SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2008, or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to___________ __________________ Commission file number 0-17272 __________________ TECHNE CORPORATION (Exact name of registrant as specified in its charter) MINNESOTA 41-1427402 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 614 MCKINLEY PLACE N.E. (612) 379-8854 MINNEAPOLIS, MN 55413 (Registrant's telephone number, (Address of principal including area code) executive offices) (Zip Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer (X) Accelerated filer ( ) Non-accelerated filer ( ) Smaller reporting company ( ) Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). ( ) Yes (X) No At November 5, 2008, 38,022,759 shares of the Company's Common Stock (par value $.01) were outstanding. TECHNE CORPORATION FORM 10-Q SEPTEMBER 30, 2008 INDEX PAGE NO. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) Condensed Consolidated Balance Sheets as of September 30, 2008 and June 30, 2008 3 Condensed Consolidated Statements of Earnings for the Quarter Ended September 30, 2008 and 2007 4 Condensed Consolidated Statements of Cash Flows for the Quarter Ended September 30, 2008 and 2007 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15 ITEM 4. CONTROLS AND PROCEDURES 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 16 ITEN 1A. RISK FACTORS 16 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 17 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS 17 ITEM 5. OTHER INFORMATION 17 ITEM 6. EXHIBITS 17 SIGNATURES 17 2 PART I. FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS TECHNE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (unaudited) 9/30/08 6/30/08 -------- -------- ASSETS Cash and cash equivalents $162,071 $166,992 Short-term available-for-sale investments 34,108 39,353 Trade accounts receivable, net 32,296 31,747 Other receivables 1,672 1,585 Inventories 9,699 9,515 Deferred income taxes 8,767 8,433 Prepaid expenses 775 808 -------- -------- Total current assets 249,388 258,433 -------- -------- Available-for-sale investments 101,270 87,384 Property and equipment, net 100,100 101,722 Goodwill 25,068 25,068 Intangible assets, net 3,724 3,964 Deferred income taxes 4,032 5,055 Investments in unconsolidated entities 23,150 24,749 Other assets 936 994 -------- -------- $507,668 $507,369 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Trade accounts payable $ 4,808 $ 4,343 Salaries, wages and related accruals 4,085 8,584 Other accounts payable and accrued expenses 4,872 1,768 Income taxes payable 5,493 5,544 -------- -------- Total current liabilities 19,258 20,239 -------- -------- Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 38,446,081 and 38,643,480, respectively 384 386 Additional paid-in capital 116,373 115,408 Retained earnings 372,194 359,208 Accumulated other comprehensive (loss) income (541) 12,128 -------- -------- Total stockholders' equity 488,410 487,130 -------- -------- $507,668 $507,369 ======== ======== See notes to condensed consolidated financial statements. 3 TECHNE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data) (unaudited) QUARTER ENDED 9/30/08 9/30/07 -------- -------- Net sales $ 69,324 $ 57,987 Cost of sales 13,086 12,104 -------- -------- Gross margin 56,238 45,883 -------- -------- Operating expenses: Selling, general and administrative 8,840 8,090 Research and development 5,910 5,181 Amortization of intangible assets 240 288 -------- -------- Total operating expenses 14,990 13,559 -------- -------- Operating income 41,248 32,324 -------- -------- Other income (expense): Interest income 2,887 2,998 Other non-operating expense, net (1,187) (569) -------- -------- Total other income 1,700 2,429 -------- -------- Earnings before income taxes 42,948 34,753 Income taxes 14,355 11,681 -------- -------- Net earnings $ 28,593 $ 23,072 ======== ======== Earnings per share: Basic $ 0.74 $ 0.58 Diluted $ 0.74 $ 0.58 Weighted average common shares outstanding: Basic 38,624 39,489 Diluted 38,747 39,587 See notes to condensed consolidated financial statements. 4 TECHNE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) QUARTER ENDED 9/30/08 9/30/07 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 28,593 $ 23,072 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,921 1,692 Deferred income taxes (176) (192) Stock-based compensation expense 102 170 Excess tax benefit from stock option exercises (66) (328) Losses by equity method investees 259 257 Other 158 19 Change in operating assets and operating liabilities: Trade accounts and other receivables (2,099) (670) Inventories (443) (490) Prepaid expenses 5 (250) Trade, other accounts payable and accrued expenses 758 397 Salaries, wages and related accruals (2,759) (1,139) Income taxes payable 522 99 -------- -------- Net cash provided by operating activities 26,775 22,637 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (742) (3,230) Purchase of available-for-sale investments (29,698) (19,190) Proceeds from sales of available-for-sale investments 12,781 1,235 Proceeds from maturities