NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Bio-Techne Corporation and Subsidiaries
(unaudited)
Note 1. Basis of Presentation and Summary of Significant Accounting Policies:
The interim condensed consolidated financial statements of Bio-Techne Corporation and subsidiaries, (the Company) presented here have been prepared by the Company and are unaudited. They have been prepared in accordance with accounting principles generally accepted in the United States of America and with instructions to Form 10-Q and Article 10 of Regulation S-X. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2019, included in the Company's Annual Report on Form 10-K/A for fiscal year 2019. The Company's condensed consolidated Balance Sheet as of June 30, 2019 was derived from the audited annual Consolidated Financial Statements for fiscal year 2019. Refer to the Company's Annual Report on Form 10-K/A for fiscal year 2019 for the notes to the June 30, 2019 Balance Sheet and a summary of significant accounting policies followed by the Company. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.
During fiscal year 2020, the Company operated under two operating segments, Protein Sciences and Diagnostics and Genomics. The operating segments the company operated under were consistent with the Company's reportable segments disclosed in the Company's Annual Report on Form 10-K/A for fiscal 2019.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the existing guidance to require lessees to recognize lease assets and lease liabilities from operating leases on the balance sheet. The FASB has issued narrow codification improvements to Leases (Topic 842) through ASU No. 2018-10 and ASU 2019-01. Additionally, the FASB issued ASU 2018-11, allowing an entity to elect a transition method where they do not recast prior periods presented in the financial statements in the period of adoption. The Company has elected the transition method allowed for under ASU 2018-11 when adopting Leases (Topic 842). The Company adopted the standard effective July 1, 2019 and correspondingly recorded incremental operating lease liabilities of $80.6 million, a right-of-use lease asset of $79.5 million, retained earnings of $0.8 million and a deferred tax adjustment of $0.3 million. Additionally, the Company reclassified $4.0 million of deferred rent recorded within accrued expenses under ASC 840 - Leases into operating lease liabilities upon adoption of Topic 842. In adopting ASC 842, the Company elected the package of available practical expedients and to use hindsight in determining the lease term for all existing leases. Further, as part of our adoption of ASC 842, the Company also made the accounting policy elections to not capitalize short term leases (defined as a lease with a lease term that is less than 12 months) and to combine lease and non-lease components for all asset classes in determining the lease payments. Refer to Note 7 for additional information on leases.
Pronouncements Issued But Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendment in this update replaced the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade and loan receivables and available-for-sale debt securities. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2019, which for us is July 1, 2020. Entities may early adopt beginning after December 15, 2018. We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the new standard. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2019, which for us is July 1, 2020 and may be adopted retrospectively or prospectively to eligible costs incurred on or after the date the guidance is first applied. We are currently evaluating the impact of the adoption of ASU 2018-15 on our consolidated financial statements and anticipate that we will adopt the standard prospectively.
In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides expedients and exceptions to existing guidance on contract modifications and hedge accounting that is optional to facilitate the market transition from a reference rate, including LIBOR which is being phased out in 2021, to a new reference rate. The standard was effective upon issuance. The provisions of the ASU would impact contract modifications and other changes that occur while LIBOR is phased out. The Company is in the process of evaluating the optional relief guidance provided within this ASU and is also reviewing its debt and derivative instrument that utilizes LIBOR as the reference rate. The Company will continue to evaluate and monitor developments and our assessment of ASU 2020-04 during the LIBOR transition period.
Note 2. Revenue Recognition:
Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that, for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. The vast majority of service revenues consist of extended warranty contracts, post contract support (“PCS”), and custom development projects that are recognized over time as either the customers receive and consume the benefits of such services simultaneously or the underlying asset being developed has no alternative use for the Company at contract inception and the Company has an enforceable right to payment for the portion of the performance completed. The remaining service revenues were not material to the period and consist of laboratory services recognized at point in time. Given the Company does not have significant historical experience collecting payments from Medicare or insurance providers, the Company considered the variable consideration for such services to be constrained as it would not be probable that a significant amount of revenue would not need to be reversed in future periods for the services provided. Accordingly, the Company did not record revenue upon completion of the performance obligation, but rather upon cash receipt, which was subsequent to the performance obligation being satisfied. Royalty revenues are primarily based on net sales of the Company’s licensed products by a third party. We recognize royalty revenues in the period the sales occur using third party evidence. The Company elected the "right to invoice" practical expedient based on the Company's right to invoice a customer at an amount that approximates the value to the customer and the performance completed to date.
The Company elected the exemption to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less and the exemption to exclude future performance obligations that are accounted under the sales-based or usage-based royalty guidance. The Company’s unfulfilled performance obligations were not material as of March 31, 2020.
Contracts with customers that contain instruments may include multiple performance obligations. For these contracts, the Company allocates the contract’s transaction price to each performance obligation on a relative standalone selling price basis. Allocation of the transaction price is determined at the contracts’ inception.
Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to 90 days. Service arrangements commonly call for payments in advance of performing the work (e.g. extended warranty and service contracts), upon completion of the service (e.g. custom development manufacturing) or a mix of both.
Contract assets include revenues recognized in advance of billings. Contract assets are included within other current assets in the accompanying balance sheet as the amount of time expected to lapse until the company's right to consideration becomes unconditional is less than one year. We elected the practical expedient allowing us to expense contract costs that would otherwise be capitalized and amortized over a period of less than one year. Contract assets as of March 31, 2020 are not material.
Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits and unearned revenue on warranty contracts. Contract liabilities as of March 31, 2020 and June 30, 2019 were approximately $14.8 million and $10.4 million, respectively. Contract liabilities as of June 30, 2019 subsequently recognized as revenue during the quarter period and nine month period ended March 31, 2020 were approximately $1.1 million and $7.0 million, respectively. Contract liabilities in excess of one year are included in Other long-term liabilities on the balance sheet.
Any claims for credit or return of goods must be made within 10 days of receipt. Revenues are reduced to reflect estimated credits and returns. Although the amounts recorded for these revenue deductions are dependent on estimates and assumptions, historically our adjustments to actual results have not been material.
Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of products. We elected the practical expedient that allows us to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost, and we accrue costs of shipping and handling when the related revenue is recognized.
The following tables present our disaggregated revenue for the periods presented.
Revenue by type is as follows:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Consumables
|
|
$
|
161,958
|
|
|
$
|
153,783
|
|
|
$
|
462,660
|
|
|
$
|
429,340
|
|
Instruments
|
|
|
16,405
|
|
|
|
16,104
|
|
|
|
53,381
|
|
|
|
51,116
|
|
Services
|
|
|
11,426
|
|
|
|
9,565
|
|
|
|
32,917
|
|
|
|
27,027
|
|
Total product and services revenue, net
|
|
$
|
189,789
|
|
|
$
|
179,452
|
|
|
$
|
548,958
|
|
|
$
|
507,483
|
|
Royalty revenues
|
|
|
4,891
|
|
|
|
5,409
|
|
|
|
13,899
|
|
|
|
14,858
|
|
Total revenues, net
|
|
$
|
194,680
|
|
|
$
|
184,861
|
|
|
$
|
562,857
|
|
|
$
|
522,341
|
|
Revenue by geography is as follows:
|
|
Quarter Ended
March 31,
|
|
|
Nine Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
109,797
|
|
|
$
|
98,228
|
|
|
$
|
311,815
|
|
|
$
|
281,585
|
|
EMEA, excluding United Kingdom
|
|
|
39,108
|
|
|
|
42,339
|
|
|
|
115,993
|
|
|
|
116,018
|
|
United Kingdom
|
|
|
9,166
|
|
|
|
10,737
|
|
|
|
24,619
|
|
|
|
26,703
|
|
APAC, excluding Greater China
|
|
|
17,193
|
|
|
|
14,943
|
|
|
|
46,982
|
|
|
|
39,990
|
|
Greater China
|
|
|
13,781
|
|
|
|
12,993
|
|
|
|
49,655
|
|
|
|
42,727
|
|
Rest of World
|
|
|
5,635
|
|
|
|
5,621
|
|
|
|
13,793
|
|
|
|
15,318
|
|
Total revenues, net
|
|
$
|
194,680
|
|
|
$
|
184,861
|
|
|
$
|
562,857
|
|
|
$
|
522,341
|
|
Note 3. Selected Balance Sheet Data:
Inventories:
Inventories consist of (in thousands):
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
47,263
|
|
|
$
|
40,913
|
|
Finished goods(1)
|
|
|
56,059
|
|
|
|
53,376
|
|
Inventories, net
|
|
$
|
103,322
|
|
|
$
|
94,289
|
|
(1) Finished goods inventory of $3,649 and $3,239 is included within other long-term assets in the respective March 31, 2020 and June 30, 2019, consolidated balance sheet. The inventory is included in long-term assets as it is forecasted to be sold after the 12 months subsequent to the consolidated balance sheet date.
Property and Equipment:
Property and equipment consist of (in thousands):
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Land
|
|
$
|
7,561
|
|
|
$
|
7,065
|
|
Buildings and improvements
|
|
|
182,300
|
|
|
|
175,019
|
|
Machinery and equipment
|
|
|
141,506
|
|
|
|
124,233
|
|
Property and equipment, cost
|
|
|
331,367
|
|
|
|
306,317
|
|
Accumulated depreciation
|
|
|
(166,355
|
)
|
|
|
(152,278
|
)
|
Property and equipment, net
|
|
$
|
165,012
|
|
|
$
|
154,039
|
|
Intangible Assets:
Intangible assets consist of (in thousands):
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Developed technology
|
|
$
|
434,367
|
|
|
$
|
435,679
|
|
Trade names
|
|
|
146,428
|
|
|
|
147,296
|
|
Customer relationships
|
|
|
209,651
|
|
|
|
214,320
|
|
Patents
|
|
|
2,377
|
|
|
|
2,133
|
|
Intangible assets
|
|
|
792,823
|
|
|
|
799,428
|
|
Accumulated amortization
|
|
|
(262,490
|
)
|
|
|
(219,999
|
)
|
Intangible assets, net
|
|
$
|
530,333
|
|
|
$
|
579,429
|
|
Changes to the carrying amount of net intangible assets for the nine months ended March 31, 2020 consist of (in thousands):
Beginning balance
|
|
$
|
|
|
Acquisitions
|
|
|
-
|
|
Other additions
|
|
|
214
|
|
Amortization expense
|
|
|
(45,625
|
)
|
Currency translation
|
|
|
(3,685
|
)
|
Ending balance
|
|
$
|
530,333
|
|
The estimated future amortization expense for intangible assets as of March 31, 2020 is as follows (in thousands):
2020 remainder
|
|
$
|
15,423
|
|
2021
|
|
|
59,545
|
|
2022
|
|
|
57,335
|
|
2023
|
|
|
55,469
|
|
2024
|
|
|
53,008
|
|
Thereafter
|
|
|
289.553
|
|
Total
|
|
$
|
530,333
|
|
Goodwill:
Changes to the carrying amount of goodwill for the nine months ended March 31, 2020 consist of (in thousands):
|
|
Protein Sciences
|
|
|
Diagnostics and
Genomics
|
|
|
Total
|
|
Beginning balance
|
|
$
|
377,407
|
|
|
|
355,260
|
|
|
$
|
732,667
|
|
Acquisitions (Note 4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prior year acquisitions/adjustments (Note 4)
|
|
|
(326
|
)
|
|
|
-
|
|
|
|
(326
|
)
|
Currency translation
|
|
|
(6,424
|
)
|
|
|
(86
|
)
|
|
|
(6,510
|
)
|
Ending balance
|
|
$
|
370,657
|
|
|
$
|
355,174
|
|
|
$
|
725,831
|
|
We evaluate the carrying value of goodwill in the fourth quarter of each fiscal year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. The Company performed a goodwill impairment assessment for all of its reporting units during the fourth quarter of fiscal 2019. No indicators of impairment were identified as part of our assessment.
