e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010,
or
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o |
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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)
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Minnesota
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41-1427402 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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614 McKinley Place N.E.
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(612) 379-8854 |
Minneapolis, MN 55413
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(Registrants telephone number, |
(Address of principal executive offices) (Zip Code)
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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 þ No o
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
þ No o
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):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule
12b-2). o Yes þ No
At November 3, 2010, 37,083,725 shares of the Companys Common Stock (par value $0.01) were
outstanding.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
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Page |
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Item 1. Financial Statements (Unaudited) |
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Condensed Consolidated Balance Sheets as of September 30, 2010 and June 30, 2010 |
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1 |
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Condensed Consolidated Statements of Earnings for the Quarters Ended
September 30, 2010 and 2009 |
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2 |
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Condensed Consolidated Statements of Cash Flows for the Quarters Ended
September 30, 2010 and 2009 |
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3 |
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Notes to Condensed Consolidated Financial Statements |
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4 |
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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations |
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8 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
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13 |
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Item 4. Controls and Procedures |
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14 |
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PART II: OTHER INFORMATION |
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Item 1. Legal Proceedings |
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14 |
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Item 1A. Risk Factors |
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15 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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15 |
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Item 3. Defaults Upon Senior Securities |
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15 |
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Item 4. (Removed and Reserved) |
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15 |
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Item 5. Other Information |
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15 |
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Item 6. Exhibits |
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15 |
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SIGNATURES |
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16 |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHNE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
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9/30/10 |
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6/30/10 |
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ASSETS |
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Cash and cash equivalents |
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$ |
115,012 |
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$ |
94,139 |
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Short-term available-for-sale investments |
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57,622 |
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44,672 |
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Trade accounts receivable, net |
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31,019 |
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30,850 |
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Income tax receivable |
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449 |
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1,755 |
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Other receivables |
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1,589 |
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1,532 |
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Inventories |
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13,818 |
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13,737 |
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Deferred income taxes |
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12,627 |
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13,379 |
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Prepaid expenses |
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1,063 |
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976 |
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Total current assets |
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233,199 |
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201,040 |
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Available-for-sale investments |
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161,518 |
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171,171 |
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Property and equipment, net |
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96,322 |
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97,400 |
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Goodwill |
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25,068 |
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25,068 |
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Intangible assets, net |
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1,874 |
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2,044 |
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Deferred income taxes |
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936 |
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1,011 |
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Investments in unconsolidated entities |
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20,230 |
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20,559 |
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Other assets |
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477 |
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523 |
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$ |
539,624 |
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$ |
518,816 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Trade accounts payable |
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$ |
4,348 |
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$ |
5,232 |
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Salaries, wages and related accruals |
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3,729 |
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3,781 |
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Other accounts payable and accrued expenses |
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3,844 |
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4,375 |
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Income taxes payable |
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4,138 |
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3,636 |
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Total current liabilities |
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16,059 |
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17,024 |
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Common stock, par value $.01 per share;
authorized 100,000,000; issued and
outstanding 37,052,975 and 37,033,474,
respectively |
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371 |
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370 |
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Additional paid-in capital |
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123,622 |
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122,537 |
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Retained earnings |
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416,863 |
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400,119 |
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Accumulated other comprehensive loss |
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(17,291 |
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(21,234 |
) |
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Total stockholders equity |
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523,565 |
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501,792 |
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$ |
539,624 |
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$ |
518,816 |
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See Notes to Condensed Consolidated Financial Statements.
