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 March 31, 2002, 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 April 30, 2002, 41,571,736 shares of the Company's Common Stock (par value
$.01) were outstanding.
ITEM 1 - FINANCIAL STATEMENTS
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
3/31/02 6/30/01
------------ ------------
ASSETS
Cash and cash equivalents $ 26,141,806 $ 21,267,791
Short-term available-for-sale investments 82,321,107 75,804,077
Trade accounts receivable (net) 17,149,923 15,894,048
Interest receivable 3,174,673 2,428,240
Inventories 5,947,388 5,437,594
Deferred income taxes 2,941,000 2,720,000
Prepaid expenses 970,806 639,759
------------ ------------
Total current assets 138,646,703 124,191,509
Property and equipment (net) 63,046,639 49,193,972
Intangible assets (net) 21,034,311 27,446,246
Deferred income taxes 4,667,000 4,128,000
Other long-term assets 11,315,560 10,565,386
------------ ------------
$238,710,213 $215,525,113
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Trade accounts payable $ 2,439,503 $ 3,477,072
Salaries, wages and related accounts payable 2,473,797 2,302,553
Other accounts payable and accrued expenses 6,418,155 6,155,189
Income taxes payable 2,451,844 3,071,982
Current portion of long-term debt 932,850 884,760
------------ ------------
Total current liabilities 14,716,149 15,891,556
Royalty payable 980,750 923,000
Long-term debt, less current portion 17,341,940 18,050,289
Commitments and contingencies (Note D)
Common stock, par value $.01 per share;
authorized 100,000,000; issued and outstand-
ing 41,571,536 and 41,432,390, respectively 415,715 414,324
Additional paid-in capital 58,580,810 57,382,636
Retained earnings 147,933,312 121,209,686
Accumulated other comprehensive loss (1,258,463) (1,346,378)
------------ ------------
Total stockholders' equity 205,671,374 177,660,268
------------ ------------
$238,710,213 $215,525,113
============ ============
See notes to consolidated financial statements (unaudited).
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
------------------------- -------------------------
3/31/02 3/31/01 3/31/02 3/31/01
----------- ----------- ----------- -----------
Net sales $34,285,276 $30,240,889 $95,264,853 $84,651,118
Cost of sales 8,392,165 7,492,795 23,968,392 21,063,962
----------- ----------- ----------- -----------
Gross margin 25,893,111 22,748,094 71,296,461 63,587,156
Operating expenses:
Selling, general and
administrative 4,526,706 4,551,285 13,896,498 13,180,533
Research and
development 4,442,057 3,857,116 12,741,064 10,720,325
Amortization of
intangible assets 2,137,312 2,222,313 6,411,935 6,666,940
Interest expense 323,719 338,843 997,243 1,042,477
Interest income (886,595) (904,975) (2,762,607) (2,425,191)
----------- ----------- ----------- -----------
10,543,199 10,064,582 31,284,133 29,185,084
----------- ----------- ----------- -----------
Earnings before
income taxes 15,349,912 12,683,512 40,012,328 34,402,072
Income taxes 4,776,000 2,519,000 12,579,000 9,752,000
----------- ----------- ----------- -----------
Net earnings $10,573,912 $10,164,512 $27,433,328 $24,650,072
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.25 $ 0.25 $ 0.66 $ 0.59
Diluted $ 0.25 $ 0.24 $ 0.65 $ 0.58
Weighted average
common shares
outstanding:
Basic 41,544,110 41,452,109 41,488,383 41,441,347
Diluted 42,524,992 42,530,383 42,531,964 42,710,247
See notes to consolidated financial statements (unaudited).
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
---------------------------
3/31/02 3/31/01
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 27,433,328 $ 24,650,072
Adjustments to reconcile net earnings to net
cash provided by Operating activities:
Depreciation and amortization 9,439,663 9,434,430
Deferred income taxes (757,000) (232,000)
Other 1,372,025 642,684
Change in current assets and current
liabilities:
(Increase) decrease in:
Trade accounts and interest receivable (1,962,671) (2,138,885)
Inventories (505,363) (499,330)
Prepaid expenses (331,805) (545,020)
Increase (decrease) in:
Trade and other accounts payable (3,745,346) (2,462,187)
Salaries, wages and related accounts 170,001 (770,116)
Income taxes payable 15,090 5,162,911
------------ ------------
Net cash provided by operating activities 31,127,922 33,242,559
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (13,942,179) (3,344,760)
Real estate deposit (1,999,000) --
Purchase of short-term available-for-sale
investments (39,419,571) (44,329,044)
Proceeds from sale of short-term available-
for-sale investments 32,902,541 17,727,946
Increase in other long-term assets (3,034,103) (500,000)
------------ ------------
Net cash used in investing activities (25,492,312) (30,445,858)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 328,873 758,992
Repurchase of common stock (485,010) (1,163,768)
Payments on long-term debt (660,259) (615,455)
------------ ------------
Net cash used in financing activities (816,396) (1,020,231)
Effect of exchange rate changes on cash 54,801 (510,663)
------------ ------------
Net increase in cash and cash equivalents 4,874,015 1,265,807
Cash and cash equivalents at beginning of period 21,267,791 17,356,108
------------ ------------
Cash and cash equivalents at end of period $ 26,141,806 $ 18,621,915
============ ============
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 accounting
principles generally accepted in the United States of America 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:
3/31/02 6/30/01
----------- -----------
ACCOUNTS RECEIVABLE
Accounts receivable $17,278,923 $16,020,048
Less allowance for doubtful accounts 129,000 126,000
----------- -----------
NET ACCOUNTS RECEIVABLE $17,149,923 $15,894,048
=========== ===========
INVENTORIES
Raw materials $ 2,774,847 $ 2,552,179
Supplies 142,531 135,595
Finished goods 3,030,010 2,749,820
----------- -----------
TOTAL INVENTORIES $ 5,947,388 $ 5,437,594
=========== ===========
PROPERTY AND EQUIPMENT
Land $ 1,571,000 $ 871,000
Buildings and improvements 63,485,835 48,906,991
Laboratory equipment 16,231,965 15,023,754
Office equipment 4,167,670 3,833,730
Leasehold improvements 462,597 459,191
----------- -----------
85,919,067 69,094,666
Less accumulated depreciation and amortization 22,872,428 19,900,694
----------- -----------
NET PROPERTY AND EQUIPMENT $63,046,639 $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 36,550,778 30,138,843
----------- -----------
NET INTANGIBLE ASSETS $21,034,311 $27,446,246
=========== ===========
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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 March 31, 2002, the
Company had net goodwill and other intangible assets of approximately $14.2
million and $6.8 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 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 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 NINE MONTHS ENDED
----------------------- -----------------------
3/31/02 3/31/01 3/31/02 3/31/01
---------- ---------- ---------- ----------
Weighted average common
shares outstanding-basic 41,544,110 41,452,109 41,488,383 41,441,347
Dilutive effect of stock
options and warrants 980,882 1,078,274 1,043,581 1,268,900
---------- ---------- ---------- ----------
Weighted average common
shares outstanding-
diluted 42,524,992 42,530,383 42,531,964 42,710,247
========== ========== ========== ==========
C. SEGMENT INFORMATION:
Following is financial information relating to the Company's operating
segments:
QUARTER ENDED NINE MONTHS ENDED
------------------------ ------------------------
3/31/02 3/31/01 3/31/02 3/31/01
----------- ----------- ----------- -----------
External sales
Hematology $ 3,630,788 $ 3,248,378 $11,103,610 $10,434,272
Biotechnology 22,701,874 19,399,700 61,786,231 53,906,598
R&D Systems Europe 7,952,614 7,592,811 22,375,012 20,310,248
----------- ----------- ----------- -----------
Total external sales $34,285,276 $30,240,889 $95,264,853 $84,651,118
=========== =========== =========== ===========
Intersegment sales
Hematology $ -- $ -- $ -- $ --
Biotechnology 4,586,030 3,940,320 12,532,307 11,225,897
R&D Systems Europe 17,865 31,500 47,300 68,882
----------- ----------- ----------- -----------
Total intersegment sales $ 4,603,895 $ 3,971,820 $12,579,607 $11,294,779
=========== =========== =========== ===========
Earnings before income
taxes
Hematology $ 1,068,211 $ 861,258 $ 3,462,170 $ 3,309,908
Biotechnology 13,787,428 10,402,814 34,919,770 28,768,623
R&D Systems Europe 1,671,832 1,739,481 4,488,280 4,100,548
Corporate and other (1,177,559) (320,041) (2,857,892) (1,777,007)
----------- ----------- ----------- -----------
Total earnings before
income taxes $15,349,912 $12,683,512 $40,012,328 $34,402,072
=========== =========== =========== ===========
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. Amgen's
claims for interest and attorneys fees have not yet been heard. The Court
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 No. 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 all of its securities and cash equivalents will be returned to the
Company as the trustee has available the assets of customers' accounts, SIPC
insurance and third party insurance. Accordingly, no impairment loss has
been recognized at this time.
