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Note 4 - Acquisitions | 12 Months Ended
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Jun. 30, 2019
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | 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 that the results of operations of each acquired business be included in our consolidated statements of comprehensive income from their respective dates of acquisitions. Acquisition costs are recorded in selling, general and administrative expenses as incurred. 2019 Acquisitions Quad Technologies On July 2, 2018, the Company acquired QT Holdings Corporation (Quad) for approximately $20.5 million, net of cash acquired, plus contingent consideration of up to $51.0 million, subject to certain product development milestones and revenue thresholds. The goodwill recorded as a 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 first quarter of fiscal year 2019. Purchase accounting was finalized during the fourth quarter of fiscal 2019. 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 |  |  | Final Opening Balance Sheet Allocation |
Current assets, net of cash |  | $ | 36 |  |  |  |  |  |  | $ | 36 |
Equipment and other long-term assets |  |  | 284 |  |  |  | (56 | ) |  |  | 228 |
Intangible assets: |  |  |  |  |  |  |  |  |  |  |  |
Developed technology |  |  | 20,000 |  |  |  | (7,744 | ) |  |  | 12,256 |
Goodwill |  |  | 9,790 |  |  |  | 4,691 |  |  |  | 14,481 |
Total assets acquired |  |  | 30,110 |  |  |  | (3,109 | ) |  |  | 27,001 |
Liabilities |  |  | 765 |  |  |  | (469 | ) |  |  | 296 |
Deferred income taxes, net |  |  | 3,741 |  |  |  | (2,798 | ) |  |  | 943 |
Net assets acquired |  | $ | 25,604 |  |  | $ | 158 |  |  | $ | 25,762 |
Cash paid, net of cash acquired |  | $ | 20,404 |  |  | $ | 58 |  |  | $ | 20,462 |
Fair value of contingent consideration |  |  | 5,200 |  |  |  | 100 |  |  |  | 5,300 |
Net assets acquired |  | $ | 25,604 |  |  | $ | 158 |  |  | $ | 25,762 |
As summarized in the table, there were adjustments totaling $4.7 million to goodwill during the measurement period. These adjustments primarily relate to refinements made to acquired intangible asset cash flow models, an update in the discount rate used in the contingent consideration calculation based on refinements made in the acquired intangible asset cash flow models, and adjustments to preliminary deferred tax amounts based on updated assessments of the applicability of certain NOLs. 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 using a multi-period excess earnings method to calculate the fair value of assets purchased. The developed technology asset is being amortized with the expense reflected in cost of goods sold in the Consolidated Statement of Earnings and Comprehensive Income. The amortization period for intangible assets acquired in fiscal 2019 are 14 years for developed technology. 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 our calculation of acquired net operating losses (NOLs). Exosome Diagnostics On August 1, 2018, the Company acquired Exosome Diagnostics, Inc. (ExosomeDx) for approximately $251.6 million, net of cash acquired, plus contingent consideration of up to $325.0 million as follows: ● Up to $250 million if calendar year 2020 EBITA is between $45 million and $58 million or greater. ● Up to $45 million if calendar year 2022 EBITA for a new instrument product is between $54 million and $70 million or greater. ● Up to $30 million if calendar year 2022 EBITA for the remaining business is between $150 million and $190 million or greater. The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’ 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 Diagnostics and Genomics reportable segment in the first quarter of fiscal year 2019. Purchase accounting was finalized during the fourth quarter of fiscal 2019. 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 |  |  | Final Opening Balance Sheet Allocation |
Current assets, net of cash |  | $ | 5,118 |  |  |  | (2,507 | ) |  | $ | 2,611 |
Equipment and other long-term assets |  |  | 2,212 |  |  |  | - |  |  |  | 2,212 |
Intangible assets: |  |  |  |  |  |  |  |  |  |  |  |
Developed technology |  |  | 180,000 |  |  |  | (75,000 | ) |  |  | 105,000 |
Trade name |  |  | - |  |  |  | 58,000 |  |  |  | 58,000 |
Customer relationships |  |  | - |  |  |  | 2,300 |  |  |  | 2,300 |
Goodwill |  |  | 96,592 |  |  |  | 8,770 |  |  |  | 105,362 |
Total assets acquired |  |  | 283,922 |  |  |  | (8,437 | ) |  |  | 275,485 |
Liabilities |  |  | 2,624 |  |  |  | 1,092 |  |  |  | 3,716 |
Deferred income taxes, net |  |  | 27,673 |  |  |  | (11,327 | ) |  |  | 16,346 |
Net assets acquired |  | $ | 253,625 |  |  | $ | 1,798 |  |  | $ | 255,423 |
Cash paid, net of cash acquired |  | $ | 251,825 |  |  | $ | (202 | ) |  | $ | 251,623 |
Fair value of contingent consideration |  |  | 1,800 |  |  |  | 2,000 |  |  |  | 3,800 |
Net assets acquired |  | $ | 253,625 |  |  | $ | 1,798 |  |  | $ | 255,423 |
As summarized in the table, there were adjustments totaling $8.8 million to goodwill during the measurement period. As previously disclosed, the intangible value associated with the ExosomeDx trade name and determination of the related estimated useful life was under assessment as part of purchase accounting review. During the period, the Company updated our intangible assessment to include a $58.0 million value for the ExosomeDx trade name. Due to our updated assessments and further refinements in our intangible asset cash flow models, the fair value of the developed technology intangible asset decreased by $75.0 million. When applying our final assumptions in our intangible asset cash flow models to the Company's contingent consideration recorded in the Opening Balance Sheet, the estimated contingent consideration increased by $2.0 million. Additionally, we recorded a Customer Relationships intangible asset of $2.3 million for the established physician network ordering ExosomeDx laboratory services that existed at the acquisition date. Adjustments to the opening balance sheet fair value also included updates to preliminary deferred tax amounts and working capital adjustments, primarily attributable to updates for the net realizable value of certain acquired receivables based on factors existing on the acquisition date. 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, trade names, and customer relationships was based on management's forecasted cash inflows and outflows and using either a relief-from-royalty or a multiperiod excess earnings method to calculate the fair value of assets purchased. The preliminary 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. Preliminary amortization expense related to trade names, and customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The preliminary amortization periods for intangible assets acquired in fiscal 2019 are 15 years for developed technology and trade names, and 14 years for customer relationships. 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. B-MoGen Biotechnologies On June 4, 2019, the Company acquired the remaining interest in B-MoGen Biotechnologies Inc. (B-MoGen) for approximately $17.5 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 transaction within other non-operating income in the consolidated statements of earnings and comprehensive income representing the adjustment of our historical investment to its fair value. The goodwill recorded as a 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. 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 the second quarter of fiscal year 2020 when we have completed our assessment of the working capital adjustment and we have finalized our income tax assessment of acquired net operating losses (NOLs) with the completion of the stub period tax returns. Amounts for acquired current assets and liabilities, deferred tax liabilities, acquired NOLs, and goodwill also remain subject to change. The preliminary estimated fair values of the assets acquired and liabilities assumed are as follows (in thousands):
|  | Preliminary Allocation at Acquisition Date |
Current assets, net of cash |  | $ | 504 |
Equipment and other long-term assets |  |  | 269 |
Intangible assets: |  |  |  |
Developed technology |  |  | 14,000 |
Customer relationships |  |  | 400 |
Goodwill |  |  | 16,457 |
Total assets acquired |  |  | 31,630 |
Liabilities |  |  | 211 |
Deferred income taxes, net |  |  | 3,377 |
Net assets acquired |  | $ | 28,042 |
Cash paid, net of cash acquired |  | $ | 17,448 |
Fair value of contingent consideration |  |  | 5,500 |
Fair value of historical investment in B-MoGen |  |  | 5,094 |
Net assets acquired |  | $ | 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 preliminary amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Consolidated Statement of Earnings and Comprehensive Income. The amortization periods for intangible assets acquired in fiscal 2019 are estimated to be 14 years for developed technology. 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. 2018 Acquisitions Trevigen On September 5, 2017 the Company acquired the stock of Trevigen Inc. for approximately $10.6 million, net of cash received. The Company has had a long-standing business relationship with Trevigen as a distributor of its product line. The goodwill recorded as a 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 first quarter of fiscal 2018. Atlanta Biologicals On January 2, 2018 the Company acquired the stock of Atlanta Biologicals, Inc. and its affiliated company, Scientific Ventures, Inc., for approximately $51.3 million, net of cash acquired. The transaction was financed through available cash on hand and an additional draw from the Company’s line-of-credit. Atlanta Biologicals fetal bovine serum (FBS) product line strengthens and complements our current tissue culture reagents offering and furthers our efforts to provide more complete solutions to our research customers. The goodwill recorded as a 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 third quarter of fiscal 2018. Purchase accounting was finalized during fiscal 2018. Tangible assets acquired in the acquisition, net of liabilities assumed, were recorded at fair value on the date of close based on management's assessment. The purchase price allocated to developed technology, trade names, and customer relationships was based on management's forecasted cash inflows and outflows and using a relief-from-royalty and a multi-period excess earnings method to calculate the fair value of assets purchased. The