UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2012,
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-17272
TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota | 41-1427402 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
614 McKinley Place N.E. | ||
Minneapolis, MN | 55413 | |
(Address of principal executive offices) | (Zip Code) |
(612) 379-8854
(Registrants telephone number, including area code)
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨ No x
At May 3, 2012, 36,825,963 shares of the Companys Common Stock (par value $0.01) were outstanding.
Page | ||||||
Financial Statements (Unaudited) | ||||||
Condensed Consolidated Statements of Earnings for the Quarters and Nine Months Ended March 31, 2012 and 2011 | 1 | |||||
Condensed Consolidated Balance Sheets as of March 31, 2012 and June 30, 2011 | 2 | |||||
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2012 and 2011 | 3 | |||||
Notes to Condensed Consolidated Financial Statements | 4 | |||||
Managements Discussion and Analysis of Financial Condition and Results of Operations | 9 | |||||
Quantitative and Qualitative Disclosures about Market Risk | 15 | |||||
Controls and Procedures | 16 | |||||
PART II: OTHER INFORMATION | ||||||
Legal Proceedings | 16 | |||||
Risk Factors | 17 | |||||
Unregistered Sales of Equity Securities and Use of Proceeds | 17 | |||||
Defaults Upon Senior Securities | 17 | |||||
Mine Safety Disclosures | 17 | |||||
Other Information | 17 | |||||
Exhibits | 17 | |||||
SIGNATURES | 18 |
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
TECHNE Corporation and Subsidiaries
(in thousands, except per share data)
(unaudited)
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net sales |
$ | 83,621 | $ | 76,271 | $ | 235,879 | $ | 211,924 | ||||||||
Cost of sales |
20,238 | 15,941 | 58,939 | 46,618 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin |
63,383 | 60,330 | 176,940 | 165,306 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Selling, general and administrative |
9,899 | 9,295 | 31,323 | 25,335 | ||||||||||||
Research and development |
7,122 | 6,297 | 20,626 | 19,519 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
17,021 | 15,592 | 51,949 | 44,854 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
46,362 | 44,738 | 124,991 | 120,452 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other income (expense): |
||||||||||||||||
Interest income |
470 | 1,067 | 1,996 | 2,934 | ||||||||||||
Impairment losses on investments |
(3,254 | ) | (0 | ) | (3,254 | ) | (0 | ) | ||||||||
Other non-operating expense, net |
(373 | ) | (421 | ) | (2,155 | ) | (1,376 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other income (expense) |
(3,157 | ) | 646 | (3,413 | ) | 1,558 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings before income taxes |
43,205 | 45,384 | 121,578 | 122,010 | ||||||||||||
Income taxes |
11,449 | 14,320 | 36,488 | 38,039 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net earnings |
$ | 31,756 | $ | 31,064 | $ | 85,090 | $ | 83,971 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 0.86 | $ | 0.84 | $ | 2.30 | $ | 2.26 | ||||||||
Diluted |
$ | 0.86 | $ | 0.84 | $ | 2.30 | $ | 2.26 | ||||||||
Cash dividends per common share: |
$ | 0.28 | $ | 0.27 | $ | 0.83 | $ | 0.80 | ||||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
36,864 | 37,119 | 36,975 | 37,084 | ||||||||||||
Diluted |
36,930 | 37,194 | 37,043 | 37,153 |
See Notes to Condensed Consolidated Financial Statements.
1
CONDENSED CONSOLIDATED BALANCE SHEETS
TECHNE Corporation and Subsidiaries
(in thousands, except share and per share data)
March 31, 2012 (unaudited) |
June 30, 2011 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 95,280 | $ | 77,613 | ||||
Short-term available-for-sale investments |
124,325 | 63,200 | ||||||
Trade accounts receivable, less allowance for doubtful accounts of $451 and $448, respectively |
39,114 | 35,914 | ||||||
Income taxes receivable |
3,816 | 0 | ||||||
Other receivables |
1,812 | 1,946 | ||||||
Inventories |
40,497 | 44,906 | ||||||
Deferred income taxes |
0 | 5,797 | ||||||
Prepaid expenses |
1,428 | 1,041 | ||||||
|
|
|
|
|||||
Total current assets |
306,272 | 230,417 | ||||||
|
|
|
|
|||||
Available-for-sale investments |
145,129 | 131,988 | ||||||
Property and equipment, net |
94,614 | 95,398 | ||||||
Goodwill |
86,524 | 86,633 | ||||||
Intangible assets, net |
48,352 | 52,282 | ||||||
Investments in unconsolidated entities |
1,522 | 19,633 | ||||||
Other assets |
1,621 | 1,319 | ||||||
|
|
|
|
|||||
$ | 684,034 | $ | 617,670 | |||||
|
|
|
|
|||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Trade accounts payable |
$ | 6,451 | $ | 5,207 | ||||
Salaries, wages and related accruals |
5,377 | 4,784 | ||||||
Accrued expenses |
10,152 | 2,688 | ||||||
Income taxes payable |
4,477 | 5,509 | ||||||
Deferred income taxes |
4,264 | 0 | ||||||
|
|
|
|
|||||
Total current liabilities |
30,721 | 18,188 | ||||||
|
|
|
|
|||||
Deferred income taxes |
8,816 | 13,360 | ||||||
Shareholders equity: |
||||||||
Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 36,857,507 and 37,153,398, respectively |
369 | 371 | ||||||
Additional paid-in capital |
131,417 | 129,312 | ||||||
Retained earnings |
505,834 | 472,730 | ||||||
Accumulated other comprehensive income (loss) |
6,877 | (16,291 | ) | |||||
|
|
|
|
|||||
Total shareholders equity |
644,497 | 586,122 | ||||||
|
|
|
|
|||||
$ | 684,034 | $ | 617,670 | |||||
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
TECHNE Corporation and Subsidiaries
(in thousands)
(unaudited)
Nine Month Ended March 31, |
||||||||
2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net earnings |
$ | 85,090 | $ | 83,971 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
9,366 | 5,942 | ||||||
Costs recognized on sale of acquired inventory |
5,870 | 0 | ||||||
Deferred income taxes |
(7,753 | ) | 3,194 | |||||
Stock-based compensation expense |
1,389 | 937 | ||||||
Excess tax benefit from stock option exercises |
(51 | ) | (419 | ) | ||||
Impairment loss on investments |
3,254 | 0 | ||||||
Losses by equity method investees |
558 | 744 | ||||||
Other |
(10 | ) | 230 | |||||
Change in operating assets and operating liabilities: |
||||||||
Trade accounts and other receivables |
(4,645 | ) | (5,860 | ) | ||||
Inventories |
(1,586 | ) | (17 | ) | ||||
Prepaid expenses |
(393 | ) | 137 | |||||
Trade accounts payable and accrued expenses |
1,641 | 347 | ||||||
Salaries, wages and related accruals |
1,351 | 1,386 | ||||||
Income taxes payable |
(4,748 | ) | 1,930 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
