SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
614 MCKINLEY PLACE N.E. (612) 379-8854
MINNEAPOLIS, MN 55413 (Registrant's telephone number,
(Address of principal including area code)
executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
At January 29, 2002, 41,510,186 shares of the Company's Common Stock (par
value $.01) were outstanding.
ITEM 1 - FINANCIAL STATEMENTS
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
12/31/01 6/30/01
------------ ------------
ASSETS
Cash and cash equivalents $ 30,083,514 $ 21,267,791
Short-term available-for-sale investments 77,095,648 75,804,077
Trade accounts receivable (net) 14,595,065 15,894,048
Interest receivable 2,812,527 2,428,240
Inventories 5,980,324 5,437,594
Deferred income taxes 2,837,000 2,720,000
Prepaid expenses 764,940 639,759
------------ ------------
Total current assets 134,169,018 124,191,509
Property and equipment (net) 53,377,051 49,193,972
Intangible assets (net) 23,171,623 27,446,246
Deferred income taxes 4,468,000 4,128,000
Other long-term assets 12,853,959 10,565,386
------------ ------------
$228,039,651 $215,525,113
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Trade accounts payable $ 2,621,932 $ 3,477,072
Salaries, wages and related accounts payable 1,897,472 2,302,553
Other accounts payable and accrued expenses 6,386,835 6,155,189
Income taxes payable 2,012,041 3,071,982
Current portion of long-term debt 916,713 884,760
------------ ------------
Total current liabilities 13,834,993 15,891,556
Royalty payable 1,961,500 3,923,000
Long-term debt, less current portion 17,585,587 18,050,289
Commitments and contingencies
Common stock, par value $.01 per share;
authorized 100,000,000; issued and outstand-
ing 41,509,686 and 41,432,390, respectively 415,097 414,324
Additional paid-in capital 57,796,471 57,382,636
Retained earnings 137,359,401 121,209,686
Accumulated other comprehensive loss (913,398) (1,346,378)
------------ ------------
Total stockholders' equity 194,657,571 177,660,268
------------ ------------
$228,039,651 $215,525,113
============ ============
See notes to consolidated financial statements (unaudited).
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
QUARTER ENDED SIX MONTHS ENDED
------------------------- ------------------------
12/31/01 12/31/00 12/31/01 12/31/00
----------- ----------- ----------- -----------
Net sales $31,136,911 $26,688,666 $60,979,577 $54,410,229
Cost of sales 8,028,285 6,766,978 15,576,227 13,571,167
----------- ----------- ----------- -----------
Gross margin 23,108,626 19,921,688 45,403,350 40,839,062
Operating expenses:
Selling, general and
administrative 4,833,875 4,154,722 9,369,792 8,629,248
Research and
development 4,309,273 3,594,500 8,299,007 6,863,209
Amortization of
intangible assets 2,137,311 2,222,313 4,274,623 4,444,627
Interest expense 334,819 350,009 673,524 703,634
Interest income (913,287) (835,366) (1,876,012) (1,520,216)
----------- ----------- ----------- -----------
10,701,991 9,486,178 20,740,934 19,120,502
----------- ----------- ----------- -----------
Earnings before
income taxes 12,406,635 10,435,510 24,662,416 21,718,560
Income taxes 3,972,000 3,453,000 7,803,000 7,233,000
----------- ----------- ----------- -----------
Net earnings $ 8,434,635 $ 6,982,510 $16,859,416 $14,485,560
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.20 $ 0.17 $ 0.41 $ 0.35
Diluted $ 0.20 $ 0.16 $ 0.40 $ 0.34
Weighted average
common shares
outstanding:
Basic 41,486,607 41,457,269 41,461,183 41,436,094
Diluted 42,540,904 42,840,275 42,536,336 42,800,185
See notes to consolidated financial statements (unaudited).