No triggering events were identified during the nine months ended March 31, 2020. There has been no impairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”) ASC 350 guidance for goodwill and other intangibles on July 1, 2002.
Note 4. Acquisitions:
We periodically complete business combinations that align with our business strategy. Acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date and the results of operations of each acquired business are included in our consolidated statements of comprehensive income from their respective dates of acquisition. Acquisition costs are recorded in selling, general and administrative expenses as incurred.
B-MoGen Biotechnologies
On June 4, 2019, the Company acquired the remaining interest in B-MoGen Biotechnologies, Inc. (B-MoGen) for approximately $17.4 million, net of cash acquired, plus contingent consideration of up to $38.0 million, subject to certain product development milestones and revenue thresholds. The Company previously held an investment of $1.4 million in B-MoGen and recognized a gain of approximately $3.7 million on the date of the transaction representing the adjustment of our historical investment to its fair value as previously disclosed in our 10K/A. The goodwill recorded as result of the acquisition represents the strategic benefits of growing the Company’s product portfolio and the expected revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes. The business became part of the Protein Sciences reportable segment in the fourth quarter of fiscal year 2019. Purchase accounting was finalized during the third quarter of fiscal 2020. The preliminary and final fair values of the assets acquired and liabilities assumed are as follows (in thousands):
|
|
Preliminary
Allocation at
Acquisition
Date
|
|
|
Adjustments to
Fair Value
|
|
|
Adjusted Final Allocation at March 31, 2020
|
|
Current assets, net of cash
|
|
$
|
504
|
|
$
|
-
|
|
$
|
504
|
|
Equipment and other long-term assets
|
|
|
269
|
|
|
-
|
|
|
269
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
|
|
14,000
|
|
|
-
|
|
|
14,000
|
|
Customer relationships
|
|
|
400
|
|
|
-
|
|
|
400
|
|
Goodwill
|
|
|
16,457
|
|
|
(326
|
)
|
|
16,131
|
|
Total assets acquired
|
|
|
31,630
|
|
|
(326
|
)
|
|
31,304
|
|
Liabilities
|
|
|
211
|
|
|
-
|
|
|
211
|
|
Deferred income taxes, net
|
|
|
3,377
|
|
|
(326
|
)
|
|
3,051
|
|
Net assets acquired
|
|
$
|
28,042
|
|
$
|
-
|
|
$
|
28,042
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid, net of cash acquired
|
|
$
|
17,448
|
|
$
|
-
|
|
$
|
17,448
|
|
Fair value of contingent consideration
|
|
|
5,500
|
|
|
-
|
|
|
5,500
|
|
Fair value of historical investment in B-MoGen
|
|
|
5,094
|
|
|
-
|
|
|
5,094
|
|
Net assets acquired
|
|
$
|
28,042
|
|
$
|
-
|
|
$
|
28,042
|
|
Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's assessment. The purchase price allocated to developed technology was estimated based on management's forecasted cash inflows and outflows and using a multi-period excess earnings method to calculate the fair value of assets purchased. The amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for developed technology is estimated to be 14 years. The net deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset amortization, which is not deductible for income tax purposes offset by the deferred tax asset for the calculation of acquired NOLs.
Note 5. Fair Value Measurements:
The Company’s financial instruments include cash and cash equivalents, available for sale investments, derivative instruments, accounts receivable, accounts payable, contingent consideration obligations, and long-term debt.
Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.
The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation.
