are produced by third-party vendors to our specifications, quality tested in Lansing, and then shipped to customers.
Grain producers and processors of all types and sizes use our Veratox, Agri-Screen, Reveal, Reveal Q+ and Reveal Q+ MAX tests to detect the presence of mycotoxins, including aflatoxin, aflatoxin M1, deoxynivalenol, fumonisin, ochratoxin, zearalenone, T-2/HT-2 toxin and ergot alkaloid, to help ensure product safety and quality in food and animal feed. Food allergens.
Neogen’s products include tests for: 4 Mycotoxins. Grain producers and processors of all types and sizes use our Veratox, Agri-Screen, Reveal, Reveal Q+ and Reveal Q+ MAX tests to detect the presence of mycotoxins, including aflatoxin, aflatoxin M1, deoxynivalenol, fumonisin, ochratoxin, zearalenone, T-2/HT-2 toxin and ergot alkaloid, to help ensure product safety and quality in food and animal feed.
Culture media products are manufactured in an ISO-approved facility in Lansing and in Heywood and Liverpool, England. Products are blended following strict formulations or custom blended to customer specifications and shipped directly to customers from Lansing and the United Kingdom.
Culture media products are manufactured in an ISO-approved facility in Lansing and in Heywood and Liverpool, England. Products are blended following strict formulations or custom blended to customer specifications and shipped directly to customers from Lansing and the U.K.
We strive to create an environment where colleagues feel valued and cared for and understand the important role we play in embracing diversity to improve the quality of our innovation, collaboration and relationships. We are dedicated to executing on our diversity, equity and inclusion initiatives. Talent Recruitment, Development and Retention .
We strive to create an environment where colleagues feel valued and understand the important role we play in embracing diversity to improve the quality of our innovation, collaboration and relationships. We are dedicated to executing on our equity, diversity, inclusion and belonging initiatives. Talent Attraction, Development and Retention.
Neogen Genomics, the leading worldwide commercial agricultural genomics laboratory in the U.S., employs cutting-edge technology in the area of genomics. The result of this technology allows the acceleration of natural selection through parentage testing and selective breeding of traits such as disease resistance, yield improvement and meat quality.
Neogen Genomics, a leading worldwide commercial animal genomics laboratory, employs cutting-edge technology in the area of genomics. The result of this technology allows the acceleration of natural selection through parentage testing and selective breeding of traits such as disease resistance, yield improvement and meat quality.
All completed biologic products are then shipped to Neogen’s Lexington facilities where they are inventoried prior to distribution to customers. Agricultural genomics services. Neogen offers agricultural genomics laboratory services and bioinformatics at our locations in Nebraska, Washington, Scotland, Brazil, Australia, China and Canada.
All completed biologic products are then shipped to Neogen’s Lexington facilities, where they are inventoried prior to distribution to customers. Agricultural genomics services. Neogen offers agricultural genomics laboratory services and bioinformatics at our locations in the U.S., Scotland, Brazil, Australia, China and Canada.
FOOD SAFETY SEGMENT Neogen’s Food Safety segment is primarily engaged in the production and marketing of diagnostic test kits and complementary products marketed to food and feed producers and processors to detect dangerous and/or unintended substances in food and animal feed, such as foodborne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications, ruminant by-products, meat speciation, drug residues, pesticide residues and general sanitation concerns.
Food Safety Segment Neogen’s Food Safety segment primarily is engaged in the production and marketing of diagnostic test kits and complementary products marketed to food and feed producers and processors to detect dangerous and/or unintended substances in food and animal feed, such as foodborne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications and general sanitation concerns.
The Prima Tech line also includes products used in artificial insemination in the swine industry, animal identification products and handling equipment. 5 Table of Contents Veterinary pharmaceuticals. Animal Safety’s NeogenVet product line provides innovative, value-added, high quality products to the veterinary market.
The Prima line also includes products used in artificial insemination in the swine industry, animal identification products and handling equipment. Veterinary pharmaceuticals. Animal Safety’s NeogenVet product line provides innovative, value-added, high quality products to the veterinary market.
Management believes that Neogen has adequate rights to commercialize our products. However, we are aware that substantial research is conducted at universities, governmental agencies and other companies throughout the world and that it is always possible that patents have been applied for and could be granted that are relevant to technologies that may be used in our products.
However, we are aware that substantial research is conducted at universities, governmental agencies and other companies throughout the world, and that it always is possible that patents have been applied for and could be granted that are relevant to technologies that may be used in our products.
Neogen purchases component parts and raw materials from more than 1,000 suppliers. Though many of these items are purchased from a single source to achieve the greatest volume discounts, we believe we have identified acceptable alternative suppliers for most of our key components and raw materials where it is economically feasible to do so.
Though many of these items are purchased from a single source to achieve the greatest volume discounts, we believe we have identified acceptable alternative suppliers for most of our key components and raw materials where it is economically feasible to do so.
No individual foreign country contributed 10% or more of our revenues for those same periods. RESEARCH AND DEVELOPMENT Management maintains a strong commitment to Neogen’s research and development activities. Our product development efforts are focused on the enhancement of existing products and on the development of new products that fit our business strategy.
No individual foreign country contributed 10% or more of our revenues for those same periods. 10 RESEARCH AND DEVELOPMENT Neogen has a strong commitment to its research and development activities. Our product development efforts are focused on the enhancement of existing products and on the development of new products that advance our business strategy.
We have established our One Neogen Pillars of Trust which are the principles that guide our decision making every day: • Openness • Honesty • Credibility • Respect • Service. We value responsibility, consistency and integrity. Our Code of Conduct contains general guidelines for conducting business ethically. Inclusion, Diversity, Equity and Belonging (IDEB) .
We have established our One Neogen Pillars of Trust which are the principles that guide our decision-making every day: • Openness • Honesty • Credibility • Respect • Service. We value responsibility, consistency and integrity. Our Code of Conduct codifies our commitment to conducting business ethically. Equity, Diversity, Inclusion, and Belonging (EDIB).
Management believes that our safety procedures for handling and disposing of such commodities comply with the standards prescribed by federal, state and local regulations; however, changes in such regulations or rules could involve significant costs to us and could be materially adverse to our business.
Neogen’s development and manufacturing processes involve the use of certain hazardous materials, chemicals, and compounds. Management believes that our safety procedures for handling and disposing of such commodities comply with the standards prescribed by federal, state and local regulations. However, changes in such regulations or rules could involve significant costs to us and could be materially adverse to our business.
GOVERNMENT REGULATION A significant portion of Neogen’s products and revenues are affected by the regulations of various domestic and foreign government agencies, including the U.S. Department of Agriculture (USDA), the Environmental Protection Agency (EPA) and the U.S. Food and Drug Administration (FDA).
GOVERNMENT REGULATION A significant portion of Neogen’s products and revenues are affected by the regulations of various domestic and foreign government agencies, including the U.S. Department of Agriculture (USDA), the Environmental Protection Agency (EPA), and the U.S. Food and Drug Administration (FDA). Changes in these regulations could affect revenues and/or costs of production and distribution.
Our test kits are generally based on internally developed technology, licensed technology, or technology that is acquired as a result of acquisitions. In fiscal 2022, the Food Safety segment incurred expense totaling $1,779,000 for royalties for licensed technology used in our products, including expense of $800,000 for allergen products and $494,000 for the pathogen product line.
Our test kits are generally based on internally developed technology, licensed technology, or technology that is acquired as a result of acquisitions. In fiscal 2023, the Food Safety segment incurred expense totaling $3,118 for royalties for licensed technology used in our products, including expense of $838 for allergen products and $489 for the pathogen product line.
As of May 31, 2022, we employed 121 scientists and support staff in our worldwide research and development group, including immunologists, chemists and microbiologists. Research and development costs were approximately $17.0 million, $16.2 million, and $14.8 million representing 3.2%, 3.5%, and 3.5% of total revenues in fiscal years 2022, 2021 and 2020, respectively.
As of May 31, 2023, we employed 136 scientists and support staff in our worldwide research and development group, including immunologists, chemists and microbiologists. Research and development costs were approximately $26,039, $17,049, and $16,247 representing 3.2%, 3.2%, and 3.5% of total revenues in fiscal years 2023, 2022 and 2021, respectively.
Our Listeria Right Now test detects the pathogen in less than 60 minutes without sample enrichment. Reveal’s lateral flow device combines an immunoassay with chromatography for a rapid and accurate one-step result. Spoilage microorganisms. Neogen’s Soleris products are used by food processors to identify the presence of spoilage organisms (e.g., yeast and mold) and other microbiological contamination in food.
Reveal’s lateral flow device combines an immunoassay with chromatography for a rapid and accurate one-step result. Spoilage microorganisms. Neogen’s Soleris products are used by food processors to identify the presence of spoilage organisms (e.g., yeast and mold) and other microbiological contamination in food.
Neogen’s BotVax B vaccine has successfully protected thousands of horses and foals against Type B botulism, commonly known as Shaker Foal Syndrome. Our product is the only USDA-approved vaccine for the prevention of Type B botulism in horses.
Neogen also markets Uniprim, a veterinary antibiotic, and several companion animal parasiticides. Veterinary biologics. Neogen’s BotVax B vaccine has successfully protected thousands of horses and foals against Type B botulism, commonly known as Shaker Foal Syndrome. Our product is the only USDA-approved vaccine for the prevention of Type B botulism in horses.
Outside of our physical locations, Neogen uses our own sales managers in both the Food Safety and Animal Safety segments to work closely with and coordinate the efforts of a network of approximately 600 distributors in more than 100 countries.
This business operates a genomics testing laboratory in Edmonton, Alberta. Other distributor partners. Outside of our physical locations, Neogen uses our own sales managers in both the Food Safety and Animal Safety segments to work closely with and coordinate the efforts of a network of approximately 800 distributors in more than 100 countries.
ANIMAL SAFETY Neogen’s staff of specialized animal safety sales, marketing, customer and technical service representatives sell our products and services directly to consumers, dealers, veterinarians, distributors and other manufacturers and also handle technical support issues.
ANIMAL SAFETY Neogen’s staff of specialized animal safety sales, marketing, customer and technical service representatives sell our products and services directly to consumers, dealers, veterinarians, distributors and other manufacturers and also handle technical support issues. Neogen further supports its distribution channels through product training, field support, various promotions and advertising.
The Heywood location produces prepared media plates, sterile liquid media, and other related products in ready to use format for food testing laboratories across the U.K. and western Europe. Enzyme substrates are manufactured at Megazyme in Bray, Ireland. Animal health products.
The Heywood location produces prepared media plates, sterile liquid media, and other related products in ready-to-use format for food testing laboratories across the U.K. and Western Europe. Enzyme substrates are manufactured at Megazyme in Bray, Ireland. Our Clean-Trace product line is manufactured in Wales. Other FSD products are currently manufactured within 3M plants in the U.S. and Poland.
Through our laboratory services and bioinformatics (primarily in beef and dairy cattle, pigs, sheep, poultry, horses and dogs), Neogen Genomics allows our customers to speed genetic improvement efforts, as well as identify economically important diseases. Cleaners, disinfectants and rodenticides. Manufacturing of rodenticides and/or cleaners and disinfectants takes place in the following locations: Wisconsin, Tennessee, California, England and Brazil.
Through our laboratory services and bioinformatics (primarily in beef and dairy cattle, pigs, sheep, poultry, horses and dogs), Neogen Genomics allows our customers to speed genetic improvement efforts, as well as identify economically important diseases. Cleaners, disinfectants and rodent control products.
This business operates an accredited laboratory which performs food safety and water quality testing for food producers, major hotels and restaurants in its home region, as well as safety and quality analysis for the country’s expanding nutraceutical market, and growing food export businesses.
Neogen also operates an accredited laboratory in India, located in Kochi, in the state of Kerala, that performs food safety and water quality testing for food producers, major hotels and restaurants in its home region, as well as safety and quality analysis for the country’s expanding nutraceutical market, and growing food export businesses. Mexico, Central and South America.
Our line of drug detection products is sold worldwide for the detection of abused and therapeutic drugs in animals and animal products, and has expanded into the workplace and human forensic markets.
The majority of these consumable products are marketed through veterinarians, retailers, livestock producers, and animal health product distributors. Our line of drug detection products is sold worldwide for the detection of abused and therapeutic drugs in animals and animal products, and has expanded into the workplace and human forensic markets.
Neogen’s specialty products for the seafood market include tests for histamine, a highly allergenic substance that occurs when certain species of fish begin to decay; sulfite, an effective but potentially allergenic shrimp preservative; and shellfish toxins.
Neogen’s specialty products for the seafood market include tests for histamine, a highly allergenic substance that occurs when certain species of fish begin to decay; and sulfite, an effective but potentially allergenic shrimp preservative. Waterborne microorganisms. Neogen offers the food and beverage industries, including water companies, several platforms for performing the microbial analysis of water.
In recent years, these operations have expanded to offer our complete line of products and services, including those usually associated with the Animal Safety segment such as cleaners, disinfectants, rodenticides, insecticides, veterinary instruments and genomics services. These additional products and services are managed and directed by existing management at our international operations, and report through the Food Safety segment.
