A Growth
MINDSET
2022 ANNUAL REPORT
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Themission of Neogen Corporation
is to be the leading company in the development
and marketing of solutions forfood and
animal safety.
TOTAL REVENUES
Dollars in thousands
NET INCOME
Dollars in thousands
(cid:23)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:24)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:25)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:26)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:27)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:28)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:31)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
TOTAL ASSETS
Dollars in thousands
EQUITY
Dollars in thousands
(cid:22)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:23)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:24)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:25)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:26)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:27)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:28)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:31)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
(cid:30)(cid:30)(cid:29)(cid:28)(cid:29)(cid:29)(cid:29)
(cid:30)(cid:29)(cid:29)(cid:28)(cid:29)(cid:29)(cid:29)
(cid:26)(cid:30)(cid:29)(cid:28)(cid:29)(cid:29)(cid:29)
(cid:26)(cid:29)(cid:29)(cid:28)(cid:29)(cid:29)(cid:29)
(cid:27)(cid:30)(cid:29)(cid:28)(cid:29)(cid:29)(cid:29)
(cid:27)(cid:29)(cid:29)(cid:28)(cid:29)(cid:29)(cid:29)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:29)(cid:29)(cid:29)
(cid:21)(cid:29)(cid:30)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:22)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:23)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:24)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:25)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:26)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:27)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:28)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
(cid:31)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
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Table of Contents
02 Message from John Adent, CEO
04
A Growth Mindset
10 Management’s Discussion and Analysis of
Financial Condition and Results of Operations
23
24
41
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Reports of Independent Registered Public
Accounting Firm
20
21
22
Consolidated Balance Sheets
43 Management’s Report on Internal Control Over
Consolidated Statements of Income
Consolidated Statements of Equity
Financial Reporting
44
Comparison of Five Year Cumulative Total
Return and Stock Profile Activity
Financial Highlights
Amounts in thousands, except per share
Year Ended May 31
Operations:
Total Revenues*
Food Safety*
Animal Safety*
Operating Income
2022
2021
2020
2019
2018
$
527,159 $
468,459 $
418,170 $
414,186 $
259,979
267,180
58,618
234,244
234,215
74,169
212,691
205,479
67,523
213,474
200,712
68,094
60,176
Net Income Attributable to Neogen
48,307
60,882
59,475
Basic Net Income Per Share**
Diluted Net Income Per Share**
$
$
0.45 $
0.45 $
0.57 $
0.57 $
0.57 $
0.56 $
0.58 $
0.57 $
Average Diluted Shares Outstanding**
108,020
107,120
105,720
104,850
104,298
* Revised 2017–2018
** Restated due to June 2021 stock split
In thousands
Year Ended May 31
Financial Strength:
2022
2021
2020
2019
2018
Cash and Marketable Securities
$
381,051 $
381,087 $
343,673 $
267,524 $
397,930
194,477
203,453
70,194
63,145
0.62
0.61
210,810
337,101
618,009
–
Working Capital
Total Assets
Long-Term Debt
Equity
584,954
992,929
–
537,852
920,192
–
488,917
797,182
–
411,278
695,740
–
887,374
840,377
725,177
637,899
560,175
1
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A MESSAGE FROM
John Adent, President and CEO
To Our Shareholders, Employees, and Friends,
This fiscal year brought a lot of “new” to Neogen.
With three major acquisitions and the big announcement in
December 2021 of our plans to merge 3M’s Food Safety business
with our existing operations, Neogen is poised to take a big step
forward as a company.
This change isn’t sudden — it is the culmination of years of operating
with a growth mindset, as our entire Neogen team has consistently
been looking for new ways to grow the business and take Neogen
to new heights within the industries that we serve. Since we began
operations in 1982, Neogen has searched for ways to expand our
portfolio and offer new solutions that allow us to better serve our
customers across their many markets.
We recognize that our strength comes from the diversity of our portfolio and from our ability to serve all people and animals at
every step of the food chain, from behind the farm gate to the dinner plate. As we look at continuing our growth trends going
forward, we must focus on finding ways to make our current products and services better, offering more solutions across more
industries, helping our team members grow in their careers with Neogen, and creating value for our shareholders.
As we enter our new fiscal year, we look to expand our position as a leader in food security, finding new ways to serve our
customers around the world. We are excited to see how this new year furthers our growth and our pursuit of this goal.
A Year of Growth
For the 31st consecutive year, we are pleased to report revenue increases over the previous year, a testament to our ongoing
commitment to operating with a growth mindset, even as we face hurdles. Our team has done an outstanding job in remaining
flexible while consistently looking for new ways to reach our customers around the world.
Revenues for the full fiscal year were $527,159,000, compared to the prior year’s $468,459,000, an increase of 13%. Net income
for the fiscal year was $48,307,000 or $0.45 per share; excluding $25.6 million in 3M deal-related costs, net income would have
been $67,938,000, or $0.63, for the fiscal year, compared to the prior year’s $60,882,000, or $0.57, an overall increase of 12%.
Per share amounts were adjusted to reflect our 2-for-1 stock split on June 4, 2021.
The outstanding results for the fiscal year give us momentum as we move into our 2023 fiscal year, with the anticipated close
of the 3M transaction on the horizon. Our integration efforts have us well prepared, and we look forward to welcoming the 3M
Food Safety team members to the Neogen family and beginning to build our new company together after the expected close
of the transaction.
We have a lot to look forward to in our new fiscal year as we celebrate our 40th year of operations.
Segment Highlights
Our Food Safety segment recorded an increase of 11% over the 2021 fiscal year, driven by growth across our diagnostic testing
portfolio, including natural toxins, food allergens, and culture media. The general sanitation product line also saw solid growth, led
by strong placements of the AccuPoint® Advanced NG readers. Our Listeria Right Now™ 60-minute test system also saw strong
increases over the prior year. Food safety diagnostics company Megazyme continued to drive growth as it was fully integrated
across our distribution channels.
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The Animal Safety segment rose 14% over the prior fiscal year. Growth in the insect control product line led this increase,
enhanced by the StandGuard® insect control product line, which we acquired in July 2020. We also saw strong sales of
veterinary instruments and animal care products, including veterinary biologics, further aided by sales of parasiticides from
the September 2021 acquisition of CAPInnoVet.
Our worldwide genomics business recorded an 11% increase for the fiscal year, primarily driven by continued strength in
bovine markets in the U.S., Australia, Brazil, and China, as well as increases in sheep and companion animal testing services
in Australia. Integration of Genetic Veterinary Sciences, Inc., which we acquired in December 2021, continued, with revenues
meeting expectations during its first six months under our ownership.
At our international locations, we also had a strong showing, recording an increase of 14% in the 2022 fiscal year.
In the U.K., we saw an increase of 13%, driven by strong sales of natural toxin test kits, the One Broth One Plate culture media
solution, and cleaners and disinfectants sold to the U.K. and Asia. Sales in Australia grew by 25%, led by strong growth in beef,
sheep, and companion animal genomic testing, as well as increases in allergen and pathogen test kits. Our Latin American
operations saw a revenue increase of 11%, with growth in sales of veterinary instruments, general sanitation, natural toxins,
and culture media.
In Brazil, revenues were flat compared to the prior year as increases in genomics testing and rodent control products were
offset by declines in dairy drug residue tests. Revenues at our China operations were also flat in comparison to the prior year,
as the country was impacted by COVID-19 lockdowns in the second half of the 2022 fiscal year.
Celebrating 40 Years of Operations
Our upcoming changes could not have happened at a more significant time in our journey, as we celebrate 40 years of operations
in our 2023 fiscal year.
”
“
In our 40 years, we have taken a vision and a $50,000 grant from Michigan
State University and turned them into the company we are today, a leader in
the food and animal safety industries, and we’re nowhere near done yet.
We have an incredible team here at Neogen, and together we are poised to continue driving the company onward and
upward. It is an exciting time to be a part of Neogen, and we believe we are well-positioned to achieve our goals, continue
expanding, and serve our customers around the world.
Neogen has a bright future, and we are grateful for your support as we move into our new fiscal year.
Sincerely,
John Adent
President and CEO
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With the mission to “Be a leading company in the development
and marketing of solutions for food and animal safety,”
growth is always top-of-mind at Neogen.
As we look to continue playing a key role in enhancing the
safety, quality, quantity, efficiency, and sustainability of the
global food supply for the rapidly growing world population,
our team understands that everything we do needs to be
approached with a growth mindset.
As we look toward a post-pandemic world, we see considerable
opportunities for Neogen to capitalize on significant tailwinds
within our industries as our world becomes increasingly health-
conscious, aware of food safety concerns, and as technology
evolves to fit the entire supply chain.
Together, we continually analyze our current business to
determine what we can do to enhance our product offering
and better serve our customer base while simultaneously
advancing our research and development, manufacturing,
technological, and commercial capabilities, as well as expanding
our international presence as we look to the future.
We recognize that food security begins behind the farm gate
and carries all the way to the dinner plate, making the role
Neogen plays in providing solutions for that journey more
important than ever. The combination of our Animal Safety
and Food Safety business units creates a cohesive portfolio
covering every aspect of food security. We continue to take
steps to develop innovative new solutions that encourage
growth, evolution, and security within the global food supply,
protecting people and animals around the world.
Neogen is here to grow with you, no matter which part of the
global food supply you serve.
Growing Our
Animal Safety Solutions
Neogen offers a diverse range of animal safety solutions,
helping to protect animals, people, and food through
preventative care, stopping disease before it starts. With a
broad range of products and formulations, Neogen offers a
solution for nearly every situation.
Biosecurity
Our biosecurity suite includes our line of EPA-approved cleaners
and disinfectants, which play a vital role in stopping the spread
of disease within food and animal production facilities,
veterinary clinics, and more, helping to keep animals, workers,
and doctors safe and healthy.
Also included in our biosecurity offerings is our line of cleaners
and disinfectants — including Neogen® Viroxide Super™, the
BioSentry® and COMPANION™ product lines, Synergize®,
Acid-A-Foam™ EVO, and Quik Clean — which are designed
with high-quality chemistries, able to tackle bacteria, fungi,
and viruses, maintaining sanitary conditions and limiting
potential hazards.
In December 2021, we acquired Delf (UK) Ltd., a United
Kingdom-based manufacturer and supplier of animal hygiene
and industrial cleaning products. The acquisition will help
us expand our offerings of performance dairy chemicals,
complementing our existing disinfectant and cleaner
offerings, and enhancing our portfolio.
Our water treatment solutions help maintain water quality
in livestock production facilities, enabling proper digestion
and nutrient absorption, optimal growth, and production.
Neogen also offers insect and rodent control solutions as
part of our biosecurity suite.
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Growing Our
Genomic Services
Genomics services are vital to the sustainable growth of the
global food supply.
With the help of our state-of-the-art genomics laboratories
around the world, producers, breeders, and researchers
are able to translate the complex animal genome and view
easy-to-understand identity and trait analysis, helping
them to incorporate selective breeding practices into their
operations. Our tests and laboratories help serve beef and
dairy cattle, pig, sheep, poultry, companion animal, and
aquatic species producers around the world to protect and
improve the food chain at the earliest stages.
In December 2021, we acquired Spokane-based Genetic
Veterinary Sciences, Inc., diversifying our companion
animal portfolio. Their service offerings provide companion
animal owners, breeders, and veterinarians with genetic
information that enables optimal genetic health for dogs,
cats, and birds.
This acquisition provided Neogen with a seventh global
genomics laboratory and a third North American facility,
playing a crucial role in providing improved services to all of
our agrigenomics customers.
In April 2022, the Spokane facility earned ISO 17025:2017
accreditation from the American Laboratory Accreditation,
Insects can carry and transmit disease, contaminate stored
food and feed, and can cause stress and health concerns in
animals, so controlling them through the use of our Prozap®
product line, Surekill®, Catchmaster, and StandGuard® solutions
helps to offer high levels of protection for beef and dairy cattle,
poultry, and other production animals.
Rodents are one of the largest threats to the food supply. Every
year, rodents cause millions of dollars of damage worldwide,
harming crops, stored food, and farm equipment through their
ability to thrive in small spaces, carry disease, play host to
parasites, and deposit contaminants wherever they go. Our
portfolio includes the globally trusted Ramik®, Havoc®, Cykill™,
Rodex™, Prozap®, and DeciMax® solutions in several presentations,
providing effective solutions for every problem.
Animal Health
Another important part of animal care and prevention are
trustworthy and dependable tools. Neogen produces
veterinary care products that help keep livestock, poultry,
horses, and companion animals safe and healthy.
Our comprehensive line of solutions includes antibiotics,
diagnostic tools, vaccines, immunostimulants, injectables,
oral supplements, vitamins and minerals, wound care, and
other topical solutions. Our BotVax® B vaccine is the only
USDA-approved vaccine for the prevention of equine botulism
Type B, and our USDA-approved EqStim® immunostimulant
is proven to help combat equine bacterial and viral
respiratory infections.
Other Neogen® Vet pharmaceuticals include PanaKare™, a
digestive aid in replacement therapy due to exocrine
pancreatic insufficiency in dogs and cats; ThyroKare™, an
FDA-approved replacement therapy for diminished thyroid
function in dogs; and RenaKare™, a supplement for potassium
deficiency in dogs and cats.
Our Ideal® and Prima® lines of veterinary tools and over-the-
counter products include surgical instruments, needles,
syringes, reproductive and obstetrical instruments, personal
protective equipment, and more. Our wide range of veterinary
care products has been trusted by livestock producers,
veterinarians, and pet owners to keep their animals healthy,
with a long-established reputation of quality.
In September 2021, we acquired Atlanta-based CAPInnoVet,
Inc., a companion animal health care company that provides
pet medications to the veterinary market. This acquisition
added to our line of veterinary care products, providing entry
into the fast-growing retail parasiticide market, and has been
integrated smoothly into our Animal Safety business segment.
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Our AccuPoint® Advanced Next Generation (NG) system,
launched in May 2021, continues to grow within the sanitation
monitoring market. The rapid sanitation test detects the
presence of adenosine triphosphate (ATP), a chemical found
in all living cells, and utilizes bioluminescence to quickly
determine if a surface is clean. ATP monitoring is considered
the gold standard for sanitation monitoring in food and
beverage production facilities, the food service industry, and
the healthcare market.
the highest standard in the world for testing and calibration
laboratories, demonstrating Neogen’s commitment to
upholding rigorous quality management systems.
Neogen Genomics’ Lincoln-based laboratory also received a
CLIA Certificate of Compliance in April 2022, allowing the lab
to conduct human genotyping services, which opens doors
for us to participate in a broad range of clinical research
projects and high-throughput genetic variant screening.
Growing Our
Food Safety Solutions
Contamination threatens the global food supply at every
stage of its journey, from behind the farm gate to the dinner
plate. Having solutions for every step of that journey that
ensure farmers, producers, processors, regulators, and
everyone in between are able to detect potential hazards or
unintended substances in their products before they get to
people or animals is key to our continued growth strategy.
Quick, Efficient Testing
Neogen offers a comprehensive range of easy-to-use and
accurate food safety tests, leading the way in helping to provide
quick answers to the quality and safety of their products.
Our rapid food safety testing solutions are able to detect
natural toxins, aflatoxin, aflatoxin M1, deoxynivalenol, fumonisin,
ochratoxin, zearalenone, T-2/HT-2 toxin, and ergot alkaloids;
foodborne pathogens, including E. coli, Salmonella, Listeria,
and Campylobacter; food allergens, including, among others,
peanut, milk, egg, almond, gluten, soy, hazelnut, and coconut
residues; seafood contaminants, and waterborne microorganisms.
Also included in our food safety testing portfolio are tests to
detect spoilage microorganisms, including yeast and mold,
which threaten the safety and quality of food and other
consumer products, ensuring sterility, self-life, and the
quality of both the raw materials and finished products.
Neogen also offers food quality diagnostic testing as a result
of our December 2020 acquisition of Megazyme. Megazyme’s
diagnostic assay kits and reagents are used to measure
dietary fiber, polysaccharides, acids, and sugars, such as
lactose. In our 2022 fiscal year, we completed the integration
of Megazyme products with our U.S. sales and marketing
team, and we can now offer these diagnostic assay kits and
reagents to customers across the entire company in the grain,
cereal, wine, dairy, and food industries.
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Digital Services
Another key area of growth for Neogen has been in our
digital services.
Data is a key aspect of food safety, but without a way to
manage or analyze it, the information can be overwhelming
and lack effectiveness. Neogen Analytics, our food safety
and risk management software-as-a-service, has seen
significant growth in the fiscal year.