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 is accounted for under the equity method of accounting.
The Company's net investment in DGI was $2,708,432 at March 31, 2002.
F. REAL ESTATE ACQUISITION:
On March 15, 2002, the Company purchased property adjacent to its Minneapolis
facility for approximately $8.9 million. In fiscal 2000, the Company paid $2
million and issued warrants to purchase 120,000 shares of common stock as a
deposit on the acquisition. The warrants were valued at $858,000. The
remaining $6 million of the purchase price was financed through cash on hand.
In addition, the Company paid $1,999,000 on March 15, 2002 as a nonrefundable
deposit on an option, which expires in 2005, to purchase additional adjacent
property. In fiscal 2000, the Company had paid an original $1,000 deposit on
this option.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter and Nine Months Ended March 31, 2002
vs. Quarter and Nine Months Ended March 31, 2001
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's foreign sales corporation, Techne
Export Inc. was dissolved in April 2002.
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 is accounted for under the equity method of accounting.
The Company's net investment in DGI was $2,708,432 at March 31, 2002.
Net Sales
Net sales for the quarter ended March 31, 2002 were $34,285,276, an increase
of $4,044,387 (13%) from the quarter ended March 31, 2001. Sales for the
nine months ended March 31, 2002 increased $10,613,735 (13%) from $84,651,118
to $95,264,853. R&D Systems' Biotechnology Division sales increased
$3,302,174 (17%) and $7,879,633 (15%) and R&D Systems' Hematology Division
sales increased $382,410 (12%) and $669,338 (6%) for the quarter and nine
months ended March 31, 2002, respectively. R&D Europe sales increased
$359,803 (5%) and $2,064,764 (10%) for the quarter and nine months ended
March 31, 2002. R&D Europe's sales growth was lower than normal for the
quarter due to the timing of the Easter holiday. The Easter holiday occurred
in March this year compared to April last year and, therefore, R&D
Europe's fourth quarter fiscal 2002 sales should compare favorably to last
year.
Gross Margins
Gross margins for the third quarter of fiscal 2002 were 75.5% compared to
75.2% for the same quarter in fiscal 2001. Gross margins for the nine months
ended March 31, 2002 were 74.8% compared to 75.1% for the same period in
fiscal 2001.
Biotechnology Division margins increased from 78.5% to 79.5% for the quarter
and from 78.6% to 78.9% for the nine months ended March 31, 2002 as a result
of manufacturing efficiencies. R&D Europe gross margins decreased from 39.3%
to 35.8% for the quarter and from 38.1% to 35.8% for the nine months ended
March 31, 2002 as a result of exchange rate changes. Hematology Division
gross margins increased from 40.9% to 41.5% for the quarter, but decreased
from 44.9% to 43.0% for the nine months as a result of higher raw material
costs in the second quarter of fiscal 2002. Blood costs increased
significantly during the second quarter of fiscal 2002, but decreased back to
more normal levels during the third quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $24,579 (1%) for the
third quarter, but increased $715,965 (5%) from the first nine months of last
year. The decrease for the quarter was mainly due to the timing of the
printing of the Biotechnology Division catalog. The catalog was printed and
mailed in the second quarter of the current year compared to the third
quarter of last year.
