SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995, or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to___________
__________________
Commission file number 0-17272
__________________
TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1427402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
614 MCKINLEY PLACE N.E. (612) 379-8854
MINNEAPOLIS, MN 55413 (Registrant's telephone number,
(Address of principal (Zip Code) including area code)
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
At February 1, 1996, 9,424,501 shares of the Company's Common Stock (par value
$.01) were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS 12/31/95 6/30/95
-------- -------
<S> <C> <C>
Cash and cash equivalents $ 4,102,802 $ 5,317,493
Short-term investments 11,155,052 10,627,730
Accounts receivable (net) 7,314,815 7,385,783
Inventories 3,324,827 3,265,840
Deferred income taxes 1,007,000 813,000
Other current assets 530,167 396,073
------------ ------------
Total current assets 27,434,663 27,805,919
Deferred income taxes 520,000 524,000
Prepaid license fee 488,400 567,600
Fixed assets (net) 7,792,281 4,328,429
Intangible assets (net) 718,572 836,327
------------ ------------
TOTAL ASSETS $ 36,953,916 $ 34,062,275
============ ============
LIABILITIES & EQUITY
Trade accounts payable $ 1,493,535 $ 1,548,530
Salary and related accruals 1,266,310 1,350,650
Other payables 750,196 662,353
Income taxes payable 316,450 557,447
------------ ------------
Total current liabilities 3,826,491 4,118,980
Deferred rent 466,400 423,200
Common stock, par value $.01 per
share; authorized 50,000,000;
issued and outstanding 9,420,951
and 9,375,346, respectively 94,210 93,753
Additional paid-in capital 9,491,782 8,546,974
Retained earnings 22,999,327 20,734,653
Accumulated foreign currency
translation adjustments 75,706 144,715
------------ ------------
Total stockholders' equity 32,661,025 29,520,095
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 36,953,916 $ 34,062,275
============ ============
</TABLE>
See notes to unaudited Consolidated Financial Statements.
<PAGE>
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------- ----------------
12/31/95 12/31/94 12/31/95 12/31/94
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $12,514,479 $11,360,633 $25,308,777 $22,321,427
Cost of sales 4,632,962 4,446,076 9,296,859 8,901,373
----------- ----------- ----------- -----------
Gross margin 7,881,517 6,914,557 16,011,918 13,420,054
Operating expenses:
Selling, gen. and admin. 3,163,447 2,900,937 6,264,117 5,345,768
Research and development 2,462,512 2,093,983 4,954,180 4,069,142
Amortization expense 58,878 58,877 117,755 173,864
Interest expense 91 3,200 315 5,978
Interest income (164,164) (98,768) (303,484) (175,007)
----------- ----------- ----------- -----------
5,520,764 4,958,229 11,032,883 9,419,745
----------- ----------- ----------- -----------
Earnings before income
taxes 2,360,753 1,956,328 4,979,035 4,000,309
Income taxes 673,000 580,000 1,506,000 1,186,000
----------- ----------- ----------- -----------
NET EARNINGS $ 1,687,753 $ 1,376,328 $ 3,473,035 $ 2,814,309
=========== =========== =========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ .17 $ 0.14 $ 0.36 $ 0.30
=========== =========== =========== ===========
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 9,716,650 9,502,193 9,683,532 9,490,906
=========== =========== =========== ===========
</TABLE>
See notes to unaudited Consolidated Financial Statements.
