What changed in this filing

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Item 1A. Risk Factors

2022-07-27 compared with 2021-07-30 · 110 added, 61 removed, 170 unchanged (50% of the section changed)

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Our business, results of operations, financial condition and cash flow could be materially and adversely affected by any of these risks or uncertainties.

RISKS RELATING TO REVERSE MORRIS TRUST TRANSACTION WITH 3M CORPORATION

The pending Reverse Morris Trust transaction with 3M may not be completed on the terms or timeline currently contemplated, or at all, and the failure to complete the transaction could adversely impact the market price of Neogen common stock, as well as its business and operating results.

On December 13, 2021, Neogen, 3M and Garden SpinCo, a newly formed subsidiary of 3M created to carve out 3M’s Food Safety business, entered into a number of agreements pursuant to which, among other things, 3M’s Food Safety business will combine with Neogen in a Reverse Morris Trust transaction, intended to be tax-efficient to

3M and its shareholders for U.S.

federal income tax purposes.

Immediately following the transaction, Garden SpinCo stockholders will own, in the aggregate, approximately 50.1% of the issued and outstanding shares of Neogen common stock and pre-merger

Neogen shareholders will own, in the aggregate, approximately 49.9% of the issued and outstanding shares of Neogen common stock.

The transaction implies an enterprise value for 3M’s Food Safety business of approximately $3.4 billion based on Neogen’s stock price at July 22, 2022, including $1 billion in new debt to be incurred by 3M’s Food Safety business.

3M’s Food Safety business will fund to 3M consideration valued at approximately $1 billion, subject to closing and other adjustments.

The consummation of the transaction is subject to certain conditions, including:

(i) the effectiveness of Neogen’s registration statement registering the Neogen common stock to be issued pursuant to the merger agreement, and of Garden SpinCo’s registration statement registering the shares of Garden SpinCo common stock in connection with the distribution;

(ii) the approval for listing on NASDAQ of the shares of Neogen common stock to be issued in the merger;

and (iii) approval of the share issuance and certain Neogen charter and bylaw amendments by the requisite vote of Neogen’s shareholders.

There is no assurance that these conditions will be met or that the transaction will be completed on the terms or timeline currently contemplated, or at all.

If the transaction is not completed for any reason, the price of Neogen common stock could decline.

Neogen also could experience negative reactions from employees, customers, suppliers or other third parties if the transaction is not completed.

Neogen and 3M have expended and will continue to expend significant management time and resources and have incurred and will continue to incur significant expenses related to the transaction, including legal, advisory, printing and financial services fees.

Even if the transaction is completed, any delay in the completion of the transaction could diminish the anticipated benefits of the transaction or result in additional transaction expenses, loss of revenue or other effects associated with uncertainty about the transaction.

If the transaction is not consummated because the merger agreement is terminated, Neogen may be required under certain circumstances to pay 3M a termination fee of $140 million or may be required to reimburse 3M for expenses incurred in connection with the transaction.

If the transaction is completed, Neogen may not realize the anticipated financial and other benefits, including growth opportunities, expected from the transaction.

Neogen expects that it will realize synergies, growth opportunities and other financial and operating benefits as a result of the transaction.

Neogen’s success in realizing these benefits, and the timing of their realization, depends, among other things, on the successful integration of the business operations of the 3M Food Safety business with Neogen.

Even if Neogen is able to integrate the 3M Food Safety business successfully, Neogen cannot predict with certainty if or when these synergies, growth opportunities and other benefits will be realized, or the extent to which they will actually be achieved.

For example, the benefits from the transaction could be offset by costs incurred in integrating the 3M Food Safety business or in otherwise consummating the transaction.

Realization of any synergies, growth opportunities or other benefits could be affected by the factors described in other risk factors and a number of factors beyond Neogen’s control, including, without limitation, general economic conditions, increased operating costs and regulatory developments.

The integration of the 3M Food Safety business with Neogen following the transaction could present significant challenges, and the failure to successfully integrate the 3M Food Safety business could have a material adverse effect on the combined company’s business, financial condition or results of operations.

There is a significant degree of difficulty inherent in the process of integrating the 3M Food Safety business with Neogen.

