0001437749-20-010135.txt : 20200511 0001437749-20-010135.hdr.sgml : 20200511 20200511063501 ACCESSION NUMBER: 0001437749-20-010135 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 77 CONFORMED PERIOD OF REPORT: 20200331 FILED AS OF DATE: 20200511 DATE AS OF CHANGE: 20200511 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: 20862520 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 tech20200331_10q.htm FORM 10-Q tech20200331_10q.htm
0000842023 BIO-TECHNE Corp false --06-30 Q3 2020 970 980 0 0 5,000,000 5,000,000 0 0 0 0 0.01 0.01 100,000,000 100,000,000 38,122,138 38,122,138 37,934,040 37,934,040 3,239 5 0.32 0.96 0 Included in available-for-sale investments on the condensed consolidated balance sheet. The certificates of deposit have contractual maturity dates within one year. As previously disclosed in our 10-K/A, unrealized gains of $24,682 on available-for-sale investments with readily determinable fair vales were included in the June 30, 2018 Consolidated Balance Sheet and were reclassified into retained earnings at the beginning of fiscal 2019 upon our adoption of ASU 2016-01 and ASU 2018-02. The amounts presented in accumulated other comprehensive income as of June 30, 2018 exclude these unrealized gains subsequently reclassified into retained earnings. Finished goods inventory of $3,649 and $3,239 is included within other long-term assets in the respective March 31, 2020 and June 30, 2019, consolidated balance sheet. The inventory is included in long-term assets as it is forecasted to be sold after the 12 months subsequent to the consolidated balance sheet date. Included in available-for-sale investments on the condensed consolidated balance sheet. The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) was $7.6 million and $18.8 million as of March 31, 2020 and June 30, 2019, respectively. The Company has a warrant to purchase additional CCXI equity shares which was valued at $5.6 million as of March 31, 2020. The fair value of the warrant as of June 30, 2019 was not material. The changes in other non-operating income (expense) were driven by changes in the fair value of our CCXI investment as further described in Note 5 above. The Company reclassified ($2,102) to interest expense and a related tax benefit tax of $488 during the nine months ended March 31, 2020. The Company had deferred tax benefits of $4,390 and $1,792 included in the accumulated other comprehensive income loss as of March 31, 2020 and March 31, 2019, respectively. The gain (loss) on the interest rate swap will be reclassified into interest expense as payments on the derivative agreement are made. 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Table of Contents

 


 

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 March 31, 2020, 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)

 


 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

     

Common Stock, $0.01 par value

TECH

The NASDAQ Stock Market LLC

 

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 every Interactive Data File required to be submitted 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 such files).    Yes  ☒    No  ☐

 

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

 

Large accelerated filer

 

 ☒

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 ☐

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

At May 4, 2020, 38,223,009 shares of the Company's Common Stock (par value $0.01) were outstanding.

 

 

 
 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

Bio-Techne Corporation and Subsidiaries

(in thousands, except per share data)

(unaudited)

 

   

Quarter Ended

March 31,

   

Nine Months Ended

March 31,

 
   

2020

   

2019

   

2020

   

2019

 

Net sales

  $ 194,680     $ 184,861     $ 562,857     $ 522,341  

Cost of sales

    64,617       60,251       192,977       177,110  

Gross margin

    130,063       124,610       369,880       345,231  

Operating expenses:

                               

Selling, general and administrative

    66,318       64,968       203,358       195,622  

Research and development

    15,954       15,552       48,413       46,154  

Total operating expenses

    82,272       80,520       251,771       241,776  

Operating income

    47,791       44,090       118,109       103,455  

Other (expense) income

    (970 )     5,787

 

    96,843       (14,226

)

Earnings before income taxes

    46,821       49,877       214,952       89,229  

Income taxes

    10,389       5,223       44,501       9,617  

Net earnings

  $ 36,432     $ 44,654     $ 170,451     $ 79,612  

Other comprehensive (loss) income:

                               

Foreign currency translation adjustments

    (19,403 )     5,232

 

    (15,138 )     (4,368

)

Derivative instruments - cash flow hedges

    (5,702 )     (1,854

)

    (4,798 )     (5,769

)

Other comprehensive (loss) income

    (25,105 )     3,378

 

    (19,936 )     (10,137

)

Comprehensive income

  $ 11,327     $ 48,032     $ 150,515     $ 69,475  

Earnings per share:

                               

