Bio-Techne (TECH) 10-K risk factor changes: FY2010 vs FY2009

10-K 1 [removed: k102009.txt] [added: k2010.txt] 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, [removed: 2009 OR] [added: 2010] ( ) 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: 000-17272 TECHNE CORPORATION (Exact name of Registrant as specified in its charter) Minnesota 41-1427402 (State of Incorporation) (IRS Employer Identification No.) 614 McKinley Place N.E., Minneapolis, MN 55413-2610 (Address of principal executive offices) (Zip Code) Registrant's telephone number: (612) 379-8854 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value [added: Name of each exchange on which registered: The Nasdaq Stock Market LLC (Nasdaq Global Select Market)] Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

(X) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, [removed: or] a non-accelerated [removed: filer.][added: filer, or a smaller reporting company.]

See [removed: definition] [added: the definitions] of [removed: "accelerated filer and large] [added: "large] accelerated [added: filer," "accelerated] filer" [added: and "smaller reporting company"] in Rule 12b-2 of the [removed: Securities] Exchange Act.

[added: Yes] ( ) [removed: Yes (X)] No [added: (X)] The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the closing sale price on [removed: August 27,] [added: December 31,] 2009 as reported on The Nasdaq Stock Market [added: ($68.56 per share)] was approximately [removed: $1.6] [added: $1.9] billion.

Shares of $0.01 par value Common Stock outstanding at August [removed: 27, 2009: 37,244,629.][added: 26, 2010: 37,043,775.]

DOCUMENTS INCORPORATED BY REFERENCE [removed: Portion] [added: Portions] of the Company's Proxy Statement for its [removed: 2009] [added: 2010] Annual Meeting of Shareholders are incorporated by reference into Part III.

Business [removed: 3] [added: 1] Item 1A.

Risk Factors [removed: 10] [added: 9] Item 1B.

Unresolved Staff Comments [removed: 12] [added: 11] Item 2.

Properties [removed: 12] [added: 11] Item 3.

Legal Proceedings [removed: 12] [added: 11] Item 4.

Market for the Registrant's Common Equity, Related [removed: Stockholder] [added: Shareholder] Matters and Issuer Purchases of Equity Securities [removed: 13] [added: 12] Item 6.

Selected Financial Data [removed: 15] [added: 14] Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations [removed: 16] [added: 15] Item 7A.

Financial Statements and Supplementary Data [removed: 24] [added: 25] Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure [removed: 39] [added: 43] Item 9A.

Controls and Procedures [removed: 39] [added: 43] Item 9B.

Other Information [removed: 39] [added: 43] PART III Item 10.

Directors, Executive Officers and Corporate Governance [removed: 39] [added: 44] Item 11.

Executive Compensation [removed: 39] [added: 44] Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related [removed: Stockholder] [added: Shareholder] Matters [removed: 40] [added: 44] Item 13.

Certain Relationships and Related Transactions, and Director Independence [removed: 40] [added: 45] Item 14.

Principal Accounting Fees and Services [removed: 40] [added: 45] PART IV Item 15.

Exhibits and Financial Statement Schedules [removed: 40] [added: 45] SIGNATURES [removed: 41 2] [added: 46 i] PART I ITEM 1.

In fiscal [removed: 2009, 2008] [added: 2010, 2009] and [removed: 2007,] [added: 2008,] net sales from the Company's biotechnology segment were 66%, [removed: 64%] [added: 66%] and [removed: 66%,] [added: 64%,] respectively, of consolidated net sales.

Net sales from the Company's R&D Europe segment were 27%, [removed: 30%] [added: 27%] and [removed: 27%,] [added: 30%,] respectively, of consolidated net sales for same periods.

The Company's hematology segment net sales were 7%, [removed: 6% and] 7% [added: and 6%] of consolidated net sales for fiscal [removed: 2009, 2008] [added: 2010, 2009] and [removed: 2007,] [added: 2008,] respectively.

Biotechnology and R&D Europe [removed: Segments] [added: segments] The Company, through its biotechnology and R&D Europe segments, is [added: one of] the world's leading [removed: supplier] [added: suppliers] of cytokines and cytokine-related reagents to the biotechnology research community.

[removed: Many] [added: Both] enzymes [added: and cytokines] have the potential to serve as predictive biomarkers and therapeutic targets for a variety of diseases including cancer, Alzheimer's, arthritis, autoimmunity, diabetes, hypertension, obesity, AIDS and SARS.