These difficulties include:

the integration of the 3M Food Safety business with Neogen’s current businesses while carrying on the ongoing operations of all businesses;

managing a significantly larger company than before the consummation of the transaction;

integrating the business cultures of the 3M Food Safety business and Neogen, which could prove to be incompatible;

creating uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters;

the ability to ensure the effectiveness of internal control over financial reporting across the combined company;

integrating certain information technology, purchasing, accounting, finance, sales, billing, human resources, payroll and regulatory compliance systems;

the potential difficulty in retaining key officers and personnel of Neogen and the 3M Food Safety business.

The process of integrating operations could result in significant costs and cause an interruption of, or loss of momentum in, the activities of Neogen’s business.

Members of Neogen’s senior management following the transaction may be required to devote considerable amounts of time to this integration process, which could decrease the time they will have to manage the combined company’s business, serve the existing business or operations of Neogen or develop new products or strategies.

If Neogen’s senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, the existing business of Neogen or the 3M Food Safety business could be materially adversely affected.

Neogen’s successful integration of the 3M Food Safety business cannot be assured.

The failure to do so could have a material adverse effect on Neogen’s business, financial condition or results of operations after the transaction.

Pursuant to the terms of the transaction, Neogen and Garden SpinCo will be restricted from taking certain actions that could adversely affect the intended tax treatment of the transaction, and such restrictions could significantly impair Neogen’s and Garden SpinCo’s ability to implement strategic initiatives that otherwise would be beneficial.

The Tax Matters Agreement executed in connection with the Transaction generally restricts Neogen, Garden SpinCo and their affiliates from taking certain actions after the distribution of Neogen shares that could adversely affect the intended tax treatment of the transaction.

In particular:

for a two-year

period following the distribution date, except as described below:

Garden SpinCo will continue the active conduct of its trade or business and the trade or business of certain Garden SpinCo subsidiaries;

Garden SpinCo will not voluntarily dissolve or liquidate or permit certain Garden SpinCo subsidiaries to voluntarily dissolve or liquidate;

Neogen and Garden SpinCo will not enter into any transaction or series of transactions (or any agreement, understanding or arrangement) as a result of which one or more persons would acquire (directly or indirectly) stock comprising 50% or more of the vote or value of Garden SpinCo or Neogen (taking into account the stock acquired pursuant to the merger);

Neogen and Garden SpinCo will not engage in certain mergers or consolidations;

Garden SpinCo will not, and will not permit certain Garden SpinCo subsidiaries to, sell, transfer or otherwise dispose of 30% or more of the gross assets of Garden SpinCo, such subsidiaries, the Garden SpinCo group or the active trade or business of Garden SpinCo or certain Garden SpinCo subsidiaries, subject to certain exceptions;

Neogen and Garden SpinCo will not, and will not permit certain Garden SpinCo subsidiaries to, redeem or repurchase stock or rights to acquire stock, unless certain requirements are met;

Neogen and Garden SpinCo will not, and will not permit certain Garden SpinCo subsidiaries to, amend their certificates of incorporation (or other organizational documents) or take any other action affecting the voting rights of any stock or stock rights of Neogen or Garden SpinCo;

Neogen and Garden SpinCo will not, and will not permit any member of the Garden SpinCo group or Neogen to, take any other action that would, when combined with any other direct or indirect changes in ownership of Garden SpinCo and Neogen stock (including pursuant to the merger), have the effect of causing one or more persons to acquire stock representing 50% or more of the vote or value of Garden SpinCo or Neogen, or otherwise jeopardize the tax-free

status of the transaction;

during the time period ending three years after the date of the distribution, Garden SpinCo and Neogen also will be subject to certain restrictions relating to the SpinCo Business in Switzerland;

additionally, none of Garden SpinCo, Neogen or any member of Garden SpinCo group or Neogen may:

take, or permit to be taken, any action that could reasonably be expected to jeopardize the qualification of certain Garden SpinCo debt as a security under Section 361(a) of the Code (other than making any payment permitted or required by the terms of the Garden SpinCo debt);

within 90 days of the distribution date, refinance or repay (other than in the ordinary course of business) any third-party debt of any member of the Garden SpinCo group, except as required by the transaction documents;

permit any portion of certain nonqualified preferred stock to cease to be outstanding or modify the terms of such stock;

unless, in each case, prior to taking any such action, Neogen and Garden SpinCo shall have requested that 3M obtain, or request and receive 3M’s prior written consent to obtain, an IRS ruling satisfactory to 3M in its reasonable discretion or provide 3M with an unqualified tax opinion satisfactory to 3M in its sole and absolute discretion to the effect that such action would not jeopardize the intended tax treatment of the transaction, unless 3M waives such requirement.

