2023
N E O G E N A N N U A L R E P O R T
Table of Contents
02 Message from John Adent, CEO
04 Becoming a Market Leader
Management’s Discussion and
Analysis of Financial Condition
and Results of Operations
09
18 Consolidated Balance Sheets
20
20
21
22
41
43
45
Consolidated Statements
of Income
Consolidated Statements
of Equity
Consolidated Statements of
Cash Flows
Notes to Consolidated
Financial Statements
Reports of Independent
Registered Public
Accounting Firm
Management’s Report on
Internal Control Over
Financial Reporting
Comparison of Five-Year
Cumulative Total Return and
Stock Profile Activity
By the Numbers
Pro Forma Sales — Fiscal Year 2023
98%Consumables
By Product
98% Consumables
2% Non-consumables
By Segment
70% Food Safety
30% Animal Safety
70%Food Safety
44%
International
By Region
56% U.S. and Canada
13% Asia Pacific
15%
13% Latin America
3% Australia
Europe, Middle
East, Africa
The advancement of human and animal
well-being through science and technology
so we can fuel a brighter future
for global food security.
Total Revenues
Dollars in thousands
Net Income
Dollars in thousands
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2021
2022
2023
2021
2022
2023
Adjusted EBITDA (1)
Dollars in thousands
Equity
Dollars in thousands
(cid:26)(cid:29)(cid:30)(cid:31)(cid:31)(cid:29)(cid:31)(cid:31)(cid:31)
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2021
2022
2023
1
2021
2022
2023
(1) Adjusted EBITDA is a non-GAAP metric, a reconciliation of which to GAAP is presented on page 15.
(cid:24)(cid:30)(cid:30)(cid:29)(cid:30)(cid:30)(cid:30)
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transition. At every stage of this transition, our team members
have demonstrated exactly what it is that makes Neogen a
strong, healthy and thriving organization — commitment,
adaptability, perseverance and teamwork.
All of our colleagues have taken ownership of the building
of the new Neogen, continually working to create an
organization that is able to deliver the highest-quality
technologies and services to our customers.
We have approached this entire process with the mentality
of “the best idea wins.” We work together to find the best
solutions, and I am incredibly proud of the headway that we
have made together.
This process has not been easy, nor is it fully complete; however,
we have made great progress to date on the integration. We
recognize that there is still much work to do to achieve our
goals and meet the expectations set for us by our employees,
customers and shareholders.
The feedback we have gathered so far only motivates us, and
our teams are eager to demonstrate our capabilities and bring
great value to our customers.
Change and Growth
While perhaps the biggest highlight of the year was the
completion of the 3M Food Safety merger and subsequent
transition efforts, we have celebrated other wins across our
Food and Animal Safety segments.
These wins have played an integral part in our overall success
during the 2023 fiscal year, driving a 32nd consecutive year in which
Neogen reported revenue increases over the previous year.
Food Safety
In our Food Safety segment, our team members have been hard
at work learning our expanded product and service portfolio,
streamlining processes and ensuring that we are well-equipped
to handle both current and future demand.
While the transition has been a large focus, our teams have
not slowed the development of new products and solutions
for our global food safety customers. This fiscal year, we
successfully launched new assays for the detection of
allergens and natural toxins, including Veratox® VIP for
Cashew, Reveal® and Reveal Q+ for Histamine and the new
Reveal Q+ EndPoint for DON and Aflatoxin.
We also earned AOAC certification for our Reveal 3-D for
Gluten and AOAC acceptance of the Megazyme Rapid
Integrated Total Dietary Fiber (RINTDF) method as the
industry-standard method.
A Message from
John Adent, President and CEO
To Our Shareholders, Employees,
and Friends,
This fiscal year was a transformative year for Neogen.
The beginning of the fiscal year marked our 40th year of
operations, a year that promised significant growth and
change within the organization as we looked forward to the
close of the 3M Food Safety transaction, positioning Neogen
as the global leader in food security.
In September, we were pleased to report the successful
completion of the 3M Food Safety transaction and welcomed
a new era for Neogen, our employees, customers and share-
holders. Together, we are well-positioned at the forefront of
food security, with our expanded product portfolio providing
solutions for every step of the food chain, from behind the
farm gate to the dinner plate. Our enhanced global footprint
makes our food and animal safety solutions available to an
increased number of customers worldwide, keeping more
people and animals safe and healthy.
I would be remiss not to acknowledge the incredible team we
have here at Neogen, who continue to lead us through this
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The advancement of our food safety data analytics strategy
was a particular focus this fiscal year, with our comprehensive
Neogen Analytics Environmental Monitoring Program (EMP)
cloud-based software helping food safety customers implement
systems that reduce risk and elevate compliance. We expect
our February acquisition of the technology and assets of
Corvium, Inc., the Virginia-based provider of the software
supporting Neogen Analytics, to drive further growth of this
invaluable platform in food safety facilities around the world.
In June 2023, our Petrifilm™ Plate Reader Advanced won the
2023 Red Dot Award in the Product Design category. This
prestigious honor is a testament to the time, efforts and
expertise of the team members who joined us from the former
3M Food Safety Division, and we are grateful to have them as
members of the Neogen team. We are committed to the
continual development and investment in the Petrifilm platform
as we look forward, particularly as it relates to innovation that
unlocks additional potential in adjacent markets.
Animal Safety
Our Animal Safety segment plays a critical role in protecting
the food supply on the farm and our team has remained
focused on protecting the people and animals we care about
around the world.
Our Neogen Viroxide Super™ disinfectant was approved for
distribution in Canada by the Natural and Non-Prescriptive
Health Products Directorate Branch of Health Canada, as
well as added new label kill claims in the United States and
Canada for bacteria and viruses on non-porous surfaces.
Our Synergize® disinfectant officially launched in Europe, the
Middle East, and Africa, taking our trusted solutions to new
customers around the world.
We introduced several new products, including the new
COMPANION™ Ready-To-Use disinfectant, which makes it
easier to quickly sanitize animal care facilities. Also launched
was the new Prozap Gamma-Defense insect control solution,
a powerful solution for poultry producers that provides
strong protection against common pests. The new K-Blue®
Luminescent ONE, an innovative, one-bottle chemiluminescent
substrate, also launched, offering a simple, easy-to-use option for
immunoassay production. Finally, we released an upgraded
version of our best-selling Ideal® D3™ detectable needles,
with a patent-pending design intended to be six times more
detectable than conventional and stainless-steel needles.
providing greater insights into the data. This platform
maximizes the benefits that Igenity customers receive from
genomic testing and drives a more prosperous and sustainable
animal protein ecosystem. The team also launched an
industry-first DNA test for beef-on-dairy calves, enabling
improved quality, efficiency and sustainability within the beef
production industry. In the companion animal space, the
team launched My CatScan® 2.0, a significantly upgraded and
improved version of the test that now provides information on
more than 120 genetic health conditions.
Looking Forward
Our excitement only grows as we look toward our 2024 fiscal year.
While there is still much to be completed and we are aware of
some key areas for improvement, we see these as motivators
to drive continued growth.
Construction of our new food safety facility in Lansing,
Michigan, is ongoing, with our teams remaining focused on
creating a manufacturing plan that maximizes efficiency while
maintaining the quality that Neogen products are known for.
Our new team members in Minnesota have begun transitioning
to a recently opened facility in Oakdale, marking a large step
in our transition activities.
We also announced the expansion of a facility in Lexington,
Kentucky, converting 20,000 square feet of floor space into an
ISO 8-level manufacturing area. This announcement comes in
addition to the renovation and successful opening of our new
distribution center in Mt. Sterling, Kentucky, which will help
shorten customer lead times and allow us to ship products to
our customers more efficiently.
Neogen is well-prepared and well-equipped to lead the
company on our journey to be positioned at the forefront of
food security, with the resources, capabilities and solutions to
be a global provider.
Our team members remain dedicated to and enthusiastic
about our mission, ready to share our products and solutions
with our customers around the world, from behind the farm
gate to the dinner plate.
Sincerely,
Our Genomics team also expanded on our DNA-testing
capabilities, launching the Encompass™ results management
and visualization platform for bovine Igenity customers,
John Adent,
President and CEO
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Becoming a Market Leader
At Neogen, protecting the world’s food supply is a vital part of our promise and purpose.
This overarching goal is what drove us to pursue the combination of our operations with the former 3M Food Safety
Division, which was successfully completed on September 1, 2022. Together, we are creating an innovative global
leader in food safety, building even further upon our already strong platforms.
As a combined company, Neogen now has an enhanced geographic footprint, even more innovative product
offerings, greater digitization capabilities and increased scale to capitalize on robust growth trends in sustainability,
food safety and supply chain integrity.
The completion of this transaction marks an exciting new chapter for Neogen as we plan to benefit from the growing
demand within the industry and become a leading innovator in food security.
Neogen now has a significantly expanded product offering in food safety, particularly in the areas of indicator testing
and pathogen detection, which complement Neogen’s existing microbiology lines. Neogen is now also able to offer
its animal safety and genomics services to customers of the former 3M Food Safety Division — a new offering to these
customers. This expanded product range increases the solutions with which Neogen can help customers protect the
world’s food supply from behind the farm gate to the dinner plate.
These complementary product offerings, combined with Neogen’s data-driven analytics approach, create a
compelling solution for customers as they seek an innovative partner to help increase efficiency and enhance food
safety protocols.
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Our Food Safety Segment
Neogen’s Food Safety segment is engaged primarily in the
production and marketing of diagnostic test kits and
complementary products marketed to food producers and feed
processors to detect dangerous and/or unintended substances
in food and animal feed. Our industry-leading test kits are
used to detect potential hazards or unintended substances in
food and animal feed by testers ranging from small local grain
elevators to the largest, best-known food and feed processors
in the world, and numerous regulatory agencies.
Mycotoxins. Grain producers and processors of all types and
sizes use our Veratox®, Agri-Screen®, Reveal®, Reveal Q+ and
Reveal Q+ MAX tests to detect the presence of mycotoxins,
including aflatoxin, aflatoxin M1, deoxynivalenol, fumonisin,
ochratoxin, zearalenone, T-2/HT-2 toxin and ergot alkaloid, to
help ensure product safety and quality in food and animal feed.
Food allergens. The world’s largest producers of cookies,
crackers, candy, ice cream and many other beta-processed
foods use our Veratox, Alert®, Reveal, Reveal 3-D and BioKits
testing products to help protect their food-allergic customers
from the inadvertent contamination of products with food
allergens, including, but not limited to, peanut, milk, egg,
almond, gliadin (gluten), soy, hazelnut and coconut residues.
Also included in our food allergen testing portfolio are Allergen
Protein Rapid Kits and Allergen Protein ELISA Kits, acquired as
part of the 3M Food Safety transaction.
Foodborne pathogens. Meat and poultry processors, seafood
processors and fruit and vegetable producers, among others,
are the primary users of Neogen’s ANSR® and Reveal tests for
foodborne bacteria, including E. coli O157:H7, Salmonella,
Listeria, and Campylobacter. Neogen’s ANSR pathogen
detection system is an isothermal amplification reaction test
method that exponentially amplifies the DNA of any bacteria
present in food and environmental samples to detectable
levels in ten minutes. The Molecular Detection System (MDS),
an isothermal DNA detection and bioluminescence device, and
unique Molecular Detection Assays provide a total solution for
fast and accurate pathogen detection, also acquired as part of
the 3M Food Safety transaction. Our innovative Listeria Right
Now test detects the pathogen in less than 60 minutes without
the need for sample enrichment.
Spoilage microorganisms. Our Soleris® products are used by
food processors to identify the presence of spoilage organisms
(e.g., yeast and mold) and other microbiological contamination
in food. The sensitivity of the system allows detection in a
fraction of the time needed for traditional methods, with less
labor and handling time. Our NeoSeek™ genomics services
utilize a novel application of metagenomics to determine all
bacteria in a sample without introducing biases from culture
media, and without the need to generate a bacterial isolate for
each possible microbe in a sample.
Culture media. Neogen Culture Media includes the Petrifilm
solution, the flagship product line acquired in the 3M Food
Safety transaction. Petrifilm plates are all-in-one plating
systems that serve as an efficient method for the detection
and enumeration of various microorganisms. Our customers
for culture media also include commercial and research
laboratories and producers of pharmaceuticals, cosmetics and
veterinary vaccines. Also included are Neogen’s Acumedia and
Lab M products, offering culture media and prepared media
for varied purposes, including traditional bacterial testing and
the growth of beneficial bacteria, such as cultures for sausages
and beer.
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reduced risk by increasing the visibility of food safety testing
results. Neogen Analytics builds upon innovative technologies
like our AccuPoint Advanced Next Generation and ANSR
systems, offering floor plan mapping, smart test scheduling,
easily filtered and auditable data management and corrective
actions.
Laboratory services. We offer food safety analysis services
in the U.S., the United Kingdom (U.K.), and India. These ISO-
accredited laboratories offer a variety of fee-for-service tests
for the food and feed industries.
Sanitation monitoring. We manufacture and market our
AccuPoint® Advanced rapid sanitation test to detect the
presence of adenosine triphosphate (ATP), a chemical found in
all living cells. Also included in our ATP sanitation monitoring
portfolio is the Clean-Trace® hygiene monitoring system,
acquired as part of the 3M Food Safety transaction. These
easy-to-use and inexpensive tests use bioluminescence to
quickly assess the sanitation status of a contact surface. Our
worldwide customer base for ATP sanitation testing products
includes food and beverage processors and the food service
and healthcare industries, as well as many other users.
Seafood contaminants. Our specialty products for the
seafood market include tests for histamine, a highly allergenic
substance that occurs when certain species of fish begin to
decay, sulfite, an effective, but potentially allergenic, shrimp
preservative and shellfish toxins. Neogen’s Reveal lateral-
flow tests for shellfish toxins include rapid tests to detect the
toxins that cause amnesic shellfish poisoning (ASP), diarrhetic
shellfish poisoning (DSP) and paralytic shellfish poisoning (PSP).
Waterborne microorganisms. We offer the food and
beverage industries, including water companies, several
platforms for the microbial analysis of water. This includes
Neogen’s filter tests, which are a combination of Neogen Filter
membrane filtration and Neogen Culture Media ampouled
media, and an easy-to-use Colitag™ product. With Colitag,
after an incubation period, the sample changes color in the
presence of coliforms and fluoresces in the presence of E. coli.
Food quality diagnostics. Through Ireland-based Megazyme,
Ltd., Neogen supplies diagnostic kits and specialty enzymes
used worldwide by quality control laboratories in the food,
animal feed and beverage industries. Megazyme’s validated
assays and reagents are used across various food industries,
such as the grain, wine and dairy markets, to measure dietary
fibers, complex carbohydrates, simple sugars and organic
acids, such as lactose.
Sample handling. Neogen offers a range of sample handling
products, acquired through the 3M Food Safety transaction.
These innovative solutions are designed to make environmental
and carcass sample collection and preparation more reliable
and convenient than traditional methods. These products
are manufactured to meet the highest quality standards and
government regulations, maximizing accuracy, consistency
and efficiency, all while remaining cost-efficient.
Digital services. Our food safety and risk management
software-as-a-service, Neogen Analytics, delivers a
comprehensive Environmental Monitoring Program (EMP)
automation solution for food companies. The software enables
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Our Animal Safety Segment
Neogen’s Animal Safety segment is primarily engaged in
the development, manufacture, marketing and distribution
of veterinary instruments, pharmaceuticals, vaccines,
topicals, parasiticides, diagnostic products and a full suite of
biosecurity products, as well as genomics services.