<PAGE>
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
12/31/95 12/31/94
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,473,035 $ 2,814,309
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 809,106 823,185
Deferred income taxes (190,000) (77,000)
Prepaid license fee 79,200 -
Deferred rent 43,200 65,400
Other 188,026 25,000
Change in current assets and current
liabilities:
(Increase) decrease in:
Accounts receivable 4,983 (136,131)
Inventories (79,876) (68,204)
Other current assets (138,446) 3,534
Increase (decrease) in:
Trade account/other payables 47,594 (162,279)
Salary and related accruals (82,592) (124,409)
Income taxes payable (230,741) (451,614)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,923,489 2,711,791
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (6,987,347) (5,943,475)
Proceeds from sale of short-term investments 6,460,025 2,255,000
Additions to fixed assets (4,178,226) (518,391)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (4,705,548) (4,206,866)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long term debt - (19,642)
Issuance of common stock 167,656 112,199
Repurchase of common stock (607,753) -
----------- -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (440,097) 92,557
EFFECT OF EXCHANGE RATE CHANGES ON CASH 7,465 (3,180)
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS (1,214,691) (1,405,698)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 5,317,493 5,878,346
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 4,102,802 $ 4,472,648
=========== ===========
</TABLE>
See notes to unaudited Consolidated Financial Statements.
<PAGE>
TECHNE CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION:
The unaudited Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles and with instructions
to Form 10-Q and Article 10 of Regulation S-X. The accompanying unaudited
Consolidated Financial Statements reflect all adjustments which are, in the
opinion of management, necessary to a fair presentation of the results for the
interim periods presented. All such adjustments are of a normal recurring
nature.
A summary of significant accounting policies followed by the Company is
detailed in the Annual Report to Shareholders for Fiscal 1995. The Company
follows these policies in preparation of the interim Financial Statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the Consolidated
Financial Statements be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto for the fiscal year ended June 30, 1995
included in the Company's Annual Report to Shareholders for Fiscal 1995.
Certain Consolidated Balance Sheet captions appearing in this interim report
are as follows:
<TABLE>
<CAPTION>
12/31/95 6/30/95
-------- -------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable $ 7,453,815 $ 7,528,783
Less reserve for bad debts 139,000 143,000
----------- -----------
NET ACCOUNTS RECEIVABLE $ 7,314,815 $ 7,385,783
=========== ===========
INVENTORIES
Raw materials $ 1,907,147 $ 1,743,533
Work in process 31,888 11,964
Supplies 128,236 112,551
Finished goods 1,257,556 1,397,792
----------- -----------
TOTAL INVENTORIES $ 3,324,827 $ 3,265,840
=========== ===========
FIXED ASSETS
Laboratory equipment $ 7,558,585 $ 6,844,497
Office equipment 2,242,504 2,065,032
Leasehold improvements 4,993,521 1,758,724
----------- -----------
14,794,610 10,668,253
Less accumulated depreciation
and amortization 7,002,329 6,339,824
----------- -----------
NET FIXED ASSETS $ 7,792,281 $ 4,328,429
=========== ===========
INTANGIBLE ASSETS
Customer list $ 1,010,000 $ 1,010,000
Technology licensing agreements 500,000 500,000
Goodwill 1,225,547 1,225,547
----------- -----------
2,735,547 2,735,547
Less accumulated amortization 2,016,975 1,899,220
----------- -----------
NET INTANGIBLE ASSETS $ 718,572 $ 836,327
=========== ===========
</TABLE>
B. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
12/31/95 12/31/94
-------- --------
<S> <C> <C>
Primary:
Weighted average number of common shares 9,410,474 9,346,431
Dilutive effect of stock options and warrants 273,058 144,475
--------- ---------
Average common and common equivalent shares
outstanding 9,683,532 9,490,906
========= =========
Fully diluted:
Weighted average number of common shares 9,410,474 9,346,431
Dilutive effect of stock options and warrants 286,558 145,384
--------- ---------
Average common and common equivalent shares
outstanding 9,697,032 9,491,815
========= =========
</TABLE>
Fully diluted earnings per share are not separately reported since the effect
of dilution is less than three percent.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter And Six Months Ended December 31, 1995
vs. Quarter And Six Months Ended December 31, 1994
--------------------------------------------------
Techne Corporation has two operating subsidiaries: Research and Diagnostic
Systems, Inc. (R&D Systems) located in Minneapolis, Minnesota and R&D Systems
Europe Ltd. (R&D Europe) located in Abingdon, England. R&D Systems has two
divisions: Biotechnology and Hematology. The Biotechnology Division
manufactures purified cytokines (proteins), antibodies and assay kits which are
sold primarily to biomedical researchers and clinical research laboratories.
