SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000, or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to___________
__________________
Commission file number 0-17272
__________________
TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1427402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
614 MCKINLEY PLACE N.E. (612) 379-8854
MINNEAPOLIS, MN 55413 (Registrant's telephone number,
(Address of principal (Zip Code) including area code)
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
At May 8, 2000, 20,527,699 shares of the Company's Common Stock (par value
$.01) were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
3/31/00 6/30/99
------------ ------------
ASSETS
Cash and cash equivalents $ 18,158,301 $ 12,769,468
Short-term investments 30,623,777 16,344,656
Accounts receivable (net) 14,936,769 13,520,409
Inventories 4,336,805 5,715,065
Income taxes receivable 383,264 -
Deferred income taxes 2,307,000 2,101,000
Other current assets 619,985 399,850
------------ ------------
Total current assets 71,365,901 50,850,448
Deferred income taxes 3,627,000 3,137,000
Fixed assets (net) 44,589,048 15,065,234
Intangible assets (net) 38,642,812 45,564,750
Other assets 7,367,942 9,183,087
------------ ------------
TOTAL ASSETS $165,592,703 $123,800,519
============ ============
LIABILITIES & EQUITY
Trade accounts payable $ 3,192,317 $ 2,375,029
Salary and related accruals 3,020,845 2,313,450
Other payables 5,687,710 5,547,702
Income taxes payable - 3,226,451
Current portion of long-term debt 809,744 -
------------ ------------
Total current liabilities 12,710,616 13,462,632
Deferred rent - 1,963,500
Royalty payable 8,710,000 11,536,000
Long-term debt 19,143,909 -
Common stock, par value $.01 per
share; authorized 50,000,000;
issued and outstanding 20,497,649
and 20,132,655, respectively 204,976 201,327
Additional paid-in capital 44,865,092 34,525,581
Retained earnings 79,815,273 62,058,879
Accumulated foreign currency
Translation adjustments 142,837 52,600
------------ ------------
Total stockholders' equity 125,028,178 96,838,387
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $165,592,703 $123,800,519
============ ============
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
------------------------ ------------------------
3/31/00 3/31/99 3/31/00 3/31/99
----------- ----------- ----------- -----------
Sales $26,776,906 $23,789,055 $76,524,798 $66,588,506
Cost of sales 6,382,933 7,169,105 20,357,435 20,012,235
----------- ----------- ----------- -----------
Gross margin 20,393,973 16,619,950 56,167,363 46,576,271
Operating expenses
(income):
Selling, general
and administrative 4,356,323 4,268,228 13,485,476 13,167,506
Research and
development 2,468,439 3,004,721 8,320,262 8,698,832
Amortization expense 2,307,313 2,394,662 6,921,938 7,183,986
Interest expense 356,783 - 1,087,974 -
Interest income (421,423) (227,664) (950,127) (670,747)
----------- ----------- ----------- -----------
9,067,435 9,439,947 28,865,523 28,379,577
----------- ----------- ----------- -----------
Earnings before income
taxes 11,326,538 7,180,003 27,301,840 18,196,694
Income taxes 3,677,000 2,643,000 9,240,000 6,548,000
----------- ----------- ----------- -----------
Net earnings $ 7,649,538 $ 4,537,003 $18,061,840 $11,648,694
=========== =========== =========== ===========
Basic earnings per
share $ 0.38 $ 0.23 $ 0.89 $ 0.58
Diluted earnings per
share $ 0.36 $ 0.22 $ 0.86 $ 0.56
Weighted average common
shares outstanding:
Basic 20,368,298 20,124,535 20,231,370 20,096,055
Diluted 21,235,995 20,792,071 21,038,573 20,626,223
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
-------------------------
3/31/00 3/31/99
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $18,061,840 $11,648,694
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 9,289,286 8,830,039
Deferred income taxes (687,000) (1,200,000)
Other (100,548) 633,571
Change in current assets and current
liabilities, net of acquisition:
(Increase) decrease in:
Accounts receivable (1,462,221) (3,780,606)
Inventories 1,387,063 2,295,976
Other current assets (131,475) (43,544)
Increase (decrease) in:
Trade account/other payables (1,993,822) (1,373,875)
Salary and related accruals 710,104 123,255
Income taxes, net 1,838,672 168,418
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,911,899 17,301,928
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition - (24,989,543)
Purchase of short-term investments (24,315,000) (11,637,214)
Proceeds from sale of short-term investments 10,035,879 12,463,270
Additions to fixed assets (27,621,979) (3,121,109)
Real estate deposit (Note B) (2,001,000) (4,088,188)
Increase in other long term assets (1,552,160) (900,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (45,454,260) (32,272,784)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 3,730,714 989,672
Mortgage note 20,400,000 -
Payments on long-term debt (446,347) -
Repurchase of common stock - (2,075,683)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 23,684,367 (1,086,011)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 246,827 (56,827)
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS 5,388,833 (16,113,694)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 12,769,468 27,372,345
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $18,158,301 $11,258,651
=========== ===========
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
A. BASIS OF PRESENTATION:
The unaudited Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles and with
instructions to Form 10-Q and Article 10 of Regulation S-X. The
accompanying unaudited Consolidated Financial Statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
presentation of the results for the interim periods presented. All such
adjustments are of a normal recurring nature.