Biosecurity products. Neogen’s comprehensive line of
biosecurity products include cleaners and disinfectants,
rodent control and insect control solutions designed to stop
the spread of disease before it starts. Used in animal and food
production facilities, our cleaners and disinfectants, including
904 Disinfectant, Acid-A-Foam™, Synergize®, BioPhene™, Neogen
Viroxide Super™ and Companion™, help prevent disease
outbreaks. The products are also used in the veterinary clinic
market to maintain sanitary conditions and limit the potential
hazards of bacteria, fungi and viruses. Our comprehensive line
of proven rodent control products, sold under brand names
such as Ramik® and Havoc®, address rodent problems of any
size and serve as a critical component of an overall biosecurity
plan for animal protein production operations. Our highly
effective insect control solutions utilize environmentally
friendly technical formulas, with several approved for use in
food establishments and by pest control professionals in a
wide range of environments. Brand names include Prozap®,
SureKill® and Standguard® insect control products.
Veterinary instruments. We market a broad line of veterinary
instruments and animal health delivery systems under the
Ideal brand name. Approximately 250 different products are
offered, including the Ideal® D3™ Needles, many of which are
used to deliver animal health products, such as antibiotics and
vaccines. Neogen’s Prima Tech® product line consists of highly
accurate devices used by farmers, ranchers and veterinarians
to inject animals with, as well as provide topical applications
and oral administration of these products.
Veterinary pharmaceuticals. Animal Safety’s NeogenVet
product line provides innovative, value-added, high-quality
products to the veterinary market. Top NeogenVet products
include PanaKare™, a digestive aid in replacement therapy
due to exocrine pancreatic insufficiency in dogs and cats and
RenaKare™, a supplement for potassium deficiency in dogs
and cats.
Veterinary biologics. 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.
Animal genomics services. Neogen Genomics provides
value-added services to leading agricultural genetics
providers, large national cattle associations, companion
animal breed registries and direct-to-consumer canine genetic
test providers, university researchers and commercial beef
and dairy cattle, swine, sheep and poultry producers. With
state-of-the-art genomics laboratories and comprehensive
bioinformatics to interpret genomics test results, Neogen
Genomics offers identity and trait determination and analysis.
This information has helped livestock producers increase the
speed of genetic improvement in their herds and the overall
performance and quality of their animals. Our December 2021
acquisition of Genetic Veterinary Sciences, Inc. expanded our
portfolio through the addition of a number of genetic tests for
companion animals, including dogs, cats and birds.
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Improved animal safety practices help allow farms to flourish,
safeguarding infrastructure and preventing contamination and
loss by stopping the spread of disease before it starts.
Our genomics services help breeders and producers to make
informed breeding decisions, investing in the health of the
animal from the beginning. The genetic data that we provide
allows our customers to put preventative measures into place
that enhance genetic build, creating stronger, healthier cattle,
poultry and swine with fewer resources.
When our customers operate in a manner that is sustainable,
the global food supply benefits, from behind the farm gate to
the dinner plate.
A Sustainable Future
We recognize that the key to our successful future growth is
creating an environment that is sustainable, diverse, equitable,
and inclusive to all of our customers, employees and
communities around the world.
Our commitment to operating in a way that is responsible,
socially conscious, and transparent is paramount, as we
believe that our continued growth depends on how we
manage the impact we have on our world.
Neogen recognizes our responsibility to assess the impact
we have on the environment and manage our resources in a
way that protects future generations. We also recognize that
Neogen, and the communities we are a part of, benefit from
creating a workplace where our colleagues and customers feel
seen, heard, and included. Finally, we remain dedicated to
maintaining a transparent reporting process and reaching our
business goals in a sustainable way.
When guided by the sustainability pillars of environmental,
social, and governance (ESG), all those who interact with our
company will benefit from our prioritization of healthy and
sustainable growth, including our employees, customers and
shareholders.
Creating Sustainable Systems
As a company, we provide products and services that help keep
the world’s food supply safe, while simultaneously supporting
sustainable practices of our customers. Our goal is to provide
our customers with products and services that help them
make a responsible impact on the planet through proper food
safety, integrated pest management, water treatment and
genetic selection.
Through the use of our products and services, farmers, producers,
and distributors are able to reduce feed and water waste,
increase efficiency, minimize pest damage and decrease the
spread of disease. By minimizing waste and building efficient
systems, our customers can nurture healthier animals and
crops, all while minimizing their costs.
Food safety testing solutions allow businesses to operate more
sustainably, promote customer confidence and abide by official
standards. By implementing robust testing protocols and
technologies, producers can save resources and time, while
reducing foodborne illness and waste due to mycotoxins, allergens,
and pathogens.
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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 2023, we experienced higher than normal input
cost inflation, including increases in certain raw materials,
labor costs and supply chain pressure that negatively impacted
operating results. Pricing actions taken during fiscal 2022 and
2023 mitigated some, but not all, of the inflationary pressures on
the business. Ongoing inflation also could have an impact on our
customer’s purchasing decisions and order patterns. We estimate
inflation will continue to affect us in fiscal year 2024, although at
a decreasing rate compared to the prior two fiscal years.
Although we have no operations in or direct exposure to Russia,
Belarus and Ukraine, we have experienced intermittent shortages
in materials and increased costs for transportation, energy and
raw materials due, in part, to the negative impact of the Russia-
Ukraine military conflict, which began in February 2022, on the
global economy. Our European operations and customer base
have been adversely impacted by the conflict. As the conflict
continues or worsens, it may further impact our business, financial
condition or results of operations during fiscal year 2024.
While the impact of the COVID-19 global pandemic was more
modest in fiscal 2023, it continued to impact our business
operations and financial results, particularly in the first half of the
fiscal year in Asia. A number of our product lines were negatively
impacted due to vendor disruptions, border closures, shipping
issues and labor shortages. Broadly speaking, many of our
markets have recovered or are recovering from the pandemic,
as supply chain difficulties and shipping costs have decreased. A
renewed outbreak of COVID-19 could result in further uncertainty
and business disruptions. However, the current trend is positive
and negative impacts appear to be moderating.
Overall, the impact of inflation, the Russia-Ukraine military
conflict and COVID-19 remains uncertain. We continue to
evaluate the nature and extent to which these issues impact
our business, including supply chain, labor availability and
attrition, consolidated results of operations, financial condition
and liquidity. We expect these issues to continue to impact us
throughout fiscal year 2024.
Critical Accounting Estimates
The discussion and analysis of our financial condition and
results of operations are based on the consolidated financial
statements that have been prepared in accordance with
accounting principles generally accepted in the United States.
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. Actual results may differ from these estimates
under different assumptions or conditions.
The following critical accounting estimates reflect management’s
more significant judgments 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
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or from our historical income tax provisions and accruals. The
results of an audit or litigation could have a material effect on
operating results and/or cash flows in the periods for which that
determination is made. In addition, future period earnings may
be adversely impacted by litigation costs, settlements, penalties,
and/or interest assessments.
As of May 31, 2023, the Company has approximately $153
million of undistributed earnings in its foreign subsidiaries.
Approximately $41 million of these earnings are no longer
considered permanently reinvested. The incremental tax cost to
repatriate these earnings to the U.S. is immaterial. The Company
has not provided deferred taxes on approximately $112 million
of undistributed earnings from non-U.S. subsidiaries as of May
31, 2023 which are indefinitely reinvested in operations. Based
on historical experience, as well as management’s future plans,
earnings from these subsidiaries will continue to be re-invested
indefinitely for future expansion and working capital needs. On
an annual basis, we evaluate the current business environment
and whether any new events or other external changes might
require future evaluation of the decision to indefinitely re-invest
these foreign earnings. It is not practical to determine the income
tax liability that would be payable if such earnings were not
reinvested indefinitely.
Additionally, the company has elected to treat Global Intangible
Low Tax Income (“GILTI”), as a period cost, and therefore, has not
recognized deferred taxes for basis differences that may reverse
as GILTI tax in future years.
Business Combinations and Customer
Relationships Intangibles
We utilize the acquisition method of accounting for business
combinations. 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.
As described in Note 3 “Business Combinations” to the
consolidated financial statements, on September 1, 2022, we
completed a transaction combining 3M’s food safety division with
Neogen in a Reverse Morris Trust transaction for consideration
of approximately $3.2 billion, which resulted in recording of
a customer relationships intangible assets valued at $1.17
billion. We determined the fair value of the acquired customer
relationships intangible assets by applying the multi-period
excess earnings method, which involved the use of significant
estimates and assumptions related to forecasted revenue growth
rate and customer attrition rate. Valuation specialists were used
to develop and evaluate the appropriateness of the multi-period
10
excess earnings method, our discount rates, our attrition rate and
our fair value estimates using our cash flow projections.
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.
Our estimates of fair value are based on assumptions believed
to be reasonable at that time. If we made different estimates or
judgments, it could result in material differences in the fair values
of the net assets acquired.
Goodwill
We record goodwill when the purchase price of acquired
businesses exceeds the value of their identifiable net tangible
and intangible assets acquired. We periodically evaluate
goodwill for impairment in accordance with the accounting
guidance for goodwill and other indefinite-lived intangibles
that are not amortized. We review our goodwill for impairment
annually during the fourth quarter. In addition, we review
goodwill for impairment whenever adverse events or changes in
circumstances indicate a possible impairment.
This review is performed at the reporting unit level, and involves
a comparison of the fair value of the reporting unit with its
carrying amount, including goodwill. If the fair value of the
reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not considered impaired. If the carrying amount
of the reporting unit exceeds its fair value, an impairment loss is
recognized in an amount equal to the excess carrying value over
fair value.
In performing goodwill impairment testing, we utilize a third-
party valuation specialist to assist management in determining
the fair value of our reporting units. Fair value of each reporting
unit is estimated based on a combination of discounted cash
flows and the use of pricing multiples derived from an analysis of
comparable public companies multiplied against historical and/
or anticipated financial metrics of each reporting unit. These
calculations contain uncertainties as they require management
to make assumptions including, but not limited to, market
comparables, future cash flows of the reporting units, and
appropriate discount and long-term growth rates.
During fiscal year 2023, our business was organized into
two reporting units: Food Safety and Animal Safety. The
determination of our reporting units and impairment indicators
also require us to make significant judgments.
As a result of our test in the fourth quarter of fiscal year 2023, we
determined that the fair value of our reporting units exceeded
their respective carrying values. As such, the annual impairment
analysis resulted in no impairment in fiscal year 2023.
Results of Operations
Executive Overview
(In thousands, except earnings per share)
Consolidated
Revenues
Core Sales Growth
Food Safety
Revenues
Core Sales Growth
Animal Safety
Revenues
Core Sales Growth
% of International Sales
Effective Tax Rate
Net Income
Earnings per Diluted Share
Cash from Operations
May 31, 2023
May 31, 2022
Change
$
822,447
$
527,159
$
546,797
$
259,979
$
275,650
$
267,180
48%
(3.8)%
$
$
$
(22,870)
(0.12)
41,028
$
$
$
40%
19.8%
48,307
0.45
68,038
56%
4%
110%
6%
3%
2%
-147%
•
•
•
Food Safety fiscal year 2023 core sales exclude revenues from the acquisitions of Corvium (February 2023), 3M FSD (September 2022), Thai-Neo
Biotech (July 2022), and Delf/Abbott Analytical (November 2021) and also excludes the impact of changes in currency rates.
Food Safety revenues include $279.5 million from 3M FSD, which we combined with on September 1, 2022. All of the global revenue from this
business is reported within the Food Safety segment.
Animal Safety fiscal year 2023 core sales exclude revenues from the acquisitions of Genetic Veterinary Sciences (December 2021) and CAPInnoVet
(September 2021) and also excludes the impact of changes in currency rates.
International Revenue
Neogen’s international revenues were $398.4 million in fiscal year 2023, compared to $209.3 million in fiscal 2022, an increase of 90%.
Revenues from 3M FSD drove the international sales increase. Since September 1, 2022, 67% of 3M FSD revenues were international
sales, compared to Neogen’s historical average of approximately 40%.
Revenue changes, expressed in percentages, for fiscal 2023 compared to the prior year are as follows for the legacy business at each of
our international locations:
U.K. Operations (including Neogen Italia)
Megazyme
Brazil Operations
Neogen Latinoamerica
Neogen Argentina
Neogen Uruguay
Neogen Chile
Neogen China
Neogen India
Neogen Canada
Neogen Australasia
Revenue Change –
USD
Revenue Change –
Local Currency
(3)%
(3)%
11%
10%
(5)%
(1)%
16%
(11)%
2%
(6)%
3%
9%
6%
10%
4%
48%
(9)%
24%
(4)%
11%
0%
11%
Excluding the December 2021 acquisition of Delf, sales at our U.K. operations increased 5% in local currency, which was led by increased
sample volume in the pig and poultry markets. In local currency, revenue in Brazil increased 10% in fiscal 2023, driven by strong sales
of the company’s natural toxin test kits, including tests to detect aflatoxin in corn, as well as increases in insect and rodent control
products, and genomics testing. In local currency, Neogen Latinoamerica revenues rose by 4% in fiscal 2023, led by our diagnostic
testing portfolio and culture media.
China’s revenue decreased 4% in local currency, which was primarily the result of COVID-19 lockdowns in the first half of the fiscal year.
In local currency, revenue at Neogen Australasia increased 11% in fiscal 2023, led by increased sales of bovine genomic services.
11
Service Revenue
Service revenue, which consists primarily of genomics services to animal protein and companion animal markets, was $107.4 million in
fiscal 2023, an increase of 5% over prior fiscal year sales of $102.5 million. The increase was primarily driven by growth in the U.S. beef
and companion animal markets for genomics testing and higher sales of our Neogen Analytics software as a service (SaaS) product.
These increases were partially offset by COVID-related shutdowns in China in the first half of fiscal 2023 and lower genomics sales to the
U.S. porcine and poultry markets, as two significant customer shifted to lower-cost competitors.
Revenues
(Dollars in thousands)
Food Safety:
Natural Toxins, Allergens & Drug Residues
Bacterial & General Sanitation
Culture Media & Other
Rodent Control, Insect Control & Disinfectants
Genomics Services
Animal Safety:
Life Sciences
Veterinary Instruments & Disposables
Animal Care & Other
Rodent Control, Insect Control & Disinfectants
Genomics Services
Total Revenue
May 31, 2023
Year Ended
May 31, 2022
Change
$
$
$
$
82,567
134,934
267,178
39,655
22,463
546,797
6,254
63,843
39,068
87,423
79,062
275,650
822,447
$
$
$
$
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%
185%
255%
11%
1%
110%
10%
0%
(2)%
5%
7%
3%
56%
Year Ended May 31, 2023 Compared to Year Ended May 31, 2022
Food Safety
Natural Toxins, Allergens & Drug Residues – Revenues in this
category increased 4% in fiscal 2023. Excluding sales of the
acquired allergen product line from 3M FSD, sales in this category
decreased 3% due to a large decline in sales of drug residue test
kits that were largely discontinued in fiscal 2023.
Rodent Control, Insect Control & Disinfectants – Sales
of products in this category sold through our Food Safety
operations increased 11% in fiscal 2023 compared to the prior
fiscal year. Excluding the November 2021 acquisition of Delf, the
increase was 4%, led by higher sales of cleaners and disinfectants
in China.
