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, 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 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 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 8, 1995 as
reported on The Nasdaq Stock Market was approximately $111,605,000. 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 8, 1995:
9,428,201
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 1995 Annual Meeting of
Shareholders are incorporated by reference into Part III.
<PAGE>
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 product lines 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 called cytokines which are sold exclusively to the research market
and diagnostic assay kits which are sold to the research and clinical
diagnostic markets. R&D Europe distributes biotechnology products in Europe
and also manufactures its own line of biotechnology products. In fiscal 1992,
a foreign sales corporation, Techne Export Inc., was incorporated as a
subsidiary of the Company.
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 cytokine market. Cytokines are specialized
protein molecules that stimulate or suppress growth in the cells of the body.
Cytokines are in demand by biomedical researchers who want to learn more about
their diverse functions. 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 from Amgen Inc., a leader in the
biotechnology field, its research reagent and diagnostic assay kit business.
With this purchase R&D Systems obtained Amgen's Erythropoietin (EPO) kit, the
Company's first cytokine enzyme-linked immunosorbent assay (ELISA) kit 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 an English subsidiary, British Bio-
technology Products Ltd. (BBP) from British Bio-technology Group plc. BBP was
the European distributor for R&D Systems' biotechnology products and continues
to distribute these products throughout Europe. BBP, which the Company
renamed R&D Systems Europe Ltd., also develops and manufactures its own line
of biotechnology products and distributes products for several other
biotechnology companies. In fiscal 1996, R&D Europe plans to open a sales
office near Frankfurt, Germany.
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 year 1995, R&D Systems'
Hematology Division revenues accounted for approximately 22% of total revenues
of $47,716,166. Revenues from R&D Systems' Biotechnology Division and R&D
Europe were 49% and 29% of total revenues, respectively.
Biotechnology Products
R&D Systems is a supplier of cytokines 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 gene
splicing. In 1985 R&D Systems introduced its first cytokine and is
continuously adding others to its product line. The first cytokines were
extracted from natural sources (human and porcine platelets and bovine brain).
Currently the majority of cytokines are produced through recombinant
techniques. R&D Systems also sells antibodies for specific cytokines,
cytokine assay kits, clinical diagnostic kits and kits for cytokine receptor
binding studies.
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 messengers of the cell. They carry vital signals
to the cell's genetic machinery that can trigger it to grow or stop growing.
Cytokines can also signal a cell to differentiate, that is, to acquire the
features necessary for it to take on more specialized tasks. Cytokines
interact with specialized receptors on the surface of cells. The cytokine
molecule acts as a signal that is received by a corresponding receptor.
Certain cytokines play a key role in stimulating cells surrounding a wound to
grow and divide and also in attracting migratory cells to the site.
R&D Systems' Biotechnology Division was formed in response to a shift in the
market from proteins purified from natural source materials to those produced
by recombinant DNA techniques. R&D Systems believes that its recombinant
cytokines are addressing the 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 human blood or
other fluid. The Biotechnology Division of R&D Systems also introduced its
flow cytometry reagent kits under the tradename Fluorokine. These kits
contain cytokines which are chemically tagged causing them to fluoresce when
exposed to a laser beam. These tagged cytokines are used to measure the
presence or absence of receptors for specific cytokines on the surface of
particular cells. The combination of the above product lines enable
researchers to not only quantitate cytokines, but to better understand their
interactions with cells and the function of these cytokines in the human body.
As discussed previously, on August 19, 1991, R&D Systems purchased Amgen Inc.'s
research reagent and diagnostic kit business. This acquisition broadened R&D
Systems' customer base and added approximately a dozen new cytokines and
antibodies and two new assay kits to its already established product lines.
In July 1993, the Company, through its purchase of R&D Europe, acquired
several new biotechnology product lines developed and manufactured by R&D
Europe which complemented and expanded the product lines of R&D Systems'
Biotechnology Division.
Current Biotechnology Products
Cytokines and Related Antibodies. Cytokines are extracted from natural
sources (human and animal platelets and bovine brains) or are produced
through genetic engineering (recombinant DNA technology). Antibodies are
produced by injecting cytokines into animals (goats, chickens, mice and
rabbits). The animals' immune systems recognize the cytokines as foreign
and develop antibodies to specific cytokines. These polyclonal and
monoclonal antibodies are then extracted from the animals' blood (from the
egg in the case of the chickens) and purified. Currently the Company
produces over 240 different cytokines and antibodies.
Assay Kits. This product line includes R&D Systems' Quantikine kits which
allow research scientists to quantify the amount of specific cytokines in a
sample of blood or other body fluid. Also included in this product line
are R&D Europe's adhesion molecule assay kits. These kits are used by
research scientists to measure cellular adhesion molecules in serum, plasma,
or cell culture media. Cellular molecules facilitate the movement of
infection fighting cells out of the blood stream to the site of infections.
Currently there are over 50 different assay kits manufactured and sold by
the Company.
Clinical Diagnostic Kit. The EPO kit acquired from Amgen Inc. in fiscal
1992 is the only diagnostic assay for which R&D Systems has FDA marketing
clearance.
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. Currently there are over 20
different products available in this product line.
DNA and Related Products. Designer genes and designer probes are synthetic
DNAs used in the study of gene function. In addition to over 200 cataloged
products, R&D Europe offers custom synthesis services for probes and genes.
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 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 thousand 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. The most frequently performed laboratory test 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 the College of American Pathologists and the laboratory
certifying authorities of a number of states. 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: Coulter, TOA, Hycel, Danam, Roche and Cell-
Dyn series instruments.
Laser-Type Whole Blood Controls/Calibrators. Currently produced controls
and calibrators for laser-type instruments include products for the
following: Technicon H series instruments, Cell-Dyn 3000 instruments and
the TOA Sysmex NE-8000 and NE-5500 instruments.
Linearity Control. This product, released in fiscal 1995, provides a means
of assessing the linearity of hematology analyzers for white blood cells,
red blood cells, hemoglobin and platelets.
Whole Blood Reticulocyte Control. Released in fiscal 1995, this control is
designed for manual and automated counting of reticulocytes (immature red
blood cells).
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 and R&D Europe are engaged in ongoing research and development in
all of their major product lines: hematology controls and calibrators,
biotechnology cytokines, antibodies, assays and related products. Both
subsidiaries believe that their future success depends, to a large extent, on
the ability to keep pace with changing technologies and markets. At the same
time, the subsidiaries continue to examine their production processes to
ensure high quality and maximum economy.
R&D Systems' Biotechnology Division is planning to release several 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. Additional cytokine assay kits and other cytokine
products are in various stages of development. R&D Europe continues to
develop new assay kits to expand their current product lines, several of
which are expected to be released in the coming year.
R&D Systems' Hematology Division has developed several new control and
calibrator products including a reticulocyte control, full range and low range
linearity kits and five part differential controls for the ABX Argos
instrument. R&D Systems has submitted 510(k) applications to the FDA on these
products and obtained FDA clearance to release these products in fiscal 1995.
R&D Systems is currently developing controls for the Coulter STKS hematology
instrument and a flow cytometry whole blood control.
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 $8,604,398,
$6,470,751 and $3,663,619 for fiscal years 1995, 1994 and 1993, respectively.
BUSINESS RELATIONSHIPS
In 1991, R&D Systems entered into a three year distribution agreement with
Amersham International plc, an English company. The agreement automatically
renews for successive two year periods unless either party wishes to terminate
the agreement. The agreement gives Amersham the non-exclusive right to
distribute R&D Systems' recombinant proteins under the Amersham name worldwide.
In exchange, Amersham pays R&D Systems a royalty on the sale of these products.
Total royalties received under this agreement were less than $30,000 in fiscal
1995.
In 1991, R&D Systems entered into a seven year marketing agreement with
Synergen, Inc., a US corporation. Synergen was acquired by Amgen Inc. in 1994.
The agreement automatically renews for successive two year terms unless either
party wishes to terminate the agreement. The agreement gives R&D Systems the
right to sell or further develop and sell to the research market certain
cytokines which Synergen had developed. In exchange R&D Systems agreed to pay
a royalty on the sale of the Synergen cytokines and products (assay kits)
developed from them. This agreement is on an exclusive basis in the US and a
non-exclusive basis worldwide outside the US. Total sales of product under
this agreement were less than 10% of consolidated revenues in fiscal 1995 and
total royalties paid were $341,462.
