filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
TECHNE Corporation and Subsidiaries
(in thousands, except per share data)
| Year Ended June 30, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Net sales | $ | 314,560 | $ | 289,962 | $ | 269,047 | ||||||
| Cost of sales | 78,756 | 65,025 | 54,898 | |||||||||
| Gross margin | 235,804 | 224,937 | 214,149 | |||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | 41,683 | 35,897 | 32,700 | |||||||||
| Research and development | 27,912 | 25,985 | 25,121 | |||||||||
| Total operating expenses | 69,595 | 61,882 | 57,821 | |||||||||
| Operating income | 166,209 | 163,055 | 156,328 | |||||||||
| Other income (expense): | ||||||||||||
| Interest income | 2,639 | 3,752 | 4,375 | |||||||||
| Impairment losses on investments | (3,254 | ) | 0 | 0 | ||||||||
| Other non-operating expense, net | (3,399 | ) | (1,826 | ) | (4,257 | ) | ||||||
| Total other (expense) income | (4,014 | ) | 1,926 | 118 | ||||||||
| Earnings before income taxes | 162,195 | 164,981 | 156,446 | |||||||||
| Income taxes | 49,864 | 52,679 | 46,670 | |||||||||
| Net earnings | 112,331 | 112,302 | 109,776 | |||||||||
| Other comprehensive income (loss): | ||||||||||||
| Foreign currency translation adjustments | (3,804 | ) | 5,028 | (13,932 | ) | |||||||
| Unrealized gains (losses) on available-for-sale investments, net of tax of $23,422, ($44) and $97, respectively | 41,870 | (85 | ) | 175 | ||||||||
| Other comprehensive income (loss) | 38,066 | 4,943 | (13,757 | ) | ||||||||
| Comprehensive income | $ | 150,397 | $ | 117,245 | $ | 96,019 | ||||||
| Earnings per share: | ||||||||||||
| Basic | $ | 3.04 | $ | 3.03 | $ | 2.95 | ||||||
| Diluted | $ | 3.04 | $ | 3.02 | $ | 2.94 | ||||||
| Cash dividends per common share: | $ | 1.11 | $ | 1.07 | $ | 1.03 | ||||||
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 36,939 | 37,098 | 37,255 | |||||||||
| Diluted | 37,006 | 37,172 | 37,347 |
See Notes to Consolidated Financial Statements.
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CONSOLIDATED BALANCE SHEETS
TECHNE Corporation and Subsidiaries
(in thousands, except share and per share data)
| June 30, | ||||||||
| 2012 | 2011 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 116,675 | $ | 77,613 | ||||
| Short-term available-for-sale investments | 152,311 | 63,200 | ||||||
| Trade accounts receivable, less allowance for doubtful accounts of $455 and $448, respectively | 35,668 | 35,914 | ||||||
| Other receivables | 2,073 | 1,946 | ||||||
| Inventories | 38,277 | 44,906 | ||||||
| Deferred income taxes | 0 | 5,797 | ||||||
| Prepaid expenses | 1,503 | 1,041 | ||||||
| Total current assets | 346,507 | 230,417 | ||||||
| Available-for-sale investments | 143,966 | 131,988 | ||||||
| Property and equipment, net | 93,788 | 95,398 | ||||||
| Goodwill | 85,682 | 86,633 | ||||||
| Intangible assets, net | 46,476 | 52,282 | ||||||
| Investments in unconsolidated entities | 1,056 | 19,633 | ||||||
| Other assets | 1,849 | 1,319 | ||||||
| $ | 719,324 | $ | 617,670 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | 6,291 | $ | 5,207 | ||||
| Salaries, wages and related accruals | 4,699 | 4,784 | ||||||
| Accrued expenses | 7,275 | 2,688 | ||||||
| Income taxes payable | 3,251 | 5,509 | ||||||
| Deferred income taxes | 14,234 | 0 | ||||||
| Total current liabilities | 35,750 | 18,188 | ||||||
| Deferred income taxes | 9,132 | 13,360 | ||||||
| Commitments and contingencies (Note I) | ||||||||
| Shareholders’ equity: | ||||||||
| Undesignated capital stock, no par; authorized 5,000,000 shares; none issued or outstanding | 0 | 0 | ||||||
| Common stock, par value $.01 a share; authorized 100,000,000 shares; issued and outstanding 36,826,364 and 37,153,398 shares, respectively | 368 | 371 | ||||||
| Additional paid-in capital | 131,851 | 129,312 | ||||||
| Retained earnings | 520,448 | 472,730 | ||||||
| Accumulated other comprehensive income (loss) | 21,775 | (16,291 | ) | |||||
| Total shareholders’ equity | 674,442 | 586,122 | ||||||
| $ | 719,324 | $ | 617,670 | |||||
See Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY TECHNE
Corporation and Subsidiaries
(in thousands)
| Common Stock | Additional Paid-in | Retained | Accumulated Other Compre- hensive | |||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Income(Loss) | Total | |||||||||||||||||||
| Balances at June 30, 2009 | 37,244 | $ | 372 | $ | 117,946 | $ | 345,641 | $ | (7,477 | ) | $ | 456,482 | ||||||||||||
| Net earnings | 109,776 | 109,776 | ||||||||||||||||||||||
| Other comprehensive loss | (13,757 | ) | (13,757 | ) | ||||||||||||||||||||
| Common stock issued for exercise of options | 73 | 1 | 3,260 | 3,261 | ||||||||||||||||||||
| Repurchase of common stock | (284 | ) | (3 | ) | (16,910 | ) | (16,913 | ) | ||||||||||||||||
| Cash dividends | (38,388 | ) | (38,388 | ) | ||||||||||||||||||||
| Stock-based compensation expense | 1,135 | 1,135 | ||||||||||||||||||||||
| Tax benefit from exercise of stock options | 196 | 196 | ||||||||||||||||||||||
| Balances at June 30, 2010 | 37,033 | 370 | 122,537 | 400,119 | (21,234 | ) | 501,792 | |||||||||||||||||
| Net earnings | 112,302 | 112,302 | ||||||||||||||||||||||
| Other comprehensive income | 4,943 | 4,943 | ||||||||||||||||||||||
| Common stock issued for exercise of options | 129 | 1 | 5,351 | 5,352 | ||||||||||||||||||||
