SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
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 of Incorporation) (IRS Employer Identification No.)
614 McKinley Place N.E., Minneapolis, MN 55413
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (612) 379-8854
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value.
Indicate by check mark whether the Company (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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant, based upon the closing sale price on September 11, 2001 as reported
on The Nasdaq Stock Market was approximately $1,166,747,000. Shares of Common
Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock have been excluded.
Shares of $.01 par value Common Stock outstanding at September 11, 2001:
41,443,688
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 2001 Annual Meeting of
Shareholders are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
OVERVIEW
Techne Corporation (the Company) is a holding company which has two wholly-
owned operating subsidiaries: Research and Diagnostic Systems, Inc. (R&D
Systems) located in Minneapolis, Minnesota and R&D Systems Europe Ltd. (R&D
Europe) located in Abingdon, England. R&D Systems is a specialty manufacturer
of biological products. Its two major operating segments are hematology
controls, which are used in hospital and clinical laboratories to check the
accuracy of blood analysis instruments, and biotechnology products, including
purified proteins (cytokines) and antibodies which are sold exclusively to the
research market and assay kits which are sold to the research and clinical
diagnostic markets. R&D Europe distributes R&D Systems' biotechnology
products in Europe. R&D Europe has a German sales subsidiary, R&D Systems
GmbH (R&D GmbH). The Company also has a foreign sales corporation, Techne
Export Inc.
R&D Systems was founded and incorporated in 1976 in Minneapolis, Minnesota and
was acquired by the Company in 1985. In 1977 R&D Systems introduced its first
product, a Platelet-Rich-Plasma control. In 1981 R&D Systems was the second
manufacturer in the world to release a Whole Blood Control with Platelets,
thereby establishing itself as one of the leaders in the field of hematology
control products manufacturing. Subsequently, R&D Systems has developed
several types of hematology controls designed to keep pace with the technology
of the newest models of hematology instruments. These products are sold
throughout the United States directly by R&D Systems and in many foreign
countries through distributors.
In 1985 R&D Systems entered the research reagent market with its first
cytokine, TGF-beta. Cytokines are specialized protein molecules that
stimulate or suppress various cell functions in the body. Cytokines are in
demand by biomedical researchers who want to learn more about their diverse
effects. Encouraged by its success in the cytokine market, R&D Systems formed
a biotechnology division in 1986 with the goal of producing and marketing a
wide range of human cytokines through genetic engineering. Recombinant DNA
technology offers several advantages over extraction of these proteins from
natural sources, including lower production cost and potentially unlimited
supply.
In 1991 R&D Systems purchased Amgen Inc.'s research reagent and diagnostic
assay kit business. With this purchase, R&D Systems obtained Amgen's
Erythropoietin (EPO) kit, the Company's first enzyme-linked immunosorbent assay
kit for a cytokine that had been cleared by the U.S. Food and Drug
Administration (FDA) for clinical diagnostic use.
In 1993 the Company acquired its European biotechnology distributor, British
Bio-technology Products Ltd. (renamed R&D Systems Europe Ltd.) from British
Bio-technology Group plc. R&D Europe distributes biotechnology products
developed by R&D Systems.
During fiscal 1998, 1999, and 2000, the Company made equity investments in the
preferred stock of ChemoCentryx, Inc. (CCX), a technology and drug development
company. The Company currently holds approximately 26% of the outstanding
stock of CCX. In addition to the equity investment and joint research efforts,
the Company obtained research and diagnostic market rights to all products
discovered or developed by CCX.
On July 1, 1998, R&D Systems purchased Genzyme Corporation's research products
business. This acquisition established R&D Systems as the world's leading
supplier of research and diagnostic cytokine products.
On August 2, 2001, the Company made an equity investment of $3 million and
entered into a research and license agreement with Discovery Genomics, Inc.
(DGI). DGI holds licenses from the University of Minnesota to develop
technologies used for functional genomics and the discovery of druggable
targets. The Company currently holds a 39% equity interest in DGI and also
received the rights to develop antibodies and immunoassay kits for proteins
discovered by DGI and the rights to sell such products to the research market.
THE MARKET
The Company, through its two operating subsidiaries, manufactures and sells
products for the clinical diagnostics market (hematology controls and
calibrators) and the biotechnology research and clinical diagnostics market
(cytokines, assays and related products). In fiscal 2001, R&D Systems'
Hematology Division revenues accounted for approximately 13% of consolidated
revenues of $115,356,562. Revenues from R&D Systems' Biotechnology Division
and R&D Europe were 64% and 23% of consolidated revenues, respectively.
Biotechnology Products
R&D Systems is the world's leading supplier of cytokines and cytokine-related
reagents to the biotechnology research community. These valuable proteins
exist in minute amounts in different types of cells and can be extracted from
these cells or made through recombinant DNA technology. In 1985, R&D Systems
introduced its first cytokine and continues to add to this product line. The
first cytokines were extracted from natural sources (human and porcine
platelets and bovine brain). Currently almost all of cytokines are produced
by recombinant DNA technology. R&D Systems also sells antibodies for specific
cytokines, cytokine assay kits, clinical diagnostic kits, kits for cytokine
receptor binding studies, and related research reagents.
The growing interest by researchers in cytokines exists because of the profound
effect a tiny amount of a cytokine can have on the cells and tissues of the
body. Cytokines are intercellular messengers. They act as signals by
interacting with specific receptors on the effected cells. They carry vital
signals to the cell's genetic machinery that can trigger events that can lead
to significant changes in a cell, tissue or organism. For example, cytokines
can signal a cell to differentiate, i.e., to acquire the features necessary for
it to take on a more specialized task. Another example of cytokine action is
the key role they play in stimulating cells surrounding a wound to grow and
divide and to attract migratory cells to the injury site.
R&D Systems' Biotechnology Division was formed in response to a growing need
for highly purified biologically active proteins. R&D Systems believes that
its cytokines are addressing the growing demand for these products within the
scientific research community.
During fiscal 1990, the Biotechnology Division released its first cytokine
assay kits under the tradename Quantikine. These kits are used by researchers
to quantify the level of a specific cytokine in a sample of blood, serum, or
other biological fluid. In fiscal 1996, the Biotechnology Division expanded
its Quantikine line by introducing a line of assay kits for mouse cytokines.
These kits are used extensively by research scientists doing cytokine studies
using animal models, such as those used in pharmaceutical discovery and
development programs.
Current Biotechnology Products
Cytokines and Related Antibodies. Cytokines, extracted from natural sources
or produced using recombinant DNA technology, are manufactured to the highest
purity. Polyclonal antibodies are produced by injecting purified cytokines
into animals (primarily goats and rabbits). The animals' immune systems
recognize the cytokines as foreign and develop antibodies to these cytokines.
The polyclonal antibodies are then extracted from the animals' blood and
purified. Monoclonal antibodies are produced by injecting purified cytokines
into mice. The B cells of a mouse's immune system are then isolated and fused
with immortalized mouse cells that will produce the desired antibody. Purified
cytokines and antibodies are made available both as research reagents and as
parts of assay kits (below).
Assay Kits. This product line includes R&D Systems' human and murine
(mouse and rat) Quantikine kits which allow research scientists to
quantify the amount of a specific cytokine in a sample of blood or tissue.
Also included in this product line are assay kits, developed by R&D
Europe, to quantify adhesion molecules. These kits are used by research
scientists to measure cellular adhesion molecules in serum, plasma, or
cell culture media. Cellular adhesion molecules facilitate the movement
of infection fighting cells out of the blood stream to the site of
infections.
Clinical Diagnostic Kits. The EPO kit, acquired from Amgen Inc. in fiscal
1992, was the first diagnostic assay for which R&D Systems had FDA
marketing clearance. R&D Systems also has received FDA marketing
clearance for its transferrin receptor (TfR) and Beta2-microglobulin kits.
Flow Cytometry Products. This product line includes R&D Systems' Fluorokine
kits which are used to measure the presence or absence of receptors for
specific cytokines on the surface of cells.
DNA and Related Products. Designer genes and designer probes are synthetic
DNAs used in the study of gene function.
Hematology Controls and Calibrators
Hematology controls and calibrators, manufactured and marketed through the
Hematology Division of R&D Systems, are products made up of the various
cellular components of blood. Proper diagnosis of many illnesses requires a
thorough and accurate analysis of the patient's blood cells, which is usually
done with automatic or semiautomatic hematology instruments. Controls and
calibrators ensure that these instruments are performing accurately and
reliably.
Blood is composed of plasma, the fluid portion of which is mainly water, and
blood cells, which are suspended in the plasma. There are three basic types
of blood cells: red cells, white cells and platelets. Red cells transport
oxygen from the lungs throughout the body, which they do by being rich in
hemoglobin. White cells defend the body against foreign invaders. Platelets
serve as a "plug" to stem blood flow at the site of an injury by initiating a
complex series of biochemical reactions that lead to the formation of a clot.
The formed elements of blood (red cells, white cells and platelets) differ a
great deal in size and concentration. The white cells are the largest in
size and platelets the smallest. The red cells are the most numerous and
constitute 95 percent of all blood cells. The average adult has from 20 to
30 trillion red cells. For every 500 red cells there are approximately one
white cell and about 20 platelets. As noted above, hematology controls are
used in automatic and semiautomatic cell counting analyzers to make sure
these instruments are counting blood cells accurately. One of the most
frequently performed laboratory tests on a blood sample is called a complete
blood count, or CBC for short. Doctors use this test in disease screening
and diagnosis. More than a billion of these tests are done every year, the
great majority with cell counting instruments. In most laboratories the CBC
consists of the white cell count, the red cell count, the hemoglobin reading,
and the hematocrit reading or the percent of red cells in a volume of whole
blood after it has been centrifuged. Also included in a CBC test is the
differential which numbers and classifies the different types of white cells.
These and other characteristics or "parameters" of a blood sample can be
measured by automatic or semiautomatic cell counters. Cell counters can read
the parameters of blood either by impedance, in which a cell interrupts an
electrical current and is counted, or by a laser, in which a cell interrupts
a laser beam and is counted. The number of parameters measurable in a blood
control product depends on the type and sophistication of the instrument for
which the control is designed. Ordinarily, a hematology control is used once
to several times a day to make sure the instrument is reading accurately.
Some instruments need to be calibrated periodically. Hematology calibrators
are similar to controls but go through additional processing and testing to
ensure that the calibration values assigned are extremely accurate and can be
used to adjust the instrument.
The Hematology Division of R&D Systems offers a complete line of hematology
controls and calibrators for both impedance and laser type cell counters.
R&D Systems believes its products have improved stability and versatility and
a longer shelf life than most of those of its competitors. The Hematology
Division supplies hematology control products for use as proficiency testing
materials by laboratory certifying authorities of a number of states and
countries. All products are priced competitively and come with an
unconditional money back guarantee. R&D Systems recognizes that developing
technologies for cell counting instruments will require increasingly
sophisticated and high-quality controls and is prepared to meet this
challenge.
Current Retail Hematology Products
Impedance-Type Whole Blood Controls/Calibrators. The Hematology Division
of R&D Systems currently produces controls and calibrators for the
following impedance-type instruments: Abbott Cell-Dyn, ABX, Beckman
Coulter, Danam, Hycel, Roche and TOA Sysmex instruments.
Laser-Type Whole Blood Controls/Calibrators. Currently produced controls
and calibrators for laser-type instruments include products for the
following: Beckman Coulter MAXM, STKS and GENS; Abbott Cell-Dyn 3000,
3200, 3500 and 4000 instruments; ABX instruments; Bayer Technicon ADVIA
and H series instruments; and the TOA Sysmex NE-8000 and NE-5500
instruments.
Linearity Control. This product provides a means of assessing the
linearity of hematology analyzers for white blood cells, red blood cells,
hemoglobin and platelets.
Whole Blood Reticulocyte Control. This control is designed for manual and
automated counting of reticulocytes (immature red blood cells).
Whole Blood Flow Cytometry Control. This product is a control for flow
cytometry instruments. These instruments are used to identify and
quantify white blood cells by their surface antigens.
Whole Blood Glucose/Hemoglobin Control. This product is designed to
monitor instruments for measuring glucose and hemaglobin.