The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):
|
|
Total
carrying
value as of
|
|
|
Fair Value Measurements Using
Inputs Considered as
|
|
|
|
March 31,
2020
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities (1)
|
|
$
|
70,172
|
|
|
$
|
64,587
|
|
|
$
|
5,585
|
|
|
$
|
-
|
|
Certificates of deposit (2)
|
|
|
34,700
|
|
|
|
34,700
|
|
|
|
-
|
|
|
|
-
|
|
Total assets
|
|
$
|
104,872
|
|
|
$
|
99,287
|
|
|
$
|
5,585
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
7,850
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,850
|
|
Derivative instruments - cash flow hedges
|
|
|
18,725
|
|
|
|
-
|
|
|
|
18,725
|
|
|
|
-
|
|
Total liabilities
|
|
$
|
26,575
|
|
|
$
|
-
|
|
|
$
|
18,725
|
|
|
$
|
7,850
|
|
|
|
Total
carrying
value as of
|
|
|
Fair Value Measurements Using
Inputs Considered as
|
|
|
|
June 30,
2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities (1)
|
|
$
|
38,219
|
|
|
$
|
38,219
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Certificates of deposit (2)
|
|
|
26,928
|
|
|
|
26,928
|
|
|
|
-
|
|
|
|
-
|
|
Total assets
|
|
$
|
65,147
|
|
|
$
|
65,147
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
12,600
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,600
|
|
Derivative instruments - cash flow hedges
|
|
|
12,458
|
|
|
|
-
|
|
|
|
12,458
|
|
|
|
-
|
|
Total liabilities
|
|
$
|
25,058
|
|
|
$
|
-
|
|
|
$
|
12,458
|
|
|
$
|
12,600
|
|
|
(1)
|
Included in available-for-sale investments on the condensed consolidated balance sheet. The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) was $7.6 million and $18.8 million as of March 31, 2020 and June 30, 2019, respectively. The Company has a warrant to purchase additional CCXI equity shares which was valued at $5.6 million as of March 31, 2020. The fair value of the warrant as of June 30, 2019 was not material.
|
|
(2)
|
Included in available-for-sale investments on the condensed consolidated balance sheet. The certificates of deposit have contractual maturity dates within one year.
|
Fair value measurements of available for sale securities
Available for sale securities excluding warrants are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. The Company's warrant to purchase additional shares at a specified future price was valued using a Black-Scholes model with observable inputs in active markets and therefore was classified as a Level 2 asset.
Fair value measurements of derivative instruments
In October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The forward starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps, the Company will exchange, at specified intervals, the difference between floating and fixed interest amounts based on $380 million of notional principal amount. The change in the fair value of the instrument is reported as a component of the other comprehensive income and reclassified into interest expense over the corresponding term of the cash flow hedge. As further described in Note 8, the company reclassified $1.3 million and $2.1 million out of other comprehensive income into interest expense during the quarter and nine months ended March 31, 2020, respectively. The liability related to the derivative instrument was recorded within Other long-term liabilities on the Consolidated Balance Sheet. The instrument was valued using observable market inputs in active markets and therefore classified as a Level 2 liability.
Fair value measurements of contingent consideration
In connection with the Exosome Diagnostics, Inc. (Exosome), QT Holdings Corporation (Quad), and B-MoGen acquisitions the Company is required to make contingent consideration payments of up to $325.0 million, $51.0 million and $38.0 million, respectively. The contingent consideration payments are subject to Exosome achieving certain EBITA thresholds, Quad meeting certain product development milestones and revenue thresholds, and B-MoGen meeting certain product development milestones and revenue thresholds. The preliminary fair value of the liabilities for the contingent payments recognized upon the acquisition as part of the purchase accounting opening balance sheet totaled $14.6 million ($3.8 million for Exosome, $5.3 million for Quad, and $5.5 million for B-MoGen). The preliminary fair value of the development milestone payments was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in these calculations were probability of success, duration of the earn-out, and discount rate. The preliminary fair value for the EBITA and revenue milestone payments was determined using a Monte Carlo simulation-based model discounted to present value. Assumptions used in these calculation included units sold, expected revenue, expected expenses, discount rate and various probability factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in general and administrative expense.
The following table presents a reconciliation of the liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter and nine months ended March 31, 2020 (in thousands):
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
March 31,
2020
|
|
|
March 31,
2020
|
|
Fair value at the beginning of period
|
|
$
|
12,555
|
|
|
$
|
12,600
|
|
Change in fair value of contingent consideration
|
|
|
(705
|
)
|
|
|
(605
|
)
|
Payments
|
|
|
(4,000
|
)
|
|
|
(4,145
|
)
|
Fair value at the end of period
|
|
$
|
7,850
|
|
|
$
|
7,850
|
|
The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio. We may also incur changes to our contingent consideration liability as discussed below.
Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value.
Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the consolidated balance sheets approximate fair value because of the short-term nature of these items.
Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit facility approximates fair value because our interest rate is variable and reflects current market rates.
Note 6. Debt and Other Financing Arrangements:
On August 1, 2018, the Company entered into a new revolving line-of-credit and term loan governed by a Credit Agreement (the Credit Agreement). The Credit Agreement provides for a revolving credit facility of $600.0 million, which can be increased by an additional $200.0 million subject to certain conditions, and a term loan of $250.0 million. Borrowings under the Credit Agreement may be used for working capital and expenditures of the Company and its subsidiaries, including financing permitted acquisitions. Borrowings under the Credit Agreement bear interest at a variable rate. The current outstanding debt is based on the Eurodollar Loans term for which the interest rate is calculated as the sum of LIBOR plus an applicable margin. The applicable margin is determined from the total leverage ratio of the Company and updated on a quarterly basis. The annualized fee for any unused portion of the credit facility is currently 20 basis points.
The Credit Agreement matures on August 1, 2023 and contains customary restrictive and financial covenants and customary events of default. As of March 31, 2020, the outstanding balance under the Credit Agreement was $420.1 million.