| Surrender and retirement of stock to exercise options | (9 | ) | (0 | ) | (561 | ) | (561 | ) | ||||||||||||||||
| Cash dividends | (39,691 | ) | (39,691 | ) | ||||||||||||||||||||
| Stock-based compensation expense | 1,138 | 1,138 | ||||||||||||||||||||||
| Tax benefit from exercise of stock options | 847 | 847 | ||||||||||||||||||||||
| Balances at June 30, 2011 | 37,153 | 371 | 129,312 | 472,730 | (16,291 | ) | 586,122 | |||||||||||||||||
| Net earnings | 112,331 | 112,331 | ||||||||||||||||||||||
| Other comprehensive income | 38,066 | 38,066 | ||||||||||||||||||||||
| Common stock issued for exercise of options | 17 | 0 | 847 | 847 | ||||||||||||||||||||
| Repurchase of common stock | (344 | ) | (3 | ) | (23,595 | ) | (23,598 | ) | ||||||||||||||||
| Cash dividends | (41,018 | ) | (41,018 | ) | ||||||||||||||||||||
| Stock-based compensation expense | 1,641 | 1,641 | ||||||||||||||||||||||
| Tax benefit from exercise of stock options | 51 | 51 | ||||||||||||||||||||||
| Balances at June 30, 2012 | 36,826 | $ | 368 | $ | 131,851 | $ | 520,448 | $ | 21,775 | $ | 674,442 | |||||||||||||
See Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
TECHNE Corporation and Subsidiaries
(in thousands)
| Year Ended June 30, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net earnings | $ | 112,331 | $ | 112,302 | $ | 109,776 | ||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 12,467 | 8,700 | 8,130 | |||||||||
| Costs recognized on sale of acquired inventory | 7,573 | 1,835 | 0 | |||||||||
| Deferred income taxes | (7,363 | ) | 3,194 | (1,551 | ) | |||||||
| Stock-based compensation expense | 1,641 | 1,138 | 1,135 | |||||||||
| Excess tax benefit from stock option exercises | (51 | ) | (847 | ) | (196 | ) | ||||||
| Impairment losses on investments | 3,254 | 0 | 0 | |||||||||
| Losses by equity method investees | 603 | 926 | 1,510 | |||||||||
| Other | 230 | 225 | 222 | |||||||||
| Change in operating assets and liabilities, net of acquisitions: | ||||||||||||
| Trade accounts and other receivables | (2,096 | ) | (3,624 | ) | (4,034 | ) | ||||||
| Inventories | (1,577 | ) | (1,021 | ) | (2,368 | ) | ||||||
| Prepaid expenses | (476 | ) | 256 | (186 | ) | |||||||
| Trade accounts payable and accrued expenses | 1,581 | (591 | ) | (74 | ) | |||||||
| Salaries, wages and related accruals | 686 | 1,268 | 414 | |||||||||
| Income taxes payable | (2,057 | ) | 3,433 | (1,518 | ) | |||||||
| Net cash provided by operating activities | 126,746 | 127,194 | 111,260 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisitions, net of cash acquired | 0 | (131,766 | ) | 0 | ||||||||
| Purchase of available-for-sale investments | (147,011 | ) | (151,366 | ) | (176,621 | ) | ||||||
| Proceeds from sale of available-for-sale investments | 64,291 | 134,019 | 27,045 | |||||||||
| Proceeds from maturities of available-for-sale investments | 67,435 | 39,501 | 39,555 | |||||||||
| Additions to property and equipment | (6,017 | ) | (3,630 | ) | (4,644 | ) | ||||||
| Distribution from unconsolidated entity | 463 | 0 | 50 | |||||||||
| Increase in other long-term assets | (829 | ) | (943 | ) | 0 | |||||||
| Net cash used in investing activities | (21,668 | ) | (114,185 | ) | (114,615 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Cash dividends | (41,018 | ) | (39,691 | ) | (38,388 | ) | ||||||
| Proceeds from stock option exercises | 847 | 4,790 | 3,261 | |||||||||
| Excess tax benefit from stock option exercises | 51 | 847 | 196 | |||||||||
| Purchase of common stock for stock bonus plans | (907 | ) | (294 | ) | (607 | ) | ||||||
| Repurchase of common stock | (23,598 | ) | (1,940 | ) | (14,973 | ) | ||||||
| Net cash used in financing activities | (64,625 | ) | (36,288 | ) | (50,511 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (1,391 | ) | 6,753 | (12,935 | ) | |||||||
| Net change in cash and cash equivalents | 39,062 | (16,526 | ) | (66,801 | ) | |||||||
| Cash and cash equivalents at beginning of year | 77,613 | 94,139 | 160,940 | |||||||||
| Cash and cash equivalents at end of year | $ | 116,675 | $ | 77,613 | $ | 94,139 | ||||||
See Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TECHNE Corporation and Subsidiaries
Years ended June 30, 2012, 2011 and 2010
A. Description of business and summary of significant accounting policies:
Description of business: TECHNE Corporation and subsidiaries (the Company) are engaged in the development, manufacture and sale of biotechnology products and hematology calibrators and controls. These activities are conducted domestically through its wholly-owned subsidiaries, Research and Diagnostic Systems, Inc. (R&D Systems), Boston Biochem, Inc. (Boston Biochem) and BiosPacific, Inc. (BiosPacific). The Company develops, manufactures and distributes biotechnology products in Europe through its wholly-owned U.K. subsidiaries, R&D Systems Europe Ltd. (R&D Europe) and Tocris Holdings Limited (Tocris). R&D Europe has a sales subsidiary, R&D Systems GmbH, in Germany and a sales office in France. The Company distributes 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.
Estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates include the valuation of accounts receivable, available-for-sale investments, inventory, intangible assets, stock based compensation and income taxes. Actual results could differ from these estimates.