Bacterial & General Sanitation – Sales in this category increased
185% in fiscal 2023 compared to the prior fiscal year. Excluding
the contribution of the Clean-Trace® line of general sanitation
products and the pathogen test kit product line, both acquired
from 3M FSD, organic sales in this category were flat for the
full year. A 3% increase in sales of our Soleris line of spoilage
detection consumables was offset by a decline in sales of our
AccuPoint line of general sanitation products, primarily caused
by lack of supply of critical components for our reader.
Culture Media & Other – Sales in this category increased 255%
in fiscal 2023 compared to the prior fiscal year, driven primarily
from revenues resulting from 3M FSD. Excluding sales of the
Petrifilm indicator organism and sample handling product lines
acquired in the Transaction, sales rose 7% for the year. Culture
media revenues rose 13%, primarily due to a large custom order
in the third quarter of the year. Additionally, sales of our Neogen
Analytics software as a service platform increased significantly
during the year, with approximately 250 sites now on contract.
Genomics Services – Sales of genomics services sold through our
Food Safety operations increased 1% in fiscal 2023 compared to
the prior fiscal year, with increases in beef business in Brazil and
the U.K. partially offset by a decline in sample volumes in China,
as the first half of the fiscal year was negatively impacted by
COVID-19 shutdowns.
Animal Safety
Life Sciences – Sales in this category increased 10% in fiscal 2023
compared to the prior fiscal year, primarily due to higher demand
from customers purchasing substrates and reagents used in
clinical diagnostic test kits.
Veterinary Instruments & Disposables – Sales in this category
were flat in fiscal 2023 compared to the prior fiscal year, as
significant increases in cohesive wrap business won in the
second half of the year were offset by lower sales of veterinary
instruments, reflecting difficult comparisons to large stocking
orders of needles and syringes in the prior year from new
business earned in that period.
12
Animal Care & Other – Sales of these products decreased 2%
in fiscal 2023 compared to the prior fiscal year. Lower sales of
vitamin injectables and veterinary antibiotics, primarily due to
supply constraints, more than offset a 7% increase in sales of
vaccines and biologics products and a 4% increase in sales of
small animal supplements.
Rodent Control, Insect Control & Disinfectants – Sales in this
category increased 5% in fiscal 2023, compared to the prior fiscal
year. Cleaner and disinfectants sales rose 11% on new business
earned, insect control product sales increased 6%, and rodenticide
revenues increased 1%, each compared to the prior year.
Genomics Services – Sales in this category increased 7% in fiscal
2023 compared to the prior fiscal year. Excluding the December
2021 acquisition of Genetic Veterinary Sciences, the growth was
2%. Growth was led by increases in beef and dairy cattle testing
in the U.S., Canada and Australia, and strength in domestic
companion animal revenues. These increases were partially
offset by declines in porcine and poultry testing revenues, due to
the loss of two large customer to lower cost competitors.
Gross Margin
Gross margin, expressed as a percentage of sales, was 49.4% during
fiscal year 2023 compared to 46.1% during the prior fiscal year.
The increase was primarily due to the incremental revenues from
the 3M FSD merger, which generated gross margin higher than the
legacy company average margin. Within each reporting segment,
increased raw material costs pressured gross margins in certain
product lines. However, freight costs declined significantly during
the comparative period particularly benefitting the Animal Safety
segment, although they remained higher than pre-pandemic levels
in some areas. Pricing actions taken during the year also mitigated
the impact of cost increases.
Operating Expenses
(Dollars in thousands)
2023
2022
Change
Sales and Marketing
$ 141,222
$
84,604
General and Administrative
201,179
82,742
Research and Development
Total Operating Expense
26,039
$ 368,440
17,049
$ 184,395
67%
143%
53%
100%
Operating expenses were $368.4 million during fiscal year
2023, compared to $184.4 million during the prior fiscal year.
The increase was primarily the result of $58.2 million of legal,
consulting and other expenses related to the 3M FSD transaction
and incremental ongoing expenses resulting from the employees
who conveyed over to Neogen from 3M FSD and the amortization
of intangible assets acquired in the Transaction.
Sales and Marketing
Sales and marketing expenses were $141.2 million during fiscal
year 2023, compared to $84.6 million during the prior fiscal
year. The increase in expense was due primarily to $45.4 million
in costs incurred for the 3M FSD business, primarily consisting
of compensation and related expenses for the conveying 3M
FSD sales and marketing team, and the charges for transition
services provided by 3M FSD. These invoicing and distribution
services will be provided under contract for a period of up to
18 months, concluding by March 1, 2024. The remainder of the
increase during the year was due primarily to higher personnel
related spending in the legacy business, the result of headcount
additions and compensation increases. In addition, travel, trade
shows and other customer facing activities continued to increase
during the year with the easing of COVID-19 restrictions and
greater willingness by customers to interact.
General and Administrative
General and administrative expenses were $201.2 million during
fiscal year 2023, compared to $82.7 million during the prior
fiscal year. The current fiscal year included $58.2 million in
transaction fees and integration expenses resulting from the 3M
FSD transaction and $60.9 million in amortization of intangible
assets acquired in the Transaction. Remaining increases for
the year were primarily the result of additional personnel hired
to accommodate the increased size and complexity of the
organization, compensation increases across the organization,
the issuance of share based compensation grants, software
license fees and other information technology infrastructure
investments. Fiscal year 2022 included $25.6 million of 3M FSD-
related transaction fees.
Research and Development
Research and development expense was $26.0 million in fiscal
year 2023, compared to $17.0 million during the prior fiscal year.
The increase was primarily the result of $8.4 million of ongoing
costs associated with the conveying 3M FSD employees.
Operating Income
Operating income was $37.5 million during fiscal year 2023,
compared to operating income of $58.6 million in the prior fiscal
year. Expressed as a percentage of sales, operating income was
4.6% during fiscal year 2023 and 11.1% during fiscal year 2022.
Operating income, both in dollars and expressed as a percentage
of sales, declined compared to the prior year period primarily due
to transaction costs resulting from the 3M FSD transaction and
amortization of the intangible assets acquired.
13
Other (Expense) Income
Other (Expense) Income for the previous two fiscal years
consisted of the following:
(Dollars in thousands)
2023
Interest income
Interest expense
Foreign currency transactions
Loss on sale of minority interest
Loss on investment
Contingent consideration
adjustments
Other
Total Other Income
$
3,166
$
(55,961)
(5,322)
(1,516)
(500)
300
276
(59,557)
$
$
2022
1,339
(72)
(40)
—
—
220
142
1,589
The net interest expense recorded during fiscal year 2023 was the
result of debt incurred to fund the 3M FSD transaction. In fiscal
2022, the Company had no debt outstanding. Interest income
relates to earnings on our marketable securities portfolio. Higher
yields on the portfolio were partially offset by lower balances in
fiscal year 2023. Other expense resulting from foreign currency
transactions was the result of changes in the value of foreign
currencies relative to the U.S. dollar in countries in which we
operate. The increase in expense during fiscal year 2023 was due
to U.S. dollar denominated intercompany loans incurred in our
international subsidiaries as the result of the 3M FSD transaction
on September 1, 2022. Due to our acquisition of Corvium, Inc. in
February 2023, we recorded a loss of $1.5 million in fiscal year
2023 on dissolution of our minority interest in that company.
Finally, we recorded a loss on investment during fiscal year 2023
related to our investment interest of a start-up entity that was
encountering liquidity issues.
Provision for Income Taxes
Income tax expense during fiscal year 2023 was $0.8 million,
compared to $11.9 million in the prior fiscal year, primarily
resulting from the additional pre-tax loss due to the 3M FSD
acquisition, share-based compensation, and foreign rate
differential. This was offset primarily by an increase in GILTI
income and nondeductible transaction costs.
The total amounts of unrecognized tax benefits that, if recognized,
would affect the effective tax rate as of May 31, 2023 and May 31,
2022 are $1.1 million and $0.8 million, respectively. The increase
in unrecognized tax benefits is primarily associated with the
combined 3M FSD, including positions for transfer pricing and
research and development credits.
Net Income And Income Per Share
Net loss was $22.9 million during fiscal year 2023, compared to
net income of $48.3 million in the prior fiscal year. The decrease
in earnings was primarily the result of $56.0 million of interest
expense from the $1 billion in debt incurred in the Transaction,
$59.8 million of transaction fees and integration expenses, and
14
$60.9 million in incremental amortization expenses related to 3M
FSD intangibles.
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, Adjusted EBITDA margin, adjusted net income and
adjusted earnings per share. 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 share-based
compensation and certain transaction fees and expenses. We
present Adjusted EBITDA because it provides an understanding of
underlying business performance by excluding the following:
•
•
•
•
Share-based compensation. We believe it is useful to exclude
share-based compensation to better understand the long-
term performance of our core business and to facilitate
comparison with the results of peer companies.
FX translation gain/(loss) on loan revaluation. We exclude the
revaluation impacts of foreign currency fluctuations on our
intercompany loan balances.
Certain transaction fees and expenses. We exclude fees and
expenses related to certain transactions because they are
outside of Neogen’s underlying core performance. These
fees and expenses include deal related professional and
legal fees and foreign currency transactions.
Impairment and scrap of discontinued product lines.
We exclude expenses associated with impairments and
inventory scrap amounts related to certain discontinued
product lines.
Other one-time adjustments. We exclude one-time
•
adjustments recorded within operating or other (expense)
income to better understand the long-term performance of
our core business.
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.
Adjusted Net Income
We define Adjusted Net Income as Net Income, adjusted for
share-based compensation, FX translation gain/(loss) on loan
revaluation, certain transaction fees and expenses, impairment
and scrap of discontinued product lines and other one-time
adjustments, all of which are tax effected.
Adjusted Earnings per Share
We define Adjusted Earnings per Share as Adjusted Net Income
divided by diluted average shares outstanding.
These non-GAAP financial measures are presented for
informational purposes only. EBITDA, Adjusted EBITDA, Adjusted
EBITDA margin, Adjusted Net Income and Adjusted Earnings
per Share are not recognized terms under GAAP and should not
be considered in isolation or as a substitute for, or superior to,
net income (loss), operating income, cash flow from operating
activities or other measures of financial performance. 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, Adjusted EBITDA
margin, Adjusted Net Income and Adjusted Earnings per Share
may not be comparable to similarly titled measures used by other
companies or persons due to potential differences in the method
of calculation.
These non-GAAP financial measures have limitations as analytical
tools. 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.
A reader should compensate for these limitations by relying
primarily on the financial statements of Neogen and using these
non-GAAP financial measures only as a supplement to evaluate
Neogen’s performance.
For each of these non-GAAP financial measures below, we are
providing a reconciliation of the differences between the non-GAAP
measure and the most directly comparable GAAP measure.
Reconciliation between net income and EBITDA and Adjusted EBITDA is as follows:
(Dollars in thousands)
Net (Loss) Income
Net income margin %
Provision for income taxes
Depreciation and amortization
Interest expense (income), net
EBITDA
Share-based compensation
FX transaction loss (gain) on loan revaluation(1)
Certain transaction fees and integration costs
Contingent consideration adjustments
Restructuring
Loss on sale of minority interest
Loss on investment
Impairment and scrap of discontinued product lines(2)
Inventory step-up charge
Adjusted EBITDA
Adjusted EBITDA margin %
Year ended May 31
2023
2022
2021
$
(22,870)
$
48,307
$
60,882
(2.8)%
828
88,377
52,795
$ 119,130
10,177
5,226
59,812
(300)
475
1,516
500
5,639
3,245
$ 205,420
9.2%
13.0%
$
11,900
23,694
(1,267)
82,634
7,154
—
25,581
—
—
—
—
—
—
$ 115,369
$
14,386
21,041
(1,614)
94,695
6,437
—
3,085
—
—
—
—
—
—
$ 104,217
25.0%
21.9%
22.2%
(1) Net foreign currency transaction loss (gain) associated with the revaluation of non-functional currency intercompany loans established in connection with FSD transaction.
(2) Expenses associated with intangible asset impairments and inventory scrap amounts related to certain discontinued product lines.
15
Adjusted EBITDA increased $90.1 million in fiscal year 2023 compared to fiscal year 2022, primarily due to earnings generated from the
3M FSD business, which combined with Neogen on September 1, 2022. Expressed as a percentage of revenue, adjusted EBITDA was
25.0% in fiscal year 2023 compared to 21.9% in fiscal year 2022. Increases in the margin reflect the higher margin products sold by the
3M FSD business, which was not a part of the Company in the prior fiscal year.
Reconciliation between net income and Adjusted Net Income and earnings per share and Adjusted Earnings per Share are as follows:
(Dollars in thousands, except earnings per share)
Net Income (Loss)
Earnings per diluted share
Amortization of acquisition-related intangibles
Share-based compensation
FX transaction loss (gain) on loan revaluation(1)
Certain transaction fees and integration costs
Contingent consideration adjustments
Restructuring
Loss on sale of minority interest
Loss on investment
Impairment and scrap of discontinued product lines(2)
Inventory step-up charge
Other adjustments(3)
Estimated tax effect of above adjustments(4)
Adjusted Net Income
Adjusted Earnings per Share
2023
$
$
(22,870)
(0.12)
68,690
10,177
5,226
59,812
(300)
475
1,516
500
5,639
3,245
5,864
(32,323)
$ 105,651
$
0.56
Year ended May 31
2022
2021
$
$
48,307
0.45
7,235
7,154
—
25,581
—
—
—
—
—
—
—
(9,017)
79,260
0.73
$
$
$
$
$
$
60,882
0.57
6,271
6,437
—
3,085
—
—
—
—
—
—
—
(1,904)
74,771
0.70
(1) Net foreign currency transaction loss (gain) associated with the revaluation of non-functional currency intercompany loans established in connection with the
3M FSD transaction.
(2) Expenses associated with intangible asset impairments and inventory scrap amounts related to certain discontinued product lines.
(3) Income tax benefit associated with non-deductible transaction costs that were recognized as expense in prior periods.
(4) Tax effect of adjustments is calculated using projected effective tax rates for each applicable item.
Adjusted Net Income increased $26.4 million during the twelve months ended May 31, 2023 due to the higher Adjusted EBITDA.
Future Operating Results
Neogen Corporation’s future operating results involve a number
of risks and uncertainties. Actual events or results may differ
materially from those discussed in this report. Factors that could
cause or contribute to such differences include, but are not
limited to, the factors discussed below as well as those discussed
elsewhere in this report. Management’s ability to grow the
business in the future depends upon our ability to successfully
implement various strategies, including:
•
•
developing, manufacturing and marketing new products
with new features and capabilities, and having those new
products successfully accepted in the marketplace;
expanding our markets by fostering increased use of our
products by customers;
• maintaining or increasing gross and net operating margins in
changing cost environments;
•
•
•
strengthening operations and sales and marketing activities
in geographies outside of the U.S.;
developing and implementing new technology development
strategies; and
identifying and completing acquisitions that enhance
existing product categories or create new products
or services, and successfully integrating completed
acquisitions, including the FSD transaction.
Financial Condition and Liquidity
As of May 31, 2023, the overall cash, cash equivalents and
marketable securities position of Neogen was $245.6 million.
During the fiscal year ended 2023, cash generated from operating
activities was $41.0 million, compared to $68.0 million generated
in fiscal 2022. The decrease was primarily the result of 3M FSD
transaction costs and the addition of FSD accounts receivable.
