Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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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,
	2022		2021		2020

Net sales	$	1,105,599	$	931,032	$	738,691
Cost of sales		349,103		298,182		255,497
Gross margin		756,496		632,850		483,194

Operating expenses:
Selling, general and administrative		372,766		324,951		260,583
Research and development		87,140		70,603		65,192
Total operating expenses		459,906		395,554		325,775
Operating income		296,590		237,296		157,419

Other income (expense)
Interest expense		(11,309)		(13,952)		(19,197)
Interest income		794		473		605
Other non-operating income (expense), net		15,311		(75,642)		137,650
Total other income (expense), net		4,796		(89,121)		119,058
Earnings before income taxes		301,386		148,175		276,477
Income taxes (benefit)		38,287		8,590		47,181
Net earnings, including noncontrolling interest		263,099		139,585		229,296
Net earnings (loss) attributable to noncontrolling interest		(8,952)		(825)		—
Net earnings attributable to Bio-Techne	$	272,051	$	140,410	$	229,296
Other comprehensive income (loss):
Foreign currency translation adjustments		(32,241)		32,951		(9,963)
Unrealized gains (losses) on derivative instruments - cash flow hedges, net of tax amounts disclosed in Note 8		14,262		7,060		(3,715)
Other comprehensive income (loss)		(17,979)		40,011		(13,678)
Other comprehensive income (loss) attributable to noncontrolling interest		(70)		103		—
Other comprehensive income (loss) attributable to Bio-Techne		(17,909)		39,908		(13,678)
Comprehensive income attributable to Bio-Techne	$	254,142	$	180,318	$	215,618

Earnings per share attributable to Bio-Techne:
Basic	$	6.93	$	3.62	$	6.00
Diluted	$	6.63	$	3.47	$	5.82

Weighted average common shares outstanding:
Basic		39,219		38,747		38,201
Diluted		41,029		40,483		39,401

See Notes to Consolidated Financial Statements.

CONSOLIDATED BALANCE SHEETS

Bio-Techne Corporation and Subsidiaries

(in thousands, except share and per share data)



	June 30,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	172,567	$	199,091
Short-term available-for-sale investments		74,462		32,463
Accounts receivable, less allowance for doubtful accounts of $2,568 and $1,229, respectively		194,548		145,385
Inventories		141,123		116,748
Other current assets		22,856		16,919
Total current assets		605,556		510,606

Property and equipment, net		223,242		207,907
Right of use asset		65,556		73,834
Goodwill		822,101		843,067
Intangible assets, net		531,522		615,968
Other assets		46,828		11,575
Total assets	$	2,294,805	$	2,262,957
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	33,865	$	29,384
Salaries, wages and related accruals		61,953		51,294
Accrued expenses		17,886		15,282
Contract liabilities		23,406		18,995
Income taxes payable		13,237		5,336
Operating lease liabilities - current		11,928		11,602
Contingent consideration payable		—		4,000
Current portion of long-term debt obligations		12,500		12,500
Other current liabilities		1,243		3,891
Total current liabilities		176,018		152,284

Deferred income taxes		98,994		93,125
Long-term debt obligations		243,410		328,827
Long-term contingent consideration payable		5,000		25,400
Operating lease liabilities		58,133		67,625
Other long-term liabilities		12,239		24,462
Bio-Techne’s Shareholders’ equity:

Undesignated capital stock, no par; authorized 5,000,000 shares; none issued or outstanding		—		—
Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 39,160,000 and 38,955,484, respectively		392		390
Additional paid-in capital		653,657		534,411
Retained earnings		1,122,921		1,085,461
Accumulated other comprehensive loss		(75,200)		(57,291)
Total Bio-Techne’s shareholders’ equity		1,701,770		1,562,971
Noncontrolling interest		(759)		8,263
Total shareholders’ equity		1,701,011		1,571,234
Total liabilities and shareholders’ equity	$	2,294,805	$	2,262,957

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Bio-Techne Corporation and Subsidiaries

(in thousands)


								Accumulated
				Additional				Other
	Common Stock			Paid-in		Retained		Comprehensive		Noncontrolling
	Shares	Amount		Capital		Earnings		Income(Loss)		Interest		Total
Balances at June 30, 2019	37,934	$	379	$	316,797	$	931,934	$	(83,521)	$	—	$	1,165,589
Cumulative effect adjustments due to adoption of new accounting standards and other							(879)						(879)
Net earnings							229,296						229,296
Other comprehensive income (loss)									(13,678)				(13,678)
Share repurchases	(279)		(3)				(50,109)						(50,112)
Surrender and retirement of stock to exercise option	(2)		—		(400)								(400)
Common stock issued for exercise of options	730		7		69,461		(1,642)						67,826
Common stock issued for restricted stock awards	56		1		(1)		(2,229)						(2,228)
Cash dividends							(48,902)						(48,902)
Stock-based compensation expense					31,932								31,932
Common stock issued to employee stock purchase plan	14		—		2,312								2,312
Employee stock purchase plan expense					435								435
Balances at June 30, 2020	38,453	$	385	$	420,536	$	1,057,470	$	(97,199)	$	—	$	1,381,192
Cumulative effect adjustments due to adoption of new accounting standards and other							(276)						(276)
Non-controlling interest in Eminence											8,985		8,985
Net earnings							140,410				(825)		139,585
Other comprehensive income (loss)									39,908		103		40,011
Share repurchases	(120)		(1)				(43,177)						(43,178)
Common stock issued for exercise of options	573		6		62,102		(12,287)						49,821
Common stock issued for restricted stock awards	38		0		0		(7,057)						(7,057)
Cash dividends							(49,622)						(49,622)
Stock-based compensation expense					48,065								48,065
Common stock issued to employee stock purchase plan	11		0		2,791								2,791
Employee stock purchase plan expense					917								917
Balances at June 30, 2021	38,955	$	390	$	534,411	$	1,085,461	$	(57,291)	$	8,263	$	1,571,234
Non-controlling interest in Eminence													—
Net earnings							272,051				(8,952)		263,099
Other comprehensive income (loss)									(17,909)		(70)		(17,979)
Share repurchases	(394)		(4)				(160,946)						(160,950)
Common stock issued for exercise of options	570		6		74,371		(13,482)						60,895
Common stock issued for restricted stock awards	22		0		0		(9,978)						(9,978)
Cash dividends							(50,185)						(50,185)
Stock-based compensation expense					41,208								41,208
Common stock issued to employee stock purchase plan	7		0		2,694								2,694
Employee stock purchase plan expense					973								973
Balances at June 30, 2022	39,160	$	392	$	653,657	$	1,122,921	$	(75,200)	$	(759)	$	1,701,011

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Bio-Techne Corporation and Subsidiaries

(in thousands)



	Year Ended June 30,
	2022		2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings, including noncontrolling interest	$	263,099	$	139,585	$	229,296
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		101,069		87,747		82,737
Costs recognized on sale of acquired inventory		1,596		1,565		—
Deferred income taxes		6,816		(27,431)		13,130
Stock-based compensation expense		42,183		48,982		32,367
Fair value adjustment to contingent consideration payable		(20,400)		5,300		(905)
Contingent consideration payments - operating		(3,300)		(337)		(958)
Fair value adjustment on available for sale investments		(15,002)		67,879		(137,527)
Asset impairment restructuring		546		—		—
Eminence impairment		18,715		—		—
Leases, net		(1,201)		75		225
Gain on escrow settlement		—		—		(7,170)
Other operating activity		668		(464)		(732)
Change in operating assets and operating liabilities, net of acquisition:
Trade accounts and other receivables, net		(57,596)		(15,549)		6,556
Inventories		(32,007)		(7,140)		(14,861)
Prepaid expenses		(3,082)		(1,101)		(2,605)
Trade accounts payable, accrued expenses, contract liabilities, and other		12,741		19,091		10,343
Salaries, wages and related accruals		7,760		20,536		2,552
Income taxes payable		2,667		13,426		(7,231)
Net cash provided by (used in) operating activities		325,272		352,164		205,217

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale investments		26,055		66,377		147,120
Purchases of available-for-sale investments		(52,998)		(39,684)		(70,187)
Additions to property and equipment		(44,908)		(44,301)		(51,744)
Acquisitions, net of cash acquired		—		(225,352)		—
Investment in unconsolidated entity, net		—		(556)		1,906
Investment of forward purchase contract		(25,000)		—		—
Net cash provided by (used in) investing activities		(96,851)		(243,516)		27,095

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends		(50,185)		(49,622)		(48,902)
Proceeds from stock option exercises		77,155		65,092		70,983
Re-purchases of common stock		(160,950)		(43,178)		(50,112)
Borrowings under line-of-credit agreement		90,000		256,000		40,000
Payments on line-of-credit		(175,500)		(271,500)		(188,500)
Contingent consideration payments - financing		(700)		—		(3,400)
Taxes paid on RSUs and net share settlements		(23,461)		(19,343)		(3,872)
Other financing activity		788		—		—
Net cash provided by (used in) financing activities		(242,853)		(62,551)		(183,802)

Effect of exchange rate changes on cash and cash equivalents		(12,092)		6,369		(2,771)
Net change in cash and cash equivalents		(26,524)		52,466		45,739
Cash and cash equivalents at beginning of period		199,091		146,625		100,886
Cash and cash equivalents at end of period	$	172,567	$	199,091	$	146,625

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Bio-Techne Corporation and Subsidiaries

Years ended June 30, 2022, 2021 and 2020

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

Description of business: Bio-Techne and its subsidiaries, collectively doing business as Bio-Techne Corporation (the Company), develop, manufacture and sell life science reagents, instruments and services for the research and clinical diagnostic markets worldwide. With our deep product portfolio and application expertise, we sell integral components of scientific investigations into biological processes and molecular diagnostics, revealing the nature, diagnosis, etiology and progression of specific diseases. Our products aid in drug discovery efforts and provide the means for accurate clinical tests and diagnoses.

Use of 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, contingent consideration, 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. As Changzhou Eminence Biotechnology Co., Ltd. (“Eminence”) met the criteria for consolidation, the transaction was accounted for in accordance with ASC 805, Business Combinations. In applying ASC 805 to the transaction, the Company has elected to include Eminence in our consolidated financial statements on a one month lag.

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 statements of earnings and comprehensive income. The cumulative translation adjustment is a component of accumulated other comprehensive 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 and comprehensive income.

Revenue recognition: ASC 606 provides revenue recognition guidance for any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets, unless those contracts are within the scope of other accounting standards. The core principle of ASC 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Refer to Note 2 for additional information regarding our revenue recognition policy under ASC 606.

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 were $4.6 million, $4.7 million, and $4.2 million for fiscal 2022, 2021, and 2020 respectively. The Company expenses advertising expenses as incurred.

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. Refer to Note 11 for additional information regarding income taxes.

Comprehensive income: Comprehensive income includes charges and credits to shareholders’ equity that are not the result of transactions with shareholders. Our total comprehensive income consists of net income, unrealized gains and losses on cash flow hedges, and foreign currency translation adjustments. The items of comprehensive income, with the exception of net income, are included in accumulated other comprehensive loss in the consolidated balance sheets and statements of shareholders’ equity.

Cash and cash 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 six months 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. Unrealized gains and losses on our available-for-sale securities are included within other income (expense) in accordance with ASU 2018-02, which the Company adopted on July 1, 2018.

Trade accounts receivable and allowances: Trade accounts receivable are initially recorded at the invoiced amount upon the sale of goods or services to customers, and they do not bear interest. They are stated net of allowances for doubtful accounts, which represent estimated losses resulting from the inability of customers to make the required payments. The Company adopted ASU 2016-13 on July 1, 2020, which reflects the expected credit losses on financial instruments within its scope, including trade receivables. When determining the allowances for doubtful accounts, we take several factors into consideration, including the overall composition of accounts receivable aging, our prior history of accounts receivable write-offs, the type of customer and our day-to-day knowledge of specific customers. Changes in the allowances for doubtful accounts are included in selling, general and administrative (SG&A) expense in our consolidated statements of earnings and comprehensive income. The point at which uncollected accounts are written off varies by type of customer. The Company does not have material long-term customer receivables. Refer to the Recently Adopted Accounting Pronouncements section of Note 1 for further details.

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

For certain proteins, antibodies, and chemically based manufactured products, the Company produces larger batches of established products than current sales requirements due to economies of scale through a highly controlled manufacturing process. Accordingly, the manufacturing process for these products has and will continue to produce quantities in excess of forecasted usage. The Company forecasts usage for its products based on several factors including historical demand, current market dynamics, and technological advances. The Company forecasts product usage on an individual product level for a period that is consistent with our ability to reasonably forecast inventory usage for that product. There have been no material changes to the Company’s estimates of the net realizable value for excess and obsolete inventory or other types of inventory reserves and inventory cost adjustments in the fiscal years presented. Additionally, current and historical reserves recorded to reduce the cost of inventory to its net realizable value become part of the new cost basis for the inventory item in accordance with ASC 330 - Inventory.

Property and equipment: Property and equipment are recorded at cost. Equipment is depreciated using the straight-line method over an estimated useful life of 3 to 5 years. Buildings, building improvements and leasehold improvements are amortized over estimated useful lives of 5 to 40 years.

Contingent Consideration: Contingent Consideration relates to the potential payment for an acquisition that is contingent upon the achievement of the acquired business meeting certain product development milestones and/or certain financial performance milestones. The Company records contingent consideration at fair value at the date of acquisition based on the consideration expected to be transferred. For potential payments related to financial performance milestones, we use a real option model in calculating the fair value of the contingent consideration

liabilities. The assumptions utilized in the calculation based on financial performance milestones include projected revenue and/or EBITDA amounts, volatility and discount rates. For potential payments related to product development milestones, we estimated the fair value based on the probability of achievement of such milestones. The assumptions utilized in the calculation of the acquisition date fair value include probability of success and the discount rates. Contingent consideration involves certain assumptions requiring significant judgment and actual results may differ from assumed and estimated amounts. Contingent consideration is remeasured each reporting period, and subsequent changes in fair value, including accretion for the passage of time, are recognized within selling, general and administrative in the consolidated statement of earnings and comprehensive income.

Intangible assets: Intangible assets are stated at historical cost less accumulated amortization. Amortization expense is generally determined on the straight-line basis over periods ranging from 1 year to 20 years. Each reporting period, we evaluate the remaining useful lives of our amortizable intangibles to determine whether events or circumstances warrant a revision to the remaining period of amortization. If our estimate of an asset’s remaining useful life is revised, the remaining carrying amount of the asset is amortized prospectively over the revised remaining useful life.

Given the anticipated liquidation process to dispose of the Eminence assets, the Company identified a triggering event in the second quarter of fiscal 2022 and performed impairment testing. The impairment testing resulted in a full impairment of the Eminence intangible assets. Refer to the Impairment of Goodwill section as part of Note 1 for further details related to the triggering event and related impairment recorded.

In conjunction with the Asuragen acquisition that occurred in fiscal year 2021, the Company reassessed the useful life of a tradename from a previous acquisition due to the planned integration and cobranding strategy developed with the most recent transaction. As a result, the Company accelerated the amortization of the trade name to be consistent with the life used for the Asuragen trade name. The accelerated amortization resulted in a $1.4 million impact in fiscal 2021, a $5.7 million impact in fiscal years 2022 through 2025, and a $4.3 impact in fiscal year 2026.

In fiscal year 2020, the Company accelerated the amortization of a certain trade name based on the Company’s planned integration of the products under that acquired trade name into a legacy brand. The accelerated amortization resulted in $1.3 million in additional amortization expense in fiscal 2020 and $0.6 million in fiscal 2021.

Impairment of long-lived assets and amortizable intangibles: We evaluate the recoverability of property, plant, equipment and amortizable intangibles whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to, (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used or in its physical condition, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of an asset. We compare the carrying amount of the asset to the estimated undiscounted future cash flows associated with it. If the sum of the expected future net cash flows is less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds the fair value of the asset. As quoted market prices are not available for the majority of our assets, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows.

The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. No other triggering events were identified and no other impairments were recorded for property, plant, and equipment or amortizable intangibles during fiscal years 2020, 2021, and 2022.

Impairment of goodwill and indefinite-lived intangible assets: We evaluate the carrying value of goodwill and indefinite-lived intangible assets during the fourth quarter each year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. Such circumstances could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, (3) an adverse action or assessment by a regulator, or (4) an adverse change in market conditions that are indicative of a decline in the fair value of the assets.

During the fourth quarter of fiscal 2022, the Company performed a qualitative assessment of the acquired in-process research and development assets to determine whether changes in events, circumstances, or the probability of successful

development and commercialization of the assets indicated that it is more likely than not that the fair value of the acquired assets are less than its carrying amount. Based on the analysis, the Company determined there was no indication of impairment of the indefinite-lived intangible assets.

To analyze goodwill, we must assign our goodwill to individual reporting units. Identification of reporting units includes an analysis of the components that comprise each of our operating segments, which considers, among other things, the manner in which we operate our business and the availability of discrete financial information. Components of an operating segment are aggregated to form one reporting unit if the components have similar economic characteristics. We periodically review our reporting units to ensure that they continue to reflect the manner in which we operate our business. The Company had five reporting units for our 2022, 2021, and 2020 goodwill impairment assessment performed on April 1 of each of the respective fiscal years, the date of our annual goodwill impairment assessment.

In the first quarter of fiscal 2022, the Company combined the management of the Exosome Diagnostics and Asuragen reporting units, both of which are included in the Diagnostics and Genomics operating segment. In conjunction with the combination of the reporting units, a qualitative goodwill impairment assessment was performed. The qualitative assessment identified no indicators of impairment.

In the second quarter of fiscal 2022, Eminence notified the Company of its need for additional capital to execute its growth plan. The Company first attempted to find outside equity financing support for the Eminence investment but was unable to do so. The Company then reviewed the additional financing needs required to successfully ramp Eminence’s business, which ultimately did not meet the Company’s return on capital requirements. Therefore, the Company did not provide additional funding to Eminence. As a result of not obtaining additional financing, Eminence notified the Company of its plans to cease operations and liquidate its business.

Given the anticipated liquidation process to dispose of the Eminence assets, the Company identified a triggering event and performed impairment testing during the second quarter of fiscal 2022. The impairment testing resulted in a full impairment of the Eminence goodwill and intangible assets, which resulted in charges of $8.3 million and $8.6 million, respectively, for the year ended June 30, 2022. The Company also recognized inventory and fixed asset impairment charges of $0.9 million and $0.9 million, respectively. The Company recorded the impairment charges within the General and Administrative line in the Consolidated Income Statement. The impairment charges recorded within Net Earnings Attributable to Bio-Techne were reduced by approximately $8 million recorded within Net Earnings Attributable to Noncontrolling Interests. The remaining net tangible assets of Eminence included in our Consolidated Balance Sheet as of June 30, 2022, were $4.3 million and primarily consisted of fixed assets and related deposits of $3.1 million, inventory of $0.6 million, receivables of $0.4 million, and other current assets of $0.1 million. The Company also had $4.5 million related to current liabilities. The Company holds a financial interest of approximately 57.4% in those tangible assets in the upcoming liquidation process.

2022 Goodwill Impairment Analyses

In completing our 2022 annual goodwill impairment analyses, we elected to perform a quantitative assessment for all of our reporting units. A quantitative assessment involves comparing the carrying value of the reporting unit, including goodwill, to its estimated fair value. Carrying value is based on the assets and liabilities associated with the operations of the reporting unit, which often requires the allocation of shared or corporate items among reporting units. In accordance with ASU 2017‑04, a goodwill impairment charge is recorded for the amount by which the carrying value of a reporting unit exceeds the fair value of the reporting unit. In determining the fair values of our reporting units, we utilized the income approach. The income approach is a valuation technique under which we estimated future cash flows using the reporting unit’s financial forecast from the perspective of an unrelated market participant. Using historical trending and internal forecasting techniques, we projected revenue and applied our fixed and variable cost experience rates to the projected revenue to arrive at the future cash flows. A terminal value was then applied to the projected cash flow stream. Future estimated cash flows were discounted to their present value to calculate the estimated fair value. The discount rate used was the value- weighted average of our estimated cost of capital derived using both known and estimated customary market metrics. In determining the estimated fair value of a reporting unit, we were required to estimate a number of factors, including projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, the discount rate and the allocation of shared or corporate items.

The result of our quantitative assessment indicated that all of the reporting units had a substantial amount of headroom as of April 1, 2022. This impairment assessment is sensitive to changes in forecasted cash flows, as well as our selected discount rate. Changes in the reporting unit’s results, forecast assumptions and estimates could materially affect the estimation of the fair value of the reporting units. The Company did not identify any triggering events after our annual goodwill impairment through June 30, 2022, the date of our consolidated balance sheet, that would require an additional goodwill impairment assessment to be performed.

2021 Goodwill Impairment Analyses

In completing our 2021 annual goodwill impairment analyses, we elected to perform a quantitative assessment for all of our reporting units. A quantitative assessment involves comparing the carrying value of the reporting unit, including goodwill, to its estimated fair value. Carrying value is based on the assets and liabilities associated with the operations of the reporting unit, which often requires the allocation of shared or corporate items among reporting units. In accordance with ASU 2017-04, a goodwill impairment charge is recorded for the amount by which the carrying value of a reporting unit exceeds the fair value of the reporting unit. In determining the fair values of our reporting units, we utilized the income approach. The income approach is a valuation technique under which we estimated future cash flows using the reporting unit’s financial forecast from the perspective of an unrelated market participant. Using historical trending and internal forecasting techniques, we projected revenue and applied our fixed and variable cost experience rates to the projected revenue to arrive at the future cash flows. A terminal value was then applied to the projected cash flow stream. Future estimated cash flows were discounted to their present value to calculate the estimated fair value. The discount rate used was the value- weighted average of our estimated cost of capital derived using both known and estimated customary market metrics. In determining the estimated fair value of a reporting unit, we were required to estimate a number of factors, including projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, the discount rate and the allocation of shared or corporate items.

The result of our quantitative assessment indicated that all of the reporting units had a substantial amount of headroom as of April 1, 2021. This impairment assessment is sensitive to changes in forecasted cash flows, as well as our selected discount rate. Changes in the reporting unit’s results, forecast assumptions and estimates could materially affect the estimation of the fair value of the reporting units. The Company did not identify any triggering events after our annual goodwill impairment through June 30, 2021, the date of our consolidated balance sheet, that would require an additional goodwill impairment assessment to be performed.

2020 Goodwill Impairment Analyses

The Company elected to perform a quantitative assessment for all of our reporting units in our 2020 goodwill impairment analysis. The quantitative assessment completed utilized a consistent process and methodology to the 2021 goodwill impairment assessment. The result of our quantitative assessment, where we compared the discounted cash flows of each reporting unit to its carrying value, indicated that all of the reporting units had a substantial amount of headroom as of April 1, 2020. This impairment assessment is sensitive to changes in forecasted cash flows, as well as our selected discount rate. Changes in the reporting unit’s results, forecast assumptions and estimates could materially affect the estimation of the fair value of the reporting units. The Company did not identify any triggering events after our annual goodwill impairment through June 30, 2020, the date of our consolidated balance sheet, that would require an additional goodwill impairment assessment to be performed.

Investments: In December 2021, the Company paid $25 million to enter into a two-part forward contract which requires the Company to make an initial ownership investment followed by purchase of full equity interest in Wilson Wolf Corporation (Wilson Wolf) if certain annual revenue or EBITDA thresholds are met. Wilson Wolf is a leading manufacturer of cell culture devices, including the G-Rex product line.

The first part of the forward contract is triggered upon Wilson Wolf achieving approximately $92 million in annual revenue or $55 million in annual earnings before interest, taxes, depreciation, and amortization (EBITDA) at any point prior to December 31, 2027. Once triggered, the Company is required to make a payment of $231 million in exchange for a 19.9% ownership stake. If Wilson Wolf doesn’t achieve the revenue and EBITDA targets by December 31, 2027, the agreement will expire.

Once the first part of the forward contract is triggered, the second part of the forward contract will automatically trigger, and requires the Company to acquire the remaining equity interest in Wilson Wolf on December 31, 2027 based on a revenue multiple of approximately 4.4 times revenue. The second part of the contract would be accelerated in advance of December 31, 2027, if Wilson Wolf meets its second milestone of approximately $226 million in annual revenue or $136 million in annual EBITDA. If the second milestone is achieved, the forward contract requires the Company to pay approximately $1 billion plus potential contingent consideration for revenue in excess of the revenue milestone. The Company has elected to apply the measurement alternative as detailed under ASC 321-10-35-2 for the Wilson Wolf investment. The Company recorded the $25 million payment as a cost basis investment within Other long-term assets on the Consolidated Balance Sheet.

Restructuring actions: Restructuring actions generally include significant actions involving employee-related severance charges, contract termination costs, and impairments and disposals of assets associated with such actions. Employee-related severance charges are based upon distributed employment policies and substantive severance plans. These charges are reflected in the quarter when the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Asset impairment and disposal charges include right of use assets, leasehold improvements, and other asset write-downs associated with combining operations and disposal of assets.

In September 2021, the Company informed employees of our decision to close our Exosome Diagnostics Germany facility, discontinuing lab and research occurring at the site, as part of a realignment of activities within our Exosome Diagnostics business. The restructuring activities were complete as of June 30, 2022. As a result of the restructuring activities, a pre-tax charge of $1.4 million was recorded within our Diagnostics and Genomics segment during the year ended June 30, 2022. Total restructuring charges for the closure of the Exosome Diagnostics Germany facility for the year ended June 30, 2022 were recorded within operating income on the income statement as follows (in thousands):


	Employee		Asset
	Severance		Impairment and other		Total
Selling, general and administrative	$	649	$	750	$	1,399


	Employee		Asset
	Severance		Impairment and other		Total
Expense incurred in the first quarter of 2022	$	639	$	546	$	1,185
Incremental expense incurred during fiscal 2022		—		242		242
Cash payments		(589)		(554)		(1,143)
Adjustments(1)		(50)		(234)		(284)
Accrued restructuring actions balances as of June 30, 2022	$	—		—		—

(1) Adjustments include refinements to our estimated close down costs as well as the impacts from foreign currency exchange.

During the second quarter of fiscal 2022, the Company also incurred a restructuring charge of $0.2 million related to employee severance for the relocation of a US plant. This charge is recorded within Other current liabilities as of June 30, 2022. There were no cash payments or adjustments related to this restructuring during the year ended June 30, 2022.

Other Significant Accounting Policies

The following table includes a reference to additional significant accounting policies that are described in other notes to the financial statements, including the note number:


Policy	Note
Fair value measurements		5
Leases		7
Earnings per share		9
Share-based compensation		10
Operating segments		12

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendment in this update replaced the previous incurred loss impairment methodology with a methodology that reflects expected credit losses on financial instruments within its scope, including trade and loan receivables and available-for-sale debt securities. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. The Company adopted this standard on July 1, 2020 using a modified retrospective transition approach with a cumulative impact of $0.3 million to retained earnings. The adoption of this ASU did not have a material impact on the Company's financial statements as the Company's primary financial instruments impacted by the ASU were trade accounts receivable, where we have high historical and expected future collections due to the length of receivables and the credit quality of our customers.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the new standard. The Company adopted this standard on a prospective basis on July 1, 2020. Accordingly, as of July 1, 2020, the Company records eligible costs to be capitalized within prepaid assets or other non-current assets depending on the nature of the duration of the asset.

In March 2020_,_ the FASB issued ASU No. 2020-04_,_ Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021 issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. These ASUs provide expedients and exceptions to existing guidance on contract modifications and hedge accounting that is optional to facilitate the market transition from a reference rate, including LIBOR which is being phased out in 2021_,_ to a new reference rate. The provisions of the ASUs impact contract modifications and other changes that occur while LIBOR is phased out. The Company adopted the optional relief guidance provided within these ASUs in the fourth quarter of fiscal 2021 and continues to monitor its debt and derivative instruments that utilize LIBOR as the reference rate. The adoption of the standard did not impact our financial results for fiscal 2022.

Note 2. Revenue Recognition:

Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that, for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. Service revenues consist of extended warranty contracts, post contract support (“PCS”), and custom development projects that are recognized over time as either the customers receive and consume the benefits of such services simultaneously or the underlying asset being developed has no alternative use for the Company at contract inception and the Company has an enforceable right to payment for the portion of the performance completed. Service revenues also include laboratory services recognized at a point in time. Prior to fiscal year 2021, the Company has not recognized revenue upon completion of the performance obligation for laboratory services, but rather upon cash receipt, which was subsequent to the performance obligation being satisfied. The Company accounted for these services based on cash receipts as we did not have significant historical experience collecting payments from Medicare or other insurance providers and considered the variable consideration for such services to be constrained as it would not be probable that a significant amount of revenue

would not need to be reversed in future periods for the services provided. Given Medicare coverage for our laboratory services became effective on December 1, 2019, the Company considered that it had sufficient data to estimate variable consideration as of July 1, 2020 for laboratory services that are reimbursed by Medicare. The amount of cash received in fiscal year 2021 for laboratory services reimbursed by Medicare that were performed prior to July 1, 2020 was approximately $0.5 million. The Company continues to record revenue based on cash receipts for laboratory services not reimbursed by Medicare, as the variable consideration remains constrained. We recognize royalty revenues in the period the sales occur using third party evidence. The Company elected the "right to invoice" practical expedient based on the Company’s right to invoice a customer at an amount that approximates the value to the customer and the performance completed to date.

The Company elected the exemption to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less and the exemption to exclude future performance obligations that are accounted under the sales-based or usage-based royalty guidance. The Company’s unfulfilled performance obligations for contracts with an original length greater than one year were not material as of June 30, 2022 and June 30, 2021.

Contracts with customers that contain instruments may include multiple performance obligations. For these contracts, the Company allocates the contract’s transaction price to each performance obligation on a relative standalone selling price basis. Allocation of the transaction price is determined at the contracts’ inception.

Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to 90 days. Service arrangements commonly call for payments in advance of performing the work (e.g. extended warranty and service contracts), upon completion of the service (e.g. custom development manufacturing) or a mix of both.

Contract assets include revenues recognized in advance of billings. Contract assets are included within other current assets in the accompanying balance sheet as the amount of time expected to lapse until the company’s right to consideration becomes unconditional is less than one year. We elected the practical expedient allowing us to expense contract costs that would otherwise be capitalized and amortized over the contract period. Contract assets as of June 30, 2022 are not material.

Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits and unearned revenue on warranty contracts. Contract liabilities as of June 30, 2022 and June 30, 2021 were approximately $25.5 million and $20.0 million, respectively. Contract liabilities as of June 30, 2021 subsequently recognized as revenue during the year ended June 30, 2022 were approximately $16.9 million. Contract liabilities in excess of one year are included in Other long-term liabilities on the balance sheet.

Any claims for credit or return of goods must be made within 10 days of receipt. Revenues are reduced to reflect estimated credits and returns. Although the amounts recorded for these revenue deductions are dependent on estimates and assumptions, historically our adjustments to actual results have not been material.

Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of products. We have elected the practical expedient that allows us to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost, and we accrue costs of shipping and handling when the related revenue is recognized.

The following tables present our disaggregated revenue for the periods presented.

Revenue by type is as follows:



	Year ended June 30,
	2022		2021		2020
Consumables	$	890,874	$	751,985	$	602,642
Instruments		120,758		93,782		71,462
Services		71,988		66,416		47,459
Total product and services revenue, net		1,083,620	$	912,183		721,563
Royalty revenues		21,979		18,849		17,128
Total revenues, net	$	1,105,599	$	931,032	$	738,691

Revenue by geography is as follows:



	Year Ended June 30,
	2022		2021		2020

United States	$	614,107	$	502,080	$	404,407
EMEA, excluding United Kingdom		219,055		204,264		155,289
United Kingdom		48,637		40,945		30,411
APAC, excluding Greater China		76,139		69,013		60,362
Greater China		112,438		87,556		68,792
Rest of World		35,223		27,174		19,430
Net Sales	$	1,105,599	$	931,032	$	738,691

Note 3. Supplemental Balance Sheet and Cash Flow Information:

Inventories:

Inventories consist of (in thousands):


	June 30,
	2022		2021

Raw materials	$	79,291	$	55,096
Finished goods(1)		66,943		67,108
Inventories, net	$	146,234	$	122,204

(1)	Finished goods inventory of $5,111 and $5,456 is included within other long-term assets in the June 30, 2022 and June 30, 2021 Balance Sheets, respectively, as it forecasted to be sold after the 12 months subsequent to the consolidated balance sheet date.

Property and Equipment:

Property and equipment consist of (in thousands):


	June 30,
	2022		2021
Cost:
Land	$	8,572	$	8,612
Buildings and improvements		229,551		190,661
Machinery and equipment		174,813		149,410
Construction in progress		21,729		49,073
Property and equipment, cost		434,665		397,756
Accumulated depreciation and amortization		(211,423)		(189,849)
Property and equipment, net	$	223,242	$	207,907

Intangibles assets were comprised of the following (in thousands):


	Useful Life	June 30,
	(years)	2022		2021

Developed technology	9 - 15	$	542,038	$	552,160
Trade names	2 - 20		146,457		147,640
Customer relationships	7 - 16		225,882		232,493
Patents	10		3,313		2,926
Other intangibles	5 - 15		6,306		6,316
Definite-lived intangible assets			923,996		941,535
Accumulated amortization			(415,174)		(348,267)
Definite-lived intangibles assets, net			508,822		593,268
In process research and development			22,700		22,700
Total intangible assets, net		$	531,522	$	615,968

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


	June 30,
	2022		2021

Beginning balance	$	615,968	$	516,545
Acquisitions		—		153,311
Other additions		293		5,912
Amortization expense		(74,147)		(64,940)
Currency translation		(2,029)		5,140
Eminence impairment (1)		(8,563)		—
Ending balance	$	531,522	$	615,968

(1) As disclosed in Note 1, the Company recorded an impairment charge of $8.6 million related to Eminence in Q2 of fiscal 2022.

Amortization expense related to developed technologies included in cost of sales was $40.6 million, $36.5 million, and $34.5 million in fiscal 2022, 2021, and 2020, respectively. Amortization expense related to trade names, customer relationships, non-compete agreements, and patents included in selling, general and administrative expense was $33.5 million, $28.4 million, and $26.6 million, in fiscal 2022, 2021, and 2020 respectively.

The estimated future amortization expense for intangible assets as of June 30, 2022, excluding any possible future amortization associated with acquired IPR&D which has not met technological feasibility, is as follows (in thousands):


2023	$	71,366
2024		68,702
2025		65,266
2026		61,689
2027		51,771
Thereafter		190,028
Total	$	508,822

Changes in goodwill by segment and in total consist of (in thousands):


			Diagnostics and
	Protein Sciences		Genomics		Total
June 30, 2020	$	373,081	$	355,229	$	728,310
Acquisitions (Note 4)		7,848		94,970		102,818
Currency translation		11,788		151		11,939
June 30, 2021	$	392,717	$	450,350	$	843,067
Acquisitions(1)		—		(4,407)		(4,407)
Eminence impairment		(8,275)		—		(8,275)
Currency translation		(7,949)		(335)		(8,284)
June 30, 2022	$	376,493	$	445,608	$	822,101

(1)As discussed in Note 4, there was an adjustment to the preliminary allocation of the Asuragen acquisition opening balance sheet during the measurement period.

Supplemental Cash Flow Information:

Supplemental cash flow information was as follows (in thousands):


	Year Ended June 30,
	2022		2021		2020
Income taxes paid	$	30,341	$	20,952	$	41,992
Interest paid		11,027		13,576		18,615
Non-cash activities:
Acquisition-related liabilities(1)		20,400		23,600		(2,105)
Other intangibles(2)		—		4,000		—

(1)	Consists of holdback payments due at future dates and liabilities for contingent consideration. Amounts disclosed above represent the total non-cash change in the liability from the prior fiscal year. Further information regarding liabilities for contingent consideration can be found in Notes 4 and 5.

(2)	$4.0 million of the third party patented technology acquired in fiscal 2021 was a non-cash activity within the consolidated statement of cash flows as a cash payment was not made within the fiscal year ended June 30, 2021.

Note 4. Acquisitions:

We periodically complete business combinations that align with our business strategy. Acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date and that the results of operations of each acquired business be included in our consolidated statements of comprehensive income from their respective dates of acquisitions. Acquisition costs are recorded in selling, general and administrative expenses as incurred.

There were no acquisitions in fiscal 2022 or fiscal 2020.

2021 Acquisitions

Eminence Biotechnology

On October 20, 2020, the Company acquired 47.6% of the outstanding equity shares of Changzhou Eminence Biotechnology Co., Ltd. (Eminence) for approximately $9.8 million, net of cash acquired. The fair value of the noncontrolling interest of $9.0 million included in the consolidated balance sheet was a non-cash activity within the statement of cash flows. Eminence is considered a variable interest entity as it is an early stage biotechnology company that required additional funding through a subsequent equity investment, which was used to fund Eminence’s expansion and GMP manufacturing capabilities within China. On April 2, 2021, the Company invested approximately $6 million of additional funding into Eminence, increasing our percentage of outstanding equity shares to 57.4%. The Company was considered the primary beneficiary at the time of initial acquisition given the Company was the largest shareholder coupled with its ability to exercise significant influence over the entity. As of June 30, 2022, the Company’s investment at risk is limited to its $15.8 million in investments.

As Eminence met the criteria for consolidation, the transaction was accounted for in accordance with ASC 805, Business Combinations. In applying ASC 805 to the transaction, the Company has elected to include Eminence in our consolidated financial statements on a one month lag.

The goodwill recorded as result of the acquisition represents the strategic benefits of growing the Company’s product portfolio and the expected revenue growth from increased market penetration. The fair value of the noncontrolling interest in Eminence was calculated utilizing cash flow projections discounted to the acquisition date and control premiums calculated using market data. Acquired goodwill is not deductible for income tax purposes. The business became part of the Protein Sciences reportable segment in the second quarter of fiscal year 2021. Purchase accounting was finalized during fiscal 2021.

Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management’s assessment. The purchase price allocated to developed technology and customer relationships was based on management’s forecasted cash inflows and outflows and using a multiperiod excess earnings method to calculate the fair value of assets purchased. The amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for developed technology is estimated to be 13 years. Amortization expense related to customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The amortization period for customer relationships is estimated to be 10 years. The net deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset amortization, which is not deductible for income tax purposes offset by the deferred tax asset for the calculation of acquired NOLs.

The Company identified a triggering event related to Eminence during the second quarter of fiscal 2022. Refer to Note 1 for further details relating to the triggering event and related impairment recorded.

Asuragen, Inc.

On April 6, 2021, the Company acquired all of the ownership interests of Asuragen, Inc. (Asuragen) for approximately $216 million, net of cash acquired, plus contingent consideration of up to $105.0 million, subject to certain revenue thresholds. The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’ product portfolio and the expected revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes. The business became part of the Diagnostics and Genomics operating segment in the fourth quarter of fiscal 2021. Purchase accounting was finalized during fiscal 2022 with an adjustment of $4.4 million to deferred tax amounts and goodwill.

Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's assessment. The purchase price allocated to developed technology, in-process research and development, and customer relationships was based on management's forecasted cash inflows and outflows and using a multiperiod excess earnings method to calculate the fair value of assets purchased. The amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income.

The amortization period for developed technology is estimated to be 14 years. Amortization expense related to customer relationships is reflected in selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for customer relationships is estimated to be 16 years. The amount recorded for trade names and the non-competition agreement is being amortized with the expense reflected in selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for trade names and the non-competition agreement is estimated to be 5 years and 3 years, respectively. The net deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset amortization, which is not deductible for income tax purposes, offset by the deferred tax asset for the calculation of acquired net operating losses.

The aggregate purchase price of the acquisitions was allocated to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. The following table summarizes the fair values of the assets acquired and liabilities assumed for the fiscal year 2021 acquisitions (in thousands):



	Asuragen		Eminence
Current assets, net of cash	$	10,422	$	3,145
Equipment and other long-term assets		3,762		1,639
Intangible assets:
Developed technology		107,000		6,778
In-process research and development		22,700		—
Customer relationships		11,700		2,133
Trade names		2,000		—
Non-competition agreement		1,000		—
Goodwill		90,563		7,848
Total assets acquired		249,147		21,543

Liabilities		4,963		1,436
Deferred income taxes, net		10,297		1,357
Net assets acquired	$	233,887	$	18,750

Cash paid, net of cash acquired		215,587		9,765
Contingent consideration payable		18,300		8,985
Net assets acquired	$	233,887	$	18,750

Note 5. Fair Value Measurements:

The Company’s financial instruments include cash and cash equivalents, available for sale investments, accounts receivable, accounts payable, contingent consideration obligations, derivative instruments, and long-term debt.

Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.

The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable

for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation.

The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):


	Total
	carrying
	value as of		Fair Value Measurements Using
	June 30,		Inputs Considered as
	2022		Level 1		Level 2		Level 3

Assets
Exchange traded securities(1)	$	59,962	$	59,962	$	—	$	—
Certificates of deposit(2)		14,500		14,500		—		—
Derivative instruments - cash flow hedges		11,026		—		11,026		—
Total assets	$	85,488	$	74,462	$	11,026	$	—

Liabilities
Contingent consideration	$	5,000	$	—	$	—	$	5,000
Derivative instruments - cash flow hedges		476		—		476		—
Total liabilities	$	5,476	$	—	$	476	$	5,000


	Total
	carrying
	value as of		Fair Value Measurements Using
	June 30,		Inputs Considered as
	2021		Level 1		Level 2		Level 3

Assets
Exchange traded securities(1)	$	19,963	$	18,581	$	1,382	$	—
Certificates of deposit(2)		12,500		12,500		—		—
Derivative instruments - cash flow hedges		275		—		275		—
Total assets	$	32,738	$	31,081	$	1,657	$	—

Liabilities
Contingent consideration	$	29,400	$	—	$	—	$	29,400
Derivative instruments - cash flow hedges		8,376		—		8,376		—
Total liabilities	$	37,776	$	—	$	8,376	$	29,400

	(1)	Included in available-for-sale investments on the balance sheet. The fair value of the Company’s available-for-sale equity investment in CCXI as of June 30, 2022 and June 30, 2021 was $36.0 million and $20.0 million, respectively. The cost basis in the Company’s investment in CCXI at June 30, 2022 and June 30, 2021 was $6.6 million and $6.6 million respectively. The Company exercised the warrant via net share settlement to acquire 66,833 additional shares of CCXI equity shares during the year ended June 30, 2022. The warrant was valued at $1.4 million as of June 30, 2021. The Company also purchased exchange traded investment grade bond funds during the year ended June 30, 2022. The cost basis and fair value of these exchange traded investment grade bond funds as of June 30, 2022 was $25.0 million and $23.9 million, respectively.

	(2)	Included in available-for-sale investments on the balance sheet. The certificates of deposit have contractual maturity dates within one year.

Fair value measurements of available for sale securities

Available for sale securities excluding warrants are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. The Company’s warrant to purchase additional shares at a specified future price was valued using a Black-Scholes model with observable inputs in active markets and therefore was classified as a Level 2 asset.

Fair value measurements of derivative instruments

In October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The forward starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on an initial $380 million of notional principal amount. The notional amount decreased by $100 million in October 2020, $80 million in October 2021 and will further decrease by $200 million in October 2022. In June 2020, the Company de-designated $80 million of the notional amount set to expire in October 2020. The net loss associated with the June 2020 de-designated portion of the derivative instrument was not reclassified into earnings based on the amount of probable variable interest payments to occur within a two-month time period of the forecasted hedged transaction. In December 2020, the Company de-designated an additional $80 million of notional amount set to expire in October 2021. The net loss associated with the December 2020 de-designated portion of the derivative instrument was recorded as a loss in other non-operating income related to variable interest debt payments in certain months on a portion of the de-designated derivative that was not expected to occur. The fair value of the designated derivative instrument is $0.5 million and is recorded within short-term liabilities on the Consolidated Balance Sheet as of June 30, 2022. The fair value of the designated derivative instrument was $7.6 million as of June 30, 2021 and was recorded within other long-term liabilities on the Consolidated Balance Sheet.

In May 2021, the Company entered into a new forward starting swap designated as a cash flow hedge on forecasted debt. The forward starting swap reduces the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s forecasted variable interest long-term debt to that of a fixed interest rate. Accordingly, as part of the forward starting swap, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on $200 million of notional principal amount. The effective date of the swap is November 2022 with the full swap maturing in November 2025. The fair value of the derivative instrument was $11.0 million and $0.3 million as of June 30, 2022 and June 30, 2021, respectively, which is recorded within other long-term assets on the Consolidated Balance Sheet.

Changes in the fair value of the designated hedged instrument are reported as a component of other comprehensive income and reclassified into interest expense over the corresponding term of the cash flow hedge. The Company reclassified $6.4 million to interest expense and related tax benefits of $1.5 million during the year ended June 30, 2022. The Company reclassified $8.6 million to interest expense, $0.5 million to non-operating income for the portion of de-designated variable payments considered probable to not occur, and related tax benefits of $2.1 million during the fiscal year ended June 30, 2021, relating to the cash flow hedge entered into in October 2018. No amounts were reclassified relating to the cash flow hedge entered into in May 2021 as they will be recorded within the effective period of the cash flow hedge.

The Company reclassified $3.5 million, net of taxes, to interest expense during the fiscal year ended June 30, 2020. The change in the fair value of the de-designated notional hedged amount was not material as of June 30, 2020. The instruments were valued using observable market inputs in active markets and therefore are classified as Level 2 liabilities.

Fair value measurements of contingent consideration

The Company has $5.0 million in contingent consideration recorded as of June 30, 2022, which is the fair value of contingent consideration related to the Asuragen acquisition. The Company is required to make contingent consideration payments of up to $105.0 million as part of the acquisition agreement. The contingent agreement is based on achieving certain revenue thresholds by December 31, 2022 and December 31, 2023. The opening balance sheet fair value of the

liabilities for the Asuragen acquisition was $18.3 million, as discussed in Note 4. The fair value amount recorded on the opening balance sheet of the revenue milestone payments was determined using a Monte Carlo simulation-based model discounted to present value. Assumptions used in these calculations are units sold, expected revenue, expected expenses, discount rate, and various probability factors.

As of June 30, 2022_,_ the Company's obligation for potential contingent consideration payments related to the Quad and B-Mogen acquisitions were relieved as the revenue thresholds and product milestones were not achieved or there is a remote likelihood of achievement in the timeframe established within the purchase agreements. As the result, the Company reversed an accrual for the fair value of the contingent liabilities at the date of settlement.

During the first quarter of fiscal 2022_,_ the Company made a $4.0 million payment on the QT Holdings Corporation contingent consideration agreement relating to certain product development milestones. The cash paid was consistent with the related accrual for QT Holdings Corporation as of June 30, 2021_._

The ultimate settlement of contingent consideration liabilities for the Asuragen acquisition could deviate from current estimates based on the actual results of the financial measures described above. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in general and administrative expense.

The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):



	June 30,
	2022		2021

Fair value at the beginning of period	$	29,400	$	6,137
Purchase price contingent consideration (Note 4)		—		18,300
Change in fair value of contingent consideration		(20,400)		5,300
Payments		(4,000)		(337)
Fair value at the end of period	$	5,000	$	29,400

The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio.

Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value.

Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the consolidated balance sheets approximate fair value because of the short-term nature of these items.

Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit facility and long-term debt approximates fair value because our interest rate is variable and reflects current market rates.

Note 6*. Debt and Other Financing Arrangements:*

On August 1, 2018, the Company entered into a new uncollateralized revolving line-of-credit and term loan governed by a Credit Agreement (the Credit Agreement). The Credit Agreement provides for a revolving credit facility of $600.0 million, which can be increased by an additional $200.0 million subject to certain conditions, and a term loan of $250.0 million. Borrowings under the Credit Agreement may be used for working capital and expenditures of the Company and its subsidiaries, including financing permitted acquisitions. Borrowings under the Credit Agreement bear interest at a variable rate. The current outstanding debt is based on the Eurodollar Loans term for which the interest rate is calculated as the sum of LIBOR plus an applicable margin. The applicable margin is determined for the total leverage ratio of the Company and updated on a quarterly basis. The annualized fee for any unused portion of the credit facility is currently 12.5 basis points. The Company has recorded $12.5 million of our outstanding borrowings under the Credit Agreement as a current liability in our Consolidated Balance sheet, which represents our required quarterly debt payments to be made in fiscal year 2022.

The Credit Agreement matures on August 1, 2023 and contains customary restrictive and financial covenants and customary events of default. At the closing on August 1, 2018 the company borrowed $250.0 million under the term loan and $330.0 million under the revolving credit facility. As of June 30, 2022 and 2021, the outstanding balance under the Credit Agreement was $256 million and $341 million respectively.

Note 7. Leases:

As a lessee, the company leases offices, labs, and manufacturing facilities, as well as vehicles, copiers, and other equipment. The Company determines whether a contract is a lease or contains a lease at inception date. Upon commencement date, operating lease right-of-use assets and liabilities are recognized based on the present value of lease payments over the lease term. The discount rate used to calculate present value is the Company’s incremental borrowing rate or, if available, the rate implicit in the lease. The Company determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region. The Company recognizes operating lease expense on a straight-line basis over the lease term. Further, as part of our adoption of ASC 842, the Company also made the accounting policy elections to not capitalize short term leases (defined as a lease with a lease term that is less than 12 months) and to combine lease and non-lease components for all asset classes in determining the lease payments.

Variable lease payments primarily include payments for non-lease components, such as maintenance costs and payments for non-components such as sales tax. During fiscal year 2022, the Company recognized $4.3 million in variable lease expense in the Consolidated Statements of Earnings and Comprehensive Income. During fiscal year 2022, the Company also recognized $14.4 million relating to fixed lease expense in the Consolidated Statements of Earnings and Comprehensive Income.

The following table summarizes the balance sheet classification of the Company’s operating leases, amounts of right of use assets and lease liabilities, the weighted average remaining lease term, and the weighted average discount rate for the Company’s operating leases (asset and liability amounts are in thousands):


			As of
			June 30,
	Balance Sheet Classification		2022
Operating leases:
Operating lease right of use assets(1)		Right of Use Asset	$	65,556

Current operating lease liabilities(1)		Operating lease liabilities current	$	11,928
Noncurrent operating lease liabilities(1)		Operating lease liabilities		58,133
Total operating lease liabilities			$	70,061

Weighted average remaining lease term (in years):				7.88

Weighted average discount rate:				3.98	%

(1)

The right of use asset, current operating lease liabilities, and noncurrent lease liabilities on the Consolidated Balance Sheet exclude a definitive agreement entered into by the Company in November 2021 for a 74,000 square foot facility in Centennial, Colorado for the next 12.5 years with approximate annual rental impact of $0.9 million. Construction is underway and once complete, the commencement of the lease will occur, which is expected to be in the first half of fiscal 2023. The facility replaces a current leased facility in the same location that will terminate upon completion of construction of the new facility.

The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right of use assets obtained in exchange for new operating lease liabilities for the year ended June 30, 2022 (in thousands):


	Year ended
	June 30,
	2022
Cash amounts paid on operating lease liabilities(1)	$	14,950

Right of use assets obtained in exchange for lease liabilities		8,225

(1)	Total cash paid for the Company’s operating leases during the year ended June 30, 2022 include cash amounts paid on operating lease liabilities and variable lease expenses. Cash flow impacts from right of use assets and lease liabilities are presented net on the cash flow statement in changes in other operating activity.

The following table summarizes payments by date for the Company’s operating leases, which is then reconciled to our total lease obligation (in thousands):


	June 30, 2022
	Operating
	Leases
2023	$	14,241
2024		12,639
2025		11,504
2026		10,141
2027		8,324
Thereafter		25,433
Total	$	82,282
Less: Amounts representing interest		12,221
Total Lease obligations	$	70,061

Certain leases include one or more options to renew, with terms that extend the lease term up to five years. The Company includes option to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, the Company is not reasonably certain to exercise such options.

Note 8. Supplemental Equity and Accumulated Other Comprehensive Income (loss) Information:

Equity

The Company has declared cash dividends per share of $1.28 in each of the full fiscal years ended June 30, 2022, June 30, 2021, and June 30, 2020. During the years ended June 30, 2022, June 30, 2021 and June 30, 2020, the Company repurchased 394,238 shares at an average share price of $408.26, 120,000 shares at an average share price of $359.81, and 279,381 shares at an average share price of $179.37, respectively. The Company’s accounting policy is to record the portion of share repurchases in excess of the par value entirely in retained earnings. During fiscal year 2022, 2021 and 2020, the amounts within the Consolidated Statements of Shareholders’ Equity for the surrender and retirement of stock to exercise options due to net settlement stock options exercises were not material.

Accumulated Other Comprehensive Income (loss)

Changes in accumulated other comprehensive income (loss) attributable to Bio-Techne, net of tax, are summarized as follows (in thousands):


	Unrealized
	Gains		Foreign
	(Losses) on		Currency
	Derivative		Translation
	Instruments		Adjustments		Total
Balance June 30, 2019	$	(9,537)	$	(73,983)	$	(83,521)
Other comprehensive income (loss) before reclassifications		(7,179)		(9,963)		(17,142)
Reclassification from loss on derivatives to interest expense, net of taxes(1)		3,464		—		3,464
Balance June 30, 2020(3)	$	(13,253)	$	(83,946)	$	(97,199)
Other comprehensive income (loss) before reclassifications, net of taxes, attributable to Bio-Techne(2)		100		32,848		32,948
Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne(1)		6,960		—		6,960
Balance as of June 30, 2021(3)	$	(6,193)	$	(51,098)	$	(57,291)
Other comprehensive income (loss) before reclassifications, net of taxes, attributable to Bio-Techne(2)		9,403		(32,171)		(22,768)
Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne(1)		4,859				4,859
Balance as of June 30, 2022(3)	$	8,069	$	(83,269)	$	(75,200)

(1)

Gains (losses) on the interest swap will be reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified $6,352 to interest expense and recorded a related tax benefit of $1,493 during fiscal 2022. The Company reclassified $8,598 to interest expense and $512 to non-operating income relating to variable interest payments that were probable not to occur for the fiscal year ended June 30, 2021. The Company also recorded a related tax benefit of $2,150 during fiscal 2021_._ The Company reclassified $4,503 to interest expense and a related tax benefit tax of $1,040 during fiscal 2020.

(2)	Other comprehensive income related to foreign currency translation adjustments in the table above includes the amount attributable to Bio-Techne and excludes the $70 and $103 attributable to the non-controlling interest in Eminence as of June 30, 2022, and June 30, 2021, respectively.

(3)	The Company had a net deferred tax liability of $2,480 as of June 30, 2022, and net deferred tax benefits of $1,908 and $4,058 as of June 30, 2021, and June 30, 2020, respectively.

Note 9. Earnings Per Share:

The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts):



	Year Ended June 30,
	2022		2021		2020
Earnings per share – basic:
Net earnings, including noncontrolling interest		263,099		139,585		229,296
Less net earnings (loss) attributable to noncontrolling interest		(8,952)		(825)		—
Net earnings attributable to Bio-Techne	$	272,051	$	140,410	$	229,296
Income allocated to participating securities		(121)		(86)		(224)
Income available to common shareholders	$	271,930	$	140,324	$	229,072
Weighted-average shares outstanding – basic		39,219		38,747		38,201
Earnings per share – basic	$	6.93	$	3.62	$	6.00

Earnings per share – diluted:
Net earnings, including noncontrolling interest	$	263,099	$	139,585	$	229,296
Less net earnings (loss) attributable to noncontrolling interest		(8,952)		(825)		—
Net earnings attributable to Bio-Techne		272,051		140,410		229,296
Income allocated to participating securities		(121)		(86)		(224)
Income available to common shareholders	$	271,930	$	140,324	$	229,072
Weighted-average shares outstanding – basic		39,219		38,747		38,201
Dilutive effect of stock options and restricted stock units		1,810		1,736		1,200
Weighted-average common shares outstanding – diluted		41,029		40,483		39,401
Earnings per share – diluted	$	6.63	$	3.47	$	5.82

Basic net income per common share is calculated based on the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares of our stock result from dilutive common stock options and restricted stock units. We use the treasury stock method to calculate the weighted-average shares used in the diluted earnings per share computation. Under the treasury stock method, the proceeds from exercise of an option, the amount of compensation cost, if any, for future service that we have not yet recognized, and the amount of estimated tax benefits that would be recorded in paid-in capital, if any, when the option is exercised are assumed to be used to repurchase shares in the current period.

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 0.7 million, 0.6 million, and 0.9 million for the fiscal years ended June 30, 2022, 2021 and 2020, respectively.

Note 10. Share-based Compensation and Other Benefit Plans:

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. 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.

Equity incentive plan: The 2020 Equity Incentive Plan, which replaced the Company’s Second Amended and Restated 2010 Equity Incentive 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 were 8.8 million shares of common stock authorized for grant under the Plan. The maximum aggregate number of shares of common stock reserved and available for awards under the Plan is 2,484,202 shares. At June 30, 2022, there were 2.2 million shares of common stock available for grant under the 2020 Equity Incentive Plan. The maximum term of incentive options granted under the 2020 Equity Incentive Plan is ten years. The 2020 Equity Incentive Plan replaced the Company’s second A&R 2010 Plan, which had previously amended and restated the Company’s Amended and Restate 2010 Equity Incentive Plan (the A&R 2010 Plan). The 2020 Equity Incentive Plan and Second A&R 2010 Plan (collectively, the Plans) are administered by the Board of Directors and its Executive 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 as of June 30, 2022 under the 2020 Equity Incentive Plan were 3.3 million.

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,
	2022		2021		2020
Dividend yield	0.27	%	0.47	%	0.67	%
Expected volatility	27%-33	%	25%-30	%	22%-24	%
Risk-free interest rates	0.6%-2.6	%	0.2%-0.7	%	1.3%-1.9	%
Expected lives (years)	4.3		4.4		4.0

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.

Stock option activity under the Plans for the three years ended June 30, 2022, consists of the following (shares in thousands):


		Weighted		Aggregate		Weighted
	Number of	Average		Intrinsic		Average
	Shares (in	Exercise		Value		Contractual
	thousands)	Price		(millions)		Life (years)

Outstanding at June 30, 2019	3,656	$	121.16
Granted	752		190.80
Forfeited	(56)		95.97
Exercised	(743)		157.45
Outstanding at June 30, 2020	3,609	$	140.28
Granted	763		277.75
Forfeited	(28)		214.33
Exercised	(627)		112.53
Outstanding at June 30, 2021	3,717	$	172.63
Granted	348		480.59
Forfeited	(135)		348.18
Exercised	(613)		134.45
Outstanding at June 30, 2022	3,317	$	204.82	$	470.5	3.6
Exercisable at June 30, 2020:	1,564		112.60
Exercisable at June 30, 2021:	1,764		126.44
Exercisable at June 30, 2022:	1,949		147.97		387.3	2.6

The weighted average fair value of options granted during fiscal 2022, 2021, and 2020 was $119.11, $59.75, and $37.01, respectively. The total intrinsic value of options exercised during fiscal 2022, 2021, and 2020 were $209.3 million, $145.6 million, and $99.3 million, respectively. The total fair value of options vested during fiscal 2022, 2021, and 2020 were $82.3 million, $70.5 million, and $71.1 million, respectively.

Restricted common stock activity under the Plans for the three years ended June 30, 2022, consists of the following (units in thousands):


				Weighted
				Average
			Weighted	Remaining
	Number of		Average Grant	Contractual
	Shares (in		Date Fair	Term
	thousands)		Value	(years)
Unvested at June 30, 2019	30	$	147.94
Granted	15		193.48
Vested	(18)		142.12
Forfeited	—		—
Unvested at June 30, 2020	28	$	177.20
Granted	12		264.73
Vested	(17)		171.64
Forfeited	—		—
Unvested at June 30, 2021	23	$	226.07
Granted	7		489.34
Vested	(14)		218.28
Forfeited	—		—
Unvested at June 30, 2022	16	$	343.30	6.03

The total fair value of restricted shares that vested was $2.9 million for fiscal 2022, $2.8 million for fiscal 2021, and $2.5 million for fiscal 2020.

Restricted stock unit activity under the Plans for the three years ended June 30, 2022, consists of the following (units in thousands):


				Weighted
				Average
			Weighted	Remaining
	Number of		Average Grant	Contractual
	Units		Date Fair	Term
	(in thousands)		Value	(years)
Outstanding at June 30, 2019	139	$	134.17
Granted	31		192.08
Vested	(51)		111.07
Forfeited	(3)		155.60
Outstanding at June 30, 2020	116	$	159.25
Granted	31		300.78
Vested	(51)		130.18
Forfeited	—		—
Outstanding at June 30, 2021	96	$	220.53
Granted	28		470.38
Vested	(37)		178.46
Forfeited	(12)		417.35
Outstanding at June 30, 2022	75	$	302.15	5.42

The total fair value of restricted stock units that vested was $6.5 million for fiscal 2022, $6.7 million for fiscal 2021, and $5.7 million for fiscal 2020. The restricted stock units vest over a three-year period.

Stock-based compensation cost, inclusive of payroll taxes, of $44.0 million, $46.4 million, and $32.4 million was included in selling, general and administrative expense in fiscal 2022, 2021 and 2020, respectively. Additionally, stock-based compensation costs, inclusive of payroll taxes, of $1.4 million, $1.6 million, and $1.6 million was included in cost of goods sold in 2022, 2021, and 2020, respectively. As of June 30, 2022, there was $34.9 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 2023 through 2025 using a 4.6% forfeiture rate. The weighted average period over which the compensation cost is expected to be recognized is 2.0 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. 200,000 shares were allocated to the ESPP. The Company recorded expense of $1.0 million, $0.9 million, and $0.4 million for the ESPP in fiscal 2022, 2021, and 2020, respectively.

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 makes matching contributions to the Plan. The Company has recorded an expense for contributions to the plans of $4.3 million, $3.4 million, and $3.2 million for the years ended June 30, 2022, 2021, and 2020, respectively. The Company operates defined contribution pension plans, which consists of primarily our U.K. and China employees. The Company’s contribution to the defined pension contribution plan was $2.3 million, 1.6 million, and 1.4 million for the years ended June 30, 2022, 2021 and 2020, respectively.

Performance incentive programs: In fiscal 2022, under certain employment agreements, a Management Incentive Plan, and a business incentive plan, available to executive officers, certain management personnel, and certain other professional employees, the Company recorded cash bonuses of $26.5 million, granted options for 347,609 shares of common stock, issued 6,896 restricted common shares and 27,573 restricted stock units. In fiscal 2021 and fiscal 2020, the Company recorded cash bonuses of $21.1 million and $10.5 million, granted options for 762,761 and 751,499 shares of common stock, and issued 11,803 and 15,398 restricted common stock shares and 30,823 and 30,858 restricted stock, respectively.

Note 11. Income Taxes:

Income before income taxes was comprised of the following (in thousands):


	Year Ended June 30,
	2022		2021		2020
Domestic	$	255,118	$	95,662	$	245,365
Foreign		46,268		52,513		31,112
Income before income taxes	$	301,386	$	148,175	$	276,477

The provision for income taxes consisted of the following (in thousands):


	Year Ended June 30,
	2022		2021		2020
Taxes on income consist of:
Currently tax provision:
Federal	$	10,080	$	15,179	$	18,976
State		6,663		6,681		6,018
Foreign		14,481		14,743		8,580
Total current tax provision		31,224		36,603		33,574
Deferred tax provision:
Federal		8,130		(20,812)		14,074
State		1,477		(4,962)		2,055
Foreign		(2,544)		(2,239)		(2,522)
Total deferred tax provision		7,063		(28,013)		13,607
Total income tax provision	$	38,287	$	8,590	$	47,181

The Company’s effective income tax rate for fiscal 2022 was 12.7% vs 5.8% in the prior year. The change in the effective tax rate for fiscal 2022 and 2021 was driven by a mix of increased net income and the dilutive effect the increased net income has on the favorable rate benefits, primarily related to share-based compensation excess tax benefits of $29.3 million in fiscal 2022.

The Company’s effective income tax rate for fiscal 2021 was 5.8% vs 17.1% in the prior year. The change in the effective tax rate for fiscal 2021 and 2020 was driven by changes in net discrete tax benefits of $28.1 million and $19.4 million for fiscal year 2021 and 2020_,_ respectively.

The Company’s discrete tax benefits in fiscal 2022, 2021, and 2020 primarily related to share-based compensation excess tax benefits of $29.3 million, $28.1 million, and $17.7 million, respectively.

The following is a reconciliation of the federal tax calculated at the statutory rate of to the actual income taxes provided:


	Year Ended June 30,
	2022			2021			2020

Income tax expense at federal statutory rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit		2.2			0.6			2.3
Research and development tax credit		(1.0)			(1.8)			(0.7)
Contingent consideration adjustment		(1.4)			0.8			(0.2)
Foreign tax rate differences		0.4			0.8			(0.2)
Impairment		1.1			—			—
Option exercises		(9.4)			(16.9)			(5.7)
U.S. taxation of foreign earnings		(0.1)			(0.1)			0.9
Foreign derived intangible income		(1.9)			(5.1)			(0.9)
Executive compensation limitations		1.9			6.5			1.6
Other, net		(0.1)			0.0			(1.0)
Effective tax rate		12.7	%		5.8	%		17.1	%

Deferred taxes on the Consolidated Balance Sheets consisted of the following temporary differences (in thousands):


	June 30,
	2022		2021

Inventory	$	8,033	$	6,730
Net operating loss carryovers		27,948		31,345
Tax credit carryovers		13,131		14,486
Excess tax basis in equity investments		2,435		2,429
Deferred compensation		11,778		11,108
Derivative - cash flow hedge		—		1,908
Lease liability		13,779		17,016
Other		8,585		8,526
Valuation allowance		(9,466)		(6,665)
Deferred tax assets		76,223		86,883

Net unrealized gain on available-for-sale investments		(6,963)		(3,159)
Intangible asset amortization		(133,672)		(150,765)
Depreciation		(18,060)		(9,099)
Right of use asset		(12,793)		(15,868)
Derivative - cash flow hedge		(2,480)		—
Other		(1,249)		(1,117)
Deferred tax liabilities		(175,217)		(180,008)
Net deferred tax liabilities	$	(98,994)	$	(93,125)

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. The valuation allowance as of June 30, 2022 was $9.5 million compared to $6.7 million in the prior year.

As of June 30, 2022, the $9.5 million valuation allowance relates to certain foreign and state tax net operating loss and state credit carryforwards that existed at the date the Company completed various previous acquisitions as well as immaterial amounts generated after the acquisitions. The Company believes it is more likely than not that these tax carryovers will not be realized.

As of June 30, 2022, the Company has federal operating loss carryforwards of approximately $72.2 million and state operating loss carryforwards of $161.7 million from its previous acquisitions, which are not limited under IRC

Section 382. As of June 30, 2022, the Company has foreign net operating loss carryforwards of $14.0 million. Some of the net operating loss carryforwards expire between fiscal 2023 and 2036. Federal net operating loss carryforwards generated after December 31, 2017 have an indefinite carryforward period but the Company expects to be fully utilize these attributes by June 30, 2027. The Company has a deferred tax asset of $21.6 million, net of the valuation allowance discussed above, related to the net operating loss carryovers. As of June 30, 2022, the Company has federal and state tax credit carryforwards of $8.0 million and $6.5 million, respectively. The federal tax credit carryforwards expire between 2028 and 2040. The majority of the state credit carryforwards have no expiry date. The state credit carryforwards that have expiry dates have a full valuation allowance. The Company has a deferred tax asset of $10.0 million, net of the valuation allowance discussed above, related to the tax credit carryovers.

As of June 30, 2022, the Company has approximately $238 million of undistributed earnings in its foreign subsidiaries. Approximately $97 million of these earnings are no longer considered permanently reinvested. The Company expects to be able to repatriate earnings without incurring any withholding taxes and expects to be tax neutral. The Company has not provided deferred taxes on approximately $141 million of undistributed earnings from non-U.S. subsidiaries as of June 30, 2022 which are indefinitely reinvested in operations. Because of the multiple entities as well as the complexities of laws and regulations by which to repatriate the earnings to minimize tax cost, it is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely. A deferred tax liability will be recognized if the Company can no longer demonstrate that it plans to indefinitely reinvest the undistributed earnings.

We continue to analyze our global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent, which include local country withholding tax and potential U.S. state taxation.

The following is a reconciliation of the beginning and ending balance of unrecognized tax benefits (in thousands):


	Year Ended June 30,
	2022		2021		2020
Beginning balance	$	7,271	$	4,297	$	5,032
Additions due to acquisitions		960		—		—
Additions for tax positions of prior year		304		4,038		306
Decrease in unrecognized tax benefits for prior year positions		(357)		(778)		(1,041)
Settlements		(2,860)		(286)		—
FX impact		(16)		—		—
Ending balances	$	5,302	$	7,271	$	4,297

Included in the balance of unrecognized tax benefits at June 30, 2022 are potential benefits of $5.3 million that, if recognized, would affect the effective tax rate on income from continuing operations. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. The Company had $0.3 million of accrued interest and penalties as of June 30, 2022. The amount recorded for the periods ended June 30, 2021 and 2020 was immaterial. 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 2018 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 12. Segment Information:

The Company operates under two operating segments, Protein Sciences and Diagnostics and Genomics.

The Company’s Protein Sciences segment is comprised of the reagent solutions and analytical solutions. These businesses manufacture consumables used for conducting laboratory experiments by both industry and academic scientists within the biotechnology and biomedical life science fields. No customer in the Protein Sciences segment accounted for more than 10% of the segment’s net sales for the years ended June 30, 2022, 2021, and 2020.

The Company’s Diagnostics and Genomics segment is comprised of diagnostics reagents, genomics, and molecular diagnostics, which includes our Exosome and Asuragen acquisitions. Diagnostics reagents develops and manufactures a range of controls and calibrators used with diagnostic equipment and as proficiency testing tools, as well as other reagents incorporated into diagnostic kits. Genomics and molecular diagnostics consists of exosome-based diagnostics products for various pathologies, as well as tissue-based in-situ hybridization assays for research in clinical use. No customer in the Diagnostics and Genomics segment accounted for more than 10% of the segment’s net sales for the fiscal years ended June 30, 2022, 2021, and 2020.

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,
	2022		2021		2020
Net sales:
Protein Sciences	$	832,311	$	704,564	$	555,352
Diagnostics and Genomics		274,843		227,744		184,549
Intersegment		(1,555)		(1,276)		(1,210)
Consolidated net sales	$	1,105,599	$	931,032	$	738,691

Operating income:
Protein Sciences(1)	$	377,623	$	330,225	$	234,929
Diagnostics and Genomics		48,977		38,425		14,965
Segment operating income		426,600		368,650		249,894
Costs recognized on sale of acquired inventory		(1,596)		(1,565)		—
Amortization of acquisition related intangible assets		(73,054)		(64,239)		(60,865)
Impact of partially owned consolidated subsidiaries(1)		(2,393)		(1,505)		—
Gain on escrow settlement		—		—		7,169
Acquisition related expenses		19,070		(7,114)		(416)
Eminence impairment		(18,715)		—		—
Stock based compensation, inclusive of employer taxes		(46,401)		(51,846)		(34,262)
Restructuring costs		(1,640)		(142)		(87)
Corporate general, selling, and administrative expenses(1)		(5,281)		(4,943)		(4,015)
Consolidated operating income	$	296,590	$	237,296	$	157,419

(1)Adjusted operating income for fiscal 2021 have been updated for comparability to fiscal 2022 for the inclusion of the impact of partially-owned consolidated subsidiaries on the Company’s adjusted operating income.

The Company has some integrated facilities that serve both segments. As such, asset and capital expenditure information by operating segment has not been provided and is not available, since the Company does not produce or utilize such information internally. In addition, although depreciation and amortization expense is a component of each operating segment’s operating results, it is not discretely identifiable.

The Company has disclosed sales by geographic area based on the location of the customer or distributor in Note 2. The Company has disclosed dis-aggregated product and service revenue by consumables, instruments, and services in Note 2. The Company considers total instrument and total service revenue to represent similar groups of products in the fiscal years presented. The Company considered our consumables sold in the Protein Sciences and Diagnostics and Genomics segments to represent different groups of products and therefore have separately disclosed the related consumables revenue (in thousands) :


	Year Ended June 30,
	2022		2021		2020
Consumables revenue - Protein Sciences	$	646,952	$	557,037	$	431,052
Consumables revenue - Diagnostics and Genomics		243,922		194,948		171,590
Total consumable revenue	$	890,874	$	751,985	$	602,642

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


	Year ended June 30,
	2022		2021
Long-lived assets:
United States and Canada	$	203,732	$	190,501
Europe		16,223		13,949
Asia		3,287		3,457
Total long-lived assets	$	223,242	$	207,907
Intangible assets:
United States and Canada	$	523,536	$	594,512
Europe		6,281		9,369
Asia		1,705		12,087
Total intangible assets	$	531,522	$	615,968

Long-lived assets are comprised of land, buildings and improvements and equipment, net of accumulated depreciation.

Note 13. Subsequent Events:

On July 1, 2022_,_ the Company completed the acquisition of Namocell, Inc. for approximately $100 million, plus contingent consideration of up to $25 million upon the achievement of certain future milestones.

On August 4, 2022, the Company sold its remaining shares in CCXI for $73.3 million. The Company’s cost basis in the shares was $6.6 million.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Bio-Techne Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Bio-Techne Corporation and subsidiaries (the Company) as of June 30, 2022 and 2021, 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, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2022, 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) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated August 24, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill impairment analysis for the Molecular Diagnostics Division reporting unit

As discussed in Note 1 to the consolidated financial statements, the goodwill balance as of June 30, 2022 was $822.1 million, of which $195.9 million related to the Molecular Diagnostics Division (MDD) reporting unit. The Company performs goodwill impairment testing on an annual basis and whenever events or changes in circumstances indicate that the carrying value of a reporting unit likely exceeds its fair value. This involves estimating the fair value of the reporting units using discounted cash flow models.

We identified the evaluation of the goodwill impairment analysis for the MDD reporting unit as a critical audit matter. There was a high degree of subjectivity in applying and evaluating certain key assumptions used in the discounted cash flow model to estimate the fair value of the MDD reporting unit. Specifically, the revenue growth rates and the discount rate were challenging to test as they represented subjective determinations of future market and economic conditions. Changes to those assumptions could have had a significant effect on the Company’s assessment of the fair value of the MDD reporting unit.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the goodwill impairment process. This included controls related to the Company’s determination of the estimated fair value of the MDD reporting unit, including controls related to the development of the assumptions for the revenue growth rates and discount rate. We performed sensitivity analyses over the revenue growth rates and discount rate assumptions to assess their impact on the Company’s determination that the fair value of the MDD reporting unit exceeded its carrying value. We evaluated the reasonableness of the Company’s forecasted revenue growth rates for the MDD reporting unit by comparing the growth rate assumptions to historical results and industry related third-party data. We also compared the Company’s historical revenue forecasts to actual results to assess the Company’s ability to accurately forecast. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the discount rate used in the valuation, by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities.

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

Minneapolis, Minnesota
August 24, 2022

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Bio-Techne Corporation:

Opinion on Internal Control Over Financial Reporting

We have audited Bio-Techne Corporation and subsidiaries' (the Company) internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of June 30, 2022 and June 30, 2021, 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, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated August 24, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’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 Annual 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.

Definition and Limitations of Internal Control Over Financial Reporting

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.

/s/ KPMG LLP


Minneapolis, Minnesota
August 24, 2022

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