The Biotechnology Division has an ongoing relationship with Amgen Inc. since
the acquisition of its research reagent and diagnostic kit business in August
1991. The purchase agreement requires payment of royalties to Amgen Inc. on
certain product sales through August 1996. Royalties of $1,245,752 were paid
to Amgen in fiscal 1995 under the agreement.
In fiscal 1994, R&D Europe entered into a four year Joint Biological Research
Agreement with its former parent, British Bio-technology Group, plc. Under
the agreement, R&D Europe receives 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. R&D Europe will pay a total of
$5 million over the term of the agreement, plus royalties for a period of 14
years on sales of all products licensed under the agreement. R&D Europe is
currently in the early stages of developing several new products from the
rights received under this agreement. Research payments made to British
Bio-technology Group, plc. in fiscal 1995 were $1.25 million.
In fiscal 1995, R&D Systems entered into a License and Supply Agreement with
Cistron Biotechnology, Inc. The agreement grants R&D Systems a sublicense to
sell recombinant interleukin-1 beta protein and interleukin-1 beta precursor
assays made by Cistron to the research market worldwide. The $1,000,000
payment made for the sublicense is being amortized over five years. R&D and
Cistron also signed a Research and Development Agreement under which R&D
Systems will support Cistron's development of an interleukin-1 beta assay kit
for the detection and monitoring of periodontal disease in humans, in exchange
for co-exclusive marketing rights to such product. Payments under the
research agreement will be made in 10 quarterly installments of $100,000
beginning July 1, 1995.
Original Equipment Manufacturers (OEM) agreements represent the largest market
for hematology controls and calibrators made by R&D Systems. In fiscal year
1995, OEM contracts accounted for $6,227,708 or 61% of Hematology Division
revenues and 13% 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.
Biotechnology products manufactured in the United States and sold for use in
the research market do not require FDA clearance. Similarly, biotechnology
products manufactured and sold for use in the research market are under no
government regulation in England.
With the acquisition of Amgen Inc.'s diagnostic product line, R&D Systems has
a cytokine ELISA kit (EPO) cleared by the FDA for clinical diagnostic use.
R&D Systems must also comply with GMP for the manufacture of this kit. R&D
Systems is considering the merits of proceeding into clinical trials with
certain of its cytokine-based research assays. The purpose of the trials
would be to collect data for filing a PMA (premarket approval) application
with the FDA. The trials for any one assay could take years and would be very
costly. Further there is no assurance that the FDA will clear these kits for
clinical diagnostic use once such applications are made.
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 September 30, 1995. 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, 1996. 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 hematology controls and some cytokine products
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 all human blood
purchased is tested by the supplier.
Historically, the Biotechnology Division relied on outside sources for the
synthetic genes necessary to manufacture its cytokines. Over the last several
years, the Biotechnology Division has developed and manufactured a significant
number of cytokines from synthetic genes developed in-house, thus reducing its
reliance on outside sources. R&D Systems and R&D Europe typically have
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 and has
received patent protection for its cytokine TGF-beta 1.2. 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 following exceptions, 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.
Genentech, Inc. holds a basic patent of recombinant DNA techniques that cover
R&D Systems' methods for manufacturing its recombinant cytokines. Genentech
has granted R&D Systems a non-exclusive license under the patent at a royalty
rate of 1/2% of sales of recombinant products.
Stanford University also holds a basic patent on recombinant DNA techniques
that cover R&D Systems' methods for manufacturing its recombinant cytokines.
Stanford has granted R&D Systems a non-exclusive license under the patent at a
royalty rate of 1% of domestic and 1/2% of international sales of recombinant
products.
Merck & Co. owns a patent on certain acidic fibroblast growth factors. Merck
has granted R&D Systems a license to manufacture and sell such factors for
research purposes at a royalty rate of 2% of sales.
Stanford University also owns a patent on fluorescent conjugate technology
which R&D Systems uses in the manufacture of certain of its Fluorokine kits.
Stanford has granted R&D Systems a non-exclusive license under the patent at a
royalty rate of 10% of sales of these products.
For fiscal 1995, $7,476,400 of sales were subject to one or more of the above
licenses and total royalties paid under the licenses were $107,532.
R&D Systems has obtained federal trademark registration for its hematology
control trademark CBC-3D, CBC-7, CBC-8, CBC-Laser and PLATELET-TROL 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, Surfacemark and IVD trademarks.
SEASONALITY OF BUSINESS
Sales of the products manufactured by R&D Systems and R&D Europe are not
seasonal.
SIGNIFICANT CUSTOMERS
One Biotechnology distributor, British Bio-technology Products Ltd. accounted
for approximately 11% of total revenues during fiscal 1993. No other single
customer accounted for more than 10% of total revenues during fiscal years
1994 and 1995.
BACKLOG
There was no significant backlog for R&D Systems or R&D Europe products as of
the date of this report or as of a comparable date for fiscal 1994.
COMPETITION
The market for cytokines and research diagnostic assay kits in the United
States and Europe is being supplied by a growing number of biotechnology
companies, including T-Cell Sciences, Genzyme, PerSeptive Biosystems Inc.,
BioSource International, Endogen, Sigma Chemical Co., Amersham International,
Calbiochem and Medgenix. R&D Systems believes that it is the dominant
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 in the research market and for assay kits in the
research and clinical diagnostic market combine to make the outlook for its
biotechnology business a very promising one.
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 made 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 Coulter Diagnostics, Inc., Fisher Scientific, 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 Coulter Diagnostics and Streck Laboratories.
EMPLOYEES
R&D Systems had 256 full-time and 29 part-time employees as of June 30, 1995.
R&D Europe had 59 full-time employees as of June 30, 1995.
ENVIRONMENT
Compliance with federal, state and local environmental protection laws in the
United States and England had no material effect on R&D Systems or R&D Europe
in fiscal year 1995.
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):
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
---------------------------
Net Sales to Unaffiliated
Customers 1995 1994 1993
- ------------------------- ------- ------- -------
<S> <C> <C> <C>
R&D Systems:
US $27,794 $24,516 $21,530
England 2,288 2,143 4,727
Asia 1,885 1,322 887
Other Europe 955 981 868
Canada 667 711 598
Other 251 186 128
R&D Europe:
England 4,849 3,590 -
Germany 3,034 2,462 -
France 1,716 958 -
Other Europe 3,199 2,715 -
Other 1,078 746 -
Gross Margin
- ------------
R&D Systems (US) 22,658 18,661 15,598
R&D Europe (England) 6,595 4,680 -
Net Earnings (Loss)
- -------------------
Parent and R&D Systems (US) 6,228 5,370 4,382
R&D Europe (England) 478 (276) -
Identifiable Assets
- -------------------
Parent and R&D Systems (US) 29,151 22,796 20,374
R&D Europe (England) 4,911 4,010 -
</TABLE>
RISK FACTORS
Risk of Technological Obsolescence and Competition
The biotechnology industry is subject to rapid and significant technological
change. Competitors of the Company in the United States and abroad are
numerous and include, among others, specialized biotechnology firms, 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. In addition, 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. If the Company is successful in
commencing significant commercial sales of its products, it also will be
competing with respect to manufacturing efficiency and marketing capability.
Furthermore, the Company's competitors may obtain FDA approval for products
sooner and be more successful in manufacturing and marketing their products
than the Company.
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 licenses to
produce a number of cytokines and related products claimed to be owned by
others. The Company believes that no patent rights exits as to other
cytokines which it produces, but it has not conducted a patent infringement
study. It is possible that 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 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.
If the Company fails to obtain patents or exclusive licenses for its
technology and products, no assurance can be given that others will not
independently develop substantially equivalent proprietary products and
processes. The Company seeks to protect its trade secrets and proprietary
know-how, in part, with confidentiality agreements with employees and
consultants. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be
independently developed by competitors. In addition, protracted and costly
litigation may be necessary to enforce rights of the Company and defend
against claims of infringement of rights of others.
