Quarterly report pursuant to Section 13 or 15(d)

Note 1 - Basis of Presentation and Summary of Significant Accounting Policies

v3.10.0.1
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
6 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Business Description and Accounting Policies [Text Block]
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,
2018,
included in the Company's Annual Report on Form
10
-K for fiscal year
2018.
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
2018.
The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.
 
Effective in the
first
quarter of fiscal year
2019,
the Company changed its reportable segments due to changes in its underlying organizational model designed to better support the business following recent acquisitions and to facilitate global growth. The Company did
not
operate under the realigned reportable segment structure prior to fiscal year
2019.
As a result, the Company’s new segment structure will focus on synergies between our existing businesses including sharing certain functions such as sales resources, with its
five
existing operating segments aggregated into
two
reportable segments as follows:
 
 
“Diagnostics and Genomics” will consist of the ACD operating segment, the Diagnostics operating segment, and the ExosomeDx operating segment. As part of the realignment, ACD will now be referred to as the Genomics operating segment.
 
 
 
 
“Protein Sciences” will consist of the Core Biotechnology operating segment and the Protein Platforms operating segment. As part of the realignment, Protein Platforms will now be referred to as the Analytical Solutions Division (ASD) operating segment and Core Biotechnology will now be referred to as the Reagent Solutions Division (RSD) operating segment.
 
Recently Adopted Accounting Pronouncements
 
In
May 2014,
the FASB issued ASU
No.
2014
-
09,
Revenue from Contracts with Customers. The standard provides revenue recognition guidance for any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets, unless those contracts are within the scope of other accounting standards. The core principle of ASC
606
is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
 
On 
July 1, 2018,
the Company adopted ASC
606
using the modified retrospective method for all contracts. Results for reporting periods beginning 
July 1, 2018 
are presented under ASC
606,
while prior period amounts were
not
adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic
605,
Revenue Recognition
.
 
The Company recorded a net increase to beginning retained earnings of 
$98,000
 as of 
July 1, 2018 
due to the cumulative impact of adopting ASC
606.
The impact to beginning retained earnings was primarily driven by the transition to over-time revenue recognition on custom development projects, partially offset by the deferral of revenue for unfulfilled performance obligations. The adoption of ASC
606
did
not
have a material impact on the Company’s consolidated financial statements as of and for the quarter and
six
month period ended 
December 31, 2018
and, as a result, comparisons of revenues and operating profit performance between periods are
not
affected by the adoption of this ASU. Refer to Note
2
for additional disclosures required by ASC
606.
 
In
January 2016,
the FASB issued ASU
No.
2016
-
01
Recognition and Measurement of Financial Assets and Financial Liabilities
. The standard is intended to improve the recognition, measurement, presentation and disclosure of financial instruments. Among other changes, there will
no
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. Equity investments with readily determinable fair values will be measured at fair value with changes in fair value recognized in net income. ASU
2016
-
01
was effective for us on
July 1, 2018
which required a cumulative effect adj
ustment to opening retained earnings to be recorded for equity investments with readily determinable fair values. As of the adoption date, we held publicly traded equity investments with a fair value of 
$54.3
million in a net unrealized gain position of 
$35.4
million, and having an associated deferred tax liability of 
$8.3
million. We recorded a cumulative-effect adjustment of 
$
27.1
million to decrease Accumulated Other Comprehensive Income (AOCI) with a corresponding increase to retained earnings for the amount of unrealized gains, net of tax as of the beginning of fiscal year
2019.
As a result of the implementation of ASU
2016
-
01,
effective on
July 1, 2018
unrealized gains and losses in equity investments with readily determinable fair values are recorded on the Consolidated Statement of Income within other (expense)income . We recorded a loss in other (expense)income of 
$7.2
 million and 
$9.4
million
 for the quarter and 
six
month period ended
December 31, 2018
as a result of adopting this standard. The implementation of ASU
2016
-
01
is expected to increase volatility in our net income as the volatility previously recorded in Other Comprehensive Income (OCI) related to changes in the fair market value of available-for-sale equity investments will now be reflected in net income effective with the adoption date.
 
