TECHNE CORPORATION RELEASES UNAUDITED THIRD QUARTER
AND NINE MONTH FISCAL YEAR 2013 RESULTS
Minneapolis/April 30, 2013/ Techne Corporation's (NASDAQ:TECH) financial
results for the third quarter and nine months ended March 31, 2013 include
the following highlights:
Third quarter earnings were $33.1 million or $0.90 per diluted share.
Adjusted earnings for the quarter were $32.5 million (a decrease of 3.2%
from the prior fiscal year period) or $0.88 per diluted share. Earnings
and adjusted earnings were negatively impacted by foreign currency
fluctuations, which reduced reported sales and gross margins. Adjusted
earnings and adjusted earnings per share exclude intangible asset
amortization and costs recognized upon the sale of inventory that was
written-up to fair value as part of the acquisitions completed in the
quarter ended June 30, 2011 and also exclude certain income tax credits
and changes in income tax estimates. Adjusted earnings and adjusted
earnings per diluted share for the third quarter of fiscal 2012 also
exclude the impact of impairment charges on certain equity investments and
the reversal of deferred tax asset valuation allowances.
Earnings for the nine-month period ended March 31, 2013 were $84.1 million
or $2.28 per diluted share. Adjusted earnings for the nine-month period
ended March 31, 2013 were $87.8 million (a decrease of 4.1% from the prior
fiscal year period) or $2.38 per diluted share. Adjusted earnings and
earnings per diluted share for the nine-month periods were also impacted
by the foreign currency fluctuations and exclude the acquisition-related
items, impairment charges, income tax adjustments and the reversal of
valuation allowance noted above.
Net sales as reported declined 3.2% to $81.0 million for the quarter ended
March 31, 2013. Organic sales declined 3.0% in the quarter. Organic sales
exclude changes in foreign currency exchange rates. The third quarter of
fiscal 2013 had one less ship day as compared to the prior fiscal year and
also included the Easter holiday which was in the fourth quarter of the
prior fiscal year.
Net sales as reported declined 2.0% to $231 million for the nine months
ended March 31, 2013. Organic sales, which exclude changes in foreign
currency exchange rates, declined 0.9% in the nine-month period. A
stronger U.S. dollar as compared to foreign currencies reduced sales by
$122,000 and $2.6 million in the quarter and nine-month period ended March
31, 2013, respectively, from the comparable prior-year periods.
The Biotechnology segment includes sales made through R&D Systems'
Biotechnology Division, R&D Europe, Tocris, R&D China, BiosPacific and Boston
Biochem. Biotechnology segment net sales were $75.3 million for the quarter
ended March 31, 2013, a decrease of 3.7% from $78.2 million for the quarter
ended March 31, 2012. Biotechnology net sales were $214 million for the
nine-month period ended March 31, 2013, a decrease of 2.7% from $220 million
for the nine-month period ended March 31, 2012. Biotechnology sales declined
3.5% and 1.5% for the quarter and nine month period ended March 31, 2013,
respectively, excluding changes in foreign currency exchange rates.
The table below shows changes to the components of organic sales for the
Biotechnology segment, from the same prior-year periods.
Quarter Ended Nine Months Ended
3/31/13 3/31/13
------------- -----------------
U.S. industrial, pharmaceutical
and biotechnology (2.5%) (4.2%)
U.S. academic (8.5%) (5.5%)
Europe (10.3%) (2.0%)
China 24.9% 19.4%
Pacific Rim 9.6% 4.7%
The Hematology segment includes sales made through R&D Systems' Hematology
Division. Hematology net sales for the quarter and nine month period ended
March 31, 2013 were $5.7 million and $16.7 million, increases of 4.9% and
7.0%, respectively, from the comparable prior-year periods.
The gross margin percentage was 75.5% in the quarter ended March 31, 2013 as
compared to 75.8% in the comparable prior-year quarter. For the nine-month
period ended March 31, 2013 the gross margin percentage decreased to 74.4%
from 75.0% in the comparable prior-year period. Gross margins adjusted for
costs recognized upon sale of acquired inventory and amortization of
intangible assets were 77.7% and 79.0% for the quarters ended March 31, 2013
and 2012, respectively, and 76.9% and 78.5% for the nine-month periods ended
March 31, 2013 and 2012, respectively, if such costs were excluded in all
periods. The decrease in adjusted gross margins for the quarter and nine-
month periods were primarily caused by lower sales volumes and unfavorable
exchange rates.