89,333 | 92,522 | ||||||
|
|
|
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Purchase of available-for-sale investments |
(124,007 | ) | (131,524 | ) | ||||
Proceeds from sales of available-for-sale investments |
53,931 | 97,638 | ||||||
Proceeds from maturities of available-for-sale investments |
56,273 | 31,846 | ||||||
Additions to property and equipment |
(4,884 | ) | (2,357 | ) | ||||
Increase in other assets |
(489 | ) | (807 | ) | ||||
Distribution from unconsolidated entity |
42 | 0 | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(19,134 | ) | (5,204 | ) | ||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Cash dividends |
(30,707 | ) | (29,662 | ) | ||||
Proceeds from stock option exercises |
667 | 3,429 | ||||||
Excess tax benefit from stock option exercises |
51 | 419 | ||||||
Purchase of common stock for stock bonus plans |
(907 | ) | (294 | ) | ||||
Repurchase of common stock |
(21,283 | ) | (1,940 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(52,179 | ) | (28,048 | ) | ||||
|
|
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents |
(353 | ) | 5,219 | |||||
|
|
|
|
|||||
Net increase in cash and cash equivalents |
17,667 | 64,489 | ||||||
Cash and cash equivalents at beginning of period |
77,613 | 94,139 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 95,280 | $ | 158,628 | ||||
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TECHNE Corporation and Subsidiaries
(unaudited)
A. Basis of presentation:
The interim unaudited condensed consolidated financial statements of Techne Corporation and Subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America and with instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying interim unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.
A summary of significant accounting policies followed by the Company is detailed in the Companys Annual Report on Form 10-K for fiscal 2011. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Companys Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2011, included in the Companys Annual Report on Form 10-K for fiscal 2011.
Certain reclassifications have been made to prior years Condensed Consolidated Financial Statements to conform to the current year presentation. The Company reclassified prior years amortization expense as appropriate based upon the nature of the related intangible asset to cost of sales or selling, general and administrative expense. These reclassifications had no impact on net earnings or shareholders equity as previously reported.
B. Available-for-sale investments:
The Companys available-for-sale investments at March 31, 2012 are carried at fair value and are valued using quoted market prices in active markets (Level 1 input) for identical assets and liabilities.
In September 2011, the Company entered into a $10.0 million loan agreement with ChemoCentryx, Inc. (CCXI), one of the Companys equity investees. The loan agreement contained a number of conversion features contingent upon CCXI obtaining future debt or equity financing. The agreement also included a $5.0 million commitment by the Company to participate in a private placement in the event of a successful public offering of CCXI shares. At December 31, 2011, the loan was carried at fair value (Level 3 input) and included in Long-term available-for-sale investments. The Companys $14.3 million equity investment in CCXI was included in Long-term investments in unconsolidated entities.
On February 8, 2012, CCXI completed its initial public offering (IPO) at $10 per share. Upon the close of the IPO, the Companys investment in CCXIs Preferred Shares and the loan, plus accrued interest, converted into CCXI common stock. The Company invested an additional $5.0 million in the private placement, as discussed above, and received ten year warrants to purchase 150,000 shares of CCXI common stock at $20 per share. At March 31, 2012, the Company holds an approximate 18.0% interest in CCXI and the investment is included in Short-term available-for-sale investments at fair-value (Level 1 input) of $66.5 million. The unrealized gain on the Companys investment in CCXI of $37.0 million, net of income tax, is included in Accumulated other comprehensive income at March 31, 2012.
Activity related to available-for-sale investments with Level 3 inputs were as follows (in thousands):
Nine Months Ended March 31, |
||||
2012 | ||||
Beginning balance |
$ | 0 | ||
Issuance of note receivable |
10,000 | |||
Conversion of note receivable to CCXI common stock |
(10,000 | ) | ||
|
|
|||
Ending balance |
$ | 0 | ||
|
|
4
C. Inventories:
Inventories consist of (in thousands):
March 31, | June 30, | |||||||
2012 | 2011 | |||||||
Raw materials |
$ | 5,425 | $ | 5,644 | ||||
Finished goods |
35,072 | 39,262 | ||||||
|
|
|
|
|||||
$ | 40,497 | $ | 44,906 | |||||
|
|
|
|
D. Property and equipment:
Property and equipment consist of (in thousands):
March 31, | June 30, | |||||||
2012 | 2011 | |||||||
Cost: |
||||||||
Land |
$ | 7,494 | $ | 7,497 | ||||
Buildings and improvements |
122,731 | 119,833 | ||||||
Laboratory equipment |
31,503 | 30,315 | ||||||
Office equipment |
5,754 | 5,407 | ||||||
|
|
|
|
|||||
167,482 | 163,052 | |||||||
Accumulated depreciation and amortization |
(72,868 | ) | (67,654 | ) | ||||
|
|
|
|
|||||
$ | 94,614 | $ | 95,398 | |||||
|
|
|
|
E. Intangible assets and goodwill:
Intangible assets consist of (in thousands):
March 31, | June 30, | |||||||
2012 | 2011 | |||||||
Developed technology |
$ | 29,881 | $ | 29,943 | ||||
Trade names |
18,004 | 18,021 | ||||||
Customer relationships |
8,773 | 8,781 | ||||||
Non-compete agreement |
400 | 400 | ||||||
|
|
|
|
|||||
57,058 | 57,145 | |||||||
Accumulated amortization |
(8,706 | ) | (4,863 | ) | ||||
|
|
|
|
|||||
$ | 48,352 | $ | 52,282 | |||||
|
|
|
|
The change in the carrying amount of net intangible assets for the nine months ended March 31, 2012 resulted from amortization expense and currency translation. Amortization expense related to technologies included in cost of sales was $750,000 and $2.3 million, respectively, for the quarter and nine months ended March 31, 2012, and $108,000 and $326,000 for the quarter and nine months ended March 31, 2011, respectively. Amortization expense related to trade names, customer relationships, and the non-compete agreement included in selling, general and administrative expense was $518,000 and $1.6 million for the quarter and nine months ended March 31, 2012, respectively, and $62,000 and $185,000 for the quarter and nine months ended March 31, 2011, respectively.
