0000842023 BIO-TECHNE Corp false --06-30 Q2 2021 1,526 775 0 0 5,000,000 5,000,000 0 0 0 0 0.01 0.01 100,000,000 100,000,000 38,765,300 38,765,300 38,453,046 38,453,046 6.6 5 47 142 142 Increase in patents and other intangible assets is primarily due to $5.0 million recognized in intangible assets in the first quarter of fiscal 2021 for certain third party patented technology acquired. $4.0 million of the third party patented technology acquired was a non-cash activity within the condensed consolidated statement of cash flows as a cash payment was not made within the six months ended December 31, 2020. The Company reclassified ($821) to interest expense and a related tax benefit tax of $192 during the six months ended December 31, 2019. Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified $5,026 to interest expense and $512 to non-operating income relating to variable interest payments that were probable not to occur as further discussed in Note 6 in the six months ended December 31, 2020. The Company also recorded a related tax benefit of $1,289 during the six months ended December 31, 2020. The Company had deferred tax benefits of $2,886 and $4,058 included in the accumulated other comprehensive income loss as of December 31, 2020 and June 30, 2020, respectively. 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. Included in available-for-sale investments on the balance sheet. The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) at December 31, 2020 and June 30, 2020 was $6.6 million. 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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 December 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 February 1, 2021, 38,798,834 shares of the Company's Common Stock (par value $0.01) were outstanding.

 

 

 

 

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

 

 

 

Item 2.

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

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

25

 

 

 

Item 4.

Controls and Procedures

26

 

 

 

PART II: OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

27

 

 

 

Item 1A.

Risk Factors

27

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

Item 3.

Defaults Upon Senior Securities

28

 

 

 

Item 4.

Mine Safety Disclosures

28

 

 

 

Item 5.

Other Information

28

 

 

 

Item 6.

Exhibits

29

 

 

 

 

SIGNATURES

31

 

 

 

 

 

 

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

December 31,

   

Six Months Ended

December 31,

 
   

2020

   

2019

   

2020

   

2019

 

Net sales

  $ 224,253     $ 184,934     $ 428,452     $ 368,177  

Cost of sales

    73,353       63,531       139,821       128,361  

Gross margin

    150,900       121,403       288,631       239,816  

Operating expenses:

                               

Selling, general and administrative

    83,116       68,030       155,714       137,040  

Research and development

    16,789       16,381       32,830       32,459  

Total operating expenses

    99,905       84,411       188,544       169,499  

Operating income

    50,995       36,992       100,087       70,317  

Other (expense) income

    5,373       113,334

 

    (4,381 )     97,812

 

Earnings before income taxes

    56,368       150,326       95,706       168,129  

Income taxes

    10,224       30,704       16,168       34,111  

Net earnings, including noncontrolling interest

    46,144       119,622       79,538       134,018  

Net earnings attributable to noncontrolling interest

    (130 )     -       (130

)

    -  

Net earnings attributable to Bio-Techne

  $ 46,274     $ 119,622     $ 79,668     $ 134,018  

Other comprehensive (loss) income:

                               

Foreign currency translation adjustments

    16,928       11,867

 

   

28,842

      4,265

 

Derivative instruments - cash flow hedges

    2,059       1,408

 

    4,202       904

 

Other comprehensive income (loss) 

    18,987       13,275

 

    33,044       5,169

 

              Other comprehensive income attributable to noncontrolling interest     83       -       83       -  
              Other comprehensive income attributable to Bio-Techne     18,904       13,275       32,961       5,169  

Comprehensive income attributable to Bio-Techne

  $ 65,178     $ 132,897     $ 112,629     $ 139,187  

Earnings per share attributable to Bio-Techne:

                               

Basic

  $ 1.20     $ 3.13     $ 2.06     $ 3.51  

Diluted

  $ 1.15     $ 3.02     $ 1.98     $ 3.40  
                                 

Weighted average common shares outstanding:

                               

Basic

    38,691       38,167       38,614       38,100  

Diluted

    40,257       39,550       40,135       39,370  

 

 

See Notes to Condensed Consolidated Financial Statements.