In recent years, these operations have expanded to offer our complete line of products and services, including those usually associated with the Animal Safety segment, such as cleaners, disinfectants, rodent control, insect control, veterinary instruments and genomics services.
Neogen Genomics, formerly known as GeneSeek, provides value-added services to leading agricultural genetics providers, large national cattle associations, companion animal breed registries and direct to consumer canine genetic test providers, university researchers, and numerous commercial beef and dairy cattle, swine, sheep and poultry producers.
Neogen Genomics provides value-added services to leading agricultural genetics providers, large national cattle associations, companion animal breed registries and direct-to-consumer canine genetic test providers, university researchers, and numerous commercial beef and dairy cattle, swine, sheep and poultry producers. With state-of-the-art genomics laboratories and comprehensive bioinformatics to interpret genomics test results, Neogen Genomics offers identity and trait determination and analysis.
Neogen’s December 2021 acquisition of Genetic Veterinary Sciences, Inc. expanded the Company’s portfolio through the addition of a number of genetic tests for companion animals, including dogs, cats and birds. Life sciences.
This information has helped livestock producers increase the speed of genetic improvement in their herds and the overall performance and quality of their animals. Neogen’s December 2021 acquisition of Genetic Veterinary Sciences, Inc. expanded the Company’s portfolio through the addition of a number of genetic tests for companion animals, including dogs, cats and birds. Life sciences.
In the racing industry market, we believe we hold a leading market share position. In the life sciences and forensics markets, we compete against several other diagnostic and reagent companies with similar product offerings. In the veterinary market, Neogen markets BotVax B, the only USDA-approved vaccine for the prevention of botulism Type B in horses.
In the life sciences and toxicology markets, we compete against several other diagnostic and reagent companies with similar product offerings. In the veterinary market, Neogen markets BotVax B, the only USDA-approved vaccine for the prevention of botulism Type B in horses. We compete on other key products through differentiated product performance and superior customer and technical support.
Our test kits are used to detect potential hazards or unintended substances in food and animal feed by testers ranging from small local grain elevators to the largest, best-known food and feed processors in the world, and numerous regulatory agencies. Neogen’s products include tests for: Mycotoxins.
Our test kits are used to detect potential hazards or unintended substances in food and animal feed by testers ranging from small local grain elevators to the largest, best-known food and feed processors in the world, and numerous regulatory agencies. Along with detection of contaminants in foods, we also detect beneficial components in foods such as dietary fiber and carbohydrates.
Our ability to produce high quality antibodies sets our products apart from immunoassay test kits produced and sold by other companies. Our kits are available in microwell formats, which allow for automated and rapid processing of a large number of samples, and lateral flow and other similar devices that provide distinct visual results.
Our kits are available in microwell formats, which allow for automated and rapid processing of a large number of samples, as well as lateral flow and other similar devices that provide distinct visual results.
The products, and the facilities in which they are manufactured, are in a position of good standing with both agencies.
The pharmaceutical products are approved by the FDA and analogous agencies in jurisdictions where sold. The products, and the facilities in which they are manufactured, are in a position of good standing with all agencies.
Neogen’s products are marketed by our sales personnel in the U.S., Canada, Mexico, Central America, Brazil, Argentina, Uruguay, Chile, the United Kingdom, the European Union, China, India and Australia, and by distributors throughout the rest of the world. Our mission is to be the leading company in the development and marketing of solutions for food and animal safety.
Neogen’s products are marketed by our sales personnel and distributors throughout the world. Our mission is to be the leading company in the development and marketing of solutions for food and animal safety.
Neogen’s Animal Safety segment is engaged in the development, manufacture, marketing and distribution of veterinary instruments, pharmaceuticals, vaccines, topicals, parasiticides, diagnostic products, rodenticides, cleaners, disinfectants, insecticides and genomics testing services for the worldwide animal safety market. The majority of these consumable products are marketed through veterinarians, retailers, livestock producers and animal health product distributors.
FSD products are reported in the Food Safety segment. Neogen’s Animal Safety segment is engaged in the development, manufacture, marketing, and distribution of veterinary instruments, pharmaceuticals, vaccines, topicals, parasiticides, diagnostic products, rodent control products, cleaners, disinfectants, insect control products and genomics testing services for the worldwide animal safety market.
Additionally, we must continue to generate or have access to adequate capital resources to execute our strategy. 11 Table of Contents FOOD SAFETY: With a large professional sales organization offering a comprehensive catalog of food safety solutions, management believes we maintain a general advantage over competitors offering only limited product lines.
FOOD SAFETY: With a large professional sales organization offering a comprehensive catalog of food safety solutions, management believes we maintain a general advantage over competitors offering only limited product lines.
We compete on other key products through differentiated product performance and superior customer and technical support. With some of our products, we provide solutions as a lower cost alternative and also offer a private label option for our distributors. Competition in the rodenticide market includes several companies of comparable size that offer products into similar market segments.
With some of our products, we provide solutions as a lower cost alternative and also offer a private label option for our customers. Competition in the rodent control market includes several companies of comparable size that offer products into similar market segments. The retail rodent control market is not dominated by a single brand.
During the fiscal year that ended May 31, 2022, we had approximately 32,000 customers for our products. As many of our customers are distributors and certain animal safety products are offered to the general retail market, the total number of end users of our products is considerably greater than 32,000.
As many of our customers are distributors and certain animal safety products are offered to the general retail market, the total number of end users of our products is considerably greater than 41,000. As of May 31, 2023, a total of 904 employees were assigned to sales and marketing functions, compared to 573 at the end of May 2022.
We strive to create a workplace of choice to attract, retain and develop top talent to achieve our vision and deliver shareholder results. As of May 31, 2022, we employed 2,108 people worldwide, with 1,264 located in the U.S. and 844 international. None of these employees are covered by collective bargaining agreements.
We strive to create a workplace of choice to attract, retain, and develop top talent to achieve our vision and deliver shareholder results. As of May 31, 2023, we employed 2,640 people worldwide, with 1,444 located in the U.S. and 1,196 international. We maintain good relations with both our union and non-union employees and have not experienced any work stoppages.
To the best of our knowledge, Neogen products are compliant with applicable regulations in the countries where such products are sold. Many of the food safety diagnostic products do not require direct government approval. However, we have pursued AOAC approval for a number of these products to enhance their marketability.
Each country has its own individual regulatory construct with specific requirements. To the best of our knowledge, Neogen products are compliant with applicable regulations in the countries where such products are sold. Many food safety diagnostic products do not require direct government approval.
The retail rodenticide market is not dominated by a single brand. While the technical materials used by competing companies are similar, Neogen uses manufacturing and bait formula techniques which we believe may better attract rodents to the product and thereby improves overall product performance.
While the technical 13 materials used by competing companies are similar, Neogen uses manufacturing and bait formula techniques, which we believe may better attract rodents to the product and thereby improves overall product performance. Within the insect control market, Chem-Tech products specifically focus on the area of insect control for food and animal safety applications.
ANIMAL SAFETY SEGMENT Neogen’s Animal Safety segment is primarily engaged in the development, manufacture, marketing and distribution of veterinary instruments, pharmaceuticals, vaccines, topicals, parasiticides, diagnostic products, a full suite of agricultural biosecurity products such as rodenticides, cleaners, disinfectants and insecticides, and genomics services. Veterinary instruments.
Revenues from Neogen’s Food Safety segment accounted for 66.5%, 49.3%, and 50.0% of our total revenues for fiscal years ended May 31, 2023, 2022 and 2021, respectively. 6 ANIMAL SAFETY SEGMENT Neogen’s Animal Safety segment is primarily engaged in the development, manufacture, marketing, and distribution of veterinary instruments, pharmaceuticals, vaccines, topicals, parasiticides, diagnostic products, a full suite of agricultural biosecurity products such as rodent control, cleaners, disinfectants and insect control, and genomics services.
Neogen Culture Media, formerly Neogen’s Acumedia and Lab M products, 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. Our customers for culture media also include commercial and research laboratories and producers of pharmaceuticals, cosmetics and veterinary vaccines. Food quality diagnostics.
Neogen Culture Media, formerly Neogen’s Acumedia and Lab M products, 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. Also included under Neogen Culture Media is the Petrifilm solution, acquired as part of the FSD transaction in September 2022.
Neogen offers food safety analysis services in the U.S., United Kingdom (U.K.) and India. These ISO-accredited laboratories offer a variety of fee-for-service tests for the food and feed industries. The majority of Neogen’s food safety test kits use immunoassay technology to rapidly detect target substances.
These ISO-accredited laboratories offer a variety of fee-for-service tests for the food and feed industries. The majority of Neogen’s food safety test kits use immunoassay technology to rapidly detect target substances. Our ability to produce high-quality antibodies sets our products apart from immunoassay test kits produced and sold by other companies.
The rodenticides, insecticides, cleaners, disinfectants and sanitizers manufactured and distributed by Neogen are subject to EPA and various state regulations. In general, any international sale of our products must also comply with similar regulatory requirements in the country of destination. Each country has its own individual regulatory construct with specific requirements (e.g., label in the language of the importing country).
The rodent control products, insect control products, cleaners, disinfectants and sanitizers manufactured and distributed by Neogen are subject to EPA and various U.S. state regulations as well as other analogous agencies in the markets where we sell such products. In general, any international sale of our products also must comply with similar regulatory requirements in the country of destination.
Neogen Europe, Ltd., headquartered in Ayr, Scotland, sells products and services to our network of customers and distributors throughout the United Kingdom (U.K.), Europe, the Middle East and Africa. Customers in the U.K., France, Germany, Italy, the Netherlands and the United Arab Emirates (U.A.E.) are served by our employees.
Customers in the U.K., France, Germany, Italy, the Netherlands, United Arab Emirates (U.A.E.) and India are served by our employees. In other regions, customers generally are served by distributors managed by Neogen Europe personnel.
Our competitive position will also depend on our ability to continue to develop proprietary products, attract and retain qualified scientific and other personnel, develop and implement production and marketing plans and obtain patent protection for new products.
Our competitive position also depends on our ability to continue to develop proprietary products, attract and retain qualified scientific and other personnel, develop and implement production and marketing plans and protect the intellectual property for new products. Additionally, we must continue to generate or have access to adequate capital resources to execute our strategy.
In May 2021, we launched AccuPoint Advanced NG, a next generation version, designed to be simpler to use, and provide results that are easier to analyze. Our worldwide customer base for ATP sanitation testing products includes food and beverage processors, the food service and healthcare industries, as well as many other users. Seafood contaminants.
Our worldwide customer base for ATP sanitation testing products includes food and beverage processors, the food service and healthcare industries, as well as many other users. Seafood contaminants.
With state-of-the-art genomics laboratories and the comprehensive bioinformatics to interpret genomics test results, Neogen Genomics offers identity and trait determination and analysis. Our technology employs high-density DNA genotyping and genomic sequencing for identity and trait analysis in a variety of important animal and agricultural plant species.
Our technology employs high-density DNA genotyping and genomic sequencing for identity and trait analysis in a variety of important animal and agricultural plant species. Our extensive bioinformatics database identifies and predicts an animal’s positive or negative traits based on DNA test results.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn particular: • for a two-year period following the distribution date, except as described below: • Garden SpinCo will continue the active conduct of its trade or business and the trade or business of certain Garden SpinCo subsidiaries; • Garden SpinCo will not voluntarily dissolve or liquidate or permit certain Garden SpinCo subsidiaries to voluntarily dissolve or liquidate; • Neogen and Garden SpinCo will not enter into any transaction or series of transactions (or any agreement, understanding or arrangement) as a result of which one or more persons would acquire (directly or indirectly) stock comprising 50% or more of the vote or value of Garden SpinCo or Neogen (taking into account the stock acquired pursuant to the merger); 15 Table of Contents • Neogen and Garden SpinCo will not engage in certain mergers or consolidations; • Garden SpinCo will not, and will not permit certain Garden SpinCo subsidiaries to, sell, transfer or otherwise dispose of 30% or more of the gross assets of Garden SpinCo, such subsidiaries, the Garden SpinCo group or the active trade or business of Garden SpinCo or certain Garden SpinCo subsidiaries, subject to certain exceptions; • Neogen and Garden SpinCo will not, and will not permit certain Garden SpinCo subsidiaries to, redeem or repurchase stock or rights to acquire stock, unless certain requirements are met; • Neogen and Garden SpinCo will not, and will not permit certain Garden SpinCo subsidiaries to, amend their certificates of incorporation (or other organizational documents) or take any other action affecting the voting rights of any stock or stock rights of Neogen or Garden SpinCo; and • Neogen and Garden SpinCo will not, and will not permit any member of the Garden SpinCo group or Neogen to, take any other action that would, when combined with any other direct or indirect changes in ownership of Garden SpinCo and Neogen stock (including pursuant to the merger), have the effect of causing one or more persons to acquire stock representing 50% or more of the vote or value of Garden SpinCo or Neogen, or otherwise jeopardize the tax-free status of the transaction; • during the time period ending three years after the date of the distribution, Garden SpinCo and Neogen also will be subject to certain restrictions relating to the SpinCo Business in Switzerland; and • additionally, none of Garden SpinCo, Neogen or any member of Garden SpinCo group or Neogen may: • take, or permit to be taken, any action that could reasonably be expected to jeopardize the qualification of certain Garden SpinCo debt as a security under Section 361(a) of the Code (other than making any payment permitted or required by the terms of the Garden SpinCo debt); • within 90 days of the distribution date, refinance or repay (other than in the ordinary course of business) any third-party debt of any member of the Garden SpinCo group, except as required by the transaction documents; or • permit any portion of certain nonqualified preferred stock to cease to be outstanding or modify the terms of such stock; unless, in each case, prior to taking any such action, Neogen and Garden SpinCo shall have requested that 3M obtain, or request and receive 3M’s prior written consent to obtain, an IRS ruling satisfactory to 3M in its reasonable discretion or provide 3M with an unqualified tax opinion satisfactory to 3M in its sole and absolute discretion to the effect that such action would not jeopardize the intended tax treatment of the transaction, unless 3M waives such requirement.