Cash flow from investing activities was $201.0 million during the
16
fiscal year ended 2023, which was primarily the result of proceeds
from the sale of marketable securities of $266.8 million. This was
partially offset by purchases of property, equipment and non-
current intangible assets of $65.8 million. Cash flow for financing
activities was $118.1 million during the fiscal year ended 2023, which
was primarily the result of the Company paying down $100 million
of the $1 billion in debt taken on to enact the FSD transaction.
Net accounts receivable balances were $153.3 million as of May 31,
2023 compared to $99.7 million as of May 31, 2022. Days’ sales
outstanding, a measurement of the time it takes to collect
receivables, for the legacy business was 57 days as of May 31, 2023,
compared to 62 days as of May 31, 2022. The increase in receivables
is primarily attributable to the recording of FSD customer balances,
currently managed by 3M as a transition service.
As part of transition services agreements between the Company
and 3M, related to the merger of the Food Safety business, 3M is
invoicing our customers for products that 3M is manufacturing
and shipping on our behalf. As of May 31, 2023, there were $57.3
million in customer receivables billed by 3M on our behalf. The
Company is working collaboratively with 3M on managing the
credit risk associated with the former FSD customers during the
period while 3M is providing transition invoicing and distribution
services to the Company.
Net inventory was $133.8 million as of May 31, 2023, an increase
of $11.5 million, compared to $122.3 million as of May 31, 2022.
The higher inventory levels are primarily the result of ongoing
inflationary pressures on raw materials at our legacy businesses
and raw material inventories purchased to support the FSD.
Supply chain issues have moderated throughout fiscal 2023, and
we continue to monitor our key raw materials to ensure adequate
stock on hand.
Debt and Liquidity
On September 1, 2022, Neogen, 3M, and Neogen Food Safety
Corporation, a subsidiary of 3M created to carve out 3M’s Food
Safety business, closed on the Transaction that previously was
announced in December 2021, combining 3M’s Food Safety
business with Neogen in a Reverse Morris Trust transaction.
On June 30, 2022, Neogen Food Safety Corporation entered
into a credit agreement consisting of a five-year senior secured
term loan facility in the amount of $650 million and a five-year
senior secured revolving facility in the amount of $150 million
(collectively, the “Credit Facilities”), which became available in
connection with the merger and related transactions. The loan
facility was funded to Neogen Food Safety Corporation on August
31, 2022, and upon the effectiveness of the merger on September
1, 2022, became Neogen’s obligation. Financial covenants include
maintaining specified levels of funded debt to EBITDA and debt
service coverage. Pricing for the term loan is term SOFR plus
235 basis points. The Credit Facilities, together with the Notes
described below, represent the financing incurred in connection
with the merger of the 3M FSD with Neogen. In September 2022,
we paid down $60 million in principal on the term loan and paid
an additional $40 million in principal on the term loan in December
2022, in order to decrease the outstanding debt balance.
On July 20, 2022, Neogen Food Safety Corporation closed on an
offering of $350 million aggregate principal amount of 8.625%
senior notes due 2030 (the “Notes”) in a private placement at
par. The Notes were initially issued by Neogen Food Safety
Corporation to 3M and were transferred and delivered by 3M to
the selling securityholder in the offering, in satisfaction of certain
of 3M’s existing debt. Neogen Food Safety Corporation did not
receive any proceeds from the sale of the Notes by the selling
securityholder. Prior to the distribution of the shares of Neogen
Food Safety Corporation’s common stock to 3M stockholders,
the Notes were guaranteed on a senior unsecured basis by 3M.
Upon consummation of such distribution, 3M was released from
all obligations under its guarantee. Upon the effectiveness of the
merger on September 1, 2022, the Notes became guaranteed on
a senior unsecured basis by Neogen and certain wholly-owned
domestic subsidiaries of Neogen.
In addition to the 3M transaction described above, our future cash
generation and borrowing capacity may not be sufficient to meet
cash requirements to fund the operating business, repay debt
obligations, construct new manufacturing facilities, commercialize
products currently under development or execute our future plans
to acquire additional businesses, technology and products that
fit within our strategic plan. Accordingly, we may be required, or
may choose, to issue additional equity securities or enter into other
financing arrangements for a portion of our future capital needs.
There is no guarantee that we will be successful in issuing additional
equity securities or entering into other financing arrangements.
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.
17
Contractual Obligations
As of May 31, 2023, we have the following contractual obligations due by period:
(Dollars in thousands)
Long-Term Debt
Interest Obligations
Operating Leases
Purchase Obligations (1)
$
Total
900,000 $
351,649
13,895
100,148
$ 1,365,692 $
Less than
one year
1–3 years
4–5 years
— $
— $
69,162
3,542
95,620
168,324 $
125,956
5,739
4,411
136,106 $
550,000 $
92,047
2,729
117
644,893 $
More than
5 years
350,000
64,484
1,885
—
416,369
(1) 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 legacy operations in fiscal 2024 is $30 to $40 million. We also expect to spend approximately $120 million over the next two fiscal
years to construct a manufacturing facility in Lansing, Michigan to produce a significant portion of the acquired FSD products and to
add additional production capacity for projected growth of existing product lines. Additionally, we expect to spend approximately $30
million over the next two fiscal years to implement a new enterprise resource planning solution.
Consolidated Balance Sheets
Assets
(In thousands)
Current Assets
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total Current Assets
Property and Equipment
Land and improvements
Building 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
Other non-current assests
Total Other Assets
Total Assets
18
$
May 31
2023
2022
$
163,240
82,329
153,253
133,812
53,297
585,931
10,209
96,794
152,547
7,080
52,237
318,867
(120,118)
198,749
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
11,933
2,137,496
14,316
1,590,787
15,220
3,769,752
$ 4,554,432
See accompanying notes to consolidated financial statements.
3,184
142,704
15,397
92,106
2,156
255,547
992,929
$
Liabilities and Stockholders’ Equity
(In thousands, except shares and per share)
Current Liabilities
Accounts payable
Accrued compensation
Income tax payable
Accrued interest
Deferred revenue
Other accruals
Total Current Liabilities
Deferred Income Tax Liability
Non-Current Debt
Other Non-Current Liabilities
Total Liabilities
Commitments and Contingencies (Note 7)
Stockholders’ Equity
May 31
2023
2022
$
$
76,669
25,153
6,951
11,149
4,616
20,934
145,472
353,427
885,439
35,877
1,420,215
34,614
11,123
2,126
—
5,460
24,521
77,844
17,011
—
10,700
105,555
Preferred stock, $1.00 par value – shares authorized 100,000; none issued and outstanding
Common stock, $0.16 par value — shares authorized 315,000,000; 216,245,501 and
—
—
107,801,094 shares issued and outstanding at May 31, 2023 and 2022, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
Revenues
(In thousands, except per share)
Product revenues, net
Service revenues, net
Total Revenues, net
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 (Expense) Income
Interest income
Interest expense
Other, net
Total Other (Expense) Income
(Loss) Income Before Taxes
Provision for Income Taxes
Net (Loss) Income
Net (Loss) Income per Share
Basic
Diluted
Weighted Average Shares Outstanding
Basic
Diluted
17,248
34,599
309,984
2,567,828
(27,769)
(33,251)
587,911
565,041
887,374
3,134,217
992,929
$ 4,554,432
See accompanying notes to consolidated financial statements.
$
$
Year Ended May 31
$
2023
715,076
107,371
822,447
354,707
61,785
416,492
405,955
141,222
201,179
26,039
368,440
37,515
3,166
(55,961)
(6,762)
(59,557)
(22,042)
828
(22,870)
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
1,339
(72)
322
1,589
60,207
11,900
48,307
$
$
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
(78)
(515)
1,099
75,268
14,386
60,882
$
$
(0.12)
(0.12)
$
$
0.45
0.45
$
$
0.57
0.57
188,881
188,881
107,684
108,020
106,499
107,120
See accompanying notes to consolidated financial statements.
19
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Net (Loss) Income
Other comprehensive (loss) income:
Foreign currency translations
Unrealized gain (loss) on marketable securities, net of tax of $389, $(728), and $(80)
Unrealized loss on derivative instruments, net of tax of $(644)
Other comprehensive (loss) income, net of tax:
Comprehensive (loss) income
Consolidated Statements of Stockholders’ Equity
Year Ended May 31
2023
2022
2021
$
(22,870)
$
48,307
$
60,882
(4,796)
1,353
(2,039)
(5,482)
(28,352)
$
$
(13,955)
(2,439)
—
(16,394)
31,913
8,602
(268)
—
8,334
$
69,216
See accompanying notes to consolidated financial statements.
Common Stock
Shares
105,891,682
Amount
$ 16,943
Additional
Paid-in
Capital
$ 249,221
Accumulated
Other
Comprehensive
Income (Loss)
$ (19,709)
1,410,948
226
39,454
38,406
6
1,382
127,268
—
—
20
—
—
4,896
—
—
Retained
Earnings
$ 478,722
Total
Equity
$ 725,177
—
39,680
—
1,388
—
4,916
—
—
—
—
60,882
60,882
8,334
—
8,334
107,468,304
$ 17,195
$ 294,953
$ (11,375)
$ 539,604
$ 840,377
289,334
46
13,162
43,456
—
—
7
—
—
1,869
—
—
—
—
—
13,208
—
1,876
—
48,307
48,307
(16,394)
—
(16,394)
107,801,094
$ 17,248
$ 309,984
$ (27,769)
$ 587,911
$ 887,374
79,857
13
10,483
94,604
15
1,843
108,269,946
17,323
2,245,518
—
—
—
10,496
—
1,858
—
—
—
—
—
—
—
(22,870)
(5,482)
—
2,262,841
(22,870)
(5,482)
216,245,501
34,599
2,567,828
(33,251)
565,041
3,134,217
See accompanying notes to consolidated financial statements.
(In thousands, except shares)
Balance, June 1, 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
Balance, May 31, 2021
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
Exercise of options, RSUs and share-based
compensation expense
Issuance of shares under
employee stock purchase plan
Issuance of shares for 3M transaction
Net loss for 2023
Other comprehensive loss
Balance, May 31, 2023
20
Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization
Impairment of discontinued product lines
Loss on sale of minority interest and investment
Deferred income taxes
Share-based compensation
Gain on disposal of property and equipment
Amortization of debt issuance costs
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable, accruals and changes
Interest expense accrual
Changes in other non-current assets and non-current liabilities
Net Cash From Operating Activities
Year ended May 31
2023
2022
2021
$
(22,870)
$
48,307
$
60,882
88,377
3,109
2,016
(19,230)
10,177
(486)
2,720
(53,879)
9,955
(3,121)
18,642
4,052
1,566
41,028
23,694
21,041
—
—
(4,695)
7,154
—
—
(7,798)
(21,072)
(4,054)
20,238
—
6,264
68,038
—
—
(640)
6,437
—
—
(2,595)
2,450
(3,386)
(2,221)
—
(879)
81,089
Cash Flows From (For) Investing Activities
Purchases of property, equipment and other non-current intangible assets
Proceeds from the maturities of marketable securities
Purchases of marketable securities
Proceeds from the sale of property and equipment
Business acquisitions, net of working capital adjustments and cash acquired
Net Cash From (For) Investing Activities
(65,757)
266,772
(12,523)
826
11,721
201,039
(24,429)
381,839
(415,894)
—
(38,745)
(97,229)
(26,712)
764,597
(792,678)
—
(50,771)
(105,564)
Cash Flows From (For) Financing Activities
Exercise of stock options and issuance of employee stock
purchase plan shares
Debt issuance costs paid
Repayment of debt
Payment of contingent consideration
Net Cash (For) From Financing Activities
Effects of Foreign Exchange Rate on Cash
Net Increase (Decrease) In Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
Supplementary Cash Flow Information
Cash paid for interest
Income taxes paid, net of refunds
1,195
(19,276)
(100,000)
—
(118,081)
(5,219)
118,767
44,473
7,933
34,631
—
—
(1,120)
6,813
(8,751)
(31,129)
75,602
—
—
(1,087)
33,544
264
9,333
66,269
$ 163,240
$
44,473
$
75,602
$
$
42,616
15,473
72
78
$
17,242
$
14,966
See accompanying notes to consolidated financial statements.
21
Notes to Interim Consolidated Financial Statements
1. Summary of Significant
Accounting Policies
Description of Business
Neogen Corporation and subsidiaries (“Neogen,” “we,” “our,” or
the “Company”) develop, manufacture and market a diverse line
of products and services dedicated to food and animal safety.
Our Food Safety segment consists primarily of diagnostic test
kits and complementary products (e.g., culture media) sold
to food producers and processors to detect dangerous and/or
unintended substances in human food and animal feed, such
as foodborne pathogens, spoilage organisms, natural toxins,
food allergens, genetic modifications, ruminant by-products,
meat speciation, drug residues, pesticide residues and general
sanitation concerns. The majority of the diagnostic test kits
are disposable, single-use, immunoassay and DNA detection
products that rely on proprietary antibodies and RNA and DNA
testing methodologies to produce rapid and accurate test
results. Our expanding line of food safety products also includes
genomics-based diagnostic technology, and advanced software
systems that help testers to objectively analyze and store
their results and perform analysis on the results from multiple
locations over extended periods.
Neogen’s Animal Safety segment is engaged in the
development, manufacture, marketing and distribution of
veterinary instruments, pharmaceuticals, vaccines, topicals,
parasiticides, diagnostic products, rodent control products,
cleaners, disinfectants, insect control products and genomics
testing services for the worldwide animal safety market. The
majority of these consumable products are marketed through
veterinarians, retailers, livestock producers and animal health
product distributors. Our line of drug detection products is sold
worldwide for the detection of abused and therapeutic drugs
in animals and animal products, and has expanded into the
workplace and human forensic markets.
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, 2023.
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
22
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
Acquired contract assets and liabilities in a
business combination
On June 1, 2023, the Company adopted ASU 2021-08, Business
Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers, which
amended ASC 805 to require an acquirer to, at the date of
acquisition, recognize and measure contract assets and contract
liabilities acquired in accordance with ASU 2014-09, Revenue
from Contracts with Customers (Topic 606) as if the entity had
originated the contracts. Adoption of this standard did not have
a material impact on its consolidated financial statements and
related disclosures.
Reference Rate Reform
On September 1, 2022, the Company adopted Accounting
Standards Codification Topic 848, Reference Rate Reform (Topic
848), which provided temporary optional expedients to applying
the reference rate reform guidance to contracts that reference
LIBOR or another reference rate expected to be discontinued.
Under Topic 848, contract modifications resulting from the
transition to a new reference rate may be accounted for as a
continuation of the existing contract. The Company now uses
the Secured Overnight Financing Rate (SOFR). Adoption of this
standard did not have a material impact on its consolidated
financial statements and related disclosures.
Accounting Policies
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 $36,288 and $17,057 at May 31, 2023 and
2022, respectively.
Marketable Securities
The Company has marketable securities held by banks or
broker-dealers 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. These
securities are classified as available for sale. Changes in fair
value are monitored and recorded on a monthly basis and are
recorded in other comprehensive income (loss). In the event
of a downgrade in credit quality subsequent to purchase, the
marketable securities investment is evaluated to determine
the appropriate action to take to minimize the overall risk to
our marketable securities portfolio. If fair value is less than its
amortized cost basis, then the Company evaluates whether the
decline is the result of a credit loss, in which case an impairment
is recorded through an allowance for credit losses. Where there
is an intention or a requirement to sell an impaired available-for-
sale debt security, the entire impairment is recognized in earnings
with a corresponding adjustment to the amortized cost basis
of the security. The primary objective of management’s short-
term investment activity is to preserve capital for the purpose of
funding current 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 (expense) income on the consolidated
statements of income (loss).