Selling, general and administrative expenses for the quarter and nine-month
periods ended March 31, 2013 increased $83,000 and declined $57,000 from the
quarter and nine-month period ended March 31, 2012, respectively. Selling,
general and administrative expenses were impacted by decreases in profit
sharing expense of $399,000 and $1.1 million for the quarter and nine-month
periods, respectively, as compared to the prior-year periods. The increase
in selling, general and administrative expense, excluding profit sharing
impact, was mainly the result of increased marketing wages and consulting
related to upgrading the Company's website.
Research and development expenses for the quarter and nine-month periods
ended March 31, 2013 increased $97,000 (1.4%) and $1.4 million (7.0%) from
the quarter and nine-month periods ended March 31, 2012, respectively. The
increase in research and development expenses is mainly due to increases in
personnel and supply costs associated with the continuous development and
release of new high-quality biotechnology products.
Other non-operating expenses for the quarter and nine-month periods ended
March 31, 2013 included foreign exchange transaction gains of $289,000 and
$360,000, respectively, compared to foreign exchange transaction gains of
$164,000 and foreign exchange transaction losses of $465,000 for the quarter
and nine-month periods ended March 31, 2012, respectively.
The effective tax rate for the quarter and nine-month periods ended March 31,
2013 were 25.5% and 29.8% as compared to 26.5% and 30.0% for the same prior-
year periods. In January 2013, the U.S. federal credit for research and
development was reinstated retroactively for the period of January 2012
through December 2013. As a result, in addition to the credit for the
quarter ended March 31, 2013, the Company recorded the credit for calendar
2012 in the third quarter of fiscal 2013. Also included in third quarter
fiscal 2013 income taxes was a reduction in U.S. tax expense due to changes
in estimates related to foreign source income. Income taxes for the quarter
and nine-month periods ended March 31, 2012 were positively impacted by $3.0
million due to the reversal of a valuation allowance on deferred tax assets
related to the excess tax basis in the Company's investments in
unconsolidated entities. Effective tax rates for the remainder of fiscal
2013 are expected to be 30% to 32%.
The Company's investment in ChemoCentryx, Inc. (CCXI) is included in short-
term available for sale investments at March 31, 2013 at a fair-value of
$87.5 million. The Company's unrealized gain of $58.0 million on the
investment, net of a deferred tax liability of $20.8 million, was included in
accumulated other comprehensive income at March 31, 2013.
The Company did not repurchase any shares of its common stock during the
quarter or nine-month periods ended March 31, 2013. Approximately $127
million remains available at March 31, 2013 for the repurchase and retirement
of shares under the currently open authorization.
Forward Looking Statements:
Our press releases may contain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act. Such statements, including
the expected effective tax rate, 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 biotechnology and
hematology products, the levels and particular directions of research by the
Company's customers, the impact of the growing number of producers of
biotechnology research products and related price competition, general
economic conditions, the impact of currency exchange rate fluctuations, and
the costs and results of research and product development efforts of the
Company and of companies in which the Company has invested or with which it
has formed strategic relationships.
For additional information concerning such factors, see the section titled
"Risk Factors" in the Company's annual report on Form 10-K and quarterly
reports on Form 10-Q as filed with the Securities and Exchange Commission. We
undertake no obligation to update or revise any forward-looking statements we
make in our press releases due to new information or future events. Investors
are cautioned not to place undue emphasis on these statements.
Use of Adjusted Financial Measures:
The adjusted financial measures used in this press release quantify the
impact the following events had on reported net sales, gross margin
percentages, net earnings and earnings per share and the effective tax rate
for the quarter and nine-month periods ended March 31, 2013 as compared to
the reported amounts for the same periods ended March 31, 2012:
- fluctuations in exchange rates used to convert transactions in foreign
currencies (primarily the Euro, British pound sterling and Chinese yuan) to
U.S. dollars;
- the acquisitions of Boston Biochem, Inc. on April 1, 2011 and Tocris
Holdings Ltd. on April 28, 2011, including the impact of amortizing
intangible assets and the recognition of costs upon the sale of inventory
written-up to fair value;
- impairment losses related to the Company's investments in unconsolidated
entities; and
- income tax adjustments related to the reversal of valuation allowances on
deferred tax assets, the reinstatement of the U.S. credit for research and
development expenditures and the effect of changes in estimates related to
foreign source income.