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 being 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
The Company does not own any real property. R&D Systems currently leases
space in three adjacent buildings located in Minneapolis, Minnesota. The main
building, consisting of approximately 85,000 square feet, is located at 614
McKinley Place N.E., and houses the 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
under lease includes 28,000 square feet at 2201 Kennedy Street. This space
is being used for storage and Biotechnology Division shipping operations.
Subsequent to June 30, 1995 the lease will be amended to include approximately
90,000 additional square feet in the building at 2201 Kennedy Street for
expansion of the Biotechnology Division manufacturing and research operations.
The Company plans to occupy the remodeled space in mid-fiscal 1996. The
current lease for the above buildings extends through December 2007. Base
rent for fiscal 1995 was $787,644.
R&D Europe leases approximately 10,000 square feet in a building in Abingdon,
England where all of R&D Europe operations are located. In fiscal 1996 R&D
Europe plans to increase its square footage in Abingdon to 12,500 and add an
additional 2,500 square feet for a sales office near Frankfurt, Germany. Base
rent for the Abingdon facility in fiscal 1995 was $213,792.
The Company believes the leased property discussed above is adequate to meet
its occupancy needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to nor is any of its property subject to any
material pending legal proceedings.
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 1995 fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
(a) The names, ages and positions of each executive officer of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position Officer Since
---- --- -------- -------------
<S> <C> <C> <C>
Thomas E. Oland 54 Chairman of the Board, President, 1985
Treasurer and Director
Dr. James A. 52 Vice President and Chief Scientific 1995
Weatherbee Officer
Dr. Monica Tsang 50 Vice President, Research 1995
Dr. Thomas C. 62 Vice President, Scientific and 1995
Detwiler Regulatory Affairs
Dr. Gerald J. Allen 45 Vice President, Diagnostics 1995
Marcel Veronneau 41 Vice President, Hematology Operations 1995
</TABLE>
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. Dr. James A. Weatherbee and Dr. Monica Tsang are
husband and wife.
(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. James A. Weatherbee was elected a Vice President of the Company in March
1995. Prior thereto, he served as Chief Scientific Officer for R&D Systems'
Biotechnology Division and has been an employee of R&D Systems since 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. Prior to joining R&D Systems, Dr. Detwiler was Professor
of Biochemistry at State University of New York Health Sciences Center,
Brooklyn, New York.
Dr. Gerald J. Allen was elected a Vice President of the Company in March 1995.
Prior thereto, he served as Director of Diagnostics for R&D Systems'
Biotechnology Division and has been an employee of R&D Systems since 1994.
During the three years prior to joining R&D Systems, Dr. Allen was Product
Development Director at R&D Systems Europe, Ltd. and its predecessor company,
British Bio-technology Products, Ltd.
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. During the three years prior to
1993, Mr. Veronneau served as Managing Director at Hycel S.A., a former
subsidiary of the Company.
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 Market 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.
<TABLE>
<CAPTION>
1995 Sales Price 1994 Sales Price
---------------- ----------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
1st Quarter $11.00 $ 8.75 $16.25 $13.25
2nd Quarter 12.63 8.75 15.25 9.25
3rd Quarter 15.88 9.75 12.25 9.50
4th Quarter 15.25 12.75 13.00 9.50
</TABLE>
As of September 8, 1995, there were approximately 391 shareholders of record
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 (1)
<TABLE>
<CAPTION>
(in thousands, except per share data)
Selected Statement of Earnings
Data for the Years Ended June 30 1995 1994(3) 1993 1992(2) 1991
- -------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $47,716 $40,330 $28,738 $22,304 $19,330
Gross margin 29,253 23,341 15,598 11,665 9,948
Earnings before income taxes 9,648 7,223 6,469 3,253 2,232
Earnings before extraordinary
items 6,706 5,094 4,382 1,964 1,635
Net earnings 6,706 5,094 4,382 1,964 1,684
Per share:
Earnings before extraordinary
items $ .70 $ .54 $ .46 $ .21 $ .18
Extraordinary items - - - - .01
------- ------- ------- ------- -------
Net earnings $ .70 $ .54 $ .46 $ .21 $ .19
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
Selected Balance Sheet Data
as of June 30 1995 1994(3) 1993 1992(2) 1991
- -------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total assets $34,062 $26,806 $20,374 $15,693 $ 9,567
Long-term debt - - 30 2,066 467
Stockholders' equity 29,520 22,955 17,758 11,183 6,322
</TABLE>
(1) The Company has not declared any dividends in the past, and it is not
anticipated that it will declare any dividends in the foreseeable future.
(2) The Company sold its French subsidiary effective October 1, 1991 and
acquired the research reagent and diagnostic kit business of Amgen Inc. on
August 19, 1991.
(3) The Company acquired its English subsidiary, R&D Systems Europe Ltd.
effective July 1, 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY STRUCTURE
TECHNE (the Company) has two operating subsidiaries: Research & Diagnostic
Systems, Inc. (R&D Systems) and R&D Systems Europe Ltd. (R&D Europe). R&D
Systems, located in Minneapolis, Minnesota, has two divisions: Biotechnology
and Hematology. 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
ofhematology instruments to assure the accuracy of hematology test results.
R&D Europe, located in Abingdon, England, was acquired by the Company on
July 1, 1993. R&D Europe was and continues to be the European distributor of
R&D Systems biotechnology products. R&D Europe also develops and manufactures
its own line of biotechnology products and distributes biotechnology products
for several other companies. In fiscal 1992, a foreign sales corporation,
Techne Export Inc., was incorporated as a subsidiary of the Company.
RESULTS OF OPERATIONS
Net sales for fiscal 1995 were $47,716,166, an increase of $7,386,534 (18%)
from fiscal 1994. Sales by R&D Europe for the period increased $3,405,455
(33%), while sales by R&D Systems increased $3,981,079 (13%). Approximately
59% of the increase in consolidated sales for the fiscal year 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 Quantikine
kits and currently there are 49 kits on the market. Sales of these kits by
R&D Systems and R&D Europe for fiscal 1995 were $18,568,719 compared to
$14,242,364 in fiscal 1994. In addition, 10% of the increase in consolidated
sales for the fiscal year was due to increased sales of other R&D Systems'
products by R&D Europe and another 10% of the increase was due to increased
distribution of products from non-affiliated companies by R&D Europe. The
Company anticipates increases in sales for fiscal 1996 in both its U.S. and
European subsidiaries related to increased volumes of current products and the
release of new products.
Net sales for fiscal 1994 were $40,329,632, an increase of $11,591,811 (40%)
from fiscal 1993. Sales by R&D Europe for the period were $10,470,795.
Approximately 18% and 17%, respectively, of the increase in consolidated sales
were from sales of R&D Europe in-house developed products and the distribution
by R&D Europe of products from non-affiliated companies. Approximately 42% of
the increase in consolidated sales was due to the increase in sales of R&D
Systems' Quantikine kits. Sales of these kits by R&D Systems and R&D Europe
for fiscal 1994 were $14,242,364 compared to $9,405,096 in fiscal 1993.
Net sales for fiscal 1993 increased $6,433,386 (29%) from fiscal 1992. During
this period, R&D Systems' sales increased $7,599,757 (36%) from $21,138,064 to
$28,737,821. Approximately 48% of this increase was due to the increase in
sales of Quantikine kits. In addition, 14% of the increase in R&D Systems'
sales resulted from the increase in the volume of sales to one Hematology
Division OEM customer. The increase in R&D Systems' sales for fiscal 1993 was
partially offset by a decrease in sales as a result of the sale of Hycel S.A.,
a French subsidiary of the Company, at the end of the first quarter of fiscal
1992.
Gross margins, as a percentage of sales, increased from 57.9% in fiscal 1994
to 61.3% in fiscal 1995. The increase was primarily due to an increase in R&D
Europe gross margins from 44.7% to 47.5%. This increase was due to favorable
exchange rate variances on purchases from R&D Systems as a result of a
weakening dollar. Biotechnology Division gross margins increased slightly
from 66.6% to 67.4% and Hematology Division gross margins increased from 33.1%
in fiscal 1994 to 36.4% in fiscal 1995. This increase in gross margin for
the Hematology Division was the result of increased higher margin retail sales
and manufacturing efficiencies.
