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BIO-TECHNE Corp - Quarter Report: 2012 September (Form 10-Q)

Form 10-Q
Table of Contents

 

 

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 September 30, 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

(Registrant’s 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    x  No

At November 2, 2012, 36,828,834 shares of the Company’s Common Stock (par value $0.01) were outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  
PART I. FINANCIAL INFORMATION   
Item 1.  

Financial Statements (Unaudited)

  
 

Condensed Consolidated Statements of Earnings and Comprehensive Income for the Quarters Ended September 30, 2012 and 2011

     1   
 

Condensed Consolidated Balance Sheets as of September 30, 2012 and June 30, 2012

     2   
 

Condensed Consolidated Statements of Cash Flows for the Quarters Ended September 30, 2012 and 2011

     3   
 

Notes to Condensed Consolidated Financial Statements

     4   
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     7   
Item 3.  

Quantitative and Qualitative Disclosures about Market Risk

     11   
Item 4.  

Controls and Procedures

     13   
PART II: OTHER INFORMATION   
Item 1.  

Legal Proceedings

     13   
Item 1A.  

Risk Factors

     13   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     13   
Item 3.  

Defaults Upon Senior Securities

     13   
Item 4.  

Mine Safety Disclosures

     13   
Item 5.  

Other Information

     14   
Item 6.  

Exhibits

     14   
 

SIGNATURES

     14   

 


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

TECHNE Corporation and Subsidiaries

(in thousands, except per share data)

(unaudited)

 

     Quarter Ended  
     September 30,  
     2012     2011  

Net sales

   $ 75,025      $ 77,596   

Cost of sales

     19,442        19,209   
  

 

 

   

 

 

 

Gross margin

     55,583        58,387   
  

 

 

   

 

 

 

Operating expenses:

    

Selling, general and administrative

     10,328        10,773   

Research and development

     7,452        6,667   
  

 

 

   

 

 

 

Total operating expenses

     17,780        17,440   
  

 

 

   

 

 

 

Operating income

     37,803        40,947   
  

 

 

   

 

 

 

Other income (expense):

    

Interest income

     661        728   

Other non-operating expense, net

     (478     (1,175
  

 

 

   

 

 

 

Total other income (expense)

     183        (447
  

 

 

   

 

 

 

Earnings before income taxes

     37,986        40,500   

Income taxes

     12,318        12,979   
  

 

 

   

 

 

 

Net earnings

     25,668        27,521   
  

 

 

   

 

 

 

Other comprehensive income (loss):

    

Foreign currency translation adjustments

     3,925        (3,901

Unrealized gains (losses) on available-for-sale investments, net of tax of ($7,589) and ($18), respectively

     (13,559     (28
  

 

 

   

 

 

 

Other comprehensive loss

     (9,634     (3,929
  

 

 

   

 

 

 

Comprehensive income

   $ 16,034      $ 23,592   
  

 

 

   

 

 

 

Earnings per share:

    

Basic

   $ 0.70      $ 0.74   

Diluted

   $ 0.70      $ 0.74   

Cash dividends per common share:

   $ 0.28      $ 0.27   

Weighted average common shares outstanding:

    

Basic

     36,828        37,095   

Diluted

     36,895        37,170   

See Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

CONDENSED CONSOLIDATED BALANCE SHEETS

TECHNE Corporation and Subsidiaries

(in thousands, except share and per share data)

 

     September 30,
2012
     June 30,  
     (unaudited)      2012  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 130,805       $ 116,675   

Short-term available-for-sale investments

     142,262         152,311   

Trade accounts receivable, less allowance for doubtful accounts of $458 and $455, respectively

     35,119         35,668   

Other receivables

     1,791         2,073   

Inventories

     38,397         38,277   

Prepaid expenses

     1,769         1,503   
  

 

 

    

 

 

 

Total current assets

     350,143         346,507   
  

 

 

    

 

 

 

Available-for-sale investments

     131,713         143,966   

Property and equipment, net

     94,920         93,788   

Goodwill

     86,936         85,682   

Intangible assets, net

     46,073         46,476   

Other assets

     2,844         2,905   
  

 

 

    

 

 

 
   $ 712,629       $ 719,324   
  

 