1
TECHNE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(unaudited)
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Quarter Ended |
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9/30/10 |
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9/30/09 |
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Net sales |
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$ |
67,945 |
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$ |
66,534 |
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Cost of sales |
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15,241 |
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12,901 |
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Gross margin |
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52,704 |
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53,633 |
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Operating expenses: |
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Selling, general and administrative |
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7,552 |
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8,038 |
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Research and development |
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6,619 |
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6,154 |
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Amortization of intangible assets |
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170 |
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240 |
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Total operating expenses |
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14,341 |
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14,432 |
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Operating income |
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38,363 |
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39,201 |
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Other income (expense): |
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Interest income |
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847 |
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1,168 |
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Other non-operating expense, net |
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(257 |
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(662 |
) |
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Total other income |
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590 |
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506 |
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Earnings before income taxes |
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38,953 |
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39,707 |
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Income taxes |
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12,580 |
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12,935 |
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Net earnings |
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$ |
26,373 |
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$ |
26,772 |
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Earnings per share: |
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Basic |
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$ |
0.71 |
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$ |
0.72 |
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Diluted |
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$ |
0.71 |
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$ |
0.72 |
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Cash dividends per common share |
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$ |
0.26 |
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$ |
0.25 |
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Weighted average common shares outstanding: |
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Basic |
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37,040 |
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37,245 |
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Diluted |
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37,107 |
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37,339 |
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See Notes to Condensed Consolidated Financial Statements.
2
TECHNE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Quarter Ended |
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9/30/10 |
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9/30/09 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net earnings |
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$ |
26,373 |
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$ |
26,772 |
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Adjustments to reconcile net earnings to net cash provided by
operating activities: |
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Depreciation and amortization |
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2,008 |
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2,005 |
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Deferred income taxes |
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811 |
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(30 |
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Stock-based compensation expense |
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136 |
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102 |
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Excess tax benefit from stock option exercises |
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(83 |
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(10 |
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Losses by equity method investees |
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328 |
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338 |
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Other |
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46 |
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65 |
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Change in operating assets and operating liabilities: |
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Trade accounts and other receivables |
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(102 |
) |
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(533 |
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Inventories |
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(273 |
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(1,568 |
) |
Prepaid expenses |
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(72 |
) |
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(203 |
) |
Trade accounts and other accounts payable and accrued expenses |
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(295 |
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302 |
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Salaries, wages and related accruals |
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219 |
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286 |
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Income taxes payable/receivable |
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1,607 |
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503 |
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Net cash provided by operating activities |
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30,703 |
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28,029 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to property and equipment |
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(1,052 |
) |
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(563 |
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Purchase of available-for-sale investments |
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(42,929 |
) |
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(6,365 |
) |
Proceeds from sales of available-for-sale investments |
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19,308 |
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124 |
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Proceeds from maturities of available-for-sale investments |
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22,308 |
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5,225 |
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Net cash used in investing activities |
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(2,365 |
) |
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(1,579 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Issuance of common stock |
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867 |
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22 |
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Excess tax benefit from stock option exercises |
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83 |
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10 |
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Purchase of common stock for stock bonus plans |
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(294 |
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(607 |
) |
Repurchase of common stock |
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(1,940 |
) |
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0 |
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Dividends paid |
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(9,629 |
) |
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(9,311 |
) |
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Net cash used in financing activities |
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(10,913 |
) |
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(9,886 |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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3,448 |
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(2,747 |
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Net increase in cash and cash equivalents |
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20,873 |
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13,817 |
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Cash and cash equivalents at beginning of period |
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94,139 |
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160,940 |
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Cash and cash equivalents at end of period |
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$ |
115,012 |
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$ |
174,757 |
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See Notes to Condensed Consolidated Financial Statements.
3
TECHNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. General:
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 2010. 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, 2010, included in the Companys Annual Report on Form 10-K for fiscal 2010.
Fair value measurements:
The Companys available-for-sale securities of $219 million at September 30, 2010 are carried at
fair value and are valued using quoted market prices in active markets (Level 1 input) for
identical assets and liabilities.
Recent accounting pronouncements:
In June 2009, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standard No. 167, now codified as Accounting Standards Codification (ASC) Topic 810, Consolidation.
This statement amends the consolidation guidance applicable to variable interest entities and is
effective for the Company beginning July 1, 2010. The adoption of the ASC did not have a material
impact on the Companys consolidated financial statements.