Note 7. Leases:
As a lessee, the company leases offices, labs, and manufacturing facilities, as well as vehicles, copiers, and other equipment. The Company adopted ASU No. 2016-02 and related standards (collectively ASC 842, Leases), which replaced previous lease accounting guidance, on July 1, 2019.
The Company recognizes operating lease expense on a straight-line basis over the lease term. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is the Company’s incremental borrowing rate or, if available, the rate implicit in the lease. The Company determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region. During the quarter and nine months ended March 31, 2019, the Company recognized $0.8 million and $2.7 million in variable lease expense, respectively, in the Condensed Consolidated Statements of Earnings and Comprehensive Income. During the quarter and nine months ended March 31, 2020, the Company also recognized $3.2 million and $9.5 million, respectively relating to fixed lease expense in the Condensed Consolidated Statements of Earnings and Comprehensive Income.
The following table summarizes the balance sheet classification of the Company’s operating leases, amounts of right of use assets and lease liabilities, the weighted average remaining lease term, and the weighted average discount rate for the Company’s operating leases (asset and liability amounts are in thousands):
|
Balance Sheet Classification
|
|
As of:
March 31,
2020
|
|
Operating leases:
|
|
|
|
|
|
Operating lease right of use assets
|
Right of Use Asset
|
|
$
|
73,751
|
|
|
|
|
|
|
|
Current operating lease liabilities
|
Operating lease liabilities current
|
|
$
|
9,544
|
|
Noncurrent operating lease liabilities
|
Operating lease liabilities
|
|
|
69,491
|
|
Total operating lease liabilities
|
|
$
|
79,035
|
|
|
|
|
|
|
|
Weighted average remaining lease term (in years):
|
|
|
8.89
|
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
4.39
|
%
|
The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right of use assets obtained in exchange for new operating lease liabilities for the nine months ended March 31, 2020 (in thousands):
|
|
Nine months
ended March 31,
2020
|
|
Cash amounts paid on operating lease liabilities(1)
|
|
$
|
9,643
|
|
|
|
|
|
|
Right of use assets obtained in exchange for lease liabilities
|
|
|
1,640
|
|
(1) Total cash paid for the Company's operating leases during the nine months ended March 31, 2020 include cash amounts paid on operating lease liabilities and variable lease expenses. Cash flow impacts from right of use assets and lease liabilities are presented net on the cash flow statement in changes in other operating activity.
The following table summarizes the fair value of the lease liability by payment date for the Company’s operating leases by fiscal year (in thousands):
|
|
Operating
Leases
|
|
Remainder of 2020
|
|
$
|
2,362
|
|
2021
|
|
|
9,405
|
|
2022
|
|
|
9,332
|
|
2023
|
|
|
8,918
|
|
2024
|
|
|
8,320
|
|
Thereafter
|
|
|
40,698
|
|
Total
|
|
$
|
79,035
|
|
Certain leases include one or more options to renew, with terms that extend the lease term up to five years. The Company includes option to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, the Company is not reasonably certain to exercise such options.
Disclosures related to periods prior to adoption of new lease standard:
At June 30, 2019, aggregate net minimum rental commitments under non-cancelable leases having an initial or remaining term of more than one year are payable as follows (in thousands):
|
|
Operating
Leases
|
|
2020
|
|
$
|
13,707
|
|
2021
|
|
|
13,469
|
|
2022
|
|
|
13,154
|
|
2023
|
|
|
12,716
|
|
2024
|
|
|
11,392
|
|
Thereafter
|
|
|
51,895
|
|
Total
|
|
$
|
116,333
|
|
Total rent expense was approximately $12.9 million, $10.8 million, and $9.8 million for the years ended June 30, 2019, 2018, and 2017, respectively.
Note 8. Supplemental Equity and Accumulated Other Comprehensive Income (Loss):
Supplemental Equity
The Company has declared cash dividends per share of $0.32 and $0.96 in both the three and nine month periods ended March 31, 2020 and 2019, respectively.