 

1

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

Bio-Techne Corporation and Subsidiaries

(in thousands, except share and per share data)

 

  

December 31,
2020
(unaudited)

  

June 30,
2020

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $165,526  $146,625 

Short-term available-for-sale investments

  117,426   124,268 

Accounts receivable, net of $1,526 and $775 of reserves, respectively

  128,243   122,534 

Inventories

  106,590   103,152 

Other current assets

  24,148   24,341 

Total current assets

  541,933   520,920 
         

Property and equipment, net

  195,602   176,829 

Right of use asset

  68,154   71,465 

Goodwill

  746,666   728,308 

Intangible assets, net

  504,172   516,545 

Other assets

  11,339   13,522 

Total assets

 $2,067,866  $2,027,589 

LIABILITIES AND SHAREHOLDERS' EQUITY

        

Current liabilities:

        

Trade accounts payable

 $24,252  $23,090 

Salaries, wages and related accruals

  31,907   31,087 

Accrued expenses

  13,973   9,093 

Contract liabilities

  13,217   13,049 

Income taxes payable

  3,658   2,376 

Operating lease liabilities - current

  9,912   9,535 

Contingent consideration payable

  4,983   5,938 

Current portion of long-term debt obligations

  12,500   12,500 
Other current liabilities  3,166   - 

Total current liabilities

  117,568   106,668 
         

Deferred income taxes

  105,342   101,090 

Long-term debt obligations

  219,035   344,243 

Long-term contingent consideration payable

  5,599   199 

Operating lease liabilities

  63,672   67,248 

Other long-term liabilities

  25,796   26,949 

Bio-Techne's 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 38,765,300 and 38,453,046, respectively

  388   385 

Additional paid-in capital

  481,004   420,536 

Retained earnings

  1,104,762   1,057,470 

Accumulated other comprehensive loss

  (64,238

)

  (97,199

)

Total Bio-Techne shareholders' equity

  1,521,916   1,381,192 

Noncontrolling interest

  8,938   - 

Total shareholders’ equity

  1,530,854   1,381,192 

Total liabilities and shareholders’ equity

 $2,067,866  $2,027,589 

 

See Notes to Condensed Consolidated Financial Statements.

 

2

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Bio-Techne Corporation and Subsidiaries

(in thousands)

(unaudited)

 

   

Six Months Ended

 
   

December 31,

 
   

2020

   

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net earnings

  $ 79,538     $ 134,018  

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

               

Depreciation and amortization

    41,972       40,638  

Costs recognized on sale of acquired inventory

    23       -  

Deferred income taxes

    216       14,805

 

Stock-based compensation expense

    28,531       18,495  
Contingent consideration payments     (155 )     (145 )

Fair value adjustment to contingent consideration payable

    4,600       100

 

Fair value adjustment on available for sale investments

    (6,356

)

    (110,856 )
Leases, net     113       177  

Other operating activity

    324       160  

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

               

Trade accounts and other receivables, net

    (2,327 )     9,950  

Inventories

    (586

)

    (4,381

)

Other current assets

    (1,508

)

    (1,320

)

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

    8,624       7,115  

Salaries, wages and related accruals

    (1,713

)

    (10,185

)

Income taxes payable

    3,982       12,386

 

Net cash provided by (used in) operating activities

    155,278       110,957  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

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

    43,146       68,398  

Purchases of available-for-sale investments

    (27,184

)

    (25,099

)

Additions to property and equipment

    (22,383

)

    (25,089

)

Acquisitions, net of cash acquired

    (9,765 )     -

 

Other investing activity     (556 )     -  

Net cash provided by (used in) investing activities

    (16,742 )     18,210

 

                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Cash dividends

    (24,728

)

    (24,365

)

Proceeds from stock option exercises

    32,337       27,247  

Re-purchase of common stock

    -       -

 

Proceeds from long-term debt

    -       -  

Repayments of long-term debt

    (125,250

)

    (122,250

)

Other financing activity

    (7,371

)

    (1,928

)

Net cash provided by (used in) financing activities

    (125,012

)

    (121,296 )
                 

Effect of exchange rate changes on cash and cash equivalents

    5,377       1,535

 

Net increase (decrease) in cash and cash equivalents

    18,901       9,406

 

Cash and cash equivalents at beginning of period

    146,625       100,886  

Cash and cash equivalents at end of period

  $ 165,526     $ 110,293  
                 

Supplemental disclosure of cash flow information:

               

Cash paid for income taxes

  $ 11,007     $ 7,037  

Cash paid for interest

  $ 7,779     $ 9,869  

 

See Notes to Condensed Consolidated Financial Statements.

