0001437749-18-001995.txt : 20180208 0001437749-18-001995.hdr.sgml : 20180208 20180208080117 ACCESSION NUMBER: 0001437749-18-001995 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 67 CONFORMED PERIOD OF REPORT: 20171231 FILED AS OF DATE: 20180208 DATE AS OF CHANGE: 20180208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIO-TECHNE Corp CENTRAL INDEX KEY: 0000842023 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 411427402 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17272 FILM NUMBER: 18582848 BUSINESS ADDRESS: STREET 1: 614 MCKINLEY PL N E CITY: MINNEAPOLIS STATE: MN ZIP: 55413 BUSINESS PHONE: 6123798854 MAIL ADDRESS: STREET 1: 614 MCKINLEY PLACE NE CITY: MINNEAPOLIS STATE: MN ZIP: 55413 FORMER COMPANY: FORMER CONFORMED NAME: TECHNE CORP /MN/ DATE OF NAME CHANGE: 19920703 10-Q 1 tech20171231_10q.htm FORM 10-Q tech20171231_10q.htm
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2017, or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                    

 

Commission file number 0-17272 

 


BIO-TECHNE CORPORATION

(Exact name of registrant as specified in its charter)

 


 

Minnesota

41-1427402

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

614 McKinley Place N.E.

Minneapolis, MN 55413

(612) 379-8854

(Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

       
   

Emerging growth company

 

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b- 2).      Yes      No

 

At February 2, 2018, 37,474,011 shares of the Company's Common Stock (par value $0.01) were outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

1

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

22

 

 

 

Item 4.

Controls and Procedures

 

23

 

 

 

PART II: OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

 

24

 

 

 

Item 1A.

Risk Factors

 

24

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

 

 

 

 

Item 5.

Other Information

 

24

 

 

 

Item 6.

Exhibits

 

24

 

 

 

 

SIGNATURES

 

25

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

Bio-Techne Corporation and Subsidiaries

(in thousands, except per share data)

(unaudited)

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2017

   

2016

   

2017

   

2016

 

Net sales

  $ 154,153     $ 131,807     $ 298,766     $ 262,388  

Cost of sales

    52,319       43,664       99,064       86,901  

Gross margin

    101,834       88,143       199,702       175,487  

Operating expenses:

                               

Selling, general and administrative

    63,775       56,981       122,064       102,405  

Research and development

    13,911       13,281       27,459       26,046  

Total operating expenses

    77,686       70,262       149,523       128,451  

Operating income

    24,148       17,881       50,179       47,036  

Other income (expense)

    (2,417

)

    (2,693

)

    (5,480

)

    (4,064

)

Earnings before income taxes

    21,731       15,188       44,699       42,972  

Income tax expense (benefit)

    (27,116

)

    7,721       (20,011

)

    16,663  

Net earnings

  $ 48,847     $ 7,467     $ 64,710     $ 26,309  

Other comprehensive income:

                               

Foreign currency translation adjustments

    1,524       (10,066

)

    8,492       (13,301

)

Unrealized gain (loss) on available-for-sale investments, net of tax of $799, $(1,889), $5,375, and $(2,060), respectively

    (8,582

)

    6,778       (16,374

)

    16,486  

Other comprehensive (loss) income

    (7,058

)

    (3,288

)

    (7,882

)

    3,185  

Comprehensive income (loss)

  $ 41,789     $ 4,179     $ 56,828     $ 29,494  

Earnings per share:

                               

Basic

  $ 1.30     $ 0.20     $ 1.73     $ 0.70  

Diluted

  $ 1.29     $ 0.20     $ 1.71     $ 0.70  

Cash dividends per common share:

  $ 0.32     $ 0.32     $ 0.64     $ 0.64  

Weighted average common shares outstanding:

                               

Basic

    37,449       37,308       37,412       37,294  

Diluted

    37,926       37,478       37,816       37,475  

 

See Notes to Condensed Consolidated Financial Statements.

 

1

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

Bio-Techne Corporation and Subsidiaries

(in thousands, except share and per share data)

 

   

December 31,
2017

(unaudited)

   

June 30,
2017

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 121,458     $ 91,612  

Short-term available-for-sale investments

    40,927       66,102  

Accounts receivable, less allowance for doubtful accounts of $905 and $696, respectively

    98,498       116,830  

Inventories

    68,280       60,151  

Prepaid expenses and other

    16,923       13,330  

Total current assets

    346,086       348,025  

Property and equipment, net

    138,461       135,124  

Goodwill

    589,101       579,026  

Intangible assets, net

    438,360       452,042  

Other assets

    43,414       44,002  

Total assets

  $ 1,555,422     $ 1,558,219  

LIABILITIES AND SHAREHOLDERS' EQUITY

               

Current liabilities:

               

Trade accounts payable

  $ 11,318     $ 16,856  

Salaries, wages and related accruals

    26,537       26,602  

Accrued expenses

    14,508       18,518  

Deferred revenue

    6,016       5,968  

Income taxes payable

    -       2,478  

Contingent consideration payable

    53,300       65,100  

Total current liabilities

    111,679       135,522  

Deferred income taxes

    74,103       120,596  

Long-term debt obligations

    362,500       343,771  

Long-term contingent consideration payable

    -       3,300  

Other long-term liabilities

    9,321       5,403  

Shareholders' equity:

               

Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 37,469,896 and 37,356,041, respectively

    375       374  

Additional paid-in capital

    214,697       199,161  

Retained earnings

    839,564       799,027  

Accumulated other comprehensive loss

    (56,817

)

    (48,935

)

Total shareholders' equity

    997,819       949,627  

Total liabilities and shareholders’ equity

  $ 1,555,422     $ 1,558,219  

 

See Notes to Condensed Consolidated Financial Statements.

 

2

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Bio-Techne Corporation and Subsidiaries

(in thousands)

(unaudited)

 

   

Six Months Ended

 
   

December 31,

 
   

2017

   

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net earnings

  $ 64,710     $ 26,309  

Adjustments to reconcile net earnings to net cash provided by operating activities:

               

Depreciation and amortization

    31,038       29,250  

Costs recognized on sale of acquired inventory

    582       2,133  

Deferred income taxes

    (43,537

)

    (4,384

)

Stock-based compensation expense

    8,839       7,245  

Fair value adjustment to contingent consideration payable

    19,900       12,400  

Other operating activity

    1,556       (1,286

)

Change in operating assets and operating liabilities, net of acquisition:

               

Trade accounts and other receivables

    18,636       (6,406

)

Inventories

    (7,513

)

    (2,497

)

Prepaid expenses

    1,321       235  

Trade accounts payable and accrued expenses

    (4,736

)

    5,248  

Salaries, wages and related accruals

    454       (256

)

Income taxes payable

    (7,372

)

    (138

)

Net cash provided by operating activities

    83,878       67,853  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Acquisitions, net of cash acquired

    (10,644

)

    (255,929

)

Proceeds from maturities of available-for-sale investments

    6,563       1,592  

Purchases of available-for-sale investments

    (3,061

)

    (1,625

)

Purchases of property and equipment

    (11,608

)

    (5,295

)

Purchase of equity investment

    -       (40,000

)

Net cash used in investing activities

    (18,750

)

    (301,257

)

                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Cash dividends

    (23,946

)

    (23,871

)

Proceeds from stock option exercises

    6,699       2,105  

Excess tax benefit from stock option exercises

    -       305  

Borrowings under line-of-credit agreement

    25,000       368,410  

Payments on line-of-credit

    (6,000

)

    (116,500

)

Payments of Contingent consideration

    (35,000

)

    -  

Other financing

    (2,157

)

    (171

)

Net cash (used in) provided by financing activities

    (35,404

)

    230,278  
                 

Effect of exchange rate changes on cash and cash equivalents

    122       (2,175

)

Net increase (decrease) in cash and cash equivalents

    29,846       (5,301

)

Cash and cash equivalents at beginning of period

    91,612       64,237  

Cash and cash equivalents at end of period

  $ 121,458     $ 58,936  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 3,630     $ 3,405  
Cash paid for income taxes   $ 27,873     $ 21,828  

 

See Notes to Condensed Consolidated Financial Statements.

 

3

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Bio-Techne Corporation and Subsidiaries

(unaudited)

 

 

Note 1. Basis of Presentation and Summary of Significant Accounting Policies:

 

The interim consolidated financial statements of Bio-Techne Corporation and subsidiaries, (the Company) presented here have been prepared by the Company and are unaudited. They have been prepared in accordance with accounting principles generally accepted in the United States of America and with instructions to Form 10-Q and Article 10 of Regulation S-X. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2017, included in the Company's Annual Report on Form 10-K for fiscal year 2017. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K for fiscal 2017. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.

 

As disclosed in the June 30, 2017 Form 10-K, during the fourth quarter of fiscal year 2017, management identified certain errors related to purchase accounting items for the Advanced Cell Diagnostics (ACD) acquisition recorded during the first quarter of fiscal year 2017. We concluded that these errors were not material to each of the respective periods. However, we elected to report the corrected amount for the fourth quarter of fiscal year 2017 and revise the previously reported fiscal 2017 quarterly information in future filings to reflect the properly stated amounts. In accordance with ASC 250, we have corrected the prior year financial statements herein.   

 

The impact of this revision on our unaudited consolidated statement of earnings and comprehensive income was as follows:

 

   

Quarter Ended December 31, 2016

 
   

As Previously

                 
   

Reported

   

Adjustment

   

As Revised

 

Cost of sales

  $ 46,725     $ (3,061

)

  $ 43,664  

Selling, general and administrative

    55,655       1,326       56,981  

Other (expense) income

    (2,607

)

    (86

)

    (2,693

)

Earnings before income taxes

    13,539       1,649       15,188  

Income taxes

    7,226       495       7,721  

Net earnings

    6,313       1,154       7,467  

Comprehensive income

    3,025       1,154       4,179  

 

   

Six Months Ended December 31, 2016

 
   

As Previously

                 
   

Reported

   

Adjustment

   

As Revised

 

Cost of sales

  $ 92,837     $ (5,936

)

  $ 86,901  

Selling, general and administrative

    101,918       487       102,405  

Other (expense) income

    (3,921

)

    (143

)

    (4,064

)

Earnings before income taxes

    37,666       5,306       42,972  

Income taxes

    15,071       1,592       16,663  

Net earnings

    22,595       3,714       26,309  

Comprehensive income

    25,780       3,714       29,494  

 

4

 

 

The revisions had no impact to net cash provided by operating, investing, or financing activities. The impact of this revision to the individual line items within our unaudited consolidated statement of cash flows for the six months ended December 31, 2016 was as follows:

 

   

Six Months Ended December 31, 2016

 
   

As Previously

                 
   

Reported

   

Adjustment

   

As Revised

 

Costs recognized on the sale of acquired inventory

  $ 8,069     $ (5,936

)

  $ 2,133  

Other operating (1)

    123       (1,580

)

    (1,286

)

Changes in salaries, wages and related accruals

    (2,466

)

    2,210       (256

)

Changes in income tax payable

    (1,730

)

    1,592       (138

)

 

(1)

Does not cross-foot due to the retrospective adoption of the cash flow presentation of employee taxes paid for shares withheld as part of ASU 2016-09

 

Recently Adopted Accounting Pronouncements

 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This standard includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. We adopted this standard on July 1, 2017. The Company expects its reported provision for income taxes to become more volatile, dependent upon market prices and volume of share-based compensation exercises and vesting of options.