Marketable Securities as of May 31, 2023 and 2022 are listed below by classification and remaining maturities.
(In thousands)
Commercial Paper & Corporate Bonds
Total Marketable Securities
Maturity
0 – 90 days
91 – 180 days
181 days – 1 year
1 – 2 years
2023
22,552
35,692
23,768
317
82,329
$
$
May 31
$
2022
106,497
61,373
91,706
77,002
$
336,578
The components of marketable securities as of May 31, 2023 are as follows:
(In thousands)
Amortized Cost
Unrealized Gains
Unrealized Losses
Fair Value
Commercial Paper & Corporate Bonds
$
83,549
$
0
$
(1,220)
$
82,329
The components of marketable securities as of May 31, 2022 are as follows:
(In thousands)
Amortized Cost
Unrealized Gains
Unrealized Losses
Fair Value
Commercial Paper & Corporate Bonds
$
339,540
$
7
$
(2,969)
$
336,578
Derivative Financial Instruments
The Company operates on a global basis and is exposed to the
risk that its financial condition, results of operations and cash
flows could be adversely affected by changes in foreign currency
exchange rates and changes in interest rates. To reduce the
potential effects of foreign currency exchange rate movements
on net earnings, the Company enters into derivative financial
instruments in the form of foreign currency exchange forward
contracts with major financial institutions and have also entered
into interest rate swap contracts as a hedge against changes
in interest rates. The Company has established policies and
procedures for risk assessment and the approval, reporting and
monitoring of derivative financial instrument activities. On the
date the derivative is established, the Company designates the
derivative as either a fair value hedge, a cash flow hedge or a
net investment hedge in accordance with its established policy.
Each reporting period, derivatives are recorded at fair value in
other current assets, other assets, accrued liabilities and other
long-term liabilities. The change in fair value is recorded in
accumulated other comprehensive income (loss), and amounts
are reclassified into earnings on the consolidated statement of
income (loss) when transactions are realized. Derivatives that are
not determined to be effective hedges are adjusted to fair value
with a corresponding adjustment to earnings. The Company
does not enter into derivative financial instruments for trading or
speculative purposes.
Use of Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and judgments
that affect amounts reflected in the consolidated financial
statements. Considerable judgment is often involved in making
such estimates, and the use of different assumptions could result
in different conclusions. Management believes its assumptions
and estimates are reasonable and appropriate. However, actual
results could differ from those estimates.
23
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 credit losses, 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 credit losses. No customer accounted for more than
10% of accounts receivable May 31, 2023 or 2022, respectively.
The activity in the allowance for credit losses was as follows:
(In thousands)
Beginning Balance
2023
1,650
$
$
Provision
Recoveries
Write-offs
1,460
46
(329)
May 31
2022
1,400
332
98
(180)
$
2021
1,350
239
139
(328)
Ending Balance
$
2,827
$
1,650
$
1,400
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
2023
$ 64,971
5,369
63,472
$ 133,812
2022
$ 58,667
6,388
57,258
$ 122,313
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 $6,270 and
$4,050 at May 31, 2023 and 2022, 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 10 years for furniture,
fixtures, computers, leasehold improvements, and machinery
and equipment. Depreciation expense was $17,292, $14,094, and
$13,288 in fiscal years 2023, 2022, and 2021, respectively.
24
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. The Company’s
business is organized into two operating segments: Food Safety
and Animal Safety. Under the goodwill guidance, management
determined that each of its segments represents a reporting
unit. Other intangible assets include customer relationships,
trademarks, licenses, trade names, covenants not-to-compete
and patents. Customer relationships intangibles are amortized on
either an accelerated or straight-line basis, reflecting the pattern
in which the economic benefits are consumed, while all other
amortizable intangibles are amortized on a straight-line basis.
Intangibles are amortized over 2 to 25 years.
Management reviews the carrying amounts of goodwill annually
at the reporting unit level, or when indications of impairment
exist, to determine if goodwill may be impaired. Goodwill is tested
for impairment annually in the fourth quarter. Management also
reviews the carrying amounts of non-amortizable intangible
assets annually, or when indications of impairment exist, to
determine if such assets may be impaired. These are tested for
impairment annually in the fourth quarter. During management’s
annual test or when there are indicators of impairment, if the
carrying amounts of these assets are deemed to be less than
fair value based upon a discounted cash flow analysis and
comparison to comparable EBITDA multiples of peer companies,
such assets are reduced to their estimated fair value and a charge
is recorded to operations.
Amortizable intangible assets are tested for impairment when
indications of impairment exist. If the carrying amounts of
these assets are deemed to be less than fair value based upon a
discounted cash flow analysis, such assets are reduced to their
estimated fair value and a charge is recorded to operations.
Long-lived Assets
Management reviews the carrying values of its long-lived
assets to be held and used, including definite-lived intangible
assets, for possible impairment whenever events or changes
in business conditions warrant such a review. The carrying
value of a long-lived asset is considered impaired when the
anticipated separately identifiable undiscounted cash flows over
the remaining useful life of the asset 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, 2023, 2022 and 2021, respectively.
Equity Compensation Plans
At May 31, 2023, 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 (loss).
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 $2,548, $2,018, and $1,687 in fiscal years
2023, 2022, and 2021, respectively.
Net (Loss) Income per Share
Basic net (loss) income per share is based on the weighted average
number of common shares outstanding during each year. Diluted
(loss) 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 (loss) income per share calculations:
(In thousands, except per share)
2023
Numerator for basic and diluted net (loss) income per share — Net (Loss) Income
Denominator for basic net (loss) income per share — Weighted average shares
$
(22,870)
188,881
Effect of dilutive stock options and restricted stock units
Denominator for diluted net (loss) income per share
Net (loss) income attributable per share
Basic
Diluted
—
188,881
$
$
(0.12)
(0.12)
Year Ended May 31
2022
48,307
107,684
336
108,020
0.45
0.45
$
$
$
2021
60,882
106,499
621
107,120
0.57
0.57
$
$
$
Due to the net loss in fiscal 2023, the dilutive stock options and RSUs are anti-dilutive. At May 31, 2023 and May 31, 2022, 148,000 and
383,000 shares, respectively, were excluded from the calculation of diluted net (loss) income per share, because the inclusion of such
securities in the calculation would have been anti-dilutive. At May 31, 2021, no 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 fully
collateralized and amortized basis over a similar term an
amount equal to the lease payments.
25
Supplemental balance sheet information related to operating
leases was as follows:
(In thousands)
Right of use – assets
Year Ended
May 31, 2023
$
11,933
May 31, 2022
3,184
$
Lease liabilities – current
Lease liabilities – non-current
3,277
8,812
1,440
1,788
The weighted average remaining lease term and weighted
average discount rate were as follows:
(In thousands)
Weighted average
remaining lease term
Weighted average
discount rate
Year Ended
May 31, 2023
May 31, 2022
4.7 years
3 years
4.7%
1.7%
Operating lease expenses are classified as cost of revenues or
operating expenses on the consolidated statements of income
(loss). The components of lease expense were as follows:
(In thousands)
Operating leases
Short term leases
Year Ended
May 31, 2023
$
2,097
460
May 31, 2022
438
$
277
Total lease expense
$
2,557
$
715
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
$2,139, $1,407, and $1,397 for the years ended May 31, 2023, 2022
and 2021, respectively. Non-cash additions to right-of-use assets
obtained from new operating lease liabilities were $11,192 for the
year ended May 31, 2023.
Maturities of operating lease liabilities as of May 31, 2023 are
as follows:
Amount
3,542
3,014
2,725
1,624
1,105
1,885
13,895
(1,806)
12,089
$
$
$
(In thousands)
Years ending May 31, 2024
2025
2026
2027
2028
2029 and thereafter
Total lease payments
Less: imputed interest
Total lease liabilities
26
Revenue Recognition
We determine the amount of revenue to be recognized through
application of the following steps:
•
•
•
•
•
Identification of the contract with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance
obligations in the contract; and
Recognition of revenue when or as the Company satisfies the
performance obligations.
Essentially all of Neogen’s revenue is generated through contracts
with its customers. A performance obligation is a promise in a
contract to transfer a product or service to a customer. We
generally recognized revenue at a point in time when all of
our performance obligations under the terms of a contract are
satisfied. Revenue is recognized upon transfer of control of
promised products or services in an amount that reflects the
consideration we expect to receive in exchange for those products
or services. The collectability of consideration on the contract is
reasonably assured before revenue is recognized. To the extent
that customer payment has been received before all recognition
criteria are met, these revenues are initially deferred in other
accruals on the balance sheet and the revenue is recognized in
the period that all recognition criteria have been met.
Certain agreements with customers include discounts or rebates
on the sale of products and services applied retrospectively,
such as volume rebates achieved by purchasing a specified
purchase threshold of goods and services. We account for these
discounts as variable consideration and estimate the likelihood
of a customer meeting the threshold in order to determine
the transaction price using the most predictive approach. We
typically use the most-likely-amount method, for incentives
that are offered to individual customers, and the expected-
value method, for programs that are offered to a broad group
of customers. Variable consideration reduces the amount
of revenue that is recognized. Rebate obligations related to
customer incentive programs are recorded in accrued liabilities.
The rebate estimates are adjusted at the end of each applicable
measurement period based on information currently available.
The performance obligations in Neogen’s contracts are generally
satisfied well within one year of contract inception. In such
cases, management has elected the practical expedient to not
adjust the promised amount of consideration for the effects of
a significant financing component. Management has elected to
utilize the practical expedient to recognize the incremental costs
of obtaining a contract as an expense when incurred because the
amortization period for the prepaid costs that would otherwise
have been deferred and amortized is one year or less. We account
for shipping and handling for products as a fulfillment activity
when goods are shipped. Shipping and handling costs that are
charged to and reimbursed by the customer are recognized as
revenues, while the related expenses incurred by Neogen are
recorded in sales and marketing expense. These expenses totaled
$18,513, $17,482, and $15,180 in fiscal years 2023, 2022, and 2021,
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. While 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
Rodent control products, disinfectants and insect control
products 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 obligation(s) and recognition of revenue.
Upon completion of the performance obligation(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. During fiscal year 2023 and 2022, the Company
recorded additions of $11,046 and $10,229 to deferred revenue,
respectively. During fiscal year 2023 and 2022, the Company
recognized $11,890 and $8,173, respectively, of deferred revenue
amounts into revenue. Changes in the balances relate primarily
to sales of the Company’s genomics services.
On September 1, 2022, Neogen closed on a Reverse Morris Trust
transaction to combine with 3M’s Food Safety business. Similar
to Neogen, 3M’s former Food Safety business sells diagnostic
test kits, dehydrated culture media, and related products
used by food producers and processors to detect foodborne
bacteria, allergens and levels of general sanitation. Revenue for
these products are recognized and invoiced when the product
is shipped to the customer. These products are currently
manufactured, invoiced and distributed by 3M on behalf of,
and as directed by Neogen to its customers under a number of
transition service contracts.
The following table presents disaggregated revenue by major product and service categories for the years ended May 31, 2023, 2022
and 2021:
(Dollars in thousands)
Food Safety:
Natural Toxins, Allergens & Drug Residues
Bacterial & General Sanitation
Culture Media & Other
Rodent Control, Insect Control & Disinfectants
Genomics Services
Animal Safety:
Life Sciences
Veterinary Instruments & Disposables
Animal Care & Other
Rodent Control, Insect Control & Disinfectants
Genomics Services
Total Revenue
May 31, 2023
Year Ended
May 31, 2022
May 31, 2021
$
82,567
$
134,934
267,178
39,655
22,463
$
79,395
47,282
75,278
35,691
22,333
76,614
44,009
61,245
32,219
20,157
$
546,797
$
259,979
$
234,244
6,254
63,843
39,068
87,423
79,062
275,650
822,447
$
$
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
27
2. Goodwill and Other Intangible Assets
Goodwill
Management completed the annual impairment analysis of goodwill using a third-party quantitative assessment as of the first day of
the fourth quarter of fiscal year 2023. The fair value of each reporting unit was determined and compared to the carrying value. The
inputs to the fair value are defined in the fair value hierarchy as Level 3 inputs. If the carrying value had exceeded the fair value, an
impairment charge would have been recorded based on that difference. The annual impairment analysis resulted in no impairment for
2023. Management completed the annual impairment analysis of goodwill using a qualitative approach during fiscal year 2022, which
resulted in no impairment charges.
The following table summarizes goodwill by reportable segment:
(In thousands)
Balance, May 31, 2021
Acquisitions
Foreign currency translation and other
Balance, May 31, 2022
Acquisitions (1)
Foreign currency translation and other
Balance, May 31, 2023
Food Safety
$
67,822
Animal Safety
$
63,654
$
4,152
(4,416)
11,752
(260)
Total
131,476
15,904
(4,676)
$
67,558
$
75,146
$
142,704
1,985,476
3,127
6,783
(594)
1,992,259
2,533
$ 2,056,161
$
81,335
$ 2,137,496
(1) Animal Safety acquisitions represents portion of FSD transaction recorded at Neogen Australasia.
Other Intangible Assets
As of May 31, 2023, non-amortizable intangible assets included licenses of $569, trademarks of $12,522 and other intangibles of $1,224.
During fiscal year 2023, the Company recorded an impairment of $1,000 to its non-amortizable trademarks related to discontinued
product lines.
As of May 31, 2022, non-amortizable intangible assets included licenses of $569, trademarks of $13,604 and other intangibles of $1,224.
Management completed the annual impairment analysis of intangible assets with indefinite lives using a qualitative assessment for
fiscal year 2023 and a quantitative assessment for fiscal year 2022. Other than the impairment in fiscal year 2023 related to the discrete
trademarks discussed above, management determined that recorded amounts were not impaired and that no impairment charges
were necessary.
Amortizable intangible assets consisted of the following and are included in amortizable intangible assets within the consolidated
balance sheets:
(In thousands)
Licenses
Covenants not to compete
Patents
Customer relationships intangibles
Trade names and trademarks
Developed technology
Other product and service-related intangibles
Balance, May 31, 2023
Licenses
Covenants not to compete
Patents
Customer relationships intangibles
Trade names and trademarks
Developed technology
Other product and service-related intangibles
Balance, May 31, 2022
Gross
Carrying
Amount
Less
Accumulated
Amortization
$
16,010
488
8,499
1,244,635
111,172
309,609
23,628
$ 1,714,041
17,109
$
846
8,347
75,000
1,180
17,741
27,299
147,522
$
$
$
$
$
6,763
384
4,865
81,577
3,583
20,175
5,907
123,254
5,682
671
4,583
33,662
167
6,124
4,527
55,416
$
Net
Carrying
Amount
9,247
104
3,634
1,163,058
107,589
289,434
17,721
$ 1,590,787
11,427
$
175
3,764
41,338
1,013
11,617
22,772
92,106
$
During fiscal year 2023, the Company recorded an impairment of $2,109 to its amortizable licenses related to discontinued product lines.
