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, 1997, 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 May 1, 1997, 9,410,728 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 3/31/97 6/30/96
----------- -----------
Cash and cash equivalents $ 5,391,305 $ 7,422,084
Short-term investments 14,207,037 11,827,451
Accounts receivable (net) 9,066,432 8,379,531
Inventories 4,001,990 3,653,117
Deferred income taxes 1,255,000 1,262,000
Other current assets 836,139 744,824
----------- -----------
Total current assets 34,757,903 33,289,007
Deferred income taxes 1,460,000 1,049,000
Prepaid license fee 290,400 409,200
Fixed assets (net) 11,456,489 9,045,267
Intangible assets (net) 424,188 600,819
Other assets 250,000 -
----------- -----------
TOTAL ASSETS $48,638,980 $44,393,293
=========== ===========
LIABILITIES & EQUITY
Trade accounts payable $ 1,801,842 $ 1,720,873
Salary and related accruals 1,298,263 1,725,124
Other payables 481,740 876,346
Income taxes payable 573,205 706,679
----------- -----------
Total current liabilities 4,155,050 5,029,022
Deferred rent 795,750 490,200
Common stock, par value $.01 per
share; authorized 50,000,000;
issued and outstanding
9,410,728 and 9,519,528,
respectively 94,107 95,195
Additional paid-in capital 11,563,569 11,448,558
Retained earnings 31,674,799 27,245,416
Accumulated foreign currency
translation adjustments 355,705 84,902
----------- -----------
Total stockholders' equity 43,688,180 38,874,071
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $48,638,980 $44,393,293
=========== ===========
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
------------------------ ------------------------
3/31/97 3/31/96 3/31/97 3/31/96
----------- ----------- ----------- -----------
Sales $16,251,827 $14,713,361 $44,688,099 $40,022,138
Cost of sales 4,979,754 5,018,310 14,329,596 14,315,169
----------- ----------- ----------- -----------
Gross margin 11,272,073 9,695,051 30,358,503 25,706,969
Operating expenses
(income):
Selling, general and
administrative 4,114,790 3,521,315 11,089,559 9,785,432
Research & development 2,940,709 2,562,017 8,770,804 7,516,197
Amortization expense 58,877 58,876 176,631 176,631
Interest expense 731 402 29,255 717
Interest income (188,936) (146,355) (511,408) (449,839)
----------- ----------- ----------- -----------
6,926,171 5,996,255 19,554,841 17,029,138
----------- ----------- ----------- -----------
Earnings before income
taxes 4,345,902 3,698,796 10,803,662 8,677,831
Income taxes 1,394,000 1,188,000 3,399,000 2,694,000
----------- ----------- ----------- -----------
NET EARNINGS $ 2,951,902 $ 2,510,796 $ 7,404,662 $ 5,983,831
=========== =========== =========== ===========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARE $ 0.30 $ 0.26 $ 0.76 $ 0.62
=========== =========== =========== ===========
AVERAGE COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING 9,719,469 9,691,746 9,742,411 9,685,396
=========== =========== =========== ===========
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
-------------------------
3/31/97 3/31/96
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,404,662 $ 5,983,831
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 1,683,709 1,302,753
Deferred income taxes (363,000) (351,000)
Tax benefit from exercise of options - 371,000
Decrease in prepaid license fee 118,800 118,800
Deferred rent 305,550 59,950
Other 7,905 48,354
Change in current assets and current
liabilities:
Increase in:
Accounts receivable (596,832) (1,252,323)
Inventories (298,033) (95,537)
Other current assets (82,138) (72,191)
Increase (decrease) in:
Trade account/other payables (353,579) 336,125
Salary and related accruals (431,358) 8,530
Income taxes payable (165,457) (1,900)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,230,229 6,456,392
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (11,324,586) (9,472,347)
Proceeds from sale of short-term
investments 8,945,000 9,253,787
Increase in other long term assets (250,000) -
Additions to fixed assets (3,876,338) (5,511,836)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (6,505,924) (5,730,396)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 115,096 364,125
Repurchase of common stock (2,976,452) (676,206)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (2,861,356) (312,081)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 106,272 795
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS (2,030,779) 414,710
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 7,422,084 5,317,493
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 5,391,305 $ 5,732,203
=========== ===========
See notes to unaudited Consolidated 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 1996. 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 Consolidated Financial Statements be read in
conjunction with the Company's Consolidated Financial Statements and
Notes thereto for the fiscal year ended June 30, 1996 included in the
Company's Annual Report to Shareholders for Fiscal 1996.
Certain Consolidated Balance Sheet captions appearing in this interim
report are as follows:
3/31/97 6/30/96
----------- -----------
ACCOUNTS RECEIVABLE
Accounts receivable $ 9,117,432 $ 8,492,531
Less reserve for bad debts 51,000 113,000
----------- -----------
NET ACCOUNTS RECEIVABLE $ 9,066,432 $ 8,379,531
=========== ===========
INVENTORIES
Raw materials $ 2,181,086 $ 1,808,605
Work in process 36,030 34,917
Supplies 136,992 99,323
Finished goods 1,647,882 1,710,272
----------- -----------
TOTAL INVENTORIES $ 4,001,990 $ 3,653,117
=========== ===========
FIXED ASSETS
Laboratory equipment $ 9,395,762 $ 8,463,653
Office equipment 2,640,144 2,417,311
Leasehold improvements 8,950,484 6,114,009
----------- -----------
20,986,390 16,994,973
Less accumulated depreciation
and amortization 9,529,901 7,949,706
----------- -----------
NET FIXED ASSETS $11,456,489 $ 9,045,267
=========== ===========
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 2,311,359 2,134,728
----------- -----------
NET INTANGIBLE ASSETS $ 424,188 $ 600,819
=========== ===========
B. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
NINE MONTHS ENDED
----------- -----------
3/31/97 3/31/96
----------- -----------
Primary:
Weighted average number of common shares 9,467,268 9,415,540
Dilutive effect of stock options and warrants 275,143 269,856
----------- -----------
Average common and common equivalent shares
outstanding 9,742,411 9,685,396
=========== ===========
Fully diluted:
Weighted average number of common shares 9,467,268 9,415,540
Dilutive effect of stock options and warrants 284,874 299,878
----------- -----------
Average common and common equivalent shares
outstanding 9,752,142 9,715,418
=========== ===========
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, 1997
vs. Quarter and Nine Months Ended March 31, 1996
------------------------------------------------------------------
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 is the distributor for
R&D Systems' biotechnology products in Europe. In fiscal 1996, R&D
Europe opened a sales subsidiary in Germany. The Company also has a
foreign sales corporation, Techne Export Inc.
Net Sales
Net sales for the quarter ended March 31, 1997 were $16,251,827, an
increase of $1,538,466 (10%) from the quarter ended March 31, 1996.
Sales for the nine months ended March 31, 1997 increased $4,665,961
(12%) from $40,022,138 to $44,688,099. R&D Systems sales increased
$1,004,720 (10%) and $2,979,397 (11%) for the quarter and nine months
ended March 31, 1997, respectively. R&D Europe sales increased $533,746
(12%) and $1,686,564 (14%) for the same periods.
The increase in consolidated sales for the quarter and nine months was
due, in part, to increased sales of R&D Systems' cytokines and
antibodies. Sales of cytokines and antibodies by R&D Systems and R&D
Europe for the quarter and nine months ended March 31, 1997 were
$5,033,963 and $13,586,958 compared to $3,932,071 and $10,083,112 during
the same periods in the prior year, an increase of $1,101,892 and
$3,503,846, respectively.
Offsetting the increase in sales of biotechnology products, sales of
hematology products decreased $178,682 and $805,299 for the quarter and
nine months ended March 31, 1997. The decrease resulted mainly from the
loss of an OEM customer at the end of fiscal 1996, partially offset in
the second and third quarters of fiscal 1997 by higher retail sales and
increased sales to several other OEM customers.
Gross Margins
Gross margins, as a percentage of sales, increased from the prior year.
Margins for the third quarter of fiscal 1997 were 69.4% compared to
65.9% for the same quarter in fiscal 1996. Margins for the nine months
ended March 31, 1997 were 67.9 % compared to 64.2% for the same period
in fiscal 1996.
The increase for the quarter and nine months was due to a shift in
product mix to higher-margin biotechnology products and the conclusion
of royalty payments to Amgen Inc. in August 1996. During the quarter
and nine months ended March 31, 1997, biotechnology products accounted
for 84% and 83% of consolidated sales compared to 81% and 79% for the
quarter and nine months ended March 31, 1996. Gross margins for R&D
Europe, Hematology Division and Biotechnology Division all increased for
the quarter. R&D Europe gross margins increased from 52.9% to 53.0% for
the quarter ended March 31, 1997 and from 51.0% to 52.9% for the nine
months ended March 31, 1997. Hematology Division gross margins
increased from 40.0% to 46.1% for the quarter and from 38.6% to 42.7%
for the nine months ended March 31, 1997. Biotechnology Division gross
margins increased from 69.5% to 71.5% for the quarter and from 68.8% to
70.6% for the nine months ended March 31, 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $593,475 (17%)
from the third quarter of fiscal 1996 to the third quarter of fiscal
1997. These expenses also increased $1,304,127 (13%) for the first nine
months of fiscal 1997. Included in selling, general and administrative
expenses for the quarter March 31, 1997 is a restructuring charge of
approximately $450,000 related to R&D Europe. The restructuring
involves the withdrawal from the molecular biology market, the transfer
of all major marketing and advertising activities to R&D Systems and the
transfer of immunoassay kit development and manufacturing activities
from R&D Europe to R&D Systems by June 30, 1997. R&D Europe's sales
function will not be affected by the restructuring. In addition,
approximately $14,000 and $163,000 of the increase for the quarter and
nine months was due to additional Biotechnology Division sales and
marketing staff added since the prior year. R&D Europe selling, general
and administrative expenses, excluding the restructure charge, increased
$232,000 and $452,000 for the quarter and nine months respectively.