[removed: 3] [added: 1] The Company markets cytokine [removed: assay] [added: immunoassay] kits under the tradename Quantikine.

The Company currently manufactures and sells nearly [removed: 14,000] [added: 15,000] biotechnology products.

Cytokines, extracted from natural sources or produced using recombinant DNA technology, are manufactured to the highest [added: possible] purity.

Monoclonal antibodies are secreted from these cell lines during cell culture [added: production] and purified from the cell culture medium.

This product line includes fluorochrome labeled antibodies and Fluorokine kits, which are used to [removed: measure the presence or absence of cell surface receptors for] [added: determine] specific [removed: cytokines] [added: immune-phenotypic properties of cells of the immune system] by flow [removed: cytometry.][added: cytometric means.]

This diverse product line provides reagents to [removed: study apoptosis (programmed cell death) and to] elucidate [removed: signal] [added: cell signaling] transduction pathways within cells.

Blood is composed of plasma, the fluid portion of [removed: which is mainly water,] [added: blood,] and blood cells, which are suspended in the plasma.

[added: 2] These fundamental blood components (red cells, white cells and platelets) differ widely in size and concentration.

[removed: 4] These and other characteristics or "parameters" of a blood sample can be measured by automated or semi-automated cell counters.

Hematology calibrators are similar to controls, but [removed: go through] [added: undergo] additional testing to ensure that the calibration values assigned are within tight specifications and can be used to calibrate the instrument.

These products are controls for [added: clinical] flow cytometry instruments.

(Removed and Reserved) 11 PART II Item 5.

White cells are part of the body's immune system.

In fiscal 2010, as a result of Hemerus issuing additional ownership units, the Company's ownership percentage decreased to 13.8% as of June 30, 2010.

The Company holds a 13.6% ownership percentage in ACTGen as of June 30, 2010.

The Company is not substantially dependent on products for which it has obtained patent protection.

Revenues for such products are not material to the Company's financial results.

Thomas E.

Prior to 2004, he held various vice president and chief financial officers positions at several publicly traded companies and was employed by a public accounting firm for 19 years, including nine years as an audit partner.

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.

11 The judgment, once upheld, 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 judgment in favor of Streck in the amount of $92,300.

The Company will also be responsible for court related costs (less than $40,000) and its professional fees related to the case.

The Company will defend the interference board's decision, will move the Nebraska Court for declaratory judgment of invalidity as a matter of law based on priority, and will appeal any continuing adverse decision of the Nebraska Court.

If successful, after cancellation of the Streck patents, the Company may be issued a patent covering integrated hematology controls containing reticulocytes.

(REMOVED AND RESERVED) PART II ITEM 5.

Fiscal 2010 Price Fiscal 2009 Price ----------------- ----------------- High Low High Low ------ ------ ------ ------ 1st Quarter $65.54 $58.91 $82.92 $67.97 2nd Quarter 69.95 62.12 75.15 57.10 3rd Quarter 69.74 60.00 65.64 45.38 4th Quarter 67.65 57.10 64.41 51.11 As of August 26, 2010, there were over 28,000 beneficial shareholders of the Company's common stock and over 260 shareholders of record.

COMPARISION OF CUMULATIVE FIVE YEAR TOTAL RETURNS INDEXED RETURNS Year Ending Company/Index June 2006 June 2007 June 2008 June 2009 June 2010 ----------------------- --------- --------- --------- --------- --------- Techne Corp 110.91 124.61 168.57 140.79 128.83 S&P Midcap 400 Index 112.98 133.89 124.07 89.30 111.57 S&P 400 Biotechnology 101.89 106.89 138.54 134.63 150.95 The following table sets forth the repurchases of Company Common Stock for the quarter ended June 30, 2010.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING INFORMATION This report contains forward-looking statements, which are based on the Company's current assumptions and expectations.

Consolidated net sales and consolidated net earnings in fiscal 2010 were slightly 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 favorable impact in fiscal 2010 on consolidated net sales and consolidated net earnings of the change from the prior year in exchange rates was $888,000 and $68,000, respectively.

Consolidated net earnings for fiscal 2010 included a $4.7 million tax benefit as a result of a foreign currency exchange tax loss on the repatriation of prior-year earnings from R&D Europe to the U.S. Consolidated net sales and consolidated net earnings increased 2.5% and 1.6%, respectively, for fiscal 2009 as compared to fiscal 2008.