A summary of significant accounting policies followed by the Company is
detailed in the Annual Report to Shareholders for Fiscal 1999. The Company
follows these policies in preparation of the interim Financial Statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the
Consolidated Financial Statements be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto for the fiscal year ended
June 30, 1999 included in the Company's Annual Report to Shareholders for
Fiscal 1999.
Certain Consolidated Balance Sheet captions appearing in this interim report
are as follows:
3/31/00 6/30/99
----------- -----------
ACCOUNTS RECEIVABLE
Accounts receivable $15,232,769 $13,820,409
Less reserve for bad debts 296,000 300,000
----------- -----------
NET ACCOUNTS RECEIVABLE $14,936,769 $13,520,409
=========== ===========
INVENTORIES
Raw materials $ 1,392,332 $ 2,105,150
Supplies 121,087 110,227
Finished goods 2,823,386 3,499,688
----------- -----------
TOTAL INVENTORIES $ 4,336,805 $ 5,715,065
=========== ===========
FIXED ASSETS
Land $ 871,000 $ -
Buildings and improvements 43,217,975 -
Laboratory equipment 12,173,934 11,308,984
Office equipment 3,561,680 3,294,704
Leasehold improvements 189,586 13,770,763
----------- -----------
60,014,175 28,374,451
Less accumulated depreciation
and amortization 15,425,127 13,309,217
----------- -----------
NET FIXED ASSETS $44,589,048 $15,065,234
=========== ===========
INTANGIBLE ASSETS
Customer list $18,010,000 $18,010,000
Technology licensing agreements 500,000 500,000
Goodwill 39,075,089 39,075,089
----------- -----------
57,585,089 57,585,089
Less accumulated amortization 18,942,277 12,020,339
----------- -----------
NET INTANGIBLE ASSETS $38,642,812 $45,564,750
=========== ===========
B. REAL ESTATE ACQUISITION:
On July 1, 1999, the Company purchased the facilities it occupies in
Minneapolis, Minnesota for approximately $28 million. Cash of $4 million and
100,000 shares of Common Stock valued at $2.16 million were placed in escrow
during the third quarter of fiscal 1999. The remainder of the purchase price
was financed through cash on hand and a $20.4 million 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 addition, the Company paid $2 million and issued seven-year warrants to
purchase 60,000 shares of the Company's common stock at $23.77 per share as a
nonrefundable deposit on an option to purchase property adjacent to its
Minneapolis facility. The fair market value of the warrants was $858,000.
C. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
QUARTER ENDED NINE MONTHS ENDED
--------------------- ----------------------
3/31/00 3/31/99 3/31/00 3/31/99
---------- ---------- ---------- ----------
Weighted average
common shares
outstanding-basic 20,368,298 20,124,535 20,231,370 20,096,055
Dilutive effect of
stock options and warrants 867,697 667,536 807,203 530,168
---------- ---------- ---------- ----------
Average common shares
outstanding-diluted 21,235,995 20,792,071 21,038,573 20,626,223
========== ========== ========== ==========
D. SEGMENT INFORMATION:
Following is financial information relating to the Company's operating
segments:
QUARTER ENDED NINE MONTHS ENDED
------------------------ ------------------------
3/31/00 3/31/99 3/31/00 3/31/99
----------- ----------- ----------- -----------
External sales
Hematology $ 3,143,364 $ 3,179,270 $ 9,527,863 $ 9,144,425
Biotechnology 16,658,266 14,477,976 47,192,193 39,997,589
R&D Systems Europe 6,975,276 6,131,809 19,804,742 17,446,492
----------- ----------- ----------- -----------
Total external sales $26,776,906 $23,789,055 $76,524,798 $66,588,506
=========== =========== =========== ===========
Intersegment sales
Hematology $ -- $ -- $ -- $ --
Biotechnology 3,711,183 2,793,198 10,167,601 8,639,655
R&D Systems Europe 27,195 31,746 110,826 143,621
----------- ----------- ----------- -----------
Total intersegment
sales $ 3,738,378 $ 2,824,944 $10,278,427 $ 8,783,276
=========== =========== =========== ===========
Income before taxes
Hematology $ 869,536 $ 906,955 $ 2,746,207 $ 2,511,842
Biotechnology 9,090,026 5,404,144 22,121,598 14,349,115
R&D Systems Europe 1,455,526 1,281,338 3,731,621 3,093,382
Corporate and other (88,550) (412,434) (1,297,586) (1,757,645)
----------- ----------- ----------- -----------
Total income
before taxes $11,326,538 $ 7,180,003 $27,301,840 $18,196,694
=========== =========== =========== ===========
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter and Nine Months Ended March 31, 2000
vs. Quarter and Nine Months Ended March 31, 1999
Techne Corporation (Techne) has two operating subsidiaries: Research and
Diagnostic Systems, Inc. (R&D Systems) located in Minneapolis, Minnesota and
R&D Systems Europe Ltd. (R&D Europe) located in Abingdon, England. R&D
Systems has two divisions: Biotechnology and Hematology. The Biotechnology
Division's principal products are purified cytokines (proteins), antibodies
and assay kits, which are sold primarily to biomedical researchers at
pharmaceutical companies and academic and government research laboratories.