Erythrocyte Sedimentation Rate Control. This product is designed to
monitor erythrocyte sedimentation rate tests.
Multi-Purpose Platelet Reference Control. This product, Platelet-Trol
II, is designed for use by automatic and semi-automatic impedance and
laser instruments and is the successor to Platelet-Rich-Plasma which R&D
Systems introduced in 1977.
PRODUCTS UNDER DEVELOPMENT
R&D Systems is engaged in ongoing research and development in all of its
major product lines: hematology controls and calibrators, biotechnology
cytokines, antibodies, assays and related products. The Company believes
that its future success depends, to a large extent, on the ability to keep
pace with changing technologies and markets. At the same time, the Company
continues to examine its production processes to ensure high quality and
maximum economy.
R&D Systems' Biotechnology Division is planning to release new cytokines,
antibodies and cytokine assay kits in the coming year. All of these products
will be for research purposes only and therefore do not require FDA
clearance. R&D Systems' Hematology Division has developed several new
control products in fiscal 2001 and is continuously working on product
improvements and enhancements. However, there is no assurance that any of
the products in the research and development phase can be developed or, if
developed, can be successfully introduced into the marketplace.
Expenditures for research and development activities were $14,522,233,
$11,198,309 and $12,004,798 for fiscal years 2001, 2000 and 1999,
respectively.
BUSINESS RELATIONSHIPS
During fiscal 1998, 1999, and 2000, the Company purchased a total of $5
million of convertible preferred stock of ChemoCentryx, Inc. (CCX), which
gave the Company a 49% interest in CCX through January 2001. In February
2001, CCX obtained $23 million in financing through the issuance of 8,846,154
shares of additional preferred stock. The Company currently holds
approximately 26% of the outstanding voting stock of CCX. CCX is a
technology and drug development company working in the area of chemokines.
Chemokines are cytokines which regulate the trafficking patterns of
leukocytes, the effector cells of the human immune system. In conjunction
with the equity investment and joint research efforts, the Company obtained
exclusive worldwide research and diagnostic marketing rights to chemokine
proteins, antibodies and receptors discovered or developed by CCX or R&D
Systems. The Company accounts for the investment under the equity method of
accounting and, through January 2001, recognized 100% of the losses of CCX
due to the limited amount of cash consideration provided by the holders of
the common shares of CCX. Subsequent to January 2001, the Company is
including CCX operating results in its consolidated financial statements
based on its ownership percentage. The Company's net investment in CCX was
$6,441,481 and $3,553,516 at June 30, 2001 and 2000, respectively.
On August 2, 2001, the Company made an equity investment of $3 million and
entered into a research and license agreement with Discovery Genomics, Inc.
(DGI) of Minneapolis, Minnesota. DGI was recently organized and holds
licenses from the University of Minnesota to develop technologies used for
functional genomics and the discovery of druggable targets. The Company
acquired a 39% equity interest in DGI and warrants to acquire additional
equity. The Company also received the rights to develop antibodies and
immunoassay kits for proteins discovered by DGI and an exclusive, royalty
free license to sell such products in the research market. The Company's
investment will be accounted for under the equity method of accounting.
Original Equipment Manufacturers (OEM) agreements represent the largest
market for hematology controls and calibrators made by R&D Systems. In
fiscal year 2001, OEM contracts accounted for $7,096,901 or 48% of Hematology
Division revenues and 6% of total consolidated revenues.
GOVERNMENT REGULATION
All manufacturers of hematology controls and calibrators are regulated under
the Federal Food, Drug and Cosmetic Act, as amended. All of R&D Systems'
hematology control products are classified as "In Vitro Diagnostic Products"
by the FDA. The entire hematology control manufacturing process, from
receipt of raw materials to the monitoring of control products through their
expiration date, is strictly regulated and documented. FDA inspectors make
periodic site inspections of the Hematology Division's control operations and
facilities. Hematology control manufacturing must comply with Good
Manufacturing Practices (GMP) as set forth in the FDA's regulations governing
medical devices.
Three of R&D Systems' immunoassay kits, EPO, TfR and Beta2-microglobulin,
have FDA clearance to be sold for clinical diagnostic use. R&D Systems must
comply with GMP for the manufacture of these kits. Biotechnology products
manufactured in the United States and sold for use in the research market do
not require FDA clearance.
Some of R&D Systems' research groups use small amounts of radioactive
materials in the form of radioisotopes in their product development
activities. Thus, R&D Systems is subject to regulation by the US Nuclear
Regulatory Commission (NRC) and has been granted an NRC license due to expire
in April 2002. The license is renewable annually. R&D Systems is also
subject to regulation and inspection by the Department of Health of the State
of Minnesota for its use of radioactive materials. It has been granted a
certificate of registration, which is renewable annually, by the Minnesota
Department of Health. The current certificate expires April 1, 2002. R&D
Systems has had no difficulties in renewing these licenses in prior years and
has no reason to believe they will not be renewed in the future. If,
however, the licenses were not renewed, it would have minimal effect on R&D
Systems' business since there are other technologies the research groups
could use to replace radioisotopes.
AVAILABILITY OF RAW MATERIALS
The primary raw material for the Company's hematology controls is whole
blood. Human blood is purchased from commercial blood banks and porcine and
bovine blood is purchased from nearby meat processing plants. After raw
blood is received, it is separated into its components, processed and
stabilized. Although the cost of human blood has increased owing largely to
the requirement that it be tested for HIV (AIDS) antibodies and hepatitis,
the higher cost of these materials has not had a serious adverse effect on
the Company's business. R&D Systems does not perform its own testing for the
AIDS antibodies as the supplier tests all human blood purchased. R&D
Systems' Biotechnology Division develops and manufactures the majority of its
cytokines from synthetic genes developed in-house, thus significantly
reducing its reliance on outside resources. R&D Systems typically has
several outside sources for all critical raw materials necessary for the
manufacture of products.
PATENTS AND TRADEMARKS
R&D Systems owns patent protection for certain hematology controls. R&D
Systems may seek patent protection for new or existing products it
manufactures. No assurance can be given that any such patent protection will
be obtained. No assurance can be given that R&D Systems' products do not
infringe upon patents or proprietary rights owned or claimed by others,
particularly for genetically engineered products. R&D Systems has not
conducted a patent infringement study for each of its products.
R&D Systems and R&D Europe have a number of licensing agreements with patent
holders under which they have the non-exclusive right to patented technology
or the non-exclusive right to manufacture and sell certain patented cytokine
and cytokine related products to the research market. For fiscal 2001, total
royalties expensed under these licenses were approximately $1,563,000.
R&D Systems has obtained federal trademark registration for certain of its
hematology controls and biotechnology product groups. R&D Systems believes
it has common law trademark rights to certain marks in addition to those
which it has registered.
SEASONALITY OF BUSINESS
Sales of the products manufactured by R&D Systems and R&D Europe are not
seasonal, although R&D Europe historically experiences a slowing of sales
during the summer months.
SIGNIFICANT CUSTOMERS
No single customer accounted for more than 10% of total revenues during
fiscal 2001, 2000 or 1999.
BACKLOG
There was no significant backlog of orders for the Company's products as of
the date of this report or as of a comparable date for fiscal 2000.
COMPETITION
The worldwide market for cytokines and research diagnostic assay kits is
being supplied by a number of biotechnology companies, including BD
Biosciences, BioSource International, Sigma Chemical Co., Amersham Pharmacia
and CN Biosciences. R&D Systems believes that it is the leading worldwide
supplier of cytokine related products in the research marketplace. R&D
Systems believes that the expanding line of its products, their recognized
quality, and the growing demand for these rare and versatile proteins,
antibodies and assay kits, will allow the Company to remain competitive in
the growing biotechnology research and diagnostic market.
Competition is intense in the hematology control business. The first control
products were developed in response to the rapid advances in electronic
instrumentation used in hospital and clinical laboratories for blood cell
counting. Historically, most of the instrument manufacturing companies made
controls for use in their own instruments. With rapid expansion of the
instrument market, however, a need for more versatile controls enabled non-
instrument manufacturers to gain a foothold. Today the market is comprised
of manufacturers of laboratory reagents, chemicals and coagulation products
and independent control manufacturers in addition to instrument
manufacturers. The principal hematology control competitors of R&D Systems'
retail products are Beckman Coulter, Inc., TOA Sysmex, Streck Laboratories,
Abbott Diagnostics and Hematronix, Inc. R&D Systems believes it is the third
largest supplier of hematology controls in the marketplace behind Beckman
Coulter and Streck Laboratories.
EMPLOYEES
R&D Systems had 447 full-time and 47 part-time employees as of June 30, 2001.
R&D Europe had 47 full-time and 10 part-time employees as of June 30, 2001,
including 9 full-time and 1 part-time at R&D Europe's sales subsidiary in
Germany.
ENVIRONMENT
Compliance with federal, state and local environmental protection laws in the
United States, England and Germany had no material effect on R&D Systems or
R&D Europe in fiscal 2001.
FOREIGN AND DOMESTIC OPERATIONS
The following table represents certain financial information relating to
foreign and domestic operations for the fiscal years ended June 30 (all
amounts are in thousands of US dollars):
2001 2000 1999
-------- -------- --------
Net Sales to External Customers
Hematology Division:
US $ 12,357 $ 11,140 $ 10,549
Other 2,353 2,435 2,125
Biotechnology Division:
US 58,661 51,788 43,712
Other 14,995 12,443 11,249
R&D Europe:
Other 26,990 26,032 23,266
Gross Margin
R&D Systems (US) 76,578 66,125 52,791
R&D Europe (England) 8,731 9,373 9,490
R&D GmbH (Germany) 1,623 1,590 1,296
Net Earnings (Loss)
Parent and R&D Systems (US) 31,006 22,418 15,230
R&D Europe (England) 3,310 3,269 2,835
R&D GmbH (Germany) 229 253 8
ChemoCentryx (US) (500) 643 (1,417)
Identifiable Assets
Parent and R&D Systems (US) 194,355 165,834 112,327
R&D Europe (England) 17,029 13,546 10,213
R&D GmbH (Germany) 753 1,030 1,261
CAUTIONARY STATEMENTS
The Company wishes to caution investors that the following important factors,
among others, in some cases have affected and in the future could affect the
Company's actual results of operations and cause such results to differ
materially from those anticipated in forward-looking statements made in this
document and elsewhere by or on behalf of the Company:
Risk of Technological Obsolescence and Competition
The biotechnology industry is subject to rapid and significant technological
change. While the hematology controls industry historically has been subject
to less rapid change, it too is evolving and is impacted significantly by
changes in the automated testing equipment offered by hardware manufacturers.
Competitors of the Company in the United States and abroad are numerous and
include, among others, specialized biotechnology firms, medical laboratory
instrument and equipment manufacturers and disposables suppliers, major
pharmaceutical companies, universities and other research institutions.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective than any which
have been or are being developed by the Company or that would render the
Company's technologies and products obsolete or noncompetitive. Many of
these competitors have substantially greater resources and product
development, production and marketing capabilities than the Company. With
regard to diagnostic kits, which constitute a relatively minor portion of the
Company's business, many of the Company's competitors have significantly
greater experience than the Company in undertaking preclinical testing and
clinical trials of new or improved diagnostic kits and obtaining FDA and
other regulatory approvals of such products.
Patents and Proprietary Rights
The Company's success will depend, in part, on its ability to obtain licenses
and patents, maintain trade secret protection and operate without infringing
the proprietary rights of others. The Company has filed a very limited
number of United States and foreign patent applications for products in which
it believes it has a proprietary interest. The Company has obtained and is
negotiating licenses to produce a number of cytokines and related products
claimed to be owned by others. The Company has not conducted a patent
infringement study for each of its products. It is possible that products of
the Company may unintentionally infringe patents of third parties or that the
Company may have to alter its products or processes, pay licensing fees or
cease certain activities because of patent rights of third parties, thereby
causing additional unexpected costs and delays which may have a material
adverse effect on the Company. The patenting of hematology and biotechnology
processes and products involves complex legal and factual questions and, to
date, there has emerged no consistent policy regarding the breadth of claims
in biotechnology patents. Protracted and costly litigation may be necessary
to enforce rights of the Company and defend against claims of infringement of
rights of others.