The digital, cloud-based program, which pairs with our
ANSR® pathogen detection system and AccuPoint Advanced
sanitation monitoring system, integrates into environmental
monitoring programs to eliminate time-consuming and
error-prone manual data entry, reduce the risks associated
with delays or mishandled lab communications, and
increase the transparency of organization-wide food safety
metrics. Neogen Analytics automates testing and response
workflows, assuring the appropriate testing and corrective
actions are assigned and completed, improving food safety
and quality for food companies and customers.
Neogen also offers blockchain solutions, a secure, digital
record of data and transactions within agricultural supply
chains. Our program collects data elements from both the
dairy and beef cattle supply chains, creating a sharable,
immutable, and intelligent database. Users can track each
animal along every step of their journey, from parentage, origin,
health records, animal husbandry practices, sustainability
measurements, transportation, location, and processing.
Blockchain solutions enter Neogen into a new frontier of
technology and provide an important service for our customers,
allowing for increased sustainability and transparency across
the food and animal safety markets.
Other Offerings
Neogen offers culture media and prepared media for varied
purposes, including traditional bacterial testing and the
growth of beneficial bacteria. Our innovative One Broth, One
Plate solution saw increased placements in the 2022 fiscal
year, allowing laboratories to test for pathogens in food and
environmental samples using just one enrichment broth and
one agar plate.
Providing support to our customers worldwide is incredibly
important to Neogen, especially as we continue to grow. Our ISO-
accredited laboratories located in the U.S., United Kingdom, and
India offer food safety analysis to our global community.
The Neogen and 3M Food Safety Transaction
In December 2021, Neogen announced that we entered
into a definitive agreement under which 3M will separate its
Food Safety business and simultaneously combine it with
Neogen’s existing operations.
Upon completion of the transaction, we will expand our
position as an innovative leader in the food safety sector,
with a comprehensive product range and a strategic focus
on the category’s long-term growth opportunities.
This is an exciting time for Neogen as we look towards
significant growth across our product offerings, employee
footprint, and global operations, as well as the expansion of
our research and development and innovation capabilities
while enhancing revenue, margin, and earnings growth.
This combination will expand Neogen’s leading position in this
new era of food security as the world increasingly focuses
on sustainability, food safety, and supply chain solutions.
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7
We believe that this is the perfect time to combine to create
a global innovator in food security, and this transaction is
the culmination of years of operating with a growth mindset.
Combined, we will have a total of more than 70 years of
helping our customers protect the world’s food supply, and
our newly bolstered team will be able to provide new and
innovative solutions to our customer base, helping to grow
and change the food security landscape moving forward.
Once the transaction closes, we will possess the digital
capabilities to lead the growth and digitalization of the food
and animal safety industries and will have an expanded
offering in food safety, particularly in indicator organism
testing and pathogen detection, which will complement
Neogen’s existing microbiology lines.
We are excited to welcome the 3M Food Safety employees
to the Neogen team upon the anticipated closing. Our
collective dedication to protecting the world’s food supply,
our shared values of serving our customers and communities,
and the importance we place on creating environments in
which our employees can thrive makes this transaction a
great fit for both teams.
International Growth
Extending our solutions and expertise to as many people
as possible is a key aspect of our continued growth, finding
new markets to serve as we strive to protect the people and
animals we care about.
Neogen maintains 10 locations in the United States, 14
international locations, and an extensive network of distributors
who help us reach countries in which we do not have a
physical presence; we see these numbers increasing, both
domestically and internationally, with the absorption of the
3M Food Safety business.
We remain well-positioned to serve our markets, around
the world, with sales in more than 140 countries in the 2022
fiscal year.
Ensuring Our Sustainable Growth
When Neogen looks at growth, it is critical that we ensure
that we are growing in ways that benefit our customers, our
employees, and our world.
Sustainability is a critical part of our mission to protect the
people and animals we care about around the world.
We have a responsibility to our global community to grow
and operate in a way that is responsible, socially conscious,
and transparent, and we know that our continued growth
and the growth of the markets we serve depends on how we
manage our impact on the world.
Operating in a sustainable manner benefits all of Neogen,
from our employees to our customers and shareholders. We
lean on our Pillars of Trust — Openness, Honesty, Credibility,
Respect, and Service — to guide our decisions as a company,
as members of our communities, and as employees.
In our 2022 fiscal year, we continued our sustainability
journey by increasing our Environmental, Social, and
Governance (ESG) efforts.
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Building Our
New Company
As we look forward, we see a year of transformation ahead.
Neogen and our employees, customers, and shareholders
are now entering a new era in the growth of our company.
Together, we move forward with open-mindedness and a
renewed focus on growing our business as two teams
integrate into one.
The new company that we build together will be at the
forefront of the food security industry, featuring an enhanced
portfolio and expanded resources, capabilities, and solutions
necessary for us to grow into a global industry leader.
We are incredibly confident in the future of Neogen and are
focused on growing to better serve the entire global food
supply chain, keeping our world safe and secure.
Environmental Advances
During the 2022 fiscal year, we took an environmental
inventory, determining our baseline utility usage at our
U.S. sites, while working to document Neogen’s current
state of operations.
We also made significant strides toward increasing our use
of renewable energy sources, including incorporating a solar
array into our expansion in Australia and incorporating LEED
certification into the design of our Lansing, Michigan, facility
expansion. Sustainability has been incorporated into all of
our design and research and development activities. We also
invested in a low energy and low water usage pipette washing
system in our Lincoln, Nebraska, genomics operation, which
decreases plastic waste, and lowers utility usage and cost
over time.
We also updated our Supplier Code of Conduct to motivate
our suppliers to also act with sustainability in mind.
Social Advances
Over the past fiscal year, we made progress in inventorying
our current state by collecting workforce demographic data
and made important updates to our Employee Handbook
and global Code of Conduct to ensure that our employees
have the resources necessary to understand the expectations
of the company.
We developed global compliance and Equity, Diversity,
Inclusion, and Belonging (EDIB) training programs for our
employees, which will launch in August 2022, and continued
our Leadership Development series.
We have also made advances in soliciting and receiving employee
feedback and engaging employees within the workplace.
Governance Advances
Neogen’s governance documents were updated and posted
to our Investor Relations webpage in fiscal 2022, ensuring
transparency and accountability. We expanded our
compensation disclosures in the 2021 proxy filing, tying a
portion of management compensation to ESG initiatives.
We also made progress with our cybersecurity initiatives,
enhancing our network capabilities, and preparing for a
cybersecurity assessment, to be performed in our 2023
fiscal year.
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9
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial
statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
In addition, any forward-looking statements represent management’s views only as of the day this Form 10-K was first filed with the Securities and Exchange
Commission and should not be relied upon as representing management’s views as of any subsequent date. While we may elect to update forward-looking
statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change.
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. 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.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of
operations are based on the consolidated financial statements that
have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial
statements requires that management make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On
an ongoing basis, management evaluates the estimates, including but
not limited to, those related to receivable allowances, inventories and
intangible assets. These estimates are based on historical experience
and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Though the impact of the
COVID-19 pandemic to our business and operating results presents
additional uncertainty, we continue to use the best information
available to inform our critical accounting estimates. Actual results may
differ from these estimates under different assumptions or conditions.
The following critical accounting policies reflect management’s more
significant judgments and estimates used in the preparation of the
consolidated financial statements.
Income Taxes
We account for income taxes using the asset and liability method.
Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial reporting
and tax bases of assets and liabilities and for tax credit carryforwards
and are measured using the enacted tax rates in effect for the years
in which the differences are expected to reverse. Deferred income
tax expense represents the change in net deferred income tax assets
and liabilities during the year. The determination of income subject
to income tax in each tax paying jurisdiction requires us to apply
transfer pricing guidelines for certain intercompany transactions.
Our tax rate is subject to adjustment over the balance of the year due
to, among other things, income tax rate changes by governments; the
jurisdictions in which our profits are determined to be earned and taxed;
changes in the valuation of our deferred tax assets and liabilities;
adjustments to our interpretation of transfer pricing standards; changes
in available tax credits or other incentives; changes in stock-based
compensation expense; changes in tax laws or the interpretation of such
tax laws; and changes in U.S. generally accepted accounting principles.
Although we believe our tax estimates are reasonable and we prepare
our tax filings in accordance with all applicable tax laws, the final
determination with respect to any audit, and any related litigation, could
be materially different from our estimates or from our historical income
tax provisions and accruals. The results of an audit or litigation could
have a material effect on operating results and/or cash flows in the
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. 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.
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.
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. 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. 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.
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. 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.
10
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periods for which that determination is made. In addition, future period
earnings may be adversely impacted by litigation costs, settlements,
penalties, and/or interest assessments.
Our wholly owned foreign subsidiaries are comprised of Neogen Europe,
Quat-Chem Ltd, 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.
Based on historical experience, as well as management’s future plans,
earnings from these subsidiaries are expected to be re-invested
indefinitely for future expansion and working capital needs. Furthermore,
our domestic operations have historically produced sufficient operating
cash flow to mitigate the need to remit foreign earnings. On an annual
basis, we evaluate the current business environment and whether any
new events or other external changes might require a re-evaluation of
the decision to indefinitely re-invest foreign earnings. It is not practicable
to determine the income tax liability that would be payable if such
earnings were not reinvested indefinitely.
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. We generally
value the identifiable intangible assets acquired using a discounted
cash flow model. 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. 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. 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. 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. The fair
value of contingent consideration is measured using projected payment
dates, discount rates, probabilities of payment and projected revenues
(for revenue-based considerations). Projected revenues are based on
our most recent internal operational budgets and long-range strategic
plans. 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. 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. 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.
Results of Operations
Executive Overview
(In thousands, except earnings per share)
Consolidated
Revenues
Organic Sales Growth
Food Safety
Revenues
Organic Sales Growth
Animal Safety
Revenues
Organic Sales Growth
% of International Sales
Effective Tax Rate
Net Income
Earnings per Diluted Share
Cash from Operations
2022
2021
Change
$
527,159
$
468,459
$
259,979
$
234,244
$
267,180
$
234,215
40%
19.8%
48,307
0.45
68,038
$
$
$
39%
19.1%
60,882
0.57
81,089
$
$
$
13%
9%
11%
7%
14%
12%
(21)%
11
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•
•
•
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.
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. In a neutral currency environment, sales would have been $844,000
lower than reported in fiscal 2022.
Sales results for fiscal 2022 compared to the prior year are as follows for each of our international locations:
U.K. Operations (including Neogen Italia)
Revenue Change — USD
13%
Revenue Change – Local Currency
12%
Brazil Operations
Neogen Latinoamerica
Neogen Argentina
Neogen Uruguay
Neogen Chile
Neogen China
Neogen India
Neogen Canada
Neogen Australasia
1%
11%
34%
9%
33%
0%
19%
37%
25%
(2)%
9%
71%
9%
43%
(3)%
21%
35%
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.
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.
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. 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. The growth was led by the previously mentioned strength
in Australia and Brazil, and was partially offset by lower volumes
of domestic companion animal samples, the result of a difficult
comparison due to large increases in the prior year.
Revenues
(Dollars in thousands)
Food Safety:
Natural Toxins, Allergens & Drug Residues
Bacterial & General Sanitation
Culture Media & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
Animal Safety:
Life Sciences
Veterinary Instruments & Disposables
Animal Care & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
Total Revenue
12
May 31, 2022
Change
May 31, 2021
Change
May 31, 2020
Year Ended
$
$
$
$
79,395
47,282
75,278
35,691
22,333
259,979
5,685
63,938
39,805
83,610
74,142
267,180
527,159
4%
7%
23%
11%
11%
11%
(1)%
33%
11%
8%
11%
14%
13%
$
$
$
$
76,614
44,009
61,245
32,219
20,157
234,244
5,715
48,128
35,897
77,458
67,017
234,215
468,459
1%
5%
28%
12%
12%
10%
(10)%
12%
26%
13%
14%
14%
12%
$
$
$
$
76,207
41,780
47,847
28,890
17,967
212,691
6,322
42,941
28,389
68,815
59,012
205,479
418,170
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Year Ended May 31, 2022 Compared to Year Ended May 31, 2021
Food Safety
Natural Toxins, Allergens & Drug Residues – Sales in this category
increased 4% in fiscal 2022, with a 6% increase in sales of natural
toxin test kits and a 9% increase in sales of our allergens product line
partially offset by a 33% decrease in sales of drug residue test kits, as
we are discontinuing sales of certain lower margin products due to
competitive market pressure.
sales increased 32%, led by strong demand in the farm and home
channels, and cleaners and disinfectants sales rose 6%. 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.
Bacterial & General Sanitation – Sales in this category increased
7% in fiscal 2022 compared to the prior year. Sales of our AccuPoint®
sanitation monitoring product line increased 12% aided by strong
sales of our new reader. Sales of our Listeria Right Now™ product
increased 25%, while sales of products to detect spoilage organisms
in processed foods increased 4%.
Culture Media & Other – Sales in this category increased 23% in fiscal
2022 compared to fiscal 2021; excluding sales from the December 2020
acquisition of Megazyme, sales increased 11%. Sales of Neogen Culture
Media products rose 16% as our new workflow, One Broth One Plate,
continued to drive growth and increased sales to commercial labs in
the U.K.; a large non-recurring sale to a domestic vaccine manufacturer
in the first quarter also contributed to the current year growth.
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%. The increase was primarily due to continued strength
in sales of cleaners and disinfectants to Asia resulting from the African
swine fever outbreak in that region increasing demand, and higher
sales to a U.K.-based toll manufacturer.
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.
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.
Veterinary Instruments & Disposables – Revenues in this category
increased 33% in fiscal 2022 compared to fiscal 2021, led by a large
increase in sales of veterinary instruments, including needles and
syringes, resulting from recently won private label business.
Animal Care & Other – Sales of these products increased 11% in
fiscal 2022 compared to fiscal 2021; excluding the contribution of
parasiticides from the September 2021 acquisition of CAPInnoVet,
revenues in this category rose 6%. Growth in our biologics, small
animal supplements and wound care product lines were partially
offset by a large decline in sales of dairy supplies due to the June
2020 termination of an agreement under which we distributed these
types of products for a large manufacturer of dairy equipment.
Rodenticides, Insecticides & Disinfectants – Sales in this category
increased 8% in fiscal 2022, compared to the prior year. Insecticide
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%. The growth was led by increases in beef and sheep testing in
Australia, due to improved market conditions, and higher sample
volumes from domestic dairy and beef cattle and poultry customers.
The increase was partially offset by a decline in domestic companion
animal revenues due to a difficult comparison from strong prior year
sales growth.
Year Ended May 31, 2021 Compared to
Year Ended May 31, 2020
The COVID-19 pandemic, which began in the second half of fiscal
2020, continued to cause difficult operating conditions in many of our
key market segments in fiscal 2021. Shelter in place orders across the
U.S. and in most of our international markets, the closure or reduced
output of businesses due to quarantine and/or local legislation,
disruption in the supply chain resulting from reduction in end-market
demand and shipping issues, and the inability of some markets to
react quickly to these changes, each disrupted our revenues.
Food Safety
Natural Toxins, Allergens & Drug Residues – Sales in this category
increased 1% in fiscal 2021, with a 6% increase in sales of natural
toxin test kits and a 5% increase in our allergens product line partially
offset by a 30% decrease in sales of drug residue test kits. Sales of
drug residue test kits have continued to decline as we ended an
exclusive distributor agreement in Europe and faced competitive
pressure and lower demand due to poor economic conditions.
Bacterial & General Sanitation – Sales in this category increased
5% in fiscal 2021 compared to the prior year. Sales of products to
detect spoilage organisms in processed foods increased 19% in
fiscal 2021, resulting from sales of our new instrument (Soleris NG),
which launched in the first quarter, and increased consumables sales
from new instrument placements. Sales of our AccuPoint sanitation
monitoring product line were flat as many customers were shut
down or operating at reduced capacity for a portion of the year,
resulting in use of less consumables. A next generation reader for
this product line was launched late in the fourth quarter; there will
be significant sales and marketing focus on this product line in fiscal
2022. Sales of test kits to detect pathogens decreased 2%, as lower
sales of ANSR equipment were only partially offset by increases from
our Listeria Right Now test kit, which grew 21% in fiscal 2021.
Culture Media & Other – Sales in this category increased 28%
in fiscal 2021 compared to fiscal 2020. Excluding sales from the
December 2020 acquisition of Megazyme, sales increased 18%.