These adjusted financial measures are not prepared in accordance with
generally accepted accounting principles (GAAP) and may be different from
adjusted financial measures used by other companies. Adjusted financial
measures should not be considered as a substitute for, or superior to,
measures of financial performance prepared in accordance with GAAP. We view
these adjusted financial measures to be helpful in assessing the Company's
ongoing operating results. In addition, these adjusted financial measures
facilitate our internal comparisons to historical operating results and
comparisons to competitors' operating results. We include these adjusted
financial measures in our earnings announcement because we believe they are
useful to investors in allowing for greater transparency related to
supplemental information we use in our financial and operational analysis.
Investors are encouraged to review the reconciliations of adjusted financial
measures used in this press release to their most directly comparable GAAP
financial measures as provided with the financial statements attached to this
press release.
* * * * * * * * * * * *
Techne Corporation has two operating subsidiaries: Research and Diagnostic
Systems, Inc. (R&D Systems) of Minneapolis, Minnesota and R&D Systems Europe,
Ltd. (R&D Europe) of Abingdon, England. R&D Systems is a specialty
manufacturer of biological products. R&D Systems has three subsidiaries:
BiosPacific, Inc. (BiosPacific), located in Emeryville, California, Boston
Biochem, Inc., located in Cambridge, Massachusetts, and R&D Systems China Co.
Ltd., (R&D China), located in Shanghai, China. BiosPacific is a worldwide
supplier of biologics to manufacturers of in vitro diagnostic systems and
immunodiagnostic kits. Boston Biochem is a leading developer and manufacturer
of ubiquitin-related research products. R&D China and R&D Europe distribute
biotechnology products. R&D Europe has two subsidiaries: Tocris Holdings Ltd
(Tocris) of Bristol, England and R&D Systems GmbH, a German sales operation.
Tocris is a leading supplier of reagents for non-clinical life science
research.
Contact: Greg Melsen, Chief Financial Officer
Kathy Backes, Controller
(612) 379-8854
TECHNE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
3/31/13 3/31/12 3/31/13 3/31/12
------- ------- -------- --------
Net sales $80,992 $83,621 $231,100 $235,879
Cost of sales 19,845 20,238 59,107 58,939
------- ------- -------- --------
Gross margin 61,147 63,383 171,993 176,940
Operating expenses:
Selling, general and administrative 9,982 9,899 31,266 31,323
Research and development 7,219 7,122 22,074 20,626
------- ------- -------- --------
Total operating expenses 17,201 17,021 53,340 51,949
Operating income 43,946 46,362 118,653 124,991
Other income (expense):
Interest income 638 470 1,976 1,996
Impairment loss on investments in
unconsolidated entities 0 (3,254) 0 (3,254)
Other non-operating expense, net (118) (373) (731) (2,155)
------- ------- -------- --------
Total other income (expense) 520 (3,157) 1,245 (3,413)
------- ------- -------- --------
Earnings before income taxes 44,466 43,205 119,898 121,578
Income taxes 11,348 11,449 35,748 36,488
------- ------- -------- --------
Net earnings $33,118 $31,756 $ 84,150 $ 85,090
======= ======= ======== ========
Earnings per share:
Basic $ 0.90 $ 0.86 $ 2.28 $ 2.30
Diluted $ 0.90 $ 0.86 $ 2.28 $ 2.30
Weighted average common
shares outstanding:
Basic 36,842 36,864 36,835 36,975
Diluted 36,908 36,930 36,901 37,043
TECHNE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
3/31/13 6/30/12
-------- --------
ASSETS
Cash and equivalents $150,713 $116,675
Short-term available-for-sale investments 162,162 152,311