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
---------------------------
12/31/01 12/31/00
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 16,859,416 $ 14,485,560
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 6,269,166 6,274,267
Deferred income taxes (446,000) (258,000)
Other 732,273 552,919
Change in current assets and current
liabilities:
(Increase) decrease in:
Trade accounts and interest receivable 1,037,167 146,581
Inventories (516,417) (212,233)
Prepaid expenses (121,626) (350,821)
Increase (decrease) in:
Trade and other accounts payable (2,722,141) (1,209,832)
Salaries, wages and related accounts (410,695) (989,559)
Income taxes payable (1,067,670) 5,831,027
------------ ------------
Net cash provided by operating activities 19,613,473 24,269,909
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (6,174,608) (2,747,232)
Purchase of short-term available-for-sale
investments (26,214,571) (34,000,954)
Proceeds from sale of short-term available-
for-sale investments 24,923,000 12,538,532
Increase in other long-term assets (3,000,000) (500,000)
------------ ------------
Net cash used in investing activities (10,466,179) (24,709,654)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 155,917 733,142
Repurchase of common stock (485,010) (400,004)
Payments on long-term debt (432,749) (402,978)
------------ ------------
Net cash used in financing activities (761,842) (69,840)
Effect of exchange rate changes on cash 430,271 8,713
------------ ------------
Net increase in cash and cash equivalents 8,815,723 (500,872)
Cash and cash equivalents at beginning of period 21,267,791 17,356,108
------------ ------------
Cash and cash equivalents at end of period $ 30,083,514 $ 16,855,236
============ ============
See notes to consolidated financial statements (unaudited).
TECHNE CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
A. BASIS OF PRESENTATION:
The unaudited consolidated financial statements of Techne Corporation and
Subsidiaries (the Company) have been prepared in accordance with accounting
principles generally accepted in the United States of America and with
instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying
unaudited consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair presentation of the
results for the interim periods presented. All such adjustments are of a
normal recurring nature.
A summary of significant accounting policies followed by the Company is
detailed in the Annual Report to Shareholders for fiscal 2001. The Company
follows these policies in preparation of the interim unaudited consolidated
financial statements. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these unaudited consolidated financial statements be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto for the fiscal year ended June 30, 2001 included in the Company's
Annual Report to Shareholders for fiscal 2001.
Certain consolidated balance sheet captions appearing in this interim report
are as follows:
12/31/01 6/30/01
----------- -----------
ACCOUNTS RECEIVABLE
Accounts receivable $14,733,065 $16,020,048
Less allowance for doubtful accounts 138,000 126,000
----------- -----------
NET ACCOUNTS RECEIVABLE $14,595,065 $15,894,048
=========== ===========
INVENTORIES
Raw materials $ 2,877,792 $ 2,552,179
Supplies 183,763 135,595
Finished goods 2,918,769 2,749,820
----------- -----------
TOTAL INVENTORIES $ 5,980,324 $ 5,437,594
=========== ===========
PROPERTY AND EQUIPMENT
Land $ 871,000 $ 871,000
Buildings and improvements 53,800,272 48,906,991
Laboratory equipment 16,027,599 15,023,754
Office equipment 4,060,923 3,833,730
Leasehold improvements 472,397 459,191
----------- -----------
75,232,191 69,094,666
Less accumulated depreciation and
amortization 21,855,140 19,900,694
----------- -----------
NET PROPERTY AND EQUIPMENT $53,377,051 $49,193,972
=========== ===========
INTANGIBLE ASSETS
Customer list $18,010,000 $18,010,000
Technology licensing agreements 500,000 500,000
Goodwill 39,075,089 39,075,089
----------- -----------
57,585,089 57,585,089
Less accumulated amortization 34,413,466 30,138,843
----------- -----------
NET INTANGIBLE ASSETS $23,171,623 $27,446,246
=========== ===========
In June 2001, the Financial Accounting Standards Board (FASB) 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 which 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
December 31, 2001, the Company had net goodwill and other intangible assets
of approximately $15.7 million and $7.4 million, respectively.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/or the normal operations
of a long-lived asset, except for certain obligations of lessees. SFAS No.
