Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION

This report contains forward-looking statements, which are based on the Company’s current assumptions and expectations. The principal forward-looking statements in this report include: the Company’s expectations regarding product releases, governmental license renewals, future income tax rates, medical device excise tax, capital expenditures, the performance of the Company’s investments, future dividend declarations, the construction and lease of certain facilities, adequacy of owned and leased property for future operations, and sufficiency of capital resources to meet the Company’s foreseeable future cash and working capital requirements.

All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Although the Company believes there is a reasonable basis for the forward-looking statements, the Company’s actual results could be materially different. The most important factors which could cause the Company’s actual results to differ from forward-looking statements are set forth in the Company’s description of risk factors in Item 1A to this Annual Report on Form 10-K.

Forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation to update any forward-looking statements.

USE OF ADJUSTED FINANCIAL MEASURES:

The adjusted financial measures used in this Annual Report on Form 10-K quantify the impact the following events had on reported net sales, gross margin percentages and net earnings for fiscal 2012 as compared to fiscal 2011 and 2010:

	-		fluctuations in exchange rates used to convert transactions in foreign currencies (primarily the Euro, British pound sterling and Chinese yuan) to U.S. dollars;

	-		the acquisitions of Boston Biochem, Inc. on April 1, 2011 and Tocris Holdings Limited on April 28, 2011, including the recognition of costs upon the sale of inventory written-up to fair value;

	-		professional fees and other costs incurred as part of the acquisitions of Boston Biochem, Inc. and Tocris Holdings Limited;

	-		intangible asset amortization;

	-		impairment losses related to the Company’s investments in unconsolidated entities;

	-		the reversal of valuation allowances on deferred tax assets related to the excess tax basis in the Company’s unconsolidated entities; and

	-		the tax benefit from repatriation of funds from R&D Europe.

These adjusted financial measures are not prepared in accordance with generally accepted accounting principles (GAAP) and may be different from adjusted financial measures used by other companies. Adjusted financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The Company views these adjusted financial measures to be helpful in assessing the Company’s ongoing operating results. In addition, these adjusted financial measures facilitate our internal comparisons to historical operating results and comparisons to competitors’ operating results. These adjusted financial measures are included in this Annual Report on Form 10-K because the Company believes they are useful to investors in allowing for greater transparency related to supplemental information used in the Company’s financial and operational analysis. Investors are encouraged to review the reconciliations of adjusted financial measures used in this Annual Report on Form 10-K to their most directly comparable GAAP financial measures.

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OVERVIEW

TECHNE Corporation and subsidiaries (the Company) are engaged in the development, manufacture and sale of biotechnology products and hematology calibrators and controls. These activities are conducted domestically through its wholly-owned subsidiaries, Research and Diagnostic Systems, Inc. (R&D Systems), Boston Biochem, Inc. (Boston Biochem) and BiosPacific, Inc. (BiosPacific). The Company’s European biotechnology operations are conducted through its wholly-owned U.K. subsidiaries, R&D Systems Europe Ltd. (R&D Europe) and Tocris Holdings Limited (Tocris). R&D Europe has a sales subsidiary, R&D Systems GmbH, in Germany and a sales office in France. The Company distributes its biotechnology products in China through its wholly-owned subsidiary, R&D Systems China Co., Ltd. (R&D China). R&D China has a sales subsidiary, R&D Systems Hong Kong Ltd., in Hong Kong.

The Company has two reportable segments based on the nature of its products (biotechnology and hematology). R&D Systems’ Biotechnology Division, R&D Europe, Tocris, R&D China, BiosPacific and Boston Biochem operating segments are included in the biotechnology reporting segment. The Company’s biotechnology reporting segment develops, manufactures and sells biotechnology research and diagnostic products world-wide. The Company’s hematology reporting segment, which consists of R&D Systems’ Hematology Division, develops and manufactures hematology controls and calibrators for sale world-wide.

