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, 2022. Based on and as of the time of such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports that are filed or submitted under the Securities and Exchange Act of 1934 is appropriately recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. 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 Securities Exchange Act of 1934 is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. 38 Table of Contents Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13-a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation was conducted as to the effectiveness of internal control over financial reporting as of May 31, 2022, based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that internal control over financial reporting was effective as of May 31, 2022. The effectiveness of internal control over financial reporting as of May 31, 2022 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in its attestation report, which is included on the following page and is incorporated into this Item 9A by reference. Changes in Internal Control over Financial Reporting No changes in our internal control over financial reporting were identified as having occurred during the quarter ended May 31, 2022 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting. 39 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Neogen Corporation Lansing, Michigan Opinion on Internal Control over Financial Reporting We have audited Neogen Corporation’s (the “Company’s”) internal control over financial reporting as of May 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of May 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended May 31, 2022, and the related notes and schedules and our report dated July 27, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, LLP Grand Rapids, Michigan July 27, 2022 40 Table of Contents ITEM 9B. OTHER INFORMATION—NONE ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS—NOT APPLICABLE 41 Table of Contents 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 2022 proxy statement to be filed within 120 days of May 31, 2022. We have adopted a Code of Conduct that applies to our directors, executive 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 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, 2022 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. Vice President, Research & Development 2016 Jerome L. Hagedorn Vice President, North American Operations 2018 Douglas E. Jones Vice President & Chief Operating Officer 2020 Jason W. Lilly, Ph.D. Vice President, International Business 2005 Julie L. Mann Vice President & Chief Human Resources Officer 2017 Steven J. Quinlan Vice President & Chief Financial Officer 2011 Amy M. Rocklin, Ph.D. Vice President, General Counsel & Corporate Secretary 2021 Information concerning the officers of Neogen follows: John E. Adent, age 54, 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 49, 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. 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 food safety and animal safety research activities. Jerome L. Hagedorn, age 56, joined Neogen in April 2018 as Vice President, Food Safety Operations; in 2020, he was named Vice President, North American Operations. In the role, Mr. Hagedorn is responsible for the manufacturing, supply chain, shipping and warehousing, production engineering and quality systems for Neogen’s North American operations. Prior to joining Neogen, Mr. Hagedorn spent the past eight years as Vice President of Operations at Siemens Healthcare Diagnostics. At Siemens, he was responsible for multiple plant operations, including diagnostic instrument manufacturing and new product introduction. Prior to joining Siemens, Mr. Hagedorn held a variety of senior level positions over a 20 year career, including Director of Manufacturing at Bayer Healthcare in Indiana, Director of Lean Manufacturing at Invensys in Ohio, and Manager of Automated Manufacturing at Siemens Electronic Components in Mexico. 42 Table of Contents Douglas E. Jones, age 52, joined Neogen as Vice President & Chief Commercial Officer on August 17, 2020; in 2022, he was named Vice President & 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 48, 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 April 2022, Dr. Lilly also assumed responsibility on an interim basis for the North American genomics business. Prior to joining Neogen, he served in various technical sales and marketing roles at Invitrogen Corporation. Julie L. Mann, age 57, 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 Vice President & 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. Steven J. Quinlan, age 59, joined Neogen in January 2011 as Vice President & Chief Financial Officer and was also Corporate Secretary until March 2021. He is responsible for all internal and external financial reporting for Neogen, and manages 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 50, joined Neogen in March 2021 as Vice President, General Counsel & Corporate Secretary. In this role, she is responsible for all legal and compliance matters and serves as the Corporate Secretary. Prior to joining Neogen, Dr. Rocklin was the Division Vice President, Corporate Law at Corning Incorporated, one of the world’s leading innovators in materials science. 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 positions at Smiths Group plc and was in private practice at the law firm of Foley & Lardner LLP. 43 Table of Contents 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, 2022. 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, 2022. 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, 2022. 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, 2022. 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 44 Table of Contents Neogen Corporation Annual Report on Form 10-K Year Ended May 31, 2022 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 2.1 Agreement and Plan of Merger, dated as of December 13, 2021, by and among 3M Company, Garden SpinCo 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, Garden SpinCo 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 Asset Purchase Agreement, by and between 3M Company and Neogen Corporation, dated as of December 13, 2021 (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 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). 3.2 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) . 3.3 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 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). 3.5 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). 10.1 Neogen Corporation 2015 Omnibus Incentive Plan (incorporated by reference to Appendix A to the Registrant’s 2015 Proxy Statement dated and filed August 25, 2015). 10.2 Neogen Corporation 2018 Omnibus Incentive Plan (incorporated by reference to Appendix A to the Registrant’s 2018 Proxy Statement dated and filed August 28, 2018). 10.3 Amended and Restated Credit Agreement dated as of November 30, 2016 between Registrant and JPMorgan Chase N.A. (incorporated by reference to Exhibit 10.A to the Registrant’s Form 8-K filed on December 6, 2016). 10.4 First Amendment to Amended and Restated Credit Agreement dated as of November 30, 2018 between Registrant and JPMorgan Chase N.A. (incorporated by reference to Exhibit 10.A to the Registrant’s Form 8-K filed on December 6, 2018). 10.5 Second Amendment to Amended and Restated Credit Agreement dated as of November 30, 2020 between Registrant and JPMorgan Chase N.A. (incorporated by reference to Exhibit 10.A to the Registrant’s Form 8-K filed on December 17, 2020). 10.6 Employee Matters Agreement, dated as of December 13, 2021, by and among Neogen Corporation, Garden SpinCo Corporation and 3M Company (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Neogen Corporation on December 15, 2021). 21 Listing of Subsidiaries 23 Consent of Independent Registered Public Accounting Firm BDO USA, LLP 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 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) 45 Table of Contents 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/ Steven J. Quinlan John E. Adent, President & Chief Steven J. Quinlan, Vice President & Executive Officer Chief Financial Officer (Principal Executive Officer) (Principal Financial & Accounting Officer) Dated: July 27, 2022 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) July 27, 2022 John E. Adent Vice President & Chief Financial Officer /s/ Steven J. Quinlan (Principal Financial & Accounting Officer) July 27, 2022 Steven J. Quinlan * Chairman of the Board of Directors July 27, 2022 James C. Borel * Director July 27, 2022 William T. Boehm, Ph.D. * Director July 27, 2022 Ronald D. Green, Ph.D. * Director July 27, 2022 Ralph A. Rodriguez * Director July 27, 2022 James P. Tobin * Director July 27, 2022 Darci L. Vetter * Director July 27, 2022 Catherine E. Woteki, Ph.D. *By: /s/ John E. Adent John E. Adent, Attorney-in-fact July 27, 2022 46 Table of Contents 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, 2022 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, LLP , Grand Rapids, MI PCAOB ID# 243 F-2 Consolidated Balance Sheets—May 31, 2022 and 2021 F-4 Consolidated Statements of Income—Years ended May 31, 2022, 2021 and 2020 F-6 Consolidated Statements of Comprehensive Income—Years ended May 31, 2022, 2021 and 2020 F-7 Consolidated Statements of Stockholders’ Equity— Years ended May 31, 2022, 2021 and 2020 F-8 Consolidated Statements of Cash Flows— Years ended May 31, 2022, 2021 and 2020 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 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Neogen Corporation Lansing, Michigan Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Neogen Corporation (the “Company”) as of May 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended May 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at May 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of May 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated July 2 7 , 2022 expressed an unqualified opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Contingent Consideration As described in Note 3 to the Company’s consolidated financial statements, the Company has recorded a contingent consideration liability of approximately $6.5 million related to the acquisition of CAPInnoVet, Inc. A contingent consideration liability is recorded based on its estimated fair value as of the date of the acquisition