The change in the carrying amount of goodwill for the nine months ended March 31, 2012 resulted from currency translation.
5
F. Investments in unconsolidated entities:
The Company holds a 16.8% ownership interest in Nephromics, Inc. (Nephromics) and accounts for its investment under the equity method of accounting as Nephromics is a limited liability company. During the quarter ended March 31, 2012, Nephromics entered into an agreement to sell substantially all of its assets. The transaction closed in April, 2012. As a result, the Company determined that a portion of its investment in Nephromics was other than temporarily impaired and wrote off $2.4 million of this investment during the quarter ended March 31, 2012. At March 31, 2012, the Companys remaining investment in Nephromics was $925,000.
The Company holds a 13.6% ownership interest in ACTGen, Inc. (ACTGen), a development stage biotechnology company. During the quarter ended March 31, 2012, the Company determined, based on ACTGen financial results for calendar 2011 and its current operational and funding status, that the Companys investment in ACTGen was other than temporarily impaired and wrote off its remaining investment of $854,000.
G. Share-based compensation:
Option activity under the Companys stock option plans during the nine months ended March 31, 2012 was as follows:
Shares (in thousands) |
Weighted Average Exercise Price |
Weighted Average Contractual Life (Yrs.) |
Aggregate Intrinsic Value |
|||||||||||||
Outstanding at June 30, 2011 |
499 | $ | 64.15 | |||||||||||||
Granted |
95 | $ | 71.94 | |||||||||||||
Exercised |
(13 | ) | $ | 50.82 | ||||||||||||
|
|
|||||||||||||||
Outstanding at March 31, 2012 |
581 | $ | 65.73 | 6.0 | $ | 3.4 million | ||||||||||
|
|
|||||||||||||||
Exercisable at March 31, 2012 |
342 | $ | 60.73 | 6.0 | $ | 3.3 million | ||||||||||
|
|
The fair value of options granted under the Companys stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used:
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||
2012 | 2012 | 2011 | ||||||||||
Dividend yield |
1.6 | % | 1.5 | % | 1.8 | % | ||||||
Expected annualized volatility |
22%-23 | % | 22%-23 | % | 22%-27 | % | ||||||
Risk free interest rate |
0.9%-1.2 | % | 0.9%-2.0 | % | 1.3%-2.0 | % | ||||||
Expected life |
5 years | 6 years | 7 years |
The dividend yield is based on the Companys historical annual cash dividend divided by the market value of the Companys Common Stock. The expected annualized volatility is based on the Companys 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. Separate groups of employees that have similar historical exercise behavior with regard to option exercise timing and forfeiture rates are considered separately in determining option fair value.
The weighted average per share fair value of options granted during the quarter and nine months ended March 31, 2012 was $12.48 and $14.14, respectively. The weighted average per share fair value of options granted during the nine months ended March 31, 2011 was $15.02. No options were granted during the quarter ended March 31, 2011. The total intrinsic value of options exercised during the quarter and nine months ended March 31, 2012 was $236,000 and $270,000, respectively. The total intrinsic value of options exercised during the nine months ended March 31, 2011 was $1.8 million. No options were exercised during the quarter ended March 31, 2011. The total fair value of options vested during the nine months ended March 31, 2012 and 2011 was $698,000 and $677,000, respectively. No options vested during the quarters ended March 31, 2012 and 2011.
6
Stock-based compensation cost of $241,000 and $1.4 million was included in selling, general and administrative expense for the quarter and nine months ended March 31, 2012, respectively. Stock-based compensation cost of $87,000 and $937,000 was included in selling, general and administrative expense for the quarter and nine months ended March 31, 2011, respectively. Compensation cost is recognized using a straight-line method over the vesting period and is net of estimated forfeitures. As of March 31, 2012, there was $2.4 million of total unrecognized compensation cost related to non-vested stock options. The weighted average period over which the compensation cost is expected to be recognized is 1.3 years.
H. Income taxes:
Income taxes for the quarter and nine months ended March 31, 2012 were provided at rates of 26.5% and 30.0% of consolidated earnings before income taxes, compared to 31.6% and 31.2% for the same prior-year periods. Included in income taxes for the quarter and nine months ended March 31, 2012 was a $3.0 million benefit due to the reversal of a deferred tax valuation allowance on the Companys excess tax basis in investments in unconsolidated entities. The Company determined such valuation allowance was no longer necessary as a result of the Companys unrealized gain on its CCXI investment at March 31, 2012. The Company has the intent and ability to sell a portion of its CCXI investment and realize a long-term capital gain to offset long-term capital losses from its investments in unconsolidated entities.