Financial Impact of Expansion Strategy
The Company engages in an expansion strategy which includes internal
development of new products, collaboration with manufacturers of automated
instruments which may use the Company's products, investment in joint
ventures and companies developing new products related to the Company's
business and acquisition of companies for new products or additional customer
base. Each of the strategies carries risks that objectives will not be
achieved and future earnings will be adversely affected. During the early
development stage, a percentage of the operating losses of certain companies
in which the Company may invest will be reported as losses of the Company, as
is the case with ChemoCentryx, Inc. and Discovery Genomics, Inc.
Government Regulation
Ongoing research and development activities, including preclinical and
clinical testing, and the production and marketing of the Company's products
are subject to regulation by numerous governmental authorities in the United
States and other countries. Some of the Company's products and manufacturing
processes and facilities require governmental approval prior to commercial
use. The approval process applicable to clinical diagnostic products of the
type which may be developed by the Company usually takes a number of years
and typically requires substantial expenditures. Delays in obtaining
regulatory approvals would adversely affect the marketing of products
developed by the Company and the Company's ability to receive product
revenues or royalties. There can be no assurance that regulatory approvals
for such products will be obtained without lengthy delays, if at all.
Attraction and Retention of Key Employees
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing is critical
to the Company's success. Although the Company believes it has been and will
be able to attract and retain such personnel, there can be no assurance that
the Company will be successful. In addition, the Company's anticipated
growth and expansion into areas and activities requiring additional
expertise, such as clinical testing, government approvals, production and
marketing, will require the addition of new management personnel and the
development of additional expertise by existing management personnel. The
failure to attract and retain such personnel or to develop such expertise
would adversely affect the Company's business.
Litigation
On September 19, 2000, the Company brought a declaratory judgement action in
United States District Court for the District of Minnesota (the Court)
seeking to have the Court declare that no amount is owed by the Company to
Amgen, Inc. (Amgen) in connection with invoices in the amount of $31.9
million rendered by Amgen in June 2000 for materials provided to the Company
in past years. The Company also claimed damages for breach of contract and
unfair business practices in violation of applicable statutes. Amgen
subsequently acknowledged error and reduced the amount of its invoices by
$3.9 million to $28 million. Amgen filed a counterclaim seeking the $28
million plus interest and attorneys fees. The Company believes that it has
strong defenses to Amgen's claims and that it owes no material amount. The
ultimate outcome of litigation, however, cannot be predicted with certainty.
An unfavorable outcome to the litigation with Amgen would not adversely
impair the operations of the Company or its financial condition, but would
have a material effect on net income for the period in which realized. See
"Financial Statements, Note E. Commitments and contingencies."
ITEM 2. PROPERTIES
On July 1, 1999, the Company purchased, for approximately $28 million, the
facilities R&D Systems had been leasing in Minneapolis, Minnesota. The R&D
complex currently includes 365,000 square feet of administrative, research
and manufacturing space. The Hematology Division manufacturing and shipping
operations are located at 640 McKinley Place N.E. (47,000 square feet).
Biotechnology Division manufacturing and research operations are located at
600 McKinley Place NE (85,000 square feet) and 2201 Kennedy Street (200,000
square feet). Administrative, sales and marketing functions are also located
at the 2201 Kennnedy Street building. The Company also occupies an additional
20,000 square feet in space connecting the three buildings. This area houses
a lunchroom, a library and additional warehouse space. In addition, the
Company constructed a 13,000 square foot entrance to the facility. The
Company has entered into two option agreements for real estate adjacent to
the current facility. The options are exercisable through November 2001 and
January 2005 on the two properties, respectively. The Company plans to
exercise its option on the first property during fiscal 2002 and plans to
build an infill to connect this property with its current facility.
R&D Europe sub-leased approximately 12,500 square feet in one building in
Abingdon, England. The lease on the building expired in June 2001. In May
2001 R&D Europe began leasing approximately 17,000 square feet in a building
less than one mile from its previous location. Rental rates for the new
facility are expected to be slightly higher than rates under the previous
sub-lease. Base rent was $195,000 in fiscal 2001.
R&D GmbH leases approximately 2,300 square feet as a sales office in
Wiesbaden-Nordenstadt, Germany. Base rent was $32,000 in fiscal 2001.
The Company believes the acquired property, purchase options and leased
property discussed above are adequate to meet its occupancy needs in the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
On September 19, 2000, the Company brought a declaratory judgement action in
United States District Court for the District of Minnesota (the Court)
seeking to have the Court declare that no amount is owed by the Company to
Amgen, Inc. (Amgen) in connection with invoices in the amount of $31.9
million rendered by Amgen in June 2000 for materials provided to the Company
in past years. The Company also claimed damages for breach of contract and
unfair business practices in violation of applicable statutes. Amgen
subsequently acknowledged error and reduced the amount of its invoices by
$3.9 million to $28 million. Amgen filed a counterclaim seeking the $28
million plus interest and attorneys fees. The Company believes that it has
strong defenses to Amgen's claims and that it owes no material amount. The
ultimate outcome of litigation, however, cannot be predicted with certainty.
An unfavorable outcome to the litigation with Amgen would not adversely
impair the operations of the Company or its financial condition, but would
have a material effect on net income for the period in which realized. See
"Financial Statements, Note E. Commitments and contingencies."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the Company's 2001 fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
(a) The names, ages and positions of each executive officer of the Company
are as follows:
Name Age Position Officer Since
---- --- --------- -------------
Thomas E. Oland 60 Chairman of the Board, President, 1985
Treasurer and Director
Dr. Monica Tsang 56 Vice President, Research 1995
Marcel Veronneau 46 Vice President, Hematology Operations 1995
Timothy M. Heaney 55 Vice President, Secretary, General 1999
Counsel and Director
The term of office of each executive officer is from one annual meeting of
directors until the next annual meeting of directors or until a successor is
elected. There are no arrangements or understandings among any of the
executive officers and any other person (not an officer or director acting as
such) pursuant to which any of the executive officers was selected as an
officer of the Company.
(b) The business experience of the executive officers during the past five
years is as follows:
Thomas E. Oland has been Chairman of the Board, President and Treasurer of
the Company since December 1985.
Dr. Monica Tsang was elected a Vice President of the Company in March 1995.
Prior thereto, she served as Executive Director of Cell Biology for R&D
Systems' Biotechnology Division and has been an employee of R&D Systems since
1985.
Marcel Veronneau was elected a Vice President of the Company in March 1995.
Prior thereto, he served as Director of Operations for R&D Systems'
Hematology Division since joining the Company in 1993.
Timothy M. Heaney was elected a Vice President of the Company in October
1999. Prior thereto, he was a partner at Fredrikson and Byron, P.A., the
Company's outside legal counsel and had served as the managing partner on the
Company's account.
An additional officer, Dr. James A. Weatherbee, who served as Vice President
and Chief Scientific Officer since 1995, is on medical leave. Dr. Weatherbee
and Dr. Tsang are husband and wife.
Dr. Thomas Detwiler, Vice President of the Company since March 1995, retired
from the Company in July 2000.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The NASDAQ Stock Exchange under the
symbol "TECH." The following table sets forth for the periods indicated the
range of the closing price per share for the Company as reported by NASDAQ.
FISCAL 2001 PRICE FISCAL 2000 PRICE
HIGH LOW HIGH LOW
-------- ------- -------- --------
1st Quarter $ 74.00 $ 36.50 $ 16.38 $ 12.38
2nd Quarter 62.66 32.00 27.53 15.88
3rd Quarter 33.69 22.50 44.19 25.99
4th Quarter 38.41 24.81 70.00 30.00
As of September 11, 2001, there were approximately 300 shareholders of
record. As of September 11, 2001, there were over 14,000 beneficial
shareholders of the Company's common stock. TECHNE Corporation has never paid
cash dividends on its common stock. Payment of dividends is within the
discretion of TECHNE's Board of Directors, although the Board of Directors
plans to retain earnings for the foreseeable future for operating the
Company's business.
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE, EARNINGS AND CASH
FLOW DATA FOR THE YEARS ENDED
JUNE 30 2001 2000 1999(1) 1998 1997
----------------------------- -------- -------- ------- ------- -------
Net sales $115,357 $103,838 $ 90,901 $67,291 $60,924
Gross margin 75.4% 74.2% 69.9% 70.3% 68.7%
Selling, general and
administrative expense 15.4% 16.7% 18.6% 22.8% 23.9%
Research and development
expenses 12.6% 10.8% 13.2% 15.8% 19.2%
Interest expense 1,381 1,441 -- -- 29
Earnings before income taxes 47,808 39,412 26,054 22,411 15,988
Net earnings 34,045 26,583 16,656 15,183 10,882
Diluted earnings per share(3) 0.80 0.63 0.40 0.39 0.28
Capital expenditures 6,815 30,368 5,564 2,780 4,243
Depreciation and amortization 12,737 12,651 11,890 2,303 2,322
Change in net working capital 34,560 36,352 (12,544) 15,033 6,639
Net cash provided by
operating activities 46,372 38,739 28,422 20,875 12,477
Return on sales 29.5% 25.6% 18.3% 22.6% 17.9%
Return on average equity 21.4% 22.3% 20.7% 27.1% 25.0%
BALANCE SHEET, COMMON STOCK
AND EMPLOYEE DATA AS OF
JUNE 30 2001 2000 1999(1) 1998 1997
----------------------------- -------- -------- ------- ------- -------
Cash, cash equivalents and
short-term investments $ 97,072 $ 59,824 $ 29,114 $41,436 $24,752
Receivables 18,322 15,601 13,520 10,002 9,114
Inventories 5,438 4,652 5,715 3,811 4,087
Working capital 108,300 73,740 37,388 49,932 34,899
Total assets 215,525 180,410 123,801 72,785 53,922
Long-term debt, less
current portion 18,050 18,935 -- -- --
Stockholders' equity 177,660 141,145 96,838 63,831 48,081
Average common and common
Equivalent shares (in
thousands)(3) 42,668 42,206 41,373 39,215 38,925
Book value per share(2)(3) 4.29 3.41 2.41 1.67 1.27
Share price:(3)
High 74.00 70.00 14.75 10.00 7.63
Low 22.50 12.38 6.13 6.72 5.06
Price to earnings ratio 41 103 31 25 27
Current ratio 7.81 6.87 3.78 7.84 8.12
Quick ratio 7.26 6.00 3.17 7.05 6.91
Full-time employees 494 440 402 356 326
(1) The Company acquired the research products business of Genzyme
Corporation on July 1, 1998.
(2) Total stockholders' equity divided by total shares outstanding at
June 30.
(3) The Company declared a two-for-one stock split with a record date of
November 24, 2000. All prior year share and per share amounts have been
restated to reflect the stock split.
The Company has not declared any cash dividends in the past, and it is not
anticipated that it will declare any dividends in the foreseeable future.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY STRUCTURE
TECHNE (the Company) has two operating subsidiaries: Research and Diagnostic
Systems, Inc. (R&D Systems) and R&D Systems Europe Ltd. (R&D Europe). R&D
Systems, located in Minneapolis, Minnesota, has two operating segments: its
Biotechnology Division and its Hematology Division. The Biotechnology
Division develops and manufactures purified cytokines (proteins), antibodies
and assay kits which are sold to biomedical researchers and clinical research
laboratories. The Hematology Division develops and manufactures whole blood
hematology controls and calibrators which are sold to hospitals and clinical
laboratories to check the performance of hematology instruments to assure the
accuracy of hematology test results. R&D Europe, the Company's third
operating segment, located in Abingdon, England, is the European distributor
of R&D Systems' biotechnology products. R&D Europe has a German sales
subsidiary, R&D Systems GmbH. The Company also has a foreign sales
corporation, Techne Export Inc.
