NEOGEN CORP 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 (e) under the Securities Exchange Act of 1934) as of May 31, 2023. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure the information required to be disclosed in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on management’s evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of May 31, 2023, because of the material weaknesses described below. 45 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. 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. 46 • 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. 47 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 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 48 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. /s/ BDO USA, P.A. Grand Rapids, Michigan August 15, 2023 49 ITEM 9B. OTHER INFORMATION—NONE ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS—NOT APPLICABLE 50 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information regarding the Company and certain corporate governance matters appearing under the captions “Proposal 1 — Election of Directors,” “Information About the Board and Corporate Governance Matters,” and “Additional Information-Delinquent Section 16(a) Reports” is incorporated by reference to Neogen’s 2023 proxy statement to be filed within 120 days of May 31, 2023. We have adopted a Code of Conduct that applies to our directors, officers, and employees. This Code of Conduct is available on our website at https://www.Neogen.com/globalassets/pdfs/corporate-governance-sec-and-investor-information/codeofconduct.pdf . We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver from, a provision of the code of conduct for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website. Information About Our Officers and Executive Officers The officers of Neogen serve at the discretion of the Board of Directors. The names and titles of our officers as of May 31, 2023 are set forth below. Name Position with the Company Year Joined the Company John E. Adent President & Chief Executive Officer 2017 Robert S. Donofrio, Ph.D. Chief Scientific Officer 2016 Douglas E. Jones Chief Operating Officer 2020 Jason W. Lilly, Ph.D. Vice President, Americas & Australia/New Zealand 2005 Julie L. Mann Chief Human Resources Officer 2017 David H. Naemura Chief Financial Officer 2022 Steven J. Quinlan Vice President, Finance 2011 Amy M. Rocklin, Ph.D. Chief Legal & Compliance Officer 2021 Information concerning the officers of Neogen follows: John E. Adent, age 55, joined Neogen as Chief Executive Officer on July 17, 2017 and was then named President on September 22, 2017. Prior to joining Neogen, Mr. Adent served as the Chief Executive Officer of Animal Health International, Inc., formerly known as Lextron, Inc., from 2004 to 2015, also serving as its President during that time. Animal Health International was sold to Patterson Companies, Inc. in 2015, and Mr. Adent served as the Chief Executive Officer of the $3.3 billion Animal Health Division of Patterson Animal Health from that period until his resignation on July 1, 2017. Mr. Adent began his career with management responsibilities for Ralston Purina Company, developing animal feed manufacturing and sales operations in China and the Philippines. When Ralston Purina spun off that business to Agribrands, he continued his management role in the European division in Spain and Hungary, serving as managing director of the Hungarian operations. He left Ralston Purina in 2004. Dr. Robert S. Donofrio, age 50, joined Neogen in February 2016 as Director of Microbiology Research and Development, and was promoted to Director of Food Safety Research and Development in December 2016. In April 2018, Dr. Donofrio was named Vice President, Food Safety Research and Development and then named Vice President, Research and Development in September 2018. In 2022, Dr. Donofrio was named Chief Scientific Officer. Prior to joining Neogen, he worked for 15 years at NSF International in various positions of increasing responsibility, including Director of Microbiology and Molecular Biology and Director of Applied Research, where he led efforts in grant research and method development with partners in academia, industry and government. At Neogen, Dr. Donofrio is responsible for our worldwide research activities. 51 Douglas E. Jones, age 53, joined Neogen as Chief Commercial Officer on August 17, 2020; in 2022, he was named Chief Operating Officer. Prior to joining Neogen, Mr. Jones served as the President of the Companion Animal Division at Patterson Companies from 2016 to August 2020. Prior to joining Patterson, Mr. Jones served as the Head of Business Operations for the North American Merial Animal Health Division of Sanofi. Mr. Jones began his career as a management consultant with the North Highland Company and PriceWaterhouseCoopers, focusing on commercial transformation and strategy projects in the pharmaceutical, healthcare distribution and high-tech industries. Dr. Jason W. Lilly, age 49, joined Neogen in June 2005 as Market Development Manager for Food Safety. In June 2009, he moved to the Corporate Development group. He was named Vice President of Corporate Development in December 2011, responsible for the identification and acquisition of new business opportunities for the Company. In January 2019, Dr. Lilly was named Vice President, International Business, responsible