I. Earnings per share:
Shares used in the earnings per share computations are as follows (in thousands):
Quarter Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Weighted average common shares outstanding-basic |
36,864 | 37,119 | 36,975 | 37,084 | ||||||||||||
Dilutive effect of stock options |
66 | 75 | 68 | 69 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding-diluted |
36,930 | 37,194 | 37,043 | 37,153 | ||||||||||||
|
|
|
|
|
|
|
|
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 222,000 for both the quarter and nine months ended March 31, 2012, and 69,000 and 70,000 for the quarter and nine months ended March 31, 2011, respectively.
J. Segment information:
The Company has two reportable segments based on the nature of products: biotechnology and hematology. Following is financial information relating to the Companys reportable segments (in thousands):
Quarter Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
External sales |
||||||||||||||||
Biotechnology |
$ | 78,180 | $ | 71,120 | $ | 220,291 | $ | 197,241 | ||||||||
Hematology |
5,441 | 5,151 | 15,588 | 14,683 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated net sales |
$ | 83,621 | $ | 76,271 | $ | 235,879 | $ | 211,924 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings before income taxes |
||||||||||||||||
Biotechnology |
$ | 45,442 | $ | 44,911 | $ | 123,304 | $ | 121,324 | ||||||||
Hematology |
2,037 | 1,947 | 5,636 | 5,296 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Segment earnings before income taxes |
47,479 | 46,858 | 128,940 | 126,620 | ||||||||||||
Unallocated corporate expenses and equity method investee losses |
(4,274 | ) | (1,474 | ) | (7,362 | ) | (4,610 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated earnings before income taxes |
$ | 43,205 | $ | 45,384 | $ | 121,578 | $ | 122,010 | ||||||||
|
|
|
|
|
|
|
|
7
K. Comprehensive income:
Comprehensive income was as follows (in thousands):
Quarter
Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net earnings |
$ | 31,756 | $ | 31,064 | $ | 85,090 | $ | 83,971 | ||||||||
Foreign currency translation adjustments |
3,895 | 3,271 | (711 | ) | 5,792 | |||||||||||
Unrealized gain (loss) on available-for-sale investments, net of tax |
23,886 | (64 | ) | 23,879 | (401 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 59,537 | $ | 34,271 | $ | 108,258 | $ | 89,362 | |||||||||
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) consists of (in thousands):
March 31, 2012 |
June 30, 2011 |
|||||||
Foreign currency translation adjustments |
$ | (17,650 ) | $ | (16,939 ) | ||||
Net unrealized gain on available-for-sale investments, net of tax |
24,527 | 648 | ||||||
|
|
|
|
|||||
$ | 6,877 | $ | (16,291 ) | |||||
|
|
|
|
L. Supplemental disclosure of cash flow information and noncash investing and financing activities:
During the nine months ended March 31, 2012, the Companys cost basis investment in CCXI was converted to an available-for-sale investment carried at fair value (See Note B).
M. Recent accounting pronouncements:
In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05 Comprehensive Income under an amendment to Topic 220. Under this update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The Company must comply with ASU No. 2011-05 for the quarter ended September 30, 2012. The Company does not believe this update will have a material impact on the Companys consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08 Intangibles Goodwill and Other under an amendment to Topic 350, which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit. The update is effective for the Company for annual and interim goodwill impairment tests for fiscal 2013. Early adoption is permitted. The Company plans to adopt ASU No. 2011-08 for its fiscal 2012 annual goodwill impairment test. The Company does not believe this update will have a material impact on the Companys consolidated financial statements.
8
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
TECHNE Corporation and subsidiaries (the Company) are engaged in the development, manufacture and sale of biotechnology products and hematology calibrators and controls. These activities are conducted domestically through its wholly-owned subsidiaries, Research and Diagnostic Systems, Inc. (R&D Systems), Boston Biochem, Inc. (Boston Biochem), and BiosPacific, Inc. (BiosPacific). The Companys European biotechnology operations are conducted through its wholly-owned U.K. subsidiaries, R&D Systems Europe Ltd. (R&D Europe) and Tocris Holdings Limited (Tocris). R&D Europe has a sales subsidiary, R&D Systems GmbH, in Germany and a sales office in France. The Company distributes its biotechnology products in China through its wholly-owned subsidiary, R&D Systems China Co., Ltd. (R&D China). R&D China has a sales subsidiary, R&D Systems Hong Kong Ltd., in Hong Kong.
The Company has two reportable segments based on the nature of its products: biotechnology and hematology. R&D Systems' Biotechnology Division, R&D Europe, Tocris, R&D China, BiosPacific and Boston Biochem operating segments are included in the biotechnology reporting segment. The Companys biotechnology reporting segment develops, manufactures and sells biotechnology research and diagnostic products world-wide. The Companys hematology reporting segment, which consists of R&D Systems Hematology Division, develops and manufactures hematology controls and calibrators for sale world-wide.
RESULTS OF OPERATIONS
Consolidated net sales and consolidated net earnings increased 9.6% and 2.2%, respectively for the quarter ended March 31, 2012 compared to the quarter ended March 31, 2011. Consolidated net sales and consolidated net earnings increased 11.3% and 1.3%, respectively for the nine months ended March 31, 2012 compared to the nine months ended March 31, 2011. Consolidated net sales and consolidated net earnings for the quarter and nine months ended March 31, 2012 were favorably impacted by the acquisitions of Boston Biochem and Tocris during the fourth quarter of fiscal 2011. Consolidated net sales for the quarter and nine months ended March 31, 2012 were also favorably affected by changes in exchange rates from the same prior-year periods. Consolidated net earnings for the quarter and nine months ended March 31, 2012 were affected by recognition of the costs assigned to inventory in purchase accounting and impairment losses recorded on two of the Companys investments in unconsolidated entities, partially offset by the reversal of a deferred tax asset valuation allowance.