RESULTS OF OPERATIONS
Net sales for fiscal 2001 were $115,356,562, an increase of $11,518,407 (11%)
from fiscal 2000. Net sales by R&D Systems' Biotechnology Division for the
period increased $9,426,085 (15%). Net sales by R&D Systems' Hematology
Division increased $1,135,001 (8%) and net sales by R&D Europe increased
$957,321 (4%). The increase in consolidated net sales for the fiscal year was
due largely to increased sales of proteins and antibodies. R&D Europe's net
sales for fiscal 2001 were affected by changes in foreign currency exchange
rates. In British pounds, R&D Europe's net sales increased 14% from the prior
year and, adjusted for all changes in exchange rates, R&D Europe's net sales
for fiscal 2001 would have been approximately $2.9 million higher than
reported.
Net sales for fiscal 2000 were $103,838,155, an increase of $12,937,458
(14%) from fiscal 1999. Net sales by R&D Systems' Biotechnology Division for
the period increased $9,269,504 (17%). Net sales by R&D Systems' Hematology
Division increased $901,919 (7%) and net sales by R&D Europe increased
$2,766,035 (12%). The increase in consolidated net sales for the fiscal year
was due largely to increased sales of proteins and antibodies.
Net sales for fiscal 1999 were $90,900,697, an increase of $23,609,259 (35%)
from fiscal 1998. Net sales by R&D Systems' Biotechnology Division for the
period increased $17,247,069 (46%). Net sales by R&D Systems' Hematology
Division increased $889,451 (8%) and net sales by R&D Europe increased
$5,472,739 (31%). The increase in consolidated net sales for the fiscal year
was due, in part, to the acquisition of Genzyme Corporation's research
products business on July 1, 1998. In addition, the increase in consolidated
net sales was due to increased sales of R&D Systems products to both R&D
Systems customers and to former Genzyme customers as they were converted from
Genzyme products to R&D Systems products.
Gross margins, as a percentage of sales, increased from 74.2% in fiscal 2000
to 75.4% in fiscal 2001. Biotechnology Division gross margins increased from
76.9% in fiscal 2000 to 78.6% in fiscal 2001. Margins in the first half of
fiscal 2000 were affected by higher cost inventory acquired from Genzyme. R&D
Europe gross margins decreased from 41.9% in fiscal 2000 to 38.3% in fiscal
2001 mainly as a result of changes in exchange rates. Hematology Division
gross margins decreased from 48.4% in fiscal 2000 to 46.7% in fiscal 2001 as
a result of changes in product mix.
Gross margins, as a percentage of sales, increased from 69.9% in fiscal 1999
to 74.2% in fiscal 2000. Biotechnology Division gross margins increased from
70.8% in fiscal 1999 to 76.9% in fiscal 2000. Margins in fiscal 1999 were
affected by higher cost inventory acquired from Genzyme. R&D Europe gross
margins decreased from 46.0% in fiscal 1999 to 41.9% in fiscal 2000 mainly as
a result of changes in exchange rates. Hematology Division gross margins did
not change significantly from the prior year.
Gross margins, as a percentage of sales, decreased slightly from 70.3% in
fiscal 1998 to 69.9% in fiscal 1999. Biotechnology Division gross margins
decreased from 72.9% in fiscal 1998 to 70.8% in fiscal 1999 as a result of
lower gross profit levels on inventory acquired from Genzyme and the write-
off of obsolete Genzyme packaging and kit components due to conversion of
customers to R&D Systems labeled product. R&D Europe and Hematology Division
gross margins did not change significantly from the prior year.
Selling, general and administrative expenses increased $399,084 (2%) in
fiscal 2001. The increase was the result of increased wages and benefits
partially offset by exchange rate changes.
Selling, general and administrative expenses increased $452,914 (3%) in
fiscal 2000. The increase was the result of increased wages and benefits and
exchange rate losses partially offset by decreased rent expense due to the
purchase of R&D Systems' Minneapolis facilities on July 1, 1999.
Selling, general and administrative expenses increased $1,494,457 (10%) in
fiscal 1999. The majority of the increase in consolidated selling, general
and administrative expenses was due to additional sales personnel added in
the U.S. and Europe as a result of the Genzyme acquisition and associated
advertising and promotion activities.
Research and development expenses increased $3,323,924 in fiscal 2001,
decreased $806,489 in fiscal 2000 and increased $1,366,994 in fiscal 1999.
The decrease in consolidated research and development expenses in fiscal 2000
was a result of research grant money received in fiscal 2000 by ChemoCentryx,
Inc. (CCX), which offset CCX's research expenses. CCX is a technology and
drug development company in which the Company has invested. Research and
development expenses by R&D Systems increased $2.4, $1.6 and $.6 million in
fiscal 2001, 2000 and 1999, respectively. These increases were primarily the
result of the development and release of new cytokines, antibodies and assay
kits by R&D Systems' Biotechnology Division and the development and release
of several new Hematology Division control products. Management of the
Company believes that R&D Systems will continue to develop new products.
Earnings before taxes increased from $39,411,797 in fiscal 2000 to
$47,808,376 in fiscal 2001. The increase in earnings was primarily the result
of a $8,543,176 increase in R&D Systems' Biotechnology Division earnings, a
$573,280 increase in R&D Systems' Hematology Division earnings and a $270,873
increase in R&D Europe earnings. The increases were due mainly to increased
sales and improved Biotechnology Division gross margins. The increases in
consolidated earnings were partially offset by a $1,142,272 increase in
operating losses by CCX as a result of increased research spending.
Earnings before taxes increased from $26,054,010 in fiscal 1999 to
$39,411,797 in fiscal 2000. The increase in earnings was primarily the result
of a $10,803,845 increase in R&D Systems' Biotechnology Division earnings, a
$777,379 increase in R&D Systems' Hematology Division earnings and a $804,885
increase in R&D Europe earnings. The increases were due mainly to increased
sales and improved Biotechnology Division gross margins. In addition, as a
result of the research grant money received by CCX in fiscal 2000, CCX's
losses decreased $2,059,224 from fiscal 1999. The above were partially offset
by increased interest expense related to financing of the building
acquisition.
Earnings before taxes increased from $22,410,961 in fiscal 1998 to
$26,054,010 in fiscal 1999, despite $9.54 million in intangible asset
amortization in fiscal 1999 related to the Genzyme acquisition. The increase
in earnings was primarily the result of a $3,073,439 increase in R&D Systems'
Biotechnology Division earnings, a $583,237 increase in R&D Systems'
Hematology Division earnings and a $942,983 increase in R&D Europe earnings,
all as a result of increased sales. These increases were offset by increased
net losses by CCX of $744,209.
Income taxes for fiscal 2001, 2000 and 1999 were provided at rates of
approximately 29%, 33% and 36%, respectively. The decrease in the tax rate in
fiscal 2001 is due primarily to increased tax exempt interest income and a
one-time $1.2 million credit as a result of the close-out of pending issues
related to a state income tax examination for fiscal years 1996 through 1999.
In fiscal 2000, CCX losses were offset by grant money received, resulting in
a decrease in the tax rate from fiscal 1999. The higher tax rate in fiscal
1999 was due to the net losses of CCX for which no tax benefit was provided.
U.S. federal and state taxes have been reduced as a result of tax-exempt
interest income, the benefit of the foreign sales corporation, and the
federal and state credit for research and development expenditures. Foreign
income taxes have been provided at rates which approximate the tax rates in
the United Kingdom and Germany.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments at June 30, 2001, were
$97,071,868, an increase of 62% from the prior year. At June 30, 2000, cash,
equivalents and short-term investments were $59,824,291 compared to
$29,114,124 at June 30, 1999, an increase of 105%. The Company has an
unsecured line of credit of $750,000 available at June 30, 2001. The interest
rate on the line of credit is at the prime rate of 6.75% at June 30, 2001.
There were no borrowings on the line outstanding as of June 30, 2001 and
2000.
Management of the Company expects to be able to meet its future cash and
working capital requirements for operations, debt repayment, facility
expansion and capital additions through currently available funds, cash
generated from operations and maturities of short-term investments.
Cash flows from operating activities
The Company generated cash from operations of $46,371,711, $38,739,403 and
$28,421,859 in fiscal 2001, 2000 and 1999, respectively. The majority of cash
generated from operating activities in all three years resulted from an
increase in net earnings after adjustment for noncash expenses.
Cash flows from investing activities
The Company's net investment in short-term investments in fiscal 2001, 2000
and 1999 was $33,335,894, $26,123,527 and $1,022,721, respectively. The
Company's investment policy is to place excess cash in tax-exempt bonds with
the objective of obtaining the highest possible return with the lowest risk,
while keeping funds accessible.
Capital additions (excluding the building purchase discussed below) were
$6,814,953, $8,505,709 and $5,564,033 in fiscal 2001, 2000 and 1999,
respectively. Included in fiscal 2001 capital additions is $1.9 million for
the construction of a $7.9 million parking ramp. The ramp is currently under
construction and is expected to be completed in fiscal 2002. Also included in
fiscal 2001, 2000 and 1999 capital additions are building improvements of
$2.3, $5.1 and $3.5 million related to R&D Systems' remodeling and expansion.
The remaining capital additions were for laboratory, manufacturing and
computer equipment. Total capital additions planned for fiscal 2002 for
equipment, building improvements and the completion of the parking ramp are
expected to be approximately $8.8 million. All capital additions are expected
to be financed through currently available cash, cash generated from
operations and maturities of short-term investments.
On July 1, 1999, the Company purchased the facilities it occupies in
Minneapolis, Minnesota for approximately $28 million. Cash of $4 million and
200,000 shares of common stock valued at $2.16 million were placed in escrow
during fiscal 1999. The remainder of the purchase price was financed through
cash on hand and a $20.4 million 15-year mortgage.
On July 1, 1999, the Company paid $2 million and issued warrants to purchase
120,000 shares of common stock as a deposit on an option to purchase
additional property adjacent to its Minneapolis facility. The balance due on
the purchase is approximately $6 million. The Company plans to exercise its
option to purchase this property during fiscal 2002. Costs to renovate the
buildings are estimated at approximately $12 million, with renovation
expected to be completed early in fiscal 2003. The Company also plans to
build an infill to connect this property with its current facility. The
construction of the infill is expected to begin in the spring of 2002 with
completion in late fall 2002 and costs are estimated at approximately $5.5
million.
On July 1, 1998 the Company acquired the research products business of
Genzyme Corporation for $24.76 million cash, $17 million common stock and
royalties on the Company's biotechnology sales for five years. Cash and
equivalents at June 30, 1998 and maturities of short-term investments were
used to finance the cash portion of the acquisition.
Cash flows from financing activities
The Company received $814,892, $6,470,910 and $1,136,633 for the exercise of
options for 89,616, 1,052,046 and 385,704 shares of common stock in fiscal
2001, 2000 and 1999, respectively.
In fiscal 2001 and 1999, the Company purchased and retired 40,000 and
427,200 shares of Company common stock at a market value of $1,163,768 and
$3,941,950, respectively. In May 1995, the Company announced a plan to
purchase and retire up to $5 million of its common stock. In April 1997 and
January 2001 this was increased an additional $5 and $10 million,
respectively. Through June 30, 2001, $9,917,882 of common stock had been
purchased under the plan. Any additional purchases will be funded from
currently available cash.
The Company has never paid cash dividends and has no plans to do so in
fiscal 2002. The Company's earnings will be retained for reinvestment in the
business.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "REVENUE RECOGNITION IN FINANCIAL
STATEMENTS," which provides guidance in applying generally accepted
accounting principles to revenue recognition in financial statements. The
application of this SAB did not have a material impact on the Company's
operating results or financial position.
On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES", as amended by SFAS No. 138, "ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that all derivatives, including those embedded in
other contracts, be recognized as either assets or liabilities and that those
financial instruments be measured at fair value. The accounting for changes
in the fair value of derivatives depends on their intended use and
designation. Management has reviewed the requirements of SFAS No. 133 and
has determined that they have no free-standing or embedded derivatives. All
contracts that contain provisions meeting the definition of a derivative also
meet the requirements of, and have been designated as, normal purchases or
sales. The Company's policy is to not use free-standing derivatives and to
not enter into contracts with terms that cannot be designated as normal
purchases or sales.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "BUSINESS COMBINATIONS" and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE
ASSETS". SFAS No. 141 applies to all business combinations initiated after
June 30, 2001 and prohibits the use of the pooling-of-interests method of
accounting. There are also transition provisions provided that apply to
business combinations completed before July 1, 2001 that were accounted for
using the purchase method. Under SFAS No. 142, goodwill as well as other
intangibles determined to have an infinite life will no longer be amortized;
however, these assets will be reviewed for impairment on a periodic basis.
SFAS No. 142 also includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reclassification of certain
intangibles out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairments of
goodwill. The Company plans to adopt SFAS No. 142 on July 1, 2002. The
Company is currently assessing, but has not yet determined, the impact of
these statements on its financial position and results of operations. As of
June 30, 2001, the Company had net goodwill and other intangibles assets of
approximately $18.8 million and $8.6 million, respectively. Amortization
expense recorded during fiscal 2001, 2000, and 1999 was approximately $8.9
million, $9.2 million and $9.6 million, respectively.
FORWARD-LOOKING INFORMATION
Statements in this Annual Report, and elsewhere, that are forward-looking
involve risks and uncertainties which may affect the Company's actual results
of operations. Certain of these risks and uncertainties which have affected
and, in the future, could affect the Company's actual results are discussed
below.
The biotechnology industry is subject to rapid and significant technological
change. While the hematology controls industry historically has been subject
to less rapid change, it too is evolving and is impacted significantly by
changes in the automated testing equipment offered by hardware manufacturers.
Competitors of the Company are numerous and include, among others,
specialized biotechnology firms, medical laboratory instrument and equipment
manufacturers and disposables suppliers, major pharmaceutical companies,
universities and other research institutions. There can be no assurance that
the Company's competitors will not succeed in developing technologies and
products that are more effective than any which have been or are being
developed by the Company or that would render the Company's technologies and
products obsolete or noncompetitive.
The Company's success will depend, in part, on its ability to obtain
licenses and patents, maintain trade secret protection and operate without
infringing the proprietary rights of others. The Company has obtained and is
negotiating licenses to produce a number of cytokines and related products
claimed to be owned by others. Since the Company has not conducted a patent
infringement study for each of its products, it is possible that products of
the Company may unintentionally infringe patents of third parties or that the
Company may have to alter its products or processes, pay licensing fees or
cease certain activities because of patent rights of third parties, thereby
causing additional unexpected costs and delays which may have a material
adverse effect on the Company.
The Company's expansion strategies, which include internal development of
new products, collaborations, investments in joint ventures and companies
developing new products related to the Company's business, and the
acquisition of companies for new products and additional customer base, carry
risks that objectives will not be achieved and future earnings will be
adversely affected.
Ongoing research and development activities, including preclinical and
clinical testing, and the production and marketing of the Company's products
are subject to regulation by numerous governmental authorities in the United
States and other countries. The approval process applicable to clinical
diagnostic products of the type that may be developed by the Company usually
takes a number of years and typically requires substantial expenditures.
Delays in obtaining approvals could adversely affect the marketing of new
products developed by the Company.
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing are critical
to the Company's success. The Company's anticipated growth and its expected
expansion into areas and activities requiring additional expertise will
require the addition of new personnel and the development of additional
expertise by existing personnel. The failure to attract and retain such
personnel could adversely affect the Company's business.
On September 19, 2000, the Company brought a declaratory judgement action
in United States District Court for the District of Minnesota (the Court)
seeking to have the Court declare that no amount is owed by the Company to
Amgen, Inc. (Amgen) in connection with invoices in the amount of $31.9
million rendered by Amgen in June 2000 for materials provided to the Company
in past years. The Company also claimed damages for breach of contract and
unfair business practices in violation of applicable statutes. Amgen
subsequently acknowledged error and reduced the amount of its invoices by
$3.9 million to $28 million. Amgen filed a counterclaim seeking the $28
million plus interest and attorneys fees. The Company believes that it has
strong defenses to Amgen's claims and that it owes no material amount. The
ultimate outcome of litigation, however, cannot be predicted with certainty.
An unfavorable outcome to the litigation with Amgen would not adversely
impair the operations of the Company or its financial condition, but would
have a material effect on net income for the period in which realized. See
"Financial Statements, Note E. Commitments and contingencies."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
At the end of fiscal 2001, the Company had an investment portfolio of fixed
income securities, excluding those classified as cash and cash equivalents,
of $75,804,077 (see Note A of Notes to Consolidated Financial Statements).
These securities, like all fixed income instruments, are subject to interest
rate risk and will decline in value if market interest rates increase.
However, the Company has the ability to hold its fixed income investments
until maturity and therefore the Company would not expect to recognize an
adverse impact in income or cash flows.
The Company operates internationally, and thus is subject to potentially
adverse movements in foreign currency rate changes. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
TECHNE CORPORATION AND SUBSIDIARIES
YEAR ENDED JUNE 30,
2001 2000 1999
------------ ------------ -----------
Net sales $115,356,562 $103,838,155 $90,900,697
Cost of sales 28,424,906 26,750,650 27,323,211
------------ ------------ -----------
Gross margin 86,931,656 77,087,505 63,577,486
Operating expenses:
Selling, general and administrative 17,714,215 17,315,131 16,862,217
Research and development 14,522,233 11,198,309 12,004,798
Amortization of intangible assets
(Note A) 8,889,254 9,229,250 9,578,646
Interest expense 1,381,276 1,441,272 --
Interest income (3,383,698) (1,508,254) (922,185)
------------ ------------ -----------
39,123,280 37,675,708 37,523,476
------------ ------------ -----------
Earnings before income taxes 47,808,376 39,411,797 26,054,010
Income taxes (Note G) 13,763,000 12,829,000 9,398,000
------------ ------------ -----------
Net earnings $ 34,045,376 $ 26,582,797 $16,656,010
============ ============ ===========
Earnings per share:(1)
Basic $ 0.82 $ 0.65 $ 0.41
Diluted $ 0.80 $ 0.63 $ 0.40
Weighted average common
shares outstanding:(1)
Basic 41,438,670 40,625,482 40,234,734
Diluted 42,668,236 42,206,042 41,373,350
(1) All earnings per share and share amounts for the periods presented have
been restated for the two-for-one stock split declared on November 9,
2000 and paid December 1, 2000.
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
TECHNE CORPORATION AND SUBSIDIARIES
JUNE 30,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 21,267,791 $ 17,356,108
Short-term available-for-sale
investments (Note A) 75,804,077 42,468,183
Trade accounts receivable, less
allowance for doubtful accounts
of $126,000 and $162,000, respectively 15,894,048 14,056,481
Interest receivable 2,428,240 1,544,387
Inventories (Note B) 5,437,594 4,651,615
Deferred income taxes (Note G) 2,720,000 2,440,000
Prepaid expenses 639,759 494,117
Income taxes receivable -- 3,290,314
------------ ------------
Total current assets 124,191,509 86,301,205
Property and equipment (Note C) 49,193,972 46,266,177
Intangible assets (Note A) 27,446,246 36,335,500
Deferred income taxes (Note G) 4,128,000 3,938,000
Other long-term assets (Note E) 10,565,386 7,568,699
------------ ------------
$215,525,113 $180,409,581
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 3,477,072 $ 2,630,164
Salaries, wages and related accounts 2,302,553 2,998,696
Other accounts payable and accrued expenses 6,155,189 6,107,979
Income taxes payable 3,071,982 --
Current portion of long-term debt (Note D) 884,760 824,315
------------ ------------
Total current liabilities 15,891,556 12,561,154
Royalty payable 3,923,000 7,768,000
Long-term debt, less current portion (Note D) 18,050,289 18,935,049
Commitments and contingencies (Note E) -- --
Stockholders' equity (Note F):
Undesignated capital stock, no par;
authorized 5,000,000 shares; none
issued or outstanding -- --
Common stock, par value $.01 a share;
authorized 100,000,000 shares;
issued and outstanding 41,432,390 and
41,381,998 shares, respectively 414,324 413,820
Additional paid-in capital 57,382,636 52,857,444
Retained earnings 121,209,686 88,336,230
Accumulated other comprehensive loss (1,346,378) (462,116)
------------ ------------
Total stockholders' equity 177,660,268 141,145,378
------------ ------------
$215,525,113 $180,409,581
============ ============
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TECHNE CORPORATION AND SUBSIDIARIES
ACCUM.
OTHER
COMPRE-
ADDITIONAL HENSIVE
COMMON STOCK PAID-IN RETAINED INCOME
SHARES AMOUNT CAPITAL EARNINGS (LOSS) TOTAL
---------- -------- ----------- ------------ ------------ ------------
Balances at June 30, 1998 38,099,966 $381,000 $13,523,945 $ 49,446,319 $ 479,503 $ 63,830,767
Comprehensive income:
Net earnings -- -- -- 16,656,010 -- 16,656,010
Other comprehensive
income, net of tax:
Foreign currency trans-
lation adjustments -- -- -- -- (426,903) (426,903)
------------
Comprehensive income 16,229,107
Common stock issued:
Exercise of options
(Note F) 427,740 4,277 1,236,040 -- -- 1,240,317
Acquisition 1,974,412 19,744 16,980,256 -- -- 17,000,000
Real estate deposit 200,000 2,000 2,158,830 -- -- 2,160,830
Surrender and retirement
of stock to exercise
options (Note J) (9,608) (96) 48 (103,636) -- (103,684)
Repurchase and retirement
of common stock (427,200) (4,272) 2,136 (3,939,814) -- (3,941,950)
Tax benefit from exercise
of stock options -- -- 423,000 -- -- 423,000
---------- -------- ----------- ----------- ------------ ------------
Balances at June 30, 1999 40,265,310 402,653 34,324,255 62,058,879 52,600 96,838,387
Comprehensive income:
Net earnings -- -- -- 26,582,797 -- 26,582,797
Other comprehensive
income, net of tax:
Foreign currency trans-
lation adjustments -- -- -- -- (514,716) (514,716)
------------
Comprehensive income 26,068,081
Common stock issued:
Exercise of options
(Note F) 1,129,630 11,296 6,765,125 -- -- 6,776,421
Fair value of warrants
issued (Note F) -- -- 858,000 -- -- 858,000
Surrender and retirement
of stock to exercise
options (Note J) (12,942) (129) 64 (305,446) -- (305,511)
Tax benefit from exercise
of stock options -- -- 10,910,000 -- -- 10,910,000
---------- -------- ----------- ------------ ------------ ------------
Balances at June 30, 2000 41,381,998 413,820 52,857,444 88,336,230 (462,116) 141,145,378
Comprehensive income:
Net earnings -- -- -- 34,045,376 -- 34,045,376
Other comprehensive
income, net of tax:
Foreign currency trans-
lation adjustments -- -- -- -- (884,262) (884,262)
------------
Comprehensive income 33,161,114
Common stock issued:
Exercise of options
(Note F) 90,616 906 822,540 -- -- 823,446
Surrender and retirement
of stock to exercise
options (Note J) (224) (2) -- (8,552) -- (8,554)
Repurchase and retirement
of common stock (40,000) (400) -- (1,163,368) -- (1,163,768)
Sale of stock by equity
method investee (Note A) -- -- 3,387,652 -- -- 3,387,652
Tax benefit from exercise
of stock options -- -- 315,000 -- -- 315,000
---------- -------- ----------- ------------ ------------ ------------
Balances at June 30, 2001 41,432,390 $414,324 $57,382,636 $121,209,686 $ (1,346,378) $177,660,268
========== ======== =========== ============ ============ ============
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE J)
TECHNE CORPORATION AND SUBSIDIARIES
YEAR ENDED JUNE 30,
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 34,045,376 $ 26,582,797 $ 16,656,010
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 12,737,448 12,651,350 11,890,384
Deferred income taxes (508,000) (1,157,000) (1,902,000)
Deferred rent -- -- 308,400
Other 919,722 (404,042) 2,081,435
Change in current assets and
current liabilities, net of
acquisition:
(Increase) decrease in:
Trade accounts and
interest receivable (3,036,047) (2,141,023) (3,764,422)
Inventories (846,902) 986,120 3,754,942
Prepaid expenses (153,452) (9,850) (14,113)
Increase (decrease) in:
Trade and other accounts payable (2,867,638) (2,898,880) (2,434,625)
Salaries, wages and related
accounts (680,839) 695,184 314,777
Income taxes payable/receivable 6,762,043 4,434,747 1,531,071
------------ ------------ ------------
Total adjustments 12,326,335 12,156,606 11,765,849
------------ ------------ ------------
Net cash provided by
operating activities 46,371,711 38,739,403 28,421,859
Cash flows from investing activities:
Acquisition -- -- (24,989,542)
Real estate deposits -- (2,001,000) (4,000,000)
Additions to property and equipment (6,814,953) (30,367,862 (5,564,033)
Purchase of short-term
available-for-sale investments (57,177,268) (39,569,406) (15,025,991)
Proceeds from sale of short-term
available-for-sale investments 23,841,374 13,445,879 14,003,270
Increase in other long-term assets (500,000) (1,552,160) (3,060,826)
------------ ------------ ------------
Net cash used in
investing activities (40,650,847) (60,044,549) (38,637,122)
Cash flows from financing activities:
Issuance of common stock 814,892 6,470,910 1,136,633
Repurchase of common stock (1,163,768) -- (3,941,950)
Proceeds from issuance of
long-term debt -- 20,400,000 --
Payments on long-term debt (824,315) (640,636) --
------------ ------------ ------------
Net cash (used in) provided
by financing activities (1,173,191) 26,230,274 (2,805,317)
Effect of exchange rate changes
on cash and cash equivalents (635,990) (338,488) (323,559)
------------ ------------ -----------
Net increase (decrease) in
cash and cash equivalents 3,911,683 4,586,640 (13,344,139)
Cash and cash equivalents
at beginning of year 17,356,108 12,769,468 26,113,607
------------ ------------ ------------
Cash and cash equivalents
at end of year $ 21,267,791 $ 17,356,108 $ 12,769,468
============ ============ ============
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TECHNE CORPORATION AND SUBSIDIARIES
Years Ended June 30, 2001, 2000 and 1999
A. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS: Techne Corporation and Subsidiaries (the Company) are
engaged domestically in the development and manufacture of biotechnology
products and hematology calibrators and controls. These activities are
primarily conducted through its wholly owned subsidiary, Research and
Diagnostic (R&D) Systems, Inc. Through its wholly owned English subsidiary,
R&D Systems Europe Ltd., the Company distributes biotechnology products
throughout Europe. R&D Systems Europe Ltd. has a sales subsidiary, R&D
Systems GmbH, in Germany. The Company also has a foreign sales corporation,
Techne Export Inc.