 

3

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Bio-Techne Corporation and Subsidiaries

(unaudited)

 

 

 

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

 

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

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2020, included in the Company's Annual Report on Form 10-K for fiscal year 2020. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K for fiscal year 2020. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.

 

During the six months ended December 31, 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 operating segments disclosed in the Company's Annual Report on Form 10-K for fiscal 2020. 

 

Recently Adopted Accounting Pronouncements

 

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 previous incurred loss impairment methodology with a methodology that reflects expected credit losses on financial 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. The Company adopted this standard on July 1, 2020 using a modified retrospective transition approach with a cumulative impact of $0.3 million to retained earnings. The adoption of this ASU did not have a material impact on the Company's financial statements as the Company's primary financial instruments impacted by the ASU were trade accounts receivable, where we have high historical and expected future collections due to the length of receivables and the credit quality of our customers. 

 

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. The Company adopted this standard on a prospective basis on July 1, 2020. The Company will record eligible costs to be capitalized within prepaid assets or other non-current assets depending on the nature of the duration of the asset.  

 

Pronouncements Issued But Not Yet Adopted

 

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 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.

 

4

 

 

 

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. 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. Service revenues also include laboratory services recognized at point in time. Prior to fiscal year 2021, the Company has not recognized revenue upon completion of the performance obligation for laboratory services, but rather upon cash receipt, which was subsequent to the performance obligation being satisfied. The Company accounted for these services based on cash receipts as we did not have significant historical experience collecting payments from Medicare or other insurance providers and 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. Given Medicare coverage for our laboratory services became effective on  December 1, 2019, the Company considered that it had sufficient data to estimate variable consideration as of  July 1, 2020 for laboratory services that are reimbursed by Medicare. The amount of cash received in fiscal year 2021 for laboratory services reimbursed by Medicare that were performed prior to  July 1, 2020 was approximately $0.5 million. The Company continues to record revenue based on cash receipts for laboratory services not reimbursed by Medicare, as the variable consideration remains constrained. 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 December 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 December 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 December 31, 2020 and June 30, 2020 were approximately $14.4 million and $14.2 million, respectively. Contract liabilities as of June 30, 2020 subsequently recognized as revenue during the quarter and six month period ended December 31, 2020 were approximately $3.4 million and $8.1 million, respectively. Contract liabilities in excess of one year are included in Other long-term liabilities on the consolidated balance sheet.

 

 

5

 

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

   

Six Months Ended

 
   

December 31,

   

December 31,

 
   

2020

    2019     2020     2019  

Consumables

  $ 177,464     $ 149,257     $ 344,091     $ 300,702  

Instruments

    26,529       19,983       46,101       36,976  

Services

    15,175       10,868       30,639       21,491  

Total product and services revenue, net

  $ 219,168     $ 180,108     $ 420,831     $ 359,168  

Royalty revenues

    5,085       4,826       7,621       9,009  

Total revenues, net

  $ 224,253     $ 184,934     $ 428,452     $ 368,177  

 

Revenue by geography is as follows:

 

    Quarter Ended     Six Months Ended  
   

December 31,

   

December 31,

 
    2020     2019     2020     2019  

United States

  $ 114,439     $ 99,665     $ 228,001     $ 202,017  

EMEA, excluding United Kingdom

    49,936       38,081       93,070       76,885  

United Kingdom

    9,852       7,865       18,386       15,454  

APAC, excluding Greater China

    18,008       15,784       33,742       29,789  

Greater China

    25,165       19,793       43,218       35,873  

Rest of World

    6,853       3,746       12,035       8,159  

Total revenues, net

  $ 224,253     $ 184,934     $ 428,452     $ 368,177  

 

6

 

 

 

Note 3. Selected Balance Sheet Data:

 

Inventories:

 

Inventories consist of (in thousands):

 

  

December 31,

  

June 30,

 
  

2020

  

2020

 

Raw materials

 $52,368  $51,530 

Finished goods(1)

  59,194   56,268 

Inventories, net

 $111,562  $107,798 

 

(1) Finished goods inventory of $4,972 and $4,646 included within other long-term assets in the respective December 31, 2020 and June 30, 2020, 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):

 

  December 31,  

June 30,

 
  

2020

  

2020

 

Land

 $8,584  $8,516 

Buildings and improvements

  189,068   184,430 

Machinery and equipment

  179,341   153,704 

Property and equipment, cost

  376,993   346,650 

Accumulated depreciation and amortization

  (181,391

)