and remeasured as of each balance sheet date. We have identified the valuation of the contingent consideration liability as of the acquisition date as a critical audit matter. The contingent consideration liability is measured using a Monte-Carlo simulation utilizing significant unobservable inputs that considers the probability of achieving each of the potential milestones, including revenue volatility and an estimated discount rate associated with the risks of the expected cash flows. Due to the inherent uncertainty involved in estimating long-range revenue forecasts and the complexity of the Monte-Carlo simulation utilized by management, auditing the contingent consideration liability required increased auditor effort including the use of personnel with specialized knowledge and skills in valuation. F-2 Table of Contents The primary procedures we performed to address this critical audit matter included: • Testing the design and operating effectiveness of certain controls over the development of the significant assumptions used in the valuation model selected, including controls over assumptions related to: (i) long-range revenue forecasts and (ii) discount rates applied to the forecasts. • Assessing management’s estimated timing of milestone achievement and probabilities of success by corroborating with personnel knowledgeable of the current progression of the product candidates and reviewed filings with the applicable regulatory agencies. • Assessing management’s ability to forecast long-range revenue by analyzing historical accuracy of management’s forecasts related to business combinations and comparing to industry data to validate the reasonableness of the growth assumption. • Utilizing professionals with specialized knowledge and skills in valuation to assist in evaluating the valuation methodology selected by management as well as assessing the reasonableness of key inputs including the discount rate and revenue volatility. /s/ BDO USA, LLP We have served as the Company’s auditor since 2014. Grand Rapids, Michigan July 2 7 , 2022 F-3 Table of Contents Neogen Corporation and Subsidiaries Consolidated Balance Sheets – Assets (in thousands) May 31 2022 2021 Assets Current Assets Cash and cash equivalents $ 44,473 $ 75,602 Marketable securities 336,578 305,485 Accounts receivable, net of allowance of $ 1,650 and $ 1,400 at May 31, 2022 and 2021, respectively 99,674 91,823 Inventories 122,313 100,701 Prepaid expenses and other current assets 23,760 17,840 Total Current Assets 626,798 591,451 Property and Equipment Land and improvements 9,485 7,783 Building and improvements 79,513 72,754 Machinery and equipment 114,180 108,194 Furniture and fixtures 6,307 6,270 Construction in progress 5,974 3,261 215,459 198,262 Less accumulated depreciation ( 104,875 ) ( 97,809 ) Net Property and Equipment 110,584 100,453 Other Assets Right of use assets 3,184 2,477 Goodwill 142,704 131,476 Other non-amortizable intangible assets 15,397 15,545 Amortizable intangible assets, net of accumulated amortization of $ 55,416 and $ 53,462 at May 31, 2022 and 2021, respectively 92,106 76,771 Other non-current assets 2,156 2,019 Total Other Assets 255,547 228,288 Total Assets $ 992,929 $ 920,192 See accompanying notes to consolidated financial statements. F-4 Table of Contents Neogen Corporation and Subsidiaries Consolidated Balance Sheets – Liabilities and Stockholders’ Equity (in thousands, except shares and per share) May 31 2022 2021 Liabilities and Stockholders’ Equity Current Liabilities Accounts payable $ 34,614 $ 23,900 Accruals Accrued compensation 11,123 11,251 Income tax payable 2,126 1,848 Deferred revenue 5,460 3,404 Other accruals 24,521 13,196 Total Current Liabilities 77,844 53,599 Deferred Income Tax Liability 17,011 21,917 Other Non-Current Liabilities 10,700 4,299 Total Liabilities 105,555 79,815 Commitments and Contingencies (note 7) Stockholders’ Equity Preferred stock, $ 1.00 par value — shares authorized 100,000 ; none issued and outstanding — — Common stock, $ 0.16 par value — shares authorized 120,000,000 ; 107,801,094 a nd 107,468,304 shares issued and outstanding at May 31, 2022 and 2021, respectively 17,248 17,195 Additional paid-in capital 309,984 294,953 Accumulated other comprehensive loss ( 27,769 ) ( 11,375 ) Retained earnings 587,911 539,604 Total Neogen Corporation and Subsidiaries Stockholders’ Equity 887,374 840,377 Total Liabilities and Stockholders’ Equity $ 992,929 $ 920,192 See accompanying notes to consolidated financial statements. F-5 Table of Contents Neogen Corporation and Subsidiaries Consolidated Statements of Income (in thousands, except per share) Year Ended May 31 2022 2021 2020 Revenues Product revenues $ 424,664 $ 376,302 $ 335,539 Service revenues 102,495 92,157 82,631 Total Revenues 527,159 468,459 418,170 Cost of Revenues Cost of product revenues 228,017 201,348 173,566 Cost of service revenues 56,129 52,055 48,325 Total Cost of Revenues 284,146 253,403 221,891 Gross Margin 243,013 215,056 196,279 Operating Expenses Sales and marketing 84,604 73,443 69,675 General and administrative 82,742 51,197 44,331 Research and development 17,049 16,247 14,750 Total Operating Expenses 184,395 140,887 128,756 Operating Income 58,618 74,169 67,523 Other Income Interest income, net 1,267 1,614 5,992 Royalty income — — — Other, net 322 ( 515 ) ( 1,210 ) Total Other Income 1,589 1,099 4,782 Income Before Income Taxes 60,207 75,268 72,305 Provision for Income Taxes 11,900 14,386 12,830 Net Income $ 48,307 $ 60,882 $ 59,475 Net Income per Share Basic $ 0.45 $ 0.57 $ 0.57 Diluted $ 0.45 $ 0.57 $ 0.56 Weighted Average Shares Outstanding Basic 107,684 106,499 105,100 Diluted 108,020 107,120 105,720 See accompanying notes to consolidated financial statements. F-6 Table of Contents Neogen Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (in thousands) Year Ended May 31 2022 2021 2020 Net Income $ 48,307 $ 60,882 $ 59,475 Other comprehensive income (loss): Foreign currency translations ( 13,955 ) 8,602 ( 8,495 ) Unrealized (loss) gain on marketable securities, net of tax of $( 728 ), $( 80 ) and $ 127 ( 2,439 ) ( 268 ) 426 Comprehensive income $ 31,913 $ 69,216 $ 51,406 See accompanying notes to consolidated financial statements. F-7 Table of Contents Neogen Corporation and Subsidiaries Consolidated Statements 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, 2019 104,433,178 $ 16,709 $ 213,583 $ ( 11,640 ) $ 419,247 $ 637,899 Exercise of options, RSUs and share-based compensation expense 1,415,348 227 34,452 — — 34,679 Issuance of shares under employee stock purchase plan 43,156 7 1,186 — — 1,193 Net income for 2020 — — — — 59,475 59,475 Other comprehensive loss — — — ( 8,069 ) — ( 8,069 ) Balance, May 31, 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 See accompanying notes to consolidated financial statements. F-8 Table of Contents Neogen Corporation and Subsidiaries Consolidated Statements of Cash Flows (in thousands) Year Ended May 31 2022 2021 2020 Cash Flows From Operating Activities Net income $ 48,307 $ 60,882 $ 59,475 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 23,694 21,041 18,396 Deferred income taxes ( 4,695 ) ( 640 ) 1,601 Share-based compensation 7,154 6,437 6,468 Changes in operating assets and liabilities, net of business acquisitions: Accounts receivable ( 7,798 ) ( 2,595 ) ( 2,881 ) Inventories ( 21,072 ) 2,450 ( 10,011 ) Prepaid expenses and other assets ( 4,054 ) ( 3,386 ) ( 1,017 ) Accounts payable 10,215 ( 3,206 ) 6,745 Accruals and other changes 16,287 106 7,102 Net Cash From Operating Activities 68,038 81,089 85,878 Cash Flows for Investing Activities Purchase of property, equipment and other non-current intangible assets ( 24,429 ) ( 26,712 ) ( 24,052 ) Proceeds from the maturities of marketable securities 381,839 764,597 406,731 Purchase of marketable securities ( 415,894 ) ( 792,678 ) ( 458,300 ) Business acquisitions, net of cash acquired ( 38,745 ) ( 50,771 ) ( 13,164 ) Net Cash for Investing Activities ( 97,229 ) ( 105,564 ) ( 88,785 ) Cash Flows From Financing Activities Exercise of stock options and other 7,933 34,631 29,405 Payment of contingent consideration ( 1,120 ) ( 1,087 ) — Net Cash From Financing Activities 6,813 33,544 29,405 Effects of Foreign Exchange Rate on Cash ( 8,751 ) 264 ( 1,917 ) Net (Decrease) Increase in Cash and Cash Equivalents ( 31,129 ) 9,333 24,581 Cash and Cash Equivalents, Beginning of Year 75,602 66,269 41,688 Cash and Cash Equivalents, End of Year $ 44,473 $ 75,602 $ 66,269 Supplementary Cash Flow Information Income taxes paid, net of refunds $ 17,242 $ 14,966 $ 7,364 See accompanying notes to consolidated financial statements. F-9 Table of Contents Neogen Corporation and Subsidiaries Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Nature of Operations Neogen Corporation develops, manufactures and markets a diverse line of products and services dedicated to food and animal safety. Basis of Consolidation The consolidated financial statements include the accounts of Neogen Corporation and its subsidiaries, all of which are wholly-owned as of May 31, 2022. All intercompany accounts and transactions have been eliminated in consolidation. Share and per share amounts reflect the June 4, 2021 2-for-1 stock split as if it took place at the beginning of the periods presented. Functional Currency Our functional currency is the U.S. dollar. We translate our non-U.S. operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in other comprehensive income (loss). Gains or losses from foreign currency transactions are included in other income (expense) on our consolidated statement of income. Recently Adopted Accounting Standards Income Tax Simplification On June 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740). This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of this guidance did not have a material impact on our consolidated financial statements. Recent Accounting Pronouncements Not Yet Adopted Reference Rate Reform In March 2020, FASB issued Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides temporary optional expedients to applying the reference rate reform guidance to contracts that reference LIBOR or another reference rate expected to be discontinued. Under this update, contract modifications resulting in a new reference rate may be accounted for as a continuation of the existing contract. This guidance is effective upon issuance of the update and applies to contract modifications made through December 31, 2022. We will adopt this standard