developed technology is being amortized with the expense reflected in cost of goods sold in the Consolidated Statement of Earnings and Comprehensive Income. Amortization expense related to trade names, and customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The amortization periods for intangible assets acquired in fiscal 2018 are 13 years for developed technology, 12 years for customer relationships, and 15 years for trade names. The deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized upon the sale of acquired inventory that was written up to fair value and intangible asset amortization, both of which are not deductible for income tax purposes. Eurocell Diagnostics On February 1, 2018, the Company acquired Eurocell Diagnostics SAS, a company based in Rennes, France, for approximately $7.3 million, net of cash acquired. The Company paid $6.0 million on the acquisition date and the remaining $1.3 million was paid on February 1, 2019. The Company has had a long-standing business relationship with Eurocell as a distributor of its product line. Eurocell sells directly to the laboratory markets in the French region as well as servicing the EMEA markets via a network of distributors. The transaction was financed through cash on hand. The primary asset in this acquisition is the customer relationships; however, the acquisition resulted in some goodwill as we expect strategic benefits of revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes. The business became part of the Company’s Diagnostics and Genomics reportable segment in the third quarter of fiscal 2018. Purchase accounting was finalized during fiscal 2018. Tangible assets acquired, net of liabilities assumed, were recorded at fair value on the date of close based on management's assessment. The purchase price allocated to customer relationships was based on management's forecasted cash inflows and outflows using a multi-period excess earnings method to calculate the fair value of assets purchased. Amortization expense related 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 acquired in fiscal 2018 is 7 years. The deferred income tax liability represents the net amount of the estimated future impact of intangible asset amortization, which is not deductible for income tax purposes. 2017 Acquisitions Advanced Cell Diagnostics (ACD) On August 1, 2016, the Company acquired ACD for approximately $258.0 million, net of cash acquired, plus contingent consideration of up to $75.0 million as follows:
● | $25.0 million if calendar year 2016 revenues equal or exceed $30.0 million.
● | an additional $50.0 million if calendar year 2017 revenues equal or exceed $45.0 million.
The Company paid approximately $247.0 million, net of cash acquired and the working capital adjustments, as of the acquisition date. The remaining $11.0 million was paid to current employees who held ACD unvested stock as of the acquisition date. In order to receive payment for unvested shares, the individuals had to remain employees of ACD over an 18 -month vesting period which extended from the acquisition date through March 31, 2018. Any amounts that would have been owed to individuals who left the company during the vesting period was pooled together and distributed amongst the other former ACD shareholders at the end of the vesting period. Management determined that $3.6 million of the $11.0 million represented purchase price consideration paid for pre-acquisition services. However, the remaining $7.4 million represented compensation expense as the amount the individual employees received was tied to future service. This liability recorded on the Consolidated Balance Sheets under the caption “Salaries, wages and related accruals” for the fiscal year ended June 30, 2017. During the third quarter of fiscal 2017, management determined that the calendar year 2016 revenue milestone was met. During the third quarter of fiscal 2018, management determined that the calendar year 2017 revenue milestone was met. Refer to Note 4 for discussion of this item as well as discussion of the changes to the fair value estimate for the calendar year revenue milestones as of June 30, 2018 and 2017. The goodwill recorded as a result of the ACD acquisition represents the strategic benefits of growing the Company's product portfolio and the expected revenue growth from increased market penetration from future products and customers. The goodwill is not deductible for income tax purposes. The business became part of the Company’s Biotechnology reportable segment in the first quarter of 2017. As previously disclosed, ACD was acquired on August 1, 2016. The unaudited pro forma financial information below summarizes the combined results of operations for Bio-Techne and ACD as though the companies were combined as of the beginning fiscal 2016. The pro forma financial information for all periods presented includes the purchase accounting effects resulting from these acquisitions except for the increase in inventory to fair value and the fair value adjustments to contingent consideration as these are not expected to have a continuing impact on cost of goods sold or selling, general and administrative expense, respectively. The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of fiscal 2016.