 

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. This provision would require inventory that was previously recorded using first-in, first-out (“FIFO”) to be recorded at lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this standard on July 1, 2017. The application of this standard did not have significant impact on our financial statements.

 

Pronouncements Issued But Not Yet Adopted

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard provides revenue recognition guidance for any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets, unless those contracts are within the scope of other accounting standards. The standard also expands the required financial statement disclosures regarding revenue recognition. The new guidance is effective for us on July 1, 2018. In addition, in March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), in April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing, and in May 2016, the FASB issued ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients. These standards are intended to clarify aspects of ASU No. 2014-09 and are effective for us upon adoption of ASU No. 2014-09.

 

The Company’s approach to implementing the new standard includes performing a detailed review of key contracts representative of its different businesses, and comparing historical accounting policies and practices to the new standard. The guidance permits two methods of adoption, retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). We will adopt the standards using cumulative catch-up transition method.

 

The Company is continuing to assess the impact on our consolidated financial statements by finalizing our location surveys, reviewing unique customer contract terms, and developing processes to manage the changes in the revenue recognition guidance and gather information for the required disclosures. The company expects this process will be complete during the fourth quarter of fiscal year 2018. A majority of the Company’s revenue arrangements are routine sales transactions, which generally consist of a single performance obligation to transfer promised goods or service. Therefore, based on our procedures performed to date it is not expected that application of the new guidance will have a material impact to the Company’s consolidated financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The standard is intended to improve the recognition, measurement, presentation and disclosure of financial instruments. This ASU is effective using the modified retrospective approach for annual periods and interim periods within those annual periods beginning after December 15, 2017, which for us is July 1, 2018. Early adoption is permitted. We do not expect the application of this standard to have a significant impact on our results of operations or financial position.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the existing guidance to require lessees to recognize lease assets and lease liabilities from operating leases on the balance sheet. This ASU is effective using the modified retrospective approach for annual periods and interim periods within those annual periods beginning after December 15, 2018, which for us is July 1, 2019. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

 

5

 

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2019, which for us is July 1, 2020. Entities may early adopt beginning after December 15, 2018. We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business. The standard revises the definition of a business, which affects many areas of accounting such as business combinations and disposals and goodwill impairment. The revised definition of a business will likely result in more acquisitions being accounted for as asset acquisitions, as opposed to business combinations. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2017, which for us is July 1, 2018. The amendments in this guidance are required to be applied prospectively to transactions occurring on or after the effective date.

 

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting. The standard provides guidance about which changes to the terms or conditions of a share-based payment award require modification accounting, which may result in a different fair value for the award. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2017, which for us is July 1, 2018. The guidance is required to be applied prospectively to awards modified on or after the effective date. Historically, modifications to our share-based payment awards have been rare. As such, we do not expect the application of this standard to have a significant impact on our results of operations or financial position.

 

 

Note 2. Selected Balance Sheet Data:

 

Available-For-Sale Investments:

 

The fair value of the Company's available-for-sale investments at December 31, 2017 and June 30, 2017 were $40.9 million and $66.1 million, respectively. The fair value of the Company’s investment in ChemoCentryx, Inc (CCXI) decreased $21.7 million from $59.6 at June 30, 2017 to $37.9 million at December 31, 2017. The remaining decrease was caused by the maturities of $2.1 million in corporate bond securities held by Advanced Cell Diagnostics (ACD) and $1.4 million in certificate of deposits held in China. The cost basis of the Company's investment in CCXI at December 31, 2017 and June 30, 2017 was $29.5 million.

 

Inventories:

 

Inventories consist of (in thousands): 

   

December 31,

   

June 30,

 
   

2017

   

2017

 

Raw materials

  $ 25,401     $ 22,074  

Finished goods

    42,879       38,077  

Inventories, net

  $ 68,280     $ 60,151  

 

Property and Equipment:

 

Property and equipment consist of (in thousands):

   

December 31,

   

June 30,

 
   

2017

   

2017

 

Land

  $ 6,270     $ 6,270  

Buildings and improvements

    167,486       158,495  

Machinery and equipment

    101,903       98,596  

Property and equipment, cost

    275,659       263,361  

Accumulated depreciation and amortization

    (137,198

)

    (128,237

)

Property and equipment, net

  $ 138,461     $ 135,124  

 

6

 

 

Intangible Assets:

 

Intangible assets consist of (in thousands):

   

December 31,

   

June 30,

 
   

2017

   

2017

 

Developed technology

  $ 283,226     $ 276,959  

Trade names

    87,859       87,092  

Customer relationships

    207,230       204,243  

Non-compete agreements

    3,277       3,264  

Patents

    1,032       633  

Intangible assets

    582,624       572,191  

Accumulated amortization

    (144,264

)

    (120,149

)

Intangible assets, net

  $ 438,360     $ 452,042  

 

Changes to the carrying amount of net intangible assets for the six months ended December 31, 2017 consist of (in thousands):

 

Beginning balance

  $ 452,042  

Acquisitions

    5,520  

Other additions

    586  

Amortization expense

    (22,675

)

Currency translation

    2,887  

Ending balance

  $ 438,360  

 

The estimated future amortization expense for intangible assets as of December 31, 2017 is as follows (in thousands):

 

2018

  $ 22,887  

2019

    45,089  

2020

    44,385  

2021

    44,015  

2022

    42,263  

Thereafter

    239,721  

Total

  $ 438,360  

 

 

Goodwill:

 

Changes to the carrying amount of goodwill for the six months ended December 31, 2017 consist of (in thousands):

 

   

Biotechnology

   

Protein Platforms

   

Diagnostics

   

Total

 

Beginning balance

  $ 254,930     $ 220,826     $ 103,270     $ 579,026  

Acquisitions (Note 3)

    5,991       -       -       5,991  

Currency translation

    1,692       2,392       -       4,084  

Ending balance

  $ 262,613     $ 223,218     $ 103,270     $ 589,101  

 

We evaluate the carrying value of goodwill in the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. The Company performed a quantitative assessment for all three of its reporting units during the fourth quarter of fiscal year 2017. The quantitative assessment indicated that all of the reporting units had substantial headroom as of June 30, 2017.

 

7

 

 

No triggering events were identified during the quarter ended December 31, 2017. There has been no impairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”) ASC 350 guidance for goodwill and other intangibles on July 1, 2002.

 

Other Assets:

 

Other Assets consist of (in thousands):

   

December 31,

   

June 30,

 
   

2017

   

2017

 

Investments

  $ 40,385     $ 40,385  

Other

    3,029       3,617  

Other assets

  $ 43,414     $ 44,002  

 

As of December 31, 2017, the Company had $43.4 million of other assets compared to $44.0 million as of June 30, 2017. Investments include a $40.0 million investment in Astute Medical, Inc. made during the second quarter of fiscal year 2017. This investment is accounted for under the cost-method as we own less than 20% of the outstanding stock and we concluded that we do not have significant influence. Under the cost-method, the fair value is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. No such events or changes in circumstances were identified in the period ended December 31, 2017.

 

 

Note 3. Acquisitions:

 

We periodically complete business combinations that align with our business strategy. Acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date and that the results of operations of each acquired business be included in our consolidated statements of comprehensive income from their respective dates of acquisition. Acquisition costs are recorded in selling, general and administrative expenses as incurred.

 

Trevigen Inc.

On September 5, 2017 the Company acquired the stock of Trevigen Inc. for approximately $10.6 million, net of cash received. The Company has had a long-standing business relationship with Trevigen as a distributor of its product line. The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’s product portfolio and the expected revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes. The business became part of the Biotechnology reportable segment in the first quarter of fiscal 2018.

 

Certain estimated fair values are not yet finalized and are subject to change, which could be significant. The Company expects to finalize these during fiscal year 2018 when our valuation models for acquired intangible assets are completed, including the determination of related estimated useful lives. Amounts for acquired inventory, intangible assets, and related deferred tax liabilities, and goodwill remain subject to change. The preliminary estimated fair values of the assets acquired and liabilities assumed are as follows (in thousands):

 

   

Preliminary

Allocation at

Acquisition Date

   

 

 

Adjustments to

Fair Value

   

Updated Opening

Balance Sheet

Allocation at

December 31, 2017

 

Current assets, net of cash

  $ 1,662             $ 1,662  

Equipment and other long-term assets

    154       (101

)

    53  

Intangible assets:

                       

Developed technology

    3,800       1,300       5,100  

Trade name

    1,400       (1,240

)

    160  

Customer relationships

    1,900       (1,640

)

    260  

Goodwill

    4,595       1,396       5,991  

Total assets acquired

    13,511       (285

)

    13,226  

Liabilities

    92       295       387  

Deferred income taxes, net

    2,785       (590

)

    2,195  

Net assets acquired

  $ 10,634       10     $ 10,644  
                         

Cash paid, net of cash acquired

  $ 10,634       10     $ 10,644  

 

8

 

 

As summarized in the table, there have been adjustments totaling $1.4 million to goodwill during the measurement period. These adjustments primarily relate to refinements made to acquired intangible asset cash flow models, and updates to opening balance sheet deferred tax assets and liabilities upon completion of the December 31, 2017 income tax return.

 

Tangible assets acquired, net of liabilities assumed, were recorded at fair value on the date of close based on management's assessment. The purchase price allocated to developed technology, trade names, and customer relationships was based on management's forecasted cash inflows and outflows and using a relief-from-royalty and a multi-period excess earnings method to calculate the fair value of assets purchased. The developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. Amortization expense related to trade names, and customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The preliminary amortization periods for intangible assets acquired in fiscal 2018 are estimated to be 13 years for developed technology, 11 years for customer relationships, and 1.5 years for trade names. The deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized upon the sale of acquired inventory that was written up to fair value and intangible asset amortization, both of which are not deductible for income tax purposes.