Biggest changeIn particular: For a two-year period following the distribution date, except as described below: • Neogen Food Safety Corporation will continue the active conduct of its trade or business and the trade or business of certain Neogen Food Safety Corporation subsidiaries; • Neogen Food Safety Corporation will not voluntarily dissolve or liquidate or permit certain Neogen Food Safety Corporation subsidiaries to voluntarily dissolve or liquidate; • Neogen and Neogen Food Safety Corporation will not enter into any transaction or series of transactions (or any agreement, understanding or arrangement) as a result of which one or more persons would acquire (directly or indirectly) stock comprising 50% or more of the vote or value of Neogen Food Safety Corporation or Neogen (taking into account the stock acquired pursuant to the merger); • Neogen and Neogen Food Safety Corporation will not engage in certain mergers or consolidations; • Neogen Food Safety Corporation will not, and will not permit certain Neogen Food Safety Corporation subsidiaries to, sell, transfer or otherwise dispose of 30% or more of the gross assets of Neogen Food Safety Corporation such subsidiaries, the Neogen Food Safety Corporation group or the active trade or business of Neogen Food Safety Corporation or certain Neogen Food Safety Corporation subsidiaries, subject to certain exceptions; • Neogen and Neogen Food Safety Corporation will not, and will not permit certain Neogen Food Safety Corporation subsidiaries to, redeem or repurchase stock or rights to acquire stock, unless certain requirements are met; • Neogen and Neogen Food Safety Corporation will not, and will not permit certain Neogen Food Safety Corporation subsidiaries to, amend their certificates of incorporation (or certain other organizational documents) or take any other action affecting the voting rights of any stock or stock rights of Neogen or Neogen Food Safety Corporation; and • Neogen and Neogen Food Safety Corporation will not, and will not permit any member of the Neogen Food Safety Corporation group or Neogen to, take any other action that would, when combined with any other direct or indirect changes in ownership of Neogen Food Safety Corporation and Neogen stock (including pursuant to the merger), have the effect of causing one or more persons to acquire stock representing 50% or more of the vote or value of Neogen Food Safety Corporation or Neogen, or otherwise jeopardize the tax-free status of the Transaction; • during the time period ending three years after the date of the distribution, Neogen Food Safety Corporation and Neogen also will be subject to certain restrictions relating to the SpinCo Business in Switzerland; and • Additionally, none of Neogen Food Safety Corporation, Neogen or any member of Neogen Food Safety Corporation group or Neogen may: o take, or permit to be taken, any action that could reasonably be expected to jeopardize the qualification of certain Neogen Food Safety Corporation debt as a security under Section 361(a) of the Code (other than making any payment permitted or required by the terms of the Neogen Food Safety Corporation debt); o permit any portion of certain nonqualified preferred stock to cease to be outstanding or modify the terms of such stock; 17 unless, in each case, prior to taking any such action, Neogen and Neogen Food Safety Corporation shall have requested that 3M obtain, or request and receive 3M’s prior written consent to obtain, an IRS ruling satisfactory to 3M in its reasonable discretion or provide 3M with an unqualified tax opinion satisfactory to 3M in its sole and absolute discretion to the effect that such action would not jeopardize the intended tax treatment of the Transaction, unless 3M waives such requirement.
Each of the following risks should be carefully considered, together with all the other information included in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and in our other filings with the SEC.
Each of the following risks should be considered carefully, together with all the other information included in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and in our other filings with the SEC.
Litigation could also impair our ability to retain product liability insurance or make our insurance more expensive. Although we currently maintain liability insurance, we cannot assure that we will be able to continue to obtain such insurance on acceptable terms, or that such insurance will provide adequate coverage against all potential claims.
Litigation also could impair our ability to retain product liability insurance or make our insurance more expensive. Although we currently maintain liability insurance, we cannot assure that we will be able to continue to obtain such insurance on acceptable terms, or that such insurance will provide adequate coverage against all potential claims.
In the event that we are found to infringe any valid claim in a patent held by a third party, we could, among other things, be required to: • Pay damages, including up to treble damages and the other party’s attorneys’ fees, which may be substantial; • Cease the development, manufacture, importation, use and sale of products that infringe the patent rights of others, through a court-imposed injunction; • Expend significant resources to redesign our technology so that it does not infringe others’ patent rights, or develop or acquire non-infringing intellectual property, which may not be possible; • Discontinue manufacturing or other processes incorporating infringing technology; and/or • Obtain licenses to the infringed intellectual property, which may not be available to us on acceptable terms, or at all.
In the event that we are found to infringe any valid claim in a patent held by a third party, we could, among other things, be required to: • Pay damages, including up to treble damages and the other party’s attorneys’ fees, which may be substantial; 27 • Cease the development, manufacture, importation, use and sale of products that infringe the patent rights of others, through a court-imposed injunction; • Expend significant resources to redesign our technology so that it does not infringe others’ patent rights, or develop or acquire non-infringing intellectual property, which may not be possible; • Discontinue manufacturing or other processes incorporating infringing technology; and/or • Obtain licenses to the infringed intellectual property, which may not be available to us on acceptable terms, or at all.
In addition, results of elections, referendums or other political processes in certain markets in which our products are manufactured, sold or distributed could create uncertainty regarding how existing governmental policies, laws and regulations may change, including with respect to sanctions, taxes, the movement of goods, services, capital and people between countries and other matters.
In addition, results of elections, referendums or other political processes in certain markets in which our products are manufactured, sold, or 28 distributed could create uncertainty regarding how existing governmental policies, laws and regulations may change, including with respect to sanctions, taxes, the movement of goods, services, capital and people between countries and other matters.
We rely on our information systems’ infrastructure to integrate departments and functions, to enhance our ability to service customers, to improve our control environment and to manage our cost reduction initiatives. If a security breach or cyberattack of our IT networks and systems occurs, our operations could be interrupted.
We rely on our information systems’ infrastructure to integrate departments and functions, enhance our ability to service customers, improve our control environment, and manage our cost reduction initiatives. If a security breach or cyberattack of our information technology ("IT") networks and systems occurs, our operations could be interrupted.
During the course of the pandemic, we modified our business practices to comply with safety measures required by federal, state and local governments, as well as those we determine to be in the best interests of our employees and customers, including implementing social distancing, remote work, reducing employee travel, restricting building access and more.
During the course of the pandemic, we modified our business practices to comply with safety measures required by federal, state and local governments, as well as those we determined to be in the best interests of our employees and customers, including implementing social distancing, remote work, reducing employee travel, restricting building access and more.
We rely heavily on third-party package delivery services, and a significant disruption in these services or significant increases in prices may disrupt our ability to ship products, increase our costs and lower our profitability. We ship a significant portion of our products to customers through independent package delivery companies, such as UPS, Federal Express and DHL.
We rely heavily on third-party package delivery services, and a significant disruption in these services or significant increases in prices could disrupt our ability to ship products, increase our costs and lower our profitability. We ship a significant portion of our products to customers through independent package delivery companies, such as UPS, Federal Express and DHL.
Any issues involving our critical business applications and infrastructure may adversely impact our ability to manage our operations and the customers we serve. Although we have controls and security measures in place to prevent such attacks, experienced computer hackers are increasingly organized and sophisticated.
Any issues involving our critical business applications and infrastructure could adversely impact our ability to manage our operations and the customers we serve. Although we have controls and security measures in place to prevent such attacks, experienced computer hackers are increasingly organized and sophisticated.
The potential implications of such uncertainty, which include, among others, exchange rate fluctuations, trade barriers and market contraction, could adversely affect the Company’s business and financial results. Climate change, or legal, regulatory or market measures to address climate change may materially adversely affect our financial condition and business operations.
The potential implications of such uncertainty, which include, among others, exchange rate fluctuations, trade barriers and market contraction, could adversely affect our business and financial results. Climate change, or legal, regulatory or market measures to address climate change could materially adversely affect our financial condition and business operations.
Whether the manufacture, sale or use of current products, or whether any products under development would, upon commercialization, infringe any patent claim cannot be known with certainty unless and until a court interprets the patent claim in the context of litigation.
Whether the manufacture, sale, or use of current products, or whether any products under development would, upon commercialization, infringe any patent claim cannot be known with certainty unless and until a court interprets a patent claim and its validity in the context of litigation.
In addition, changes in tax laws including further regulatory developments arising from U.S. tax reform legislation and/or regulations around the world could result in a tax expense or benefit recorded to the Company’s consolidated statement of earnings.
In addition, changes in tax laws including further regulatory developments arising from U.S. tax reform legislation and/or regulations around the world could result in a tax expense or benefit recorded to our consolidated statement of earnings.
In addition, the impact of such risks may be outside of Neogen’s control and could decrease our ability to sell products internationally, which could adversely affect our business, financial condition, results of operations or cash flows.
In addition, the impact of such risks could be outside of our control and could decrease our ability to sell products internationally, which could adversely affect our business, financial condition, results of operations or cash flows.
We sell many of our products, both within and outside of the U.S., through distribution. As a result, we are dependent on distributors to sell our products and assist us in promoting and creating demand for our products.
We sell many of our products, both within and outside of the U.S., through independent distributors. As a result, we are dependent on distributors to sell our products and assist us in promoting and creating demand for our products.
Changes in the political conditions in markets in which we manufacture, sell or distribute our products may be difficult to predict and may adversely affect our business and financial results.
Changes in the political conditions in markets in which we manufacture, sell or distribute our products could be difficult to predict and could affect our business and financial results adversely.
Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our future operations from natural disasters and extreme weather conditions, such as hurricanes, tornadoes, earthquakes, wildfires or flooding.
Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our future operations from natural disasters and extreme weather conditions, such as hurricanes, tropical storms, blizzards, tornadoes, earthquakes, wildfires or flooding.
Economic conditions and uncertainties in global markets may adversely affect the cost and other terms upon which we are able to obtain third party insurance.
Economic conditions and uncertainties in global markets could adversely affect the cost and other terms upon which we are able to obtain third party insurance.
These difficulties include: • the integration of the 3M Food Safety business with Neogen’s current businesses while carrying on the ongoing operations of all businesses; • managing a significantly larger company than before the consummation of the transaction; • integrating the business cultures of the 3M Food Safety business and Neogen, which could prove to be incompatible; • creating uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters; • the ability to ensure the effectiveness of internal control over financial reporting across the combined company; • integrating certain information technology, purchasing, accounting, finance, sales, billing, human resources, payroll and regulatory compliance systems; and • the potential difficulty in retaining key officers and personnel of Neogen and the 3M Food Safety business.
The difficulties include: • the integration of the 3M Food Safety business with Neogen’s current businesses while carrying on the ongoing operations of all businesses; • managing a significantly larger company than before the consummation of the Transaction; • integrating the business cultures of the 3M Food Safety business and Neogen, which could prove to be incompatible; • creating uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters; • the ability to ensure the effectiveness of internal control over financial reporting across the combined company; • integrating certain manufacturing, information technology, purchasing, accounting, finance, sales, billing, human resources, payroll and regulatory compliance systems; and • the potential difficulty in retaining key officers and personnel of Neogen and the 3M Food Safety business. 16 The continued successful integration of the 3M Food Safety business cannot be assured.
Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as other general economic, market or political conditions, could reduce the market price of our common stock rapidly and unexpectedly, despite our operating performance.
The trading price of our common stock could be volatile. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as other general economic, market or political conditions, could reduce the market price of our common stock rapidly and unexpectedly, despite our operating performance.
Regardless of whether we are ultimately determined to be liable or our products are determined to be defective, we might incur significant legal 21 Table of Contents expenses not covered by insurance. In addition, product or service liability litigation could damage our reputation and impair our ability to market our products and services, regardless of the outcome.
Regardless of whether we are ultimately determined to be liable or our products are determined to be defective, we could incur significant legal expenses not covered by insurance. In addition, product or service liability litigation could damage our reputation and impair our ability to market our products and services, regardless of the outcome.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY Our business strategy is dependent on successfully promoting internal growth and identifying and integrating acquisitions. Our business has grown significantly over the past several years as a result of both internal growth and acquisitions of existing businesses and their products.