Basic

  $ 0.95     $ 1.18     $ 4.46     $ 2.11  

Diluted

  $ 0.92     $ 1.15     $ 4.33     $ 2.05  
                                 

Weighted average common shares outstanding:

                               

Basic

    38,303       37,772       38,167       37,745  

Diluted

    39,435       38,861       39,354       38,813  

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

Bio-Techne Corporation and Subsidiaries

(in thousands, except share and per share data)

 

   

March 31,
2020
(unaudited)

   

June 30,
2019

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 156,216     $ 100,886  

Short-term available-for-sale investments

    104,872       65,147  

Accounts receivable, less allowance for doubtful accounts of $970 and $980, respectively

    117,452       137,466  

Inventories

    99,673       91,050  

Other current assets

    13,715       18,058  

Total current assets

    491,928       412,607  
                 

Property and equipment, net

    165,012       154,039  

Right of use asset

    73,751       -  

Goodwill

    725,831       732,667  

Intangible assets, net

    530,333       579,429  

Other assets

    12,167       5,668  

Total assets

  $ 1,999,022     $ 1,884,410  

LIABILITIES AND SHAREHOLDERS' EQUITY

               

Current liabilities:

               

Trade accounts payable

  $ 19,735     $ 16,210  

Salaries, wages and related accruals

    23,426       28,638  

Accrued expenses

    9,696       26,389  

Contract liabilities

    13,556       9,084  

Income taxes payable

    10,378       5,764  

Operating lease liabilities - current

    9,544       -  

Contingent consideration payable

    6,150       3,400  

Current portion of long-term debt obligations

    12,500       12,500  

Total current liabilities

    104,985       101,985  
                 

Deferred income taxes

    96,178       89,754  

Long-term debt obligations

    407,348       492,660  

Long-term contingent consideration payable

    1,700       9,200  

Operating lease liabilities

    69,491       -  

Other long-term liabilities

    28,052       25,222  

Shareholders' equity:

               

Undesignated capital stock, no par; authorized 5,000,000 shares; none issued or outstanding

    -       -  

Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 38,122,138 and 37,934,040, respectively

    381       379  

Additional paid-in capital

    381,632       316,797  

Retained earnings

    1,012,713       931,934  

Accumulated other comprehensive loss

    (103,458

)

    (83,521

)

Total shareholders' equity

    1,291,268       1,165,589  

Total liabilities and shareholders’ equity

  $ 1,999,022     $ 1,884,410  

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Bio-Techne Corporation and Subsidiaries

(in thousands)

(unaudited)

 

   

Nine Months Ended

 
   

March 31,

 
   

2020

   

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net earnings

  $ 170,451     $ 79,612  

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

               

Depreciation and amortization

    61,746       58,252  

Costs recognized on sale of acquired inventory

    -       2,804  

Deferred income taxes

    8,641       (11,114

)

Stock-based compensation expense

    26,350       24,151  

Fair value adjustment to contingent consideration payable

    (605 )     (1,100

)

Fair value adjustment on available for sale investments

    (111,267

)

    (2,907 )

Other operating activity

    (674 )     2,255  

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

               

Trade accounts and other receivables, net

    2,692       (13,136 )

Inventories

    (10,009

)

    (11,550

)

Other current assets

    (1,250

)

    (1,000

)

Trade accounts payable, accrued expenses, contract liabilities, and other

    10,031       7,977  
                      Contingent consideration payable     (745 )     -  

Salaries, wages and related accruals

    (5,090

)

    (102

)

Income taxes payable

    10,155       (8,469

)

Net cash provided by operating activities

    160,426       125,673  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Proceeds from sale and maturities of available-for-sale investments

    122,667       17,215  

Purchases of available-for-sale investments

    (50,728

)

    (37,693

)

Additions to property and equipment

    (34,371

)

    (13,719

)

Acquisitions, net of cash acquired

    -       (272,286

)

Net cash provided by (used in) investing activities

    37,568       (306,483

)

                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Cash dividends

    (36,644

)

    (36,237

)

Proceeds from stock option exercises

    38,490       27,029  

Re-purchase of common stock

    (50,112 )     (15,405

)

Proceeds from long-term debt

    40,000       580,000  

Repayments of long-term debt

    (125,375

)

    (396,375

)

       Payment of contingent consideration     (3,400 )     -  

Other financing activity

    (2,042

)

    (4,731

)

Net cash provided by (used in) financing activities

    (139,082

)

    154,281  
                 

Effect of exchange rate changes on cash and cash equivalents

    (3,582 )     99

 

Net increase (decrease) in cash and cash equivalents

    55,330       (26,429

)

Cash and cash equivalents at beginning of period

    100,886       121,990  

Cash and cash equivalents at end of period

  $ 156,216     $ 95,561  
                 

Supplemental disclosure of cash flow information:

               

Cash paid for income taxes

  $ 24,851     $ 26,637  

Cash paid for interest

  $ 14,196     $ 16,610  

 

See Notes to Condensed Consolidated Financial Statements.