when our new credit agreement goes into effect on the date of the 3M Food Safety business merger, currently expected to close in the third quarter of calendar year 2022. We are evaluating the impact the new standard will have on our consolidated financial statements and related disclosures, but do not anticipate a material impact. Comprehensive Income Comprehensive income represents net income and any revenues, expenses, gains and losses that, under U.S. generally accepted accounting principles, are excluded from net income and recognized directly as a component of stockholders’ equity. Accumulated other comprehensive income (loss) consists of foreign currency translation adjustments and unrealized gains and losses on our marketable securities. F-10 Table of Contents Changes in our Accumulated Other Comprehensive Income (Loss) (“AOCI”) balances, net of tax, were as follows: (in thousands) Foreign Currency Translation Adjustments Unrealized Gain (Loss) on Marketable Securities Total AOCI Balance, May 31, 2020 $ ( 20,135 ) $ 426 $ ( 19,709 ) Other comprehensive income (loss) 8,602 ( 268 ) 8,334 Balance, May 31, 2021 $ ( 11,533 ) $ 158 $ ( 11,375 ) Other comprehensive loss ( 13,955 ) ( 2,439 ) ( 16,394 ) Balance, May 31, 2022 $ ( 25,488 ) $ ( 2,281 ) $ ( 27,769 ) Fair Value of Financial Instruments Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The carrying amounts of the Company’s financial instruments other than cash equivalents and marketable securities, which include accounts receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar instruments. Cash and Cash Equivalents Cash and cash equivalents consist of bank demand accounts, savings deposits, certificates of deposit and commercial paper with original maturities of 90 days or less. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has not experienced losses related to these balances and believes it is not exposed to significant credit risk regarding its cash and cash equivalents. The carrying value of these assets approximates fair value due to the short maturity of these instruments and is classified as Level 1 in the fair value hierarchy. Cash held by foreign subsidiaries was $ 17,057,000 and $ 15,246,000 at May 31, 2022 and 2021, respectively. Marketable Securities The Company has marketable securities held by banks or broker-dealers at May 31, 2022, consisting of commercial paper and corporate bonds rated at least A-1/P-1 (short-term) and A/A2 (long-term) with original maturities between 91 days and two years . Changes in market value are monitored and recorded on a monthly basis; in the event of a downgrade in credit quality subsequent to purchase, the marketable security investment is evaluated to determine the appropriate action to take to minimize the overall risk to our marketable security portfolio. As these securities are highly rated and short-term in nature, they have very little credit risk; therefore, the Company does not believe a reserve for expected credit losses on marketable securities is material. These securities are classified as available for sale. The primary objective of management’s short-term investment activity is to preserve capital for the purpose of funding operations, capital expenditures and business acquisitions; short-term investments are not entered into for trading or speculative purposes. These securities are recorded at fair value based on recent trades or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within other income on our consolidated statements of income. Adjustments in the fair value of these assets are recorded in other comprehensive income (loss). F-11 Table of Contents Marketable Securities as of May 31, 2022 and 2021 are listed below by classification and remaining maturities. Year ended May 31 (in thousands) Maturity 2022 2021 Commercial Paper & Corporate Bonds 0 - 90 days $ 106,497 $ 106,631 91 -180 days 61,373 78,727 181 days -1 year 91,706 87,590 1 - 2 years 77,002 26,752 Certificates of Deposit 0 - 90 days — 3,262 91 - 180 days — 1,260 181 days -1 year — 1,263 1 - 2 years — — Total Marketable Securities $ 336,578 $ 305,485 The components of marketable securities as of May 31, 2022 are as follows: Amortized Unrealized Unrealized (in thousands) Cost Gains Losses Fair Value Commercial Paper & Corporate Bonds $ 339,540 $ 7 $ ( 2,969 ) $ 336,578 Certificates of Deposit — — — — Total Marketable Securities $ 339,540 $ 7 $ ( 2,969 ) $ 336,578 The components of marketable securities as of May 31, 2021 are as follows: Amortized Unrealized Unrealized (in thousands) Cost Gains Losses Fair Value Commercial Paper & Corporate Bonds $ 299,524 $ 209 $ ( 33 ) $ 299,700 Certificates of Deposit 5,755 30 — 5,785 Total Marketable Securities $ 305,279 $ 239 $ ( 33 ) $ 305,485 Use of Estimates The preparation of these consolidated financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, accruals, goodwill and other intangible assets. We believe that these estimates have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to inform our critical accounting estimates. Actual results may differ from these estimates under different assumptions or conditions. F-12 Table of Contents Accounts Receivable and Concentrations of Credit Risk Financial instruments which potentially subject Neogen to concentrations of credit risk consist principally of accounts receivable. Management attempts to minimize credit risk by reviewing customers’ credit histories before extending credit and by monitoring credit exposure on a regular basis. Collateral or other security is generally not required for accounts receivable. We maintain an allowance for customer accounts that reduces receivables to amounts that are expected to be collected. In estimating the allowance for doubtful accounts, management considers relevant information about past events, current conditions and reasonable and supportable forecasts that affect the collectability of financial assets. Once a receivable balance has been determined to be uncollectible, generally after all collection efforts have been exhausted, that amount is charged against the allowance for doubtful accounts. No customer accounted for more than 10 % of accounts receivable May 31, 2022 or 2021, respectively. The activity in the allowance for doubtful accounts was as follows: Year ended May 31 (in thousands) 2022 2021 2020 Beginning Balance $ 1,400 $ 1,350 $ 1,700 Provision 332 239 393 Recoveries 98 139 49 Write-offs ( 180 ) ( 328 ) ( 792 ) Ending Balance $ 1,650 $ 1,400 $ 1,350 Inventories Inventories are stated at the lower of cost or net realizable value, determined on the first-in, first-out method. The components of inventories were as follows: Year ended May 31 (in thousands) 2022 2021 Raw Materials $ 58,667 $ 47,588 Work-in-process 6,388 6,412 Finished goods 57,258 46,701 $ 122,313 $ 100,701 The Company’s inventories are analyzed for slow moving, expired and obsolete items on a quarterly basis and the valuation allowance is adjusted as required within cost of revenues expense. The valuation allowance for inventory was $ 4,050,000 and $ 3,100,000 at May 31, 2022 and 2021, respectively. Property and Equipment Property and equipment is stated at cost. Expenditures for major improvements are capitalized while repairs and maintenance are charged to expense as incurred. Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets, which are generally seven to 39 years for buildings and improvements and three to 10 years for furniture, fixtures, machinery and equipment. Depreciation expense was $ 14,094,000 , $ 13,288,000 and $ 11,907,000 in fiscal years 2022, 2021 and 2020, respectively. Goodwill and Other Intangible Assets Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to other identifiable intangible assets. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants not-to-compete and patents. Amortizable intangible assets are amortized on either an accelerated or a straight-line basis, generally over two to 25 years. The remaining weighted average amortization period for intangibles was eight years and 10 years at May 31, 2022 and 2021, respectively. Management reviews the carrying amounts of goodwill and other non-amortizable intangible assets annually, or when indications of impairment exist, to determine if such F-13 Table of Contents assets may be impaired. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in the Company’s market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business. In evaluating goodwill for impairment, we have the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis. If the qualitative assessment leads to a determination that the reporting unit’s fair value is less than its carrying value, or if we elect to bypass the qualitative assessment altogether, we are required to perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with its associated carrying value. In the fourth quarter of fiscal 2022 , management performed our annual goodwill impairment analysis qualitatively. In connection with our annual goodwill impairment assessment for 2022, 2021, and 2020, we determined that no impairment adjustments were necessary. Long-lived Assets Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for possible impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset are less than the carrying value of the asset. In such an event, fair value is determined using discounted cash flows, and if lower than the carrying value, impairment is recognized through a charge to operations. No impairments of long-lived assets were identified during the years ended May 31, 2022, 2021 and 2020, respectively. Business Combinations We utilize the purchase method of accounting for business combinations. This method requires, among other things, that results of operations of acquired companies are included in Neogen’s results of operations beginning on the respective acquisition dates and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Any excess of the fair value of consideration transferred over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized at the estimated fair value on the acquisition date; these are recorded in either other accruals within current liabilities (for expected payments in less than a year) or other non-current liabilities (for expected payments in greater than a year), both on our consolidated balance sheets. Subsequent changes to the fair value of contingent consideration liabilities are recognized in other income (expense) in the consolidated statements of income. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred. Reclassifications Certain immaterial amounts in the fiscal 2021 and 2020 consolidated financial statements have been reclassified to conform with the fiscal 2022 presentation. Equity Compensation Plans At May 31, 2022, the Company had stock option plans which are described more fully in Note 5 to the consolidated financial statements. We measure stock-based compensation at the grant date, based on the estimated fair value of the award, and recognize the cost (net of estimated forfeitures) as compensation expense on a straight-line basis over the requisite service period. Our stock-based compensation expense is reflected in general and administrative expense in our consolidated statements of income. The weighted-average fair value per share of stock options granted during fiscal years 2022, 2021 and 2020, estimated on the date of grant using the Black-Scholes option pricing model, was $ 8.49 , $ 7.71 and $ 7.78 , respectively. The fair value of stock options granted was estimated using the following weighted-average assumptions: Year ended May 31 2022 2021 2020 Risk-free interest rate 0.4 % 0.2 % 1.9 % Expected dividend yield 0.0 % 0.0 % 0.0 % Expected stock volatility 32.8 % 31.3 % 29.4 % Expected option life 3.12 years 3.25 years 3.5 years The risk-free interest rate for periods within the expected life of options granted is based on the United States Treasury yield curve in effect at the time of grant. Expected stock price volatility is based on historical volatility of the Company’s stock. The expected option life, representing the period of time that options granted are expected to be outstanding, is based on historical option exercise and employee termination data. We include recent historical experience in estimating our forfeitures. As employees terminate, grant tranches expire or as forfeitures are known, estimated expense is adjusted to actual. For options granted in fiscal years 2022, 2021 and 2020, the Company recorded charges in general and administrative expense based on the fair value of stock options using the straight-line method over the vesting period of three to five years. F-14 Table of Contents The Company also issues restricted stock units (RSUs), which are described more fully in Note 5 to the consolidated financial statements. The RSUs generally vest over three to five years and have a weighted average value of $ 37.28 in fiscal 2022 and $ 34.21 in fiscal 2021. Income Taxes We account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year. The Company’s policy is to recognize both accrued interest expense and penalties related to unrecognized tax benefits in income tax expense. Our wholly-owned foreign subsidiaries are comprised of Neogen Europe, Quat-Chem Ltd, Abbott Analytical Limited, Delf (UK) Limited, Delf-Chem Solutions Limited, Megazyme Ltd, Megazyme IP, Neogen Italia S.r.l., Neogen do Brasil, Rogama Industria e Comercio Ltda, Neogen Latinoamérica, Neogen Guatemala, Neogen Argentina, Neogen Uruguay, Neogen Chile SpA, Neogen Bio-Scientific Technology Co (Shanghai), Neogen Food and Animal Security (India), Neogen Canada and Neogen Australasia Pty Limited. Based on historical experience, as well as management’s future plans, earnings from these subsidiaries are expected to be re-invested indefinitely for future expansion and working capital needs. Furthermore, our domestic operations have historically produced sufficient operating cash flow to mitigate the need to remit foreign earnings. On an annual basis, we evaluate the current business environment and whether any new events or other external changes might require a re-evaluation of the decision to indefinitely re-invest foreign earnings. It is not practicable to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely. Research and Development Costs Research and development costs, which consist primarily of compensation costs, administrative expenses and new product development, among other items, are expensed as incurred. Advertising Costs Advertising costs are expensed within sales and marketing as incurred and totaled $ 2,018,000 , $ 1,687,000 and $ 1,454,000 in fiscal years 2022, 2021 and 2020, respectively. Net Income per Share Basic net income per share is based on the weighted average number of common shares outstanding during each year. Diluted earnings per share is based on the weighted average number of common shares and dilutive potential common shares outstanding. Our dilutive potential common shares outstanding during the years result from dilutive stock options and restricted stock units. The following table presents the net income per share calculations: Year ended May 31 (in thousands, except per share) 2022 2021 2020 Numerator for basic and diluted net income per share — Net Income $ 48,307 $ 60,882 $ 59,475 Denominator for basic net income per share — Weighted average shares 107,684 106,499 105,100 Effect of dilutive stock options and restricted stock units 336 621 620 Denominator for diluted net income per share 108,020 107,120 105,720 Net income attributable per share Basic $ 0.45 $ 0.57 $ 0.57 Diluted $ 0.45 $ 0.57 $ 0.56 At May 31, 2022, 383,000 shares from option exercises were excluded from the computation of diluted net income per share, as the option exercise prices exceeded the average market price of the common shares. At May 31, 2021, no potential shares were excluded from the computation. At May 31, 2020, 56,000 potential shares were excluded from the computation. F-15 Table of Contents Leases The Company recognizes in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. We recognized all leases with terms greater than 12 months in duration on our consolidated balance sheets as right-of-use assets and lease liabilities . Right-of-use assets are recorded in other assets on our consolidated balance sheets. Current and non-current lease liabilities are recorded in other accruals within current liabilities and other non-current liabilities, respectively, on our consolidated balance sheets. We lease various manufacturing, laboratory, warehousing and distribution facilities, administrative and sales offices, equipment and vehicles under operating leases. We evaluate our contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, all of our leases are classified as operating leases. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option. We have made certain assumptions and judgments when accounting for leases, the most significant of which are: • We did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset. • For all asset classes, we elected to not recognize a right-of-use asset and lease liability for short-term leases (i.e. leases with a term of 12 months or less). • For all asset classes, we elected to not separate non-lease components from lease components to which they relate and have accounted for the combined lease and non-lease components as a single lease component. • The determination of the discount rate used in a lease is our incremental borrowing rate that is based on our estimate of what we would normally pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments. Supplemental balance sheet information related to operating leases was as follows: Year ended May 31 (in thousands) 2022 2021 Rights of use - assets $ 3,184 $ 2,477 Lease liabilities - current 1,440 1,285 Lease liabilities - non-current 1,788 1,207 The weighted average remaining lease term and weighted average discount rate were as follows: Year ended May 31 2022 2021 Weighted average remaining lease term 3 years 2 years Weighted average discount rate 1.7 % 2.0 % F-16 Table of Contents Operating lease expenses are classified as cost of revenues or operating expenses on the consolidated statements of income. The components of lease expense were as follows: Year ended May 31 (in thousands) 2022 2021 Operating leases $ 438 $ 1,352 Short term leases 277 134 Total lease expense $ 715 $ 1,486 Cash paid for amounts included in the measurement of lease liabilities for operating leases included in cash flows from operations on the statement of cash flows was approximately $ 1,407,000 , $ 1,397,000 and $ 1,178,000 for the years ended May 31, 2022, 2021 and 2020, respectively. There were no non-cash additions to right-of-use assets obtained from new operating lease liabilities for the year ended May 31, 2022. Maturities of operating lease liabilities as of May 31, 2022 are as follows: (in thousands) Amount Years ending May 31, 2023 $ 1,458 2024 887 2025 436 2026 345 2027 and thereafter 190 Total lease payments $ 3,316 Less: imputed interest ( 88 ) Total lease liabilities $ 3,228 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. F-17 Table of Contents Certain agreements with customers include discounts or rebates on the sale of products and services applied retrospectively, such as volume rebates achieved by purchasing a specified purchase threshold of goods and services. We account for these discounts as variable consideration and estimate the likelihood of a customer meeting the threshold in order to determine the transaction price using the most predictive approach. We typically use the most-likely-amount method, for incentives that are offered to individual customers, and the expected-value method, for programs that are offered to a broad group of customers. Variable consideration reduces the amount of revenue that is recognized. Rebate obligations related to customer incentive programs are recorded in accrued liabilities; the rebate estimates are adjusted at the end of each applicable measurement period based on information currently available. The performance obligations in Neogen’s contracts are generally satisfied well within one year of contract inception. In such cases, management has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. Management has elected to utilize the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred because the amortization period for the prepaid costs that would otherwise have been deferred and amortized is one year or less. We account for shipping and handling for products as a fulfillment activity when goods are shipped. Shipping and handling costs that are charged to and reimbursed by the customer are recognized as revenues, while the related expenses incurred by Neogen are recorded in sales and marketing expense; these expenses totaled $ 17,482,000 , $ 15,180,000 and $ 13,514,000 in fiscal years 2022, 2021 and 2020, respectively. Revenue is recognized net of any tax collected from customers; the taxes are