Consolidated Changes in Equity (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income(Loss)
|
|
|
Total
|
|
Balances at June 30, 2019
|
|
|
37,934
|
|
|
$
|
379
|
|
|
$
|
316,797
|
|
|
$
|
931,934
|
|
|
$
|
(83,521
|
)
|
|
$
|
1,165,589
|
|
Cumulative effect adjustments due to adoption of new accounting standards and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(879
|
)
|
|
|
|
|
|
|
(879
|
)
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,398
|
|
|
|
|
|
|
|
14,398
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,106
|
)
|
|
|
(8,106
|
)
|
Common stock issued for exercise of options
|
|
|
94
|
|
|
|
1
|
|
|
|
7,854
|
|
|
|
|
|
|
|
|
|
|
|
7,855
|
|
Common stock issued for restricted stock awards
|
|
|
50
|
|
|
|
0
|
|
|
|
(0
|
)
|
|
|
(1,926
|
)
|
|
|
|
|
|
|
(1,926
|
)
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,169
|
)
|
|
|
|
|
|
|
(12,169
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,267
|
|
|
|
|
|
|
|
|
|
|
|
8,267
|
|
Common stock issued to employee stock purchase plan
|
|
|
6
|
|
|
|
0
|
|
|
|
1,096
|
|
|
|
|
|
|
|
|
|
|
|
1,096
|
|
Employee stock purchase plan expense
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Balances at September 30, 2019
|
|
|
38,084
|
|
|
$
|
381
|
|
|
$
|
334,112
|
|
|
$
|
931,358
|
|
|
$
|
(91,627
|
)
|
|
$
|
1,174,224
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,622
|
|
|
|
|
|
|
|
119,622
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,275
|
|
|
|
13,275
|
|
Common stock issued for exercise of options
|
|
|
195
|
|
|
|
2
|
|
|
|
18,293
|
|
|
|
|
|
|
|
|
|
|
|
18,295
|
|
Common stock issued for restricted stock awards
|
|
|
4
|
|
|
|
0
|
|
|
|
(0
|
)
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,197
|
)
|
|
|
|
|
|
|
(12,197
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
10,017
|
|
|
|
|
|
|
|
|
|
|
|
10,017
|
|
Common stock issued to employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
Balance at December 31, 2019
|
|
|
38,283
|
|
|
$
|
383
|
|
|
$
|
362,534
|
|
|
$
|
1,038,783
|
|
|
$
|
(78,352
|
)
|
|
$
|
1,323,348
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,432
|
|
|
|
|
|
|
|
36,432
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,105
|
)
|
|
|
(25,105
|
)
|
Share repurchases
|
|
|
(279
|
)
|
|
|
(3
|
)
|
|
|
0
|
|
|
|
(50,109
|
)
|
|
|
|
|
|
|
(50,112
|
)
|
Common stock issued for exercise of options
|
|
|
100
|
|
|
|
1
|
|
|
|
10,026
|
|
|
|
|
|
|
|
|
|
|
|
10,027
|
|
Common stock issued for restricted stock awards
|
|
|
1
|
|
|
|
0
|
|
|
|
(0
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
(114
|
)
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,279
|
)
|
|
|
|
|
|
|
(12,279
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
7,745
|
|
|
|
|
|
|
|
|
|
|
|
7,745
|
|
Common stock issued to employee stock purchase plan
|
|
|
8
|
|
|
|
0
|
|
|
|
1,216
|
|
|
|
|
|
|
|
|
|
|
|
1,216
|
|
Employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Balance at March 31, 2020
|
|
|
38,112
|
|
|
$
|
381
|
|
|
$
|
381,632
|
|
|
$
|
1,012,713
|
|
|
$
|
(103,458
|
)
|
|
$
|
1,291,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income(Loss)
|
|
|
Total
|
|
Balances at June 30, 2018
|
|
|
37,608
|
|
|
$
|
376
|
|
|
$
|
246,568
|
|
|
$
|
876,931
|
|
|
$
|
(44,814
|
)
|
|
$
|
1,079,061
|
|
Cumulative effect adjustments due to adoption of new accounting standards and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,276
|
|
|
|
(24,682
|
)
|
|
|
594
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,403
|
|
|
|
|
|
|
|
17,403
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,136
|
)
|
|
|
(1,136
|
)
|
Common stock issued for exercise of options
|
|
|
166
|
|
|
|
2
|
|
|
|
15,609
|
|
|
|
|
|
|
|
|
|
|
|
15,611
|
|
Common stock issued for restricted stock awards
|
|
|
24
|
|
|
|
0
|
|
|
|
|
|
|
|
(2,405
|
)
|
|
|
|
|
|
|
(2,405
|
)
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,066
|
)
|
|
|
|
|
|
|
(12,066
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
11,327
|
|
|
|
|
|
|
|
|
|
|
|
11,327
|
|
Common stock issued to employee stock purchase plan
|
|
|
5
|
|
|
|
0
|
|
|
|
842
|
|
|
|
|
|
|
|
|
|
|
|
842
|
|
Employee stock purchase plan expense
|
|
|
|
|
|
|
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
238
|
|
Balances at September 30, 2018
|
|
|
37,803
|
|
|
$
|
378
|
|
|
$
|
274,584
|
|
|
$
|
905,139
|
|
|
$
|
(70,632
|
)
|
|
$
|
1,109,469
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,556
|
|
|
|
|
|
|
|
17,556
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,379
|
)
|
|
|
(12,379
|
)
|
Share repurchases
|
|
|
(95
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(15,404
|
)
|
|
|
|
|
|
|
(15,404
|
)
|
Common stock issued for exercise of options
|
|
|
24
|
|
|
|
|
|
|
|
2,408
|
|
|
|
|
|
|
|
|
|
|
|
2,408
|
|
Common stock issued for restricted stock awards
|
|
|
3
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,086
|
)
|
|
|
|
|
|
|
-
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
6,784
|
|
|
|
|
|
|
|
|
|
|
|
6,784
|
|
Common stock issued to employee stock purchase plan
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Employee stock purchase plan expense
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
Balances at December 31, 2018
|
|
|
37,735
|
|
|
$
|
377
|
|
|
$
|
283,854
|
|
|
$
|
895,205
|
|
|
$
|
(83,011
|
)
|
|
$
|
1,096,425
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,654
|
|
|
|
|
|
|
|
44,654
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,378
|
|
|
|
3,378
|
|
Share repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Common stock issued for exercise of options
|
|
|
73
|
|
|
|
1
|
|
|
|
7,336
|
|
|
|
|
|
|
|
|
|
|
|
7,337
|
|
Common stock issued for restricted stock awards
|
|
|
1
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,086
|
)
|
|
|
|
|
|
|
(12,086
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
5,640
|
|
|
|
|
|
|
|
|
|
|
|
5,640
|
|
Common stock issued to employee stock purchase plan
|
|
|
4
|
|
|
|
0
|
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
|
834
|
|
Employee stock purchase plan expense
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
Balances at March 31, 2019
|
|
|
37,813
|
|
|
$
|
378
|
|
|
$
|
297,748
|
|
|
$
|
927,773
|
|
|
$
|
(79,633
|
)
|
|
$
|
1,146,266
|
|
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 entered into in the second quarter of fiscal 2019. During the 9 months ended March 31, 2020, the company reclassified $1.6 million, net of taxes, from comprehensive income into income relating to cash payments made on the cash flow derivative instrument. The Company did not reclassify any gains (losses) from accumulated other comprehensive income (loss) to earnings during the nine months ended March 31, 2019.