 

 

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 condensed 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, 2019, included in the Company's Annual Report on Form 10-K/A for fiscal year 2019. The Company's condensed consolidated Balance Sheet as of June 30, 2019 was derived from the audited annual Consolidated Financial Statements for fiscal year 2019. Refer to the Company's Annual Report on Form 10-K/A for fiscal year 2019 for the notes to the June 30, 2019 Balance Sheet and a summary of significant accounting policies followed by the Company. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.

 

During fiscal year 2020, the Company operated under two operating segments, Protein Sciences and Diagnostics and Genomics. The operating segments the company operated under were consistent with the Company's reportable segments disclosed in the Company's Annual Report on Form 10-K/A for fiscal 2019. 

 

Recently Adopted Accounting Pronouncements

 

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. The FASB has issued narrow codification improvements to Leases (Topic 842) through ASU No. 2018-10 and ASU 2019-01. Additionally, the FASB issued ASU 2018-11, allowing an entity to elect a transition method where they do not recast prior periods presented in the financial statements in the period of adoption. The Company has elected the transition method allowed for under ASU 2018-11 when adopting Leases (Topic 842). The Company adopted the standard effective July 1, 2019 and correspondingly recorded incremental operating lease liabilities of $80.6 million, a right-of-use lease asset of $79.5 million, retained earnings of $0.8 million and a deferred tax adjustment of $0.3 million. Additionally, the Company reclassified $4.0 million of deferred rent recorded within accrued expenses under ASC 840 - Leases into operating lease liabilities upon adoption of Topic 842. In adopting ASC 842, the Company elected the package of available practical expedients and to use hindsight in determining the lease term for all existing leases. Further, as part of our adoption of ASC 842, the Company also made the accounting policy elections to not capitalize short term leases (defined as a lease with a lease term that is less than 12 months) and to combine lease and non-lease components for all asset classes in determining the lease payments. Refer to Note 7 for additional information on leases. 

 

Pronouncements Issued But Not Yet Adopted

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendment in this update replaced the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade and loan receivables and available-for-sale debt securities. 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 August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the new standard.  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 and may be adopted retrospectively or prospectively to eligible costs incurred on or after the date the guidance is first applied. We are currently evaluating the impact of the adoption of ASU 2018-15 on our consolidated financial statements and anticipate that we will adopt the standard prospectively.

 

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides expedients and exceptions to existing guidance on contract modifications and hedge accounting that is optional to facilitate the market transition from a reference rate, including LIBOR which is being phased out in 2021, to a new reference rate. The standard was effective upon issuance. The provisions of the ASU would impact contract modifications and other changes that occur while LIBOR is phased out. The Company is in the process of evaluating the optional relief guidance provided within this ASU and is also reviewing its debt and derivative instrument that utilizes LIBOR as the reference rate. The Company will continue to evaluate and monitor developments and our assessment of ASU 2020-04 during the LIBOR transition period.

 

 

 

 

Note 2. Revenue Recognition:

 

Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that, for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. The vast majority of service revenues consist of extended warranty contracts, post contract support (“PCS”), and custom development projects that are recognized over time as either the customers receive and consume the benefits of such services simultaneously or the underlying asset being developed has no alternative use for the Company at contract inception and the Company has an enforceable right to payment for the portion of the performance completed. The remaining service revenues were not material to the period and consist of laboratory services recognized at point in time. Given the Company does not have significant historical experience collecting payments from Medicare or insurance providers, the Company considered the variable consideration for such services to be constrained as it would not be probable that a significant amount of revenue would not need to be reversed in future periods for the services provided. Accordingly, the Company did not record revenue upon completion of the performance obligation, but rather upon cash receipt, which was subsequent to the performance obligation being satisfied. Royalty revenues are primarily based on net sales of the Company’s licensed products by a third party. We recognize royalty revenues in the period the sales occur using third party evidence. The Company elected the "right to invoice" practical expedient based on the Company's right to invoice a customer at an amount that approximates the value to the customer and the performance completed to date. 