Failure to adhere to these requirements could result in tax being imposed on 3M for which Neogen and Garden SpinCo could bear responsibility and for which Neogen and Garden SpinCo could be obligated to indemnify 3M.

Any such indemnification obligation would likely be substantial and would likely have a material adverse effect on Neogen.

These restrictions could have a material adverse effect on Neogen’s liquidity and financial condition, and otherwise could impair Neogen’s and Garden SpinCo’s ability to implement strategic initiatives and Garden SpinCo’s and Neogen’s indemnity obligation to 3M might discourage, delay or prevent a change of control that shareholders of Neogen may consider favorable.

Current Neogen shareholders’ percentage ownership interest in Neogen will be substantially diluted in the transaction.

Immediately following the merger with Garden SpinCo, the pre-merger

Neogen shareholders will own, in the aggregate, approximately 49.9% of the issued and outstanding shares of Neogen common stock.

Consequently, Neogen’s pre-merger

shareholders, as a group, will be substantially diluted in the transaction and have less ability to exercise influence over the management and policies of Neogen following the merger than immediately prior to the transaction.

RISKS RELATING TO COVID-19

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The extent of the impact of the COVID-19

pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, continues to depend on many factors outside our control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, related restrictions on travel and transports, the development and availability of effective treatments and vaccines, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and consumer demand.

pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, continues to depend on many factors outside our control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, related restrictions on travel and transports, the development and availability of effective treatments and vaccines, the imposition of protective public safety measures including lockdowns, and the impact of the pandemic on the global economy and consumer demand.

During the course of the pandemic, we modified our business practices to comply with safety measures required by federal, state and local governments, as well as those we determine to be in the best interests of our employees and customers, including implementing social distancing, remote work, reducing employee travel, restricting building access and more.

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An extended period of global supply chain and economic disruption could materially affect our business, results of operations and financial condition.

While we expect a solid recovery, in part due to increasing vaccination rates across the world, we also are aware that there may be a reduction in demand for our COVID-19-related

products and services, including sanitizers, disinfectants, and wastewater testing as cases of COVID-19

The situation is changing rapidly, and future impacts may materialize that are not yet known.

The situation regarding the pandemic continues to evolve, and future strains of the COVID-19

virus may impact us.

To the extent the COVID-19

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We may not be able to effectively manage our future growth, and if we fail to do so, our business, financial condition and results of operations could be adversely affected.

We are subject to risks relating to existing international operations and expansion into new geographical markets.

We focus on expanding sales globally as part of our overall growth strategy and expect sales from outside the United States to continue to represent a significant portion of our revenue.

In fiscal 2022, sales to customers outside of the U.S.

accounted for 39.7% of our total revenue.

Neogen’s international operations are subject to general risks related to such operations, including:

political, social and economic instability and disruptions, including social unrest, geopolitical tensions, currency, inflation and interest rate uncertainties;

government export controls, economic sanctions, embargoes or trade restrictions;

the imposition of duties and tariffs and other trade barriers;

limitations on ownership and on repatriation or dividend of earnings;

transportation delays and interruptions;

labor unrest and current and changing regulatory environments;

increased compliance costs, including costs associated with disclosure requirements and related due diligence;

difficulties in staffing and managing multi-national operations;

limitations on Neogen’s ability to enforce legal rights and remedies;

current products may not comply with product standards established by foreign regulatory bodies;

access to or control of networks and confidential information due to local government controls and vulnerability of local networks to cyber risks;

fluctuations in foreign currency exchange rates.

If Neogen is unable to successfully manage the risks associated with expanding our global business or adequately manage operational risks of our existing international operations, these risks could have a material adverse effect on our growth strategy into new geographical markets, our reputation, our business, results of operations, financial condition and cash flows.

In addition, the impact of such risks may be outside of Neogen’s control and could decrease our ability to sell products internationally, which could adversely affect our business, financial condition, results of operations or cash flows.