Our business strategy is dependent on successfully promoting internal growth and identifying and integrating acquisitions. Our business has grown significantly over the past several years as a result of both internal growth and acquisitions of existing businesses and their products.
These restrictions could have a material adverse effect on Neogen’s liquidity and financial condition, and otherwise could impair Neogen’s and Garden SpinCo’s ability to implement strategic initiatives and Garden SpinCo’s and Neogen’s indemnity obligation to 3M might discourage, delay or prevent a change of control that shareholders of Neogen may consider favorable.
These restrictions could have a material adverse effect on Neogen’s liquidity and financial condition, and otherwise could impair Neogen’s and Neogen Food Safety Corporation’s ability to implement strategic initiatives and Neogen Food Safety Corporation’s and Neogen’s indemnity obligation to 3M might discourage, delay or prevent a change of control that shareholders of Neogen may consider favorable.
The Tax Matters Agreement executed in connection with the Transaction generally restricts Neogen, Garden SpinCo and their affiliates from taking certain actions after the distribution of Neogen shares that could adversely affect the intended tax treatment of the transaction.
The Tax Matters Agreement executed in connection with the Transaction generally restricts Neogen and its affiliates from taking certain actions after the distribution of Neogen shares that could adversely affect the intended tax treatment of the Transaction.
Failure to adhere to these requirements could result in tax being imposed on 3M for which Neogen and Garden SpinCo could bear responsibility and for which Neogen and Garden SpinCo could be obligated to indemnify 3M. Any such indemnification obligation would likely be substantial and would likely have a material adverse effect on Neogen.
Failure to adhere to these requirements could result in tax being imposed on 3M for which Neogen and Neogen Food Safety Corporation could bear responsibility and for which Neogen and Neogen Food Safety Corporation could be obligated to indemnify 3M. Any such indemnification obligation would likely be substantial and would likely have a material adverse effect on Neogen.
While it is difficult to anticipate the effect the sanctions announced to date may have on Neogen, any further sanctions imposed or actions taken by the United States or other countries, including any expansion of sanctions beyond Russia and Belarus, could affect the global price and availability of raw materials, reduce our sales and earnings or otherwise have an adverse effect on our business and results of operations.
While it is difficult to anticipate the effect the sanctions announced to date could have on us, any further sanctions imposed or actions taken by the U.S. or other countries, including any expansion of sanctions beyond Russia and Belarus, could affect the global price and availability of raw materials, reduce our sales and earnings or otherwise have an adverse effect on our business and results of operations.
Our success and ability to compete depends in part on our ability to obtain protection in the U.S. and other countries for our products by establishing and maintaining intellectual property rights capable of protecting our technology and products.
Our success and ability to compete depends, in part, on our ability to protect, in the U.S. and other countries, our products by establishing and maintaining intellectual property rights capable of protecting our technology and products.
We are subject to risks relating to existing international operations and expansion into new geographical markets. We focus on expanding sales globally as part of our overall growth strategy and expect sales from outside the United States to continue to represent a significant portion of our revenue.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY We are subject to risks relating to existing international operations and expansion into new geographical markets. Expanding sales globally is part of our overall growth strategy, and we expect sales from outside the United States to continue to represent a significant portion of our revenue.
Income tax audits associated with the allocation of income and other complex issues may result in significant income tax adjustments that could negatively impact our future operating results. 22 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS – NONE
Income tax audits associated with the allocation of income and other complex issues could result in significant income tax adjustments that could negatively impact our future operating results. 29 ITEM 1B. UNRESOLVED STAFF COMMENTS – NONE
For example, as a result of the ongoing military conflict between Russia and Ukraine and resulting heightened economic sanctions from the United States and the international community, Neogen has discontinued sales into Russia and Belarus. The United States and other countries have imposed significant sanctions and could impose even wider sanctions and take other actions should the conflict further escalate.
For example, as a result of the ongoing military conflict between Russia and Ukraine and resulting heightened economic sanctions from the U.S. and the international community, we have discontinued sales into Russia and Belarus. The U.S. and other countries have imposed significant sanctions and could impose even wider sanctions and take other actions should the conflict further escalate.
Factors that may impact the market price of our common stock include the factors described in this “Risk Factors” section and elsewhere in this Form 10-K, as well as: • Public announcements (including the timing of these announcements) regarding our business, financial performance, acquisitions and prospects or new products or services, product enhancements or technological advances by our competitors or us; • Trading activity in our stock, including transactions by us, our executive officers and directors, and significant stockholders; trading activity that results from the ordinary course rebalancing of stock indices in which we may be included, such as the S&P Mid-Cap 400 Index; trading activity related to our inclusion in, or removal from, any stock indices; and short-interest in our common stock, which could be significant from time to time; • Investor perception of us and the industry and markets in which we operate, including changes in earnings estimates or buy/sell recommendations by securities analysts; and whether or not we meet earnings estimates of securities analysts who follow us; and • General financial, domestic, international, economic and market conditions, including overall fluctuations in the U.S. equity markets, which may experience extreme volatility that, in some cases, is unrelated or disproportionate to the operating performance of particular companies. 20 Table of Contents GENERAL RISK FACTORS Our success is highly dependent on our ability to obtain protection for the intellectual property utilized in our products; these products could be the subject of patent infringement challenges.
Factors that could impact the market price of our common stock include the factors described in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, as well as: • Public announcements (including the timing of these announcements) regarding our business, financial performance, acquisitions and prospects or new products or services, product enhancements or technological advances by our competitors or us; • Trading activity in our stock, including transactions by us, our executive officers and directors, and significant shareholders; trading activity that results from the ordinary course rebalancing of stock indices in which we may be included, such as the S&P Mid-Cap 400 Index; trading activity related to our inclusion in, or removal from, any stock indices; and short-interest in our common stock, which could be significant from time to time; • Investor perception of us and the industry and markets in which we operate, including changes in earnings estimates or buy/sell recommendations by securities analysts; and whether or not we meet earnings estimates of securities analysts who follow us; and • General financial, domestic, international, economic and market conditions, including overall fluctuations in the U.S. equity markets, which may experience extreme volatility that, in some cases, is unrelated or disproportionate to the operating performance of particular companies.
Even if Neogen is able to integrate the 3M Food Safety business successfully, Neogen cannot predict with certainty if or when these synergies, growth opportunities and other benefits will be realized, or the extent to which they will actually be achieved.
Even if we are able to integrate the 3M Food Safety business successfully, we cannot predict with certainty if or when the balance of these synergies, growth opportunities and other benefits will be realized, or the extent to which they will actually be achieved.
The failure to do so could have a material adverse effect on Neogen’s business, financial condition or results of operations after the transaction.
The failure to do so could have a material adverse effect on our business, financial condition or results of operations.
Although Neogen employs system backup measures and engages in information system redundancy planning and processes, such measures, as well as our current disaster recovery plan, may be ineffective or inadequate to address all vulnerabilities.
Although we employ system backup measures and engage in information system redundancy planning and processes, such measures, as well as our current disaster recovery plan, may be ineffective or inadequate to address all vulnerabilities.
The markets for our products are extremely competitive, and our competitors could use existing resource advantages to our detriment. The markets in which we compete are subject to rapid and substantial changes in technology and are characterized by extensive research and development and intense competition.
The markets for our products are extremely competitive, and our competitors could use existing resource advantages to our detriment. The food and animal safety industries are subject to rapid and substantial changes in technology and are characterized by extensive research and development and intense competition.
Pursuant to the terms of the transaction, Neogen and Garden SpinCo will be restricted from taking certain actions that could adversely affect the intended tax treatment of the transaction, and such restrictions could significantly impair Neogen’s and Garden SpinCo’s ability to implement strategic initiatives that otherwise would be beneficial.
Pursuant to the terms of the Transaction, Neogen and formerly Neogen Food Safety Corporation will be restricted from taking certain actions that could adversely affect the intended tax treatment of the Transaction, and such restrictions could significantly impair Neogen’s and Neogen Food Safety Corporation’s ability to implement strategic initiatives that otherwise would be beneficial.
Our competitors and potential competitors may have greater financial, technical, manufacturing, marketing, research and development and management resources than we do. These competitors could use their resources, reputations and ability to leverage existing customer relationships to give them a competitive advantage over us.
Our competitors and potential competitors may have greater financial, technical, manufacturing, marketing, research and development and management resources than us. These competitors could use their resources, reputations and ability to leverage existing customer relationships to provide a competitive advantage over us that could impact our results of operations.
The Company’s business is subject to tax-related external conditions, such as tax rates, tax laws and regulations, changing political environments in the U.S. and foreign jurisdictions that impact tax examination, assessment and enforcement approaches.
Tax legislation could materially adversely affect our financial results and tax liabilities. Our business is subject to tax-related external conditions, such as tax rates, tax laws, and regulations, changing political environments in the U.S. and foreign jurisdictions that impact tax examination, assessment and enforcement approaches.
If we are unable to obtain sufficient and cost-effective third-party insurance coverage, or to the extent we have elected to self-insure, we may be at greater risk that our operations will be harmed by a catastrophic loss. Our dependence on suppliers could limit our ability to sell certain products or negatively affect our operating results.
If we are unable to obtain sufficient and cost-effective third-party insurance coverage, or to the extent we have elected to self-insure, we could be at greater risk that our operations will be harmed by a catastrophic loss.
If any of our facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue and result in significant expenses to repair or replace the facility and/or distribution system.
Our facilities and our distribution systems are subject to catastrophic loss due to fire, flood, terrorism or other natural or man-made disasters. If any of our facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue and result in significant expenses to repair or replace the facility and/or distribution system.
In addition, our expense levels are based, in part, on our expectation of future revenue levels. Therefore, a shortfall in expected revenue could result in a disproportionate decrease in our net income. The market price of our common stock may be highly volatile. The trading price of our common stock may be volatile.
Substantially all our product revenue in each period results from orders received in that period. In addition, our expense levels are based, in part, on our expectation of future revenue levels. Therefore, a shortfall in expected revenue could result in a disproportionate decrease in our net income. The market price of our common stock could be highly volatile.
In fiscal 2022, sales to customers outside of the U.S. accounted for 39.7% of our total revenue.
In fiscal 2023, sales to customers outside of the U.S. accounted for 48.4% of our total revenue.
Immediately following the transaction, Garden SpinCo stockholders will own, in the aggregate, approximately 50.1% of the issued and outstanding shares of Neogen common stock and pre-merger Neogen shareholders will own, in the aggregate, approximately 49.9% of the issued and outstanding shares of Neogen common stock.
Following the Transaction, pre-merger Neogen Food Safety Corporation stockholders owned, in the aggregate, approximately 50.1% of the issued and outstanding shares of Neogen common stock, and pre-merger Neogen shareholders owned, in the aggregate, approximately 49.9% of the issued and outstanding shares of Neogen common stock.
We rely on several information systems throughout our company, as well as those of our third-party business partners, to provide access to our web-based products and services, keep financial records, analyze results of operations, process customer orders, manage inventory, process shipments to customers, store confidential or proprietary information and operate other critical functions.
In addition, the techniques used to access or sabotage networks change frequently and generally are not recognized until launched against a target. 19 We rely on several information systems throughout our company, as well as those of our third-party business partners, to provide access to our web-based products and services, keep financial records, analyze results of operations, process customer orders, manage inventory, process shipments to customers, store confidential or proprietary information and operate other critical functions.
In addition, if one or more of our third-party package delivery providers were to increase prices, and we were not able to find comparable alternatives or make adjustments within our delivery network, our profitability could be adversely affected. Our business sells many products through distributors, which present risks that could negatively affect our operating results.
In addition, if one or more of our third-party package delivery providers were to increase prices, and we were not able to find comparable alternatives or make adjustments within our delivery network, our profitability could be adversely affected. Our dependence on suppliers could limit our ability to sell certain products or negatively affect our operating results.
Neogen’s international operations are subject to general risks related to such operations, including: • political, social and economic instability and disruptions, including social unrest, geopolitical tensions, currency, inflation and interest rate uncertainties; • government export controls, economic sanctions, embargoes or trade restrictions; • the imposition of duties and tariffs and other trade barriers; 17 Table of Contents • limitations on ownership and on repatriation or dividend of earnings; • transportation delays and interruptions; • labor unrest and current and changing regulatory environments; • increased compliance costs, including costs associated with disclosure requirements and related due diligence; • difficulties in staffing and managing multi-national operations; • limitations on Neogen’s ability to enforce legal rights and remedies; • current products may not comply with product standards established by foreign regulatory bodies; • access to or control of networks and confidential information due to local government controls and vulnerability of local networks to cyber risks; and • fluctuations in foreign currency exchange rates.