 

The Company elected the exemption to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less and the exemption to exclude future performance obligations that are accounted under the sales-based or usage-based royalty guidance. The Company’s unfulfilled performance obligations were not material as of March 31, 2020.

  

Contracts with customers that contain instruments may include multiple performance obligations. For these contracts, the Company allocates the contract’s transaction price to each performance obligation on a relative standalone selling price basis. Allocation of the transaction price is determined at the contracts’ inception.

  

Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to 90 days. Service arrangements commonly call for payments in advance of performing the work (e.g. extended warranty and service contracts), upon completion of the service (e.g. custom development manufacturing) or a mix of both.

 

Contract assets include revenues recognized in advance of billings. Contract assets are included within other current assets in the accompanying balance sheet as the amount of time expected to lapse until the company's right to consideration becomes unconditional is less than one year. We elected the practical expedient allowing us to expense contract costs that would otherwise be capitalized and amortized over a period of less than one year. Contract assets as of March 31, 2020 are not material.

 

Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits and unearned revenue on warranty contracts. Contract liabilities as of  March 31, 2020 and June 30, 2019 were approximately $14.8 million and $10.4 million, respectively. Contract liabilities as of June 30, 2019 subsequently recognized as revenue during the quarter period and nine month period ended March 31, 2020 were approximately $1.1 million and $7.0 million, respectively. Contract liabilities in excess of one year are included in Other long-term liabilities on the balance sheet.

 

 

Any claims for credit or return of goods must be made within 10 days of receipt. Revenues are reduced to reflect estimated credits and returns. Although the amounts recorded for these revenue deductions are dependent on estimates and assumptions, historically our adjustments to actual results have not been material.

 

Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of products. We elected the practical expedient that allows us to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost, and we accrue costs of shipping and handling when the related revenue is recognized.

 

The following tables present our disaggregated revenue for the periods presented.

 

Revenue by type is as follows:

 

   

Quarter Ended

   

Nine Months Ended

 
   

March 31,

   

March 31,

 
   

2020

   

2019

   

2020

   

2019

 

Consumables

  $ 161,958     $ 153,783     $ 462,660     $ 429,340  

Instruments

    16,405       16,104       53,381       51,116  

Services

    11,426       9,565       32,917       27,027  

Total product and services revenue, net

  $ 189,789     $ 179,452     $ 548,958     $ 507,483  

Royalty revenues

    4,891       5,409       13,899       14,858  

Total revenues, net

  $ 194,680     $ 184,861     $ 562,857     $ 522,341  

 

Revenue by geography is as follows:

 

   

Quarter Ended

March 31,

   

Nine Months Ended

March 31,

 
    2020    

2019

   

2020

   

2019

 

United States

  $ 109,797     $ 98,228     $ 311,815     $ 281,585  

EMEA, excluding United Kingdom

    39,108       42,339       115,993       116,018  

United Kingdom

    9,166       10,737       24,619       26,703  

APAC, excluding Greater China

    17,193       14,943       46,982       39,990  

Greater China

    13,781       12,993       49,655       42,727  

Rest of World

    5,635       5,621       13,793       15,318  

Total revenues, net

  $ 194,680     $ 184,861     $ 562,857     $ 522,341  

 

 

 

Note 3. Selected Balance Sheet Data:

 

Inventories:

 

Inventories consist of (in thousands):

 

   

March 31,

   

June 30,

 
   

2020

   

2019

 

Raw materials

  $ 47,263     $ 40,913  

Finished goods(1)

    56,059       53,376  

Inventories, net

  $ 103,322     $ 94,289  

 

(1) Finished goods inventory of $3,649 and $3,239 is included within other long-term assets in the respective March 31, 2020 and June 30, 2019, consolidated balance sheet. The inventory is included in long-term assets as it is forecasted to be sold after the 12 months subsequent to the consolidated balance sheet date.  

