SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003, or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to___________
__________________
Commission file number 0-17272
__________________
TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1427402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
614 MCKINLEY PLACE N.E. (612) 379-8854
MINNEAPOLIS, MN 55413 (Registrant's telephone number,
(Address of principal including area code)
executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Exchange Act Rule
12b-2). Yes (X) No ( )
At November 7, 2003, 41,034,576 shares of the Company's Common Stock (par
value $.01) were outstanding.
TECHNE CORPORATION
FORM 10-Q
SEPTEMBER 30, 2003
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30,
2003 (unaudited) and June 30, 2003 3
Consolidated Statements of Earnings for the quarter
ended September 30, 2003 and 2002 (unaudited) 4
Consolidated Statements of Cash Flows for the quarter
ended September 30, 2003 and 2002 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 13
ITEM 4. CONTROLS AND PROCEDURES 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURE 15
2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TECHNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
9/30/03 6/30/03
--------- ---------
ASSETS
Cash and cash equivalents $ 44,020 $ 39,371
Short-term available-for-sale investments 87,868 78,130
Trade accounts receivable, net 17,902 18,387
Interest receivable 2,109 2,054
Inventories 6,603 6,332
Deferred income taxes 4,389 4,237
Prepaid expenses 1,254 1,004
--------- ---------
Total current assets 164,145 149,515
Property and equipment, net 81,389 81,166
Goodwill, net 12,540 12,540
Intangible assets, net 4,018 4,418
Deferred income taxes 8,555 8,715
Other long-term assets 6,654 6,923
--------- ---------
$ 277,301 $ 263,277
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $ 3,744 $ 2,216
Salaries, wages and related accounts payable 2,089 1,781
Other accounts payable and accrued expenses 703 2,605
Income taxes payable 2,815 2,972
Current portion of long-term debt 1,246 1,234
--------- ---------
Total current liabilities 10,597 10,808
Long-term debt, less current portion 15,538 15,852
--------- ---------
Total liabilities 26,135 26,660
Commitments and contingencies (Note D)
Common stock, par value $.01 per
share; authorized 100,000,000; issued
and outstanding 41,029,576 and
40,913,226, respectively 410 409
Additional paid-in capital 65,193 63,279
Retained earnings 182,381 169,809
Accumulated other comprehensive income 3,182 3,120
--------- ---------
Total stockholders' equity 251,166 236,617
--------- ---------
$ 277,301 $ 263,277
========= =========
See notes to consolidated financial statements (unaudited).
3
TECHNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands, except per share data)
(unaudited)
QUARTER ENDED
9/30/03 6/30/03
-------- --------
Net sales $ 37,993 $ 34,548
Cost of sales 8,663 8,690
-------- --------
Gross margin 29,330 25,858
Operating expenses:
Selling, general and administrative 5,083 4,951
Research and development 4,963 4,833
Amortization of intangible assets 400 484
Interest expense 175 323
Interest income (726) (790)
Other non-operating expense, net 78 150
-------- --------
9,973 9,951
-------- --------
Earnings before income taxes 19,357 15,907
Income taxes 6,785 5,462
-------- --------
Net earnings $ 12,572 $ 10,445
======== ========
Earnings per share:
Basic $ 0.31 $ 0.25
Diluted $ 0.30 $ 0.25
Weighted average common shares outstanding:
Basic 40,965 41,363
Diluted 41,600 42,286
See notes to consolidated financial statements (unaudited).
4
TECHNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
QUARTER ENDED
-------------------
9/30/03 9/30/02
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 12,572 $ 10,445
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 1,494 1,558
Deferred income taxes 9 19
Losses by equity method investees 608 698
Other 122 122
Change in operating assets and operating
liabilities:
Trade accounts and interest receivable 457 418
Inventories (265) (74)
Prepaid expenses (308) (86)
Trade and other accounts payable (402) (590)
Salaries, wages and related accounts 308 (1,306)
Income taxes payable 733 8,719
-------- --------
Net cash provided by operating activities 15,328 19,923
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,312) (6,801)
Purchase of short-term available-for-sale
investments (21,775) (15,180)
Proceeds from sale or maturity of short-term
available-for-sale investments 11,871 14,167
Increase in other long-term assets (400) --
-------- --------
Net cash used in investing activities (11,616) (7,814)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,003 79
Repurchase of common stock -- (5,865)
Payments on long-term debt (302) (229)
-------- --------
Net cash provided by (used in) financing
activities 701 (6,015)
-------- --------
Effect of exchange rate changes on cash 236 395
Net increase in cash and cash equivalents 4,649 6,489
Cash and cash equivalents at beginning of period 39,371 26,392
-------- --------
Cash and cash equivalents at end of period $ 44,020 $ 32,881
======== ========
See notes to consolidated financial statements (unaudited).