4
B. Balance Sheet Detail:
Certain consolidated balance sheet captions appearing in this interim report are as follows (in
thousands):
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9/30/10 |
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6/30/10 |
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Trade Accounts Receivable |
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Trade accounts receivable |
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$ |
31,373 |
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$ |
31,197 |
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Allowance for doubtful accounts |
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(354 |
) |
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(347 |
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Net Trade Accounts Receivable |
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$ |
31,019 |
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$ |
30,850 |
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Inventories |
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Raw materials |
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$ |
5,370 |
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$ |
5,433 |
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Finished goods |
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8,448 |
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8,304 |
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Total Inventories |
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$ |
13,818 |
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$ |
13,737 |
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Property and Equipment |
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Land |
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$ |
7,473 |
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$ |
7,419 |
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Buildings and improvements |
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118,714 |
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|
118,412 |
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Laboratory equipment |
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26,698 |
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|
26,482 |
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Office equipment |
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|
4,923 |
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|
4,672 |
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|
157,808 |
|
|
|
156,985 |
|
Accumulated depreciation and amortization |
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(61,486 |
) |
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|
(59,585 |
) |
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Net Property and Equipment |
|
$ |
96,322 |
|
|
$ |
97,400 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Intangible Assets |
|
|
|
|
|
|
|
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Customer relationships |
|
$ |
1,966 |
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$ |
1,966 |
|
Technology |
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|
3,483 |
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|
3,483 |
|
Trade names |
|
|
1,396 |
|
|
|
1,396 |
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|
|
|
|
|
|
|
|
|
|
6,845 |
|
|
|
6,845 |
|
Accumulated amortization |
|
|
(4,971 |
) |
|
|
(4,801 |
) |
|
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|
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Net Intangible Assets |
|
$ |
1,874 |
|
|
$ |
2,044 |
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|
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|
C. Earnings Per Share:
Shares used in the earnings per share computations are as follows (in thousands):
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|
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Quarter Ended |
|
|
|
9/30/10 |
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|
9/30/09 |
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Weighted average common shares outstanding-basic |
|
|
37,040 |
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|
|
37,245 |
|
Dilutive effect of stock options and warrants |
|
|
67 |
|
|
|
94 |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding-diluted |
|
|
37,107 |
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|
|
37,339 |
|
|
|
|
|
|
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|
The dilutive effect of stock options and warrants 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 105,000 and 28,000 for the
quarters ended September 30, 2010 and 2009, respectively.
5
D. Segment Information:
The Company has three reportable operating segments based on the nature of products and geographic
location: biotechnology, R&D Systems Europe Ltd. (R&D Europe), and hematology. The biotechnology
segment consists of R&D Systems, Inc. (R&D Systems) Biotechnology Division, BiosPacific, Inc.
(BiosPacific) and R&D Systems China Co. Ltd. (R&D China), which develop, manufacture and sell
biotechnology research and diagnostic products world-wide. R&D Europe distributes Biotechnology
Division products throughout Europe. The hematology segment develops and manufactures hematology
controls and calibrators for sale world-wide.