In
February 2018,
the FASB issued ASU
No.
2018
-
02,
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 (AOCI) 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 elected to early adopt ASU
2018
-
02
on
July 1, 2018.
We use a specific identification approach to release the income tax effects in AOCI. As a result of adopting this standard, we recorded a cumulative effect adjustment to increase AOCI by 
$
2.4
million with a corresponding decrease to retained earnings. We recorded the impacts of adopting ASU
2018
-
02
prior to recording the impacts of adopting ASU 
2016
-
01
 and included state income tax related effects in the amounts reclassified to retained earnings.
 
The following table presents a summary of cumulative effect adjustments to retained earnings due to the adoption of new accounting standards on
July 1, 2018
as noted above:
 
   
Cumulative Effect Adjustments to
Retained Earnings
on July 1, 2018 Increase / (Decrease)
 
Cumulative effect adjustment to retained earnings due to the adoption of the following new accounting standards:
       
ASU 2014-09
  $
98
 
ASU 2016-01
   
27,053
 
ASU 2018-02
   
(2,371
)
Net cumulative effect adjustments to retained earnings on July 1, 2018 due to the adoption of new accounting standards
  $
24,780
 
 
In
January 2017,
the FASB issued ASU
No.
2017
-
01,
Clarifying the Definition of a Business
. The standard revises the definition of a business, which affects many areas of accounting such as business combinations and disposals and goodwill impairment. The revised definition of a business will likely result in more acquisitions being accounted for as asset acquisitions, as opposed to business combinations. We adopted this standard on
July 1, 2018,
applying the guidance to transactions occurring on or after this date.
 
In
August 2017,
the FASB issued ASU
No.
2017
-
12,
Targeted Improvements to Accounting for Hedging Activities
. The standard changes the designation and measurement guidance for qualifying hedging relationships to better align financial reporting to risk management activities.  As part of the guidance, the entire change in fair value of a qualifying hedging instrument will be recorded within other comprehensive income which is then reclassified into earnings in the same period or periods during which the hedged item impacts earnings. Additionally, the gain or loss resulting from the hedging activity will be presented in the same income statement line item as the hedged item. The standard is effective for interim and annual reporting periods in fiscal years beginning after
December 15, 2018,
which for us is
July 1, 2019.
Early adoption is permitted. We elected to early adopt ASU
2017
-
12
on
October 1, 2018,
prior to the Company entering into cash flow hedges as described in Note
5.
The adoption of this standard did
not
have a material impact on our consolidated financial statements.
 
Pronouncements Issued But
Not
Yet Adopted
 
In
February 2016,
the FASB issued ASU
2016
-
02,
Leases (Topic
842
), which amends the existing guidance to require lessees to recognize lease assets and lease liabilities from operating leases on the balance sheet. This ASU is effective using the modified retrospective approach for annual periods and interim periods within those annual periods beginning after
December 15, 2018,
which for us is
July 1, 2019.
Early adoption is permitted. In
July 2018,
the FASB issued ASU
No.
2018
-
10,
Codification Improvements to Topic
842,
Leases
, which amends narrow aspects of the guidance in ASU
No.
2016
-
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
not
able to quantify the impact of the standard at this time.
 
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 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade and loan receivables and available-for-sale debt securities. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. This ASU is effective for annual periods and interim periods for those annual periods beginning after
December 15, 2019,
which for us is
July 1, 2020.
Entities
may
early adopt beginning after
December 15, 2018.
We are currently evaluating the impact of the adoption of ASU
2016
-
13
on our consolidated financial statements.
 
In
August 2018,
the FASB issued ASU
No.
2018
-
15,
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is
not
affected by the new standard.  This ASU is effective for annual periods and interim periods for those annual periods beginning after
December 15, 2019,
which for us is
July 1, 2020
and
may
be adopted retrospectively or prospectively to eligible costs incurred on or after the date the guidance is
first
applied. We are currently evaluating the impact of the adoption of ASU
2018
-
15
on our consolidated financial statements and anticipate that we will adopt the standard prospectively.