for Neogen’s operations outside of the U.S. and Canada. In May 2023, Dr. Lilly was named Vice President, Americas & Australia/New Zealand, with responsibility for all commercial business in those regions. He also has strategic and operational oversight of our global genomics business. Prior to joining Neogen, he served in various technical sales and marketing roles at Invitrogen Corporation. Julie L. Mann, age 58, joined Neogen in 2017 as Director of Human Resources and was promoted to Senior Director of Human Resources in June 2019. In 2020, Ms. Mann was named Chief Human Resources Officer, with responsibilities for people-focused programs and initiatives for Neogen’s worldwide employees. Ms. Mann has more than 30 years of experience focused on all aspects of strategic human resources including talent acquisition, compensation and benefits, employee development and employee relations. Prior to joining Neogen, Ms. Mann held the positions of Director, Talent Acquisition at Holland, a logistics company, and Director, People Services Consulting at Herman Miller. David H. Naemura, age 54, joined Neogen in November 2022 as Chief Financial Officer. Previously, Mr. Naemura served as the Senior Vice President and Chief Financial Officer of Vontier Corporation from February 2020 until November 2022. Mr. Naemura served as Chief Financial Officer of Gates Industrial Corporation from March 2015 to January 2020. Prior to his time at Gates Industrial Corporation, Mr. Naemura served as Vice President of Finance and Group Chief Financial Officer at Danaher Corporation from April 2012 to March 2015, and previously served as Danaher Corporation’s Test & Measurement Communications Platform Chief Financial Officer from January 2009 to April 2012. Prior to 2009, Mr. Naemura was employed by Tektronix Corporation from August 2000 to January 2009, including during its acquisition by Danaher Corporation in 2007. Steven J. Quinlan, age 60, joined Neogen in January 2011 as Vice President & Chief Financial Officer and was also Corporate Secretary until March 2021. Mr. Quinlan announced his retirement in September 2022 and Mr. Naemura was subsequently appointed as Chief Financial Officer, beginning in November 2022. For the remainder of fiscal year 2023, Mr. Quinlan continued to serve the Company as Vice President of Finance and is continuing to work on special projects through the end of the 2023 calendar year. Prior to his retirement announcement, Mr. Quinlan was responsible for all internal and external financial reporting for Neogen, and managed the accounting, information technology, corporate purchasing, treasury and investor relations functions. Mr. Quinlan came to Neogen following 19 years at Detrex Corporation (1992-2010), the last eight years serving as Vice President-Finance, CFO and Treasurer. He was on the audit staff at the public accounting firm Price Waterhouse (now PricewaterhouseCoopers) from 1985-1989. Amy M. Rocklin, Ph.D., age 51, joined Neogen in March 2021 as Vice President, General Counsel & Corporate Secretary. In 2022, Dr. Rocklin was named Chief Legal & Compliance Officer. In this role, she is responsible for all legal and compliance matters and also leads the regulatory, quality and ESG functions. Dr. Rocklin also serves as the Corporate Secretary. Prior to joining Neogen, Dr. Rocklin was Division Vice President, Corporate Law at Corning Incorporated. In her nearly ten years at Corning, she held multiple leadership positions within Corning’s Law Department, including Director of Law, M&A and Emerging Innovations. Before Corning, Dr. Rocklin held leadership positions at Smiths Group plc and was in private practice at the law firm of Foley & Lardner LLP. 52 ITEM 11. EXECUTIVE COMPENSATION The information required by this Item, and pursuant to Regulation 14A of the Exchange Act, is incorporated by reference from the sections entitled “Compensation Discussion and Analysis”, “Compensation Committee Report”, “Executive Compensation”, “Information About the Board and Corporate Governance Matters-Compensation Committee Interlocks and Insider Participation”, “CEO Pay Ratio”, and “Compensation of Directors” in the Company’s definitive Proxy Statement to be filed within 120 days of May 31, 2023. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS The information required by this Item, and pursuant to Regulation 14A of the Exchange Act, is incorporated by reference from the section entitled “Security Ownership of Certain Beneficial Owners, Directors and Management” in the Company’s definitive Proxy Statement to be filed within 120 days of May 31, 2023. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item, and pursuant to Regulation 14A of the Exchange Act, is incorporated by reference from the section entitled “Information about the Board and Corporate Governance Matters-Independent Directors,” “Board Committees” and “Certain Relationships and Related Party Transactions” in the Company’s definitive Proxy Statement to be filed within 120 days of May 31, 2023. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item, and pursuant to Regulation 14A of the Exchange Act, is incorporated by reference from the section entitled “Proposal 3 — Ratification of the Appointment of the Company’s Independent Registered Public Accounting Firm” in the Company’s definitive Proxy Statement to be filed within 120 days of May 31, 2023. 