Trade accounts receivable 38,138 35,668
Inventory 35,675 38,277
Other current assets 3,469 3,576
-------- --------
Current assets 390,157 346,507
-------- --------
Available-for-sale investments 135,765 143,966
Property and equipment, net 105,202 93,788
Goodwill and intangible assets, net 126,090 132,158
Other non-current assets 3,076 2,905
-------- --------
Total assets $760,290 $719,324
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 13,638 $ 13,836
Payable for pending available-for-sale
investment purchases 4,599 4,429
Income taxes - deferred and current 14,244 17,485
-------- --------
Current liabilities 32,481 35,750
Deferred taxes 8,300 9,132
Stockholders' equity 719,509 674,442
-------- --------
Total liabilities and stockholders' equity $760,290 $719,324
======== ========
TECHNE CORPORATION
RECONCILIATION of ORGANIC SALES
(In thousands)
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
3/31/13 3/31/12 3/31/13 3/31/12
------- ------- -------- --------
Net sales $80,992 $83,621 $231,100 $235,879
Organic sales adjustments:
Impact of foreign currency
fluctuations 122 0 2,604 0
------- ------- -------- --------
Organic sales $81,114 $83,621 $233,704 $235,879
======= ======= ======== ========
Organic sales growth (3.0%) 1.8% (0.9%) 2.3%
TECHNE CORPORATION
RECONCILIATION of GROSS MARGIN PERCENTAGES
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
3/31/13 3/31/12 3/31/13 3/31/12
------- ------- -------- --------
Gross margin percentage 75.5% 75.8% 74.4% 75.0%
Identified adjustments:
Costs recognized upon sale of
acquired inventory 1.3% 2.3% 1.5% 2.5%
Amortization of intangibles 0.9% 0.9% 1.0% 1.0%
------- ------- -------- --------
Gross margin percentage-adjusted 77.7% 79.0% 76.9% 78.5%
======= ======= ======== ========
TECHNE CORPORATION
RECONCILIATION of NET EARNINGS and EARNINGS per SHARE
(In thousands, except per share data)
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
3/31/13 3/31/12 3/31/13 3/31/12
------- ------- -------- --------
Net earnings $33,118 $31,756 $ 84,150 $ 85,090
Identified adjustments:
Costs recognized upon sale of
acquired inventory 1,032 1,955 3,496 5,870
Amortization of intangibles 1,252 1,268 3,806 3,821
Impairment losses on investments 0 3,254 0 3,254
Tax impact of above adjustments (619) (2,069) (1,965) (3,883)
Tax impact of research and
development credit (1,186) 0 (1,186) (430)
Tax impact of foreign source income (1,138) 379 (500) 862
Tax impact of reversal of
valuation allowance 0 (3,016) 0 (3,016)
------- ------- -------- --------
Net earnings-adjusted $32,459 $33,527 $ 87,801 $ 91,568
======= ======= ======== ========
Adjusted growth (3.2%) (4.1%)
Earnings per share-diluted-adjusted $ 0.88 $ 0.91 $ 2.38 $ 2.47
TECHNE CORPORATION
RECONCILIATION of EFFECTIVE TAX RATE
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
3/31/13 3/31/12 3/31/13 3/31/12
------- ------- -------- --------
Effective tax rate 25.5% 26.5% 29.8% 30.0%
Identified adjustments:
Reversal of valuation allowance 0.0% 7.0% 0.0% 2.5%
Research and development credit 2.7% 0.0% 1.0% 0.4%
Foreign source income 2.5% (0.9%) 0.4% (0.8%)
------- ------- -------- --------
Effective tax rate-adjusted 30.7% 32.6% 31.2% 32.1%
======= ======= ======== ========
TECHNE CORPORATION
RECONCILIATION of INTANGIBLE AMORTIZATION
(In thousands)
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
3/31/13 3/31/12 3/31/13 3/31/12
------- ------- -------- --------
Amortization of intangible
assets included in:
Cost of goods sold $ 742 $ 750 $ 2,256 $ 2,263
Selling, general and
administrative expenses 516 518 1,556 1,558
------- ------- -------- --------
Total amortization of
intangible assets $ 1,258 $ 1,268 $ 3,812 $ 3,821
======= ======= ======== ========