of available- for-sale investments 10,760 4,900 Increase in other assets -- (243) Distribution from unconsolidated entity 1,340 -- -------- -------- Net cash used in investing activities (5,559) (16,528) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 797 2,319 Excess tax benefit from stock option exercises 66 328 Purchase of common stock for stock bonus plans (1,681) (1,494) Repurchase and retirement of common stock (12,902) -- -------- -------- Net cash (used in) provided by financing activities (13,720) 1,153 -------- -------- Effect of exchange rate changes on cash (12,417) 1,998 -------- -------- Net increase in cash and cash equivalents (4,921) 9,260 Cash and cash equivalents at beginning of period 166,992 135,485 -------- -------- Cash and cash equivalents at end of period $162,071 $144,745 ======== ======== See notes to condensed consolidated financial statements. 5 TECHNE CORPORATION & SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) A. BASIS OF PRESENTATION: The unaudited condensed consolidated financial statements of Techne Corporation and Subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America and with instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K for fiscal 2008. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2008 included in the Company's Annual Report to Shareholders for fiscal 2008. Certain consolidated balance sheet captions appearing in this interim report are as follows (in thousands): 9/30/08 6/30/08 -------- -------- TRADE ACCOUNTS RECEIVABLE Trade accounts receivable $ 32,544 $ 31,900 Less allowance for doubtful accounts 248 153 -------- -------- NET TRADE ACCOUNTS RECEIVABLE $ 32,296 $ 31,747 ======== ======== INVENTORIES Raw materials $ 4,182 $ 3,962 Supplies 140 123 Finished goods 5,377 5,430 -------- -------- TOTAL INVENTORIES $ 9,699 $ 9,515 ======== ======== PROPERTY AND EQUIPMENT Land $ 5,458 $ 5,608 Buildings and improvements 115,655 116,107 Laboratory equipment 23,209 22,826 Office equipment 4,987 4,856 -------- -------- 149,309 149,397 Less accumulated depreciation and amortization 49,209 47,675 -------- -------- NET PROPERTY AND EQUIPMENT $100,100 $101,722 ======== ======== INTANGIBLE ASSETS Customer relationships $ 1,966 $ 1,966 Technology 3,483 3,483 Trade names 1,396 1,396 -------- -------- 6,845 6,845 Less accumulated amortization 3,121 2,881 -------- -------- NET INTANGIBLE ASSETS $ 3,724 $ 3,964 ======== ======== ACCUMULATED OTHER COMPREHENSIVE INCOME Foreign currency translation adjustments $ (398) $ 13,733 Unrealized losses on available-for-sale investments (143) (1,605) -------- -------- TOTAL ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME $ (541) $ 12,128 ======== ======== 6 B. INVESTMENTS IN AUCTION-RATE SECURITIES: At June 30, 2008, the Company held $8.7 million par value of investments in auction-rate securities which were classified as long-term available-for-sale investments. All of the Company's auction-rate securities were rated A or above and consisted of specifically identifiable tax-free municipal revenue bonds where the underlying credit could be specifically evaluated and rated. At June 30, 2008, the Company determined that several of its investments in auction-rate securities were temporarily impaired and reduced the value of its auction-rate investments to $5.8 million. The reduction in value, net of taxes, was reflected in accumulated other comprehensive income, a component of stockholders' equity. In September 2008, the Company sold all of its auction-rate securities at par value and no longer holds any auction-rate securities. C. FAIR VALUE MEASUREMENTS: In September 2006, the Financials Accounting Standards Board (FASB) issued Statement of Financials Accounting Standards No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Effective July 1, 2008, the Company adopted the provisions of SFAS 157 related to financial assets and liabilities, as well as other assets and liabilities carried at fair value on a recurring basis. These provisions, which have been applied prospectively, did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Certain other provisions of SFAS 157 related to other nonfinancial assets and liabilities will be effective for the Company on July 1, 2009, and will be applied prospectively. The adoption of the provisions of SFAS 157 related to other nonfinancial assets and liabilities is not expected to have a material impact on the consolidated financial position, results of operations or cash flows of the Company. SFAS 157 defines three levels of inputs that may be used to measure fair value and requires that the assets or liabilities carried at fair value be disclosed by the input level under which they were valued. The input levels defined under SFAS 157 are as follows: Level 1: Quoted market prices in active markets for identical assets and liabilities. Level 2: Observable inputs other than defined in Level 1, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3: Unobservable inputs that are not corroborated by observable market data. The following table summarizes financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2008 (in thousands): Level 1 -------- Available-for-sale securities $135,378 7 D. EARNINGS PER SHARE: Shares used in the earnings per share computations are as follows (in thousands): QUARTER ENDED 9/30/08 9/30/07 -------- -------- Weighted average common shares outstanding-basic 38,624 39,489 Dilutive effect of stock options and warrants 123 98 -------- -------- Weighted average common shares outstanding-diluted 38,747 39,587 ======== ======== The dilutive effect of stock options and warrants in the above table excludes all options for which the aggregate exercise proceeds exceeded the average market price for the period. The number of potentially dilutive option shares excluded from the calculation was 2,000 and 46,000 for the quarters ended September 30, 2008 and 2007, respectively. E. SEGMENT INFORMATION: The Company has three reportable operating segments based on the nature of products and geographic location: biotechnology, R&D Systems Europe Ltd. (R&D Europe), and hematology. The biotechnology segment consists of R&D Systems, Inc. (R&D Systems) Biotechnology Division, BiosPacific, Inc. (BiosPacific) and R&D Systems China Co. Ltd. (R&D China), which develop, manufacture and sell biotechnology research and diagnostic products world-wide. R&D Europe distributes Biotechnology Division products throughout Europe. The hematology segment develops and manufactures hematology controls and calibrators for sale world-wide. Following is financial information relating to the Company's operating segments (in thousands): QUARTER ENDED 9/30/08 9/30/07 -------- -------- External sales Biotechnology $ 46,137 $ 38,881 R&D Europe 18,941 15,449 Hematology 4,246 3,657 -------- -------- Total consolidated net sales $ 69,324 $ 57,987 ======== ======== Earnings before income taxes Biotechnology $ 33,339 $ 27,367 R&D Europe 9,722 7,752 Hematology 1,350 870 Corporate and equity method investees (1,463) (1,236) -------- -------- Total earnings before income taxes $ 42,948 $ 34,753 ======== ======== 8 F. STOCK OPTIONS: Option activity under the Company's stock option plans during the quarter ended September 30, 2008 was as follows: WEIGHTED WEIGHTED AVG. AVG. AGGREGATE SHARES EXERCISE CONTRACTUAL INTRINSIC (in 000's) PRICE LIFE (Yrs.) VALUE ---------- -------- ----------- --------- Outstanding at June 30, 2008 372 $ 47.36 Granted 2 $ 79.41 Exercised (16) $ 48.73 Forfeited or expired -- -- ---- Outstanding at September 30, 2008 358 $ 47.46 4.92 $8.8 million ==== Exercisable at September 30, 2008 328 $ 46.39 4.83 $8.5 million ==== The fair value of options granted under the Company's stock option plans were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used: QUARTER ENDED 9/30/08 9/30/07 -------- -------- Dividend yield -- -- Expected annualized volatility 24% 24%-30% Risk free interest rate 3.5% 4.5%-4.6% Expected life 5 years 5 years Weighted average fair value of options granted $21.67 $18.37 The Company had not paid cash dividends through September 30, 2008, therefore an expected dividend yield of zero was used to estimate fair value of options granted. 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 rate with a term consistent with the expected life of the options granted. Separate groups of employees that have similar historical exercise behavior with regard to option exercise timing and forfeiture rates are considered separately in determining option fair value. The total intrinsic value of options exercised during the quarters ended September 30, 2008 and 2007 was $530,000 and $1.9 million, respectively. Stock option exercises were satisfied through the issuance of new shares. The total fair value of options vested during the quarters ended September 30, 2008 and 2007 was $39,000 and $51,000, respectively. Stock-based compensation cost of $102,000 and $170,000 was included in selling, general and administrative expense for the quarters ended September 30, 2008 and 2007, respectively. Compensation cost is recognized using a straight-line method over the vesting period and is net of estimated forfeitures. As of September 30, 2008, there was $373,000 of total unrecognized compensation cost related to non-vested stock options that will be expensed in fiscal years 2009 and 2010. 9 G. COMPREHENSIVE INCOME: Comprehensive income and the components of other comprehensive income were as follows (in thousands): QUARTER ENDED 9/30/08 9/30/07 -------- -------- Net earnings $ 28,593 $ 23,072 Other comprehensive income: Foreign currency translation adjustments (14,131) 2,217 Unrealized gain on available-for-sale investments, net of tax 1,462 405 -------- -------- Comprehensive income $ 15,924 $ 25,694 ======== ======== H. SUBSEQUENT EVENT On October 23, 2008, the Company announced the payment of a $0.25 per share cash dividend. The dividend of approximately $9.5 million will be payable November 17, 2008 to all common shareholders of record on November 3, 2008. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations for the Quarters ended September 30, 2008 and 2007 Overview TECHNE Corporation and Subsidiaries (the Company) are engaged in the development, manufacture and sale of biotechnology products and hematology calibrators and controls. These activities are conducted domestically through its wholly-owned subsidiaries, Research and Diagnostic Systems, Inc (R&D Systems) and BiosPacific, Inc. (BiosPacific). The Company distributes biotechnology products in Europe through its wholly-owned U.K. subsidiary, R&D Systems Europe Ltd. (R&D Europe). R&D Europe has a sales subsidiary, R&D Systems GmbH, in Germany and a sales office in France. The Company distributes biotechnology products in China through its wholly-owned subsidiary, R&D Systems China, Co. Ltd. (R&D China). The Company has three reportable operating segments based on the nature of products and geographic location: biotechnology, R&D Europe and hematology. The biotechnology segment consists of R&D Systems' Biotechnology Division, BiosPacific and R&D China, which develop, manufacture and sell biotechnology research and diagnostic products world-wide. R&D Europe distributes Biotechnology Division products throughout Europe. The hematology segment develops and manufactures hematology controls and calibrators for sale world- wide. 10 Overall Results Consolidated net earnings increased 23.9% for the quarter ended September 30, 2008 compared to the quarter ended September 30, 2007. The primary reason for the increase in consolidated net earnings was increased consolidated net sales. Consolidated net sales for the quarter ended September 30, 2008 increased 19.6% from the same period in the prior year. Consolidated net sales were favorably affected by the strength of foreign currencies as compared to the U.S. dollar. The favorable impact on consolidated net sales of the change from the prior year in exchange rates used to convert sales in foreign currencies (primarily British pounds sterling and Euros) into U.S. dollars was $648,000 for the quarter ended September 30, 2008. The unfavorable impact on consolidated net earnings of the change from the prior year in exchange rates (primarily British pounds sterling) used to convert foreign currency financial statements to U.S. dollars was $310,000 for the quarter ended September 30, 2008. The Company generated cash of $26.8 million from operating activities in the first quarter of fiscal 2009, paid cash of $12.9 million for the repurchase and retirement of common stock in the first quarter of fiscal 2009 and had cash, cash equivalents and available-for-sale investments of $297 million at September 30, 2008 compared to $294 million at June 30, 2008. Net Sales Consolidated net sales for the quarter ended September 30, 2008 were $69.3 million, an increase of $11.3 million (19.6%) from the quarter ended September 30, 2007. The quarter ended September 30, 2008 included one more selling day than the comparable prior-year quarter. Biotechnology net sales increased $7.3 million (18.7%) for the quarter ended September 30, 2008 primarily from increased sales volume. R&D Europe net sales increased $3.5 million (22.6%) for the quarter ended September 30, 2008. R&D Europe's net sales increased 18.4% for the quarter ended September 30, 2008 when measured at currency rates in effect in the comparable prior- year period, mainly as a result of increased sales volume. Approximately 75% of R&D Europe sales are in non-British pound currencies (mainly Euro) which had a favorable impact on consolidated net sales of approximately $2.4 million in the quarter ended September 30, 2008 as a result of the change in exchange rates used to convert sales in other currencies to British pounds sterling. This favorable impact was partially offset by an unfavorable impact on consolidated net sales of approximately $1.7 million as a result of the change in exchange rates used to convert British pound sterling to U.S. dollars. Hematology sales increased $589,000 (16.1%) for the quarter ended September 30, 2008 as a result of increased sales volume. The timing of shipments to certain customers positively impacted Hematology sales results during the quarter ended September 30, 2008 and the Company believes this will likely reduce the Hematology sales growth rate in the quarter ended December 31, 2008 as compared to the comparable prior-year quarter. The Company has long-term targeted annual sales growth goals for each of its business segments. The targeted sales growth goals, which are based on historical sales growth, are 10%-12% for biotechnology, 7%-9% for R&D Europe (in constant currency) and 1%-2% for hematology. Based on the relative size of each segment and current market conditions, the consolidated targeted annual growth goal is 8%-10%, excluding the effect of changes in exchange rates. Gross Margins Gross margins, as a percentage of net sales, were as follows: QUARTER ENDED 9/30/08 9/30/07 -------- -------- Biotechnology 81.0% 80.2% R&D Europe 58.1% 54.6% Hematology 44.2% 38.2% Consolidated gross margin 81.1% 79.1% Consolidated gross margins, as a percentage of consolidated net sales, increased from 79.1% for the quarter ended September 30, 2007 to 81.1% for the quarter ended September 30, 2008. The increase in gross margins was due to higher sales volume on relatively fixed costs and higher margins in Europe due primarily to favorable exchange rates. 