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 December 31, 1996, or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to___________
------------------
Commission file number 0-17272
__________________
TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1427402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
614 MCKINLEY PLACE N.E. (612) 379-8854
MINNEAPOLIS, MN 55413 (Registrant's telephone number,
(Address of principal including area code)
executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
At February 1, 1997, 9,455,728 shares of the Company's Common Stock (par
value $.01) were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS 12/31/96 6/30/96
----------- -----------
Cash and cash equivalents $ 6,953,881 $ 7,422,084
Short-term investments 12,862,451 11,827,451
Accounts receivable (net) 7,554,049 8,379,531
Inventories 4,101,966 3,653,117
Deferred income taxes 1,409,000 1,262,000
Other current assets 615,571 744,824
----------- -----------
Total current assets 33,496,918 33,289,007
Deferred income taxes 1,462,000 1,049,000
Prepaid license fee 330,000 409,200
Fixed assets (net) 11,574,422 9,045,267
Intangible assets (net) 483,065 600,819
Other assets 250,000 -
----------- -----------
TOTAL ASSETS $47,596,405 $44,393,293
=========== ===========
LIABILITIES & EQUITY
Trade accounts payable $ 1,966,853 $ 1,720,873
Salary and related accruals 1,567,633 1,725,124
Other payables 471,257 876,346
Income taxes payable 1,057,429 706,679
----------- -----------
Total current liabilities 5,063,172 5,029,022
Deferred rent 649,200 490,200
Common stock, par value $.01 per
share; authorized 50,000,000;
issued and outstanding
9,449,228 and 9,519,528,
respectively 94,492 95,195
Additional paid-in capital 11,473,727 11,448,558
Retained earnings 29,828,072 27,245,416
Accumulated foreign currency
translation adjustments 487,742 84,902
----------- -----------
Total stockholders' equity 41,884,033 38,874,071
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $47,596,405 $44,393,293
=========== ===========
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
QUARTER ENDED SIX MONTHS ENDED
------------------------ ------------------------
12/31/96 12/31/95 12/31/96 12/31/95
----------- ----------- ----------- -----------
Sales $14,409,294 $12,514,479 $28,436,272 $25,308,777
Cost of sales 4,571,712 4,632,962 9,349,842 9,296,859
----------- ----------- ----------- -----------
Gross margin 9,837,582 7,881,517 19,086,430 16,011,918
Operating expenses
(income):
Selling, general and
administrative 3,657,534 3,163,447 6,974,769 6,264,117
Research and development 2,947,251 2,462,512 5,830,095 4,954,180
Amortization expense 58,877 58,878 117,754 117,755
Interest expense 441 91 28,524 315
Interest income (164,012) (164,164) (322,472) (303,484)
----------- ----------- ----------- -----------
6,500,091 5,520,764 12,628,670 11,032,883
----------- ----------- ----------- -----------
Earnings before income
taxes 3,337,491 2,360,753 6,457,760 4,979,035
Income taxes 1,060,000 673,000 2,005,000 1,506,000
----------- ----------- ----------- -----------
NET EARNINGS $ 2,277,491 $ 1,687,753 $ 4,452,760 $ 3,473,035
=========== =========== =========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.23 $ 0.17 $ 0.46 $ 0.36
=========== =========== =========== ===========
AVERAGE COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING 9,721,323 9,716,650 9,754,980 9,683,532
=========== =========== =========== ===========
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
-------------------------
12/31/96 12/31/95
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,452,760 $ 3,473,035
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 1,100,230 809,106
Deferred income taxes (483,000) (190,000)
Tax benefit from exercise of options - 177,000
Decrease in prepaid license fee 79,200 79,200
Deferred rent 159,000 43,200
Other - 11,026
Change in current assets and current
liabilities:
(Increase) decrease in:
Accounts receivable 1,014,934 4,983
Inventories (335,828) (79,876)
Other current assets 149,967 (138,446)
Increase (decrease) in:
Trade account/other payables (204,516) 47,594
Salary and related accruals (167,767) (82,592)
Income taxes payable 251,793 (230,741)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,016,773 3,923,489
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (8,385,000) (6,987,347)
Proceeds from sale of short-term
investments 7,350,000 6,460,025
Increase in other long term assets (250,000) -
Additions to fixed assets (3,418,612) (4,178,226)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (4,703,612) (4,705,548)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 25,189 167,656
Repurchase of common stock (1,870,827) (607,753)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (1,845,638) (440,097)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 64,274 7,465
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS (468,203) (1,214,691)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 7,422,084 5,317,493
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 6,953,881 $ 4,102,802
=========== ===========
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION:
The unaudited Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles and with
instructions to Form 10-Q and Article 10 of Regulation S-X. The
accompanying unaudited Consolidated Financial Statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
presentation of the results for the interim periods presented. All such
adjustments are of a normal recurring nature.