 

    

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Current liabilities:

     

Trade accounts payable

   $ 6,541       $ 6,291   

Salaries, wages and related accruals

     4,536         4,699   

Accrued expenses

     3,101         7,275   

Income taxes payable

     2,553         3,251   

Deferred income taxes

     6,170         14,234   
  

 

 

    

 

 

 

Total current liabilities

     22,901         35,750   
  

 

 

    

 

 

 

Deferred income taxes

     9,123         9,132   

Shareholders’ equity:

     

Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 36,828,834 and 36,826,364, respectively

     368         368   

Additional paid-in capital

     132,291         131,851   

Retained earnings

     535,805         520,448   

Accumulated other comprehensive income

     12,141         21,775   
  

 

 

    

 

 

 

Total shareholders’ equity

     680,605         674,442   
  

 

 

    

 

 

 
   $ 712,629       $ 719,324   
  

 

 

    

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

TECHNE Corporation and Subsidiaries

(in thousands)

(unaudited)

 

     Quarter Ended  
     September 30,  
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net earnings

   $ 25,668      $ 27,521   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation and amortization

     3,105        3,135   

Costs recognized on sale of acquired inventory

     1,264        2,148   

Deferred income taxes

     (777     (1,066

Stock-based compensation expense

     303        290   

Excess tax benefit from stock option exercises

     (1     (7

Losses by equity method investees

     41        198   

Other

     107        19   

Change in operating assets and operating liabilities:

    

Trade accounts and other receivables

     1,053        1,591   

Inventories

     (1,084     (226

Prepaid expenses

     (252     (145

Trade accounts payable and accrued expenses

     218        1,598   

Salaries, wages and related accruals

     400        825   

Income taxes payable

     (782     (1,449
  

 

 

   

 

 

 

Net cash provided by operating activities

     29,263        34,432   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchase of available-for-sale investments

     (21,119     (44,311

Proceeds from sales of available-for-sale investments

     6,200        10,195   

Proceeds from maturities of available-for-sale investments

     11,601        24,763   

Increase in other long-term assets

     (87     0   

Additions to property and equipment

     (2,515     (1,096
  

 

 

   

 

 

 

Net cash used in investing activities

     (5,920     (10,449
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Cash dividends

     (10,312     (10,026

Proceeds from stock option exercises

     136        45   

Excess tax benefit from stock option exercises

     1        7   

Purchase of common stock for stock bonus plans

     (573     (907

Repurchase of common stock

     0        (10,675
  

 

 

   

 

 

 

Net cash used in financing activities

     (10,748     (21,556
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     1,535        (805
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     14,130        1,622   

Cash and cash equivalents at beginning of period

     116,675        77,613   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 130,805      $ 79,235   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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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 Company’s Annual Report on Form 10-K for fiscal 2012. 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 Company’s Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2012, included in the Company’s Annual Report on Form 10-K for fiscal 2012.

B. Available-for-sale investments:

The Company’s available-for-sale investments at September 30, 2012 and June 30, 2012 are carried at fair value and are valued using quoted market prices in active markets (Level 1 input) for identical assets and liabilities.

C. Inventories:

Inventories consist of (in thousands):

 

     September 30,      June 30,  
     2012      2012  

Raw materials

   $ 5,814       $ 5,678   

Finished goods

     32,583         32,599   
  

 

 

    

 

 

 
   $ 38,397       $ 38,277   
  

 

 

    

 

 

 

D. Property and equipment:

Property and equipment consist of (in thousands):

 

     September 30,     June 30,  
     2012     2012  

Cost:

    

Land

   $ 7,505      $ 7,473   

Buildings and improvements

     125,783        123,257   

Laboratory equipment

     32,044        31,658   

Office equipment

     5,823        5,710   
  

 

 

   

 

 

 
     171,155        168,098   

Accumulated depreciation and amortization

     (76,235     (74,310
  

 

 

   

 

 

 
   $ 94,920      $ 93,788   
  

 

 

   

 

 

 

 

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E. Intangible assets and goodwill:

Intangible assets consist of (in thousands):

 

     September 30,     June 30,  
     2012     2012  

Developed technology

   $ 30,112      $ 29,410   

Trade names

     18,069        17,871   

Customer relationships

     8,804        8,712   

Non-compete agreement

     400        400   
  

 