 

Property and Equipment:

 

Property and equipment consist of (in thousands):

 

   

March 31,

   

June 30,

 
   

2020

   

2019

 

Land

  $ 7,561     $ 7,065  

Buildings and improvements

    182,300       175,019  

Machinery and equipment

    141,506       124,233  

Property and equipment, cost

    331,367       306,317  

Accumulated depreciation

    (166,355

)

    (152,278

)

Property and equipment, net

  $ 165,012     $ 154,039  

 

Intangible Assets:

 

Intangible assets consist of (in thousands):

 

   

March 31,

   

June 30,

 
   

2020

   

2019

 

Developed technology

  $ 434,367     $ 435,679  

Trade names

    146,428       147,296  

Customer relationships

    209,651       214,320  

Patents

    2,377       2,133  

Intangible assets

    792,823       799,428  

Accumulated amortization

    (262,490

)

    (219,999

)

Intangible assets, net

  $ 530,333     $ 579,429  

 

 

Changes to the carrying amount of net intangible assets for the nine months ended March 31, 2020 consist of (in thousands):

 

Beginning balance

  $
579,429
 

Acquisitions

    -  

Other additions

    214  

Amortization expense

    (45,625

)

Currency translation

    (3,685 )

Ending balance

  $ 530,333  

 

The estimated future amortization expense for intangible assets as of March 31, 2020 is as follows (in thousands):

 

2020 remainder

  $ 15,423  

2021

    59,545  

2022

    57,335  

2023

    55,469  

2024

    53,008  

Thereafter

    289.553  

Total

  $ 530,333  

 

Goodwill:

 

Changes to the carrying amount of goodwill for the nine months ended March 31, 2020 consist of (in thousands):

 

   

Protein Sciences

   

Diagnostics and

Genomics

   

Total

 

Beginning balance

  $ 377,407       355,260     $ 732,667  

Acquisitions (Note 4)

    -       -       -  
Prior year acquisitions/adjustments (Note 4)     (326 )     -       (326 )

Currency translation

    (6,424 )     (86

)

   
(6,510
)

Ending balance

  $ 370,657     $ 355,174     $ 725,831  

 

We evaluate the carrying value of goodwill in the fourth quarter of each fiscal year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. The Company performed a goodwill impairment assessment for all of its reporting units during the fourth quarter of fiscal 2019. No indicators of impairment were identified as part of our assessment. 

 

No triggering events were identified during the nine months ended March 31, 2020. 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. 

 

 

 

Note 4. 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 the results of operations of each acquired business are 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.

 

B-MoGen Biotechnologies

 

On June 4, 2019, the Company acquired the remaining interest in B-MoGen Biotechnologies, Inc. (B-MoGen) for approximately $17.4 million, net of cash acquired, plus contingent consideration of up to $38.0 million, subject to certain product development milestones and revenue thresholds. The Company previously held an investment of $1.4 million in B-MoGen and recognized a gain of approximately $3.7 million on the date of the transaction representing the adjustment of our historical investment to its fair value as previously disclosed in our 10K/A. The goodwill recorded as 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 Protein Sciences reportable segment in the fourth quarter of fiscal year 2019. Purchase accounting was finalized during the third quarter of fiscal 2020. The preliminary and final fair values of the assets acquired and liabilities assumed are as follows (in thousands):

 

   

Preliminary

Allocation at

Acquisition

Date

   

Adjustments to

Fair Value

 

 

Adjusted Final Allocation at March 31, 2020  

Current assets, net of cash

  $ 504   $ -   $ 504  

Equipment and other long-term assets

    269     -     269  

Intangible assets:

                   

Developed technology

    14,000     -     14,000  

Customer relationships

    400     -     400  

Goodwill

    16,457     (326 )   16,131  

Total assets acquired

    31,630     (326 )   31,304  

Liabilities

    211     -     211  

Deferred income taxes, net

    3,377     (326 )   3,051  

Net assets acquired

  $ 28,042   $ -   $ 28,042  
                     

Cash paid, net of cash acquired

  $ 17,448   $ -   $ 17,448  

Fair value of contingent consideration

    5,500     -     5,500  

Fair value of historical investment in B-MoGen

    5,094     -     5,094  

Net assets acquired

  $ 28,042   $ -   $ 28,042  

 

Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's assessment. The purchase price allocated to developed technology was estimated based on management's forecasted cash inflows and outflows and using a multi-period excess earnings method to calculate the fair value of assets purchased. The amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for developed technology is estimated to be 14 years. The net deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset amortization, which is not deductible for income tax purposes offset by the deferred tax asset for the calculation of acquired NOLs.