28
Amortization expense for intangibles totaled $71,085, $9,600,
and $7,753 in fiscal years 2023, 2022, and 2021, respectively. The
estimated amortization expense for each of the five succeeding
fiscal years is as follows: $93,200 in 2024, $92,900 in 2025, $92,300 in
2026, $91,700 in 2027, $90,900 in 2028 and $1,129,987 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 relationships, 10 to
25 years for trade names and trademarks, 10 to 20 years for
developed technology and 5 to 15 years for other product and
service-related intangibles. All definite-lived intangibles are
amortized on a straight-line basis with the exception of definite-
lived customer relationships intangibles and product and
service-related intangibles, which are amortized on either a
straight-line or an accelerated basis.
The weighted average remaining amortization period for intangibles
was 18 years as of May 31, 2023 and eight years as of May 31, 2022.
3. Business Combinations
The Consolidated Statements of Income (Loss) 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 2021
In July 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. Consideration for the purchase
was $2,351 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 and
intangible assets of $2,300. Sales are reported within the Animal
Safety segment.
In December 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. Consideration for the purchase was net
cash of $39,800 paid at closing, $8,600 of cash placed in escrow
payable to the former owner in two installments in two and
four years, $4,900 of stock issued at closing, and up to $2,500
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, inventory of $5,595,
net property, plant and equipment of $12,599, prepayments of
$69, other current liabilities of $1,815, contingent consideration
accrual of $2,458, non-current liabilities of $319, non-current
deferred tax liabilities of $3,306, intangible assets of $22,945 and
the remainder to goodwill (non-deductible for tax purposes).
In the year subsequent to the acquisition, payments of $2,349
were made to the former owner. In the second year after the
acquisition, the first escrow installment payment was also made.
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
now managed by our Lansing-based Food Safety team.
Fiscal 2022
In September 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 provided
entry into the retail parasiticide market and enhanced the Company’s
presence in companion animal markets. Consideration for the
purchase was net cash of $17,900 paid at closing. There also is the
potential for performance milestone payments to the former owners
of up to $6,500 and the Company could incur up to $14,500 in future
royalty payments. The final purchase allocation, based upon the
fair value of these assets and liabilities determined using the income
approach, included accounts receivable of $308, inventory of $531,
prepayments of $296, accounts payable of $120, other current
liabilities of $84, non-current liabilities of $6,500, intangible
assets of $19,200 and the remainder to goodwill (deductible for
tax purposes). Upon revaluation of the contingent liability during
the third quarter of fiscal year 2023, the Company recognized a
gain of $300 on the performance milestone liability, recorded
within other income. The business is operated from our location
in Lexington, KY, reporting within the Animal Safety segment.
In November 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
expanded the Company’s line of dairy hygiene products and
enhances our cleaner and disinfectant product portfolio.
Consideration for the purchase was net cash of $9,500 paid at
closing. The final purchase price allocation, based upon the fair
value of these assets and liabilities determined using the income
approach, included accounts receivable of $1,059, inventory of
$972, net property, plant and equipment of $152, prepayments
of $31, accounts payable of $497, other current liabilities of $378,
non-current deferred tax liabilities of $780, intangible assets of
$3,100 and the remainder to goodwill (non-deductible for tax
purposes). The companies continue to operate from their current
location in Liverpool, England, reporting within the Food Safety
segment and are managed through Neogen’s Scotland operation.
In December 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
29
acquisition further will expand the Company’s presence in the
companion animal market. Consideration for the purchase was
$11,300 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 $38,
net inventory of $292, net property, plant and equipment of $399,
prepayments of $54, accounts payable of $325, unearned revenue
of $1,900, other current liabilities of $321, intangible assets of
$5,500 and the remainder to goodwill (deductible for tax purposes).
The business is operated from its current location in Spokane,
Washington, reporting within the Animal Safety segment. Since
completion of initial estimates in the second quarter of fiscal
year 2022, the Company has recorded insignificant measurement
period adjustments, which resulted in a decrease to the base
purchase price.
Fiscal 2023
Thai-Neo Biotech Co., Ltd. Acquisition
On July 1, 2022, the Company acquired all of the stock of Thai-
Neo Biotech Co., Ltd., a longstanding distributor of Neogen’s food
safety products to Thailand and Southeast Asia. This acquisition
gives Neogen a direct sales presence in Thailand. Consideration
for the purchase was $1,581 in net cash, with $1,310 paid at
closing, $37 paid on November 29, 2022 as a working capital
adjustment and $234 payable on October 1, 2023. The final
purchase price allocation, based upon the fair value of these
assets and liabilities determined using the income approach,
included intangible assets of $620 (with an estimated life of 10
years). The business continues to operate in Bangkok, Thailand,
reporting within the Food Safety segment.
Corvium Acquisition
On February 10, 2023, the Company acquired certain assets
as part of an asset purchase agreement with Corvium, Inc., a
partner and supplier within the Company’s software analytics
platform. This acquisition, which primarily includes the software
technology, advances the Company’s food safety data analytics
strategy. The purchase price consideration was $24,067, which
included $9,004 held in escrow. Subsequent to May 31, 2023,
$8,000 of the escrow balance was released to Corvium, Inc. in
July 2023. This transaction is a business combination and was
accounted for using the acquisition method.
There also is the potential for performance milestone payments
of up to $8,500 based on successful implementation of the
software service at customer sites and sale of licenses. As a
result, the Company has recorded contingent liabilities of $930
as part of the opening balance sheet within Other non-current
liabilities, as shown below.
In the fourth quarter of fiscal 2023, the Company recorded
adjustments to intangible assets of $3,820 and contingent
liability of $1,070, which decreased the balances, based on a
third-party advisor’s valuation work and fair value estimates.
30
Goodwill, which is fully deductible for tax purposes, includes
value associated with profits earned from data management
solutions that can be offered to existing customers and the
expertise and reputation of the assembled workforce. These
values are Level 3 fair value measurements.
Our estimates and assumptions are subject to change within
the measurement period (up to one year from the acquisition
date). While we believe that these preliminary estimates provide
a reasonable basis for estimating the fair value of the assets
acquired and liabilities assumed, we will continue to evaluate
available information prior to finalization of the amounts. The
primary areas of the preliminary purchase price allocation that
are not yet finalized relate to the fair value of intangible assets.
Due to the Company’s acquisition of Corvium, Inc., it recorded a
loss of $1,500 during fiscal year 2023 on dissolution of its minority
interest in that company.
The following table summarizes the preliminary fair value of assets
acquired and liabilities assumed as of the date of acquisition:
Prepaids and other current assets
Property, plant and equipment
Intangible assets
Deferred revenue
Adjustment of annual license prepaid
Other non-current liabilities
Total identifiable assets and liabilities acquired
Goodwill
Total purchase consideration
$
66
13
10,180
(1,827)
(419)
(930)
7,083
16,984
24,067
For each completed acquisition listed above, the revenues and
net income were not considered material and were therefore
not disclosed.
3M Food Safety Transaction
On September 1, 2022, Neogen, 3M Company (“3M”), and Neogen
Food Safety Corporation (“Neogen Food Safety Corporation”),
a subsidiary created to carve out 3M’s Food Safety Division (“3M
FSD”, “FSD”), closed on the transaction combining 3M’s FSD with
Neogen in a Reverse Morris Trust transaction and Neogen Food
Safety Corporation became a wholly owned subsidiary of Neogen
(“FSD transaction”). Immediately following the FSD transaction,
pre-merger Neogen Food Safety Corporation stockholders
owned, in the aggregate, approximately 50.1% of the issued and
outstanding shares of Neogen common stock and pre-merger
Neogen shareholders owned, in the aggregate, approximately
49.9% of the issued and outstanding shares of Neogen common
stock. This transaction is a business combination and was
accounted for using the acquisition method.
The acquired business is a leading provider of food safety testing
solutions. It offers a broad range of food safety testing products
that support multiple industries within food and beverage,
helping producers to prevent and protect consumers from
foodborne illnesses. The business has a broad global presence
with products used in more than 60 countries and a diversified
revenue base of more than 100,000 end-user customers. The
combination of Neogen and the 3M FSD creates a leading
innovator with an enhanced geographic footprint, innovative
product offerings, digitization capabilities, and financial
flexibility to capitalize on robust growth trends in sustainability,
food safety, and supply chain integrity. The acquired Food Safety
business continues to primarily operate in facilities in Minnesota
and the United Kingdom (“U.K.”), and is being managed overall in
Michigan, reporting within the Food Safety segment.
The purchase price consideration for the 3M FSD was $3.2 billion,
net of customary purchase price adjustments and transaction
costs, which consisted of 108,269,946 shares of Neogen common
stock issued on closing with a fair value of $2.2 billion and cash
consideration of $1 billion, funded by the additional financing
secured by the Company. See Note 4 “Long-Term Debt” for
further detail on the debt incurred.
During the fiscal year ended May 31, 2023, the Company recorded
adjustments to its preliminary allocation of the purchase
consideration to assets acquired and liabilities assumed based
on initial fair value estimates and is subject to continuing
management analysis, with assistance from third-party valuation
advisors. In the fourth quarter of fiscal 2023, Inventory and
Property, plant and equipment amounts were finalized. The excess
of the purchase price over the fair value of the net tangible assets
and identifiable intangible assets of $1.97 billion was recorded as
goodwill, of which $1.92 billion is non-deductible for tax purposes.
Goodwill includes value associated with profits earned from
market and expansion capabilities, expected synergies from
integration and streamlining operational activities, the expertise
and reputation of the assembled workforce and other intangible
assets that do not qualify for separate recognition. These values
are Level 3 fair value measurements.
The preliminary fair values of net tangible assets and intangible
assets acquired were based on preliminary valuations, and our
estimates and assumptions are subject to change within the
measurement period (up to one year from the acquisition date).
The primary areas of the preliminary purchase price allocation
that are not yet finalized relate to deferred income tax liabilities.
The fair values of the assets acquired and liabilities assumed
are based on our preliminary estimates and assumptions, as
well as other information compiled by management, including
valuations that utilize customary valuation procedures and
techniques. While we believe that these preliminary estimates
provide a reasonable basis for estimating the fair value of the
assets acquired and liabilities assumed, we will continue to evaluate
available information prior to finalization of the amounts.
The following table summarizes the preliminary fair value of assets
acquired and liabilities assumed as of the date of acquisition:
Cash and cash equivalents
$
Inventories
Other current assets
Property, plant and equipment
Intangible assets
Right of use asset
Lease liability
Deferred tax liabilities
Other liabilities
Total identifiable assets and liabilities acquired
Goodwill
Total purchase consideration
319
18,403
14,855
25,832
1,560,000
882
(885)
(352,481)
(2,832)
1,264,093
1,974,520
$ 3,238,613
The following table summarizes the intangible assets acquired
and the useful life of these assets.
Trade Names and Trademarks
Developed Technology
Customer Relationships
Total intangible assets acquired
Useful Life
in Years
25
15
20
Fair Value
110,000
280,000
1,170,000
1,560,000
The Company determined the fair value of the acquired customer
relationships intangible assets by applying the multi-period
excess earnings method, which involved the use of significant
estimates and assumptions related to forecasted revenue growth
rate and customer attrition rate. Valuation specialists were used
to develop and evaluate the appropriateness of the multi-period
excess earnings method, the Company's discount rates, attrition
rate and fair value estimates using its cash flow projections.
During the twelve months ended May 31, 2023, transaction
fees and integration costs of $58,175 were expensed. In the
twelve months ended May 31, 2022, acquisition related costs
of $25,581 were expensed. These costs are included in general
and administrative expenses in the Company’s consolidated
statements of income (loss).
The operating results of the FSD have been included in the
Company’s consolidated statements of income (loss) since the
acquisition date. In fiscal year 2023, the FSD’s total revenue
was $279,541 and operating loss was approximately $28,200.
The operating loss includes $58,175 of transaction fees and
integration expenses, $60,872 of amortization expense for
acquired intangible assets and a $3,245 charge to cost of goods
sold related to the step up to fair value on acquired inventory.
31
The following table presents unaudited pro forma information
as if the merger with the 3M FSD business had occurred on
June 1, 2021 and had been combined with the results reported
in our consolidated statements of income (loss) for all periods
presented:
(In thousands)
Net sales
Operating income
Year Ended
May 31, 2023
919,959
$
44,373
$
May 31, 2022
910,978
$
42,258
$
The unaudited pro forma information is presented for
informational purposes only and is not indicative of the results
that would have been achieved if the merger had taken place
at such time. The unaudited pro forma information presented
above includes adjustments primarily for amortization charges
for acquired intangible assets and certain acquisition-related
expenses for legal and professional fees.
In connection with the acquisition of the 3M FSD, the Company
and 3M entered into several transition service agreements,
including manufacturing, distribution and certain back-office
support, that have been accounted for separately from the
acquisition of assets and assumption of liabilities in the business
combination. 3M periodically remits amounts charged to
customers on our behalf and charges us for the associated cost
of goods sold and transition service fees. Additionally, 3M is
reimbursing the Company for a portion of its SAP implementation
costs. As of May 31, 2023, a receivable from 3M of $12,365 was
included in prepaid expenses and other current assets in the
Company’s consolidated balance sheets.
4. Long-Term Debt
The Company’s long-term debt consists of the following:
Term Loan
Senior Notes
Total long-term debt
Less: Unamortized debt issuance costs
Total non-current debt, net
$
$
550,000
350,000
900,000
(14,561)
885,439
The Company had a financing agreement with a bank providing
for a $15,000 unsecured revolving line of credit, which originally
expired on November 30, 2023, but was replaced by the five-year
senior secured revolving facility as part of the Credit Facilities
described below. There were no advances against the line of
credit during fiscal 2022 and there were no advances in fiscal
2023 before the line of credit was extinguished. Interest on any
borrowings under that agreement was at LIBOR plus 100 basis
points. Financial covenants included maintaining specified levels
of tangible net worth, debt service coverage, and funded debt
to EBITDA, each of which the Company was in compliance with
during the period the line of credit was available.
As of May 31, 2022, the Company had no outstanding debt. In
connection with the acquisition of 3M’s Food Safety business
as described more fully in Note 8, Neogen incurred financing
32
through Neogen Food Safety Corporation as follows:
Credit Facilities
On June 30, 2022, Neogen Food Safety Corporation entered into
a credit agreement consisting of a five-year senior secured term
loan facility (“term loan facility”) in the amount of $650,000 and
a five-year senior secured revolving facility (“revolving facility”)
in the amount of $150,000 (collectively, the “Credit Facilities”) to
fund the FSD transaction. The term loan facility was drawn on
August 31, 2022, to fund the closing of the FSD transaction on
September 1, 2022 while the revolving facility was undrawn and
continues to be undrawn as of May 31, 2023.
The Credit Facilities bear interest based on term SOFR plus
an applicable margin which ranges between 150 to 225 basis
points, determined for each interest period and paid monthly.
During the twelve months ended May 31, 2023, the interest
rates ranged from 4.81% to 7.33% per annum. The term loan
facility matures on June 30, 2027 and the revolving facility
matures at the earlier of June 30, 2027 and the termination of
the revolving commitments. The Company paid $60,000 of the
term loan facility’s principal in September 2022 and an additional
$40,000 of the term loan facility’s principal in December 2022, in
order to decrease the outstanding debt balance.
The term loan facility contains an optional prepayment feature
at the discretion of the Company. The Company determined
that the prepayment feature did not meet the definition of an
embedded derivative and does not require bifurcation from
the host liability and, accordingly, has accounted for the entire
instrument at amortized cost.
In November 2022, the Company entered into an interest rate swap
agreement, whereby interest on $250,000 of the total $550,000
principal balance is paid at a fixed rate. See Note 9. “Fair Value and
Derivatives” for further detail on the interest rate swap agreement.