This category includes sales of acquired inventory of non-Neogen
manufactured products from our new businesses in Italy and
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the South American southern cone countries; these sales are not
expected to continue long-term. This category also includes sales
of veterinary instruments transferred to our U.K. sales team in fiscal
2021. Sales of Neogen Culture Media increased 1% as new business
gained in the U.S. from a COVID-19 vaccine manufacturer offset the
loss of some business due to competitor pricing.
Rodenticides, Insecticides & Disinfectants – Revenues of products
in this category sold through our Food Safety operations increased 12%
in fiscal 2021 compared to fiscal 2020, due primarily to continued
strength in cleaners and disinfectant sales in China resulting from
increased demand due to the African swine fever outbreak in that
country and the COVID-19 pandemic. We also benefitted from strong
sales of hand and skin sanitizing products at our U.K.-based Quat-Chem
location in the first quarter of this fiscal year.
Genomics Services – Sales of genomics services sold through our
Food Safety operations increased 12% in fiscal 2021 compared to the
prior year, primarily due to higher sales in the Chinese porcine and
bovine markets.
Animal Safety
Life Sciences – Sales in this category decreased 10% in fiscal 2021
compared to the same period in the prior year, primarily the result
of lower forensic drug test kit sales to large commercial labs in the
U.S. as the COVID-19 pandemic created less demand for testing; a
reduction in sales of products to the U.S. horse racing industry in the
U.S. also contributed to the decline, as racing activity was down.
Veterinary Instruments & Disposables – Revenues in this category
increased 12% in fiscal 2021 compared to fiscal 2020. Veterinary
instruments sales increased 16% for the year, led by increases in
detectable needles and syringes as we gained new customers
and market share from a key competitor. Partially offsetting this
increase was a 9% decline in protective wear sales, as gloves were on
backorder for much of the current year due to COVID related demand.
Animal Care & Other – Sales of these products increased 26% in
fiscal 2021 compared to fiscal 2020; this category includes sales of
food safety products sold through our Australian operation, the
result of a February 2020 acquisition of a distributor. Excluding these
sales, revenues in this category increased 21%. Sales of our small
animal supplements, vitamin injectables, and joint pain products
benefitted from growth in veterinary markets, as the COVID-19
pandemic has led to an increase in pet ownership, particularly dogs
and cats. Additionally, sales rose for our equine supplements and
antibiotics, due to strong demand in these markets. This category
also includes sales of our thyroid treatment for dogs, which became
available for sale late in the fourth quarter. Partially offsetting these
gains was a 49% decline in sales of dairy supplies due to the June
2020 termination of an agreement in which we distributed these
products for a large manufacturer of dairy equipment.
Rodenticides, Insecticides & Disinfectants – Sales in this category
increased 13% in fiscal 2021, compared to the prior year. Rodenticide
sales increased 42% as rodent pressure in certain areas of the U.S.
increased significantly. Insecticide sales rose 15%, due in part to our
acquisition of the StandGuard product line for fly control on July 31,
2020; organic sales in this category increased 7%. Cleaners and
disinfectants sales decreased 15% resulting from lower sales of water
treatment products and the transfer of a product line to our U.K.
operation; additionally, opportunistic sales of sanitizing products in the
fourth quarter of the prior year, due to extremely high demand early in
the COVID-19 pandemic, did not continue at those levels in fiscal 2021.
Genomics Services – Sales in this category increased 14% in fiscal
2021 compared to fiscal 2020. The growth was led by strong increases
to the U.S. and Australian companion animal markets, driven by
increased pet adoption and higher consumer spending on pets during
the COVID-19 pandemic. Gains in the commercial beef and beef
association markets in the U.S., Canada and Australia also contributed
to the growth, as well as the recent launch of a new high-density chip
for white leg shrimp.
Cost of Revenues
(Dollars in thousands)
Cost of Revenues
2022
$ 284,146
Change
12%
2021
$ 253,403
Change
14%
2020
$ 221,891
Cost of revenues increased 12% in fiscal 2022 compared to fiscal
2021 and increased 14% in fiscal 2021 compared to fiscal 2020. This
compares with revenue increases of 13% in fiscal 2022 and 12% in
fiscal 2021. Expressed as a percentage of sales, cost of revenues
was 53.9%, 54.1% and 53.1% in fiscal years 2022, 2021 and 2020,
respectively. Gross margins were 46.1%, 45.9%, and 46.9% for fiscal
years 2022, 2021, and 2020, respectively.
Fiscal 2022 – Our overall gross margin increased 20 basis points
in fiscal 2022, primarily from a product mix shift to higher margin
products in the Animal Safety segment. Partially offsetting this were
higher raw material and freight costs within each segment, which
resulted from continued supply chain disruptions, inflationary
pressure, and ongoing issues related to COVID-19 and its variants
across most of our markets. The Company has taken pricing actions
where appropriate in response to these cost increases.
14
Fiscal 2021 – Our overall gross margin declined 100 basis points
in fiscal 2021 as pressure on the worldwide supply chain caused
by the COVID-19 pandemic resulted in increased overhead costs;
in particular, freight costs on inventory purchases increased 53%
in fiscal 2021 compared to the prior year. Additional cost increases
resulted from personnel costs, in part from the increased volumes,
but also due to labor shortages, contracted services primarily related
to our recently launched instruments, and higher health insurance
costs domestically, as employees and their families utilized elective
medical services postponed from the fourth quarter of fiscal 2020
due to COVID-19. To a lesser extent, the shift in mix within the
Food Safety segment towards products with lower gross margins
negatively impacted the consolidated gross margin percentage.
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Food Safety Gross Margins
Food Safety gross margins were 50.2%, 49.2% and 51.4% in fiscal
years 2022, 2021 and 2020, respectively.
Animal Safety Gross Margins
Animal Safety gross margins were 42.1%, 42.6% and 42.3% in fiscal
years 2022, 2021 and 2020, respectively.
Fiscal 2022 – Food Safety margins increased 100 basis points in fiscal
2022, due to a product mix shift within the segment toward higher sales
of diagnostic test kits in fiscal 2022; gross margin was also aided by
a full year of sales of food quality products and enzymes from the
Megazyme acquisition.
Fiscal 2022 – Animal Safety gross margins decreased by 50 basis
points in fiscal 2022, primarily due to significant product cost increases
and international freight charges. Negative mix effects occurred from
lower sales of higher margin rodenticide products and companion
animal services.
Fiscal 2021 – Food Safety margins decreased 220 basis points in
fiscal 2021, primarily due to higher sales of equipment such as the
Soleris NG, which was launched in the current year and has lower gross
margins than our diagnostic test kits, and cleaners and disinfectants
sold through our China location, which reports through the Food
Safety segment. We were also negatively impacted by increased
freight, labor and other overhead costs throughout the segment.
Fiscal 2021 – Animal Safety gross margins increased by 30 basis points,
primarily from strong sales of higher margin rodenticide and companion
animal products and cost efficiencies; somewhat offsetting these gains,
gross margin in this segment was negatively impacted by higher freight
costs as rates to bring product into inventory rose significantly during
the year, from both domestic and international sources.
Operating Expenses
(Dollars in thousands)
Sales and Marketing
General and Administrative
Research and Development
$
2022
84,604
82,742
17,049
$
Change
15%
62%
5%
$
2021
73,443
51,197
16,247
Change
5%
15%
10%
$
2020
69,675
44,331
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. Legal, consulting and
other professional fees totaling $25.6 million were incurred in conjunction
with due diligence, negotiation of terms and integration planning for
our proposed business combination with 3M’s Food Safety business,
which was announced on December 14, 2021. Excluding costs related
to the 3M transaction, operating expenses were $158.8 million, an
increase of 13% compared to the prior year.
Sales and Marketing
Sales and marketing expenses increased by 15% in fiscal 2022 compared
to fiscal 2021 and increased 5% in fiscal 2021 compared to the prior
year. As a percentage of sales, sales and marketing expense was
16.0%, 15.7% and 16.7% in fiscal years 2022, 2021 and 2020, respectively.
Fiscal 2022 – The $11.2 million, or 15%, increase in sales and marketing
expenses in fiscal 2022 resulted primarily from increases in employee
compensation expenses such as salaries, bonuses, and commissions,
and shipping expense, both reflecting the increase in revenues. Travel,
meals and entertainment, and tradeshow expense were also higher,
with customer-facing activities increasing significantly, the result of
the easing of COVID-19 restrictions.
Fiscal 2021 – The $3.8 million, or 5%, increase in sales and marketing
expenses in fiscal 2021 resulted primarily from increases in employee
compensation expenses such as salaries, bonuses, and commissions,
reflecting the increase in sales for the year, as well as increased headcount
as we returned to normal staffing levels. In addition, shipping costs
rose in line with revenues, health insurance costs rose as employees and
their families resumed receiving medical treatment and procedures
which had been deferred in the fourth quarter of the prior fiscal year.
Advertising and outside services also increased to support the launch
of a number of new products during the year, most notably the
Soleris NG and AccuPoint NG readers. Partially offsetting these
increases was $3 million in decreased spending for travel and meals
and entertainment for the year, the result of travel restrictions and
reductions in face-to-face sales activities in most of our markets for
the majority of the year. Travel and in person customer meetings did
begin to pick up in some geographic areas in the second half of fiscal
2021 as COVID-19 restrictions were eased.
General and Administrative
General and administrative expenses rose 62% in fiscal 2022 compared
to fiscal 2021 and by 15% in fiscal 2021 compared to fiscal 2020. Legal,
consulting and other professional fees totaling $25.6 million were
incurred in conjunction with due diligence, negotiation of terms and
integration planning for our proposed transaction to combine with
3M’s Food Safety business. Excluding costs related to the 3M transaction,
general and administrative expenses increased 12% compared to
the prior year. As a percentage of sales, general and administrative
expense was 15.7% (10.8% excluding 3M transaction costs), 10.9%
and 10.6% in fiscal years 2022, 2021 and 2020, respectively.
Fiscal 2022 – In fiscal 2022, we spent $25.6 million on strategic consulting,
legal and other professional fees related to due diligence, negotiation
of terms and integration planning for our proposed transaction to
combine with 3M’s Food Safety business. Excluding these costs, the
increase in general and administrative expense in fiscal 2022 was 12%.
Other increases in the current year included compensation related
costs due to increased headcount and improved operating performance,
incremental amortization expenses (non-cash) from recent acquisitions,
higher levels of depreciation (non-cash) and related software and
licensing costs from continued investments in information technology
infrastructure and applications.
15
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Fiscal 2021 – In fiscal 2021, we spent $3.1 million on strategic
consulting, legal and other professional fees related to acquisition
activity for businesses which we were ultimately not successful
in acquiring. Excluding these costs, the increase in general and
administrative expense in fiscal 2021 was 8%. Other increases
in the current year included compensation increases due to
increased headcount, including the addition of a number of senior
management positions, incremental amortization expenses
(non-cash) resulting from recent acquisitions, and higher levels of
depreciation (non-cash) and related software and licensing costs
from continued investments in information technology infrastructure
and applications. Increases in this cost category resulting from the
Megazyme acquisition totaled $957,000.
Research and Development
Research and development expenses increased 5% in fiscal 2022 and
10% in fiscal 2021, each compared to the prior year. As a percentage
of revenue, these expenses were 3.2% in fiscal year 2022, 3.5% in
fiscal year 2021 and 3.5% in fiscal year 2020; we expect to spend
between 3% and 4% of total revenue on research and development
annually as we continue to make investments in our future growth.
Fiscal 2022 – The 5% increase in research and development
expenses in fiscal 2022 was primarily the result of increased
compensation expense, resulting from scheduled annual increases
and additional headcount, and increases in contracted services
related to new product development. These increases were partially
offset by a decrease in external reader development costs; these
projects were completed in the prior fiscal year.
Fiscal 2021 – The 10% increase in research and development
expenses in fiscal 2021 was primarily the result of increased
compensation expense, resulting from scheduled annual increases
and additional headcount from the Megazyme acquisition, project
expense relating to new product innovation, spending with outside
partners on the new readers launched in this fiscal year, and testing
and approval costs for new product development.
Operating Income
(Dollars in thousands)
Operating Income
2022
58,618
$
Change
(21)%
2021
74,169
$
Change
10%
2020
67,523
$
Operating income decreased 21% in fiscal 2022 compared to fiscal
2021 and increased by 10% in fiscal 2021 compared to fiscal 2020.
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.
Gross margins rose by $28.0 million, or 13% in fiscal 2022 compared
to the prior fiscal year; this was more than offset by a $43.5 million
increase in operating expenses (including $25.6 million of 3M
transaction costs).
In fiscal 2021, gross margins rose by $18.8 million, or 10%; this
increase was partially offset by an increase of $12.1 million, or 9%,
in operating expenses, resulting in a $6.6 million, or 10%, increase in
operating income compared to fiscal 2020.
Other Income (Expense)
Other Income (Expense) for the previous three fiscal years consisted of the following:
(Dollars in thousands)
Interest income (net of expense)
Foreign currency transactions
Licenses and settlements
Magiar contingent consideration
Quat-Chem contingent consideration
Livestock Genomics contingent consideration
Other
Total Other Income
2022
1,267
(40)
-
-
356
(136)
142
1,589
$
$
2021
1,614
(541)
9
111
-
37
(131)
1,099
$
$
2020
5,992
(1,178)
(38)
-
-
-
6
4,782
$
$
Interest income decreased by $347,000 in fiscal 2022 compared to fiscal
2021, due to lower interest rates in effect for most of the fiscal year.
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.
In fiscal 2022, we recorded adjustments totaling $220,000 for
contingent consideration accruals related to acquisitions completed
in prior years. In fiscal 2021, we received proceeds of $309,000 for a
property loss settlement and recorded $300,000 of expense resulting
from a legal settlement with a vendor. Additionally, adjustments to
contingent consideration accruals in fiscal 2021 resulted in $148,000
of income. In fiscal 2020, we took a charge to expense and recorded a
reserve of $600,000 to provide for potential fines or penalties resulting
from an administrative subpoena issued by the U.S. Treasury
Department’s Office of Foreign Asset Control. This was partially
offset by a $483,000 gain resulting from a settlement with the
Brazilian government related to sales taxes charged over several
years, and proceeds received for a property loss settlement.
16
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Provision for Income Taxes
(Dollars in thousands)
Provision for Income Taxes
2022
$ 11,900
Change
(17)%
2021
$ 14,386
Change
12%
2020
$ 12,830
Income tax expense for fiscal 2022 was $11.9 million, an effective tax rate of 19.8%, compared to income tax expense of $14.4 million
in 2021, an effective tax rate of 19.1%. For fiscal 2020, income tax expense of $12.8 million represented an effective tax rate of 17.7%.
Differences from the U. S. statutory rate of 21% to our effective rate are primarily due to provisions in the U.S. Tax Act and the exercise
of stock options. Please refer to Note 6 to the consolidated financial statements for more information.
Net Income and Income Per Share
(Dollars in thousands—except per share data)
Net Income
Net Income Per Share—Basic
Net Income Per Share—Diluted
2022
Change
2021
Change
2020
$ 48,307
(21)%
$ 60,882
2%
$ 59,475
0.45
0.45
0.57
0.57
0.57
0.56
Net income decreased 21% in fiscal 2022 compared to fiscal 2021, due to $25.6 million of professional fees related to the 3M transaction.
Excluding these costs and adjusting the tax rate accordingly, net income would have been $67.9 million, an increase of 12% compared
to fiscal 2021.
Net income increased 2% in fiscal 2021 compared to fiscal 2020, primarily due to the $6.7 million increase in operating income. The
increase in operating income was partially offset by lower other income and higher tax expense for the year.
Non-GAAP Financial Measures
This report includes certain financial information of Neogen that differs
from what is reported in accordance with GAAP. These non-GAAP
financial measures consist of EBITDA, Adjusted EBITDA and Adjusted
EBITDA margin. These non-GAAP financial measures are included in
this report because management believes that they provide investors
with additional useful information to measure the performance of
Neogen, and because these non-GAAP financial measures are frequently
used by securities analysts, investors and other interested parties
as common performance measures to compare results or estimate
valuations across companies in Neogen’s industries.
EBITDA
We define EBITDA as net income before interest, income taxes, and
depreciation and amortization. We present EBITDA as a performance
measure because it may allow for a comparison of results across
periods and results across companies in the industries in which
Neogen operates on a consistent basis, by removing the effects on
operating performance of (a) capital structure (such as the varying
levels of interest expense and interest income), (b) asset base and
capital investment cycle (such as depreciation and amortization) and
(c) items largely outside the control of management (such as income
taxes). 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 adjusted EBITDA because it provides an understanding of
underlying business performance by excluding the following:
•
Stock-based compensation. 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.