 

 

Note 4. Fair Value Measurements:

 

The Company’s financial instruments include cash and cash equivalents, available for sale investments, accounts receivable, accounts payable, contingent consideration obligations, and long-term debt.

 

Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.

 

The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation.

 

The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

   

Total carrying

value as of

   

Fair Value Measurements Using

Inputs Considered as

 
   

December 31, 2017

   

Level 1

   

Level 2

   

Level 3

 

Assets

                               

Equity securities (1)

  $ 37,867     $ 37,867     $ -     $ -  
                                 

Liabilities

                               

Contingent Consideration

  $ 53,300     $ -     $ -     $ 53,300  

 

9

 

 

   

Total carrying

value as of

   

Fair Value Measurements Using

Inputs Considered as

 
   

June 30, 2017

   

Level 1

   

Level 2

   

Level 3

 

Assets

                               

Equity securities (1)

  $ 59,616     $ 59,616     $ -     $ -  

Corporate bond securities (1)

    2,057       -       2,057       -  

Total Assets

  $ 61,673     $ 59,616     $ 2,057     $ -  
                                 

Liabilities

                               

Contingent Consideration

  $ 68,400     $ -     $ -     $ 68,400  

 

 

(1)

Included in available-for-sale investments on the balance sheet

 

Our available for sale securities are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. We value our Level 2 assets using inputs that are based on market indices of similar assets within an active market. All of our Level 2 assets have maturity dates of less than one year.

 

The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio. We may also incur changes to our contingent consideration liability as discussed below.

 

In connection with the Advanced Cell Diagnostics (ACD) acquisition (fiscal 2017), as well as the Zephyrus and CyVek acquisitions (fiscal 2016), we are required to make contingent payments, subject to the entities achieving certain sales and revenue thresholds. The contingent consideration payments were up to $75.0 million, $7.0 million and $35.0 million related to the ACD, Zephyrus and CyVek acquisitions, respectively. The fair value of the liabilities for the contingent payments recognized upon each acquisition as part of the purchase accounting opening balance sheet totaled $78.5 million ($37.0 million for ACD, $6.5 million for Zephyrus and $35.0 million for CyVek) and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in these calculation units sold, expected revenue, discount rate and various probability factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in general and administrative expense.

 

As of June 30, 2017 the remaining contingent consideration payments were up to $50.0 million, $3.5 million and $35.0 million related to the ACD, Zephyrus and CyVek acquisitions, respectively. During the first quarter of fiscal 2018, a cash payment of $35.0 million was made towards to the contingent consideration liability relating to the CyVek acquisition. During the second quarter of fiscal 2018, the Company determined that certain sales and revenue thresholds were met for ACD. The Company expects to make a $50.0 million cash payment towards this liability in the third quarter of fiscal 2018.

 

The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended December 31, 2017 (in thousands):

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31, 2017

   

December 31, 2017

 

Fair value at the beginning of period

  $ 40,900     $ 68,400  

Payments

    -       (35,000

)

Change in fair value of contingent consideration

    12,400       19,900  

Fair value at the end of period

  $ 53,300     $ 53,300  

 

Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value.

 

Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the consolidated balance sheets approximate fair value because of the short-term nature of these items.

 

10

 

 

Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit facility approximates fair value because our interest rate is variable and reflects current market rates.

 

 

Note 5. Debt and Other Financing Arrangements:

 

In fiscal 2017, the Company entered into a revolving line-of-credit facility governed by a Credit Agreement (the Credit Agreement) dated July 28, 2016. The Credit Agreement provides for a revolving credit facility of $400 million, which can be increased by an additional $200 million subject to certain conditions. Borrowings under the Credit Agreement may be used for working capital and expenditures of the Company and its subsidiaries, including financing permitted acquisitions. Borrowings under the Credit Agreement for base rate loans bear interest at a variable rate equal to the greater of (i) the prime commercial rate, (ii) the per annum federal funds rate plus 0.5%, or (iii) LIBOR + 1.00% - 1.75% depending on the existing total leverage ratio of Debt to Earnings Before Interest, Taxes, Depreciation and Amortization (as defined in the Credit Agreement). The annualized fee for any unused portion of the credit facility is currently 25 basis points.

 

The Credit Agreement matures on July 28, 2021 and contains customary restrictive and financial covenants and customary events of default. As of December 31, 2017, the outstanding balance under the Credit Agreement was $362.5 million. 

 

 

Note 6. Accumulated Other Comprehensive Income:

 

Changes in accumulated other comprehensive income (loss), net of tax, for the six months ended December 31, 2017 consists of (in thousands):

  

   

Unrealized

Gains

(Losses) on

Available-

for-Sale

Investments

   

Foreign

Currency

Translation

Adjustments

   

Total

 

Beginning balance

  $ 18,989     $ (67,924

)

  $ (48,935

)

Other comprehensive income (loss)

    (16,374

)

    8,492       (7,882

)

Ending balance

  $ 2,615       (59,432

)

  $ (56,817

)

 

 

Note 7. Earnings Per Share:

 

The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts):

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2017

   

2016

   

2017

   

2016

 

Earnings per share – basic:

                               

Net income

  $ 48,847     $ 7,467     $ 64,710     $ 26,309  

Income allocated to participating securities

    (41

)

    (7

)

    (50

)

    (22

)

Income available to common shareholders

  $ 48,806     $ 7,460     $ 64,660     $ 26,287  

Weighted-average shares outstanding – basic

    37,449       37,308       37,412       37,294  

Earnings per share – basic

  $ 1.30     $ 0.20     $ 1.73     $ 0.70  
                                 

Earnings per share – diluted:

                               

Net income

  $ 48,847     $ 7,467     $ 64,710     $ 26,309  

Income allocated to participating securities

    (41

)

    (7

)

    (50

)

    (22

)

Income available to common shareholders

  $ 48,806     $ 7,460     $ 64,660     $ 26,287  

Weighted-average shares outstanding – basic

    37,449       37,308       37,412       37,294  

Dilutive effect of stock options and restricted stock units

    477       170       404       181  

Weighted-average common shares outstanding – diluted

    37,926       37,478       37,816       37,475  

Earnings per share – diluted

  $ 1.29     $ 0.20     $ 1.71     $ 0.70  

 

The dilutive effect of stock options and restricted stock units in the above table excludes all options for which the aggregate exercise proceeds exceeded the average market price for the period. The number of potentially dilutive option shares excluded from the calculation was 1.6 million and 2.0 million for the quarter ended December 31, 2017 and 2016, respectively and 1.7 million and 2.0 million for the six months ended December 31, 2017 and 2016, respectively.

 

11

 

 

 

Note 8. Share-based Compensation:

 

During the six months ended December 31, 2017 and 2016, the Company granted 1.0 million and 1.1 million stock options at weighted average grant prices of $118.97 and $107.40 and weighted average fair values of $21.58 and $18.13, respectively. During the six months ended December 31, 2017 and 2016, the Company granted 35,674 and 64,931 restricted stock units at weighted average fair values of $125.02 and $109.36, respectively. During the six months ended December 31, 2017 and 2016, the Company granted 20,106 and 23,965 shares of restricted at grant date fair values of $125.05 and $104.94, respectively.

 

Stock options for 70,069 and 23,145 shares of common stock with total intrinsic values of $2.8 million and $1.0 million were exercised during the six months ended December 31, 2017 and 2016, respectively.

 

Stock-based compensation expense of $5.0 million and $4.1 million was included in selling, general and administrative expenses for the quarter ended December 31, 2017 and 2016, respectively. Stock-based compensation expense of $8.8 million and $7.2 million was included in selling, general and administrative expenses for the six months ended December 31, 2017 and 2016, respectively. As of December 31, 2017, there was $40.2 million of unrecognized compensation cost related to non-vested stock options, non-vested restricted stock units and non-vested restricted stock. The weighted average period over which the compensation cost is expected to be recognized is 2.5 years.

 

 

Note 9. Other Income / (Expense):

 

The components of other income (expense) in the accompanying Statement of Earnings and Comprehensive Income are as follows: 

 

   

Quarter Ended

   

Six Months

 
   

December 31,

   

December 31,

 
   

2017

   

2016

   

2017

   

2016

 

Interest expense

  $ (2,331

)

  $ (1,921

)

  $ (4,574

)

  $ (3,321

)

Interest income

    68       89       144       138  

Other non-operating income (expense), net

    (154

)

    (861

)

    (1,050

)

    (881

)

Total other income (expense)

  $ (2,417

)

  $ (2,693 )   $ (5,480

)

  $ (4,064

)

 

 

 

Note 10. Income Taxes:

 

The Company’s effective income tax rate was (124.7) % and 50.8% for the second quarter of fiscal 2018 and fiscal 2017, respectively and (44.8) % and 38.8% for the first six months of fiscal 2018 and fiscal 2017, respectively. The changes in the company’s tax rate for the second quarter and first six months of fiscal 2018 compared to second quarter and first six months of fiscal 2017 are due primarily to recording the items attributable to the new tax legislation in the U.S. as described below. Also included in the 2018 effective tax rate is discrete tax benefit of $0.3 million and $0.7 million for the second quarter and first six months of fiscal year 2018 for the tax benefit of stock option exercises offset by a net discrete tax expense of $2.9 million and $3.8 million for the second quarter and first six months of fiscal 2018 related to the revaluation of contingent consideration, which is not tax deductible. Discrete tax expense for the second quarter and first six months of fiscal 2017 included $4.6 million of expense related to the revaluation of contingent consideration.

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code which will impact our fiscal year ended June30, 2018 including, but not limited to (1) reducing the U.S. federal corporate tax rate, (2) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that may electively be paid over eight years, and (3) accelerated first year expensing of certain capital expenditures. The Tax Act reduces the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. Internal Revenue Code Section 15 provides that our fiscal year ended June 30, 2018. We calculated a blended corporate tax rate of 28.1 percent for fiscal year 2018, which is based on a proration of the applicable tax rates before and after effective date of the Tax Act. The statutory tax rate of 21 percent will apply for fiscal 2019 and beyond.

 

12

 

 

The Tax Act also puts in place new tax laws that will impact our taxable income beginning in fiscal 2019, which include, but are not limited to (1) creating a Base Erosion Anti-abuse Tax (BEAT), which is a new minimum tax, (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (3) a new provision designed to tax currently global intangible low-taxed income (GILTI), which allows for the possibility of utilizing foreign tax credits and a deduction equal to 50 percent to offset the income tax liability (subject to some limitations), (4) a provision that could limit the amount of deductible interest expense, (5) the repeal of the domestic production activity deduction, (6) limitations on the deductibility of certain executive compensation, and (7) limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability.