Net sales
Consolidated net sales for the quarter and nine months ended March 31, 2012 were $83.6 million and $236 million, respectively, increases of $7.3 million (9.6%) and $24.0 million (11.3%) from the quarter and nine months ended March 31, 2011. Consolidated organic net sales, excluding the impact of the acquisitions and the effect of the change from the prior year in exchange rates used to convert sales in foreign currencies (primarily British pounds sterling, euros and Chinese yuan) into U.S. dollars, were as follows (in thousands):
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Consolidated net sales |
$ | 83,621 | $ | 76,271 | $ | 235,879 | $ | 211,924 | ||||||||
Organic sales adjustments: |
||||||||||||||||
Acquisitions |
(6,600 | ) | 0 | (17,655 | ) | 0 | ||||||||||
Impact of foreign currency fluctuations |
587 | 0 | (1,529 | ) | 0 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated organic net sales |
$ | 77,608 | $ | 76,271 | $ | 216,695 | $ | 211,924 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Organic sales growth |
1.8 | % | 2.3 | % |
9
Net sales by reportable segment were as follows (in thousands):
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Biotechnology |
$ | 78,180 | $ | 71,120 | $ | 220,291 | $ | 197,241 | ||||||||
Hematology |
5,441 | 5,151 | 15,588 | 14,683 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated net sales |
$ | 83,621 | $ | 76,271 | $ | 235,879 | $ | 211,924 | ||||||||
|
|
|
|
|
|
|
|
Biotechnology segment net sales increased $7.1 million (9.9%) and $23.1 million (11.7%) for the quarter and nine months ended March 31, 2012, respectively, compared to the same prior-year periods. Biotechnology segment organic sales increased $1.0 million (1.5%) and $3.9 million (2.0%), respectively, for the quarter and nine months ended March 31, 2012. This increase primarily resulted from increased sales volume. Included in consolidated net sales for the quarter and nine months ended March 31, 2012, were $865,000 and $1.7 million, respectively, of sales of new biotechnology products that had their first sale in fiscal 2012.
Biotechnology segment organic sales growth from the same prior-year periods were as follows:
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||
2012 | 2012 | |||||||
U.S. industrial, pharmaceutical and biotechnology |
5.6 | % | 5.7 | % | ||||
U.S. academic |
(5.4 | %) | (4.9 | %) | ||||
Europe |
(0.4 | %) | (0.6 | %) | ||||
China |
19.9 | % | 22.4 | % | ||||
Pacific rim distributors, excluding China |
7.8 | % | 6.5 | % |
Biotechnology segment net sales consisted of the following:
Nine Months Ended March 31, |
||||
2012 | ||||
United States |
||||
Industrial, pharmaceutical and biotechnology |
28 | % | ||
Academic |
11 | % | ||
Acquisitions |
4 | % | ||
Other |
12 | % | ||
|
|
|||
55 | % | |||
Europe |
27 | % | ||
Acquisitions |
3 | % | ||
|
|
|||
30 | % | |||
China |
4 | % | ||
Pacific rim distributors, excluding China |
9 | % | ||
Rest of world |
2 | % | ||
|
|
|||
100 | % | |||
|
|
Hematology segment net sales increased $290,000 (5.6%) and $905,000 (6.2%), respectively, for the quarter and nine months ended March 31, 2012 compared to the same prior-year periods as a result of increased sales volume.
10
Gross margins
Consolidated gross margin percentages for the quarter and nine months ended March 31, 2012 were negatively impacted as a result of purchase accounting related to inventory and intangible assets acquired during the fourth quarter of fiscal 2011. Under purchase accounting, inventory acquired is valued at fair value less expected selling and marketing costs, resulting in reduced margins in future periods as the inventory is sold.
A reconciliation of the reported consolidated gross margin percentages, adjusted for acquired inventory sold and intangible amortization included in cost of sales, is as follows:
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Consolidated gross margin percentage |
75.8 | % | 79.1 | % | 75.0 | % | 78.0 | % | ||||||||
Identified adjustments: |
||||||||||||||||
Costs recognized upon sale of acquired inventory |
2.3 | % | 0.0 | % | 2.5 | % | 0.0 | % | ||||||||
Amortization of intangibles |
0.9 | % | 0.2 | % | 1.0 | % | 0.2 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted gross margin percentage |
79.0 | % | 79.3 | % | 78.5 | % | 78.2 | % | ||||||||
|
|
|
|
|
|
|
|
Segment gross margins, as a percentage of net sales, were as follows:
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Biotechnology |
77.7 | % | 81.3 | % | 76.9 | % | 80.3 | % | ||||||||
Hematology |
48.7 | % | 48.7 | % | 47.8 | % | 46.5 | % |
Biotechnology segment gross margin percentages for the quarter and nine months ended March 31, 2012 were negatively impacted by purchase accounting and intangible asset amortization as discussed above. Hematology segment gross margin percentage for the nine months ended March 31, 2012 increased from the comparable prior-year period as a result of changes in product mix.
Selling, general and administrative expenses
Selling, general and administrative expenses for the quarter and nine months ended March 31, 2012 increased $604,000 (6.5%) and $6.0 million (23.6%), respectively, from the same prior-year periods. The increase in selling, general and administrative expense resulted primarily from expenses of the companies acquired in late fiscal 2011 and an increase in customer relationships and trade name amortization as a result of the acquisitions.