Our international operations are subject to general risks related to such operations, including: • political, social and economic instability and disruptions, including social unrest, geopolitical tensions, currency, inflation and interest rate uncertainties; • government export controls, economic sanctions, embargoes or trade restrictions; • the imposition of duties and tariffs and other trade barriers; • limitations on ownership and on repatriation or dividend of earnings; • transportation delays and interruptions; • labor unrest and current and changing regulatory environments; • increased compliance costs, including costs associated with disclosure requirements and related due diligence; • difficulties in staffing and managing multi-national operations; • limitations on our ability to enforce legal rights and remedies; • current products may not comply with product standards established by foreign regulatory bodies; • differing labor regulations; • diminished protection of intellectual property in some countries; • access to or control of networks and confidential information due to local government controls and vulnerability of local networks to cyber risks; and • fluctuations in foreign currency exchange rates. 18 If we are unable to successfully manage the risks associated with expanding our global business or adequately manage operational risks of our existing international operations, these risks could have a material adverse effect on our growth strategy into new geographical markets, our reputation, our business, results of operations, financial condition and cash flows.
Additional future impacts to us may include, but are not limited to, material adverse effects on the demand for our products and services, our supply chain and sales and distribution channels, our cost structure and profitability. An extended period of global supply chain and economic disruption could materially affect our business, results of operations and financial condition.
Additional future impacts to us may include, but are not limited to, material adverse effects on the demand for our products and services, our supply chain and sales and distribution channels, our cost structure and profitability.
A portion of our products and facilities are regulated by various domestic and foreign government agencies including, but not limited to, the U.S. Department of Agriculture, the U.S. Food and Drug Administration and the Environmental Protection Agency.
A portion of our products and facilities are regulated by various domestic and foreign government agencies including the U.S. Department of Agriculture, the U.S. Food and Drug Administration and the Environmental Protection Agency. A significant portion of our revenue is derived from products used to monitor and detect the presence of substances that are regulated by various government agencies.
In taking such precautionary actions, we may experience disruptions in our supply chain, operations, facilities and workforce, which could negatively affect efficiency and productivity, cause delays in developing new products, our ability to market products and services, and, ultimately, our stock price and financial performance.
In the event of the renewed outbreak of COVID-19 or an outbreak of a different virus or disease, we could experience disruptions in our supply chain, operations, facilities and workforce which could cause delays in developing new products or negatively affect efficiency and productivity or our ability to market products and services, and, ultimately, our stock price and financial performance.
Furthermore, additional risks and uncertainty not presently known to us or that we currently believe to be immaterial may also adversely affect our business. Our business, results of operations, financial condition and cash flow could be materially and adversely affected by any of these risks or uncertainties.
Furthermore, additional risks and uncertainty not presently known to us or that we currently believe to be immaterial also could adversely affect our business.
The mix of products sold and the acceptance of new products, in addition to other factors such as cost increases, could contribute to this variability. We operate with relatively little backlog and have few long-term customer contracts. Substantially all our product revenue in each period results from orders received in that period.
We have experienced, and may experience in the future, significant fluctuations in our quarterly or annual operating results. The mix of products sold and the acceptance of new products, in addition to other factors such as cost increases, could contribute to this variability. We have few long-term customer contracts and operate primarily with purchase orders.
Neogen’s success in realizing these benefits, and the timing of their realization, depends, among other things, on the successful integration of the business operations of the 3M Food Safety business with Neogen.
We have realized and expect that we will continue to realize synergies, growth opportunities and other financial and operating benefits as a result of the Transaction. Our success in realizing these benefits, and the timing of their realization, depends, among other things, on the continued successful integration of the business operations of the 3M Food Safety business with Neogen.
Realization of any synergies, growth opportunities or other benefits could be affected by the factors described in other risk factors and a number of factors beyond Neogen’s control, including, without limitation, general economic conditions, increased operating costs and regulatory developments. 14 Table of Contents The integration of the 3M Food Safety business with Neogen following the transaction could present significant challenges, and the failure to successfully integrate the 3M Food Safety business could have a material adverse effect on the combined company’s business, financial condition or results of operations.
For example, the benefits from the Transaction could be offset by costs incurred in integrating the 3M Food Safety business. Realization of any synergies, growth opportunities or other benefits could be affected by the factors described in other risk factors and a number of factors beyond our control, including, without limitation, general economic conditions, increased operating costs and regulatory developments.
They might also succeed in developing products that are more reliable and effective than our products, are less costly than our products or provide alternatives to our products. We are dependent on the agricultural marketplace, which is affected by factors beyond our control. Our primary customers are in the agricultural and food production industries.
They might also succeed in developing products that are more reliable and effective than our products, are less costly than our products or provide alternatives to our products.
Such extreme weather conditions could pose physical risks to our facilities and disrupt operation of our supply chain and may impact operational costs. The impacts of climate change on global water resources may result in water scarcity, which could in the future impact our ability to access sufficient quantities of water in certain locations and result in increased costs.
The impacts of climate change on global water resources may result in water scarcity, which could in the future impact our ability to access sufficient quantities of water in certain locations and result in increased costs. Concern over climate change could result in new legal or regulatory requirements designed to mitigate the effects of climate change on the environment.
While we have implemented network security and internal control measures, especially for the purpose of protecting our connected products and services from cyberattacks, and invested in our data and information technology infrastructure, there can be no assurance that these efforts will prevent a system disruption, attack, or security breach and, as such, the risk of system disruptions and security breaches from a cyberattack remains. 18 Table of Contents If our security and information systems are compromised, or employees fail to comply with the applicable laws and regulations, or this information is obtained by unauthorized persons or used inappropriately, it could adversely affect our reputation, as well as results of operations, and could result in litigation, the imposition of penalties, or significant expenditures to remediate any damage to persons whose personal information has been compromised.
While we have implemented network security and internal control measures, including for the purpose of protecting our connected products and services from cyberattacks, and invested in our data and information technology infrastructure, there can be no assurance that these efforts will prevent a system disruption, attack, or security breach and, as such, the risk of system disruptions and security breaches from a cyberattack remains.
Some of the products that we purchase from these sources are proprietary and, therefore, cannot be readily or easily replaced by alternative sources. Problems with suppliers and the supply chain could negatively impact our ability to supply the market, substantially decrease sales, lead to higher costs or damage our reputation with our customers.
Some of the products that we purchase from these sources are proprietary and, therefore, cannot be readily or easily replaced by alternative sources.
Our ability to manage our planned growth depends upon our success in expanding our operating, management, information and financial systems, which might significantly increase our operating expenses. We may not be able to effectively manage our future growth, and if we fail to do so, our business, financial condition and results of operations could be adversely affected.
Our failure to successfully integrate and manage a future acquisition could have a material adverse effect on our operating results and financial condition. We may not be able to effectively manage our future growth, and if we fail to do so, our business, financial condition and results of operations could be adversely affected.
If such laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance burdens and costs to meet the regulatory obligations and may adversely affect raw material sourcing, manufacturing operations and the distribution of our products. Tax legislation could materially adversely affect our financial results and tax liabilities.
If such laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance burdens and costs to meet the regulatory obligations. Our business could be adversely impacted by an inability to meet the expectations of our stakeholders related to environmental, social and governance (ESG) objectives.
Failing to manage the risks associated with our use of distributors could reduce sales, increase expenses and weaken our competitive position, which could have a negative impact on our operating results. 19 Table of Contents The development of new products entails substantial risk of failure due to the production of non-viable products, lack of properly identifying market potential, and competitors better serving the marketplace.
Failing to manage the risks associated with our use of distributors could reduce sales, increase expenses and weaken our competitive position, which could have a negative impact on our operating results. If we are unable to develop new products and technologies, our competitive position could be impaired, which could materially and adversely affect our sales and market share.
Malicious attack efforts operate on a large scale and sometimes offer targeted attacks as a paid-for service. In addition, the techniques used to access or sabotage networks change frequently and generally are not recognized until launched against a target.
Malicious attack efforts operate on a large scale and sometimes offer targeted attacks as a paid-for service.
We have not executed long-term employment agreements with any of these employees and do not expect to do so in the foreseeable future. Our success depends, significantly, on our ability to continue to attract and retain such personnel.
We have not executed long-term employment agreements with any of these employees and do not expect to do so in the foreseeable future. We compete with employers in various industries for sales, manufacturing, technical services or other personnel, and this competition to hire may increase and the availability of qualified personnel may be reduced.
If Neogen is unable to successfully manage the risks associated with expanding our global business or adequately manage operational risks of our existing international operations, these risks could have a material adverse effect on our growth strategy into new geographical markets, our reputation, our business, results of operations, financial condition and cash flows.
The integration of the 3M Food Safety business with Neogen presents challenges, and the failure to successfully integrate the 3M Food Safety business could have a material adverse effect on our business, financial condition or results of operations.
The costs of compliance or failure to comply with any obligations related to these laws or regulations could adversely impact our business. We are dependent on key employees. Our success depends, in large part, on members of our management team. Our loss of any of these, or other key employees could have a material adverse effect on us.
The costs of compliance or failure to comply with any obligations related to these laws or regulations could adversely impact our business, including suspension or cessation of our operations, restrictions on our ability to expand at our present locations or require us to make significant capital expenditures or incur other significant expenses.
Disruption of our manufacturing and service operations could have an adverse effect on our financial condition and results of operations. Our facilities and our distribution systems are subject to catastrophic loss due to fire, flood, terrorism or other natural or man-made disasters.
An extended period of global supply chain and economic disruption could materially affect our business, results of operations and financial condition. 20 Disruption of our manufacturing and service operations could have an adverse effect on our financial condition and results of operations.
A significant portion of our revenue is derived from products used to monitor and detect the presence of residues that are regulated by various government agencies. Furthermore, our growth may be adversely affected by the implementation of new regulations.
Furthermore, our growth could result in substantial liability to us and be adversely affected by the implementation of new regulations.
Removed
RISKS RELATING TO REVERSE MORRIS TRUST TRANSACTION WITH 3M CORPORATION The pending Reverse Morris Trust transaction with 3M may not be completed on the terms or timeline currently contemplated, or at all, and the failure to complete the transaction could adversely impact the market price of Neogen common stock, as well as its business and operating results.
Added
Our business, results of operations, financial condition and cash flow could be materially and adversely affected by any of these risks or uncertainties. 15 RISKS RELATING TO THE TRANSACTION WITH 3M CORPORATION We may not realize the anticipated financial and other benefits, including growth opportunities, expected from the 3M Food Safety merger transaction.
Removed
On December 13, 2021, Neogen, 3M and Garden SpinCo, a newly formed subsidiary of 3M created to carve out 3M’s Food Safety business, entered into a number of agreements pursuant to which, among other things, 3M’s Food Safety business will combine with Neogen in a Reverse Morris Trust transaction, intended to be tax-efficient to 3M and its shareholders for U.S. federal income tax purposes.
Added
On September 1, 2022, Neogen, 3M, and Neogen Food Safety Corporation, a wholly-owned subsidiary of 3M created to carve out 3M’s FSD, closed on the Transaction combining 3M’s FSD with Neogen in a Reverse Morris Trust transaction and Neogen Food Safety Corporation became a wholly owned subsidiary of Neogen.
Removed
The transaction implies an enterprise value for 3M’s Food Safety business of approximately $3.4 billion based on Neogen’s stock price at July 22, 2022, including $1 billion in new debt to be incurred by 3M’s Food Safety business. 3M’s Food Safety business will fund to 3M consideration valued at approximately $1 billion, subject to closing and other adjustments.
Added
Although significant progress has been made to date in the integration of the 3M Food Safety business with Neogen, there is much that remains to be accomplished, particularly in the integration of the manufacturing operations of the 3M Food Safety business with Neogen.
Removed
The consummation of the transaction is subject to certain conditions, including: (i) the effectiveness of Neogen’s registration statement registering the Neogen common stock to be issued pursuant to the merger agreement, and of Garden SpinCo’s registration statement registering the shares of Garden SpinCo common stock in connection with the distribution; (ii) the approval for listing on NASDAQ of the shares of Neogen common stock to be issued in the merger; and (iii) approval of the share issuance and certain Neogen charter and bylaw amendments by the requisite vote of Neogen’s shareholders.
Added
If our security and information systems are compromised, interrupted or destroyed, or employees fail to comply with the applicable laws and regulations, or the information we maintain is obtained by unauthorized persons or used inappropriately, it could adversely affect our business and reputation, as well as our results of operations, and could result in litigation, the imposition of regulatory sanctions or penalties, or significant expenditures to remediate any damage to persons whose personal information has been compromised.
Removed
There is no assurance that these conditions will be met or that the transaction will be completed on the terms or timeline currently contemplated, or at all. If the transaction is not completed for any reason, the price of Neogen common stock could decline.
Added
In fiscal year 2022, we began the implementation of our global SAP enterprise resource planning (ERP) system at our U.S. locations, which includes upgrades to many of our existing operating and financial systems. Such an implementation is a major undertaking, both financially and from a management and personnel perspective.
Removed
Neogen also could experience negative reactions from employees, customers, suppliers or other third parties if the transaction is not completed. Neogen and 3M have expended and will continue to expend significant management time and resources and have incurred and will continue to incur significant expenses related to the transaction, including legal, advisory, printing and financial services fees.
Added
Should the remaining systems not be implemented successfully, or if the systems do not perform in a satisfactory manner once implementation is complete, our business and operations could be disrupted and our results of operations could be adversely affected, including our ability to report accurate and timely financial results.