5
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 2003. 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,
2003 included in the Company's Annual Report to Shareholders for fiscal 2003.
Certain consolidated balance sheet captions appearing in this interim report
are as follows (in thousands):
9/30/03 6/30/03
-------- --------
ACCOUNTS RECEIVABLE
Accounts receivable $ 18,171 $ 18,655
Less allowance for doubtful accounts 269 268
-------- --------
NET ACCOUNTS RECEIVABLE $ 17,902 $ 18,387
======== ========
INVENTORIES
Raw materials $ 2,774 $ 2,618
Supplies 103 119
Finished goods 3,726 3,595
-------- --------
TOTAL INVENTORIES $ 6,603 $ 6,332
======== ========
PROPERTY AND EQUIPMENT
Land $ 3,264 $ 2,999
Buildings and improvements 67,874 64,930
Building construction in progress 16,227 18,310
Laboratory equipment 16,506 16,372
Office equipment 3,136 3,106
Leasehold improvements 540 537
-------- --------
107,547 106,254
Less accumulated depreciation and amortization 26,158 25,088
-------- --------
NET PROPERTY AND EQUIPMENT $ 81,389 $ 81,166
======== ========
6
9/30/03 6/30/03
-------- --------
GOODWILL $ 38,846 $ 38,846
Less accumulated amortization 26,306 26,306
-------- --------
NET GOODWILL $ 12,540 $ 12,540
======== ========
INTANGIBLE ASSETS
Customer list $ 18,010 $ 18,010
Technology licensing agreements 500 500
Acquisition costs 230 230
-------- --------
18,740 18,740
Less accumulated amortization 14,722 14,322
-------- --------
NET INTANGIBLE ASSETS $ 4,018 $ 4,418
======== ========
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities.
FIN 46 addresses the consolidation by businesses of variable interest
entities and requires businesses to consolidate a variable interest entity if
it has a variable interest that will absorb a majority of the entity's
expected losses if they occur, or receive a majority of the entity's expected
returns if they occur, or both. FIN 46 is effective for variable interest
entities created after January 31, 2003. For variable interest entities
created prior to January 31, 2003, the provisions of FIN 46 are applicable to
the Company for the quarter ending December 31, 2003. The Company has
assessed its relationships with ChemoCentryx, Inc. and Discovery Genomics,
Inc., development stage companies in which the Company has 26% and 39% equity
investments, respectively. The Company has determined that neither
investment is required to be consolidated in the Company's financial
statements pursuant to FIN 46.
B. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows (in
thousands):
QUARTER ENDED
-------------------
9/30/03 9/30/02
-------- --------
Weighted average common shares outstanding-basic 40,965 41,363
Dilutive effect of stock options and warrants 635 923
-------- --------
Weighted average common shares outstanding-diluted 41,600 42,286
======== ========
The dilutive effect of stock options and warrants in the above table excludes
all options for which the exercise price was higher than the average market
price for the period. The number of potentially dilutive option shares
excluded from the calculation was 516,000 and 573,000 at September 30, 2003
and 2002, respectively.
During the quarter ended September 30, 2002, the Company purchased and
retired 248,000 shares of Company common stock at a market value of
$5,865,000. The effect of the purchases was a 210,000 reduction in the
weighted average common shares outstanding for the quarter ended September
30, 2002. The Board of Directors has authorized the Company, subject to
market conditions and share price, to purchase and retire up to $40 million
of its common stock. From the start of the repurchase program through
November 7, 2003, approximately 2,398,000 shares have been purchased at a
market value of $33,176,000.