The Hematology Division develops and manufactures whole blood hematology
controls and calibrators which are sold to hospital and clinical laboratories
to check the performance of their hematology instruments to assure the accuracy
of hematology test results. R&D Europe is the distributor for R&D Systems'
biotechnology products in Europe. R&D Europe also develops and manufactures
its own line of biotechnology products and distributes products for several
other biotechnology companies. In fiscal 1996, R&D Europe opened a sales
subsidiary in Germany. The Company also has a foreign sales corporation,
Techne Export Inc.
Net Sales
Net sales for the quarter ended December 31, 1995 were $12,514,479, an increase
of $1,153,846 (10%) from the quarter ended December 31, 1994. Sales for the
six months ended December 31, 1995 increased $2,987,350 (13%) from $22,321,427
to $25,308,777. R&D Systems sales increased $579,287 (7%) and $1,599,061 (10%)
for the quarter and six months ended December 31, 1995, respectively. R&D
Europe sales increased $574,559 (16%) and $1,388,289 (22%) for the same
periods. Approximately 65% of R&D Europe sales were from the distribution of
R&D Systems' products.
Approximately 31% and 42% of the increase in consolidated sales for the quarter
and six months, respectively, was due to the increase in sales of R&D Systems'
immunoassay (Quantikine) kits. In fiscal 1990, the Biotechnology Division of
R&D Systems released its first immunoassay kits and currently there are 58 kits
on the market. Sales of these kits by R&D Systems and R&D Europe for the
quarter and six months ended December 31, 1995 were $5,050,166 and $10,009,739
compared to $4,693,141 and $8,762,576 for the quarter and six months ended
December 31, 1994.
In addition, approximately 26% and 15% of the increase in consolidated sales
for the quarter and six months, respectively, was due to increased sales of
other R&D Systems' products by R&D Europe. Another 29% and 17% of the increase
in consolidated sales for the quarter and six months ended December 31, 1995
was from an increase in sales of R&D Europe in-house developed products,
including products developed under the Joint Biological Research Agreement with
British Bio-technology plc. and the new molecular biology product line.
The reacquisition of proficiency survey business and increased OEM and retail
sales by R&D Systems' Hematology Division accounted for an additional 15%
increase in consolidated sales for both the second quarter and first six months
of fiscal 1996.
Several new products were released in the first six months of fiscal 1996,
including R&D Systems' line of murine assay kits and R&D Europe's line of
molecular biology products. Expected increases in sales of these new products,
along with products planned to be released in the third and fourth quarters and
the normal increases after the holiday season, are expected to accelerate
revenues to record levels in the last half of fiscal 1996.
Gross Margins
Gross margins, as a percentage of sales, increased from the prior year.
Margins for the second quarter of fiscal 1996 were 63.0% compared to 60.9% for
the same quarter in fiscal 1995. Margins for the six months ended December 31,
1995 were 63.3% compared to 60.1% for the same period in fiscal 1995.
The increase for the quarter and six months was due to an increase in R&D
Europe and Hematology Division gross margins. R&D Europe gross margins were
48.5% compared to 48.2% for the quarter ended December 31, 1994 and 50.0%
compared to 47.1% for the six months ended December 31, 1994. This increase in
R&D Europe gross margins was due to a change in product mix, with increased
sales of higher margin in-house developed products. Hematology Division gross
margins also increased from 32.1% to 36.2% for the quarter ended December 31,
1995, and from 32.8% to 37.9% for the six months ended December 31, 1995 as a
result of changes in the product mix. R&D Systems' Biotechnology Division
gross margins increased slightly from the prior year for both the quarter and
six month periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $262,510 (9%) from the
second quarter of fiscal 1995 to the second quarter of fiscal 1996. These
expenses also increased $918,349 (17%) for the first six months of fiscal 1996.
