Company: NEOG
Filing Date: 2025-01-15
Form Type: 10-Q
Source: 0000950170-25-005818
Chunk: 34

Company: NEOGEN CORP
Filing Date: 2025-01-15
Form: 10-Q
Item: Item 2
Chunk 34
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 the military conflicts in the Middle East have increased overall geopolitical tensions. As the respective conflicts continue or worsen, they may further impact our business, financial condition or results of operations throughout fiscal year 2025.  

Within the Food Safety industry, the end market continues to have a resulting lower level of food production, partly due to significant inflation in food prices. However, there has been gradual end market improvement that has coincided with an increasing focus on food safety from both consumers and regulators. Within Animal Safety, the industry is at or near cyclical lows in the end market and. As a result, we are optimistic about future growth of revenue in the segment, particularly if the distribution channel begins to meaningfully restock inventory. 

The restructuring actions undertaken in our Genomics business have resulted in the voluntary attrition of additional revenue, following the shift in focus already made away from smaller production animals. A portion of our Genomics business also serves the companion animal market, which has been experiencing weakness recently, primarily due to the impact of continued inflation and a lower number of pet adoptions.          

We continue to evaluate the nature and extent to which these issues impact our business, including consolidated results of operations, financial condition and liquidity. We expect these issues to continue to impact us throughout fiscal year 2025.

Critical Accounting Estimates

During the second quarter of fiscal year 2025, we incurred a goodwill impairment charge of $461.4 million associated with our Food Safety reporting unit. Subsequent to the goodwill impairment charge, the fair value of this reporting unit approximated its carrying value. The fair value of the reporting unit is estimated based on a combination of an income approach, which utilizes discounted cash flows and a market approach, which utilizes pricing multiples derived from an analysis of comparable public companies multiplied against historical and/or anticipated financial metrics of the reporting unit. The rate used to discount the cash flows under the income approach was 10.0%. These calculations contain uncertainties as they require management to make assumptions including, but not limited to, market comparables, future cash flows of the reporting unit, and appropriate discount and long-term growth rates.  

A decline in the actual cash flows of the Food Safety reporting unit in future periods, as compared to the projected cash flows used in the valuation, could result in the carrying value of this reporting unit exceeding its fair value. Further, a change in market comparables, discount rate or long-term growth rate, as a result of a change in economic 

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conditions or otherwise could result in the carrying value of