A summary of significant accounting policies followed by the Company is
detailed in the Annual Report to Shareholders for Fiscal 1996. The Company
follows these policies in preparation of the interim Financial Statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the
Consolidated Financial Statements be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto for the fiscal year
ended June 30, 1996 included in the Company's Annual Report to Shareholders
for Fiscal 1996.
Certain Consolidated Balance Sheet captions appearing in this interim
report are as follows:
12/31/96 6/30/96
----------- -----------
ACCOUNTS RECEIVABLE
Accounts receivable $ 7,606,049 $ 8,492,531
Less reserve for bad debts 52,000 113,000
----------- -----------
NET ACCOUNTS RECEIVABLE $ 7,554,049 $ 8,379,531
=========== ===========
INVENTORIES
Raw materials $ 2,053,928 $ 1,808,605
Work in process 116,395 34,917
Supplies 118,256 99,323
Finished goods 1,813,387 1,710,272
----------- -----------
TOTAL INVENTORIES $ 4,101,966 $ 3,653,117
=========== ===========
FIXED ASSETS
Laboratory equipment $ 9,213,477 $ 8,463,653
Office equipment 2,612,184 2,417,311
Leasehold improvements 8,818,334 6,114,009
----------- -----------
20,643,995 16,994,973
Less accumulated depreciation
and amortization 9,069,573 7,949,706
----------- -----------
NET FIXED ASSETS $11,574,422 $ 9,045,267
=========== ===========
INTANGIBLE ASSETS
Customer list $ 1,010,000 $ 1,010,000
Technology licensing agreements 500,000 500,000
Goodwill 1,225,547 1,225,547
----------- -----------
2,735,547 2,735,547
Less accumulated amortization 2,252,482 2,134,728
----------- -----------
NET INTANGIBLE ASSETS $ 483,065 $ 600,819
=========== ===========
B. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
SIX MONTHS ENDED
--------------------------
12/31/96 12/31/95
----------- -----------
Primary:
Weighted average number of common shares 9,478,382 9,410,474
Dilutive effect of stock options and warrants 276,598 273,058
----------- -----------
Average common and common equivalent shares
outstanding 9,754,980 9,683,532
=========== ===========
Fully diluted:
Weighted average number of common shares 9,478,382 9,410,474
Dilutive effect of stock options and warrants 291,372 286,558
----------- -----------
Average common and common equivalent shares
outstanding 9,769,754 9,697,032
=========== ===========
Fully diluted earnings per share are not separately reported since the
effect of dilution is less than three percent.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter and Six Months Ended December 31, 1996
vs. Quarter and Six Months Ended December 31, 1995
---------------------------------------------------------------------
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 in
Germany. The Company also has a foreign sales corporation, Techne Export
Inc.
Net Sales
Net sales for the quarter ended December 31, 1996 were $14,409,294, an
increase of $1,894,815 (15%) from the quarter ended December 31, 1995.
Sales for the six months ended December 31, 1996 increased $3,127,495 (12%)
from $25,308,777 to $28,436,272. R&D Systems sales increased $1,181,585
(14%) and $1,974,677 (11%) for the quarter and six months ended December
31, 1996, respectively. R&D Europe sales increased $713,230 (17%) and
$1,152,818 (15%) for the same periods. Approximately 69% of R&D Europe
sales were from the distribution of R&D Systems' products.
The increase in consolidated sales for the quarter and six months was due,
in part, to increased sales of R&D Systems' cytokines and antibodies.
Sales of cytokines and antibodies by R&D Systems and R&D Europe for the
quarter and six months ended December 31, 1996 were $4,454,473 and
$8,552,995 compared to $3,107,447 and $6,151,041 during the same periods in
the prior year, an increase of $1,347,026 and $2,401,954, respectively.