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. 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. This information does not purport to represent
the results Neogen would have achieved had any of the transactions for
which an adjustment is made occurred at the beginning of the periods
presented or as of the dates indicated. This information is inherently
subject to risks and uncertainties. It may not give an accurate or
complete picture of Neogen’s financial condition or results of operations
for the periods presented and should not be relied upon when making
an investment decision.
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.
17
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These non-GAAP financial measures have limitations as analytical
tools. For example, for EBITDA-based metrics:
•
they do not reflect changes in, or cash requirements for, Neogen’s
working capital needs;
they do not reflect Neogen’s tax expense or the cash
requirements to pay taxes;
they do not reflect the historical cash expenditures or future
requirements for capital expenditures or contractual commitments;
•
•
•
•
they do not reflect any cash requirements for future replacements
of assets that are being depreciated and amortized; and
they may be calculated differently from other companies in Neogen’s
industries limiting their usefulness as comparative measures.
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.
Reconciliation between net income and EBITDA and Adjusted EBITDA is as follows:
(Dollars in thousands)
Net Income
Net income margin %
Provision for income taxes
Interest income, net
Depreciation and amortization
EBITDA
Stock-based compensation
Certain transaction fees and expenses
Adjusted EBITDA
Adjusted EBITDA margin %
$
$
2022
48,307
9.2%
11,900
(1,267)
23,694
82,634
7,154
25,581
Year ended May 31
$
$
2021
60,882
13.0%
14,386
(1,614)
21,041
94,695
6,437
3,085
$ 115,369
21.9%
$ 104,217
22.2%
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin %
(Dollars in thousands)
Change
2022
2021
Change
EBITDA
Adjusted EBITDA
Adjusted EBITDA Margin %
$
82,634
115,369
21.9%
(13)%
$
11%
94,695
104,217
22.2%
12%
14%
$
$
$
$
2020
59,475
14.2%
12,830
(5,992)
18,396
84,709
6,468
-
91,177
21.8%
2020
84,709
91,177
21.8%
Adjusted EBITDA increased 11% in fiscal 2022 compared to fiscal 2021, due to revenue growth and improved gross margins. 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. Factors that could cause or
contribute to such differences include, but are not limited to, the
factors discussed below as well as those discussed elsewhere
in this report. Management’s ability to grow the business in the
future depends upon our ability to successfully implement various
strategies, including:
•
developing, manufacturing and marketing new products with
new features and capabilities, and having those new products
successfully accepted in the marketplace;
expanding our markets by fostering increased use of our
products by customers;
•
• maintaining or increasing gross and net operating margins in
changing cost environments;
strengthening operations and sales and marketing activities in
geographies outside of the U.S.;
developing and implementing new technology development
strategies; and
•
•
18
•
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.
Financial Condition and Liquidity
On May 31, 2022, we had $44.5 million in cash and cash equivalents,
$336.6 million in marketable securities, and net working capital of
$549.0 million. For the year ended May 31, 2022, cash generated from
operating activities was $68.0 million, compared to $81.1 million
generated in fiscal 2021; proceeds from stock option exercises provided
an additional $7.9 million of cash. For the same period, additions to
property, equipment and other non-current assets were $24.4 million
and business acquisitions used cash of $38.7 million. We have a
financing agreement with a bank providing for an unsecured revolving
line of credit of $15.0 million, which expires on November 30, 2023.
Upon close of the 3M Food Safety transaction, this credit facility will
terminate and be replaced with a larger, revolving facility. There were
no advances against this line of credit during fiscal years 2022, 2021
and 2020, and no balance outstanding at May 31, 2022 and 2021.
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Net accounts receivable at May 31, 2022 were $99.7 million, compared
to $91.8 million at May 31, 2021; the increase is primarily due to the
increased sales in the fourth quarter of fiscal 2022 compared to the
corresponding period a year ago. 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.
Inventory balances were $122.3 million at May 31, 2022, an increase
of $21.6 million, or 21%, compared to $100.7 million at May 31, 2021,
In addition to adding $1.7 million of acquired inventory in fiscal 2022,
we also increased ordering quantities and inventory levels to overcome
supply chain constraints and minimize delays to customers.
On December 13, 2021, Neogen, 3M, and Garden Spinco, a newly formed
subsidiary of 3M created to carve out 3M’s Food Safety business,
announced that they had entered into a definitive agreement pursuant
to which 3M would separate its Food Safety business and
simultaneously combine it with Neogen in a Reverse Morris Trust
transaction, which is intended to be tax-efficient to 3M and its
shareholders for U.S. federal income tax purposes. Under the terms
of the definitive agreements, at the completion of the transaction,
Neogen will issue a number of shares to 3M shareholders such that
3M shareholders will receive approximately 50.1% of the combined
company and existing Neogen shareholders will continue to own
approximately 49.9% of the combined company. In connection
with the transaction, 3M will also receive consideration valued at
approximately $1 billion, subject to closing and other adjustments.
The transaction is expected to close by the end of the third quarter
calendar year 2022, subject to approval by Neogen shareholders and
the satisfaction of other customary closing conditions.
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.
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. 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.
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. 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.
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. 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.
We are subject to certain legal and other proceedings in the normal
course of business that have not had, and, in the opinion of
management, are not expected to have, a material effect on our
results of operations or financial position.
Contractual Obligations
As of May 31, 2022, we have the following contractual obligations due by period:
(Dollars in thousands)
Long-Term Debt
Operating Leases
Unconditional Purchase Obligations (1)
Total
Less than
one year
1–3 years
3–5 years
More than
5 years
$
–
$
–
$
–
3,316
85,781
1,458
83,031
1,324
2,750
$ 89,097
$ 84,489
$
4,074
$
$
–
534
4
534
$
$
–
–
–
–
(1) Unconditional purchase obligations are primarily purchase orders for future inventory and capital equipment purchases.
We continue to make investments in our business and operating facilities. Our preliminary estimate for capital expenditures related
to our existing operations in fiscal 2023 is $20 to $25 million; we also expect to spend $70 million over the next two fiscal years to
construct a manufacturing facility and approximately $50 million over the next two fiscal years to implement a new enterprise
resource planning solution. In conjunction with our planned transaction with 3M’s food safety business, we will spend an additional
$3 to $5 million on capital leases and capital improvements on leased facilities in fiscal 2023.
New Accounting Pronouncements
See discussion of any New Accounting Pronouncements in Note 1 to consolidated financial statements.
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19
Neogen Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS (In thousands)
Current Assets
Cash and cash equivalents
Marketable securities
Accounts receivable, net of allowance of $1,650 and $1,400 at May 31, 2022 and 2021, respectively
Inventories
Prepaid expenses and other current assets
$
May 31
2022
2021
44,473
336,578
99,674
122,313
23,760
626,798
9,485
79,513
114,180
6,307
5,974
215,459
(104,875)
110,584
3,184
142,704
15,397
92,106
2,156
255,547
$
75,602
305,485
91,823
100,701
17,840
591,451
7,783
72,754
108,194
6,270
3,261
198,262
(97,809)
100,453
2,477
131,476
15,545
76,771
2,019
228,288
$
992,929
$
920,192
See accompanying notes to consolidated financial statements.
May 31
2022
2021
$
34,614
$
23,900
11,123
2,126
5,460
24,521
77,844
17,011
10,700
105,555
11,251
1,848
3,404
13,196
53,599
21,917
4,299
79,815
–
–
17,248
309,984
(27,769)
587,911
887,374
992,929
$
17,195
294,953
(11,375)
539,604
840,377
920,192
$
See accompanying notes to consolidated financial statements.
Total Current Assets
Property and Equipment
Land and improvements
Buildings and improvements
Machinery and equipment
Furniture and fixtures
Construction in progress
Less accumulated depreciation
Net Property and Equipment
Other Assets
Right of use assets
Goodwill
Other non-amortizable intangible assets
Amortizable intangible assets, net of accumulated amortization of
$55,416 and $53,462 at May 31, 2022 and 2021, respectively
Other non-current assests
Total Other Assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY (In thousands, except shares and per share)
Current Liabilities
Accounts payable
Accruals
Accrued compensation
Income tax payable
Deferred revenue
Other accruals
Total Current Liabilities
Deferred Income Tax Liability
Other Non-Current Liabilities
Total Liabilities
Commitments and Contingencies (Note 7)
Stockholders’ Equity
Preferred stock, $1.00 par value – shares authorized 100,000; none issued and outstanding
Common stock, $0.16 par value — shares authorized 120,000,000; 107,801,094 and
107,468,304 shares issued and outstanding at May 31, 2022 and 2021, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total Neogen Corporation and Subsidiaries Stockholders' Equity
Total Liabilities and Stockholders' Equity
20
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Neogen Corporation and Subsidiaries
Consolidated Statements of Income
REVENUES (In thousands, except per share)
Product revenues
Service revenues
Total Revenues
Cost of Revenues
Cost of product revenues
Cost of service revenues
Total Cost of Revenues
Gross Margin
Operating Expenses
Sales and marketing
General and administrative
Research and development
Total Operating Expenses
Operating Income
Other Income
Interest income, net
Royalty income
Other, net
Total Other Income
Income Before Income Taxes
Provision for Income Taxes
Net Income
Net Income per Share
Basic
Diluted
Weighted Average Shares Outstanding
Basic
Diluted
Neogen Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
Net Income
Other comprehensive income (loss):
Foreign currency translations
Unrealized (loss) gain on marketable securities, net of tax of ($728), ($80) and $127
Comprehensive income
2022
424,664
102,495
527,159
228,017
56,129
284,146
243,013
84,604
82,742
17,049
184,395
58,618
1,267
-
322
1,589
60,207
11,900
48,307
Year Ended May 31
$
2021
376,302
92,157
468,459
201,348
52,055
253,403
215,056
73,443
51,197
16,247
140,887
74,169
1,614
-
(515)
1,099
75,268
14,386
60,882
$
2020
335,539
82,631
418,170
173,566
48,325
221,891
196,279
69,675
44,331
14,750
128,756
67,523
5,992
-
(1,210)
4,782
72,305
12,830
59,475
0.45
0.45
$
$
0.57
0.57
$
$
0.57
0.56
$
$
$
$
107,684
108,020
106,499
107,120
105,100
105,720
See accompanying notes to consolidated financial statements.
Year Ended May 31
2022
2021
2020
$
48,307
$
60,882
$
59,475
(13,955)
(2,439)
31,913
$
8,602
(268)
(8,495)
426
$
69,216
$
51,406
See accompanying notes to consolidated financial statements.
21
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Neogen Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In thousands, except shares)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Equity
Balance, June 1, 2019
104,433,178
$ 16,709
$ 213,583
$ (11,640)
$ 419,247
$ 637,899
Exercise of options, RSUs and share-based
compensation expense
Issuance of shares under
employee stock purchase plan
Net income for 2020
Other comprehensive loss
Balance, May 31, 2020
Exercise of options, RSUs and share-based
compensation expense
Issuance of shares under
employee stock purchase plan
Issuance of shares for
Megazyme acquisition
Net income for 2021
Other comprehensive income
1,415,348
227
34,452
43,156
–
–
7
–
–
1,186
–
–
–
–
–
–
(8,069)
59,475
–
34,679
1,193
59,475
(8,069)
105,891,682
$ 16,943
$ 249,221
$ (19,709)
$ 478,722
$ 725,177
1,410,948
226
39,454
38,406
127,268
–
–
6
20
–
–
1,382
4,896
–
–
–
–
–
–
8,334
–
–
–
60,882
–
39,680
1,388
4,916
60,882
8,334
Balance, May 31, 2021
107,468,304
$ 17,195
$ 294,953
$ (11,375)
$ 539,604
$ 840,377
Exercise of options, RSUs and share-based
compensation expense
Issuance of shares under
employee stock purchase plan
Net income for 2022
Other comprehensive loss
Balance, May 31, 2022
289,334
43,456
–
–
46
7
–
–
13,162
1,869
–
–
–
–
–
(16,394)
–
–
48,307
–
13,208
1,876
48,307
(16,394)
107,801,094
$ 17,248
$ 309,984
$ (27,769)
$ 587,911
$ 887,374
See accompanying notes to consolidated financial statements.
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Neogen Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization
Deferred income taxes
Share-based compensation
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accruals and other changes
Net Cash From Operating Activities
Cash Flows For Investing Activities
Purchases of property, equipment and other non-current intangible assets
Proceeds from the maturities of marketable securities
Purchases of marketable securities
Business acquisitions, net of cash acquired
Net Cash For Investing Activities
Cash Flows From Financing Activities
Exercise of stock options and other
Payment of contingent consideration
Net Cash From Financing Activities
Effects of Foreign Exchange Rate on Cash
Net (Decrease) Increase In Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
(In thousands)
Supplementary Cash Flow Information
Income taxes paid, net of refunds
Year ended May 31
2022
2021
2020
$
48,307
$
60,882
$
59,475
23,694
(4,695)
7,154
(7,798)
(21,072)
(4,054)
10,215
16,287
68,038
(24,429)
381,839
(415,894)
(38,745)
(97,229)
7,933
(1,120)
6,813
(8,751)
(31,129)
75,602
44,473
$
21,041
(640)
6,437
(2,595)
2,450
(3,386)
(3,206)
106
81,089
(26,712)
764,597
(792,678)
(50,771)
(105,564)
34,631
(1,087)
33,544
264
9,333
66,269
$
75,602
$
18,396
1,601
6,468
(2,881)
(10,011)
(1,017)
6,745
7,102
85,878
(24,052)
406,731
(458,300)
(13,164)
(88,785)
29,405
–
29,405
(1,917)
24,581
41,688
66,269
Year ended May 31
2022
2021
2020
$
17,242
$
14,966
$
7,364
See accompanying notes to consolidated financial statements.
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Neogen Corporation and Subsidiaries —Notes to Consolidated Financial Statements
1. Summary of Significant
Accounting Policies
Nature of Operations
Neogen Corporation develops, manufactures and markets a diverse
line of products and services dedicated to food and animal safety.
Basis of Consolidation
The consolidated financial statements include the accounts of
Neogen Corporation and its subsidiaries, all of which are wholly-
owned as of May 31, 2022.
All intercompany accounts and transactions have been eliminated
in consolidation.
Share and per share amounts reflect the June 4, 2021 2-for-1 stock
split as if it took place at the beginning of the periods presented.
Functional Currency
Our functional currency is the U.S. dollar. We translate our non-U.S.
operations’ assets and liabilities denominated in foreign currencies
into U.S. dollars at current rates of exchange as of the balance sheet
date and income and expense items at the average exchange rate for
the reporting period. Translation adjustments resulting from exchange
rate fluctuations are recorded in other comprehensive income (loss).
Gains or losses from foreign currency transactions are included in
other income (expense) on our consolidated statement of income.
Recently Adopted Accounting Standards
Income Tax Simplification
On June 1, 2021, the Company adopted ASU 2019-12, Income Taxes
(Topic 740). This guidance provides amendments to simplify the
accounting for income taxes by removing certain exceptions to
the general principles in Topic 740. The amendments also improve
consistent application of and simplify GAAP for other areas of Topic
740 by clarifying and amending existing guidance. The adoption of
this guidance did not have a material impact on our consolidated
financial statements.
Recent Accounting Pronouncements
Not Yet Adopted
Reference Rate Reform
In March 2020, FASB issued Update 2020-04, Reference Rate Reform
(Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting. This update provides temporary optional expedients
to applying the reference rate reform guidance to contracts that
reference LIBOR or another reference rate expected to be discontinued.
Under this update, contract modifications resulting in a new reference
rate may be accounted for as a continuation of the existing contract.
This guidance is effective upon issuance of the update and applies to
contract modifications made through December 31, 2022. We will adopt
this standard when our new credit agreement goes into effect on the
date of the 3M Food Safety business merger, currently expected to close
in the third quarter of calendar year 2022. We are evaluating the impact
the new standard will have on our consolidated financial statements
and related disclosures, but do not anticipate a material impact.
Comprehensive Income
Comprehensive income represents net income and any revenues,
expenses, gains and losses that, under U.S. generally accepted
accounting principles, are excluded from net income and recognized
directly as a component of stockholders’ equity. Accumulated
other comprehensive income (loss) consists of foreign currency
translation adjustments and unrealized gains and losses on our
marketable securities.