 

Shortly after the Tax Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) which provides guidance on accounting for the Tax Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Act under ASC Topic 740. In accordance with SAB 118, the Company must reflect the income tax effects of the Tax Act in the reporting period in which the accounting under ASC Topic 740 is complete.

 

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, the Company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined. If a Company cannot determine a provisional estimate to be included in the financial statements, the Company should continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted. If a Company is unable to provide a reasonable estimate of the impacts of the Tax Act in a reporting period, a provisional amount must be recorded in the first reporting period in which a reasonable estimate can be determined.

 

We have recorded a provisional net tax benefit of $33.5 million related to the Tax Act in the period ending December 31, 2017. This provisional net benefit primarily consists of a net benefit of $37.0 million due to the remeasurement of our deferred tax accounts to reflect the corporate rate reduction impact to our net deferred tax balances and a net expense for the transition tax of $3.5 million.

 

Reduction in U.S. Corporate Rate: The Act reduces the U.S. federal statutory corporate tax rate to a blended 28.1 percent in fiscal year ending June 30, 2018 and 21 percent for fiscal year ending June 30, 2019 and beyond. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, we are continuing to analyze the temporary differences that existed on the date of enactment, the temporary differences originating in the current fiscal year prior to December 22, 2017, and the temporary differences we expect will reverse prior to June 30, 2018.

 

Transition Tax: The transition tax is a tax on the previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries as of December 22, 2017.  In order to determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings.  E&P is similar to retained earnings of the subsidiary, but requires other adjustments to conform to U.S. tax rules.  We are able to make a reasonable estimate of the transition tax and recorded a provisional transition tax obligation of $3.5 million which the Company expects to elect to pay, net of certain tax credit carryforwards, over eight years beginning in fiscal year 2019. $0.3 million of this liability is recorded as current with the remaining $3.2 million classified as a long-term liability within our December 31, 2017 balance sheet. However, we are awaiting further interpretative guidance including information regarding state income tax implications and continuing to gather additional information to more precisely compute the amount of the transition tax. We expect that our estimate will be finalized in advance of the filing of our June 30, 2018 Form 10-K.

 

Global intangible low-taxed income (GILTI): The Tax Act includes a provision designed to currently tax global intangible low-taxed income starting in fiscal 2019. Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act, the application of ASC 740, and are considering available accounting policy alternatives to adopt to either record the U.S. income tax effect of future GILTI inclusions in the period in which they arise or establish deferred taxes with respect to the expected future tax liabilities associated with future GILTI inclusions.  In addition, we are awaiting further interpretive guidance in connection with the computation of the GILTI tax. For these reasons, we are not yet able to reasonably estimate the effect of this provision of the Tax Act.

 

As of June 30, 2017, our practice and intention was to reinvest the earnings in our subsidiaries outside of the U.S., and no U.S. deferred income taxes or foreign withholding taxes were recorded. As of December 31, 2017 we continue to assert that we plan to reinvest these earnings. The transition tax noted above will result in the previously untaxed foreign earnings being included in the federal and state fiscal 2018 taxable income. We are currently analyzing our global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent, which include local country withholding tax and potential U.S. state taxation. Therefore, we are not yet able to reasonably estimate the effect of this provision of the Tax Act and have not recorded any withholding or state tax liabilities.

 

13

 

 

We are also currently analyzing other provisions of the Tax Act that come into effect for tax years starting July 1, 2018 to determine if these items would impact the effective tax rate. These provisions include BEAT, eliminating U.S. federal income taxes on dividends from foreign subsidiaries, the new provision that could limit the amount of deductible interest expense, the limitations on the deductibility of certain executive compensation, and state tax implications of this federal tax legislation.

 

 

 

Note 11. Segment Information:

 

The Company's management evaluates segment operating performance based on operating income before certain charges to cost of sales and selling, general and administrative expenses, principally associated with acquisition accounting related to inventory, amortization of acquisition-related intangible assets and other acquisition-related expenses.

 

The following is financial information relating to the Company's reportable segments (in thousands):

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2017

   

2016

   

2017

   

2016

 

Net sales:

                               

Biotechnology

    101,411       85,953     $ 196,487     $ 172,740  

Protein Platforms

    29,388       21,548       54,028       41,121  

Diagnostics

    23,429       24,330       48,415       48,563  

Intersegment

    (75

)

    (24

)

    (164

)

    (36

)

Consolidated net sales

    154,153       131,807     $ 298,766     $ 262,388  

Operating income:

                               

Biotechnology

  $ 46,210     $ 39,474     $ 90,813     $ 81,594  

Protein Platforms

    6,119       1,843       9,175       2,052  

Diagnostics

    3,777       5,801       9,606       12,104  

Segment operating income

  $ 56,106     $ 47,118     $ 109,594     $ 96,110  

Costs recognized on sale of acquired inventory

    (264

)

    (789

)

    (582

)

    (2,133

)

Amortization of acquisition related intangible assets

    (11,296

)

    (11,627

)

    (22,675

)

    (21,815

)

Acquisition related expenses

    (13,150

)

    (12,056

)

    (22,683

)

    (15,588

)

Stock based compensation

    (5,044

)

    (4,055

)

    (8,839

)

    (7,245

)

Corporate general, selling, and administrative expenses

    (2,204

)

    (710

)

    (4,636

)

    (2,293

)

Consolidated operating income

    24,148       17,881     $ 50,179     $ 47,036  

 

 

 

Note 12. Subsequent Events:

 

On January 2, 2018, Bio-Techne acquired Atlanta Biologicals, Inc. and its affiliated company, Scientific Ventures, Inc for approximately $50 million. The transaction is financed through available cash on hand. Atlanta Biologicals fetal bovine serum (FBS) product line strengthens and complements our current tissue culture reagents offering and furthers our efforts to provide more complete solutions to our research customers. The purchase accounting for this acquisition is in progress.

  

On February 1, 2018 Bio-Techne acquired Eurocell Diagnostics SAS a company based in Rennes, France for approximately $7.5 million. Eurocell sells directly to the laboratory markets in the French region as well as servicing the EMEA markets via a network of distributors. The transaction was financed through cash on hand. The purchase accounting for this acquisition is in progress.

 

14

 

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

The following management discussion and analysis (“MD&A”) provides information that we believe is useful in understanding our operating results, cash flows and financial condition. We provide quantitative information about the material sales drivers including the effect of acquisitions and changes in foreign currency at the corporate and segment level. We also provide quantitative information about discrete tax items and other significant factors we believe are useful for understanding our results. The MD&A should be read in conjunction with both the unaudited consolidated financial information and related notes included in this Form 10-Q, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended June 30, 2017. This discussion contains various “Non-GAAP Financial Measures” and also contains various “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statements entitled “Non-GAAP Financial Measures” and “Forward-Looking Information and Cautionary Statements” located at the end of Item 2 of this report.

 

OVERVIEW

 

Bio-Techne Corporation and its subsidiaries operate worldwide with three reportable business segments, Biotechnology, Protein Platforms and Diagnostics, all of which service the life science and diagnostic markets. The Biotechnology reporting segment develops, manufactures and sells proteins, antibodies, immunoassays, flow cytometry products, intracellular signaling products, as well as biologically active chemical compounds used in biological research and ACD’s in situ hybridization detection products. The Protein Platforms reporting segment develops and commercializes proprietary systems and consumables for protein analysis. The Diagnostics reporting segment develops, manufactures and sells a range of controls and calibrators for various blood chemistry and blood gas clinical instruments, as well as quality controls, diagnostic immunoassays and other bulk and custom reagents for the in vitro diagnostic market. The Diagnostics segment also provides bulk purified proteins, enzymes, disease-state plasmas, infectious disease antigens and processed sera to the clinical diagnostic industry.

 

RECENT ACQUISITIONS

 

A key component of the Company's strategy is to augment internal growth at existing businesses with complementary acquisitions.

 

On September 5, 2017 the Company acquired Trevigen Inc. for approximately $10.6 million, net of cash received. The Company has had a long-standing business relationship with Trevigen as a distributor of its product line.

 

RESULTS OF OPERATIONS

 

Consolidated net sales increased 17% and 14% for the quarter and six months ended December 31, 2017, respectively, compared to the same prior year periods. Organic growth was 14% and 11% for quarter and six months ended December 31, 2017, respectively, compared to the same prior year periods, with acquisitions contributing 1% and foreign currency translation having a positive impact of 2%.

 

Consolidated net earnings increased 554% and 146% for the quarter and six months ended December 31, 2017, respectively, compared to the same prior year periods primarily due to the net tax benefit of $33.5 million related to the Tax Act in the period ending December 31, 2017. This net benefit primarily consists of a net benefit of $37.0 million due to the remeasurement of our deferred tax accounts to reflect the corporate rate reduction impact to our net deferred tax balances and a net expense for the transition tax of $3.5 million.

 

 

Net Sales

 

Consolidated net sales for the quarter and six months ended December 31, 2017 were $154.2 million and $298.8 million, respectively, increase of 17% and 14% from the same prior year periods. Organic growth for quarter and six months ended December 31, 2017 was 14% and 11%, respectively. Reported net sales for the quarter and six months ended December 31, 2017 included growth from acquisitions of 1% and a positive impact from foreign currency translation of 2%.

 

15

 

 

Sales by geography for the three months ended December 31, 2017 grew in mid-teens in the U.S., with strong growth in both the BioPharma and Academia end-markets. Europe organic sales growth was in the high-teens, with comparable contribution from both the BioPharma and Academic end-markets. China sales grew nearly 30% organically, with our Western brands growing 30%. Sales growth in Japan grew in the low-teens, while the rest of the Asia-Pacific region grew over 15%. For the six months ended December 31, 2017, sales in the U.S. grew in high-single digits, with strong growth in both the BioPharma and Academia end-markets. Europe organic sales growth was in the mid-teens, with comparable contribution from both the BioPharma and Academic end-markets. China sales grew over 20% organically, with our Western brands growing 30%. Sales growth in Japan grew in the mid-teens, while the rest of the Asia-Pacific region grew over 20%. Note that all references made to growth rates by region and end-market exclude OEM sales, which primarily occur in our Diagnostics segment.