Gross margins, as a percentage of sales, increased from 54.3% in fiscal 1993
to 57.9% in fiscal 1994. The increase was primarily due to an increase in R&D
Systems' Biotechnology Division gross margins from 62.7% to 66.6%. This
increase was the result of lower packaging and manufacturing costs due to
increases in production and shipping volumes. The increase in Biotechnology
Division gross margin percentage was partially offset by a lower gross margin
percentage for R&D Systems' Hematology Division. Gross margins for the
Hematology Division were 33.1% in fiscal 1994 compared to 38.0% in fiscal
1993. This decrease in gross margin was the result of increasing lower margin
OEM business, higher production costs related to smaller average lot sizes and
higher shipping costs related to one OEM product.
Gross margins, as a percentage of sales, increased from 52.3% in fiscal 1992
to 54.3% in fiscal 1993. The increase was primarily due to an increase in R&D
Systems' Biotechnology Division gross margins as a result of a decrease in
production costs associated with the product lines acquired from Amgen Inc. in
fiscal 1992.
Selling, general and administrative expenses increased $1,939,004 (21%) in
fiscal 1995. Approximately $845,000 of the increase in selling, general and
administrative expenses for the fiscal year was due to wages and benefits
related to Biotechnology and Hematology Division administrative and sales
staff added since the prior year. Additionally, $288,000 of the increase in
selling, general and administrative expenses was the result of Biotechnology
Division consulting expenses related to computer, personnel and strategic
planning. In addition, approximately $537,000 of the increase for fiscal 1995
was due to marketing costs related to additional advertising, promotional
materials and catalog printing costs incurred by R&D Systems' Biotechnology
Division and R&D Europe.
Selling, general and administrative expenses increased $4,223,449 (84%) in
fiscal 1994. Included in selling, general and administrative expenses for
fiscal 1994 were $3,065,140 of expenses related to R&D Europe operations.
During this period, R&D Systems' selling, general and administrative expenses
increased $989,813 (21%). The majority of this increase was due to additional
wages, benefits and travel expenses related to additional Biotechnology
Division administrative and sales staff and the printing of a new
Biotechnology product catalog.
Selling, general and administrative expenses increased $31,520 (1%) in fiscal
1993. During this period, R&D Systems' selling, general and administrative
expenses increased $607,772 (15%). The majority of this increase was due to
additional wages, benefits and travel expenses related to additional
Biotechnology sales, computer and support staff. The increase in R&D Systems'
selling, general and administrative expenses was offset by the decrease in
these expenses after the sale of Hycel. Hycel's expenses included in fiscal
1992 results were $557,546.
Research and development expenses increased $2,133,647, $2,807,132 and
$1,073,315 in fiscal 1995, 1994 and 1993, respectively. The increases in
research and development expenses were primarily the result of the development
and release of new cytokines, antibodies and Quantikine kits by R&D Systems'
Biotechnology Division and the development and release of several new
Hematology Division control products. Included in research and development
expenses for fiscal 1995 and 1994 were $1,250,000 and $1,100,000 related to
payments made under a Joint Biological Research Agreement with British Bio-
technology Group plc, R&D Europe's former parent. Products being developed as
a result of this agreement are expected to contribute to future revenues and
earnings of R&D Europe. Management of the Company believes that R&D Systems
and R&D Europe will continue to develop new products.
Earnings before taxes increased from $7,222,662 in fiscal 1994 to $9,648,042
in fiscal 1995. This increase in earnings was primarily the result of a
$1,082,547 increase in R&D Systems' Biotechnology Division earnings and a
$1,299,464 increase in R&D Europe earnings, partially offset by a $72,047
decrease in Hematology Division earnings. The increase in Biotechnology
Division and R&D Europe earnings before taxes was due to increased sales and
gross margins, partially offset by higher expenses. The decrease in
Hematology Division earnings before taxes was the result of increased sales
and gross margins offset by higher expenses.
Earnings before taxes increased from $6,469,275 in fiscal 1993 to $7,222,662
in fiscal 1994. This increase in earnings was primarily the result of a
$1,987,751 increase in R&D Systems' Biotechnology Division earnings offset
by a $559,347 decrease in Hematology Division earnings and a $417,916
operating loss by R&D Europe. The increase in Biotechnology Division earnings
before taxes was due to increased sales and gross margins, partially offset by
higher expenses. The decrease in Hematology Division earnings before taxes
was the result of a decrease in gross margins. The operating loss by R&D
Europe was primarily the result of the $1,100,000 Joint Biological Research
Agreement payment discussed previously.
Earnings before taxes increased from $3,252,764 in fiscal 1992 to $6,469,275
in fiscal 1993. This increase in earnings is primarily the result of a
$2,177,544 increase in R&D Systems' Biotechnology Division earnings before
taxes and a $666,535 increase in Hematology Division earnings, both of which
were due to increased sales and gross margins partially offset by higher
expenses.
Income taxes for fiscal 1995 were provided at a rate of approximately 30% of
consolidated pretax earnings. U.S. federal and state taxes have been reduced
as a result of the credit for research and development expenditures and 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.
Income taxes for fiscal 1994 were provided at a rate of approximately 29% of
consolidated pretax earnings. U.S. federal and state income taxes for fiscal
1994 were reduced as a result of the credit for research and development
expenditures, the benefit associated with the foreign sales corporation and an
adjustment to prior years income tax due to changes in the tax law related to
deductibility of goodwill amortization. Federal and state income taxes on
domestic earnings were offset by a $142,000 tax benefit associated with the
operating loss by R&D Europe.
Federal and state income taxes for fiscal 1993 were provided at the rate of
approximately 32% of earnings. This was a result of the credit for research
and development expenditures and the benefit associated with the foreign sales
corporation.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments at June 30, 1995, were
$15,945,223, an increase of 47% from the prior year. At June 30, 1994, cash,
equivalents and short-term investments were $10,866,047 compared to $7,817,509
at June 30, 1993, an increase of 39%. The Company has an unsecured line of
credit of $750,000 available at June 30, 1995. The interest rate on the line
of credit is at the prime rate of 9.0% at June 30, 1995.
Management of the Company expects to be able to meet its future cash and
working capital requirements for operations and capital additions through
currently available funds and cash generated from operations.
Cash flows from operating activities
The Company generated cash from operations of $7,313,658, $6,304,449 and
$4,470,896 in fiscal 1995, 1994 and 1993, 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
Capital additions were $1,311,371, $1,331,932 and $2,625,799 in fiscal 1995,
1994 and 1993, respectively. Capital additions in 1995 and 1994 were for
laboratory, manufacturing and computer equipment. The major additions in 1993
were for leasehold improvements and related equipment in conjunction with the
expansion of R&D Systems into additional space in two adjacent buildings.
Total capital additions for equipment and leasehold improvements planned for
fiscal 1996 are expected to be approximately $6.2 million (including $4.5
million related to a 90,000 square foot expansion of R&D Systems'
Biotechnology Division research and manufacturing facilities). All capital
additions are expected to be financed through currently available cash and
maturities of short-term investments. The Company has commitments for $1.5
million at June 30, 1995, related to the above noted expansion.
The Company invested a net $5,529,371, $1,259,964 and $2,438,395 in short-term
investments in fiscal 1995, 1994 and 1993, respectively. The Company's
investment policy is to place excess cash in short-term certificates of
deposit and low risk tax-exempt government bonds with the objective of
obtaining the highest possible return with the lowest risk, while keeping
funds accessible.
In fiscal 1995, the Company made a $1,000,000 prepayment to Cistron
Biotechnology, Inc. under a License and Supply Agreement. The agreement
grants the Company a sublicense to sell recombinant interleukin-l beta
protein and interleukin-l precursor assays made by Cistron to the research
market worldwide. The prepayment is being amortized over five years. The
Company and Cistron also signed a Research and Development Agreement under
which the Company will support Cistron's development of an interleukin-l beta
assay kit for the detection and monitoring of periodontal disease in humans,
in exchange for co-exclusive marketing rights to such product. Payments under
the research agreement will be made in 10 quarterly installments of $100,000
beginning July 1, 1995, and are expected to be financed through cash generated
from operations.