Removed
Even if the transaction is completed, any delay in the completion of the transaction could diminish the anticipated benefits of the transaction or result in additional transaction expenses, loss of revenue or other effects associated with uncertainty about the transaction.
Added
Pandemics or disease outbreaks, such as the COVID-19 pandemic, have affected and could adversely affect our business, operation, results of operations and financial condition. The COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets.
Removed
If the transaction is not consummated because the merger agreement is terminated, Neogen may be required under certain circumstances to pay 3M a termination fee of $140 million or may be required to reimburse 3M for expenses incurred in connection with the transaction.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES Principal Manufacturing, Distribution and Administrative locations: Location Square Feet Owned Leased Segment U.S. 1,146,100 6 5 Corporate, Food Safety, Animal Safety Canada 4,800 1 0 Animal Safety United Kingdom 190,800 3 2 Food Safety Ireland 39,000 1 0 Food Safety Italy 1,000 0 1 Food Safety UAE 1,100 0 1 Food Safety Brazil 82,800 1 1 Food Safety Mexico 33,580 0 4 Food Safety Guatemala 1,700 0 1 Food Safety Argentina 7,500 0 1 Food Safety Uruguay 3,200 0 1 Food Safety Chile 3,200 0 1 Food Safety China 7,900 0 1 Food Safety India 9,500 1 1 Food Safety Australia 34,600 1 1 Animal Safety Total 1,566,780 14 21 Our corporate headquarters are located in Lansing, Michigan, with administrative, sales, manufacturing and warehousing in other locations domestically and globally.
Biggest changePROPERTIES Principal Manufacturing, Distribution and Administrative locations: Location Owned Leased Segment U.S. 7 7 Corporate, Food Safety, Animal Safety Canada 1 0 Animal Safety U.K. 4 3 Food Safety Ireland 1 0 Food Safety Italy 0 1 Food Safety UAE 0 1 Food Safety Brazil 2 0 Food Safety Mexico 0 2 Food Safety Guatemala 0 1 Food Safety Argentina 0 1 Food Safety Uruguay 0 1 Food Safety Chile 0 1 Food Safety Colombia 0 1 Food Safety China 0 1 Food Safety India 1 1 Food Safety Korea 0 1 Food Safety Thailand 0 1 Food Safety Australia 2 0 Animal Safety Total 18 23 Our corporate headquarters are located in Lansing, Michigan, with administrative, sales, manufacturing, and warehousing in other locations domestically and globally.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Removed
ITEM 3. LEGAL PROCEEDINGS Neogen is subject to certain legal proceedings in the normal course of business that, in the opinion of management, should not have a material effect on our future results of operations or financial position. On March 6, 2020, the Company received an administrative subpoena from the U.S.
Added
ITEM 3. LEGAL PROCEEDINGS The litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. See Note 7. “Commitments and Contingencies” to the consolidated financial statements included in Item 15. “Exhibits and Financial Statement Schedules” of this Report for discussion of loss contingencies. ITEM 4.
Removed
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.
Added
MINE SAFETY DISCLOSURES — NOT APPLICABLE 30 PART II
Removed
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 has implemented additional compliance measures to prevent inadvertent dealings with restricted countries or parties.
Removed
These measures 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 economic sanctions and export control laws of the U.S. and other applicable jurisdictions.
Removed
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 meaningful impact on its operations, the results of operations for any future period, or its overall financial condition.
Removed
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. ITEM 4. MINE SAFETY DISCLOSURES — NOT APPLICABLE 23 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Neogen Common Stock is traded on the NASDAQ Global Select Market under the symbol NEOG. Holders As of June 30, 2022, there were 215 stockholders of record of our common stock.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Neogen Common Stock is traded on the NASDAQ Global Select Market under the symbol NEOG. Holders As of June 30, 2023, there were 580 stockholders of record of our common stock.
The actual number of holders is greater than this number of holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. Dividends Neogen has never paid cash dividends on its Common Stock and does not expect to pay dividends in the foreseeable future.
The actual number of holders is significantly greater than this number of holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. Dividends Neogen has never paid cash dividends on its Common Stock and does not expect to pay dividends in the foreseeable future.
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Securities Authorized for Issuance under Equity Compensation Plan Equity Compensation Plan Information (shares in thousands) Number of shares to be issued upon exercise of outstanding options and RSUs (1) Weighted average price of outstanding options and RSUs Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) (2) Equity compensation plans approved by shareholders 3,501 $ 32.42 5,386 Equity compensation plans not approved by shareholders — — 3,501 $ 32.42 5,386 (1) Outstanding options and RSUs as of May 31, 2022.
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Securities Authorized for Issuance under Equity Compensation Plans The information regarding our securities authorized for issuance under equity compensation plans is incorporated by reference from our Proxy Statement. ITEM 6. RESERVED 31
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(2) Reflects shares available for future issuance as May 31, 2022 under our 2018 Omnibus Incentive Plan dated August 28, 2018 and approved by shareholders on October 4, 2018. For additional information, see Note 5, Equity Compensation Plans, in the consolidated financial statements.
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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.
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The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 5/31/2017 to 5/31/2022. 24 Table of Contents 5/17 5/18 5/19 5/20 5/21 5/22 Neogen Corporation 100.00 159.50 118.71 150.04 194.47 111.49 NASDAQ Composite 100.00 121.34 122.84 158.05 230.68 204.09 NASDAQ Medical Equipment 100.00 127.47 113.54 125.55 180.52 123.62 S&P Life Sciences Tools & Services 100.00 119.37 145.59 178.60 247.39 247.97 The stock price performance included in this graph is not necessarily indicative of future stock price performance. 25 Table of Contents ITEM 6.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeReconciliation between net income and EBITDA and Adjusted EBITDA is as follows: Year ended May 31 (in thousands) 2022 2021 2020 Net Income $ 48,307 $ 60,882 $ 59,475 Net Income margin % 9.2 % 13.0 % 14.2 % Provision for income taxes 11,900 14,386 12,830 Interest income, net (1,267 ) (1,614 ) (5,992 ) Depreciation and amortization 23,694 21,041 18,396 EBITDA $ 82,634 $ 94,695 $ 84,709 Stock-based compensation 7,154 6,437 6,468 Certain transaction fees and expenses 25,581 3,085 — Adjusted EBITDA $ 115,369 $ 104,217 $ 91,177 Adjusted EBITDA margin % 21.9 % 22.2 % 21.8 % EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN % (dollars in thousands) 2022 Change 2021 Change 2020 EBITDA 82,634 (13 %) 94,695 12 % 84,709 Adjusted EBITDA 115,369 11 % 104,217 14 % 91,177 Adjusted EBITDA Margin % 21.9 % 22.2 % 21.8 % Adjusted EBITDA increased 11% in fiscal 2022 compared to fiscal 2021, due to revenue growth and improved gross margins.
Biggest changeReconciliation between net income and EBITDA and Adjusted EBITDA is as follows: Year ended May 31 (in thousands) 2023 2022 2021 Net (Loss) Income $ (22,870 ) $ 48,307 $ 60,882 Net income margin % (2.8 )% 9.2 % 13.0 % Provision for income taxes 828 11,900 14,386 Depreciation and amortization 88,377 23,694 21,041 Interest expense (income), net 52,795 (1,267 ) (1,614 ) EBITDA $ 119,130 $ 82,634 $ 94,695 Share-based compensation 10,177 7,154 6,437 FX transaction loss (gain) on loan revaluation (1) 5,226 — — Certain transaction fees and integration costs 59,812 25,581 3,085 Contingent consideration adjustments (300 ) — — Restructuring 475 — — Loss on sale of minority interest 1,516 — — Loss on investment 500 — — Impairment and scrap of discontinued product lines (2) 5,639 — — Inventory step-up charge 3,245 — — Adjusted EBITDA $ 205,420 $ 115,369 $ 104,217 Adjusted EBITDA margin % 25.0 % 21.9 % 22.2 % (1) Net foreign currency transaction loss (gain) associated with the revaluation of non-functional currency intercompany loans established in connection with FSD transaction. 41 (2) Expenses associated with intangible asset impairments and inventory scrap amounts related to certain discontinued product lines.
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.
CRITICAL ACCOUNTING 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.
You should compensate for these limitations by relying primarily on the financial statements of Neogen and using these non-GAAP financial measures only as a supplement to evaluate Neogen’s performance. For each of these non-GAAP financial measures below, we are providing a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure.
A reader should compensate for these limitations by relying primarily on the financial statements of Neogen and using these non-GAAP financial measures only as a supplement to evaluate Neogen’s performance. For each of these non-GAAP financial measures below, we are providing a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure.
EBITDA also forms the basis for the measurement of Adjusted EBITDA (discussed below). Adjusted EBITDA We define Adjusted EBITDA as EBITDA, adjusted for stock-based compensation and certain transaction fees and expenses. We present EBITDA because it provides an understanding of underlying business performance by excluding the following: • Stock-based compensation .
EBITDA also forms the basis for the measurement of Adjusted EBITDA (discussed below). Adjusted EBITDA We define Adjusted EBITDA as EBITDA, adjusted for share-based compensation and certain transaction fees and expenses. We present Adjusted EBITDA because it provides an understanding of underlying business performance by excluding the following: • Share-based compensation .
EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are not recognized terms under GAAP and should not be considered in isolation or as a substitute for, or superior to, net income (loss), operating income, cash flow from operating activities or other measures of financial performance.
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share are not recognized terms under GAAP and should not be considered in isolation or as a substitute for, or superior to, net income (loss), operating income, cash flow from operating activities or other measures of financial performance.
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.
On an annual basis, we evaluate the current business environment and whether any new events or other external changes might require future evaluation of the decision to indefinitely re-invest these foreign earnings. It is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.
Although we have no operations in or direct exposure to Russia, Belarus and Ukraine, we have experienced intermittent shortages in materials and increased costs for transportation, energy and raw materials due, in part, to the negative impact of the Russia-Ukraine military conflict on the global economy.
Although we have no operations in or direct exposure to Russia, Belarus and Ukraine, we have experienced intermittent shortages in materials and increased costs for transportation, energy and raw materials due, in part, to the negative impact of the Russia-Ukraine military conflict, which began in February 2022, on the global economy.
The use of the terms EBITDA, Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similarly titled measures used by other companies or persons due to potential differences in the method of calculation. These non-GAAP financial measures have limitations as analytical tools.
The use of the terms EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share may not be comparable to similarly titled measures used by other companies or persons due to potential differences in the method of calculation. These non-GAAP financial measures have limitations as analytical tools.
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; 36 Table of Contents • 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, and successfully integrating completed acquisitions, including our previously announced proposed transaction to combine with 3M’s Food Safety business.
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, and successfully integrating completed acquisitions, including the FSD transaction.
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.
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.
The following critical accounting policies reflect management’s more significant judgments and estimates used in the preparation of the consolidated financial statements. 26 Table of Contents Income Taxes We account for income taxes using the asset and liability method.
The following critical accounting estimates reflect management’s more significant judgments used in the preparation of the consolidated financial statements. 32 Income Taxes We account for income taxes using the asset and liability method.
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. TRENDS AND UNCERTAINTIES During fiscal 2022, we experienced higher than expected input cost inflation, including higher transportation, supply chain and labor costs, that negatively impacted operating results.
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. TRENDS AND UNCERTAINTIES During fiscal 2023, we experienced higher than normal input cost inflation, including increases in certain raw materials, labor costs and supply chain pressure that negatively impacted operating results.
The Notes were initially issued by Garden SpinCo to 3M and were transferred and delivered by 3M to the selling securityholder in the offering, in satisfaction of certain of 3M’s existing debt. Garden SpinCo did not receive any proceeds from the sale of the Notes by the selling securityholder.
The Notes were initially issued by Neogen Food Safety Corporation to 3M and were transferred and delivered by 3M to the selling securityholder in the offering, in satisfaction of certain of 3M’s existing debt. Neogen Food Safety Corporation did not receive any proceeds from the sale of the Notes by the selling securityholder.
Upon the effectiveness of the merger, the Notes will be guaranteed on a senior unsecured basis by Neogen and certain wholly-owned domestic subsidiaries of Neogen.
Upon the effectiveness of the merger on September 1, 2022, the Notes became guaranteed on a senior unsecured basis by Neogen and certain wholly-owned domestic subsidiaries of Neogen.
In addition to the 3M transaction described above, our future cash on hand and borrowing capacity may not be sufficient to meet cash requirements to commercialize products currently under development or execute our future plans to acquire additional businesses, technology and products that fit within our strategic plan.
In addition to the 3M transaction described above, our future cash generation and borrowing capacity may not be sufficient to meet cash requirements to fund the operating business, repay debt obligations, construct new manufacturing facilities, commercialize products currently under development or execute our future plans to acquire additional businesses, technology and products that fit within our strategic plan.
Prior to the distribution of the shares of Garden SpinCo’s common stock to 3M stockholders, the Notes will be guaranteed on a senior unsecured basis by 3M. Upon consummation of such distribution, 3M will be released from all obligations under its guarantee.
Prior to the distribution of the shares of Neogen Food Safety Corporation’s common stock to 3M stockholders, the Notes were guaranteed on a senior unsecured basis by 3M. Upon consummation of such distribution, 3M was released from all obligations under its guarantee.
Accordingly, we may be required, or may choose, to issue additional equity securities or enter into other financing arrangements for a portion of our future capital needs.
Accordingly, we may be required, or may choose, to issue additional equity securities or enter into other financing arrangements for a portion of our future capital needs. There is no guarantee that we will be successful in issuing additional equity securities or entering into other financing arrangements.
Sales at Neogen Australasia increased 25% for fiscal 2022, led by new genomics service business in the bovine, sheep and companion animal markets. Service revenue, which consists primarily of genomics services sales to animal protein and companion animal markets, was $102.5 million in fiscal 2022, an increase of 11% over prior fiscal year sales of $92.2 million.
In local currency, revenue at Neogen Australasia increased 11% in fiscal 2023, led by increased sales of bovine genomic services. Service Revenue Service revenue, which consists primarily of genomics services to animal protein and companion animal markets, was $107.4 million in fiscal 2023, an increase of 5% over prior fiscal year sales of $102.5 million.
Pricing actions taken during fiscal 2022 mitigated some, but not all, of the inflationary pressures. Ongoing inflation may also have an impact on our customer’s purchasing decisions and order patterns. We estimate inflation will continue to affect us in fiscal 2023, although at this time it is impracticable to quantify the impact.
Pricing actions taken during fiscal 2022 and 2023 mitigated some, but not all, of the inflationary pressures on the business. Ongoing inflation also could have an impact on our customer’s purchasing decisions and order patterns. We estimate inflation will continue to affect us in fiscal year 2024, although at a decreasing rate compared to the prior two fiscal years.
To date, our European operations and customer base have not been materially impacted by the conflict, however, as the conflict continues or worsens, it may impact our business, financial condition or results of operations in fiscal 2023.
Our European operations and customer base have been adversely impacted by the conflict. As the conflict continues or worsens, it may further impact our business, financial condition or results of operations during fiscal year 2024.
We will continue to evaluate the nature and extent to which COVID-19 will impact our business, supply chain, including labor availability and attrition, consolidated results of operations, financial condition, and liquidity; we expect it to impact us through at least the end of our fiscal year ending May 31, 2023.
Overall, the impact of inflation, the Russia-Ukraine military conflict and COVID-19 remains uncertain. We continue to evaluate the nature and extent to which these issues impact our business, including supply chain, labor availability and attrition, consolidated results of operations, financial condition and liquidity. We expect these issues to continue to impact us throughout fiscal year 2024.
The Credit Facilities, together with the Notes below, when incurred, represent the financing contemplated in connection with the merger. In July 2022 Garden SpinCo closed on an offering of $350.0 million aggregate principal amount of 8.625% senior notes due 2030 (the “Notes”) in a private placement at par.
On July 20, 2022, Neogen Food Safety Corporation closed on an offering of $350 million aggregate principal amount of 8.625% senior notes due 2030 (the “Notes”) in a private placement at par.
Adjusted EBITDA margin We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of total revenues. We present Adjusted EBITDA margin as a performance measure to analyze the level of Adjusted EBITDA generated from total revenue. These non-GAAP financial measures are presented for informational purposes only.
We present Adjusted EBITDA margin as a performance measure to analyze the level of Adjusted EBITDA generated from total revenue.
Rodenticides, Insecticides & Disinfectants – Revenues of products in this category sold through our Food Safety operations increased 11% in fiscal 2022 compared to fiscal 2021. Excluding revenues from the November 2020 acquisition of Delf and Abbott Analytical, the growth was 3%.
Rodent Control, Insect Control & Disinfectants – Sales of products in this category sold through our Food Safety operations increased 11% in fiscal 2023 compared to the prior fiscal year. Excluding the November 2021 acquisition of Delf, the increase was 4%, led by higher sales of cleaners and disinfectants in China.
We believe it is useful to exclude stock-based compensation to better understand the long-term performance of the respective core businesses and to facilitate comparison with the results of peer companies. • Certain transaction fees and expenses. We exclude fees and expenses related to certain transactions because they are outside of Neogen’s underlying core performance.
We believe it is useful to exclude share-based compensation to better understand the long-term performance of our core business and to facilitate comparison with the results of peer companies. • FX translation gain/(loss) on loan revaluation. We exclude the revaluation impacts of foreign currency fluctuations on our intercompany loan balances. • Certain transaction fees and expenses.
On June 30, 2022, Garden Spinco entered into a credit agreement consisting of a five-year senior secured term loan facility in the amount of $650.0 million and a five-year senior secured revolving facility in the amount of $150.0 million (collectively, the “Credit Facilities”), which, subject to customary closing conditions, will be available in connection with the merger and related transactions.
Debt and Liquidity On September 1, 2022, Neogen, 3M, and Neogen Food Safety Corporation, a subsidiary of 3M created to carve out 3M’s Food Safety business, closed on the Transaction that previously was announced in December 2021, combining 3M’s Food Safety business with Neogen in a Reverse Morris Trust transaction. 43 On June 30, 2022, Neogen Food Safety Corporation entered into a credit agreement consisting of a five-year senior secured term loan facility in the amount of $650 million and a five-year senior secured revolving facility in the amount of $150 million (collectively, the “Credit Facilities”), which became available in connection with the merger and related transactions.
Adjusted EBITDA increased 14% in fiscal 2021 compared to fiscal 2020, the result of revenue growth and lower spending on travel and other customer-facing activities. 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.
Adjusted Net Income increased $26.4 million during the twelve months ended May 31, 2023 due to the higher Adjusted EBITDA. 42 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.
The loss from foreign currency translations in fiscal years 2022, 2021 and 2020 is 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.
Other expense resulting from foreign currency transactions was the result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate.
We continue to make investments in our business and operating facilities.
We continue to make investments in our business and operating facilities. Our preliminary estimate for capital expenditures related to our legacy operations in fiscal 2024 is $30 to $40 million.
Our days sales outstanding, a measurement of the time it takes to collect receivables, improved to 62 days at May 31, 2022 compared to 66 days at May 31, 2021.
Net accounts receivable balances were $153.3 million as of May 31, 2023 compared to $99.7 million as of May 31, 2022. Days’ sales outstanding, a measurement of the time it takes to collect receivables, for the legacy business was 57 days as of May 31, 2023, compared to 62 days as of May 31, 2022.
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.
The Company has not provided deferred taxes on approximately $112 million of undistributed earnings from non-U.S. subsidiaries as of May 31, 2023 which are indefinitely reinvested in operations. Based on historical experience, as well as management’s future plans, earnings from these subsidiaries will continue to be re-invested indefinitely for future expansion and working capital needs.
Excluding the $25.6 million in transaction costs associated with 3M’s Food Safety business, operating income increased 13% in fiscal 2022 compared to the prior year. Expressed as a percentage of revenues, operating income was 11.1% (16.0% excluding 3M transaction costs), 15.8% and 16.1% in fiscal years 2022, 2021 and 2020, respectively.
OPERATING INCOME Operating income was $37.5 million during fiscal year 2023, compared to operating income of $58.6 million in the prior fiscal year. Expressed as a percentage of sales, operating income was 4.6% during fiscal year 2023 and 11.1% during fiscal year 2022.
In a neutral currency environment, sales would have been $844,000 lower than reported in fiscal 2022. 28 Table of Contents Sales results for fiscal 2022 compared to the prior year are as follows for each of our international locations: Revenue Change USD Revenue Change Local Currency U.K.
Since September 1, 2022, 67% of 3M FSD revenues were international sales, compared to Neogen’s historical average of approximately 40%. 35 Revenue changes, expressed in percentages, for fiscal 2023 compared to the prior year are as follows for the legacy business at each of our international locations: Revenue Change USD Revenue Change Local Currency U.K.
OPERATING EXPENSES (dollars in thousands) 2022 Change 2021 Change 2020 Sales and Marketing $ 84,604 15 % $ 73,443 5 % $ 69,675 General and Administrative 82,742 62 % 51,197 15 % 44,331 Research and Development 17,049 5 % 16,247 10 % 14,750 Total Operating Expense $ 184,395 31 % $ 140,887 9 % $ 128,756 Overall operating expenses increased by 31% in fiscal 2022 and 9% in fiscal 2021, each compared to the prior year.
OPERATING EXPENSES (dollars in thousands) 2023 2022 % Change Sales and Marketing $ 141,222 $ 84,604 67 % General and Administrative 201,179 82,742 143 % Research and Development 26,039 17,049 53 % Total Operating Expense $ 368,440 $ 184,395 100 % Operating expenses were $368.4 million during fiscal year 2023, compared to $184.4 million during the prior fiscal year.
Genomics Services – Sales of genomics services sold through our Food Safety operations increased 11% in fiscal 2022 compared to the prior year, primarily due to increased beef business in Brazil and higher sample volumes from a large customer in China. 30 Table of Contents Animal Safety: Life Sciences – Sales in this category decreased 1% in fiscal 2022 compared to the same period in the prior year, primarily due to the loss of hair testing business with a large U.S. commercial laboratory that moved to a different testing platform.
Genomics Services – Sales of genomics services sold through our Food Safety operations increased 1% in fiscal 2023 compared to the prior fiscal year, with increases in beef business in Brazil and the U.K. partially offset by a decline in sample volumes in China, as the first half of the fiscal year was negatively impacted by COVID-19 shutdowns.
These increases were partially offset by a 4% decline in rodenticide sales due to increased rodent pressure in the prior year, which resulted in a difficult comparison. Genomics Services – Sales in this category increased 11% in fiscal 2022 compared to fiscal 2021; excluding the December 2021 acquisition of Genetic Veterinary Sciences, the organic increase was 5%.
Genomics Services – Sales in this category increased 7% in fiscal 2023 compared to the prior fiscal year. Excluding the December 2021 acquisition of Genetic Veterinary Sciences, the growth was 2%. Growth was led by increases in beef and dairy cattle testing in the U.S., Canada and Australia, and strength in domestic companion animal revenues.
Our preliminary estimate for capital expenditures related to our existing operations in fiscal 2023 is $20 to $25 million; we also expect to spend approximately $70 million over the next two fiscal years to construct a manufacturing facility and $50 million over the next two fiscal years to implement a new enterprise resource planning solution.
Additionally, we expect to spend approximately $30 million over the next two fiscal years to implement a new enterprise resource planning solution. NEW ACCOUNTING PRONOUNCEMENTS See discussion of any New Accounting Pronouncements in Note 1 to consolidated financial statements. 44
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. 37 Table of Contents CONTRACTUAL OBLIGATIONS As of May 31, 2022, we have the following contractual obligations due by period: Less than More than (dollars in thousands) Total 1 year 1-3 years 3-5 years 5 years Long-Term Debt $ — $ — $ — $ — $ — Operating Leases 3,316 1,458 1,324 534 — Unconditional Purchase Obligations (1) 85,781 83,031 2,750 — — $ 89,097 $ 84,489 $ 4,074 $ 534 $ — (1) Unconditional purchase obligations are primarily purchase orders for future inventory and capital equipment purchases.
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.
If we made different estimates or judgments, it may result in material differences in the fair values of the net assets acquired. Certain business combinations involve potential payment of future consideration that is contingent upon the achievement of certain product development milestones and/or contingent on the acquired business reaching certain performance milestones.
Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred. 33 Our estimates of fair value are based on assumptions believed to be reasonable at that time. If we made different estimates or judgments, it could result in material differences in the fair values of the net assets acquired.
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.
Excluding sales of the acquired allergen product line from 3M FSD, sales in this category decreased 3% due to a large decline in sales of drug residue test kits that were largely discontinued in fiscal 2023. Bacterial & General Sanitation – Sales in this category increased 185% in fiscal 2023 compared to the prior fiscal year.
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As we continue to monitor the ongoing COVID-19 pandemic, our top priority remains protecting the health and safety of our employees, their families, and those in our communities. Safety guidelines and procedures have been developed for on-site employees and these policies are regularly monitored and updated by our internal Emergency Response Team.
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While the impact of the COVID-19 global pandemic was more modest in fiscal 2023, it continued to impact our business operations and financial results, particularly in the first half of the fiscal year in Asia. A number of our product lines were negatively impacted due to vendor disruptions, border closures, shipping issues and labor shortages.
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In fiscal 2022, COVID-19, including new strains of the virus such as Delta and Omicron, continued to impact our business operations and financial results.
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Broadly speaking, many of our markets have recovered or are recovering from the pandemic, as supply chain difficulties and shipping costs have decreased. A renewed outbreak of COVID-19 could result in further uncertainty and business disruptions. However, the current trend is positive and negative impacts appear to be moderating.
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A number of our food safety diagnostic product lines have been negatively impacted due to decreased demand in many of our customers’ businesses around the world, particularly those serving restaurants, bars and other institutional food service markets. Many of our markets across the world are recovering, but the pandemic has continued to adversely impact our customers and ultimately, our revenues.
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As of May 31, 2023, the Company has approximately $153 million of undistributed earnings in its foreign subsidiaries. Approximately $41 million of these earnings are no longer considered permanently reinvested. The incremental tax cost to repatriate these earnings to the U.S. is immaterial.