11 Selling, General and Administrative Expenses Selling, general and administrative expenses decreased to 12.8% of consolidated net sales for the quarter ended September 30, 2008 from 14.0% for the quarter ended September 30, 2007. Selling, general and administrative expenses for the quarter ended September 30, 2008 increased $750,000 million (9.3%) from the same period of last year. Selling, general and administrative expenses were composed of the following (in thousands): QUARTER ENDED 9/30/08 9/30/07 -------- -------- Biotechnology $ 5,141 $ 4,624 R&D Europe 2,283 2,262 Hematology 436 467 Corporate 980 737 -------- -------- Total selling, general and administrative expenses $ 8,840 $ 8,090 ======== ======== The increase in Biotechnology selling, general and administrative expenses from the comparable prior-year period was the result of annual wage and salary increases. The increase in corporate expenses from the prior-year period was the result of increased legal costs of $276,000 due to on-going patent interference and infringement litigation. Research and Development Expenses Research and development expenses were composed of the following (in thousands): QUARTER ENDED 9/30/08 9/30/07 -------- -------- Biotechnology $ 5,717 $ 5,002 Hematology 193 179 -------- -------- Total research and development expenses $ 5,910 $ 5,181 ======== ======== The increase in Biotechnology research and development expenses was primarily due to additional research personnel added during fiscal 2008 and annual wage and salary increases from the comparable prior-year period. Other Non-operating Expense and Income Other non-operating expense and income consists mainly of foreign currency transaction gains and losses, rental income, building expenses related to rental property, and the Company's share of losses by equity method investees. QUARTER ENDED 9/30/08 9/30/07 -------- -------- Foreign currency (losses) gains $ (474) $ 164 Rental income 99 67 Real estate taxes, depreciation and utilities (553) (544) Losses by equity method investees (259) (256) -------- -------- Total other non-operating expense $ (1,187) $ (569) ======== ======== 12 Income Taxes Income taxes for the quarter ended September 30, 2008 and 2007 were provided at rates of 33.4% and 33.6%, respectively, of consolidated earnings before income taxes. As a result of the recent renewal of the U.S. research and development credit, income tax expense in the second quarter of fiscal 2008 will include a credit for the January to June 2008 period in addition to a credit for the current-year six month period. Foreign income taxes have been provided at rates that approximate the tax rates in the countries in which R&D Europe and R&D China operate. Including the increased research and development credit and without other significant business developments, the Company expects its fiscal 2009 effective income tax rate to range from approximately 32.5% to 33.5%. Liquidity and Capital Resources At September 30, 2008, cash and cash equivalents and available-for-sale investments were $297 million compared to $294 million at June 30, 2008. The Company believes it can meet its future cash, working capital and capital addition requirements through currently available funds, cash generated from operations and maturities of available-for-sale investments. The Company has an unsecured line of credit of $750,000. The interest rate on the line of credit is at prime. There were no borrowings on the line in the prior or current fiscal year. Cash Flows From Operating Activities The Company generated cash of $26.8 million from operating activities in the first quarter of fiscal 2009 compared to $22.6 million in the first quarter of fiscal 2008. The increase from the prior year was primarily due to an increase in consolidated net earnings in the current year of $5.5 million. Cash Flows From Investing Activities Capital expenditures for fixed assets for the first quarter of fiscal 2009 and 2008 were $742,000 and $3.2 million, respectively. The capital additions in the first quarter of fiscal 2009 were mainly for laboratory and computer equipment. Included in capital expenditures for the first quarter of fiscal 2008 was $2.7 million for building renovation and construction. The remaining capital additions in the first quarter of fiscal 2008 were for laboratory and computer equipment. Capital expenditures in the remainder of fiscal 2009 are expected to be approximately $5.6 million and are expected to be financed through currently available funds and cash generated from operating activities. During the quarter ended September 30, 2008, the Company purchased $29.7 million and had sales or maturities of $23.5 million of available-for-sale investments. During the quarter ended September 30, 2007, the Company purchased $19.2 million and had sales or maturities of $6.1 million of available-for-sale investment. The Company's investment policy is to place excess cash in bonds and other investments with maturities of less than three years. The objective of this policy is to obtain the highest possible return with minimal risk, while keeping the funds accessible. During the quarter ended September 30, 2008, the Company received a $1.3 million distribution from its investment in Nephromics, LLC (Nephromics). The Company accounts for its investment in Nephromics under the equity method of accounting as Nephromics is a limited liability company. At September 30, 2008, the Company's net investment in Nephromics was $4.8 million. 