 

   

 

 

 
     57,385        56,393   

Accumulated amortization

     (11,312     (9,917
  

 

 

   

 

 

 
   $ 46,073      $ 46,476   
  

 

 

   

 

 

 

The change in the carrying amount of net intangible assets for the quarter ended September 30, 2012 resulted from amortization expense and currency translation. Amortization expense related to technologies included in cost of sales was $753,000 and $764,000, respectively, for the quarters ended September 30, 2012 and 2011. Amortization expense related to trade names, customer relationships, and the non-compete agreement included in selling, general and administrative expense was $519,000 and $521,000 for the quarters ended September 30, 2012 and 2011, respectively.

The change in the carrying amount of goodwill for the quarter ended September 30, 2012 resulted from currency translation.

F. Share-based compensation:

Option activity under the Company’s stock option plans during the quarter ended September 30, 2012 was as follows:

 

     Shares
(in
thousands)
    Weighted
Average

Exercise
Price
     Weighted
Average
Contractual
Life (Yrs.)
     Aggregate
Intrinsic

Value
 

Outstanding at June 30, 2012

     575      $ 65.78         

Granted

     5      $ 74.05         

Exercised

     (2   $ 55.11         
  

 

 

         

Outstanding at September 30, 2012

     578      $ 65.90         5.5       $ 4.1 million   
  

 

 

         

Exercisable at September 30, 2012

     405      $ 62.84         5.5       $ 3.9 million   
  

 

 

         

The fair value of options granted under the Company’s stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used:

 

     Quarter
Ended
 
     September 30,  
     2012     2011  

Dividend yield

     1.5     1.4

Expected annualized volatility

     23     23

Risk free interest rate

     0.5     1.4

Expected life

     4  years      4  years 

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

 

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The weighted average per share fair value of options granted during the quarters ended September 30, 2012 and 2011 was $11.85 and $13.66, respectively. The total intrinsic value of options exercised during the quarters ended September 30, 2012 and 2011 was $40,000 and $34,000, respectively. The total fair value of options vested during the quarters ended September 30, 2012 and 2011 was $55,000 and $71,000, respectively.

Stock-based compensation cost of $303,000 and $290,000 was included in selling, general and administrative expense for the quarters ended September 30, 2012 and 2011, respectively. Compensation cost is recognized using a straight-line method over the vesting period and is net of estimated forfeitures. As of September 30, 2012, there was $1.9 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 1.1 years.

G. Earnings per share:

Shares used in the earnings per share computations are as follows (in thousands):

 

     Quarter Ended  
     September 30,  
     2012      2011  

Weighted average common shares outstanding-basic

     36,828         37,095   

Dilutive effect of stock options

     67         75   
  

 

 

    

 

 

 

Weighted average common shares outstanding-diluted

     36,895         37,170   
  

 

 

    

 

 

 

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 199,000 and 170,000 for the quarters ended September 30, 2012 and 2011, respectively.

H. Segment information:

The Company has two reportable segments based on the nature of products: biotechnology and hematology. Following is financial information relating to the Company’s reportable segments (in thousands):

 

     Quarter Ended  
     September 30,  
     2012     2011  

External sales

    

Biotechnology

   $ 69,503      $ 72,303   

Hematology

     5,522        5,293   
  

 

 

   

 

 

 

Consolidated net sales

   $ 75,025      $ 77,596   
  

 

 

   

 

 

 

Earnings before income taxes

    

Biotechnology

   $ 36,994      $ 39,984   

Hematology

     2,103        1,918   
  

 

 

   

 

 

 

Segment earnings before income taxes

     39,097        41,902   

Unallocated corporate expenses and equity method investee losses

     (1,111     (1,402
  

 

 

   

 

 

 

Consolidated earnings before income taxes

   $ 37,986      $ 40,500   
  

 

 

   

 

 

 

I. Accumulated other comprehensive income:

Accumulated other comprehensive income consists of (in thousands):

 

     September 30,     June 30,  
     2012     2012  

Foreign currency translation adjustments

   $ (16,818   $ (20,743

Net unrealized gain on available-for-sale investments, net of tax

     28,959        42,518   
  

 