 

Gross Margins

 

Consolidated gross margins for the quarter and six months ended December 31, 2017 were 66.1% and 66.8%, respectively, compared to 66.9% for the same prior year periods. The decreases in consolidated gross margin for the quarter and six months ended December 31, 2017 were driven primarily by unfavorable product mix.

 

A reconciliation of the reported consolidated gross margin percentages, adjusted for acquired inventory sold and intangible amortization included in cost of sales, is as follows:

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2017

   

2016

   

2017

   

2016

 

Consolidated gross margin percentage

    66.1

%

    66.9

%

    66.8

%

    66.9

%

Identified adjustments:

                               

Costs recognized upon sale of acquired inventory

    0.2

%

    0.6

%

    0.2

%

    1.0

%

Amortization of intangibles

    3.9

%

    3.5

%

    4.1

%

    3.1

%

Non-GAAP adjusted gross margin percentage

    70.2

%

    71.0

%

    71.1

%

    71.0

%

 

Consolidated non-GAAP adjusted gross margins for the quarter and six months ended December 31, 2017, were 70.2% and 71.1%, respectively, compared to 71.0% for the same prior year periods. Consolidated non-GAAP adjusted gross margins for the quarter ended December 31, 2017 were negatively impacted by unfavorable product mix.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the quarter and six months ended December 31, 2017 increased $6.8 million (11.9%) and $19.7 million (19.2%) from the same prior year periods.

 

The increase for the quarter and six months ended December 31, 2017 was driven by additional investments in global commercial resources and administrative infrastructure, including increased stock based compensation. The remaining increase was driven by additional acquisition-related expenses, including a $19.9 million change in the fair value of contingent consideration related to ACD, compared to a $12.4 million change in the fair value of contingent consideration for the same prior year period.

 

Research and Development Expenses

 

Research and development expenses for the quarter and six months ended December 31, 2017 increased $0.6 million (5%) and $1.4 million (5%) from the same prior year periods.

 

Segment Results

 

Biotechnology

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2017

   

2016

   

2017

   

2016

 

Net sales (in thousands)

    101,411       85,953     $ 196,487     $ 172,740  

Operating income margin percentage

    45.6

%

    45.9

%

    46.2

%

    47.4

%

 

16

 

 

Biotechnology’s net sales for the quarter and six months ended December 31, 2017 were $101.4 million and $196.5 million, respectively, with reported growth of 18% and 14% compared to the same prior year periods. Organic growth for the quarter and six months ended December 31, 2017 were 14% and 10%, respectively, with acquisitions contributing 1% and currency translation having favorable impacts of 3% and 2%, respectively. Segment growth for the quarter and six months ended December 31, 2017 was broad-based regionally, by region and by product, with Proteins, antibodies, and assays all contributing to growth. The ACD product category also contributed substantially, with over 40% growth for the quarter and six months ended December 31, 2017 that was driven by rapid research market adoption of its RNA-ISH technology.

 

Operating income margin for the quarter and six months ended December 31, 2017 was 45.6% and 46.2%, respectively, compared to 45.9% and 47.4% for the same prior year periods. The decreases in operating income margin is the result of lower margin acquisitions made in this segment, namely ACD, unfavorable product mix, as well as additional investments in global commercial resources and administrative infrastructure.

 

Protein Platforms

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2017

     

2016

   

2017

   

2016

 

Net sales (in thousands)

    29,388         21,548     $ 54,028     $ 41,121  

Operating income margin percentage

 

20.8

  %     8.6

%

    17.0

%

    5.0

%

 

Protein Platforms’ net sales for the quarter and six months ended December 31, 2017 were $29.4 million and $54.0 million, respectively, with reported growth of 36% and 31% compared to the same prior year periods. Organic growth for the quarter and six months ended December 31, 2017 was 33% and 29%, respectively, with currency translation having favorable impact of 3% and 2%, respectively. For the quarter and six months ended December 31, 2017, growth for the segment was broad-based both by region and by product, with the Biologics, Simple Western, and Simple Plex product lines all contributing.

 

Operating income margin for the quarter and six months ended December 31, 2017 was 20.8% and 17.0%, respectively, compared to 8.6% and 5.0% for the same prior year periods. The increases in operating income margin were driven by strong volume leverage and operational productivity

 

Diagnostics

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2017

   

2016

   

2017

   

2016

 

Net sales (in thousands)

    23,429       24,330     $ 48,415     $ 48,563  

Operating income margin percentage

    16.1

%

    23.8

%

    19.8

%

    24.9

%

 

Diagnostics’ net sales for the quarter and six months ended December 31, 2017 were $23.4 million and $48.4 million, respectively, representing a decrease of 4% decrease from the quarter ended December 31, 2016. The lower sales were due to timing of large orders from OEM customers.

 

Operating income margin for the quarter and six months ended December 31, 2017 was 16.1% and 19.8%, respectively, compared to 23.8% and 24.9% for the same prior year periods. The decreases in operating income margin were driven by decreased volume leverage, margin mix of product sales and additional investments in facilities and administrative infrastructure.

 

Income Taxes

 

Income taxes for the quarter ended December 31, 2017 were at an effective rate of (124.8)% of consolidated earnings before income taxes compared to 50.8% to the same prior year period. Income taxes for the six months ended December 31, 2017 were at an effective rate of (44.8)% compared to 38.8% for the same prior year period. The changes in the company’s tax rate for the second quarter and first six months of fiscal 2018 compared to second quarter and first six months of fiscal 2017 were driven by the tax rate impact of discrete of items, primarily due to the net tax benefit of $33.5 million related to the Tax Act in the period ending December 31, 2017. This net benefit primarily consists of a net benefit of $37.0 million due to the remeasurement of our deferred tax accounts to reflect the corporate rate reduction impact to our net deferred tax balances and a net expense for the transition tax of $3.5 million.

 

17

 

 

The forecasted tax rate as of the second quarter of fiscal 2018 before discrete items is 24.7% compared to the prior year forecasted tax rate as of the second quarter of fiscal 2017 before discrete items of 28.1%. The 3.4% reduction in the rate is due changes in the U.S. tax law under the Tax Cuts and Jobs Act of 2017 and jurisdictional mix of earnings. Excluding the impact of discrete items, the Company expects the consolidated income tax rate for the remainder of fiscal 2018 to range from 24% to 26%.

 

 

Net Earnings

 

Non-GAAP adjusted consolidated net earnings are as follows:

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2017

   

2016(2)

   

2017

   

2016(2)

 

Net earnings

  $ 48,847     $ 7,466     $ 64,710     $ 26,309  

Identified adjustments:

                               

Costs recognized upon sale of acquired inventory

    264       789       582       2,133  

Amortization of acquisition intangibles

    11,296       11,627       22,675       21,815  

Acquisition related expenses

    13,236       12,144       22,855       15,731  

Stock based compensation

    5,044       4,055       8,839       7,245  

Tax impact of above adjustments

    (4,244

)

    (5,153

)

    (8,644

)

    (10,351

)

Tax impact of discrete tax items and other adjustments (1)

    (35,589

)

    (514

)

    (35,941

)

    (832

)

Non-GAAP adjusted net earnings

  $ 38,854     $ 30,412     $ 75,076     $ 62,050  

Non-GAAP adjusted net earnings growth

    27.8

%

    -7.4

%

    21.0

%

    -3.3

%

 

(1)

The fiscal 2018 non-GAAP adjusted net earnings for the quarter ended December 31, 2017 have been normalized for the tax rate impact of the tax reform changes by recasting the first quarter results using the Company’s effective tax rate for the first six months of fiscal 2018.

 

(2)

The fiscal 2017 net earnings, costs recognized upon sale of acquired inventory, acquisition related expenses, and tax impact of above adjustments line items have been updated for the revisions discussed in Note 1.  There was no impact to the total previously reported non-GAAP adjusted net earnings.

 

Depending on the nature of discrete tax items, our reported tax rate may not be consistent on a period to period basis. The Company independently calculates a non-GAAP adjusted tax rate considering the impact of discrete items and jurisdictional mix of the identified non-GAAP adjustments. The following table summarizes the reported GAAP tax rate and the effective Non-GAAP adjusted tax rate for the quarter and six months ended December 31, 2017 and December 31, 2016.

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2017

   

2016

   

2017

   

2016

 

Reported GAAP tax rate

    (124.8

%)

    50.8

%

    (44.8

%)

    38.8

%

Tax rate impact of:

                               

Identified non-GAAP adjustments

    (14.2

%)

    (23.6

%)

    (11.0

%)

    (9.7

%)

Discrete tax items and other adjustments (1)

    163.7

%

    3.4

%

    80.5

%

    1.9

%

Non-GAAP adjusted tax rate

    24.7

%

    30.6

%

    24.7

%

    31.0

%

 

 

(1)

The fiscal 2018 non-GAAP adjusted net earnings for the quarter ended December 31, 2017 has been normalized for the tax rate impact of the tax reform changes by recasting the first quarter results using the Company’s effective tax rate for the first six months of fiscal 2018.

 

The difference between the reported GAAP tax rate and non-GAAP tax rate applied to the identified non-GAAP adjustments for the quarter and six months ended December 31, 2017 as well as the quarter and six months ended December 31, 2016 is primarily a result of the discrete income tax expenses recorded for the revaluation of contingent consideration which is not tax deductible.

 

18

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of December 31, 2017, cash and cash equivalents and available-for-sale investments were $162.4 million compared to $157.7 million as of June 30, 2017. Included in available-for-sale-investments as of December 31, 2017 was the fair value of the Company's investment in ChemoCentryx, Inc. (CCXI) of $37.9 million. The fair value of the Company's CCXI investment at June 30, 2017 was $59.6 million.

 

The Company has a revolving line of credit governed by a Credit Agreement dated July 28, 2016. See Note 5 to the Condensed Consolidated Financial Statements for a description of the Credit Agreement.

 

The Company has contingent consideration payments of up to $50.0 million and $3.5 million related to the ACD and Zephyrus, respectively. During the second quarter, the Company determined that certain sales and revenue thresholds were met for ACD. Cash payments totaling $35.0 million were made during the first six months of fiscal 2018. The fair values of the remaining payments are $50.0 million and $3.3 million, respectively, as of December 31, 2017. The Company expects to make a $50.0 million cash payment towards the ACD contingent consideration liability in the third quarter of fiscal 2018.

 

Management of the Company expects to be able to meet its cash and working capital requirements for operations, facility expansion, capital additions, and cash dividends for the foreseeable future, and at least the next 12 months, through currently available cash, cash generated from operations, and remaining credit available on its existing revolving line of credit.