 

 

 

Note 5. Fair Value Measurements:

 

The Company’s financial instruments include cash and cash equivalents, available for sale investments, derivative instruments, 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

 
   

March 31,

2020

   

Level 1

   

Level 2

   

Level 3

 

Assets

                               

Equity securities (1)

  $ 70,172     $ 64,587     $ 5,585     $ -  

Certificates of deposit (2)

    34,700       34,700       -       -  

Total assets

  $ 104,872     $ 99,287     $ 5,585     $ -  
                                 

Liabilities

                               

Contingent consideration

  $ 7,850     $ -     $ -     $ 7,850  

Derivative instruments - cash flow hedges

    18,725       -       18,725       -  

Total liabilities

  $ 26,575     $ -     $ 18,725     $ 7,850  

 

   

Total

carrying

value as of

   

Fair Value Measurements Using

Inputs Considered as

 
   

June 30,

2019

   

Level 1

   

Level 2

   

Level 3

 

Assets

                               

Equity securities (1)

  $ 38,219     $ 38,219     $ -     $ -  

Certificates of deposit (2)

    26,928       26,928       -       -  

Total assets

  $ 65,147     $ 65,147     $ -     $ -  
                                 

Liabilities

                               

Contingent consideration

  $ 12,600     $ -     $ -     $ 12,600  

Derivative instruments - cash flow hedges

    12,458       -       12,458       -  

Total liabilities

  $ 25,058     $ -     $ 12,458     $ 12,600  

 

 

 

(1)

Included in available-for-sale investments on the condensed consolidated balance sheet.   The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) was $7.6 million and $18.8 million as of March 31, 2020 and June 30, 2019, respectively. The Company has a warrant to purchase additional CCXI equity shares which was valued at $5.6 million as of March 31, 2020. The fair value of the warrant as of June 30, 2019 was not material. 

 

(2)

Included in available-for-sale investments on the condensed consolidated balance sheet.  The certificates of deposit have contractual maturity dates within one year.

 

Fair value measurements of available for sale securities

Available for sale securities excluding warrants are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. The Company's warrant to purchase additional shares at a specified future price was valued using a Black-Scholes model with observable inputs in active markets and therefore was classified as a Level 2 asset. 

 

Fair value measurements of derivative instruments

In October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The forward starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps, the Company will exchange, at specified intervals, the difference between floating and fixed interest amounts based on $380 million of notional principal amount. The change in the fair value of the instrument is reported as a component of the other comprehensive income and reclassified into interest expense over the corresponding term of the cash flow hedge. As further described in Note 8, the company reclassified $1.3 million and $2.1 million out of other comprehensive income into interest expense during the quarter and nine months ended March 31, 2020, respectively. The liability related to the derivative instrument was recorded within Other long-term liabilities on the Consolidated Balance Sheet. The instrument was valued using observable market inputs in active markets and therefore classified as a Level 2 liability.

 

 

Fair value measurements of contingent consideration

In connection with the Exosome Diagnostics, Inc. (Exosome), QT Holdings Corporation (Quad), and B-MoGen acquisitions the Company is required to make contingent consideration payments of up to $325.0 million, $51.0 million and $38.0 million, respectively. The contingent consideration payments are subject to Exosome achieving certain EBITA thresholds, Quad meeting certain product development milestones and revenue thresholds, and B-MoGen meeting certain product development milestones and revenue thresholds. The preliminary fair value of the liabilities for the contingent payments recognized upon the acquisition as part of the purchase accounting opening balance sheet totaled $14.6 million ($3.8 million for Exosome, $5.3 million for Quad, and $5.5 million for B-MoGen).  The preliminary fair value of the development milestone payments was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in these calculations were probability of success, duration of the earn-out, and discount rate. The preliminary fair value for the EBITA and revenue milestone payments was determined using a Monte Carlo simulation-based model discounted to present value.  Assumptions used in these calculation included units sold, expected revenue, expected expenses, 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.

 

The following table presents a reconciliation of the liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter and nine months ended March 31, 2020 (in thousands):

 

   

Quarter Ended

   

Nine Months Ended

 
   

March 31,

2020

   

March 31,

2020

 

Fair value at the beginning of period

  $ 12,555     $ 12,600  

Change in fair value of contingent consideration

    (705

)

    (605 )

Payments

    (4,000

)

    (4,145

)

Fair value at the end of period

  $ 7,850     $ 7,850  

 

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.

 

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.