The Company can draw any amount under the revolving facility
up to the $150,000 limit, with the amount to be repaid on the
termination date of the revolving commitments. Debt issuance
costs of $2,361 were incurred related to the revolving facility.
These costs are being amortized as interest expense in the
consolidated statements of (loss) income over the contractual
life of the revolving facility using the straight line method.
Amortization of the deferred debt issuance costs for the revolving
facility was $366 during the twelve months ended May 31, 2023.
Debt issuance costs of $489 were recorded in Prepaid expenses
and other current assets and $1,506 were recorded in Other
non-current assets on the consolidated balance sheet as of May
31, 2023. The Company must pay an annual commitment fee
ranging from 0.20% and 0.35% on the unused portion of the
Revolving Credit Facility, paid quarterly. As of May 31, 2023, the
commitment fee was 0.35% and $473 was recorded as interest
expense in the consolidated statements of income (loss) during
the twelve months ended May 31, 2023.
Accrued interest payable on the term loan as of May 31, 2023
was $164. The Company incurred $10,232 in total debt issuance
costs on the term loan which is recorded as an offset to the term
loan facility and amortized over the contractual life of the loan to
interest expense using the straight line method. The amortization
of deferred debt issuance costs of $1,588 and interest expense
of $27,254 (excluding swap credit of $577) for the term loan was
included in the consolidated statements of income (loss) during
the twelve months ended May 31, 2023.
Financial covenants include maintaining specified levels of
funded debt to EBITDA, and debt service coverage. As of May 31,
2023, the Company was in compliance with its debt covenants.
Senior Notes
On July 20, 2022, Neogen Food Safety Corporation closed on an
offering of $350,000 aggregate principal amount of 8.625% senior
notes due 2030 (the “Notes”) in a private placement at par. The
Notes were initially issued by Neogen Food Safety Corporation to 3M
and were transferred and delivered by 3M to the selling security-
holder in the offering, in satisfaction of certain of 3M’s existing debt.
Upon closing of the FSD transaction on September 1, 2022, the Notes
became guaranteed on a senior unsecured basis by the Company
and certain wholly-owned domestic subsidiaries of the Company.
The Company determined that the redemption features of the
Notes did not meet the definition of a derivative and thus does
not require bifurcation from the host liability and accordingly has
accounted for the entire instrument at amortized cost.
Total accrued interest on the Notes was $10,985 as of May 31, 2023
based on the stated interest rate of 8.625%. This amount was included
in current liabilities on the consolidated balance sheets. The Company
incurred total debt issuance costs of $6,683, which is recorded as an
offset to the Notes and amortized over the contractual life of the Notes
to interest expense using the straight line method. The amortization
of deferred debt issuance costs of $766 and interest expense of
$26,079 for the Notes was included in the consolidated statements
of income (loss) during the twelve months ended May 31, 2023.
There are no required principal payments on the Term Loan or
the Senior Notes through fiscal year 2026, due to $100,000 in
prepayments made on the Term Loan in fiscal 2023. The expected
maturities associated with the Company’s outstanding debt as of
May 31, 2023, were as follows:
Fiscal Year
2024
2025
2026
2027
2028
Thereafter
Total
Amount
$
$
—
—
—
—
34,063
515,937
350,000
900,000
5. Equity Compensation Plans
The Company’s long-term incentive plans allow for the grant
of various types of share-based awards to officers, directors
and other key employees of the Company. Incentive and non-
qualified options to purchase shares of common stock have been
granted under the terms of the 2018 Omnibus Incentive Plan.
These options are granted at an exercise price of the closing price
of the common stock on the date of grant. Options vest ratably
over three and five year periods and the contractual terms are
generally five, seven or ten years. The Company grants restricted
stock units (RSUs) under the terms of the 2018 Omnibus Incentive
Plan, which vest ratably over three and five year periods. The
fair value of the options was estimated at the date of the grant
using the Black-Scholes option pricing model. The fair value of
the RSUs is determined based on the closing price of the common
stock on the date of grant.
Remaining shares available for grant under share-based
compensation plans were 2,871,000, 5,386,000, and 6,355,000 at
May 31, 2023, 2022, and 2021, respectively. Compensation
expense related to share-based awards was $10,177, $7,154, and
$6,437 in fiscal years 2023, 2022, and 2021, respectively.
Options
(Options in thousands)
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)
Granted
Exercised
Forfeited
Outstanding at May 31, 2023 (1,401 exercisable)
Options
4,324
403
(1,389)
(381)
2,957
615
(281)
(47)
3,244
1,704
(22)
(704)
4,222
$
$
Weighted-Average
Exercise Price
27.98
34.23
24.38
28.99
27.98
36.42
22.79
33.93
32.13
14.68
14.78
29.81
25.56
$
$
$
$
Weighted-Average
Grant Date Fair Value
6.98
7.71
6.31
7.20
6.98
8.49
6.29
8.02
7.66
4.61
4.23
7.26
6.51
$
$
33
The following is a summary of stock options outstanding at May 31, 2023:
(Options in thousands)
Range of Exercise Price
$12.20 – $20.00
$20.01 – $28.00
$28.01 – $36.00
$36.01 – $42.15
Options Outstanding
Options Exercisable
Average
Contractual Life
(in years)
6.3
6.7
1.8
3.4
3.8
Weighted-Average
Exercise Price
13.63
$
25.11
31.77
40.94
25.56
$
Number
1,585
138
2,124
375
4,222
Number
27
90
1,205
79
1,401
Weighted-Average
Exercise Price
15.95
$
23.93
31.84
40.99
31.54
$
The weighted average exercise price of shares subject to options that were exercisable at May 31, 2022 and 2021 was $30.24 and
$28.10, respectively.
Remaining compensation cost to be expensed in future periods for non-vested options was $11,729 at May 31, 2023, with a weighted
average expense recognition period of 2.4 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
$
$
$
2023
6,154
42
73
$
$
$
2021
46,667
11,617
22,349
$
$
$
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
Year Ended May 31
2022
0.4%
0.0%
32.8%
2023
3.3%
0.0%
34.0%
2021
0.2%
0.0%
31.3%
4.5 years
3.12 years
3.25 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 2023, 2022, and
2021, 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.
Restricted Stock Units
The RSUs are expensed straight-line over the remaining weighted-average period of 2.7 years. On May 31, 2023, there was $10,839 in
unamortized compensation cost related to non-vested RSUs. The fair value of restricted stock units vested during fiscal years 2023 and
2022 was $820 and $1,032, respectively. There were no RSUs that vested during fiscal year 2021.
(RSU Grants in thousands)
Outstanding at May 31, 2021
Granted
Released
Forefeited
Outstanding at May 31, 2022
Granted
Released
Forefeited
Outstanding at May 31, 2022
The weighted average grant date fair value of the fiscal year 2021 awards was $34.21.
34
RSUs
121
169
(25)
(8)
257
596
(60)
(27)
766
$
Weighted Average Grand
Date Fair Value
34.21
37.28
34.24
36.80
36.14
13.83
35.14
22.81
19.30
$
Employee Stock Purchase Plan
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 2021 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 94,604 in fiscal 2023, 43,456 in fiscal 2022,
and 38,406 in fiscal 2021. As of May 31, 2023, common stock
totaling 881,323 of the 1,000,000 authorized shares remained
reserved for issuance under the plan.
The provision for income taxes consists of the following:
Income Taxes
6.
Income before income taxes by source consists of the following
amounts:
(In thousands)
U.S.
Foreign
2023
Year Ended May 31
2022
$
(85,681)
63,639
$
38,554
21,653
$
2021
55,753
19,515
$
(22,042)
$
60,207
$
75,268
(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
Year Ended May 31
2023
2022
2021
$
8,674
278
1,616
9,490
20,058
(17,406)
(1,865)
41
(19,230)
$
8,579
$
6,981
3
2,406
5,140
16,128
(3,721)
(356)
(151)
(4,228)
(75)
2,147
4,875
13,928
479
44
(65)
458
$
828
$
11,900
$
14,386
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-effect from stock-based compensation
Provision for state income taxes, net of federal benefit
Non-deductible acquisition expenses
Tax credits
Impact of tax rate changes
Change in tax-related uncertainties
Changes in valuation allowances
Research expenditures deduction
Other
Income Tax Expense
Year Ended May 31
2023
2022
2021
$
(4,629)
$
12,643
$
15,806
325
6,482
(643)
(3,742)
152
1,946
18
7,187
(6,709)
—
278
355
(365)
173
828
$
179
1,501
(1,308)
215
397
(462)
1,517
—
(2,527)
583
3
85
(112)
(814)
11,900
$
292
2,064
(1,210)
669
628
(2,651)
1,601
—
(3,298)
(75)
55
—
—
505
14,386
$
35
Foreign tax credits, primarily offsetting taxes associated with Subpart F and GILTI income, were $5,324, $1,747, and $2,753 in fiscal years
2023, 2022, and 2021, respectively. The Company’s research and development credits were $1,385, $780, and $545 in fiscal years 2023,
2022, and 2021, respectively.
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred income tax
liabilities and assets are as follows:
(In thousands)
Deferred income tax liabilities
Indefinite and long-lived assets
Right of use asset
Prepaid expenses
Deferred income tax assets
Interest expense not currently deductible
Research and experimentation capitalization
Stock options
Inventories and accounts receivable
Tax loss carryforwards
Lease liability
Accrued expenses and other
Valuation allowance
Net deferred income tax liabilities
Net deferred income tax assets (jurisdictional)
Net deferred income tax liabilities (jurisdictional)
Net deferred income tax liabilities
May 31
2023
2022
$
(369,500)
$
(22,709)
(1,834)
(1,480)
(372,814)
5,782
5,868
2,192
3,219
3,909
1,899
1,981
24,850
(2,110)
(350,074)
3,353
(353,427)
$
$
$
(350,074)
$
$
$
(344)
(884)
(23,937)
—
—
2,085
2,044
561
382
2,422
7,494
(568)
(17,011)
575
(17,586)
(17,011)
The Company has the following net operating loss carryforwards:
(In thousands)
U.S.
Foreign
May 31, 2023
Expiry
$
$
281
13,362
13,580
2037
2024 to Indefinite
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 $145 at May 31, 2023, $69 at May 31, 2022, and $65 at May 31, 2021. Of
the total unrecognized tax benefits at May 31, 2023 and 2022, $1,087 and $808, respectively, comprise unrecognized tax positions that
would, if recognized, affect our effective tax rate.
36
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
2023
741
2
479
(276)
946
$
$
May 31
2022
764
(75)
147
(95)
741
$
$
2021
762
(182)
184
-
764
$
$
The Company is no longer subject to examination by the Internal Revenue Service for fiscal year 2019 and preceding years.
As of May 31, 2023, the Company has approximately $153 million of undistributed earnings in its foreign subsidiaries. Approximately $41
million of these earnings are no longer considered permanently reinvested. The incremental tax cost to repatriate these earnings to the
US is immaterial. The Company has not provided deferred taxes on approximately $112 million of undistributed earnings from non-U.S.
subsidiaries as of May 31, 2023 which are indefinitely reinvested in operations. Based on historical experience, as well as management’s
future plans, earnings from these subsidiaries will continue to be re-invested indefinitely for future expansion and working capital
needs. On an annual basis, we evaluate the current business environment and whether any new events or other external changes might
require future evaluation of the decision to indefinitely re-invest these foreign earnings. It is not practical to determine the income tax
liability that would be payable if such earnings were not reinvested indefinitely.
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 to $131 per year
over the past five years. The Company’s estimated remaining
liability for these costs was $916 at both May 31, 2023 and 2022,
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 working 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 initiated a pilot study in fiscal 2022 which
chemical reagents were injected into the ground in an attempt
to reduce on-site contamination. The study will run over a two
year period, with a majority of expenses incurred in fiscal 2022.
Testing and treatment costs of $85 were incurred in fiscal 2023.
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 as a current liability, and the
remaining $816 is recorded in other non-current liabilities in the
consolidated balance sheet as of May 31, 2023.
The Company previously disclosed an ongoing investigation by
the U.S. Treasury Department’s Office of Foreign Assets Control
(OFAC) regarding activities or transactions involving parties
located in Iran. In fiscal year 2020, the Company recorded a
charge to Other (expense) income and recorded a reserve of
$600 to provide for potential fines or penalties on this matter. On
March 28, 2023, the Company received a Cautionary Letter from
OFAC concluding its investigation without civil monetary penalty
or other enforcement action. As the investigation is effectively
resolved, the Company reversed a $600 accrual in the fourth
quarter of 2023.
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 $3,392, $1,999, and
$2,129 for fiscal years 2023, 2022, and 2021, 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:
2024—$112, 2025—$109, 2026—$84, 2027—$84, and 2028—$67.
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.
37
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. Neogen’s expense under this plan was $2,439, $1,834, and $1,204 in fiscal years 2023, 2022, and
2021, respectively.
9. Fair Value and Derivatives
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.
Items Measured at Fair Value on a Recurring Basis
We forecast our net exposure in various receivables and payables to fluctuations in the value of various currencies, and have entered
into a number of 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 foreign currency forward contracts are recognized in other income in our consolidated statements of
income (loss). The notional amount of forward contracts in place was $15,500 and $4,424 as of May 31, 2023 and 2022, respectively, and
consisted of hedges of transactions up to June 2023.
(In thousands)
Fair Value of Deriviatives Not Designated as Hedging Instruments
Balance Sheet Location
May 31, 2023
May 31, 2022
Foreign currency forward contracts, net
Other receivable (Other accruals)
$
140
$
(78)
We record the fair value of our interest rate swaps on a recurring basis using Level 2 observable market inputs for similar assets or
liabilities in active markets.
Fair Value of Derivatives Designated as Hedging Instruments
Balance Sheet Location
May 31, 2023
May 31, 2022
Interest rate swaps – current
Interest rate swaps – non-current
Other current assets
Other non-current liabilities
$
$
2,087
(4,770)
$
—
—
Items Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, the Company measures certain assets and liabilities at fair
value on a nonrecurring basis, which are not included in the table above. As these nonrecurring fair value measurements are generally
determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy. For
further information see Note 2 “Goodwill and Other Intangible Assets” and Note 3 “Business Combinations”.
Items Not Carried at Fair Value
Fair values of the Company’s Term Loan and Senior Notes were as follows:
Aggregate fair value
Aggregate carrying value (1)
(1) Excludes unamortized debt issuance costs.
May 31, 2023
$
$
927,720
900,000
Fair values were based on available market information and other observable data and are classified within Level 2 of the fair value hierarchy.
38
Derivatives
Derivatives Not Designated as Hedging Instruments
The location and amount of gains from derivatives not designated as hedging instruments in our consolidated statements of income
(loss) were as follows:
(In thousands)
Deriviatives Not Designated as
Hedging Instruments
Foreign currency forward contracts
Location in statements
of (loss) income
Other (expense) income
May 31, 2023
May 31, 2022
May 31, 2021
$
(10,092)
$
1,218
$
2,651
Derivatives Designated as Hedging Instruments
In November 2022, we entered into a receive-variable, pay-fixed interest rate swap agreement with an initial $250,000 notional value,
which is designated as a cash flow hedge. This agreement fixed a portion of the variable interest due on our term loan facility, with an
effective date of December 2, 2022 and a maturity date of June 30, 2027. Under the terms of the agreement, we pay a fixed interest rate
of 4.215% plus an applicable margin ranging between 150 to 225 basis points and receive a variable rate of interest based on term SOFR
from the counterparty, which is reset according to the duration of the SOFR term. The fair value of the interest rate swap as of May 31,
2023 was a net liability of $2,683. The Company expects to reclassify a $2,087 gain of accumulated other comprehensive income into
earnings in the next 12 months.
