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Commitments and Contingencies | 12 Months Ended
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May 31, 2022
Commitments and Contingencies | 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.

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