53 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) and (2) and (c). The response to this portion of ITEM 15 is submitted as a separate section of this report starting on page F-1. (a) (3) and (b). The Exhibits, listed on the accompanying Exhibit Index on page 40, are incorporated herein by reference. ITEM 16. FORM 10-K SUMMARY — NONE Neogen Corporation Annual Report on Form 10-K Year Ended May 31, 2023 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 2.1 Agreement and Plan of Merger, dated as of December 13, 2021, by and among 3M Company, Neogen Food Safety Corporation, Neogen Corporation and Nova RMT Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Neogen Corporation on December 15, 2021). 2.2 Separation and Distribution Agreement, dated as of December 13, 2021, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Neogen Corporation on December 15, 2021). 2.3 Amendment No. 1 to the Separation and Distribution Agreement, dated as of August 31, 2022, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 2.4 Asset Purchase Agreement, dated as of December 13, 2021, by and between 3M Company and Neogen Corporation (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K filed by Neogen Corporation on December 15, 2021). 3.1 Certificate of Amendment to Articles of Incorporation filed on October 11, 2010 (incorporated by reference to Exhibit 3.2 filed with the Registrant’s Annual Report on Form 10-K filed on July 30, 2020). 3.2 Restated Articles of Incorporation, as amended on November 23, 2011 (incorporated by reference to Exhibit 3.1 filed with the Registrant’s Quarterly Report on Form 10-Q filed December 30, 2011). 3.3 Certificate of Amendment to Articles of Incorporation filed on November 20, 2018 (incorporated by reference to Exhibit 3 filed with the Registrant’s Quarterly Report on Form 10-Q filed December 28, 2018). 3.4 Certificate of Amendment to Articles of Incorporation of Neogen Corporation filed on March 14, 2022 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Neogen Corporation on March 17, 2022). 3.5 Certificate of Amendment to Articles of Incorporation of Neogen Corporation filed on September 1, 2022 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 3.6 By-Laws, as amended (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed April 14, 2000). 3.7 Amendment to the By-Laws, as amended (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 4.1 Senior Notes Indenture for 8.625% Senior Notes due 2030, dated as of July 20, 2022, among Neogen Food Safety Corporation, as issuer, the guarantors party thereto from time to time, and U.S. 54 EXHIBIT NO. DESCRIPTION Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 10.10 to Neogen’s Registration Statement on Form S-4 (Registration No. 333-263667), filed with the SEC on July 27, 2022). 4.2 Supplemental Indenture, dated as of September 1, 2022, among Neogen Food Safety Corporation (f/k/a Neogen Food Safety Corporation), as issuer, U.S. Bank Trust Company, National Association, as trustee, Neogen Corporation and certain of its subsidiaries (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 10.1 Tax Matters Agreement, dated as of September 1, 2022, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 10.2 Intellectual Property Cross-License Agreement, dated as of September 1, 2022, by and between 3M Company and Neogen Food Safety Corporation (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 10.3 Trademark Transitional License Agreement, dated as of September 1, 2022, by and among 3M Company, 3M Innovative Properties Company, Neogen Corporation and Neogen Food Safety Corporation (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 10.4 Transition Services Agreement, dated as of September 1, 2022, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 10.5 Transition Distribution Services Agreement, dated as of September 1, 2022, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 10.6 Transition Contract Manufacturing Agreement, dated as of September 1, 2022, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 10.7 Clean-Trace(TM) Distribution Agreement, dated as of September 1, 2022, by and between 3M Company and Neogen Food Safety Corporation (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 10.8 Real Estate License Agreement, dated as of September 1, 2022, by and among certain subsidiaries of Neogen Corporation, 3M Company and certain of its subsidiaries (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022). 10.9 Credit Agreement, dated as of June 30, 2022, among Neogen Food Safety Corporation, as borrower, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, and joined thereto as of September 1, 2022 by Neogen Corporation, as a borrower (incorporated by reference to Exhibit 10.9 to Neogen’s Registration Statement on Form S-4 (Registration No. 333-263667), filed with the SEC on July 27, 2022). 