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 and 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. Actual
results could differ from those estimates.
RISKS AND UNCERTAINTIES: There are no concentrations of business transacted
with a particular customer or supplier nor 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 material
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 foreign statements of earnings are translated at the average rate of
exchange for the year. Gains and losses resulting from translating foreign
currency financial statements are not included in operations but are
accumulated in other comprehensive income. Foreign currency transaction gains
and losses are included in operations.
REVENUE RECOGNITION: The Company recognizes revenues upon shipment of products.
Revenues are reduced to reflect estimated returns. Freight charges to
customers are included in net sales and freight costs are included in cost of
sales in accordance with Emerging Issues Task Force No. 00-10, "ACCOUNTING FOR
SHIPPING AND HANDLING FEES AND COSTS."
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.
EARNINGS PER SHARE: The number of shares used to calculate earnings per share
are as follows:
YEAR ENDED JUNE 30,
2001 2000 1999
---------- ---------- ----------
Weighted average common
shares outstanding (basic) 41,438,670 40,625,482 40,234,734
Dilutive stock options
and warrants outstanding 1,229,566 1,580,560 1,138,616
---------- ---------- ----------
Weighted average common shares
outstanding (diluted) 42,668,236 42,206,042 41,373,350
========== ========== ==========
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand and
highly liquid investments with original maturities less than three months.
SHORT-TERM INVESTMENTS: Short-term investments consist of tax-exempt bonds
with original maturities of generally three months to three years.
The Company reports marketable securities at fair market value. Unrealized
gains and losses on available-for-sale securities are excluded from income,
but are included in other comprehensive income. The Company considers all of
its marketable securities available-for-sale. Fair market values are based
on quoted market prices.
Proceeds from sales of available-for-sale securities were $23,841,374,
$13,445,879 and $14,003,270 during fiscal 2001, 2000 and 1999, respectively.
There were no material gross realized gains or losses on these sales.
Realized gains and losses are determined on the specific identification
method. Unrealized gains and losses at June 30, 2001, 2000 and 1999 were
not material.
INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
DEPRECIATION AND AMORTIZATION: Equipment is being depreciated using the
straight-line method over an estimated useful life of five years. Buildings,
building improvements and leasehold improvements are being amortized over
estimated useful lives of five to forty years.
INTANGIBLES: Intangible assets, related to the acquisition of Genzyme
Corporation's research products business in fiscal 1999 and Amgen Inc.'s
research reagent and diagnostic kit business in fiscal 1992 are being
amortized on a straight-line basis over the estimated useful lives and
consist of the following:
JUNE 30,
USEFUL LIFE 2001 2000
----------- ----------- -----------
Customer list 10 years $18,010,000 $18,010,000
Technology licensing agreements 16 years 500,000 500,000
Goodwill 6 years 39,075,089 39,075,089
----------- -----------
57,585,089 57,585,089
Less accumulated amortization 30,138,843 21,249,589
----------- -----------
$27,446,246 $36,335,500
=========== ===========
IMPAIRMENT OF LONG-LIVED ASSETS: Management periodically reviews the carrying
value of long-term assets based on the estimated undiscounted future cash
flows expected to result from the use of these assets. Should the sum of the
expected future net cash flows be less than the carrying value, an impairment
loss would be recognized. An impairment loss would be measured by the amount
by which the carrying value of the asset exceeds the fair value of the asset
based on discounted estimated future cash flows. To date, management has
determined that no impairment exists.
INVESTMENTS: The Company's accounting policy is to recognize gains arising
from issuances of stock by subsidiaries or equity method investees as a
component of stockholders' equity for all issuances that meet the conditions
of SEC Staff Accounting Bulletin (SAB) No. 51., "ACCOUNTING FOR THE SALE OF
STOCK BY A SUBSIDIARY."
The Company has an interest in the issued and outstanding voting shares of
ChemoCentryx, Inc. (CCX), a technology and drug development company. The
Company accounts for this investment under the equity method of accounting
and through January 2001 had a 49% interest in CCX. Through January 2001, the
Company included 100% of the operating results of CCX in its consolidated
financial statements due to the limited amount of cash consideration provided
by the holders of the common shares of CCX. In February 2001, CCX obtained
$23 million in financing through the issuance of 8,846,154 shares of preferred
stock. The Company currently holds approximately 26% of the outstanding
voting stock of CCX and is including CCX operating results in its consolidated
financial statements based on its ownership percentage. The Company's net
investment in CCX was $6,441,481 and $3,553,516 at June 30, 2001 and 2000,
respectively.
STOCK OPTIONS: As permitted by SFAS No. 123, the Company has elected to
continue following the guidance of Accounting Principles Board (APB) Opinion
No. 25 for measurement and recognition of stock-based transactions with
employees. No compensation cost has been recognized for stock options granted
to employees under the plans because the exercise price of all options
granted was at least equal to the fair value of the common stock at the date
of grant.
RECLASSIFICATIONS: Certain reclassifications have been made to prior years'
consolidated financial statements to conform to the current year presentation.
These reclassifications had no impact on net earnings or stockholders' equity
as previously reported.
NEW ACCOUNTING PRONOUNCEMENTS: In December 1999, the Securities and Exchange
Commission issued SAB No. 101, "REVENUE RECOGNITION IN FINANCIAL STATEMENTS,"
which provides guidance in applying generally accepted accounting principles
to revenue recognition in financial statements. The application of this SAB
did not have a material impact on the Company's operating results or financial
position.
On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES", as amended by SFAS No. 138, "ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that all derivatives, including those embedded in
other contracts, be recognized as either assets or liabilities and that those
financial instruments be measured at fair value. The accounting for changes
in the fair value of derivatives depends on their intended use and designation.
Management has reviewed the requirements of SFAS No. 133 and has determined
that they have no free-standing or embedded derivatives. All contracts that
contain provisions meeting the definition of a derivative also meet the
requirements of, and have been designated as, normal purchases or sales. The
Company's policy is to not use free-standing derivatives and to not enter
into contracts with terms that cannot be designated as normal purchases or
sales.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"BUSINESS COMBINATIONS" and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE
ASSETS". SFAS No. 141 applies to all business combinations initiated after
June 30, 2001 and prohibits the use of the pooling-of-interests method of
accounting. There are also transition provisions provided that apply to
business combinations completed before July 1, 2001 that were accounted for
using the purchase method. Under SFAS No. 142, goodwill as well as other
intangibles determined to have an infinite life will no longer be amortized;
however, these assets will be reviewed for impairment on a periodic basis.
SFAS No. 142 also includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reclassification of certain
intangibles out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairments of
goodwill. The Company plans to adopt SFAS No. 142 on July 1, 2002. The Company
is currently assessing, but has not yet determined, the impact of these
statements on its financial position and results of operations. As of June 30,
2001, the Company had net goodwill and other intangibles assets of approximately
$18.8 million and $8.6 million, respectively. Amortization expense recorded
during fiscal 2001, 2000, and 1999 was approximately $8.9 million, $9.2 million
and $9.6 million, respectively.
B. INVENTORIES:
Inventories consist of:
JUNE 30,
2001 2000
---------- ----------
Raw materials $2,552,179 $2,288,719
Finished goods 2,749,820 2,238,164
Supplies 135,595 124,732
---------- ----------
$5,437,594 $4,651,615
========== ==========
C. PROPERTY AND EQUIPMENT:
Property and equipment consist of:
JUNE 30,
2001 2000
----------- -----------
Cost:
Land $ 871,000 $ 871,000
Buildings and improvements 48,906,991 43,965,312
Laboratory equipment 15,023,754 14,114,039
Office and computer equipment 3,833,730 3,535,164
Leasehold improvements 459,191 180,770
----------- -----------
69,094,666 62,666,285
Less accumulated depreciation
and amortization 19,900,694 16,400,108
----------- -----------
$49,193,972 $46,266,177
=========== ===========
D. DEBT:
The Company's short-term line of credit facility consists of an unsecured
line of credit of $750,000 at June 30, 2001. The interest rate charged on the
line of credit is at the prime rate of 6.75% at June 30, 2001. There were no
borrowings on the line outstanding as of June 30, 2001 and 2000.
Long-term debt consists of:
JUNE 30,
2001 2000
----------- -----------
Mortgage note, payable in monthly
installments of $183,631
including interest $18,935,049 $19,759,364
Less current portion 884,760 824,315
----------- -----------
$18,050,289 $18,935,049
=========== ===========
The interest rate on the mortgage note is fixed at 7% for the first seven years
and is thereafter adjusted based on U.S. Treasury rates.
Principal maturities of long-term debt as of June 30, 2001 are as follows:
YEAR ENDING JUNE 30:
---------------------
2002 $ 884,760
2003 949,637
2004 1,016,017
2005 1,093,772
2006 1,173,975
Thereafter 13,816,888
-----------
$18,935,049
===========
E. COMMITMENTS AND CONTINGENCIES:
The Company leases buildings, vehicles and various data processing, office
and laboratory equipment under operating leases. These leases provide for
renewal or purchase options during or at the end of the lease periods. At June
30, 2001, aggregate net minimum rental commitments under noncancelable leases
having an initial or remaining term of more than one year are payable as
follows:
YEAR ENDING JUNE 30:
---------------------
2002 $ 425,990
2003 408,373
2004 399,361
2005 389,445
2006 388,537
Thereafter 3,612,468
----------
$5,624,174
==========
Total rent expense was approximately $337,000, $305,000 and $2,587,000 for
the years ended June 30, 2001, 2000 and 1999, respectively.
In fiscal 1999, the Company entered into two option agreements for real estate
adjacent to its R&D Systems' facility. The purchase price for the property
under the first option is $7,951,000 and six-year warrants to purchase 120,000
shares of the Company's common stock at $11.89 per share. This purchase option
expires on November 15, 2001. On July 1, 1999, the Company paid $2 million cash
and issued the warrants as a nonrefundable deposit on the option purchase price.