In fiscal 1994, the Company acquired R&D Europe for $2,300,000 cash plus a 5
year warrant for 50,000 shares of Company common stock. Additional costs
associated with the acquisition were $87,241. Cash acquired in the
transaction was $598,683, for a net cash outflow of $1,788,558. Cash used to
fund the acquisition was obtained from cash and cash equivalents on hand at
June 30, 1993.
Cash flows from financing activities
The Company received $211,962, $29,024 and $152,054 for the exercise of
options and warrants for 84,604, 13,235 and 86,383 shares of common stock in
fiscal 1995, 1994 and 1993, respectively.
Net cash of $29,875, $36,201 and $49,989 was used to reduce short and long
term debt in fiscal 1995, 1994 and 1993, respectively.
In fiscal 1995, the Company purchased and retired 45,000 shares of Company
common stock at a market value of $630,752. Subject to market conditions and
share price, the Company plans to purchase an additional $4.4 million of
common stock in fiscal 1996. Any such purchases will be funded from currently
available cash and short-term investments.
In fiscal 1993, a six-year, 7% convertible debenture in the amount of $2
million, plus accrued interest of $24,500, was converted into 215,947 shares
of the Company's common stock.
The Company has never paid dividends and has no plans to do so in fiscal 1996.
The Company's earnings will be retained for reinvestment in the business.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
TECHNE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $47,716,166 $40,329,632 $28,737,821
Cost of sales 18,463,597 16,988,623 13,139,605
----------- ----------- -----------
Gross margin 29,252,569 23,341,009 15,598,216
Operating expenses (income):
Selling, general and
administrative 11,174,147 9,235,143 5,011,694
Research and development (Note F) 8,604,398 6,470,751 3,663,619
Amortization of intangible assets
(Note A) 291,619 572,175 564,778
Interest expense 8,641 21,755 69,078
Interest income (474,278) (181,477) (180,228)
----------- ----------- -----------
19,604,527 16,118,347 9,128,941
----------- ----------- -----------
Earnings before income taxes 9,648,042 7,222,662 6,469,275
Income taxes (Note I) 2,942,000 2,129,000 2,087,000
----------- ----------- -----------
Net earnings $ 6,706,042 $ 5,093,662 $ 4,382,275
=========== =========== ===========
Net earnings per share $ .70 $ .54 $ .46
Average common and common
equivalent shares outstanding 9,521,956 9,517,200 9,446,688
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
TECHNE Corporation and Subsidiaries
<TABLE>
<CAPTION>
June 30,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,317,493 $ 5,878,346
Short-term available-for-sale
investments (Note A) 10,627,730 4,987,701
Trade accounts receivable, less allowance
for doubtful accounts of $143,000 and
$153,000, respectively 7,385,783 6,592,961
Inventories (Note C) 3,265,840 2,513,561
Deferred income taxes (Note I) 813,000 764,000
Prepaid expenses 396,073 198,898
----------- -----------
Total current assets 27,805,919 20,935,467
Equipment and leasehold improvements (Note D) 4,328,429 4,357,108
Intangible assets (Note A) 836,327 1,127,946
Prepaid license fee 567,600 --
Deferred income taxes (Note I) 524,000 385,000
----------- -----------
$34,062,275 $26,805,521
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,548,530 $ 1,226,864
Salaries, wages and related accounts 1,350,650 1,140,737
Other accounts payable and accrued expenses 662,353 624,033
Income taxes payable 557,447 536,906
Current portion of long-term debt -- 29,875
----------- -----------
Total current liabilities 4,118,980 3,558,415
Deferred rent 423,200 292,400
Contingencies and commitments (Note F) -- --
Stockholders' equity (Note G):
Undesignated capital stock; authorized
5,000,000 shares; none issued or outstanding -- --
Common stock, par value $.01 a share;
authorized 50,000,000 shares; issued and
outstanding 9,375,346 and 9,329,151 shares,
respectively 93,753 93,292
Additional paid-in capital 8,546,974 8,110,798
Retained earnings 20,734,653 14,677,038
Accumulated foreign currency translation
adjustments 144,715 73,578
----------- -----------
Total stockholders' equity 29,520,095 22,954,706
----------- -----------
$34,062,275 $26,805,521
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TECHNE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Accumu-
lated
Foreign
Currency
Common Stock Additional Transla-
------------------ Paid-in Retained tion Ad-
Shares Amount Capital Earnings justment
--------- ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balances at June 30,
1992 8,998,972 $89,990 $5,859,624 $ 5,232,999 $ --
Net earnings -- -- -- 4,382,275 --
Common stock issued:
Exercise of options
(Note G) 21,600 216 54,663 -- --
Exercise of warrants 64,783 648 96,527 -- --
Conversion of deben-
tures (Note G) 215,947 2,159 2,022,341 -- --
Tax benefit from
exercise of options
and sale of common
stock by employees -- -- 17,000 -- --
--------- ------- ---------- ----------- --------
Balances at June 30,
1993 9,301,302 93,013 8,050,155 9,615,274 --
Net earnings -- -- -- 5,093,662 --
Common stock issued:
Exercise of options
(Note G) 30,993 310 64,406 -- --
Surrender of stock to
exercise options
(Note L) (3,144) (31) (3,763) (31,898) --
Change in foreign
currency transla-
tion adjustments
(Note A) -- -- -- -- 73,578
--------- ------- ---------- ----------- --------
Balances at June 30,
1994 9,329,151 93,292 8,110,798 14,677,038 73,578
Net earnings -- -- -- 6,706,042 --
Common stock issued:
Exercise of options
(Note G) 93,695 936 236,026 -- --
Surrrender of stock to
exercise options
(Note L) (2,500) (25) (6,850) (18,125) --
Repurchase of stock (45,000) (450) -- (630,302) --
Tax benefit from
exercise of non-
qualified stock
options -- -- 207,000 -- --
Change in foreign
currency transla-
tion adjustments
(Note A) -- -- -- -- 71,137
--------- ------- ---------- ----------- --------
Balances at June 30,
1995 9,375,346 $93,753 $8,546,974 $20,734,653 $144,715
========= ======= ========== =========== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE L)
TECHNE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,706,042 $ 5,093,662 $ 4,382,275
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 1,654,814 1,837,176 1,348,550
Deferred income taxes (188,000) (759,000) (82,000)
Increase in deferred rent 130,800 147,600 91,800
Other 161,866 119,312 17,000
Change in current assets and
current liabilities, net of
acquisition:
(Increase) decrease in:
Trade and other accounts
receivable (791,147) (444,890) (1,577,105)
Inventories (732,090) (154,778) 485,963
Prepaid expenses (193,473) 82,627 (224,254)
Increase (decrease) in:
Trade and other accounts
payable 338,131 116,486 103,321
Salaries, wages and related
accounts 208,268 (99,215) 317,846
Income taxes payable 18,447 365,469 (392,500)
------------ ----------- -----------
Total adjustments 607,616 1,210,787 88,621
------------ ----------- -----------
Net cash provided by operating
activities 7,313,658 6,304,449 4,470,896
Cash flows from investing activities:
Additions to equipment and leasehold
improvements (1,311,371) (1,331,932) (2,625,799)
Purchase of short-term available-
for-sale investments (10,438,674) (4,684,964) (5,487,623)
Proceeds from sale of short-term
available-for-sale investments 4,909,303 3,425,000 3,049,228
Increase in prepaid license fee (567,600) -- --
Acquisition, net of cash acquired -- (1,788,558) --
------------ ----------- -----------
Net cash used in investing
activities (7,408,342) (4,380,454) (5,064,194)
Cash flows from financing activities:
Issuance of common stock 211,962 29,024 152,054
Payments on long-term debt (29,875) (36,201) (49,989)
Repurchase of common stock (630,752) -- --
------------ ----------- -----------
Net cash (used) provided by
financing activities (448,665) (7,177) 102,065
Effect of exchange rate changes on
cash (17,504) (17,586) --
------------ ----------- -----------
Net (decrease) increase in cash and
cash equivalents (560,853) 1,899,232 (491,233)
Cash and cash equivalents at beginning
of year 5,878,346 3,979,114 4,470,347
------------ ----------- -----------
Cash and cash equivalents at end of
year $ 5,317,493 $ 5,878,346 $ 3,979,114
============ =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TECHNE Corporation and Subsidiaries
Years Ended June 30, 1995, 1994 and 1993
A. Description of business and summary of significant accounting policies:
Description of business: The Company is engaged domestically in the research
and manufacture of biotechnology products and hematology calibrators and
controls through its wholly-owned subsidiary, Research and Diagnostic Systems,
Inc. On July 1, 1993, the Company acquired an English subsidiary, R&D Systems
Europe Ltd., which develops, manufactures and distributes biotechnology
products throughout Europe (Note B). The Company also has a foreign sales
corporation, Techne Export Inc.