  (169,821

)

Property and equipment, net

 $195,602  $176,829 

 

Intangible Assets:

 

Intangible assets consist of (in thousands):

 

  December 31,  

June 30,

 
  

2020

  

2020

 

Developed technology

 $444,499  $434,653 

Trade names

  145,288   146,713 

Customer relationships

  219,583   211,750 

Patents and other intangibles(1)

  7,728   2,475 

Intangible assets

  817,098   795,591 

Accumulated amortization

  (312,926

)

  (279,046

)

Intangible assets, net

 $504,172  $516,545 

 

 

(1)

Increase in patents and other intangible assets is primarily due to $5.0 million recognized in intangible assets in the first quarter of fiscal 2021 for certain third party patented technology acquired. $4.0 million of the third party patented technology acquired was a non-cash activity within the condensed consolidated statement of cash flows as a cash payment was not made within the six months ended December 31, 2020.

 

7

 

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

 

Beginning balance

 $516,545 

Acquisitions

  8,919 

Other additions

  5,338 

Amortization expense

  (30,804

)

Currency translation

  4,174 

Ending balance

 $504,172 

 

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

 

2021 remainder

 $30,460 

2022

  59,526 

2023

  57,634 

2024

  54,988 

2025

  51,770 

Thereafter

  249,794 

Total

 $504,172 

 

Goodwill:

 

Changes to the carrying amount of goodwill for the quarter ended December 31, 2020 consist of (in thousands):

 

  

Protein Sciences

  

Diagnostics and

Genomics

  

Total

 

Beginning balance

 $373,081  $355,228  $728,308 
Acquisitions  8,811   -   8,811 

Currency translation

  9,303   243   9,547 

Ending balance

 $391,195  $355,471  $746,666 

 

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 2020. No indicators of impairment were identified as part of our assessment. 

 

No triggering events were identified during the quarter ended December 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.

 

8

 

 

 

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.

 

Eminence Biotechnology

 

On October 20, 2020, the Company acquired 47.6% of the outstanding equity shares of Changzhou Eminence Biotechnology Co., Ltd. (Eminence) for approximately $9.8 million, net of cash acquired. The fair value of the noncontrolling interest of $9.0 million included in the consolidated balance sheet was a non-cash activity within the statement of cash flows. Eminence is considered a variable interest entity as it is an early stage biotechnology company that will require additional funding through a subsequent equity investment, which will be used to fund Eminence’s expansion and GMP manufacturing capabilities within China. Both at the initial time of our investment and at December 31, 2020, the Company was expected to participate in additional equity funding, which will be in the range of $8 million to $13 million, and will likely result in an increase in the Company’s ownership percentage of  Eminence. The Company was considered the primary beneficiary at time of initial acquisition given the Company was the largest shareholder coupled with its ability to exercise significant influence over the entity. As of December 31, 2020, the Company’s investment at risk is limited to the initial investment of $9.8 million, net of cash acquired. The Company’s investment at risk is expected to increase in subsequent periods given the additional financing expected to be provided as further discussed above. 

 

As Eminence was considered a variable interest entity with the Company being the primary beneficiary, the transaction was accounted for in accordance with ASC 805, Business Combinations. In applying ASC 805 to the transaction, the Company has elected to include Eminence in our consolidated financial statements on a one month lag. There were no material changes from the preliminary opening balance sheet included in the table below to the amounts included within the Company's consolidated balance sheet as of December 31, 2020.

 

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 fair value of the noncontrolling interest in Eminence was calculated utilizing cash flow projections discounted to the acquisition date and control premiums calculated using market data. Acquired goodwill is not deductible for income tax purposes. The business became part of the Protein Sciences reportable segment in the second quarter of fiscal year 2021. 