The Hematology Division's principal products are whole blood hematology
controls and calibrators which are sold to hospital and clinical laboratories
to check the performance of their hematology instruments to assure the
accuracy of hematology test results. R&D Europe sells R&D Systems'
biotechnology products in Europe, both directly and through a sales
subsidiary in Germany. The Company has a foreign sales corporation, Techne
Export Inc.
The Company has an equity interest in ChemoCentryx, Inc. (CCX), a 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. 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 $3,267,439 and $1,910,931 at March 31, 2000
and June 30, 1999, respectively.
Net Sales
Net sales for the quarter ended March 31, 2000 were $26,776,906, an increase
of $2,987,851 (13%) from the quarter ended March 31, 1999. Sales for the
nine months ended March 31, 2000 increased $9,936,292 (15%) from $66,588,506
to $76,524,798. R&D Systems sales increased $2,144,384 (12%) and $7,578,042
(15%) for the quarter and nine months ended March 31, 2000, respectively.
R&D Europe sales increased $843,467 (14%) and $2,358,250 (14%) for the
quarter and nine months ended March 31, 2000, respectively. The increase was
due largely to a $2.2 and $6.5 million increase in protein and antibody sales
for the quarter and nine months and a $.5 and $1.9 million increase in
immunoassay kit sales for the quarter and nine months.
Gross Margins
Gross margins, as a percentage of sales, increased from the prior year.
Margins for the third quarter of fiscal 2000 were 76.2% compared to 69.9% for
the same quarter in fiscal 1999. Margins for the nine months ended March 31,
2000 were 73.4% compared to 70.0% for the same period in fiscal 1999.
Biotechnology Division margins increased from 70.2% to 79.7% for the quarter
ended March 31, 2000 and from 70.7% to 75.7% for the nine months ended March
31, 2000. Margins in the first nine months of last year were affected by the
higher cost of inventory acquired from Genzyme Corporation, the majority of
which was sold in fiscal 1999. The increase in Biotechnology Division gross
margins also reflect the benefit from increased sales volume and decreased
rent expense due to the Company's purchase of its Minneapolis facility. R&D
Europe gross margins decreased from 47.8% to 40.6% for the quarter and from
46.8% to 42.8% for the nine months ended March 31, 2000 as a result of
changes in exchange rates. Hematology Division gross margins decreased
slightly for the quarter from 45.8% to 44.9% and remained steady at 46.3% for
the nine months ended March 31, 2000.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $88,095 (2%) from the
third quarter of fiscal 1999. These expenses also increased $317,970 (2%)
for the first nine months of fiscal 2000. This was mainly the result of
increased wages and benefits and exchange rate losses partially offset by
decreased rent expense.
Research and Development Expenses
Research and development expenses decreased $536,282 (18%) and $378,570 (4%)
for the quarter and nine months ended March 31, 2000. The decrease was a
result of research grant money received in fiscal 2000 by ChemoCentryx, Inc.,
which offset CCX's research expenses. Research and development expenses by
R&D Systems increased $423,000 (17%) for the quarter and $1,147,000 (16%) for
the nine months ended March 31, 2000. The increase related to products
currently under development, many of which have been or will be released in
fiscal 2000 and 2001. Products currently under development include both
biotechnology and hematology products.
Net Earnings
Earnings before income taxes increased $4,146,535 from $7,180,003 in the
third quarter of fiscal 1999 to $11,326,538 in the third quarter of fiscal
2000. Earnings before taxes for the nine months increased $9,105,146 from
$18,196,694 to $27,301,840. The increase in earnings before income taxes was
due primarily to the increase in sales and improved gross margin percentages
discussed previously.
Income taxes for the quarter and nine months ended March 31, 2000 were
provided at a rate of approximately 32% and 34% of consolidated pretax
earnings compared to 37% and 36% for the prior year. The decrease in tax
rate from the prior year is due to the results of CCX for which no taxes are
provided. U.S. federal taxes have been reduced by the credit for research
and development expenditures and the benefit of the foreign sales
corporation. Foreign income taxes have been provided at rates which
approximate the tax rates in the United Kingdom and Germany.