 

Cash Flows From Operating Activities

 

The Company generated cash of $83.9 million from operating activities during the first six months fiscal 2018 compared to $67.9 million during the first six months of fiscal 2017. The increase from the prior year was primarily due to decreases in operating assets driven by strong collections of trade accounts receivable and increases in operating liabilities, net of acquisitions.

 

Cash Flows From Investing Activities

 

We continue to make investments in our business, including capital expenditures. Cash paid for acquisitions was lower during the first six months of fiscal 2018 compared to the first six months of fiscal 2017 with net cash paid of $10.6 million for the Trevigen acquisition during the first six months fiscal 2018 compared to $255.9 million for the ACD and Space acquisitions, which occurred during the first six months of fiscal 2017.

 

Capital expenditures for fixed assets for the first six months of fiscal 2018 and 2017 were $11.6 million and $5.3 million, respectively. Capital expenditures for the first six months of fiscal 2018 were mainly for facility expansion as well as laboratory and computer equipment. Capital expenditures for the remainder of fiscal 2018 are expected to be approximately $11.7 million. Capital expenditures are expected to be financed through currently available funds and cash generated from operating activities.

 

Cash Flows From Financing Activities

 

During the first six months of fiscal 2018 and 2017, the Company paid cash dividends of $23.9 million to all common shareholders. On February 6, 2018, the Company announced the payment of a $0.32 per share cash dividend, or approximately $12.0 million, will be payable March 2, 2018 to all common shareholders of record on February 16, 2018.

 

Cash of $6.7 million and $2.1 million was received during the first six months of fiscal 2018 and 2017, respectively, from the exercise of stock options.

 

During the first six months of fiscal 2018, the Company drew $25.0 million under its revolving line-of-credit facility to fund its acquisition of Atlanta Biologicals Inc. and made repayments on the line-of-credit of $6.0 million. During the first six months of fiscal 2017, the Company paid the balance of its previous line-of-credit facility in an amount of approximately $116.5 million and drew $368.4 million under its new revolving line-of-credit facility to fund operations and its acquisition of ACD.

 

During the first six months of fiscal 2018, the Company made $35.0 million in cash payments towards the CyVek contingent consideration liabilities. The Company made no payments towards contingent consideration liabilities during the first six months of fiscal 2017.

 

In accordance with the terms of the purchase agreement, during the first quarter of fiscal 2018, the Company made the final $2.3 million payment for the Space acquisition. This payment is included within other financing activities.

  

19

 

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company has no reportable off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

 

CONTRACTUAL OBLIGATIONS

 

There were no material changes outside the ordinary course of business in the Company's contractual obligations during the quarter ended December 31, 2017.

 

CRITICAL ACCOUNTING POLICIES

 

The Company's significant accounting policies are discussed in the Company's Annual Report on Form 10-K for fiscal 2017 and are incorporated herein by reference. The application of certain of these policies requires judgments and estimates that can affect the results of operations and financial position of the Company. Judgments and estimates are used for, but not limited to, valuation of available-for-sale investments, inventory valuation and allowances, valuation of intangible assets and goodwill and valuation of investments in unconsolidated entities. There have been no significant changes in estimates in the first quarter of fiscal 2018 that would require disclosure nor have there been any changes to the Company's policies.

 

NON-GAAP FINANCIAL MEASURES

 

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in Item 2, contains financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S. (GAAP). These non-GAAP measures include:

 

• Adjusted gross margin

• Adjusted net earnings

• Adjusted effective tax rate

 

We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.

 

Our non-GAAP financial measures for adjusted gross margin and adjusted net earnings exclude the costs recognized upon the sale of acquired inventory, amortization of acquisition intangibles, and acquisition related expenses. The Company excludes amortization of purchased intangible assets and purchase accounting adjustments, including costs recognized upon the sale of acquired inventory and acquisition-related expenses, from this measure because they occur as a result of specific events, and are not reflective of our internal investments, the costs of developing, producing, supporting and selling our products, and the other ongoing costs to support our operating structure. Additionally, these amounts can vary significantly from period to period based on current activity.

 

The Company’s non-GAAP adjusted net earnings also excludes stock based compensation expense and certain adjustments to income tax expense. Stock based compensation is excluded from non-GAAP adjusted earnings because of the nature of this charge, specifically the varying available valuation methodologies, subjective assumptions, and the variety of award types. The Company independently calculates a non-GAAP adjusted tax rate to be applied to the identified non-GAAP adjustments considering the impact of discrete items on these adjustments and the jurisdictional mix of the adjustments. In addition, the tax impact of other discrete and non-recurring charges which impact our reported GAAP tax rate are adjusted from net earnings. We believe these tax items can significantly affect the period-over period assessment of operating results and not necessarily reflect costs and/or income associated with historical trends and future results

 

The Company periodically reassesses the components of our non-GAAP adjustments for changes in how we evaluate our performance, changes in how we make financial and operational decisions, and considers the use of these measures by our competitors and peers to ensure the adjustments are still relevant and meaningful.

   

20

 

 

FORWARD LOOKING INFORMATION AND CAUTIONARY STATEMENTS

 

This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those regarding the Company's expectations as to the effect of changes to accounting policies, the amount of capital expenditures for the remainder of the fiscal year, the source of funding for capital expenditure requirements, the sufficiency of currently available funds for meeting the Company's needs, the impact of fluctuations in foreign currency exchange rates, and expectations regarding gross margin fluctuations, increasing research and development expenses, increasing selling, general and administrative expenses and income tax rates. These statements involve risks and uncertainties that may affect the actual results of operations. The following important factors, among others, have affected and, in the future, could affect the Company's actual results: the introduction and acceptance of new products, general national and international economic conditions, increased competition, the reliance on internal manufacturing and related operations, the impact of currency exchange rate fluctuations, economic instability in Eurozone countries, the recruitment and retention of qualified personnel, the impact of governmental regulation, maintenance of intellectual property rights, credit risk and fluctuation in the market value of the Company's investment portfolio, unseen delays and expenses related to facility improvements, and the success of financing efforts by companies in which the Company has invested. For additional information concerning such factors, see the Company's Annual Report on Form 10-K for fiscal 2017 as filed with the Securities and Exchange Commission and Part II. Item 1A below. 

   

21

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As of December 31, 2017, the Company held an investment in the common stock of CCXI. The investment was included in short-term available-for-sale investments at its fair value of $37.9 million. As of December 31, 2017, the potential loss in fair value due to a 10% decrease in the market value of CCXI was $3.8 million.  

 

The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency exchange rates. For the quarter ended December 31, 2017, approximately 28% of consolidated net sales were made in foreign currencies, including 15% in euros, 4% in British pound sterling, 4% in Chinese yuan and the remaining 5% in other currencies. The Company is exposed to market risk mainly from foreign exchange rate fluctuations of the euro, British pound sterling, the Chinese yuan, and the Canadian dollar, as compared to the U.S. dollar as the financial position and operating results of the Company's foreign operations are translated into U.S. dollars for consolidation.

  

Month-end average exchange rates between the British pound sterling, euro, Chinese yuan and Canadian dollar, which have not been weighted for actual sales volume in the applicable months in the periods, to the U.S. dollar were as follows:

 

   

Quarter Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2017

   

2016

   

2017

   

2016

 

Euro

  $ 1.18     $ 1.10     $ 1.18     $ 1.10  

British pound sterling

    1.33       1.52       1.32       1.28  

Chinese yuan

    0.15       0.15       0.15       0.15  

Canadian dollar

    0.81       0.75       0.79       0.76  

 

The Company's exposure to foreign exchange rate fluctuations also arises from trade receivables, trade payables and intercompany payables denominated in one currency in the financial statements, but receivable or payable in another currency. The effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from December 31, 2017 levels against the euro, British pound sterling, Chinese yuan and Canadian dollar are as follows (in thousands):

 

Decrease in translation of earnings of foreign subsidiaries (annualized)

 

$

3,523

 

Decrease in translation of net assets of foreign subsidiaries

 

 

38,907

 

Additional transaction losses

 

 

674

 

  

22

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of disclosure controls and procedures.

 

The Company maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). The Company's management has evaluated, with the participation of its Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered in this Quarterly Report on Form 10-Q. The material weaknesses in internal control over financial reporting identified in connection with the Company's consolidated financial statements for the year ended June 30, 2017 and described in the Company's Annual Report on Form 10-K for the year ended June 30, 2017 were not fully remediated as of December 31, 2017. Management has prepared a detailed action plan and continued on-going remediation efforts during the second quarter of fiscal 2018. However, further testing of the effectiveness of the Company's controls occurring during the remainder of fiscal 2018 is necessary to validate the completion of the remediation plan. Accordingly, based upon their evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2017.

 

(b) Changes in internal controls over financial reporting.

 

The Company commenced its on-going remediation efforts to address the material weaknesses in internal control over financial reporting described in the Company's Annual Report on Form 10-K for the year-ended June 30, 2017.

 

As previously announced, we acquired Trevigen on September 5, 2017. We have not fully evaluated any changes in internal control over financial reporting associated with this acquisition and therefore any material changes that may result from this acquisition have not been disclosed in this report. We intend to disclose all material changes resulting from this acquisition within or prior to the time of our first annual assessment of internal control over financial reporting that is required to include this entity.

 

The results reported in this quarterly report include those of Trevigen.

 

23

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

As of February 8, 2018, the Company is not a party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.

 

ITEM 1A. RISK FACTORS

 

There have been no other material changes from the risk factors previously disclosed in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2017 and the risk factors found in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended June 30, 2017.    

   

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There was no share repurchase activity by the Company in the quarter ended December 31, 2017. The maximum approximate dollar value of shares that may yet be purchased under the Company's existing stock repurchase plan is approximately $125 million. The plan does not have an expiration date.

 

 

ITEM 5. OTHER INFORMATION

 

None.

  

ITEM 6. EXHIBITS

 

See "exhibit index" following the signature page.

  

24

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

 

 

 

 

 

 

BIO-TECHNE CORPORATION

 

 

 

 

 

 

 

    (Company)

 

 

 

 

 

Date: February 8, 2018 

 

 

 

 

 

/s/ Charles R. Kummeth

 

 

 

 

 

 

 

     Charles R. Kummeth

 

 

 

 

 

 

 

Principal Executive Officer

 

 

 

 

 

Date: February 8, 2018

 

 

 

 

 

/s/ James Hippel

 

 

 

 

 

 

 

     James Hippel

 

 

 

 

 

 

 

Principal Financial Officer

 

 

25

 

 

EXHIBIT INDEX

TO

FORM 10-Q

 

BIO-TECHNE CORPORATION

 

 Exhibit #

  

Description

     

3.1

 

Third Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s 8-K dated February 6, 2018*

     
10.1   Form of Indemnification Agreement entered into with each director and executive officers of the Company**
     

31.1

 

Certificate of Chief Executive Officer pursuant to section 302 of the Sarbanes Oxley Act of 2002

 

 

 

31.2

 

Certificate of Chief Financial Officer pursuant to section 302 of the Sarbanes Oxley Act of 2002

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes Oxley Act of 2002

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes Oxley Act of 2002

 

 

 

101

 

The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Earnings and Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to the Condensed Consolidated Financial Statements.