Included in consolidated net sales in fiscal 2010 were $2.8 million of sales of new biotechnology products, which had their first sale in fiscal 2010.

Biotechnology net sales to industrial pharmaceutical and biotechnology customers, Biotechnology's largest customer segment, were flat in fiscal 2010 compared to the prior fiscal year.

R&D Europe net sales increased $223,000 (0.3%) in fiscal 2010.

Consolidated net sales were unfavorably affected by the change from the prior year in exchange rates used to convert sales in foreign currencies into U.S. dollars.

Gross margins Gross margins, as a percentage of net sales, were as follows: Year Ended June 30, 2010 2009 2008 -------- -------- -------- Biotechnology 80.1% 79.3% 79.7% R&D Europe 52.4% 51.7% 56.5% Hematology 47.7% 45.9% 41.0% Consolidated 79.8% 79.0% 79.5% 16 The improvement in consolidated gross margins for fiscal 2010 was mainly the result of incremental profit on increased sales volume in the biotechnology segment.

Although ongoing in fiscal 2010, the legal expenses for the litigation in fiscal 2010 decreased from the fiscal 2009 level.

The decrease in profit sharing and bonus expense in fiscal 2010 and 2009 reflect the change in financial results from the prior fiscal year.

At June 30, 2010 and 2009, the Company had a 13.8% and 22.0% interest in Hemerus, respectively.

At both June 30, 2010 and 2009, the Company had a 16.8% interest in Nephromics.

In fiscal 2010 and 2009, the Company received $50,000 and $1.3 million, respectively, in distributions from Nephromics.

The fiscal 2010 consolidated tax rate was positively impacted by a $4.7 million tax benefit from a foreign currency exchange tax loss related to the repatriation of 50 million British pound sterling ($74.4 million) from R&D Europe to the U.S. The Company had previously paid U.S. income taxes on the foreign earnings that were included in the repatriated funds.

Excluding this tax benefit, the effective tax rate for fiscal 2010 would have been 32.8%.

This is slightly higher than the fiscal 2009 effective tax rate primarily as a result of the expiration of the U.S. research and development credit at the end of the second quarter of fiscal 2010.

At June 30, 2010, approximately 44%, 54%, and 2% of the Company's cash and equivalent account balances of $94.1 million are located in the U.S., United Kingdom and China, respectively.

At June 30, 2010, approximately 98% of the Company's available-for-sale investment accounts are located in the U.S., with the remaining 2% in China.

The large net purchase of available-for-sale investments in fiscal 2010 was primarily the result of the repatriation of funds from the U.K., where the funds had been invested in instruments classified as cash and equivalents, to the U.S. where the funds were invested in available-for-sale investments.

In fiscal 2010 and 2009, the Company received $50,000 and $1.3 million, respectively, in distributions from Nephromics.

The Company began investing in Nephromics in fiscal 2007 and has an ownership percentage of 16.8% at June 30, 2010.

Submission of Matters to a Vote of Security Holders 13 Supplemental Item - Executive Officers of the Company 13 PART II Item 5.

White cells defend the body against foreign invaders.

In fiscal 2008, Nephromics issued additional membership units which reduced the Company's ownership percentage to 16.8%.

R&D Systems believes that it is the leading worldwide supplier of cytokine related products in the research marketplace.

LEGAL PROCEEDINGS On June 29, 2006, Streck Laboratories, Inc. (Streck) filed a Complaint against the Company and its subsidiary, R&D Systems, in the United States District Court for the District of Nebraska.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the Company's security holders during the fourth quarter of the Company's 2009 fiscal year.

(b) The business experience of the executive officers during the past five years is as follows: Thomas E.

From 2002 to 2004, he served as Vice President and Chief Financial Officer of PLATO Learning, Inc., a publicly held provider of computer-based and e-learning educational software.

From 1999 to 2001, he held the position of Vice President of Finance, Treasurer and Chief Financial Officer of American Medical Systems Holdings, Inc., a publicly traded medical device manufacturer.

Previously, Mr. Melsen was employed by a public accounting firm for 19 years, including nine years as an audit partner.

13 The Company's common stock trades on The NASDAQ Stock Market under the symbol "TECH." The following table sets forth for the periods indicated the range of the closing price per share for the Company as reported by Nasdaq National Market.

