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 September 30, 1995, or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to___________
__________________
Commission file number 0-17272
__________________
TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1427402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
614 MCKINLEY PLACE N.E. (612) 379-8854
MINNEAPOLIS, MN 55413 (Registrant's telephone number,
(Address of principal (Zip Code) including area code)
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
At November 1, 1995, 9,429,201 shares of the Company's Common Stock (par
value $.01) were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS 9/30/95 6/30/95
------- -------
Cash and cash equivalents $ 5,984,732 $ 5,317,493
Short-term investments 8,805,790 10,627,730
Accounts receivable (net) 7,854,970 7,385,783
Inventories 3,369,875 3,265,840
Deferred income taxes 863,000 813,000
Other current assets 552,823 396,073
----------- -----------
Total current assets 27,431,190 27,805,919
Deferred income taxes 540,000 524,000
Prepaid license fee 528,000 567,600
Fixed assets (net) 7,016,368 4,328,429
Intangible assets (net) 777,451 836,327
----------- -----------
TOTAL ASSETS $36,293,009 $34,062,275
=========== ===========
LIABILITIES & EQUITY
Trade accounts payable $ 1,821,255 $ 1,548,530
Salary and related accruals 920,001 1,350,650
Other payables 789,495 662,353
Income taxes payable 1,154,076 557,447
----------- -----------
Total current liabilities 4,684,827 4,118,980
Deferred rent 444,800 423,200
Common stock, par value $.01 per
share; authorized 50,000,000;
issued and outstanding 9,429,201
and 9,375,346, respectively 94,292 93,753
Additional paid-in capital 9,391,789 8,546,974
Retained earnings 21,560,456 20,734,653
Accumulated foreign currency
translation adjustments 116,845 144,715
----------- -----------
Total stockholders' equity 31,163,382 29,520,095
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $36,293,009 $34,062,275
=========== ===========
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
QUARTER ENDED
-------------
9/30/95 9/30/94
------- -------
Sales $12,794,298 $10,960,794
Cost of sales 4,663,897 4,455,297
----------- -----------
Gross margin 8,130,401 6,505,497
Operating expenses:
Selling, gen. and admin. 3,100,671 2,444,831
Research and development 2,491,668 1,975,159
Amortization expense 58,876 114,987
Interest expense 224 2,778
Interest income (139,320) (76,239)
----------- -----------
5,512,119 4,461,516
----------- -----------
Earnings before income taxes 2,618,282 2,043,981
Income taxes 833,000 606,000
----------- -----------
NET EARNINGS $ 1,785,282 $ 1,437,981
=========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.18 $ 0.15
=========== ===========
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 9,650,445 9,482,124
=========== ===========
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
QUARTER ENDED
-------------
9/30/95 9/30/94
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,785,282 $ 1,437,981
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 394,363 431,412
Deferred income taxes (66,000) (52,000)
Prepaid license fee 39,600 -
Deferred rent 21,600 32,700
Other 101,000 -
Change in current assets and current
liabilities:
(Increase) decrease in:
Accounts receivable (484,946) (283,564)
Inventories (113,440) 234,921
Other current assets (163,647) (31,918)
Increase (decrease) in:
Trade account/other payables 405,602 207,569
Salary and related accruals (428,842) (392,971)
Income taxes payable 598,970 283,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,089,542 1,867,130
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (3,243,585) (3,111,420)
Proceeds from sale of short-term investments 5,065,525 1,515,000
Additions to fixed assets (3,043,257) (172,449)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (1,221,317) (1,768,869)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long term debt - (9,687)
Issuance of common stock 143,625 20,949
Repurchase of common stock (358,750) -
----------- -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (215,125) 11,262
EFFECT OF EXCHANGE RATE CHANGES ON CASH 14,139 (4,225)
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS 667,239 105,298
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 5,317,493 5,878,346
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 5,984,732 $ 5,983,644
=========== ===========
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 1995. 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, 1995 included in the Company's Annual Report to Shareholders for
Fiscal 1995.
Certain Consolidated Balance Sheet captions appearing in this interim
report are as follows:
9/30/95 6/30/95
------- -------
ACCOUNTS RECEIVABLE
Accounts receivable $ 8,004,970 $ 7,528,783
Less reserve for bad debts 150,000 143,000
----------- -----------
NET ACCOUNTS RECEIVABLE $ 7,854,970 $ 7,385,783
=========== ===========
INVENTORIES
Raw materials $ 1,840,442 $ 1,743,533
Work in process 39,930 11,964
Supplies 119,405 112,551
Finished goods 1,370,098 1,397,792
----------- -----------
TOTAL INVENTORIES $ 3,369,875 $ 3,265,840
=========== ===========
FIXED ASSETS
Laboratory equipment $ 7,303,687 $ 6,844,497
Office equipment 2,145,223 2,065,032
Leasehold improvements 4,231,286 1,758,724
----------- -----------
13,680,196 10,668,253
Less accumulated depreciation
and amortization 6,663,828 6,339,824
----------- -----------
NET FIXED ASSETS $ 7,016,368 $ 4,328,429
=========== ===========
INTANGIBLE ASSETS
Customer list $ 1,010,000 $ 1,010,000
Technology licensing agreements 500,000 500,000
Goodwill 1,225,547 1,225,547
----------- -----------
2,735,547 2,735,547
Less accumulated amortization 1,958,096 1,899,220
----------- -----------
NET INTANGIBLE ASSETS $ 777,451 $ 836,327
=========== ===========
B. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
QUARTER ENDED
-------------
9/30/95 9/30/94
------- -------
Primary:
Weighted average number of common shares 9,390,975 9,341,864
Dilutive effect of stock options and warrants 259,470 140,260
--------- ---------
Average common and common equivalent shares
outstanding 9,650,445 9,482,124
========= =========
Fully diluted:
Weighted average number of common shares 9,390,975 9,341,864
Dilutive effect of stock options and warrants 286,823 142,057
--------- ---------
Average common and common equivalent shares
outstanding 9,677,798 9,483,921
========= =========
Fully diluted earnings per share are not separately reported since the
effect of dilution is less than three percent.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter Ended September 30, 1995
vs. Quarter Ended September 30, 1994
------------------------------------
Company Structure
Techne Corporation has two operating subsidiaries: Research and Diagnostic
Systems, Inc. (R&D Systems) located in Minneapolis, Minnesota and R&D Systems
Europe Ltd. (R&D Europe) located in Abingdon, England. R&D Systems has two
divisions: Biotechnology and Hematology. The Biotechnology Division
manufactures purified cytokines (proteins), antibodies and assay kits which
are sold primarily to biomedical researchers and clinical research
laboratories. The Hematology Division develops and manufactures whole blood
hematology controls and calibrators which are sold to hospital and clinical
laboratories to check the performance of their hematology instruments to
assure the accuracy of hematology test results. R&D Europe is the distributor
for R&D Systems' biotechnology products in Europe. R&D Europe also develops
and manufactures its own line of biotechnology products and distributes
products for several other biotechnology companies. In fiscal 1996, R&D
Europe opened a sales subsidiary near Frankfurt, Germany. The Company also
has a foreign sales corporation, Techne Export Inc.
Net Sales
Net sales for the quarter ended September 30, 1995 were $12,794,298, an
increase of $1,833,504 (17%) from the quarter ended September 30, 1994.
R&D Systems sales increased $1,019,774 (13%) and R&D Europe sales increased
$813,730 (29%) for the quarter ended September 30, 1995, respectively.
Approximately 60% of R&D Europe sales were from the distribution of R&D
Systems' products
Approximately 49% of the increase in consolidated sales for the quarter was
due to the increase in sales of R&D Systems' immunoassay (Quantikine) kits.
In fiscal 1990, the Biotechnology Division of R&D Systems released its first
immunoassay kits and currently there are 52 kits on the market. Sales of
these kits by R&D Systems and R&D Europe for the quarter ended September 30,
1995 were $4,959,573 compared to $4,069,435 for the quarter ended September
30, 1994.
In addition, approximately 10% of the increase in consolidated sales for the
quarter was due to increased sales of other R&D Systems' products by R&D
Europe. Another 10% of the increase in consolidated sales for the quarter
ended September 30, 1995 was from an increase in sales of R&D Europe in-house
developed products, mainly proteins produced from biomolecules obtained from
British Bio-technology Group plc. under the fiscal 1994 Joint Biological
Research Agreement. The reacquisition of proficiency survey business by R&D
Systems' Hematology Division accounted for another 12% increase in
consolidated sales. This business had been lost to a competitor in fiscal
1994, but reacquired in mid-fiscal 1995.
The Company expects similar revenues in the second quarter of fiscal 1996 as
compared to the first quarter due to the traditional slowing of sales during
the Thanksgiving through New Year holiday period. Several new products were
released in the first quarter and sales of these products, along with products
planned to be released in the second and third quarters and the normal
increases after the holiday season, are expected to accelerate revenues to
record levels in the last half of fiscal 1996.
Gross Margins
Gross margins, as a percentage of sales, increased from the prior year.
Margins for the first quarter of fiscal 1996 were 63.5% compared to 59.4% for
the same quarter in fiscal 1995.
The increase for the quarter was due to an increase in R&D Europe and
Hematology Division gross margins. R&D Europe gross margins were 51.6%
compared to 45.6% for the quarter ended September 30, 1994. This increase in
R&D Europe gross margins was due to a change in product mix, with increased
sales of higher margin in-house developed products. Hematology Division gross
margins also increased from 33.4% to 39.4% for the quarter ended September 30,
1995, as a result of changes in the product mix. R&D Systems' Biotechnology
Division gross margins increased slightly from 67.5% to 68.6%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $655,839 (27%) from the
first quarter of fiscal 1995 to the first quarter of fiscal 1996. The largest
increase (approximately $439,000) in selling, general and administrative
expenses for the quarter is attributable to R&D Europe operations. During the
first quarter of fiscal 1996 R&D Europe opened a sales subsidiary in Germany
and costs associated with additional sales staff, travel and start-up costs
were $126,000 for the quarter. In addition, $70,000 of the increase in
selling, general and administrative expenses for the quarter was due to
additional sales staff added by R&D Europe since the prior year. Also, during
the first quarter of fiscal 1995, R&D Europe's selling, general and
administration expenses included an exchange gain of approximately $126,000
due to the strengthening of the British pound, compared to a minimal exchange
loss in the first quarter of fiscal 1996. R&D Systems' selling, general and
administrative expenses increased $173,000 from the first quarter of fiscal
1995, mainly due to additional bonus and profit sharing accruals.
Research and Development Expenses
Research and development expenses increased $516,509 (26%) for the quarter
ended September 30, 1995. R&D Europe and R&D Systems' research and
development expenses increased $136,424 and $380,085, respectively for the
quarter ended September 30, 1995. The increases related to products currently
under development, several of which were or are to be released in the first
half of fiscal 1996, including R&D Europe's new line of molecular biology
products and R&D Systems' new line of murine immunoassay kits. The products
currently under development include both biotechnology and hematology products.
Also included in R&D Systems' research and development expense for the quarter
ended September 30, 1995 is a $100,000 payment to Cistron Biotechnology, Inc.
under a Research and Development Agreement signed in fiscal 1995.
Net Earnings
Earnings before income taxes increased $574,301 from $2,043,981 in the first
quarter of fiscal 1995 to $2,618,282 in the first quarter of fiscal 1996. The
increase in earnings before income taxes was mainly due to an increase in
Biotechnology Division earnings of $384,491 and an increase in Hematology
Division earnings of $211,230 for the quarter. The increase in Biotechnology
Division results was due to increased sales, partially offset by higher
expenses. The increase in Hematology earnings from the prior year was the
result of an increase in sales and gross margins. R&D Europe earnings before
income taxes were $10,557 higher than the prior year, with higher sales being
offset by higher expenses.
Income taxes for the quarter ended September 30, 1995 were provided at a rate
of approximately 32% of consolidated pretax earnings compared to 30% for the
comparable period in fiscal 1995. The tax rate increase in fiscal 1996 is a
result of the expiration of the U.S. credit for research and development
expenditures. U.S. federal and state taxes have been reduced due to the
benefit of the foreign sales corporation. Foreign income taxes have been
provided at a rate of 33% which approximates the tax rate in the United
Kingdom.