21 Listing of Subsidiaries 23 Consent of Independent Registered Public Accounting Firm BDO USA, P.A. 24 Power of Attorney 31.1 Section 302 Certification of Principal Executive Officer 31.2 Section 302 Certification of Principal Financial Officer 32 Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 55 EXHIBIT NO. DESCRIPTION 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. NEOGEN CORPORATION By: /s/ John E. Adent By: /s/ David H. Naemura John E. Adent, President & Chief David H. Naemura, Executive Officer Chief Financial Officer (Principal Executive Officer) (Principal Financial & Accounting Officer) Dated: August 15, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date President & Chief Executive Officer /s/ John E. Adent (Principal Executive Officer) August 15, 2023 John E. Adent Chief Financial Officer /s/ David H. Naemura (Principal Financial & Accounting Officer) August 15, 2023 David H. Naemura * Chairman of the Board of Directors August 15, 2023 James C. Borel * Director August 15, 2023 William T. Boehm, Ph.D. * Director August 15, 2023 Jeffrey D. Capello * Director August 15, 2023 Ronald D. Green, Ph.D. * Director August 15, 2023 Aashima Gupta * Director August 15, 2023 Raphael A. Rodriguez * Director August 15, 2023 James P. Tobin * Director August 15, 2023 Darci L. Vetter 57 Signature Title Date * Director August 15, 2023 Catherine E. Woteki, Ph.D. *By: /s/ John E. Adent John E. Adent, Attorney-in-fact August 15, 2023 58 ANNUAL REPORT ON FORM 10-K ITEM 15 (a)(1)(a)(2) and (c) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED MAY 31, 2023 NEOGEN CORPORATION LANSING, MICHIGAN FORM 10-K—ITEM 15(a)(1) AND (2) AND 15(c) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of Neogen Corporation and subsidiaries are included below and incorporated in ITEM 8: Report of Independent Registered Public Accounting Firm, BDO USA, P.A. , Grand Rapids, MI PCAOB ID# 243 F- 2 Consolidated Balance Sheets F- 4 Consolidated Statements of Income (Loss) F- 6 Consolidated Statements of Comprehensive Income F- 7 Consolidated Statements of Stockholders’ Equity F- 8 Consolidated Statements of Cash Flows F- 9 Notes to Consolidated Financial Statements F- 10 Schedules for which provision is made in the applicable accounting regulation of the United States Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. F- 1 Report of Indepen dent 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. F- 2 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. /s/ BDO USA, P.A. We have served as the Company’s auditor since 2014. Grand Rapids, Michigan August 15, 2023 F- 3 Neogen Corporation Consolidated Bala nce Sheets – Assets (in thousands) May 31 2023 2022 Assets Current Assets Cash and cash equivalents $ 163,240 $ 44,473 Marketable securities 82,329 336,578 Accounts receivable, net 153,253 99,674 Inventories 133,812 122,313 Prepaid expenses and other current assets 53,297 23,760 Total Current Assets 585,931 626,798 Property and Equipment Land and improvements 10,209 9,485 Building and improvements 96,794 79,513 Machinery and equipment 152,547 114,180 Furniture and fixtures 7,080 6,307 Construction in progress 52,237 5,974 318,867 215,459 Less accumulated depreciation ( 120,118 ) ( 104,875 ) Net Property and Equipment 198,749 110,584 Other Assets Right of use assets 11,933 3,184 Goodwill 2,137,496 142,704 Other non-amortizable intangible assets 14,316 15,397 Amortizable intangible assets, net 1,590,787 92,106 Other non-current assets 15,220 2,156 Total Other Assets 3,769,752 255,547 Total Assets $ 4,554,432 $ 992,929 See accompanying notes to consolidated financial statements. F- 4 Neogen Corporation Consolidated Balance Sheets – Liabilities and Stockholders’ Equity (in thousands, except shares and per share) May 31 2023 2022 Liabilities and Stockholders’ Equity Current Liabilities Accounts payable $ 76,669 $ 34,614 Accrued compensation 25,153 11,123 Income tax payable 6,951 2,126 Accrued interest 11,149 — Deferred revenue 4,616 5,460 Other accruals 20,934 24,521 Total Current Liabilities 145,472 77,844 Deferred Income Tax Liability 353,427 17,011 Non-Current Debt 885,439 — Other Non-Current Liabilities 35,877 10,700 Total Liabilities 1,420,215 105,555 Commitments and Contingencies (note 7) Stockholders’ Equity Preferred stock, $ 1.00 par value — shares authorized 100,000 ; no ne 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 34,599 17,248 Additional paid-in capital 2,567,828 309,984 Accumulated other comprehensive loss ( 33,251 ) ( 27,769 ) Retained earnings 565,041 587,911 Total Stockholders’ Equity 3,134,217 887,374 Total Liabilities and Stockholders’ Equity $ 4,554,432 $ 992,929 See accompanying notes to consolidated financial statements. F- 5 Neogen Corporation Consolidated S tatements of Income (Loss) (in thousands, except per share) Year Ended May 31 2023 2022 2021 Revenues Product revenues, net $ 715,076 $ 424,664 $ 376,302 Service revenues, net 107,371 102,495 92,157 Total Revenues, net 822,447 527,159 468,459 Cost of Revenues Cost of product revenues 354,707 228,017 201,348 Cost of service revenues 61,785 56,129 52,055 Total Cost of Revenues 416,492 284,146 253,403 Gross Margin 405,955 243,013 215,056 Operating Expenses Sales and marketing 141,222 84,604 73,443 General and administrative 201,179 82,742 51,197 Research and development 26,039 17,049 16,247 Total Operating Expenses 368,440 184,395 140,887 Operating Income 37,515 58,618 74,169 Other (Expense) Income Interest income 3,166 1,339 1,692 Interest expense ( 55,961 ) ( 72 ) ( 78 ) Other, net ( 6,762 ) 322 ( 515 ) Total Other (Expense) Income ( 59,557 ) 1,589 1,099 (Loss) Income Before Taxes ( 22,042 ) 60,207 75,268 Provision for Income Taxes 828 11,900 14,386 Net (Loss) Income $ ( 22,870 ) $ 48,307 $ 60,882 Net (Loss) Income Per Share Basic $ ( 0.12 ) $ 0.45 $ 0.57 Diluted $ ( 0.12 ) $ 0.45 $ 0.57 Weighted Average Shares Outstanding Basic 188,881 107,684 106,499 Diluted 188,881 108,020 107,120 See accompanying notes to consolidated financial