Risk and uncertainties: There are no concentrations of business transacted with a particular customer or supplier or concentrations of revenue from a particular product or geographic area that would severely impact the Company in the near term.
Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Translation of foreign financial statements: Assets and liabilities of the Company’s foreign operations are translated at year-end rates of exchange and the resulting gains and losses arising from the translation of net assets located outside the U.S. are recorded as a cumulative translation adjustment, a component of accumulated other comprehensive income (loss) on the consolidated balance sheets. Foreign statements of earnings are translated at the average rate of exchange for the year. Foreign currency transaction gains and losses are included in other non-operating expense in the consolidated statements of earnings.
Revenue recognition: The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to 90 days. Products are shipped FOB shipping point. Freight charges billed to end-users are included in net sales and freight costs are included in cost of sales. Freight charges on shipments to distributors are paid directly by the distributor. Any claims for credit or return of goods must be made within 10 days of receipt. Revenues are reduced to reflect estimated credits and returns. Sales, use, value-added and other excise taxes are not included in revenue.
Research and development: Research and development expenditures are expensed as incurred. Development activities generally relate to creating new products, improving or creating variations of existing products, or modifying existing products to meet new applications.
Advertising costs: Advertising expenses (including production and communication costs) were $3.4 million, $2.9 million and $3.0 million for fiscal 2012, 2011 and 2010, respectively. The Company expenses advertising expenses as incurred.
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Share-based compensation: The cost of employee services received in exchange for the award of equity instruments is based on the fair value of the award at the date of grant. 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. Compensation cost is recognized using a straight-line method over the vesting period and is net of estimated forfeitures. Stock option exercises are satisfied through the issuance of new shares.
Income taxes: The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized to record the income tax effect of temporary differences between the tax basis and financial reporting basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Tax positions taken or expected to be taken in a tax return are recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
Financial instruments not measured at fair value: Certain of the Company’s financial instruments are not measured at fair value but nevertheless are recorded at carrying amounts approximating fair value, based on their short-term nature. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and other current liabilities.
Cash and equivalents: Cash and cash equivalents include cash on hand and highly-liquid investments with original maturities of three months or less.
Available-for-sale investments: Available-for-sale investments consist of debt instruments with original maturities of generally three months to three years and equity securities. Available-for-sale investments are recorded based on trade-date. The Company considers all of its marketable securities available-for-sale and reports them at fair value. The Company utilizes valuation techniques for determining fair market value which maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
Unrealized gains and losses on available-for-sale securities are excluded from income, but are included, net of taxes, in other comprehensive income. If an “other-than-temporary” impairment is determined to exist, the difference between the value of the investment security recorded in the financial statements and the Company’s current estimate of the fair value is recognized as a charge to earnings in the period in which the impairment is determined.
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Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. The Company regularly reviews inventory on hand for slow-moving and obsolete inventory, inventory not meeting quality control standards and inventory subject to expiration. To meet strict customer quality standards, the Company has established a highly controlled manufacturing process for proteins and antibodies. New protein and antibody products require the initial manufacture of multiple batches to determine if quality standards can be consistently met. In addition, the Company will produce larger batches of established products than current sales requirements due to economies of scale. The manufacturing process for proteins and antibodies, therefore, has and will continue to produce quantities in excess of forecasted usage. The Company values its manufactured protein and antibody inventory based on a two-year usage forecast. Protein and antibody quantities in excess of the two-year usage forecast are not valued due to uncertainty over salability. Sales of previously unvalued protein and antibody inventory for fiscal years 2012, 2011 and 2010 were not material. Manufacturing costs for proteins and antibodies charged directly to cost of sales were $13.3 million, $13.7 million and $12.3 million for fiscal 2012, 2011 and 2010, respectively.
Depreciation and amortization: Equipment is depreciated using the straight-line method over an estimated useful life of five years. Buildings, building improvements and leasehold improvements are amortized over estimated useful lives of 5 to 40 years.
Goodwill: At June 30, 2012 and 2011, the Company had recorded goodwill of $85.7 million and $86.6 million, respectively. The Company tests goodwill at least annually for impairment. All of the goodwill recorded is within the Company’s biotechnology segment. In September 2011, the FASB issued ASU No. 2011-08 Intangibles – Goodwill and Other under an amendment to Topic 350_,_ which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit. The Company adopted ASU No. 2011-08 for its fiscal year 2012 annual impairment test. The adoption did not have a material impact on the Company’s consolidated financial statements. The Company completed its annual impairment testing of goodwill and concluded that no impairment existed as of June 30, 2012.
I__ntangible assets: Intangible assets are being amortized over their estimated useful lives. In July 2012, the FASB issued ASU No. 2012-02 Intangibles – Goodwill and Other under an amendment to Topic 350_,_ which permits an entity to make a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible assets is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. An entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that that the asset is impaired. The update is effective for the Company for annual and interim impairment tests for fiscal 2014. Early adoption is permitted. The Company adopted ASU No. 2012-02 in the fourth quarter of fiscal 2012. The adoption did not have a material impact on the Company’s consolidated financial statements. As of June 30, 2012, the Company has determined that no impairment of its intangible assets exists.
Investments in unconsolidated entities: The Company has equity investments in several start-up and early development stage companies, among them Hemerus Medical, LLC (Hemerus), Nephromics, LLC (Nephromics) and ACTGen, Inc. (ACTGen). The accounting treatment of each investment (cost method or equity method) is dependent upon a number of factors, including, but not limited to, the Company’s share in the equity of the investee and the Company’s ability to exercise significant influence over the operating and financial policies of the investee.
Recent accounting pronouncements: In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05 Comprehensive Income under an amendment to Topic 220. Under this update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The Company must comply with ASU No. 2011-05 for the quarter ended September 30, 2012. The Company adopted ASU No. 2011-05 in the fourth quarter of fiscal 2012. The adoption did not have a material impact on the Company’s consolidated financial statements.
