Note 1 - Description of Business and Summary of Significant Accounting Policies
|12 Months Ended|
Jun. 30, 2018
|Notes to Financial Statements|
|Business Description and Accounting Policies [Text Block]||
1.Description of Business and Summary of Significant Accounting Policies:
Description of business: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.
stimates: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.
Principles of consolidation:The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Translation of foreign financial statements: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.
Revenue recognition: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
30days. Payment terms for distributor shipments
90days. 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
10days of receipt. Revenues are reduced to reflect estimated credits and returns. Sales, use, value-added and other excise taxes are
notincluded 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
thirdparty. We recognize royalty revenues in the period the sales occur based on
thirdparty 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: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 costs:Advertising expenses were
$5.2million for fiscal
2016respectively. The Company expenses advertising expenses as incurred.
Income taxes: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
notthat 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
fiftypercent likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
10for additional information regarding income taxes.
Comprehensive income:Comprehensive income includes charges and credits to shareholders' equity that are
notthe 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.
equivalents:Cash and cash equivalents include cash on hand and highly-liquid investments with original maturities of
threemonths or less.
Available-for-sale investments:Available-for-sale investments consist of debt instruments with original maturities of generally
sixmonths 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:Trade accounts receivable are initially recorded at the invoiced amount upon the sale of goods or services to customers, and they do
notbear 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:Inventories are stated at the lower of cost (
first-out method) or net realizable value. The Company regularly reviews inventory on hand for slow-moving and obsolete inventory, inventory
notmeeting 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
two-year forecast and its chemically-based products on a
five-year forecast. Inventory quantities in excess of the forecast are
notvalued 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
two-year forecast and the chemically-based products
fiveyear forecast. For the years ended
June 30, 2018,
2016the amount recognized in net sales of inventory sold that was
Property and equipment:Property and equipment are recorded at cost. Equipment is depreciated using the straight-line method over an estimated useful life of
fiveyears. Buildings, building improvements and leasehold improvements are amortized over estimated useful lives of
20years. 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
Impairment of long-lived assets and amortizable intangibles:We evaluate the recoverability of property, plant, equipment and amortizable intangibles whenever events or changes in circumstances indicate that an asset's carrying amount
notbe recoverable. Such circumstances could include, but are
notlimited to, (
1) a significant decrease in the market value of an asset, (
2) a significant adverse change in the extent or manner in which an asset is used or in its physical condition, or (
3) 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
notavailable 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
maydiffer from assumed and estimated amounts.
Notriggering events were identified and
noimpairments were recorded for property, plant, and equipment or amortizable intangibles were recorded during fiscal year
Impairment of goodwill:We evaluate the carrying value of goodwill during the
fourthquarter each year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. Such circumstances could include, but are
notlimited to, (
1) a significant adverse change in legal factors or in business climate, (
2) unanticipated competition, (
3) an adverse action or assessment by a regulator, or (
4) 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
onereporting 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.
2017Goodwill Impairment Analyses
In completing our
2017annual 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
04,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.
2017quantitative 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
June 30, 2018and
2017indicated 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.
2016Goodwill Impairment Analysis
The Company used a qualitative test for all reporting units during the
fourthquarter for fiscal year
2016. The company elected to utilize a quantitative test for the Protein Platforms reporting unit for fiscal year
2016using 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
2016evaluated factors including, but
notlimited to, economic, market and industry conditions, cost factors and the overall financial performance of the reporting units. In completing these assessments, we noted
nochanges in events or circumstances which indicated that it was more likely than
notthat 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
noadjustment to the carrying value of goodwill was necessary.
There has been
noimpairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”) ASC
350guidance for goodwill and other intangibles on
July 1, 2002.
Investments in unconsolidated entities:
notlimited 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.
Other Significant Accounting Policies
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:
Recently Adopted Accounting Pronouncements
July 2015,the FASB issued ASU
Simplifying the Measurement of Inventory. This provision would require inventory that was previously recorded using
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
nothave significant impact on our financial statements.
March 2016,the FASB issued ASU
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.
March 2018,the FASB issued ASU
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB). The standard added to the FASB Codification the guidance provided by the SEC in
December 2017regarding the accounting for the Tax Cuts and Jobs Act ("Tax Act"). We complied with SAB
118when preparing our annual consolidated financial statements for the year ended
June 30, 2018.Reasonable estimates were used in determining several of the components of the impact of the Tax Act, including our fiscal
2018deferred income tax activity and the amount of post-
1986foreign 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.
May 2017,the FASB issued ASU
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
mayresult 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. We elected to early adopt this guidance on
April 1, 2018in advance of a modification that occurred during the
fourthquarter. Adoption of this standard did
nothave significant impact on our results of operations or financial position.
Pronouncements Issued but
May 2014,the FASB issued ASU
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
Principal versus Agent Considerations (Reporting Revenue Gross versus Net), in
April 2016,the FASB issued ASU
Identifying Performance Obligations and Licensing, and in
May 2016,the FASB issued ASU
Narrow-Scope Improvements and Practical Expedients. These standards are intended to clarify aspects of ASU
09and 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
twomethods 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
firstquarter of fiscal year
nothave a material impact to the Company’s consolidated financial statements.
January 2016,the FASB issued ASU
Recognition and Measurement of Financial Assets and Financial Liabilities. The standard is intended to improve the recognition, measurement, presentation and disclosure of financial instruments. Among other changes, there will
nolonger 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
December 15, 2017,which for us is
July 1, 2018.This ASU could increase income statement volatility, as changes in the fair value of our equity investments will flow through earnings after adoption.
February 2016,the FASB issued ASU
Leases (Topic), 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. In
July 2018,the FASB issued ASU
Codification Improvements to Topic, which amends narrow aspects of the guidance in ASU
02.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
notable to quantify the impact of the standard at this time.
June 2016,the FASB issued ASU
Financial Instruments - Credit Losses (Topic. 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
326), Measurement of Credit Losses on Financial Instruments
December 15, 2019,which for us is
July 1, 2020.Entities
mayearly adopt beginning after
December 15, 2018.We are currently evaluating the impact of the adoption of ASU
13on our consolidated financial statements.
January 2017,the FASB issued ASU
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 within those annual periods beginning after
December 15, 2018,which for us is
July 1, 2019required to be applied prospectively to transactions occurring on or after the effective date.
February 2018,the FASB issued ASU
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. 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
2017.This ASU is effective for annual and interim periods beginning after
December 15, 2018,which for us is
July 1, 2019.Early adoption is permitted. We are currently evaluating this ASU and have
notyet made a decision regarding our policy election or early adoption.
The entire disclosure for the business description and accounting policies concepts. Business description describes the nature and type of organization including but not limited to organizational structure as may be applicable to holding companies, parent and subsidiary relationships, business divisions, business units, business segments, affiliates and information about significant ownership of the reporting entity. Accounting policies describe all significant accounting policies of the reporting entity.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef