SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1995, 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 (Zip Code) including area code)
executive offices)
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 May 1, 1995, 9,395,346 shares of the Company's Common Stock (par value
$.01) were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS 3/31/95 6/30/94
----------- -----------
Cash and cash equivalents $ 5,227,011 $ 5,878,346
Short-term investments 9,254,368 4,987,701
Accounts receivable (net) 7,174,629 6,592,961
Inventories 2,903,361 2,513,561
Deferred income taxes 749,000 764,000
Other current assets 367,526 198,898
----------- -----------
Total current assets 25,675,895 20,935,467
Deferred income taxes 466,000 385,000
Prepaid license fee 607,200 -
Fixed assets (net) 4,134,737 4,357,108
Intangible assets (net) 895,205 1,127,946
----------- -----------
TOTAL ASSETS $31,779,037 $26,805,521
=========== ===========
LIABILITIES & EQUITY
Trade accounts payable $ 1,453,859 $ 1,226,864
Salary and related accruals 1,177,405 1,140,737
Other payables 592,225 624,033
Income taxes payable 218,107 536,906
Current portion of long-term debt - 29,875
----------- -----------
Total current liabilities 3,441,596 3,558,415
Deferred rent 390,500 292,400
Common stock, par value $.01 per
share; authorized 50,000,000;
issued and outstanding 9,395,346
and 9,329,151, respectively 93,953 93,292
Additional paid-in capital 8,404,412 8,110,798
Retained earnings 19,257,027 14,677,038
Accumulated foreign currency translation
adjustments 191,549 73,578
----------- -----------
Total stockholders' equity 27,946,941 22,954,706
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $31,779,037 $26,805,521
=========== ===========
See notes to unaudited Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
------------------------ ----------- -----------
3/31/95 3/31/94 3/31/95 3/31/94
----------- ----------- ----------- -----------
Sales $12,576,041 $10,963,432 $34,897,468 $29,431,032
Cost of sales 5,003,971 4,550,513 13,905,344 12,671,550
----------- ----------- ----------- -----------
Gross margin 7,572,070 6,412,919 20,992,124 16,759,482
Operating expenses:
Selling, gen. and admin. 2,888,020 2,468,472 8,233,788 6,865,740
Research and development 2,130,800 1,752,288 6,199,942 4,702,373
Amortization expense 58,877 143,044 232,741 429,131
Interest expense 1,543 2,681 7,521 4,484
Interest income (145,974) (44,914) (320,981) (123,011)
----------- ----------- ----------- -----------
4,933,266 4,321,571 14,353,011 11,878,717
----------- ----------- ----------- -----------
Earnings before
income taxes 2,638,804 2,091,348 6,639,113 4,880,765
Income taxes 855,000 630,000 2,041,000 1,495,000
----------- ----------- ----------- -----------
NET EARNINGS $ 1,783,804 $ 1,461,348 $ 4,598,113 $ 3,385,765
=========== =========== =========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.19 $ 0.15 $ 0.48 $ 0.36
=========== =========== =========== ===========
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 9,534,610 9,488,578 9,504,720 9,522,971
=========== =========== =========== ===========
See notes to unaudited Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
-----------------------
3/31/95 3/31/94
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $4,598,113 $3,385,765
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 1,213,051 1,353,394
Deferred income taxes (66,000) (471,000)
Deferred rent 98,100 110,700
Other (24,546) -
Change in current assets and current
liabilities, net of acquisition:
(Increase) decrease in:
Accounts receivable (495,120) (398,839)
Inventories (357,294) (162,410)
Other current assets (163,397) (65,004)
Increase (decrease) in:
Trade account/other payables 161,994 247,966
Salary and related accruals 34,226 208,339
Income taxes payable (225,259) 333,000
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,773,868 4,541,911
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash acquired - (1,788,558)
Purchase of short-term investments (8,625,970) (3,448,313)
Proceeds from sale of short-term investments 4,399,303 2,930,000
Additions to fixed assets (723,841) (1,056,979)
Increase in long-term prepaid license fee (607,200) -
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (5,557,708) (3,363,850)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long term debt (29,875) (26,776)
Issuance of common stock 179,151 27,011
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 149,276 235
EFFECT OF EXCHANGE RATE CHANGES ON CASH (16,771) (10,128)
---------- ----------
NET CHANGE IN CASH AND EQUIVALENTS (651,335) 1,168,168
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 5,878,346 3,979,114
---------- ----------
CASH AND EQUIVALENTS AT END OF PERIOD $5,227,011 $5,147,282
========== ==========
See notes to unaudited Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION:
The unaudited Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles 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 1994. The Company
follows these policies in preparation of the interim 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 the
Financial Statements be read in conjunction with the Company's Financial
Statements and Notes thereto for the fiscal year ended June 30, 1994
included in the Company's Annual Report to Shareholders for Fiscal 1994.
Certain Balance Sheet captions appearing in this interim report are as
follows:
3/31/95 6/30/94
----------- -----------
ACCOUNTS RECEIVABLE
Accounts receivable $ 7,304,629 $ 6,745,961
Less reserve for bad debts 130,000 153,000
----------- -----------
NET ACCOUNTS RECEIVABLE $ 7,174,629 $ 6,592,961
=========== ===========
INVENTORIES
Raw materials $ 1,588,073 $ 1,352,031
Work in process 74,987 67,025
Supplies 120,138 104,537
Finished goods 1,120,163 989,968
----------- -----------
TOTAL INVENTORIES $ 2,903,361 $ 2,513,561
=========== ===========
FIXED ASSETS
Laboratory equipment $ 6,393,824 $ 5,955,057
Office equipment 1,999,364 1,770,129
Leasehold improvements 1,712,369 1,586,336
----------- -----------
10,105,557 9,311,522
Less accumulated depreciation and
amortization 5,970,820 4,954,414
----------- -----------
NET FIXED ASSETS $ 4,134,737 $ 4,357,108
=========== ===========
INTANGIBLE ASSETS
Customer list $ 1,010,000 $ 1,010,000
Technology licensing agreements 500,000 500,000
Goodwill 1,225,547 1,225,547
----------- -----------
2,735,547 2,735,547
Less accumulated amortization 1,840,342 1,607,601
----------- -----------
NET INTANGIBLE ASSETS $ 895,205 $ 1,127,946
=========== ===========
B. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
NINE MONTHS ENDED
-----------------------
3/31/95 3/31/94
---------- ----------
Primary:
Weighted average number of common shares 9,357,473 9,311,115
Dilutive effect of stock options and warrants 147,247 211,856
---------- ----------
Average common and common equivalent shares
outstanding 9,504,720 9,522,971
========== ==========
Fully diluted:
Weighted average number of common shares 9,357,473 9,311,115
Dilutive effect of stock options and warrants 160,863 218,155
---------- ----------
Average common and common equivalent shares
outstanding 9,518,336 9,529,270
========== ==========
Fully diluted earnings per share are not separately reported since the
effect of dilution is less than three percent.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter And Nine Months Ended March 31, 1995
vs. Quarter And Nine Months Ended March 31, 1994
------------------------------------------------------------------
Company Structure
Techne Corporation 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 manufactures purified cytokines (proteins), antibodies and assay
kits which are sold primarily to biomedical researchers and clinical
research laboratories. The Hematology Division develops and manufactures
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
was acquired by the Company effective July 1, 1993 and is the distributor
for R&D Systems' biotechnology products in Europe. R&D Europe also
develops and manufactures its own line of biotechnology products and
distributes products for several other biotechnology companies. In fiscal
1992, a foreign sales corporation, Techne Export Inc., was incorporated as
a subsidiary of the Company.
Net Sales
Net sales for the quarter ended March 31, 1995 were $12,576,041, an
increase of $1,612,609 (15%) from the quarter ended March 31, 1994. Sales
for the nine months ended March 31, 1995 increased $5,466,436 (19%) from
$29,431,032 to $34,897,468. R&D Europe sales for the quarter and nine
months ended March 31, 1995 increased $791,343 (25%) and $2,451,427 (31%),
respectively, from the quarter and nine months ended March 31, 1994.
Approximately 60% of R&D Europe sales were from the distribution of R&D
Systems' products. R&D Systems sales, net of intercompany sales to R&D
Europe, increased $821,266 (10%) and $3,015,009 (14%) for the quarter and
nine months ended March 31, 1995, respectively.
Approximately 54% and 64% of the increase in consolidated sales for the
quarter and nine months, respectively, was due to the increase in sales of
R&D Systems' immunoassay (Quantikine) kits. In fiscal 1990, the
Biotechnology Division of R&D Systems released its first immunoassay kits
and currently there are 49 kits on the market. Sales of these kits by R&D
Systems and R&D Europe for the quarter and nine months ended March 31, 1995
were $4,904,692 and $13,667,265 compared to $4,026,531 and $10,187,496 for
the quarter and nine months ended March 31, 1994.
Approximately 17% and 11% of the increase in consolidated sales for the
quarter and nine months, respectively, was due to increased sales of other
R&D Systems' product by R&D Europe. In addition, approximately 12% and 10%
of the increase in consolidated sales for the quarter and nine months ended
March 31, 1995, was from an increase in the distribution of products from
non-affiliated companies by R&D Europe. Sales of R&D Systems' Hematology
Division for the quarter increased $104,493, while sales for the nine
months ended March 31, 1995 decreased $66,907, due mainly to competitive
factors.
Fourth quarter sales are expected to be slightly less than third quarter,
due to the annual slow down of European sales during the summer months.
Gross Margins
Gross margins, as a percentage of sales, increased from the prior year.
Margins for the third quarter of fiscal 1995 were 60.2% compared to 58.5%
for the same quarter in fiscal 1994. Margins for the nine months ended
March 31, 1995 were 60.2% compared to 56.9% for the same period in fiscal
1994.
The increase for the quarter was mainly due to an increase in R&D Europe
gross margins. R&D Europe gross margins were 48.2% compared to 41.2% for
the quarter ended March 31, 1994. This increase is due to favorable
exchange rate variances on purchases from R&D Systems as a result of
weakening dollar. R&D Europe gross margins for the nine months ended March
31, 1995 also increased from 44.3% to 47.5%. Additionally, gross margins
for the nine months for R&D Systems' Biotechnology Division increased
slightly from 65.3% to 66.3% and gross margins for R&D Systems' Hematology
Division also increased slightly from 33.2% to 34.5%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $419,548 (17%) from
the third quarter of fiscal 1994 to the third quarter of fiscal 1995.
These expenses also increased $1,368,048 (20%) for the first nine months
of fiscal 1995. Approximately $241,000 and $568,000 of the increase in
selling, general and administrative expenses for the quarter and nine
months was due to wages and benefits related to Biotechnology and
Hematology Division administration and sales staff added since the prior
year. Additionally, $132,000 and $274,000 of the increase in selling,
general and administrative expenses for the quarter and nine months was a
result of Biotechnology Division consulting expenses related to computer,
personnel and strategic planning. In addition, approximately $306,000 of
the increase for the nine months in selling, general and administrative
expenses was due to marketing costs related to additional advertising,
promotional materials and catalog printing costs incurred by R&D Systems'
Biotechnology Division and R&D Europe.
Research and Development Expenses
Research and development expenses increased $378,512 (22%) for the quarter
ended March 31, 1995 and $1,497,569 (32%) for the nine months ended March
31, 1995. R&D Europe and R&D Systems' research and development expenses
increased $85,805 and $292,707, respectively for the quarter ended March
31, 1995 and $354,096 and $1,143,473, respectively, for the nine months
ended March 31, 1995. The increases related to products currently under
development, several of which were released in the third quarter of fiscal
1995. The products currently under development, several of which will be
released in the fourth quarter, include both biotechnology and hematology
products.
Net Earnings
Earnings before income taxes increased $547,456 from $2,091,348 in the
third quarter of fiscal 1994 to $2,638,804 in the third quarter of fiscal
1995. Earnings before income taxes for the nine months increased
$1,758,348 from $4,880,765 to $6,639,113. The increase in earnings before
income taxes for the quarter ended March 31, 1995 is mainly due to an
increase in R&D Europe earnings of $519,045 as a result of increased sales
and gross margin percentage. The increase in earnings before taxes for the
nine months is mainly the result of an increase in Biotechnology Division
earnings before tax of $1,088,846 and an increase in R&D Europe earnings
before tax of $959,087, partially offset by a decrease in Hematology
Division earnings for the nine months. The increases in Biotechnology
Division and R&D Europe results were due to increases in sales and gross
margins, partially offset by higher expenses. The decrease in Hematology
earnings from the prior year was the result of a slight decrease in sales
and increased expenses.
Income taxes for the quarter and nine months ended March 31, 1995 were
provided at a rate of approximately 32% and 31% of consolidated pretax
earnings, respectively, compared to 30% and 31% for comparable periods in
fiscal 1994. U.S. federal and state taxes have been reduced as a result
of the credit for research and development expenditures and the benefit of
the foreign sales corporation. Foreign income taxes have been provided at
a rate of 33% which approximates the tax rate in the United Kingdom.
Impact of Inflation
-------------------
The majority of the Company's increase in sales has resulted from an
increase in units shipped and the introduction of new products, not from
price increases. The Company believes that, to date, inflation has had no
appreciable effect on the Company's operations.
Liquidity and Capital Resources
-------------------------------
At March 31, 1995, cash and cash equivalents and short-term investments
were $14,481,379 compared to $10,866,047 at June 30, 1994. The Company is
accumulating cash and short-term investments for future expansion purposes.