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B. Acquisitions:
Boston Biochem, Inc.: On April 1, 2011, the Company’s R&D Systems subsidiary acquired for cash the assets of Boston Biochem, Inc., a developer and manufacturer of innovative ubiquitin-related research products based in Cambridge, Massachusetts. These products provide biomedical researchers tools that facilitate and accelerate basic research and drug discovery efforts. R&D Europe simultaneously acquired for cash the assets of Boston Biochem Limited, a United Kingdom based company that served as the European distributor of Boston Biochem, Inc. products.
In connection with the Boston Biochem acquisition, the Company recorded $1.9 million of developed technology intangible assets that have an estimated useful life of 12 years, $1.7 million of trade name intangible assets that have an estimated useful life of 12 years, $400,000 related to a non-compete agreement that has an estimated useful life of 5 years, and $300,000 related to customer relationships that have an estimated useful life of 12 years. The intangible asset amortization is deductible for income tax purposes.
The goodwill recorded as a result of the Boston Biochem acquisition represents the strategic benefits of enhancing and supplementing the depth and breadth of the Company’s biotechnology product offering and augmenting its ability to serve research scientists, as well as leveraging its marketing, sales and distribution capabilities with this important product class. The goodwill is deductible for income tax purposes.
Transaction costs of approximately $148,000 were expensed as incurred and were included in the Company’s selling, general and administrative costs during the fiscal year ended June 30, 2011.
Tocris Holdings Limited: On April 28, 2011, the Company’s subsidiaries, R&D Systems and R&D Europe, acquired for cash all of the outstanding shares of Tocris Holdings Limited and subsidiaries (Tocris). Tocris is a leading supplier of biologically active neuro- and bio-chemical reagents for non-clinical life science research. Its products are used in both in-vitro and in-vivo experiments to understand biological processes and diseases as part of the initial drug discovery process. Tocris is based in Bristol, United Kingdom.
In connection with the acquisition of Tocris, the Company recorded $25.3 million of developed technology intangible assets that have an estimated useful life of 15 years, $16.5 million of trade name intangible assets that have an estimated useful life of 10 years, and $6.6 million related to customer relationships that have an estimated useful life of 13 years. The intangible asset amortization is not deductible for income tax purposes.
The goodwill recorded as a result of the Tocris acquisition represents the strategic benefits of growing the Company’s product portfolio and the expected revenue growth from increased market penetration from future products and customers. The goodwill is not deductible for income tax purposes.
Transaction costs of approximately $1.6 million were expensed as incurred and were included in the Company’s selling, general and administrative costs during the fiscal year ended June 30, 2011.
C. Available-for-sale investments:
At June 30, 2012 and 2011, the amortized cost and market value of the Company’s available-for-sale securities by major security type were as follows (in thousands):
| June 30, | ||||||||||||||||
| 2012 | 2011 | |||||||||||||||
| Cost | Market | Cost | Market | |||||||||||||
| State and municipal debt securities | $ | 161,761 | $ | 162,740 | $ | 166,005 | $ | 166,846 | ||||||||
| Corporate debt securities | 22,693 | 22,802 | 16,100 | 16,246 | ||||||||||||
| Foreign corporate debt securities | 16,041 | 16,071 | 7,474 | 7,489 | ||||||||||||
| U.S. government securities | 0 | 0 | 1,502 | 1,517 | ||||||||||||
| Foreign government securities | 0 | 0 | 3,090 | 3,090 | ||||||||||||
| Equity securities | 29,472 | 94,664 | 0 | 0 | ||||||||||||
| $ | 229,967 | $ | 296,277 | $ | 194,171 | $ | 195,188 | |||||||||
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At June 30, 2012 and 2011, all of the Company’s available-for-sale investments were valued using Level 1 inputs. Gross unrealized gains and unrealized losses on available-for-sale investments were $66.3 million and $33,000, respectively, at June 30, 2012. Gross unrealized gains and unrealized losses on available-for-sale investments were $1.1 million and $58,000, respectively, at June 30, 2011.
The Company’s investment in equity securities consists of investments in the common stock and warrants of ChemoCentryx, Inc. (CCXI). At June 30, 2011, the Company had a $14.3 million investment in the preferred stock of CCXI and accounted for the investment on a cost basis. The investment was included in “Investments in unconsolidated entities” at June 30, 2011. In September 2011, the Company entered into a $10.0 million loan agreement with CCXI. The loan was carried at fair value (Level 3 input) while outstanding. The loan agreement contained a number of conversion features contingent upon CCXI obtaining future debt or equity financing. The agreement also included a $5.0 million commitment by the Company to participate in a private placement in the event of a successful public offering of CCXI shares. On February 8, 2012, CCXI completed its initial public offering (IPO) at $10 per share. Upon the close of the IPO, the Company’s investment in CCXI’s preferred shares and the loan, plus accrued interest, converted into CCXI common stock. The Company invested an additional $5.0 million in the private placement, as discussed above, and received ten year warrants to purchase 150,000 shares of CCXI common stock at $20 per share. At June 30, 2012, the Company holds an approximate 18.0% interest in CCXI.
Activity related to available-for-sale investments with Level 3 inputs were as follows (in thousands):
| Year Ended June 30, | ||||
| 2012 | ||||
| Beginning balance | $ | 0 | ||
| Issuance of note receivable | 10,000 | |||
| Conversion of note receivable to CCXI common stock | (10,000 | ) | ||
| Ending balance | $ | 0 | ||
Unrealized gains and losses on the Company’s available-for-sale debt securities are caused by interest rate changes. The Company has the ability and intent to hold its available-for-sale investments that are in an unrealized loss position until a recovery of fair value. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2012.
At June 30, 2012, the Company’s investments in an unrealized loss position that have been determined to be temporarily impaired were as follows (in thousands):
| Period of Unrealized Loss: | Fair Value | Unrealized Losses | ||||||
| Less than one year | $ | 15,407 | $ | 27 | ||||
| Greater than one year | 1,542 | 6 | ||||||
| $ | 16,949 | $ | 33 | |||||
Contractual maturities of available-for-sale debt securities are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to recall or prepay obligations with or without call or prepayment penalties.
| Year Ending June 30, 2012: | ||||
| Due within one year | $ | 57,647 | ||
| Due one to five years | 143,966 | |||
| $ | 201,613 | |||
Proceeds from maturities or sales of available-for-sale securities were $131.7 million, $173.5 million and $66.6 million during fiscal 2012, 2011 and 2010, respectively. There were no material realized gains or losses on these sales. Realized gains and losses are determined on the specific identification method.