For example, as a result of the ongoing military conflict between Russia and Ukraine and resulting heightened economic sanctions from the United States and the international community, Neogen has discontinued sales into Russia and Belarus.

The United States and other countries have imposed significant sanctions and could impose even wider sanctions and take other actions should the conflict further escalate.

While it is difficult to anticipate the effect the sanctions announced to date may have on Neogen, any further sanctions imposed or actions taken by the United States or other countries, including any expansion of sanctions beyond Russia and Belarus, could affect the global price and availability of raw materials, reduce our sales and earnings or otherwise have an adverse effect on our business and results of operations.

We rely significantly on our information systems’ infrastructure to support our operations and a failure of these systems and infrastructure and/or a security breach of our information systems could damage our reputation and have an adverse effect on operations and results.

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If our security and information systems are compromised, or employees fail to comply with the applicable laws and regulations, or this information is obtained by unauthorized persons or used inappropriately, it could adversely affect our reputation, as well as results of operations, and could result in litigation, the imposition of penalties, or significant expenditures to remediate any damage to persons whose personal information has been compromised.

In addition, COVID-19

may have an adverse impact on our information technology systems, including telecommuting issues associated with the rapid and broad-based shift in our employee population working remotely, which creates inherent productivity, connectivity and oversight challenges.

Disruption of our manufacturing and service operations could have an adverse effect on our financial condition and results of operations.

We manufacture our products at several manufacturing facilities located in the following locations:

Lansing, Michigan;

Lexington, Kentucky;

Randolph, Wisconsin;

Kenansville, North Carolina;

Pleasantville, Iowa;

Memphis, Tennessee;

Turlock, California;

Heywood, England;

Liverpool, England;

Ayr, Scotland;

Rochdale, England;

Bray, Ireland;

and Pindamonhangaba, Brazil.

We offer genomics services from facilities located in:

Lincoln, Nebraska;

Ayr, Scotland;

Pindamonhangaba, Brazil;

Edmonton, Canada;

Shanghai, China;

and Gatton, Australia.

These facilities and our distribution systems are subject to catastrophic loss due to fire, flood, terrorism or other natural or man-made

If any of these facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue and result in significant expenses to repair or replace the facility and/or distribution system.

Our facilities and our distribution systems are subject to catastrophic loss due to fire, flood, terrorism or other natural or man-made

If any of our facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue and result in significant expenses to repair or replace the facility and/or distribution system.

If such a disruption were to occur, we could breach agreements, our reputation could be harmed, and our business and operating results could be adversely affected.

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Some of the products that we purchase from these sources are proprietary and, therefore, cannot be readily or easily replaced by alternative sources.

Problems with suppliers could negatively impact our ability to supply the market, substantially decrease sales, lead to higher costs or damage our reputation with our customers.

Problems with suppliers and the supply chain could negatively impact our ability to supply the market, substantially decrease sales, lead to higher costs or damage our reputation with our customers.

We rely heavily on third-party package delivery services, and a significant disruption in these services or significant increases in prices may disrupt our ability to ship products, increase our costs and lower our profitability.

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We sell many of our products, both within and outside of the U.S., through distribution.

As a result, we are dependent on distributors to sell our products and assist us in promoting and creating a demand for our products.

As a result, we are dependent on distributors to sell our products and assist us in promoting and creating demand for our products.

Our distributors sometimes offer products from several different companies, and those distributors may carry our competitors’ products and promote our competitors’ products over our own.

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equity markets, which may experience extreme volatility that, in some cases, is unrelated or disproportionate to the operating performance of particular companies.

GENERAL RISKS

GENERAL RISK FACTORS

Our success is highly dependent on our ability to obtain protection for the intellectual property utilized in our products;

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We cannot assure that we will be able to retain our existing personnel or attract additional qualified persons when required and on acceptable terms.

Our business may be subject to product or services liability claims.

Our business may be subject to product or service liability claims.

The manufacturing and distribution of our products or performance of our services involves an inherent risk of liability claims being asserted against us.

Regardless of whether we are ultimately determined to be liable or our products are determined to be defective, we might incur significant legal expenses not covered by insurance.