 

   

 

 

 
   $ 12,141      $ 21,775   
  

 

 

   

 

 

 

 

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ITEM 2. MANAGEMENT’S 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 TECHNE Corporation’s wholly-owned subsidiaries, Research and Diagnostic Systems, Inc. (R&D Systems), Boston Biochem, Inc. (Boston Biochem), and BiosPacific, Inc. (BiosPacific). TECHNE Corporation’s 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. TECHNE Corporation 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 Company’s biotechnology reporting segment develops, manufactures and sells biotechnology research and diagnostic products world-wide. The Company’s 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 decreased 3.3% and 6.7%, respectively for the quarter ended September 30, 2012 compared to the quarter ended September 30, 2011. Consolidated net sales and consolidated net earnings for the quarter ended September 30, 2012 were unfavorably affected by changes in exchange rates from the same prior-year period. A stronger U.S. dollar as compared to foreign currencies reduced sales by $1.9 million in the quarter ended September 30, 2012 from the comparable prior-year period.

Net sales

Consolidated net sales for the quarter ended September 30, 2012 were $75.0 million, a decrease of $2.6 million (3.3%) from the quarter ended September 30, 2011. Excluding the effect of the change from the comparable prior-year period in exchange rates used to convert sales in foreign currencies (primarily British pound sterling, euros and Chinese yuan), consolidated net sales for the quarter ended September 30, 2012 decreased 0.9% from the quarter ended September 30, 2011. Included in consolidated net sales for the quarter ended September 30, 2012 was $288,000 of sales of new biotechnology products that had their first sale in fiscal 2013.

Net sales by reportable segment were as follows (in thousands):

 

     Quarter Ended  
     September 30,  
     2012      2011  

Biotechnology

   $ 69,503       $ 72,303   

Hematology

     5,522         5,293   
  

 

 

    

 

 

 

Consolidated net sales

   $ 75,025       $ 77,596   
  

 

 

    

 

 

 

Biotechnology segment net sales decreased $2.8 million (3.9%) for the quarter ended September 30, 2012 compared to the same prior-year period. This decrease resulted primarily from changes in exchange rates from the comparable prior-year period which impacted sales by $1.9 million, as noted above. The quarter ended September 30, 2012 also had one less selling day as compared to the same prior-year period.

 

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Biotechnology segment sales growth (decline), excluding the effect of changes in exchange rates, from the same prior-year periods were as follows:

 

     Quarter Ended  
     September 30,  
     2012     2011  

U.S. industrial, pharmaceutical and biotechnology

     (5.0 %)      9.3

U.S. academic

     (4.0 %)      (2.5 %) 

Europe

     3.1     (0.7 %) 

China

     25.1     14.1

Pacific rim distributors, excluding China

     Unchanged        Unchanged   

Biotechnology segment net sales consisted of the following:

 

     Quarter Ended
September  30,
 
     2012  

United States:

  

Industrial, pharmaceutical and biotechnology

     30

Academic

     14

Other

     13
  

 

 

 
     57

Europe

     27

China

     4

Pacific rim distributors, excluding China

     9

Rest of world

     3
  

 

 

 
     100
  

 

 

 

Hematology segment net sales increased $229,000 (4.3%) for the quarter ended September 30, 2012 compared to the same prior-year period as a result of increased sales volume.

Gross margins

Segment gross margins, as a percentage of net sales, were as follows:

 

     Quarter Ended  
     September 30,  
     2012     2011  

Biotechnology

     76.1     77.2

Hematology

     48.5     48.2

Consolidated

     74.1     75.2

Biotechnology segment gross margin percentages for the quarter ended September 30, 2012 decreased from the same prior-year period primarily due to lower sales caused by unfavorable exchange rates. This negative gross margin impact was partially offset by a decline in the costs recognized upon the sale of inventory acquired in fiscal 2011 which was written-up to fair value. Hematology segment gross margin percentage for the quarter ended September 30, 2012 increased slightly from the comparable prior-year period as a result of changes in product mix.