statements. F- 6 Neogen Corporation Consolidated St atements of Comprehensive Income (Loss) (in thousands) Year Ended May 31 2023 2022 2021 Net (Loss) Income $ ( 22,870 ) $ 48,307 $ 60,882 Other comprehensive (loss) income: Foreign currency translations ( 4,796 ) ( 13,955 ) 8,602 Unrealized gain (loss) on marketable securities, net of tax of $ 389 , $( 728 ), and $( 80 ) 1,353 ( 2,439 ) ( 268 ) Unrealized loss on derivative instruments, net of tax of $( 644 ) ( 2,039 ) - - Other comprehensive (loss) income, net of tax: ( 5,482 ) ( 16,394 ) 8,334 Comprehensive (loss) income $ ( 28,352 ) $ 31,913 $ 69,216 See accompanying notes to consolidated financial statements. F- 7 Neogen Corporation Consolidated Stat ements of Stockholders’ Equity (in thousands, except shares) Accumulated Additional Other Common Stock Paid-in Comprehensive Retained Total Shares Amount Capital Income (Loss) Earnings Equity Balance, June 1, 2020 105,891,682 $ 16,943 $ 249,221 $ ( 19,709 ) $ 478,722 $ 725,177 Exercise of options, RSUs and share-based compensation expense 1,410,948 226 39,454 — — 39,680 Issuance of shares under employee stock purchase plan 38,406 6 1,382 — — 1,388 Issuance of shares for Megazyme acquisition 127,268 20 4,896 — — 4,916 Net income for 2021 — — — — 60,882 60,882 Other comprehensive income — — — 8,334 — 8,334 Balance, May 31, 2021 107,468,304 $ 17,195 $ 294,953 $ ( 11,375 ) $ 539,604 $ 840,377 Exercise of options, RSUs and share-based compensation expense 289,334 46 13,162 — — 13,208 Issuance of shares under employee stock purchase plan 43,456 7 1,869 — — 1,876 Net income for 2022 — — — — 48,307 48,307 Other comprehensive loss — — — ( 16,394 ) — ( 16,394 ) Balance, May 31, 2022 107,801,094 $ 17,248 $ 309,984 $ ( 27,769 ) 587,911 $ 887,374 Exercise of options, RSUs and share-based compensation expense 79,857 13 10,483 — — 10,496 Issuance of shares under employee stock purchase plan 94,604 15 1,843 — — 1,858 Issuance of shares for 3M transaction 108,269,946 17,323 2,245,518 2,262,841 Net loss for 2023 — — — — ( 22,870 ) ( 22,870 ) Other comprehensive loss — — — ( 5,482 ) — ( 5,482 ) Balance, May 31, 2023 216,245,501 $ 34,599 $ 2,567,828 $ ( 33,251 ) $ 565,041 $ 3,134,217 See accompanying notes to consolidated financial statements. F- 8 Neogen Corporation Consolidated Statements of Cash Flows (in thousands) Year Ended May 31 2023 2022 2021 Cash Flows From Operating Activities Net (loss) income $ ( 22,870 ) $ 48,307 $ 60,882 Adjustments to reconcile net (loss) income to net cash from operating activities: Depreciation and amortization 88,377 23,694 21,041 Impairment of discontinued product lines 3,109 — — Loss on sale of minority interest and investment 2,016 — — Deferred income taxes ( 19,230 ) ( 4,695 ) ( 640 ) Share-based compensation 10,177 7,154 6,437 Gain on disposal of property and equipment ( 486 ) — — Amortization of debt issuance costs 2,720 — — Changes in operating assets and liabilities, net of business acquisitions: Accounts receivable ( 53,879 ) ( 7,798 ) ( 2,595 ) Inventories 9,955 ( 21,072 ) 2,450 Prepaid expenses and other assets ( 3,121 ) ( 4,054 ) ( 3,386 ) Accounts payable, accruals and changes 18,642 20,238 ( 2,221 ) Interest expense accrual 4,052 — — Changes in other non-current assets and non-current liabilities 1,566 6,264 ( 879 ) Net Cash From Operating Activities 41,028 68,038 81,089 Cash Flows From (For) Investing Activities Purchase of property, equipment and other non-current intangible assets ( 65,757 ) ( 24,429 ) ( 26,712 ) Proceeds from the maturities of marketable securities 266,772 381,839 764,597 Purchase of marketable securities ( 12,523 ) ( 415,894 ) ( 792,678 ) Proceeds from the sale of property and equipment 826 — — Business acquisitions, net of working capital adjustments and cash acquired 11,721 ( 38,745 ) ( 50,771 ) Net Cash From (For) Investing Activities 201,039 ( 97,229 ) ( 105,564 ) Cash Flows (For) From Financing Activities Exercise of stock options and issuance of employee stock purchase plan shares 1,195 7,933 34,631 Debt issuance costs paid ( 19,276 ) — — Repayment of debt ( 100,000 ) — — Payment of contingent consideration — ( 1,120 ) ( 1,087 ) Net Cash (For) From Financing Activities ( 118,081 ) 6,813 33,544 Effects of Foreign Exchange Rate on Cash ( 5,219 ) ( 8,751 ) 264 Net Increase (Decrease) in Cash and Cash Equivalents 118,767 ( 31,129 ) 9,333 Cash and Cash Equivalents, Beginning of Year 44,473 75,602 66,269 Cash and Cash Equivalents, End of Year $ 163,240 $ 44,473 $ 75,602 Supplementary Cash Flow Information Cash paid for interest $ 42,616 $ 72 $ 78 Income taxes paid, net of refunds $ 15,473 $ 17,242 $ 14,966 See accompanying notes to consolidated financial statements. F- 9 NEOGEN CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands except per share and share amounts) 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 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. F- 10 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). F- 11 Marketable Securities as of May 31, 2023 and 2022 are listed below by classification and remaining maturities. Year ended May 31 Maturity 2023 2022 Commercial Paper & Corporate Bonds 0 - 90 days $ 22,552 $ 106,497 91 -180 days 35,692 61,373 181 days -1 year 23,768 91,706 1 - 2 years 317 77,002 Total Marketable Securities $ 82,329 $ 336,578 The components of marketable securities as of May 31, 2023 are as follows: 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: 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. 