 

Certain estimated fair values are not yet finalized and are subject to change, which could be significant. The Company expects to finalize our purchasing accounting by the end of fiscal year 2021 when we have finalized our intangible assets valuations and income tax assessment of acquired net operating losses (NOLs). Amounts for intangible assets, deferred tax liabilities, acquired NOLs, and goodwill remain subject to change. The preliminary estimated fair values of the assets acquired and liabilities assumed are as follows (in thousand's): 

 

  

Preliminary

Allocation at

Acquisition

Date

 

Current assets, net of cash

 $3,145 

Equipment and other long-term assets

  1,639 

Intangible assets:

    

Developed technology

  6,778 

Customer relationships

  2,133 

Goodwill

  8,811 

Total assets acquired

  22,506 

Liabilities

  1,436 

Deferred income taxes, net

  2,320 

Net assets acquired

 $18,750 
     

Cash paid, net of cash acquired

 $9,765 
Fair value of noncontrolling interest in Eminence  8,985 

Net assets acquired

 $18,750 

 

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 and customer relationships was based on management's forecasted cash inflows and outflows and using a multiperiod 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 13 years. Amortization expense related to customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The amortization period for customer relationships is estimated to be 10 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 preliminary calculation of acquired NOLs.

 

9

 

 

 

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

 
  

December 31,

2020

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Equity securities (1)

 $94,198  $85,924  $8,274  $- 

Certificates of deposit (2)

  23,228   23,228   -   - 

Total assets

 $117,426  $109,152  $8,274  $- 
                 

Liabilities

                

Contingent consideration

 $10,582  $-  $-  $10,582 

Derivative instruments - cash flow hedges

  12,314   -   12,314   - 

Total liabilities

 $22,896  $-  $12,314  $10,582 

 

  

Total

carrying

value as of

  

Fair Value Measurements Using

Inputs Considered as

 
  

June 30,

2020

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Equity securities (1)

 $87,842  $79,846  $7,996  $- 

Certificates of deposit (2)

  36,426   36,426   -   - 

Total assets

 $124,268  $116,272  $7,996  $- 
                 

Liabilities

                

Contingent consideration

 $6,137  $-  $-  $6,137 

Derivative instruments - cash flow hedges

  17,331   -   17,331   - 

Total liabilities

 $23,468  $-  $17,331  $6,137 

 

 

(1)

Included in available-for-sale investments on the balance sheet.   The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) at December 31, 2020 and June 30, 2020 was $6.6 million. The Company has a warrant to purchase additional CCXI equity shares which was valued at $8.3 million and $8.0 million as of December 31, 2020 and  June 30 2020, respectively.

 

(2)

Included in available-for-sale investments on the balance sheet.  The certificate of deposits have contractual maturity dates within one year.

 

10

 

Fair value measurements of available for sale securities

Our available for sale securities are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets.

 

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 exchanges, at specified intervals, the difference between floating and fixed interest amounts based on an initial $380 million of notional principal amount. The notional amount decreased by $100 million in  October 2020 and will further decrease by $80 million in  October 2021 and $200 million in  October 2022. In  June 2020, the Company de-designated $80 million of the notional amount set to expire in  October 2020. The net loss associated with the June 2020 de-designated portion of the derivative instrument was not reclassified into earnings based on the amount of probable variable interest payments to occur within a two month time period of the forecasted hedged transaction. In December 2020, the Company de-designated an additional $80 million of notional amount set to expire in October 2021. The fair value of the portion of the de-designated derivative was $1.9 million as of December 31, 2020. The Company recognized a loss in other non-operating income on a portion of the de-designated derivative as it was considered probable that a portion of the variable interest debt payments related to the derivative would not occur. The remaining variable interest payments for the portion of the de-designated derivative were not considered probable of occurring nor were considered probable of not occurring and therefore remained in accumulated other comprehensive income as of December 31, 2020.  

 

Changes in the fair value of the designated hedged instrument are reported as a component of other comprehensive income and reclassified into interest expense over the corresponding term of the cash flow hedge. The Company reclassified $5.0 million to interest expense, $0.5 million to non-operating income for the portion of de-designated variable payments considered probable to not occur, and related tax benefits of $1.3 million during the six months ended December 31, 2020. The Company reclassified $0.8 million to interest expense and a related tax benefit of $0.2 million during the six months ended December 31, 2019. The liability related to the derivative instrument was recorded within other current and 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.

 

 

11

 

Fair value measurements of contingent consideration

In connection with the QT Holdings Corporation (Quad) and B-MoGen Biotechnologies Inc. (B-MoGen) acquisitions the Company is required to make contingent consideration payments of up to $51.0 million and $38.0 million, respectively. The contingent consideration payments are subject to Quad 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 $10.8 million ($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 revenue milestone payments was determined using a Monte Carlo simulation based model discounted to present value. Assumptions used in these calculations included units sold, expected revenue, discount rate and various probability factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in general and administrative expense.