 

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 6. Debt and Other Financing Arrangements:

 

On August 1, 2018, the Company entered into a new revolving line-of-credit and term loan governed by a Credit Agreement (the Credit Agreement). The Credit Agreement provides for a revolving credit facility of $600.0 million, which can be increased by an additional $200.0 million subject to certain conditions, and a term loan of $250.0 million. 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 bear interest at a variable rate. The current outstanding debt is based on the Eurodollar Loans term for which the interest rate is calculated as the sum of LIBOR plus an applicable margin. The applicable margin is determined from the total leverage ratio of the Company and updated on a quarterly basis. The annualized fee for any unused portion of the credit facility is currently 20 basis points.

 

The Credit Agreement matures on August 1, 2023 and contains customary restrictive and financial covenants and customary events of default. As of March 31, 2020, the outstanding balance under the Credit Agreement was $420.1 million. 

 

 

 

Note 7. Leases: 

 

As a lessee, the company leases offices, labs, and manufacturing facilities, as well as vehicles, copiers, and other equipment. The Company adopted ASU No. 2016-02 and related standards (collectively ASC 842, Leases), which replaced previous lease accounting guidance, on July 1, 2019. 


The Company recognizes operating lease expense on a straight-line basis over the lease term. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is the Company’s incremental borrowing rate or, if available, the rate implicit in the lease. The Company determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region. During the quarter and nine months ended March 31, 2019, the Company recognized $0.8 million and $2.7 million in variable lease expense, respectively, in the Condensed Consolidated Statements of Earnings and Comprehensive Income.  During the quarter and nine months ended March 31, 2020, the Company also recognized $3.2 million and $9.5 million, respectively relating to fixed lease expense in the Condensed Consolidated Statements of Earnings and Comprehensive Income. 

 

The following table summarizes the balance sheet classification of the Company’s operating leases, amounts of right of use assets and lease liabilities, the weighted average remaining lease term, and the weighted average discount rate for the Company’s operating leases (asset and liability amounts are in thousands):

 

 

Balance Sheet Classification

 

As of:

March 31,

2020

 

Operating leases:

         

Operating lease right of use assets

Right of Use Asset

  $ 73,751  
           

Current operating lease liabilities

Operating lease liabilities current

  $ 9,544  

Noncurrent operating lease liabilities

Operating lease liabilities

    69,491  

Total operating lease liabilities

  $ 79,035  
           

Weighted average remaining lease term (in years):

    8.89  
           

Weighted average discount rate:

    4.39

%

 

The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right of use assets obtained in exchange for new operating lease liabilities for the nine months ended  March 31, 2020 (in thousands):

 

   

Nine months

ended March 31,

2020

 

Cash amounts paid on operating lease liabilities(1)

  $ 9,643  
         

Right of use assets obtained in exchange for lease liabilities

    1,640  

 

(1) Total cash paid for the Company's operating leases during the nine months ended March 31, 2020 include cash amounts paid on operating lease liabilities and variable lease expenses. Cash flow impacts from right of use assets and lease liabilities are presented net on the cash flow statement in changes in other operating activity.  

 

The following table summarizes the fair value of the lease liability by payment date for the Company’s operating leases by fiscal year (in thousands):

 

   

Operating

Leases

 

Remainder of 2020

  $ 2,362  

2021

    9,405  

2022

    9,332  

2023

    8,918  

2024

    8,320  

Thereafter

    40,698  

Total

  $ 79,035  

 

 

Certain leases include one or more options to renew, with terms that extend the lease term up to five years. The Company includes option to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, the Company is not reasonably certain to exercise such options.

 

Disclosures related to periods prior to adoption of new lease standard:

 

At June 30, 2019, aggregate net minimum rental commitments under non-cancelable leases having an initial or remaining term of more than one year are payable as follows (in thousands):

 

   

Operating

Leases

 

2020

  $ 13,707  

2021

    13,469  

2022

    13,154  

2023

    12,716  

2024

    11,392  

Thereafter

    51,895  

Total

  $ 116,333  

 

Total rent expense was approximately $12.9 million, $10.8 million, and $9.8 million for the years ended June 30, 2019, 2018, and 2017, respectively. 

 

 

 

Note 8. Supplemental Equity and Accumulated Other Comprehensive Income (Loss):

 

Supplemental Equity

 

The Company has declared cash dividends per share of $0.32 and $0.96 in both the three and nine month periods ended March 31, 2020 and 2019, respectively. 