OVERALL RESULTS

Consolidated net sales increased 8.5% and consolidated net earnings were flat for fiscal 2012 as compared to fiscal 2011. Consolidated net sales in fiscal 2012 were impacted by the acquisitions of Boston Biochem and Tocris during the fourth quarter of fiscal 2011. Included in fiscal 2012 and 2011 consolidated net sales were $19.4 million and $4.7 million of acquisition-related net sales that were not comparable to the prior fiscal year. Consolidated net earnings for fiscal 2012 included $7.6 million of costs recognized upon the sale of inventory that was written-up to fair value at the time of the acquisitions and $5.1 million amortization of intangible assets compared to $1.8 million and $1.5 million, respectively, in fiscal 2011. Consolidated net earnings in fiscal 2012 also included impairment losses of $3.3 million recorded on two of the Company’s investments in unconsolidated entities and a $3.0 million tax benefit from the reversal of deferred tax valuation allowances.

Consolidated net sales and consolidated net earnings increased 7.8% and 2.3%, respectively, for fiscal 2011 as compared to fiscal 2010. Consolidated net sales for fiscal 2011 included $4.7 million net sales from companies acquired during fiscal 2011. Consolidated net sales in fiscal 2011 were affected by changes in exchange rates from the prior year used to convert consolidated net sales in foreign currencies into U.S. dollars and the impact of repatriation of prior-year earnings in fiscal 2010. Consolidated net earnings for fiscal 2010 included a $4.7 million tax benefit as a result of a foreign currency exchange tax loss on the repatriation of prior-year earnings from R&D Europe to the U.S.

RESULTS OF OPERATIONS

Net sales

Consolidated organic net sales, excluding the impact of the acquisitions and the effect of the change from the prior year in exchange rates used to convert sales in foreign currencies (primarily British pound sterling, euros and Chinese yuan) into U.S. dollars, were as follows (in thousands):

		Year Ended June 30,
		2012				2011				2010
Consolidated net sales		$	314,560			$	289,962			$	269,047
Organic sales adjustments:
Acquisitions			(19,385	)			(4,683	)			0
Impact of foreign currency fluctuations			27				(466	)			(888	)
Consolidated organic net sales		$	295,202			$	284,813			$	268,159
Organic sales growth			1.8	%			5.9	%			1.6	%

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Net sales by reportable segment were as follows (in thousands):

		Year Ended June 30,
		2012				2011				2010
Biotechnology		$	293,274			$	270,287			$	250,653
Hematology			21,286				19,675				18,394
		$	314,560			$	289,962			$	269,047

Biotechnology segment net sales increased $23.0 million (8.5%) and $19.6 million (7.8%), respectively, in fiscal 2012 and fiscal 2011 from each of the prior fiscal years. Biotechnology segment organic net sales increased $3.6 million (1.3%) and $14.5 million (5.8%), respectively, in fiscal 2012 and 2011, primarily as a result of increased sales volume. Included in fiscal 2012 and 2011 net sales were $2.7 million and $2.5 million, respectively, of sales of new protein based biotechnology products which had their first sale in each of the fiscal years.

Biotechnology segment organic sales growth from the same prior-year periods was as follows:

		Year Ended June 30,
		2012				2011
U.S. industrial, pharmaceutical and biotechnology			3.2	%			4.8	%
U.S. academic			(5.1	%)			6.4	%
Europe			(1.5	%)			4.1	%
China			21.6	%			22.6	%
Pacific Rim			7.0	%			4.1	%

Biotechnology segment net sales consisted of the following:

		Year Ended June 30,
		2012
United States
Industrial, pharmaceutical and biotechnology			28	%
Academic			12	%
Acquisitions			4	%
Other			13	%
			57	%
Europe			26	%
Acquisitions			3	%
			29	%
China			4	%
Pacific Rim distributors			8	%
Rest of world			2	%
			100	%

Hematology segment net sales increased $1.6 million (8.2%) and $1.3 million (7.0%), respectively, in fiscal 2012 and 2011 from each of the prior fiscal years, primarily as a result of increased sales volume.

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Gross margins

Consolidated gross margins for fiscal 2012 and 2011 were negatively impacted as a result of purchase accounting related to inventory and intangible assets acquired during the fourth quarter of fiscal 2011. Under purchase accounting, inventory is valued at fair value less expected selling and marketing costs, resulting in reduced margins in future periods as the inventory is sold.