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 F- 12 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: Year ended May 31 2023 2022 2021 Beginning Balance $ 1,650 $ 1,400 $ 1,350 Provision 1,460 332 239 Recoveries 46 98 139 Write-offs ( 329 ) ( 180 ) ( 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: Year ended May 31 2023 2022 Raw Materials $ 64,971 $ 58,667 Work-in-process 5,369 6,388 Finished goods 63,472 57,258 $ 133,812 $ 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. 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 F- 13 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. E quity 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: Year ended May 31 2023 2022 2021 Numerator for basic and diluted net (loss) income per share — Net (Loss) Income $ ( 22,870 ) $ 48,307 $ 60,882 Denominator for basic net (loss) income per share — Weighted average shares 188,881 107,684 106,499 Effect of dilutive stock options and restricted stock units - 336 621 Denominator for diluted net (loss) income per share 188,881 108,020 107,120 Net (loss) income attributable per share Basic $ ( 0.12 ) $ 0.45 $ 0.57 Diluted $ ( 0.12 ) $ 0.45 $ 0.57 F- 14 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. Supplemental balance sheet information related to operating leases was as follows: Year ended May 31 2023 2022 Rights of use - assets $ 11,933 $ 3,184 Lease liabilities - current 3,277 1,440 Lease liabilities - non-current 8,812 1,788 The weighted average remaining lease term and weighted average discount rate were as follows: Year ended May 31 2023 2022 Weighted average remaining lease term 4.7 years 3 years Weighted average discount rate 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: Year ended May 31 2023 2022 Operating leases $ 2,097 $ 438 Short term leases 460 277 Total lease expense $ 2,557 $ 715 F- 15 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: Years ending May 31, Amount 2024 $ 3,542 2025 3,014 2026 2,725 2027 1,624 2028 1,105 2029 and thereafter 1,885 Total lease payments $ 13,895 Less: imputed interest ( 1,806 ) Total lease liabilities $ 12,089 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 F- 16 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. F- 17 The following table presents disaggregated revenue by major product and service categories for the years ended May 31, 2023, 2022 and 2021: Year Ended May 31, 2023 May 31, 2022 May 31, 2021 Food Safety: Natural Toxins, Allergens & Drug Residues $ 82,567 $ 79,395 $ 76,614 Bacterial & General Sanitation 134,934 47,282 44,009 Culture Media & Other 267,178 75,278 61,245 Rodent Control, Insect Control & Disinfectants 39,655 35,691 32,219 Genomics Services 22,463 22,333 20,157 $ 546,797 $ 259,979 $ 234,244 Animal Safety: Life Sciences 6,254 5,685 5,715 Veterinary Instruments & Disposables 63,843 63,938 48,128 Animal Care & Other 39,068 39,805 35,897 Rodent Control, Insect Control & Disinfectants 87,423 83,610 77,458 Genomics Services 79,062 74,142 67,017 $ 275,650 $ 267,180 $ 234,215 Total Revenue $ 822,447 $ 527,159 $ 468,459 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: Food Safety Animal Safety Total Balance, May 31, 2021 $ 67,822 $ 63,654 $ 131,476 Acquisitions 4,152 11,752 15,904 Foreign currency translation and other ( 4,416 ) ( 260 ) ( 4,676 ) Balance, May 31, 2022 $ 67,558 $ 75,146 $ 142,704 Acquisitions (1) 1,985,476 6,783 1,992,259 Foreign currency translation and other 3,127 ( 594 ) 2,533 Balance, May 31, 2023 $ 2,056,161 $ 81,335 $ 2,137,496 (1) Animal Safety acquisitions represents portion of FSD transaction recorded at Neogen Australasia . F- 18 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: Gross Carrying Amount Less Accumulated Amortization Net Carrying Amount Licenses $ 16,010 $ 6,763 $ 9,247 Covenants not to compete 488 384 104 Patents 8,499 4,865 3,634 Customer relationships intangibles 1,244,635 81,577 1,163,058 Trade names and trademarks 111,172 3,583 107,589 Developed technology 309,609 20,175 289,434 Other product and service-related intangibles 23,628 5,907 17,721 Balance, May 31, 2023 $ 1,714,041 $ 123,254 $ 1,590,787 Licenses $ 17,109 $ 5,682 $ 11,427 Covenants not to compete 846 671 175 Patents 8,347 4,583 3,764 Customer relationships intangibles 75,000 33,662 41,338 Trade names and trademarks 1,180 167 1,013 Developed technology 17,741 6,124 11,617 Other product and service-related intangibles 27,299 4,527 22,772 Balance, May 31, 2022 $ 147,522 $ 55,416 $ 92,106 During fiscal year 2023, the Company recorded an impairment of $ 2,109 to its amortizable licenses related to discontinued product lines. 