The fair market value of the warrants was $858,000. The deposit is included in
other long-term assets at June 30, 2001 and 2000.
The purchase price for the property under the second option is $7 million plus
capital improvement costs. This option expires on January 1, 2005 and requires
a nonrefundable deposit of $2 million. A deposit of $1,000 was made on this
option in fiscal 2000 with the remainder of the deposit due on the earlier of
January 15, 2002 or sixty days after exercise of the first option.
A party has presented invoices in the amount of $28 million for materials
provided to the Company over past years, allegedly pursuant to a contract under
which no accounting or invoices were rendered for nine years. The Company has
brought a declaratory judgement action seeking to have the court declare that
no amount is owed. The party filed a counterclaim seeking the $28 million plus
interest and attorney's fees. The Company's management believes that no
material amount is owed, that it has strong defenses against the other party's
claims, and that the ultimate resolution of the matter will not adversely
impair the operations of the Company or its financial condition.
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 operations of the Company.
F. STOCKHOLDERS' EQUITY:
STOCK SPLIT: On November 9, 2000, the Company declared a two-for-one stock
split in the form of a 100% stock dividend payable to shareholders of record on
November 24, 2000. All earnings per share and share amounts for the periods
presented have been restated to reflect the stock split.
STOCK OPTION PLANS: The Company has stock option plans which provide for the
granting of stock options to employees (the TECHNE Corporation 1997 and 1987
Incentive Stock Option Plans) and to employees, officers, directors and
consultants (the TECHNE Corporation 1998 and 1988 Nonqualified Stock Option
Plans). The plans are administered by the Board of Directors, or a committee
designated by the Board, which determines 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 option. The maximum term of options granted under all
plans is ten years. The number of shares of common stock authorized to be
issued is 3,200,000, 3,200,000, 1,600,000 and 2,000,000 under the TECHNE
Corporation 1997 Incentive Stock Option Plan, the TECHNE Corporation 1987
Incentive Stock Option Plan, the TECHNE Corporation 1998 Nonqualified Stock
Option Plan and the TECHNE Corporation 1988 Nonqualified Stock Option Plan,
respectively.
Stock option activity during the three years ended June 30, 2001 consists of
the following:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- ----------------
Outstanding at June 30, 1998 2,510,116 $ 4.71
Granted 233,290 8.55
Exercised (427,740) 2.90
----------
Outstanding at June 30, 1999 2,315,666 5.43
Granted 231,304 17.93
Exercised (1,129,630) 6.00
----------
Outstanding at June 30, 2000 1,417,340 7.02
Granted 593,098 38.23
Canceled (15,348) 37.44
Exercised (90,616) 9.09
----------
Outstanding at June 30, 2001 1,904,474 16.40
==========
Options exercisable at June 30:
1999 1,871,666 5.43
2000 1,298,338 6.55
2001 1,804,328 15.76
Currently outstanding and exercisable stock options at June 30, 2001 consist
of the following:
OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED AVG.
CONTRACTUAL WEIGHTED AVG.
EXERCISE PRICES OUTSTANDING LIFE (YRS.) EXERCISE PRICE
--------------- ----------- ------------- --------------
$ 2.69-10.00 1,128,574 3.92 $ 5.05
10.01-20.00 205,498 6.92 18.02
36.50 508,972 6.08 36.50
50.00-65.00 61,430 9.25 52.94
---------
1,904,474 5.00 16.40
=========
OPTIONS EXERCISABLE
-----------------------------
WEIGHTED AVG.
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
--------------- ----------- --------------
$ 2.69-10.00 1,128,574 $ 5.05
10.01-20.00 163,830 18.57
36.50 450,494 36.50
50.00-65.00 61,430 52.94
---------
1,804,328 15.76
=========
If compensation cost for employee options granted under the Company's stock
option plans had been determined based on the fair value at the grant dates,
consistent with the methods provided in SFAS No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," the Company's net earnings and earnings per share
would have been as follows:
YEAR ENDED JUNE 30,
2001 2000 1999
----------- ----------- -----------
Net earnings:
As reported $34,045,376 $26,582,797 $16,656,010
Pro forma 16,624,096 24,817,402 15,071,990
Basic earnings per share:
As reported $ 0.82 $ 0.65 $ 0.41
Pro forma 0.40 0.61 0.37
Diluted earnings per share:
As reported $ 0.80 $ 0.63 $ 0.40
Pro forma 0.39 0.59 0.36
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: no dividend yield, expected volatility
of between 35% and 99%, risk-free interest rates between 4.6% and 6.4% and
expected lives between 7 and 10 years.
WARRANTS: In fiscal 2000, the Company issued warrants to purchase 120,000
shares of the Company's common stock at $11.89 per share as a nonrefundable
deposit on an option to purchase property adjacent to its R&D Systems'
facility. The fair market value of the warrants was $858,000.
G. INCOME TAXES:
The provisions for income taxes consist of the following:
YEAR ENDED JUNE 30,
2001 2000 1999
----------- ----------- -----------
Earnings before income
taxes consist of:
Domestic $42,480,134 $34,354,428 $21,801,526
Foreign 5,328,242 5,057,369 4,252,484
----------- ----------- -----------
$47,808,376 $39,411,797 $26,054,010
=========== =========== ===========
Taxes (benefits) on
income consist of:
Currently payable:
Federal $13,578,000 $ 1,358,000 $ 9,122,000
State (1,173,000) 305,000 355,000
Foreign 1,513,000 1,396,000 1,355,000
Tax benefit from exercise
of stock options 315,000 10,910,000 423,000
Net deferred (470,000) (1,140,000) (1,857,000)
----------- ----------- -----------
$13,763,000 $12,829,000 $ 9,398,000
=========== =========== ===========
The following is a reconciliation of the federal tax calculated at the
statutory rate of 35% to the actual income taxes provided:
YEAR ENDED JUNE 30,
2001 2000 1999
----------- ----------- -----------
Computed expected federal
income tax expense $16,733,000 $13,794,000 $ 9,119,000
State income taxes, net
of federal benefit (1,138,000) 335,000 377,000
Foreign sales corporation (697,000) (566,000) (444,000)
Research and development
credits (563,000) (605,000) (334,000)
Tax-exempt interest (887,000) (318,000) (165,000)
Other 315,000 189,000 845,000
----------- ----------- -----------
$13,763,000 $12,829,000 $ 9,398,000
=========== =========== ===========
State income taxes for the year ended June 30, 2001 were affected by a one-
time $1.2 million credit as a result of the close-out of pending issues related
to a state income tax examination for fiscal years 1996 through 1999.
Deferred income taxes are provided to record the income tax effect of temporary
differences between the tax basis and financial reporting basis of assets and
liabilities. Temporary differences comprising deferred taxes on the
consolidated balance sheets are as follows:
JUNE 30,
2001 2000
----------- -----------
Inventory $ 1,564,000 $ 1,335,000
Inventory costs capitalized 735,000 619,000
Foreign net operating loss carryforward -- 81,000
Unrealized profit on intercompany sales 306,000 293,000
Other 115,000 112,000
----------- -----------
Current asset 2,720,000 2,440,000
Excess of book over tax intangible
asset amortization 3,491,000 2,613,000
Excess of book over tax research expense 361,000 382,000
Excess of book over tax depreciation 503,000 870,000
Other (227,000) 73,000
----------- -----------
Noncurrent asset 4,128,000 3,938,000
----------- -----------
$ 6,848,000 $ 6,378,000
=========== ===========
The Company's tax returns are subject to audit by various governmental entities
in the normal course of business. The Company does not believe that such audits
will have a material impact on the Company's financial position or results of
operations.
H. SEGMENT INFORMATION:
The Company has three reportable operating segments based on the nature of
products and geographic location: Hematology Division, Biotechnology Division
and R&D Systems Europe. The Hematology Division develops and manufactures
hematology controls and calibrators for sale world-wide. The Biotechnology
Division develops and manufactures biotechnology research and diagnostic
products for sale world-wide. R&D Systems Europe distributes Biotechnology
Division products throughout Europe. No customer accounted for more than 10% of
the Company's revenues for the years ended June 30, 2001, 2000 and 1999.
The accounting policies of the segments are the same as those described in Note
A. In evaluating segment performance, management focuses on sales and income
before taxes. Sales between segments are made at prices which would approximate
transfers to unaffiliated distributors.
Following is financial information relating to the operating segments:
YEAR ENDED JUNE 30,
2001 2000 1999
------------ ------------ ------------
External sales
Hematology $ 14,710,464 $ 13,575,463 $ 12,673,544
Biotechnology 73,656,405 64,230,320 54,960,816
R&D Systems Europe 26,989,693 26,032,372 23,266,337
------------ ------------ ------------
Total external sales $115,356,562 $103,838,155 $ 90,900,697
============ ============ ============
Intersegment sales
Hematology $ -- $ -- $ --
Biotechnology 15,010,487 13,422,813 11,578,230
R&D Systems Europe 77,237 135,106 187,054
------------ ------------ ------------
Total intersegment sales $ 15,087,724 $ 13,557,919 $ 11,765,284
============ ============ ============
Earnings before taxes
Hematology $ 5,057,119 $ 4,483,839 $ 3,706,460
Biotechnology 39,766,406 31,223,230 20,419,385
R&D Systems Europe 5,328,242 5,057,369 4,252,484
Corporate and other (2,343,391) (1,352,641) (2,324,319)
------------ ------------ ------------
Total earnings before taxes $ 47,808,376 $ 39,411,797 $ 26,054,010
============ ============ ============
Interest income
Hematology $ 508,149 $ 322,166 $ 289,105
Biotechnology 2,032,596 751,720 313,373
R&D Systems Europe 552,245 376,405 213,589
Corporate and other 290,708 57,963 106,118
------------ ------------ ------------
Total interest income $ 3,383,698 $ 1,508,254 $ 922,185
============ ============ ============
Depreciation and amortization
Hematology $ 239,909 $ 187,077 $ 170,105
Biotechnology 11,028,893 11,135,442 11,109,795
R&D Systems Europe 174,940 221,272 239,277
Corporate and other 1,293,706 1,107,559 371,207
------------ ------------ ------------
Total depreciation and
amortization $ 12,737,448 $ 12,651,350 $ 11,890,384
============ ============ ============
Capital purchases
Hematology $ 313,936 $ 437,057 $ 174,844
Biotechnology 3,472,146 4,122,418 3,940,127
R&D Systems Europe 655,430 150,471 287,413
Corporate and other 2,373,441 25,657,916 1,161,649
------------ ------------ ------------
Total capital purchases $ 6,814,953 $ 30,367,862 $ 5,564,033
============ ============ ============
Corporate and other reconciling items include the results of unallocated
corporate expenses and assets, the elimination of profit on intersegment sales
and the operations of the Company's equity investment in ChemoCentryx, Inc.
Following is financial information relating to geographic areas:
YEAR ENDED JUNE 30,
2001 2000 1999
------------ ------------ ------------
External sales
United States $ 71,018,421 $ 62,927,628 $ 54,261,592
Other areas 44,338,141 40,910,527 36,639,105
------------ ------------ ------------
Total external sales $115,356,562 $103,838,155 $ 90,900,697
============ ============ ============
Long-lived assets
United States $ 51,404,348 $ 48,928,147 $ 20,923,992
Other areas 815,851 374,325 462,898
------------ ------------ ------------
Total long-lived assets $ 52,220,199 $ 49,302,472 $ 21,386,890
============ ============ ============
External sales are attributed to countries based on the location of the
customer/distributor. Long-lived assets are comprised of land, buildings and
improvements, equipment and deposits on real estate.
I. BENEFIT PLANS:
PROFIT SHARING PLAN: The Company has a Profit Sharing and Savings Plan for
non-union U.S. employees, which conforms 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 plan
of $810,000, $787,500 and $651,000 for the years ended June 30, 2001, 2000
and 1999, respectively.
STOCK BONUS PLANS: The Company also has Stock Bonus Plans covering non-union
employees. The Company may make contributions to the 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, 2001, 2000 and 1999 and
operations have been charged $851,000, $832,000 and $684,000, respectively.