This increase relates mainly to the change in exchange rates used in
converting R&D Europe financial statements into U.S. dollars, due to the
declining value of the U.S. dollar. The average exchange rate during
the first nine months of fiscal 1997 and 1996 was 1.62 and 1.55 dollars
per British pound, respectively. In British pounds, R&D Europe's
selling general and administrative expenses, excluding the restructure
charge, increased 94,000 (11%) and 181,000 (8%) for the quarter and nine
months ended March 31, 1997, respectively.
Research and Development Expenses
Research and development expenses increased $378,692 (15%) for the
quarter ended March 31, 1997 and $1,254,607 (17%) for the nine months
ended March 31, 1997. R&D Europe and R&D Systems' research and
development expenses increased $293,878 and $84,814, respectively, for
the quarter ended March 31, 1997 and $946,706 and $307,901,
respectively, for the nine months ended March 31, 1997. The increases
related to products currently under development, several of which were
released in the first nine months of fiscal 1997. Products currently
under development include both biotechnology and hematology products.
The increase in R&D Systems' research and development expenses also
included additional research laboratory space added in the fourth
quarter of fiscal 1996.
Net Earnings
Earnings before income taxes increased $647,106 from $3,698,796 in the
third quarter of fiscal 1996 to $4,345,902 in the third quarter of
fiscal 1997. Earnings before taxes for the nine months ended March 31,
1997 increased $2,125,831 from $8,677,831 to $10,803,662. The increase in
earnings before income taxes was mainly due to an increase in Biotechnology
Division earnings of $1,100,693 and $2,387,593 for the quarter and nine
months ended March 31, 1997 as a result of increased sales and gross
margins. R&D Europe earnings decreased $484,263 and $129,991 for the
quarter and nine months, respectively as a result of the restructuring
charge. Hematology earnings before tax increased $32,044 for the
quarter ended March 31, 1997 and decreased $124,949 for the nine months
ended March 31, 1997.
Income taxes for the quarter and nine months ended March 31, 1997 and
1996 were provided at a rate of approximately 32% and 31% of
consolidated pretax earnings, respectively. U.S. federal taxes have
been reduced by the reinstatement of the credit for research and
development expenditures and the benefit of the foreign sales
corporation.
Liquidity and Capital Resources
At March 31, 1997, cash and cash equivalents and short-term investments
were $19,598,342 compared to $19,249,535 at June 30, 1996. The Company
has been accumulating cash and short-term investments for future
expansion purposes. 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 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 $7,230,229 from operating activities in
the first nine months of fiscal 1997 compared to $6,456,392 for the
first nine months of fiscal 1996. The increase was mainly the result of
increased net earnings offset by decreased current liabilities.
Cash Flows From Investing Activities
During the nine months ended March 31, 1997 and 1996, the Company
increased short-term investments $2,379,586 and $218,560, respectively.
The Company's investment policy is to place excess cash in short-term
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.
Capital additions were $3,876,338 for the first nine months of fiscal
1997, compared to $5,511,836 for the first nine months of fiscal 1996.
Included in the fiscal 1997 and 1996 additions were $2,825,226 and
$3,970,000 for leasehold improvements related to expansion and
remodeling of facilities by R&D Systems. The remaining additions in
fiscal 1997 and 1996 were for laboratory and computer equipment. Total
expenditures for capital additions planned for the remainder of fiscal
1997 are expected to cost approximately $1 million and are expected to
be financed through currently available funds and cash generated from
operating activities.
Cash Flows From Financing Activities
Cash of $115,096 and $364,125 was received during the nine months ended
March 31, 1997 and 1996, respectively, for the exercise of options for
8,500 and 64,500 shares of common stock. During the first nine months
of fiscal 1996, options for 80,000 shares of common stock were exercised
in a noncash transaction by the surrender of 31,645 shares of the
Company's common stock with a market value of $601,250.
During the first nine months of fiscal 1997 and 1996, the Company
purchased and retired 117,300 and 36,200 shares, respectively, of
Company common stock at market values of $2,976,452 and $676,206. In
May 1995, the Company announced a plan to purchase and retire up to
$5,000,000 of its common stock. Through May 1, 1997, 198,500 shares
have been purchased at a market value of $4,283,411. Subject to market
conditions and share price, the Company has extended its stock
repurchase program and plans to purchase and retire up to an additional
$5,000,000 of common stock.
The Company has never paid dividends and has no plans to do so in fiscal
1997.
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
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995: 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 and proficiency survey
business, and the Company's expansion of marketing efforts in Europe.
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 14, 1997 Thomas E. Oland
----------------------------
Thomas E. Oland
President, Chief Executive and
Financial Officer
EXHIBIT INDEX
TO
FORM
10-Q
TECHNE CORPORATION
Exhibit
Number Description
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27 Financial Data Schedule