The accumulated balances related to each component of other comprehensive income (loss), net of tax, are summarized as follows:
|
|
Gains
(Losses) on
Derivative
Instruments
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Total
|
|
Balance as of June 30, 2019
|
|
$
|
(9,537
|
)
|
|
$
|
(73,983
|
)
|
|
$
|
(83,521
|
)
|
Other comprehensive income (loss), net of tax before reclassifications
|
|
|
(6,413
|
)
|
|
|
(15,138
|
)
|
|
|
(21,551
|
)
|
Reclassification of loss on derivatives to interest expense, net of taxes (3)
|
|
|
1,614
|
|
|
|
-
|
|
|
|
1,614
|
|
Balance as of March 31, 2020(1)(3)
|
|
$
|
(14,336
|
)
|
|
$
|
(89,121
|
)
|
|
$
|
(103,458
|
)
|
|
|
Gains
(Losses) on
Derivative
Instruments
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Total
|
|
Balance as of June 30, 2018(2)
|
|
$
|
-
|
|
|
$
|
(69,496
|
)
|
|
$
|
(69,496
|
)
|
Other comprehensive income (loss), net of tax before reclassifications
|
|
|
(5,769
|
)
|
|
|
(4,368
|
)
|
|
|
(10,137
|
)
|
Balance as of March 31, 2019 (3)
|
|
$
|
(5,769
|
)
|
|
$
|
(73,864
|
)
|
|
$
|
(79,633
|
)
|
(1) The gain (loss) on the interest rate swap will be reclassified into interest expense as payments on the derivative agreement are made. Approximately ($7,487) of the ($14,336) will be reclassified into earnings in the 12 months subsequent to March 31, 2020.
(2) As previously disclosed in our 10-K/A, unrealized gains of $24,682 on available-for-sale investments with readily determinable fair vales were included in the June 30, 2018 Consolidated Balance Sheet and were reclassified into retained earnings at the beginning of fiscal 2019 upon our adoption of ASU 2016-01 and ASU 2018-02. The amounts presented in accumulated other comprehensive income as of June 30, 2018 exclude these unrealized gains subsequently reclassified into retained earnings.
(3) The Company reclassified ($2,102) to interest expense and a related tax benefit tax of $488 during the nine months ended March 31, 2020. The Company had deferred tax benefits of $4,390 and $1,792 included in the accumulated other comprehensive income loss as of March 31, 2020 and March 31, 2019, respectively.
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
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Earnings per share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,432
|
|
|
$
|
44,654
|
|
|
$
|
170,451
|
|
|
$
|
79,612
|
|
Income allocated to participating securities
|
|
|
(26
|
)
|
|
|
(35
|
)
|
|
|
(126
|
)
|
|
|
(66
|
)
|
Income available to common shareholders
|
|
$
|
36,406
|
|
|
$
|
44,619
|
|
|
$
|
170,325
|
|
|
$
|
79,546
|
|
Weighted-average shares outstanding – basic
|
|
|
38,303
|
|
|
|
37,772
|
|
|
|
38,167
|
|
|
|
37,745
|
|
Earnings per share – basic
|
|
$
|
0.95
|
|
|
$
|
1.18
|
|
|
$
|
4.46
|
|
|
$
|
2.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,432
|
|
|
$
|
44,654
|
|
|
$
|
170,451
|
|
|
$
|
79,612
|
|
Income allocated to participating securities
|
|
|
(26
|
)
|
|
|
(35
|
)
|
|
|
(126
|
)
|
|
|
(66
|
)
|
Income available to common shareholders
|
|
$
|
36,406
|
|
|
$
|
44,619
|
|
|
$
|
170,325
|
|
|
$
|
79,546
|
|
Weighted-average shares outstanding – basic
|
|
|
38,303
|
|
|
|
37,772
|
|
|
|
38,167
|
|
|
|
37,745
|
|
Dilutive effect of stock options and restricted stock units
|
|
|
1,132
|
|
|
|
1,089
|
|
|
|
1,187
|
|
|
|
1,068
|
|
Weighted-average common shares outstanding – diluted
|
|
|
39,435
|
|
|
|
38,861
|
|
|
|
39,354
|
|
|
|
38,813
|
|
Earnings per share – diluted
|
|
$
|
0.92
|
|
|
$
|
1.15
|
|
|
$
|
4.33
|
|
|
$
|
2.05
|
|
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 1.1 million and 1.3 million for the quarter ended March 31, 2020 and 2019, respectively and 1.2 million and 1.3 million for the nine months ended March 31, 2020 and 2019 respectively.