Following is financial information relating to the Companys operating segments (in thousands):
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Quarter Ended |
|
|
|
9/30/10 |
|
|
9/30/09 |
|
External sales |
|
|
|
|
|
|
|
|
Biotechnology |
|
$ |
46,650 |
|
|
$ |
44,028 |
|
R&D Europe |
|
|
16,391 |
|
|
|
17,838 |
|
Hematology |
|
|
4,904 |
|
|
|
4,668 |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
67,945 |
|
|
$ |
66,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
|
|
|
|
|
|
Biotechnology |
|
$ |
31,954 |
|
|
$ |
31,580 |
|
R&D Europe |
|
|
6,506 |
|
|
|
7,879 |
|
Hematology |
|
|
1,922 |
|
|
|
1,853 |
|
|
|
|
|
|
|
|
Segment earnings before income taxes |
|
|
40,382 |
|
|
|
41,312 |
|
Unallocated corporate expenses and equity method investee losses |
|
|
(1,429 |
) |
|
|
(1,605 |
) |
|
|
|
|
|
|
|
Earnings before income taxes |
|
$ |
38,953 |
|
|
$ |
39,707 |
|
|
|
|
|
|
|
|
E. Stock Options:
Option activity under the Companys stock option plans during the quarter ended September 30, 2010
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Aggregate |
|
|
Shares |
|
Exercise |
|
Contractual |
|
Intrinsic |
|
|
(in 000s) |
|
Price |
|
Life (Yrs.) |
|
Value |
Outstanding at June 30, 2010 |
|
|
440 |
|
|
$ |
54.26 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
5 |
|
|
$ |
58.40 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(20 |
) |
|
$ |
44.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
425 |
|
|
$ |
54.76 |
|
|
|
5.0 |
|
|
$3.6 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2010 |
|
|
352 |
|
|
$ |
52.46 |
|
|
|
4.7 |
|
|
$3.6 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
The fair value of options granted under the Companys stock option plans were estimated on the date
of grant using the Black-Scholes option-pricing model with the following assumptions used:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
9/30/10 |
|
|
9/30/09 |
|
Dividend yield |
|
|
1.8 |
% |
|
|
1.6 |
% |
Expected annualized volatility |
|
|
23 |
% |
|
|
24 |
% |
Risk free interest rate |
|
|
1.4 |
% |
|
|
2.5 |
% |
Expected life |
|
4 years |
|
|
4 years |
|
Weighted average fair value of options granted |
|
$ |
9.67 |
|
|
$ |
12.08 |
|
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 total intrinsic value of options exercised during the quarters ended September 30, 2010 and
2009 was $317,000 and $16,000, respectively. Stock option exercises were satisfied through the
issuance of new shares. The total fair value of options vested during the quarters ended September
30, 2010 and 2009 was $49,000 and $21,000, respectively.
Stock-based compensation cost of $136,000 and $102,000 was included in selling, general and
administrative expense for the quarters ended September 30, 2010 and 2009, respectively.
Compensation cost is recognized using a straight-line method over the vesting period and is net of
estimated forfeitures. As of September 30, 2010, there were 73,000 non-vested options outstanding
with a weighted average grant date fair value of $12.15. As of September 30, 2010, there was
$750,000 of total unrecognized compensation cost related to non-vested stock options that will be
expensed in fiscal 2011 through 2014.
F. Comprehensive Income and Accumulated Other Comprehensive Loss:
Comprehensive income was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
9/30/10 |
|
|
9/30/09 |
|
Net earnings |
|
$ |
26,373 |
|
|
$ |
26,772 |
|
Foreign currency translation adjustments |
|
|
3,899 |
|
|
|
(3,295 |
) |
Unrealized gain on available-for-sale investments, net of tax |
|
|
44 |
|
|
|
224 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
30,316 |
|
|
$ |
23,701 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
9/30/10 |
|
|
6/30/10 |
|
Foreign currency translation adjustments |
|
$ |
(18,068 |
) |
|
$ |
(21,967 |
) |
Unrealized gains on available-for-sale investments, net of tax |
|
|
777 |
|
|
|
733 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(17,291 |
) |
|
$ |
(21,234 |
) |
|
|
|
|
|
|
|
7
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) and BiosPacific, Inc. (BiosPacific). The Company distributes biotechnology products
in Europe through its wholly-owned U.K. subsidiary, R&D Systems Europe Ltd. (R&D Europe). R&D
Europe has a sales subsidiary, R&D Systems GmbH, in Germany and a sales office in France. The
Company distributes biotechnology products in China through its wholly-owned subsidiary, R&D
Systems China, Co. Ltd. (R&D China).
The Company has three reportable operating segments based on the nature of products and geographic
location: biotechnology, R&D Europe and hematology. The biotechnology segment consists of R&D
Systems Biotechnology Division, BiosPacific and R&D China, which develop, manufacture and sell
biotechnology research and diagnostic products world-wide. R&D Europe distributes Biotechnology
Division products throughout Europe. The hematology segment develops and manufactures hematology
controls and calibrators for sale world-wide.