Changes in our Accumulated Other Comprehensive Income (Loss) (“AOCI”) balances, net of tax, were as follows:
(In thousands)
Balance, May 31, 2020
Other comprehensive income (loss)
Balance, May 31, 2021
Other comprehensive income (loss)
Balance, May 31, 2022
Foreign Currency
Translation Adjustments
Unrealized Gain (Loss) on
Marketable Securities
Total AOCI
$
$
$
(20,135)
8,602
(11,533)
(13,955)
(25,488)
$
$
$
426
(268)
158
(2,439)
(2,281)
$
$
$
(19,709)
8,334
(11,375)
(16,394)
(27,769)
Fair Value of Financial Instruments
Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the
observability of inputs used in valuation techniques as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying amounts of the Company’s financial instruments other than cash equivalents and marketable securities, which include accounts
receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar instruments.
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Cash and Cash Equivalents
Cash and cash equivalents consist of bank demand accounts,
savings deposits, certificates of deposit and commercial paper with
original maturities of 90 days or less. Cash and cash equivalents
are maintained at financial institutions and, at times, balances may
exceed federally insured limits. The Company has not experienced
losses related to these balances and believes it is not exposed to
significant credit risk regarding its cash and cash equivalents. The
carrying value of these assets approximates fair value due to the
short maturity of these instruments and is classified as Level 1 in the
fair value hierarchy. Cash held by foreign subsidiaries was $17,057,000
and $15,246,000 at May 31, 2022 and 2021, respectively.
Marketable Securities
The Company has marketable securities held by banks or broker-
dealers at May 31, 2022, consisting of commercial paper and
corporate bonds rated at least A-1/P-1 (short-term) and A/A2
(long-term) with original maturities between 91 days and two years.
Changes in market value are monitored and recorded on a monthly
basis; in the event of a downgrade in credit quality subsequent
to purchase, the marketable security investment is evaluated to
determine the appropriate action to take to minimize the overall
risk to our marketable security portfolio. As these securities
are highly rated and short-term in nature, they have very little
credit risk; therefore, the Company does not believe a reserve for
expected credit losses on marketable securities is material. These
securities are classified as available for sale. The primary objective of
management’s short-term investment activity is to preserve capital
for the purpose of funding operations, capital expenditures and
business acquisitions; short-term investments are not entered into
for trading or speculative purposes. These securities are recorded
at fair value based on recent trades or pricing models and therefore
meet the Level 2 criteria. Interest income on these investments is
recorded within other income on our consolidated statements of
income. Adjustments in the fair value of these assets are recorded in
other comprehensive income (loss).
Marketable Securities as of May 31, 2022 and 2021 are listed below by classification and remaining maturities.
(In thousands)
Commercial Paper & Corporate Bonds
Certificates of Deposit
Total Marketable Securities
Maturity
0 – 90 days
91 – 180 days
181 days – 1 year
1 – 2 years
0 – 90 days
91 – 180 days
181 days – 1 year
1 – 2 years
2022
106,497
61,373
91,706
77,002
–
–
–
–
336,578
$
$
The components of marketable securities as of May 31, 2022 are as follows:
(In thousands)
Commercial Paper & Corporate Bonds
Certificates of Deposit
Total Marketable Securities
Amortized Cost
$
339,540
–
$
339,540
$
Unrealized Gains
7
–
7
$
The components of marketable securities as of May 31, 2021 are as follows:
$
Unrealized Losses
(2,969)
–
(2,969)
$
(In thousands)
Commercial Paper & Corporate Bonds
Certificates of Deposit
Total Marketable Securities
Amortized Cost
$
$
299,524
5,755
305,279
$
Unrealized Gains
209
30
239
$
$
Unrealized Losses
(33)
–
(33)
$
May 31
2021
106,631
78,727
87,590
26,752
3,262
1,260
1,263
–
305,485
Fair Value
336,578
–
336,578
Fair Value
299,700
5,785
305,485
$
$
$
$
$
Use of Estimates
The preparation of these consolidated financial statements requires
that management make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and
related disclosures of contingent assets and liabilities. On an ongoing
basis, management evaluates the estimates, including, but not limited
to, variable consideration related to revenue recognition, allowances
for doubtful accounts, the market value of, and demand for, inventories,
stock-based compensation, provision for income taxes and related
balance sheet accounts, accruals, goodwill and other intangible
assets. We believe that these estimates have the greatest potential
impact on our financial statements, so we consider them to be our
critical accounting policies and estimates. These estimates are based
on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from
other sources. Though the impact of the COVID-19 pandemic to our
business and operating results presents additional uncertainty, we
continue to use the best information available to inform our critical
accounting estimates. Actual results may differ from these estimates
under different assumptions or conditions.
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Accounts Receivable and Concentrations of Credit Risk
Financial instruments which potentially subject Neogen to concentrations of credit risk consist principally of accounts receivable. Management
attempts to minimize credit risk by reviewing customers’ credit histories before extending credit and by monitoring credit exposure on a regular
basis. Collateral or other security is generally not required for accounts receivable. We maintain an allowance for customer accounts that
reduces receivables to amounts that are expected to be collected. In estimating the allowance for doubtful accounts, management considers
relevant information about past events, current conditions and reasonable and supportable forecasts that affect the collectability of financial
assets. Once a receivable balance has been determined to be uncollectible, generally after all collection efforts have been exhausted, that
amount is charged against the allowance for doubtful accounts. No customer accounted for more than 10% of accounts receivable May 31,
2022 or 2021, respectively. The activity in the allowance for doubtful accounts was as follows:
(In thousands)
Beginning Balance
Provision
Recoveries
Write-offs
Ending Balance
2022
1,400
332
98
(180)
1,650
$
$
May 31
2021
1,350
239
139
(328)
1,400
$
$
2020
1,700
393
49
(792)
1,350
$
$
Inventories
Inventories are stated at the lower of cost or net realizable value, determined on the first-in, first-out method. The components of
inventories were as follows:
(In thousands)
Raw materials
Work-in-process
Finished goods
May 31
$
2022
58,667
6,388
57,258
$ 122,313
2021
47,588
6,412
46,701
100,701
$
$
The Company’s inventories are analyzed for slow moving, expired and obsolete items on a quarterly basis and the valuation
allowance is adjusted as required within cost of revenues expense. The valuation allowance for inventory was $4,050,000 and
$3,100,000 at May 31, 2022 and 2021, respectively.
Property and Equipment
Property and equipment is stated at cost. Expenditures for major
improvements are capitalized while repairs and maintenance are
charged to expense as incurred. Depreciation is provided on the
straight-line method over the estimated useful lives of the respective
assets, which are generally seven to 39 years for buildings and
improvements and three to ten years for furniture, fixtures, machinery
and equipment. Depreciation expense was $14,094,000, $13,288,000
and $11,907,000 in fiscal years 2022, 2021 and 2020, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of
tangible net assets of acquired businesses after amounts are allocated
to other identifiable intangible assets. Other intangible assets include
customer relationships, trademarks, licenses, trade names, covenants
not-to-compete and patents. Amortizable intangible assets are
amortized on either an accelerated or a straight-line basis, generally
over two to 25 years. The remaining weighted average amortization
period for intangibles was eight years and 10 years at May 31, 2022
and 2021, respectively. Management reviews the carrying amounts
of goodwill and other non-amortizable intangible assets annually,
or when indications of impairment exist, to determine if such assets
may be impaired. Events that would indicate impairment and trigger
an interim impairment assessment include, but are not limited to,
current economic and market conditions, including a decline in the
Company’s market capitalization, a significant adverse change in
legal factors, business climate or operational performance of the
business. In evaluating goodwill for impairment, we have the option
to first assess the qualitative factors to determine whether it is more
likely than not that the fair value of the reporting unit is less than
its carrying amount as a basis. If the qualitative assessment leads
to a determination that the reporting unit’s fair value is less than its
carrying value, or if we elect to bypass the qualitative assessment
altogether, we are required to perform a quantitative impairment test
by calculating the fair value of the reporting unit and comparing the
fair value with its associated carrying value. In the fourth quarter of
fiscal 2022, management performed our annual goodwill impairment
analysis qualitatively.
In connection with our annual goodwill impairment assessment
for 2022, 2021, and 2020, we determined that no impairment
adjustments were necessary.
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Long-lived Assets
Management reviews the carrying values of its long-lived assets to be
held and used, including definite-lived intangible assets, for possible
impairment whenever events or changes in business conditions
warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated separately identifiable
undiscounted cash flows over the remaining useful life of the asset
are less than the carrying value of the asset. In such an event, fair
value is determined using discounted cash flows, and if lower than
the carrying value, impairment is recognized through a charge to
operations. No impairments of long-lived assets were identified
during the years ended May 31, 2022, 2021 and 2020, respectively.
Business Combinations
We utilize the purchase method of accounting for business combinations.
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. Any excess of the fair value of consideration transferred over the
fair values of the net assets acquired is recognized as goodwill.
Contingent consideration liabilities are recognized at the estimated
fair value on the acquisition date; these are recorded in either other
accruals within current liabilities (for expected payments in less than
a year) or other non-current liabilities (for expected payments in greater
than a year), both on our consolidated balance sheets. Subsequent
changes to the fair value of contingent consideration liabilities are
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. 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. 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. Legal costs, due
diligence costs, business valuation costs and all other business
acquisition costs are expensed when incurred.
Reclassifications
Certain immaterial amounts in the fiscal 2021 and 2020 consolidated
financial statements have been reclassified to conform with the fiscal
2022 presentation.
Equity Compensation Plans
At May 31, 2022, the Company had stock option plans which are
described more fully in Note 5 to the consolidated financial statements.
We measure stock-based compensation at the grant date, based on
the estimated fair value of the award, and recognize the cost (net of
estimated forfeitures) as compensation expense on a straight-line
basis over the requisite service period. Our stock-based compensation
expense is reflected in general and administrative expense in our
consolidated statements of income.
The weighted-average fair value per share of stock options granted during fiscal years 2022, 2021 and 2020, estimated on the date of
grant using the Black-Scholes option pricing model, was $8.49, $7.71 and $7.78, respectively. The fair value of stock options granted
was estimated using the following weighted-average assumptions:
Risk-free interest rate
Expected dividend yield
Expected stock volatility
Expected option life
2022
0.4%
0.0%
32.8%
3.12 years
Year ended May 31
2021
0.2%
0.0%
31.3%
3.25 years
2020
1.9%
0.0%
29.4%
3.5 years
The risk-free interest rate for periods within the expected life of options
granted is based on the United States Treasury yield curve in effect
at the time of grant. Expected stock price volatility is based on
historical volatility of the Company’s stock. The expected option life,
representing the period of time that options granted are expected to
be outstanding, is based on historical option exercise and employee
termination data. We include recent historical experience in estimating
our forfeitures. As employees terminate, grant tranches expire or as
forfeitures are known, estimated expense is adjusted to actual. For
options granted in fiscal years 2022, 2021 and 2020, the Company
recorded charges in general and administrative expense based on
the fair value of stock options using the straight-line method over the
vesting period of three to five years.
The Company also issues restricted stock units (RSUs), which are
described more fully in Note 5 to the consolidated financial statements.
The RSUs generally vest over three to five years and have a weighted
average value of $37.28 in fiscal 2022 and $34.21 in fiscal 2021.
Income Taxes
We account for income taxes using the asset and liability method.
Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial reporting
and tax bases of assets and liabilities and for tax credit carryforwards
and are measured using the enacted tax rates in effect for the years
in which the differences are expected to reverse. Deferred income
tax expense represents the change in net deferred income tax assets
and liabilities during the year. The Company’s policy is to recognize
both accrued interest expense and penalties related to unrecognized
tax benefits in income tax expense.
Our wholly-owned foreign subsidiaries are comprised of Neogen
Europe, Quat-Chem Ltd, Abbott Analytical Limited, Delf (UK) Limited,
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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 and
Neogen Australasia Pty Limited. Based on historical experience, as
well as management’s future plans, earnings from these subsidiaries
are expected to be re-invested indefinitely for future expansion and
working capital needs. Furthermore, our domestic operations have
historically produced sufficient operating cash flow to mitigate the
need to remit foreign earnings. On an annual basis, we evaluate
the current business environment and whether any new events or
other external changes might require a re-evaluation of the decision
to indefinitely re-invest foreign earnings. It is not practicable to
determine the income tax liability that would be payable if such
earnings were not reinvested indefinitely.
Research and Development Costs
Research and development costs, which consist primarily of
compensation costs, administrative expenses and new product
development, among other items, are expensed as incurred.
Advertising Costs
Advertising costs are expensed within sales and marketing as
incurred and totaled $2,018,000, $1,687,000 and $1,454,000 in fiscal
years 2022, 2021 and 2020, respectively.
Net Income per Share
Basic net income per share is based on the weighted average number of common shares outstanding during each year. Diluted
earnings per share is based on the weighted average number of common shares and dilutive potential common shares outstanding.
Our dilutive potential common shares outstanding during the years result from dilutive stock options and restricted stock units. The
following table presents the net income per share calculations:
(In thousands, except per share)
Numerator for basic and diluted net income per share – Net income
Denominator for basic net income per share – Weighted average shares
Effect of dilutive stock options
Denominator for diluted net income per share
Net income per share
Basic
Diluted
2022
48,307
107,684
336
108,020
0.45
0.45
$
$
$
Year Ended May 31
2021
$
$
$
60,882
106,499
621
107,120
0.57
0.57
$
$
$
2020
59,475
105,100
620
105,720
0.57
0.56
At May 31, 2022, 383,000 shares from option exercises were excluded from the computation of diluted net income per share, as the
option exercise prices exceeded the average market price of the common shares. At May 31, 2021, no potential shares were excluded
from the computation. At May 31, 2020, 56,000 potential shares were excluded from the computation.
Leases
The Company recognizes in the statement of financial position a
liability to make lease payments (the lease liability) and a right-of-use
asset representing its right to use the underlying asset for the lease
term. We recognized all leases with terms greater than 12 months in
duration on our consolidated balance sheets as right-of-use assets
and lease liabilities. Right-of-use assets are recorded in other assets
on our consolidated balance sheets. Current and non-current lease
liabilities are recorded in other accruals within current liabilities
and other non-current liabilities, respectively, on our consolidated
balance sheets.
We lease various manufacturing, laboratory, warehousing and
distribution facilities, administrative and sales offices, equipment
and vehicles under operating leases. We evaluate our contracts to
determine if an arrangement is a lease at inception and classify it as
a finance or operating lease. Currently, all of our leases are classified
as operating leases. Leased assets and corresponding liabilities are
recognized based on the present value of the lease payments over
the lease term. Our lease terms may include options to extend when
it is reasonably certain that we will exercise that option.
We have made certain assumptions and judgments when accounting
for leases, the most significant of which are:
•
•
•
•
We did not elect to use hindsight when considering judgments
and estimates such as assessments of lessee options to extend
or terminate a lease or purchase the underlying asset.
For all asset classes, we elected to not recognize a right-of-use
asset and lease liability for short-term leases (i.e. leases with a
term of 12 months or less).
For all asset classes, we elected to not separate non-lease
components from lease components to which they relate
and have accounted for the combined lease and non-lease
components as a single lease component.
The determination of the discount rate used in a lease is our
incremental borrowing rate that is based on our estimate of
what we would normally pay to borrow on a collateralized basis
over a similar term an amount equal to the lease payments.
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Supplemental balance sheet information related to operating leases was as follows:
(In thousands)
Right of use – assets
Lease liabilities – current
Lease liabilities – non-current
The weighted average remaining lease term and weighted average discount rate were as follows:
Weighted average remaining lease term
Weighted average discount rate
Year Ended
May 31, 2022
3,184
$
Year Ended
May 31, 2021
2,477
$
1,440
1,788
1,285
1,207
May 31, 2022
May 31, 2021
3 years
1.7%
2 years
2.0%
Operating lease expenses are classified as cost of revenues or operating expenses on the consolidated statements of income. The
components of lease expense were as follows:
(In thousands)
Operating leases
Short term leases
Total lease expense
Year Ended
May 31, 2022
438
$
277
715
$
Year Ended
May 31, 2021
1,352
$
134
1,486
$
Cash paid for amounts included in the measurement of lease liabilities for operating leases included in cash flows from operations
on the statement of cash flows was approximately $1,407,000, $1,397,000 and $1,178,000 for the years ended May 31, 2022, 2021 and
2020, respectively. There were no non-cash additions to right-of-use assets obtained from new operating lease liabilities for the year
ended May 31, 2022.