143 amends SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas
Producing Companies". SFAS No. 143 is effective for the Company in fiscal
2003. The Company is currently assessing, but has not yet determined, what
impact, if any, this statement will have on its financial position or results
of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets
and supersedes SFAS No 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions",
for the disposal of a segment of a business (as previously defined in that
Opinion). SFAS No. 144 also amends ARB No. 51, "Consolidated Financial
Statements", to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. SFAS No. 144 is effective for the
Company in fiscal 2003. The Company is currently assessing, but has not yet
determined, what impact, if any, this statement will have on its financial
position or results of operations.
B. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
QUARTER ENDED SIX MONTHS ENDED
---------------------- -----------------------
12/31/01 12/31/00 12/31/01 12/31/00
---------- ---------- ---------- ----------
Weighted average common
shares outstanding--
basic 41,486,607 41,457,269 41,461,183 41,436,094
Dilutive effect of stock
options and warrants 1,054,297 1,383,006 1,075,153 1,364,091
---------- ---------- ---------- ----------
Weighted average common
shares outstanding--
diluted 42,540,904 42,840,275 42,536,336 42,800,185
========== ========== ========== ==========
C. SEGMENT INFORMATION:
Following is financial information relating to the Company's operating
segments:
QUARTER ENDED SIX MONTHS ENDED
------------------------ ------------------------
12/31/01 12/31/00 12/31/01 12/31/00
----------- ----------- ----------- -----------
External sales
Hematology $ 3,823,229 $ 3,677,677 $ 7,472,822 $ 7,185,894
Biotechnology 19,718,623 16,585,983 39,084,357 34,506,898
R&D Systems Europe 7,595,059 6,425,006 14,422,398 12,717,437
----------- ----------- ----------- -----------
Total external sales $31,136,911 $26,688,666 $60,979,577 $54,410,229
=========== =========== =========== ===========
Intersegment sales
Hematology $ -- $ -- $ -- $ --
Biotechnology 4,128,793 3,884,920 7,946,277 7,285,577
R&D Systems Europe 9,950 16,130 29,435 37,382
----------- ----------- ----------- -----------
Total intersegment sales $ 4,138,743 $ 3,901,050 $ 7,975,712 $ 7,322,959
=========== =========== =========== ===========
Earnings before income taxes
Hematology $ 1,254,284 $ 1,363,492 $ 2,393,959 $ 2,448,650
Biotechnology 10,552,117 8,792,524 21,132,342 18,365,809
R&D Systems Europe 1,388,050 1,228,255 2,816,448 2,361,067
Corporate and other (787,816) (948,761) (1,680,333) (1,456,966)
----------- ----------- ----------- -----------
Total earnings before
income taxes $12,406,635 $10,435,510 $24,662,416 $21,718,560
=========== =========== =========== ===========
D. CONTINGENCIES:
Amgen, Inc. (Amgen), in June 2000, 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 brought a declaratory judgement action seeking
to have the court declare that no amount is owed on the invoices and that
Amgen had breached its contract with the Company. Amgen filed a counterclaim
seeking the $28 million plus interest and attorneys fees. On January 7, 2002
the United States District Court in St. Paul, Minnesota granted Amgen summary
judgement on its claims in the amount of approximately $28 million. The Court
recently stayed entry of judgement and retained jurisdiction over the Company's
breach of contract claim which might affect the amount of the judgement. If
final judgement is entered against it, the Company will appeal to the United
States Eighth Curcuit Court of Appeals. Although the ultimate outcome of this
matter cannot be known with certainty, management of the Company believes
that it is reasonably possible (as defined by SFAS 5, "Accounting for
Contingencies") that the Company will prevail in this matter. Accordingly,
no provision has been made in the Company's financial statements. An
unfavorable outcome to the litigation would not adversely impair the
operations of the Company, but would have a material effect on net earnings
for the period in which realized.