Results of Operations for the Quarters Ended September 30, 2010 and 2009:
Consolidated net sales increased 2.1% and consolidated net earnings decreased 1.5% for the quarter
ended September 30, 2010 compared to the quarter ended September 30, 2009. Consolidated net sales
and net earnings were negatively affected by changes in exchange rates from the prior year used to
convert consolidated net sales and consolidated net earnings in foreign currencies into U.S.
dollars. The unfavorable impact on consolidated net sales of the change from the prior year in
exchange rates used to convert sales in foreign currencies (primarily British pounds sterling and
euros) into U.S. dollars was $1.2 million for the quarter ended September 30, 2010. The
unfavorable impact on consolidated net earnings of the change from the prior year in exchange rates
used to convert foreign currency financial statements to U.S. dollars was $341,000 for the quarter
ended September 30, 2010. In the first three months of fiscal 2011, the Company generated cash of
$30.7 million from operating activities, paid cash dividends of $9.6 million, and paid $1.9 million
for the repurchase of stock. At September 30, 2010 the Company had cash, cash equivalents and
available-for-sale investments of $334 million compared to $310 million at June 30, 2010.
Net Sales:
Consolidated net sales for the quarter ended September 30, 2010 were $67.9 million, an increase of
$1.4 million (2.1%) from the quarter ended September 30, 2009. Excluding the effect of changes in
foreign currency exchange rates, consolidated net sales increased 4.0% for the quarter ended
September 30, 2010, from the comparable prior-year period. Included in consolidated net sales for
the quarter ended September 30, 2010 was $214,000 of sales of new biotechnology products which had
their first sale in fiscal 2011.
Biotechnology net sales increased $2.6 million (6.0%) for the quarter ended September 30, 2010
compared to the same prior-year period. The increase in the quarter was mainly the result of
increased sales volume. North American biotechnology sales to industrial pharmaceutical and
biotechnology customers increased 3.1% during the quarter ended September 30, 2010. Biotechnology
sales to academic customers, Pacific Rim distributors and sales in China grew 9.9%, 9.0% and 13.5%,
respectively, during the first quarter of fiscal 2011 compared to the same prior-year period.
8
R&D Europe net sales decreased $1.4 million (8.1%) for the quarter ended September 30, 2010 from
the comparable prior-year period. R&D Europe net sales decreased 1.2% for the quarter ended
September 30, 2010 when measured at currency rates in effect in the comparable prior-year period.
Approximately 74% of R&D Europe sales are in non-British pound sterling currencies (mainly euros).
The change in exchange rates used to convert sales in such other currencies to British pounds
sterling had an unfavorable impact on consolidated net sales of approximately $285,000 for the
quarter ended September 30, 2010. In addition, consolidated net sales were impacted unfavorably by
$944,000 for the quarter ended September 30, 2010 as a result of the change in exchange rates used
to convert British pound sterling to U.S. dollars.
Hematology sales increased $236,000 (5.1%) for the quarter ended September 30, 2010 compared to the
same prior-year period, as a result of increased sales volume.
Gross Margins:
Consolidated gross margin for the quarter ended September 30, 2010 decreased $929,000 from the
quarter ended September 30, 2009. Biotechnology gross margin increased $797,000 for the quarter
ended September 30, 2010 as a result of increased net sales partially offset by a decrease in gross
margin percentage. Fiscal 2011 first quarter R&D Europe gross margin decreased $1.8 million
compared to the quarter ended September 30, 2009. Approximately $1.2 million of the decrease in
R&D Europe gross margin was the result of changes in exchange rates used to translate sales in
foreign currencies into U.S. dollars. Approximately 13.9% and 6.3% of consolidated net sales for
the quarter ended September 30, 2010 were made in euro and British pound sterling, respectively.