7
C. SEGMENT INFORMATION:
Following is financial information relating to the Company's operating
segments (in thousands):
QUARTER ENDED
-------------------
9/30/03 9/30/02
-------- --------
External sales
Hematology $ 4,281 $ 3,774
Biotechnology 24,032 22,487
R&D Systems Europe 9,680 8,287
-------- --------
Total external sales $ 37,993 $ 34,548
======== ========
Intersegment sales
Hematology $ -- $ --
Biotechnology 4,621 4,150
R&D Systems Europe -- 14
-------- --------
Total intersegment sales $ 4,621 $ 4,164
======== ========
Earnings before income taxes
Hematology $ 1,430 $ 1,165
Biotechnology 15,828 14,244
R&D Systems Europe 3,349 1,811
Corporate and other (1,250) (1,313)
-------- --------
Total earnings before income taxes $19,357 $15,907
======== ========
D. CONTINGENCIES:
Portions of the Company's short-term available-for-sale investments were held
in brokerage accounts carried by a clearing firm which in September 2001 was
placed in bankruptcy. The trustee appointed pursuant to the Securities
Investor Protection Act has released to the Company cash and securities
representing approximately 99% of the total value of the accounts and has
withheld securities and cash equivalents in the amount of approximately
$250,000 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
and third-party insurance. Accordingly, no impairment loss has been
recognized at this time.
E. STOCK OPTIONS:
As permitted by Statement of Financial Accounting Standards (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.
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, the Company's net
earnings and earnings per share would have been as follows (in thousands,
except per share data):
8
QUARTER ENDED
-------------------
9/30/03 9/30/02
-------- --------
Net earnings:
As reported $ 12,572 $ 10,445
Less employee stock-based
compensation, net of taxes 94 119
-------- --------
Pro forma $ 12,478 $ 10,326
======== ========
Basic earnings per share:
As reported $ 0.31 $ 0.25
Less employee stock-based compensation 0.01 0.00
-------- --------
Pro forma $ 0.30 $ 0.25
======== ========
Diluted earnings per share:
As reported $ 0.30 $ 0.25
Less employee stock-based compensation 0.00 0.01
-------- --------
Pro forma $ 0.30 $ 0.24
======== ========
The fair value of options granted under the Company's stock option plans were
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions used:
QUARTER ENDED
-------------------
9/30/03 9/30/02
-------- --------
Dividend yield -- --
Expected volatility 49%-52% 52%
Risk free interest rates 4.1%-4.4% 4.5%
Expected lives 7-10 years 7 years
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter Ended September 30, 2003
vs. Quarter Ended September 30, 2002
Overview
Techne Corporation (the Company) 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 directly, through a branch office in France
and through a sales subsidiary in Germany.
9
Net Sales
Net sales for the quarter ended September 30, 2003 were $37,993,000, an
increase of $3,445,000 (10%) from the quarter ended September 30, 2002. R&D
Systems' Biotechnology Division net sales increased $1,545,000 (7%) and R&D
Systems' Hematology Division net sales increased $507,000 (13%) for the
quarter ended September 30, 2003. The higher than usual growth in Hematology
Division sales for the quarter ended September 30, 2003 was primarily due to
sales of $160,000 to a distributor obtained in January 2003 and $263,000 in
increased sales to OEM customers. R&D Europe net sales increased $1,393,000
(17%) for the quarter ended September 30, 2003. In British pounds, R&D
Europe's net sales increased 13% for the quarter.
Gross margins
Gross margins for the first quarter of fiscal 2004 were 77.2% compared to
74.9% for the same quarter in fiscal 2003. The majority of the increase in
margin percentage was the result of R&D Europe's gross margins increasing
from 39.9% in the first quarter of fiscal 2003 to 49.2% in the first quarter
of fiscal 2004. This increase was due to favorable exchange rates as a
result of a weaker U.S. dollar to the British pound and the expiration, on
June 30, 2003, of a five-year, 5% royalty agreement associated with the
purchase of Genzyme, Inc.'s reagent business in fiscal 1999. R&D Europe
expensed $408,000 in the quarter ended September 30, 2002 under this
agreement. In addition, Biotechnology Division gross margins increased from
78.5% to 79.4% for the quarter ended September 30, 2003 and Hematology
Division gross margins increased from 43.4% to 45.2% for the quarter ended
September 30, 2003.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $132,000 (3%) from the
first quarter of last year mainly as a result of increased wages and benefits
($156,000), accounting fees ($71,000) and directors and officers insurance
($44,000), partially offset by lower bonus and profit sharing accruals
($155,000).
Research and Development Expenses
Research and development expenses increased $130,000 (3%) for the quarter
ended September 30, 2003 as compared to the quarter ended September 30, 2002.