13 Cash Flows From Financing Activities Cash of $797,000 and $2.3 million was received during the quarters ended September 30, 2008 and 2007, respectively, from the exercise of stock options. The Company also recognized excess tax benefits from stock option exercises of $66,000 and $328,000 for the quarters ended September 30, 2008 and 2007, respectively. During the first quarter of fiscal 2009 and 2008, the Company purchased 22,637 and 23,641 shares of common stock, respectively, for its employee stock bonus plans at a cost of $1.7 million and $1.5 million, respectively. During the first quarter of fiscal 2009, the Company purchased and retired approximately 214,000 shares of common stock at a market value of $15.6 million of which $12.9 million was disbursed prior to September 30, 2008. Subsequent to September 30, 2008, and through the date of this report, the Company has repurchased an additional 423,000 shares for approximately $28.4 million. On October 23, 2008, the Company announced the payment of a $0.25 per share cash dividend. The dividend of approximately $9.5 million will be payable November 17, 2008 to all common shareholders of record on November 3, 2008. Contractual Obligations There were no material changes outside the ordinary course of business in the Company's contractual obligations during the quarter ended September 30, 2008. Critical Accounting Policies The Company's significant accounting policies are discussed in the Company's Annual Report on Form 10-K for fiscal 2008. The application of certain of these policies require judgments and estimates that can affect the results of operations and financial position of the Company. Judgments and estimates are used for, but not limited to, valuation of available-for-sale investments, inventory valuation and allowances, impairment of goodwill, intangibles and other long-lived assets and valuation of investments in unconsolidated entities. There have been no significant changes in estimates in fiscal 2009 which would require disclosure. There have been no changes to the Company's policies in fiscal 2009. Recent Accounting Pronouncements In February 2008, the FASB amended SFAS 157 to defer the effective date of SFAS 157 for all nonfinancial assets and liabilities that are not remeasured at fair value on a recurring basis. As disclosed in Note C to the Condensed Consolidated Financial Statements included in this Form 10-Q, the Company partially adopted the provisions of SFAS 157 effective in the first quarter of fiscal 2009. The Company expects to adopt the remaining provisions of SFAS 157 beginning in the first quarter of fiscal 2010. The adoption of the provisions of SFAS 157 related to other nonfinancial assets and liabilities is not expected to have a material impact on the consolidated financial position, results of operations or cash flows of the Company. In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which replaces SFAS No. 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R must be applied prospectively to business combinations consummated by the Company beginning in fiscal 2010. 14 Forward Looking Information and Cautionary Statements This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those regarding the Company's expectations as to target sales growth goals, the effective tax rate, the amount of capital expenditures for the remainder of the fiscal year and the sufficiency of currently available funds for meeting the Company's needs. These statements involve risks and uncertainties that may affect the actual results of operations. The following important factors, among others, have affected and, in the future, could affect the 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, the retention of hematology OEM (private label) and proficiency survey business, the impact of currency exchange rate fluctuations, the costs and results of research and product development efforts of the Company and of companies in which the Company has invested or with which it has formed strategic relationships, the impact of governmental regulation and intellectual property litigation, the recruitment and retention of qualified personnel, the success of our expansion into China and the success of financing efforts by companies in which the Company has invested. For additional information concerning such factors, see the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At