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.
Revenue recognition: The Company recognizes revenues upon shipment of
products. Revenues are reduced to reflect estimated returns.
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 a separate component of stockholders' equity. Foreign currency
transaction gains and losses are included in operations.
Short-term investments: Short-term investments consist of certificates of
deposit and government bonds with original maturities of generally three
months to one year.
Effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires the Company to report certain marketable
securities at fair market value. SFAS No. 115 requires that unrealized gains
and losses on available-for-sale securities be excluded from income, but
included in a separate component of shareholders' equity, net of income tax.
The Company considers all of its marketable securities available-for-sale.
Fair market values are based on quoted market prices.
In fiscal 1995, proceeds from sales of available-for-sale securities were
$4,909,303. 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 July 1, 1994 and June
30, 1995 were not material. At June 30, 1994, marketable securities were
stated at cost, which approximated market value.
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 15
years.
Intangibles: Intangible assets, related to the acquisition of Amgen Inc.'s
research reagent and diagnostic kit business in fiscal 1992 and the
acquisition of R&D Systems Europe Ltd. (Note B), are being amortized on a
straight-line basis over the estimated useful lives and consist of the
following:
<TABLE>
<CAPTION>
June 30,
Useful life 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Customer list 3 years $ 1,010,000 $ 1,010,000
Technology licensing agreements 16 years 500,000 500,000
Goodwill 6 years 1,225,547 1,225,547
----------- -----------
2,735,547 2,735,547
Less accumulated amortization 1,899,220 1,607,601
----------- -----------
$ 836,327 $ 1,127,946
=========== ===========
</TABLE>
The Company periodically evaluates intangible assets utilizing the
undiscounted cash flow method, to ensure recoverability of the carrying
values.
Earnings per share: Earnings per share are based on the weighted average
number of common shares outstanding, including common share equivalents of
stock options and warrants outstanding. Net earnings per share assuming full
dilution would be substantially the same.
Cash and cash equivalents: Cash and cash equivalents include cash on hand and
highly liquid investments with original maturities less than three months.
B. Acquisition:
On July 30, 1993, the Company purchased all of the stock, effective July 1,
1993, of British Bio-technology Products Ltd., an English corporation, from
British Bio-technology Group plc. The new subsidiary was subsequently renamed
R&D Systems Europe Ltd. The Company recorded the acquisition under the
purchase method of accounting, and accordingly, the consolidated financial
statements include the results of operations of the subsidiary since the date
of acquisition. Assets acquired included $2.5 million cash and receivables,
$.7 million of inventories and $.6 million of equipment. The purchase price
was $2.3 million in cash and a warrant, expiring in July 1998, to purchase
50,000 shares of the Company's common stock at $13.76. Goodwill of $44,381
was recognized in the transaction.
C. Inventories:
Inventories consist of:
<TABLE>
<CAPTION>
June 30,
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $ 1,743,533 $ 1,352,031
Finished goods 1,397,792 989,968
Work in process 11,964 67,025
Supplies 112,551 104,537
----------- -----------
$ 3,265,840 $ 2,513,561
=========== ===========
</TABLE>
D. Equipment and leasehold improvements:
Equipment and leasehold improvements consist of:
<TABLE>
<CAPTION>
June 30,
1995 1994
----------- -----------
<S> <C> <C>
Cost:
Leasehold improvements $ 1,758,724 $ 1,586,336
Laboratory equipment 6,844,497 5,955,057
Office and computer equipment 2,065,032 1,770,129
----------- -----------
10,668,253 9,311,522
Less accumulated depreciation
and amortization 6,339,824 4,954,414
----------- -----------
$ 4,328,429 $ 4,357,108
=========== ===========
</TABLE>
Included in equipment and leasehold improvements is equipment under capital
leases at cost of $159,750 and accumulated amortization of $143,776 as of
June 30, 1994. Depreciation and amortization includes $15,974 and $31,950 for
the years ended June 30, 1995 and 1994, respectively, related to capital
lease equipment.
E. Debt:
The Company's short-term line of credit facility consists of an unsecured
line of credit of $750,000 at June 30, 1995. The interest rate charged on the
line of credit is at the prime rate of 9.0% at June 30, 1995.
F. Contingencies and commitments:
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, 1995, 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:
- --------------------
1996 $ 1,236,196
1997 1,296,986
1998 1,238,598
1999 1,229,865
2000 1,247,361
Thereafter 10,074,684
-----------
$16,323,690
===========
The above table includes rental payments for a building lease commitment for
space to be added in fiscal 1996. The Company is also obligated at June 30,
1995 for approximately $1.5 million for leasehold improvements related to the
expansion.
Total rent expense was approximately $1,180,000, $1,191,000 and $646,000 for
the years ended June 30, 1995, 1994 and 1993, respectively.
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 will receive 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. R&D Systems Europe will pay a total of $5 million
over the term of the agreement, plus royalties for a period of 14 years at
rates of 3% to 10% on sales of all products licensed under the agreement.
Research and development expenses include $1,250,000 and $1,100,000 for the
years ended June 30, 1995 and 1994 under this agreement. Remaining payments
under the agreement are $1,250,000 and $1,400,000 for the years ending June
30, 1996 and 1997, respectively.
In fiscal 1995, the Company entered into a Research and Development Agreement
with Cistron Biotechnology, Inc. under which the Company will support
Cistron's development of an interleukin-1 beta assay kit for the detection
and monitoring of periodontal disease in humans, in exchange for co-exclusive
marketing rights to the assay kit. Payments under the agreement will be made
in 10 quarterly installments of $100,000 beginning July 1, 1995.
G. Stockholders' equity:
The Company has granted stock options pursuant to employee stock option plans.
As of June 30, 1995, 588,595 and 225,000 shares, respectively, of the
Company's stock are reserved for options related to the TECHNE Corporation
1987 Incentive Stock Option Plan and the TECHNE Corporation 1988 Nonqualified
Stock Option Plan.
Stock option activity consists of:
<TABLE>
<CAPTION>
Option Shares
Outstanding Exercisable Price Range
----------- ----------- -------------
<S> <C> <C> <C>
Balances at June 30, 1992 385,288 178,661 $ 1.313-9.25
Granted 71,085 -- 9.125-14.25
Became exercisable -- 96,756 1.375-10.125
Exercised (21,600) (21,600) 1.375-9.25
----------- -----------
Balances at June 30, 1993 434,773 253,817 1.313-14.25
Granted 132,667 -- 12.50-15.00
Became exercisable -- 99,318 1.375-15.00
Exercised (30,993) (30,993) 1.375-9.25
Cancelled (12,000) (8,000) 9.25
----------- -----------
Balances at June 30, 1994 524,447 314,142 1.313-15.00
Granted 125,000 -- 8.875-13.50
Became exercisable -- 154,081 1.563-15.00
Exercised (93,695) (93,695) 1.313-9.25
Cancelled (2,938) (2,938) 10.125-15.00
----------- -----------
Balances at June 30, 1995 552,814 371,590 $ 5.375-15.00
=========== ===========
</TABLE>
In fiscal 1993, $2 million of subordinated convertible debentures issued in
conjunction with the acquisition of Amgen Inc.'s research reagent and
diagnostic kit business, plus accrued interest, were converted into 215,947
shares of the Company's common stock.