Fiscal 2009 Price Fiscal 2008 Price ----------------- ----------------- High Low High Low ------ ------ ------ ------ 1st Quarter $81.90 $71.38 $66.38 $56.20 2nd Quarter 74.34 60.54 69.90 61.66 3rd Quarter 64.84 45.64 71.12 59.49 4th Quarter 64.45 51.71 79.73 64.84 As of August 27, 2009, there were approximately 230 shareholders of record.

As of August 27, 2009, there were over 50,000 beneficial shareholders of the Company's common stock.

TECHNE Corporation paid three quarterly cash dividends of $0.25 per share per quarter totaling $28.2 million in fiscal 2009.

COMPARISION OF CUMULATIVE FIVE YEAR TOTAL RETURNS INDEXED RETURNS Year Ending Company/Index June 2005 June 2006 June 2007 June 2008 June 2009 --------------------- --------- --------- --------- --------- --------- Techne Corporation 105.66 117.19 131.67 178.11 148.76 S&P Midcap 400 Index 114.03 128.83 152.67 141.48 101.83 S&P 400 Biotechnology 93.86 95.63 100.32 130.03 126.35 14 ITEM 6.

Fortron Bio Science, Inc. was merged into R&D Systems on July 1, 2007.

(2) As a percent of net sales.

Consolidated net sales and consolidated net earnings in fiscal 2009 were unfavorably affected by the strengthening of the U.S. dollar as compared to foreign currencies.

Consolidated net sales and consolidated net earnings increased 15.2% and 21.7%, respectively, for fiscal 2008 as compared to fiscal 2007.

The favorable impact on fiscal 2008 consolidated net earnings, as compared to fiscal 2007, from changes in exchange rates used to convert foreign currency financial statements to U.S. dollars was $1.3 million.

Consolidated net sales were unfavorably affected by the strength of the U.S. dollar as compared to foreign currencies.

Consolidated net sales were favorably affected by the strength of foreign currencies as compared to the U.S. dollar.

Increased sales to diagnostic customers positively affected biotechnology net sales in fiscal 2008.

Excluding sales to diagnostic customers, biotechnology net sales increased 12.4% for fiscal 2008 as compared to the prior fiscal year.

R&D Europe net sales increased $14.0 million (22.6%) in fiscal 2008.

The improvement in consolidated gross margins for fiscal 2008 was the result of higher gross margins at R&D Europe due to favorable exchange rates between a weaker U.S. dollar and stronger euro and British pound sterling and the result of higher sales growth in the Biotechnology Division as compared to the sales growth in the lower margin Hematology Division.

The decrease in stock-based compensation expense in fiscal 2009 was mainly the result of decreased stock volatility and interest rates used to calculate the fair value of options granted.

The increase in stock-based compensation expense in fiscal 2008 was due to an increase in the number of stock options granted in fiscal 2008 compared to fiscal 2007 as a result of expanding the Board of Directors by one member.

Operations in China were established in late fiscal 2007, resulting in increased expenses in fiscal 2008.

Amortization expense was $1.0 million, $1.1 million and $1.6 million in fiscal 2009, 2008 and 2007, respectively, related mainly to technologies, trade names and customer relationships acquired as a result of acquisitions in fiscal 2006.

17 Interest income and expense.

The increase in fiscal 2008 from the prior year was due to higher cash and investment balances and increased interest rates.

Interest expense in fiscal 2007 was $1.1 million.

Through October 2006, the Company had a floating interest rate mortgage note outstanding.

Fiscal 2007 interest expense included $651,000 of prepayment penalty and $78,000 of unamortized loan origination fees.

See Cash flows from investing activities following.

The fiscal 2008 consolidated tax rate was positively impacted by changes in state apportionment percentages partially offset by the reduction of the credit for research and development expenditures as a result of the delayed renewal of the credit.

Additional investments in unconsolidated entities were as follows (in thousands): Year Ended June 30, 2009 2008 2007 -------- -------- -------- ACTGen, Inc. $ -- $ 1,423 $ -- Hemerus -- 300 700 Nephromics -- -- 7,200 -------- -------- -------- $ -- $ 1,723 $ 7,900 ======== ======== ======== In fiscal 2008, the Company invested $1.4 million for a 19% interest in ACTGen, Inc. (ACTGen), a development stage biotechnology company located in Japan.

In fiscal 2004, the Company purchased a 10% interest in Hemerus for $3 million.

In fiscal years 2006 through 2008, the Company invested an additional $1.75 million in Hemerus, increasing its ownership percentage to 19%.