A reconciliation of the reported consolidated gross margin percentages, adjusted for acquired inventory sold and intangible amortization included in cost of sales, is as follows:

		Year Ended June 30,
		2012				2011				2010
Consolidated gross margin percentage			75.0	%			77.6	%			79.6	%
Identified adjustments:
Costs recognized upon sale of acquired inventory			2.4	%			0.6	%			0.0	%
Amortization of intangibles			1.0	%			0.3	%			0.2	%
Adjusted gross margin percentage			78.4	%			78.5	%			79.8	%

Segment gross margins, as a percentage of net sales, were as follows:

		Year Ended June 30,
		2012				2011				2010
Biotechnology			76.9	%			79.8	%			81.9	%
Hematology			48.6	%			47.0	%			47.7	%
Consolidated			75.0	%			77.6	%			79.6	%

The Biotechnology segment gross margin percentages for fiscal 2012 and 2011 were negatively impacted by purchase accounting and intangible asset amortization as discussed above. The Hematology segment gross margin percentages changed from the comparable prior-year periods as a result of changes in product mix.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $5.8 million (16.1%) and $3.2 million (9.8%) in fiscal 2012 and 2011, respectively. The increase resulted primarily from expenses of the companies acquired in late fiscal 2011, an increase in customer relationships and trade name amortization as a result of the acquisitions and professional and other acquisition related costs.

The change from the comparable fiscal year was primarily the result of the following (in thousands):

		Increase/ (Decrease)
		2012				2011
Professional and other acquisition related costs		$	(1,735	)		$	1,735
Increase due to acquired companies selling, general and administrative expenses			3,256				945
Customer relationships and trade names amortization			1,502				50
Non-acquisition related legal fees			(117	)			(555	)
Stock-based compensation expense			503				3
Profit sharing and bonus expense			40				806
Other, including annual wage, salary and benefit increases			2,337				213
		$	5,786			$	3,197

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The decrease in non-acquisition related legal fees in fiscal 2012 and 2011 was primarily from lower costs associated with ongoing patent interference and infringement litigation. Fiscal 2012 legal costs also include $170,000 for the settlement of the litigation. The increase in fiscal 2012 stock-based compensation expense was the result of options issued to employees in connection with the acquisitions in fiscal 2011. The increase in 2011 profit sharing and bonus expense reflect the change in financial results from fiscal 2010. The remainder of the change in selling, general and administrative expenses for both fiscal years was mainly the result of annual wage, salary and benefit increases.

Consolidated selling, general and administrative expenses were composed of the following (in thousands):

		Year Ended June 30,
		2012				2011				2010
Biotechnology		$	36,453			$	30,058			$	27,511
Hematology			1,697				1,451				1,393
Unallocated corporate expenses			3,533				4,388				3,796
		$	41,683			$	35,897			$	32,700

Research and development expenses

Research and development expenses increased $1.9 million (7.4%) and $864,000 (3.4%) in fiscal 2012 and 2011, respectively, as compared to prior-year periods. The increases were primarily the result of the development of new proteins, antibodies and assay kits by R&D Systems’ Biotechnology Division and product development by Boston Biochem and Tocris in fiscal 2012. The Company introduced 1,800 and 1,646 new biotechnology products in fiscal 2012 and 2011, respectively. Research and development expenses are composed of the following (in thousands):

		Year Ended June 30,
		2012				2011				2010
Biotechnology		$	27,112			$	25,176			$	24,331
Hematology			800				809				790
		$	27,912			$	25,985			$	25,121

Interest income

Interest income for fiscal 2012, 2011 and 2010 was $2.6 million, $3.8 million and $4.4 million, respectively. The decrease in fiscal 2012 from the prior fiscal year was primarily the result of lower cash and available-for-sale debt securities as a result of the acquisitions in late fiscal 2011. The decrease in fiscal 2011 from the prior fiscal year was primarily the result of lower rates of return on cash and available-for-sale investments, offset in part by higher cash and available-for-sale investment balances prior to the acquisitions.