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D. Inventories:
Inventories consist of (in thousands):
| June 30, | ||||||||
| 2012 | 2011 | |||||||
| Raw materials | $ | 5,678 | $ | 5,644 | ||||
| Finished goods | 32,599 | 39,262 | ||||||
| $ | 38,277 | $ | 44,906 | |||||
At June 30, 2012 and 2011, the Company had $23.3 million and $21.8 million, respectively, of excess protein and antibody inventory on hand which was not valued.
E. Property and equipment:
Property and equipment consist of (in thousands):
| June 30, | ||||||||
| 2012 | 2011 | |||||||
| Cost: | ||||||||
| Land | $ | 7,473 | $ | 7,497 | ||||
| Buildings and improvements | 123,257 | 119,833 | ||||||
| Laboratory equipment | 31,658 | 30,315 | ||||||
| Office and computer equipment | 5,710 | 5,407 | ||||||
| 168,098 | 163,052 | |||||||
| Accumulated depreciation and amortization | (74,310 | ) | (67,654 | ) | ||||
| $ | 93,788 | $ | 95,398 | |||||
F. Goodwill and intangible assets:
Changes to the carrying amount of goodwill consists of (in thousands)
| Year Ended June 30, | ||||||||
| 2012 | 2011 | |||||||
| Beginning balance | $ | 86,633 | $ | 25,068 | ||||
| Acquisitions | 0 | 62,865 | ||||||
| Currency translation | (951 | ) | (1,300 | ) | ||||
| Ending balance | $ | 85,682 | $ | 86,633 | ||||
Intangible assets consist of (in thousands):
| June 30, | ||||||||||||
| Useful Life | 2012 | 2011 | ||||||||||
| Developed technology | 8-12 years | $ | 29,410 | $ | 29,943 | |||||||
| Trade names | 12-15 years | 17,871 | 18,021 | |||||||||
| Customer relationships | 8-14 years | 8,712 | 8,781 | |||||||||
| Non-compete agreement | 5 years | 400 | 400 | |||||||||
| 56,393 | 57,145 | |||||||||||
| Accumulated amortization | (9,917 | ) | (4,863 | ) | ||||||||
| $ | 46,476 | $ | 52,282 | |||||||||
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Changes to the carrying amount of net intangible assets consists of (in thousands)
| Year Ended June 30, | ||||||||
| 2012 | 2011 | |||||||
| Beginning balance | $ | 52,282 | $ | 2,044 | ||||
| Acquisitions | 0 | 52,725 | ||||||
| Amortization expense | (5,094 | ) | (1,464 | ) | ||||
| Currency translation | (712 | ) | (1,023 | ) | ||||
| Ending balance | $ | 46,476 | $ | 52,282 | ||||
Amortization expense related to technologies included in cost of sales was $3.0 million, $890,000 and $435,000 in fiscal 2012, 2011 and 2010, respectively. Amortization expense related to trade names, customer relationships, and the non-compete agreement included in selling, general and administrative expense was $2.1 million, $574,000 and $525,000 in fiscal 2012, 2011 and 2010, respectively.
The estimated future amortization expense for intangible assets as of June 30, 2012 is as follows (in thousands):
| Year Ending June 30: | ||||
| 2013 | $ | 5,067 | ||
| 2014 | 4,386 | |||
| 2015 | 4,385 | |||
| 2016 | 4,366 | |||
| 2017 | 4,306 | |||
| Thereafter | 23,966 | |||
| $ | 46,476 | |||
G. Investments in unconsolidated entities:
The Company has a 16.8% ownership interest in Nephromics at June 30, 2012. Nephromics has licensed technology related to the diagnosis of preeclampsia and has sublicensed the technology to several major diagnostic companies for the development of diagnostic assays. The Company accounts for its investment in Nephromics under the equity method of accounting as Nephromics is a limited liability company. During fiscal 2012, Nephromics signed an agreement to sell substantially all of its assets. The sale price included a payment at closing, future payment contingent upon the issuance of certain patents, and royalties on future sublicense income. As a result of the agreement, the Company determined that a portion of its investment in Nephromics was other than temporarily impaired and wrote off $2.4 million of this investment. Subsequent to the sale, the Company received a distribution of $421,000 as its share of the payment received at closing. The Company’s net investment in Nephromics was $505,000 and $3.7 million at June 30, 2012 and 2011, respectively.
The Company has a 6.9% ownership percentage in Hemerus at June 30, 2012. Hemerus was formed in March 2001 and has acquired and is developing technology for the separation of leukocytes from blood and blood components. The Company accounts for its investment in Hemerus under the equity method of accounting as Hemerus is a limited liability company. During fiscal 2012, Hemerus entered into an agreement to sell substantially all of its assets. The Company has determined that it is more-likely-than-not that it will recover its remaining investment in Hemerus. The Company’s net investment in Hemerus was $551,000 and $773,000 at June 30, 2012 and 2011, respectively.
The Company holds a 13.6% ownership percentage in ACTGen, a development stage biotechnology company located in Japan, as of June 30, 2012. ACTGen has intellectual property related to the identification and expression of molecules. During fiscal 2012, the Company determined that, based on ACTGen financial results for calendar 2011 and its operational and funding status, the Company’s investment in ACTGen was other-than-temporarily impaired and wrote off its remaining investment of $854,000. The Company’s net investment in ACTGen was $925,000 at June 30, 2011.
The Company does not currently provide loans, guarantees or other financial assistance to Nephromics, Hemerus, or ACTGen and has no obligation to provide additional funding.