The following table summarizes the other comprehensive income (loss) before reclassifications of derivative gains and losses:
Other Comprehensive Income (Loss) Before Reclassifications During
Year Ended May 31
Derivatives Designated as Hedging Instruments
2023
2022
2021
Interest rate swaps
$
(1,599)
$
—
$
—
The following table summarizes the reclassification of derivative gains and losses into net income from accumulated other
comprehensive income (loss):
Derivatives Designated as Hedging Instruments
Reclassified
2023
2022
2021
Interest rate swaps
Interest expense
$
440
$
—
$
—
Location of Gain (Loss)
Gain (Loss) Reclassified During
Year Ended May 31
10. 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 rodent control products, disinfectants and
insect control products to assist in the control of rodents, insects
and disease in and around agricultural, food production and
other facilities.
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, rodent control
products, insect control products, 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. 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.
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
The accounting policies of each of the segments are the
same as those described in Note 1. “Summary of Significant
Accounting Policies”.
39
Segment information is as follows:
(In thousands)
Fiscal 2023
Product revenues, net to external customers
Service revenues, net to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Interest expense
Total assets
Expenditures for long-lived assets
Fiscal 2022
Product revenues, net to external customers
Service revenues, net to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Interest expense
Total assets
Expenditures for long-lived assets
Fiscal 2021
Product revenues, net to external customers
Service revenues, net to external customers
Total revenues to external customers
Operating income (loss)
Depreciation and amortization
Interest expense
Total assets
Expenditures for long-lived assets
Food Safety
Animal Safety
Corporate and
Eliminations (1)
Total
$ 518,488
$ 196,588
$
28,309
546,797
60,414
76,841
79,062
275,650
43,332
11,536
—
—
3,970,356
52,169
338,507
13,588
$ 231,626
$ 193,038
$
28,353
259,979
38,581
13,386
74,142
267,180
52,546
10,308
—
—
304,461
7,842
307,417
16,939
$ 209,104
$ 167,198
$
25,140
67,017
234,244
234,215
33,725
11,575
48,685
9,466
—
—
—
—
—
(66,231)
—
55,961
245,569
—
—
—
—
(32,509)
—
72
381,051
—
—
—
—
(8,241)
—
78
$
715,076
107,371
822,447
37,515
88,377
55,961
4,554,432
65,757
$ 424,664
102,495
527,159
58,618
23,694
72
992,929
24,781
$ 376,302
92,157
468,459
74,169
21,041
78
295,065
13,730
244,039
12,982
381,088
920,192
—
26,712
(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.
Revenue is determined by location of the end customer. The following table presents the Company’s revenue disaggregated by
geographical location.
(In thousands)
Domestic
International
Total revenue
2023
$ 424,005
398,442
$ 822,447
Year ended May 31
2022
$ 317,820
209,339
$ 527,159
2021
$ 285,262
183,197
$ 468,459
The following table presents the Company’s net property and equipment amounts disaggregated by country.
(In thousands)
United States
United Kingdom
Other
Total PPE
40
Year ended May 31
2023
$ 130,967
20,123
47,659
$ 198,749
$
2022
63,313
14,204
33,067
$ 110,584
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, 2023 and 2022,
the related consolidated statements of income (loss), comprehensive
income, stockholders’ equity, and cash flows for each of the three
years in the period ended May 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash
flows for each of the three years in the period ended May 31, 2023,
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,
2023, 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 August 15, 2023 expressed an adverse 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 the customer relationships intangible
asset – 3M Food Safety Division transaction
As described in Note 3 to the consolidated financial statements,
on September 1, 2022, the Company completed a transaction
combining 3M’s Food Safety Division with Neogen in a Reverse
Morris Trust transaction for consideration of approximately $3.2
billion, which resulted in recording of a customer relationships
intangible asset valued at $1.17 billion. Management determined
the fair value of the acquired customer relationships intangible
asset by applying the multi-period excess earnings method, which
involved the use of significant estimates and assumptions related to
forecasted revenue growth rate and customer attrition rate.
We identified the valuation of the customer relationship intangible
asset from the 3M Food Safety Division transaction as a critical
audit matter. The principal considerations for this determination are
the significant judgments and assumptions made by management
when determining the fair value of the customer relationships
intangible asset, specifically the forecasted revenue growth rate and
customer attrition rate. Auditing these elements involved especially
subjective auditor judgment due to the nature and extent of audit
effort required to address these matters, including the extent of
specialized skills or knowledge needed.
The primary procedures we performed to address this critical audit
matter included:
•
Utilizing personnel with specialized knowledge and skills in
valuation to assist in (i) evaluating management’s process for
estimating the fair value of the customer relationship intangible
asset, and (ii) evaluating the methodology used and the
reasonableness of the attrition rate.
Evaluating the reliability of the underlying data provided by
management.
Evaluating the reasonableness of the significant assumptions
related to the forecasted revenue growth rate by (i) analyzing
the current and past performance of the former 3M Food Safety
Division, (ii) evaluating the consistency with external market and
industry data, and (iii) comparing the consistency with evidence
obtained in other areas of the audit.
•
•
We have served as the Company’s auditor since 2014.
Grand Rapids, Michigan
August 15, 2023
41
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). Our
internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes
in accordance with U.S. GAAP and includes those policies and
procedures that: (1) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect our transactions and
the dispositions of our assets; (2) provide reasonable assurance that
our transactions are recorded
as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles and that
our receipts and expenditures are being made only in accordance
with appropriate authorizations; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections
of any evaluation of effectiveness for 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.
On September 1, 2022, we completed our merger with Neogen
Food Safety Corporation, a wholly owned subsidiary of 3M that
was created to carve out 3M’s Food Safety Division. We are in the
process of evaluating the existing controls and procedures of 3M's
Food Safety Division and integrating it into our internal control over
financial reporting. In accordance with SEC Staff guidance permitting
a company to exclude an acquired business from management’s
assessment of the effectiveness of internal control over financial
reporting for the year in which the acquisition is completed,
management has excluded the business that we acquired from our
assessment of the effectiveness of internal control over financial
reporting as of May 31, 2023. The business that we acquired in
3M's Food Safety Division represented approximately 82% of the
Company’s total assets as of May 31, 2023, 34% of the Company’s
revenues and 29% of the Company’s operating income for the year
ended May 31, 2023.
Under the supervision of and with the participation of our
management, including the Chief Executive Officer and Chief
Financial Officer, we assessed the effectiveness of our internal
control over financial reporting as of May 31, 2023, using the
criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control—Integrated
Framework (2013). A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.
42
Management’s assessment of the Company’s internal control over
financial reporting identified the following material weaknesses that
existed as of May 31, 2023:
• We identified a material weakness in internal control related
to ineffective information technology general controls (ITGCs)
in the areas of user access and change management over
certain information technology (IT) systems that support the
Company’s financial reporting processes. Specifically, we did
not design and maintain: (i) sufficient logical access controls to
ensure appropriate segregation of duties and adequately restrict
user and privileged access to financial applications, programs
and data to appropriate Company personnel; (ii) program
change management controls to ensure that information
technology program and data changes affecting financial
information technology applications and underlying accounting
records are identified, tested, authorized and implemented
appropriately. As a result, manual business process controls
that are dependent on the affected ITGCs were also deemed
ineffective, because they could have been adversely impacted
to the extent that they rely upon information and configurations
from the affected IT systems.
• We identified a material weakness in internal control related to
ineffective period-end invoice accrual controls that are designed
to ensure the completeness and accuracy of accrued expenses
and accrued capital assets.
• We identified a material weakness in internal control related to
ineffective operation of management review controls related
to the accounting, valuation and purchase price allocation of the
Company’s acquisitions and associated goodwill. Specifically, we did
not maintain adequate documentation supporting the precision
of the operating effectiveness of certain associated management
review controls.
These control deficiencies create a reasonable possibility that a
material misstatement to the consolidated financial statements will
not be prevented or detected on a timely basis, and therefore, we
concluded that the deficiencies represent material weaknesses. As
a result of these material weaknesses, management has concluded
that our internal control over financial reporting was not effective as
of May 31, 2023.
Following identification of these material weaknesses and prior to
filing this Annual Report on Form 10-K, we completed additional
procedures and concluded that our consolidated financial statements
included in this Form 10-K have been prepared in accordance with
U.S. GAAP and fairly present, in all material respects, the financial
condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this Form 10-K.
The Company’s independent registered public accounting firm, BDO
USA, P.A., which has audited and reported on our consolidated
financial statements, issued an attestation report on the effectiveness
of the Company’s internal control over financial reporting as of May
31, 2023, which is included in this annual report below.
Plan of Remediation
Management has been implementing and continues to implement
measures designed to ensure that control deficiencies contributing
to the material weaknesses are remediated, such that these controls
are designed, implemented, and operating effectively. The Company
continues to provide additional training to personnel and put in
place additional quality control measures around its processes and
the retention and documentation of evidence of control activities.
When fully implemented and operational, we believe that these
actions will remediate the underlying causes of the material
weaknesses and strengthen our internal control over financial
reporting. The material weaknesses will not be considered
remediated, however, until the applicable controls operate for a
sufficient period of time and management has concluded, through
testing, that these controls are operating effectively.
As we implement these remediation efforts, we may determine
that additional steps may be necessary to remediate the material
weaknesses. We cannot provide assurance that these remediation
efforts will be successful or that our internal control over financial
reporting will be effective in accomplishing all control objectives
all of the time. We will continue to assess the effectiveness of our
remediation efforts in connection with our evaluations of internal
control over financial reporting.
Changes in Internal Control over Financial Reporting
Other than the material weaknesses and related remediation
efforts described above, and any changes resulting from the
business combination described above, no changes in our internal
control over financial reporting were identified as having occurred
during the quarter ended May 31, 2023 that have materially
affected, or are reasonably likely to materially affect, internal
control over financial reporting.
John E. Adent,
President and CEO
David H. Naemura,
Chief Financial Officer
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, 2023, 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 did not maintain, in all material respects, effective
internal control over financial reporting as of May 31, 2023, based
on the COSO criteria. We do not express an opinion or any other
form of assurance on management’s statements referring to
any corrective actions taken by the Company after the date of
management’s assessment.
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, 2023 and 2022, the related consolidated statements of
income (loss), comprehensive income, stockholders’ equity, and
cash flows for each of the three years in the period ended May 31,
2023, and the related notes and our report dated August 15, 2023
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.
A material weakness is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the Company’s
annual or interim financial statements will not be prevented or
detected on a timely basis. Material weaknesses have been identified
and described in management’s assessment. These material
weaknesses related to management’s failure to design and maintain
effective controls over financial reporting, specifically related to the
following: (1) information technology general controls in the areas
of user access and change management over certain information
technology systems that support the Company’s financial
reporting processes, (2) period-end invoice accrual controls and (3)
management review controls related to the accounting, valuation
and purchase price allocation of the Company’s acquisitions and
associated goodwill. These material weaknesses were considered
43
in determining the nature, timing, and extent of audit tests applied
in our audit of the 2023 consolidated financial statements, and this
report does not affect our report dated August 15, 2023 on those
consolidated financial statements.
As indicated in the accompanying “Item 9A, Changes in Internal
Control over Financial Reporting”, management’s assessment of
and conclusion on the effectiveness of internal control over financial
reporting did not include the internal controls of 3M’s Food Safety
Division, which was acquired on September 1, 2022, and which is
included in the consolidated balance sheet of the Company as of
May 31, 2023, and the related consolidated statements of income
(loss), comprehensive income, stockholders’ equity, and cash flows
for the year then ended. 3M’s Food Safety Division constituted 82%
of total assets as of May 31, 2023, and 34% and 29% of revenues
and operating income, respectively, for the year then ended.
Management did not assess the effectiveness of internal control
over financial reporting of 3M’s Food Safety Division because of
the timing of the acquisition which was completed on September
1, 2022. Our audit of internal control over financial reporting of the
Company also did not include an evaluation of the internal control
over financial reporting of 3M’s Food Safety Division.
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
August 15, 2023
Officers
John E. Adent
President and Chief Executive Officer
Robert S. Donofrio, Ph.D.
Vice President, Chief Scientific Officer
Douglas E. Jones
Vice President, Chief Operating Officer
Jason W. Lilly, Ph.D.
Vice President, Americas & Australia / New Zealand
Julie L. Mann
Vice President, Chief Human Resources Officer
David Naemura
Chief Financial Officer
Amy M. Rocklin, Ph.D.
Vice President, General Counsel and
Corporate Secretary
44
Directors
James C. Borel
Board Chair
Former Executive Vice President,
E.I. duPont de Nemours
William T. Boehm, Ph.D.
Former Senior Vice President,
Kroger Company
Former Senior Economist, President’s
Council of Economic Advisors
Jeff Capello
Managing Member, Monomoy Advisors
Former Chief Financial Officer,
PerkinElmer, Inc.
Ronald D. Green, Ph.D.
Chancellor, University of
Nebraska–Lincoln
Aashima Gupta
Global Director for Healthcare
Provider Solutions, Google Cloud
Ralph A. Rodriguez
President & Chief Product Officer, Daon
James P. Tobin
Former Vice President, Monsanto
Darci L. Vetter
Global Head – Policy & Governmental
Regulations, The Nature Conservancy
Former Chief Agricultural Negotiator,
Office of the U.S. Trade Representative
Catherine E. Woteki, Ph.D.
Distinguished Institute Professor,
Biocomplexity Institute at
the University of Virginia
Former Undersecretary for United
States Department of Agriculture's
(USDA) Research, Education, and
Economics Mission
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, the S&P 500 Life Sciences Tools & Services index and the S&P 400 Health Care index. The S&P 400
Health Care index is an appropriate comparison for Neogen, as it is focused primarily on mid-cap companies in healthcare and related end
markets, and it replaces the NASDAQ Medical Equipment index, which is no longer a traded 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 5/31/2018 to 5/31/2023.
Neogen Corporation
NASDAQ Composite
S&P 400 Health Care
S&P 500 Life Sciences Tools & Services
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Market Information
Neogen Common Stock is traded on the NASDAQ Global Select Market under the symbol NEOG.
Holders
As of June 30, 2023, there were 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.
Annual Meeting
October 25, 2023 at 10:00 a.m.
www.virtualshareholdermeeting.com/
NEOG2023
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
Neogen Corporation, 620 Lesher Place, Lansing, MI 48912 USA.
© Neogen Corporation 2023. All rights reserved. Neogen, AccuPoint, Agri-Screen, Alert, ANSR, BetaStar, BotVax, CatScan, Clean-Trace, DeciMax, EqStim, Ideal, K-Blue, Prima,
Prima Tech, Prozap, Raptor, Ramik, Reveal, Soleris, StandGuard, SureKill, Synergize and Veratox are registered trademarks and Acid-A-Foam, COMPANION, Colitag, Cykill,
D3 Needles, Encompass, NeoSeek, PanaKare, RenaKare, Right Now, Rodex, ThyroKare, and Viroxide Super are trademarks of Neogen Corporation. BioSentry is a registered
trademark of BioSentry, Inc. Havoc is a registered trademark of Syngenta. All other marks mentioned are property of their respective owners.
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NASDAQ: NEOG