Impairment loss on investments in unconsolidated entities

The Company holds a 16.8% ownership interest in Nephromics, Inc. (Nephromics) and accounts for its investment under the equity method of accounting as Nephromics is a limited liability company. During fiscal 2012, Nephromics signed an agreement to sell substantially all of its assets. As a result of the agreement, the Company determined that a portion of its investment in Nephromics was other-than-temporarily impaired and wrote off $2.4 million of this investment during the third quarter of fiscal 2012. The Company’s net investment in Nephromics was $505,000 and $3.7 million at June 30, 2012 and 2011, respectively.

The Company holds a 13.6% ownership interest in ACTGen, Inc. (ACTGen), a development stage biotechnology company. During fiscal 2012, the Company determined that, based on ACTGen financial results for calendar 2011 and its current operational and funding status, the Company’s investment in ACTGen was other-than-temporarily impaired and wrote off its remaining investment of $854,000 during the third quarter of fiscal 2012. The Company’s net investment in ACTGen was $925,000 at June 30, 2011.

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Other non-operating expense, net

Other non-operating expense, net, consists of foreign currency transaction gains and losses, rental income, building expenses related to rental property and the Company’s share of losses by equity method investees as follows (in thousands):

		Year Ended June 30,
		2012				2011				2010
Foreign currency (losses) gains		$	(1,362	)		$	844			$	(960	)
Rental income			693				549				413
Real estate taxes, depreciation and utilities			(2,127	)			(2,293	)			(2,200	)
Losses by equity method investees			(603	)			(926	)			(1,510	)
		$	(3,399	)		$	(1,826	)		$	(4,257	)

Income taxes

Income taxes for fiscal 2012, 2011 and 2010 were provided at rates of 30.7%, 31.9% and 29.8%, respectively, of consolidated earnings before income taxes. Included in income taxes for fiscal 2012 was a $3.0 million benefit due to the reversal of a deferred tax valuation allowance on the excess tax basis in the Company’s investments in unconsolidated entities. The Company determined such valuation allowance was no longer necessary as a result of the Company’s unrealized gain on its investment in ChemoCentryx, Inc. (CCXI). The Company has the intent and ability to sell a portion of its CCXI investment and realize a long-term capital gain to offset long-term capital losses from its investments in unconsolidated entities. Excluding this benefit, the effective tax rate for fiscal 2012 would have been 32.6%.

The fiscal 2012 consolidated tax rate was negatively impacted by the expiration of the U.S. research and development credit on December 31, 2011, while the fiscal 2011 consolidated tax rate was positively impacted by the renewal of the U.S. research and development credit for the January to December 2011 period. Fiscal 2011 included $431,000 of credit for research and development for the January to June 2010 period. The fiscal 2010 consolidated tax rate was positively impacted by a $4.7 million tax benefit from a foreign currency exchange tax loss related to the repatriation of £50 million ($74.4 million) from R&D Europe to the U.S. The Company had previously paid U.S. income taxes on the foreign earnings that were included in the repatriated funds. Excluding this tax benefit, the effective tax rate for fiscal 2010 would have been 32.8%.

U.S. federal taxes have been reduced by the manufacturer’s deduction provided for under the American Jobs Creation Act of 2004. Foreign income taxes have been provided at rates which approximate the tax rates in the countries in which R&D Europe, Tocris and R&D China operate. The Company expects income tax rates for fiscal 2013 to range from 31% to 33%.

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Net earnings

Consolidated net earnings, excluding the impact of accounting for acquired inventory, amortization of intangible assets, acquisition costs, impairment losses on investments and income tax adjustments are as follows (in thousands):

		Year Ended June 30,
		2012				2011				2010
Net earnings		$	112,331			$	112,302			$	109,776
Identified adjustments:
Costs recognized upon sale of acquired inventory			7,573				1,835				0
Amortization of intangibles			5,094				1,465				960
Professional and other acquisition related costs			0				1,735				0
Impairment loss on investments			3,254				0				0
Tax impact of above adjustments			(4,668	)			(1,119	)			(346	)
Tax benefit from reversal of valuation allowance			(3,016	)			0				0
Tax benefit from repatriation			0				0				(4,660	)
Adjusted net earnings		$	120,568			$	116,218			$	105,730
Adjusted net earnings growth			3.7	%			9.9	%			(0.1	%)

QUARTERLY FINANCIAL INFORMATION (Unaudited)