A reconciliation of selling, general and administrative expenses, adjusted for expenses of acquired companies, amortization and acquisition related professional fees is as follows (in thousands):
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Selling, general and administrative expenses |
$ | 9,899 | $ | 9,295 | $ | 31,323 | $ | 25,335 | ||||||||
Identified adjustments: |
||||||||||||||||
Acquired companies expense, excluding intangible amortization |
(795 | ) | 0 | (3,160 | ) | 0 | ||||||||||
Amortization of intangibles |
(518 | ) | (62 | ) | (1,558 | ) | (185 | ) | ||||||||
Acquisition related professional fees |
0 | (211 | ) | 0 | (211 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted selling, general and administrative expenses |
$ | 8,586 | $ | 9,022 | $ | 26,605 | $ | 24,939 | ||||||||
|
|
|
|
|
|
|
|
11
Consolidated selling, general and administrative expenses were composed of the following (in thousands):
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Biotechnology |
$ | 8,921 | $ | 7,926 | $ | 27,394 | $ | 21,271 | ||||||||
Hematology |
435 | 438 | 1,315 | 1,102 | ||||||||||||
Unallocated corporate expenses |
543 | 931 | 2,614 | 2,962 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated selling, general and administrative expenses |
$ | 9,899 | $ | 9,295 | $ | 31,323 | $ | 25,335 | ||||||||
|
|
|
|
|
|
|
|
Research and development expenses
Research and development expenses were composed of the following (in thousands):
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Biotechnology |
$ | 6,924 | $ | 6,104 | $ | 20,017 | $ | 18,904 | ||||||||
Hematology |
198 | 193 | 609 | 615 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated research and development expenses |
$ | 7,122 | $ | 6,297 | $ | 20,626 | $ | 19,519 | ||||||||
|
|
|
|
|
|
|
|
Research and development expenses for the quarter and nine months ended March 31, 2012 increased $825,000 (13%) and $1.1 million (5.7%), respectively, from the same prior-year periods. The increase was mainly due to increases in personnel and supply costs associated with the ongoing development and release of new high-quality biotechnology products.
Impairment loss on investments in unconsolidated entities
The Company holds a 16.8% ownership interest in Nephromics, Inc. (Nephromics) and accounts for its investment under the equity method of accounting as Nephromics is a limited liability company. During the quarter ended March 31, 2012, Nephromics entered into an agreement to sell substantially all of its assets. The transaction closed in April, 2012. As a result, the Company determined that a portion of its investment in Nephromics was other than temporarily impaired and wrote off $2.4 million of this investment during the quarter ended March 31, 2012. At March 31, 2012, the Companys remaining investment in Nephromics was $925,000.
The Company holds a 13.6% ownership interest in ACTGen, Inc. (ACTGen), a development stage biotechnology company. During the quarter ended March 31, 2012, the Company determined, based on ACTGen financial results for calendar 2011 and its current operational and funding status, that the Companys investment in ACTGen was other than temporarily impaired and wrote off its remaining investment of $854,000.
Other non-operating expense, net
Other non-operating expense, net, consists mainly of foreign currency transaction gains and losses, rental income, building expenses related to rental property, and the Companys share of losses by equity method investees. Amounts are as follows (in thousands):
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Foreign currency gains (losses) |
$ | 164 | $ | 249 | $ | (465 | ) | $ | 667 | |||||||
Rental income |
150 | 114 | 482 | 375 | ||||||||||||
Building expenses related to rental property |
(545 | ) | (587 | ) | (1,614 | ) | (1,674 | ) | ||||||||
Losses by equity method investees |
(142 | ) | (197 | ) | (558 | ) | (744 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other non-operating expense, net |
$ | (373 | ) | $ | (421 | ) | $ | (2,155 | ) | $ | (1,376 | ) | ||||
|
|
|
|
|
|
|
|
12
Income taxes
Income taxes for the quarter and nine months ended March 31, 2012 were provided at rates of 26.5% and 30.0% of consolidated earnings before income taxes, compared to 31.6% and 31.2% for the same prior-year periods. Included in income taxes for the quarter and nine months ended March 31, 2012 was a $3.0 million benefit due to the reversal of a deferred tax valuation allowance on the Companys excess tax basis in ChemoCentryx, Inc. (CCXI) and on its excess tax basis in certain unconsolidated entities. The Company determined such valuation allowance was no longer necessary as a result of the Companys unrealized gain of $37.0 million on its CCXI investment at March 31, 2012. The Company has the intent and ability to sell a portion of its CCXI investment and realize a long-term capital gain to offset long-term capital losses from its investments in unconsolidated entities.
Foreign income taxes have been provided at rates that approximate the tax rates in the countries in which R&D Europe, Tocris and R&D China operate. The Company expects its effective income tax rate for the remainder of fiscal 2012 to range from 31.0% to 33.0%.
Net earnings
Consolidated net earnings for the quarter and nine months ended March 31, 2012 were $31.8 million and $85.1 million, respectively, increases of $692,000 (2.2%) and $1.1 million (1.3%) from the quarter and nine months ended March 31, 2011. Consolidated net earnings, excluding the impact of accounting for acquired inventory, amortization of intangible assets, acquisition related professional fees, impairment losses on investments and the reversal of the deferred tax valuation allowance were as follows (in thousands):
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net earnings |
$ | 31,756 | $ | 31,064 | $ | 85,090 | $ | 83,971 | ||||||||
Identified adjustments: |
||||||||||||||||
Costs recognized upon sale of acquired inventory |
1,955 | 0 | 5,870 | 0 | ||||||||||||
Amortization of intangibles |
1,268 | 170 | 3,821 | 511 | ||||||||||||
Acquisition related professional fees |
0 | 211 | 0 | 211 | ||||||||||||
Impairment losses on investments |
3,254 | 0 | 3,254 | 0 | ||||||||||||
Tax impact of above adjustments |
(2,069 | ) | (137 | ) | (3,883 | ) | (263 | ) | ||||||||
Tax impact of reversal of valuation allowance |
(3,016 | ) | 0 | (3,016 | ) | 0 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted net earnings |
$ | 33,148 | $ | 31,308 | $ | 91,136 | $ | 84,430 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted growth |
5.9 | % | 7.9 | % |
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2012, cash and cash equivalents and available-for-sale investments were $365 million compared to $273 million at June 30, 2011. Included in available-for-sale-investments at March 31, 2012 was the fair value of the Companys investment in CCXI of $66.5 million. At March 31, 2012, approximately 59%, 38%, and 3% of the Company's cash and cash equivalents of $95.3 million are located in the U.S., United Kingdom and China, respectively. At March 31, 2012, approximately 97% of the Company's available-for-sale investment accounts are located in the U.S., with the remaining 3% in China. The Company has either paid U.S. income taxes on its undistributed foreign earnings or intends to indefinitely reinvest the undistributed earnings in the foreign operations.
