Bio-Techne Corporation and subsidiaries, collectively doing business as Bio-Techne (the Company), develop, manufacture and sell biotechnology and clinical diagnostic products worldwide. With its deep product portfolio and application expertise, Bio-Techne is a leader in providing specialized proteins, including cytokines and growth factors, and related immunoassays, small molecules and other reagents to the research and diagnostics markets.

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates include the valuation of accounts receivable, available-for-sale investments, inventory, intangible assets, contingent consideration, stock-based compensation and income taxes. Actual results could differ from these estimates.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Assets and liabilities of the Company's foreign operations are translated at year-end rates of exchange and the resulting gains and losses arising from the translation of net assets located outside the U.S. are recorded as other comprehensive income (loss) on the consolidated statements of earnings and comprehensive income. The cumulative translation adjustment is a component of accumulated other comprehensive loss on the consolidated balance sheets. Foreign statements of earnings are translated at the average rate of exchange for the year. Foreign currency transaction gains and losses are included in other non-operating expense in the consolidated statements of earnings and comprehensive income.

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Payment terms for shipments to end-users are generally net days. Payment terms for distributor shipments range from to days. Freight charges billed to end-users are included in net sales and freight costs are included in cost of sales. Freight charges on shipments to distributors are paid directly by the distributor. Any claims for credit or return of goods must be made within days of receipt. Revenues are reduced to reflect estimated credits and returns. Sales, use, value-added and other excise taxes are included in revenue.

 

For contracts with multiple element arrangements, the Company allocates the contract’s transaction price to each element on a relative standalone selling price basis using the Company’s best estimate of the standalone selling price of each distinct product or service in the contract. The primary method used to estimate standalone selling price is the list price of each distinct product or service as this represents the best estimate of selling price. Allocation of the transaction price is determined at the contracts’ inception.

 

Royalty revenues are based on net sales of the Company’s licensed products by a party. We recognize royalty revenues in the period the sales occur based on party evidence received.

 

Deferred revenues include billings in excess of revenues recognized, such as those resulting from customer advances and deposits and unearned revenue on service contracts.

Research and development expenditures are expensed as incurred. Development activities generally relate to creating new products, improving or creating variations of existing products, or modifying existing products to meet new applications.

Advertising expenses were million million, and million for fiscal and respectively. The Company expenses advertising expenses as incurred.

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized to record the income tax effect of temporary differences between the tax basis and financial reporting basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Tax positions taken or expected to be taken in a tax return are recognized in the financial statements when it is more likely than that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than percent likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.

 

See Note for additional information regarding income taxes.

 

Comprehensive income includes charges and credits to shareholders' equity that are the result of transactions with shareholders. Our total comprehensive income consists of net income, unrealized gains and losses on available-for-sale marketable securities, and foreign currency translation adjustments. The items of comprehensive income, with the exception of net income, are included in accumulated other comprehensive loss in the consolidated balance sheets and statements of shareholders' equity.

Cash and cash equivalents include cash on hand and highly-liquid investments with original maturities of months or less.

Available-for-sale investments consist of debt instruments with original maturities of generally months to months and equity securities. Available-for-sale investments are recorded based on trade-date. The Company considers all of its marketable securities available-for-sale and reports them at fair value.  Unrealized gains and losses on available-for-sale securities are excluded from income, but are included, net of taxes, in other comprehensive income. If an "other-than-temporary" impairment is determined to exist, the difference between the value of the investment security recorded in the financial statements and the Company's current estimate of the fair value is recognized as a charge to earnings in the period in which the impairment is determined.

 

Trade accounts receivable are initially recorded at the invoiced amount upon the sale of goods or services to customers, and they do bear interest. They are stated net of allowances for doubtful accounts, which represent estimated losses resulting from the inability of customers to make the required payments. When determining the allowances for doubtful accounts, we take several factors into consideration, including the overall composition of accounts receivable aging, our prior history of accounts receivable write-offs, the type of customer and our day-to-day knowledge of specific customers. Changes in the allowances for doubtful accounts are included in selling, general and administrative (SG&A) expense in our consolidated statements of earnings and comprehensive income. The point at which uncollected accounts are written off varies by type of customer.