September 30, 2008, the Company had an investment portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of $135 million. These securities, like all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase. The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency rate changes. The Company is exposed to market risk from foreign exchange rate fluctuations of the euro (approximately 17% of consolidated net sales), the British pound sterling (approximately 8% of consolidated net sales) and the Chinese yuan (approximately 1% of consolidated net sales) to the U.S. dollar as the financial position and operating results of the Company's foreign operations are translated into U.S. dollars for consolidation. The Company's exposure to foreign exchange rate fluctuations also arises from transferring funds from the U.K. and Chinese subsidiaries to the U.S. subsidiary and from transferring funds from the German subsidiary and French sales office to the U.K. subsidiary. At September 30, 2008 and 2007, the Company had $3.4 million and $3.2 million, respectively, of dollar denominated intercompany debt at its U.K. subsidiary. At September 30, 2008 and 2007, the Company had $316,000 and $119,000, respectively, of dollar denominated intercompany debt at its Chinese subsidiary. At September 30, 2008 and 2007, the U.K. subsidiary had $613,000 and $481,000, respectively, of dollar denominated intercompany debt from its European operations. These intercompany balances are revolving in nature and are not deemed to be long- term balances. 15 The Company's subsidiaries recognized net foreign currency gains and (losses) as follows (in thousands): QUARTER ENDED 9/30/08 9/30/07 -------- -------- In foreign currency R&D Europe (British pound sterling) (260) 96 R&D China (Chinese yuan) 17 (255) In U.S. Dollars R&D Europe $ (476) $ 198 R&D China 2 (34) -------- -------- $ (474) $ 164 ======== ======== The Company does not enter into foreign exchange forward contracts to reduce its exposure to foreign currency rate changes on intercompany foreign currency denominated balance sheet positions. ITEM 4 - CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d- 15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange Act")). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective to ensure that material information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company's internal control over financial reporting during the Company's most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The Company is not engaged in any ongoing pending legal proceedings that the Company believes is material to its operations. ITEM 1A. - RISK FACTORS There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended June 30, 2008. 16 ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The following table sets forth the repurchases of Company common stock for the quarter ended September 30, 2008: Maximum Total Number Approximate Of Shares Dollar Value Purchased as of Shares that Average Part of May Yet Be Total Number Price Publicly Purchased Under Of Shares Paid Announced Plans the Plans Period Purchased Per Share or Programs or Programs - ------------------ ------------ --------- --------------- --------------- 07/1/08 - 07/31/08 0 -- -- $98.1 million 08/1/08 - 08/31/08 3,400 $76.77 3,400 $97.9 million 09/1/08 - 09/30/08 232,986 $73.09 210,349 $82.5 million In November 2007, the Company authorized a plan for the repurchase and retirement of $150 million of its common stock. The plan does not have an expiration date. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None. ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS a. The Annual Meeting of the Company's shareholders was held on Thursday, October 23, 2008. b. A proposal to set the number of directors as eight was adopted by a vote of 38,810,032 in favor with 147,790 shares against, and 68,884 shares abstaining. There were no broker non-votes. c. Proxies for the Annual Meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to management's nominees as listed in the Proxy Statement, and all such nominees were elected as follows: Nominee For Withheld - ------------------- ------------- --------- Thomas E. Oland 36,772,606 254,100 Roger C. Lucas 36,664,519 362,187 Howard V. O'Connell 34,764,069 2,262,637 G. Arthur Herbert 36,084,383 942,323 Randolph C. Steer 36,091,163 935,543 Robert V. Baumgartner 36,092,259 934,447 Charles A. Dinarello 36,789,600 237,106 Karen A. Holbrook 36,788,766 237,940 ITEM 5 - OTHER INFORMATION None. ITEM 6 - EXHIBITS See "exhibit index" following the signature page. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TECHNE CORPORATION (Company) November 7, 2008 /s/ Thomas E. Oland -------------------------------- President, Chief Executive Officer November 7, 2008 /s/ Gregory J. Melsen -------------------------------- Chief Financial Officer EXHIBIT INDEX TO FORM 10-Q TECHNE CORPORATION Exhibit # Description 31.1* Section 302 Certification 31.2* Section 302 Certification 32.1* Section 906 Certification 32.2* Section 906 Certification - ------------- *Filed herewith 18