The average euro exchange rate declined 9.0% against the U.S. dollar for the quarter ended
September 30, 2010 (:$1.31) compared to the same prior-year period (:$1.44). The average British
pound sterling exchange rate declined 4.3% against the U.S. dollar for the quarter ended September
30, 2010 (£:$1.56) compared to the same prior-year period (£:$1.63). The remainder of the R&D
Europe decrease in gross margin was the result of decreased net sales and changes in product mix.
Gross margins, as a percentage of net sales, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
9/30/10 |
|
|
9/30/09 |
|
Biotechnology |
|
|
78.4 |
% |
|
|
80.9 |
% |
R&D Europe |
|
|
47.4 |
% |
|
|
53.5 |
% |
Hematology |
|
|
48.8 |
% |
|
|
50.3 |
% |
Consolidated |
|
|
77.6 |
% |
|
|
80.6 |
% |
Consolidated gross margin, as a percentage of consolidated net sales, was 77.6% for the quarter
ended September 30, 2010, compared to 80.6% for the quarter ended September 30, 2009. R&D Europe
gross margin percentage for the quarter ended September 30, 2010 was 47.4% compared to 53.5%,
mainly as a result of the effect of exchange rate changes on net sales discussed above.
Biotechnology gross margin percentage was 78.4% for the quarter ended September 30, 2010 compared
to 80.9% for the quarter ended September 30, 2009. The decrease in the Biotechnology gross margin
percentage was mainly the result of changes in product mix and $220,000 additional royalty expense
and royalty initiation fees related to new licensing agreements. The decrease in Hematology gross
margin percentage to 48.8% for the quarter ended September 30, 2010 from 50.3% was the result of
changes in product mix.
9
Selling, General and Administrative Expenses:
Selling, general and administrative expenses were composed of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
9/30/10 |
|
|
9/30/09 |
|
Biotechnology |
|
$ |
4,583 |
|
|
$ |
4,734 |
|
R&D Europe |
|
|
1,842 |
|
|
|
1,952 |
|
Hematology |
|
|
328 |
|
|
|
370 |
|
Unallocated corporate expenses |
|
|
799 |
|
|
|
982 |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
$ |
7,552 |
|
|
$ |
8,038 |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses for the quarter ended September 30, 2010 decreased
$486,000 (6.0%) from the same prior-year period. The decrease in selling, general and
administrative expense for the quarter ended September 30, 2010 resulted from lower legal expense
of $108,000, lower profit sharing expense of $224,000 and the effect of the change in the exchange
rate used to convert R&D Europe expenses from British pounds and euros into U.S. dollars of
$134,000.
Research and Development Expenses:
Research and development expenses were composed of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
9/30/10 |
|
|
9/30/09 |
|
Biotechnology |
|
$ |
6,421 |
|
|
$ |
5,956 |
|
R&D Europe |
|
|
0 |
|
|
|
0 |
|
Hematology |
|
|
198 |
|
|
|
198 |
|
|
|
|
|
|
|
|
Research and development expenses |
|
$ |
6,619 |
|
|
$ |
6,154 |
|
|
|
|
|
|
|
|
Research and development expenses for the quarter ended September 30, 2010 increased $465,000
(7.6%) from the quarter ended September 30, 2009. The increase in research and development
expenses was mainly due to increases in personnel and supply costs associated with the continuous
development and release of new high-quality biotechnology products.
Interest Income:
Interest income decreased $321,000 for the quarter ended September 30, 2010 from the comparable
prior-year period, primarily as a result of lower rates of return on cash and available-for-sale
investments, offset in part by higher cash and available-for-sale investment balances.
10
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.