Inventories are stated at the lower of cost (-in, -out method) or net realizable value. The Company regularly reviews inventory on hand for slow-moving and obsolete inventory, inventory meeting quality control standards and inventory subject to expiration. To meet strict customer quality standards, the Company has established a highly controlled manufacturing process for proteins, antibodies and its chemically-based products. These products require the initial manufacture of multiple batches to determine if quality standards can be consistently met. In addition, the Company will produce larger batches of established products than current sales requirements due to economies of scale. The manufacturing process for these products, therefore, has and will continue to produce quantities in excess of forecasted usage. The Company values its manufactured protein and antibody inventory based on a -year forecast and its chemically-based products on a -year forecast. Inventory quantities in excess of the forecast are valued due to uncertainty over salability. 

 

The company records a lower of cost or net realizable value adjustment to cost of sales for those quantities that are in excess of the manufactured protein and antibody -year forecast and the chemically-based products year forecast. For the years ended and the amount recognized in net sales of inventory sold that was valued is material.

 

Property and equipment are recorded at cost. Equipment is depreciated using the straight-line method over an estimated useful life of years. Buildings, building improvements and leasehold improvements are amortized over estimated useful lives of to years.

Intangible assets are stated at historical cost less accumulated amortization. Amortization expense is generally determined on the straight-line basis over periods ranging from year to years. Each reporting period, we evaluate the remaining useful lives of our amortizable intangibles to determine whether events or circumstances warrant a revision to the remaining period of amortization. If our estimate of an asset's remaining useful life is revised, the remaining carrying amount of the asset is amortized prospectively over the revised remaining useful life. In the current year, the Company has identified such events.

 

We evaluate the recoverability of property, plant, equipment and amortizable intangibles whenever events or changes in circumstances indicate that an asset's carrying amount be recoverable. Such circumstances could include, but are limited to, () a significant decrease in the market value of an asset, () a significant adverse change in the extent or manner in which an asset is used or in its physical condition, or () an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of an asset. We compare the carrying amount of the asset to the estimated undiscounted future cash flows associated with it. If the sum of the expected future net cash flows is less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds the fair value of the asset. As quoted market prices are available for the majority of our assets, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows.

 

The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results differ from assumed and estimated amounts. triggering events were identified and impairments were recorded for property, plant, and equipment or amortizable intangibles were recorded during fiscal year

We evaluate the carrying value of goodwill during the quarter each year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. Such circumstances could include, but are limited to, () a significant adverse change in legal factors or in business climate, () unanticipated competition, () an adverse action or assessment by a regulator, or () an adverse change in market conditions that are indicative of a decline in the fair value of the assets.

 

To analyze goodwill for impairment, we must assign our goodwill to individual reporting units. Identification of reporting units includes an analysis of the components that comprise each of our operating segments, which considers, among other things, the manner in which we operate our business and the availability of discrete financial information. Components of an operating segment are aggregated to form reporting unit if the components have similar economic characteristics. We periodically review our reporting units to ensure that they continue to reflect the manner in which we operate our business.

 

In completing our and annual goodwill impairment analyses, we elected to perform a quantitative assessment for all of our reporting units. A quantitative assessment involves comparing the carrying value of the reporting unit, including goodwill, to its estimated fair value. Carrying value is based on the assets and liabilities associated with the operations of the reporting unit, which often requires the allocation of shared or corporate items among reporting units. In accordance with ASU - a goodwill impairment charge is recorded for the amount by which the carrying value of a reporting unit exceeds the fair value of the reporting unit. In determining the fair values of our reporting units, we utilized the income approach. The income approach is a valuation technique under which we estimated future cash flows using the reporting unit's financial forecast from the perspective of an unrelated market participant. Using historical trending and internal forecasting techniques, we projected revenue and applied our fixed and variable cost experience rates to the projected revenue to arrive at the future cash flows. A terminal value was then applied to the projected cash flow stream. Future estimated cash flows were discounted to their present value to calculate the estimated fair value. The discount rate used was the value-weighted average of our estimated cost of capital derived using both known and estimated customary market metrics. In determining the estimated fair value of a reporting unit, we were required to estimate a number of factors, including projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, the discount rate and the allocation of shared or corporate items.

 

Because our and quantitative analyses included all of our reporting units, the summation of our reporting units' fair values was compared to our consolidated fair value, as indicated by our market capitalization, to evaluate the reasonableness of our calculations.

 

The quantitative assessment completed as of and indicated that all of the reporting units had a substantial amount of headroom. This impairment assessment is sensitive to changes in forecasted cash flows, as well as our selected discount rate. Changes in the reporting unit's results, forecast assumptions and estimates could materially affect the estimation of the fair value of the reporting units.