subsequently remitted to governmental authorities. Our terms and conditions of sale generally do not provide for returns of product or reperformance of service except in the case of quality or warranty issues. These situations are infrequent; due to immateriality of the amount, warranty claims are recorded in the period incurred. The Company derives revenue from two primary sources — product revenue and service revenue. Product revenue consists primarily of shipments of: • Diagnostic test kits, culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation; • Consumable products marketed to veterinarians, retailers, livestock producers and animal health product distributors; and • Rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities. Revenue for Neogen’s products are recognized and invoiced when the product is shipped to the customer. Service revenue consists primarily of: • Genomic identification and related interpretive bioinformatic services; and • Other commercial laboratory services. Revenues for Neogen’s genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service is performed and the results are conveyed to the customer. Payment terms for products and services are generally 30 to 60 days . The Company has no contract assets ; contract liabilities represent deposits made by customers before the satisfaction of performance 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 o n the consolidated balance sheets. F-18 Table of Contents The following table presents disaggregated revenue by major product and service categories for the years ended May 31, 2022, 2021 and 2020: Year Ended (dollars in thousands) May 31, 2022 May 31, 2021 May 31, 2020 Food Safety: Natural Toxins, Allergens & Drug Residues $ 79,395 $ 76,614 $ 76,207 Bacterial & General Sanitation 47,282 44,009 41,780 Culture Media & Other 75,278 61,245 47,847 Rodenticides, Insecticides & Disinfectants 35,691 32,219 28,890 Genomics Services 22,333 20,157 17,967 $ 259,979 $ 234,244 $ 212,691 Animal Safety: Life Sciences 5,685 5,715 6,322 Veterinary Instruments & Disposables 63,938 48,128 42,941 Animal Care & Other 39,805 35,897 28,389 Rodenticides, Insecticides & Disinfectants 83,610 77,458 68,815 Genomics Services 74,142 67,017 59,012 $ 267,180 $ 234,215 $ 205,479 Total Revenue $ 527,159 $ 468,459 $ 418,170 See Note 11 to the consolidated financial statements for disaggregated revenues by geographical location. 2. Goodwill and Other Intangible Assets Management completed the annual impairment analysis of goodwill and intangible assets with indefinite lives using a qualitative assessment as of the first day of the fourth quarter of fiscal years 2022, 2021 and 2020, respectively, and determined that recorded amounts were not impaired and that no write-down was necessary. The following table summarizes goodwill by reportable segment: (in thousands) Food Safety Animal Safety Total Balance, May 31, 2020 $ 47,215 $ 63,125 $ 110,340 Goodwill acquired 18,775 — 18,775 Goodwill and/or currency adjustments (1) 1,832 529 2,361 Balance, May 31, 2021 $ 67,822 $ 63,654 $ 131,476 Goodwill acquired 4,152 11,752 15,904 Goodwill and/or currency adjustments (1) ( 4,416 ) ( 260 ) ( 4,676 ) Balance, May 31, 2022 $ 67,558 $ 75,146 $ 142,704 (1) Includes final purchase price allocation adjustments and currency adjustments for goodwill recorded at international locations. F-19 Table of Contents At May 31, 2022, non-amortizable intangible assets included licenses of $ 569,000 , trademarks of $ 13,604,000 and other intangibles of $ 1,224,000 . At May 31, 2021, non-amortizable intangible assets included licenses of $ 569,000 , trademarks of $ 13,752,000 and other intangibles of $ 1,224,000 . Amortizable intangible assets consisted of the following and are included in customer-based intangibles and other non-current assets within the consolidated balance sheets: Gross Less Net Carrying Accumulated Carrying (in thousands) Amount Amortization Amount Licenses $ 17,109 $ 5,682 $ 11,427 Covenants not to compete 846 671 175 Patents 8,347 4,583 3,764 Customer-based intangibles 75,000 33,662 41,338 Other product and service-related intangibles 46,220 10,818 35,402 Balance, May 31, 2022 $ 147,522 $ 55,416 $ 92,106 Licenses $ 16,913 $ 4,580 $ 12,333 Covenants not to compete 1,006 571 435 Patents 8,363 4,243 4,120 Customer-based intangibles 76,384 35,209 41,175 Other product and service-related intangibles 27,567 8,859 18,708 Balance, May 31, 2021 $ 130,233 $ 53,462 $ 76,771 Amortization expense for intangibles totaled $ 9,600,000 , $ 7,753,000 and $ 6,489,000 in fiscal years 2022, 2021, and 2020, respectively. The estimated amortization expense for each of the five succeeding fiscal years is as follows: $ 9,634,000 in 2023, $ 9,189,000 in 2024, $ 8,686,000 in 2025, $ 8,585,000 in 2026 and $ 8,097,000 in 2027 and $ 47,915,000 thereafter. The amortizable intangible assets useful lives are 2 to 20 years for licenses, 3 to 10 years for covenants not to compete, 5 to 25 years for patents, 9 to 20 years for customer-based intangibles and 5 to 20 years for other product and service-related intangibles, which primarily consist of product formulations. All definite-lived intangibles are amortized on a straight-line basis with the exception of definite-lived customer-based intangibles and product and service-related intangibles, which are amortized on either a straight-line or an accelerated basis . 3. Business Combinations The Consolidated Statements of Income reflect the results of operations for business acquisitions since the respective dates of purchase. All are accounted for using the acquisition method. Goodwill recognized in the acquisitions described below relates primarily to enhancing the Company’s strategic platform for the expansion of available product offerings. Fiscal 2020 On January 1, 2020, the Company acquired all of the stock of Productos Quimicos Magiar, a distributor of Neogen’s Food Safety products for the past 20 years, located in Argentina. This acquisition gives Neogen a direct sales presence in Argentina. Consideration for the purchase was $ 3,776,000 in net cash, with $ 3,237,000 paid at closing and $ 540,000 payable to the former owner on January 1, 2022 , and up to $ 979,000 of contingent consideration, payable in one year, based upon an excess net sales formula. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $ 603,000 , inventory of $ 446,000 , machinery and equipment of $ 36,000 , other current assets of $ 221,000 , accounts payable of $ 383,000 , other current liabilities of $ 312,000 , contingent consideration accrual of $ 640,000 , non-current deferred tax liabilities of $ 441,000 , intangible assets of $ 1,471,000 (with an estimated life of 5 - 10 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. In February 2021, the former owner was paid $530,000 of contingent consideration based on the achievement of sales targets; F-20 Table of Contents the remaining $110,000 accrued but not earned was recorded as a gain in Other Income in the third quarter of fiscal 2021. In January 2022 , the former owner was paid the remaining $ 540,000 of the purchase price. This operation continues to operate in Buenos Aires, Argentina, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation. On January 1, 2020, the Company acquired all of the stock of Productos Quimicos Magiar, a distributor of Neogen’s Food Safety products for the past 20 years, located in Uruguay. This acquisition gives Neogen a direct sales presence in Uruguay. Consideration for the purchase was $ 1,488,000 in net cash, with $ 1,278,000 paid at closing and $ 210,000 payable to the former owner on January 1, 2022 , and up to $ 241,000 in contingent consideration, payable in one year, based upon an excess net sales formula. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $ 280,000 , inventory of $ 174,000 , machinery and equipment of $ 16,000 , other current assets of $ 68,000 , accounts payable of $ 204,000 , other current liabilities of $ 11,000 , contingent consideration accrual of $ 159,000 , non-current deferred tax liabilities of $ 99,000 , intangible assets of $ 398,000 (with an estimated life of 5 - 10 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. In February 2021, the former owner was paid $158,000 of contingent consideration based on the achievement of sales targets; the remaining $1,000 accrued but not earned was recorded as a gain in Other Income in the third quarter of fiscal 2021. In January 2022, the former owner was paid $ 184,000 , after deducting $ 26,000 from the final payment for uncollectable accounts receivable balances. This operation continues to operate in Montevideo, Uruguay, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation. On January 9, 2020, the Company acquired all of the stock of Diessechem Srl, a distributor of food and feed diagnostics for the past 27 years, located in Italy. This acquisition gives Neogen a direct sales presence in Italy. Consideration for the purchase was $ 3,455,000 in net cash. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $ 780,000 , inventory of $ 5,000 , other current assets of $ 160,000 , accounts payable of $ 140,000 , other current liabilities of $ 305,000 , non-current deferred tax liabilities of $ 294,000 , intangible assets of $ 1,225,000 (with an estimated life of 5 - 10 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. This operation continues to operate in Milan, Italy, reporting within the Food Safety segment. It is managed through Neogen’s Scotland operation. On January 31, 2020, the Company acquired all of the stock of Abtek Biologicals Limited, a manufacturer and supplier of culture media supplements and microbiology technologies. This acquisition enhances the Company’s culture media product line offering for the worldwide industrial microbiology markets. Consideration for the purchase was $ 1,401,000 in net cash, with $ 1,282,000 paid at closing and $ 119,000 payable to the former owner on January 31, 2021. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $ 135,000 , inventory of $ 207,000 , machinery and equipment of $ 105,000 , prepayments of $ 6,000 , accounts payable of $ 118,000 , other current liabilities of $ 34,000 , non-current deferred tax liabilities of $ 92,000 , intangible assets of $ 484,000 (with an estimated life of 5 - 10 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. The final $ 119,000 owed was paid to the former owner in January 2021. This manufacturing operation continues to operate in Liverpool, England, reporting within the Food Safety segment. It is managed through Neogen’s Scotland operation. On February 28, 2020, the Company acquired the assets of Cell BioSciences, an Australian distributor of food safety and industrial microbiology products. This acquisition gives Neogen a direct sales presence across Australasia for its entire product portfolio. Consideration for the purchase was $ 3,768,000 in cash, with $ 3,596,000 paid at closing and $ 172,000 payable in one year. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $ 420,000 , unearned revenue liability of $ 13,000 , intangible assets of $ 1,338,000 (with an estimated life of 3 to 10 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. The final $ 172,000 owed was paid to the former owner in March 2021. The business operates in Gatton, Australia, reporting within the Australian operations in the Animal Safety segment. On March 26, 2020, the Company acquired the assets of Chile-based Magiar Chilena, a distributor of food, animal and plant diagnostics, including Neogen products. This acquisition gives Neogen a direct sales presence in Chile. Consideration for the purchase was $ 400,000 in cash, with $ 350,000 paid at closing and $ 50,000 payable to the former owner on March 26, 2021. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $ 164,000 , machinery and equipment of $ 53,000 , and intangible assets of $ 183,000 (with an estimated life of 5 - 10 years). In April 2021, the former owner was paid $ 33,000 , after deducting $ 17,000 from the final payment for inventory adjustments. The business continues to operate in Santiago, Chile, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation. F-21 Table of Contents Fiscal 2021 On July 31, 2020, the Company acquired the U.S. (including territories) rights to Elanco’s StandGuard Pour-on for horn fly and lice control in beef cattle, and related assets. This product line fits in well with Neogen’s existing agricultural insecticide portfolio and organizational capabilities. Consideration for the purchase was $ 2,351,000 in cash, all paid at closing. The final purchase price allocation, based upon the fair value of these assets determined using the income approach, included inventory of $ 51,000 and intangible assets of $ 2,300,000 (with an estimated life of 15 years). This product line is currently being toll manufactured for the Company but is eventually expected to be manufactured at Neogen’s operation in Iowa; the sales are reported within the Animal Safety segment. On December 30, 2020, the Company acquired all of the stock of Megazyme, Ltd, an Ireland-based company, and its wholly-owned subsidiaries, U.S.-based Megazyme, Inc. and Ireland-based Megazyme IP. Megazyme is a manufacturer and supplier of diagnostic assay kits and enzymes to measure dietary fiber, complex carbohydrates and enzymes in food and beverages as well as animal feeds. This acquisition will allow Neogen to expand its commercial relationships across food, feed and beverage companies, and provide additional food quality diagnostic products to commercial labs and food science research institutions. Consideration for the purchase was net cash of $39.8 million paid at closing, $ 8.6 million of cash placed in escrow payable to the former owner in two installments in two and four years, $4.9 million of stock issued at closing, and up to $ 2.5 million of contingent consideration, payable in two installments over the next year, based upon an excess net sales formula. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $ 1,376,000 , inventory of $ 5,595,000 , net property, plant and equipment of $ 12,599,000 , prepayments of $ 69,000 , accounts payable of $ 4,000 , other current liabilities of $ 1,815,000 , contingent consideration accrual of $ 2,458,000 , non-current liabilities of $ 319,000 , non-current deferred tax liabilities of $ 3,306,000 , intangible assets of $ 22,945,000 (with an estimated life of 15 - 20 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. In February 2021, the former owner was paid $ 1,229,000 for the first installment of contingent consideration, based upon the achievement of sales targets. In January 2022, the former owner was paid $ 1,120,000 for the second installment of contingent consideration, also based upon the achievement of sales targets, less a deduction of $ 120,000 related to a prior period tax adjustment. The Irish companies continue to operate in Bray, Ireland, reporting within the Food Safety segment and are managed through Neogen’s Scotland operation. The Company’s U.S. business is managed by our Lansing-based Food Safety team. Fiscal 2022 On September 17, 2021, the Company acquired all of the stock of CAPInnoVet, Inc., a companion animal health business that provides pet medications to the veterinary market. This acquisition provides entry into the retail parasiticide market and enhances the Company’s presence in companion animal markets. Consideration for the purchase was net cash of $ 17.9 million paid at closing, including $ 150,000 of cash placed in escrow payable to the former owners in twelve months. There is also the potential for performance milestone payments to the former owners of up to $ 6.5 million and the Company could incur up to $ 14.5 million in future royalty payments. The preliminary purchase allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $ 308,000 , inventory of $ 531,000 , prepayments of $ 296,000 , accounts payable of $ 120,000 , other current liabilities of $ 84,000 , non-current liabilities of $ 6.5 million (contingent consideration accrual calculated using a Monte Carlo simulation utilizing inputs such as probability and timing of milestone achievements, revenue forecasts and volatility, and estimated discount rates relating to estimated future cash flows of the business), intangible assets of $ 19.2 million (with an estimated life of 15 - 20 years) and the remainder to goodwill (deductible for tax purposes). These values are Level 3 fair value measurements. The business is operated from our location in Lexington, KY, reporting within the Animal Safety segment. On November 30, 2021, the Company acquired all of the stock of Delf (U.K.) Ltd., a United Kingdom-based manufacturer and supplier of animal hygiene and industrial cleaning products, and Abbott Analytical Ltd., a related service provider. This acquisition will expand the Company’s line of dairy hygiene products and will enhance our cleaner and disinfectant product portfolio. Consideration for the purchase was net cash o f $ 9.5 million paid at closing, including $ 722,000 of cash placed in escrow payable to the former owner in one year. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $ 1,059,000 , inventory of $ 972,000 , net property, plant and equipment of $ 152,000 , prepayments of $ 31,000 , accounts payable of $ 497,000 , other current liabilities of $ 378,000 , non-current deferred tax liabilities of $ 780,000 , intangible assets of $ 3.1 million (with an estimated life of 10 - 15 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. The companies continue to operate in Liverpool, England, reporting within the Food Safety segment and are managed through Neogen’s Scotland operation. F-22 Table of Contents On December 9, 2021, the Company acquired all of the stock of Genetic Veterinary Sciences, Inc., a companion animal genetic testing business providing genetic information for dogs, cats and birds to animal owners, breeders and veterinarians. This acquisition will further expand the Company’s presence in the companion animal market. Consideration for the purchase was $ 11.4 million in net cash. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $ 38,000 , net inventory of $ 292,000 , net property, plant and equipment of $ 399,000 , prepayments of $ 54,000 , accounts payable of $ 325,000 , unearned revenue of $ 1.9 million, other current liabilities of $ 321,000 , intangible assets of $ 5.5 million (with an estimated life of 5 - 15 years) and the remainder to goodwill (deductible for tax purposes). These values are Level 3 fair value measurements. The business continues to operate in Spokane, Washington, reporting within the Animal Safety segment. Subsequent to the end of the fiscal year, on July 1, 2022, Neogen acquired all of the stock of Thai-Neo Biotech Co., Ltd., a longstanding distributor of Neogen’s food safety products to Thailand and Southeast Asia. This acquisition gives Neogen a direct sales presence in Thailand. Consideration for the purchase was $ 1,558,000 , with $ 1,324,000 paid at closing and $ 234,000 payable on October 1, 2023 . Due to the timing of the transaction, the details of the preliminary purchase price allocation are not available. The business continues to operate in Bangkok, Thailand, reporting within the Food Safety segment. For the acquisitions listed above, revenues in the aggregate were $ 38.0 million, $ 27.0 million a nd $ 6.1 million in fiscal years 2022, 2021 and 2020, respectively. Earnings in the aggregate were $ 5.4 million, $ 4.2 million and $ 520,000 in fiscal years 2022, 2021 and 2020, respectively. 3M Food Safety transaction On December 13, 2021, Neogen, 3M, and Garden Spinco, a newly formed subsidiary of 3M created to carve out 3M’s Food Safety business, entered into a number of agreements , including the merger agreement, pursuant to which, among other things, 3M’s Food Safety business will combine with Neogen in a Reverse Morris Trust transaction, intended to be tax-efficient to 3M and its shareholders for U.S. federal income tax purposes. Immediately following the transaction, Garden SpinCo stockholders will own, in the aggregate, approximately 50.1 % of the issued and outstanding shares of Neogen common stock and pre-Merger Neogen shareholders will own, in the aggregate, approximately 49.9 % of the issued and outstanding shares of Neogen common stock. The transaction implies an enterprise value for 3M’s Food Safety business of approximately $ 3.4 billion based on Neogen’s stock price 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. On June 30, 2022, Garden Spinco entered into a credit agreement consisting of a five-year senior secured term loan facility in the amount of $ 650.0 million and a five-year senior secured revolving facility in the amount of $ 150.0 million (collectively, the “Credit Facilities”), which, subject to customary closing conditions, will be available in connection with the merger and related transactions. The Credit Facilities, together with the Notes below, when incurred, represent the financing contemplated in connection with the Merger. In July 2022 Garden SpinCo closed on an offering of $ 350.0 million aggregate principal amount of 8.625 % senior notes due 2030 (the “Notes”) in a private placement at par. The Notes will initially be issued by Garden SpinCo to 3M and are expected to be transferred and delivered by 3M to the selling securityholder in the offering, in satisfaction of certain of 3M’s existing debt. SpinCo will not receive any proceeds from the sale of the Notes by the selling securityholder. Prior to the distribution of the shares of SpinCo’s common stock to 3M stockholders, the Notes will be guaranteed on a senior unsecured basis by 3M. Upon consummation of such distribution, 3M will be released from all obligations under its guarantee. Upon the effectiveness of the Merger, the Notes will be guaranteed on a senior unsecured basis by Neogen and certain wholly-owned domestic subsidiaries of Neogen. The transaction is expected to close by the end of the third calendar quarter in 2022, subject to approval by Neogen shareholders, receipt of required regulatory approvals and the satisfaction of other customary closing conditions. 