 

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

 

  Quarter Ended 

Six Months Ended

 
  

December 31, 

2020

 

December 31,

2020

 

Fair value at the beginning of period

$5,987 $6,137 

Change in fair value of contingent consideration

 4,750  4,600

 

Payments

 (155) (155)

Fair value at the end of period

$10,582 $10,582 

 

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. 

 

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 December 31, 2020, the outstanding balance under the Credit Agreement was $231.8 million.

 

12

 

 

 

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 Bio-Techne’s incremental borrowing rate or, if available, the rate implicit in the lease. Bio-Techne 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 six months ended December 31, 2020, the Company recognized $1.6 million in variable lease expense and $6.5 million 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 and amounts of right of use assets and lease liabilities and the weighted average remaining lease term and weighted average discount rate for the Company’s operating leases (asset and liability amounts are in thousands):

 

   

Balance Sheet Classification

 

As of: December

31, 2020

 

Operating leases:

           

Operating lease right of use assets

 

Right of Use Asset

  $ 68,154  
             

Current operating lease liabilities

 

Operating lease liabilities current

  $ 9,912  

Noncurrent operating lease liabilities

 

Operating lease liabilities

    63,672  

Total operating lease liabilities

      $ 73,584  
             

Weighted average remaining lease term (in years):

        8.37  
             

Weighted average discount rate:

        4.38

%

 

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 three months ended (in thousands):

 

   

Six months

ended December

31, 2020

 

Cash amounts paid on operating lease liabilities

  $ 6,449  
         

Right of use assets obtained in exchange for lease liabilities

    939  

 

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 2021

  $ 6,413  

2022

    12,449  

2023

    11,477  

2024

    10,491  

2025

    9,589  

Thereafter

    37,925  

Total

  $ 88,344  

Less: Amounts representing interest

    14,760  

Total Lease obligations

  $ 73,584  

 

Certain leases include one or more options to renew, with terms that extend the lease term up to five years. Bio-Techne 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, Bio-Techne is not reasonably certain to exercise such options.

 

13

 

 

 

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

 

Supplemental Equity

 

The Company has declared cash dividends per share of $0.32 and $ 0.64 in both the three and six months ended December 31, 2020 and 2019, respectively. 

 

Consolidated Changes in Equity (amounts in thousands)

 

  Bio-Techne Shareholders       
                  Accumulated  

 

     
          

Additional

      Other  

 

     
  

Common Stock

  

Paid-in

  

Retained

  Comprehensive  

Noncontrolling

     
  

Shares

  

Amount

  

Capital

  

Earnings

  Income(Loss)  

Interest

  

Total

 

Balances at June 30, 2020

  38,453  $385  $420,536  $1,057,470  $(97,199) $-

 

 $1,381,192 

Cumulative effect adjustments due to adoption of new accounting standards

            (276

)

        (276

)

Net earnings

            33,395         33,395 

Other comprehensive income

               14,057      14,057 

Common stock issued for exercise of options

  117   1   13,727            13,728 

Common stock issued for restricted stock awards

  25   0   (0)  (4,890

)

        (4,890

)

Cash dividends

            (12,336

)

        (12,336

)

Stock-based compensation expense

         12,667            12,667 

Common stock issued to employee stock purchase plan

  6   0   1,463            1,463 

Employee stock purchase plan expense

         286            286 

Balances at September 30, 2020

  38,601  $386  $448,679  $1,073,362  $(83,142) $-

 

 $1,439,285 
       Non-controlling interest in Eminence               

 

   8,985   8,985 

Net earnings

            46,274      (130)  46,144 

Other comprehensive income

               18,904   83   18,987 

Common stock issued for exercise of options

  161   2   16,748   (2,482)        14,268 

Common stock issued for restricted stock awards

  3   0   (0)  0

 

        0 

Cash dividends

            (12,392

)

        (12,392

)

Stock-based compensation expense

         15,471            15,471 

Employee stock purchase plan expense

         106            106 

Balances at December 31, 2020

  38,765  $388  $481,004  $1,104,762  $(64,238) $8,938

 

 $1,530,854 

 

 

14

 
                  

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 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 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

                      0 

Employee stock purchase plan expense

          112           112 

Balances at December 31, 2019

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

)

 $1,323,348 

 

15

 

Accumulated Other Comprehensive Income

 

The components of other comprehensive income (loss) consist of changes in foreign currency translation adjustments and changes in net unrealized gains (losses) on derivative instruments designated as cash flow hedges. The Company reclassified $4.2 million, net of taxes, from accumulated other comprehensive income (loss) to earnings during the six months ended December 31, 2020. The Company reclassified $0.6 million, net of taxes, from accumulated other comprehensive income (loss) to earnings during the six months ended December 31, 2019.