H. Significant customers:
No customer accounted for more than 10% of the Company's revenues for the
years ended June 30, 1995 and 1994. One customer accounted for 11% of the
Company's revenues during the year ended June 30, 1993.
I. Income taxes:
The Company follows Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes".
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Earnings (loss) before income
taxes consist of:
Domestic $ 8,766,494 $ 7,640,578 $ 6,469,275
Foreign 881,548 (417,916) --
----------- ----------- -----------
$ 9,648,042 $ 7,222,662 $ 6,469,275
=========== =========== ===========
Taxes on income consist of:
Currently payable, federal $ 2,485,000 $ 2,685,000 $ 2,002,000
Currently payable, state 176,000 203,000 150,000
Currently payable, foreign 262,000 -- --
Tax benefit from exercise of
stock options 207,000 -- 17,000
Net deferred (188,000) (759,000) (82,000)
----------- ----------- -----------
$ 2,942,000 $ 2,129,000 $ 2,087,000
=========== =========== ===========
</TABLE>
The following is a reconciliation of the federal tax calculated at the
statutory rate of 35% to the actual income taxes provided:
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected federal income
tax expense $ 3,377,000 $ 2,528,000 $ 2,200,000
State income taxes, net of federal
benefit 192,000 172,000 140,000
Amortization of intangibles -- (118,000) 120,000
Foreign sales corporation (163,000) (123,000) (108,000)
Research and development credits (366,000) (227,000) (205,000)
Graduated income tax rate (97,000) (72,000) --
Other (1,000) (31,000) (60,000)
----------- ----------- -----------
$ 2,942,000 $ 2,129,000 $ 2,087,000
=========== =========== ===========
</TABLE>
During the year ended June 30, 1994, the Company retroactively elected, under
the Revenue Reconciliation Act of 1993, to amortize goodwill related to the
Amgen acquisition. This change in the tax treatment of goodwill reduced
income tax expense $118,000 for the year ended June 30, 1994.
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:
<TABLE>
<CAPTION>
June 30,
1995 1994
----------- -----------
<S> <C> <C>
Inventory reserves not currently
deductible $ 324,000 $ 243,000
Inventory costs capitalized 276,000 205,000
Foreign net operating loss
carryforward -- 142,000
Unrealized profit on intercompany
sales 75,000 75,000
Other 138,000 99,000
----------- -----------
Current assets 813,000 764,000
Excess of book over tax intangible
asset amortization 439,000 397,000
Deferred rent 157,000 109,000
Excess of tax over book depreciation (88,000) (121,000)
Other 16,000 --
----------- -----------
Noncurrent assets 524,000 385,000
----------- -----------
$ 1,337,000 $ 1,149,000
=========== ===========
</TABLE>
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.
J. Foreign operations and export sales:
Net sales of the Company's foreign subsidiary are primarily made to
unaffiliated customers in Europe. The consolidated financial statements
include amounts for the Company's foreign subsidiary as of and for the years
ended June 30 as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net sales $13,876,250 $10,470,795
Net income (loss) 477,548 (275,916)
Total assets 4,911,259 4,009,826
Net assets 2,686,667 2,138,688
Capital expenditures 280,664 324,359
Depreciation expense 235,684 225,841
</TABLE>
Export sales of the Company's domestic subsidiary consist of the following:
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
England $ 2,288,132 $ 2,142,854 $ 4,727,216
Asia 1,884,997 1,322,104 887,259
Other Europe 955,437 981,210 867,648
Canada 666,516 711,173 598,002
Other 250,786 185,685 127,251
----------- ----------- -----------
$ 6,045,868 $ 5,343,026 $ 7,207,376
=========== =========== ===========
</TABLE>
K. Benefit plans:
Profit sharing plan: Effective July 1, 1987, the Company established a Profit
Sharing and Savings Plan for non-union 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 $407,500, $371,000 and $306,500
for the years ended June 30, 1995, 1994 and 1993, respectively.
Stock bonus plan: Effective July 1, 1987, the Company also established a
Stock Bonus Plan covering non-union employees. The Company may make
contributions to the plan 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 plan of $407,500, $371,000 and $306,500 for the years
ended June 30, 1995, 1994 and 1993, respectively.
Performance incentive program: Under certain employment agreements with
executive officers, the Company recorded bonuses of $80,000, $77,000 and
$150,000 for the years ended June 30, 1995, 1994 and 1993, respectively. In
addition, options for 45,000, 17,667 and 36,085 shares of common stock were
granted to the executive officers during fiscal 1995, 1994 and 1993,
respectively.
L. Supplemental disclosures of cash flow information and of noncash
investing and financing activities:
The Company paid and received cash for the following items:
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income taxes paid $ 2,933,578 $ 2,522,531 $ 2,544,500
Interest paid 8,641 21,755 79,578
Interest received 380,316 181,638 155,064
</TABLE>
Noncash transactions during the years ended June 30, 1995, 1994 and 1993
consisted of:
In 1995, stock options for 9,091 shares of common stock were exercised by the
surrender of 2,500 shares of common stock at fair market value of $25,000. In
1994, stock options for 17,758 shares of common stock were exercised by the
surrender of 3,144 shares of common stock at fair market value of $35,692.
In 1993, a $2 million convertible debenture, plus accrued interest of $24,500,
was converted into 215,947 shares of common stock.
<AUDIT-REPORT>
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, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1995. 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, 1995 and 1994 and the results of their operations
and cash flows for each of the three years in the period ended June 30, 1995,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
August 18, 1995
</AUDIT-REPORT>
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 section entitled "Election of
Directors" and "Compliance With Section 16(a) of the Securities Exchange Act"
in the Company's proxy statement for its 1995 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 1995 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 1995 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, 1995, 1994 and 1993
Consolidated Balance Sheets as of June 30, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements for the Years
Ended June 30, 1995, 1994 and 1993
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,
1995.
<PAGE>
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 25, 1995 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 25, 1995 Thomas E. Oland
-------------------
Thomas E. Oland
President, Treasurer
and Director
(principal executive officer
and principal financial and
accounting officer)
September 25, 1995 Roger C. Lucas
------------------
Dr. Roger C. Lucas, Director
September 25, 1995 Howard V. O'Connell
-----------------------
Howard V. O'Connell, Director
September 25, 1995 G. Arthur Herbert
---------------------
G. Arthur Herbert, Director
September 25, 1995 Randolph C. Steer
---------------------
Dr. Randolph C. Steer, Director
September 25, 1995 Lowell E. Sears
-------------------
Lowell E. Sears, Director
<PAGE>
EXHIBIT INDEX
for Form 10-K for the 1995 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 Karen R. Viskochil
--incorporated by reference to Exhibit 10.1 of the Company's
Form 10, dated October 27, 1988*
10.2 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*
10.3 Employee Agreement with Respect to Inventions, Proprietary
Information, and Unfair Competition with Dr. Roger C. Lucas
--incorporated by reference to Exhibit 10.3 of the Company's
Form 10, dated October 27, 1988*
10.4 Agreement for Purchase and Sale of Common Stock of R&D
Systems, Inc. dated January 1984--incorporated by reference to
Exhibit 10.4 of the Company's Form 10, dated October 27, 1988*
10.5** Company's Profit Sharing Plan--incorporated by reference to
Exhibit 10.6 of the Company's Form 10, dated October 27, 1988*
10.6** Company's Stock Bonus Plan--incorporated by reference to
Exhibit 10.7 of the Company's Form 10, dated October 27, 1988*
10.7** 1987 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.14 of the Company's Form 10, dated October 27, 1988*
10.8 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*
10.9** 1988 Nonqualified Stock Option Plan--incorporated by reference
to Exhibit 10.16 of the Company's Form 10, dated October 27,
1988*
10.10 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*
10.11 Purchase and Sale Agreement dated as of August 19, 1991 by and
among Amgen Inc., Research and Diagnostic Systems, Inc. and
Techne Corporation--incorporated by reference to Exhibit 10.29
of the Company's Form 8-K dated August 30, 1991, as amended
by Form 8 dated November 1, 1991*
10.12 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*
10.13 Lease between The Craig Lyle Limited Partnership and R & D
Systems, Inc.--incorporated by reference to Exhibit 10.29 of
the Company's Form 10-K for the year ended June 30, 1992*
10.14 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*
10.15 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*
10.16 Stock Purchase Warrant dated July 30, 1993 for 50,000 shares of
the Company's Common Stock--incorporated by reference to
Exhibit 3 of the Company's Form 8-K dated August 11, 1993*
10.17** Agreement dated March 16, 1995 between the Company and
Roger C. Lucas, Ph.D. relating to termination of certain
agreements and redefining relationship--incorporated by
reference to Exhibit 10.1 of the Company's Form 10-Q for the
Quarter ended March 31, 1995*
10.18 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*
10.19 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*
10.20 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*
10.21 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*
10.22** Supplement to March 16, 1995 Agreement between the
Company and Roger C. Lucas dated July 1, 1995 EX-10.22
11 Calculation of Earnings Per Share EX-11
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
23 Independent Auditors' Consent EX-23
27 Financial Data Schedule EX-27
- -------------
*Incorporated by reference; SEC File No. 0-17272
**Management contract or compensatory plan or arrangement
SUPPLEMENT TO MARCH 16, 1995 AGREEMENT
Date: July 1, 1995
Parties: Techne Corporation, a
Minnesota corporation
614 McKinley Place N.E.
Minneapolis, MN 55413
Roger C. Lucas, Ph.D.
614 McKinley Place N.E.
Minneapolis, MN 55413
Recitals:
A. Techne Corporation ("Techne") and Dr. Roger C. Lucas are parties to
an Agreement dated March 16, 1995 (the "Agreement") whereby Dr. Lucas agreed
to be employed by Techne on a part-time basis from July 1, 1995 through June
30, 1997.
B. Techne and Dr. Lucas have determined that greater efforts and
involvement by Dr. Lucas in Techne's affairs will be requird than was con-
templated at the time of execution of the Agreement.
C. Techne and Dr. Lucas wish to modify certain terms of the Agreement.
Agreements:
Techne and Dr. Lucas hereby agree as follows:
1. Subject to his annual reelection as a director by the shareholders
of Techne, Dr. Lucas shall be elected by the Board of Directors as Vice
Chairman and as Senior Scientific Adviser to the Board of directors.
2. Dr. Lucas shall be employed to work for Techne for approximately
50% of his normal working time with responsibility for the investigation and
development of new business opportunities for Techne. During the period of
employment in such capacity, Dr. Lucas shall be paid at the rate of $200,000
per year in accordance with the normal payroll practices of the Company.
3. During the period of his employment pursuant to this Supplement,
Dr. Lucas shall be provided access from his home office to Techne's computer
system services, secretarial support necessary to perform his duties and a
travel and conference budget sufficient to support his pursuit of new
business opportunities and networking through professional meetings. During
such period, Dr. Lucas shall also receive such benefits and have such rights
as are provided in the Agreement.
4. Techne shall grant Dr. Lucas an option to purchase 50,000 shares of
its Common Stock in accordance with the terms of a Stock Option Agreement
delivered simultaneously herewith.
5. The employment and other provisions of this Supplement, with the
exception of the Stock Option Agreement which shall be governed and shall
terminate only in accordance with its own terms, may be terminated with or
without cause by either party upon 30 days notice to the other party. Unless
terminated earlier pursuant to such a notice, the employment and other
provisions of this Supplement, except as to the Option Agreement, shall
terminated as of June 30, 1998, provided that such date may be extended by
agreement of the parties.
6. Upon termination of his employment pursuant to this Supplement, Dr.
Lucas shall be employ by Techne and have all of the rights and benefits to
which he is entitled under the Agreement provided that the two year Employ-
ment Period of Section 3 of the Agreement originally scheduled to commence
July 1, 1995 shall commence on the date of termination of employment under
this Suplement and further provided that such two year period shal be reduced
by one month for every two months during which he is employed pursuant to
this Supplement.
7. No provision of the Agreement is amended or made ineffective by this
Supplement except as explicitly provided herein. All other provision of the
Agreement remain in full force and effect including, but not limited to,
provisions of the Agreement relating to the Confidentiality Agreement,
Severability, Governing Law and Arbitration which are specifically incorporated
herein and agreed to be applicable to this Supplement.
Techne Corporation
By __________________________ ___________________
Thomas E. Oland, President Roger C. Lucas, Phd.
TECHNE CORPORATION
CALCULATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings before
extraordinary item $6,706,042 $5,093,662 $4,382,275 $1,963,764 $1,635,020
Extraordinary item - - - - 49,000
---------- ---------- ---------- ---------- ----------
Net earnings $6,706,042 $5,093,662 $4,382,275 $1,963,764 $1,684,020
========== ========== ========== ========== ==========
Weighted average
number of common
shares 9,365,533 9,315,413 9,171,571 8,525,633 7,964,573
Dilutive effect of
stock options and
warrants 156,423 201,787 275,117 658,950 698,285
---------- ---------- ---------- ---------- ----------
Average common and
common equivalent
shares outstanding 9,521,956 9,517,200 9,446,688 9,184,583 8,662,858
========== ========== ========== ========== ==========
Per share:
Earnings before
extraordinary item $ 0.70 $ 0.54 $ 0.46 $ 0.21 $ 0.18
Extraordinary item - - - - 0.01
---------- ---------- ---------- ---------- ----------
Net earnings $ 0.70 $ 0.54 $ 0.46 $ 0.21 $ 0.19
========== ========== ========== ========== ==========
</TABLE>
TECHNE CORPORATION
CALCULATION OF FULLY-DILUTED EARNINGS PER SHARE (1)
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings before
extraordinary item
and interest
addback $6,706,042 $5,093,662 $4,382,275 $1,963,764 $1,635,020
Interest on
convertible
debenture, net of
income tax - - 40,460 15,165 28,000
---------- ---------- ---------- ---------- ----------
Earnings before
extraordinary item 6,706,042 5,093,662 4,422,735 1,978,929 1,663,020
Extraordinary item - - - - 49,000
---------- ---------- ---------- ---------- ----------
Net earnings $6,706,042 $5,093,662 $4,422,735 $1,978,929 $1,712,020
========== ========== ========== ========== ==========
Weighted average
number of common
shares 9,365,533 9,315,413 9,171,571 8,525,633 7,964,573
Dilutive effect of
convertible
debentures, stock
options and
warrants 166,637 207,786 380,241 870,898 926,319
---------- ---------- ---------- ---------- ----------
Average common and
common equivalent
shares outstanding 9,532,170 9,523,199 9,551,812 9,396,531 9,890,892
========== ========== ========== ========== ==========
Per share:
Earnings before
extraordinary item $ 0.70 $ 0.54 $ 0.46 $ 0.21 $ 0.18
Extraordinary item - - - - 0.01
---------- ---------- ---------- ---------- ----------
Net earnings $ 0.70 $ 0.54 $ 0.46 $ 0.21 $ 0.19
========== ========== ========== ========== ==========
</TABLE>
(1) Not separately reported since effect of dilution is less than 3%.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 33-42992, 33-49160, 33-86728 and 33-86732 of
Techne Corporation on Form S-8, of our report dated August
18, 1995, included in this Annual Report on Form 10-K of
Techne Corporation for the year ended June 30, 1995.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
September 22, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 5,317,493
<SECURITIES> 10,627,730
<RECEIVABLES> 7,528,783
<ALLOWANCES> 143,000
<INVENTORY> 3,265,840
<CURRENT-ASSETS> 27,805,919
<PP&E> 10,668,253
<DEPRECIATION> 6,339,824
<TOTAL-ASSETS> 34,062,275
<CURRENT-LIABILITIES> 4,118,980
<BONDS> 0
<COMMON> 93,753
0
0
<OTHER-SE> 29,426,342
<TOTAL-LIABILITY-AND-EQUITY> 34,062,275
<SALES> 47,716,166
<TOTAL-REVENUES> 47,716,166
<CGS> 18,463,547
<TOTAL-COSTS> 18,463,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,641
<INCOME-PRETAX> 9,648,042
<INCOME-TAX> 2,942,000
<INCOME-CONTINUING> 6,706,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,706,042
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