Included in research and development expenses are the Company's share of
losses by ChemoCentryx, Inc. (CCX) and Discovery Genomics, Inc. (DGI),
development stage companies in which the Company has invested. Research and
development expenses are composed of the following (in thousands):
QUARTER ENDED
-------------------
9/30/03 9/30/02
-------- --------
R&D Systems' expenses $ 4,355 $ 4,136
ChemoCentryx, Inc. losses 436 519
Discovery Genomics, Inc. losses 172 178
-------- --------
Total research and development expenses $ 4,963 $ 4,833
======== ========
Excluding CCX and DGI losses, research and development expenses for the first
quarter of fiscal 2004 increased $219,000 (5%) from the first quarter of last
year.
10
The Company's net investment in CCX and DGI at September 30, 2003 was
$2,075,000 and $1,715,000, respectively. The Company has financial exposure
to the losses of CCX and DGI to the extent of its net investment in each of
the companies. In addition, as development stage companies, both CCX and DGI
are dependent on their ability to raise additional funds to continue their
research and development efforts. If such funding were unavailable or
inadequate to fund operations, the Company would potentially recognize an
impairment loss to the extent of its remaining net investment.
Other Non-operating Income/Expense
Other non-operating income/expense consists mainly of foreign currency
transaction gains and losses, rental income, and real estate taxes and
utility expenses related to properties under construction/renovation.
Net Earnings
Earnings before income taxes increased $3,450,000 from $15,907,000 in the
first quarter of fiscal 2003 to $19,357,000 in the first quarter of fiscal
2004. The increase in earnings before income taxes was due primarily to the
increase in sales and improved gross margins.
Income taxes for the quarter ended September 30, 2003 were provided at a rate
of approximately 35% of consolidated pretax earnings compared to 34% for the
quarter ended September 30, 2002. 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 countries in which R&D Europe operates.
Without significant business developments, the Company expects income tax
rates for the remainder of fiscal 2004 to range from 35% to 36%.
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.
Liquidity and Capital Resources
At September 30, 2003, cash and cash equivalents and short-term available-
for-sale investments were $131,888,000 compared to $117,501,000 at June 30,
2003. 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 year.
Cash Flows From Operating Activities
The Company generated cash of $15,328,000 from operating activities in the
first three months of fiscal 2004 compared to $19,923,000 for the first three
months of fiscal 2003. The decrease was mainly the result of higher U.S.
income tax payments made in the first quarter of fiscal 2004 compared to the
first quarter of fiscal 2003, partially offset by increased earnings, the tax
benefit from exercise of stock options and decreased profit sharing and stock
bonus contributions. The Company made U.S. income tax payments of $5.2
million in the quarter ended September 30, 2003 compared to a net refund of
$3.9 million in the quarter ended September 30, 2002. The Company's U.S. tax
liability for the quarter ended September 30, 2003 was reduced $912,000 as a
result of the exercise of stock options which are deductible by the Company
for tax but not financial statement purposes. Cash paid for profit sharing
and stock bonus contributions were $440,000 for the quarter ended September
30, 2003 compared to $2,172,000 for the quarter ended September 30, 2002.
11
Cash Flows From Investing Activities
Capital expenditures for fixed assets for the first three months of fiscal
2004 and 2003 were $1,312,000 and $6,801,000, respectively. Included in
first quarter fiscal 2004 and 2003 capital additions were $130,000, and $6.3
million, respectively, for renovation and construction of property in
Minneapolis. Also included in fiscal 2004 capital additions was $935,000
related to property in southeast Minnesota. The Company is currently
constructing additional facilities at this site to house goats used in the
production of its antibodies. Included in fiscal 2003 capital additions was
$180,000 for the completion of a parking ramp. The remaining capital
additions in the first three months of fiscal 2004 and 2003 were for
laboratory and computer equipment and remodeling of laboratory space.
Remaining expenditures in fiscal 2004 for laboratory and computer equipment
are expected to cost approximately $1.2 million and are expected to be
financed through currently available funds and cash generated from operating
activities. Costs to finish construction of the goat facilities in southeast
Minnesota are expected to be approximately $1 million with completion in mid
fiscal 2004. Costs to finish the renovation of the Minneapolis property are
estimated at approximately $8 million and will be completed as additional
laboratory space is needed for the Company's operations. All construction is
expected to be financed through currently available funds and cash generated
from operating activities.
During the three months ended September 30, 2003 the Company purchased
$21,775,000 and had sales or maturities of $11,871,000 of short-term
available-for-sale investments. During the three months ended September 30,
2002, the Company purchased $15,180,000 and had sales or maturities of
$14,167,000 of short-term available-for-sale investments. 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.
