Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

Bio-Techne Corporation and Subsidiaries (in thousands, except per share data)

		Year Ended June 30,
		201__6				201__5				201__4
Net sales		$	499,023			$	452,246			$	357,763
Cost of sales			162,364				144,969				106,352
Gross margin			336,659				307,277				251,411
Operating expenses:
Selling, general and administrative			140,879				119,401				60,716
Research and development			45,187				40,853				30,945
Total operating expenses			186,066				160,254				91,661
Operating income			150,593				147,023				159,750
Other income (expense):
Interest expense			(1,748	)			(1,544	)			0
Interest income			249				634				2,684
Other non-operating income (expense), net			(1,613	)			8,049				(1,042	)
Total other income (expense)			(3,112	)			7,139				1,642
Earnings before income taxes			147,481				154,162				161,392
Income taxes			43,005				46,427				50,444
Net earnings			104,476				107,735				110,948
Other comprehensive income (loss):
Foreign currency translation adjustments			(19,932	)			(36,513	)			15,819
Unrealized (losses) gains on available-for-sale investments, net of tax of ($3,794), $3,895, and ($17,110) respectively			(19,924	)			11,308				(35,760	)
Other comprehensive (loss) income			(39,812	)			(25,205	)			(19,941	)
Comprehensive income		$	64,664			$	82,530			$	91,007
Earnings per share:
Basic		$	2.81			$	2.90			$	3.01
Diluted		$	2.80			$	2.89			$	3.00
Cash dividends per common share:		$	1.28			$	1.27			$	1.23
Weighted average common shares outstanding:
Basic			37,194				37,096				36,890
Diluted			37,326				37,231				37,005

See Notes to Consolidated Financial Statements.

CONSOLIDATED BALANCE SHEETS

Bio-Techne Corporation and Subsidiaries (in thousands, except share and per share data)

		June 30,
		201__6				201__5
ASSETS
Current assets:
Cash and cash equivalents		$	64,237			$	54,532
Short-term available-for-sale investments			31,598				56,389
Accounts receivable, less allowance for doubtful accounts of $555 and $487, respectively			93,393				70,034
Deferred income taxes			0				11,511
Inventories			57,102				49,577
Other current assets			7,561				6,240
Total current assets			253,891				248,283
Property and equipment, net			132,362				129,749
Goodwill			430,882				390,638
Intangible assets, net			310,524				292,839
Other assets			1,922				1,851
		$	1,129,581			$	1,063,360
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	20,653			$	13,443
Salaries, wages and related accruals			14,868				10,344
Accrued expenses			8,371				6,604
Deferred revenue			4,717				3,380
Income taxes payable			1,779				1,972
Related party note payable, current			3,759				4,024
Total current liabilities			54,147				39,768
Deferred income taxes			62,837				61,429
Long-term debt obligations			91,500				73,000
Contingent consideration payable			38,500				39,024
Other long-term liabilities			3,317				3,204
Shareholders’ equity:
Undesignated capital stock, no par; authorized 5,000,000 shares; none issued or outstanding			0				0
Common stock, par value $.01 a share; authorized 100,000,000 shares; issued and outstanding 37,253,771 and 37,152,979 shares, respectively			372				371
Additional paid-in capital			178,760				163,306
Retained earnings			770,553				713,851
Accumulated other comprehensive (loss) income			(70,405	)			(30,593	)
Total shareholders’ equity			879,280				846,935
		$	1,129,581			$	1,063,360

See Notes to Consolidated Financial Statements.

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY **Bio-Techne Corporation and Subsidiaries (in thousands)

		Common Stock								Additional Paid-in				Retained				Accumulated Other Compre- hensive
		Shares				Amount				Capital				Earnings				Income(Loss)				Total
Balances at June 30, 2013			36,835				368				134,895				587,725				14,553				737,541
Net earnings															110,948								110,948
Other comprehensive loss																			(19,941	)			(19,941	)
Surrender and retirement of stock to exercise options			(1	)			(0	)			(56	)											(56	)
Common stock issued for exercise of options			142				2				8,380												8,382
Common stock issued for restricted stock awards			26				0																(0	)
Cash dividends															(45,394	)							(45,394	)
Stock-based compensation expense											3,523												3,523
Tax benefit from exercise of stock options											262												262
Balances at June 30, 2014			37,002				370				147,004				653,279				(5,388	)			795,265
Net earnings															107,735								107,735
Other comprehensive loss																			(25,205	)			(25,205	)
Surrender and retirement of stock to exercise options			(0	)			(0	)			(31	)											(31	)
Common stock issued for exercise of options			141				1				9,761												9,762
Common stock issued for restricted stock awards			10				0								(57	)							(57
Cash dividends															(47,106	)							(47,106	)
Stock-based compensation expense											5,918												5,918
Tax benefit from exercise of stock options											615												615
Employee stock purchase plan expense											39												39
Balances at June 30, 2015			37,153			$	371			$	163,306			$	713,851			$	(30,593	)			846,935
Net earnings															104,476								104,476
Other comprehensive loss																			(39,812	)			(39,812	)
Surrender and retirement of stock to exercise options			(0	)			(0	)			(31	)											(31	)
Common stock issued for exercise of options			69				1				4,796												4,797
Common stock issued for restricted stock awards			23				0								(167	)							(167	)
Cash dividends															(47,607	)							(47,607	)
Stock-based compensation expense											9,287												9,287
Tax benefit from exercise of stock options											566												566
Common stock issued to employee stock purchase plan			9								692												692
Employee stock purchase plan expense											144												144
Balances at June 30, 2016			37,254			$	372			$	178,760			$	770,553			$	(70,405	)			879,280

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Bio-Techne Corporation and Subsidiaries (in thousands)

		Year Ended June 30,
		201__6				201__5				201__4
Cash flows from operating activities:
Net earnings		$	104,476			$	107,735			$	110,948
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			42,764				37,226				19,175
Costs recognized on sale of acquired inventory			5,431				6,961				7,480
Deferred income taxes			(2,624	)			1,304				(2,853	)
Stock-based compensation expense			9,430				5,957				3,523
Gain on sale of CyVek			0				(8,300	)			0
Excess tax benefit from stock option exercises			(566	)			(615	)			(262	)
Other			0				458				592
Change in operating assets and liabilities, net of acquisitions:
Trade accounts and other receivables			(22,981	)			(11,747	)			1,145
Inventories			(6,626	)			(4,714	)			(2,895	)
Prepaid expenses			(381	)			(620	)			(554	)
Trade accounts payable and accrued expenses			8,924				2,154				1,368
Salaries, wages and related accruals			5,725				1,679				1,034
Income taxes payable			298				1,881				(1,939	)
Net cash provided by operating activities			143,870				139,359				136,762
Cash flows from investing activities:
Purchase of available-for-sale investments			0				0				(106,746	)
Proceeds from sale and maturities of available-for-sale investments			776				13,466				289,410
Additions to property and equipment			(16,898	)			(19,905	)			(13,821	)
Acquisitions, net of cash acquired			(91,423	)			(420,102	)			(109,180	)
Investment in unconsolidated entity			0				0				(10,000	)
Other			(25	)			48				25
Net cash used in investing activities			(107,570	)			(426,493	)			49,688
Cash flows from financing activities:
Cash dividends			(47,607	)			(47,107	)			(45,394	)
Proceeds from stock option exercises			5,458				9,731				8,326
Excess tax benefit from stock option exercises			566				615				262
Borrowings under line-of-credit agreement			77,000				163,000				0
Payment on line-of-credit and other			(58,500	)			(94,964	)			0
Net cash used in financing activities			(23,083	)			(31,276	)			(36,806	)
Effect of exchange rate changes on cash and cash equivalents			(3,512	)			(8,178	)			5,138
Net change in cash and cash equivalents			9,705				(264,036	)			154,782
Cash and cash equivalents at beginning of year			54,532				318,568				163,786
Cash and cash equivalents at end of year		$	64,237			$	54,532			$	318,568

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Bio-Techne Corporation and Subsidiaries

Years ended June 30, 2016, 2015 and 2014

Note 1. Description of Business and Summary of Significant Accounting Policies:

Description of business: Bio-Techne Corporation and subsidiaries, collectively doing business as Bio-Techne (the Company) develop, manufacture and sell biotechnology products and clinical diagnostic controls worldwide. With its deep product portfolio and application expertise, Bio-Techne is a leader in providing specialized proteins, including cytokines and growth factors, and related immunoassays, small molecules and other reagents to the research, diagnostics and clinical controls markets.

Estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates include the valuation of accounts receivable, available-for-sale investments, inventory, intangible assets, stock based compensation and income taxes. Actual results could differ from these estimates.

Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Translation of foreign financial statements: Assets and liabilities of the Company’s foreign operations are translated at year-end rates of exchange and the resulting gains and losses arising from the translation of net assets located outside the U.S. are recorded as other comprehensive income (loss) on the consolidated statement of earnings and comprehensive income. The cumulative translation adjustment is a component of accumulated other comprehensive income (loss) on the consolidated balance sheets. Foreign statements of earnings are translated at the average rate of exchange for the year. Foreign currency transaction gains and losses are included in other non-operating expense in the consolidated statements of earnings.

Revenue recognition: The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to 90 days. Freight charges billed to end-users are included in net sales and freight costs are included in cost of sales. Freight charges on shipments to distributors are paid directly by the distributor. 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. Sales, use, value-added and other excise taxes are not included in revenue.

Research and development: Research and development expenditures are expensed as incurred. Development activities generally relate to creating new products, improving or creating variations of existing products, or modifying existing products to meet new applications.

Advertising costs: Advertising expenses (including production and communication costs) were $5.2 million $4.1 million, and $3.4 million for fiscal 2016, 2015, and 2014 respectively. The Company expenses advertising expenses as incurred.

Share-based compensation: The cost of employee services received in exchange for the award of equity instruments is based on the fair value of the award at the date of grant. Separate groups of employees that have similar historical exercise behavior with regard to option exercise timing and forfeiture rates are considered separately in determining option fair value. Compensation cost is recognized using a straight-line method over the vesting period and is net of estimated forfeitures. Stock option exercises and stock awards are satisfied through the issuance of new shares.

Income taxes: The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized to record the income tax effect of temporary differences between the tax basis and financial reporting basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Tax positions taken or expected to be taken in a tax return are recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.

In November 2015, the FASB issued ASU 2015-17, "Income Taxes: Balance Sheet Classification of Deferred Taxes." ASU 2015-17 requires that deferred income tax liabilities and assets be classified as non-current in a statement of financial position. The Company elected early adoption of this guidance during the quarter ended March 31, 2016, on a prospective basis. The adoption of this ASU allows the Company to simplify its presentation of deferred income tax liabilities and assets. Prior periods were not retrospectively adjusted.

Financial instruments not measured at fair value: Certain of the Company’s financial instruments are not measured at fair value but nevertheless are recorded at carrying amounts approximating fair value, based on their short-term nature. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and other current liabilities.

Cash and equivalents: Cash and cash equivalents include cash on hand and highly-liquid investments with original maturities of three months or less.

Available-for-sale investments: Available-for-sale investments consist of debt instruments with original maturities of generally three months to three years and equity securities. Available-for-sale investments are recorded based on trade-date. The Company considers all of its marketable securities available-for-sale and reports them at fair value. The Company utilizes valuation techniques for determining fair market value which maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

Unrealized gains and losses on available-for-sale securities 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 security recorded in the financial statements and the Company’s current estimate of the fair value is recognized as a charge to earnings in the period in which the impairment is determined.

Inventories: 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, antibodies and its chemically-based products. These 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 these products, 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 and its chemically-based products on a five-year forecast. Inventory quantities in excess of the forecast are not valued due to uncertainty over salability.

Property and equipment: Property and equipment are recorded at cost. Equipment is depreciated using the straight-line method over an estimated useful life of five years. Buildings, building improvements and leasehold improvements are amortized over estimated useful lives of 5 to 40 years. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In the current year, the Company has identified no such events.

Goodwill: At June 30, 2016 and 2015, the Company had recorded goodwill of $430.9 million and $390.6 million respectively. The Company tests goodwill at least annually for impairment. The Company completed its annual impairment testing of goodwill and concluded that no impairment existed as of June 30, 2016.

Intangible assets: Intangible assets are being amortized over their estimated useful lives. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In the current year, the Company has identified no such events.

Investments in unconsolidated entities: The Company periodically invests in the equity of start-up and early development stage companies. 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.

Note 2. Acquisitions:

Zephyrus Biosciences, Inc.

On March 14, 2016, the Company acquired Zephyrus Biosciences, Inc. (Zephyrus) for $8 million in cash and up to $7 million in contingent consideration. Zephyrus provides research tools to enable protein analysis at the single cell level. Addressing the burgeoning single cell analysis market, Zephyrus's first product, Milo™, enables western blotting on individual cells for the first time. The acquisition was funded with cash on hand. The purchase price of Zephyrus exceeded the preliminary estimated fair value of the identifiable net assets and, accordingly, the difference was allocated to goodwill, substantially all of which is not tax deductible. Zephryus is included in the Company's Protein Platforms segment.

In connection with the Zephyrus acquisition, the Company recorded $7.4 million of in process research and development which is not amortized until it is converted to developed technology which occurs once a sale of its product is completed. The intangible asset amortization for the developed technology is not deductible for income tax purposes. Of further note the purchase accounting for this acquisition is still open and has not been finalized.

The Company will pay Zephyrus former shareholders and additional $3.5 million if and when 10 instruments are sold prior to the 3 year anniversary of the closing date (March 14, 2019). In addition, the Company will pay Zephyrus former shareholders an additional $3.5 million if and when $3 million in cumulative sales are generated within 4.5 yrs of the closing date (September 14, 2020). We have established an initial estimate of the fair value of these contingent consideration payments to be $3.5 million in total. The Company is still in the process of finalizing the purchase accounting related to this acquisition.

The goodwill recorded as a result of the Zephyrus 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.

Cliniqa Corporation

On July 8, 2015, the Company acquired Cliniqa Corporation (Cliniqa) for approximately $83 million. Cliniqa specializes in the manufacturing and ommercialization of blood chemistry quality controls and calibrators as well as bulk reagents used for the clinical diagnostic market to further expand and complement our Clinical Controls solutions. The acquisition was funded with a cash on hand and with funds obtained from our revolving credit facility. The purchase price of Cliniqa exceeded the fair value of the identifiable net assets and, accordingly, the difference was allocated to goodwill. Cliniqa is included in the Company’s Clinical Controls segment.

In connection with the Cliniqa acquisition, the Company recorded $18 million of developed technology intangible assets that have an estimated useful life of 14 years, $27 million of customer relationship intangible assets that have an estimated useful life of 13 years, and $1.1 million related to trade mark and trade names with a useful life of 4 years. The intangible asset amortization is not deductible for income tax purposes.

The goodwill recorded as a result of the Cliniqa 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.

CyVek Inc

On November 3, 2014, the Company acquired CyVek, Inc. (CyVek) through a merger. CyVek has developed a transformative immunoassay technology which integrates an innovatively designed microfluidic cartridge with a state-of-the-art analyzer to deliver the most advanced and efficient bench top immunoassay system. In fiscal 2014, the Company entered into an Agreement of Investment and Merger (the Agreement) with CyVek. Pursuant to the terms of the Agreement, the Company invested $10.0 million in CyVek and received shares of Common Stock representing approximately 19.9% of the outstanding voting stock of CyVek. Between the time of the Company’s initial investment and November 3, 2014, CyVek met certain commercial milestones related to the sale of its products, which obligated the Company to acquire CyVek through a merger, with CyVek surviving as a wholly-owned subsidiary of the Company.

The Company made an initial payment of approximately $62.0 million to the other stockholders of CyVek on November 3, 2014. Such purchase price was adjusted after closing based on the final levels of cash, indebtedness and transaction expenses of CyVek as of the closing. The Company will also pay CyVek’s previous stockholders up to $35.0 million based on the revenue generated by CyVek’s products before December 31, 2017. The Company will also pay CyVek’s previous stockholders 50% of the amount, if any, by which the revenue from CyVek’s products and related products exceeds $100 million in calendar year 2020. The Company has recorded the present value of these contingent payments as a long-term liability of $35.0 million at June 30, 2016 and 2015. In addition, at November 3, 2014, the Company remeasured its previous investment in CyVek to acquisition-date fair value, resulting in a gain on the investment of $8.3 million which is included in Other income on the Condensed Consolidated Statements of Earnings and Comprehensive Income. The purchase price of CyVek exceeded the fair value of the identifiable net assets and, accordingly, the difference was allocated to goodwill, substantially all of which is not tax deductible. CyVek is included in the Company’s Protein Platforms segment.

In connection with the CyVek acquisition, the Company recorded $20.2 million of developed technology intangible assets that have an estimated useful life of 15 years, $0.1 million of trade name intangible assets that have an estimated useful life of 1.5 years, and $0.6 million related to customer relationships that have an estimated useful life of 10 years. The intangible asset amortization is not deductible for income tax purposes.

The goodwill recorded as a result of the CyVek 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.

Transaction costs of $0.1 million were included in the Company’s selling, general and administrative costs during fiscal 2015 related to the CyVek acquisition.

ProteinSimple

On July 31, 2014, the Company acquired ProteinSimple. ProteinSimple expands the Company’s solutions that it can offer its customers by developing and commercializing proprietary systems and consumables for protein analysis. The Company opened a line-of-credit (Note 7) to partially fund the acquisition. The purchase price of ProteinSimple exceeded the fair value of the identifiable net assets and, accordingly, the difference was allocated to goodwill. ProteinSimple is included in the Company’s Protein Platform segment.

In connection with the ProteinSimple acquisition, the Company recorded $39.2 million of developed technology intangible assets that have an estimated useful lives of 9-10 years, $36.1 million of trade name intangible assets that have an estimated useful lives of 18-20 years, $101.6 million related to customer relationships that have estimated useful lives of 14-16 years, and $0.2 million related to non-compete agreements that have an estimated useful life of 3 years. The intangible asset amortization is not deductible for income tax purposes.

The goodwill recorded as a result of the ProteinSimple 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.

Transaction costs of $0.8 million were included in the Company’s selling, general and administrative costs during fiscal 2015 related to the ProteinSimple acquisition.

Novus Holdings LLC

On July 2, 2014, the Company acquired all of the issued and outstanding equity interests of Novus Holdings LLC (Novus). Novus broadens the Company’s antibody offerings by being a supplier of a large portfolio of both outsourced and in-house developed antibodies and other reagents for life science research. Novus is included in the Company’s Biotechnology segment.

In connection with the Novus acquisition, the Company recorded $5.0 million of developed technology intangible assets that have estimated useful lives of 4-12 years, $5.3 million of trade name intangible assets that have an estimated useful life of 20 years, and $14.4 million related to customer relationships that have an estimated useful life of 15 years. The majority of the intangible asset amortization is not deductible for income tax purposes.

The goodwill recorded as a result of the Novus 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 majority of the goodwill is not deductible for income tax purposes.

Transaction costs of $0.1 million were included in the Company’s selling, general and administrative costs during fiscal 2015 related to the Novus acquisition.

Shanghai PrimeGene Bio-Tech Co.

On April 30, 2014, the Company acquired all of the ownership interest of Shanghai PrimeGene Bio-Tech Co. (PrimeGene). PrimeGene manufactures recombinant proteins and is included in the Company’s Biotechnology segment. The Company paid approximately $6.0 million at closing, with the remaining purchase price payable over fiscal years 2015 to 2017. The note payable is due to individuals who are currently employed by PrimeGene.

In connection with the PrimeGene acquisition, the Company recorded $2.2 million of developed technology intangible assets that have an estimated useful life of 9 years, $3.0 million of trade name intangible assets that have an estimated useful life of 11 years, $0.3 million related to non-compete agreements that have an estimated useful life of 3 years, and $9.1 million related to customer relationships that have an estimated useful life of 9 years. The intangible asset amortization is not deductible for income tax purposes.

The goodwill recorded as a result of the PrimeGene 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.

Transaction costs of $0.4 million were included in the Company’s selling, general and administrative costs during fiscal 2014, related to the PrimeGene acquisition.

Bionostics Holdings, Ltd

On July 22, 2013, the Company acquired for cash all of the outstanding shares of Bionostics Holdings, Ltd. (Bionostics) and its U.S. operating subsidiary, Bionostics, Inc. Bionostics is a global leader in the development, manufacture and distribution of control solutions that verify the proper operation of in-vitro diagnostic devices primarily utilized in point of care blood glucose and blood gas testing. Bionostics is included in the Company’s Clinical Controls segment.

In connection with the Bionostics acquisition, the Company recorded $14.4 million of developed technology intangible assets that have an estimated useful life of 9 years, $2.7 million of trade name intangible assets that have an estimated useful life of 5 years, $2.4 million related to non-compete agreements that have an estimated useful life of 3 years, and $41.0 million related to customer relationships that have an estimated useful life of 14 years. The intangible asset amortization is not deductible for income tax purposes.

The goodwill recorded as a result of the Bionostics 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.

Transaction costs of $0.5 million and $0.6 million were included in the Company’s selling, general and administrative costs during fiscal 2014 and 2013, respectively, related to the Bionostics acquisition.

The aggregate purchase price of the acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the acquisitions (in thousands):

		Zephyrus				Cliniqa				Novus				Protein Simple				CyVek				Bionostics				PrimeGene
Current assets		$	86			$	11,926			$	10,739			$	19,660			$	1,206			$	9,605			$	1,272
Equipment			32				1,436				1,266				1,983				971				2,180				546
Other long-term assets							58				40				554				19
Intangible Assets:
In process research and development			7,400				-				-				-				-				-				-
Developed technology			-				18,000				5,010				39,200				20,200				14,400				2,200
Trade name			-				1,100				5,300				36,100				100				2,700				3,000
Customer relationships			-				27,000				14,400				101,600				600				41,000				9,100
Non-compete agreements			-				-				-				200				-				2,400				322
Goodwill			6,878				42,669				28,408				134,074				91,658				56,349				5.518
Total assets acquired			14,396				102,189				65,163				333,371				114,754				128,634				21,958
Liabilities			54				1,508				2,166				11,644				1,965				3,007				887
Deferred income taxes, net			2,812				17,793				2,875				21,674				(438	)			22,478				2,310
Net assets			11,530				82,888			$	60,122			$	300,053			$	113,227			$	103,149			$	18,761
Less fair-value of previous investment			-				-				-				-				18,300				-				-
Net assets acquired			11,530				82,888				60,122				300,053				94,927				103,149				18,761
Cash paid, net of cash acquired		$	8,030			$	82,888			$	60,122			$	300,053			$	59,927			$	103,149			$	6,031
Note Payable			0				0				0				0				0				0				12,730
Contingent consideration payable			3,500				-				-				-				35,000				-				-
Net purchase price		$	11,530			$	82,888			$	60,122			$	300,053			$	94,927			$	103,149			$	18,761

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 Statement 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 Statement 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, 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.

Note 3. Available-For-Sale Investments:

At June 30, 2016 and 2015, the cost and market value of the Company’s available-for-sale securities by major security type were as follows (in thousands):

		June 30,
		201__6								201__5
		Cost				Market				Cost				Market
Certificates of deposit		$	3,016			$	3,017			$	4,089			$	4,089
Equity securities			29,472				28,581				29,472				52,300
		$	32,488			$	31,598			$	33,561			$	56,389

At June 30, 2016 and 2015, all of the Company’s equity securities which relates to our investment in CCXI stock and warrants, were valued using Level 1 inputs. Certificates of deposit are carried at cost and are not subject to the fair value hierarchy. There were no transfers between Level 1 and Level 2 securities during fiscal 2016. Gross unrealized gains (losses) on available-for-sale investments were $(0.9) million and $22.8 million at June 30, 2016, and June 30, 2015, respectively.

The unrealized loss on available-for-sale investments for the twelve months ended June 30, 2016 includes $0.9 million of unrealized gross losses related to our investment in CCXI. As of June 30, 2016, the stock price of CCXI was $4.49 per share compared to our cost basis of $4.73 per share. Based upon our analysis, we believe there is insufficient information to conclude that the impairment of our investment in CCXI is other-than-temporary. As such, we have concluded that the impairment is temporary and have classified the impairment within other comprehensive income.

Note 4. Inventories:

Inventories consist of (in thousands):

		June 30,
		201__6				201__5
Raw materials		$	22,963			$	15,892
Finished goods			34,139				33,685
		$	57,102			$	49,577

At June 30, 2016 and 2015, the Company had $23.4 million and $24.0 million, respectively, of excess protein, antibody and chemically-based inventory on hand which was not valued.

Note 5. Property and Equipment:

Property and equipment consist of (in thousands):

		June 30,
		201__6				201__5
Cost:
Land		$	6,270			$	7,370
Buildings and improvements			157,963				156,965
Machinery, equipment and other			82,018				74,385
			246,251				238,720
Accumulated depreciation and amortization			(113,889	)			(108,967	)
		$	132,362			$	129,749

Note 6. Intangible Assets and Goodwill:

Intangible assets and goodwill consist of (in thousands):

							June 30,
		Useful Life (years)					201__6				201__5
Developed technology		8	-	15			$	120,611			$	108,887
Trade names		5	-	16				63,706				63,867
Customer relationships		8	-	16				191,118				167,494
Non-compete agreement		3	-	5				3,284				3,298
								378,719				343,546
Accumulated amortization								(75,595	)			(50,707	)
Total amortizeable intagibles							$	303,124			$	292,839
In process research and development								7,400				0
Total intangible assets								310,524				292,839
Goodwill							$	430,882			$	390,638

Changes to the carrying amount of goodwill consists of (in thousands):

		Year Ended June 30,
		201__6				201__5
Beginning balance		$	390,638			$	151,473
Acquisitions			49,648				254,140
Currency translation			(9,404	)			(14,975	)
Ending balance		$	430,882			$	390,638

Changes to the carrying amount of net intangible assets consists of (in thousands):

		Year Ended June 30,
		201__6				201__5
Beginning balance		$	292,839			$	108,776
Acquisitions			53,500				222,710
Amortization expense			(29,395	)			(26,170	)
Currency translation			(6,420	)			(12,777	)
Ending balance		$	310,524			$	292,839

Amortization expense related to technologies included in cost of sales was $11.1 million $9.5 million, and $4.2 million in fiscal 2016, 2015, and 2014, respectively. Amortization expense related to trade names, customer relationships, and the non-compete agreement included in selling, general and administrative expense was $18.3 million, $16.7 million, and $6.1 million, in fiscal 2016, 2015, and 2014 respectively.

The estimated future amortization expense for intangible assets as of June 30, 2016 is as follows (in thousands):

Year Ending June 30:
2017			28,326
2018			28,140
2019			27,527
2020			26,898
2021			26,534
Thereafter			165,699
		$	303,124

Note 7. Debt and Other Financing Arrangements:

On July 28, 2014, the Company entered into a revolving line-of-credit facility governed by a Credit Agreement (the Credit Agreement). The Credit Agreement provides for a revolving credit facility of $150 million, which can be increased by an additional $150 million subject to certain conditions. 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 for base rate loans bear interest at a variable rate equal to the greater of (i) the prime commercial rate, (ii) the per annum federal funds rate plus 0.5%, or (iii) LIBOR + 1.00% - 1.75% depending on the existing total leverage ratio of Debt to Earnings Before Interest, Taxes, Depreciation and Amortization (as defined in the Credit Agreement). The annualized fee for any unused portion of the credit facility is 15 basis points.

The Credit Agreement would have matured on July 31, 2019 and contains customary restrictive and financial covenants and customary events of default. As of June 30, 2016, the outstanding balance under the Credit Agreement was $91.5 million.

In connection with the acquisition of Advanced Cell Diagnostics on August 1, 2016, the Company entered into a new revolving credit facility governed by a Credit Agreement dated July 28, 2016. This facility replaced the revolving line-of-credit facility mentioned above. This new Credit Agreement provides for a revolving credit facility of $400 million. Borrowings under the Credit Agreement bear interest at a variable rate.

Note 8. Commitments and Contingencies:

The Company leases office and warehouse space, vehicles and various office equipment under operating leases. At June 30, 2016, 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):

Year Ending June 30:
2017			6,326
2018			5,801
2019			4,810
2020			4,761
2021			4,815
Thereafter			19,120
		$	45,633

Total rent expense was approximately $8.1 million, $4.9 million, and $1.6 million for the years ended June 30, 2016, 2015, and 2014, respectively.

The Company is routinely subject to claims and involved in legal actions which are incidental to the business of the Company. Although it is difficult to predict the ultimate outcome of these matters, management believes that any ultimate liability will not materially affect the consolidated financial position or results of operations of the Company.

Note 9. Share-based Compensation and Other Benefit Plans:

Equity incentive plan: The Company’s Amended and Restated 2010 Equity Incentive Plan (the A&R 2010 Plan) provides for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, performance shares, performance units and stock appreciation rights. There are 3.8 million shares of common stock authorized for grant under the A&R 2010 Plan. At June 30, 2016, there were 1.8 million shares of common stock available for grant under the A&R 2010 Plan. The maximum term of incentive options granted under the A&R 2010 Plan is ten years. The A&R 2010 amends and restates the Company's 2010 Equity Incentive Plan (the 2010 Plan). The 2010 A&R Plan, the 2010 Plan replaced the Company’s 1998 Nonqualified Stock Option Plan (the 1998 Plan) and 1997 Incentive Stock Option Plan (the 1997 Plan). The A&R 2010 Plan, the 1998 Plan and the 1997 Plan (collectively, the Plans) are administered by the Board of Directors and its Compensation Committee, which determine the persons who are to receive awards under the Plans, the number of shares subject to each award and the term and exercise price of each award. The number of shares of common stock subject to outstanding awards at June 30, 2016 under the A&R 2010 Plan, the 1998 Plan and the 1997 Plan were 1.8 million, 98,000, and 9,000, respectively.

Stock option activity under the Plans for the three years ended June 30, 2016, consists of the following (shares in thousands):

		Shares				Weighted Average Exercise Price				Weighted Avg. Contractual Life (Yrs.)				Aggregate Intrinsic Value (millions)
Outstanding at June 30, 2013			728				66.70
Granted			251				80.88
Forfeited			(26	)			76.23
Exercised			(142	)			59.07
Outstanding at June 30, 2014			811				72.11
Granted			600				93.98
Forfeited			(133	)			92.85
Exercised			(141	)			69.31
Outstanding at June 30, 2015			1,137				81.57
Granted			805				105.16
Forfeited			(54	)			99.68
Exercised			(69	)			69.82
Outstanding at June 30, 2016			1,819			$	91.91				5.3			$	37.9
Exercisable at June 30:
2014			534			$	69.49
2015			547				72.72
2016			596				75.74				4.2			$	22.1

The fair values of options granted under the Plans were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used:

		Year Ended June 30,
		201__6					201__5					201__4
Dividend yield			1.2%					1.3%					1.5%
Expected volatility		20%	-	23%			18%	-	21%			18%	-	22%
Risk-free interest rates		1.2%	-	1.9%			1.3%	-	2.2%			1.4%	-	2.1%
Expected lives (years)			5					5					6

The dividend yield is based on the Company’s historical annual cash dividend divided by the market value of the Company’s common stock. The expected annualized volatility is based on the Company’s historical stock price over a period equivalent to the expected life of the option granted. The risk-free interest rate is based on U.S. Treasury constant maturity interest rates with a term consistent with the expected life of the options granted.

The weighted average fair value of options granted during fiscal 2016, 2015 and 2014 was $18.50, $15.01 and $14.77 respectively. The total intrinsic value of options exercised during fiscal 2016, 2015 and 2014 were $2.4 million, $3.5 million, and $3.7 million respectively. The total fair value of options vested during fiscal 2016, 2015 and 2014 were $1.6 million, $2.3 million, and $2.2 million respectively.

In fiscal 2016, 2015 and fiscal 2014, 19,994, 9,000, and 26,355 restricted common stock shares were granted at weighted average grant date fair values of $99.53, $91.78, and $86.60 per share, respectively. Non-vested restricted common stock shares at June 30, 2016, 2015 and 2014 were 22,545, 19,102, and 36,355 respectively.

In fiscal 2016, 2015 and 2014, 35,083, 36,192, and 5,000 restricted stock units were granted at a weighted average grant date fair value of $105.01 and $94.13, respectively. The restricted stock units vest over a three year period. In fiscal 2016, 10,000 restricted stock units were forfeited.

Stock-based compensation cost of $9.4 million, $5.9 million and $3.5 million was included in selling, general and administrative expense in fiscal 2016, 2015 and 2014, respectively. As of June 30, 2016, there was $15.9 million of unrecognized compensation cost related to non-vested stock options, non-vested restricted stock units and non-vested restricted stock which will be expensed in fiscal 2017 through 2020. The weighted average period over which the compensation cost is expected to be recognized is 1.2 years.

Employee stock purchase plan: In fiscal year 2015, the Company established the Bio-Techne Corporation 2014 Employee Stock Purchase Plan (ESPP), which was approved by the Company’s shareholders on October 30, 2014, and which is designed to comply with IRS provisions governing employee stock purchase plans. Two hundred thousand shares were allocated to the ESPP. The initial participation period for the ESPP began March 1, 2015 and ended on August 31, 2016. The Company recorded $144,000 expense for the ESPP in fiscal year 2016.

Profit sharing and savings plans: The Company has profit sharing and savings plans for its U.S. employees, which conform to IRS provisions for 401(k) plans. The Company may makes matching contributions to the Plan. The Company has recorded an expense for contributions to the plans of $1.2 million, $1.1 million, and $0.7 million for the years ended June 30, 2016, 2015, and 2014, respectively. The Company operates defined contribution pension plans for its U.K. employees. The Company has recorded an expense for contributions to the plans of $0.8, $0.7 million, and $0.6 million for the years ended June 30, 2016, 2015 and 2014, respectively.

Performance incentive programs: In fiscal 2016, under certain employment agreements and a Management Incentive Plan available to executives officers and certain management personnel, the Company recorded cash bonuses of $4.2 million and granted options for 621,000 shares of common stock and issued 26,583 restricted stock units and issued 11,522 common stock shares. The Company recorded cash bonuses of $1.9 and $0.9 million and granted options for 322,000 and 216,000 shares of common stock for the years ended June 30, 2015 and 2014, respectively. In addition, 5,000 restricted stock units and 17,855 shares of restricted common stock were issued in fiscal 2014.

Note 10. Income Taxes:

The provisions for income taxes consist of the following (in thousands):

		Year Ended June 30,
		201__6				201__5				201__4
Earnings before income taxes consist of:
Domestic		$	120,154			$	121,765			$	127,681
Foreign			27,327				32,397				33,711
		$	147,481			$	154,162			$	161,392
Taxes on income consist of:
Currently payable:
Federal		$	34,805			$	28,220			$	40,967
State			2,958				6,165				1,709
Foreign			7,579				10,704				10,668
Net deferred:
Federal			1,906				4,401				(1,137	)
State			(428	)			292				(41	)
Foreign			(3,815	)			(3,355	)			(1,722	)
		$	43,005			$	46,427			$	50,444

The following is a reconciliation of the federal tax calculated at the statutory rate of 35% to the actual income taxes provided (in thousands):

		Year Ended June 30,
		201__6				201__5				201__4
Computed expected federal income tax expense		$	51,618			$	53,957			$	56,487
State income taxes, net of federal benefit			1,852				4,762				1,048
Qualified production activity deduction			(3,932	)			(3,140	)			(3,823	)
Non-taxable gain on investment			0				(2,905	)			0
Research and development tax credit			(1,550	)			(912	)			(476	)
Tax-exempt interest			0				0				(654	)
Foreign tax rate differences			(4,639	)			(4,059	)			(2,857	)
Other			(344	)			(1,276	)			719
		$	43,005			$	46,427			$	50,444

The effective rate for June 30, 2016 decreased by 0.9% compared to the prior year. The rate decrease was primarily driven by additional R&D credit benefit due to the retroactive reinstatement of the credit under the Protecting Americans from Tax Hikes Act of 2015, an increase in the foreign rate benefit due to the reduction in the UK income tax rate and a reduction in state tax related to the prior year. These decreases were partially offset by less of a foreign tax credit benefit than in the prior year and the non recurrence of a non-taxable gain.

In the year ended June 30, 2015, as a result of the recent acquisitions, the rate reflects an increase for state tax expense as well as a resulting provision to return true up from fiscal 2014. This increase is offset by the non-taxable gain which was a result of purchasing the remaining interest in CyVek. In addition the Company‘s R&D Europe subsidiary declared and paid a dividend of £46.6 million which resulted in a tax benefit of approximately $1.7 million.

Temporary differences comprising deferred taxes on the Consolidated Balance Sheets are as follows (in thousands):

		June 30
		201__6				201__5
Inventory		$	9,768			$	8,753
Net operating loss carryovers			26,556				34,767
Tax credit carryovers			3,197				3,872
Excess tax basis in equity investments			4,544				4,496
Deferred compensation			5,912				3,747
Net unrealized loss on available for sale investment			329				0
Other			7,421				4,712
Valuation allowance			(7,201	)			(2,558	)
Net deferred tax assets			50,526				57,789
Net unrealized gain on available-for-sale investments			0				(8,446	)
Intangible asset amortization			(107,200	)			(96,401	)
Depreciation			(5,132	)			(2,394	)
Other			(1,031	)			(466	)
Deferred tax liabilities			(113,363	)			(107,707	)
Net deferred tax liabilities		$	(62,837	)		$	(49,918	)

A deferred tax valuation allowance is required when it is more likely than not that all or a portion of deferred tax assets will not be realized. At June 30, 2016, a valuation allowance for potential capital loss carryovers on equity investments was $5.0 million. Approximately $2.0 million of the valuation allowance at June 30, 2016 is for certain foreign and state tax net operating loss and state credit carryforwards that existed at the date the Company acquired Novus, ProteinSimple, and CyVek. The remainder of the valuation allowance is for certain state tax credit carryovers generated in fiscal 2016 and 2015. The Company believes it is more likely than not that these tax carryovers will not be realized. At June 30, 2015, a valuation allowance for potential capital loss carryovers on equity investments was zero. Approximately $2.4 million of the valuation allowance at June 30, 2015 was for acquisition related foreign and state tax net operating loss and state credit carryforwards. The remainder of the valuation allowance was for certain state tax credit carryovers generated in fiscal 2015.

The valuation allowance as of June 30, 2016 was $7.2 million which is an increase of $4.7 million over prior year. This increase included a $5.0 million change related to an investment and was recorded through other comprehensive income and was partially offset by a decrease of $0.3 million primarily related to the utilization of expiation of state net operating loss carry forwards and research and development credits.

At June 30, 2016, the Company has federal and state net operating loss carryforwards of approximately $63.9 million and $71.6 million, respectively, from its fiscal 2015 acquisitions of ProteinSimple and CyVek, which are not limited under IRC Section 382. At June 30, 2016, the Company has foreign net operating loss carryforwards of $2.1 million from its fiscal 2015 acquisition of Novus. The net operating loss carryforwards expire between fiscal 2017 and 2034. The Company has a deferred tax asset of $24.9 million, net of the valuation allowance discussed above, related to the net operating loss carryovers. At June 30, 2016, the Company has federal and state tax credit carryforwards of $1.7 million and $1.3 million, respectively. The federal tax credit carryforwards expire between 2018 and 2035. The state credit carryforwards have no expiry date. The Company has a deferred tax asset of $3.6 million, net of the valuation allowance discussed above, related to the tax credit carryovers.

The Company has not recognized a deferred tax liability for unremitted earnings of approximately $57.6 million from its foreign operations because its subsidiaries have invested or will invest the undistributed earnings indefinitely, or the earnings will be remitted in a tax-neutral transaction. Generally, such amounts become subject to United States taxation upon the remittance of dividends and under other circumstances. It is not practical to estimate the amount of the deferred income tax liabilities related to investments in these foreign subsidiaries.

The Company’s unrecognized tax benefits at June 30, 2016, 2015 and 2014, including accrued interest and penalties, were not material. The Company does not believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase in the next twelve months. The Company files income tax returns in the U.S federal and certain state tax jurisdictions, and several jurisdictions outside the U.S. The Company’s federal returns are subject to tax assessment for 2013 and subsequent years. State and foreign income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.

Note 11. Earnings Per Share:

The number of shares used to calculate earnings per share are as follows (in thousands, except per share data):

		Year Ended June 30,
		201__6				201__5				201__4
Net earnings used for basic and diluted earnings per share		$	104,476			$	107,735			$	110,948
Weighted average shares used in basic computation			37,194				37,096				36,890
Dilutive stock options			132				135				115
Weighted average shares used in diluted computation			37,326				37,231				37,005
Basic EPS		$	2.81			$	2.90			$	3.01
Diluted EPS		$	2.80			$	2.89			$	3.00

The dilutive effect of stock options 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 1.2 million, 516,000 and 196,000 at June 30, 2016, 2015 and 2014, respectively.

Note 12. Segment Information:

The Company has three reportable segments based on the nature of its products; they are Biotechnology, Clinical Controls, and Protein Platforms.

The Company’s Biotechnology reporting segment develops, manufactures and sells biotechnology research and diagnostic products world-wide. No customer in the Biotechnology segment accounted for more than 10% of the segments' net sales for the years ended June 30, 2016, 2015, and 2014,.

The Company’s Clinical Controls reporting segment develops and manufactures controls and calibrators for sale world-wide. One customer accounted for approximately, 13%, and 14% of Clinical Controls’ net sales during fiscal 2015, and 2014 respectively. One customer did not account for net sales over 10% during 2016.

The Company’s Protein Platforms segment develops and commercializes proprietary systems and consumables for protein analysis. This segment was formed from the fiscal 2015 acquisitions of ProteinSimple and CyVek. No customer in the Protein Platforms segment accounted for more than 10% of the segments net sales for the years ended June 30, 2016 and 2015.

There are no concentrations of business transacted with a particular customer or supplier or concentrations of revenue from a particular product or geographic area that would severely impact the Company in the near term.

Following is financial information relating to the operating segments (in thousands):

		Year Ended June 30,
		201__6				201__5				201__4
External sales
Biotechnology		$	317,340			$	308,437			$	285,142
Clinical Controls			104,484				77,866				72,621
Protein Platforms			77,324				66,249				0
Inter segment			(125	)			(306	)			0
Consolidated net sales		$	499,023			$	452,246			$	357,763

		Year Ended June 30,
		201__6				201__5				201__4
Operating Income
Biotechnology		$	168,613			$	165,226			$	162,621
Clinical Controls			30,412				23,981				22,976
Protein Platforms			3,592				4,469				0
Segment operating income			202,617				193,676				185,597
Costs recognized upon sale of acquired inventory			(5,431	)			(6,952	)			(7,480	)
Amortization of intangibles			(29,395	)			(26,169	)			(10,276	)
Stock based compensation			(9,430	)			(5,957	)			(3,523	)
Acquisition related expenses			(2,761	)			(4,519	)			(2,247	)
Corporate general, selling and administrative expenses			(5,007	)			(3,056	)			(2,321	)
Consolidated operating income		$	150,593			$	147,023			$	159,750
Goodwill
Biotechnology		$	105,380			$	115,198			$	90,872
Clinical Controls			106,692				60,601				60,601
Protein Platforms			218,810				214,839				0
Consolidated goodwill		$	430,882			$	390,638			$	151,473
Intangible assets, net
Biotechnology		$	57,199			$	68,777			$	53,778
Clinical Controls			86,736				49,130				54,998
Protein Platforms			166,589				174,932				0
Consolidated intangible assets, net		$	310,524			$	292,839			$	108,776
Assets
Biotechnology		$	387,470			$	430,524			$	674,854
Clinical Controls			212,649				74,954				66,072
Protein Platforms			440,343				444,899				0
Segment assets			1,040,462				950,378				740,917
Corporate cash and available- for- sale investments			31,255				52,800				60,142
Corporate property and equipment			56,195				58,270				60,350
Corporate, other			1,669				1,912				1,082
Consolidated assets		$	1,129,581			$	1,063,360			$	862,491
Depreciation and amortization
Biotechnology		$	14,196			$	13,820			$	10,879
Clinical Controls			10,462				7,963				7,205
Protein Platforms			16,027				13,364				0
Segment depreciation and amortization			40,685				35,147				18,084
Corporate			2,079				2,079				1,091
Consolidated depreciation and amortization		$	42,764			$	37,226			$	19,175
Capital purchases
Biotechnology		$	14,295			$	9,794			$	4,157
Clinical Controls			1,780				1,932				5,687
Protein Platforms			823				8,179
Segment capital purchases			16,898				19,905				9,844
Corporate			0				0				3,977
Consolidated capital purchases		$	16,898			$	19,905			$	13,821

The other reconciling items include the results of unallocated corporate expenses and the Company’s share of gain (losses) from its equity method investees.

Following is financial information relating to geographic areas (in thousands):

		Year Ended June 30,
		201__6				201__5				201__4
External sales
United States		$	283,270			$	245,217			$	190,359
U.K.			88,680				68,055				55,144
Other Europe			51,047				66,022				42,013
China			27,205				26,105				18,878
Other Asia			24,809				23,806				32,704
Rest of world			24,012				23,041				18,665
Total external sales		$	499,023			$	452,246			$	357,763
Long-lived assets
United States and Canada		$	118,027			$	119,075			$	109,790
Europe			14,423				11,239				8,340
China			1,109				1,286				678
Total long-lived assets		$	133,559			$	131,600			$	118,808

External sales are attributed to countries based on the location of the customer or distributor. Long-lived assets are comprised of land, buildings and improvements and equipment, net of accumulated depreciation and other assets.

Note 13. Supplemental Disclosures of Cash Flow Information and Noncash Investing and Financing Activities:

In fiscal 2016, the Company acquired Cliniqa and Zephyrus for approximately $83 million and $11.5 million, respectively. Zephyrus was acquired for approximately $8 million in cash plus additional contingent consideration with a fair value of $3.5 million.

In fiscal 2015, the Company acquired Novus, ProteinSimple, and CyVek for approximately $60 million, $300 million and $95 million, respectively. CyVek was acquired for approximately $62 million in cash and the Company will also pay CyVek’s previous stockholders up to $35.0 million based on the revenue generated by CyVek’s products before May 3, 2017 (30 months from the closing of the Merger).

In fiscal 2014, the Company acquired Bionostics for approximately $103 million. PrimeGene was acquired for approximately $18.7 million. Approximately $6.0 million was paid at closing with approximately $12.7 million payable over fiscal years 2015 through 2017.

In fiscal 2015, 2014 and 2013, the Company paid cash for income taxes of $42.6 million, $55.2 million and $51.6 million, respectively.

In fiscal 2016, stock options for 494 shares of common stock were exercised by the surrender of 306 shares of common stock at fair market value of $31,000. In fiscal 2015, stock options for 385 shares of common stock were exercised by the surrender of 309 shares of common stock at fair market value of $31,000. In fiscal 2014, stock options for 1,077 shares of common stock were exercised by the surrender of 733 shares of common stock at fair market value of $56,000.

Note 14. Accumulated Other Comprehensive Income:

Changes in accumulated other comprehensive income (loss), net of tax, for the year ended June 30, 2016 consists of (in thousands):

		Unrealized Gains (Losses) on Available-for-Sale Investments				Foreign Currency Translation Adjustments				Total
Beginning balance		$	14,382				(44,975	)		$	(30,593	)
Other comprehensive income (loss)			(19,924	)			(19,932	)			(39,812	)
Ending balance		$	(5,542	)			(64,907	)			(70,405	)

Note 15. Subsequent Events:

On July 1, 2016 Bio-Techne acquired Space Import-Export Srl (Space) of Milan, Italy for approximately $11 million. Space is a long and trusted partner of Bio-Techne, distributing its products since 1985 and creating a very effective and visible presence in the Italian market. Space’s Mr. Luca Cicchetti, will remain with Bio-Techne as Managing Director and lead the Company’s southern European commercial operations.

On August 1, 2016, Bio-Techne closed on the acquisition of Advanced Cell Diagnostics (ACD) for $250 million in cash plus contingent consideration of $75 million due upon the achievement of certain milestones. The transaction was financed through a combination of cash on hand and a revolving line of credit facility that Bio-Techne obtained prior to the closing of the acquisition.

In connection with the acquisition of Advanced Cell Diagnostics on August 1, 2016, the Company entered into a new revolving credit facility, governed by a Credit Agreement dated July 28, 2016. The Credit Agreement provides for a revolving credit facility of $400 million. Borrowings under the Credit Agreement bear interest at a variable rate. As of August 26, 2016, the Company had drawn $250 million under the Credit Agreement.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Bio-Techne Corporation:

We have audited the accompanying consolidated balance sheets of Bio-Techne Corporation and subsidiaries as of June 30, 2016 and 2015, and the related consolidated statements of earnings and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bio-Techne Corporation and subsidiaries as of June 30, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2016, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Bio-Techne Corporation’s internal control over financial reporting as of June 30, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 29, 2016 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Minneapolis, Minnesota August 29, 2016

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Bio-Techne Corporation:

We have audited Bio-Techne Corporation’s internal control over financial reporting as of June 30, 2016, based on criteria established in Internal Cont__rol – Integrated Framework (2013_)_ issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Bio-Techne Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses related to an ineffective control environment and risk assessment, information and communication, and monitoring processes as well as ineffective control activities over the completeness and accuracy of data used in the financial reporting process, potentially impacting all financial statement accounts, have been identified and included in management’s assessment. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Bio-Techne Corporation and subsidiaries as of June 30, 2016 and 2015, and the related consolidated statements of earnings and comprehensive income, shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended June 30, 2016. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the fiscal year 2016 consolidated financial statements, and this report does not affect our report dated August 29, 2016, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, because of the effect of the aforementioned material weaknesses on the achievement of the objectives of the control criteria, Bio-Techne Corporation has not maintained effective internal control over financial reporting as of June 30, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

The scope of management’s assessment of the effectiveness of internal control over financial reporting excluded the operations of Cliniqa Corporation and Zephyrus Biosciences, which were acquired on July 8, 2015 and March 14, 2016, respectively. Cliniqa Corporation and Zephyrus Biosciences represented 9.0% of Bio-Techne Corporation’s total assets and 5.3% of its total revenues as of and for the year ended June 30, 2016. Our audit of internal control over financial reporting of Bio-Techne Corporation also excluded an evaluation of the internal control over financial reporting of Cliniqa Corporation and Zephyrus Biosciences.

/s/ KPMG LLP

Minneapolis, Minnesota August 29, 2016