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
9/30/10 |
|
|
9/30/09 |
|
Foreign currency gains |
|
$ |
505 |
|
|
$ |
143 |
|
Rental income |
|
|
123 |
|
|
|
81 |
|
Real estate taxes, depreciation and utilities |
|
|
(556 |
) |
|
|
(548 |
) |
Losses by equity method investees |
|
|
(329 |
) |
|
|
(338 |
) |
|
|
|
|
|
|
|
Other non-operating expense, net |
|
$ |
(257 |
) |
|
$ |
(662 |
) |
|
|
|
|
|
|
|
Income Taxes:
Income taxes for the quarter ended September 30, 2010 were provided at a rate of 32.3% of
consolidated earnings before income taxes as compared to 32.6% for the same prior-year period. The
improvement in the tax rate for the quarter ended September 30, 2010 was the result of an increase
in the deduction for qualified production activities partially offset by the expiration of the U.S.
credit for research and development expenses on December 31, 2009. Foreign income taxes have been
provided at rates that approximate the tax rates in the countries in which R&D Europe and R&D China
operate. The Company expects its fiscal 2011 effective income tax rate to range from approximately
32.0% to 33.0%.
Liquidity and Capital Resources:
At September 30, 2010, cash and cash equivalents and available-for-sale investments were $334
million compared to $310 million at June 30, 2010. The Company believes it can meet its cash,
working capital and capital addition requirements for the foreseeable future 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.
Cash Flows From Operating Activities:
The Company generated cash of $30.7 million from operating activities in the first quarter of
fiscal 2011 compared to $28.0 million in the first quarter of fiscal 2010. The increase from the
prior year was primarily due to changes in operating assets and liabilities.
Cash Flows From Investing Activities:
Capital expenditures for fixed assets for the first quarter of fiscal 2011 and 2010 were $1.1
million and $563,000, respectively. The capital additions were mainly for laboratory and computer
equipment. Capital expenditures in the remainder of fiscal 2011 are expected to be approximately
$3.2 million and are expected to be financed through currently available funds and cash generated
from operating activities.
During the quarter ended September 30, 2010, the Company purchased $42.9 million and had sales or
maturities of $41.6 million of available-for-sale investments. During the quarter ended September
30, 2009, the Company purchased $6.4 million and had sales or maturities of $5.3 million of
available-for-sale investment. The Companys investment policy is to place excess cash in 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.
11
Cash Flows From Financing Activities:
Cash of $867,000 and $22,000 was received during the quarters ended September 30, 2010 and 2009,
respectively, from the exercise of stock options. The Company also recognized excess tax benefits
from stock option exercises of $83,000 and $10,000 for the quarters ended September 30, 2010 and
2009, respectively.
During the first quarters of fiscal 2011 and 2010, the Company purchased 4,923 and 9,827 shares of
common stock for its employee stock bonus plans at a cost of $294,000 and $607,000, respectively.
During the first quarter of fiscal 2011 and 2010, the Company paid cash dividends of $9.6 million
and $9.3 million, respectively, to all common shareholders. On October 28, 2010, the Company
announced the payment of a $0.27 per share cash dividend. The dividend of approximately $10.0
million will be payable November 22, 2010 to all common shareholders of record on November 8, 2010.
During the first quarter 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 September 30, 2010.
Critical Accounting Policies:
The Companys significant accounting policies are discussed in the Companys Annual Report on
Form 10-K for fiscal 2010. 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 goodwill and valuation of investments
in unconsolidated entities. There have been no significant changes in estimates in fiscal 2011
that would require disclosure. There have been no changes to the Companys policies in fiscal
2011.
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 effective tax rate, pending litigation, the amount of capital
expenditures for the remainder of the fiscal year and the sufficiency of currently available funds
for meeting the Companys needs. 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 biotechnology and hematology products, the levels and particular directions of research by the
Companys customers, the impact of the growing number of producers of biotechnology research
products and related price competition, general economic conditions, the impact of currency
exchange rate fluctuations, the costs and results of research and product development efforts of
the Company and of companies in which the Company has invested or with which it has formed
strategic relationships, the impact of governmental regulation and intellectual property
litigation, the recruitment and retention of qualified personnel, the number of business or selling
days in a period, the success of financing efforts by companies in which the Company has invested,
and the
success of the Companys expansion into China. For additional information concerning such factors,
see the Companys Annual Report on Form 10-K for fiscal 2010 as filed with the Securities and
Exchange Commission.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 2010, the Company had a portfolio of fixed income securities, excluding those
classified as cash and cash equivalents, of $219 million. These securities, like all fixed income
instruments, are subject to interest rate risk and will decline in value if market interest rates
increase. However, because 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.