 

The accumulated balances related to each component of other comprehensive income (loss) attributable to Bio-Techne, net of tax, are summarized as follows:

 

  

Unrealized

Gains

(Losses) on

Derivative

Instruments

  

Foreign

Currency

Translation

Adjustments

  

Total

 

Balance as of June 30, 2020 attributable to Bio-Techne

 $(13,253

)

 $(83,946

)

 $(97,199

)

Other comprehensive income (loss) before reclassifications, net of taxes, attributable to Bio-Techne

  (47)   28,759   28,712 

Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne(1)

  4,249   -   4,249 

Balance as of December 31, 2020 attributable to Bio-Techne(3) 

 $(9,051

)

 $(55,187

)

 $(64,238

)

 

 

  

Unrealized

Gains

(Losses) on

Derivative

Instruments

  

Foreign

Currency

Translation

Adjustments

  

Total

 

Balance as of June 30, 2019 attributable to Bio-Techne

 $(9,537

)

 $(73,983

)

 $(83,521

)

Other comprehensive income (loss), net of tax before reclassifications, attributable to Bio-Techne

  275   4,264   4,539

 

Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne(2)

  629   -   629 

Balance as of December 31, 2019 attributable to Bio-Techne(3)

 $(8,633

)

 $(69,719

)

 $(78,352

)

 

(1) Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified $5,026 to interest expense and $512 to non-operating income relating to variable interest payments that were probable not to occur as further discussed in Note 6 in the six months ended December 31, 2020. The Company also recorded a related tax benefit of $1,289 during the six months ended December 31, 2020.

(2) The Company reclassified ($821) to interest expense and a related tax benefit tax of $192 during the six months ended  December 31, 2019.

(3) The Company had deferred tax benefits of $2,886 and $4,058 included in the accumulated other comprehensive income loss as of December 31, 2020 and  June 30, 2020, respectively.

 

16

 

 

 

Note 9. Earnings Per Share:

 

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

 

  

Quarter Ended

  

Six Months Ended

 
  

December 31,

  

December 31,

 
  2020  

2019

  2020  

2019

 

Earnings per share – basic:

                
       Net earnings, including noncontrolling interest $46,144   119,622   79,538   134,018 
       Less net earnings attributable to noncontrolling interest  (130)  -   (130)  - 

Net earnings attributable to Bio-Techne

 $46,274  $119,622  $79,668  $134,018 

Income allocated to participating securities

  (37

)

  (172

)

  (50

)

  (258

)

Income available to common shareholders

 $46,237  $119,450  $79,618  $133,760 

Weighted-average shares outstanding – basic

  38,691   38,167   38,614   38,100 

Earnings per share – basic

 $1.20  $3.13  $2.06  $3.51 
                 

Earnings per share – diluted:

                
       Net earnings, including noncontrolling interest $46,144  $119,622  $79,538  $134,018 
       Less net earnings attributable to noncontrolling interest  (130)  -   (130)  - 

Net earnings attributable to Bio-Techne

 $46,274  $119,622  $79,668  $134,018 

Income allocated to participating securities

  (37

)

  (172

)

  (50

)

  (258

)

Income available to common shareholders

 $46,237  $119,450  $79,618  $133,760 

Weighted-average shares outstanding – basic

  38,691   38,167   38,614   38,100 

Dilutive effect of stock options and restricted stock units

  1,566   1,383   1,521   1,270 

Weighted-average common shares outstanding – diluted

  40,257   39,550   40,135   39,370 

Earnings per share – diluted

 $1.15  $3.02  $1.98  $3.40 

 

The dilutive effect of stock options and restricted stock units in the above table excludes all options for which the aggregate exercise proceeds exceeded the average market price for the period. The number of potentially dilutive option shares excluded from the calculation was 1.6 million and 1.3 million for the quarter ended December 31, 2020 and 2019, respectively and 1.5 million and 1.3 million for the six months ended December 31, 2020 and 2019 respectively.