 

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Selling, general and administrative expenses

Selling, general and administrative expenses for the quarter ended September 30, 2012 decreased $445,000 (4.1%) from the same prior-year period. The decrease in selling, general and administrative expense resulted from a decrease in profit sharing expense of $685,000 from the comparable prior-year quarter.

Consolidated selling, general and administrative expenses were composed of the following (in thousands):

 

     Quarter Ended  
     September 30,  
     2012      2011  

Biotechnology

   $ 9,140       $ 9,470   

Hematology

     419         480   

Unallocated corporate expenses

     769         823   
  

 

 

    

 

 

 

Consolidated selling, general and administrative expenses

   $ 10,328       $ 10,773   
  

 

 

    

 

 

 

Research and development expenses

Research and development expenses were composed of the following (in thousands):

 

     Quarter Ended  
     September 30,  
     2012      2011  

Biotechnology

   $ 7,259       $ 6,469   

Hematology

     193         198   
  

 

 

    

 

 

 

Consolidated research and development expenses

   $ 7,452       $ 6,667   
  

 

 

    

 

 

 

Research and development expenses for the quarter ended September 30, 2012 increased $785,000 (11.8%) from the same prior-year period. 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.

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 Company’s share of losses by equity method investees. Amounts were as follows (in thousands):

 

     Quarter Ended
September 30,
 
     2012     2011  

Foreign currency gains (losses)

   $ (78   $ (524

Rental income

     170        134   

Building expenses related to rental property

     (529     (587

Losses by equity method investees

     (41     (198
  

 

 

   

 

 

 

Other non-operating expense, net

   $ (478   $ (1,175
  

 

 

   

 

 

 

 

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LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2012, cash and cash equivalents and available-for-sale investments were $405 million compared to $413 million at June 30, 2012. Included in available-for-sale-investments at September 30, 2012 was the fair value of the Company’s investment in ChemoCentryx, Inc. (CCXI) of $73.5 million. The fair value of the Company’s CCXI investment at June 30, 2012 was $94.7 million.

At September 30, 2012, approximately 61%, 36%, and 3% of the Company’s cash and cash equivalents of $131 million are located in the U.S., United Kingdom and China, respectively. At September 30, 2012, approximately 96% of the Company’s available-for-sale investment accounts are located in the U.S., with the remaining 4% 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, facility expansion and 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.

Cash flows from operating activities

The Company generated cash of $29.3 million from operating activities in the first quarter of fiscal 2013 compared to $34.4 million in the first quarter of fiscal 2012. The decrease from the prior year was primarily due to decreased net earnings for the quarter and changes in receivable and accounts payable and income taxes payable as a result of the timing of receipts and payments.

Cash flows from investing activities

During the quarter ended September 30, 2012, the Company purchased $21.1 million and had sales or maturities of $17.8 million of available-for-sale investments. During the quarter ended September 30, 2011, the Company purchased $44.3 million and had sales or maturities of $35.0 million of available-for-sale investments. The Company’s 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 quarter of fiscal 2013 and 2012 were $2.5 million and $1.1 million, respectively. Included in capital expenditures for the first quarters of fiscal 2013 and 2012 was $2.0 million and $663,000, respectively, related to expansion and remodeling of office and laboratory space at the Company’s Minneapolis facility. The remaining capital additions were mainly for laboratory and computer equipment. Capital expenditures in the remainder of fiscal 2013 are expected to be approximately $26.2 million including $20 million related to expansion space in Minneapolis and the purchase of land and construction of a new facility in the United Kingdom, both of which are not expected to be completed until fiscal 2014. Capital expenditures are expected to be financed through currently available funds and cash generated from operating activities.

Cash flows from financing activities

During the first quarter of fiscal 2013 and 2012, the Company paid cash dividends of $10.3 million and $10.0 million, respectively, to all common shareholders. On October 25, 2012, the Company announced the payment of a $0.30 per share cash dividend. The dividend of approximately $11.0 million will be payable November 19, 2012 to all common shareholders of record on November 5, 2012.

Cash of $136,000 and $45,000 was received during the quarters ended September 30, 2012 and 2011, respectively, from the exercise of stock options. The Company also recognized excess tax benefits from stock option exercises of $1,000 and $7,000 for the quarter ended September 30, 2012 and 2011, respectively.