The Company believes it can meet its cash and working capital requirements, capital addition needs and share repurchase, cash dividend, investment and acquisition strategies for at least the next twelve months through currently available funds, cash generated from operations and maturities or sales of available-for-sale investments. The Company has an unsecured line of credit of $750,000. The interest rate on the line of credit is at prime. There were no borrowings on the line in the prior or current fiscal year.
13
Cash flows from operating activities
The Company generated cash of $89.3 million from operating activities in the first nine months of fiscal 2012 compared to $92.5 million in the first nine months of fiscal 2011. The decrease from the prior year was primarily due to changes in deferred and currently payable income taxes as a result of the timing of tax payments, partially offset by non-cash adjustments for depreciation expense, amortization expense, impairment loss on investments in unconsolidated entities and costs recognized on the sale of acquired inventory.
Cash flows from investing activities
During the nine months ended March 31, 2012, the Company purchased $124 million and had sales or maturities of $110 million of available-for-sale investments. During the nine months ended March 31, 2011, the Company purchased $132 million and had sales or maturities of $129 million of available-for-sale investments. The Companys investment policy is to place excess cash in municipal and corporate bonds and other investments with maturities of less than three years. The objective of this policy is to obtain the highest possible return while minimizing risk and keeping the funds accessible.
Capital expenditures for fixed assets for the first nine months of fiscal 2012 and 2011 were $4.9 million and $2.4 million, respectively. Included in capital expenditures for the first nine months of fiscal 2012 was $2.6 million related to remodeling of office and laboratory space at the Companys Minneapolis facility. The remaining capital additions were mainly for laboratory and computer equipment. Capital expenditures in the remainder of fiscal 2012 are expected to be approximately $1.7 million and are expected to be financed through currently available funds and cash generated from operating activities.
Cash flows from financing activities
During the first nine months of fiscal 2012 and 2011, the Company paid cash dividends of $30.7 million and $29.7 million, respectively, to all common shareholders. On May 1, 2012, the Company announced the payment of a $0.28 per share cash dividend. The dividend of approximately $10.3 million will be payable May 25, 2012 to all common shareholders of record on May 11, 2012.
Cash of $667,000 and $3.4 million was received during the nine months ended March 31, 2012 and 2011, respectively, from the exercise of stock options. The Company also recognized excess tax benefits from stock option exercises of $51,000 and $419,000 for the nine months ended March 31, 2012 and 2011, respectively.
During the first nine months of fiscal 2012 and 2011, the Company purchased 13,140 and 4,923 shares of common stock for its employee stock bonus plans at a cost of $907,000 and $294,000, respectively.
During the first nine months of fiscal 2012, the Company purchased and retired 309,010 shares of common stock at a market value of $21.3 million. During the first nine months of fiscal 2011, the Company disbursed $1.9 million for the settlement of common stock purchased and retired during the fourth quarter of fiscal 2010.
CONTRACTUAL OBLIGATIONS
There were no material changes outside the ordinary course of business in the Companys contractual obligations during the quarter ended March 31, 2012 and during the nine months ended March 31, 2012.
CRITICAL ACCOUNTING POLICIES
The Companys significant accounting policies are discussed in the Companys Annual Report on Form 10-K for fiscal 2011. The application of certain of these policies requires judgments and estimates that can affect the results of operations and financial position of the Company. Judgments and estimates are used for, but not limited to, valuation of available-for-sale investments, inventory valuation and allowances, valuation of intangible assets and goodwill and valuation of investments in unconsolidated entities. There have been no significant changes in estimates in fiscal 2012 that would require disclosure. There have been no changes to the Companys policies in fiscal 2012.
14
FORWARD LOOKING INFORMATION AND CAUTIONARY STATEMENTS
This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those regarding the Companys expectations as to the effect of changes to accounting policies, effective tax rate, pending litigation, the amount of capital expenditures for the remainder of the fiscal year, the sufficiency of currently available funds for meeting the Companys needs, the impact of fluctuations in interest rates and foreign currency exchange rates and the ability to realize capital gains to offset potential capital losses. These statements involve risks and uncertainties that may affect the actual results of operations. The following important factors, among others, have affected and, in the future, could affect the Companys actual results: the introduction and acceptance of new products, general economic conditions, increased competition, the reliance on internal manufacturing and related operations, the impact of currency exchange rate fluctuations, the integration of Boston Biochem and Tocris, the recruitment and retention of qualified personnel, the impact of governmental regulation, maintenance of intellectual property rights, credit risk and fluctuation in the market value of the Companys investment portfolio and the success of financing efforts by companies in which the Company has invested. For additional information concerning such factors, see the Companys Annual Report on Form 10-K for fiscal 2011 as filed with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2012, the Company had a portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of $203 million. These securities, like all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase. As the Companys fixed income securities are classified as available-for-sale, no gains or losses are recognized by the Company in its consolidated statements of earnings due to changes in interest rates unless such securities are sold prior to maturity. The Company generally holds its fixed income securities until maturity and, historically, has not recorded any material gains or losses on any sale prior to maturity.
At March 31, 2012, the Company held an investment in the common stock of CCXI. The investment was included in short-term available-for-sale investments at its fair value of $66.5 million. At March 31, 2012, the potential loss in fair value due to a 10% decrease in the market value of CCXI was $6.6 million.