________

 

* Incorporated by reference; SEC File No. 000-17272
** Indicates management contract or compensatory plan, contract or arrangement.

 

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EX-10.1 2 ex_104397.htm EXHIBIT 10.1 ex_104397.htm

Exhibit 10.1

 

BIO-TECHNE CORPORATION

 

INDEMNIFICATION AGREEMENT

 

THIS AGREEMENT (“Agreement”), which provides for indemnification, expense advancement and other rights under the terms and conditions set forth, is made and entered into this _____ day of __________________, 20__ between Bio-Techne Corporation, a Minnesota corporation (the “Company”), and ________________________ (“Indemnitee”).

 

RECITALS

 

WHEREAS, Indemnitee is serving as a[n] [officer][director] of the Company, and as such is performing a valuable service for the Company; and

 

WHEREAS, competent and experienced persons are becoming increasingly likely to require, as a condition to service, adequate protection through liability insurance and adequate company indemnification against risks of claims and actions against them arising out of their service to the corporation; and

 

WHEREAS, the Board of Directors has determined that the ability to attract and retain qualified persons to serve as directors and/or officers is in the best interests of the Company and its shareholders, and that the Company should act to assure such persons that there will be adequate certainty of protection through insurance and indemnification against risks of claims and actions against them arising out of their service to and activities on behalf of the Company; and

 

WHEREAS, Section 302A.521 of the Minnesota Statutes permits the Company to indemnify and advance expenses to its officers and directors and to indemnify and advance expenses to persons who serve at the request of the Company as directors, officers, employees, or agents of other corporations or enterprises; and

 

WHEREAS, the Company has adopted provisions in its Bylaws relating to indemnification and advancement of expenses to its officers and directors; and

 

WHEREAS, the Company and Indemnitee desire to enter into an indemnification agreement which specifies the rights and obligations of the Company and such person with respect to indemnification, advancement of expenses and related matters, and to have such agreement supersede the indemnification and expense advancement provisions of the Company’s Bylaws.

 

AGREEMENT

 

Now, therefore, in consideration of Indemnitee’s continued service to the Company in Indemnitee’s Official Capacity, the parties hereto agree as follows:

 

1.       Definitions. For purposes of this Agreement:

 

(a)     “Board of Directors” means the Company’s board of directors.

 

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(b)     “Change of Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 5.01 of Current Report on Form 8-K (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change of Control shall be deemed to have occurred if after the Effective Date (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Act) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company’s then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.

 

(c)     “Official Capacity” means Indemnitee’s corporate status as an officer and/or director and any other fiduciary capacity in which he serves the Company, its subsidiaries and affiliates, and any other entity which he serves in such capacity at the request of the Company’s CEO, its Board of Directors or any committee of its Board of Directors. “Official Capacity” also refers to all actions which Indemnitee takes or does not take while serving in such capacity.

 

(d)     “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification or advancement of expenses is sought by Indemnitee.

 

(e)     “Effective Date” means the date first above written.

 

(f)     “Expenses” shall include all direct and indirect costs actually and reasonably incurred by or on behalf of Indemnitee in connection with a Proceeding including, but not limited to, judgments, fines, liabilities or amounts paid in settlement, excise taxes assessed with respect to an employee benefit plan, reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, advisory fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with investigating, prosecuting, defending, preparing to investigate, prosecute or defend a Proceeding, or being or preparing to be a witness in a Proceeding. The parties agree that for the purposes of any advancement of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such demand that are certified by affidavit of Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable.

 

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(g)     “Indemnifiable Event” means any event or occurrence, whether occurring before, on or after the date of this Agreement, related to the fact that Indemnitee is or was a director, officer, employee or agent of the Company or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, member, manager, trustee or agent of any other corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise (collectively with the Company, “Enterprise”) or by reason of an action or inaction by Indemnitee in any such capacity (whether or not serving in such capacity at the time any Loss is incurred for which indemnification can be provided under this Agreement).

 

(h)     “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past two years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

 

(i)     “Losses” means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal or other), ERISA excise taxes, amounts paid or payable in settlement, including any interest, assessments, any federal, state, local or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement and all other charges paid or payable in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness or participate in, any Proceeding.

 

(j)     “Proceeding” includes any actual or threatened inquiry, investigation, action, suit, arbitration, or any other such actual or threatened action or occurrence, whether civil, criminal, administrative or investigative, including a proceeding by or in the right of the corporation, whether or not initiated prior to the Effective Date, except a proceeding initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his or her rights under this Agreement.

 

2.     Service by Indemnitee. Indemnitee will [serve] [continue to serve] in Indemnitee’s Official Capacity faithfully and to the best of Indemnitee’s ability so long as Indemnitee has or holds such Official Capacity. Indemnitee may at any time and for any reason resign from Indemnitee’s Official Capacity (subject to any other contractual obligation or any obligation imposed by operation of law). Indemnitee acknowledges and agrees that Indemnitee’s service to the Company is at will and Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment agreement between Indemnitee and the Company (or any of its subsidiaries or Enterprise), other applicable formal severance policies duly adopted by the Board of Directors or, with respect to service as a director or officer of the Company, by the Company’s governing documents or applicable law.

 

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3.     Indemnification and Advancement of Expenses.

 

(a)     General. Except as otherwise provided in this Agreement, the Company shall indemnify and advance Expenses to Indemnitee to the fullest extent permitted by Minnesota law, including Section 302A.521 of the Minnesota Statutes, as such law may from time to time be amended, against any and all Losses if Indemnitee was or is or becomes a party to or participant in, or is threatened to be made a party to or participant in, any Proceeding by reason of or arising in part out of an Indemnifiable Event, including, without limitation, Proceedings brought by or in the right of the Company, Proceedings brought by third parties, and Proceedings in which the Indemnitee is solely a witness. The Company shall indemnify Indemnitee against all Expenses, and shall advance Expenses to Indemnitee, in each case if Indemnitee is determined to have met the standard of conduct set forth in Section 6(a).

 

(b)     Exceptions. Indemnitee shall receive no indemnification for Losses or Expenses nor advancement of Expenses:

 

(i)     to the extent such indemnification against or advancement of Expenses is expressly prohibited by Minnesota law or the public policies of Minnesota, the United States of America or agencies of any governmental authority in any jurisdiction governing the matter in question;

 

(ii)     to the extent payment is actually made to Indemnitee for the amount to which Indemnitee would otherwise have been entitled under this Agreement pursuant to an insurance policy, or another indemnity agreement or arrangement from the Company or any other person, entity, policy or plan;

 

(iii)     in connection with any Proceeding, or part thereof (including claims and counterclaims) initiated by Indemnitee, except a judicial proceeding or arbitration pursuant to Section 7(a) to enforce rights under this Agreement, unless the Proceeding (or part thereof) was authorized by the Board of Directors of the Company; and

 

(iv)     with respect to any Proceeding brought by or on behalf of the Company against Indemnitee that is authorized by the Board of Directors of the Company and, following a Change of Control, authorized by a majority of the Company’s directors who were directors immediately before the Change of Control, except as provided in Section 4 below.

 

4.     Indemnification for Expenses of Successful Party. Notwithstanding the limitations of any other provisions of this Agreement, to the extent that Indemnitee is successful on the merits or otherwise in defense of any Proceeding relating to an Indemnifiable Event, or if it is ultimately determined that Indemnitee is otherwise entitled to be indemnified against Expenses, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred in connection therewith. If Indemnitee is partially successful on the merits or otherwise in defense of any Proceeding, such indemnification shall be apportioned appropriately to reflect the degree of success.

 

5.     Indemnification for Expenses Incurred in Serving as a Witness. Notwithstanding any other provisions of this Agreement, if in any Proceeding with respect to which Indemnitee is not made or threatened to be made a party Indemnitee serves as a witness by reason of Indemnitee’s Official Capacity, Indemnitee shall be entitled to indemnification against and advancement of all Expenses that directly relate to such service as a witness.

 

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6.     Determination of Entitlement to Indemnification.

 

(a)     Standard of Conduct. Indemnitee shall be entitled to indemnification against and/or advancement of Expenses (subject to the provision of a written affirmation in compliance with Section 10 in the case of a request to advance Expenses), pursuant to the terms this Agreement, only upon a determination (based on the facts then known in the case of a request for advancement of Expenses), that Indemnitee (i) acted in good faith; (ii) received no improper personal benefit; (iii) in the case of a criminal proceeding, had no reasonable cause to believe that Indemnitee’s conduct was unlawful; and (iv) reasonably believed that the conduct was in the best interests of, or not opposed to the best interests of, the Company. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet the criteria set forth in this Section.

 

In the event of a guilty plea by Indemnitee, Indemnitee shall remain entitled to indemnification; provided, however, that following such plea Indemnitee in good faith requests indemnification. Indemnitee’s eligibility for indemnification shall be determined as set forth in Section 6(b)(i)-(vi) below. If, in reviewing Indemnitee’s plea and the facts and circumstances relating to such plea, the decision-maker identified in Sections 6(b)(i)-(iv) below determines that Indemnitee has met the standard of conduct set forth in this Section 6(a) and thus is entitled to indemnification for any items set forth in Section 3(a) above, then the Company shall indemnify Indemnitee in accordance with the decision-maker’s determination.