PERFORMANCE INCENTIVE PROGRAM: Under certain employment agreements with
executive officers, the Company recorded bonuses of $101,000, $126,000 and
$80,000 for the years ended June 30, 2001, 2000 and 1999, respectively. In
addition, options for 1,938, 6,304 and 8,290 shares of common stock were
granted to the executive officers during fiscal 2001, 2000 and 1999,
respectively.
J. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES:
The Company paid and received cash for the following items:
YEAR ENDED JUNE 30,
2001 2000 1999
----------- ----------- -----------
Income taxes paid $ 7,508,196 $ 9,561,485 $ 9,763,600
Interest paid 1,386,085 1,326,009 --
Interest received 3,748,696 1,626,260 1,019,630
Noncash transactions during the years ended June 30, 2001, 2000 and 1999
consisted of:
In fiscal 2001, stock options for 1,000 shares of common stock were exercised
by surrender of 224 shares of common stock at fair market value of $8,554. In
fiscal 2000, stock options for 77,584 shares of common stock were exercised by
surrender of 12,942 shares of common stock at fair market value of $305,511.
In fiscal 1999, stock options for 42,036 shares of common stock were exercised
by surrender of 9,608 shares of common stock at fair market value of $103,684.
K. SUBSEQUENT EVENT:
On August 2, 2001, the Company made an equity investment of $3 million and
entered into a research and license agreement with Discovery Genomics, Inc.
(DGI) of Minneapolis, Minnesota. DGI was recently organized and holds licenses
from the University of Minnesota to develop technologies used for functional
genomics and the discovery of druggable targets. The Company acquired a 39%
equity interest in DGI and warrants to acquire additional equity. The Company
also received the rights to develop antibodies and immunoassay kits for
proteins discovered by DGI and an exclusive, royalty free license to sell such
products in the research market. The Company's investment in DGI will be
accounted for under the equity method of accounting.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
TECHNE Corporation and Subsidiaries
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of TECHNE
Corporation and Subsidiaries (the Company) as of June 30, 2001 and 2000, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of TECHNE Corporation
and Subsidiaries at June 30, 2001 and 2000 and the results of their operations
and cash flows for each of the three years in the period ended June 30, 2001,
in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
August 14, 2001
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Other than "Executive Officers of the Company" which is set forth at the end
of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the sections entitled "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's proxy statement for its 2001 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the section entitled "Executive Compensation" in the Company's proxy
statement for its 2001 Annual Meeting of Shareholders which will be filed
with the Securities and Exchange Commission pursuant to Regulation 14A within
120 days after the close of the fiscal year for which this report is filed.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
sections entitled "Principal Shareholders" and "Management Shareholdings" in
the Company's proxy statement for its 2001 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
A. (1) List of Financial Statements.
The following Consolidated Financial Statements are filed as part
of this Report:
Consolidated Statements of Earnings for the Years Ended
June 30, 2001, 2000 and 1999
Consolidated Balance Sheets as of June 30, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2001, 2000 and 1999
Notes to Consolidated Financial Statements for the Years
Ended June 30, 2001, 2000 and 1999
Independent Auditors' Report
(2) Financial Statement Schedules.
None.
(3) Exhibits.
See Exhibit Index immediately following signature page.
B. Reports on Form 8-K:
No report on Form 8-K was filed during the quarter ended June 30, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
Date: September 27, 2001 Thomas E. Oland
--------------------------------
By: Thomas E. Oland
Its: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date Signature and Title
---- -------------------
September 27, 2001 Thomas E. Oland
--------------------------------
Thomas E. Oland
President, Treasurer and Director
(principal executive officer and
principal financial and accounting
officer)
September 27, 2001 Roger C. Lucas, Ph.D.
-----------------------------------
Dr. Roger C. Lucas, Director
September 27, 2001 Howard V. O'Connell
-----------------------------------
Howard V. O'Connell, Director
September 27, 2001 G. Arthur Herbert
-----------------------------------
G. Arthur Herbert, Director
September 27, 2001 Randolph C. Steer, Ph.D., M.D.
-----------------------------------
Dr. Randolph C. Steer, Director
September 27, 2001 Lowell E. Sears
-----------------------------------
Lowell E. Sears, Director
September 27, 2001 Christopher S. Henney, Ph.D., D.Sc.
-----------------------------------
Dr. Christopher S. Henney, Director
September 27, 2001 Timothy M. Heaney
-----------------------------------
Timothy M. Heaney, Director
EXHIBIT INDEX
for Form 10-K for the 2001 Fiscal Year
Exhibit
Number Description
------- -----------
3.1 Restated Articles of Incorporation of Company, as amended to date
--incorporated by reference to Exhibit 3.1 of the Company's Form
10-Q for the quarter ended September 30, 2000*
3.2 Restated Bylaws, as amended to date--incorporated by reference to
Exhibit 3.2 of the Company's Form 10, dated October 27, 1988*
10.1 Employee Agreement with Respect to Inventions, Proprietary
Information, and Unfair Competition with Thomas E. Oland--
incorporated by reference to Exhibit 10.2 of the Company's Form
10, dated October 27, 1988*
10.2** Company's Profit Sharing Plan--incorporated by reference to
Exhibit 10.6 of the Company's Form 10, dated October 27, 1988*
10.3** Company's Stock Bonus Plan--incorporated by reference to Exhibit
10.7 of the Company's Form 10, dated October 27, 1988*
10.4** 1987 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.14 of the Company's Form 10, dated October 27, 1988*
10.5 Form of Stock Option Agreement for 1987 Incentive Stock Option
Plan--incorporated by reference to Exhibit 10.15 of the Company's
Form 10, dated October 27, 1988*
10.6** 1988 Nonqualified Stock Option Plan--incorporated by reference to
Exhibit 10.16 of the Company's Form 10, dated October 27, 1988*
10.7 Form of Stock Option Agreement for Nonqualified Stock Option Plan
incorporated by reference to Exhibit 10.17 of the Company's Form
10, dated October 27, 1988*
10.8 International Distributor Agreement dated October 1, 1991 between
Research and Diagnostic Systems, Inc. and Hycel, S.A.--
incorporated by reference to Exhibit 28.2 of the Company's Form
8-K dated September 30, 1991, as amended by Forms 8 dated
November 1, 1991 and November 25, 1991*
10.9** Employment Agreement, dated March 6, 1996, with Monica Tsang--
incorporated by reference to Exhibit 10.25 of the Company's Form
10-K for the year ended June 30, 1996*
10.10** 1997 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.24 of the Company's Form 10-K for the year ended June
30, 1997*
10.11 Form of Stock Option Agreement for 1997 Incentive Stock Option Plan
--incorporated by reference to Exhibit 10.25 of the Company's Form
10-K for the year ended June 30, 1997*
10.12 Investment Agreement between ChemoCentryx, Inc. and Techne
Corporation dated November 18, 1997--incorporated by reference to
Exhibit 10.1 of the Company's Form 10-Q for the quarter ended
December 31, 1997*
10.13 Purchase and Sale Agreement dated as of June 22, 1998 among Techne
Corporation, Research and Diagnostic Systems, Inc. and Genzyme
Corporation--incorporated by reference to Exhibit 2.1 of the
Company's Form 8-K dated July 1, 1998, as amended by Form 8-K/A
dated September 14, 1998*
10.14** 1998 Nonqualified Stock Option Plan--incorporated by reference to
Exhibit 10.1 of the Company's Form 10-Q for the quarter ended
September 30, 1998*
10.15 Form of Stock Option Agreement for 1998 Nonqualified Stock Option
Plan--incorporated by reference to Exhibit 10.2 of the Company's
Form 10-Q for the quarter ended September 30, 1998*
10.16 Purchase Agreement dated January 22, 1999, between R&D Systems, Inc.
and Hillcrest Development, relating to the purchase of property
as 614 and 640 McKinley Place NE and 2201 Kennedy Street in
Minneapolis, Minnesota and First amendment dated February 5,
1999--incorporated by reference to Exhibit 10.1 of the Company's
Form 10-Q for the quarter ended December 31, 1998*
10.17** Extension, dated March 31, 1999, to Employment Agreement with Monica
Tsang, Ph.D.--incorporated by reference to Exhibit 10.2 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.18** Extension, dated March 31, 1999, to Employment Agreement with Marcel
Veronneau--incorporated by reference to Exhibit 10.3 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.19 Second Amendment, dated February 2, 1999, to Purchase Agreement
dated January 22, 1999 between R&D Systems, Inc. and Hillcrest
Development--incorporated by reference to Exhibit 10.4 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.20 Third Amendment, dated April 3, 1999, to Purchase Agreement dated
January 22, 1999 between R&D Systems, Inc. and Hillcrest
Development--incorporated by reference to Exhibit 10.5 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.21 Phase I Option Agreement, dated February 10, 1999, between R&D
Systems, Inc. and Hillcrest Development and form of Purchase
Agreement relating to the purchase of property at 2101 Kennedy
Street in Minneapolis, Minnesota-- incorporated by reference to
Exhibit 10.6 of the Company's Form 10-Q for the quarter ended
March 31, 1999*
10.22 First Amendment, dated April 10, 1999, to Phase I Option Agreement
dated February 10, 1999-- incorporated by reference to Exhibit
10.7 of the Company's Form 10-Q for the quarter ended March 31,
1999*
10.23 Phase II Option Agreement, dated February 10, 1999, between R&D
Systems, Inc. and Hillcrest Development and form of Purchase
Agreement relating to the purchase of property at 2001 Kennedy
Street in Minneapolis, Minnesota-- incorporated by reference to
Exhibit 10.8 of the Company's Form 10-Q for the quarter ended
March 31, 1999*
10.24 Second Amendment, dated June 9, 1999, to Phase I Option Agreement
dated February 10, 1999-- incorporated by reference to Exhibit
10.33 of the Company's Form 10-K for the year ended June 30,
1999*
10.25 Second Amendment, dated June 10, 1999, to Phase II Option Agreement
dated February 10, 1999-- incorporated by reference to Exhibit
10.34 of the Company's Form 10-K for the year ended June 30,
1999*
10.26 Warrant to purchase 60,000 shares of Common Stock issued to
Hillcrest Development on July 1, 1999--incorporated by reference
to Exhibit 10.35 of the Company's Form 10-K for the year ended June
30, 1999*
10.27 Combination Mortgage, Security Agreement and Fixture Financing
Statement dated July 1, 1999 between the Company and TCF National
Bank Minnesota (TCF)--incorporated by reference to Exhibit 10.36
of the Company's Form 10-K for the year ended June 30, 1999*
10.28 Promissory Note from the Company to TCF dated July 1, 1999 in the
principal amount of $20,400,000-- incorporated by reference to
Exhibit 10.37 of the Company's Form 10-K for the year ended June
30, 1999*
10.29** Employment Agreement, dated October 1, 1999, with Timothy M. Heaney
--incorporated by reference to Exhibit 10.1 of the Company's Form
10-Q for the quarter ended September 30, 1999*
10.30 Investment Agreement between the Company and Discovery Genomics,
Inc. dated August 2, 2001.
10.31 Research and License Agreement between R&D Systems and Discovery
Genomics, Inc. dated August 2, 2001.
10.32 Investors Rights Agreement dated February 2, 2001 among
ChemoCentryx, Inc., the Company and certain investors amending the
Investment Agreement between ChemoCentryx, Inc. and the Company
dated November 18, 1997.
10.33 Letter Agreement dated February 2, 2001 between ChemoCentryx,
Inc. and the Company amending the terms of warrants held by the
Company.
10.34 Third Amendment, dated October 4, 2000, to Phase I Option
Agreement dated February 10, 1999.
10.35** Extension, dated August 28, 2001, to Employment Agreement with
Monica Tsang, Ph.D.
10.36** Extension, dated August 28, 2001, to Employment Agreement with
Marcel Veronneau.
11 Calculation of Earnings Per Share
21 Subsidiaries of the Company:
State/Country of
Name Incorporation
---- -------------------
Research and Diagnostic Systems, Inc. Minnesota
Techne Export Inc. Barbados
R&D Systems Europe Ltd. Great Britain
R&D Systems GmbH Germany
23 Independent Auditors' Consent
-------------
*Incorporated by reference; SEC File No. 0-17272
**Management contract or compensatory plan or arrangement