During the first quarter of fiscal 2013 and 2012, the Company repurchased 8,324 and 13,140 shares of common stock for its employee stock bonus plans at a cost of $573,000 and $907,000, respectively.

 

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During the first quarter of fiscal 2012, the Company repurchased and retired 149,860 shares of common stock at a market value of $10.7 million. The Company did not repurchase any shares during the first quarter of fiscal 2013.

CONTRACTUAL OBLIGATIONS

There were no material changes outside the ordinary course of business in the Company’s contractual obligations during the quarter ended September 30, 2012.

CRITICAL ACCOUNTING POLICIES

The Company’s significant accounting policies are discussed in the Company’s Annual Report on Form 10-K for fiscal 2012 and are incorporated herein by reference. 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 2013 that would require disclosure. There have been no changes to the Company’s policies in fiscal 2013.

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 Company’s expectations as to the effect of changes to accounting policies, the amount of capital expenditures for the remainder of the fiscal year, the timeframe for completing facility improvements in the U.S. and the U.K., the source of funding for capital expenditure requirements, the sufficiency of currently available funds for meeting the Company’s needs, and the impact of fluctuations in foreign currency exchange rates. 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 Company’s 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, economic instability in Eurozone countries, 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 Company’s investment portfolio, unseen delays and expenses related to facility improvements and the success of financing efforts by companies in which the Company has invested. For additional information concerning such factors, see the Company’s Annual Report on Form 10-K for fiscal 2012 as filed with the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At September 30, 2012, the Company had a portfolio of fixed income debt securities, excluding those classified as cash and cash equivalents, of $201 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 Company’s 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 September 30, 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 $73.5 million. At September 30, 2012, the potential loss in fair value due to a 10% decrease in the market value of CCXI was $7.4 million.

 

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The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency exchange rates. For the quarter ended September 30, 2012, approximately 29% of consolidated net sales were made in foreign currencies, including 13% in euros, 7% in British pound sterling, 4% 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 Company’s 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
September 30,
 
     2012      2011  

Euro

   $ 1.26       $ 1.41   

British pound sterling

     1.59         1.61   

Chinese yuan

     .158         .156   

The Company’s exposure to foreign exchange rate fluctuations also arises from trade receivables and intercompany payables denominated in one currency in the financial statements, but receivable or payable in another currency. At September 30, 2012, the Company had the following trade receivable and intercompany payables denominated in one currency but receivable or payable in another currency (in thousands):

 

     Denominated
Currency
     U.S. Dollar
Equivalent
 

Accounts receivable in:

     

Euros

   £ 932       $ 1,506   

Other European currencies

   £ 919       $ 1,485   

Intercompany payable in:

     

Euros

   £ 290       $ 469   

U.S. dollars

   £ 2,422       $ 3,915   

U.S. dollars

     yuan 4,448       $ 708   

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 and Comprehensive Income. The effect of translating net assets of foreign subsidiaries into U.S. dollars are recorded on the Consolidated Balance Sheet as part of “Accumulated other comprehensive income.”

The effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from September 30, 2012 levels against the euro, British pound sterling and Chinese yuan are as follows (in thousands):

 

Decrease in translation of 2013 earnings into U.S. dollars (annualized)

   $ 2,143   

Decrease in translation of net assets of foreign subsidiaries

     15,667   

Additional transaction losses

     462   

 

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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 Company’s 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 Company’s 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 Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As of November 9, 2012, the Company is not a party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.

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 Company’s Annual Report on Form 10-K for the year ended June 30, 2012.

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, 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
 

7/1/12-7/31/12

     0       $ 0         0       $ 27.0 million   

8/1/12-8/31/12

     8,324       $ 68.89         0       $ 27.0 million   

9/1/12-9/30/12

     0       $ 0         0       $ 27.0 million   
  

 

 

    

 

 

    

 

 

    

Total

     8,324       $ 68.89         0       $ 27.0 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. In October 2012, the Company increased the amount authorized under the plan by $100 million.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

See “exhibit index” following the signature page.

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, 2012  

/s/ Thomas E. Oland

  Thomas E. Oland
  President, Chief Executive Officer
Date: November 9, 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 Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Earnings and Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to the Condensed Consolidated Financial Statements.

 

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