 

 

Note 10. Share-based Compensation:

 

During the six months ended December 31, 2020 and 2019, the Company granted 0.7 million and 0.7 million stock options at weighted average grant prices of $267.59 and $190.73 and weighted average fair values of $56.88 and $37.00, respectively. During the six months ended December 31, 2020 and 2019, the Company granted 22,367 and 30,858 restricted stock units at a weighted average fair value of $267.87 and $192.08, respectively. During the six months ended December 31, 2020 and 2019, the Company granted 11,803 and 15,398 shares of restricted common stock shares at a weighted average fair value of $264.73 and $193.48.

 

 

Stock options for 293,262 and 287,595 shares of common stock with total intrinsic values of $50.6 million and $35.3 million were exercised during the six months ended December 31, 2020 and 2019, respectively.

 

Stock-based compensation expense, inclusive of employer payroll tax, of $15.6 million and $10.1 million was included in selling, general and administrative expenses for the quarter ended December 31, 2020 and 2019, respectively. Stock-based compensation expense, inclusive of employer payroll tax, of $28.5 million and $18.5 million was included in selling, general, and administrative expenses for the six months ended December 31, 2020 and 2019, respectively. Additionally, the company recognized $0.6 million and $1 million of stock-based compensation expense in cost of goods sold in the quarter and six months ended December 31, 2020 respectively, compared to $0.5 million and $0.9 million in cost of goods sold in the comparative prior year periods. As of December 31, 2020, there was $43.1 million of unrecognized compensation cost related to non-vested stock options, non-vested restricted stock units and non-vested restricted stock. The weighted average period over which the compensation cost is expected to be recognized is 2.1 years.

 

 

Note 11. Other Income / (Expense): 

 

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

 

   

Quarter Ended

   

Six Months

 
   

December 31,

   

December 31,

 
   

2020

   

2019

   

2020

   

2019

 

Interest expense

  $ (3,585

)

  $ (4,872

)

  $ (8,002

)

  $ (10,094

)

Interest income

    78       231       192       341  

Other non-operating income (expense), net(1)

    8,880       117,975

 

    3,429       107,565

 

Total other income (expense)

  $ 5,373     $ 113,334

 

  $ (4,381 )   $ 97,812

 

 

(1) 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. 

 

17

 

 

 

Note 12. Income Taxes:

 

The Company’s effective income tax rate for the second quarter of fiscal 2021 and 2020 was 18.1% and 20.4% of consolidated earnings before income taxes, and 16.9% and 20.3% for the first six months of fiscal 2021 and 2020, respectively. The change in the company’s tax rate for the quarter and six months ended December 31, 2020 compared to the quarter and six months ended December 31, 2019 were driven by changes in the composition and amount of the Company’s taxable income in fiscal 2021 due to the $121 million non-recurring gain on our CCXI investment that occurred in the prior year comparative periods and discrete tax items.

 

The Company recognized total net benefits related to discrete tax items of $3.7 million and $7.8 million during the quarter and six months ended December 31, 2020, respectively, compared to $5.4 million and $6.7 million during the quarter and six months ended December 31, 2019, respectively. Share-based compensation excess tax benefit contributed $4.8 million and $8.0 million in the quarter and six months ended December 31, 2020, respectively, compared to $3.7 million and $7.0 million in the quarter and six months, ended December 31, 2019, respectively. The Company recognized total other immaterial net discrete tax expense of $1.1 million of $0.2 million in the quarter and six months ended December 31, 2020, respectively, compared to $1.7 million and $0.3 million of other immaterial net discrete tax benefits in the quarter and six months ended December 31, 2019, respectively.

 

The Company continues to monitor changes in interpretations, assumptions guidance, and additional regulations regarding the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted on December 22, 2017. The Company recognizes potential changes to these items could have a material impact on our effective tax rate in future periods.

 

 

Note 13. Segment Information:

 

The Company's management evaluates segment operating performance based on operating income before certain charges to cost of sales and selling, general and administrative expenses, principally associated with acquisition accounting related to inventory, amortization of acquisition-related intangible assets and other acquisition-related expenses. The Protein Sciences and Diagnostics and Genomics segments both include consumables, instruments, services and royalty revenue.

 

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

 

  

Quarter Ended

  

Six Months Ended

 
  

December 31,

  

December 31,

 
  

2020

  

2019

  

2020

  

2019

 

Net sales:

                

Protein Sciences

 $172,179  $141,517  $