(in thousands, except per share data)

		Fiscal 2012																Fiscal 2011
		First Qtr.				Second Qtr.				Third Qtr.				Fourth Qtr.				First Qtr.				Second Qtr.				Third Qtr.				Fourth Qtr.(1)
Net sales		$	77,596			$	74,662			$	83,621			$	78,681			$	67,945			$	67,708			$	76,271			$	78,038
Gross margin			58,387				55,170				63,383				58,864				52,595				52,381				60,330				59,631
Earnings before taxes			40,500				37,873				43,205	(2)			40,617				38,953				37,673				45,384				42,971
Income taxes			12,979				12,060				11,449	(3)			13,376				12,580				11,139				14,320				14,640
Net earnings			27,521				25,813				31,756				27,241				26,373				26,534				31,064				28,331
Basic earnings per share			0.74				0.70				0.86				0.74				0.71				0.72				0.84				0.76
Diluted earnings per share			0.74				0.70				0.86				0.74				0.71				0.71				0.84				0.76

(1)	Includes the results of operations and acquisition costs related to the Boston Biochem (April 1, 2011) and Tocris (April 28, 2011) acquisitions.

(2)	Includes $3.3 million impairment loss on investments in unconsolidated entities.

(3)	Includes $3.0 million benefit from reversal of deferred tax valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and available-for-sale investments at June 30, 2012 were $413 million compared to $273 million at June 30, 2011. Included in available-for-sale investments at June 30, 2012 was the fair value of the Company’s investment in ChemoCentryx, Inc. (CCXI) of $94.7 million. CCXI’s initial public offering was in February 2012. Subsequent to the initial public offering, the Company accounts for the investment as a marketable equity security and includes the fair market value of the investment in “Short-term available-for-sale investments” on the Consolidated Balance Sheet. Prior to February 2012, the Company accounted for its investment on a cost basis and included its investment in “Investments in unconsolidated entities” on the Consolidated Balance Sheet. The Company has an unsecured line of credit of $750,000 available at June 30, 2012 which expires on October 31, 2012. The interest rate charged on the line of credit is a floating rate at the one month London interbank offered rate (Libor) plus 1.75%. There were no borrowings on the line in the current or prior fiscal year.

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At June 30, 2012, approximately 62%, 36%, and 2% of the Company’s cash and equivalent account balances of $116 million are located in the U.S., United Kingdom and China, respectively. At June 30, 2012, approximately 97% of the Company’s available-for-sale investment accounts are located in the U.S., with the remaining 3% in China. The Company has either paid U.S. taxes on its undistributed foreign earnings or intends to indefinitely reinvest the undistributed earnings in the foreign operations. Management of the Company expects to be able to meet its foreseeable future cash and working capital requirements for operations, facility expansion and capital additions at each of its geographical locations through currently available funds, cash generated from operations and maturities of available-for-sale investments.

Cash flows from operating activities

The Company generated cash from operations of $126 million, $127 million and $111 million in fiscal 2012, 2011 and 2010, respectively. The decrease in cash generated from operating activities in fiscal 2012 as compared to fiscal 2011 was mainly the result of an increase in net earnings after adjustment for non-cash expenses, offset by a decrease in income taxes payable due to the timing of tax deposits.

The cash generated from operating activities in fiscal 2011 as compared to fiscal 2010 was mainly the result of changes in income taxes payable and deferred income taxes as a result of timing of tax payments and the usage in fiscal 2011 of the foreign tax credit carryforward generated in fiscal 2010 plus increased net earnings of $2.5 million.

Cash flows from investing activities

On April 1, 2011, the Company acquired the assets of Boston Biochem, a leading developer and manufacturer of innovative ubiquitin-related biotechnology research products, for approximately $7.9 million. On April 28, 2011, the Company acquired 100% ownership of Tocris, a leading supplier of reagents for non-clinical life science research for £75 million (approximately $124 million). The acquisitions were financed through cash and cash equivalents on hand and sales of available-for-sale investments.