 

 

The Company used a qualitative test for all reporting units during the quarter for fiscal year . The company elected to utilize a quantitative test for the Protein Platforms reporting unit for fiscal year using the previously described income approach given that this is a newer reporting unit created primarily through acquisitions. The qualitative analyses for our other reporting units completed during evaluated factors including, but limited to, economic, market and industry conditions, cost factors and the overall financial performance of the reporting units. In completing these assessments, we noted changes in events or circumstances which indicated that it was more likely than that the fair value of any reporting unit was less than its carrying amount. Based on the testing performed for the Protein Platforms reporting unit, fair value exceeded carrying value by a substantial amount and adjustment to the carrying value of goodwill was necessary.

There has been impairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”) ASC guidance for goodwill and other intangibles on

The Company periodically invests in the equity of start-up and early development stage companies. The accounting treatment of each investment (cost method or equity method) is dependent upon a number of factors, including, but limited to, the Company's share in the equity of the investee and the Company's ability to exercise significant influence over the operating and financial policies of the investee.

 

The following table includes a reference to additional significant accounting policies that are described in other notes to the financial statements, including the note number:

 

 

 

In the FASB issued ASU - . This provision would require inventory that was previously recorded using -in, -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 The application of this standard did have significant impact on our financial statements.

In the FASB issued ASU - . 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 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 the FASB issued ASU - . The standard added to the FASB Codification the guidance provided by the SEC in regarding the accounting for the Tax Cuts and Jobs Act ("Tax Act"). We complied with SAB when preparing our annual consolidated financial statements for the year ended Reasonable estimates were used in determining several of the components of the impact of the Tax Act, including our fiscal deferred income tax activity and the amount of post- foreign deferred earnings subject to the repatriation transition tax. We are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of our deferred tax balances and the amount of the repatriation toll charge liability, and ultimately cause us to revise our initial estimates in future periods. In addition, changes in interpretations, assumptions and guidance regarding the Tax Act, as well as the potential for technical corrections, could have a material impact on our effective tax rate in future periods.

 

In the FASB issued ASU - . The standard provides guidance about which changes to the terms or conditions of a share-based payment award require modification accounting, which 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 which for us is The guidance is required to be applied prospectively to awards modified on or after the effective date. We elected to early adopt this guidance on in advance of a modification that occurred during the quarter. Adoption of this standard did have significant impact on our results of operations or financial position.

 

 

 

In the FASB issued ASU - . 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 In addition, in the FASB issued ASU - , in the FASB issued ASU - , and in the FASB issued ASU - . These standards are intended to clarify aspects of ASU - and are effective for us upon adoption of ASU -

 

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 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.

 

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, the application of the new guidance including the cumulative effect of the change in the quarter of fiscal year will have a material impact to the Company’s consolidated financial statements.

 

In the FASB issued ASU - . The standard is intended to improve the recognition, measurement, presentation and disclosure of financial instruments. Among other changes, there will longer be an available-for-sale classification for which changes in fair value are currently reported in other comprehensive income for equity securities with readily determinable fair values. This ASU is effective using the modified retrospective approach for annual periods and interim periods within those annual periods beginning after which for us is This ASU could increase income statement volatility, as changes in the fair value of our equity investments will flow through earnings after adoption.

 

In the FASB issued ASU - ), 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 which for us is Early adoption is permitted.  In the FASB issued ASU - , which amends narrow aspects of the guidance in ASU - We have established an implementation team to evaluate and identify the impact of the standard on our financial position, results of operations and cash flows. We are currently assessing our leasing arrangements and evaluating the impact of practical expedients. We are able to quantify the impact of the standard at this time.

 

In the FASB issued ASU - . 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 within those annual periods beginning after which for us is Entities early adopt beginning after We are currently evaluating the impact of the adoption of ASU - on our consolidated financial statements.

 

In the FASB issued ASU - . 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 within those annual periods beginning after which for us is required to be applied prospectively to transactions occurring on or after the effective date.

 

In the FASB issued ASU - . The standard allows companies to make an election to reclassify from accumulated other comprehensive income to retained earnings the stranded tax effects resulting from the Tax Cuts and Jobs Act of This ASU is effective for annual and interim periods beginning after which for us is Early adoption is permitted. We are currently evaluating this ASU and have yet made a decision regarding our policy election or early adoption.