4. Long-Term Debt The Company has a financing agreement with a bank providing for a $ 15,000,000 unsecured revolving line of credit, which was amended in the second quarter to extend the expiration to November 30, 2023 . There were no advances against the line of credit during fiscal years 2022 and 2021; there was no balance outstanding at May 31, 2022. Interest on any borrowings is LIBOR plus 100 basis points (rate under the terms of the agreement was 2.06 % F-23 Table of Contents at May 31, 2022). See Note 1, Recent Accounting Pronouncements Not Yet Adopted, for information on reference rate reform. Financial covenants include maintaining specified levels of tangible net worth, debt service coverage, and funded debt to EBITDA; the Company believes it was in compliance with these covenants at May 31, 2022. 5. Equity Compensation Plans Incentive and non-qualified options to purchase shares of common stock have been granted to directors, officers and employees of Neogen under the terms of the Company’s stock option plans. These options were granted at an exercise price of not less than the fair market value of the stock on the date of grant. Remaining shares available for grant under share-based compensation plans were 5,386,000 , 6,355,000 and 7,002,000 at May 31, 2022, 2021 and 2020, respectively. Options vest ratably over thre e and five-year periods and the contractual terms are generally fiv e or ten years . Weighted-Average Weighted-Average (options in thousands) Options Exercise Price Grant Date Fair Value Outstanding at May 31, 2019 ( 1,234 exercisable) 4,770 $ 24.69 $ 6.35 Granted 1,124 31.96 7.78 Exercised ( 1,438 ) 20.12 5.53 Forfeited ( 132 ) 28.72 7.10 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 30.38 7.36 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 The following is a summary of stock options outstanding at May 31, 2022: 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 $ 10.75 - $ 20.00 49 2.3 $ 15.43 49 $ 15.43 $ 20.01 - $ 28.99 344 3.8 26.80 83 23.08 $ 29.00 - $ 30.99 493 0.9 30.16 332 30.13 $ 31.00 - $ 31.99 1,509 2.0 31.70 581 31.64 $ 32.00 - $ 42.45 849 3.7 37.16 146 33.88 3,244 2.5 32.13 1,191 30.24 The weighted average exercise price of shares subject to options that were exercisable at May 31, 2021 and 2020 was $ 28.10 and $ 24.47 , respectively. F-24 Table of Contents Compensation expense related to share-based awards was $ 7,154,000 , $ 6,437,000 and $ 6,468,000 in fiscal years 2022 , 2021 and 2020 , respectively. Remaining compensation cost to be expensed in future periods for non-vested options was $ 10,927,000 at May 31 , 2022 , with a weighted average expense recognition period of 2.9 years. Year ended May 31 (in thousands) 2022 2021 2020 Aggregate intrinsic value of options outstanding $ 850 $ 46,667 $ 32,988 Aggregate intrinsic value of options exercisable $ 817 $ 11,617 $ 10,814 Aggregate intrinsic value of options exerised $ 5,507 $ 22,349 $ 19,597 The Company grants restricted stock units (RSUs) to directors, officers and employees under the terms of the 2018 Omnibus Incentive Plan, which vest ratably over three and five year periods. The RSUs are expensed straight-line over the remaining weighted-average period of 4.0 years. On May 31, 2022 , there was $ 6,866,000 in unamortized compensation cost related to non-vested RSUs. (RSU Grants in thousands) RSUs Weighted Average Grant Date Fair Value Outstanding at May 31, 2020 — $ — Granted 122 34.21 Released — — Forfeited ( 1 ) 34.21 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 The Company offers eligible employees the option to purchase common stock at a 5 % discount to the lower of the market value of the stock at the beginning or end of each participation period under the terms of the 2011 Employee Stock Purchase Plan; the discount is recorded in general and administrative expense. Total individual purchases in any year are limited to 10 % of compensation. Shares purchased by employees through this program were 43,456 in fiscal 2022, 38,406 in fiscal 2021 and 43,156 in fiscal 2020. As of May 31, 2022, common stock totaling 605,774 of the 1,425,000 authorized shares remained reserved for issuance under the plan. 6. Income Taxes Income before income taxes by source consists of the following amounts: Year ended May 31 (in thousands) 2022 2021 2020 U.S. $ 38,554 $ 55,753 $ 62,329 Foreign 21,653 19,515 9,976 $ 60,207 $ 75,268 $ 72,305 The provision for income taxes consists of the following: Year ended May 31 (in thousands) 2022 2021 2020 Current Domestic Federal $ 8,579 $ 6,981 $ 6,886 Change in tax-related uncertainties 3 ( 75 ) 269 State 2,406 2,147 1,262 Foreign 5,140 4,875 2,475 Total Current 16,128 13,928 10,892 Deferred Domestic Federal ( 3,721 ) 479 1,964 State ( 356 ) 44 195 Foreign ( 151 ) ( 65 ) ( 221 ) Total Deferred ( 4,228 ) 458 1,938 Provision for Income Taxes $ 11,900 $ 14,386 $ 12,830 F-25 Table of Contents 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 (in thousands) 2022 2021 2020 Tax at U.S. statutory rate $ 12,643 $ 15,806 $ 15,184 Permanent differences 67 292 360 Global intangible low-taxed income (GILTI) 1,501 2,064 438 Foreign derived intangible income deduction (FDII) ( 1,308 ) ( 1,210 ) ( 1,120 ) Foreign rate differential 215 669 ( 182 ) Subpart F income 397 628 634 Tax benefits on stock-based compensation ( 462 ) ( 2,651 ) ( 1,998 ) Provision for state income taxes, net of federal benefit 1,517 1,601 1,412 Tax Credits ( 2,527 ) ( 3,298 ) ( 1,417 ) Impact of tax rate changes 583 — — Other ( 726 ) 485 ( 481 ) Income Tax Expense $ 11,900 $ 14,386 $ 12,830 Foreign tax credits, primarily offsetting taxes associated with Subpart F and GILTI income, were $ 1,747,000 , $ 2,753,000 and $ 945,000 in fiscal years 2022, 2021 and 2020, respectively. The Company’s research and development credits were $ 780,000 , $ 545,000 and $ 472,000 in fiscal years 2022, 2021 and 2020, respectively. 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 ( i n thousands) 2022 2021 Deferred income tax liabilities Indefinite and long-lived assets $ ( 22,709 ) $ ( 25,072 ) Right of use asset ( 344 ) ( 213 ) Prepaid expenses ( 884 ) ( 721 ) ( 23,937 ) ( 26,006 ) Deferred income tax assets Stock options 2,085 1,106 Inventories and accounts receivable 2,044 2,081 Tax loss carryforwards 561 662 Lease liability 382 211 Accrued expenses and other 2,422 570 Valuation allowance ( 568 ) ( 541 ) 6,926 4,089 Net deferred income tax liabilities $ ( 17,011 ) $ ( 21,917 ) F-26 Table of Contents The Company has the following net operating loss carryforwards: ( i n thousands) As of May 31, 2022 Expiry U.S. $ 281 2037 Foreign 2,831 2024 to 2032 $ 3,112 Valuation allowances against certain deferred tax assets are established based on management’s determination of a more likely than not standard that the tax benefits will not be realized. We are subject to income taxes in the U.S. (federal and state) and in numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The Company’s policy is to recognize both accrued interest expense and penalties related to unrecognized tax benefits in income tax expense. The amount of interest and penalties included in the unrecognized tax benefits reserve was $ 69,321 at May 31, 2022 and $ 64,518 at May 31, 2021. Of the total unrecognized tax benefits at May 31, 2022 and May 31, 2021, $ 808,186 and $ 805,316 respectively, comprise unrecognized tax positions that would, if recognized, affect our effective tax rate. The reconciliation of our unrecognized tax benefits is as follows: Year ended May 31 (in thousands) 2022 2021 2020 Beginning balance $ 764 $ 762 $ 541 Increase/(decrease) related to prior periods ( 75 ) ( 182 ) 48 Increase related to current period 147 184 173 Lapses of applicable statute of limitations ( 95 ) — — Ending balance $ 741 $ 764 $ 762 The Company is no longer subject to examination by the Internal Revenue Service for fiscal year 201 8 and preceding years. F-27 Table of Contents 7. Commitments and Contingencies The Company is involved in environmental remediation and monitoring activities at its Randolph, Wisconsin manufacturing facility and accrues for related costs when such costs are determined to be probable and estimable. The Company currently utilizes a pump and treat remediation strategy, which includes semi-annual monitoring and reporting, consulting, and maintenance of monitoring wells. We expense these annual costs of remediation, which have ranged from $ 63,000 to $ 131,000 per year from fiscal 2018 to fiscal 2021. The Company’s estimated remaining liability for these costs was $ 916,000 at both May 31, 2022 and 2021, measured on an undiscounted basis over an estimated period of 15 years. In fiscal 2019, the Company performed an updated Corrective Measures Study on the site, per a request from the Wisconsin Department of Natural Resources (WDNR), and is currently in discussion with the WDNR regarding potential alternative remediation strategies going forward. The Company believes that the current pump and treat strategy is appropriate for the site. However, the Company has agreed to a pilot study in which chemical reagents are injected into the ground in an attempt to reduce on-site contamination; costs incurred in fiscal 2022 totaled $ 305,000 , which included the cost of this study . At this time, the outcome of the pilot study is unknown, but a change in the current remediation strategy, depending on the alternative selected, could result in an increase in future costs and ultimately, an increase in the currently recorded liability, with an offsetting charge to operations in the period recorded. The Company has recorded $ 100,000 as a current liability, and the remaining $ 816,000 is recorded in other non-current liabilities in the consolidated balance sheet as of May 31 , 2022. On March 6, 2020, the Company received an administrative subpoena from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) regarding activities or transactions involving parties located in Iran. The Company subsequently conducted an internal investigation under the direction of outside legal counsel and disclosed information concerning certain genomic testing services provided to an unrelated U.S.