In addition, product liability litigation could damage our reputation and impair our ability to market our products, regardless of the outcome.

Regardless of whether we are ultimately determined to be liable or our products are determined to be defective, we might incur significant legal

expenses not covered by insurance.

In addition, product or service liability litigation could damage our reputation and impair our ability to market our products and services, regardless of the outcome.

Litigation could also impair our ability to retain product liability insurance or make our insurance more expensive.

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If we are subject to an uninsured or inadequately insured product or services liability claim, our business, financial condition and results of operations could be adversely affected.

Our international operations are subject to different product standards as well as other operational risks.

In fiscal 2021, sales to customers outside of the U.S.

accounted for 39.1% of our total revenue.

We expect that our international business will continue to account for a significant portion of our total sales.

Foreign regulatory bodies may establish product standards different from those in the U.S.

and with which our current products do not comply.

Our potential inability to design products that comply with foreign standards could have a material adverse effect on our future growth.

Other risks related to sales to customers outside of the U.S.

include possible disruptions in transportation, difficulties in building and managing foreign distribution, fluctuation in the value of foreign currencies, changes in import duties and quotas and unexpected economic and political changes in foreign markets.

These factors could negatively impact our competitiveness in these markets or otherwise adversely impact our business results or financial condition.

Moreover, discriminatory or conflicting fiscal or trade policies in different countries, including potential changes to tariffs and existing trade policies and agreements, could adversely affect our results.

Changing political conditions could adversely impact our business and financial results.

Changes in the political conditions in markets in which we manufacture, sell or distribute our products may be difficult to predict and may adversely affect our business and financial results.

For example, the U.K.’s decision to leave the European Union has created uncertainty regarding, among other things, the U.K.’s future legal and economic framework and how the U.K.

will interact with other countries, including with respect to the free movement of goods, services, capital and people.

In addition, results of elections, referendums or other political processes in certain markets in which our products are manufactured, sold or distributed could create uncertainty regarding how existing governmental policies, laws and regulations may change, including with respect to sanctions, taxes, the movement of goods, services, capital and people between countries and other matters.

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Tax legislation could materially adversely affect our financial results and tax liabilities.

We are subject to the tax laws and regulations of the U.S., including state and local governments, as well as foreign jurisdictions.

Legislation may be enacted that could materially adversely affect our financial results There can be no assurance that our effective tax rate will not be adversely affected by legislation.

Our tax expense and liabilities may also be affected by other factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, losses incurred in jurisdictions for which we are not able to realize related tax benefits, changes in our stock price, and changes in our deferred tax assets and liabilities and their valuation.

In addition, tax laws and regulations are extremely complex and subject to varying interpretations.

For example, the legislation known as the U.S.

Tax Cuts and Jobs Act of 2017 (the “U.S.

Tax Act”) requires complex computations to be performed that were not previously required by U.S.

tax law, significant judgments to be made in interpretation of the provision of the U.S.

Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced.

Treasury Department, the IRS, and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the U.S.

Tax Act will be applied or otherwise administered.

As future guidance is issued, we may make adjustments to amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made.

The Company’s business is subject to tax-related

external conditions, such as tax rates, tax laws and regulations, changing political environments in the U.S.

and foreign jurisdictions that impact tax examination, assessment and enforcement approaches.

In addition, changes in tax laws including further regulatory developments arising from U.S.

tax reform legislation and/or regulations around the world could result in a tax expense or benefit recorded to the Company’s consolidated statement of earnings.

In connection with guidance such as the Base Erosion and Profit Shifting (BEPS) Integrated Framework provided by Organization for Economic Cooperation and Development (OECD), determination of multi-jurisdictional taxation rights and the rate of tax applicable to certain types of income may be subject to potential change.

Due to uncertainty of the regulation changes and other tax-related

factors stated above, it is currently not possible to assess the ultimate impact of these actions on our financial statements.

Although we believe that our historical tax positions are sound and consistent with applicable laws, regulations and existing precedent, there can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge.

Additionally, we operate in multiple income tax jurisdictions and must determine the appropriate allocation of income to each of these jurisdictions based on current interpretations of complex income tax regulations.

Income tax audits associated with the allocation of income and other complex issues may result in significant income tax adjustments that could negatively impact our future operating results.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors