2 0 1 7 A N N UA L R E P O R T
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Assays
To Our Shareholders
Balancing Growth with Great Operations
Charles Kummeth, CEO
Fiscal year 2017 was another strong year for Bio-Techne
with total revenue growth of 13 percent and 6 percent organic
revenue growth. And, all of this was accomplished with no recent
acquisitions. This past year was truly a year to take a breath and
focus on synergies and execution. There was plenty to do after
having completed nine acquisitions in the previous three years. We
did get in the hunt for a few opportunities but declined to close as
we have rigorous rules, including price, to complete an acquisition.
The focus for this past year has been on many internal investments
and processes, starting with implementing a new ERP system in
the Biotech division and Headquarters for the company. We also
expanded our R&D Systems’ website, which now offers over 100
active pathways to better assist researchers in finding reagents
they need. We also have focused on better website experiences
for our customers and continued focus on sophisticated Search
Engine Optimization to assure we both attract and retain new
customers. With over 500,000 products under the Bio-Techne
brands it is critical to have robust websites. Fiscal year 2017 started
with a new strategic plan that we delivered in New York to a large
audience of investors and analysts. This strategic plan takes us
beyond one billion dollars in revenue in the next five years and
lays out the strategy to create synergies for growth among our
three divisions and three regions. We expect to accomplish this
while increasing operating margins. Investments have been made
in IT, our Salesforce.com database, finance systems, new regional
leadership, training and support systems, human resource systems,
and quality control processes to further ready us for global
expansion and continued diversification in clinical applications,
especially in the diagnostics markets. In the past four years, we
have grown our IT staff from 7 to 56 and our finance organization
from a dozen to over 70, both organically and through acquisitions.
We did this while holding operating margins in our core areas at
over 50%. Integration is a difficult process; we have strived to
integrate our nine acquisitions with minimal attrition and by sharing
our strong culture and utilizing strong change management.
Getting our Protein Platforms Division back into a 20+ percent
organic growth rate has been a difficult but rewarding achievement
for us. This has come from a combination of strategic new product
introductions and applications, as well as from strong commercial
synergies with the Biotech division, which sells the reagents used
by the Protein Platforms Division’s instruments. When we bought
ProteinSimple, it was primarily for the Simple Western instruments
and Western blot work stream, a billion-dollar opportunity. That
opportunity remains, but the division also has a strong double digit
growth business in Biologics instruments used in bioprocessing of
proteins in the biopharma industry. We have some customers with
nearly 100 instruments! The Protein Platforms Division also
manages the Simple Plex technology platform which came through
the CyVek acquisition. It is now growing over 70 percent per year.
Yes, the company is growing up. In the past four years, we have
grown from 700 employees to nearly 1800 and from 7 sites to 24.
With this level of growth, it is critical that we integrate and manage
change well. The senior staff all have extensive Life Sciences
experience and are mainly from large companies that understand
how to create a strong business and implement processes to
execute well. Growth is good, but we need to assure shareholders
that we are focused on profitable growth. We are doing just that,
but the best is yet to come.
Our latest acquisition, ACD, marks Bio-Techne’s entry into the
genomics market. More importantly, its innovative and versatile
technology has the potential to change pathology practices from
the current method of using immunohistochemistry. RNA in situ
hybridization is a transformative technology facilitating and
improving the monitoring of gene expression patterns at the
single cell level—while retaining the morphological context of the
tissue being analyzed. ACD’s technology serves both the research
and diagnostic markets, expanding Bio-Techne’s presence in the
clinical lab setting. ACD had a stellar year in 2017 with over 50%
growth in revenue! This fiscal year, we look forward to adding
ACD’s growth to the corporate organic metrics. Full integration of
ACD is ongoing, and we anticipate it will be complete in fiscal year
2018. With revenue growth expected to continue at over 40
percent, we believe it could become a company division in the
coming year. Our acquisition strategy remains basically the same
as we crafted four years ago. It is important that we acquire
the highest quality assets at good prices and that we have
the infrastructure in place to integrate them into the
growing company. u
1
What is the Strategy?
•
•
•
•
•
•
Expand regionally with smaller, ”tuck-in” acquisitions
Expand our Antibody portfolio, giving researchers more choice, while protecting
our Proteins share.
Expand our Assay portfolio, including SimplePlex and all multiplex platforms
Acquire small “new to the world” instrument and technology platforms that can
leverage our reagents and offer researchers full solutions
Acquire and train leaders to help the company with its next phase of
accelerated growth
Inspire innovation in the company through scientific collaboration and support of
key opinion leaders, expanding our intellectual property and product portfolios
We could have spent our cash on a larger acquisition(s) but we have opted to take more
“shots on goal” with a distributed approach, focusing on smaller but faster growing private
companies with strong intellectual property, strong synergies to our current portfolio, and
management teams that want to join the Bio-Techne family. This approach has paid off due to
the impressive growth, and thus value creation, for the overall company. Our Protein Platforms
Division will exceed $100 million this year. ACD will exceed $50 million. And our SimplePlex
line, purchased as a pre-revenue startup, will be over $10 million in revenue. Most of our
acquisitions are beginning to accelerate their growth rates as planned, and much of it due to
strong interdivisional and regional synergies. Protein Platform Division finished 2017 with over
30% organic growth in both Asia and Europe as an example. This coming year we predict our
China business will be over $40 million of revenue. Four years ago, it was barely $10 million.
We will keep introducing innovative products and we will base our investments on rigorous
internal prioritization that allow us to maximize our potential. We will keep investing in our
employees and hire exceptional talent, using our EPIC culture to attract and retain them.
2
To Our Shareholders
Financial Performance in Fiscal 2017
It was a strong building year with organic growth of 6%. This acceleration is directly from our strategic
plan; the integration of the divisional product portfolios should enable our growth rates to expand.
As predicted, currency headwinds have softened some, and US government spending with
National Institutes of Health appears to be stable while government spending in China is at very
strong levels. It is interesting to point out that we have done a good job mitigating the academic
spending risk this past four years, lessening the impact of NIH funding-related revenue decreases
from 25% of global revenue in 2014 to 15% in 2017.
Highlights of our Fiscal 2017 performance:
•
Adjusted earnings were $139.5 million, about 4% more than last year. Margins in the core
business remain relatively flat as we have been re-investing in the business for accelerated long
term growth. Adjusted earnings per share were $3.72, 3% over last year. Currency exchange
impacted earnings per share negatively by ($0.03), or (1%).
• Overall, revenue increased 13% to $563 million. Organic revenue was 6% over the prior year,
with currency translation having a negative impact of (1%) and acquisitions contributing 8% to
the revenue growth.
•
•
Adjusted operating margins for the year were 37.1%, down from 39.6% last year due to the
full year impact of acquisitions made in the prior year.
Cash flow from operations was $143 million for the year ($157 million excluding impact of
earn-out payments for acquisitions). We returned $47 million to our shareholders in the
form of dividends. u
Financial Performance
FISCAL 2017
(In thousands,
except per share data)
Net Sales
Adjusted net earnings(1)
Adjusted diluted earnings
per share(1)
Cash flow from operations
June 30
Year Ended June 30,
2017
2016
2015
$
$
$
$
563M
140M
3.72
143M
$
$
$
$
499M
134M
3.60
144M
$
$
$
$
452M
131M
3.51
139M
(1) Excludes intangible asset amortization, costs recognized upon the sale of inventory that was written-up
to fair value as part of acquisitions, professional fees related to acquisition activity and the impact
of certain tax events. See Item 7. of the Company’s Annual Report on Form 10-K, following, for
further details.
June 30
June 30,
(In thousands)
2017
2016
2015
Cash, cash equivalents
and available-for-sale
investments
Total assets
Long term debt obligations (1)
Stockholders’ equity
$
$
$
$
158M
1,558M
347M
950M
$
$
$
$
96M
1,130M
130M
879M
$
$
$
$
111M
1,063M
112M
847M
Common shares outstanding
37,356M
37,254M
37,153M
(1)
Includes long-term contingent consideration payable.
3
Global Business Units and Markets
We are organized using a subsidiary model, with our
divisions and geographic regions sharing responsibility for
financial results. We currently have three divisions:
Biotechnology Division – the core and legacy of the
company that focuses on proteins, antibodies, and assays
as well as ACD’s products in gene detection; Protein
Platforms Division – which includes the global instruments
businesses brought into the company through the
integration of ProteinSimple, CyVek and Zephyrus
Biosciences; and finally, Diagnostics Division – which is
composed of our hematology controls, blood and glucose
chemistries, diagnostics chemistries and BiosPacific
diagnostic products. As mentioned, we focused the year on
execution and the streamlining of these divisions with
attention to synergies between them, especially regionally.
A noteworthy improvement this past year was in the newly
named Diagnostics Division. While its revenue was lumpy
(but 3% revenue growth over last year), there was strong
innovation among the four business units that comprise this
division. Notably, we launched a new product, Paratest, a
fecal exam, also called an ova and parasite test (O&P), used
to diagnose intestinal parasitic infection in companion
animals such as dogs and cats. The fragile nature of
infecting organisms makes sample collection important.
This is our first foray into the Veterinary market and
the product is being very well received.
We also made a material investment in Astute Medical, a
biomarker-based diagnostics company which launched its
first FDA-cleared product for Acute Kidney Injury, a critical
issue today in hospital ICUs. The product developed by
Astute makes use of our valuable reagents and are now
employed in this and other patent-protected biomarker
based diagnostics. We look forward to the road map of new
applications coming from Astute Medical, all based on our
reagent collaboration.
While we continue to expand our team in Asia with focus
this year on Japan, India and Korea along with continued
focus on China, I want to highlight the fantastic progress and
accelerated growth we have found in Europe. With new
leadership established last year, along with an acquisition of
our most loyal distributor in southern Europe, we embarked
on creating a more unified European subsidiary with
attention to cross selling and regional collaboration. It
worked. We finished 2017 with double digit organic growth
and a team now 200+ strong. We outperformed our
competitors and peers all year long which is a trend I want
to continue.
4
To Our Shareholders
Channel Strategies
New Product Development
Our IT team had a busy year with the implementation of a
new ERP system and continued improvements made to our
portfolio of websites. The metrics speak for themselves. We
have experienced a significant increase in web traffic which
is critical to our sales efforts. Double digit growth in web
traffic! Our Antibody business really benefited from our
improved website, posting high single digit organic growth.
Looking forward, we see product specific information as a
true business tool and we have many new exciting projects
to further accelerate our growth using information to manage
pricing, promotions, channels, etc. Big data has found us too.
Our commercial organization has been greatly strengthened
this past year. We grew our sales force in all three regions by
nearly 50 people, now 150 people devoted to commercial
activities across our global businesses. With improved
analytics, we expect this coming year to allow us to further
improve growth using commercial tactics. Trade shows and
the use of KOLs (Key Opinion Leaders) continue to be
optimized and deployed in programs that maximize the
brand image of the company as well as the strong and
historical product brand families we enjoy, such as
R&D Systems, ProteinSimple and Novus Biologicals.
Prioritization is the fundamental process we employ to drive
our innovation. We use a sophisticated process that maps
and ranks all potential projects for growth in the company.
This process guided us to introduce fewer new products yet
producing higher first year product revenue than the past
year. We are currently 500% better in vitality for new reagent
product revenue than we were four years ago.
With the launch of the Single-Cell product line at the start of
Fiscal 2017, Protein Platforms division now has 6 instrument
platforms driving innovation and growth for the company.
Milo, the first instrument in the Single-Cell product family,
won the award for Best New Life Sciences Product of the
Year from SelectScience and was named the #1 Top 10
Innovation for 2016 by The Scientist magazine. Protein
Platforms continued to expand applications in the Simple
Western product line, with the launch of six new detection
modules, and the Simple Plex product line completed
the development of a high throughput 32 sample
4 analyte cartridge. u
5
A new initiative that was launched last year was our ‘Discovery’ program. We have created a small
but highly interactive team, led by our CTO, with the charter to tackle tough new molecules with
cutting-edge tools and methods, leveraging the deep experience and resources of our
Biotechnology Division laboratory organization. One of the results has been to launch an
ambitious cross-departmental initiative to screen our many protein reagents for novel
immunoregulatory receptors that, together with blocking antibodies, could form valuable
intellectual property and opportunities to engage biopharma partners that are chasing cancer
immunotherapy targets. Because of this effort, we now have developed new experimental
capabilities in-house that will critically expand our repertoire of custom services, and let us craft
more comprehensive patent applications around new findings. We had a good first year, with
three patents filed on new molecules, and a raft of others in the queue. Overall, since 2014 when
we started focusing more on capturing IP and tracking patents across all our divisions, we have
now assembled a sizable portfolio of over 200. This is a remarkable trend, and attests to the
competitive spirit and scientific innovation of the company.
What lies ahead?
Fiscal 2017 was an EPIC year for the company. Ending with another year at 13% overall revenue
growth and 6% in organic revenue growth, we believe, we are tracking very close to our strategic
plan. The company is diversifying in many adjacent life science areas that will provide accelerated
growth and safety for investors with a resulting reliable growth charter. Our acquisitions, while
fundamental to our growth plans, are now an enabler to exceed our five-year targets. We are on
track to being a billion-dollar revenue company.
What really makes this company a great company, though, is its employees. Now, nearly 1800
strong worldwide, our team has focused a lot of energy on our culture, synergies, and
accomplishments to create an enduring company devoted to life science. I want to thank all our
employees for a remarkable year in 2017 and look forward to working with the team as we
continue our journey in 2018.
Charles Kummeth
President and Chief Executive Officer
6
Global Footprint
Fiscal Year Ends: June 30
FY 2017 Revenues: $563 M
FY 2017 Adj. Gross Margin: 71.2%
FY 2017 Adj. Op Inc. : $208.4 M
FY 2017 Adjusted EPS: $3.72
Current Market Cap: ~$4.5 B
To Our Shareholders
e
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a p o l is Minnesota
M in
~1800
Employees
Headquarters
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24 Global Office Locations
E urope, Jap
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Forward Looking Statements
Certain statements in this letter may constitute forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act
of 1995. Forward-looking statements reflect the Company’s current views with respect to future events and financial performance and
include any statement that does not directly relate to a current or historical fact. Forward-looking statements can generally be identified by
the words “believe,” “expect,” “anticipate” or “intend” or similar words. There are a number of risks and uncertainties that could affect
actual results. For additional information concerning such risks and uncertainties, see the section titled “Risk Factors” in the Company’s
annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the Securities and Exchange Commission. We undertake no
obligation to update or revise any forward-looking statements due to new information or future events. Investors are cautioned not to
place undue emphasis on these statements.
7
Bio-Techne vs. S&P 500 Index
Bio-Techne significantly outperformed the S&P 500 index during the ten-year period from
the end of fiscal 2007 to the end of fiscal 2017. The price of Bio-Techne’s stock increased
~100% during this time, providing a compound, annualized stock-price yield to shareholders
of 7.7% vs. 4.8% for the S&P 500 index.
We are proud of Bio-Techne’s long-term record but, as always, past performance should not
be interpreted as an indication of future performance.
10 Year performance
100%
90%
71%
54%
38%
18%
0%
-18%
TECH SPX
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
8/16
2018
Bio-Techne S&P 500 Index
8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
H
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
h
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2017, or
For the transition period
from to
Commission file number 0-17272
BIO-TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
614 McKinley Place N.E.
Minneapolis, MN 55413
(Address of principal executive offices) (Zip Code)
41-1427402
(I.R.S. Employer
Identification No.)
(612) 379-8854
(Registrant’s telephone number, including area code)
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes H No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No H
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes H No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes H No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. H
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer H
Non-accelerated filer h
Accelerated filer h
Smaller reporting company h
Emerging growth company h
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No H
As of December 31, 2016 the aggregate market value of the Common Stock held by non-affiliates of the Registrant was $3.8 billion
based upon the closing sale price as reported on The Nasdaq Stock Market ($102.83 per share). Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock have been excluded.
As of August 30, 2017, 37,382,025 shares of the Company’s Common Stock ($0.01 par value) were outstanding.
Portions of the Company’s Proxy Statement for its 2017 Annual Meeting of Shareholders are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
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TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Item 4.
PART II
Item 5.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . .
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters . . . . .
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
1
9
14
14
14
14
15
17
18
28
29
57
59
60
60
60
60
60
61
61
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62
i
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PART I
ITEM 1. BUSINESS
OVERVIEW
Bio-Techne and its subsidiaries, collectively doing business as Bio-Techne (Bio-Techne, we, our, us or the Company)
develop, manufacture and sell biotechnology reagents and instruments for the research and clinical diagnostic markets worldwide.
With our deep product portfolio and application expertise, we strive to provide the life sciences community with innovative, high-
quality scientific tools to better understand biological processes and drive discovery.
We currently operate with three reporting segments – our Biotechnology, Protein Platforms and Diagnostics Divisions.
Our Biotechnology Division is a leader in providing high quality proteins and antibodies, and related immunoassays, as well as
biologically active small molecules and other reagents for the research and clinical diagnostics markets, all under the primary brands
of R&D Systems, Novus Biologicals and Tocris Bioscience. Through our most recent acquisition, Advanced Cell Diagnostics, we
also sell products for RNA in situ hybridization. Our Protein Platforms Division focuses on developing and supplying instrumentation
and related consumables designed to simplify protein analysis processes along with single cell protein analysis, all under the
ProteinSimple brand. Through our Diagnostics Division, we serve the clinical markets with regulated products such as controls,
calibrators, reagents and immunoassays intended for diagnostic uses.
We are a Minnesota corporation with our global headquarters in Minneapolis, Minnesota. We originally were founded over
forty years ago, in 1976, as Research and Diagnostic Systems, Inc. We became a publicly traded company in 1985 through a merger
with Techne Corporation, now Bio-Techne Corporation. Our common stock is listed on the NASDAQ under the symbol “TECH.”
We operate globally, with offices in multiple locations in the United States, Europe, and Asia. Today, our product line extends to
over 300,000 manufactured products in state of the art facilities to accommodate many of our manufacturing needs.
Our historical focus was on providing high quality proteins, antibodies and immunoassays to the life science research
market and hematology controls for the diagnostics market. Beginning in 2012, and accelerating over the last three years, we
implemented a strategy to accelerate growth in part by acquiring businesses and product portfolios that leveraged and diversified
our existing product lines, filled portfolio gaps with differentiated high growth businesses, and expanded our geographic scope.
Growth Through Acquisition
Acquisition
Tocris . . . . . . . . . . . . . . . . . . . . .
Bionostics . . . . . . . . . . . . . . . . . .
PrimeGene . . . . . . . . . . . . . . . . .
Novus Biologicals . . . . . . . . . . . .
ProteinSimple . . . . . . . . . . . . . . .
CyVek . . . . . . . . . . . . . . . . . . . . .
Cliniqa . . . . . . . . . . . . . . . . . . . .
Zephyrus BioSciences . . . . . . . . .
Space Import-Export . . . . . . . . . .
Advanced Cell Diagnostics . . . . .
Year Acquired
(Fiscal)
2012
2014
2014
2015
2015
Reporting Segment
Biotechnology
Diagnostics
Biotechnology
Biotechnology
Protein Platforms
Primary Product Portfolios
Biologically active small molecules
Blood chemistry and packaging
Bulk and GMP proteins manufacturing for China
Antibodies
Protein analysis, including automated western blot,
ELISAs and biologics instrumentation
2015
2016
2016
2017
2017
Protein Platforms Automated ELISA systems
Diagnostics
Protein Platforms
Biotechnology
Biotechnology
Blood chemistry quality controls and bulk
immunochemistry reagents
Single cell western blotting
Geographic expansion
Genomic in situ hybridization
Recognizing the importance of an integrated, global approach to meeting our mission and accomplishing our strategies, we
have unified our brands and recent acquisitions under a single global brand, Bio-Techne. In November 2014 we changed the name
of the parent corporation from Techne Corporation to Bio-Techne Corporation. The Bio-Techne name solidifies the new strategic
direction for the Company, and also unifies all of our brands under one complete corporate umbrella.
We are committed to providing the life sciences community with innovative, high-quality scientific tools to better
understand biological processes and drive discovery. Our mission is to “build epic tools for epic science.” We intend to build
on Bio-Techne’s past accomplishments, high product quality reputation and sound financial position by executing strategies that
position us to serve as the standard for biological content in the research market, and to leverage that leadership position to enter the
diagnostics and other adjacent markets. Our strategies include:
1
Continued innovation in core products. Through collaborations with key opinion leaders, participation in scientific
discussions and societies, and leveraging our internal talent we expect to be able to convert our continued significant
investment in our research and development activities to be first-to-market with quality products that are at the leading
edge of life science researchers’ needs.
Expansion of geographic footprint. We will continue to expand our sales staff and distribution channels globally in order
to increase our global presence and make it easier for customers to transact with us.
Realignment of resources. In recognition of the increased size and scale of the organization, we continue to redesign our
development and operational processes to create greater efficiencies throughout the organization.
Talent recruitment and retention. We strive to recruit, train and retain the most talented staff to implement all of our
strategies effectively.
Targeted acquisitions and investments. We will continue to leverage our strong balance sheet to gain access to new
technologies and products that improve our competitiveness in the current market, meet customers’ expanding work flow
needs and allow us to enter adjacent markets.
OUR PRODUCTS AND MARKETS
In fiscal 2017, net sales from Bio-Techne’s Biotechnology, Protein Platforms and Diagnostics segments represented 65%,
16%, and 19% of consolidated net sales, respectively. Financial information relating to Bio-Techne’s segments is incorporated
herein by reference to Note 11 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Biotechnology Segment
Biotechnology Segment Products
Through our Biotechnology segment, we are one of the world’s leading suppliers of specialized proteins, such as cytokines
and growth factors, immunoassays, antibodies and related reagents, to the biotechnology research community. Our combined
chemical and biological reagents portfolio provides high quality tools which customers can use in solving the complexity of
important biological pathways and glean knowledge that may lead to a more complete understanding of biological processes, and
ultimately to the development of novel strategies to address different pathologies.
The portfolio in this segment includes five main product lines: native and recombinant proteins, monoclonal and
polyclonal antibodies, immunoassays, biologically active chemical compounds and, through our most recent acquisition, Advanced
Cell Diagnostics, in situ genomic hybridization. As mentioned above, all are useful in a wide variety of important biomedical
research activities. In addition, a number of our products have the potential to serve as predictive biomarkers and therapeutic targets
for a variety of human diseases and conditions including cancer, autoimmunity, diabetes, hypertension, obesity, inflammation,
neurological disorders, and kidney failure. Immunoassays can also be useful in clinical diagnostics. In fact, we have received
Food and Drug Administration (FDA) marketing clearance for a few of our immunoassays for use as in vitro diagnostic devices.
In addition to being useful research tools, our RNA in situ hybridization assays have diagnostics applications as well, and several
are currently being cleared with the FDA in partnership with diagnostics instrument manufacturers and pharmaceutical companies.
Biotechnology Segment Customers and Distribution Methods
We sell our Biotechnology products directly to customers who are primarily located in North America, western Europe
and China. We have a sales and marketing partnership agreement with Fisher Scientific in order to bolster our market presence
in North America and leverage the transactional efficiencies offered by the large Fisher organization. We also sell through third
party distributors in China, Japan, eastern Europe and the rest of the world. Our sales are widely distributed, and no single end-user
customer accounted for more than 10% of Biotechnology’s net sales during fiscal 2017, 2016 or 2015.
Biotechnology Segment Competitors
A number of companies supply the worldwide market for protein-related and chemically-based research and diagnostic
reagents, including GE Healthcare Life Sciences, BD Biosciences, Merck KGaA/EMD Chemicals, Inc., PeproTech, Inc., Abcam
plc., and Thermo Fisher Scientific, Inc. Market success is primarily dependent upon product quality, selection, price and reputation.
We believe we are one of the leading world-wide suppliers of cytokine related products in the research market. We further believe
that the expansion of our product offering, their recognized quality, and the continued demand for protein-related and chemically-
based research reagents will allow us to remain competitive in the growing biotechnology research and diagnostic markets.
2
Biotechnology Manufacturing
We are not dependent on key or sole source suppliers for most of our products in the Biotechnology segment. We develop
and manufacture the majority of our proteins using recombinant DNA technology, thus significantly reducing our reliance on
outside resources. Our antibodies are produced using a variety of technologies including traditional animal immunization and
hybridoma technology as well as recombinant antibody techniques. Our chemical-based small molecule products are synthesized
from widely available products. We typically have several outside sources for all critical raw materials necessary for the manufacture
of our products.
The majority of our Biotechnology products are shipped within one day of receipt of the customers’ orders. Consequently,
we had no significant backlog of orders for our Biotechnology segment products as of the date of this Annual Report on Form 10-K
or as of a comparable date for fiscal 2016.
Protein Platforms Segment
Proteins are important for understanding disease because they are the functional units that carry out specific tasks in every
cell. Altered levels of certain proteins can prevent the cell from performing its intended function, produce the energy it requires,
maintain its morphology or survive within the tissue. However, protein analysis is complex given the varied and unique three-
dimensional structure of the many proteins of interest. Our Protein Platforms segment develops, manufactures and sells tools to
simplify protein analysis while at the same time achieving more quantitative and reproducible results.
Protein Platforms Segment Products
Biologics Platform. Biologics are complex protein-based therapeutics, and are transforming the pharmaceutical industry
and treatment of many diseases. Biologic drugs are very effective targeted therapeutics for diseases such as arthritis, cancer and
diabetes, and their number in development is increasing because of a variety of advances in biochemistry, immunology and
biotechnology. Developers of biologics are required by regulatory agencies, such as FDA, to develop robust processes to ensure
that the specific biologic of interest can be identified and characterized accurately and then consistently and reliably produced. Our
Biologics tools help researchers interrogate protein purity and identify contaminants during the development and production of
biologics. Our Maurice, iCE3 and MFI platforms all measure some elements of protein identity, purity and heterogeneity.
The Simple Western Platform. The Western blot, or Western, is one of the most widely-used assays for protein analysis and
identification today. Unchanged since its invention in 1979, the Western assay is used by molecular biologists, biochemists and
clinicians to determine if a specific protein is present in a sample. Our Simple Western platform is a fully-automated Western
blot analytical technique that can identify and quantify a protein of interest in a more sensitive, automated and less time
intensive manner.
SimplePlex Platform. A common assay used in research and clinical diagnostics is the ELISA, or enzyme-linked
immunosorbent assay. The SimplePlex platform is a transformative immunoassay technology which integrates an innovatively
designed microfluidic cartridge with a state-of-the-art analyzer to deliver a bench-top immunoassay system that is more sensitive than
ELISA with none of the traditional challenges of assay design or repeatability. SimplePlex assays are fully automated, multi-analyte
immunoassays that permit the customer to run multiple samples while interrogating multiple analytes in approximately one hour
while leveraging the large biological content menu that has been developed over 30 years. We believe the SimplePlex technology,
along with other immunoassay platforms offered by Bio-Techne, represents the most comprehensive line of immunoassay products
to meet customers’ complete workflow in their research and clinical protein applications.
Single Cell Western Platform. The Milo platform and related reagents perform western blot assays on individual cells
versus an entire cell population. With this tool, customers can elucidate the properties of individual cells to better understand cell
behavior that can shape the overall cell population response in a disease or normal state.
Protein Platforms Segment Customers and Distribution Methods
Our customers for this segment include researchers in academia as well as commercial researchers. Our biologics line of
products is used primarily by production and quality control departments at biotech and pharmaceutical companies. We sell our
Protein Platforms products directly to customers who are primarily located in North America, western Europe and Japan. We also
sell through third party distributors in China, southern Europe and the rest of the world. Our sales are widely distributed, and no
single end-user customer accounted for more than 10% of Protein Platforms’ net sales during fiscal 2017, 2016 or 2015.
3
Protein Platforms Segment Competitors
Our Simple Western platform is a complete replacement for the traditional Western blot. As a result, we face competition
from the vendors that supply instruments and reagents to traditional Western blot users. These competitors include Bio-Rad
Laboratories, GE Healthcare, Merck KGaA, PerkinElmer and Thermo Fisher Scientific. Similarly, our SimplePlex platform replaces
the traditional ELISA assay as well as some flow-based multiplex assays; competitors include those who supply instruments and
reagents for ELISAs, including Meso Scale Discovery, PerkinElmer, Thermo Fisher, Luminex, Millipore, Quanterix, and Bio-Rad
Laboratories. The primary competitors for our Biologics instrumentation are Agilent Technologies, Danaher and PerkinElmer, as
well as GE Healthcare, Shimadzu, Thermo Fisher and Waters. We believe our competitive position is strong due to the unique
aspects of our products and our product quality.
Protein Platforms Segment Manufacturing
We manufacture our products for this division at various locations in the United States and Canada. We manufacture
our own components where we believe it adds significant value, but we rely on suppliers for the manufacture of some of the
consumables, components, subassemblies and autosamplers used with, or included in, our systems, which are manufactured to our
specifications. We are not dependent on any one supplier and are not required to carry significant amounts of inventory to assure
ourselves of a continuous allotment of goods from suppliers. We conduct all final testing and inspection of our products. We have
established a quality control program, including a set of standard manufacturing and documentation procedures.
There was no significant backlog of orders for our Protein Platforms products as of the date of this Annual Report on
Form 10-K or as of a comparable date for fiscal 2016.
Diagnostics Segment (formerly Clinical Controls)
Diagnostics Segment Products
Beginning in the first quarter of fiscal 2017, the Clinical Controls segment has been renamed Diagnostics. Our original
business in this segment was focused primarily on controls and calibrators for hematology clinical instruments. With the acquisition
of Bionostics in fiscal 2014 and Cliniqa in fiscal 2016, we expanded this segment to include blood chemistry and blood gas quality
controls, diagnostic immunoassays, and other bulk and custom reagents for the in vitro diagnostic market. We renamed the operating
segment to reflect this expanded portfolio of products.
Our hematology controls and calibrators ensure that hematology instruments are performing accurately and reliably. We
believe our products have improved stability and versatility and a longer shelf life than most of those of our competitors. We also
offer controls for blood glucose and blood gas devices, as well as coagulation device control products.
We also develop and supply bulk purified proteins, enzymes, disease-state plasmas, infectious disease antigens and
processed serums to the clinical diagnostic industry worldwide. Often we manufacture these reagents on a custom basis to optimize
their use in a customer’s diagnostic assay. We supply these reagents in various formats including liquid, lyophilized and powder
form. In fiscal 2017, we launched the Paratest® product, a novel and convenient stool collection and test device for the veterinary
market, utilizing our expertise in packaging and reagents from our Devens, Massachusetts site.
Diagnostics Segment Customers and Distribution Methods
Original Equipment Manufacturer (OEM) agreements represent the largest market for our diagnostics products. In fiscal
2017, 2016 and 2015, OEM agreements accounted for $60.7 million, $54.2 million, and $41.1 million, or 57%, 52%, and 53% of
division net sales in each fiscal year, respectively. We sell some of our diagnostics products directly to customers and, in Europe
and Asia, also through distributors. One OEM customer accounted for approximately 12% and 13% of the Diagnostics Division’s
net sales during fiscal 2017 and 2015, respectively. This customer did not amount to 10% or more of the Company’s consolidated
revenue during these years. No customers accounted for more than 10% of the Diagnostics Division’s net sales during fiscal
year 2016.
4
Diagnostics Segment Competitors
We believe we are the third largest supplier of hematology controls in the marketplace behind Beckman Coulter, Inc. and
Streck, Inc. For our other control and calibrator products, the principal competitors are Abbott Diagnostics, Beckman Coulter, Inc.,
Bio-Rad Laboratories, Inc., Siemens Healthcare Diagnostics Inc. and Sysmex Corporation. We compete based primarily on product
performance, quality, and price. SeraCare, HyTest Ltd and Thermo Fisher Scientific are additional competitors in the clinical
diagnostic manufacturing and reagents markets.
Diagnostics Segment Manufacturing
The primary raw material for our hematology controls products is whole blood. We purchase human blood from commercial
blood banks, and porcine and bovine blood from nearby meat processing plants. Although the cost of human blood has increased
due to the requirement that it be tested for certain diseases and pathogens prior to use, the higher cost of these materials has not had a
material adverse effect on our business thus far. Other controls are derived from various bodily fluids or cells from difference animal
species, which are then processed in-house to isolate the product of interest or from other bulk reagent suppliers that specialize in
certain products. Our other reagent products are manufactured using a variety of suppliers, with no supplier representing a material
portion of our business.
Most of the hematology controls products are shipped based on a preset, recurring schedule. However, the majority of our
business in this segment are large orders shipped based on our customers’ needs; we are highly dependent on our customers’ demand
and inventory controls. Consequently, our revenues can vary significantly from quarter to quarter and year to year. There was no
significant backlog of orders for our Diagnostics products as of the date of this Annual Report on Form 10-K or as of a comparable
date for fiscal 2016.
Geographic Information
Following is financial information relating to geographic areas (in thousands):
External sales
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA, excluding U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APAC, excluding Greater China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Greater China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total external sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30,
2016
2017
2015
$ 313,195 $ 275,859 $ 245,217
104,178
32,309
24,015
34,933
11,594
$ 563,003 $ 499,023 $ 452,246
125,126
28,401
41,463
39,078
15,740
103,060
28,307
38,137
36,199
17,461
Long-lived assets
United States and Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 119,859
14,100
1,165
$ 135,124
$ 116,830
14,423
1,109
$ 132,362
$ 117,224
11,239
1,286
$ 129,749
Net sales are attributed to countries based on the location of the customer or distributor. Long-lived assets are comprised
of land, buildings and improvements and equipment, net of accumulated depreciation. See the description of risks associated with
the Company’s foreign subsidiaries in Item 1A of this Annual Report on Form 10-K.
PRODUCTS UNDER DEVELOPMENT
Bio-Techne is engaged in continuous ongoing research and development in all of our major product lines. We believe that
our future success depends, to a large extent, on our ability to keep pace with changing technologies and market needs.
5
In fiscal 2017, aside from the large number of products added through the acquisition of Advanced Cell Diagnostics,
Bio-Techne introduced approximately 1,500 new products. We also expect to significantly expand our portfolio of products through
acquisitions as well as continued product development in our existing businesses. However, there is no assurance that any of the
products in the research and development phase can be successfully completed or, if completed, can be successfully introduced into
the marketplace.
Research and development expense:
Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Protein Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diagnostics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total research and development expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 35,507
14,424
3,583
$ 53,514
$ 26,981
14,610
3,596
$ 45,187
$ 28,201
11,024
1,628
$ 40,853
Percent of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10%
9%
9%
2017
Year Ended June 30,
2016
2015
PATENTS AND TRADEMARKS
Our success depends in part upon our ability to protect our core technologies and intellectual property. To accomplish
this, we rely on a combination of intellectual property rights, including patents, trade secrets and trademarks, as well as customary
contractual protections.
With respect to our Protein Platforms segment and the Biotechnology segment’s genomic in situ hybridization product line,
the protection is primarily through pending patent applications and issued patents. As of June 30, 2017, we had rights to 115 granted
patents and approximately 100 pending patent applications. Patent protection, if granted, generally has a life of 20 years from the
date of the patent application or patent grant. We cannot assure you whether any of our pending patent applications will result in
the grant of a patent, whether the examination process will require us to narrow our claims, and whether our claims will provide
adequate coverage of our competitors’ products or services.
In addition to pursuing patents on our products, we also preserve much of our innovation as trade secrets, particularly in
the Biotechnology segment. We have taken steps to protect our intellectual property and proprietary technology by entering into
confidentiality agreements and intellectual property assignment agreements with our employees, consultants, corporate partners
and, when needed, our advisors. Such agreements may not be enforceable or may not provide meaningful protection for our trade
secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and
we may not be able to prevent such unauthorized disclosure. Monitoring unauthorized disclosure is difficult, and we do not know
whether the steps we have taken to prevent such disclosure are, or will be, adequate.
No assurance can be given that Bio-Techne’s products do not infringe upon patents or proprietary rights owned or claimed
by others, particularly for genetically engineered products. Bio-Techne has not conducted a patent infringement study for each of
its products. Where we have been contacted by patent holders with certain intellectual property rights, Bio-Techne has entered into
licensing agreements with patent holders under which it has the exclusive and/or non-exclusive right to sometimes use patented
technology as well as the right to manufacture and sell certain patented products to the research market. In addition, certain of our
products are covered by licenses from third parties to supplement our own patent portfolio.
Bio-Techne has obtained federal trademark registration for certain of its brand and product names. Bio-Techne believes it
has common law trademark rights to certain marks in addition to those which it has registered.
SEASONALITY OF BUSINESS
Bio-Techne believes there is some seasonality as a result of vacation and academic schedules of its worldwide customer base,
particularly for the Biotechnology and Protein Platforms Segments. A majority of Diagnostics segment products are manufactured
in large bulk lots and sold on a schedule set by the customer. Consequently, sales for that segment can be unpredictable, although not
necessarily based on seasonality. As a result, we can experience material and sometimes unpredictable fluctuations in our revenue
for this segment.
EMPLOYEES
Through its subsidiaries, Bio-Techne employed approximately 1,800 full-time and part-time employees as of June 30, 2017.
6
INVESTOR INFORMATION
We are subject to the information requirements of the Securities Exchange Act of 1934 (the Exchange Act). Therefore, we
file periodic reports, proxy statements, and other information with the Securities and Exchange Commission (SEC). Such reports,
proxy statements, and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, N.E.,
Room 1580, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site
(http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file
electronically.
Financial and other information about us is available on our web site (http://www.bio-techne.com/investors). We make
available on our web site copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act as soon as reasonably
practicable after filing such material electronically or otherwise furnishing it to the SEC.
EXECUTIVE OFFICERS OF THE REGISTRANT
Currently, the names, ages, positions and periods of service of each executive officer of the Company are as follows:
Age
Name
46 Senior Vice President, Chief Financial Officer
59 Senior Vice President, General Counsel and Secretary
Position
Charles Kummeth 57 President, Chief Executive Officer and Director
James T. Hippel
Brenda Furlow
J. Fernando Bazan 57 Chief Technology Officer
Kevin Gould
David Eansor
Robert Gavin
53 Senior Vice President, Diagnostics
55 Senior Vice President, Biotechnology
49 Senior Vice President, Protein Platforms
Officer Since
2013
2014
2014
2013
2016
2014
2014
Set forth below is information regarding the business experience of each executive officer. There are no family relationships
among any of the officers named, nor is there any arrangement or understanding pursuant to which any person was selected as
an officer.
Charles Kummeth has been President and Chief Executive Officer of the Company since April 1, 2013. Prior to joining
the Company, he served as President of Mass Spectrometry and Chromatography at Thermo Fisher Scientific Inc. from September
2011. He was President of that company’s Laboratory Consumables Division from 2009 to September 2011. Prior to joining Thermo
Fisher, Mr. Kummeth served in various roles at 3M Corporation, most recently as the Vice President of the company’s Medical
Division from 2006 to 2008.
James T. Hippel has been Chief Financial Officer of the Company since April 1, 2014. Prior to joining the Company,
Mr. Hippel served as Senior Vice President and Chief Financial Officer for Mirion Technologies, Inc., a $300 million global
company that provides radiation detection and identification products. Prior to Mirion, Mr. Hippel served as Vice President,
Finance at Thermo Fisher Scientific, Inc., leading finance operations for its Mass Spectrometry & Chromatography division and its
Laboratory Consumables division. In addition, Mr. Hippel’s experience includes nine years of progressive financial leadership at
Honeywell International, within its Aerospace Segment. Mr. Hippel started his career with KPMG LLP.
Brenda Furlow joined the Company as Senior Vice President and General Counsel on August 4, 2014. Most recently,
Ms. Furlow was affiliated with Alphatech Counsel, SC and served as general counsel to emerging growth technology companies.
Ms. Furlow was General Counsel for TomoTherapy, Inc., a global, publicly traded company that manufactured and sold radiation
therapy equipment from 2007 to 2011. From 1998 to 2007, Ms. Furlow served as General Counsel for Promega Corporation, a
global life sciences company.
Dr. J. Fernando Bazan was appointed Chief Technical Officer when he joined the Company on August 1, 2013. Dr. Bazan
is an adjunct professor at the University of Minnesota School of Medicine and served as Chief Scientific Officer at Neuroscience,
Inc., a neuroimmunology startup from 2010 to 2012. From 2003 through 2010, Dr. Bazan served as Senior Scientist at Genentech,
Inc. (Roche).
Kevin Gould became Senior Vice President, Diagnostics Division on January 1, 2016. Prior to that, Mr. Gould was
President and CEO of Cliniqa prior to its acquisition by Bio-Techne in July 2015. Prior to Cliniqa, Mr. Gould held senior level
positions in other diagnostic product business, including Vice President, SeraCare BBI Diagnostics business unit of SeraCare Life
Sciences, Inc.; and Vice President, Sales & Marketing for Medical Analysis Systems Inc., now part of Thermo Fisher Scientific Inc.
7
David Eansor has served as Senior Vice President, Biotechnology Division since April, 2015. Prior to that, Mr. Eansor was
Senior Vice President, Novus Biologicals, since the Company completed its acquisition of Novus on July 2, 2014. From January
2013 until the date of the acquisition, Mr. Eansor was the Senior Vice President of Corporate Development of Novus Biologicals.
Prior to joining Novus, Mr. Eansor was the President of the Bioscience Division of Thermo Fisher Scientific. Mr. Eansor was
promoted to Division President in early 2010 after 5 years as President of Thermo Fisher’s Life Science Research business.
Robert Gavin was appointed Senior Vice President of the Protein Platforms Division in December 2014. Mr. Gavin had
previously been Vice President of Product Development at ProteinSimple, which was acquired by the Company in July, 2014.
Prior to joining ProteinSimple in 2008, Mr. Gavin served as Director of Engineering at MDS Analytical Technologies (previously
Molecular Devices, Inc.). Prior to Molecular Devices, Mr. Gavin managed a team of engineers at Affymax Research Institute.
FORWARD-LOOKING INFORMATION AND CAUTIONARY STATEMENTS
This report contains forward-looking statements, which are based on the Company’s current assumptions and expectations.
The principal forward-looking statements in this report include the Company’s expectations regarding product releases and
strategy, future financial results, acquisition activity, the competitive environment, currency fluctuation and exchange rates, capital
expenditures, the performance of the Company’s investments, future dividend declarations, the construction and lease of certain
facilities, the adequacy of owned and leased property for future operations, anticipated financial results and sufficiency of capital
resources to meet the Company’s foreseeable future cash and working capital requirements.
All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, as amended. Although the Company believes there is a reasonable
basis for the forward-looking statements, the Company’s actual results could be materially different. The most important factors
which could cause the Company’s actual results to differ from forward-looking statements are set forth in the Company’s description
of risk factors in Item 1A to this Annual Report on Form 10-K.
Forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation
to update any forward-looking statements.
8
ITEM 1A. RISK FACTORS
Statements in this Annual Report on Form 10-K and elsewhere that are forward-looking involve risks and uncertainties
which may affect the Company’s actual results of operations. Certain of these risks and uncertainties which have affected and, in the
future, could affect the Company’s actual results are discussed below. The Company undertakes no obligation to update or revise
any forward-looking statements made due to new information or future events. Investors are cautioned not to place undue emphasis
on these statements.
The following risk factors should be read carefully in connection with evaluation of the Company’s business and any
forward-looking statements made in this Annual Report on Form 10-K and elsewhere. See the section entitled “forward-looking
statements” set forth above. Any of the following risks or others discussed in this Annual Report on Form 10-K or the Company’s
other SEC filings could materially adversely affect the Company’s business, operating results and financial condition.
It may be difficult for us to implement our strategies for maintaining organic growth.
Some of the markets in which we compete are experiencing slower growth and we face significant competition across
many of our product lines. Competitors include companies ranging from start-up companies, which may be able to more quickly
respond to customers’ needs, to large multinational companies, which may have greater financial, marketing, operational, and
research and development resources than the Company. In addition, consolidation trends in the pharmaceutical and biotechnology
and diagnostics industries have served to create fewer customer accounts and to concentrate purchasing decisions for some
customers, resulting in increased pricing pressure on the Company. Moreover, customers may believe that consolidated businesses
are better able to compete as sole source vendors, and therefore prefer to purchase from such businesses. The entry into the market
by manufacturers in China, India and other low-cost manufacturing locations is also creating increased pricing and competitive
pressures, particularly in developing markets. Failure to anticipate and respond to competitors’ actions may impact the Company’s
future sales and earnings.
To address this issue, we are pursuing a number of strategies to improve our internal growth, including:
•
•
•
•
•
•
strengthening our presence in selected geographic markets;
allocating research and development funding to products with higher growth prospects;
developing new applications for our technologies;
continuing key opinion leader initiatives;
finding new markets for our products; and
continuing the development of commercial tools and infrastructure to increase and support cross-selling
opportunities of products and services to take advantage of our depth in product offerings.
We may not be able to successfully implement these strategies, and these strategies may not result in the expected growth
of our business.
Our acquisition growth strategy pose financial, management and other risks and challenges.
We routinely explore acquiring other businesses and assets, and have completed nine acquisitions and several investments
in the last three years. However, we may be unable to identify or complete promising acquisitions for many reasons, including
competition among buyers, the high valuations of businesses in our industry, the need for regulatory and other approvals, and
availability of capital. When we do identify and consummate acquisitions, we may face financial, managerial and operational
challenges, including diversion of management attention, difficulty with integrating acquired businesses, integration of different
corporate cultures, increased expenses, assumption of unknown liabilities, indemnities, potential disputes with the sellers, and
the need to evaluate the financial systems of and establish internal controls for acquired entities. There can be no assurance that
we will engage in any additional acquisitions or that we will be able to do so on terms that will result in any expected benefits. In
addition, acquisitions financed with borrowings could make us more vulnerable to business downturns and could negatively affect
our earnings due to higher leverage and interest expense.
9
We may be required to record a significant charge to earnings if our goodwill and other amortizable intangible assets, or
other investments become impaired.
We are required under generally accepted accounting principles to test goodwill for impairment at least annually and to
review our goodwill, amortizable intangible assets, and other assets acquired through merger and acquisition activity, for impairment
when events or changes in circumstance indicate the carrying value may not be recoverable. Factors that could lead to impairment
of goodwill, amortizable intangible assets, and other assets acquired via acquisitions include significant adverse changes in the
business climate and actual or projected operating results (affecting our company as a whole or affecting any particular segment)
and declines in the financial condition of our business. We may be required in the future to record additional charges to earnings if
our goodwill, amortizable intangible assets or other investments become impaired. Any such charge would adversely impact our
financial results.
In addition, the Company’s expansion strategies include collaborations and investments in joint ventures and companies
developing new products related to the Company’s business. These strategies carry risks that objectives will not be achieved and
future earnings will be adversely affected. For example, the Company has an approximate 13% equity investment in publicly traded
ChemoCentryx, Inc. (Nasdaq: CCXI) that is valued at $59.6 million as of June 30, 2017. The ownership of CCXI shares is very
concentrated, the share price is highly volatile and there is limited trading of the shares. In fiscal 2017, we also invested and hold a
minority interest in privately-held Astute Medical, Inc., a diagnostics company developing new diagnostics tests relating to kidney
injury. While their initial product is on the market, its adoption and success is highly uncertain, and our initial investment may be
significantly impaired if it does not have market success. Any diminution in the value of these investments could result in future
dilution of our investments or materially impact our financial statements.
Significant developments stemming from the recent U.S. elections and the U.K.’s referendum on membership in the EU
could have an adverse effect on us.
The current Congress is considering significant changes to, or replacement or elimination of the Patient Protection
and Affordable Care Act, and government negotiation/regulation of drug prices paid by government programs. The new U.S.
administration has called for substantial changes to trade agreements and has raised the possibility of imposing significant increases
on tariffs on goods imported into the United States, particularly from China and Mexico. These and other potential shifts in law,
regulation and policy could adversely affect operating results and our business.
In a referendum vote held on June 23, 2016, the United Kingdom (UK) voted to leave the European Union (EU).
Subsequently, on March 29, 2017, the UK invoked Article 50 of the Lisbon Treaty to formally begin the withdrawal process. The
impact of this action has caused and may continue to cause global economic uncertainty and currency exchange rate fluctuations.
Although it is unknown what the terms of the UK’s future relationship with the EU will be, it is possible that there will be disruption
to the UK and EU economies, as well as greater restrictions on imports and exports between the UK and the EU and increased
regulatory and tax complexities. Any of these factors could adversely affect customer demand, our relationships with customers and
suppliers, and our business and financial results, particularly since our European headquarters and shipping facilities are currently
located in the UK. Additionally, attracting and retaining qualified employees who are citizens of EU countries to our UK facilities
may be more difficult given the uncertainties resulting from the UK withdrawal.
We are subject to financial, operating, legal and compliance risk associated with global operations.
We engage in business globally, with approximately 31% of our sales revenue in fiscal 2017 coming from outside the
U.S. In addition, one of our strategies is to expand geographically, particularly in China and in developing countries, both through
distribution and through direct operations. This subjects us to a number of risks, including international economic, political, and
labor conditions; currency fluctuations; tax laws (including U.S. taxes on foreign subsidiaries); increased financial accounting
and reporting burdens and complexities; unexpected changes in, or impositions of, legislative or regulatory requirements; failure
of laws to protect intellectual property rights adequately; inadequate local infrastructure and difficulties in managing and staffing
international operations; delays resulting from difficulty in obtaining export licenses for certain technology; tariffs, quotas and other
trade barriers and restrictions; transportation delays; operating in locations with a higher incidence of corruption and fraudulent
business practices; and other factors beyond our control, including terrorism, war, natural disasters, climate change and diseases.
The application of laws and regulations implicating global transactions is often unclear and may at times conflict.
Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result
in reduced revenue and profitability. Non-compliance could also result in fines, damages, criminal sanctions, prohibited business
conduct, and damage to our reputation. We incur additional legal compliance costs associated with our global operations and
could become subject to legal penalties in foreign countries if it does not comply with local laws and regulations, which may be
substantially different from those in the U.S.
10
We continue to expand our operations in countries with developing economies, where it may be common to engage in
business practices that are prohibited by U.S. regulations applicable to the Company, such as the Foreign Corrupt Practices Act.
Although we implement policies and procedures designed to ensure compliance with these laws, there can be no assurance that
all of our employees, contractors, and agents, as well as those companies to which we outsource certain aspects of our business
operations, including those based in foreign countries where practices which violate such U.S. laws may be customary, will comply
with our internal policies. Any such non-compliance, even if prohibited by our internal policies, could have an adverse effect on our
business and result in significant fines or penalties.
Changes in economic conditions for our customers could negatively impact our revenues and earnings.
Our biotechnology and protein platforms products are sold primarily to research scientists at pharmaceutical and
biotechnology companies and at university and government research institutions. Research and development spending by our
customers and the availability of government research funding can fluctuate due to changes in available resources, mergers of
pharmaceutical and biotechnology companies, spending priorities, general economic conditions and institutional and governmental
budgetary policies. Our diagnostics segment products are intended primarily for the medical diagnostics market, which relies
largely on government healthcare-related policies and funding. Changes in government reimbursement for certain diagnostic tests
or reductions in overall healthcare spending could negatively impact our customers and, correspondingly, our sales to them. The
U.S. and global economies recently experienced a period of economic downturn and have been slow to recover in some parts of the
world. In Japan, government investment in biotechnology research remains weak. Such downturns, and other reductions or delays
in governmental funding, could cause customers to delay or forego purchases of our products. We carry essentially no backlog of
orders and changes in the level of orders received and filled daily can cause fluctuations in quarterly revenues and earnings.
We have identified a material weakness in our internal control over financial reporting which could, if not remediated,
harm our operating results or cause us to fail to meet our reporting obligations.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as
defined in Rule 13a-15(f) under the Securities Exchange Act. As disclosed in Item 9A, at the beginning of fiscal 2017 management
identified material weaknesses in our internal control over financial reporting involving the effectiveness of the information and
communication, and monitoring processes resulting in a lack of effective controls over general information technology controls
(GITC) for certain applications. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management concluded
that our internal control over financial reporting was not effective based on criteria set forth by the Committee of Sponsoring
Organization of the Treadway Commission in Internal Control-An Integrated Framework (2013 Framework). We have developed
and implemented a remediation plan designed to address these material weaknesses, but have not yet had sufficient time to fully and
effective implement and test the additional controls established in that plan. Any failure to complete the implementation of effective
internal controls could harm our operating results or cause us to fail to meet our reporting obligations. Inadequate internal controls
could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading
price of our common stock, and may require us to incur additional costs to improve our internal control system.
Our success will be dependent on recruiting and retaining highly qualified personnel and creating a new culture that
includes the employees joining through acquisition.
Recruiting and retaining qualified scientific, production, sales and marketing, and management personnel are critical to our
success. Our anticipated growth and its expected expansion into areas and activities requiring additional expertise will require the
addition of new personnel and the development of additional expertise by existing personnel. We also operate in several geographic
locations where competition for talent is strong, making employee retention particularly challenging in those locations. Our growth
by acquisition also creates challenges in retaining employees. As we integrate past and future acquisitions and evolve our corporate
culture to incorporate the new workforces, some employees may not find such integration or cultural changes appealing. The failure
to attract and retain such personnel could adversely affect our business.
Cyber security risks and the failure to maintain the confidentiality, integrity, and availability of our computer hardware,
software, and Internet applications and related tools and functions could result in damage to our reputation and/or subject
us to costs, fines, or lawsuits.
The integrity and protection of our own data, and that of our customers and employees, is critical to our business. The
regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve.
Maintaining compliance with applicable security and privacy regulations may increase our operating costs and/or adversely impact
11
our ability to market our products and services to customers. Although our computer and communications hardware is protected
through physical and software safeguards, it is still vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications
failures, physical or software break-ins, software viruses, and similar events. These events could lead to the unauthorized access,
disclosure and use of non-public information. The techniques used by criminal elements to attack computer systems are sophisticated,
change frequently and may originate from less regulated and remote areas of the world. As a result, we may not be able to address
these techniques proactively or implement adequate preventative measures. If our computer systems are compromised, we could be
subject to fines, damages, litigation, and enforcement actions, customers could curtail or cease using its applications, and we could
lose trade secrets, the occurrence of which could harm our business.
We are dependent on maintaining our intellectual property rights.
Our success depends in part on our ability to protect and maintain our intellectual property, including trade secrets. If we fail
to protect our intellectual property, third parties may be able to compete more effectively against us, we may lose our technological
or competitive advantage, or we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual
property. We attempt to protect trade secrets in part through confidentiality agreements, but those agreements can be breached, and
if they are, there may not be an adequate remedy. If trade secrets become publicly known, we could lose our competitive position.
We also attempt to protect and maintain intellectual property through the patent process. As of June 30, 2017, we owned
or exclusively licensed 115 granted U.S. patents and approximately 100 pending patent applications. We cannot be confident that
any of our currently pending or future patent applications will result in granted patents, and we cannot predict how long it will take
for such patents to be granted. It is possible that, if patents are granted to us, others will design around our patented technologies.
Further, other parties may challenge any patents granted to us and courts or regulatory agencies may hold our patents to be invalid or
unenforceable. We may not be successful in defending challenges made against our patents and patent applications. Any successful
third-party challenge to our patents could result in the unenforceability or invalidity of such patents. Our ability to establish or
maintain a technological or competitive advantage over our competitors may be diminished because of these uncertainties. To the
extent our intellectual property offers inadequate protection, or is found to be invalid or unenforceable, we would be exposed to
a greater risk of direct competition. If our intellectual property does not provide adequate coverage of our competitors’ products,
our competitive position could be adversely affected, as could our business. Both the patent application process and the process of
managing patent disputes can be time consuming and expensive.
We may be involved in disputes to determine the scope, coverage and validity of others’ proprietary rights, or to defend
against third-party claims of intellectual property infringement, any of which could be time-intensive and costly and may
adversely impact our business.
Our success depends in part on its ability to operate without infringing the proprietary rights of others, and to obtain
licenses where necessary or appropriate. We have obtained and continue to negotiate licenses to produce a number of products
claimed to be owned by others. Since we have not conducted a patent infringement study for each of our products, it is possible that
some of our products may unintentionally infringe patents of third parties.
We have been and may in the future be sued by third parties alleging that we are infringing their intellectual property rights.
These lawsuits are expensive, take significant time, and divert management’s focus from other business concerns. If we are found
to be infringing the intellectual property of others, we could be required to cease certain activities, alter our products or processes or
pay licensing fees. This would cause unexpected costs and delays which may have a material adverse effect on us. If we are unable
to obtain a required license on acceptable terms, or unable to design around any third party patent, we may be unable to sell some
of our products and services, which could result in reduced revenue. In addition, if we do not prevail, a court may find damages or
award other remedies in favor of the opposing party in any of these suits, which may adversely affect our earnings.
The Company relies heavily on internal manufacturing and related operations to produce, package and distribute its
products which, if disrupted, could materially impair our business operations.
The Company’s internal quality control, packaging and distribution operations support the majority of the Company’s
sales. Since certain Company products must comply with Food and Drug Administration Quality System Regulations and because
in all instances, the Company creates value for its customers through the development of high-quality products, any significant
decline in quality or disruption of operations for any reason, particularly at the Minneapolis facility, could adversely affect sales
and customer relationships, and therefore adversely affect the business. While the Company has taken certain steps to manage
these operational risks, and while insurance coverage may reimburse, in whole or in part, for losses related to such disruptions, the
Company’s future sales growth and earnings may be adversely affected by perceived disruption risks or actual disruptions.
12
We have entered into and drawn on a revolving credit facility. The burden of this additional debt could adversely affect us,
make us more vulnerable to adverse economic or industry conditions, and prevent us from funding our expansion strategy.
In connection with the acquisition of Advanced Cell Diagnostics on August 1, 2016, we modified our revolving credit
facility, governed by a Credit Agreement on July 28, 2016. The Credit Agreement provides for a revolving credit facility of
$400 million. Borrowings under the Credit Agreement bear interest at a variable rate. As of August 30, 2017, the Company had
drawn $368.5 million under the Credit Agreement.
The terms of the Credit Agreement and the burden of the indebtedness incurred thereunder could have negative consequences
for us, such as:
•
•
•
limiting our ability to obtain additional financing to fund our working capital, capital expenditures, debt service
requirements, expansion strategy, or other needs;
increasing our vulnerability to, and reducing our flexibility in planning for, adverse changes in economic, industry
and competitive conditions; and
increasing our vulnerability to increases in interest rates.
The Credit Agreement also contains negative covenants that limit our ability to engage in specified types of transactions.
These covenants limit our ability to, among other things, sell, lease or transfer any properties or assets, with certain exceptions; and
enter into certain merger, consolidation or other reorganization transactions, with certain exceptions.
A breach of any of these covenants could result in an event of default under our credit facility. Upon the occurrence of an
event of default, the lender could elect to declare all amounts outstanding under such facility to be immediately due and payable and
terminate all commitments to extend further credit. In addition, the Company would be subject to additional restrictions if an event
of default exists under the Credit Agreement, such as a prohibition on the payment of cash dividends.
Our share price will fluctuate.
Over the last several years, stock markets in general and our common stock in particular have experienced significant
price and volume volatility. Both the market price and the daily trading volume of our common stock may continue to be subject to
significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding our
operations and business prospects. In addition to the risk factors discussed above, the price and volume volatility of our common
stock may be affected by:
•
•
•
•
•
operating results that vary from our financial guidance or the expectations of securities analysts and investors;
the financial performance of the major end markets that we target;
the operating and securities price performance of companies that investors consider to be comparable to us;
announcements of strategic developments, acquisitions and other material events by us or our competitors; and
changes in global financial markets and global economies and general market conditions, such as interest or
foreign exchange rates, commodity and equity prices and the value of financial assets.
Dividends on our common stock could be reduced or eliminated in the future.
For the past 9 years, our Board has consistently declared quarterly dividends of $0.25 to $0.32 cents per share. In the future,
our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase
shares or conserve capital resources.
13
There are no unresolved staff comments as of the date of this report.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
The Company owns the facilities that its headquarters and R&D Systems subsidiary occupy in Minneapolis, Minnesota.
The Minneapolis facilities are utilized by both the Company’s Biotechnology and Diagnostics segments.
The Minneapolis complex includes approximately 800,000 square feet of space in several adjoining buildings. Bio-Techne
uses approximately 625,000 square feet of the complex for administrative, research, manufacturing, shipping and warehousing
activities. The Company is currently leasing or plans to lease the remaining space in the complex as retail and office space.
The Company owns the 17,000 square foot facility that its Bio-Techne Europe subsidiary occupies in Abingdon, England.
This facility is utilized by the Company’s Biotechnology and Protein Platforms segments.
The Company leases the following material facilities, all of which are utilized by the Company’s Biotechnology segment
with the exception of the locations used by the Company’s ProteinSimple and CyVek sites, which support the Protein Platforms
segment and the Bionostics and Cliniqa subsidiaries (Diagnostics segment). Certain locations are not named because they were not
significant individually or in the aggregate as of the date of this report.
Type
Location
Subsidiary
Bio-Techne Europe . . . . . . . . . . . . . . . . . . . Langley, United Kingdom Warehouse
Bio-Techne China . . . . . . . . . . . . . . . . . . . . Shanghai and Beijing, China Office/warehouse
Boston Biochem . . . . . . . . . . . . . . . . . . . . . Cambridge, Massachusetts
Tocris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bristol, United Kingdom Office/manufacturing/lab/warehouse
PrimeGene . . . . . . . . . . . . . . . . . . . . . . . . . Shanghai, China
Office/manufacturing/lab
Bionostics . . . . . . . . . . . . . . . . . . . . . . . . . . Devens, Massachusetts
Office/manufacturing
Novus Biologicals . . . . . . . . . . . . . . . . . . . . Littleton, Colorado
Office/warehouse
Office/manufacturing/warehouse
ProteinSimple . . . . . . . . . . . . . . . . . . . . . . . San Jose, California
ProteinSimple Canada . . . . . . . . . . . . . . . . Ottawa and Toronto, Canada Office/manufacturing/warehouse
Office/manufacturing/warehouse
CyVek . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wallingford, Connecticut
Office/manufacturing/warehouse
Cliniqa . . . . . . . . . . . . . . . . . . . . . . . . . . . . San Marcos, California
Office/manufacturing/warehouse
Advanced Cell Diagnostics . . . . . . . . . . . . .
Newark, California
Office/lab
Square Feet
14,300
10,700
7,400
30,000
20,600
48,000
22,500
167,000
13,900
17,500
87,200
35,100
The Company is currently in the process of transitioning into new lease space for its Cliniqa operations. The Company
believes the owned and leased properties are adequate to meet its occupancy needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
As of August 30, 2017, the Company is not a party to any legal proceedings that, individually or in the aggregate, are
reasonably expected to have a material adverse effect on the Company’s business, results of operations, financial condition or
cash flows.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Price of Common Stock
The Company’s common stock trades on the NASDAQ Global Select Market under the symbol “TECH.” The following
table sets forth for the periods indicated the high and low sales price per share for the Company’s common stock as reported by the
NASDAQ Global Select Market.
Fiscal 2017 Price
Fiscal 2016 Price
High
Low
High
Low
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Holders of Common Stock and Dividends Paid
$ 117.42 $ 103.99 $ 114.56 $
96.81
96.83
114.62
112.20
108.58
119.98
98.92
95.68
98.22
87.49
83.90
79.95
91.45
As of August 30, 2017, there were over 29,000 beneficial shareholders of the Company’s common stock and over 165
shareholders of record. The Company paid quarterly cash dividends totaling $47.7 million, $47.6 million and $47.1 million in fiscal
2017, 2016 and 2015, respectively. The Board of Directors periodically considers the payment of cash dividends, and there is no
guarantee that the Company will pay comparable cash dividends, or any cash dividends, in the future. The Company entered into a
revolving line of credit in July 2016, which would prohibit payment of dividends to Company shareholders in the event of a default
thereunder. The Credit Agreement that governs the revolving line of credit contains customary events of default.
Issuer Purchases of Equity Securities
There was no share repurchase activity by the Company in fiscal 2017. The maximum approximate dollar value of shares
that may yet be purchased under the Company’s existing stock repurchase plan is approximately $125 million. The plan does not
have an expiration date.
15
Stock Performance Graph
The following chart compares the cumulative total shareholder return on the Company’s common stock with the S&P
Midcap 400 Index and the S&P 400 Biotechnology Index. The comparison assumes $100 was invested on the last trading day before
July 1, 2012 in the Company’s common stock and in each of the foregoing indices and assumes reinvestment of dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Bio-Techne Corpration, the S&P Midcap 400 Index,
and S&P400 MidCap Biotechnology Index
$400
$350
$300
$250
$200
$150
$100
$50
$0
6/12
6/13
6/14
6/15
6/16
6/17
Bio-Techne Corpration
S&P Midcap 400
S&P400 MidCap Biotechnology Index
*$100 invested on 6/30/12 in stock or index, including reinvestment of dividends.
Fiscal year ending June 30.
Copyright© 2016 S&P, a division of McGraw Hill Financial. All rights reserved.
16
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
Income and Share Data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before income taxes(5) . . . . . . . . . . . . . . . . . . .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . .
Average common and common equivalent
2017(1)
2016(2)
2015(3)
2014(4)
2013
$ 563,003 $ 499,023 $ 452,246 $ 357,763 $ 310,575
158,469
160,662
112,561
3.05
159,750
161,392
110,948
3.00
150,593
147,481
104,476
2.80
120,584
111,961
76,086
2.03
147,023
154,162
107,735
2.89
shares - diluted (in thousands) . . . . . . . . . . . . . . . . .
37,500
37,326
37,231
37,005
36,900
Balance Sheet Data as of June 30:
Cash, cash equivalents and short-term
available-for-sale investments . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . .
Cash Flow Data:
Net cash provided by operating activities . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per share . . . . . . . . . .
2017
2016
2015
2014
2013
$ 157,714 $
212,503
208,515
1,558,219 1,129,581 1,063,360
846,935
95,835 $ 110,921 $ 363,354 $ 332,937
377,432
199,744
778,098
737,541
443,022
862,491
795,265
949,627
879,280
2016
2017
2015
$ 143,811 $ 143,870 $ 139,359 $ 136,762 $ 123,562
22,454
1.18
19,905
1.27
15,179
1.28
16,898
1.28
13,821
1.23
2013
2014
Employee Data as of June 30:
Employees
2017
2016
2015
2014
2013
1,789
1,560
1,356
967
789
(1) The Company acquired Space on July 1, 2016, and Advanced Cell Diagnostics on August 1, 2016.
(2) The Company acquired Cliniqa on July 8, 2015, and Zephyrus on March 21, 2016.
(3) The Company acquired Novus Biologicals on July 2, 2014, ProteinSimple on July 31, 2014, and CyVek on November 3, 2014.
(4) The Company acquired Bionostics on July 22, 2013, and PrimeGene on April 30, 2014.
(5) Earnings before income taxes included acquisition related expenses related to amortization of intangibles, costs recognized on sale of acquired inventories
and professional fees associated with acquisition activity, as follows: 2017 - $73.2 million; 2016 - $37.6 million; 2015 - $37.6 million; 2014 - $20.0 million;
2013 - $10.2 million.
17
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following management discussion and analysis (“MD&A”) provides information that we believe is useful in
understanding our operating results, cash flows and financial condition. We provide quantitative information about the material
sales drivers including the effect of acquisitions and changes in foreign currency at the corporate and segment level. We also provide
quantitative information about discrete tax items and other significant factors we believe are useful for understanding our results.
The MD&A should be read in conjunction with the consolidated financial information and related notes included in this Form 10-K.
This discussion contains various “Non-GAAP Financial Measures” and also contains various “Forward-Looking Statements”
within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statements entitled “Non-GAAP
Financial Measures” located at the end of this MD&A and “Forward-Looking Information and Cautionary Statements” and “Risk
Factors” within Items 1 and 1A of this Form 10-K.
OVERVIEW
Bio-Techne develops, manufactures and sells biotechnology products and clinical diagnostic controls worldwide. With
our deep product portfolio and application expertise, Bio-Techne is a leader in providing specialized proteins, including cytokines
and growth factors, and related immunoassays, small molecules and other reagents to the research, diagnostics and clinical
controls markets.
Bio-Techne operates worldwide with three reportable business segments, Biotechnology, Protein Platforms, and Diagnostics,
all of which service the life science and diagnostics markets. The Biotechnology reporting segment provides proteins, antibodies,
immunoassays, flow cytometry products, intracellular signaling products, and biologically active chemical compounds used in
biological research. The Protein Platforms reporting segment develops and commercializes proprietary systems and consumables
for protein analysis. The Diagnostics reporting segment reporting segment provides a range of controls and calibrators used with
diagnostic equipment and as proficiency testing tools, as well as other reagents incorporated into diagnostic kits.
OVERALL RESULTS
For fiscal 2017, consolidated net sales increased 13% as compared to fiscal 2016. After adjusting for the impacts of the
Space and ACD acquisitions in fiscal 2016, as well as foreign currency fluctuations, organic sales for the year increased 6% with
currency translation having a negative impact of 1% and acquisitions contributing 8%. The organic growth was broad-based, with
the Company achieving growth in all three of its reporting segments. A strong BioPharma end-market in the US and Europe and
additional market demand for Protein Platforms instruments were the biggest contributing factors to organic growth.
Consolidated GAAP net earnings decreased 27% for fiscal 2017 as compared to fiscal 2016. After adjusting for acquisition
related costs, stock based compensation, and certain income tax items in both years, adjusted net earnings increased 4% in fiscal
2017 as compared to fiscal 2016. Adjusted earnings growth was driven by increased revenue partially offset by negative mix and a
negative impact from foreign currency.
For fiscal 2016, consolidated net sales increased 10% as compared to fiscal 2015. After adjusting for the impact of the
Cliniqa acquisition in fiscal 2016, as well as foreign currency fluctuations, organic sales for the year increased 6% with currency
translation having a negative impact of 2% and acquisitions contributing 6%. The organic growth was broad-based, with the
Company achieving growth in all three of its segments reporting segments. A strong bio-pharma end-market in the US and significant
government funding of life science research in China and additional market demand for Protein Platform instruments were the
biggest contributing factors impacting organic growth.
Consolidated GAAP net earnings decreased 3% for fiscal 2016 as compared to fiscal 2015. After adjusting for acquisition
related costs, stock based compensation, and certain income tax items in both years, adjusted net earnings increased 3% in fiscal
2016 as compared to fiscal 2015. Adjusted earnings growth was driven by increased revenue partially offset by negative mix and a
negative impact from foreign currency.
18
RESULTS OF OPERATIONS
Net Sales
Consolidated organic net sales exclude the impact of net sales contributed by companies acquired during the fiscal year and
the effect of the change from the prior year in exchange rates used to convert sales in foreign currencies (primarily the euro, British
pound sterling, and Chinese yuan) into U.S. dollars.
Consolidated net sales growth was as follows:
Organic sales growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions sales growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of foreign currency fluctuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated net sales growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated net sales by reportable segment were as follows (in thousands):
Year Ended June 30,
2016
2017
2015
6%
8%
(1)%
13%
6%
6%
(2)%
10%
4%
25%
(2)%
26%
Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Protein Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diagnostics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
$ 364,504
91,464
107,139
(104)
$ 563,003
Year Ended June 30,
2016
$ 317,340
77,324
104,484
(125)
$ 499,023
2015
$ 308,437
66,249
77,866
(306)
$ 452,246
In fiscal 2017, Biotechnology segment net sales increased 15% compared to fiscal 2016. Organic growth for the segment
was 4% for the fiscal year, with acquisitions contributing 13% and foreign currency translation having an unfavorable impact of
2%. Antibody and assay product categories drove growth. The growth in antibodies was led by double-digit growth in the Novus
brand. The growth in assays was by Luminex-based products the Company makes and sells and royalties received from Luminex
assay suppliers who use the Company’s content in the production of their assays.
In fiscal 2017, the Protein Platforms segment net sales increased 18% compared to fiscal 2016. Organic growth for the
segment was 19% with acquisitions contributing 1% and foreign currency translation having an unfavorable impact of 2%. Growth
was broad-based and led by additional market demand for Simple Western (Wes) instruments and consumables, and the Simple Plex
(Ella) and Biologics (Maurice) product lines.
In fiscal 2017, Diagnostics segment net sales increased 3% compared to fiscal 2016. All results for fiscal 2017 are organic.
Timing of OEM orders had a negative impact on fiscal 2017 results. Mid-single digit sales growth in blood and glucose-based
controls was partially offset by the timing of OEM shipments from the diagnostic assay and reagent product lines.
In fiscal 2016, Biotechnology segment net sales increased 3% compared to fiscal 2015. Organic growth for the segment
was 6% for the fiscal year, with foreign currency translation having an unfavorable impact of 3%. We grew in all major geographies,
most notably in China and from BioPharma customers in the U.S. and Europe. Japan was the only notable exception, where demand
was weak due to delayed funding from Japanese government agencies.
In fiscal 2016, the Protein Platforms segment net sales increased 17% compared to fiscal 2015. Organic growth for
the segment was 14% with acquisitions contributing 5% and foreign currency translation having an unfavorable impact of 2%.
Additional market demand for Simple Western instruments and consumables, a new instrument product launch in the Biologics
(Maurice) product line, and Simple Plex (Ella) instrument and consumable sales, the Elisa-multiplexing solution that was the key
technology acquired as part of the CyVek acquisition in fiscal 2015, all drove growth in this segment. There was no revenue from
the Zephyrus acquisition in fiscal 2016.
In fiscal 2016, Diagnostics segment net sales increased 34% compared to fiscal 2015. Included in fiscal 2016 Diagnostics
segment net sales was $26.6 million generated by the acquisition of Cliniqa in July 2015, contributing essentially all of the growth.
Solid organic growth in the hematology controls product line was offset by customer delayed projects in the glucose controls
product line due to reimbursement pricing pressures in that particular market segment.
19
Gross Margins
Consolidated gross margins were 67%, 67% and 68% in fiscal 2017, 2016 and 2015, respectively. Consolidated gross
margins were negatively impacted as a result of purchase accounting related to inventory and intangible assets acquired during fiscal
2017, 2016, 2015 and prior years. Under purchase accounting, inventory is valued at fair value less expected selling and marketing
costs, resulting in reduced margins in future periods as the inventory is sold. Excluding the impact of acquired inventory sold and
amortization of intangibles, adjusted gross margins were 71%, 71% and 72% in fiscal 2017, 2016 and 2015, respectively.
A reconciliation of the reported consolidated gross margin percentages, adjusted for acquired inventory sold and intangible
amortization included in cost of sales, is as follows:
Consolidated gross margin percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identified adjustments: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs recognized upon sale of acquired inventory . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted gross margin percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30,
2017
2016
2015
66.5%
67.5%
67.9%
0.6%
4.1%
71.2%
1.1%
2.2%
70.8%
1.5%
2.2%
71.6%
Fluctuations in adjusted gross margins, as a percentage of net sales, have primarily resulted from changes in foreign
currency exchange rates and changes in product mix. In fiscal 2017, the biggest impact to gross margin as compared to fiscal
2016, was the change in product mix associated with the acquisition of ACD. In fiscal 2016, the biggest impact to gross margin,
as compared to fiscal 2015, was the change in product mix associated with the acquisition of Cliniqa. In fiscal 2015, the biggest
impact to gross margin, as compared to fiscal 2014, was the change in product mix associated with the acquisitions of Novus,
ProteinSimple, and CyVek. We expect that, in the future, gross margins will continue to be impacted by the mix of our portfolio
growing at different rates as well as future acquisitions.
Management uses adjusted operating results to monitor and evaluate performance of the Company’s three business
segments. Since these results are used for this purpose, they are also considered to be prepared in accordance with GAAP. Segment
gross margins, as a percentage of net sales, were as follows:
Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Protein Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diagnostics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated adjusted gross margin percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30,
2016
2017
2015
80.5%
67.6%
42.3%
71.2%
80.0%
67.8%
44.8%
70.8%
79.8%
66.9%
42.7%
71.6%
The Biotechnology segment and the Protein Platforms segment gross margin percentage improvements for fiscal 2017 and
2016 as compared to fiscal 2015 was primarily attributable to higher volume leverage and operational productivity.
The Diagnostics segment gross margin percentage for fiscal 2017 was negatively impacted by lower volume leverage and
margin mix of product sales. Increased operational productivity in fiscal 2016 increased margins compared to fiscal 2015.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $59.6 million (42%) and $21.5 million (18%) in fiscal 2017 and
2016, respectively.
The increase in fiscal 2017 was driven by additional expenses associated with the Space, ACD and Zephyrus acquisitions
including $21.1 million of selling, general and administrative expenses, a $3.2 million increase in acquisition intangible amortization,
a $18.4 million change in the fair value of contingent consideration and a $4.3 million increase in other acquisition related costs.
The remaining increase in selling, general and administrative expenses in fiscal 2017 was primarily due to additional investments
in global commercial resources, administrative infrastructure, including increased stock compensation, and annual wage, salary and
benefit increases.
The increase in fiscal 2016 was primarily from $5.4 million added as a result of the Cliniqa acquisition, including $3.4 million
of increased costs associated with stock based compensation. The remaining increase in selling, general and administrative expenses
in fiscal 2016 included investments made in global commercial resources, administrative infrastructure, stock compensation, and
annual wage, salary and benefits increases.
20
Consolidated selling, general and administrative expenses were composed of the following (in thousands):
Year Ended June 30,
2017
2016
2015
Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,801 $ 58,414 $ 53,033
28,806
Protein Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,470
Diagnostics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89,309
Total segment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,560
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,519
Acquisition related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,957
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,056
Corporate selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 119,401
34,186
12,781
105,381
18,300
2,761
9,430
5,007
$ 140,879
37,735
13,207
133,743
21,328
25,789
14,631
4,952
$ 200,443
Research and Development Expenses
Research and development expenses increased $8.3 million (18%) and $4.3 million (11%) in fiscal 2017 and 2016,
respectively, as compared to prior year periods. Included in research and development expense in fiscal 2017 and 2016 was $8.6
million and $1.9 million of expenses from companies acquired during fiscal 2017 and 2016, respectively. The remaining increase in
research and development expenses for fiscal 2016 was primarily related to the development of new products associated with our
Protein Platforms segment.
Year Ended June 30,
2017
2016
2015
Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,507 $ 26,981 $ 28,001
11,024
Protein Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,828
Diagnostics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,853
14,424
3,583
$ 53,514
14,610
3,596
$ 45,187
Net Interest Income / (Expense)
Net interest income/(expense) for fiscal 2017, 2016 and 2015 was $(7.1) million, $(1.5) million, and $(0.9) million
respectively. Net interest expense in fiscal 2017 increased due to the new revolving credit facility entered into in July 2016 to help
fund the acquisition of ACD. Net interest expense in fiscal 2016 and 2015 resulted from the opening of a debt facility in July 2014
to partially fund the acquisitions of Novus Biologicals, ProteinSimple, CyVek, and Cliniqa.
Other Non-Operating Expense, Net
Other non-operating expense, net, consists of foreign currency transaction gains and losses, rental income, building expenses
related to rental property and the Company’s share of gains and losses from equity method investees as follows (in thousands):
Foreign currency (losses) gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate taxes, depreciation and utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain (loss) from equity method investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous (expense) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year Ended June 30,
2017
(636)
947
(1,818)
—
(59)
(1,566)
2016
(1,080)
950
(1,762)
—
279
(1,613)
$
$
2015
372
1,014
(1,696)
8,300
59
8,049
$
$
Other non-operating expenses, net, for the year ended June 30, 2015 included a non-taxable gain of $8.3 million on the
Company’s previous investment in CyVek discussed above.
21
Income Taxes
Income taxes for fiscal 2017, 2016 and 2015 were at effective rates of 32.0%, 29.2%, and 30.1%, respectively, of
consolidated earnings before income taxes. The effective rate for June 30, 2017 increased by 2.8% compared to the prior year. The
increase was primarily due to unfavorable discrete events in fiscal 2017 related to the revaluation of contingent consideration, which
is not a tax deductible expense.
The Company recognized net expense related to discrete tax items of $3.8 million in fiscal 2017, including $4.5 million in
expense related to the revaluation of contingent consideration which is not a tax deductible expense. There were no material discrete
tax items in fiscal 2016 or 2015.
U.S. federal taxes have been reduced by the manufacturer’s deduction provided for under the American Jobs Creation
Act of 2004 and the U.S. federal credit for research and development. Foreign income taxes have been provided at rates which
approximate the tax rates in the countries in which the Company has operations, exclusive of permanent items.
Net Earnings
Non-GAAP adjusted consolidated net earnings are as follows (in thousands):
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,086
Identified adjustments:
2017
Year Ended June 30,
2016
$ 104,476
2015
$ 107,735
Costs recognized upon sale of acquired inventory . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on investment in CyVek . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of above adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of discrete tax items and other foreign adjustments . . . . . . . . . . . . . .
Non-GAAP adjusted net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP adjusted net earnings growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,037
44,393
25,789
14,631
—
(20,483)
(3,920)
$ 139,533
5,431
29,395
2,761
9,430
—
(14,551)
(2,638)
$ 134,304
6,952
26,169
4,519
5,957
(8,300)
(13,645)
1,411
$ 130,798
4%
3%
2%
Depending on the nature of discrete tax items, our reported tax rate may not be consistent on a period to period basis. The
Company independently calculates a non-GAAP adjusted tax rate considering the impact of discrete items and jurisdictional mix of
the identified non-GAAP adjustments. The following table summarizes the reported GAAP tax rate and the effective Non-GAAP
adjusted tax rate for the periods ended June 30, 2017, 2016, and 2015.
Reported GAAP tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax rate impact of:
Identified non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discrete tax items and other foreign adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP adjusted tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30,
2017
2016
2015
32.0%
29.2%
30.1%
(3.8)
2.0
30.2%
0.4
1.4
30.9%
1.6
(0.7)
31.0%
The difference between the reported GAAP tax rate and non-GAAP tax rate applied to the identified non-GAAP
adjustments for the year ended June 30, 2017 is primarily a result of the revaluation of contingent consideration. The Company
recorded acquisition related expense of $18.4 million related to the change in fair value of contingent consideration, which is not
tax deductible.
22
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and available-for-sale investments at June 30, 2017 were $157.7 million compared to $95.8 million
at June 30, 2016. Included in available-for-sale investments at June 30, 2017 and June 30, 2016 was the fair value of the Company’s
investment in CCXI of $59.6 million and $28.6 million, respectively.
At June 30, 2017, approximately 42% of the Company’s cash and equivalent account balances of $91.6 million were
located in the U.S., with the remainder located in Canada, China, the U.K. and other European countries.
At June 30, 2017, approximately 93% of the Company’s available-for-sale investment account balances of $66.1 million
were located in the U.S., with the remaining 7% in China.
The Company has either paid U.S. taxes on its undistributed foreign earnings or intends to indefinitely reinvest the
undistributed earnings in the foreign operations or expects the earnings will be remitted in a tax neutral transaction. Management
of the Company expects to be able to meet its cash and working capital requirements for operations, facility expansion, capital
additions, and cash dividends for the foreseeable future, and at least the next 12 months, through currently available funds, including
funds available through our line-of-credit and cash generated from operations.
During fiscal 2017, the Company acquired Space and ACD for approximately $9.0 million and $258.0 million, respectively.
The acquisitions were financed through a combination of cash on hand and our revolving line of credit facility that the Company
obtained prior to the closing of the ACD acquisition. The ACD acquisition also included certain future contingent payments of up
to $75.0 million due upon the achievement of certain revenue milestones. Additionally, the Company made a $40.0 million equity
investment in Astute Medical, Inc.
During fiscal 2016, the Company acquired Cliniqa and Zephyrus for approximately $82.9 million and $8.0 million,
respectively. These acquisitions were financed with a combination of cash on hand and our revolving line of credit facility. The
Zephyrus acquisition consisted of a net cash payment of $8.0 million and certain future contingent payments of up to $7.0 million,
with a current fair value of $3.3 million.
During fiscal 2015, the Company acquired Novus Biologicals, ProteinSimple, and CyVek for approximately $60.1 million,
$300.0 million and $94.9 million, respectively. The Novus acquisition was financed through cash on hand. The purchases of
ProteinSimple and CyVek were financed through cash on hand and our revolving line of credit facility.
Our $400 million line-of-credit facility was modified in July 2016 in connection with the acquisition of ACD. The senior
unsecured revolving credit facility has a term of five years with an adjustable interest rate equal to the greater of (i) the prime
commercial rate, (ii) the per annum federal funds rate plus 0.5%, or (iii) LIBOR + 1.00% - 1.75% depending on the existing total
leverage ratio of Debt to EBITDA (as defined in the Credit Agreement governing the revolving credit facility). The financial
covenants of the revolving credit facility require the Company to maintain a minimum Interest Coverage Ratio, defined as the ratio
of EBIT to cash interest expense, of 3.0x and a maximum total leverage ratio of 3.5x. The annualized fee for any unused portion of
the credit facility is variable based upon the Company’s leverage ratio at each pricing date.
Future acquisition strategies may or may not require additional borrowings under the line-of-credit facility or other outside
sources of funding.
Cash Flows From Operating Activities
The Company generated cash from operations of $143.8 million, $143.9 million, and $139.8 million in fiscal 2017, 2016
and 2015, respectively. The increase in cash generated from operating activities in fiscal 2017 as compared to fiscal 2016 and in
fiscal 2016 as compared to fiscal 2015 were mainly the result of an increase in net earnings after adjusting for non-cash expenses
related to depreciation, amortization, costs recognized on sale of acquired inventory, and stock based compensation expense.
Cash Flows From Investing Activities
We continue to make investments in our business, including capital expenditures. Cash paid for acquisitions was
incrementally higher in fiscal 2017 compared to fiscal 2016, with net cash paid of $253.8 million for the ACD and Space acquisitions
compared to $91.4 million for the Cliniqa and Zephyrus acquisitions during fiscal 2016. In fiscal 2015, the Company paid net cash
of $420.1 million for the CyVek, ProteinSimple and Novus acquisitions.
In addition to the ACD and Space acquisitions in fiscal 2017, the Company also invested $40.0 million in Astute Medical,
Inc. during the second quarter of fiscal 2017.
The Company’s net proceeds from the purchase, sale and maturity of available-for-sale investments in fiscal 2017, 2016,
and 2015 were $3.0 million, $0.8 million, and $13.5 million, respectively. The Company’s investment policy is to place excess cash
in municipal and corporate bonds with the objective of obtaining the highest possible return while minimizing risk and keeping the
funds accessible.
23
Capital additions in fiscal year 2017, 2016, and 2015 were $15.2 million, $16.9 million, and $19.9 million. Capital
additions planned for fiscal 2018 are approximately $23.8 million and are expected to be financed through currently available cash
and cash generated from operations.
Cash Flows From Financing Activities
In fiscal 2017, 2016, and 2015, the Company paid cash dividends of $47.3 million $47.6 million, and $47.1 million,
respectively. The Board of Directors periodically considers the payment of cash dividends.
The Company received $5.3 million, $5.4 million, and $9.7 million, for the exercise of options for 63,000, 69,000, and
241,000, shares of common stock in fiscal 2017, 2016 and 2015, respectively. The Company recognized excess tax benefits from
stock option exercises of $0.5 million $0.6 million, $0.6 million in fiscal 2017, 2016 and 2015, respectively.
During fiscal 2017, the Company drew $368.5 million under its revolving line-of-credit facility to partially fund its
acquisition of ACD and investment in Astute. The Company made payments on the line-of-credit and other debt of $116.5 million.
During fiscal 2016, the Company drew $77.0 million under its revolving line-of-credit facility to partially fund its
acquisitions of Cliniqa. The Company made payments on the line-of-credit and other debt of $58.5 million.
During fiscal 2015, the Company drew $163.0 million under its revolving line-of-credit facility to partially fund its
acquisitions of ProteinSimple and CyVek. The Company made payments on the line-of-credit and other debt of $95.0 million.
During fiscal 2017, the Company determined that certain sales and revenue thresholds were met for Zephyrus and ACD.
Cash payments totaling $28.5 million ($3.5 million for Zephyrus and $25 million for ACD) were made during the third quarter. Of
the $28.5 million of total payments, $16.7 million is classified as financing. The financing component represents the portion of the
total liability that was recognized at the acquisition date. The remaining $11.8 million is recorded as operating as it represents the
consideration liability that exceed the amount of the contingent consideration liability recognized at the acquisition date.
During fiscal 2017, the Company made payments of $3.6 million to settle outstanding consideration payables related to
the PrimeGene acquisition.
In April 2009, the Board of Directors authorized a plan for the repurchase and retirement of $60.0 million of its common
stock. In October 2012, the Board of Directors increased the amount authorized under the plan by $100.0 million. The plan does not
have an expiration date. In fiscal 2013, the Company purchased and retired 28,000 and shares of common stock at market values of
$1.8 million. There were no stock repurchases in fiscal 2017, 2016, 2015 or 2014. At June 30, 2017, approximately $125.0 million
remained available for purchase under the above authorizations.
OFF-BALANCE SHEET ARRANGEMENTS
The Company is not a party to any off-balance sheet transactions, arrangements or obligations that have, or are reasonably
likely to have, a current or future material effect on the Company’s financial condition, changes in the financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources.
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company’s contractual obligations and commercial commitments as of June 30, 2017
(in thousands):
Payments Due by Period
Total
Less than
1 Year
1-2
Years
3-4
Years
After
5 Years
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,656 $
ACD acquisition(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CyVek acquisition(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zephyrus acquisition(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,100
35,000
3,300
9,123 $ 16,808 $ 15,996 $ 26,729
—
30,100
—
35,000
—
3,300
$ 137,056 $ 77,523 $ 16,808 $ 15,996 $ 26,729
—
—
—
—
—
—
(1) Amounts represent the fair values of contingent liabilities under the ACD merger agreement, the CyVek merger agreement and
the Zephyrus merger agreement. In addition, the Company will pay CyVek’s other stockholders up to 50% of the amount, if
any, by which revenues of CyVek’s products and related products exceeds $100 million in calendar year 2020.
24
CRITICAL ACCOUNTING POLICIES
Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon
the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP). The preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates. Management bases its estimates on
historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company has identified the policies outlined below as critical to its business operations and an understanding of
results of operations. The listing is not intended to be a comprehensive list of all accounting policies; investors should also refer to
Note 1 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Business Combinations
We allocate the purchase price of acquired businesses to the estimated fair values of the assets acquired and liabilities
assumed as of the date of the acquisition. The calculations used to determine the fair value of the long-lived assets acquired,
primarily intangible assets, can be complex and require significant judgment. We weigh many factors when completing these
estimates including, but not limited to, the nature of the acquired company’s business; its competitive position, strengths, and
challenges; its historical financial position and performance; estimated customer retention rates; discount rates; and future plans for
the combined entity. We may also engage independent valuation specialists, when necessary, to assist in the fair value calculations
for significant acquired long-lived assets.
The fair value of acquired technology is estimated, at times, using the relief from royalty method, which calculates the cost
savings associated with owning rather than licensing the technology. Assumed royalty rates are applied to the projected revenues
for the remaining useful life of the technology to estimate the royalty savings. The fair value of acquired technology may also be
estimated using the cost of reproduction method under which the primary components of the technology are identified and the
estimated cost to reproduce the technology is calculated based on historical data provided by the acquirees. The fair value of trade
names is estimated using the relief from royalty method, which calculates the cost savings associated with owning rather than
licensing the trade name. Assumed royalty rates are applied to the projected revenues for the remaining useful life of the trade name
to estimate the royalty savings. We generally estimate the fair value of acquired customer relationships using the multi-period
excess earnings method. This valuation model estimates revenues and cash flows derived from the asset and then deducts portions
of the cash flow that can be attributed to supporting assets, such as a brand name or fixed assets, that contributed to the generation
of the cash flows. The resulting cash flow, which is attributable solely to the customer list asset, is then discounted at a rate of return
commensurate with the risk of the asset to calculate a present value. The fair value of acquired customer relationships may also be
estimated by discounting the estimated cash flows expected to be generated by the assets. Assumptions used in these calculations
include same-customer revenue growth rates and estimated customer retention rates based on the acquirees’ historical information.
We estimate the fair value of liabilities for contingent consideration by discounting to present value the probability weighted
contingent payments expected to be made. Assumptions used in these calculations include discount rates, projected financial results
of the acquired businesses based on our most recent internal forecasts, and factors indicating the probability of achieving the
forecasted results. The excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill.
Goodwill is not amortized, but is subject to impairment testing on at least an annual basis.
We are also required to estimate the useful lives of the acquired intangible assets, which determines the amount of acquisition-
related amortization expense we will record in future periods. 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.
While we use our best estimates and assumptions, our fair value estimates are inherently uncertain and subject to refinement.
As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the
assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any adjustments required after the measurement
period are recorded in the consolidated statements of earnings.
The judgments required in determining the estimated fair values and expected useful lives assigned to each class of assets
and liabilities acquired can significantly affect net income. For example, different classes of assets will have useful lives that differ.
Consequently, to the extent a longer-lived asset is ascribed greater value than a shorter-lived asset, net income in a given period may
be higher. Additionally, assigning a lower value to amortizable intangibles would result in a higher amount assigned to goodwill. As
goodwill is not amortized, this would benefit net income in a given period, although goodwill is subject to annual impairment analysis
25
Impairment of Goodwill and Intangible Assets
Goodwill
Goodwill was $579.0 million as of June 30, 2017, which represented 37% of total assets. Goodwill is tested for impairment
on an annual basis in the fourth quarter of each year, or more frequently if events occur or circumstances change that could indicate
a possible impairment.
To analyze goodwill for impairment, 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.
2017 Goodwill Impairment Analysis
In completing our 2017 annual goodwill impairment analysis, 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.
Because our 2017 quantitative analysis included all of our reporting units, the summation of our reporting units’ fair values was
compared to our consolidated fair value, as indicated by our market capitalization, to evaluate the reasonableness of our calculations.
The quantitative assessment completed as of June 30, 2017 indicated that all of the reporting units had a substantial amount
of headroom. 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.
2016 and 2015 Goodwill Impairment Analysis
The Company used a qualitative test for all reporting units during the fourth quarter for fiscal year 2016 and fiscal year 2015
with one exception. The company elected to utilize a quantitative test for the Protein Platforms reporting unit for fiscal year 2016
using the previously described income approach given that this was a newer reporting unit created primarily through acquisitions.
The qualitative analyses for our other reporting units completed during 2016 and 2015 evaluated factors including, but not limited to,
economic, market and industry conditions, cost factors and the overall financial performance of the reporting units. In completing
these assessments, we noted no changes in events or circumstances which indicated that it was more likely than not that the fair value
of any reporting unit was less than its carrying amount. Based on the testing performed for the Protein Platforms reporting unit, fair
value exceeded carrying value by a substantial amount and no adjustment to the carrying value of goodwill was necessary.
There has been no impairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”) ASC
350 guidance for goodwill and other intangibles on July 1, 2002.
Amortizable Intangible Assets
We periodically review our amortizable intangible assets, the net value of which was $452.0 million and $310.5 million
as of June 30, 2017 and 2016, respectively, for impairment and to assess whether significant events or changes in business
circumstances indicate that the carrying value of the assets may not be recoverable. Such circumstances may include a significant
decrease in the market price of an asset, a significant adverse change in the manner in which the asset is being used or in its physical
26
condition or history of operating or cash flow losses associated with the use of the asset. Impairment losses could occur when the
carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and
its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated as the excess of the asset’s carrying
value over its estimated fair value.
In addition, we periodically reassess the estimated remaining useful lives of our long-lived and amortizable intangible
assets. Changes to estimated useful lives would impact the amount of depreciation and amortization expense recorded in earnings.
We have experienced no significant changes in the carrying value or estimated remaining useful lives of our long-lived or amortizable
intangible assets.
NEW ACCOUNTING PRONOUNCEMENTS
Information regarding the accounting policies adopted during fiscal 2017 and those not yet adopted can be found under
caption “Note 1: Description of Business and Summary of Significant Accounting Policies” of the Notes to the Consolidated
Financial Statements appear in Item 8 of this report.
SUBSEQUENT EVENTS
In July 2017, management determined that CyVek achieved the required revenue threshold for the additional consideration
payment discussed in Note 4 resulting in a payment of $34.0 million to the former owners.
On September 5, 2017, Bio-Techne acquired Trevigen Inc for approximately $11.0 million. The purchase accounting for
this acquisition is in progress.
NON-GAAP FINANCIAL MEASURES
This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in Item 7, contains financial measures that have not been calculated in accordance with accounting principles
generally accepted in the U.S. (GAAP). These non-GAAP measures include:
• Adjusted gross margin
• Adjusted net earnings
• Adjusted net earnings growth
• Adjusted effective tax rate
We provide these measures as additional information regarding our operating results. We use these non-GAAP measures
internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive
compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our
results of operations and that these measures are useful for period-to-period comparison of results.
Our non-GAAP financial measures for adjusted gross margin and adjusted net earnings exclude the costs recognized upon
the sale of acquired inventory, amortization of acquisition intangibles, and acquisition related expenses. The Company excludes
amortization of purchased intangible assets and purchase accounting adjustments, including costs recognized upon the sale of acquired
inventory and acquisition-related expenses, from this measure because they occur as a result of specific events, and are not reflective of
our internal investments, the costs of developing, producing, supporting and selling our products, and the other ongoing costs to support
our operating structure. Additionally, these amounts can vary significantly from period to period based on current activity.
The Company’s non-GAAP adjusted net earnings also excludes stock based compensation expense and certain adjustments
to income tax expense. Stock based compensation is excluded from non-GAAP adjusted earnings because of the nature of this
charge, specifically the varying available valuation methodologies, subjective assumptions, and the variety of award types. The
Company independently calculates a non-GAAP adjusted tax rate to be applied to the identified non-GAAP adjustments considering
the impact of discrete items on these adjustments and the jurisdictional mix of the adjustments. In addition, the tax impact of other
discrete and non-recurring charges which impact our reported GAAP tax rate are adjusted from net earnings. We believe these tax
items can significantly affect the period-over period assessment of operating results and not necessarily reflect costs and/or income
associated with historical trends and future results.
The Company periodically reassesses the components of our non-GAAP adjustments for changes in how we evaluate
our performance, changes in how we make financial and operational decisions, and considers the use of these measures by our
competitors and peers to ensure the adjustments are still relevant and meaningful.
27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency exchange
rates. Approximately 27% of the Company’s consolidated net sales in fiscal 2017 were made in foreign currencies, including 14%
in euro, 4% in British pound sterling, 4% in Chinese yuan and the remaining 5% in other currencies. The Company is exposed to
market risk primarily from foreign exchange rate fluctuations of the euro, British pound sterling, Chinese yuan and Canadian dollar
as compared to the U.S. dollar as the financial position and operating results of the Company’s foreign operations are translated into
U.S. dollars for consolidation.
Month-end exchange rates between the euro, British pound sterling, Chinese yuan, Canadian dollar and the U.S. dollar,
which have not been weighted for actual sales volume in the applicable months in the periods, were as follows:
Year Ended June 30,
2017
2016
2015
Euro:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
British pound sterling:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chinese yuan:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canadian dollar:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.14 $
1.05
1.09
1.32 $
1.22
1.27
.150 $
.144
.147
.770 $
.733
.754
1.13 $
1.10
1.12
1.48 $
1.33
1.42
.152 $
.150
.152
.781 $
.706
.755
1.34
1.08
1.19
1.69
1.48
1.57
.164
.162
.163
.933
.793
.855
The Company’s exposure to foreign exchange rate fluctuations also arises from trade receivables and intercompany
payables denominated in one currency in the financial statements, but receivable or payable in another currency.
The Company does not enter into foreign currency forward contracts to reduce its exposure to foreign currency rate
changes on forecasted intercompany sales transactions or on intercompany foreign currency denominated balance sheet positions.
Foreign currency transaction gains and losses are included in “Other non-operating expense, net” in the Consolidated Statement of
Earnings and Comprehensive Income. The effect of translating net assets of foreign subsidiaries into U.S. dollars are recorded on
the Consolidated Balance Sheet as part of “Accumulated other comprehensive income (loss).”
The effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from June 30, 2017 levels against the euro,
British pound sterling, Chinese yuan and Canadian dollar are as follows (in thousands):
Decrease in translation of 2017 earnings into U.S. dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Decrease in translation of net assets of foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional transaction losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,540
37,356
1,158
28
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)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30,
2017
$ 563,003
188,462
374,541
2016
$ 499,023
162,364
336,659
2015
$ 452,246
144,969
307,277
Operating expenses:
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
200,443
53,514
253,957
120,584
140,879
45,187
186,066
150,593
119,401
40,853
160,254
147,023
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on available-for-sale investments, net of tax of
(7,361)
304
(1,566)
(8,623)
111,961
35,875
76,086
(1,748)
249
(1,613)
(3,112)
147,481
43,005
104,476
(1,544)
634
8,049
7,139
154,162
46,427
107,735
(3,061)
(19,888)
(36,513)
$(6,501), $3,794, and $(3,895), respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,531
21,470
$ 97,556
(19,924)
(39,812)
$ 64,664
11,308
(25,205)
$ 82,530
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends per common share: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding:
$
$
$
2.04
2.03
1.28
$
$
$
2.81
2.80
1.28
$
$
$
2.90
2.89
1.27
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,313
37,500
37,194
37,326
37,096
37,231
29
CONSOLIDATED BALANCE SHEETS
Bio-Techne Corporation and Subsidiaries (in thousands, except share and per share data)
June 30,
2017
2016
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance for doubtful accounts of $696 and $555, respectively . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
91,612
66,102
116,830
60,151
13,330
348,025
$
64,237
31,598
93,393
57,102
7,561
253,891
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135,124
579,026
452,042
44,002
$ 1,558,219
132,362
430,882
310,524
1,922
$ 1,129,581
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries, wages and related accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related party note payable, current
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
16,856
26,602
18,518
5,968
2,478
65,100
—
135,522
120,596
343,771
3,300
5,403
20,653
14,868
8,371
4,717
1,779
—
3,759
54,147
62,837
91,500
38,500
3,317
Shareholders’ equity:
Undesignated capital stock, no par; authorized 5,000,000 shares; none issued or outstanding . . . . .
Common stock, par value $.01 a share; authorized 100,000,000 shares; issued and outstanding
37,356,041 and 37,253,771 shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
374
199,161
799,027
(48,935)
949,627
$ 1,558,219
372
178,760
770,553
(70,405)
879,280
$ 1,129,581
See Notes to Consolidated Financial Statements.
30
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Bio-Techne Corporation and Subsidiaries (in thousands)
Balances at June 30, 2014 . . . . . . . . . . . . . . . . . . . .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . .
Surrender and retirement of stock to
exercise options . . . . . . . . . . . . . . . . . . . .
Common stock issued for exercise of options .
Common stock issued for restricted
stock awards . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . .
Tax benefit from exercise of stock options . . .
Employee stock purchase plan expense . . . . . .
Balances at June 30, 2015 . . . . . . . . . . . . . . . . . . . .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . .
Surrender and retirement of stock to
exercise options . . . . . . . . . . . . . . . . . . . .
Common stock issued for exercise of options .
Common stock issued for restricted
stock awards . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . .
Tax benefit from exercise of stock options . . .
Common stock issued to employee stock
purchase plan . . . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan expense . . . . . .
Balances at June 30, 2016 . . . . . . . . . . . . . . . . . . . .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . .
Surrender and retirement of stock to
exercise options . . . . . . . . . . . . . . . . . . . .
Common stock issued for exercise of options .
Common stock issued for restricted
stock awards . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . .
Tax benefit from exercise of stock options . . .
Common stock issued to employee stock
purchase plan . . . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan expense . . . . . .
Balances at June 30, 2017 . . . . . . . . . . . . . . . . . . . .
Common Stock
Additional
Paid—in
Amount
Capital
Shares
37,002 $
Accumulated
Other
Comprehensive
Income(Loss)
Total
Retained
Earnings
370 $ 147,004 $ 653,279 $
107,735
(5,388) $ 795,265
107,735
(25,205)
(25,205)
—
141
—
1
(31)
9,761
10
—
—
(57)
(47,106)
5,918
615
39
371 $ 163,306 $ 713,851 $
104,476
37,153 $
(31)
9,762
(57)
(47,106)
5,918
615
39
(30,593) $ 846,935
104,476
(39,812)
(39,812)
—
1
—
—
69
23
9
(31)
4,796
—
9,287
566
692
144
(167)
(47,607)
37,254 $
372 $ 178,760 $ 770,553 $
76,086
(3)
63
31
11
—
2
—
(275)
4,509
—
14,418
514
1,022
(287)
(47,325)
37,356 $
213
374 $ 199,161 $ 799,027 $
(31)
4,797
(167)
(47,607)
9,287
566
692
144
(70,405) $ 879,280
76,086
21,470
21,470
(275)
4,511
—
(47,612)
14,418
514
1,022
213
(48,935) $ 949,627
See Notes to Consolidated Financial Statements.
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bio-Techne Corporation and Subsidiaries (in thousands)
Year Ended June 30,
2017
2016
2015
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net earnings to net cash provided by operating activities:
$ 76,086
$ 104,476
$ 107,735
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs recognized on sale of acquired inventory . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of CyVek . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustment to contingent consideration payable . . . . . . . . . . . . . . . . .
Contingent consideration and ACD compensation, operating . . . . . . . . . . . . . . .
Other operating activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in operating assets and liabilities, net of acquisitions:
60,036
3,037
(3,433)
14,631
—
18,400
(13,322)
1,942
42,764
5,431
(2,624)
9,430
—
—
37,226
6,961
1,304
5,957
(8,300)
—
(566)
(157)
Trade accounts and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . .
Salaries, wages and related accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . .
(19,686)
(732)
(2,088)
5,695
2,183
699
143,448
(22,981)
(6,626)
(381)
8,924
5,725
298
143,870
(11,747)
(4,714)
(620)
2,154
1,679
1,881
139,359
Cash flows from investing activities:
Purchase of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale and maturities of available-for-sale investments . . . . . . . . . . . . .
Additions to property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under line-of-credit agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on line-of-credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration and ACD compensation, financing . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . .
(3,069)
6,079
(15,179)
(253,785)
(40,000)
(305,954)
(47,325)
5,257
514
368,500
(116,500)
(21,060)
189,386
—
776
(16,898)
(91,423)
—
13,466
(19,905)
(420,102)
—
49
(426,492)
—
—
(25)
(107,570)
(47,607)
5,458
566
77,000
(58,500)
—
(23,083)
(47,107)
9,731
615
163,000
(94,964)
—
31,275
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
495
27,375
64,237
$ 91,612
(3,512)
9,705
54,532
$ 64,237
(8,178)
(264,036)
318,568
$ 54,532
See Notes to Consolidated Financial Statements.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Techne Corporation and Subsidiaries
Years ended June 30, 2017, 2016 and 2015
Note 1. Description of Business and Summary of Significant Accounting Policies:
Description of business: Bio-Techne Corporation and subsidiaries, collectively doing business as Bio-Techne (the
Company), develop, manufacture and sell biotechnology and clinical diagnostic products worldwide. With its deep product portfolio
and application expertise, Bio-Techne is a leader in providing specialized proteins, including cytokines and growth factors, and
related immunoassays, small molecules and other reagents to the research and diagnostics markets.
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.
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: The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Payment terms
for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to 90 days. Freight
charges billed to end-users are included in net sales and freight costs are included in cost of sales. Freight charges on shipments to
distributors are paid directly by the distributor. Any claims for credit or return of goods must be made within 10 days of receipt.
Revenues are reduced to reflect estimated credits and returns. Sales, use, value-added and other excise taxes are not included
in revenue.
Research and development: Research and development expenditures are expensed as incurred. Development activities
generally relate to creating new products, improving or creating variations of existing products, or modifying existing products to
meet new applications.
Advertising costs: Advertising expenses (including production and communication costs) were $4.5 million $5.2 million,
and $4.1 million for fiscal 2017, 2016, and 2015 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.
See Note 10 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
available-for-sale marketable securities, 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.
33
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 three years and equity securities. Available-for-sale investments are recorded based on trade-date. The
Company considers all of its marketable securities available-for-sale and reports them at fair value.
Unrealized gains and losses on available-for-sale securities are excluded from income, but are included, net of taxes, in
other comprehensive income. If an “other-than-temporary” impairment is determined to exist, the difference between the value of
the investment security recorded in the financial statements and the Company’s current estimate of the fair value is recognized as a
charge to earnings in the period in which the impairment is determined.
Trade accounts receivable: 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. 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.
Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. The Company regularly reviews
inventory on hand for slow-moving and obsolete inventory, inventory not meeting quality control standards and inventory subject
to expiration. To meet strict customer quality standards, the Company has established a highly controlled manufacturing process
for proteins, antibodies and its chemically-based products. These products require the initial manufacture of multiple batches to
determine if quality standards can be consistently met. In addition, the Company will produce larger batches of established products
than current sales requirements due to economies of scale. The manufacturing process for these products, therefore, has and will
continue to produce quantities in excess of forecasted usage. The Company values its manufactured protein and antibody inventory
based on a two-year forecast and its chemically-based products on a five-year forecast. Inventory quantities in excess of the forecast
are not valued due to uncertainty over salability.
The company records a lower of cost or market adjustment to cost of sales for those quantities that are in excess of the
manufactured protein and antibody two-year forecast and the chemically-based products five year forecast. For the years ended
June 30, 2017, 2016, and 2015 the amount recognized in net sales of inventory sold that was not valued is not material.
Property and equipment: Property and equipment are recorded at cost. Equipment is depreciated using the straight-line
method over an estimated useful life of five years. Buildings, building improvements and leasehold improvements are amortized
over estimated useful lives of 5 to 40 years. Property and equipment are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. In the current year, the Company has identified no
such events.
Intangibles 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. In the current year, the Company has identified no such
events.
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.
34
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
triggering events were identified and no impairments were recorded for property, plant, and equipment or amortizable intangibles
were recorded during fiscal year 2017.
Impairment of goodwill: We evaluate the carrying value goodwill 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.
To analyze goodwill for impairment, 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.
2017 Goodwill Impairment Analysis
In completing our 2017 annual goodwill impairment analysis, 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.
Because our 2017 quantitative analysis included all of our reporting units, the summation of our reporting units’ fair
values was compared to our consolidated fair value, as indicated by our market capitalization, to evaluate the reasonableness of
our calculations.
The quantitative assessment completed as of June 30, 2017 indicated that all of the reporting units had a substantial amount
of headroom. 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.
2016 and 2015 Goodwill Impairment Analysis
The Company used a qualitative test for all reporting units during the fourth quarter for fiscal year 2016 and fiscal year 2015
with one exception. The company elected to utilize a quantitative test for the Protein Platforms reporting unit for fiscal year 2016
using the previously described income approach given that this is a newer reporting unit created primarily through acquisitions. The
qualitative analyses for our other reporting units completed during 2016 and 2015 evaluated factors including, but not limited to,
economic, market and industry conditions, cost factors and the overall financial performance of the reporting units. In completing
these assessments, we noted no changes in events or circumstances which indicated that it was more likely than not that the fair
value of any reporting unit was less than its carrying amount. Based on the testing performed for the Protein Platforms reporting
unit, fair value exceeded carrying value by a substantial amount and no adjustment to the carrying value of goodwill was necessary.
There has been no impairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”)
ASC 350 guidance for goodwill and other intangibles on July 1, 2002.
35
Investments in unconsolidated entities: The Company periodically invests in the equity of start-up and early development
stage companies. The accounting treatment of each investment (cost method or equity method) is dependent upon a number of
factors, including, but not limited to, the Company’s share in the equity of the investee and the Company’s ability to exercise
significant influence over the operating and financial policies of the investee.
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
Fair value measurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reportable segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note
4
8
9
11
Recently Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-05, Customer’s Accounting for
Fees Paid in a Cloud Computing Arrangement. The standard provides guidance to customers about whether a cloud computing
arrangement includes a software license. If the arrangement does include a software license, the software license element of the
arrangement should be accounted for in the same manner as the acquisition of other software licenses. We adopted this standard on
July 1, 2016, applying it prospectively to all arrangements entered into or materially modified on or after July 1, 2016. Adoption of
this standard did not have a significant impact on our results of operations or financial position.
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments.
When recording the purchase price allocation for a business combination in the financial statements, an acquirer may record
preliminary amounts when measurements are incomplete as of the end of a reporting period. When the required information is received
to finalize the purchase price allocation, the preliminary amounts are adjusted. These adjustments are referred to as measurement-
period adjustments. This standard eliminates the requirement to restate prior period financial statements for measurement-period
adjustments. Instead, it requires that the cumulative impact of a measurement-period adjustment be recognized in the reporting
period in which the adjustment is identified. We adopted this standard on July 1, 2016, applying it prospectively. Application of this
standard did not have a significant impact on our results of operations or financial position.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The
standard is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. We
elected to early adopt this standard as of July 1, 2016. As our consolidated statement of cash flows presentation was in compliance
with the new guidance, adoption of this standard had no impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The standard removes
Step 2 of the goodwill impairment test, which requires a company to perform procedures to determine the fair value of a reporting
unit’s assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and
liabilities assumed in a business combination. Instead, a goodwill impairment charge will now be measured as the amount by which
a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We elected to early adopt this
standard on January 1, 2017. As we have not been required to complete Step 2 of the goodwill impairment test, this standard did not
have an impact on our consolidated financial statements.
36
Pronouncements Issued but Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard 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
standard also expands the required financial statement disclosures regarding revenue recognition. The new guidance is effective
for us on July 1, 2018. In addition, in March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations
(Reporting Revenue Gross versus Net), in April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations
and Licensing, and in May 2016, the FASB issued ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients.
These standards are intended to clarify aspects of ASU No. 2014-09 and are effective for us upon adoption of ASU No. 2014-09.
The Company’s approach to implementing the new standard includes performing a detailed review of key contracts representative
of its different businesses, and comparing historical accounting policies and practices to the new standard. In addition to expanded
disclosures associated with the new standard, the Company is continuing to assess the impact on the Company’s consolidated
financial statements. The guidance permits two methods of adoption, retrospectively to each prior reporting period presented (full
retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of
initial application (the cumulative catch-up transition method). We currently anticipate that we will adopt the standards using
cumulative catch-up transition method.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. This provision would require
inventory that was previously recorded using first-in, first-out (“FIFO”) to be recorded at lower of cost or net realizable value. Net
realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods
within those years, which for us will be July 1, 2017. The amendments in this guidance should be applied prospectively with earlier
application permitted as of the beginning of an interim or annual period. The Company does not expect the updated guidance to have
a significant impact on future financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial
Liabilities. The standard is intended to improve the recognition, measurement, presentation and disclosure of financial instruments.
This ASU is effective using the modified retrospective approach for annual periods and interim periods within those annual periods
beginning after December 15, 2017, which for us is July 1, 2018. Early adoption is permitted. We do not expect the application of
this standard to have a significant impact on our result of operations or financial position.
In February, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the existing guidance to require
lessees to recognize lease assets and lease liabilities from operating leases on the balance sheet. This ASU is effective using the
modified retrospective approach for annual periods and interim periods within those annual periods beginning after December 15,
2018, which for us is July 1, 2019. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-
02 on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This update
includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in
the financial statements. This ASU is effective for annual periods and interim periods within those annual periods beginning after
December 15, 2016, which for us is July 1, 2017. Early adoption is permitted. Upon adoption, among other impacts, the Company
expects its reported provision for income taxes to become more volatile, dependent upon market prices and volume of share-based
compensation exercises and vesting of options.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit
Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology in current
GAAP with a methodology that reflects expected credit losses. This update is intended to provide financial statement users with
more decision-useful information about the expected credit losses. This ASU is effective for annual periods and interim periods
within those annual periods beginning after December 15, 2019, which for us is July 1, 2020. Entities may early adopt beginning
after December 15, 2018. We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial
statements.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business. The standard revises
the definition of a business, which affects many areas of accounting such as business combinations and disposals and goodwill
impairment. The revised definition of a business will likely result in more acquisitions being accounted for as asset acquisitions,
as opposed to business combinations. This ASU is effective for annual periods and interim periods within those annual periods
beginning after December 15, 2018, which for us is July 1, 2019 required to be applied prospectively to transactions occurring on
or after the effective date.
37
Note 2. Acquisitions:
2017 Acquisitions
Advanced Cell Diagnostics (ACD)
On August 1, 2016, the Company acquired ACD for approximately $258 million, net of cash acquired, plus contingent
consideration of up to $75.0 million as follows:
•
•
$25.0 million if calendar year 2016 revenues equal or exceed $30.0 million.
an additional $50.0 million if calendar year 2017 revenues equal or exceed $45.0 million.
The Company paid approximately $247.0 million, net of cash acquired and the working capital adjustments, as of the
acquisition date. The remaining $11.0 million will be paid to current employees who held ACD unvested stock as of the acquisition
date. In order to receive payment for unvested shares, the individuals must remain employees of ACD over the 18-month vesting
period which extends from the acquisition date through March 31, 2018. Any amounts that would have been owed to individuals
who leave the company during the vesting period, will be pooled together and distributed amongst the other former ACD
shareholders at the end of the vesting period. Management determined that $3.6 million of the $11.0 million represents purchase
price consideration paid for pre-acquisition services. However, the remaining $7.4 million represents compensation expense as the
amount the individual employees receives is tied to future service. This current value of this liability recorded on the Consolidated
Balance Sheets under the caption “Salaries, wages and related accruals”.
During the third quarter of fiscal 2017, management determined that the calendar year 2016 revenue milestone was met.
Refer to Note 4 for discussion of this item as well as discussion of the changes to the fair value estimate for the calendar year 2017
revenue milestone as of June 30, 2017.
The goodwill recorded as a result of the ACD acquisition represents the strategic benefits of growing the Company’s
product portfolio and the expected revenue growth from increased market penetration from future products and customers. The
goodwill is not deductible for income tax purposes. The business became part of the Company’s Biotechnology reportable segment
in the first quarter of 2017.
Purchase accounting was finalized during the fourth quarter of 2017. The following table (in thousands) summarizes the
value of ACD assets acquired and liabilities assumed as of the acquisition date.
Current assets, net of cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets:
$
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consideration payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . .
Net purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Preliminary
Allocation at
Acquisition Date
25,196
2,757
3,812
107,000
17,000
77,000
200
133,780
366,745
3,591
78,761
284,393
246,193
—
38,200
284,393
Adjustments to
Fair Value
$
(9,372) $
43,000
4,900
(70,700)
(200)
10,187
(22,185)
588
(26,018)
3,245
845
3,600
(1,200)
3,245
$
$
$
Updated Opening
Balance Sheet
Allocation at
June 30, 2017
15,824
2,757
3,812
150,000
21,900
6,300
—
143,967
344,560
4,179
52,743
287,638
247,038
3,600
37,000
287,638
38
As summarized in the table, there have been adjustments totaling $10.2 million to goodwill during the measurement
period. These adjustments primarily relate to the finalization of acquired intangible asset cash flow models, and finalization of
opening balance sheet deferred tax assets and liabilities. However, the adjustments also include a $9.4 million decrease in the fair
value of the inventory required related to an error in the preliminary valuation identified by management during the fourth quarter.
See Note 12 for additional information regarding the impact of this error to the first, second, and third quarter fiscal year 2017
financial statements.
Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of acquisitions based on
management’s assessment. The purchase price allocated to developed technology, trade names, and customer relationships was
based on management’s forecasted cash inflows and outflows and using a relief-from-royalty and a multi-period excess earnings
method to calculate the fair value of assets purchased. The developed technology is being amortized with the expense reflected
in cost of goods sold in the Condensed Consolidated Statements of Earnings and Comprehensive Income. Amortization expense
related to trade names, and customer relationships is reflected in selling, general and administrative expenses in the Consolidated
Statements of Earnings and Comprehensive Income. The amortization periods for intangible assets acquired in fiscal 2017 are
estimated to be 12 years for developed technology, 15 years for trade names, 10 years for customer relationships. The deferred
income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized upon the
sale of acquired inventory that was written up to fair value and intangible asset amortization, both of which are not deductible for
income tax purposes.
As previously disclosed, ACD was acquired on August 1, 2016. The unaudited pro forma financial information below
summarizes the combined results of operations for Bio-Techne and ACD as though the companies were combined as of the beginning
fiscal 2016. The pro forma financial information for all periods presented includes the purchase accounting effects resulting from
these acquisitions except for the increase in inventory to fair value and the fair value adjustments to contingent consideration as
these are not expected to have a continuing impact on cost of goods sold or selling, general and administrative expense, respectively.
The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of
operations that would have been achieved if the acquisitions had taken place at the beginning of fiscal 2016.
Year Ended
June 30,
2017
2016
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 564,220 $ 523,840
99,380 110,536
Space Import-Export, Srl
On July 1, 2016, the Company acquired Space Import-Export, Srl (Space) of Milan, Italy for approximately $9.0 million.
$6.7 million was paid on the acquisition date and the remaining $2.3 million will be paid during the first quarter of fiscal year 2018.
Space was a long-time distribution partner of the Company in the Italian market. The acquisition resulted in goodwill as we expect
strategic benefits of revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes.
The business became part of the Company’s Biotechnology reportable segment in the first quarter of 2017. Purchase accounting
was finalized during the fourth quarter. There were no material changes from the preliminary opening balance sheet. The final fair
values of the assets acquired and liabilities assumed in each acquisition, are as follows (in thousands):
Final Opening
Balance Sheet
Allocation
Current assets, net of cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets:
$
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consideration payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
$
$
$
2,128
159
6,769
3,517
12,573
1,444
2,125
9,003
6,747
2,256
9,003
2016 Acquisitions
Zephyrus Biosciences, Inc.
On March 14, 2016, the Company acquired Zephyrus Biosciences, Inc. (Zephyrus) for $8.0 million in cash and up to $7.0
million in contingent consideration. Zephyrus provides research tools to enable protein analysis at the single cell level. Addressing
the burgeoning single cell analysis market, Zephyrus’s first product, Milo™, enables western blotting on individual cells for the
first time. The acquisition was funded with cash on hand. The purchase price of Zephyrus exceeded the preliminary estimated fair
value of the identifiable net assets and, accordingly, the difference was allocated to goodwill, substantially all of which is not tax
deductible. Zephryus is included in the Company’s Protein Platforms segment.
In connection with the Zephyrus acquisition, the Company recorded $7.4 million of in process research and development
which is not amortized until it is converted to developed technology which occurs once a sale of its product is completed. In the
first quarter of fiscal 2017, the Company transferred the balance of in process research and development to developed technology
and began amortizing the intangible asset after Zephyrus made its first sale. The intangible asset amortization for the developed
technology is not deductible for income tax purposes.
The Company will pay Zephyrus former shareholders an additional $3.5 million if and when 10 instruments are sold prior
to the 3-year anniversary of the closing date (March 14, 2019). In addition, the Company will pay Zephyrus former shareholders an
additional $3.5 million if and when $3.0 million in cumulative sales are generated within 4.5 years of the closing date (September
14, 2020). The Company made a $3.5 million payment in the third quarter of fiscal 2017 after Zephyrus sold its tenth instrument.
We estimate the remaining fair value of these contingent consideration payments to be $3.3 million. Refer to Note 4 for further
discussion of this item.
The goodwill recorded as a result of the Zephyrus acquisition represents the strategic benefits of growing the Company’s
product portfolio and the expected revenue growth from increased market penetration from future products and customers. The
goodwill is not deductible for income tax purposes.
We made certain purchase accounting adjustments for the acquisition of Zephyrus, which was acquired in March 2016 prior
to the finalization of purchase accounting during the third quarter of fiscal year 2017. The adjustments recorded during nine months
ended March 31, 2017 included a $3.0 million increase to the contingent consideration liability resulting from the finalization of the
valuation model, a $0.9 million increase to intangible assets resulting from valuation model adjustments, and a $0.3 million increase
to net deferred tax assets. A corresponding $1.8 million increase was recorded to goodwill from the preliminary amount recorded
as of June 30, 2016.
Cliniqa Corporation
On July 8, 2015, the Company acquired Cliniqa Corporation (Cliniqa) for approximately $82.9 million. Cliniqa specializes
in the manufacturing and commercialization of blood chemistry quality controls and calibrators as well as bulk reagents used for the
clinical diagnostic market to further expand and complement our Diagnostics solutions. The acquisition was funded with cash on
hand and funds obtained from our revolving credit facility. The purchase price of Cliniqa exceeded the fair value of the identifiable
net assets and, accordingly, the difference was allocated to goodwill. Cliniqa is included in the Company’s Diagnostics segment.
In connection with the Cliniqa acquisition, the Company recorded $18.0 million of developed technology intangible assets
that have an estimated useful life of 14 years, $27.0 million of customer relationship intangible assets that have an estimated useful
life of 13 years, and $1.1 million related to trade mark and trade names with a useful life of 4 years. The intangible asset amortization
is not deductible for income tax purposes.
The goodwill recorded as a result of the Cliniqa acquisition represents the strategic benefits of growing the Company’s
product portfolio and the expected revenue growth from increased market penetration from future products and customers. The
goodwill is not deductible for income tax purposes.
2015 Acquisitions
CyVek Inc
On November 3, 2014, the Company acquired CyVek, Inc. (CyVek) through a merger. CyVek has developed a transformative
immunoassay technology which integrates an innovatively designed microfluidic cartridge with a state-of-the-art analyzer to
deliver the most advanced and efficient bench top immunoassay system. In fiscal 2014, the Company entered into an Agreement of
Investment and Merger (the Agreement) with CyVek. Pursuant to the terms of the Agreement, the Company invested $10.0 million
40
in CyVek and received shares of Common Stock representing approximately 19.9% of the outstanding voting stock of CyVek.
Between the time of the Company’s initial investment and November 3, 2014, CyVek met certain commercial milestones related to
the sale of its products, which obligated the Company to acquire CyVek through a merger, with CyVek surviving as a wholly-owned
subsidiary of the Company.
The Company made an initial payment of approximately $62.0 million to the other stockholders of CyVek on November
3, 2014. Such purchase price was adjusted after closing based on the final levels of cash, indebtedness and transaction expenses
of CyVek as of the closing. The Company will also pay CyVek’s previous stockholders up to $35.0 million based on the revenue
generated by CyVek’s products before December 31, 2017. The Company will also pay CyVek’s previous stockholders 50% of the
amount, if any, by which the revenue from CyVek’s products and related products exceeds $100 million in calendar year 2020. The
Company has recorded the present value of these contingent payments as liabilities of $35.0 million at June 30, 2017 and 2016,
respectively. In addition, at November 3, 2014, the Company re-measured its previous investment in CyVek to acquisition-date
fair value, resulting in a gain on the investment of $8.3 million which is included in other income on the Condensed Consolidated
Statements of Earnings and Comprehensive Income. The purchase price of CyVek exceeded the fair value of the identifiable net
assets and, accordingly, the difference was allocated to goodwill, substantially all of which is not tax deductible. CyVek is included
in the Company’s Protein Platforms segment.
In connection with the CyVek acquisition, the Company recorded $20.2 million of developed technology intangible assets
that have an estimated useful life of 15 years, $0.1 million of trade name intangible assets that have an estimated useful life of
1.5 years, and $0.6 million related to customer relationships that have an estimated useful life of 10 years. The intangible asset
amortization is not deductible for income tax purposes.
The goodwill recorded as a result of the CyVek acquisition represents the strategic benefits of growing the Company’s
product portfolio and the expected revenue growth from increased market penetration from future products and customers. The
goodwill is not deductible for income tax purposes.
ProteinSimple
On July 31, 2014, the Company acquired ProteinSimple. ProteinSimple expanded the Company’s solutions that it can offer
its customers by developing and commercializing proprietary systems and consumables for protein analysis. The Company opened
a line-of-credit to partially fund the acquisition. The purchase price of ProteinSimple exceeded the fair value of the identifiable
net assets and, accordingly, the difference was allocated to goodwill. ProteinSimple is included in the Company’s Protein Platform
segment.
In connection with the ProteinSimple acquisition, the Company recorded $39.2 million of developed technology intangible
assets that have an estimated useful lives of 9-10 years, $36.1 million of trade name intangible assets that have an estimated useful
lives of 18-20 years, $101.6 million related to customer relationships that have estimated useful lives of 14-16 years, and $0.2
million related to non-compete agreements that have an estimated useful life of 3 years. The intangible asset amortization is not
deductible for income tax purposes.
The goodwill recorded as a result of the ProteinSimple acquisition represents the strategic benefits of growing the Company’s
product portfolio and the expected revenue growth from increased market penetration from future products and customers. The
goodwill is not deductible for income tax purposes.
Novus Holdings LLC
On July 2, 2014, the Company acquired all of the issued and outstanding equity interests of Novus Holdings LLC (Novus).
Novus broadened the Company’s antibody offerings by being a supplier of a large portfolio of both outsourced and in-house
developed antibodies and other reagents for life science research. Novus is included in the Company’s Biotechnology segment.
In connection with the Novus acquisition, the Company recorded $5.0 million of developed technology intangible assets
that have estimated useful lives of 4-12 years, $5.3 million of trade name intangible assets that have an estimated useful life of
20 years, and $14.4 million related to customer relationships that have an estimated useful life of 15 years. The majority of the
intangible asset amortization is not deductible for income tax purposes.
The goodwill recorded as a result of the Novus acquisition represents the strategic benefits of growing the Company’s
product portfolio and the expected revenue growth from increased market penetration from future products and customers. The
majority of the goodwill is not deductible for income tax purposes.
41
The aggregate purchase price of the acquisitions was allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed as a result of the fiscal year 2016 and 2015 acquisitions (in thousands):
Zephyrus
Cliniqa
CyVek
Protein
Simple
Novus
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible Assets:
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less fair-value of previous investment . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . .
Note Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration payable . . . . . . . . . . . . . . . . . . . . . . .
Net purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
56 $ 11,926 $
1,436
32
58
—
1,206 $ 19,660 $ 10,739
1,266
40
1,983
554
971
19
8,300
—
—
—
8,686
17,074
18,000
1,100
27,000
—
42,669
102,189
39,200
20,200
100
36,100
600 101,600
200
—
91,658 134,074
333,371
114,754
5,010
5,300
14,400
—
28,408
65,163
54
2,521
14,500
—
2,166
2,875
60,122
—
$ 14,500 $ 82,888 $ 94,927 300,053 $ 60,122
11,644
21,674
300,053
—
1,965
(438)
113,227
18,300
1,508
17,793
82,888
—
$
8,000 $ 82,888 $ 59,927 $ 300,053 $ 60,122
—
—
$ 14,500 $ 82,888 $ 94,927 $ 300,053 $ 60,122
—
35,000
—
6,500
—
—
—
—
Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of acquisition based on management’s
assessment. The purchase price allocated to developed technology, trade names, non-compete agreements and customer relationships
was based on management’s forecasted cash inflows and outflows and using a relief-from-royalty and a multi-period excess earnings
method to calculate the fair value of assets purchased. The developed technology is being amortized with the expense reflected
in cost of goods sold in the Consolidated Statements of Earnings and Comprehensive Income. Amortization expense related to
trade names, the non-compete agreement and customer relationships is reflected in selling, general and administrative expenses in
the Consolidated Statements of Earnings and Comprehensive Income. The deferred income tax liability represents the estimated
future impact of adjustments for the cost to be recognized upon the sale of acquired inventory that was written up to fair value and
intangible asset amortization, both of which are not deductible for income tax purposes, and the future tax benefit of net operating
loss and tax credit carryforwards which will be deductible by the Company in future periods.
Note 3. Supplemental Balance Sheet and Cash Flow Information:
Available-For-Sale Investments:
The fair value of the Company’s available-for-sale investments as of June 30, 2017 and June 30, 2016 were $66.1 million
and $31.6 million, respectively. The increase was caused by the addition of $2.1 million in corporate bond securities held by
Advanced Cell Diagnostics (ACD), and the investment of $1.4 million of available cash in China into certificates of deposit. The
remaining increase is due to a $31.0 million change in the fair value of the Company’s investment in ChemoCentryx, Inc. (CCXI).
The amortized cost basis of the Company’s investment in CCXI as of June 30, 2017 and June 30, 2016 was $29.5 million.
The unrealized gain (loss) on available-for-sale investments for fiscal 2017 includes a $30.1 million unrealized gain related
to our investment in CCXI. As of June 30, 2017, the stock price of CCXI was $9.36 per share compared to our cost basis of $4.73
per share.
42
Inventories:
Inventories consist of (in thousands):
June 30,
2017
2016
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,074 $ 18,685
38,417
$ 57,102
38,077
$ 60,151
Property and Equipment:
Property and equipment consist of (in thousands):
June 30,
2017
2016
Cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery, equipment and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles assets were comprised of the following (in thousands):
6,270 $
98,596
$
6,270
158,495 157,963
82,018
263,361 246,251
(128,237)
$ 135,124 $ 132,362
(113,889)
June 30,
Useful Life
(years)
2017
2016
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizable intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9-15
5-20
9-16
3-5
10
Changes to the carrying amount of net intangible assets consist of (in thousands):
87,092
$ 276,959 $ 120,611
63,706
204,243 191,118
3,284
—
3,264
633
572,191
(120,149)
$ 452,042 $ 303,124
7,400
$ 452,042 $ 310,524
378,719
(75,595)
—
June 30,
2017
2016
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 310,524 $ 292,839
53,500
185,869
—
(29,395)
(6,420)
976
(44,393)
(934)
$ 452,042 $ 310,524
Amortization expense related to technologies included in cost of sales was $23.1 million $11.1 million, and $9.5 million
in fiscal 2017, 2016, and 2015, respectively. Amortization expense related to trade names, customer relationships, non-compete
agreements, and patents included in selling, general and administrative expense was $21.3 million, $18.3 million, and $16.7 million,
in fiscal 2017, 2016, and 2015 respectively.
43
The estimated future amortization expense for intangible assets as of June 30, 2017 is as follows (in thousands):
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 44,825
44,171
43,538
43,180
41,491
234,837
$ 452,042
Changes in goodwill by reportable segment and in total consist of (in thousands):
June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior year acquisitions (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior year acquisitions (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets:
Other assets consist of (in thousands):
Biotechnology
$ 115,198
—
—
(6,475)
108,723
147,484
—
(1,277)
254,930
$
$
$
Diagnostics
60,601
$
42,669
—
—
$
103,270
$
Protein
Platforms
214,839
6,878
—
(2,828)
218,889
—
—
$
103,270
1,809
128
220,826
$
Total
390,638
49,547
—
(9,303)
430,882
147,484
1,809
(1,149)
579,026
$
$
$
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2017
2016
$ 40,385 $
3,617
$ 44,002 $
385
1,537
1,922
As of June 30, 2017, the Company had $44.0 million of other assets compared to $1.9 million as of June 30, 2016. The
increase from June 30 is due to a $40.0 million investment in Astute Medical, Inc. during the second quarter of fiscal 2017. This
investment is accounted for under the cost-method as we own less than 20% of the outstanding stock and we concluded that we do
not have significant influence. Under the cost-method, the fair value is not estimated if there are no identified events or changes
in circumstances that may have a significant adverse effect on the fair value of the investment. No such events or changes in
circumstances were identified during fiscal 2017.
Supplemental Cash Flow Information:
Supplemental cash flow information was as follows (in thousands):
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,900
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,452
Non-cash activities:
2017
2016
$ 44,900
1,661
2015
$ 42,600
1,544
Acquisition-related liabilities(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,856
42,259
43,048
Year Ended June 30,
(1) Consists of holdback payments due at future dates and liabilities for contingent consideration. Further information regarding liabilities for contingent
consideration can be found in Note 4.
44
Note 4. Fair Value Measurements:
The Company’s financial instruments include cash and cash equivalents, available-for-sale investments, accounts
receivable, accounts payable, contingent consideration obligations, and long-term debt.
Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used
in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in
valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect
our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information
available in the circumstances.
The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in
active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are
observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their fair
values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant
model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market
activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires
significant judgment or estimation.
The following tables provide information by level for financial assets and liabilities that are measured at fair value on a
recurring basis (in thousands):
Total carrying
value as of
June 30, 2017
Fair Value Measurements Using
Inputs Considered as
Level 1
Level 2
Level 3
Assets
Equity securities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bond securities(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Contingent Consideration . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
59,616
2,057
61,673
$
$
59,616
$
—
$
59,616
— $
2,057
2,057
$
—
—
—
68,400
$
— $
— $
68,400
Total carrying
value as of
June 30, 2016
Fair Value Measurements Using
Inputs Considered as
Level 1
Level 2
Level 3
Assets
Equity securities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bond securities(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Contingent Consideration . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
(1)
Included in available for sale securities on the balance sheet.
28,582
$
—
$
28,582
28,582
$
—
$
28,582
— $
—
— $
—
—
—
38,500
$
— $
— $
38,500
Our available for sale securities are measured at fair value using quoted market prices in active markets for identical assets
and are therefore classified as Level 1 assets. We value our Level 2 assets using inputs that are based on market indices of similar
assets within an active market. All of our Level 2 assets have maturity dates of less than one year. There were no transfers into or
out of our Level 2 financial assets during fiscal 2017.
45
The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in
future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and
in the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio. We may
also incur changes to our contingent consideration liability as discussed below.
In connection with the Advanced Cell Diagnostics (ACD) acquisition discussed in Note 2, as well as with the Zephyrus and
CyVek acquisitions which occurred in prior years, we are required to make contingent payments, subject to the entities achieving
certain sales and revenue thresholds. The contingent consideration payments are up to $35.0 million, $7.0 million and $75.0 million
related to the CyVek, Zephyrus, and ACD acquisitions, respectively. The fair value of the liabilities for the contingent payments
recognized upon each acquisition as part of the purchase accounting opening balance sheet totaled $78.5 million ($35.0 million for
CyVek, $6.5 million for Zephyrus, and $37.0 million for ACD) and was estimated by discounting to present value the probability-
weighted contingent payments expected to be made. Assumptions used in these calculation units sold, expected revenue, discount
rate and various probability factors. The ultimate settlement of contingent consideration could deviate from current estimates
based on the actual results of these financial measures. This liability is considered to be a Level 3 financial liability that is re-
measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in general
and administrative expense.
In fiscal 2017, the Company determined that certain sales and revenue thresholds were met for CyVek, Zephyrus and
ACD. Cash payments totaling $28.5 million ($3.5 million for Zephyrus and $25.0 million for ACD) were made during the third
and fourth quarters of fiscal 2017. Of the $28.5 million in total payments, $16.7 million is classified as financing on the statement
of cash flows. The financing component represents the portion of the total liability that was recognized at the acquisition date. The
remaining $11.8 million is recorded within operating cash flows as it represents the consideration liability that exceed the amount
of the contingent consideration liability recognized at the acquisition date.
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):
Fair value at the beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase price contingent consideration (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2017
38,500
40,000
(28,500)
18,400
$ 68,400
Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate
the fair value of each class of financial instrument for which it is practicable to estimate fair value.
Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts
reported in the consolidated balance sheets approximate fair value because of the short-term nature of these items.
Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-
credit facility approximates fair value because our interest rate is variable and reflects current market rates.
Note 5. Debt and Other Financing Arrangements:
The Company entered modified our revolving line-of-credit facility governed by a Credit Agreement (the Credit Agreement)
on July 28, 2016. The Credit Agreement provides for a revolving credit facility of $400 million, which can be increased by an
additional $200 million subject to certain conditions. Borrowings under the Credit Agreement may be used for working capital
and expenditures of the Company and its subsidiaries, including financing permitted acquisitions. Borrowings under the Credit
Agreement for base rate loans bear interest at a variable rate equal to the greater of (i) the prime commercial rate, (ii) the per annum
federal funds rate plus 0.5%, or (iii) LIBOR + 1.00% - 1.75% depending on the existing total leverage ratio of Debt to Earnings
Before Interest, Taxes, Depreciation and Amortization (as defined in the Credit Agreement). The annualized fee for any unused
portion of the credit facility is currently 25 basis points.
The Credit Agreement matures on July 28, 2021 and contains customary restrictive and financial covenants and customary
events of default. As of June 30, 2017, the outstanding balance under the Credit Agreement was $343.5 million.
46
Note 6. Commitments and Contingencies:
The Company leases office and warehouse space, vehicles and various office equipment under operating leases. At
June 30, 2017, aggregate net minimum rental commitments under non-cancelable leases having an initial or remaining term of more
than one year are payable as follows (in thousands):
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,123
8,431
8,377
8,371
7,625
26,729
$ 68,656
Total rent expense was approximately $9.8 million, $8.1 million, and $4.9 million for the years ended June 30, 2017, 2016,
and 2015, respectively.
The Company is routinely subject to claims and involved in legal actions which are incidental to the business of the
Company. Although it is difficult to predict the ultimate outcome of these matters, management believes that any ultimate liability
will not materially affect the consolidated financial position or results of operations of the Company.
Note 7. Accumulated Other Comprehensive Income:
Changes in accumulated other comprehensive income (loss), net of tax, for the year ended June 30, 2017 consists of
(in thousands):
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(5,542) $
24,531
18,989
$
(64,863) $
(3,061)
(67,924) $
Unrealized
Gains (Losses)
on Available-
for-Sale
Investments
Foreign
Currency
Translation
Adjustments
Total
(70,405)
21,470
(48,935)
Note 8. Earnings Per Share:
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 number of shares used to calculate earnings per share are as follows (in thousands, except per share data):
Year Ended June 30,
Net earnings used for basic and diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
$ 76,086 $ 104,476 $ 107,735
2015
Weighted average shares used in basic computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares used in diluted computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,313
187
37,500
37,194
132
37,326
37,096
135
37,231
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2.04 $
2.03 $
2.81 $
2.80 $
2.90
2.89
47
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 2.0 million, 1.2 million, and 516,000 at June 30, 2017, 2016 and 2015, respectively.
Note 9. 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 Company’s Amended and Restated 2010 Equity Incentive Plan (the A&R 2010 Plan) provides
for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, performance shares, performance
units and stock appreciation rights. There are 3.8 million shares of common stock authorized for grant under the A&R 2010 Plan.
At June 30, 2017, there were 620,000 shares of common stock available for grant under the A&R 2010 Plan. The maximum term of
incentive options granted under the A&R 2010 Plan is ten years. The A&R 2010 amends and restates the Company’s 2010 Equity
Incentive Plan (the 2010 Plan). The A&R 2010 Plan replaced the Company’s 1998 Nonqualified Stock Option Plan (the 1998
Plan). The A&R 2010 Plan and the 1998 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, 2017 under the A&R 2010 Plan and the 1998 Plan were 2.8 million and 50,000, respectively.
Stock option activity under the Plans for the three years ended June 30, 2017, consists of the following (shares in thousands):
Weighted
Average
Exercise
Price
Weighted
Avg.
Contractual
Life (Yrs.)
Aggregate
Intrinsic
Value
(millions)
Shares
Outstanding at June 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at June 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
811
600
(133)
(141)
1,137 $
805
(54)
(69)
1,819 $
1,135
(70)
(63)
2,821
$
72.11
93.98
92.85
69.31
81.57
105.16
99.68
69.82
91.91
107.42
99.11
71.81
98.42
5.1 $
53.8
Exercisable at June 30:
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
547
596
843
72.72
75.74
82.93
4.0 $
29.1
The fair values of options granted under the Plans were estimated on the date of grant using the Black-Scholes option-
pricing model with the following assumptions used:
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected lives (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30,
2017
1.2%
21% - 24%
1.0% - 1.9%
2016
1.2%
20% - 23%
1.2% - 1.9%
5
5
2015
1.3%
18% - 21%
1.3% - 2.2%
5
48
The dividend yield is based on the Company’s historical annual cash dividend divided by the market value of the Company’s
common stock. The expected annualized volatility is based on the Company’s historical stock price over a period equivalent to the
expected life of the option granted. The risk-free interest rate is based on U.S. Treasury constant maturity interest rates with a term
consistent with the expected life of the options granted.
The weighted average fair value of options granted during fiscal 2017, 2016 and 2015 was $18.21, $18.50, and $15.01
respectively. The total intrinsic value of options exercised during fiscal 2017, 2016 and 2015 were $2.3 million, $2.4 million, and
$3.5 million respectively. The total fair value of options vested during fiscal 2017, 2016 and 2015 were $5.0 million, $2.0 million,
and $2.3 million respectively.
In fiscal 2017, 2016 and 2015, 23,965, 19,994, and 9,000 restricted common stock shares were granted at weighted average
grant date fair values of $104.94, $99.53, and $91.78 per share, respectively. Non-vested restricted common stock shares at June 30,
2017, 2016 and 2015 were 31,647, 22,545, and 19,102, respectively.
In fiscal 2017, 2016, and 2015, 64,931, 35,083, and 36,192 restricted stock units were granted at a weighted average grant
date fair value of $109.36, $105.01, and $94.13, respectively. The restricted stock units vest over a three-year period. In fiscal 2017,
4,333 restricted stock units were forfeited.
Stock-based compensation cost of $14.6 million, $9.4 million, and $5.9 million was included in selling, general and
administrative expense in fiscal 2017, 2016 and 2015, respectively. The income tax benefit associated with stock-based compensation
costs was $0.5 million, $0.6 million, and $0.6 million in fiscal 2017, 2016, and 2015, respectively. As of June 30, 2017, there
was $26.0 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 2018 through 2021. The weighted average period over which the
compensation cost is expected to be recognized is 2.3 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 $213,000, $144,000 and $39,000 expense for the ESPP in fiscal 2017, 2016 and 2015, 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 $2.2 million, $1.2 million, and $1.1 million for the years ended June 30, 2017, 2016, and 2015,
respectively. The Company operates defined contribution pension plans for its U.K. employees. The Company has recorded an
expense for contributions to the plans of $0.8 million, $0.8, and $0.7 million for the years ended June 30, 2017, 2016 and 2015,
respectively.
Performance incentive programs: In fiscal 2017, under certain employment agreements and a Management Incentive
Plan available to executive officers and certain management personnel, the Company recorded cash bonuses of $4.7 million,
granted options for 896,778 shares of common stock, issued 16,653 restricted common shares and 39,931 restricted stock units. The
Company recorded cash bonuses of $4.2 million and $1.9 million, and granted options for 620,917 and 322,000 shares of common
stock for the years ended June 30, 2016 and 2015, respectively. In addition, 11,522 restricted common stock shares and 26,583
restricted stock units and were issued in fiscal 2016.
Note 10. Income Taxes:
The provisions for income taxes consist of the following (in thousands):
Year Ended June 30,
2016
2017
2015
Earnings before income taxes consist of:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes on income consist of:
Currently payable:
$ 81,721 $ 120,154 $ 121,765
32,397
$ 111,961 $ 147,481 $ 154,162
30,240
27,327
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,462 $ 34,805 $ 28,220
4,051
8,212
2,958
7,579
6,165
10,704
49
Net deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(901)
(968)
(2,981)
$ 35,875
1,906
(428)
(3,815)
$ 43,005
4,401
292
(3,355)
$ 46,427
The following is a reconciliation of the federal tax calculated at the statutory rate of 35% to the actual income taxes
provided (in thousands):
Year Ended June 30,
2016
2017
2015
Year Ended June 30,
Income tax expense at federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualified production activity deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-taxable gain on investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2015
—
2,158
(3,820)
1,852
(3,932)
2016
$ 39,186 $ 51,618 $ 53,957
4,762
(3,140)
(2,905)
(912)
—
(4,059)
(1,276)
$ 46,427
(1,519)
4,541
(5,143)
472
$ 35,875
(1,550)
—
(4,639)
(344)
$ 43,005
—
The effective rate for the year ended June 30, 2017 increased by 2.8% compared to the prior year. The increase was
primarily due to unfavorable discrete events in fiscal 2017 related to the revaluation of contingent consideration which is not a tax
deductible expense.
The Company recognized net expense related to discrete tax items of $3.8 million in fiscal 2017, including $4.5 million
in expense related to the revaluation of contingent consideration which is not a tax deductible expense. In the year ended June 30,
2015, as a result of the recent acquisitions, the rate reflects an increase for state tax expense as well as a resulting provision to return
true-up from fiscal 2014. The increase is offset by the non-taxable gain which was a result of purchase the remaining interest in
CyVek. In addition, the Company’s R&D Europe subsidiary declared and paid a dividend of £46.6 million which resulted in a tax
benefit of approximately $1.7 million.
The effective rate for the year ended June 30, 2016 decreased by 0.9% compared to the prior year. The rate decrease was
primarily driven by additional R&D credit benefit due to the retroactive reinstatement of the credit under the Protecting Americans
from Tax Hikes Act of 2015, an increase in the foreign rate benefit due to the reduction in the UK income tax rate and a reduction
in state tax related to the prior year. These decreases were partially offset by less of a foreign tax credit benefit than in the prior year
and the non-recurrence of a non-taxable gain.
Temporary differences comprising deferred taxes on the Consolidated Balance Sheets are as follows (in thousands):
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax basis in equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized loss on available for sale investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
June 30
2017
2016
9,415 $
24,617
6,386
4,381
9,052
-
9,937
(3,341)
60,447
9,768
26,556
3,197
4,544
5,912
329
7,421
(7,201)
50,526
50
Net unrealized gain on available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30
2016
2017
(11,153)
—
(162,460)
(107,200)
(5,628)
(5,132)
(1,802)
(1,031)
(113,363)
(181,043)
$ (120,596) $ (62,837)
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, 2017 was $3.3 million, a decrease of $3.9 million from the prior year. The
decrease was driven by a decrease in the valuation allowance for the Company’s equity investments. The valuation allowance as of
June 30, 2016 was $7.2 million, an increase of $4.7 million over prior year. This increase included a $5.0 million charge related to
an equity investment and was recorded through other comprehensive income and was partially offset by a decrease of $0.3 million
primarily related to the expiration of state net operating loss carryforwards and research and development credits.
As of June 30, 2017, approximately $2.7 million of the valuation allowance relates to certain foreign and state tax net
operating loss and state credit carryforwards that existed at the date the Company acquired ACD, Novus, ProteinSimple and CyVek
as well as immaterial amounts generated after the acquisitions. The remainder of the valuation allowance was for certain state tax
credit carryovers generated or acquired in the current or prior fiscal years. Approximately $2.0 million of the valuation allowance
as of June 30, 2016 was for certain foreign and state tax net operating loss and state credit carryforwards that existed at the date the
Company acquired Novus, ProteinSimple, and CyVek or have been generated after the acquisitions. The remainder of the valuation
allowance was for certain state tax credit carryovers generated or acquired in current or prior fiscal years. The Company believes
it is more likely than not that these tax carryovers will not be realized.
As of June 30, 2017, the Company has federal operating loss carryforwards of approximately $53.4 million and state
operating loss carryforwards of $84.0 million from its acquisitions of ACD, ProteinSimple and CyVek, which are not limited under
IRC Section 382. As of June 30, 2017, the Company has foreign net operating loss carryforwards of $4.1 million. The net operating
loss carryforwards expire between fiscal 2018 and 2035. The Company has a deferred tax asset of $21.2 million, net of the valuation
allowance discussed above, related to the net operating loss carryovers. As of June 30, 2017, the Company has federal and state tax
credit carryforwards of $3.7 million and $2.7 million, respectively. The federal tax credit carryforwards expire between 2018 and
2035. A majority of the state credit carryforwards have no expiry date. The Company has a deferred tax asset of $5.7 million, net of
the valuation allowance discussed above, related to the tax credit carryovers.
The Company has not recognized a deferred tax liability for unremitted earnings of approximately $68.9 million from its
foreign operations because its subsidiaries have invested or will invest the undistributed earnings indefinitely, or the earnings will
be remitted in a tax-neutral transaction. Generally, such amounts become subject to United States taxation upon the remittance of
dividends and under other circumstances. It is not practical to estimate the amount of the deferred income tax liabilities related to
investments in these foreign subsidiaries.
The Company’s unrecognized tax benefits at June 30, 2017, 2016 and 2015, including accrued interest and penalties,
were not material. The Company does not believe it is reasonably possible that the total amounts of unrecognized tax benefits will
significantly increase in the next twelve months. The Company files income tax returns in the U.S federal and certain state tax
jurisdictions, and several jurisdictions outside the U.S. The Company’s federal returns are subject to tax assessment for 2014 and
subsequent years. State and foreign income tax returns are generally subject to examination for a period of three to five years after
filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period
of up to one year after formal notification to the states.
Note 11. Segment Information:
The Company has three reportable segments based on the nature of its products; they are Biotechnology, Protein Platforms
and Diagnostics.
The Company’s Biotechnology reporting segment develops, manufactures and sells proteins, antibodies, immunoassays,
flow cytometry products, intracellular signaling products, and biologically active chemical compounds used in biological research.
No customer in the Biotechnology segment accounted for more than 10% of the segment’s net sales for the years ended June 30,
2017, 2016, and 2015.
51
The Company’s Protein Platforms segment develops and commercializes proprietary systems and consumables for protein
analysis. This segment was formed in fiscal 2015 with the acquisitions of ProteinSimple and CyVek. No customer in the Protein
Platforms segment accounted for more than 10% of the segment’s net sales for the years ended June 30, 2017 and 2016.
The Company’s Diagnostics reporting segment 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. One customer
accounted for approximately 12% and 13% of the Diagnostics segments net sales for the years ended June 30, 2017 and 2015,
respectively. No customer in the Diagnostics segment accounted for more than 10% of the segment’s net sales for the years ended
June 30, 2016.
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):
External sales
Biotechnology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Protein Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diagnostics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 364,504
91,464
107,139
(104)
$ 563,003
$ 317,340
77,324
104,484
(125)
$ 499,023
$ 308,437
66,249
77,866
(306)
$ 452,246
Year Ended June 30,
2017
2016
2015
Operating Income
Biotechnology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Protein Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diagnostics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs recognized upon sale of acquired inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate general, selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . .
Consolidated operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 175,163 $ 168,613 $ 165,226
4,469
23,981
193,676
(6,952)
(26,169)
(5,957)
(4,519)
(3,056)
$ 120,584 $ 150,593 $ 147,023
9,648
28,575
213,386
(3,037)
(44,393)
(14,631)
(25,789)
(4,952)
3,592
30,412
202,617
(5,431)
(29,395)
(9,430)
(2,761)
(5,007)
The Company has some integrated facilities that serve multiple segments. As such, asset and capital expenditure information
by reportable 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 reportable segment’s operating
results, it is not discretely identifiable.
Following is financial information relating to geographic areas (in thousands):
External sales
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA, excluding U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APAC, excluding Greater China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Greater China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total external sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 313,195 $ 275,859 $ 245,217
104,178
103,060
32,309
28,307
24,015
38,137
34,933
36,199
11,594
17,461
125,126
28,401
41,463
39,078
15,740
$ 563,003 $ 499,023 $ 452,246
Year Ended June 30,
2016
2017
2015
52
Long-lived assets
United States and Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 119,859
14,100
1,165
$ 135,124
$ 116,830
14,423
1,109
$ 132,362
$ 117,224
11,239
1,286
$ 129,749
External sales are attributed to countries based on the location of the customer or distributor. Long-lived assets are
comprised of land, buildings and improvements and equipment, net of accumulated depreciation and other assets.
Year Ended June 30,
2016
2017
2015
Note 12. Quarterly Financial Data (unaudited)
(in thousands, except per share data)
2017
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per common share:(1)
First
Quarter
$ 130,581
Second
Quarter
Third
Quarter
43,236
$
$ 18,843
$ 131,807 $ 144,037
47,355
$ 22,167
43,664
7,467
Fourth
Quarter
$ 156,578
54,207
$ 27,609
Year
$ 563,003
188,462
$ 76,086
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.51
0.50
$
$
0.20
0.20
$
$
0.59
0.59
$
$
0.74
0.74
$
$
2.04
2.03
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,281
37,473
37,308
37,478
37,320
37,494
37,344
37,546
37,313
37,500
(in thousands, except per share data)
2016
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per common share:
First
Quarter
$ 112,381
Second
Quarter
Third
Quarter
36,990
$ 22,707
$ 120,907 $ 130,973
40,984
$ 30,291
$ 25,851
39,320
Fourth
Quarter
$ 134,762
45,070
$ 25,626
Year
$ 499,023
162,364
$ 104,476
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.61
0.61
$
$
0.70
0.69
$
$
0.81
0.81
$
$
0.69
0.69
$
$
2.81
2.80
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,169
37,315
37,189
37,301
37,196
37,299
37,224
37,384
37,194
37,326
(1) During the fourth quarter, management identified certain errors related to purchase accounting items for the ACD acquisition recorded during the first quarter
of fiscal year 2017. These errors were corrected by adjusting previously reported amounts in the first, second and third quarter of fiscal year 2017. These items
impact the cost recognized upon the sale of acquired inventory, other acquisition related costs recorded within selling, general and administrative costs, interest
expense, and income taxes and resulted in a favorable impact as compared to previously reported results and as outlined in the table below.
(in thousands)
2017
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incremental net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter
$
$
(2,875)
(839)
57
1,097
2,560
Second Quarter
(3,061)
$
1,326
86
495
1,154
$
53
Third Quarter
$
(2,499)
1,302
86
333
778
$
We concluded that these errors were not material to each of the respective periods; however, we have elected to report the corrected amount for the fourth
quarter. The amounts recorded in this table for the previously reported 2017 quarterly information have been revised for these updates. We will revise the
fiscal year 2017 quarterly reported information in future filings to reflect the properly stated amounts. These identified items have no impact to year to date
GAAP results.
Note 13. Subsequent Events:
In July 2017, management determined that CyVek achieved the required revenue threshold for the additional consideration
payment discussed in Note 4 resulting in a payment of $34.0 million to the former owners.
On September 5, 2017, Bio-Techne acquired Trevigen Inc for approximately $11.0 million. The purchase accounting for
this acquisition is in progress.
54
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Bio-Techne Corporation:
We have audited the accompanying consolidated balance sheets of Bio-Techne Corporation and subsidiaries as of June
30, 2017 and 2016, and the related consolidated statements of earnings and comprehensive income, shareholders’ equity, and cash
flows for each of the fiscal years in the three-year period ended June 30, 2017. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Bio-Techne Corporation and subsidiaries as of June 30, 2017 and 2016, and the results of their operations and their
cash flows for each of the fiscal years in the three-year period ended June 30, 2017, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Bio-Techne Corporation’s internal control over financial reporting as of June 30, 2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated September 7, 2017 expressed an adverse opinion on the effectiveness of the Company’s internal
control over financial reporting.
/s/ KPMG LLP
Minneapolis, Minnesota
September 7, 2017
55
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Bio-Techne Corporation:
We have audited Bio-Techne Corporation’s internal control over financial reporting as of June 30, 2017, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Bio-Techne Corporation’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is
a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely
basis. Material weaknesses related to the Company not maintaining effective monitoring or information and communication
processes, and not having effective control activities over the establishment of general information technology controls for certain
of its information technology platforms, have been identified and included in management’s assessment. We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets
of Bio-Techne Corporation and subsidiaries as of June 30, 2017 and 2016, and the related consolidated statements of earnings and
comprehensive income, shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended June 30,
2017. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit
of the fiscal year 2017 consolidated financial statements, and this report does not affect our report dated September 7, 2017, which
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, because of the effect of the aforementioned material weaknesses on the achievement of the objectives of
the control criteria, Bio-Techne Corporation has not maintained effective internal control over financial reporting as of June 30,
2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
The scope of management’s assessment of the effectiveness of internal control over financial reporting excluded the
operations of Space ImportExport, Srl (Space) and Advanced Cell Diagnostics (ACD), which were acquired on July 1, 2016 and
August 1, 2016, respectively. Space and ACD represented 22.9% of BioTechne Corporation’s total assets and 7.5% of its total
revenues as of and for the fiscal year ended June 30, 2017. Our audit of internal control over financial reporting of BioTechne
Corporation also excluded an evaluation of the internal control over financial reporting of Space and ACD.
/s/ KPMG LLP
Minneapolis, Minnesota
September 7, 2017
56
a.
Evaluation of Disclosure Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), management, with the
participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this report,
the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that due to material weaknesses in our internal control over
financial reporting described below in Management’s Report on Internal Control over Financial Reporting, our disclosure controls
and procedures were not effective as of June 30, 2017.
Notwithstanding the identified material weaknesses, management believes the consolidated financial statements included
in this Annual Report on Form 10-K fairly present, in all material respects, our financial condition, results of operations and cash
flows as of and for the periods presented in accordance with U.S. generally accepted accounting principles.
b.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act). Management, including our Chief Executive Officer and Chief Financial Officer, assessed
the effectiveness of our internal control over financial reporting as of June 30, 2017. In making this assessment, our management
used the criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework (2013),”
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting for external purposes in accordance with U.S. 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. Accordingly,
even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis.
We acquired Space Import-Export, Srl (“Space”) on July 1, 2016 and Advanced Cell Diagnostics (“ACD”) on August 1,
2016. Space and ACD represented approximately 22.9% of our total assets and 7.5% of our total revenues as of and for the year
ended June 30, 2017. We excluded internal control over financial reporting associated with Space and ACD from our assessment of
the effectiveness of our internal control over financial reporting as of June 30, 2017.
Based on our assessment which used the criteria noted above, management has concluded that our internal control over
financial reporting was not effective as of June 30, 2017 due to the material weaknesses described as follows:
The Company did not maintain effective monitoring or information and communication processes. Specifically, the
Company did not have:
•
Sufficient monitoring of the operation of internal control related to general information technology controls (GITCs)
at the locations we have acquired since fiscal year 2013 that are subject to management’s assessment.
• Effective GITCs implemented timely at every location to allow adequate time for the effective operation of certain IT
dependent manual controls primarily in the revenue process, inventory process, and expenditures process.
•
Sufficient flow of information from all components, including information regarding the progress made on control
implementation and control testing results to allow for effective monitoring.
57
As a consequence, the Company did not have effective control activities over the establishment of GITCs for certain
of its information technology (“IT”) platforms primarily at the locations it has acquired since fiscal year 2013 that are subject
to management’s assessment, including instances of ineffective application change controls, user access provisioning, and user
access rights review. Due to the impact of these ineffective GITCs, certain control activities including manual controls that rely
on data produced by and maintained within these IT system applications, were also ineffective, potentially impacting all financial
statement accounts.
Although no material misstatements were identified in our consolidated financial statements, these control deficiencies
create a reasonable possibility that a material misstatement of the Company’s consolidated financial statements will not be prevented
or detected on a timely basis. We have concluded that the deficiencies represent material weaknesses in our internal control over
financial reporting and our internal control over financial reporting was not effective as of June 30, 2017.
The Company’s internal control over financial reporting as of June 30, 2017 has been audited by KPMG LLP, an independent
registered public company accounting firm. KPMG LLP’s report contains an adverse opinion on the effectiveness of our internal
control over financial reporting, which is included in Item 8 in this Form 10-K.
c.
Remedial Measures
During the current year, management implemented significant changes to improve procedures relating to our internal
control structure, including our ability to rely on system generated information. These changes included the implementation of a
new ERP system in Minneapolis on July 1, 2016. Additional corporate resources were added to the Controllership function during
the second quarter to strengthen the controls within the corporate financial reporting processes as well as controls over complex
transactions and to the Internal Audit function during the third quarter to increase our level of control monitoring. Management
also completed a full reassessment of risk which resulted in the design and global rollout of a new GITC control framework with
updated standard operating procedures, a redesign and reassessment of all manual controls, including IT dependent manual controls,
identification of automated configuration controls, and a reassessment of users’ access rights to each of our IT systems. Newly
designed controls began to be implemented during the second quarter of the fiscal year. However, the complete design reassessment
was not completed until the end of the third quarter, which resulted in certain controls and certain access right changes not being
implemented until the fourth quarter. Therefore, although we believe we have made significant progress in changing the design
of our controls as of June 30, 2017, we have not had adequate time to validate the design and operating effectiveness of all of our
controls in accordance with our internal policies.
With the oversight of the Company’s Audit Committee, management is taking steps intended to address the underlying
causes of the material weaknesses identified in Management’s Report on Internal Control over Financial Reporting primarily
through the following remediation activities:
• Expanding our Internal Audit function to provide additional resources for internal control monitoring with a focus on
our GITC controls, especially for the locations we have acquired since fiscal year 2013, as these entities often have
less sophisticated IT systems which increases the need for oversight and additional controls.
•
•
Increasing the frequency of control testing to validate that we have achieved a sustained level of operating effectiveness
in accordance with our internal policies.
Providing additional training to local management teams regarding the flow of information and expectations for
timely reporting of the status of control implementation, as well as documentation expectations for key controls that
involve IT dependent information and/or involve judgment and estimates. These efforts will improve consistency of
communications across our components as well as standardization of our documentation to allow for better monitoring.
• Reorganizing responsibilities within the Corporate Accounting team to 1) allow for the implementation of additional
quarterly procedures designed to promote improvements in the flow of information between component locations
and Corporate management and 2) support the transition of newly acquired entities, currently not within the scope of
management’s assessment, into our control framework.
The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of
time and management has concluded, through testing, that these controls are operating effectively. We believe this remediation will
occur in fiscal year 2018 and will strengthen our internal control over financial reporting and will prevent a reoccurrence of the
material weaknesses described above.
58
d.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the Company’s most recently completed fiscal quarter other than those described in the
Remedial Measures section above that has materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.
None.
ITEM 9B. OTHER INFORMATION
59
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than “Executive Officers of the Registrant” which is set forth at the end of Item 1 in Part I of this report, the
information required by Item 10 is incorporated herein by reference to the sections entitled “Election of Directors,” “Principle
Shareholders” and “Additional Corporate Governance Matters” in the Company’s Proxy Statement for its 2017 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after
the close of the fiscal year for which this report is filed.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the sections entitled “Election of Directors” and
“Executive Compensation” in the Company’s Proxy Statement for its 2017 Annual Meeting of Shareholders which will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required by Item 12 is incorporated by reference to the sections entitled “Principal Shareholders” and
“Management Shareholdings” in the Company’s Proxy Statement for its 2017 Annual Meeting of Shareholders which will be filed
with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for
which this report is filed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference to the sections entitled “Election of Directors”
and “Additional Corporate Governance Matters” in the Company’s Proxy Statement for its 2017 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the
fiscal year for which this report is filed.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated herein by reference to the section entitled “Audit Matters” in the
Company’s Proxy Statement for its 2017 Annual Meeting of Shareholders which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
60
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
A. (1) List of Financial Statements.
The following Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K:
Consolidated Statements of Earnings and Comprehensive Income for the Years Ended June 30, 2017, 2016, and 2015
Consolidated Balance Sheets as of June 30, 2017 and 2016
Consolidated Statements of Shareholders› Equity for the Years Ended June 30, 2017, 2016, and 2015
Consolidated Statements of Cash Flows for the Years Ended June 30, 2017, 2016 and 2015
Notes to Consolidated Financial Statements for the Years Ended June 30, 2017, 2016 and 2015
Reports of Independent Registered Public Accounting Firm
A. (2) Financial Statement Schedules.
All financial statement schedules are omitted because they are not applicable, not material or the required information
is shown in the Consolidated Financial Statements or Notes thereto.
A. (3) Exhibits.
See “Exhibit Index” immediately following signature page.
ITEM 16. FORM 10-K SUMMARY
None.
61
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: September 7, 2017
BIO-TECHNE CORPORATION
/s/ Charles Kummeth
By: Charles Kummeth
Its: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
Date
September 7, 2017
September 7, 2017
September 7, 2017
September 7, 2017
September 7, 2017
September 7, 2017
September 7, 2017
September 7, 2017
September 7, 2017
September 7, 2017
Signature and Title
/s/ Robert V. Baumgartner
Robert V. Baumgartner
Chairman of the Board and Director
/s/ Roger C. Lucas, Ph.D.
Dr. Roger C. Lucas
Vice Chairman and Director
/s/ Randolph C. Steer, Ph.D., M.D.
Dr. Randolph C. Steer, Director
/s/ Charles A. Dinarello, M.D.
Dr. Charles A. Dinarello, Director
/s/ Karen A. Holbrook, Ph.D.
Dr. Karen A. Holbrook, Director
/s/ John L. Higgins
John L. Higgins, Director
/s/ Roeland Nusse, Ph.D.
Dr. Roeland Nusse, Director
/s/ Harold J. Wiens
Harold J. Wiens, Director
/s/ Charles Kummeth
Charles Kummeth, Director and Chief Executive Officer
(principal executive officer)
/s/ James Hippel
James Hippel, Chief Financial Officer
(principal financial officer and principal accounting officer)
62
EXHIBIT INDEX
for Form 10-K for the 2017 Fiscal Year
Exhibit
Number
3.1
3.2
10.1**
10.2**
10.3**
10.4**
10.5**
10.6**
10.7**
10.8**
10.9**
Description
Amended and Restated Articles of Incorporation of the Company--incorporated by reference to Exhibit 3.1 of the
Company’s Form 10-Q dated February 9, 2015*
Second Amended and Restated Bylaws of the Company-incorporated by reference to Exhibit 3.2 of the Company’s
Form 10-K dated August 29, 2016*
1998 Nonqualified Stock Option Plan--incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q for
the quarter ended September 30, 1998*
Form of Stock Option Agreement for 1998 Nonqualified Stock Option Plan--incorporated by reference to Exhibit
10.2 of the Company’s Form 10-Q for the quarter ended September 30, 1998*
Management Incentive Plan by reference to Exhibit 10.13 of the Company’s Form 10-K for the year ended June 30,
2013*
Amended and Restated 2010 Equity Incentive Plan - incorporated by reference to Exhibit 10.1 of the Company’s
Form 8-K dated October 30, 2015*
Form of Restricted Stock Award Agreement for Amended and Restated 2010 Equity Incentive Plan - incorporated
by reference to Exhibit 10.2 of the Company’s Form 8-K dated October 30, 2015*
Form of Restricted Stock Unit Award Agreement for Amended and Restated 2010 Equity Incentive Plan - incorporated
by reference to Exhibit 10.3 of the Company’s Form 8-K dated October 30, 2015*
Form of the Performance Unit Award Agreement for Amended and Restated 2010 Equity Incentive Plan - incorporated
by reference to Exhibit 10.4 of the Company’s Form 8-K dated October 30, 2015*
Form of Incentive Stock Option Agreement for Amended and Restated 2010 Equity Incentive Plan - incorporated by
reference to Exhibit 10.5 of the Company’s Form 8-K dated October 30, 2015*
Form of Employee Non-Qualified Stock Option Agreement for Amended and Restated 2010 Equity Incentive Plan
- incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K dated October 30, 2015*
10.10**
Form of Director Non-Qualified Stock Option Agreement for Amended and Restated 2010 Equity Incentive Plan -
incorporated by reference to Exhibit 10.7 of the Company’s Form 8-K dated October 30, 2015*
10.11**
Employment Agreement by and between the Company and Charles Kummeth—attached as Exhibit 10.11 hereto.
10.12**
Form of Employment Agreement by and between the Company and Executive Officers of the Company other than
the CEO—attached as Exhibit 10.12 hereto.
10.13
10.14
10.15
10.16
Agreement of Investment and Merger between the Company, Research and Diagnostics Systems, Inc., Cayenne
Merger Sub, Inc., CyVek, Inc. and Citron Capital Limited dated April 1, 2014--incorporated by reference to Exhibit
10.22 of the Company’s Form 10-K dated August 29, 2014*
Credit Agreement by and among the Company, the Guarantors party thereto, the Lenders party thereto, and BMO
Harris Bank N.A., as Administrative Agent, Swing Line Lender and a lender dated July 28, 2016--incorporated by
reference to Exhibit 10.1 of the Company’s Form 8-K dated August 2, 2016*
Form of Indemnification Agreement entered into with each director and executive officer of the Company--
incorporated by reference to Exhibit 10.27 of the Company’s Form 10-K dated August 29, 2014*
Agreement and Plan of Merger by and among the Company, Aero Merger Sub Inc., Advanced Cell Diagnostics, Inc.
and Fortis Advisors, LLC as the Securityholders’ Representative, dated July 6, 2016 - incorporated by reference to
Exhibit 2.1 of the Company’s Form 8-K dated July 7, 2016*
63
Exhibit
Number
21
Description
Subsidiaries of the Company.
23
31.1
31.2
32.1
32.2
101
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The following financial statements from the Company’s Annual Report on Form 10-K for the fiscal year ended
June 30, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements
of Earnings and Comprehensive Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements
of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated
Financial Statements.
*
Incorporated by reference; SEC File No. 000-17272
** Management contract or compensatory plan or arrangement
Exhibits for Form 10-K have not been included in this report. Exhibits have been filed with the Securities and Exchange
Commission. Upon request to the Investor Relations Department, Bio-Techne Corporation will furnish, without charge, any such
exhibits as well as copies of periodic reports filed with the Securities and Exchange Commission.
64
Board of Directors
Executive Officers
Robert V. Baumgartner
Chairman of the Board and Director
Charles Kummeth
President and Chief Executive Officer
Roger C. Lucas, Ph.D.
Vice Chairman and Director
James T. Hippel
Senior VP, Finance and Chief Financial Officer
Charles Kummeth
President, Chief Executive Officer and Director
J. Fernando Bazan, Ph.D.
Chief Technology Officer
Charles A. Dinarello, M.D.
Director
John L. Higgins
Director
Karen A. Holbrook, Ph.D.
Director
Roeland Nusse, Ph.D.
Director
Randolph C. Steer, M.D., Ph.D.
Director
Harold J. Wiens
Director
David Eansor
Senior VP, Biotechnology Division
Brenda Furlow
Senior VP, General Counsel
Robert Gavin
Senior VP, Protein Platforms Division
Kevin Gould
Senior VP, Diagnostics Division
Annual Meeting
The annual meeting of shareholders of
Bio-Techne Corporation will be held via a live webcast available at
www.virtual shareholder meeting.com/TECH17
Thursday, October 26, 2017, at 12:00 p.m. (Central Time).
TECH is Bio-Techne Corporation’s Nasdaq stock symbol, which is listed on the Nasdaq Global Select Market.
Bio-Techne Corporation
614 McKinley Place NE
Minneapolis, MN 55413-2610, USA
(612) 379-8854