Liquidity and Capital Resources
At September 30, 1995, cash and cash equivalents and short-term investments
were $14,790,522 compared to $15,945,223 at June 30, 1995. The Company has
been accumulating cash and short-term investments for future expansion
purposes. The Company believes it can meet its future cash, working capital
requirements and capital additions 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.
Cash Flows From Operating Activities
The Company generated cash of $2,089,542 from operating activities in the
first three months of fiscal 1996 compared to $1,867,130 for the first three
months of fiscal 1995. The increase was the result of increased net earnings,
partially offset by increases in accounts receivable and inventories due to
increased sales.
Cash Flows From Investing Activities
During the three months ended September 30, 1995 and 1994, the Company reduced
short-term investments $1,821,940 and increased short-term investments
$1,596,420, respectively. The Company's investment policy is to place excess
cash in short-term certificates of deposit and low risk tax-exempt government
bonds. The objective of this policy is to obtain the highest possible return
with the lowest risk, while keeping the funds accessible. The decrease in
short-term invenstments in the first quarter of fiscal 1996 was used to fund
capital additions during the quarter.
Capital additions were $3,043,257 for the first three months of fiscal 1996
compared to $172,449 for the first three months of fiscal 1995. Included in
the fiscal 1996 additions was $2,470,000 for partial payment on leasehold
improvements being made to the 2201 Kennedy building. The new space will be
occupied by R&D Systems Biotechnology Division in stages beginning in the
second quarter and continuing through early fiscal 1997. The remaining
additions in fiscal 1996 and the major additions in fiscal 1995 were for
laboratory and computer equipment. Total expenditures for capital additions
relating to leasehold improvements, laboratory and computer equipment planned
for the remainder of fiscal 1996 are expected to cost approximately $3,400,000
and are expected to be financed through currently available cash and
maturities of short-term investments.
Cash Flows From Financing Activities
Cash of $143,625 and $20,949 was received during the three months ended
September 30, 1995 and 1994, respectively, for the exercise of options for
26,000 and 11,795 shares of common stock. During the first three months of
fiscal 1996 options for 80,000 shares of common stock were exercised in a
noncash transaction by the surrender of 31,645 shares of the Company's common
stock with a market value of $601,250.
During the first three months of fiscal 1996, the Company purchased and
retired 20,500 shares of Company common stock at a market value of $358,750.
The Company has never paid dividends and has no plans to do so in fiscal 1996.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS
(a) The Annual Meeting of the Registrant's shareholders was held on
Thursday, October 19, 1995.
(b) A proposal to set the number of directors at six was adopted by
a vote of 7,453,793 in favor with 10,999 shares against, 24,952
shares abstaining and no shares represented by broker nonvotes.
(c) Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, there
was no solicitation in opposition to management's nominees as
listed in the proxy statement, and all such nominees were
elected, as follows:
Nominee For Withheld
------- --- --------
Thomas E. Oland 7,390,230 89,914
Roger C. Lucas 7,160,985 319,159
Howard V. O'Connell 7,476,120 4,024
G. Arthur Herbert 7,477,344 2,800
Randolph C. Steer 7,479,344 800
Lowell E. Sears 7,475,644 4,500
(d) By a vote of 7,086,018 shares in favor, 344,705 opposed, 58,821
abstaining and no shares represented by broker nonvotes, the
shareholders approved option grants to outside directors and a
200,000 share increase in the number of shares reserved for
issuance under the Company's 1988 Nonqualified Stock Option Plan.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See exhibit index immediately following signature page.
B. REPORTS ON FORM 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TECHNE CORPORATION
(Company)
Date: November 13, 1995 Thomas E. Oland
--------------------------
Thomas E. Oland
President, Chief Executive
and Financial Officer
EXHIBIT INDEX
TO FORM
10-Q
TECHNE CORPORATION
Exhibit
Number Description
-------- -----------
10.1 Agreement, dated October 27, 1995 for the first amendment
to a lease agreement between Craig Lyle Limited Partnership
(Hillcrest Development) and R&D Systems Inc.
27 Financial Data Schedule