Portions of the Company's short-term available-for-sale investments were held
in brokerage accounts carried by a clearing firm which in late September 2001
was placed in bankruptcy. The trustee appointed pursuant to the Securities
Investor Protection Act released to the Company cash and securities
representing approximately 90% of the total value of the accounts and has
withheld securities and cash equivalents in the amount of approximately $3.5
million pending resolution of the bankruptcy proceeding. Management believes
that a third party insures the Company's accounts with coverage in excess of
the amount withheld by the trustee. Accordingly, no impairment loss has been
recognized at this time. Management believes that the Company will recover
the entire amount withheld either from the trustee or from the insurance
carrier.
E. INVESTMENT:
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. The Company's net investment in DGI was $2,849,225 at December
31, 2001.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter and Six Months Ended December 31, 2001
vs. Quarter and Six Months Ended December 31, 2000
Overview
Techne Corporation (Techne) has two 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 has two divisions: Biotechnology and Hematology. The Biotechnology
Division's principal products are purified cytokines (proteins), antibodies
and assay kits, which are sold primarily to biomedical researchers at
pharmaceutical companies and academic and government research laboratories.
The Hematology Division's principal products are whole blood hematology
controls and calibrators which are sold to hospital and clinical laboratories
to check the performance of their hematology instruments to assure the
accuracy of hematology test results. R&D Europe sells R&D Systems'
biotechnology products in Europe, both directly and through a sales
subsidiary in Germany. The Company has a foreign sales corporation, Techne
Export Inc.
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. The Company's net investment in DGI was $2,849,225 at December
31, 2001.
Net Sales
Net sales for the quarter ended December 31, 2001 were $31,136,911, an
increase of $4,448,245 (17%) from the quarter ended December 31, 2000. Sales
for the six months ended December 31, 2001 increased $6,569,348 (12%) from
$54,410,229 to $60,979,577. R&D Systems' Biotechnology Division sales
increased $3,132,640 (19%) and $4,577,459 (13%) and R&D Systems' Hematology
Division sales increased $145,552 (4%) and $286,928 (4%) for the quarter and
six months ended December 31, 2001, respectively. R&D Europe sales increased
$1,170,053 (18%) and $1,704,961 (13%) for the quarter and six months ended
December 31, 2001.
The sales increase for the quarter ended December 31, 2001 was higher than
normal for the Biotechnology Division and R&D Europe. Second quarter sales
in the prior year were unusually low as result of a slow down in sales over
the Thanksgiving and Christmas holiday period. The sales increase for the
six months ended December 31, 2001 was at a more normal level with higher
than normal sales increases in the second quarter offset by lower than
expected sales in the first quarter of fiscal 2002. Sales for the first
quarter of fiscal 2002 were $750,000 to $1 million less than expected. The
Company believes some business was lost due to the loss of shipping days as a
result of the grounding of aircraft and a slow down in research activities
during the week of September 11.
Gross Margins
Gross margins for the second quarter of fiscal 2002 were 74.2% compared to
74.6% for the same quarter in fiscal 2001. Gross margins for the six months
ended December 31, 2001 were 74.5% compared to 75.1% for the same period in
fiscal 2001.
Biotechnology Division margins decreased slightly from 78.2% to 78.0% for the
quarter and from 78.7% to 78.6% for the six months ended December 31, 2001.
R&D Europe gross margins increased from 35.4% to 35.6% for the quarter, but
decreased from 37.3% to 35.9% for the six months ended December 31, 2001 as a
result of exchange rate changes in the first quarter of fiscal 2002.
Hematology Division gross margins decreased from 48.9% to 44.4% for the
quarter and from 46.7% to 43.7% as a result of changes in product mix and
higher raw material costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $679,153 (17%) and
$740,544 (9%) from the second quarter and first six months of last year. The
increase was mainly the result of higher legal, printing and consulting costs
and higher personnel costs at R&D Europe as a result of additional personnel
added since the prior year.