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H. Debt:
The Company’s short-term line of credit facility consists of an unsecured line of credit of $750,000 at June 30, 2012. The line of credit expires on October 31, 2012. The interest rate charged on the line of credit is a floating rate at the one-month London interbank offered rate (Libor) plus 1.75%. There were no borrowings on the line outstanding as of June 30, 2012 and 2011.
I. Commitments and contingencies:
The Company leases office and warehouse space, vehicles and various office equipment under operating leases. At June 30, 2012, aggregate net minimum rental commitments under non-cancelable leases having an initial or remaining term of more than one year are payable as follows (in thousands):
| Year Ending June 30: | ||||
| 2013 | $ | 769 | ||
| 2014 | 389 | |||
| 2015 | 198 | |||
| 2016 | 161 | |||
| 2017 | 123 | |||
| Thereafter | 396 | |||
| $ | 2,036 | |||
Total rent expense was approximately $793,000, $416,000 and $326,000 for the years ended June 30, 2012, 2011 and 2010, respectively.
The Company is routinely subject to claims and involved in legal actions which are incidental to the business of the Company. Although it is difficult to predict the ultimate outcome of these matters, management believes that any ultimate liability will not materially affect the consolidated financial position or results of operations of the Company.
J. Share-based compensation and other benefit plans:
Equity incentive plan: The Company’s 2010 Equity Incentive Plan (the 2010 Plan) provides for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, performance shares, performance units and stock appreciation rights. There are 3.0 million shares of common stock authorized for grant under the 2010 Plan. At June 30, 2012, there were 2.7 million shares of common stock available for grant under the 2010 Plan. The maximum term of incentive options granted under the 2010 Plan is ten years. The 2010 Plan replaced the Company’s 1998 Nonqualified Stock Option Plan (the 1998 Plan) and 1997 Incentive Stock Option Plan (the 1997 Plan). The 2010 Plan, the 1998 Plan and the 1997 Plan (collectively, the Plans) are administered by the Board of Directors and its Compensation Committee, which determine the persons who are to receive awards under the Plans, the number of shares subject to each award and the term and exercise price of each award. The number of shares of common stock subject to outstanding awards at June 30, 2012 under the 2010 Plan, the 1998 Plan and the 1997 Plan were 276,000, 245,000, and 54,000, respectively.
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Stock option activity, under the Plans for the three years ended June 30, 2012, consists of the following (shares in thousands):
| Shares | Weighted Average Exercise Price | Weighted Avg. Contractual Life (Yrs.) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at June 30, 2009 | 398 | $ | 49.49 | |||||||||||||
| Granted | 115 | 64.71 | ||||||||||||||
| Exercised | (73 | ) | 44.67 | |||||||||||||
| Outstanding at June 30, 2010 | 440 | 56.26 | ||||||||||||||
| Granted | 188 | 71.71 | ||||||||||||||
| Exercised | (129 | ) | 41.48 | |||||||||||||
| Outstanding at June 30, 2011 | 499 | 64.15 | ||||||||||||||
| Granted | 95 | 71.94 | ||||||||||||||
| Forfeited | (2 | ) | 76.15 | |||||||||||||
| Exercised | (17 | ) | 50.98 | |||||||||||||
| Outstanding at June 30, 2012 | 575 | $ | 65.78 | 5.8 | $5.1 million | |||||||||||
| Exercisable at June 30: | ||||||||||||||||
| 2010 | 367 | $ | 51.96 | |||||||||||||
| 2011 | 309 | 58.80 | ||||||||||||||
| 2012 | 403 | 62.67 | 5.7 | $4.7 million |
The fair values of options granted under the Plans were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used:
| Year Ended June 30, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Dividend yield | 1.5% | 1.5% | 1.6% | |||||||||
| Expected volatility | 22%-23% | 22%-27% | 22%-30% | |||||||||
| Risk-free interest rates | 0.9%-2.0% | 1.3%-2.3% | 1.7%-3.1% | |||||||||
| Expected lives | 6 years | 5 years | 6 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.
The weighted average fair value of options granted during fiscal 2012, 2011 and 2010 was $14.14, $14.58 and $14.76, respectively. The total intrinsic value of options exercised during fiscal 2012, 2011 and 2010 were $338,000, $3.1 million and $1.6 million, respectively. The total fair value of options vested during fiscal 2012, 2011 and 2010 were $1.6 million, $1.0 million and $1.1 million, respectively.
Stock-based compensation cost of $1.6 million, $1.1 million and $1.1 million was included in selling, general and administrative expense in fiscal 2012, 2011 and 2010, respectively. As of June 30, 2012, there was $2.1 million of total unrecognized compensation cost related to non-vested stock options which will be expensed in fiscal 2013 through 2015. The weighted average period over which the compensation cost is expected to be recognized is 1.2 years.
Profit sharing plans: The Company has profit sharing and savings plans for its U.S. employees, which conform to IRS provisions for 401(k) plans. The Company may make profit sharing contributions at the discretion of the Board of Directors. Operations have been charged for contributions to the plans of $754,000, $718,000 and $341,000 for the years ended June 30, 2012, 2011 and 2010, respectively. The Company operates defined contribution pension plans for employees of R&D Europe and Tocris. Operations have been charged for contributions to the plans of $499,000, $240,000 and $162,000 for the years ended June 30, 2012, 2011 and 2010, respectively.
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Stock bonus plans: The Company may make contributions to its stock bonus plans in the form of common stock, cash or other property at the discretion of the Board of Directors. The Company purchases its common stock at market value for contribution to the plans. For the years ended June 30, 2012, 2011 and 2010 operations have been charged for contributions to the plan of $715,000, $690,000 and $419,000, respectively.
Performance incentive program: Under certain employment agreements with executive officers, the Company recorded bonuses of $31,000, $39,000 and $44,000 for the years ended June 30, 2012, 2011 and 2010, respectively. In addition, options for 22,932, 3,364 and 40,697 shares of common stock were granted to the executive officers during fiscal 2012, 2011 and 2010, respectively.