Note 10. Share-based Compensation:
During the nine months ended March 31, 2020 and 2019, the Company granted 0.8 million and 0.9 million stock options at weighted average grant prices of $190.80 and $173.89 and weighted average fair values of $37.01 and $34.66, respectively. During the nine months ended March 31, 2020 and 2019, the Company granted 30,858 and 56,403 restricted stock units at a weighted average fair value of $192.08 and $170.96, respectively. During the nine months ended March 31, 2020 and 2019, the Company granted 15,398 and 14,887 shares of restricted common stock shares at a weighted average fair value of $193.48 and $177.93.
Stock options for 398,320 and 263,995 shares of common stock with total intrinsic values of $48.6 million and $22.3 million were exercised during the nine months ended March 31, 2020 and 2019, respectively.
Stock-based compensation expense of $7.6 million and $5.7 million was included in selling, general and administrative expenses for the quarter ended March 31, 2020 and 2019, respectively. Stock-based compensation expense of $26.1 million and $24.2 million was included in selling, general, and administrative expenses for the nine months ended March 31, 2020 and 2019, respectively. Additionally, the company recognized $0.5 million and $1.4 million in cost of goods sold in the quarter and nine months ended March 31, 2020 respectively. As of March 31, 2020, there was $30.1 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 2.0 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
|
|
|
Nine Months
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Interest expense
|
|
|
(4,486
|
)
|
|
$
|
(5,113
|
)
|
|
|
(14,580
|
)
|
|
$
|
(16,110
|
)
|
Interest income
|
|
|
144
|
|
|
|
84
|
|
|
|
486
|
|
|
|
299
|
|
Other non-operating income (expense), net(1)
|
|
|
3,372
|
|
|
|
10,816
|
|
|
|
110,937
|
|
|
|
1,585
|
|
Total other income (expense)
|
|
|
(970
|
)
|
|
$
|
5,787
|
|
|
|
96,843
|
|
|
$
|
(14,226
|
)
|
(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.
Note 12. Income Taxes:
The Company’s effective income tax rate for the third quarter of fiscal 2020 and 2019 was 22.2% and 10.5% of consolidated earnings before income taxes, and 20.7% and 10.8% for the first nine months of fiscal 2020 and 2019, respectively. The change in the company’s tax rate for the quarter and nine months ended March 31, 2020 compared to the quarter and nine months ended March 31, 2019 were driven by changes in the composition and amount of the Company’s taxable income in fiscal 2020 resulting from the gain on our CCXI investment and discrete tax items.
The Company recognized total net benefits related to discrete tax items of $1.4 million and $8.1 million during the quarter and nine months ended March 31, 2020, respectively, compared to $6.2 million and $11.4 million during the quarter and nine months ended March 31, 2019, respectively. Share-based compensation excess tax benefit contributed $1.5 million and $8.5 million in the quarter and nine months ended March 31, 2020, respectively, compared to $1.1 million and $4.8 million in the quarter and nine months, ended March 31, 2019, respectively. The Company recognized total other immaterial net discrete tax expense of $0.1 million and $0.4 million in the quarter and nine months ended March 31, 2020, respectively, compared to other net discrete tax benefits of $5.1 million and $6.7 million in the quarter and nine months ended March 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
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Protein Sciences
|
|
$
|
145,509
|
|
|
$
|
137,935
|
|
|
$
|
428,021
|
|
|
$
|
399,787
|
|
Diagnostics and Genomics
|
|
|
49,411
|
|
|
|
47,134
|
|
|
|
135,808
|
|
|
|
123,144
|
|
Intersegment
|
|
|
(240
|
)
|
|
|
(208
|
)
|
|
|
(972
|
)
|
|
|
(590
|
)
|
Consolidated net sales
|
|
$
|
194,680
|
|
|
$
|
184,861
|
|
|
$
|
562,857
|
|
|
$
|
522,341
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Protein Sciences
|
|
$
|
65,046
|
|
|
$
|
62,256
|
|
|
$
|
185,456
|
|
|
$
|
175,821
|
|
Diagnostics and Genomics
|
|
|
7,062
|
|
|
|
3,579
|
|
|
|
8,937
|
|
|
|
5,061
|
|
Segment operating income
|
|
$
|
72,108
|
|
|
$
|
65,835
|
|
|
$
|
194,393
|
|
|
$
|
180,882
|
|
Costs recognized on sale of acquired inventory
|
|
|
-
|
|
|
|
(935
|
)
|
|
|
-
|
|
|
|
(2,804
|
)
|
Amortization of acquisition related intangible assets
|
|
|
(15,459
|
)
|
|
|
(14,400
|
)
|
|
|
(45,467
|
)
|
|
|
(43,678
|
)
|
Acquisition related expenses
|
|
|
322
|
|
|
|
-
|
|
|
|
(107
|
)
|
|
|
(2,973
|
)
|
Stock based compensation
|
|
|
(8,088
|
)
|
|
|
(5,725
|
)
|
|
|
(27,505
|
)
|
|
|
(24,151
|
)
|
Corporate general, selling, and administrative expenses
|
|
|
(1,092
|
)
|
|
|
(685
|
)
|
|
|
(3,205
|
)
|
|
|
(3,821
|
)
|
Consolidated operating income
|
|
$
|
47,791
|
|
|
$
|
44,090
|
|
|
$
|
118,109
|
|
|
$
|
103,455
|
|
Note 14. Subsequent Events:
None.