 

(b)     Manner of Determining Eligibility. Upon Indemnitee’s written request for indemnification or advancement of Expenses, the entitlement of Indemnitee to such requested indemnification or advancement of Expenses shall be determined by:

 

(i)     the Board of Directors of the Company by a majority vote of Disinterested Directors (defined above), as long as such majority constitutes a quorum; or

 

(ii)     a majority of a committee of Disinterested Directors consisting solely of two or more directors designated to act in the matter by a majority of the full Board of Directors; or

 

(iii)     Independent Counsel (defined above) selected either by a majority of the Board of Directors or a committee thereof by vote pursuant to clause (i) and (ii) in this Section or, if the requisite quorum of the full Board of Directors cannot be obtained and such committee cannot be established, by a majority of the full Board of Directors including directors who are parties; or

 

(iv)     affirmative vote of the shareholders required by Minn. Stat. § 302A.437, but the shares held by parties to the Proceeding must not be counted in determining the presence of a quorum and are not considered to be present and entitled to vote on the determination; or

 

(v) a court in Minnesota if an adverse determination is made under clauses (b)(i)-(iv) of this Section, or if no determination is made under clauses (b)(i)-(iv) of this Section within 60 days after the later of the termination of the subject Proceeding or a written request for indemnification against and/or advancement of Expenses to the Company; or

 

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(vi) in the event that a Change of Control has occurred, by Independent Counsel (selected by Indemnitee) in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee.

 

(c)     Determination of Eligibility Following Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of the Indemnitee to indemnification against or the advancement of Expenses under this Agreement or any other agreements, Company Bylaw, provision in the Articles of Incorporation or any other document now or hereafter in effect relating to such indemnification or advancement of Expenses, the Company shall seek legal advice only from Independent Counsel. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(d)     Payment of Costs of Determining Eligibility. The Company shall pay all costs associated with its determination of Indemnitee’s eligibility for indemnification against or advancement of Expenses.

 

(e)     Presumptions and Effect of Certain Proceedings. The Secretary of the Company shall advise the Board of Directors in writing promptly upon receipt of Indemnitee’s request for indemnification and/or advancement of Expenses, and the Company shall thereafter promptly make the determination or initiate the appropriate process for making such determination, in either case pursuant to Section 6(b).

 

7.      Remedies of Indemnitee.

 

(a)     In the event that a determination is made that Indemnitee is not entitled to indemnification against or advancement of Expenses hereunder or if payment or a payment arrangement has not been timely made within fifteen (15) business days following a determination of entitlement to indemnification against and/or advancement of Expenses, Indemnitee shall be entitled to a final adjudication in a court of competent jurisdiction of entitlement to such indemnification and/or advancement. Alternatively, Indemnitee may seek an award in an arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association, such award to be made within sixty (60) calendar days following the filing of the demand for arbitration. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration. The determination in any such judicial proceeding or arbitration shall be made de novo and Indemnitee shall not be prejudiced by reason of a determination (if so made) pursuant to Section 6 that Indemnitee is not entitled to indemnification or advancement.

 

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(b)     If a determination is made or deemed to have been made under the terms of Section 6, or any other Section hereunder, that Indemnitee is entitled to indemnification, the Company shall be bound by such determination and is precluded from asserting that such determination has not been made or that the procedure by which such determination was made is not valid, binding and enforceable.

 

(c)     If the court or arbitrator shall determine that Indemnitee is entitled to any indemnification or payment of Expenses hereunder, the Company shall pay all Expenses actually and reasonably incurred by Indemnitee in connection with such adjudication or arbitration (including, but not limited to, any appellate Proceedings).

 

8.     Continuation of Obligation of Company. All agreements and obligations of the Company contained in this Agreement shall continue during the period of Indemnitee’s Official Capacity and shall continue thereafter with respect to any Proceedings based on or arising out of Indemnitee’s Official Capacity. This Agreement shall be binding upon all successors and assigns of the Company (including any transferee of all or substantially all of its assets and any successor by merger or operation of law) and shall inure to the benefit of Indemnitee’s heirs, personal representatives and estate.

 

9.     Notification and Defense of Claim. Promptly after receipt by Indemnitee of notice of any Proceeding relating to an Indemnifiable Event, Indemnitee must notify the Company in writing of the commencement thereof; but, except as set forth in Section 9(d) below, the omission so to notify the Company will not relieve the Company from any liability that it may have to Indemnitee. Notwithstanding any other provision of this Agreement, with respect to any such Proceeding of which Indemnitee notifies the Company:

 

(a)     Except as otherwise provided in this Section 9(b), to the extent that it may wish, the Company may, separately or jointly with any other indemnifying party, assume the defense of the Proceeding. After notice from the Company to Indemnitee of its election to assume the defense of the Proceeding, the Company shall not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee except as otherwise provided below. Indemnitee shall have the right to employ Indemnitee’s own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee shall have reasonably determined that there is a conflict of interest between the Company and Indemnitee in the conduct of the defense of the Proceeding, and such determination is supported by an opinion of qualified legal counsel addressed to the Company, or (iii) the Company shall not within sixty (60) calendar days of receipt of notice from Indemnitee in fact have employed counsel to assume the defense of the Proceeding.

 

(b)     The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company, or as to which Indemnitee shall have made the determination provided for in subparagraph (a)(ii) above.

 

(c)     Regardless of whether the Company has assumed the defense of a Proceeding, the Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without the Company’s written consent, and the Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on, or require any payment from, Indemnitee without Indemnitee’s written consent.

 

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(d)     Until the Company receives notice of a Proceeding from Indemnitee, the Company shall have no obligation to indemnify against or advance Expenses to Indemnitee as to Expenses incurred prior to Indemnitee’s notification of Company.

 

10.     Indemnitee’s Written Affirmation In Connection With A Request For Advancement. As a condition precedent to the Company’s advancement of Expenses to and/or indemnification of Indemnitee, Indemnitee shall provide the Company with (a) a written affirmation by such person of his or her good faith belief that the criteria for indemnification set forth in subdivision 2 of Section 302A.521 of Minnesota Statutes have been satisfied, and (b) an undertaking, in substantially the form attached as Exhibit 1, by or on behalf of Indemnitee to reimburse such amount if it is finally determined, after all appeals by a court of competent jurisdiction that Indemnitee is not entitled to be indemnified against such Expenses by the Company as provided by this Agreement or otherwise. Indemnitee’s undertaking to reimburse any such amounts is not required to be secured.

 

11.     Severability; Prior Indemnification Agreements.

 

(a) If any provision of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not by themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent of the parties that the Company provide protection to Indemnitee to the fullest enforceable extent provided for in this Agreement.

 

(b) This Agreement shall supersede and replace any prior indemnification agreements entered into by and between the Company and Indemnitee and any such prior agreements shall be terminated upon execution of this Agreement.

 

(c) This Agreement shall supersede the provisions of the Company’s Bylaws regarding indemnification and advancement of expenses, and is intended as the sole agreement governing the rights of Indemnitee to indemnification and advancement of expenses to Indemnitee with respect to all matters which are the subject of this Agreement.

 

12.     Non-attribution of Actions of Any Indemnitee to Any Other Indemnitee. For purposes of determining whether Indemnitee is entitled to indemnification against or advancement of Expenses by the Company under this Agreement or otherwise, the actions or inactions of any other indemnitee or group of indemnitees shall not be attributed to Indemnitee.

 

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13.     Liability Insurance. For the duration of Indemnitee’s service as a [director/officer] of the Company, and thereafter for so long as Indemnitee shall be subject to any pending Proceeding relating to an Indemnifiable Event, the Company shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to continue to maintain in effect policies of directors' and officers' liability insurance providing coverage that is at least substantially comparable in scope and amount to that provided by the Company’s current policies of directors’ and officers’ liability insurance. In all policies of directors’ and officers’ liability insurance maintained by the Company, Indemnitee shall be named or identified as an insured in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company’s directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is an officer (and not a director) by such policy. Upon request, the Company will provide to Indemnitee copies of all directors’ and officers’ liability insurance applications, binders, policies, declarations, endorsements and other related materials.

 

14.     Headings; References; Pronouns. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. References herein to section numbers are to sections of this Agreement. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as appropriate.

 

15.     Other Provisions.

 

(a)     This Agreement shall be interpreted and enforced in accordance with the laws of Minnesota.

 

(b)     This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced as evidence of the existence of this Agreement.

 

(c)     This Agreement shall not be deemed an employment contract between the Company and Indemnitee, and the Company shall not be obligated to continue Indemnitee in Indemnitee’s Official Capacity by reason of this Agreement.

 

(d)     Upon a payment to Indemnitee under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of Indemnitee to recover against any person for such liability, and Indemnitee must execute all documents and instruments required and must take such other actions as may be necessary to secure such rights, including the execution of such documents as may be necessary for the Company to bring suit to enforce such rights.

 

(e)     No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

 

(f)     The Company agrees to stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement and is precluded from making any assertions to the contrary.

 

(g)     Indemnitee’s rights under this Agreement shall extend to Indemnitee’s spouse, members of Indemnitee’s immediate family, and Indemnitee’s representative(s), guardian(s), conservator(s), estate, executor(s), administrator(s), and trustee(s), (all of whom are referred to as “Related Parties”), as the case may be, to the extent a Related Party or a Related Party’s property is subject to a Proceeding by reason of Indemnitee’s Official Capacity.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

 

 

BIO-TECHNE CORPORATION

 

 

 

 

 

 

By:

 

 

 

Name:

 

  Title:  
     
     
     
  Indemnitee  

 

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EXHIBIT 1

 

UNDERTAKING TO REPAY INDEMNIFICATION EXPENSES

 

I ___________________________________, agree to reimburse Bio-Techne Corporation (the “Company”) for all expenses paid to me by the Company for my defense in any civil or criminal action, suit, or Proceeding, in the event, and to the extent that it shall ultimately be determined that I am not entitled to be indemnified by the Company for such expenses.  

 

 

Signature

 

 

 

 

 

 

 

Typed Name

 

 

       
  Office    

 

 

__________________) ss:

 

Before me ______________________, on this day personally appeared ___________________, known to me to be the person whose name is subscribed to the foregoing instrument, and who, after being duly sworn, stated that the contents of said instrument is to the best of his/her knowledge and belief true and correct and who acknowledged that he/she executed the same for the purpose and consideration therein expressed.

 

GIVEN under my hand and official seal at ________, this _______ day of ___________, 20__.

 

 

 

 

Notary Public

 

 

My commission expires:

 

EX-31.1 3 ex_104204.htm EXHIBIT 31.1 ex_104204.htm

Exhibit 31.1

 

CERTIFICATION

 

I, Charles R. Kummeth, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Bio-Techne Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

 

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 

     a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

     b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

     c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

     d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

 

     a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date: February 8, 2018

 

/s/ Charles R. Kummeth

-----------------------------------

Charles R. Kummeth

Principal Executive Officer

EX-31.2 4 ex_104205.htm EXHIBIT 31.2 ex_104205.htm

Exhibit 31.2

 

CERTIFICATION

 

I, James Hippel, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Bio-Techne Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

 

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 

     a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

     b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

     c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

     d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

 

     a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's abilit