Maturities of operating lease liabilities as of May 31, 2022 are as follows:
(In thousands)
Years ending May 31, 2023
2024
2025
2026
2027 and thereafter
Total lease payments
Less: imputed interest
Total lease liabilities
Revenue Recognition
We determine the amount of revenue to be recognized through
application of the following steps:
•
•
•
•
Identification of the contract with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance
obligations in the contract; and
Recognition of revenue when or as the Company satisfies the
performance obligations.
•
Essentially all of Neogen’s revenue is generated through contracts
with its customers. A performance obligation is a promise in a
contract to transfer a product or service to a customer. We generally
recognized revenue at a point in time when all of our performance
obligations under the terms of a contract are satisfied. Revenue is
recognized upon transfer of control of promised products or services
in an amount that reflects the consideration we expect to receive
Amount
1,458
887
436
345
190
3,316
(88)
3,228
$
$
$
in exchange for those products or services. The collectability of
consideration on the contract is reasonably assured before revenue
is recognized. To the extent that customer payment has been
received before all recognition criteria are met, these revenues are
initially deferred in other accruals on the balance sheet and the
revenue is recognized in the period that all recognition criteria have
been met.
Certain agreements with customers include discounts or rebates
on the sale of products and services applied retrospectively, such
as volume rebates achieved by purchasing a specified purchase
threshold of goods and services. We account for these discounts as
variable consideration and estimate the likelihood of a customer
meeting the threshold in order to determine the transaction price
using the most predictive approach. We typically use the most-
likely-amount method, for incentives that are offered to individual
customers, and the expected-value method, for programs that
are offered to a broad group of customers. Variable consideration
29
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reduces the amount of revenue that is recognized. Rebate obligations
related to customer incentive programs are recorded in accrued
liabilities; the rebate estimates are adjusted at the end of each applicable
measurement period based on information currently available.
The performance obligations in Neogen’s contracts are generally
satisfied well within one year of contract inception. In such cases,
management has elected the practical expedient to not adjust the
promised amount of consideration for the effects of a significant
financing component. Management has elected to utilize the
practical expedient to recognize the incremental costs of obtaining
a contract as an expense when incurred because the amortization
period for the prepaid costs that would otherwise have been
deferred and amortized is one year or less. We account for shipping
and handling for products as a fulfillment activity when goods
are shipped. Shipping and handling costs that are charged to and
reimbursed by the customer are recognized as revenues, while the
related expenses incurred by Neogen are recorded in sales and
marketing expense; these expenses totaled $17,482,000, $15,180,000
and $13,514,000 in fiscal years 2022, 2021 and 2020, respectively.
Revenue is recognized net of any tax collected from customers; the
taxes are subsequently remitted to governmental authorities. Our
terms and conditions of sale generally do not provide for returns of
product or reperformance of service except in the case of quality or
warranty issues. These situations are infrequent; due to immateriality
of the amount, warranty claims are recorded in the period incurred.
The Company derives revenue from two primary sources — product
revenue and service revenue.
Product revenue consists primarily of shipments of:
• Diagnostic test kits, culture media and related products used by
food producers and processors to detect harmful natural toxins,
foodborne bacteria, allergens and levels of general sanitation;
Consumable products marketed to veterinarians, retailers,
livestock producers and animal health product distributors; and
Rodenticides, disinfectants and insecticides to assist in the
control of rodents, insects and disease in and around agricultural,
food production and other facilities.
•
•
Revenue for Neogen’s products are recognized and invoiced when
the product is shipped to the customer.
Service revenue consists primarily of:
• Genomic identification and related interpretive bioinformatic
services; and
• Other commercial laboratory services.
Revenues for Neogen’s genomics and commercial laboratory
services are recognized and invoiced when the applicable laboratory
service is performed and the results are conveyed to the customer.
Payment terms for products and services are generally 30 to 60 days.
The Company has no contract assets; contract liabilities represent
deposits made by customers before the satisfaction of performance
obligations(s) and recognition of revenue. Upon completion of the
performance obligations(s) that the Company has with the customer,
the liability for the customer deposit is relieved and revenue is
recognized. These customer deposits are listed as Deferred revenue
on the consolidated balance sheets.
The following table presents disaggregated revenue by major product and service categories for the years ended May 31, 2022, 2021
and 2020:
Year Ended
May 31, 2022
May 31, 2021
May 31, 2020
$
$
$
$
$
79,395
47,282
75,278
35,691
22,333
$
76,614
44,009
61,245
32,219
20,157
76,207
41,780
47,847
28,890
17,967
259,979
$
234,244
$
212,691
5,685
63,938
39,805
83,610
74,142
267,180
527,159
$
$
5,715
48,128
35,897
77,458
67,017
234,215
468,459
$
$
6,322
42,941
28,389
68,815
59,012
205,479
418,170
See Note 11 to the consolidated financial statements for disaggregated revenues by geographical location.
(Dollars in thousands)
Food Safety:
Natural Toxins, Allergens & Drug Residues
Bacterial & General Sanitation
Culture Media & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
Animal Safety:
Life Sciences
Veterinary Instruments & Disposables
Animal Care & Other
Rodenticides, Insecticides & Disinfectants
Genomics Services
Total Revenue
30
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2. Goodwill and Other Intangible Assets
Management completed the annual impairment analysis of goodwill and intangible assets with indefinite lives using a qualtitative assessment
as of the first day of the fourth quarter of fiscal years 2022, 2021 and 2020, respectively, and determined that recorded amounts were not
impaired and that no write-down was necessary.
The following table summarizes goodwill by reportable segment:
(In thousands)
Balance, May 31, 2020
Goodwill acquired
Goodwill and/or currency adjustments (1)
Balance, May 31, 2021
Goodwill acquired
Goodwill and/or currency adjustments (1)
Balance, May 31, 2022
Food Safety
Animal Safety
Total
$
47,215
$
63,125
$
110,340
18,775
1,832
67,822
4,152
(4,416)
–
529
63,654
11,752
(260)
18,775
2,361
131,476
15,904
(4,676)
$
67,558
$
75,146
$
142,704
(1)
Includes final purchase price allocation adjustments and currency adjustments for goodwill recorded at international locations.
At May 31, 2022, non-amortizable intangible assets included licenses of $569,000, trademarks of $13,604,000 and other intangibles of
$1,224,000. At May 31, 2021, non-amortizable intangible assets included licenses of $569,000, trademarks of $13,752,000 and other intangibles
of $1,224,000.
Amortizable intangible assets consisted of the following and are included in customer-based intangibles and other non-current assets within
the consolidated balance sheets:
(In thousands)
Licenses
Covenants not to compete
Patents
Customer-based intangibles
Other product and service-related intangibles
Balance, May 31, 2022
Licenses
Covenants not to compete
Patents
Customer-based intangibles
Other product and service-related intangibles
Balance, May 31, 2021
Gross
Carrying
Amount
17,109
846
8,347
75,000
46,220
147,522
16,913
1,006
8,363
76,384
27,567
130,233
$
$
$
$
Less
Accumulated
Amortization
5,682
671
4,583
33,662
10,818
55,416
4,580
571
4,243
35,209
8,859
53,462
$
$
Net
Carrying
Amount
11,427
175
3,764
41,338
35,402
92,106
12,333
435
4,120
41,175
18,708
76,771
$
$
$
Amortization expense for intangibles totaled $9,600,000, $7,753,000
and $6,489,000 in fiscal years 2022, 2021, and 2020, respectively. The
estimated amortization expense for each of the five succeeding fiscal
years is as follows: $9,634,000 in 2023, $9,189,000 in 2024, $8,686,000
in 2025, $8,585,000 in 2026 and $8,097,000 in 2027 and $47,915,000
thereafter. The amortizable intangible assets useful lives are 2 to 20
years for licenses, 3 to 10 years for covenants not to compete, 5 to
25 years for patents, 9 to 20 years for customer-based intangibles
and 5 to 20 years for other product and service-related intangibles,
which primarily consist of product formulations. All definite-lived
intangibles are amortized on a straight-line basis with the exception
of definite-lived customer-based intangibles and product and
service-related intangibles, which are amortized on either a straight-
line or an accelerated basis.
3. Business Combinations
The Consolidated Statements of Income reflect the results of
operations for business acquisitions since the respective dates
of purchase. All are accounted for using the acquisition method.
Goodwill recognized in the acquisitions described below relates
primarily to enhancing the Company’s strategic platform for the
expansion of available product offerings.
Fiscal 2020
On January 1, 2020, the Company acquired all of the stock of
Productos Quimicos Magiar, a distributor of Neogen’s Food Safety
products for the past 20 years, located in Argentina. This acquisition
gives Neogen a direct sales presence in Argentina. Consideration
for the purchase was $3,776,000 in net cash, with $3,237,000 paid
at closing and $540,000 payable to the former owner on January 1,
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2022, and up to $979,000 of contingent consideration, payable in one
year, based upon an excess net sales formula. The final purchase
price allocation, based upon the fair value of these assets and
liabilities determined using the income approach, included accounts
receivable of $603,000, inventory of $446,000, machinery and
equipment of $36,000, other current assets of $221,000, accounts
payable of $383,000, other current liabilities of $312,000, contingent
consideration accrual of $640,000, non-current deferred tax liabilities
of $441,000, intangible assets of $1,471,000 (with an estimated life
of 5-10 years) and the remainder to goodwill (non-deductible for
tax purposes). These values are Level 3 fair value measurements. In
February 2021, the former owner was paid $530,000 of contingent
consideration based on the achievement of sales targets; the
remaining $110,000 accrued but not earned was recorded as a gain
in Other Income in the third quarter of fiscal 2021. In January 2022,
the former owner was paid the remaining $540,000 of the purchase
price. This operation continues to operate in Buenos Aires, Argentina,
reporting within the Food Safety segment. It is managed through
Neogen’s Latin America operation.
On January 1, 2020, the Company acquired all of the stock of
Productos Quimicos Magiar, a distributor of Neogen’s Food Safety
products for the past 20 years, located in Uruguay. This acquisition
gives Neogen a direct sales presence in Uruguay. Consideration
for the purchase was $1,488,000 in net cash, with $1,278,000 paid
at closing and $210,000 payable to the former owner on January
1, 2022, and up to $241,000 in contingent consideration, payable
in one year, based upon an excess net sales formula. The final
purchase price allocation, based upon the fair value of these assets
and liabilities determined using the income approach, included
accounts receivable of $280,000, inventory of $174,000, machinery
and equipment of $16,000, other current assets of $68,000, accounts
payable of $204,000, other current liabilities of $11,000, contingent
consideration accrual of $159,000, non-current deferred tax liabilities
of $99,000, intangible assets of $398,000 (with an estimated life of
5-10 years) and the remainder to goodwill (non-deductible for tax
purposes). These values are Level 3 fair value measurements. In
February 2021, the former owner was paid $158,000 of contingent
consideration based on the achievement of sales targets; the
remaining $1,000 accrued but not earned was recorded as a gain in
Other Income in the third quarter of fiscal 2021. In January 2022, the
former owner was paid $184,000, after deducting $26,000 from the
final payment for uncollectable accounts receivable balances. This
operation continues to operate in Montevideo, Uruguay, reporting
within the Food Safety segment. It is managed through Neogen’s
Latin America operation.
On January 9, 2020, the Company acquired all of the stock of
Diessechem Srl, a distributor of food and feed diagnostics for the
past 27 years, located in Italy. This acquisition gives Neogen a
direct sales presence in Italy. Consideration for the purchase was
$3,455,000 in net cash. The final purchase price allocation, based
upon the fair value of these assets and liabilities determined using
the income approach, included accounts receivable of $780,000,
inventory of $5,000, other current assets of $160,000, accounts
payable of $140,000, other current liabilities of $305,000, non-current
32
deferred tax liabilities of $294,000, intangible assets of $1,225,000
(with an estimated life of 5-10 years) and the remainder to goodwill
(non-deductible for tax purposes). These values are Level 3 fair value
measurements. This operation continues to operate in Milan, Italy,
reporting within the Food Safety segment. It is managed through
Neogen’s Scotland operation.
On January 31, 2020, the Company acquired all of the stock of Abtek
Biologicals Limited, a manufacturer and supplier of culture media
supplements and microbiology technologies. This acquisition
enhances the Company’s culture media product line offering for
the worldwide industrial microbiology markets. Consideration for
the purchase was $1,401,000 in net cash, with $1,282,000 paid at
closing and $119,000 payable to the former owner on January 31,
2021. The final purchase price allocation, based upon the fair value of
these assets and liabilities determined using the income approach,
included accounts receivable of $135,000, inventory of $207,000,
machinery and equipment of $105,000, prepayments of $6,000,
accounts payable of $118,000, other current liabilities of $34,000,
non-current deferred tax liabilities of $92,000, intangible assets of
$484,000 (with an estimated life of 5-10 years) and the remainder to
goodwill (non-deductible for tax purposes). These values are Level
3 fair value measurements. The final $119,000 owed was paid to
the former owner in January 2021. This manufacturing operation
continues to operate in Liverpool, England, reporting within the Food
Safety segment. It is managed through Neogen’s Scotland operation.
On February 28, 2020, the Company acquired the assets of Cell
BioSciences, an Australian distributor of food safety and industrial
microbiology products. This acquisition gives Neogen a direct
sales presence across Australasia for its entire product portfolio.
Consideration for the purchase was $3,768,000 in cash, with
$3,596,000 paid at closing and $172,000 payable in one year. The
final purchase price allocation, based upon the fair value of these
assets and liabilities determined using the income approach,
included inventory of $420,000, unearned revenue liability of $13,000,
intangible assets of $1,338,000 (with an estimated life of 3 to 10 years)
and the remainder to goodwill (non-deductible for tax purposes).
These values are Level 3 fair value measurements. The final $172,000
owed was paid to the former owner in March 2021. The business
operates in Gatton, Australia, reporting within the Australian
operations in the Animal Safety segment.
On March 26, 2020, the Company acquired the assets of Chile-based
Magiar Chilena, a distributor of food, animal and plant diagnostics,
including Neogen products. This acquisition gives Neogen a direct
sales presence in Chile. Consideration for the purchase was $400,000
in cash, with $350,000 paid at closing and $50,000 payable to the
former owner on March 26, 2021. The final purchase price allocation,
based upon the fair value of these assets and liabilities determined
using the income approach, included inventory of $164,000,
machinery and equipment of $53,000, and intangible assets of
$183,000 (with an estimated life of 5-10 years). In April 2021, the
former owner was paid $33,000, after deducting $17,000 from the
final payment for inventory adjustments. The business continues to
operate in Santiago, Chile, reporting within the Food Safety segment.
It is managed through Neogen’s Latin America operation.
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Fiscal 2021
On July 31, 2020, the Company acquired the U.S. (including territories)
rights to Elanco’s StandGuard Pour-on for horn fly and lice control in
beef cattle, and related assets. This product line fits in well with Neogen’s
existing agricultural insecticide portfolio and organizational capabilities.
Consideration for the purchase was $2,351,000 in cash, all paid at
closing. The final purchase price allocation, based upon the fair value
of these assets determined using the income approach, included
inventory of $51,000 and intangible assets of $2,300,000 (with an
estimated life of 15 years). This product line is currently being toll
manufactured for the Company but is eventually expected to be
manufactured at Neogen’s operation in Iowa; the sales are reported
within the Animal Safety segment.
On December 30, 2020, the Company acquired all of the stock of
Megazyme, Ltd, an Ireland-based company, and its wholly-owned
subsidiaries, U.S.-based Megazyme, Inc. and Ireland-based Megazyme
IP. Megazyme is a manufacturer and supplier of diagnostic assay kits
and enzymes to measure dietary fiber, complex carbohydrates and
enzymes in food and beverages as well as animal feeds. This acquisition
will allow Neogen to expand its commercial relationships across food,
feed and beverage companies, and provide additional food quality
diagnostic products to commercial labs and food science research
institutions. Consideration for the purchase was net cash of $39.8
million paid at closing, $8.6 million of cash placed in escrow payable
to the former owner in two installments in two and four years,
$4.9 million of stock issued at closing, and up to $2.5 million of
contingent consideration, payable in two installments over the next
year, based upon an excess net sales formula. The final purchase price
allocation, based upon the fair value of these assets and liabilities
determined using the income approach, included accounts receivable
of $1,376,000, inventory of $5,595,000, net property, plant and equipment
of $12,599,000, prepayments of $69,000, accounts payable of $4,000,
other current liabilities of $1,815,000, contingent consideration accrual
of $2,458,000, non-current liabilities of $319,000, non-current deferred
tax liabilities of $3,306,000, intangible assets of $22,945,000 (with an
estimated life of 15-20 years) and the remainder to goodwill (non-deductible
for tax purposes). These values are Level 3 fair value measurements.