In addition, the increase in consolidated sales for the quarter and six
months was due to increased sales of immunoassay kits. Sales of
immunoassay kits by R&D Systems and R&D Europe for the quarter and six
months ended December 31, 1996 were $5,772,924 and $11,722,030 compared to
$5,465,503 and $10,783,521 for the quarter and six months ended December
31, 1995, an increase of $307,421 and $938,509, respectively.
Offsetting the increase in sales of biotechnology products, sales of
hematology products decreased $190,684 and $626,617 for the quarter and six
months ended December 31, 1996. The decrease resulted mainly from the loss
of an OEM customer at the end of fiscal 1996, partially offset in the
second quarter by higher retail sales and increased sales to several other
OEM customers.
Gross Margins
Gross margins, as a percentage of sales, increased from the prior year.
Margins for the second quarter of fiscal 1997 were 68.3% compared to 63.0%
for the same quarter in fiscal 1996. Margins for the six months ended
December 31, 1996 were 67.1% compared to 63.3% for the same period in
fiscal 1996.
The increase for the quarter and six months was due to a shift in product
mix to higher-margin biotechnology products and the conclusion of royalty
payments to Amgen Inc. in August 1996. During the quarter and six months
ended December 31, 1996, biotechnology products accounted for 84% and 83%
of consolidated sales compared to 80% and 79% for the quarter and six
months ended December 31, 1995. Gross margins for R&D Europe, Hematology
Division and Biotechnology Division all increased for the quarter. R&D
Europe gross margins increased from 48.5% to 53.9% for the quarter ended
December 31, 1996 and from 50.0% to 52.9% for the six months ended December
31, 1996. Hematology Division gross margins increased from 36.2% to 41.6%
for the quarter and from 37.9% to 40.8% for the six months ended December
31, 1996. Biotechnology Division gross margins increased from 68.1% to
71.3% for the quarter and from 68.4% to 70.0% for the six months ended
December 31, 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $494,087 (16%) from
the second quarter of fiscal 1996 to the second quarter of fiscal 1997.
These expenses also increased $710,652 (11%) for the first six months of
fiscal 1997. Approximately $161,000 and $193,000 of the increase in
selling, general and administrative expense for the quarter and six months
ended December 31, 1996 is due to additional bonus/profit sharing accrued
in the first six month of fiscal 1997. Approximately $31,000 and $149,000
of the increase for the quarter and six months was due to additional
Biotechnology Division sales and marketing staff added since the prior
year. In addition, $37,000 and $115,000 of the increase for the quarter
and six months was the result of additional advertising and promotional
expenditures by the Biotechnology Division. R&D Europe selling, general
and administrative expenses increased $205,103 and $220,721 for the quarter
and six months respectively. This increase relates mainly to the change in
exchange rates used in converting R&D Europe financial statements into U.S.
dollars, due to the declining value of the U.S. dollar,. The average
exchange rate during the first six months of fiscal 1997 and 1996 was 1.62
and 1.56 dollars per British pound, respectively. In British pounds, R&D
Europe's selling general and administrative expenses increased 70,454 (9%)
and 86,989 (6%) for the quarter and six months ended December 31, 1996,
respectively.
Research and Development Expenses
Research and development expenses increased $484,739 (20%) for the quarter
ended December 31, 1996 and $875,915 (18%) for the six months ended
December 31, 1995. R&D Europe and R&D Systems' research and development
expenses increased $168,133 and $316,606, respectively, for the quarter
ended December 31, 1996 and $223,087 and $652,828, respectively, for the
six months ended December 31, 1996. The increases related to products
currently under development, several of which were released in the first
six months of fiscal 1997. Products currently under development include
both biotechnology and hematology products. The increase in R&D Systems'
research and development expenses also included additional research
laboratory space added in the fourth quarter of fiscal 1996.