 

Consolidated Changes in Equity (amounts in thousands)

                                   

Accumulated

         
                   

Additional

           

Other

         
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

         
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income(Loss)

   

Total

 

Balances at June 30, 2019

    37,934     $ 379     $ 316,797     $ 931,934     $ (83,521

)

  $ 1,165,589  

Cumulative effect adjustments due to adoption of new accounting standards and other

                            (879

)

            (879

)

Net earnings

                            14,398               14,398  

Other comprehensive income (loss)

                                    (8,106

)

    (8,106

)

Common stock issued for exercise of options

    94       1       7,854                       7,855  

Common stock issued for restricted stock awards

    50       0       (0

)

    (1,926

)

            (1,926

)

Cash dividends

                            (12,169

)

            (12,169

)

Stock-based compensation expense

                    8,267                       8,267  

Common stock issued to employee stock purchase plan

    6       0       1,096                       1,096  

Employee stock purchase plan expense

                    99                       99  

Balances at September 30, 2019

    38,084     $ 381     $ 334,112     $ 931,358     $ (91,627

)

  $ 1,174,224  

Net earnings

                            119,622               119,622  

Other comprehensive income (loss)

                                    13,275       13,275  

Common stock issued for exercise of options

    195       2       18,293                       18,295  

Common stock issued for restricted stock awards

    4       0       (0

)

                    0  

Cash dividends

                            (12,197

)

            (12,197

)

Stock-based compensation expense

                    10,017                       10,017  

Common stock issued to employee stock purchase plan

                                               

Employee stock purchase plan

                    112                       112  

Balance at December 31, 2019

    38,283     $ 383     $ 362,534     $ 1,038,783     $ (78,352

)

  $ 1,323,348  

Net earnings

                            36,432               36,432  
       Other comprehensive income (loss)                                     (25,105 )     (25,105 )

       Share repurchases

 

 

(279 )

 

 

(3 )

 

 

0

 

 

 

(50,109 )

 

 

 

 

 

 

(50,112 )

Common stock issued for exercise of options

    100       1       10,026                       10,027  

Common stock issued for restricted stock awards

    1       0       (0 )     (114 )             (114 )

Cash dividends

                            (12,279 )             (12,279 )

Stock-based compensation expense

                    7,745                       7,745  

Common stock issued to employee stock purchase plan

    8       0       1,216                       1,216  

Employee stock purchase plan

                    110                       110  

Balance at March 31, 2020

    38,112     $ 381     $ 381,632     $ 1,012,713     $ (103,458

)

  $ 1,291,268  

 

17

 

                                   

Accumulated

         
                   

Additional

           

Other

         
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

         
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income(Loss)

   

Total

 

Balances at June 30, 2018

    37,608     $ 376     $ 246,568     $ 876,931     $ (44,814

)

  $ 1,079,061  

Cumulative effect adjustments due to adoption of new accounting standards and other

                            25,276       (24,682

)

    594  

Net earnings

                            17,403               17,403  

Other comprehensive income (loss)

                                    (1,136

)

    (1,136

)

Common stock issued for exercise of options

    166       2       15,609                       15,611  

Common stock issued for restricted stock awards

    24       0               (2,405

)

            (2,405

)

Cash dividends

                            (12,066

)

            (12,066

)

Stock-based compensation expense

                    11,327                       11,327  

Common stock issued to employee stock purchase plan

    5       0       842                       842  

Employee stock purchase plan expense

                    238                       238  

Balances at September 30, 2018

    37,803     $ 378     $ 274,584     $ 905,139     $ (70,632

)

  $ 1,109,469  

Net earnings

                            17,556               17,556  

Other comprehensive income (loss)

                                    (12,379

)

    (12,379

)

Share repurchases

    (95

)

    (1

)

            (15,404

)

            (15,404

)

Common stock issued for exercise of options

    24               2,408                       2,408  

Common stock issued for restricted stock awards

    3       0                               -  

Cash dividends

                            (12,086

)

            -  

Stock-based compensation expense

                    6,784                       6,784  

Common stock issued to employee stock purchase plan

    0       0                               -  

Employee stock purchase plan expense

                    77                       77  

Balances at December 31, 2018

    37,735     $ 377     $ 283,854     $ 895,205     $ (83,011

)

  $ 1,096,425  

Net earnings

                            44,654               44,654  

Other comprehensive income (loss)

                                    3,378       3,378  

Share repurchases

                                            -  

Common stock issued for exercise of options

    73       1       7,336                       7,337  

Common stock issued for restricted stock awards

    1       0                               -  

Cash dividends

                            (12,086 )             (12,086 )

Stock-based compensation expense

                    5,640                       5,640  

Common stock issued to employee stock purchase plan

    4