Research and Development Expenses
Research and development expenses increased $714,773 (20%) and $1,435,798
(21%) for the quarter and six months ended December 31, 2001. Research and
development expenses of R&D Systems increased $610,366 (18%) and $1,306,442
(20%) for the quarter and six months, respectively. The R&D Systems research
expense increase relates to products currently under development, many of
which are expected to be released in fiscal 2002. Products currently under
development include both biotechnology and hematology products. Research
expenses recorded by the Company related to its investment in ChemoCentryx,
Inc. decreased $434 and $21,419 for the quarter and six months ended December
31, 2001. Research expenses recorded by the Company related to its
investment in Discovery Genomics, Inc. were $104,841 and $150,775 for the
quarter and six months ended December 31, 2001.
Net Earnings
Earnings before income taxes increased $1,971,125 from $10,435,510 in the
second quarter of fiscal 2001 to $12,406,635 in the second quarter of fiscal
2002. Earnings before taxes for the six months increased $2,943,856 from
$21,718,560 to $24,662,416. The increase in earnings before income taxes was
due primarily to the increase in sales discussed previously.
Income taxes for the quarter and six months ended December 31, 2001 were
provided at a rate of approximately 32% of consolidated pretax earnings
compared to 33% for the prior year. The decrease in the tax rate is a result
of decreased state income taxes and an increase in tax exempt interest
income. U.S. federal taxes have been reduced by the credit for research and
development expenditures and the benefit for foreign sales. Foreign income
taxes have been provided at rates which approximate the tax rates in the
United Kingdom and Germany.
Liquidity and Capital Resources
At December 31, 2001, cash and cash equivalents and short-term available-for-
sale investments were $107,179,162 compared to $97,071,868 at June 30, 2001.
The Company believes it can meet its future cash, working capital and capital
addition requirements through currently available funds, cash generated from
operations and maturities of short-term available-for-sale investments. The
Company has an unsecured line of credit of $750,000. The interest rate on
the line of credit is at prime. There were no borrowings on the line in the
prior or current fiscal years.
Cash Flows From Operating Activities
The Company generated cash of $19,613,473 from operating activities in the
first six months of fiscal 2002 compared to $24,269,909 for the first six
months of fiscal 2001. The decrease was mainly the result of increased
income tax payments in the current fiscal year.
Cash Flows From Investing Activities
Capital expenditures for fixed assets for the first six months of fiscal 2002
and 2001 were $6,174,608 and $2,747,232, respectively. Included in fiscal
2002 capital additions are $4.2 million for construction of a parking ramp
that is expected to be completed in late fiscal 2002 and $200,000 for the
renovation of property the Company plans to purchase (see the following
paragraph). Also included in the fiscal 2002 and 2001 capital additions were
$395,000 and $1,142,000, respectively, for building improvements related to
remodeling of facilities by R&D Systems. The remaining capital additions in
fiscal 2002 and 2001 were for laboratory and computer equipment. Total
remaining expenditures in fiscal 2002 for equipment, building improvements
and the completion of the parking ramp are expected to cost approximately
$3.5 million and are expected to be financed through currently available
funds and cash generated from operating activities.
The Company has exercised an option to purchase property adjacent to its
Minneapolis facility. In fiscal 2000, the Company paid $2 million and issued
warrants to purchase 120,000 shares of common stock as a deposit on this
option. The balance due on the purchase is approximately $6 million and
closing on the purchase is expected to take place in February 2002. At the
time of the closing the Company is required to make a $2 million deposit on
an option, which expires in 2005, to purchase additional adjacent property.
Costs to renovate the property to be purchased in fiscal 2002 are estimated
at approximately $15 million with the renovation expected to be completed in
early 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 $5.7 million. The purchase of the
property, renovation costs and construction of the infill are expected to be
financed through currently available funds, cash generated from operating
activities and maturities of short-term available-for-sale investments.
During the six months ended December 31, 2001 and December 31, 2000, short-
term available-for-sale investments increased by $1,291,571 and $21,462,422,
respectively. The Company's investment policy is to place excess cash in
short-term tax-exempt bonds and other short-term investments. The objective
of this policy is to obtain the highest possible return with minimal risk,
while keeping the funds accessible.
During the first six months of fiscal 2002, the Company invested $3 million
in Discovery Genomics, Inc.