Net Earnings
Earnings before income taxes increased $976,738 from $2,360,753 in the
second quarter of fiscal 1996 to $3,337,491 in the second quarter of fiscal
1997. Earnings before taxes for the six months increased $1,478,725 from
$4,979,035 to $6,457,760. The increase in earnings before income taxes was
mainly due to an increase in Biotechnology Division earnings of $793,822
and $1,286,900 for the quarter and six months ended December 31, 1996 and
an increase in R&D Europe earnings of $214,117 and $354,272 for the quarter
and six months, respectively. The increases in Biotechnology Division and
R&D Europe results were due to increased sales and gross margins, partially
offset by higher expenses. Hematology earnings before tax decreased $10,576
and $156,993 from the quarter and six months ended December 31, 1995 due to
decreased sales.
Income taxes for the quarter and six months ended December 31, 1996 were
provided at a rate of approximately 32% and 31% of consolidated pretax
earnings compared to 29% and 30% for the prior year. The increase in the
tax rate was a result of increasing R&D Europe pretax earnings, which have
a higher tax rate than U.S. generated earnings. U.S. federal taxes have
been reduced by the reinstatement of the credit for research and
development expenditures and the benefit of the foreign sales corporation.
Liquidity and Capital Resources
At December 31, 1996, cash and cash equivalents and short-term investments
were $19,816,332 compared to $19,249,535 at June 30, 1996. The Company has
been accumulating cash and short-term investments for future expansion
purposes. The Company believes it can meet its future cash, working
capital and capital addition requirements through currently available
funds, cash generated from operations and maturities of short-term
investments. The Company has an unsecured line of credit of $750,000. The
interest rate on the line of credit is at prime. There were no borrowings
on the line in the prior or current fiscal years.
Cash Flows From Operating Activities
The Company generated cash of $6,016,773 from operating activities in the
first six months of fiscal 1997 compared to $3,923,489 for the first six
months of fiscal 1996. The increase was mainly the result of increased net
earnings and a decrease in accounts receivable.
Cash Flows From Investing Activities
During the six months ended December 31, 1996 and 1995, the Company
increased short-term investments $1,035,000 and $527,322, respectively.
The Company's investment policy is to place excess cash in short-term tax-
exempt government bonds. The objective of this policy is to obtain the
highest possible return with the lowest risk, while keeping the funds
accessible.
Capital additions were $3,418,612 for the first six months of fiscal 1997,
compared to $4,178,226 for the first six months of fiscal 1996. Included
in the fiscal 1997 and 1996 additions were $2,684,000 and $3,220,000 for
leasehold improvements related to expansion and remodeling of facilities by
R&D Systems. The remaining additions in fiscal 1997 and 1996 were for
laboratory and computer equipment. Total expenditures for capital
additions planned for the remainder of fiscal 1997 are expected to cost
approximately $3.1 million and are expected to be financed through
currently available funds and cash generated from operating activities.
Cash Flows From Financing Activities
Cash of $25,189 and $167,656 was received during the six months ended
December 31, 1996 and 1995, respectively, for the exercise of options for
2,000 and 29,750 shares of common stock. During the first six 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 six months of fiscal 1997 and 1996, the Company purchased
and retired 72,300 and 32,500 shares, respectively, of Company common stock
at market values of $1,870,827 and $607,753. In May 1995, the Company
announced a plan to purchase and retire up to $5,000,000 of its common
stock. Through February 1, 1997, 153,500 shares have been purchased at a
market value of $3,177,786. Subject to market conditions and share price,
the Company plans to continue to purchase and retire Company common stock.
The Company has never paid dividends and has no plans to do so in fiscal
1997.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS
Information relating to the Company's Annual Meeting of Shareholders,
held on October 24, 1996, is contained in the Company's Form 10-Q for
the quarter ended September 30, 1996, which is incorporated herein by
reference.
ITEM 5 - OTHER INFORMATION
Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995: Statements in this filing, and elsewhere, which look
forward in time involve risks and uncertainties which may affect the
actual results of operations. The following important factors, among
others, have affected and, in the future, could affect the Company's
actual results: the introduction and acceptance of new biotechnology
and hematology products, the levels and particular directions of
research into cytokines by the Company's customers, the impact of the
growing number of producers of cytokine research products and related
price competition, the retention of hematology OEM and proficiency
survey business, and the Company's expansion of marketing efforts in
Europe.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See exhibit index immediately following signature page.
B. REPORTS ON FORM 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNE CORPORATION
(Company)
Date: February 13, 1997 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 December 19, 1996 for the third amendment to a
lease agreement between Hillcrest Development and R&D Systems, Inc.
27 Financial Data Schedule