Research and Development Expenses
Research and development expenses increased $584,941 (15%) and $2,020,739
(19%) for the quarter and nine months ended March 31, 2002. Research and
development expenses of R&D Systems increased $34,955 (1%) and $1,341,397
(13%) for the quarter and nine 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 and 2003. Products
currently under development include both biotechnology and hematology
products. The Biotechnology Division has released approximately 800 new
products in the current fiscal year compared to 567 in all of fiscal year
2001. Research expenses recorded by the Company related to its investment in
ChemoCentryx, Inc. increased $409,194 and $387,775, respectively, for the
quarter and nine months ended March 31, 2002. Research expenses recorded by
the Company related to its investment in Discovery Genomics, Inc. were
$140,793 and $291,568, respectively, for the quarter and nine months ended
March 31, 2002.
Net Earnings
Earnings before income taxes increased $2,666,400 from $12,683,512 in the
third quarter of fiscal 2001 to $15,349,912 in the third quarter of fiscal
2002. Earnings before taxes for the nine months increased $5,610,256 from
$34,402,072 to $40,012,328. The increase in earnings before income taxes was
due primarily to the increase in sales partially offset by increased research
and development expenses.
Income taxes for the quarter and nine months ended March 31, 2002 were
provided at a rate of approximately 31% of consolidated pretax earnings
compared to 20% and 28% for the prior year periods. The tax rate for fiscal
2001 was affected by a one-time $1.4 million credit in the third quarter as a
result of the close-out of pending issues related to a state income tax
examination for fiscal years 1996 through 1999. 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 March 31, 2002, cash and cash equivalents and short-term available-for-
sale investments were $108,462,913 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 $31,127,922 from operating activities in the
first nine months of fiscal 2002 compared to $33,242,559 for the first nine
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 nine months of fiscal
2002 and 2001 were $13,942,179 and $3,344,760, respectively. Included in
fiscal 2002 capital additions are $5.1 million for construction of a parking
ramp that is expected to be completed in June 2002, $6 million for the
property acquisition (see above Note F. Real Estate Acquisition), $492,000 for
the renovation of the purchased property and $209,000 for the construction of
an infill connecting the purchased property to the Company's current facility.
Also included in the fiscal 2002 and 2001 capital additions were $504,000 and
$1,739,000, respectively, for building improvements related to remodeling of
facilities by R&D Systems. The remaining capital additions in the first nine
months of fiscal fiscal 2002 and 2001 were for laboratory and computer
equipment. Remaining expenditures in fiscal 2002 for equipment, building
improvements, and the completion of the parking ramp are expected to cost
approximately $1.3 million and are expected to be financed through currently
available funds and cash generated from operating activities. Costs to
renovate the property purchased in fiscal 2002 are estimated at approximately
$10.2 million with the renovation expected to be completed in mid fiscal 2003.
The construction of the infill connecting the buildings is expected to be
completed in mid fiscal 2003 and costs are estimated at approximately $13.5
million. The 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 nine months ended March 31, 2002 and March 31, 2001, short-term
available-for-sale investments increased by $6,517,030 and $26,601,098,
respectively. The Company's investment policy is to place excess cash in short-
term 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 nine months of fiscal 2002, the Company invested $3 million
in Discovery Genomics, Inc.
Cash Flows From Financing Activities
Cash of $328,873 and $758,992 was received during the nine months ended March
31, 2002 and 2001, respectively, for the exercise of options for 86,800 and
86,216 shares of common stock. During the first nine 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 $8,552, respectively.
During the first nine months of fiscal 2002 and 2001, the Company purchased and
retired 20,000 and 40,000 shares of Company common stock at a market value of
$485,010 and $1,163,768, 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 April 30, 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 March 31, 2002, the Company had net
goodwill and other intangible assets of approximately $14.2 million and $6.8
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 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 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 March 31, 2002, the Company had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of
$82,321,107. 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. Amgen's claims for
interest and attorneys fees have not yet been heard. The Court 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 No. 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
None
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 outcome of litigation involving
the Company (including the litigation with Amgen, Inc.), 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, and the costs and results of research and product development efforts of
the Company and of companies in which the Company has invested or with which it
has formed strategic relationships. For additional information concerning such
factors, see the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See exhibit index immediately following signature page.
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2002.
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: May 10, 2002 /s/ Thomas E. Oland
------------------------------
President, Chief Executive and
Financial Officer
EXHIBIT INDEX
TO
FORM 10-Q
TECHNE CORPORATION
Exhibit # Description
- ----------- ----------------
10.1 Warranty Deed for purchase of certain property in Hennepin
County, Minnesota