SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
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 of Incorporation) (IRS Employer Identification No.)
614 McKinley Place N.E., Minneapolis, MN 55413
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (612) 379-8854
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value.
Indicate by check mark whether the Company (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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant, based upon the closing sale price on September 14, 1999 as
reported on The Nasdaq Stock Market was approximately $374,212,000. Shares of
Common Stock held by each officer and director and by each person who owns 5%
or more of the outstanding Common Stock have been excluded.
Shares of $.01 par value Common Stock outstanding at September 14, 1999:
20,163,192
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
OVERVIEW
Techne Corporation (the "Company") is a holding company which has two wholly-
owned 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 is a specialty manufacturer
of biological products. Its two major operating segments are hematology
controls, which are used in hospital and clinical laboratories to check the
accuracy of blood analysis instruments, and biotechnology products including
purified proteins (cytokines) and antibodies which are sold exclusively to the
research market, and assay kits which are sold to the research and clinical
diagnostic markets. R&D Europe distributes R&D Systems' biotechnology
products in Europe. R&D Europe has a German sales subsidiary, R&D Systems
GmbH (R&D GmbH). The Company also has a foreign sales corporation, Techne
Export Inc.
R&D Systems was founded and incorporated in 1976 in Minneapolis, Minnesota and
was acquired by the Company in 1985. In 1977 R&D Systems introduced its first
product, a Platelet-Rich-Plasma control. In 1981 R&D Systems was the second
manufacturer in the world to release a Whole Blood Control with Platelets,
thereby establishing itself as one of the leaders in the field of hematology
control products manufacturing. Subsequently, R&D Systems has developed
several types of hematology controls designed to keep pace with the technology
of the newest models of hematology instruments. These products are sold
throughout the United States directly by R&D Systems and in many foreign
countries through distributors.
In 1985 R&D Systems entered the research reagent market with its first
cytokine, TGF-beta. Cytokines are specialized protein molecules that
stimulate or suppress various cell functions in the body. Cytokines are in
demand by biomedical researchers who want to learn more about their diverse
effects. Encouraged by its success in the cytokine market, R&D Systems formed
a biotechnology division in 1986 with the goal of producing and marketing a
wide range of human cytokines through genetic engineering. Recombinant DNA
technology offers several advantages over extraction of these proteins from
natural sources, including lower production cost and potentially unlimited
supply.
On August 19, 1991, R&D Systems purchased Amgen Inc.'s research reagent and
diagnostic assay kit business. With this purchase, R&D Systems obtained
Amgen's Erythropoietin (EPO) kit, the Company's first enzyme-linked
immunosorbent assay kit for a cytokine that had been cleared by the FDA for
clinical diagnostic use. This acquisition established R&D Systems as a leader
in cytokine diagnostic assays.
In July 1993, the Company acquired its European biotechnology distributor,
British Bio-technology Products Ltd. (renamed R&D Systems Europe Ltd.) from
British Bio-technology Group plc. R&D Europe distributes biotechnology
products developed by R&D Systems.
During fiscal 1998 and 1999, the Company made equity investments in the
preferred stock of ChemoCentryx, Inc. (CCX), a new technology and drug
development company. The investment gives Techne a 43% interest in CCX. In
addition to the equity investment and joint research efforts, the Company
obtained research and diagnostic market rights to all products discovered or
developed by CCX.
On July 1, 1998, R&D Systems purchased Genzyme Corporation's research products
business. This acquisition establishes R&D Systems as the world's leading
supplier of research and diagnostic cytokine products.
THE MARKET
The Company, through its two operating subsidiaries, manufactures and sells
products for the clinical diagnostics market (hematology controls and
calibrators) and the biotechnology research and clinical diagnostics market
(cytokines, assays and related products). In fiscal 1999, R&D Systems'
Hematology Division revenues accounted for approximately 14% of consolidated
revenues of $90,900,697. Revenues from R&D Systems' Biotechnology Division
and R&D Europe were 60% and 26% of consolidated revenues, respectively.
Biotechnology Products
R&D Systems is the world's leading supplier of cytokines and cytokine-related
reagents to the biotechnology research community. These valuable proteins
exist in minute amounts in different types of cells and can be extracted from
these cells or made through recombinant DNA technology. In 1985, R&D Systems
introduced its first cytokine and continues to add to this product line. The
first cytokines were extracted from natural sources (human and porcine
platelets and bovine brain). Currently almost all of cytokines are produced
by recombinant DNA technology. R&D Systems also sells antibodies for specific
cytokines, cytokine assay kits, clinical diagnostic kits, kits for cytokine
receptor binding studies, and related research reagents.
The growing interest by researchers in cytokines exists because of the
profound effect a tiny amount of a cytokine can have on the cells and tissues
of the body. Cytokines are intercellular messengers. They act as signals by
interacting with specific receptors on the effected cells. They carry vital
signals to the cell's genetic machinery that can trigger events that can lead
to significant changes in a cell, tissue or organism. For example, cytokines
can signal a cell to differentiate, i.e., to acquire the features necessary
for it to take on a more specialized task. Another example of cytokine action
is the key role they play in stimulating cells surrounding a wound to grow and
divide and to attract migratory cells to the injury site.
R&D Systems' Biotechnology Division was formed in response to a growing need
for highly purified biologically active proteins. R&D Systems believes that
its cytokines are addressing this growing demand for these products within the
scientific research community.
During fiscal 1990, the Biotechnology Division released its first cytokine
assay kits under the tradename Quantikine. These kits are used by researchers
to quantify the level of a specific cytokine in a sample of blood, serum, or
other biological fluid. In fiscal 1996, the Biotechnology Division expanded
its Quantikine line by introducing a line of assay kits for mouse cytokines.
These kits are used extensively by research scientists doing cytokine studies
using animal models, such as those used in pharmaceutical discovery and
development programs.
Current Biotechnology Products
Cytokines and Related Antibodies. Cytokines, extracted from natural
sources or produced using recombinant DNA technology, are manufactured to
the highest purity. Polyclonal antibodies are produced by injecting
purified cytokines into animals (primarily goats and rabbits). The
animals' immune systems recognize the cytokines as foreign and develop
antibodies to these cytokines. The polyclonal antibodies are then
extracted from the animals' blood and purified. Monoclonal antibodies are
produced by injecting purified cytokines into mice. The B cells of a
mouse's immune system are then isolated and fused with mouse cancer cells
that will produce the desired antibody. Purified cytokines and antibodies
are made available both as research reagents and as parts of assay kits
(below).
Assay Kits. This product line includes R&D Systems' human and murine
(mouse and rat) Quantikine kits which allow research scientists to quantify
the amount of a specific cytokine in a sample of blood or tissue. Also
included in this product line are assay kits, developed by R&D Europe, to
quantify adhesion molecules. These kits are used by research scientists to
measure cellular adhesion molecules in serum, plasma, or cell culture
media. Cellular adhesion molecules facilitate the movement of infection
fighting cells out of the blood stream to the site of infections.
Clinical Diagnostic Kits. The EPO kit, acquired from Amgen Inc. in fiscal
1992, was the first diagnostic assay for which R&D Systems had FDA
marketing clearance. R&D Systems also has FDA marketing clearance for its
transferrin receptor (TfR) and Beta2-microglobulin kits.
Flow Cytometry Products. This product line includes R&D Systems'
Fluorokine kits which are used to measure the presence or absence of
receptors for specific cytokines on the surface of cells.
DNA and Related Products. Designer genes and designer probes are synthetic
DNAs used in the study of gene function.
Hematology Controls and Calibrators
Hematology controls and calibrators, manufactured and marketed through the
Hematology Division of R&D Systems, are products made up of the various
cellular components of blood. Proper diagnosis of many illnesses requires a
thorough and accurate analysis of the patient's blood cells, which is usually
done with automatic or semiautomatic hematology instruments. Controls and
calibrators ensure that these instruments are performing accurately and
reliably.
Blood is composed of plasma, the fluid portion of which is mainly water, and
blood cells, which are suspended in the plasma. There are three basic types
of blood cells: red cells, white cells and platelets. About 95 percent of
the blood cells are red cells. Their main job is to transport oxygen from the
lungs throughout the body, which they do by being rich in hemoglobin. White
cells defend the body against foreign invaders. Platelets serve as a "plug"
to stem blood flow at the site of an injury by sticking together and to the
damaged tissue.
The formed elements of blood (red cells, white cells and platelets) differ a
great deal in size and concentration. The white cells are the largest in size
and platelets the smallest. The red cells are the most numerous. The average
adult has from 20 to 30 trillion red cells. For every 500 red cells there are
approximately one white cell and about 20 platelets. As noted above,
hematology controls are used in automatic and semiautomatic cell counting
analyzers to make sure these instruments are counting blood cells accurately.
One of the most frequently performed laboratory tests on a blood sample is
called a complete blood count, or CBC for short. Doctors use this test in
disease screening and diagnosis. More than a billion of these tests are done
every year, the great majority with cell counting instruments. In most
laboratories the CBC consists of the white cell count, the red cell count, the
hemoglobin reading, and the hematocrit reading or the percent of red cells in
a volume of whole blood after it has been centrifuged. Also included in a CBC
test is the differential which numbers and classifies the different types of
white cells.
These and other characteristics or "parameters" of a blood sample can be
measured by automatic or semiautomatic cell counters. Cell counters can read
the parameters of blood either by impedance, in which a cell interrupts an
electrical current and is counted, or by a laser, in which a cell interrupts a
laser beam and is counted. The number of parameters measurable in a blood
control product depends on the type and sophistication of the instrument for
which the control is designed. Ordinarily, a hematology control is used once
to several times a day to make sure the instrument is reading accurately.
Some instruments need to be calibrated periodically. Hematology calibrators
are similar to controls but go through additional processing and testing to
ensure that the calibration values assigned are extremely accurate and can be
used to adjust the instrument.
The Hematology Division of R&D Systems offers a complete line of hematology
controls and calibrators for both impedance and laser type cell counters. R&D
Systems believes its products have improved stability and versatility and a
longer shelf life than most of those of its competitors. The Hematology
Division supplies hematology control products for use as proficiency testing
materials by laboratory certifying authorities of a number of states and
countries. All products are priced competitively and come with an
unconditional money back guarantee. R&D Systems recognizes that developing
technologies for cell counting instruments will require increasingly
sophisticated and high-quality controls and is prepared to meet this
challenge.
Current Retail Hematology Products
Impedance-Type Whole Blood Controls/Calibrators. The Hematology Division
of R&D Systems currently produces controls and calibrators for the
following impedance-type instruments: Abbott Cell-Dyn, ABX, Beckman
Coulter, Danam, Hycel, Roche and TOA Sysmex instruments.
Laser-Type Whole Blood Controls/Calibrators. Currently produced controls
and calibrators for laser-type instruments include products for the
following: Abbott Cell-Dyn 3000, 2500 and 4000 instruments, ABX
instruments, Bayer H series instruments, and the TOA Sysmex NE-8000 and NE-
5500 instruments.
Linearity Control. This product provides a means of assessing the
linearity of hematology analyzers for white blood cells, red blood cells,
hemoglobin and platelets.
Whole Blood Reticulocyte Control. This control is designed for manual and
automated counting of reticulocytes (immature red blood cells).
Whole Blood Flow Cytometry Control. This product is a control for flow
cytometry instruments. These instruments are used to identify and quantify
white blood cells by their surface antigens.
Erythrocyte Sedimentation Rate Control. This product is designed to
monitor erythrocyte sedimentation rate tests.
Multi-Purpose Platelet Reference Control. This product, Platelet-Trol II,
is designed for use by automatic and semi-automatic impedance and laser
instruments and is the successor to Platelet-Rich-Plasma which R&D Systems
introduced in 1977.
PRODUCTS UNDER DEVELOPMENT
R&D Systems is engaged in ongoing research and development in all of its major
product lines: hematology controls and calibrators, biotechnology cytokines,
antibodies, assays and related products. The Company believes that its future
success depends, to a large extent, on the ability to keep pace with changing
technologies and markets. At the same time, the Company continues to examine
its production processes to ensure high quality and maximum economy.
R&D Systems' Biotechnology Division is planning to release new cytokines,
antibodies and cytokine assay kits in the coming year. All of these products
will be for research purposes only and therefore do not require FDA clearance.
R&D Systems' Hematology Division has developed several new control products in
fiscal 1999 and is continuously working on product improvements and
enhancements.
There is no assurance that any of the products in the research and development
phase can be developed, or, if developed, can be successfully introduced into
the marketplace.
Expenditures for research and development activities were $12,004,798,
$10,637,804 and $11,701,822 for fiscal years 1999, 1998 and 1997,
respectively.
BUSINESS RELATIONSHIPS
During fiscal 1998 and 1999, Techne purchased a total of $4 million of
convertible preferred stock of ChemoCentryx, Inc. (CCX), representing
approximately 43% of issued and outstanding voting shares. CCX is a new
technology and drug development company working in the area of chemokines.
Chemokines are cytokines which regulate the trafficking patterns of
leukocytes, the effector cells of the human immune system. In conjunction
with the equity investment and joint research efforts, Techne obtains
exclusive worldwide research and diagnostic marketing rights to chemokine
proteins, antibodies and receptors discovered or developed by CCX or R&D
Systems. Techne is obligated to purchase up to an additional $1 million of
convertible preferred stock in fiscal 2000 upon CCX's achievement of certain
milestones. After purchase of the additional preferred shares, Techne will
own approximately 49% of the issued and outstanding voting shares (assuming no
investment by other parties). Techne has accounted for the investment under
the equity method of accounting and recognizes 100% of the losses of CCX due
to the limited amount of cash consideration provided by the holders of the
common shares of CCX.
Original Equipment Manufacturers (OEM) agreements represent the largest market
for hematology controls and calibrators made by R&D Systems. In fiscal year
1999, OEM contracts accounted for $5,724,486 or 45% of Hematology Division
revenues and 6% of total consolidated revenues.
GOVERNMENT REGULATION
All manufacturers of hematology controls and calibrators are regulated under
the Federal Food, Drug and Cosmetic Act, as amended. All of R&D Systems'
hematology control products are classified as "In Vitro Diagnostic Products"
by the US Food and Drug Administration. The entire hematology control
manufacturing process, from receipt of raw materials to the monitoring of
control products through their expiration date, is strictly regulated and
documented. FDA inspectors make periodic site inspections of the Hematology
Division's control operations and facilities. Hematology control
manufacturing must comply with Good Manufacturing Practices (GMP) as set forth
in the FDA's regulations governing medical devices. R&D Systems has not
experienced any difficulty in complying with GMP requirements.
Three of R&D Systems' immunoassay kits, EPO, TfR and Beta2-microglobulin, have
FDA clearance to be sold for clinical diagnostic use. R&D Systems must comply
with GMP for the manufacture of these kits. Biotechnology products
manufactured in the United States and sold for use in the research market do
not require FDA clearance.
Some of R&D Systems' research groups use small amounts of radioactive
materials in the form of radioisotopes in their product development
activities. Thus, R&D Systems is subject to regulation by the US Nuclear
Regulatory Commission and has been granted a NRC License due to expire in
April 2000. The license is renewable annually. R&D Systems is also subject
to regulation and inspection by the Department of Health of the State of
Minnesota for its use of radioactive materials. It has been granted a
certificate of registration, which is renewable annually, by the Minnesota
Department of Health. The current certificate expires April 1, 2000. R&D
Systems has had no difficulties in renewing these licenses in prior years and
has no reason to believe they wouldn't be renewed in the future. If, however,
the licenses were not renewed, it would have minimal effect on R&D Systems'
business since there are other technologies the research groups could use to
replace radioisotopes.
AVAILABILITY OF RAW MATERIALS
The primary raw material for the Company's hematology controls is whole blood.
Human blood is purchased from commercial blood banks and porcine and bovine
blood is purchased from nearby meat processing plants. After raw blood is
received, it is separated into its components, processed and stabilized.
Although the cost of human blood has increased owing largely to the
requirement that it be tested for HIV ("AIDS") antibodies and hepatitis, R&D
Systems does not anticipate that the higher cost of these materials will have
a seriously adverse effect on its business. R&D Systems does not perform its
own testing for the AIDS antibodies as the supplier tests all human blood
purchased. R&D Systems' Biotechnology Division develops and manufactures the
majority of its cytokines from synthetic genes developed in-house, thus
significantly reducing its reliance on outside resources. R&D Systems
typically has several outside sources for all critical raw materials necessary
for the manufacture of products.
PATENTS AND TRADEMARKS
R&D Systems owns patent protection for certain hematology controls. R&D
Systems may seek patent protection for new or existing products it
manufactures. No assurance can be given that any such patent protection will
be obtained.
No assurance can be given that R&D Systems' products do not infringe upon
patents or proprietary rights owned or claimed by others, particularly for
genetically engineered products. Although, with the exception of products
subject to current licensing agreements and the legal proceedings discussed in
Item 3 of this 10-K, R&D Systems has not been notified that its products
infringe upon proprietary rights held by others, it has not conducted a patent
infringement study for each of its products.
R&D Systems and R&D Europe have a number of licensing agreements with patent
holders under which they have the non-exclusive right to patented technology
or the non-exclusive right to manufacture and sell certain patented cytokine
and cytokine related products to the research market. For fiscal 1999, total
royalties accrued under these licenses were approximately $1,750,000.
R&D Systems has obtained federal trademark registration for its hematology
control trademark CBC-3D, CBC-7, CBC-8, PLATELET-TROL and StatusFlow and
claims common law rights in the trademarks CBC-CAL PLUS, CBC-CAL KIT, CBC-
TECH, TECH-CAL, CBC-3K, 3K-CAL and CBC-NE. R&D Systems has also obtained the
Quantikine, Fluorokine, QuantiGlo, Parameter, Surfacemark and IVD trademarks.
SEASONALITY OF BUSINESS
Sales of the products manufactured by R&D Systems and R&D Europe are not
seasonal, although R&D Europe historically experiences a slowing of sales
during the summer months.
SIGNIFICANT CUSTOMERS
No single customer accounted for more than 10% of total revenues during fiscal
years 1999, 1998 and 1997.
BACKLOG
There was no significant backlog for the Company's products as of the date of
this report or as of a comparable date for fiscal 1998.
COMPETITION
The market for cytokines and research diagnostic assay kits in the United
States and Europe is being supplied by a number of biotechnology companies,
including BioSource International, Endogen Corp., Sigma Chemical Co., Amersham
Pharmacia and CN Biosciences. R&D Systems believes that it is the leading
worldwide supplier of cytokine related products in the research marketplace.
R&D Systems believes that the expanding line of its products, their recognized
quality and competitive pricing, and the growing demand for these rare and
versatile proteins, antibodies and assay kits, will allow the Company to
remain the leader in the growing biotechnology research and diagnostic market.
Competition is intense in the hematology control business. The first control
products were developed in response to the rapid advances in electronic
instrumentation used in hospital and clinical laboratories for blood cell
counting. Most of the instrument manufacturing companies make controls for
use in their own instruments. With rapid expansion of the instrument market,
however, a need for more versatile controls enabled non-instrument
manufacturers to gain a foothold. Today the market is comprised of
manufacturers of laboratory reagents, chemicals and coagulation products and
independent control manufacturers in addition to instrument manufacturers.
The principal hematology control competitors of R&D Systems' retail products
are Beckman Coulter, Inc., Baxter Healthcare Corp., Streck Laboratories,
Abbott Diagnostics and Hematronix, Inc. R&D Systems believes it is the third
largest supplier of hematology controls in the marketplace behind Beckman
Coulter and Streck Laboratories.
EMPLOYEES
R&D Systems had 352 full-time and 48 part-time employees as of June 30, 1999.
R&D Europe had 50 full-time and 9 part-time employees as of June 30, 1999,
including 10 full-time and 2 part-time at R&D Europe's sales subsidiary in
Germany.
ENVIRONMENT
Compliance with federal, state and local environmental protection laws in the
United States, England and Germany had no material effect on R&D Systems or
R&D Europe in fiscal year 1999.
FOREIGN AND DOMESTIC OPERATIONS
The following table represents certain financial information relating to
foreign and domestic operations (all amounts are in thousands of US dollars):
Fiscal Years Ended June 30,
---------------------------
1999 1998 1997
-------- ------- -------
Net Sales to External Customers
Hematology Division:
US $ 10,549 $ 9,933 $ 8,684
Other 2,125 1,851 1,586
Biotechnology Division:
US 43,712 30,113 25,998
Other 11,249 7,601 5,741
R&D Europe:
Other 23,266 17,794 18,915
Gross Margin
R&D Systems (US) 52,791 38,826 31,907
R&D Europe (England) 9,490 7,519 9,176
R&D GmbH (Germany) 1,296 937 746
Net Earnings (Loss)
Parent and R&D Systems (US) 15,230 13,689 10,107
R&D Europe (England) 2,835 2,160 896
R&D GmbH (Germany) 8 6 (121)
ChemoCentryx (US) (1,417) (672) -
Identifiable Assets
Parent and R&D Systems (US) 112,327 64,169 46,760
R&D Europe (England) 10,213 7,831 6,547
R&D GmbH (Germany) 1,261 785 615
CAUTIONARY STATEMENTS
The Company wishes to caution investors that the following important factors,
among others, in some cases have affected and in the future could affect the
Company's actual results of operations and cause such results to differ
materially from those anticipated in forward-looking statements made in this
document and elsewhere by or on behalf of the Company:
Risk of Technological Obsolescence and Competition
The biotechnology industry is subject to rapid and significant technological
change. While the hematology controls industry historically has been subject
to less rapid change, it too is evolving and is impacted significantly by
changes in the automated testing equipment offered by hardware manufacturers.
Competitors of the Company in the United States and abroad are numerous and
include, among others, specialized biotechnology firms, medical laboratory
instrument and equipment manufacturers and disposables suppliers, major
pharmaceutical companies, universities and other research institutions. There
can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective than any which
have been or are being developed by the Company or that would render the
Company's technologies and products obsolete or noncompetitive. Many of these
competitors have substantially greater resources and product development,
production and marketing capabilities than the Company. With regard to
diagnostic kits, which constitute a relatively minor portion of the Company's
business, many of the Company's competitors have significantly greater
experience than the Company in undertaking preclinical testing and clinical
trials of new or improved diagnostic kits and obtaining Food and Drug
Administration (FDA) and other regulatory approvals of such products.
Patents and Proprietary Rights
The Company's success will depend, in part, on its ability to obtain licenses
and patents, maintain trade secret protection and operate without infringing
the proprietary rights of others. The Company has filed a very limited number
of United States and foreign patent applications for products in which it
believes it has a proprietary interest. The Company has obtained and is
negotiating licenses to produce a number of cytokines and related products
claimed to be owned by others. The Company has not conducted a patent
infringement study for each of its products. It is possible that products of
the Company may unintentionally infringe patents of third parties or that the
Company may have to alter its products or processes, pay licensing fees or
cease certain activities because of patent rights of third parties, thereby
causing additional unexpected costs and delays which may have a material
adverse effect on the Company. The patenting of hematology and biotechnology
processes and products involves complex legal and factual questions and, to
date, there has emerged no consistent policy regarding the breadth of claims
in biotechnology patents. Protracted and costly litigation may be necessary
to enforce rights of the Company and defend against claims of infringement of
rights of others.
Financial Impact of Expansion Strategy
The Company engages in an expansion strategy which includes internal
development of new products, collaboration with manufacturers of automated
instruments which may use the Company's products, investment in joint ventures
and companies developing new products related to the Company's business and
acquisition of companies for new products or additional customer base. Each
of the strategies carries risks that objectives will not be achieved and
future earnings will be adversely affected. During early development stage,
the operating losses of certain companies in which the Company may invest will
be reported as operating losses of the Company, as is currently the case with
ChemoCentryx Inc.
Government Regulation
Ongoing research and development activities, including preclinical and
clinical testing, and the production and marketing of the Company's products
are subject to regulation by numerous governmental authorities in the United
States and other countries. All of the Company's products and manufacturing
processes and facilities require governmental licensing or approval prior to
commercial use. The approval process applicable to clinical diagnostic
products of the type which may be developed by the Company usually takes a
number of years and typically requires substantial expenditures. Delays in
obtaining regulatory approvals would adversely affect the marketing of
products developed by the Company and the Company's ability to receive product
revenues or royalties. There can be no assurance that regulatory approvals
for such products will be obtained without lengthy delays, if at all.
Attraction and Retention of Key Employees
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing is critical to
the Company's success. Although the Company believes it has been and will be
able to attract and retain such personnel, there can be no assurance that the
Company will be successful. In addition, the Company's anticipated growth and
expansion into areas and activities requiring additional expertise, such as
clinical testing, government approvals, production and marketing, will require
the addition of new management personnel and the development of additional
expertise by existing management personnel. The failure to attract and retain
such personnel or to develop such expertise would adversely affect the
Company's business.
ITEM 2. PROPERTIES
Through June 30, 1999, the Company's R&D Systems subsidiary leased space in
three connected buildings located in Minneapolis, Minnesota. Base rent for
fiscal 1999 was $2,290,000. On July 1, 1999, the Company purchased these
buildings for approximately $28 million. The main building, consisting of
approximately 85,000 square feet, is located at 614 McKinley Place N.E., and
houses administrative, marketing and Biotechnology Division manufacturing and
research operations. Hematology Division manufacturing and shipping
operations are located at 640 McKinley Place N.E. and cover approximately
47,000 square feet. The third building is located at 2201 Kennedy Street and
houses administrative and Biotechnology Division manufacturing and research
operations. The Company will fully occupy this 205,000 square foot building
by the end of calendar 1999. The Company also occupies an additional 20,000
square feet in space connecting the three buildings. This area houses a
lunchroom, a library and additional warehouse space. The above space is
believed to be adequate to house the Company's R&D Systems operations for
approximately two years. The Company has entered into two option agreements
for real estate adjacent to the current facility. The options are exercisable
through November 2001 and January 2005 on the two properties, respectively.
R&D Europe sub-leases approximately 12,500 square feet in one building in
Abingdon, England. The sub-lease on the building expires in June 2000 and R&D
Europe has reached an agreement to lease approximately 17,000 square feet in a
building soon to be constructed less than one mile from its current location.
Rental rates for the new facility are expected to be slightly higher than
rates under the current sub-lease. Base rent for the above space was $181,000
in fiscal 1999.
R&D GmbH leases approximately 2,300 square feet as a sales office in
Wiesbaden-Nordenstadt, Germany. Base rent was $36,000 in fiscal 1999.
The Company believes the acquired property, purchase options and leased
property discussed above are adequate to meet its occupancy needs in the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company was sued by Streck Laboratories, Inc. ("Streck") in the United
States District Court for the District of Nebraska in Omaha on November 5,
1997. Streck alleges in its complaint that the Company infringes three
patents Streck has obtained on white blood cell hematology controls, one of
which was issued in November, 1993, and the other two in the fall of 1997.
Streck seeks an unspecified amount of damages, an injunction prohibiting
further infringement, reasonable attorneys' fees, and costs. The Company has
answered the complaint, denied infringement and asserted counterclaims against
Streck seeking to have the patents declared invalid and/or not infringed.
Discovery in the case is presently stayed by the Court and would have to be
renewed before the case could go to trial. It is unlikely the case will go to
trial in fiscal 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the Company's 1999 fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
(a) The names, ages and positions of each executive officer of the Company
are as follows:
Name Age Position Officer Since
---- --- -------- -------------
Thomas E. Oland 58 Chairman of the Board, President,
Treasurer and Director 1985
Dr. Monica Tsang 54 Vice President, Research 1995
Dr. Thomas C.
Detwiler 66 Vice President, Scientific and
Regulatory Affairs 1995
Marcel Veronneau 45 Vice President, Hematology Operations 1995
The term of office of each executive officer is from one annual meeting of
directors until the next annual meeting of directors or until a successor is
elected. There are no arrangements or understandings among any of the
executive officers and any other person (not an officer or director acting as
such) pursuant to which any of the executive officers was selected as an
officer of the Company.
(b) The business experience of the executive officers during the past five
years is as follows:
Thomas E. Oland has been Chairman of the Board, President and Treasurer of the
Company since December 1985.
Dr. Monica Tsang was elected a Vice President of the Company in March 1995.
Prior thereto, she served as Executive Director of Cell Biology for R&D
Systems' Biotechnology Division and has been an employee of R&D Systems since
1985.
Dr. Thomas Detwiler was elected a Vice President of the Company in March 1995.
Prior thereto, he served as Vice President of Scientific and Clinical Affairs
for R&D Systems' Biotechnology Division and has been an employee of R&D
Systems since 1993.
Marcel Veronneau was elected a Vice President of the Company in March 1995.
Prior thereto, he served as Director of Operations for R&D Systems' Hematology
Division since joining the Company in 1993.
An additional officer, Dr. James A. Weatherbee, who served as Vice President
and Chief Scientific Officer since 1995, is on medical leave. Dr. Weatherbee
and Dr. Tsang are husband and wife.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The NASDAQ Stock Exchange under the symbol
"TECH." The following table sets forth for the periods indicated the range of
the closing price per share for the Company as reported by NASDAQ.
1999 PRICE 1998 PRICE
HIGH LOW HIGH LOW
----------- ----------- ----------- -----------
1st Quarter $ 18.69 $ 12.25 $ 17.75 $ 13.44
2nd Quarter 21.13 13.00 19.75 15.63
3rd Quarter 28.88 20.50 20.00 16.94
4th Quarter 29.50 23.55 19.88 16.00
As of September 14, 1999, there were approximately 350 shareholders of record.
As of September 14, 1999, there were over 6,000 beneficial shareholders of the
Company's common stock. TECHNE Corporation has never paid cash dividends on its
common stock. Payment of dividends is within the discretion of TECHNE's Board
of Directors, although the Board of Directors plans to retain earnings for the
foreseeable future for operating the Company's business.
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE, EARNINGS AND CASH FLOW
DATA FOR THE YEARS ENDED JUNE 30 1999(1) 1998 1997 1996 1995
- -------------------------------- --------- ------- ------- ------- -------
Net sales $ 90,901 $67,291 $60,924 $54,589 $47,716
Gross margin 69.9% 70.3% 68.7% 65.2% 61.3%
Selling, general and
administrative expense 18.6% 22.8% 23.9% 23.7% 23.4%
Research and development
expenses 13.2% 15.8% 19.2% 19.1% 18.0%
Interest expense -- -- 29 2 9
Earnings before income taxes 26,054 22,411 15,988 12,592 9,648
Net earnings 16,656 15,183 10,882 8,638 6,706
Diluted earnings per share 0.81 0.77 0.56 0.44 0.35
Capital expenditures 5,564 2,780 4,243 6,377 1,311
Depreciation and amortization 11,890 2,303 2,322 1,872 1,655
Change in net working capital (12,544) 15,033 6,639 4,573 6,310
Net cash provided by operating
activities 28,422 20,875 12,477 9,760 7,314
Return on sales 18.3% 22.6% 17.9% 15.8% 14.1%
Return on average equity 20.7% 27.1% 25.0% 25.3% 25.6%
-
BALANCE SHEET, COMMON STOCK AND
EMPLOYEE DATA AS OF JUNE 30 1999(1) 1998 1997 1996 1995
- -------------------------------- --------- ------- ------- ------- -------
Cash, cash equivalents and
short-term investments $ 29,114 $41,436 $24,752 $19,250 $15,945
Receivables 13,520 10,002 9,114 8,380 7,386
Inventories 5,715 3,811 4,087 3,653 3,266
Working capital 37,388 49,932 34,899 28,260 23,687
Total assets 123,801 72,785 53,922 44,393 34,062
Long-term debt -- -- -- -- --
Stockholders' equity 96,838 63,831 48,081 38,874 29,520
Average common and common
equivalent shares (in thousands) 20,687 19,608 19,463 19,443 19,044
Book value per share 4.81 3.35 2.55 2.04 1.57
Share price(4):
High 29.50 20.00 15.25 16.50 7.94
Low 12.25 13.44 10.13 6.63 4.38
Price to earnings ratio 31 25 27 33 19
Current ratio 3.78 7.84 8.12 6.62 6.75
Quick ratio 3.17 7.05 6.91 5.49 5.66
Full-time employees 402 356 326 341 315
(1) The Company acquired the research products business of Genzyme Corporation
on July 1, 1998.
The Company has not declared any cash dividends in the past, and it is not
anticipated that it will declare any dividends in the foreseeable future.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY STRUCTURE
TECHNE (the Company) has two operating subsidiaries: R&D Systems, Inc. (R&D
Systems) and R&D Systems Europe Ltd. (R&D Europe). R&D Systems, located in
Minneapolis, Minnesota, has two operating segments: its Biotechnology Division
and its Hematology Division. The Biotechnology Division develops and
manufactures purified cytokines (proteins), antibodies and assay kits which
are sold to biomedical researchers and clinical research laboratories. The
Hematology Division develops and manufactures whole blood hematology controls
and calibrators which are sold to hospitals and clinical laboratories to check
the performance of hematology instruments to assure the accuracy of hematology
test results. R&D Europe, the Company's third operating segment, located in
Abingdon, England, is the European distributor of R&D Systems' biotechnology
products. R&D Europe has a German sales subsidiary, R&D Systems GmbH. The
Company also has a foreign sales corporation, Techne Export Inc.
RESULTS OF OPERATIONS
Net sales for fiscal 1999 were $90,900,697, an increase of $23,609,259 (35%)
from fiscal 1998. Sales by R&D Systems for the period increased $18,136,520
(37%), while sales by R&D Europe increased $5,472,739 (31%). The increase in
consolidated sales for the fiscal year was due, in part, to the acquisition of
Genzyme Corporation's research products business on July 1, 1998. In addition,
the increase in consolidated sales was due to increased sales of R&D Systems
products to both R&D Systems customers and to former Genzyme customers as they
were converted from Genzyme products to R&D Systems products.
Net sales for fiscal 1998 were $67,291,438, an increase of $6,367,688 (10%)
From fiscal 1997. Sales by R&D Systems for the period increased $7,489,032
(18%), while sales by R&D Europe decreased $1,121,344 (6%). The increase in
consolidated sales for the fiscal year was due largely to increased sales of
proteins and antibodies. The decrease in R&D Europe sales was not unexpected
due to the discontinuance of the molecular biology product line. R&D Europe
sales of continuing product lines increased 22% from fiscal 1997.
Net sales for fiscal 1997 were $60,923,750, an increase of $6,334,696 (12%)
From fiscal 1996. Sales by R&D Europe for the period increased $2,555,914
(16%), while sales by R&D Systems increased $3,778,782 (10%). The majority of
the increase in consolidated sales for the fiscal year was due to an increase
in sales of proteins and antibodies.
Gross, as a percentage of sales, decreased slightly from 70.3% in fiscal 1998
To 69.9% in fiscal 1999. Biotechnology Division gross margins decreased from
72.9% to 70.8% as a result of lower gross profit levels on inventory acquired
from Genzyme and the write-off of obsolete Genzyme packaging and kit components
due to conversion of customers to R&D Systems labeled product. R&D Europe and
Hematology Division gross margins did not change significantly from the prior
year.
Gross margins, as a percentage of sales, increased from 68.7% in fiscal 1997
to 70.3% in fiscal 1998. R&D Europe gross margins decreased from 52.5% to 46.1%
due to changes in product mix and exchange rates. Biotechnology Division gross
margins increased from 71.8% to 72.9% as a result of changes in product mix and
increased production volumes. Hematology Division gross margins increased from
42.9% in fiscal 1997 to 47.2% in fiscal 1998 also as a result of changes in
product mix and increased production volumes.
Gross margins, as a percentage of sales, increased from 65.2% in fiscal 1996
to 68.7% in fiscal 1997. R&D Europe gross margins increased from 51.2% to 52.5%
due to favorable exchange rates. Biotechnology Division gross margins increased
from 69.3% to 71.8% due to lower royalty expense as a result of the conclusion
of royalty payments to Amgen Inc. and lower manufacturing costs due to
increased production volumes. Hematology Division gross margins increased from
40.1% in fiscal 1996 to 42.9% in fiscal 1997 as a result of changes in product
mix.
Selling, general and administrative expenses increased $1,494,457 (10%) in
fiscal 1999. The majority of the increase in consolidated selling, general and
administrative expenses was due to additional sales personnel added in the U.S.
and Europe and additional advertising and promotion activities.
Selling, general and administrative expenses increased $782,425 (5%) in fiscal
1998. The majority of the increase in consolidated selling, general and
administrative expenses was the result of additional occupancy costs at R&D
Systems, plus increased advertising and promotion costs. These increased costs
were partially offset by decreased personnel costs at R&D Europe as a result of
the restructuring of operations undertaken in fiscal 1997.
Selling, general and administrative expenses increased $1,634,862 (13%) in
fiscal 1997. Included in selling, general and administrative expenses for
fiscal 1997 was a restructuring charge of approximately $450,000 related to R&D
Europe. The restructuring involved 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. R&D Europe's sales function was not
affected by the restructuring. The increase in consolidated selling, general
and administrative expenses in fiscal 1997 was also the result of an increase
in Biotechnology Division sales and marketing expenses as a result of
additional staff and increased advertising and promotion activities.
Research and development expenses increased $1,366,994 in fiscal 1999,
decreased $1,064,018 in fiscal 1998 and increased $1,288,558 in fiscal 1997.
The decrease in research and development expenses in fiscal 1998 was the result
of a decrease of $1,235,000 in payments by R&D Europe under the Joint
Biological Research Agreement with British Bio-technology Group, plc, and a
decrease in R&D Europe personnel costs as a result of the restructuring.
Excluding the above, the increase in consolidated research and development
expenses for the past three years was primarily the result of the development
and release of new cytokines, antibodies and assay kits by R&D Systems'
Biotechnology Division and the development and release of several new
Hematology Division control products. Management of the Company believes that
R&D Systems will continue to develop new products.
Earnings before taxes increased from $22,410,961 in fiscal 1998 to $26,054,010
in fiscal 1999, despite $9.54 million in intangible asset amortization in
fiscal 1999 related to the Genzyme acquisition. The increase in earnings was
primarily the result of a $3,073,439 increase in R&D Systems' Biotechnology
Division earnings, a $583,237 increase in R&D Systems' Hematology Division
earnings and a $942,983 increase in R&D Europe earnings, all as a result of
increased sales. These increases were offset by increased net losses of the
Company's equity investment in ChemoCentryx, Inc. of $744,209.
Earnings before taxes increased from $15,987,662 in fiscal 1997 to $22,410,961
in fiscal 1998. This increase in earnings was primarily the result of a
$3,987,242 increase in R&D Systems' Biotechnology Division earnings and a
$997,654 increase in Hematology Division earnings as a result of increased
sales and gross margins. In addition, R&D Europe's earnings before taxes
increased $2,052,874, despite a decrease in sales and gross margin, as a result
of lower expenses due to the restructuring of operations.
Earnings before taxes increased from $12,591,870 in fiscal 1996 to $15,987,662
in fiscal 1997. This increase in earnings was primarily the result of a
$3,165,195 increase in R&D Systems' Biotechnology Division earnings and a
$329,872 increase in R&D Europe earnings. These increases in earnings before
taxes were due to increased sales and gross margins, partially offset by higher
expenses. Hematology Division earnings before taxes were slightly less than
fiscal 1996 as a result of lower sales.
Income taxes for fiscal 1999, 1998 and 1997 were provided at rates of
approximately 36%, 32% and 32%, respectively. The increase in the tax rate in
fiscal 1999 was due to the net loss of the Company's equity investment in
ChemoCentryx for which no tax benefit has been provided and additional U.S.
federal taxes due to lower tax-exempt interest income and loss of the benefit
from graduated income tax rates. U.S. federal and state taxes have been reduced
as a result of tax-exempt interest income, the benefit of the foreign sales
corporation, and the federal and state credit for research and development
expenditures. Foreign income taxes have been provided at rates which
approximate the tax rates in the United Kingdom and Germany.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments at June 30, 1999, were
$29,114,124, a decrease of 30% from the prior year. This decrease was due to
the cash outlay for the Genzyme acquisition. At June 30, 1998, cash,
equivalents and short-term investments were $41,435,542 compared to $24,752,257
at June 30, 1997, an increase of 67%. The Company has an unsecured line of
credit of $750,000 available at June 30, 1999. The interest rate on the line of
credit is at the prime rate of 7.75% at June 30, 1999.
Management of the Company expects to be able to meet its future cash and
working capital requirements for operations and capital additions (excluding
real estate acquired in July 1999) through currently available funds, cash
generated from operations and maturities of short-term investments.
Cash flows from operating activities
The Company generated cash from operations of $28,421,859, $20,875,469 and
$12,476,548 in fiscal 1999, 1998 and 1997, respectively. The majority of cash
generated from operating activities in all three years resulted from an
increase in net earnings after adjustment for noncash expenses, partially
offset by an increase in accounts receivable due to increased sales.
Cash flows from investing activities
On July 1, 1998 the Company acquired the research products business of Genzyme
Corporation for $24.76 million cash, $17 million common stock and royalties on
the Company's biotechnology sales for five years. Cash and equivalents at June
30, 1998 and maturities of short-term investments were used to finance the
cash portion of the acquisition.
During fiscal 1999, the Company entered into agreements to acquire real
estate occupied by R&D Systems in Minneapolis, Minnesota. The purchase price
was approximately $28 million and a deposit of $4 million cash and 100,000
shares of common stock valued at $2.16 million was placed in escrow in fiscal
1999 in anticipation of the July 1, 1999 closing. On July 1, 1999 the Company
acquired the real estate with an additional cash payment of $1.44 million and a
$20.4 million, 15-year mortgage. In addition, on July 1, 1999, the Company paid
$2 million and issued warrants to purchase 60,000 shares of common stock as a
deposit on an option to purchase additional property adjacent to its
Minneapolis facility. The $3.44 million payment on July 1, 1999 was funded from
cash and cash equivalents on hand at June 30, 1999.
Capital additions were $5,564,033, $2,780,194 and $4,243,156 in fiscal 1999,
1998 and 1997, respectively. Included in fiscal 1999, 1998 and 1997 capital
additions are leasehold improvements of $3,538,000, $1,195,000 and $2,935,000
related to R&D Systems' remodeling and expansion. The remaining capital
additions in fiscal 1999, 1998 and 1997 were for laboratory, manufacturing and
computer equipment. Total capital additions for equipment and building
improvements planned for fiscal 2000 are expected to be approximately $8.8
million. All capital additions are expected to be financed through currently
available cash, cash generated from operations and maturities of short-term
investments.
The Company's net investment (withdrawal) in short-term investments in fiscal
1999, 1998 and 1997 was $1,022,721, ($831,955) and $4,326,439, respectively.
The Company's investment policy is to place excess cash in tax-exempt bonds
with the objective of obtaining the highest possible return with the lowest
risk, while keeping funds accessible.
Cash flows from financing activities
The Company received $1,136,633, $919,831 and $582,846 for the exercise of
options for 192,852, 97,541 and 91,000 shares of common stock in fiscal 1999,
1998 and 1997, respectively.
In fiscal 1999, 1998 and 1997, the Company purchased and retired 213,600,
20,000 and 254,600 shares of Company common stock at a market value of
$3,941,950, $280,000 and $3,225,205, respectively. In May 1995, the Company
announced a plan to purchase and retire up to $5 million of its common stock.
In April 1997, this was increased an additional $5 million, subject to market
conditions. Any such purchases will be funded from currently available cash.
The Company has never paid cash dividends and has no plans to do so in fiscal
2000. The Company's earnings will be retained for reinvestment in the
business.
YEAR 2000 AND EURO CURRENCY ISSUES
The Company has taken steps to ensure that it is not adversely affected by Year
2000 (Y2K) software failures which may arise in software applications where two
year digits are used to define the applicable year. The Company has completed
its review of computer hardware and company-wide software and any necessary
upgrades to make them Y2K compliant will be completed before the fourth quarter
of calendar 1999. The Company is continuing its review of PC-based software and
non-computer hardware that contains embedded processors to ensure that the
equipment will function properly or that contingency plans are in place before
the end of calendar 1999. The Company does not believe the cost of any
necessary upgrades will be material. The Company has also communicated with
many of its suppliers and service providers regarding compliance with Y2K
requirements. As a result of such inquiries, no significant deficiencies have
been identified. The Company will continue to monitor these third parties for
Y2K compliance.
There can be no assurance, however, that there will not be a delay in, or
increased costs associated with, upgrading the Company's computer systems,
which could have a material adverse effect on the operations and financial
position of the Company. In addition, there can be no assurances that the
Company's customers and suppliers will not be adversely affected by their own
Y2K issues, which may indirectly adversely affect the Company.
The Company has implemented new accounting and operational software at its
European subsidiary, which accommodated the conversion on January 1, 1999 to a
common currency, the "Euro," by members of the European Union. The software is
also Y2K compliant.
FORWARD-LOOKING INFORMATION
Statements in this Annual Report, and elsewhere, that are forward-looking
involve risks and uncertainties which may affect the Company's actual results
of operations. Certain of these risks and uncertainties which have affected
and, in the future, could affect the Company's actual results are discussed
below.
The biotechnology industry is subject to rapid and significant technological
change. While the hematology controls industry historically has been subject to
less rapid change, it too is evolving and is impacted significantly by changes
in the automated testing equipment offered by hardware manufacturers.
Competitors of the Company are numerous and include, among others, specialized
biotechnology firms, medical laboratory instrument and equipment manufacturers
and disposables suppliers, major pharmaceutical companies, universities and
other research institutions. There can be no assurance that the Company's
competitors will not succeed in developing technologies and products that are
more effective than any which have been or are being developed by the Company
or that would render the Company's technologies and products obsolete or
noncompetitive.
The Company's success will depend, in part, on its ability to obtain licenses
and patents, maintain trade secret protection and operate without infringing
the proprietary rights of others. The Company has obtained and is negotiating
licenses to produce a number of cytokines and related products claimed to be
owned by others. Since the Company has not conducted a patent infringement
study for each of its products, it is possible that products of the Company
may unintentionally infringe patents of third parties or that the Company may
have to alter its products or processes, pay licensing fees or cease certain
activities because of patent rights of third parties, thereby causing additional
unexpected costs and delays which may have a material adverse effect on the
Company.
The Company's expansion strategies, which include internal development of new
products, collaborations, investments in joint ventures and companies developing
new products related to the Company's business, and the acquisition of companies
for new products and additional customer base, carry risks that objectives will
not be achieved and future earnings will be adversely affected.
Ongoing research and development activities, including preclinical and clinical
testing, and the production and marketing of the Company's products are subject
to regulation by numerous governmental authorities in the United States and
other countries. The approval process applicable to clinical diagnostic products
of the type that may be developed by the Company usually takes a number of years
and typically requires substantial expenditures. Delays in obtaining approvals
could adversely affect the marketing of new products developed by the Company.
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing are critical
to the Company's success. The Company's anticipated growth and its expected
expansion into areas and activities requiring additional expertise will require
the addition of new personnel and the development of additional expertise by
existing personnel. The failure to attract and retain such personnel could
adversely affect the Company's business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
At the end of fiscal 1999, the Company had an investment portfolio of fixed
income securities, excluding those classified as cash and cash equivalents, of
$16,344,656 (see Note A of Notes to Consolidated Financial Statements). 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 would not expect to recognize an adverse impact in 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. Historically, the effect of movements in the exchange rates
has been immaterial to the consolidated operating results of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
TECHNE CORPORATION AND SUBSIDIARIES
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
Net sales $90,900,697 $67,291,438 $60,923,750
Cost of sales 27,323,211 20,009,641 19,094,827
----------- ----------- -----------
Gross margin 63,577,486 47,281,797 41,828,923
Operating expenses (income):
Selling, general and administrative 16,862,217 15,367,759 14,585,334
Research and development (Note F) 12,004,798 10,637,804 11,701,822
Amortization of intangible assets
(Note A) 9,578,646 71,457 235,508
Interest expense -- -- 29,357
Interest income (922,185) (1,206,184) (710,760)
----------- ----------- -----------
37,523,476 24,870,836 25,841,261
----------- ----------- -----------
Earnings before income taxes 26,054,010 22,410,961 15,987,662
Income taxes (Note H) 9,398,000 7,228,000 5,106,000
----------- ----------- -----------
Net earnings $16,656,010 $15,182,961 $10,881,662
=========== =========== ===========
Basic earnings per share $ 0.83 $ 0.80 $ 0.58
Diluted earnings per share $ 0.81 $ 0.77 $ 0.56
Weighted average common
shares outstanding:
Basic 20,117,367 18,952,968 18,910,608
Diluted 20,686,675 19,607,630 19,462,532
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
TECHNE CORPORATION AND SUBSIDIARIES
JUNE 30,
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 12,769,468 $ 26,113,607
Short-term available-for-sale
investments (Note A) 16,344,656 15,321,935
Trade accounts receivable, less
allowance for doubtful accounts
of $300,000 and $269,000, respectively 13,520,409 10,001,893
Inventories (Note C) 5,715,065 3,810,600
Deferred income taxes (Note H) 2,101,000 1,583,000
Prepaid expenses 399,850 400,323
------------ ------------
Total current assets 50,850,448 57,231,358
Equipment and leasehold improvements (Note D) 15,065,234 11,515,723
Intangible assets (Note A) 45,564,750 293,854
Deferred income taxes (Note H) 3,137,000 1,798,000
Other long-term assets (Note F) 9,183,087 1,946,293
------------ ------------
$123,800,519 $ 72,785,228
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,375,029 $ 2,074,621
Salaries, wages and related accounts 2,313,450 2,005,428
Other accounts payable and accrued expenses 5,547,702 1,034,190
Income taxes payable 3,226,451 2,185,122
------------ ------------
Total current liabilities 13,462,632 7,299,361
Deferred rent 1,963,500 1,655,100
Royalty payable (Note B) 11,536,000 --
Contingencies and commitments (Note F) -- --
Stockholders' equity (Note G):
Undesignated capital stock, no par;
authorized 5,000,000 shares; none issued
or outstanding -- --
Common stock, par value $.01 a share;
authorized 50,000,000 shares; issued and
outstanding 20,132,655 and 19,049,983
shares, respectively 201,327 190,500
Additional paid-in capital 34,525,581 13,714,445
Retained earnings 62,058,879 49,446,319
Accumulated other comprehensive income 52,600 479,503
------------ ------------
Total stockholders' equity 96,838,387 63,830,767
------------ ------------
$123,800,519 $ 72,785,228
============ ============
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TECHNE CORPORATION AND SUBSIDIARIES
ACCUM.
OTHER
ADDITIONAL COMPRE-
COMMON STOCK PAID-IN RETAINED HENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL
---------- -------- ----------- ----------- -------- -----------
Balances at
June 30, 1996 19,039,056 $190,391 $11,353,362 $27,245,416 $ 84,902 $38,874,071
Comprehensive
income:
Net earnings -- -- -- 10,881,662 -- 10,881,662
Other compre-
hensive in-
come, net of
tax:
Foreign
currency
translation
adjustments -- -- -- -- 345,170 345,170
-----------
Comprehensive
income 11,226,832
Common stock
issued:
Exercise of
options
(Note G) 91,000 910 581,936 -- -- 582,846
Repurchase and
retirement of
common stock (254,600) (2,546) 1,273 (3,223,932) -- (3,225,205)
Tax benefit
from exercise
of stock
options -- -- 151,000 -- -- 151,000
Fair value of
options gran-
ted (Note K) -- -- 471,500 -- -- 471,500
---------- -------- ----------- ----------- -------- -----------
Balances at
June 30, 1997 18,875,456 188,755 12,559,071 34,903,146 430,072 48,081,044
Comprehensive
income:
Net earnings -- -- -- 15,182,961 -- 15,182,961
Other compre-
hensive in-
come, net of
tax:
Foreign
currency
translation
adjustments -- -- -- -- 49,431 49,431
-----------
Comprehensive
Income 15,232,392
Common stock
issued:
Exercise of
options
(Note G) 153,376 1,533 1,278,492 -- -- 1,280,025
Exercise of
warrant
(Note G) 61,775 618 (618) -- -- --
Surrender and
retirement of
stock to
exercise
options
(Note K) (20,624) (206) -- (359,988) -- (360,194)
Repurchase and
retirement of
common stock (20,000) (200) -- (279,800) -- (280,000)
Tax benefit
from exercise
of stock
options -- -- 146,000 -- -- 146,000
Fair value of
options gran-
ted (Note K) -- -- 200,500 -- -- 200,500
Cancelation of
non-vested
options
(Note K) -- -- (469,000) -- -- (469,000)
---------- -------- ----------- ----------- -------- -----------
Balances at
June 30, 1998 19,049,983 190,500 13,714,445 49,446,319 479,503 63,830,767
Comprehensive
income:
Net earnings -- -- -- 16,656,010 -- 16,656,010
Other compre-
hensive in-
come, net of
tax:
Foreign
currency
translation
adjustments -- -- -- -- (426,903) (426,903)
-----------
Comprehensive
Income 16,229,107
Common stock
issued:
Exercise of
options
(Note G) 213,870 2,139 1,238,178 -- -- 1,240,317
Acquisition
(Note B) 987,206 9,872 16,990,128 -- -- 17,000,000
Real estate
deposit
(Note F) 100,000 1,000 2,159,830 -- -- 2,160,830
Surrender and
retirement of
stock to
exercise
options
(Note K) (4,804) (48) -- (103,636) -- (103,684)
Repurchase and
retirement of
common stock (213,600) (2,136) -- (3,939,814) -- (3,941,950)
Tax benefit
from exercise
of stock
options -- -- 423,000 -- -- 423,000
---------- -------- ----------- ----------- -------- -----------
Balances at
June 30, 1999 20,132,655 $201,327 $34,525,581 $62,058,879 $ 52,600 $96,838,387
========== ======== =========== =========== ======== ===========
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE K)
TECHNE CORPORATION AND SUBSIDIARIES
YEAR ENDED JUNE 30,
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 16,656,010 $ 15,182,961 $ 10,881,662
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 11,890,384 2,302,686 2,321,963
Deferred income taxes (1,902,000) (356,000) (662,000)
Tax benefit from exercise
of options 423,000 146,000 151,000
Deferred rent 308,400 712,800 452,100
Other 2,081,435 1,107,762 342,070
Change in current assets and
current liabilities, net of
acquisition:
(Increase) decrease in:
Trade accounts receivable (3,764,422) (1,037,755) (626,936)
Inventories 3,754,942 266,427 (379,051)
Prepaid expenses (14,113) 122,005 233,617
Increase (decrease) in:
Trade and other accounts
payable (2,434,625) 1,032,583 (527,435)
Salaries, wages and related
accounts 314,777 214,554 60,284
Income taxes payable 1,108,071 1,181,446 229,274
------------ ------------ ------------
Total adjustments 11,765,849 5,692,508 1,594,886
------------ ------------ ------------
Net cash provided by operating
activities 28,421,859 20,875,469 12,476,548
Cash flows from investing activities:
Acquisition (Note B) (24,989,542) -- --
Real estate deposit (Note F) (4,000,000) -- --
Additions to equipment and
leasehold improvements (5,564,033) (2,780,194) (4,243,156)
Proceeds from sale of equipment -- 233,862 --
Purchase of short-term available-
for-sale investments (15,025,991) (24,170,831) (15,967,440)
Proceeds from sale of short-term
available-for-sale investments 14,003,270 25,002,786 11,641,001
Increase in other long-term assets (3,060,826) (2,347,123) (250,000)
------------ ------------ ------------
Net cash used in investing
activities (38,637,122) (4,061,500) (8,819,595)
Cash flows from financing activities:
Issuance of common stock 1,136,633 919,831 582,846
Repurchase of common stock (3,941,950) (280,000) (3,225,205)
------------ ------------ ------------
Net cash (used in) provided by
financing activities (2,805,317) 639,831 (2,642,359)
Effect of exchange rate changes
on cash (323,559) 61,440 161,689
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents (13,344,139) 17,515,240 1,176,283
Cash and cash equivalents at
beginning of year 26,113,607 8,598,367 7,422,084
------------ ------------ ------------
Cash and cash equivalents at end
of year $ 12,769,468 $ 26,113,607 $ 8,598,367
============ ============ ============
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TECHNE CORPORATION AND SUBSIDIARIES
Years Ended June 30, 1999, 1998 and 1997
A. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS: Techne Corporation and subsidiaries (the Company) is
engaged domestically in the development and manufacture of biotechnology
products and hematology calibrators and controls through its wholly owned
subsidiary, Research and Diagnostic (R&D) Systems, Inc. Through its wholly
owned English subsidiary, R&D Systems Europe Ltd., the Company distributes
biotechnology products throughout Europe. R&D Systems Europe Ltd. has a sales
subsidiary, R&D Systems GmbH, in Germany. The Company also has a foreign sales
corporation, Techne Export Inc.
ESTIMATES: The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RISKS AND UNCERTAINTIES: There are no concentrations of business transacted with
a particular customer or supplier nor concentrations of revenue from a
particular product or geographic area that would severely impact the Company
in the near term.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS: Assets and liabilities of the
Company's foreign operations are translated at year end rates of exchange and
the foreign statements of earnings are translated at the average rate of
exchange for the year. Gains and losses resulting from translating foreign
currency financial statements are not included in operations but are accumulated
in other comprehensive income. Foreign currency transaction gains and losses are
included in operations.
REVENUE RECOGNITION: The Company recognizes revenues upon shipment of products.
Revenues are reduced to reflect estimated returns.
RESEARCH AND DEVELOPMENT: Research and development expenditures are expensed as
incurred. Development activities generally relate to creating new products,
improving or creating variations of existing products, or modifying existing
products to meet new applications.
EARNINGS PER SHARE: The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share."
The number of shares used to calculate earnings per share are as follows:
YEAR ENDED JUNE 30,
1999 1998 1997
---------- ---------- ----------
Weighted average common
shares outstanding (Basic) 20,117,367 18,952,968 18,910,608
Dilutive stock options and
warrants outstanding 569,308 654,662 551,924
---------- ---------- ----------
Weighted average common
shares outstanding (Diluted) 20,686,675 19,607,630 19,462,532
========== ========== ==========
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand and
highly liquid investments with original maturities less than three months.
SHORT-TERM INVESTMENTS: Short-term investments consist of tax-exempt bonds with
Original maturities of generally three months to one year.
The Company reports marketable securities at fair market value. Unrealized
gains and losses on available-for-sale securities are excluded from income, but
are included in other comprehensive income. The Company considers all of its
marketable securities available-for-sale. Fair market values are based on
quoted market prices.
Proceeds from sales of available-for-sale securities were $14,003,270,
$25,002,786 and $11,641,001 during fiscal 1999, 1998 and 1997, respectively.
There were no material gross realized gains or losses on these sales. Realized
gains and losses are determined on the specific identification method.
Unrealized gains and losses at June 30, 1999, 1998 and 1997 were not material.
INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
DEPRECIATION AND AMORTIZATION: Equipment is being depreciated using the
straight-line method over an estimated useful life of five years. Leasehold
improvements are being amortized over estimated useful lives of five to fifteen
years.
INTANGIBLES: Intangible assets, related to the acquisition of Genzyme
Corporation's research products business in fiscal 1999 (Note B), Amgen Inc.'s
research reagent and diagnostic kit business in fiscal 1992 and R&D Systems
Europe Ltd. in fiscal 1994 are being amortized on a straight-line basis over
the estimated useful lives and consist of the following:
JUNE 30,
USEFUL LIFE 1999 1998
------------- ----------- ----------
Customer list 10 years $18,010,000 $1,010,000
Technology licensing agreements 16 years 500,000 500,000
Goodwill 6 years 39,075,089 1,225,547
----------- ----------
57,585,089 2,735,547
Less accumulated amortization 12,020,339 2,441,693
----------- ----------
$45,564,750 $ 293,854
=========== ==========
IMPAIRMENT OF LONG-LIVED ASSETS: Management periodically reviews the carrying
value of long-term assets based on the estimated undiscounted future cash flows
expected to result from the use of these assets. Should the sum of the expected
future net cash flows be less than the carrying value, an impairment loss would
be recognized. An impairment loss would be measured by the amount by which the
carrying value of the asset exceeds the fair value of the asset based on
discounted estimated future cash flows. To date, management has determined that
no impairment exists.
INVESTMENTS: The Company has an approximate 43% interest in the issued and
outstanding voting shares of ChemoCentryx, Inc. (CCX), a technology and drug
development company. The Company accounts for this investment under the equity
method of accounting and recognizes 100% of the losses of CCX due to the limited
amount of cash consideration provided by the holders of the common shares of
CCX. The Company's investment in CCX was $1,910,931 and $1,327,570 at June 30,
1999 and 1998, respectively.
STOCK OPTIONS: As permitted by 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.
RECENT ACCOUNTING STANDARDS: During the first quarter of fiscal 1999, the
Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires
disclosure of all changes in equity that result from transactions and economic
events other than transactions with owners. Except for net earnings and foreign
currency translation adjustments, the Company does not have any transactions
and other economic events which qualify as comprehensive income as defined
under SFAS No. 130. The Company's adoption of SFAS No. 130 had no effect on the
Company's results of operations, cash flows or financial position.
Effective June 30, 1999, the Company adopted SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
new standards for reporting information about business segments and related
disclosures about products and services, geographic areas and major customers,
if applicable. Under SFAS No. 131, operating segments are determined consistent
with the way management organizes and evaluates financial information
internally for making decisions and assessing performance. The Company's
adoption of SFAS No. 131 had no effect on the Company's results of operations,
cash flows or financial position.
RECLASSIFICATIONS: Certain reclassifications have been made to prior years'
consolidated financial statements to conform to the current year presentation.
These reclassifications had no impact on net earnings or stockholders' equity
as previously reported.
B. ACQUISITION:
On July 1, 1998, the Company, through its Research and Diagnostic Systems, Inc.
subsidiary, acquired the research products business of Genzyme Corporation. The
acquisition was accounted for under the purchase method, and accordingly, the
consolidated financial statements include the results of operations of the
acquired business since the date of acquisition. Assets acquired were as
follows:
Inventories $ 5,660,000
Equipment 320,000
Customer list 17,000,000
-----------
$22,980,000
===========
In consideration for the acquisition, the Company paid $24.76 million cash,
issued to Genzyme Corporation 987,206 shares of common stock valued at $17
million and will pay royalties for five years on the Company's biotechnology
sales. The excess of the consideration (including acquisition costs) over the
fair market value of the assets acquired of approximately $37.8 million has
been recorded as goodwill and will be amortized on a straight-line basis over
six years. The customer list is being amortized on a declining basis over an
estimated useful life of 10 years.
Pro forma financial information for the year ended June 30, 1998, presented as
if the acquisition had occurred on July 1, 1997, are as follows:
Net sales $81,527,000
Net earnings 5,538,000
Basic earnings per share 0.28
Diluted earnings per share 0.27
C. INVENTORIES:
Inventories consist of:
JUNE 30,
1999 1998
---------- ----------
Raw materials $2,105,150 $2,125,365
Finished goods 3,499,688 1,539,696
Supplies 110,227 145,539
---------- ----------
$5,715,065 $3,810,600
========== ==========
D. EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of:
JUNE 30,
1999 1998
----------- -----------
Cost:
Leasehold improvements $13,770,763 $10,243,142
Laboratory equipment 11,308,984 9,769,949
Office and computer equipment 3,294,704 2,923,110
----------- -----------
28,374,451 22,936,201
Less accumulated depreciation
and amortization 13,309,217 11,420,478
----------- -----------
$15,065,234 $11,515,723
=========== ===========
E. DEBT:
The Company's short-term line of credit facility consists of an unsecured line
of credit of $750,000 at June 30, 1999. The interest rate charged on the line
of credit is at the prime rate of 7.75% at June 30, 1999. There were no
borrowings on the line in the current year.
F. COMMITMENTS AND CONTINGENCIES:
The Company leases buildings, vehicles and various data processing, office and
laboratory equipment under operating leases. These leases provide for renewal
or purchase options during or at the end of the lease periods. At June 30,
1999, aggregate net minimum rental commitments under noncancelable leases
having an initial or remaining term of more than one year are payable as
follows:
YEAR ENDING JUNE 30:
- --------------------
2000 $251,862
2001 27,016
2002 11,339
2003 5,615
2004 4,666
--------
$300,498
========
Total rent expense was approximately $2,587,000, $2,616,000 and $1,893,000 for
the years ended June 30, 1999, 1998 and 1997, respectively.
During fiscal 1999, the Company entered into agreements to acquire real estate
occupied by R&D Systems in Minneapolis, Minnesota. The purchase price was
approximately $28 million. Other long-term assets at June 30, 1999 include $4
million cash and 100,000 shares of the Company's common stock, valued at $2.16
million, which were placed in escrow during fiscal 1999 in anticipation of the
purchase. The closing of the purchase transaction was on July 1, 1999 and $20.4
million of the remaining purchase price was financed through a 15 year mortgage.
The interest rate on the mortgage is fixed at 7% for the first seven years and
is thereafter adjusted based on U.S. Treasury rates.
In fiscal 1999, the Company entered into two option agreements for real estate
adjacent to its R&D Systems' facility. The purchase price for the property
under the first option is $7,951,000 and six-year warrants to purchase 60,000
shares of the Company's common stock at $23.77 per share. This purchase option
expires on November 15, 2001. Subsequent to June 30, 1999, the Company paid $2
million cash and issued the warrants as a nonrefundable deposit on the option
purchase price.
The purchase price for the property under the second option is $7 million plus
Capital improvement costs. This option expires on January 1, 2005 and requires
a nonrefundable deposit of $2 million on the earlier of January 15, 2002 or
sixty days after exercise of the first option.
At June 30, 1999, the Company is obligated to purchase up to an additional $1
million of convertible preferred stock of ChemoCentryx Inc. in fiscal 2000
based upon CCX's achievement of certain milestones. After purchase of the
additional preferred shares, the Company will own approximately 49% of the
issued and outstanding voting shares (assuming no investment by other parties).
In fiscal 1994, the Company entered into a four year Joint Biological Research
Agreement with British Bio-technology Group plc. Under the agreement, R&D
Systems Europe Ltd. received the exclusive right to develop, manufacture,
market and sell biomolecules developed by British Bio-technology Group, plc. or
its subsidiaries and any resulting diagnostic kits in the research reagent and
diagnostic markets. In June 1997, the agreement was extended for an additional
five years for 100,000 British pounds per year. Research and development
expenses include $164,000, $165,000 and $1,400,000 for the years ended June 30,
1999, 1998, and 1997, respectively, under this agreement. Subsequent to June 30,
1999, the Company terminated the agreement effective December 31, 1999.
The Company is routinely involved in legal actions which are incidental to the
business of the Company. Although it is difficult to predict the ultimate
outcome of these cases, management believes that any ultimate liability will
not materially affect the consolidated financial position or operations of the
Company.
G. STOCKHOLDERS EQUITY:
STOCK OPTION PLANS: The Company has stock option plans which provide for the
granting of stock options to employees (the TECHNE Corporation 1997 and 1987
Incentive Stock Option Plans) and to employees, officers, directors and
consultants (the TECHNE Corporation 1998 and 1988 Nonqualified Stock Option
Plans). The plans are administered by the Board of Directors, or a committee
designated by the Board, which determines the persons who are to receive awards
under the plans, the number of shares subject to each award and the term and
exercise price of each option. The maximum term of options granted under all
plans is ten years. The number of shares of common stock authorized to be issued
is 600,000, 1,600,000, 300,000 and 1,000,000 under the TECHNE Corporation 1997
Incentive Stock Option Plan, the TECHNE Corporation 1987 Incentive Stock Option
Plan, the TECHNE Corporation 1998 Nonqualified Stock Option Plan and the TECHNE
Corporation 1988 Nonqualified Stock Option Plan, respectively.
Stock option activity during the three years ended June 30, 1999 consists of
the following:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
Outstanding at June 30, 1996 1,065,250 $ 6.44
Granted 453,552 11.63
Exercised (91,000) 6.40
Canceled (142,000) 6.66
--------- -------
Outstanding at June 30, 1997 1,285,802 8.25
Granted 181,984 16.26
Exercised (153,376) 8.35
Canceled (59,352) 12.91
--------- -------
Outstanding at June 30, 1998 1,255,058 9.42
Granted 116,645 17.11
Exercised (213,870) 5.80
--------- -------
Outstanding at June 30, 1999 1,157,833 $ 10.87
========= =======
Options exercisable at June 30:
1997 724,502 $ 6.89
1998 956,058 9.04
1999 935,833 10.87
Currently outstanding and exercisable stock options at June 30, 1999 consist of
the following:
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED AVG.
CONTRACTUAL WEIGHTED AVG.
EXERCISE PRICES OUTSTANDING LIFE (YRS.) EXERCISE PRICE
- --------------- ----------- ------------- --------------
$ 5.00- 9.99 577,554 4.50 $ 7.14
10.00-14.99 312,134 6.08 11.76
15.00-19.99 268,145 7.58 17.86
--------- ---- -------
1,157,833 5.67 $ 10.87
========= ==== =======
OPTIONS EXERCISABLE
------------------------------
WEIGHTED AVG.
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
- ----------------- ----------- --------------
$ 5.00- 9.99 421,554 $ 6.42
10.00-14.99 290,134 11.73
15.00-19.99 224,145 18.11
------- -------
935,833 $ 10.87
======= =======
Total compensation cost recognized for the years ended June 30, 1998 and 1997
for stock options granted to consultants was $34,000 and $169,000,
respectively. No compensation cost was recognized for the year ended June 30,
1999. If compensation cost for employee options granted in 1999, 1998 and 1997
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,
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been as follows:
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
Net income:
As reported $16,656,010 $15,182,961 $10,881,662
Pro forma 15,071,990 13,464,290 8,764,829
Basic earnings per share:
As reported $ 0.83 $ 0.80 $ 0.58
Pro forma 0.75 0.71 0.46
Diluted earnings per share:
As reported $ 0.81 $ 0.77 $ 0.56
Pro forma 0.73 0.69 0.45
The fair value of options granted under the Company's stock option plans during
1999, 1998 and 1997 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used: no dividend yield,
expected volatility of between 35% and 70%, risk-free interest rates between
4.6% and 6.8% and expected lives between 7 and 10 years.
WARRANT: In fiscal 1994, the Company issued a warrant to purchase 100,000
shares of the Company's common stock at $6.88 as part of the acquisition of R&D
Systems Europe Ltd. The warrant was exercised in 1998 in a cashless exercise
which resulted in the issuance of 61,775 shares of common stock.
H. INCOME TAXES:
The provisions for income taxes consist of the following:
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
Earnings before income
taxes consist of:
Domestic $21,801,526 $19,101,460 $14,731,035
Foreign 4,252,484 3,309,501 1,256,627
----------- ----------- -----------
$26,054,010 $22,410,961 $15,987,662
=========== =========== ===========
Taxes on income consist of:
Currently payable:
Federal $ 9,122,000 $ 6,280,000 $ 4,584,000
State 355,000 255,000 65,000
Foreign 1,355,000 903,000 1,020,000
Tax benefit from exercise
of stock options 423,000 146,000 151,000
Net deferred (1,857,000) (356,000) (714,000)
----------- ----------- -----------
$ 9,398,000 $ 7,228,000 $ 5,106,000
=========== =========== ===========
The following is a reconciliation of the federal tax calculated at the
statutory rate of 35% to the actual income taxes provided:
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
Computed expected federal
income tax expense $ 9,119,000 $ 7,844,000 $ 5,596,000
State income taxes, net of
Federal benefit 377,000 270,000 223,000
Foreign sales corporation (444,000) (317,000) (318,000)
Research and development
credits (334,000) (376,000) (317,000)
Tax-exempt interest (165,000) (288,000) (186,000)
Graduated income tax rate -- (100,000) (113,000)
Other 845,000 195,000 221,000
----------- ----------- -----------
$ 9,398,000 $ 7,228,000 $ 5,106,000
=========== =========== ===========
Deferred income taxes are provided to record the income tax effect of temporary
differences between the tax basis and financial reporting basis of assets and
liabilities. Temporary differences comprising deferred taxes on the consolidated
balance sheets are as follows:
JUNE 30,
1999 1998
---------- ----------
Inventory $1,032,000 $ 654,000
Inventory costs capitalized 509,000 455,000
Foreign net operating loss carryforward 158,000 167,000
Unrealized profit on intercompany sales 250,000 158,000
Other 152,000 149,000
---------- ----------
Current asset 2,101,000 1,583,000
Excess of book over tax intangible
asset amortization 1,595,000 414,000
Excess of book over tax research expense 621,000 666,000
Deferred rent 687,000 579,000
Other 234,000 139,000
---------- ----------
Noncurrent asset 3,137,000 1,798,000
---------- ----------
$5,238,000 $3,381,000
========== ==========
At June 30, 1999, approximately $470,000 of non-U.S. tax losses were available
for carryforward indefinitely.
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.
I. SEGMENT INFORMATION:
The Company has three reportable operating segments based on the nature of
products and geographic location: Hematology Division, Biotechnology Division
and R&D Systems Europe. The Hematology Division develops and manufactures
hematology controls and calibrators for sale world-wide. The Biotechnology
Division develops and manufactures biotechnology research and diagnostic
products for sale world-wide. R&D Systems Europe distributes Biotechnology
Division products throughout Europe. No customer accounted for more than 10% of
the Company's revenues for the years ended June 30, 1999, 1998 and 1997.
The accounting policies of the segments are the same as those described in Note
A. In evaluating segment performance, management focuses on sales and income
before taxes. Sales between segments are made at prices which would approximate
transfers to unaffiliated distributors.
Following is financial information relating to the operating segments:
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
External sales
Hematology $12,673,544 $11,784,093 $10,269,624
Biotechnology 54,960,816 37,713,747 31,739,184
R&D Systems Europe 23,266,337 17,793,598 18,914,942
----------- ----------- -----------
Total external sales $90,900,697 $67,291,438 $60,923,750
=========== =========== ===========
Intersegment sales
Hematology $ -- $ -- $ --
Biotechnology 11,578,230 7,788,587 6,740,792
R&D Systems Europe 187,054 557,662 539,410
----------- ----------- -----------
Total intersegment sales $11,765,284 $ 8,346,249 $ 7,280,202
=========== =========== ===========
Income before taxes
Hematology $ 3,706,460 $ 3,123,223 $ 2,125,569
Biotechnology 20,419,385 17,345,946 13,358,704
R&D Systems Europe 4,252,484 3,309,501 1,256,627
Corporate and other (2,324,319) (1,367,709) (753,238)
----------- ----------- -----------
Total income before taxes $26,054,010 $22,410,961 $15,987,662
=========== =========== ===========
Interest income
Hematology $ 289,105 $ 278,601 $ 181,277
Biotechnology 313,373 753,253 497,969
R&D Systems Europe 213,589 125,230 34,233
Corporate and other 106,118 49,100 (2,719)
----------- ----------- -----------
Total interest income $ 922,185 $ 1,206,184 $ 710,760
=========== =========== ===========
Depreciation and amortization
Hematology $ 170,105 $ 206,330 $ 220,571
Biotechnology 11,109,795 1,392,442 1,390,793
R&D Systems Europe 239,277 342,140 406,441
Corporate and other 371,207 361,774 304,158
----------- ----------- -----------
Total depreciation and
amortization $11,890,384 $ 2,302,686 $ 2,321,963
=========== =========== ===========
Capital purchases
Hematology $ 174,844 $ 101,258 $ 445,692
Biotechnology 3,940,127 2,299,798 2,408,721
R&D Systems Europe 287,413 193,070 173,359
Corporate and other 1,161,649 186,068 1,215,384
----------- ----------- -----------
Total capital purchases $ 5,564,033 $ 2,780,194 $ 4,243,156
=========== =========== ===========
Corporate and other reconciling items include the results of unallocated
corporate expenses and assets, the elimination of profit on intersegment sales
and the operations of the Company's equity investment in ChemoCentryx, Inc.
Following is financial information relating to geographic areas:
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
External sales
United States $54,261,592 $40,045,282 $34,682,116
Other areas 36,639,105 27,246,156 26,241,634
----------- ----------- -----------
Total external sales $90,900,697 $67,291,438 $60,923,750
=========== =========== ===========
Long-lived assets
United States $20,923,992 $11,078,177 $10,380,142
Other areas 462,898 437,546 872,599
----------- ----------- -----------
Total long-lived assets $21,386,890 $11,515,723 $11,252,741
=========== =========== ===========
External sales are attributed to countries based on the location of the
customer/distributor. Long-lived assets are comprised of equipment, leasehold
improvements and deposits on real estate.
J. BENEFIT PLANS:
PROFIT SHARING PLAN: The Company has a Profit Sharing and Savings Plan for
non-union U.S. employees, which conforms to IRS provisions for 401(k) plans.
The Company may make profit sharing contributions at the discretion of the
Board of Directors. Operations have been charged for contributions to the plan
of $651,000, $574,500 and $525,500 for the years ended June 30, 1999, 1998 and
1997, respectively.
STOCK BONUS PLANS: The Company also has Stock Bonus Plans covering non-union
employees. The Company may make contributions to the plans in the form of
common stock, cash or other property at the discretion of the Board of
Directors. Operations have been charged for contributions to the plans of
$684,000, $595,000 and $525,500 for the years ended June 30, 1999, 1998 and
1997, respectively.
PERFORMANCE INCENTIVE PROGRAM: Under certain employment agreements with
executive officers, the Company recorded bonuses of $80,000, $109,000 and
$90,500 for the years ended June 30, 1999, 1998 and 1997, respectively. In
addition, options for 4,145, 5,984 and 7,252 shares of common stock were
granted to the executive officers during fiscal 1999, 1998 and 1997,
respectively.
K. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
The Company paid and received cash for the following items:
YEAR ENDED JUNE 30,
1999 1998 1997
---------- ---------- ----------
Income taxes paid $9,763,600 $6,602,926 $5,388,789
Interest paid -- -- 29,357
Interest received 1,019,630 1,431,305 781,886
Noncash transactions during the years ended June 30, 1999, 1998 and 1997
consisted of:
In 1998 and 1997, stock options with fair values of $200,500 and $471,500 were
granted to consultants for services to be provided to the Company. In 1998, the
Company canceled all non-vested stock options granted to consultants.
In 1999, stock options for 21,018 shares of common stock were exercised by
surrender of 4,804 shares of common stock at fair value of $103,684. In 1998,
stock options for 55,835 shares of common stock were exercised by surrender of
20,624 shares of common stock at fair market value of $360,194.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
TECHNE Corporation
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of TECHNE
Corporation and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TECHNE Corporation and
subsidiaries at June 30, 1999 and 1998 and the results of their operations and
cash flows for each of the three years in the period ended June 30, 1999, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
August 20, 1999
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Other than "Executive Officers of the Company" which is set forth at the end
of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the sections entitled "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's proxy statement for its 1999 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the
section entitled "Executive Compensation" in the Company's proxy statement for
its 1999 Annual Meeting of Shareholders which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days
after the close of the fiscal year for which this report is filed.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
sections entitled "Principal Shareholders" and "Management Shareholdings" in
the Company's proxy statement for its 1999 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
A. (1) List of Financial Statements.
The following Consolidated Financial Statements are filed as part
of this Report:
Consolidated Statements of Earnings for the Years Ended
June 30, 1999, 1998 and 1997
Consolidated Balance Sheets as of June 30, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements for the Years
Ended June 30, 1999, 1998 and 1997
Independent Auditors' Report on Consolidated Financial Statements
(2) Financial Statement Schedules.
None.
(3) Exhibits.
See Exhibit Index immediately following signature page.
B. Reports on Form 8-K:
No report on Form 8-K was filed during the quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
Date: September 27, 1999 Thomas E. Oland
-------------------------
By: Thomas E. Oland
Its: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date Signature and Title
- ---- ---------------------
September 27, 1999 Thomas E. Oland
---------------------------------
Thomas E. Oland
President, Treasurer and Director
(principal executive officer and
principal financial and accounting
officer)
September 27, 1999 Roger C. Lucas
---------------------------------
Dr. Roger C. Lucas, Director
September 27, 1999 Howard V. O'Connell
---------------------------------
Howard V. O'Connell, Director
September 27, 1999 G. Arthur Herbert
---------------------------------
G. Arthur Herbert, Director
September 27, 1999 Randolph C. Steer
---------------------------------
Dr. Randolph C. Steer, Director
September 27, 1999 Lowell E. Sears
---------------------------------
Lowell E. Sears, Director
September 27, 1999 Christopher S. Henney
---------------------------------
Dr. Christopher S. Henney, Director
EXHIBIT INDEX
for Form 10-K for the 1999 Fiscal Year
Exhibit
Number Description
- ------- -----------
3.1 Restated Articles of Incorporation of Company, as amended to
date--incorporated by reference to Exhibit 19.1 of the
Company's Form 10-Q for the quarter ended September 30, 1991*
3.2 Restated Bylaws, as amended to date--incorporated by reference
to Exhibit 3.2 of the Company's Form 10, dated October 27,
1988*
10.1 Employee Agreement with Respect to Inventions, Proprietary
Information, and Unfair Competition with Thomas E. Oland
--incorporated by reference to Exhibit 10.2 of the Company's
Form 10, dated October 27, 1988*
10.2** Company's Profit Sharing Plan--incorporated by reference to
Exhibit 10.6 of the Company's Form 10, dated October 27, 1988*
10.3** Company's Stock Bonus Plan--incorporated by reference to
Exhibit 10.7 of the Company's Form 10, dated October 27, 1988*
10.4** 1987 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.14 of the Company's Form 10, dated October 27, 1988*
10.5 Form of Stock Option Agreement for 1987 Incentive Stock
Option Plan--incorporated by reference to Exhibit 10.15 of the
Company's Form 10, dated October 27, 1988*
10.6** 1988 Nonqualified Stock Option Plan--incorporated by reference
to Exhibit 10.16 of the Company's Form 10, dated October 27,
1988*
10.7 Form of Stock Option Agreement for Nonqualified Stock Option
Plan--incorporated by reference to Exhibit 10.17 of the
Company's Form 10, dated October 27, 1988*
10.8 International Distributor Agreement dated October 1, 1991
between Research and Diagnostic Systems, Inc. and Hycel, S.A.
--incorporated by reference to Exhibit 28.2 of the Company's
Form 8-K dated September 30, 1991, as amended by Forms 8
dated November 1, 1991 and November 25, 1991*
10.9 Stock Purchase Agreement dated July 30, 1993 between the
Company and British Bio-technology Group plc--incorporated by
reference to Exhibit 1 of the Company's Form 8-K dated August
11, 1993*
10.10 Joint Biological Research Agreement dated July 30, 1993 between
the Company and British Bio-technology Group plc--incorporated
by reference to Exhibit 2 of the Company's Form 8-K dated
August 11, 1993*
10.11 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 R & D Systems, Inc.--incorporated by reference to
Exhibit 10.2 of the Company's Form 10-Q for the Quarter ended
March 31, 1995*
10.12 Non-Enforcement of Patent Rights dated March 21, 1995 by
Cistron Biotechnology, Inc. ("Cistron") in favor of R & D
Systems, Inc.--incorporated by reference to Exhibit 10.3 of the
Company's Form 10-Q for the Quarter ended March 31, 1995*
10.13 License and Supply Agreement dated March 21, 1995 between
Cistron and R & D Systems--incorporated by reference to Exhibit
10.4 of the Company's Form 10-Q for the Quarter ended March
31, 1995*
10.14 Research and Development Agreement dated April 10, 1995
between Cistron and R & D Systems, Inc.--incorporated by
reference to Exhibit 10.4 of the Company's Form 10-Q for the
quarter ended March 31, 1995*
10.15** Employment Agreement, dated March 6, 1996, with James A.
Weatherbee--incorporated by reference to Exhibit 10.24 of the
Company's Form 10-K for the year ended June 30, 1996*
10.16** Employment Agreement, dated March 6, 1996, with Monica
Tsang--incorporated by reference to Exhibit 10.25 of the
Company's Form 10-K for the year ended June 30, 1996*
10.17** Employment Agreement, dated December 28, 1995, with
Thomas Detwiler--incorporated by reference to Exhibit 10.26 of
the Company's Form 10-K for the year ended June 30, 1996*
10.18** 1997 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.24 of the Company's Form 10-K for the year ended June
30, 1997*
10.19 Form of Stock Option Agreement for 1997 Incentive Stock Option
Plan--incorporated by reference to Exhibit 10.25 of the Company's
Form 10-K for the year ended June 30, 1997*
10.20 Investment Agreement between ChemoCentryx, Inc. and Techne
Corporation dated November 18, 1997--incorporated by reference
to Exhibit 10.1 of the Company's Form 10-Q for the quarter ended
December 31, 1997*
10.21 Purchase and Sale Agreement dated as of June 22, 1998 among Techne
Corporation, Research and Diagnostic Systems, Inc. and Genzyme
Corporation--incorporated by reference to Exhibit 2.1 of the
Company's Form 8-K dated July 1, 1998, as amended by Form 8-K/A
dated September 14, 1998*
10.22** 1998 Nonqualified Stock Option Plan--incorporated by reference to
Exhibit 10.1 of the Company's Form 10-Q for the quarter ended
September 30, 1998*
10.23 Form of Stock Option Agreement for 1998 Nonqualified Stock Option
Plan--incorporated by reference to Exhibit 10.2 of the Company's
Form 10-Q for the quarter ended September 30, 1998*
10.24 Purchase Agreement dated January 22, 1999, between R&D Systems,
Inc. and Hillcrest Development, relating to the purchase of
property as 614 and 640 McKinley Place NE and 2201 Kennedy Street
in Minneapolis, Minnesota and First amendment dated February 5,
1999--incorporated by reference to Exhibit 10.1 of the Company's
Form 10-Q for the quarter ended December 31, 1998*
10.25** Extension, dated March 31, 1999, to Employment Agreement with
Thomas C. Detwiler, Ph.D.--incorporated by reference to Exhibit
10.1 of the Company's Form 10-Q for the quarter ended March 31,
1999*
10.26** Extension, dated March 31, 1999, to Employment Agreement with Monica
Tsang, Ph.D.--incorporated by reference to Exhibit 10.2 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.27** Extension, dated March 31, 1999, to Employment Agreement with Marcel
Veronneau--incorporated by reference to Exhibit 10.3 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.28 Second Amendment, dated February 2, 1999, to Purchase Agreement
dated January 22, 1999 between R&D Systems, Inc. and Hillcrest
Development--incorporated by reference to Exhibit 10.4 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.29 Third Amendment, dated April 3, 1999, to Purchase Agreement dated
January 22, 1999 between R&D Systems, Inc. and Hillcrest Development
--incorporated by reference to Exhibit 10.5 of the Company's Form
10-Q for the quarter ended March 31, 1999*
10.30 Phase I Option Agreement, dated February 10, 1999, between R&D
Systems, Inc. and Hillcrest Development and form of Purchase
Agreement relating to the purchase of property at 2101 Kennedy
Street in Minneapolis, Minnesota--incorporated by reference to
Exhibit 10.6 of the Company's Form 10-Q for the quarter ended
March 31, 1999*
10.31 First Amendment, dated April 10, 1999, to Phase I Option Agreement
dated February 10, 1999--incorporated by reference to Exhibit 10.7
of the Company's Form 10-Q for the quarter ended March 31, 1999*
10.32 Phase II Option Agreement, dated February 10, 1999, between R&D
Systems, Inc. and Hillcrest Development and form of Purchase
Agreement relating to the purchase of property at 2001 Kennedy
Street in Minneapolis, Minnesota--incorporated by reference to
Exhibit 10.8 of the Company's Form 10-Q for the quarter ended March
31, 1999*
10.33 Second Amendment, dated June 9, 1999, to Phase I Option Agreement
dated February 10, 1999
10.34 Second Amendment, dated June 10, 1999, to Phase II Option Agreement
dated February 10, 1999
10.35 Warrant to purchase 60,000 shares of Common Stock issued to
Hillcrest Development on July 1, 1999.
10.36 Combination Mortgage, Security Agreement and Fixture Financing
Statement dated July 1, 1999 between the Company and TCF National
Bank Minnesota (TCF)
10.37 Promissory Note from the Company to TCF dated July 1, 1999 in the
Principal amount of $20,400,000.
11 Calculation of Earnings Per Share
21 Subsidiaries of the Company:
State/Country of
Name Incorporation
---- ----------------
Research and Diagnostic Systems, Inc. Minnesota
Techne Export Inc. Barbados
R&D Systems Europe Ltd. Great Britain
R&D Systems GmbH Germany
23 Independent Auditors' Consent
27 Financial Data Schedule
- -------------
*Incorporated by reference; SEC File No. 0-17272
**Management contract or compensatory plan or arrangement