The Company believes it can meet its future cash, working capital
requirements and capital additions through currently available funds and
cash generated from operations. The Company has an unsecured line of
credit of $750,000. The interest rate on the line of credit is at prime.
Cash Flows From Operating Activities
The Company generated $4,166,668 from operating activities in the first
nine months of fiscal 1995 compared to $4,541,911 for the first nine months
of fiscal 1994. The increase was the result of increased net earnings.
Cash Flows From Investing Activities
During the nine months ended March 31, 1995 and 1994, respectively, the
Company invested a net $4,226,664 and $518,313 in short-term investments.
The Company's investment policy is to place excess cash in short-term
certificates of deposit and low risk tax-exempt government bonds. The
objective of this policy is to obtain the highest possible return with the
lowest risk, while keeping the funds accessible.
In July, 1993 the Company acquired its R&D Europe subsidiary for $2,300,000
cash plus a 5 year warrant for 50,000 shares of Company common stock.
Additional costs associated with the acquisition were $87,241. Cash
acquired in the transaction was $598,683, for a net cash outflow of
$1,788,558. Cash used to fund the acquisition was obtained from cash and
cash equivalents and short-term investments on hand at June 30, 1993.
Capital additions were $723,841 for the first nine months of fiscal 1995
compared to $1,056,979 for the first nine months of fiscal 1994. The major
additions in both periods were for laboratory and computer equipment.
Total capital additions of leasehold improvements, laboratory and computer
equipment planned for the remainder of fiscal 1995 are expected to cost
approximately $300,000 and are expected to be financed through currently
available cash and cash generated from operations.
During the nine months ended March 31, 1995 the Company made a $1,000,000
prepayment to Cistron Biotechnology, Inc. under a License and Supply
Agreement. The agreement grants the Company a sublicense to sell recombinant
interleukin-1 beta protein and interleukin-1 beta precursor assays made by
Cistron to the research market worldwide. The $1,000,000 prepayment is being
amortized over five years. The Company and Cistron also signed a Research
and Development Agreement under which the Company will support Cistron's
development of an interleukin-1 beta assay kit for the detection and
monitoring of periodontal disease in humans, in exchange for co-exclusive
marketing rights to such product. Payments under the research agreement
will be made in 10 quarterly installments of $100,000 beginning July 1,
1995 and are expected to be financed through cash generated from
operations.
Cash Flows From Financing Activities
Cash of $29,875 and $26,776 was used to reduce long-term borrowings in the
first nine months of fiscal 1995 and 1994, respectively. Cash of $179,151
and $27,011 was received during the nine months ended March 31, 1995 and
1994, respectively, for the exercise of options for 59,604 and 11,853
shares of common stock. During the first nine months of fiscal 1995 and
1994, options for 9,091 and 13,940 shares of common stock, respectively,
were exercised in noncash transactions by the surrender of 2,500 and 2,144
shares of the Company's common stock with market values of $25,000 and
$25,192., respectively.
During the fourth quarter of fiscal 1995, the Company plans to purchase
approximately $400,000 of Techne common stock for contribution to the
Company's Stock Bonus Plan. In addition, subject to market conditions and
share prices, the Company plans to purchase up to $5,000,000 in Techne
common stock over the next twelve months. Any such purchases will be
funded from currently available cash and short-term investments. The
Company has never paid dividends and has no plans to do so in fiscal 1995.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
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
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See exhibit index immediately following signature page.
B. REPORTS ON FORM 8-K
None
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, 1995 /s/Thomas E. Oland
---------------------
Thomas E. Oland
President, Chief Executive
and Financial Officer
EXHIBIT INDEX
TO
FORM
10-Q
TECHNE CORPORATION
Exhibit
Number Description
-------- -----------
10.1 Agreement dated March 16, 1995 between the Company and
Roger C. Lucas, Ph.D. relating to termination of certain
agreements and redefining relationship.
10.2 Non-Enforcement of Patent Rights dated March 15, 1995 by
New England Medical Center Hospitals, Inc., Tufts University,
Massachusetts Institute of Technology and Wellesley College
in favor of Research and Diagnostic Systems, Inc. ("R & D").
10.3 Non-Enforcement of Patent Rights dated March 21, 1995 by
Cistron Biotechnology, Inc. ("Cistron") in favor of R & D.
10.4 License and Supply Agreement dated March 21, 1995 between
Cistron and R & D.
10.5 Research and Development Agreement dated April 10, 1995
between Cistron and R & D.
27 Financial Data Schedule