Liquidity and Capital Resources
At March 31, 2000, cash and cash equivalents and short-term investments were
$48,782,078 compared to $29,114,124 at June 30, 1999. The Company believes
it can meet its future cash, working capital and capital addition
requirements through currently available funds, cash generated from
operations and maturities of short-term investments. The Company has an
unsecured line of credit of $750,000. The interest rate on the line of
credit is at prime. There were no borrowings on the line in the prior or
current fiscal years.
Cash Flows From Operating Activities
The Company generated cash of $26,911,899 from operating activities in the
first nine months of fiscal 2000 compared to $17,301,928 for the first nine
months of fiscal 1999. The increase was mainly the result of increased net
earnings.
Cash Flows From Investing Activities
During the nine months ended March 31, 2000 short-term investments increased
by $14,279,121. During the nine months ended March 31, 1999, the Company
decreased short-term investments by $826,056. The Company's investment
policy is to place excess cash in short-term tax-exempt bonds. The objective
of this policy is to obtain the highest possible return with the lowest risk,
while keeping the funds accessible.
Cash spent on fixed assets was $27,621,979 (including $21.9 million for the
building purchase) for the first nine months of fiscal 2000, compared to
$3,121,109 for the first nine months of fiscal 1999. Included in the fiscal
2000 and 1999 additions were $4,364,000 and $1,703,000 for building
improvements related to remodeling of facilities by R&D Systems. The
remaining capital additions in fiscal 2000 and 1999 were for laboratory and
computer equipment. Total expenditures for capital additions and building
improvements planned for the remainder of fiscal 2000 are expected to cost
approximately $2.6 million and are expected to be financed through currently
available funds and cash generated from operating activities.
During the first nine months of fiscal 2000, the Company invested an
additional $1 million in ChemoCentryx, Inc.
Cash Flows From Financing Activities
Cash of $3,730,714 and $989,672 was received during the nine months ended
March 31, 2000 and 1999, respectively, for the exercise of options for
332,673 and 181,870 shares of common stock. During the first nine months of
fiscal 2000 and 1999 options for 38,792 and 20,000 shares of common stock
were exercised by the surrender of 6,471 and 4,404 shares of the Company's
common stock with fair market values of $305,510 and $92,424, respectively.
During the first nine months of fiscal 1999, the Company purchased and
retired 138,600 shares of Company common stock at a market value of
$2,075,683. The Board of Directors has authorized the Company, subject to
market conditions and share price, to purchase and retire up to $10 million
of its common stock. From the start of the repurchase program through May 8,
2000, 650,600 shares have been purchased at a market value of $8,754,114.
The Company has never paid cash dividends and has no plans to do so in fiscal
2000.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2000, the Company had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of
$30,623,777. These securities, like all fixed income instruments, are
subject to interest rate risk and will decline in value if market interest
rates increase. However, the Company has the ability to hold its fixed
income investments until maturity and therefore the Company does not expect
any such increase to have an adverse impact on income or cash flows.
The Company operates internationally, and thus is subject to potentially
adverse movements in foreign currency rate changes. The Company does not
enter into foreign exchange forward contracts to reduce its exposure to
foreign currency rate changes on intercompany foreign currency denominated
balance sheet positions. Historically, the effect of movements in the
exchange rates has been immaterial to the consolidated operating results of
the Company.
Y2K ISSUES
To the date of this filing, the Company has not experienced any significant
problems related to Y2K, either with its internal operations or with any of
its suppliers and service providers.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
During the quarter ended March 31, 2000, the Company settled previously
disclosed litigation with Streck Laboratories, Inc. which had been pending in
the United States District Court for the District of Nebraska.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS
None
ITEM 5 - OTHER INFORMATION
Forward Looking Information and Cautionary Statements: Statements in this
filing, and elsewhere, which look forward in time involve risks and
uncertainties which may affect the actual results of operations. The
following important factors, among others, have affected and, in the future,
could affect the Company's actual results: the introduction and acceptance
of new biotechnology and hematology products, the levels and particular
directions of research into cytokines by the Company's customers, the impact
of the growing number of producers of cytokine research products and related
price competition, the retention of hematology OEM and proficiency survey
business, and the costs and results of research and product development
efforts of the Company and of companies in which the Company has invested or
with which it has formed strategic relationships.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See exhibit index immediately following signature page.
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March
31, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNE CORPORATION
(Company)
Date: May 12, 2000 /s/ Thomas E. Oland
-----------------------------
Thomas E. Oland
President, Chief Executive and
Financial Officer
EXHIBIT INDEX
TO
FORM 10-Q
TECHNE CORPORATION
Exhibit # Description
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27 Financial Data Schedule