|  | Year Ended |
|  | June 30, |
|  | 2017 |  |  | 2016 |
Net sales |  | $ | 564,220 |  |  | $ | 523,840 |
Net income |  |  | 99,380 |  |  |  | 110,536 |
Space Import-Export, Srl On July 1, 2016, the Company acquired Space Import-Export, Srl (Space) of Milan, Italy for approximately $9.0 million. $6.7 million was paid on the acquisition date and the remaining $2.3 million was paid during the first quarter of fiscal year 2018. Space was a long-time distribution partner of the Company in the Italian market. The acquisition resulted in goodwill as we expect strategic benefits of revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes. The business became part of the Company’s Biotechnology reportable segment in the first quarter of 2017. Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of acquisition based on management's assessment. The purchase price allocated to developed technology, trade names, non-compete agreements and customer relationships was based on management's forecasted cash inflows and outflows and using a relief-from-royalty and a multi-period excess earnings method to calculate the fair value of assets purchased. The developed technology is being amortized with the expense reflected in cost of goods sold in the Consolidated Statements of Earnings and Comprehensive Income. Amortization expense related to trade names, the non-compete agreement and customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statements of Earnings and Comprehensive Income. The deferred income tax liability represents the estimated future impact of adjustments for the cost to be recognized upon the sale of acquired inventory that was written up to fair value and intangible asset amortization, both of which are not deductible for income tax purposes, and the future tax benefit of net operating loss and tax credit carryforwards which will be deductible by the Company in future periods. The aggregate purchase price of the acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the fiscal year 2018 and 2017 acquisitions (in thousands):
|  | Trevigen |  |  | Atlanta Biologicals |  |  | Eurocell Diagnostics |  |  | ACD |  |  | Space |
Current assets, net of cash | $ | 1,662 |  | $ | 15,722 |  |  | $ | 512 |  |  | $ | 15,824 |  |  | $ | 2,128 |
Equipment and other long-term assets |  | 53 |  |  | 4,901 |  |  |  | 188 |  |  |  | 6,569 |  |  |  | 159 |
Intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Developed technology |  | 5,100 |  |  | 23,000 |  |  |  | - |  |  |  | 150,000 |  |  |  | - |
Trade name |  | 160 |  |  | 2,300 |  |  |  | - |  |  |  | 21,900 |  |  |  | - |
Customer relationships |  | 260 |  |  | 3,600 |  |  |  | 6,272 |  |  |  | 6,300 |  |  |  | 6,769 |
Goodwill |  | 5,991 |  |  | 10,195 |  |  |  | 2,910 |  |  |  | 143,967 |  |  |  | 3,517 |
Total assets acquired |  | 13,226 |  |  | 59,718 |  |  |  | 9,882 |  |  |  | 344,560 |  |  |  | 12,573 |
Liabilities |  | 387 |  |  | 90 |  |  |  | 483 |  |  |  | 4,179 |  |  |  | 1,445 |
Deferred income taxes, net |  | 2,195 |  |  | 8,354 |  |  |  | 2,070 |  |  |  | 52,743 |  |  |  | 2,125 |
Net assets acquired | $ | 10,644 |  | $ | 51,274 |  |  | $ | 7,329 |  |  | $ | 287,638 |  |  | $ | 9,003 |
Cash paid, net of cash acquired |  | 10,644 |  |  | 51,274 |  |  | $ | 5,933 |  |  | $ | 247,038 |  |  | $ | 6,747 |
Consideration payable |  | - |  |  | - |  |  |  | 1,396 |  |  |  | 3,600 |  |  |  | 2,256 |
Contingent consideration payable |  | - |  |  | - |  |  |  | - |  |  |  | 37,000 |  |  |  | - |
Net assets acquired | $ | 10,644 |  | $ | 51,274 |  |  | $ | 7,329 |  |  | $ | 287,638 |  |  | $ | 9,003 |
Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of acquisition based on management's assessment. The purchase price allocated to developed technology, trade names, non-compete agreements and customer relationships was based on management's forecasted cash inflows and outflows and using a relief-from-royalty and multi-period excess earnings method to calculate the fair value of assets purchased. The developed technology is being amortized with the expense reflected in cost of good sold in the Consolidated Statements of Earnings and Comprehensive Income. Amortization expense related to trade names, the non-compete agreement and customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statements of Earnings and Comprehensive Income. The deferred income tax liability represents the estimated future impact of adjustments for the cost to be recognized upon the sale of acquired inventory that was written up to fair value and intangible asset amortization, both of which are not deductible for income tax purposes, and the future tax benefit of net operating loss and tax credit carryforwards which will be deductible by the Company in future periods.

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