-based party engaged in veterinary activities involving an Iranian party. The Company continues to cooperate with OFAC’s investigation and is currently examining whether certain of these activities may be eligible for OFAC General Licenses authorizing agricultural and veterinary activities. In addition to responding to the administrative subpoena, the Company has implemented additional compliance measures to prevent inadvertent dealings with restricted countries or parties. These measures further enhance the Company’s international trade compliance program, which is designed to assure that the Company does not conduct business directly or indirectly with any countries or parties subject to economic sanctions and export control laws of the U.S. and other applicable jurisdictions. Although it is too early to predict what action, if any, that OFAC will take, the Company does not currently have any reason to believe that OFAC’s pending investigation will have a material impact on its operations, the results of operations for any future period, or its overall financial condition. In fiscal 2020, the Company took a charge to expense and recorded a reserve of $ 600,000 to provide for potential fines or penalties on this matter. At this time, the Company believes that it is adequately reserved for this issue. The Company has agreements with unrelated third parties that provide for the payment of royalties on the sale of certain products. Royalty expense, recorded in sales and marketing, under the terms of these agreements was $ 1,999,000 , $ 2,129,000 and $ 2,524,000 for fiscal years 2022, 2021 and 2020, respectively. Some of these agreements provide for guaranteed minimum royalty payments to be paid each fiscal year by the Company for certain technologies. Future minimum royalty payments are as follows: 2023—$ 100,000 , 2024—$ 100,000 , 2025—$ 100,000 , 2026—$ 75,000 and 2027—$ 75,000 . The Company has unconditional purchase obligations consisting primarily of purchase orders for future inventory and capital equipment purchases, totaling $ 85.8 million, of which $ 83.1 million is scheduled to be spent within the next 12 months, and $ 2.7 million is scheduled to be spent between one to three years in the future. In conjunction with the 3M Food Safety transaction announced on December 13, 2021, Neogen has entered into a credit agreement with JPMorgan Chase for $ 650 million in term loans, and has incurred $ 9.8 million in debt issuance costs, which will be paid at close, and amortized over the five-year term of the loans. The loans are expected to be funded in the third calendar quarter of 2022. Interest on the loans will be at the Secured Overnight Financing Rate (SOFR) plus 225 basis points . The Company is subject to certain legal and other proceedings in the normal course of business that, in the opinion of management, are not expected to have a material effect on its future results of operations or financial position. 8. Defined Contribution Benefit Plan The Company maintains a defined contribution 401(k) benefit plan covering substantially all domestic employees. Employees are permitted to defer compensation up to IRS limits, with Neogen matching 100 % of the first 3% of deferred compensation and 50 % of the next 2% of deferred compensation. In the first quarter of fiscal 2021, the Company suspended the 401(k) match, while we assessed the potential financial impact of COVID-19 on the Company. The match was restored in September 2020. Neogen’s expense under this plan was $ 1,834,000 , $ 1,204,000 , and $ 1,535,000 in fiscal years 2022, 2021 and 2020, respectively. 9. Derivatives We operate on a global basis and are exposed to the risk that our financial condition, results of operations and cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential effects of foreign currency exchange rate movements on net earnings, we enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions. F-28 Table of Contents Derivatives Not Designated as Hedging Instruments We forecast our net exposure in various receivables and payables to fluctuations in the value of various currencies, and we enter into approximately 11 foreign currency forward contracts each month to mitigate that exposure. These contracts are recorded net at fair value on our consolidated balance sheets , classified as Level 2 in the fair value hierarchy; gains and losses from these contracts were recognized in other income in our consolidated statements of income. The notional amount of foreign currency forward contracts was $ 4,424,000 and $ 19,984,000 as of May 31, 2022 and 2021, respectively. ( i n thousands) Fair Value of Derivatives Not Designated as Hedging Instruments Balance Sheet Location May 31, 2022 May 31, 2021 Foreign currency forward contracts, net Prepaid and Other $ ( 78 ) $ 515 The location and amount of gains from derivatives not designated as hedging instruments in our consolidated statements of income were as follows: ( i n thousands) Year ended May 31, Derivatives Not Designated as Hedging Instruments Location in statements of income 2022 2021 2020 Foreign currency forward contracts Other income (expense) $ 1,218 $ 2,651 $ 1,111 10. Related Party Transactions The Company has partnered with Corvium to develop a software-as-a-service offering for use in conjunction with several food safety product lines. Ralph Rodriguez is a member of Neogen’s Board of Directors and also serves on the Board of Directors at Corvium. Neogen made payments to Corvium of $ 1,573,000 , $ 788,000 and $ 1,833,000 in fiscal years 2022, 2021 and 2020, respectively. 11. Segment Information The Company has two reportable segments: Food Safety and Animal Safety. The Food Safety segment is primarily engaged in the development, production and marketing of diagnostic test kits and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation. The Animal Safety segment is primarily engaged in the development, production and marketing of products dedicated to animal safety, including a complete line of consumable products marketed to veterinarians and animal health product distributors; this segment also provides genomic identification and related interpretive bioinformatic services. Additionally, the Animal Safety segment produces and markets rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities. Neogen’s international operations in the United Kingdom, Mexico, Guatemala, Brazil, Argentina, Uruguay, Chile, China and India originally focused on the sales and marketing of our food safety products, and each of these units reports through the Food Safety segment. In recent years, these operations have expanded to offer the Company’s complete line of products and services, including those usually associated with the Animal Safety segment such as cleaners, disinfectants, rodenticides, insecticides, veterinary instruments and genomics services. These additional products and services are managed and directed by existing management and are reported through the Food Safety segment. Neogen’s operation in Australia originally focused on providing genomics services and sales of animal safety products and reports through the Animal Safety segment. With the acquisition of Cell BioSciences in February 2020, this operation has expanded to offer our complete line of products and services, including those usually associated with the Food Safety segment. These additional products are managed and directed by existing management at Neogen Australasia and report through the Animal Safety segment. The accounting policies of each of the segments are the same as those described in Note 1. F-2 9 Table of Contents Segment information is as follows: (in thousands) Food Safety Animal Safety Corporate and Eliminations (1) Total Fiscal 2022 Product revenues to external customers $ 231,626 $ 193,038 $ — $ 424,664 Service revenues 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 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 to external customers $ 209,104 $ 167,198 $ — $ 376,302 Service revenues 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 Total assets 295,065 244,039 381,088 920,192 Expenditures for long-lived assets 13,730 12,982 — 26,712 Fiscal 2020 Product revenues to external customers $ 189,893 $ 145,646 $ — $ 335,539 Service revenues to external customers 22,798 59,833 — 82,631 Total revenues to external customers 212,691 205,479 — 418,170 Operating income (loss) 33,526 39,051 ( 5,054 ) 67,523 Depreciation and amortization 10,173 8,223 — 18,396 Total assets 222,331 231,178 343,673 797,182 Expenditures for long-lived assets 15,867 8,185 — 24,052 (1) Includes corporate assets, including cash and cash equivalents, marketable securities, current and deferred tax accounts, and overhead expenses not allocated to specific business segments. Also includes the elimination of intersegment transactions and non-controlling interests. The following table presents the Company’s revenue disaggregated by geographical location: Year ended May 31 (in thousands) 2022 2021 Domestic $ 317,820 $ 285,262 International 209,339 183,197 Total revenue $ 527,159 $ 468,459 F- 30 Table of Contents 1 2 . Stock Repurchases In October 2018, the Company’s Board of Directors authorized a program to purchase, subject to market conditions, up to 6,000,000 shares of the Company’s common stock. In December 2018, the Company purchased 100,000 shares under the new program in open market transactions for a total price, including commissions, of $ 3,134,727 . Shares acquired under the program were retired. A total of 5,900,000 shares of common stock remained available for repurchase under this program as of May 31, 2022. F-3 1