Cash Flows From Financing Activities
Cash of $155,917 and $733,142 was received during the six months ended
December 31, 2001 and 2000, respectively, for the exercise of options for
24,950 and 81,516 shares of common stock. During the first six months of
fiscal 2002 and 2001 options for 80,000 and 1,000 shares of common stock were
exercised by the surrender of 7,654 and 224 shares of the Company's common
stock with fair market values of $224,968 and $8,554, respectively.
During the first six months of fiscal 2002 and 2001, the Company purchased
and retired 20,000 and 10,000 shares of Company common stock at a market
value of $485,010 and $400,004, respectively. The Board of Directors has
authorized the Company, subject to market conditions and share price, to
purchase and retire up to $20 million of its common stock. From the start of
the repurchase program through January 29, 2002, 1,361,200 shares have been
purchased at a market value of $10,402,892.
The Company has never paid cash dividends and has no plans to do so in fiscal
2002.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) 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
December 31, 2001, the Company had net goodwill and other intangible assets
of approximately $15.7 million and $7.4 million, respectively.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/or the normal operations
of a long-lived asset, except for certain obligations of lessees. SFAS No.
143 amends SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas
Producing Companies". SFAS No. 143 is effective for the Company in fiscal
2003. The Company is currently assessing, but has not yet determined, what
impact, if any, this statement will have on its financial position or results
of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets
and supersedes SFAS No 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions",
for the disposal of a segment of a business (as previously defined in that
Opinion). SFAS No. 144 also amends ARB No. 51, "Consolidated Financial
Statements", to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. SFAS No. 144 is effective for the
Company in fiscal 2003. The Company is currently assessing, but has not yet
determined, what impact, if any, this statement will have on its financial
position or results of operations.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2001, the Company had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of
$77,095,648. 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 does not expect
any such increase in interest rates to have an adverse impact on 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.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Amgen, Inc. (Amgen), in June 2000, 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 brought a declaratory judgement action seeking
to have the court declare that no amount is owed on the invoices and that
Amgen had breached its contract with the Company. Amgen filed a counterclaim
seeking the $28 million plus interest and attorneys fees. On January 7, 2002
the United States District Court in St. Paul, Minnesota granted Amgen summary
judgement on its claims in the amount of approximately $28 million. The Court
recently stayed entry of judgement and retained jurisdiction over the Company's
breach of contract claim which might affect the amount of the judgement. If
final judgement is entered against it, the Company will appeal to the United
States Eighth Curcuit Court of Appeals. Although the ultimate outcome of this
matter cannot be known with certainty, management of the Company believes
that it is reasonably possible (as defined by SFAS 5, "Accounting for
Contingencies") that the Company will prevail in this matter. Accordingly,
no provision has been made in the Company's financial statements. An
unfavorable outcome to the litigation would not adversely impair the
operations of the Company, but would have a material effect on net earnings
for the period in which realized.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS
Information relating to the Company's Annual Meeting of Shareholders, held on
October 18, 2001 is contained in the Company's Form 10-Q for the quarter
ended September 30, 2001, which is incorporated herein by reference.
ITEM 5 - OTHER INFORMATION
Forward Looking Information and Cautionary Statements: Statements in this
filing, and elsewhere, which look forward in time involve risks and
uncertainties which may affect the actual results of operations. The
following important factors, among others, have affected and, in the future,
could affect the Company's actual results: the introduction and acceptance
of new biotechnology and hematology products, the levels and particular
directions of research into cytokines by the Company's customers, the impact
of the growing number of producers of cytokine research products and related
price competition, the retention of hematology OEM (private label) and
proficiency survey business, the impact of changes in foreign currency
exchange rates, the outcome of litigation involving the Company and the costs
and results of research and product development efforts of the Company and of
companies in which the Company has invested or with which it has formed
strategic relationships.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
None.
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
2001.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNE CORPORATION
(Company)
Date: January 29, 2002 /s/ Thomas E. Oland
------------------------------
President, Chief Executive and
Financial Officer