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We have also experienced supply chain difficulties including vendor disruptions, border closures, shipping issues and significantly increased shipping costs; labor shortages and higher labor costs, as we have had to use staffing agencies and increase our base pay in many areas of the Company to fill open positions; and restricted travel, which hinders our ability to connect with customers.
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Additionally, the company has elected to treat Global Intangible Low Tax Income (“GILTI”), as a period cost, and therefore, has not recognized deferred taxes for basis differences that may reverse as GILTI tax in future years. Business Combinations and Customer Relationships Intangibles We utilize the acquisition method of accounting for business combinations.
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Overall, the impact of COVID-19 remains uncertain and ultimately depends on the length and severity of the pandemic, inclusive of the introduction of new strains of the virus; government actions taken in response; vaccination rates and effectiveness; the impact of vaccination requirements; extent of protection provided by prior viral infection; and the macroeconomic environment.
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This method requires, among other things, that results of operations of acquired companies are included in Neogen’s results of operations beginning on the respective acquisition dates and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date.
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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.
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Any excess of the fair value of consideration transferred over the fair values of the net assets acquired is recognized as goodwill.
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Our wholly owned foreign subsidiaries are comprised of Neogen Europe, Quat-Chem Ltd, Abbott Analytical Limited, Delf (UK) Limited, Delf-Chem Solutions Limited, Megazyme Ltd, Megazyme IP, Neogen Italia S.r.l., Neogen do Brasil, Rogama Industria e Comercio Ltda, Neogen Latinoamérica, Neogen Guatemala, Neogen Argentina, Neogen Uruguay, Neogen Chile SpA, Neogen Bio-Scientific Technology Co (Shanghai), Neogen Food and Animal Security (India), Neogen Canada, Neogen Canada Properties LLC and Neogen Australasia Pty Limited.
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As described in Note 3 "Business Combinations" to the consolidated financial statements, on September 1, 2022, we completed a transaction combining 3M’s food safety division with Neogen in a Reverse Morris Trust transaction for consideration of approximately $3.2 billion, which resulted in recording of a customer relationships intangible assets valued at $1.17 billion.
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Business Combinations and Contingent Consideration We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The estimates used to value the net assets acquired are based in part on historical experience and information obtained from management of the acquired company.
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We determined the fair value of the acquired customer relationships intangible assets by applying the multi-period excess earnings method, which involved the use of significant estimates and assumptions related to forecasted revenue growth rate and customer attrition rate.
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We generally value the identifiable intangible assets acquired using a discounted cash flow model.
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Valuation specialists were used to develop and evaluate the appropriateness of the multi-period excess earnings method, our discount rates, our attrition rate and our fair value estimates using our cash flow projections.
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The significant estimates used in valuing certain of the intangible assets include, but are not limited to: future expected cash flows of the asset, discount rates to determine the present value of the future cash flows, attrition rates of customers, royalty rates and expected technology life cycles.
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The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date.
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We also estimate the useful lives of the intangible assets based on the expected period over which we anticipate generating economic benefit from the asset. Our estimates of fair value are based on assumptions believed to be reasonable at that time.
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Goodwill We record goodwill when the purchase price of acquired businesses exceeds the value of their identifiable net tangible and intangible assets acquired. We periodically evaluate goodwill for impairment in accordance with the accounting guidance for goodwill and other indefinite-lived intangibles that are not amortized. We review our goodwill for impairment annually during the fourth quarter.
Removed
We record contingent consideration at fair value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability weighted future cash flows, discounted back to present value.
Added
In addition, we review goodwill for impairment whenever adverse events or changes in circumstances indicate a possible impairment. This review is performed at the reporting unit level, and involves a comparison of the fair value of the reporting unit with its carrying amount, including goodwill.
Removed
The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment and projected revenues (for revenue-based considerations); various methodologies can be used to determine fair value of contingent consideration, including Monte Carlo simulations, among others. Projected revenues are based on our most recent internal operational budgets and long-range strategic plans.
Added
If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess carrying value over fair value.
Removed
The discount rate used is determined at the time of measurement in accordance with accepted valuation methodologies. Changes in projected revenues, probabilities of payment, discount rates and projected payment dates may result in adjustments to the fair value measurements.
Added
In performing goodwill impairment testing, we utilize a third-party valuation specialist to assist management in determining the fair value of our reporting units.
Removed
Contingent consideration is remeasured each reporting period using Level 3 inputs, and the change in fair value, including accretion for the passage of time, is recognized in other income (expense) in the consolidated statements of income. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows.
Added
Fair value of each reporting unit is estimated based on a combination of discounted cash flows and the use of pricing multiples derived from an analysis of comparable public companies multiplied against historical and/or anticipated financial metrics of each reporting unit.
Removed
Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows. 27 Table of Contents RESULTS OF OPERATIONS Executive Overview (in thousands, except earnings per share) 2022 2021 % Consolidated Revenues $ 527,159 $ 468,459 13 % Organic Sales Growth 9 % Food Safety Revenues $ 259,979 $ 234,244 11 % Organic Sales Growth 7 % Animal Safety Revenues $ 267,180 $ 234,215 14 % Organic Sales Growth 12 % % of International Sales 40 % 39 % Effective Tax Rate 19.8 % 19.1 % Net Income $ 48,307 $ 60,882 (21 )% Earnings per Diluted Share $ 0.45 $ 0.57 Cash from Operations $ 68,038 81,089 • Food Safety organic sales exclude revenues from the acquisitions of Megazyme (December 2020) and Delf/Abbott Analytical (November 2021). • Animal Safety organic sales exclude revenues from the acquisitions of StandGuard (July 2020), CAPInnoVet (September 2021) and Genetic Veterinary Sciences (December 2021). • Net income was negatively impacted by $25.6 million in the current fiscal year due to legal and consulting expenses for due diligence related to our recently announced agreement to combine with 3M’s Food Safety business.
Added
These calculations contain uncertainties as they require management to make assumptions including, but not limited to, market comparables, future cash flows of the reporting units, and appropriate discount and long-term growth rates. During fiscal year 2023, our business was organized into two reporting units: Food Safety and Animal Safety.
Removed
Neogen’s international revenues were $209.3 million in fiscal 2022, compared to $183.2 million in fiscal 2021, an increase of 14%. Currency translation had a negligible impact on revenues for the full year, with gains in the U.K., Italy, Mexico, Brazil, China, and Canada partially offset by negative impact in Argentina, Chile, India and Australia.
Added
The determination of our reporting units and impairment indicators also require us to make significant judgments. As a result of our test in the fourth quarter of fiscal year 2023, we determined that the fair value of our reporting units exceeded their respective carrying values.
Removed
Operations (including Neogen Italia) 13 % 12 % Brazil Operations 1 % (2 )% Neogen Latinoamerica 11 % 9 % Neogen Argentina 34 % 71 % Neogen Uruguay 9 % 9 % Neogen Chile 33 % 43 % Neogen China 0 % (3 )% Neogen India 19 % 21 % Neogen Canada 37 % 35 % Neogen Australasia 25 % 27 % The 13% revenue increase at our combined U.K. operations in fiscal 2022 was led by a 25% increase in sales of cleaners and disinfectants, primarily from strong sales in the U.K. and Asia, and new culture media business with commercial laboratories in the U.K. that have adopted our recently launched One Broth One Plate workflow.
Added
As such, the annual impairment analysis resulted in no impairment in fiscal year 2023. 34 RESULTS OF OPERATIONS Historical Periods Refer to Part II - Item 7.
Removed
Revenues in Brazil increased 1% in USD in fiscal 2022 but decreased 2% in local currency; market gains in genomics services in the beef market were offset by lower sales of dairy drug residue test kits, due to competitive pressures.
Added
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended May 31, 2022 for discussion of the Results of Operations, Segment Results of Operations, and Financial Condition and Liquidity for the year ended May 31, 2022 compared to the year ended May 31, 2021, which is incorporated by reference herein.
Removed
Neogen Latinoamerica revenues rose by 11% in USD in fiscal 2022, led by growth in natural toxins test kits, environmental sanitation products and culture media. China’s sales were flat, as growth in the first half of the fiscal year was offset by lower sales in the last six months due to lockdowns and restrictions resulting from China’s “Zero COVID” strategy.
Added
Executive Overview Year Ended (in thousands, except earnings per share) May 31, 2023 May 31, 2022 % Change Consolidated Revenues, net $ 822,447 $ 527,159 56 % Core Sales Growth 4 % Food Safety Revenues, net $ 546,797 $ 259,979 110 % Core Sales Growth 6 % Animal Safety Revenues, net $ 275,650 $ 267,180 3 % Core Sales Growth 2 % % of International Sales 48 % 40 % Effective Tax Rate (3.8 )% 19.8 % Net Income $ (22,870 ) $ 48,307 -147 % Earnings per Diluted Share $ (0.12 ) $ 0.45 Cash from Operations $ 41,028 $ 68,038 • Food Safety fiscal year 2023 core sales exclude revenues from the acquisitions of Corvium (February 2023), 3M FSD (September 2022), Thai-Neo Biotech (July 2022), and Delf/Abbott Analytical (November 2021) and also excludes the impact of changes in currency rates. • Food Safety revenues include $279.5 million from 3M FSD, which we combined with on September 1, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−3 removed1 unchanged
Biggest changeRevenues in certain foreign countries, as well as certain expenses related to those revenues, are transacted in currencies other than the U.S. dollar.
Biggest changeRevenues in certain foreign countries as well as certain expenses related to those revenues are transacted in currencies other than the U.S. dollar. As such, our operating results are exposed to changes in exchange rates. When the U.S. dollar weakens against foreign currencies, the dollar value of revenues denominated in foreign currencies increases.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS We have interest rate and foreign exchange rate risk exposure but no long-term fixed rate investments or borrowings. Our primary interest rate risk is due to potential fluctuations of interest rates for short-term investments. Foreign exchange risk exposure arises because we market and sell our products throughout the world.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS We have interest rate and foreign exchange rate risk exposure but no long-term fixed rate investments. Our primary interest rate risk is due to potential fluctuations of interest rates for our variable rate borrowings. Foreign exchange risk exposure arises because we market and sell our products throughout the world.
Our investments in foreign subsidiaries are considered to be long-term. As discussed in ITEM 1A. RISK FACTORS, our financial condition and results of operations could be adversely affected by currency fluctuations.
Neogen has assets, liabilities, and operations outside of the U.S. Our investments in foreign subsidiaries are considered long-term. As discussed in ITEM 1A. RISK FACTORS, our financial condition and results of operations could be adversely affected by currency fluctuations.
The following table sets forth the potential loss in future earnings or fair values, resulting from hypothetical changes in relevant market rates or prices: Risk Category Hypothetical Change May 31, 2022 Impact (dollars in thousands) Foreign Currency — Revenue 10% Decrease in exchange rates $ 20,934 Earnings Foreign Currency — Hedges 10% Decrease in exchange rates 442 Earnings Interest Income 10% Decrease in interest rates 233 Earnings ITEM 8.
The following table sets forth the potential loss in future earnings or fair values, resulting from hypothetical changes in relevant market rates or prices: Risk Category Hypothetical Change May 31, 2023 Impact (dollars in thousands) Foreign Currency — Revenue 10% Decrease in exchange rates $ 39,844 Earnings Foreign Currency — Hedges 10% Decrease in exchange rates 1,550 Fair Value Interest Income 10% Decrease in interest rates 434 Earnings Interest Expense 10% Increase in interest rates 2,125 Earnings ITEM 8.
We use derivative financial instruments to help manage the economic impact of fluctuations in certain currency exchange rates. These contracts are adjusted to fair value through earnings.
When the U.S. dollar strengthens, the opposite situation occurs. Additionally, previously invoiced amounts can be positively or negatively affected by changes in exchange rates in the course of collection. We use derivative financial instruments to help manage the economic impact of fluctuations in certain currency exchange rates. These contracts are adjusted to fair value through earnings.
Removed
Our operating results are exposed to changes in exchange rates between the U.S. dollar and the British pound sterling, the euro, the Mexican peso, the Brazilian real, the Chinese yuan, the Australian dollar and, to a lesser extent, the Indian rupee, the Canadian dollar, the Guatemalan quetzal, the Argentine peso, the Uruguayan peso and the Chilean peso; there is also exposure to a change in exchange rate between the British pound sterling and the euro.
Removed
When the U.S. dollar weakens against foreign currencies, the dollar value of revenues denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs. Additionally, previously invoiced amounts can be positively or negatively affected by changes in exchange rates in the course of collection.
Removed
Neogen has assets, liabilities and operations outside of the U.S., located in Scotland, England, Ireland, Italy, Brazil, Mexico, Guatemala, Argentina, Uruguay, Chile, China, India, Canada and Australia where the functional currency is the British pound sterling, euro, Brazilian real, Mexican peso, Guatemalan quetzal, Argentine peso, Uruguayan peso, Chilean peso, Chinese yuan, Indian rupee, Canadian dollar and Australian dollar, respectively, and also transacts business throughout Europe in the euro.

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