The Company’s net purchases (sales) of available-for-sale investments in fiscal 2012, 2011 and 2010 were $15.3 million, ($22.2) million and $110 million, respectively. The large net purchase of available-for-sale investments in fiscal 2010 was primarily the result of the repatriation of funds from the U.K., where the funds had been invested in instruments classified as cash and equivalents, to the U.S., where the funds were invested in available-for-sale investments. The Company’s investment policy is to place excess cash in municipal and corporate bonds with the objective of obtaining the highest possible return while minimizing risk and keeping the funds accessible.

Capital additions consist of the following (in thousands):

		Year Ended June 30,
		2012				2011				2010
Laboratory, manufacturing, and computer equipment		$	2,521			$	2,605			$	1,972
Construction/renovation			3,496				1,025				2,672
		$	6,017			$	3,630			$	4,644

Capital additions planned for fiscal 2013 are as follows (in millions):

Laboratory, manufacturing, and computer equipment		$	2.3
Renovation in Minneapolis, Minnesota (fiscal 2013 completion)			2.3
Renovation in Minneapolis, Minnesota of expansion space (fiscal 2014 completion)			22.5
Land purchase and construction of new facility in Bristol, UK (fiscal 2014 completion)			16.0
		$	43.1

Capital additions are expected to be financed through currently available cash and cash generated from operations.

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In fiscal 2012 and 2010, the Company received $463,000 and $50,000, respectively, in distributions from Nephromics, LLC (Nephromics). At June 30, 2012 and 2011, the Company’s net investment in Nephromics was $505,000 and $3.7 million, respectively.

Cash flows from financing activities

In fiscal 2012, 2011 and 2010, the Company paid cash dividends of $41.0 million, $39.7 million and $38.4 million, respectively. The Board of Directors periodically considers the payment of cash dividends.

The Company received $847,000, $4.8 million and $3.3 million for the exercise of options for 17,000, 114,000 and 73,000 shares of common stock in fiscal 2012, 2011 and 2010, respectively. The Company recognized excess tax benefits from stock option exercises of $51,000, $847,000 and $196,000 in fiscal 2012, 2011 and 2010, respectively.

In fiscal 2012, 2011 and 2010, the Company purchased 13,140, 4,923 and 9,827 shares of common stock, respectively, for its employee stock bonus plans at a cost of $907,000, $294,000 and $607,000, respectively.

In fiscal 2008, the Board of Directors authorized the Company to purchase up to $150 million of its common stock and in fiscal 2009 increased the authorization by $60 million. In fiscal 2012, the Company purchased and retired 344,000 shares of common stock at a market value of $23.6 million. There were no stock repurchases in fiscal 2011. In fiscal 2010, the Company purchased and retired 284,000 shares of common stock at a market value of $16.9 million, of which $15.0 million was disbursed prior to June 30, 2010 and $1.9 million was disbursed in fiscal 2011. At June 30, 2012, approximately $27.0 million remained available for purchase under the fiscal 2009 authorization.

CONTRACTUAL OBLIGATIONS

The following table summarizes the Company’s contractual obligations and commercial commitments as of June 30, 2012 (in thousands):

						Payments Due by Period
		Total				Less than 1 Year				1-3 Years				3-5 Years				After 5 Years
Operating leases		$	2,036			$	769			$	587			$	284			$	396
Minimum royalty payments			170				170				0				0				0
		$	2,206			$	939			$	587			$	284			$	396

OFF-BALANCE SHEET ARRANGEMENTS

The Company is not a party to any off-balance sheet transactions, arrangements or obligations that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, changes in the financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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The Company has identified the policies outlined below as critical to its business operations and an understanding of results of operations. The listing is not intended to be a comprehensive list of all accounting policies.

Valuation of available-for-sale investments

The Company considers all of its marketable securities available-for-sale and reports them at fair market value. Fair market values are based on quoted market prices. Unrealized gains and losses on available-for-sale investments are excluded from income, but are included, net of taxes, in other comprehensive income. If an “other-than-temporary” impairment is determined to exist, the difference between the value of the investment recorded in the financial statements and the Company’s current estimate of fair value is recognized as a charge to earnings in the period in which the impairment is determined. Net unrealized gains on available-for-sale investments at June 30, 2012 were $66.3 million.

Valuation of inventory

Inventories are stated at the lower of cost (first-in, first-out method) or market. The Company regularly reviews inventory on hand for slow-moving and obsolete inventory, inventory not meeting quality control standards and inventory subject to expiration.

To meet strict customer quality standards, the Company has established a highly controlled manufacturing process for proteins and antibodies. New protein and antibody products require the initial manufacture of multiple batches to determine if quality standards can be consistently met. In addition, the Company will produce larger batches of established products than current sales requirements due to economies of scale. The manufacturing process for proteins and antibodies, therefore, has and will continue to produce quantities in excess of forecasted usage. The Company values its manufactured protein and antibody inventory based on a two-year forecast. The establishment of a two-year forecast requires considerable judgment. Protein and antibody quantities in excess of the two-year usage forecast are not valued due to uncertainty over salability. The value of protein and antibody inventory not valued at June 30, 2012 was $23.3 million.

The fair value of inventory purchased in fiscal 2011 through the acquisitions of Boston Biochem and Tocris were determined based on quantities acquired, selling prices at the date of acquisition and management’s assumptions regarding inventory having future value and the costs to sell such inventories. At the acquisition dates, the value of acquired inventory was increased $25.7 million for a total acquired inventory value of $33.0 million. In addition, the Company acquired inventory that was not valued as part of the purchase price allocation as it was in excess of forecasted usage. The increase in value of the acquired inventory remaining at June 30, 2012 was $15.2 million.

Valuation of intangible assets and goodwill

When a business is acquired, the purchase price is allocated, as applicable, between tangible assets, identifiable intangible assets and goodwill. Determining the portion of the purchase price allocated to intangible assets requires significant estimates. The fair value of intangible assets acquired in fiscal 2011, including developed technologies, trade names, customer relationships and a non-compete agreement, were based on management’s forecasted cash inflows and outflows using a relief-from-royalty and multi-period excess earnings method with consideration to other factors including an independent valuation of management’s assumptions. Intangible assets are being amortized over their estimated useful lives, ranging from 5 to 15 years. The Company reviews the carrying amount of intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Intangible assets, net of accumulated amortization, were $46.5 million at June 30, 2012.

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Goodwill recognized in connection with a business acquisition represents the excess of the aggregate purchase price over the fair value of net assets acquired. Goodwill is tested for impairment annually or more frequently if changes in circumstance or the occurrence of events suggest impairment exists. Assessing the impairment of goodwill requires the Company to make judgments regarding the fair value of the net assets of its reporting units and the allocation of the carrying amount of shared assets to the reporting units. The Company’s annual assessment included a qualitative assessment of whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value. A significant change in the Company’s market capitalization or in the carrying amount of net assets of a reporting unit could result in an impairment charge in future periods. The Company completed its annual impairment testing of goodwill and concluded that no impairment existed as of June 30, 2012, as the fair values of the Company’s reporting units exceeded their carrying values. Goodwill at June 30, 2012 was $85.7 million.

Valuation of investments

The Company has made equity investments in several start-up and early development stage companies, among them Nephromics, Hemerus Medical LLC (Hemerus), and ACTGen, Inc (ACTGen). The accounting treatment of each investment (cost method or equity method) is dependent upon a number of factors, including, but not limited to, the Company’s share in the equity of the investee and the Company’s ability to exercise significant influence over the operating and financial policies of the investee. In determining which accounting treatment to apply, the Company must make judgments based upon the quantitative and qualitative aspects of the investment.

The Company periodically assesses its equity investments for impairment. Development stage companies of the type the Company has invested in are dependent on their ability to raise additional funds to continue research and development efforts and on receiving patent protection and/or U.S. Food and Drug Administration (FDA) clearance to market their products. If such funding were unavailable or inadequate to fund operations or if patent protection or FDA clearance were not received, the Company would potentially recognize an impairment loss to the extent of its remaining net investment. In fiscal 2012, the Company determined that its investment in Nephromics was partially impaired and wrote off $2.4 million as an impairment loss. The Company also determined that its investment in ACTGen was fully impaired and wrote off $854,000 as an impairment loss. The Company’s net investments at June 30, 2012 in Nephromics and Hemerus were $505,000 and 551,000, respectively.