K. Income taxes:
The provisions for income taxes consist of the following (in thousands):
| Year Ended June 30, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Earnings before income taxes consist of: | ||||||||||||
| Domestic | $ | 130,009 | $ | 131,080 | $ | 124,860 | ||||||
| Foreign | 32,186 | 33,901 | 31,586 | |||||||||
| $ | 162,195 | $ | 164,981 | $ | 156,446 | |||||||
| Taxes on income consist of: | ||||||||||||
| Currently payable: | ||||||||||||
| Federal | $ | 42,288 | $ | 36,600 | $ | 37,098 | ||||||
| State | 3,065 | 2,302 | 1,856 | |||||||||
| Foreign | 8,891 | 9,854 | 9,266 | |||||||||
| Net deferred: | ||||||||||||
| Federal | (4,318 | ) | 3,893 | (1,494 | ) | |||||||
| State | (149 | ) | 19 | 39 | ||||||||
| Foreign | 87 | 11 | (95 | ) | ||||||||
| $ | 49,864 | $ | 52,679 | $ | 46,670 | |||||||
The following is a reconciliation of the federal tax calculated at the statutory rate of 35% to the actual income taxes provided (in thousands):
| Year Ended June 30, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Computed expected federal income tax expense | $ | 56,768 | $ | 57,743 | $ | 54,756 | ||||||
| State income taxes, net of federal benefit | 2,038 | 1,463 | 1,247 | |||||||||
| Qualified production activity deduction | (3,917 | ) | (3,889 | ) | (2,459 | ) | ||||||
| Research and development tax credit | (465 | ) | (1,329 | ) | (444 | ) | ||||||
| Tax-exempt interest | (565 | ) | (858 | ) | (1,114 | ) | ||||||
| Change in deferred tax valuation allowance | (3,016 | ) | 60 | 44 | ||||||||
| Foreign exchange loss on repatriation | 0 | 0 | (4,424 | ) | ||||||||
| Other | (979 | ) | (511 | ) | (936 | ) | ||||||
| $ | 49,864 | $ | 52,679 | $ | 46,670 | |||||||
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Temporary differences comprising deferred taxes on the Consolidated Balance Sheets are as follows (in thousands):
| June 30 | ||||||||
| 2012 | 2011 | |||||||
| Inventory | $ | 6,893 | $ | 4,269 | ||||
| Unrealized profit on intercompany sales | 1,686 | 1,075 | ||||||
| Excess tax basis in equity investments | 4,776 | 3,643 | ||||||
| Deferred compensation | 2,651 | 2,198 | ||||||
| Other | 891 | 596 | ||||||
| Valuation allowance | 0 | (3,016 | ) | |||||
| Net deferred tax assets | 16,897 | 8,765 | ||||||
| Net unrealized gain on available-for-sale investments | (23,791 | ) | (369 | ) | ||||
| Goodwill and intangible asset amortization | (15,123 | ) | (15,077 | ) | ||||
| Depreciation | (847 | ) | (485 | ) | ||||
| Other | (502 | ) | (397 | ) | ||||
| Deferred tax liabilities | (40,263 | ) | (16,328 | ) | ||||
| Net deferred tax liabilities | $ | (23,366 | ) | $ | (7,563 | ) | ||
A deferred tax valuation allowance is required when it is more likely than not that all or a portion of deferred tax assets will not be realized. At June 30, 2011, the Company had provided a valuation allowance for potential capital loss carryovers resulting from excess tax basis in certain of its equity investments. The Company has determined that the valuation allowance is no longer necessary as a result of the Company’s unrealized gain on its CCXI investment at June 30, 2012. The Company has the intent and ability to sell a portion of its CCXI investment and realize a long-term capital gain to offset losses on its investments in unconsolidated entities. The Company believes that it is more likely than not that the recorded deferred tax assets will be realized.
During fiscal 2010, the Company’s R&D Europe subsidiary declared and paid a dividend of £50 million ($74.4 million) to the Company. The £50 million R&D Europe earnings had previously been taxed in the U.S. and therefore, no additional U.S. income tax resulted from the repatriation. The Company recorded a foreign currency exchange tax loss on the transaction of approximately $12.8 million and as a result, reported a $4.7 million reduction in income tax expense in fiscal 2010.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $144 million as of June 30, 2012. Deferred taxes have not been provided on such undistributed earnings, as the Company has either paid U.S. taxes on the undistributed earnings or intends to indefinitely reinvest the undistributed earnings in the foreign operations.
A summary of changes in unrecognized tax benefits is as follows (in thousands):
| June 30 | ||||||||
| 2012 | 2011 | |||||||
| Beginning balance | $ | 34 | $ | 96 | ||||
| Change due to tax positions related to the current year | (4 | ) | (53 | ) | ||||
| Decrease due to lapse of statute of limitations | (7 | ) | (9 | ) | ||||
| Ending balance | $ | 23 | $ | 34 | ||||
The gross unrecognized tax benefit balance as of June 30, 2012, 2011 and 2010 includes $2,000, $3,000 and $5,000 of unrecognized tax benefits that, if recognized, would affect the effective tax rate. Accrued interest and penalties were not material at June 30, 2012 and 2011.
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The Company does not believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next twelve months. The Company files income tax returns in the U.S federal tax jurisdiction, the states of Minnesota, Massachusetts, California and Missouri, and several jurisdictions outside the U.S. U.S. tax returns for 2009 and subsequent years remain open to examination by the tax authorities. The Company’s major non-U.S. tax jurisdictions are the United Kingdom, France and Germany, which have tax years open to examination for 2009 and subsequent years, and China, which has calendar year 2012 open to examination.
L. Earnings per share:
The number of shares used to calculate earnings per share are as follows (in thousands, except per share data):
| Year Ended June 30, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Net earnings used for basic and diluted earnings per share | $ | 112,331 | $ | 112,302 | $ | 109,776 | ||||||
| Weighted average shares used in basic computation | 36,939 | 37,098 | 37,255 | |||||||||
| Dilutive stock options | 67 | 74 | 92 | |||||||||
| Weighted average shares used in diluted computation | 37,006 | 37,172 | 37,347 | |||||||||
| Basic EPS | $ | 3.04 | $ | 3.03 | $ | 2.95 | ||||||
| Diluted EPS | $ | 3.04 | $ | 3.02 | $ | 2.94 |
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 94,000, 77,000 and 70,000 at June 30, 2012, 2011 and 2010, respectively.