The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency exchange rates. For the nine months ended March 31, 2012, approximately 31% of consolidated net sales were made in foreign currencies, including 16% in euros, 7% in British pound sterling, 3% in Chinese yuan and the remaining 5% in other European currencies. As a result, the Company is exposed to market risk mainly from foreign exchange rate fluctuations of the euro, British pound sterling and the Chinese yuan as compared to the U.S. dollar as the financial position and operating results of the Companys foreign operations are translated into U.S. dollars for consolidation.
Month-end average exchange rates between the British pound sterling, euro and Chinese yuan and the U.S. dollar, which have not been weighted for actual sales volume in the applicable months in the periods, were as follows:
Quarter Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Euro |
$ | 1.33 | $ | 1.39 | $ | 1.36 | $ | 1.35 | ||||||||
British pound sterling |
1.59 | 1.61 | 1.59 | 1.58 | ||||||||||||
Chinese yuan |
.159 | .152 | .157 | .150 |
The Companys 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. At March 31, 2012, the Company had the following trade receivable and intercompany payables denominated in one currency but receivable or payable in another currency (in thousands):
15
Denominated Currency |
U.S.
Dollar Equivalent |
|||||||
Accounts receivable in: |
||||||||
Euros |
£ | 1,363 | $ | 2,182 | ||||
Other European currencies |
£ | 990 | $ | 1,585 | ||||
Intercompany payable in: |
||||||||
Euros |
£ | 492 | $ | 788 | ||||
U.S. dollars |
£ | 2,887 | $ | 4,623 | ||||
U.S. dollars |
yuan | 5,205 | $ | 827 | ||||
British pound sterling |
yuan | 143 | $ | 23 |
All of the above balances are revolving in nature and are not deemed to be long-term balances. The Company does not enter into foreign exchange forward contracts to reduce its exposure to foreign currency rate changes on forecasted intercompany foreign currency denominated balance sheet positions. Foreign currency transaction gains and losses are included in Other non-operating expense in the consolidated statement of earnings. 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.
The effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from March 31, 2012 levels against the euro, British pound sterling and Chinese yuan are as follows (in thousands):
Decrease in translation of 2012 earnings into U.S. dollars (annualized) |
$ | 2,628 | ||
Decrease in translation of net assets of foreign subsidiaries |
14,588 | |||
Additional transaction losses |
545 |
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended (the Exchange Act)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Companys disclosure controls and procedures are effective to ensure that material information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Companys most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
In a previously disclosed lawsuit filed by Streck, Inc. (Streck), venued in the U.S. District Court for the District of Nebraska (the Nebraska Court), Streck alleged patent infringement involving certain patents issued to Streck relating to the addition of reticulocytes to hematology controls. Streck was seeking a royalty on sales of integrated hematology controls containing reticulocytes. The Company has reason to believe that R&D Systems, and not Streck, first invented the inventions claimed in these patents and several other patents issued to Streck. As a result, the Company requested, and in 2007 the U.S. Patent and Trademark Office (USPTO) declared, an interference to determine priority of invention between a patent application filed by R&D Systems and five Streck patents, including each of the patents involved in the lawsuit. On November 2, 2009, the interference board ordered that judgment for the Company and against Streck be entered; finding that R&D Systems was the first to invent the integrated hematology controls containing reticulocytes.
16
Days earlier, on October 28, 2009, at the conclusion of trial in the Nebraska Court, a jury decided that the Company did not meet its burden of demonstrating by clear and convincing evidence that the Streck patents were invalid. The jury also found that a reasonable license royalty rate was 12.5%, and that R&D Systems did not willfully infringe, resulting in a judgment in favor of Streck in the amount of approximately $170,000 including court-related costs. On September 30, 2010, the Nebraska Court upheld the jury verdict and, in a related action, reversed the ruling of the USPTO interference board. The Nebraska Court entered an injunction prohibiting the making and selling of the products that are the subject of the lawsuit.
In October 2010, the Company appealed the adverse decisions of the Nebraska Court to the Federal Circuit Court of Appeals. On October 20, 2011, the Federal Circuit issued an opinion upholding the District Court's interference-related finding of priority in favor of Streck, and on January 10, 2012, the Federal Circuit affirmed the District Courts infringement finding and permanent injunction. The Company has filed a Petition for Writ of Certiorari to the United States Supreme Court, seeking to reverse or vacate the Federal Circuit affirmances. That Petition is currently pending before the Supreme Court. The Company does not believe the resolution of the above proceedings will have a material impact on the Companys consolidated financial statements.
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, "Risk Factors," of the Companys Annual Report on Form 10-K for the year ended June 30, 2011.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth the repurchases of Company common stock for the quarter ended March 31, 2012:
Period |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
1/1/12-1/31/12 |
28,983 | $ | 68.63 | 28,983 | $ | 30.4 million | ||||||||||
2/1/12-2/29/12 |
16,100 | $ | 66.86 | 16,100 | $ | 29.4 million | ||||||||||
3/1/12-3/31/12 |
900 | $ | 67.92 | 900 | $ | 29.3 million | ||||||||||
|
|
|
|
|
|
|||||||||||
Total |
45,983 | $ | 68.00 | 45,983 | $ | 29.3 million |
In April 2009, the Company authorized a plan for the repurchase and retirement of $60 million of its common stock. The plan does not have an expiration date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
See exhibit index following the signature page.
17
Pursuant to the requirements 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.
TECHNE CORPORATION | ||
(Company) | ||
Date: May 10, 2012 | /s/ Thomas E. Oland | |
Thomas E. Oland | ||
President, Chief Executive Officer | ||
Date: May 10, 2012 | /s/ Gregory J. Melsen | |
Gregory J. Melsen | ||
Chief Financial Officer |
EXHIBIT INDEX
TO
FORM 10-Q
TECHNE CORPORATION
Exhibit # |
Description | |
31.1 | Section 302 Certification | |
31.2 | Section 302 Certification | |
32.1 | Section 906 Certification | |
32.2 | Section 906 Certification | |
101 | The following financial statements from the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Earnings, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to the Condensed Consolidated Financial Statements.* |
* | Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings. |
18