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. F- 19 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 acquisition further will expand the Company’s presence in the companion animal market. Consideration for the purchase was $ 11,300 in net cash. T he final purchase price allocation, based upon the fair value of these assets and liabilities F- 20 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. Goodwill, which is fully deductible for tax purposes, includes value associated with profits earned from data management solutions that can be offered to existing custom ers 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: F- 21 Prepaids and other current assets $ 66 Property, plant and equipment 13 Intangible assets 10,180 Deferred revenue ( 1,827 ) Adjustment of annual license prepaid ( 419 ) Other non-current liabilities ( 930 ) Total identifiable assets and liabilities acquired 7,083 Goodwill 16,984 Total purchase consideration $ 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 F- 22 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 $ 319 Inventories 18,403 Other current assets 14,855 Property, plant and equipment 25,832 Intangible assets 1,560,000 Right of use asset 882 Lease liability ( 885 ) Deferred tax liabilities ( 352,481 ) Other liabilities ( 2,832 ) Total identifiable assets and liabilities acquired 1,264,093 Goodwill 1,974,520 Total purchase consideration $ 3,238,613 The following table summarizes the intangible assets acquired and the useful life of these assets. Fair Value Useful Life in Years Trade Names and Trademarks $ 110,000 25 Developed Technology 280,000 15 Customer Relationships 1,170,000 20 Total intangible assets acquired $ 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. 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: Year Ended May 31 2023 2022 Net sales $ 919,959 $ 910,978 Operating income $ 44,373 $ 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 F- 23 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: May 31, 2023 Term Loan $ 550,000 Senior Notes 350,000 Total long-term debt 900,000 Less: Unamortized debt issuance costs ( 14,561 ) Total non-current debt, net $ 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 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. F- 24 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 securityholder 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: Amount Fiscal Year 2024 $ — 2025 — 2026 — 2027 34,063 2028 515,937 Thereafter 350,000 Total $ 900,000 F- 25 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) Options Weighted-Average Exercise Price Weighted-Average Grant Date Fair Value Outstanding at May 31, 2020 ( 972 exercisable) 4,324 $ 27.98 $ 6.98 Granted 403 34.23 7.71 Exercised ( 1,389 ) 24.38 6.31 Forfeited ( 381 ) 28.99 7.20 Outstanding at May 31, 2021 ( 643 exercisable) 2,957 27.98 6.98 Granted 615 36.42 8.49 Exercised ( 281 ) 22.79 6.29 Forfeited ( 47 ) 33.93 8.02 Outstanding at May 31, 2022 ( 1,191 exercisable) 3,244 32.13 7.66 Granted 1,704 14.68 4.61 Exercised ( 22 ) 14.78 4.23 Forfeited ( 704 ) 29.81 7.26 Outstanding at May 31, 2023 ( 1,401 exercisable) 4,222 25.56 6.51 The following is a summary of stock options outstanding at May 31, 2023: Options Outstanding Options Exercisable Average (options in thousands) Contractual Life Weighted-Average Weighted-Average Range of Exercise Price Number (in years) Exercise Price Number Exercise Price $ 12.20 - $ 20.00 1,585 6.3 $ 13.63 27 $ 15.95 $ 20.01 - $ 28.00 138 6.7 25.11 90 23.93 $ 28.01 - $ 36.00 2,124 1.8 31.77 1,205 31.84 $ 36.01 - $ 42.15 375 3.4 40.94 79 40.99 4,222 3.8 $ 25.56 1,401 $ 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. F- 26 Year ended May 31 2023 2022 2021 Aggregate intrinsic value of options outstanding $ 6,154 $ 850 $ 46,667 Aggregate intrinsic value of options exercisable $ 42 $ 817 $ 11,617 Aggregate intrinsic value of options exercised $ 73 $ 5,507 $ 22,349 The fair value of stock options granted was estimated using the following weighted-average assumptions: Year ended May 31 2023 2022 2021 Risk-free interest rate 3.3 % 0.4 % 0.2 % Expected dividend yield 0.0 % 0.0 % 0.0 % Expected stock volatility 34.0 % 32.8 % 31.3 % Expected option life 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) RSUs Weighted Average Grant Date Fair Value Outstanding at May 31, 2021 121 $ 34.21 Granted 169 37.28 Released ( 25 ) 34.24 Forfeited ( 8 ) 36.80 Outstanding at May 31, 2022 257 36.14 Granted 596 13.83 Released ( 60 ) 35.14 Forfeited ( 27 ) 22.81 Outstanding at May 31, 2023 766 19.30 The weighted average grant date fair value of the fiscal year 2021 awards was $ 34.21 . 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. F- 27 6. Income Taxes Income before income taxes by source consists of the following amounts: Year ended May 31 2023 2022 2021 U.S. $ ( 85,681 ) $ 38,554 $ 55,753 Foreign 63,639 21,653 19,515 $ ( 22,042 ) $ 60,207 $ 75,268 The provision for income taxes consists of the following: Year ended May 31 2023 2022 2021 Current Domestic Federal $ 8,674 $ 8,579 $ 6,981 Change in tax-related uncertainties 278 3 ( 75 ) State 1,616 2,406 2,147 Foreign 9,490 5,140 4,875 Total Current 20,058 16,128 13,928 Deferred Domestic Federal ( 17,406 ) ( 3,721 ) 479 State ( 1,865 ) ( 356 ) 44 Foreign 41 ( 151 ) ( 65 ) Total Deferred ( 19,230 ) ( 4,228 ) 458 Provision for Income Taxes $ 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: Year ended May 31 2023 2022 2021 Tax at U.S. statutory rate $ ( 4,629 ) $ 12,643 $ 15,806 Permanent differences 325 179 292 Global intangible low-taxed income (GILTI) 6,482 1,501 2,064 Foreign derived intangible income deduction (FDII) ( 643 ) ( 1,308 ) ( 1,210 ) Foreign rate differential ( 3,742 ) 215 669 Subpart F income 152 397 628 Tax-effect from stock-based compensation 1,946 ( 462 ) ( 2,651 ) Provision for state income taxes, net of federal benefit 18 1,517 1,601 Non-deductible acquisition expenses 7,187 — — Tax credits ( 6,709 ) ( 2,527 ) ( 3,298 ) Impact of tax rate changes — 583 ( 75 ) Change in tax-related uncertainties 278 3 55 Changes in valuation allowances 355 85 — Research expenditures deduction ( 365 ) ( 112 ) — Other 