In February 2021, the former owner was paid $1,229,000 for the first
installment of contingent consideration, based upon the achievement
of sales targets. In January 2022, the former owner was paid $1,120,000
for the second installment of contingent consideration, also based
upon the achievement of sales targets, less a deduction of $120,000
related to a prior period tax adjustment. The Irish companies continue
to operate in Bray, Ireland, reporting within the Food Safety segment
and are managed through Neogen’s Scotland operation. The Company’s
U.S. business is managed by our Lansing-based Food Safety team.
Fiscal 2022
On September 17, 2021, the Company acquired all of the stock of
CAPInnoVet, Inc., a companion animal health business that provides
pet medications to the veterinary market. This acquisition provides
entry into the retail parasiticide market and enhances the Company’s
presence in companion animal markets. Consideration for the
purchase was net cash of $17.9 million paid at closing, including
$150,000 of cash placed in escrow payable to the former owners
in twelve months. There is also the potential for performance
milestone payments to the former owners of up to $6.5 million
and the Company could incur up to $14.5 million in future royalty
payments. The preliminary purchase allocation, based upon the fair
value of these assets and liabilities determined using the income
approach, included accounts receivable of $308,000, inventory of
$531,000, prepayments of $296,000, accounts payable of $120,000,
other current liabilities of $84,000, non-current liabilities of $6.5
million (contingent consideration accrual calculated using a Monte
Carlo simulation utilizing inputs such as probability and timing
of milestone achievements, revenue forecasts and volatility, and
estimated discount rates relating to estimated future cash flows of
the business), intangible assets of $19.2 million (with an estimated
life of 15-20 years) and the remainder to goodwill (deductible for tax
purposes). These values are Level 3 fair value measurements. The
business is operated from our location in Lexington, KY, reporting
within the Animal Safety segment.
On November 30, 2021, the Company acquired all of the stock of Delf
(U.K.) Ltd., a United Kingdom-based manufacturer and supplier of
animal hygiene and industrial cleaning products, and Abbott Analytical
Ltd., a related service provider. This acquisition will expand the
Company’s line of dairy hygiene products and will enhance our cleaner
and disinfectant product portfolio. Consideration for the purchase
was net cash of $9.5 million paid at closing, including $722,000 of
cash placed in escrow payable to the former owner in one year. The
preliminary purchase price allocation, based upon the fair value of
these assets and liabilities determined using the income approach,
included accounts receivable of $1,059,000, inventory of $972,000,
net property, plant and equipment of $152,000, prepayments of
$31,000, accounts payable of $497,000, other current liabilities of
$378,000, non-current deferred tax liabilities of $780,000, intangible
assets of $3.1 million (with an estimated life of 10-15 years) and the
remainder to goodwill (non-deductible for tax purposes). These
values are Level 3 fair value measurements. The companies continue
to operate in Liverpool, England, reporting within the Food Safety
segment and are managed through Neogen’s Scotland operation.
On December 9, 2021, the Company acquired all of the stock of Genetic
Veterinary Sciences, Inc., a companion animal genetic testing business
providing genetic information for dogs, cats and birds to animal
owners, breeders and veterinarians. This acquisition will further
expand the Company’s presence in the companion animal market.
Consideration for the purchase was $11.4 million in net cash. The
preliminary purchase price allocation, based upon the fair value of
these assets and liabilities determined using the income approach,
included accounts receivable of $38,000, net inventory of $292,000,
net property, plant and equipment of $399,000, prepayments of
$54,000, accounts payable of $325,000, unearned revenue of $1.9
million, other current liabilities of $321,000, intangible assets of $5.5
million (with an estimated life of 5-15 years) and the remainder to
goodwill (deductible for tax purposes). These values are Level 3 fair
value measurements. The business continues to operate in Spokane,
Washington, reporting within the Animal Safety segment.
Subsequent to the end of the fiscal year, on July 1, 2022, Neogen
acquired all of the stock of Thai-Neo Biotech Co., Ltd., a longstanding
distributor of Neogen’s food safety products to Thailand and
33
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Southeast Asia. This acquisition gives Neogen a direct sales presence
in Thailand. Consideration for the purchase was $1,558,000, with
$1,324,000 paid at closing and $234,000 payable on October 1, 2023. Due
to the timing of the transaction, the details of the preliminary purchase
price allocation are not available. The business continues to operate
in Bangkok, Thailand, reporting within the Food Safety segment.
For the acquisitions listed above, revenues in the aggregate were
$38.0 million, $27.0 million and $6.1 million in fiscal years 2022,
2021 and 2020, respectively. Earnings in the aggregate were $5.4
million, $4.2 million and $520,000 in fiscal years 2022, 2021 and
2020, respectively.
3M Food Safety transaction
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, including the merger agreement,
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. 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. The transaction implies an enterprise value for 3M’s
Food Safety business of approximately $3.4 billion based on Neogen’s
stock price on 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.
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.
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. The Notes will initially be
issued by Garden SpinCo to 3M and are expected to be transferred
and delivered by 3M to the selling securityholder in the offering, in
satisfaction of certain of 3M’s existing debt. SpinCo will not receive
any proceeds from the sale of the Notes by the selling securityholder.
Prior to the distribution of the shares of 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. 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.
The transaction is expected to close by the end of the third calendar
quarter in 2022, subject to approval by Neogen shareholders, receipt
of required regulatory approvals and the satisfaction of other
customary closing conditions.
4. Long-Term Debt
The Company has a financing agreement with a bank providing for a
$15,000,000 unsecured revolving line of credit, which was amended
in the second quarter to extend the expiration to November 30,
2023. There were no advances against the line of credit during fiscal
years 2022 and 2021; there was no balance outstanding at May 31,
2022. Interest on any borrowings is LIBOR plus 100 basis points (rate
under the terms of the agreement was 2.06% at May 31, 2022). See
Note 1, Recent Accounting Pronouncements Not Yet Adopted, for
information on reference rate reform. Financial covenants include
maintaining specified levels of tangible net worth, debt service
coverage, and funded debt to EBITDA; the Company believes it was
in compliance with these covenants at May 31, 2022.
5. Equity Compensation Plans
Incentive and non-qualified options to purchase shares of common
stock have been granted to directors, officers and employees of
Neogen under the terms of the Company’s stock option plans. These
options were granted at an exercise price of not less than the fair
market value of the stock on the date of grant. Remaining shares
available for grant under share-based compensation plans were
5,386,000, 6,355,000 and 7,002,000 at May 31, 2022, 2021 and 2020,
respectively. Options vest ratably over three and five-year periods
and the contractual terms are generally five or ten years.
(Options in thousands)
Outstanding at May 31, 2019 (1,234 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2020 (972 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2021 (643 exercisable)
Granted
Exercised
Forfeited
Outstanding at May 31, 2022 (1,191 exercisable)
34
Options
4,770
1,124
(1,438)
(132)
4,324
403
(1,389)
(381)
2,957
615
(281)
(47)
3,244
$
$
Weighted-Average
Exercise Price
24.69
31.96
20.12
28.72
27.98
34.23
24.38
28.99
30.38
36.42
22.79
33.93
32.13
$
$
$
$
Weighted-Average
Grant Date Fair Value
6.35
7.78
5.53
7.10
6.98
7.71
6.31
7.20
7.36
8.49
6.29
8.02
7.66
$
$
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The following is a summary of stock options outstanding at May 31, 2022:
(Options in thousands)
Options Outstanding
Options Exercisable
Range of Exercise Price
$10.75 – $20.00
$20.01 – $28.99
$29.00 – $30.99
$31.00 – $31.99
$32.00 – $42.45
Average
Contractual Life
(in years)
2.3
3.8
0.9
2.0
3.7
2.5
Number
49
344
493
1,509
849
3,244
Weighted-Average
Exercise Price
15.43
$
26.80
30.16
31.70
37.16
32.13
$
Number
49
83
332
581
146
1,191
Weighted-Average
Exercise Price
15.43
$
23.08
30.13
31.64
33.88
30.24
$
The weighted average exercise price of shares subject to options that were exercisable at May 31, 2021 and 2020 was $28.10 and
$24.47, respectively.
Compensation expense related to share-based awards was $7,154,000, $6,437,000 and $6,468,000 in fiscal years 2022, 2021 and 2020,
respectively. Remaining compensation cost to be expensed in future periods for non-vested options was $10,927,000 at May 31, 2022,
with a weighted average expense recognition period of 2.9 years.
(In thousands)
Aggregate intrinsic value of options outstanding
Aggregate intrinsic value of options exercisable
Aggregate intrinsic value of options exercised
Year Ended May 31
2022
850
817
5,507
$
$
$
2021
46,667
11,617
22,349
$
$
$
2020
32,988
10,814
19,597
$
$
$
The Company grants restricted stock units (RSUs) to directors, officers and employees under the terms of the 2018 Omnibus Incentive
Plan, which vest ratably over three and five year periods. The RSUs are expensed straight-line over the remaining weighted-average
period of 4.0 years. On May 31, 2022, there was $6,866,000 in unamortized compensation cost related to non-vested RSUs.
(RSU Grants in thousands)
Outstanding at May 31, 2020
Granted
Released
Forefeited
Outstanding at May 31, 2021
Granted
Released
Forefeited
Outstanding at May 31, 2022
RSUs
Weighted Average
Grand Date
Fair Value
$
-
34.21
-
34.21
34.21
37.28
34.24
36.80
36.14
$
$
-
122
-
(1)
121
169
(25)
(8)
257
The Company offers eligible employees the option to purchase common stock at a 5% discount to the lower of the market value of the
stock at the beginning or end of each participation period under the terms of the 2011 Employee Stock Purchase Plan; the discount
is recorded in general and administrative expense. Total individual purchases in any year are limited to 10% of compensation. Shares
purchased by employees through this program were 43,456 in fiscal 2022, 38,406 in fiscal 2021 and 43,156 in fiscal 2020. As of May 31,
2022, common stock totaling 605,774 of the 1,425,000 authorized shares remained reserved for issuance under the plan.
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35
Income Taxes
6.
Income before income taxes by source consists of the following amounts:
(In thousands)
U.S.
Foreign
The provision for income taxes consists of the following:
(In thousands)
Current:
Domestic
Federal
Change in tax-related uncertainties
State
Foreign
Total Current
Deferred:
Domestic
Federal
State
Foreign
Total Deferred
Provision for Income Taxes
2022
38,554
21,653
60,207
$
$
Year Ended May 31
2021
55,753
19,515
75,268
$
$
Year Ended May 31
2022
2021
$
8,579
$
3
2,406
5,140
16,128
(3,721)
(356)
(151)
(4,228)
6,981
(75)
2,147
4,875
13,928
479
44
(65)
458
$
$
$
2020
62,329
9,976
72,305
2020
6,886
269
1,262
2,475
10,892
1,964
195
(221)
1,938
$
11,900
$
14,386
$
12,830
The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is as follows:
(In thousands)
Tax at U.S. statutory rate
Permanent differences
Global intangible low-taxed income (GILTI)
Foreign derived intangible income deduction (FDII)
Foreign rate differential
Subpart F income
Tax benefits on stock-based compensation
Provision for state income taxes, net of federal benefit
Tax Credits
Impact of tax rate changes
Other
Income Tax Expense
Year Ended May 31
2022
2021
2020
$
12,643
$
15,806
$
15,184
67
1,501
(1,308)
215
397
(462)
1,517
(2,527)
583
(726)
292
2,064
(1,210)
669
628
(2,651)
1,601
(3,298)
-
485
$
11,900
$
14,386
$
360
438
(1,120)
(182)
634
(1,998)
1,412
(1,417)
-
(481)
12,830
Foreign tax credits, primarily offsetting taxes associated with Subpart F and GILTI income, were $1,747,000, $2,753,000 and $945,000
in fiscal years 2022, 2021 and 2020, respectively. The Company’s research and development credits were $780,000, $545,000 and
$472,000 in fiscal years 2022, 2021 and 2020, respectively.
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Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred income tax
liabilities and assets are as follows:
(In thousands)
Deferred income tax liabilities
Indefinite and long-lived assets
Right of use asset
Prepaid expenses
Deferred income tax assets
Stock options
Inventories and accounts receivable
Tax loss carryforwards
Lease liability
Accrued expenses and other
Valuation allowance
May 31
2022
2021
$
$
(22,709)
(344)
(884)
(23,937)
2,085
2,044
561
382
2,422
(568)
6,926
(25,072)
(213)
(721)
(26,006)
1,106
2,081
662
211
570
(541)
4,089
(21,917)
Net deferred income tax liabilities
$
(17,011)
$
The Company has the following net operating loss carryforwards:
(In thousands)
U.S.
Foreign
May 31, 2022
$
$
281
2,831
3,112
Expiry
2037
2024 to 2039
Valuation allowances against certain deferred tax assets are established
based on management’s determination of a more likely than not
standard that the tax benefits will not be realized.
We are subject to income taxes in the U.S. (federal and state) and in
numerous foreign jurisdictions. Significant judgment is required in
evaluating our tax positions and determining our provision for income
taxes. During the ordinary course of business, there are transactions
and calculations for which the ultimate tax determination is uncertain.
We establish reserves for tax-related uncertainties based on estimates
of whether, and the extent to which, additional taxes will be due.
These reserves are established when we believe that certain positions
might be challenged despite our belief that our tax return positions
are fully supportable. We adjust these reserves in light of changing
facts and circumstances, such as the outcome of tax audits. The
provision for income taxes includes the impact of reserve provisions
and changes to reserves that are considered appropriate. The Company’s
policy is to recognize both accrued interest expense and penalties
related to unrecognized tax benefits in income tax expense. The
amount of interest and penalties included in the unrecognized tax
benefits reserve was $69,321 at May 31, 2022 and $64,518 at May 31,
2021. Of the total unrecognized tax benefits at May 31, 2022 and May
31, 2021, $808,186 and $805,316 respectively, comprise unrecognized
tax positions that would, if recognized, affect our effective tax rate.
The reconciliation of our unrecognized tax benefits is as follows:
(In thousands)
Beginning balance
Increase (decrease) related to prior periods
Increase related to current period
Lapses of applicable statute of limitations
Ending balance
2022
764
(75)
147
(95)
741
$
$
$
$
May 31
2021
762
$
(182)
184
-
764
$
2020
541
48
173
-
762
The Company is no longer subject to examination by the Internal Revenue Service for fiscal year 2018 and preceding years.
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7. Commitments and Contingencies
The Company is involved in environmental remediation and monitoring
activities at its Randolph, Wisconsin manufacturing facility and accrues
for related costs when such costs are determined to be probable and
estimable. The Company currently utilizes a pump and treat remediation
strategy, which includes semi-annual monitoring and reporting, consulting,
and maintenance of monitoring wells. We expense these annual costs of
remediation, which have ranged from $63,000 to $131,000 per year
from fiscal 2018 to fiscal 2021. The Company’s estimated remaining
liability for these costs was $916,000 at both May 31, 2022 and 2021,
measured on an undiscounted basis over an estimated period of 15
years. In fiscal 2019, the Company performed an updated Corrective
Measures Study on the site, per a request from the Wisconsin Department
of Natural Resources (WDNR), and is currently in discussion with the
WDNR regarding potential alternative remediation strategies going
forward. The Company believes that the current pump and treat strategy
is appropriate for the site. However, the Company has agreed to a
pilot study in which chemical reagents are injected into the ground in
an attempt to reduce on-site contamination; costs incurred in fiscal
2022 totaled $305,000 as of May 31, 2022, which included the cost of
this study. At this time, the outcome of the pilot study is unknown, but
a change in the current remediation strategy, depending on the
alternative selected, could result in an increase in future costs and
ultimately, an increase in the currently recorded liability, with an
offsetting charge to operations in the period recorded. The Company
has recorded $100,000 as a current liability, and the remaining $816,000
is recorded in other non-current liabilities in the consolidated balance
sheet as of May 31, 2022.
On March 6, 2020, the Company received an administrative subpoena
from the U.S. Treasury Department’s Office of Foreign Assets Control
(OFAC) regarding activities or transactions involving parties located in
Iran. The Company subsequently conducted an internal investigation
under the direction of outside legal counsel and disclosed information
concerning certain genomic testing services provided to an unrelated
U.S.-based party engaged in veterinary activities involving an Iranian
party. The Company continues to cooperate with OFAC’s investigation
and is currently examining whether certain of these activities may be
eligible for OFAC General Licenses authorizing agricultural and
veterinary activities.