The Company operates internationally, and thus is subject to potentially adverse movements in
foreign currency rate changes. For the quarter ended September 30, 2010, approximately 26.9% of
consolidated net sales were made in foreign currencies including 13.9% in euros, 6.3% in British
pound sterling, 2.8% in Chinese yuan and the remaining 3.9% 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 because 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 |
|
|
9/30/10 |
|
9/30/09 |
British pound sterling |
|
$ |
1.56 |
|
|
$ |
1.63 |
|
Euro |
|
|
1.31 |
|
|
|
1.44 |
|
Chinese yuan |
|
|
.148 |
|
|
|
.146 |
|
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 September 30, 2010, the Company had the following trade receivable
and intercompany payables denominated in one currency but receivable or payable in another currency
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Denominated |
|
U. S. Dollar |
|
|
Currency |
|
Equivalent |
Accounts receivable in: |
|
|
|
|
|
|
|
|
Euros |
|
£ |
894 |
|
|
$ |
1,404 |
|
Other European currencies |
|
£ |
900 |
|
|
$ |
1,414 |
|
|
|
|
|
|
|
|
|
|
Intercompany payable in: |
|
|
|
|
|
|
|
|
Euros |
|
£ |
353 |
|
|
$ |
554 |
|
U.S. dollars |
|
£ |
2,634 |
|
|
$ |
4,138 |
|
U.S. dollars |
|
yuan 3,724 |
|
$ |
556 |
|
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.
13
The effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from September 30,
2010 levels against the euro, British pound sterling and Chinese yuan are as follows (in
thousands):
|
|
|
|
|
Decrease in translation of 2011 earnings into U.S. dollars (annualized) |
|
$ |
2,074 |
|
Decrease in translation of net assets of foreign subsidiaries |
|
|
7,687 |
|
Additional transaction losses |
|
|
469 |
|
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
The judgment, if upheld by the Federal Circuit Court of Appeals, will constitute cancellation of
all claims of the five Streck patents involving the addition of reticulocytes to hematology
controls. Such cancellation may moot an earlier jury decision on October 28, 2009, at the
conclusion of trial in the Nebraska Court, 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 final judgment in favor of Streck in the amount of approximately $160,000
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, but stayed a portion of the injunction to allow the Company to continue to sell its
current inventory
14
until December 20, 2010. The Company will appeal the adverse decisions of the Nebraska Court, and
will ask the Federal Circuit Court of Appeals to stay the injunction pending its review and
disposition of the Companys appeal. If the Companys appeal is successful, after cancellation of
the Streck patents, the Company may be issued a patent covering integrated hematology controls
containing reticulocytes. The Company does not believe the resolution of the above proceedings
will have a material impact on the Companys consolidated financial statements.
ITEM 1A. RISK FACTORS
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, 2010.
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
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Approximate |
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
Dollar Value of Shares |
|
|
Total Number |
|
Average |
|
Purchased as Part of |
|
that May Yet Be |
|
|
of Shares |
|
Price Paid |
|
Publicly Announced |
|
Purchased Under |
Period |
|
Purchased |
|
Per Share |
|
Plans or Programs |
|
the Plans or Programs |
7/1/10 - 7/31/10 |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$50.6 million |
8/1/10 - 8/31/10 |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$50.6 million |
9/1/10 - 9/30/10 |
|
|
4,923 |
|
|
$ |
59.82 |
|
|
|
0 |
|
|
$50.6 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. (REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See exhibit index following the signature page.
15
SIGNATURES
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: November 9, 2010
|
|
/s/ Thomas E. Oland
Thomas
E. Oland |
|
|
President, Chief Executive Officer |
|
|
|
Date: November 9, 2010
|
|
/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 September 30, 2010, 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.
16