Cash Flows From Financing Activities
Cash of $1,003,000 and $79,000 was received during the three months ended
September 30, 2003 and 2002, respectively, for the exercise of options for
116,000 and 13,000 shares of common stock.
During the first three months of fiscal 2003, the Company purchased and
retired 248,000 shares of Company common stock at a market value of
$5,865,000. The Board of Directors has authorized the Company, subject to
market conditions and share price, to purchase and retire up to $40 million
of its common stock. From the start of the repurchase program through
November 7, 2003, approximately 2,398,000 shares have been purchased at a
market value of $33,176,000.
The Company has never paid cash dividends and has no plans to do so in fiscal
2004.
12
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 2003, the Company had a professionally managed investment
portfolio of fixed income securities, excluding those classified as cash and
cash equivalents, of $87,868,000. These securities, like all fixed income
instruments, are subject to interest rate risk and will decline in value if
market interest rates increase.
The Company operates internationally, and thus is subject to potentially
adverse movements in foreign currency rate changes. The Company is exposed to
market risk from foreign exchange rate fluctuations of the euro and the
British pound to the U.S. dollar as the financial position and operating
results of the Company's U.K. and German subsidiaries are translated into
U.S. dollars for consolidation. The Company's exposure to foreign exchange
rate fluctuations also arises from transferring funds from the U.K.
subsidiary to the U.S. parent and from transferring funds from the German
subsidiary to the U.K. subsidiary. At September 30, 2003 and 2002, the
Company had $750,000 and $409,000 dollar denominated intercompany debt at its
U.K. subsidiary and at September 30, 2003, the U.K. subsidiary had $255,000
dollar denominated intercompany debt at its German subsidiary. These
intercompany balances are revolving in nature and are not deemed to be long-
term balances. The Company's U.K. subsidiary recognized net foreign currency
gains of 49,000 pounds ($84,000) for the quarter ended September 30, 2003 and
recognized net foreign currency losses of 31,000 pounds ($49,000) for the
quarter ended September 30, 2002. 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.
As of September 30, 2003, the Company's long-term debt of $15,538,000
consisted of a mortgage note payable. The interest rate on the mortgage note
was fixed at 7% through November 2002. The terms of the note payable were
modified in December 2002 to include a floating interest rate at the one
month LIBOR rate plus 2.5% with a floor of 4%. The floating interest rate on
the mortgage note payable was below the 4% floor as of September 30, 2003.
ITEM 4 - CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based
on this evaluation, the principal executive officer and principal financial
officer concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company
in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. There was no change in
the Company's internal control over financial reporting during the Company's
most recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
13
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
See Item 3 of the Registrant's Annual Report of Form 10-K for the fiscal year
ended June 30, 2003.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS
(a) The Annual Meeting of the Registrant's shareholders was held on
Thursday, October 23, 2003.
(b) A proposal to set the number of directors at seven was adopted by a
vote of 36,490,419 in favor with 42,211 shares against, 16,803 shares
abstaining and no shares represented broker nonvotes.
(c) Proxies for the Annual Meeting were solicited pursuant to Regulation
14A under the Securities Exchange Act of 1934. There was no
solicitation in opposition to management's nominees as Listed in the
Proxy Statement, and all such nominees were elected, as follows:
Nominee For Withheld
------- --- --------
Thomas E. Oland 36,088,332 461,101
Roger C. Lucas 27,205,130 9,344,303
Howard V. O'Connell 35,959,057 590,376
G. Arthur Herbert 35,959,057 590,376
Randolph C. Steer 35,959,957 589,476
Christopher S. Henney 35,012,570 1,536,863
Robert V. Baumgartner 36,072,282 477,151
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 by the Company's customers, the impact of the growing
number of producers of biotechnology research products and related price
competition, the retention of hematology OEM (private label) and proficiency
survey business, the impact of 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.
14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See exhibit index following.
B. REPORTS ON FORM 8-K
Form 8-K dated October 23, 2003 furnishing pursuant to Item 12, the
Registrant's press release reporting earnings for the first quarter of
fiscal 2003 and segment information for the quarter ended September 30,
2003.
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: November 13, 2003 /s/ Thomas E. Oland
-------------------------------
President, Chief Executive and
Chief Financial Officer
EXHIBIT INDEX
TO
FORM 10-Q
TECHNE CORPORATION
Exhibit # Description
- ----------- -----------------------
31 Section 302 Certification
32 Section 906 Certification
15