In addition to responding to the administrative subpoena, the Company
has implemented additional compliance measures to prevent inadvertent
dealings with restricted countries or parties. 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. Although it is too early to predict what action,
if any, that OFAC will take, the Company does not currently have any
reason to believe that OFAC’s pending investigation will have a material
impact on its operations, the results of operations for any future period,
or its overall financial condition. In fiscal 2020, the Company took a
charge to expense and recorded a reserve of $600,000 to provide for
potential fines or penalties on this matter. At this time, the Company
believes that it is adequately reserved for this issue.
The Company has agreements with unrelated third parties that provide
for the payment of royalties on the sale of certain products. Royalty
expense, recorded in sales and marketing, under the terms of these
agreements was $1,999,000, $2,129,000 and $2,524,000 for fiscal years
2022, 2021 and 2020, respectively. Some of these agreements provide
for guaranteed minimum royalty payments to be paid each fiscal year
by the Company for certain technologies. Future minimum royalty
payments are as follows: 2023—$100,000, 2024—$100,000, 2025—
$100,000, 2026—$75,000 and 2027—$75,000.
The Company has unconditional purchase obligations consisting
primarily of purchase orders for future inventory and capital equipment
purchase, totaling $85.8 million, of which $83.1 million is scheduled
to be spent within the next 12 months, and $2.7 million is scheduled
to be spent between one to three years in the future.
In conjunction with the 3M Food Safety transaction announced on
December 13, 2021, Neogen has entered into a credit agreement with
JPMorgan Chase for $650 million in term loans, and has incurred
$9.8 million in debt issuance costs, which will be paid at close,
and amortized over the five-year term of the loans. The loans are
expected to be funded in the third calendar quarter of 2022. Interest
on the loans will be at the Secured Overnight Financing Rate (SOFR)
plus 225 basis points.
The Company is subject to certain legal and other proceedings in
the normal course of business that, in the opinion of management,
are not expected to have a material effect on its future results of
operations or financial position.
8. Defined Contribution Benefit Plan
The Company maintains a defined contribution 401(k) benefit plan
covering substantially all domestic employees. Employees are permitted
to defer compensation up to IRS limits, with Neogen matching 100%
of the first 3% of deferred compensation and 50% of the next 2% of
deferred compensation. In the first quarter of fiscal 2021, the Company
suspended the 401(k) match, while we assessed the potential financial
impact of COVID-19 on the Company. The match was restored in September
2020. Neogen’s expense under this plan was $1,834,000, $1,204,000,
and $1,535,000 in fiscal years 2022, 2021 and 2020, respectively.
9. Derivatives
We operate on a global basis and are exposed to the risk that our
financial condition, results of operations and cash flows could be
adversely affected by changes in foreign currency exchange rates.
To reduce the potential effects of foreign currency exchange rate
38
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movements on net earnings, we enter into derivative financial
instruments in the form of foreign currency exchange forward
contracts with major financial institutions.
Derivatives Not Designated as Hedging Instruments
We forecast our net exposure in various receivables and payables to
fluctuations in the value of various currencies, and we enter into
approximately 11 foreign currency forward contracts each month to
mitigate that exposure. These contracts are recorded net at fair value
on our consolidated balance sheets, classified as Level 2 in the fair value
hierarchy; gains and losses from these contracts were recognized in
other income in our consolidated statements of income. The notional
amount of forward contracts in place was $4,424,000 and $19,984,000
as of May 31, 2022 and 2021, respectively.
(In thousands)
Fair Value of Deriviatives Not Designated as Hedging Instruments
Foreign currency forward contracts, net
Balance Sheet Location
Prepaid and Other
May 31, 2022
(78)
$
May 31, 2021
$
515
The location and amount of gains from derivatives not designated as hedging instruments in our consolidated statements of income
were as follows:
(In thousands)
Derivatives Not Designated as
Hedging Instruments
Foreign currency forward contracts
Location in statements
of income
Other income (expense)
2022
1,218
$
2021
2,651
$
$
2020
1,111
Year ended May 31
10. Related Party Transactions
The Company has partnered with Corvium to develop a software-
as-a-service offering for use in conjunction with several food safety
product lines. Ralph Rodriguez is a member of Neogen’s Board of
Directors and also serves on the Board of Directors at Corvium.
Neogen made payments to Corvium of $1,573,000, $788,000 and
$1,833,000 in fiscal years 2022, 2021 and 2020, respectively.
11.Segment Information
The Company has two reportable segments: Food Safety and Animal
Safety. The Food Safety segment is primarily engaged in the
development, production and marketing of diagnostic test kits and
related products used by food producers and processors to detect
harmful natural toxins, foodborne bacteria, allergens and levels of
general sanitation. The Animal Safety segment is primarily engaged
in the development, production and marketing of products dedicated
to animal safety, including a complete line of consumable products
marketed to veterinarians and animal health product distributors; this
segment also provides genomic identification and related interpretive
bioinformatic services. Additionally, the Animal Safety segment
produces and markets rodenticides, disinfectants and insecticides
to assist in the control of rodents, insects and disease in and around
agricultural, food production and other facilities.
Neogen’s international operations in the United Kingdom, Mexico,
Guatemala, Brazil, Argentina, Uruguay, Chile, China and India
originally focused on the sales and marketing of our food safety
products, and each of these units reports through the Food Safety
segment. In recent years, these operations have expanded to offer
the Company’s complete line of products and services, including
those usually associated with the Animal Safety segment such
as cleaners, disinfectants, rodenticides, insecticides, veterinary
instruments and genomics services. These additional products and
services are managed and directed by existing management and are
reported through the Food Safety segment.
Neogen’s operation in Australia originally focused on providing
genomics services and sales of animal safety products and reports
through the Animal Safety segment. With the acquisition of Cell
BioSciences in February 2020, this operation has expanded to offer
our complete line of products and services, including those usually
associated with the Food Safety segment. These additional products
are managed and directed by existing management at Neogen
Australasia and report through the Animal Safety segment.
The accounting policies of each of the segments are the same as
those described in Note 1.
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39
Segment information is as follows:
(In thousands)
Fiscal 2022
Food Safety
Animal Safety
Corporate and
Eliminations (1)
Total
Product revenues to external customers
$
231,626
$
193,038
$
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Total assets
Expenditures for long-lived assets
Fiscal 2021
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Total assets
Expenditures for long-lived assets
Fiscal 2020
Product revenues to external customers
Service revenues to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Total assets
Expenditures for long-lived assets
28,353
259,979
38,581
13,386
304,461
7,842
74,142
267,180
52,546
10,308
307,417
16,939
$
209,104
$
167,198
$
25,140
234,244
33,725
11,575
295,065
13,730
67,017
234,215
48,685
9,466
244,039
12,982
$
189,893
$
145,646
$
22,798
212,691
33,526
10,173
222,331
15,867
59,833
205,479
39,051
8,223
231,178
8,185
–
–
–
(32,509)
–
381,051
–
–
–
–
(8,241)
–
381,088
–
–
–
–
(5,054)
–
343,673
–
$
424,664
102,495
527,159
58,618
23,694
992,929
24,781
$
376,302
92,157
468,459
74,169
21,041
920,192
26,712
$
335,539
82,631
418,170
67,523
18,396
797,182
24,052
(1) Includes corporate assets, including cash and cash equivalents, marketable securities, current and deferred tax accounts, and overhead expenses not allocated to
specific business segments. Also includes the elimination of intersegment transactions and non-controlling interests.
The following table presents the Company’s revenue disaggregated by geographical location:
(In thousands)
Domestic
International
Total revenue
Year ended May 31
2022
$ 317,820
209,339
$ 527,159
2021
285,262
183,197
468,459
$
$
11.Stock Repurchases
In October 2018, the Company’s Board of Directors authorized a program to purchase, subject to market conditions, up to 6,000,000 shares
of the Company’s common stock. In December 2018, the Company purchased 100,000 shares under the new program in open market
transactions for a total price, including commissions, of $3,134,727. Shares acquired under the program were retired. A total of 5,900,000 shares
of common stock remained available for repurchase under this program as of May 31, 2022.
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Neogen Corporation
Lansing, Michigan
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Neogen Corporation (the “Company”) as of May 31, 2022 and 2021,
the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three
years in the period ended May 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at May
31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2022, in
conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company’s internal control over financial reporting as of May 31, 2022, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated
July 27, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due
to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the
critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Contingent Consideration
As described in Note 3 to the Company’s consolidated financial statements, the Company has recorded a contingent consideration
liability of approximately $6.5 million related to the acquisition of CAPInnoVet, Inc. A contingent consideration liability is recorded
based on its estimated fair value as of the date of the acquisition and remeasured as of each balance sheet date.
We have identified the valuation of the contingent consideration liability as of the acquisition date as a critical audit matter. The
contingent consideration liability is measured using a Monte-Carlo simulation utilizing significant unobservable inputs that considers
the probability of achieving each of the potential milestones, including revenue volatility and an estimated discount rate associated
with the risks of the expected cash flows. Due to the inherent uncertainty involved in estimating long-range revenue forecasts and the
complexity of the Monte-Carlo simulation utilized by management, auditing the contingent consideration liability required increased
auditor effort including the use of personnel with specialized knowledge and skills in valuation.
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41
The primary procedures we performed to address this critical audit matter included:
•
•
•
Testing the design and operating effectiveness of certain controls over the development of the significant assumptions used in the
valuation model selected, including controls over assumptions related to: (i) long-range revenue forecasts and (ii) discount rates
applied to the forecasts.
Assessing management’s estimated timing of milestone achievement and probabilities of success by corroborating with personnel
knowledgeable of the current progression of the product candidates and reviewed filings with the applicable regulatory agencies.
Assessing management’s ability to forecast long-range revenue by analyzing historical accuracy of management’s forecasts related
to business combinations and comparing to industry data to validate the reasonableness of the growth assumption.
• Utilizing professionals with specialized knowledge and skills in valuation to assist in evaluating the valuation methodology selected
by management as well as assessing the reasonableness of key inputs including the discount rate and revenue volatility.
We have served as the Company’s auditor since 2014.
Grand Rapids, Michigan
July 27, 2022
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Exchange Act Rules 13-a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including
the Chief Executive Officer and Chief Financial Officer, an evaluation was conducted as to the effectiveness of internal control over
financial reporting as of May 31, 2022, based on the framework in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that
internal control over financial reporting was effective as of May 31, 2022. The effectiveness of internal control over financial reporting
as of May 31, 2022 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in its attestation
report, which is included on the following page and is incorporated into this Item 9A by reference.
John E. Adent, President and CEO
Steven J. Quinlan, Vice President and CFO
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting were identified as having occurred during the quarter ended May 31, 2022
that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Neogen Corporation
Lansing, Michigan
Opinion on Internal Control over Financial Reporting
We have audited Neogen Corporation’s (the “Company’s”) internal control over financial reporting as of May 31, 2022, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of May 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated balance sheets of the Company as of May 31, 2022 and 2021, the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended May 31, 2022, and the
related notes and schedules and our report dated July 27, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Grand Rapids, Michigan
July 27, 2022
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43
Neogen Corporation and Subsidiaries: Comparison of Five Year Cumulative Total
Return and Stock Profile Activity
The graph below matches Neogen Corporation’s cumulative 5-Year total shareholder return on common stock with the cumulative total
returns of the NASDAQ Composite index and the NASDAQ Medical Equipment index. The graph tracks the performance of a $100 investment in our
common stock and in each index (with the reinvestment of all dividends) from 5/31/2017 to 5/31/2022.
Neogen Corporation
NASDAQ Composite
NASDAQ Medical Equipment
S&P Life Sciences Tools & Services
(cid:31)(cid:26)(cid:30)(cid:30)
(cid:31)(cid:27)(cid:29)(cid:30)
(cid:31)(cid:27)(cid:30)(cid:30)
(cid:31)(cid:28)(cid:29)(cid:30)
(cid:31)(cid:28)(cid:30)(cid:30)
(cid:31)(cid:29)(cid:30)
(cid:31)(cid:30)
(cid:25)(cid:24)(cid:23)(cid:22)(cid:27)(cid:30)(cid:28)(cid:19)
(cid:25)(cid:24)(cid:23)(cid:22)(cid:27)(cid:30)(cid:28)(cid:21)
(cid:25)(cid:24)(cid:23)(cid:22)(cid:27)(cid:30)(cid:28)(cid:20)
(cid:25)(cid:24)(cid:23)(cid:22)(cid:27)(cid:30)(cid:27)(cid:30)
(cid:25)(cid:24)(cid:23)(cid:22)(cid:27)(cid:30)(cid:27)(cid:28)
(cid:25)(cid:24)(cid:23)(cid:22)(cid:27)(cid:30)(cid:27)(cid:27)
Neogen Corporation
NASDAQ Composite
NASDAQ Medical Equipment
S&P Life Sciences Tools & Services
$
$
2017
100.00
100.00
100.00
100.00
$
2018
159.50
121.34
127.47
119.37
May 31
$
2019
118.71
122.84
113.54
145.59
$
2020
150.04
158.05
125.55
178.60
$
2021
194.47
230.68
180.52
247.39
2022
111.49
204.09
123.62
247.97
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Market Information
Neogen Common Stock is traded on the NASDAQ Global Select Market under the symbol NEOG.
Holders
As of June 30, 2022, there were approximately 215 stockholders of record of our common stock. The actual number of holders is greater
than this number and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other
nominees. Management believes there are a total of approximately 10,000 beneficial holders.
Dividends
Neogen has never paid cash dividends on its common stock and does not expect to pay dividends in the foreseeable future.
© Neogen Corporation, 2022. Neogen, AccuPoint, Agri-Screen, Alert, ANSR, BetaStar, BotVax, DeciMax, EqStim, Ideal, Prima, Prozap, Raptor, Ramik, Reveal, Soleris, StandGuard, SureKill, Synergize and Veratox are
registered trademarks and Acid-A-Foam, COMPANION, Colitag, Cykill, D3 Needles, NeoSeek, PanaKare, RenaKare, Right Now, Rodex, ThyroKare, and Viroxide Super are trademarks of Neogen Corporation, 620 Lesher Place,
Lansing, Michigan 48912 U.S. BioSentry is a registered trademark of BioSentry, Inc. Havoc is a registered trademark of Syngenta.
44
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Officers
John E. Adent
President and Chief Executive Officer
Robert S. Donofrio, Ph.D.
Vice President, Research and Development
Jerome L. Hagedorn
Vice President, North American Operations
Douglas E. Jones
Vice President, Chief Operating Officer
Jason W. Lilly, Ph.D.
Vice President, International Business
Directors
James C. Borel
Board Chair
E.I.DuPont de Nemours
Former Executive Vice President
William T. Boehm, Ph.D.
Kroger Company
Former Senior Vice President
President’s Council of Economic Advisors
Former Senior Economist
Ronald D. Green, Ph.D.
University of Nebraska–Lincoln
Chancellor
Ralph A. Rodriguez
Daon
President & Chief Product Officer
Julie L. Mann
Vice President, Chief Human Resources Officer
Steven J. Quinlan
Vice President, Chief Financial Officer
Amy M. Rocklin, Ph.D.
Vice President, General Counsel and
Corporate Secretary
James P. Tobin
Monsanto
Former Vice President
Darci L. Vetter
The Nature Conservancy
Global Head, Policy and Governmental Relations
Former Chief Agricultural Negotiator for
the U.S. Trade Representative
Catherine E. Woteki, Ph.D.
Biocomplexity Institute at the University of Virginia
Distinguished Institute Professor
Former Undersecretary for the USDA’s Research, Education,
and Economics Mission
Annual Meeting
October 6, 2022 at 10:00 a.m.
www.virtualshareholdermeeting.com/
NEOG2022
Form 10-K and the Company’s
Code of Ethics
Copies of Form 10-K and the Company’s
Code of Ethics will be provided upon
request without charge to persons
directing their request to:
Neogen Corporation
Attention: Investor Relations
620 Lesher Place, Lansing, MI 48912
Independent Registered
Public Accounting Firm
BDO USA, LLP
200 Ottawa Avenue N.W., Suite 300;
Grand Rapids, MI 49503
Stock Transfer Agent
and Registrar
American Stock Transfer and Trust Co.
6201 15th Avenue, Brooklyn, NY 11219
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NASDAQ: NEOG
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