M. Segment information:
The Company has two reportable segments based on the nature of its products. 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. No customer of either segment accounted for more than 10% of the Company’s consolidated net sales for the years ended June 30, 2012, 2011 and 2010.
The accounting policies of the segments are the same as those described in Note A. In evaluating segment performance, management focuses on sales and earnings before taxes.
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Following is financial information relating to the operating segments (in thousands):
| Year Ended June 30, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| External sales | ||||||||||||
| Biotechnology | $ | 293,274 | $ | 270,287 | $ | 250,653 | ||||||
| Hematology | 21,286 | 19,675 | 18,394 | |||||||||
| Consolidated net sales | $ | 314,560 | $ | 289,962 | $ | 269,047 | ||||||
| Earnings before taxes | ||||||||||||
| Biotechnology | $ | 162,763 | $ | 164,332 | $ | 155,989 | ||||||
| Hematology | 8,002 | 7,222 | 6,869 | |||||||||
| Segment earnings before taxes | 170,765 | 171,554 | 162,858 | |||||||||
| Other | (8,570 | ) | (6,573 | ) | (6,412 | ) | ||||||
| Consolidated earnings before taxes | $ | 162,195 | $ | 164,981 | $ | 156,446 | ||||||
| Goodwill | ||||||||||||
| Biotechnology | $ | 85,682 | $ | 86,633 | $ | 25,068 | ||||||
| Hematology | 0 | 0 | 0 | |||||||||
| Consolidated goodwill | $ | 85,682 | $ | 86,633 | $ | 25,068 | ||||||
| Intangible assets, net | ||||||||||||
| Biotechnology | $ | 46,476 | $ | 52,282 | $ | 2,044 | ||||||
| Hematology | 0 | 0 | 0 | |||||||||
| Consolidated intangible assets, net | $ | 46,476 | $ | 52,282 | $ | 2,044 | ||||||
| Assets | ||||||||||||
| Biotechnology | $ | 529,392 | $ | 505,087 | $ | 400,112 | ||||||
| Hematology | 22,135 | 21,046 | 18,543 | |||||||||
| Segment assets | 551,527 | 526,133 | 418,655 | |||||||||
| Other | 167,797 | 91,537 | 100,161 | |||||||||
| Consolidated assets | $ | 719,324 | $ | 617,670 | $ | 518,816 | ||||||
| Depreciation and amortization | ||||||||||||
| Biotechnology | $ | 10,920 | $ | 7,165 | $ | 5,411 | ||||||
| Hematology | 411 | 417 | 340 | |||||||||
| Segment depreciation and amortization | 11,331 | 7,582 | 5,751 | |||||||||
| Other | 1,136 | 1,118 | 2,379 | |||||||||
| Consolidated depreciation and amortization | $ | 12,467 | $ | 8,700 | $ | 8,130 | ||||||
| Capital purchases | ||||||||||||
| Biotechnology | $ | 4,021 | $ | 2,707 | $ | 3,885 | ||||||
| Hematology | 597 | 149 | 208 | |||||||||
| Segment capital purchases | 4,618 | 2,856 | 4,093 | |||||||||
| Other | 1,399 | 774 | 551 | |||||||||
| Consolidated capital purchases | $ | 6,017 | $ | 3,630 | $ | 4,644 | ||||||
The other reconciling items include the results of unallocated corporate expenses and assets, and the Company’s share of losses from its equity method investees.
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Following is financial information relating to geographic areas (in thousands):
| Year Ended June 30, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| External sales | ||||||||||||
| United States | $ | 172,310 | $ | 159,857 | $ | 148,137 | ||||||
| Europe | 90,142 | 83,676 | 78,496 | |||||||||
| China | 11,378 | 8,299 | 6,792 | |||||||||
| Other Asia | 25,988 | 24,715 | 22,372 | |||||||||
| Rest of world | 14,742 | 13,415 | 13,250 | |||||||||
| Total external sales | $ | 314,560 | $ | 289,962 | $ | 269,047 | ||||||
| Long-lived assets | ||||||||||||
| United States | $ | 87,968 | $ | 88,802 | $ | 91,554 | ||||||
| Europe | 7,528 | 7,819 | 6,299 | |||||||||
| China | 141 | 96 | 70 | |||||||||
| Total long-lived assets | $ | 95,637 | $ | 96,717 | $ | 97,923 | ||||||
External sales are attributed to countries based on the location of the customer/distributor. Long-lived assets are comprised of land, buildings and improvements and equipment, net of accumulated depreciation and other assets.
N. Supplemental disclosures of cash flow information and noncash investing and financing activities:
In fiscal 2012, 2011 and 2010, the Company paid cash for income taxes of $58.7 million, $46.2 million and $49.7 million, respectively.
In fiscal 2011, stock options for 14,834 shares of common stock were exercised by the surrender of 9,096 shares of common stock at fair market value of $561,000.
During fiscal 2012, the Company’s cost basis investment in CCXI was converted to an available-for-sale investment carried at fair value.
O. Accumulated other comprehensive income:
Accumulated other comprehensive (loss) income consists of (in thousands):
| June 30, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Foreign currency translation adjustments | $ | (20,743 | ) | $ | (16,939 | ) | $ | (21,967 | ) | |||
| Net unrealized gain on available-for-sale investments, net of tax | 42,518 | 648 | 733 | |||||||||
| $ | 21,775 | $ | (16,291 | ) | $ | (21,234 | ) | |||||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
TECHNE Corporation:
We have audited the accompanying consolidated balance sheets of TECHNE Corporation and subsidiaries (the Company) as of June 30, 2012 and 2011, and the related consolidated statements of earnings and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2012. We also have audited TECHNE Corporation’s internal control over financial reporting as of June 30, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TECHNE Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TECHNE Corporation and subsidiaries as of June 30, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, TECHNE Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Minneapolis, Minnesota
August 29, 2012
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