173 ( 814 ) 505 Income Tax Expense $ 828 $ 11,900 $ 14,386 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. F- 28 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: Year ended May 31 2023 2022 Deferred income tax liabilities Indefinite and long-lived assets $ ( 369,500 ) $ ( 22,709 ) Right of use asset ( 1,834 ) ( 344 ) Prepaid expenses ( 1,480 ) ( 884 ) ( 372,814 ) ( 23,937 ) Deferred income tax assets Interest expense not currently deductible 5,782 — Research and experimentation capitalization 5,868 — Stock options 2,192 2,085 Inventories and accounts receivable 3,219 2,044 Tax loss carryforwards 3,909 561 Lease liability 1,899 382 Accrued expenses and other 1,981 2,422 24,850 7,494 Valuation allowance ( 2,110 ) ( 568 ) Net deferred income tax liabilities $ ( 350,074 ) $ ( 17,011 ) Net deferred income tax assets (jurisdictional) $ 3,353 $ 575 Net deferred income tax liabilities (jurisdictional) ( 353,427 ) ( 17,586 ) Net deferred income tax liabilities $ ( 350,074 ) $ ( 17,011 ) The Company has the following net operating loss carryforwards: As of May 31, 2023 Expiry U.S. $ 218 2037 Foreign 13,362 2024 to Indefinite $ 13,580 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. F- 29 The reconciliation of our unrecognized tax benefits is as follows: Year ended May 31 2023 2022 2021 Beginning balance $ 741 $ 764 $ 762 Increase/(decrease) related to prior periods 2 ( 75 ) ( 182 ) Increase related to current period 479 147 184 Lapses of applicable statute of limitations ( 276 ) ( 95 ) — Ending balance $ 946 $ 741 $ 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. F- 30 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. 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. Fair Value of Derivatives 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 Other current assets $ 2,087 $ - Interest rate swaps – non-current Other non-current liabilities ( 4,770 ) - F- 31 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: May 31, 2023 Aggregate fair value $ 927,720 Aggregate carrying value (1) 900,000 (1) Excludes unamortized debt issuance costs. Fair values were based on available market information and other observable data and are classified within Level 2 of the fair value hierarchy. 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: Location in statements Year Ended May 31 Derivatives Not Designated as Hedging Instruments of (loss) income May 31, 2023 May 31, 2022 May 31, 2021 Foreign currency forward contracts Other (expense) income $ ( 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): F- 32 Gain (Loss) Reclassified During Location of Gain (Loss) Year Ended May 31 Derivatives Designated as Hedging Instruments Reclassified 2023 2022 2021 Interest rate swaps Interest expense $ 440 $ — $ — 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. Neogen’s international operations in the United Kingdom, Mexico, Guatemala, Brazil, Argentina, Uruguay, Chile, China and India originally focused on the sales and marketing of our food safety products, and each of these units reports through the Food Safety segment. In recent years, these operations have expanded to offer the Company’s complete line of products and services, including those usually associated with the Animal Safety segment such as cleaners, disinfectants, 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. The accounting policies of each of the segments are the same as those described in Note 1. "Summary of Significant Accounting Policies". F- 33 Segment information is as follows: Food Safety Animal Safety Corporate and Eliminations (1) Total Fiscal 2023 Product revenues, net to external customers $ 518,488 $ 196,588 $ — $ 715,076 Service revenues, net to external customers 28,309 79,062 — 107,371 Total revenues to external customers 546,797 275,650 — 822,447 Operating income (loss) 60,414 43,332 ( 66,231 ) 37,515 Depreciation and amortization 76,841 11,536 — 88,377 Interest expense — — 55,961 55,961 Total assets 3,970,356 338,507 245,569 4,554,432 Expenditures for long-lived assets 52,169 13,588 — 65,757 Fiscal 2022 Product revenues, net to external customers $ 231,626 $ 193,038 $ — $ 424,664 Service revenues, net to external customers 28,353 74,142 — 102,495 Total revenues to external customers 259,979 267,180 — 527,159 Operating income (loss) 38,581 52,546 ( 32,509 ) 58,618 Depreciation and amortization 13,386 10,308 — 23,694 Interest expense — — 72 72 Total assets 304,461 307,417 381,051 992,929 Expenditures for long-lived assets 7,842 16,939 — 24,781 Fiscal 2021 Product revenues, net to external customers $ 209,104 $ 167,198 $ — $ 376,302 Service revenues, net to external customers 25,140 67,017 — 92,157 Total revenues to external customers 234,244 234,215 — 468,459 Operating income (loss) 33,725 48,685 ( 8,241 ) 74,169 Depreciation and amortization 11,575 9,466 — 21,041 Interest expense — — 78 78 Total assets 295,065 244,039 381,088 920,192 Expenditures for long-lived assets 13,730 12,982 — 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. Year ended May 31 2023 2022 2021 Domestic $ 424,005 $ 317,820 $ 285,262 International 398,442 209,339 183,197 Total revenue $ 822,447 $ 527,159 $ 468,459 The following table presents the Company's net property and equipment amounts disaggregated by country. Year ended May 31 2023 2022 United States $ 130,967 $ 63,313 United Kingdom 20,123 14,204 Other 47,659 33,067 Total PPE $ 198,749 $ 110,584 F- 34