The largest increase in selling, general and administrative expenses for the
quarter and six months is attributable to R&D Europe operations. During the
first quarter of fiscal 1996, R&D Europe opened a sales subsidiary in Germany
and costs associated with additional sales staff, travel and start-up costs
were $194,000 and $320,000 for the quarter and six months ended December 31,
1995. In addition, $44,000 and $114,000 of the increase in selling, general
and administrative expenses for the quarter and six months was due to
additional sales staff added by R&D Europe since the prior year. R&D Systems'
selling, general and administrative expenses also increased $188,000 during the
first six months of fiscal 1996, mainly due to additional bonus and profit
sharing accruals.
Research and Development Expenses
Research and development expenses increased $368,529 (18%) for the quarter
ended December 31, 1995 and $885,038 (22%) for the six months ended December
31, 1995. R&D Europe and R&D Systems' research and development expenses
increased $52,827 and $315,702, respectively, for the quarter ended December
31, 1995 and $189,251 and $695,787, respectively, for the six months ended
December 31, 1995. The increases related to products currently under
development, several of which were released in the first half of fiscal 1996,
including R&D Europe's new line of molecular biology products and R&D Systems'
new line of murine immunoassay kits. The products currently under development
include both biotechnology and hematology products. Also included in R&D
Systems' research and development expense for the quarter and six months ended
December 31, 1995 is $100,000 and $200,000, respectively, for payments to
Cistron Biotechnology, Inc. under a Research and Development Agreement signed
in fiscal 1995.
Net Earnings
Earnings before income taxes increased $404,425 from $1,956,328 in the second
quarter of fiscal 1995 to $2,360,753 in the second quarter of fiscal 1996.
Earnings before income taxes for the six months increased $978,726 from
$4,000,309 to $4,979,035. The increase in earnings before income taxes was
mainly due to an increase in Hematology Division earnings of $266,925 and
$533,053 for the quarter and six months ended December 31, 1995, and an
increase in Biotechnology Division earnings of $103,448 and $433,041 for the
quarter and six months. The increase in Hematology earnings from the prior year
was the result of an increase in sales and gross margins. The increase in
Biotechnology Division results was due to increased sales, partially offset by
higher expenses. R&D Europe earnings before income taxes were not materially
different from the second quarter and first six months of the prior year, with
higher sales being offset by higher expenses.
Income taxes for the quarter and six months ended December 31, 1995 were
provided at a rate of approximately 29% and 30% of consolidated pretax earnings
compared to 30% for the comparable periods in fiscal 1995. U.S. federal taxes
have been reduced as a result of the benefit of the foreign sales corporation.
Foreign income taxes have been provided at a rate of 31% which approximates the
tax rates in the United Kingdom and Germany.
Liquidity and Capital Resources
At December 31, 1995, cash and cash equivalents and short-term investments were
$15,257,854 compared to $15,945,223 at June 30, 1995. The Company has been
accumulating cash and short-term investments for future expansion purposes.
The Company believes it can meet its future cash, working capital requirements
and capital additions through currently available funds, cash generated from
operations and maturities of short-term investments. The Company has an
unsecured line of credit of $750,000. The interest rate on the line of credit
is at prime.
Cash Flows From Operating Activities
The Company generated cash of $3,923,489 from operating activities in the first
six months of fiscal 1996 compared to $2,711,791 for the first six months of
fiscal 1995. The increase was mainly the result of increased net earnings
adjusted for noncash expenses.
Cash Flows From Investing Activities
During the six months ended December 31, 1995 and 1994, the Company increased
short-term investments $527,322 and $3,688,475, respectively. The Company's
investment policy is to place excess cash in short-term certificates of deposit
and low risk tax-exempt government bonds. The objective of this policy is to
obtain the highest possible return with the lowest risk, while keeping the
funds accessible.
Capital additions were $4,178,226 for the first six months of fiscal 1996
compared to $518,391 for the first six months of fiscal 1995. Included in the
fiscal 1996 additions was $3,220,000 for partial payment on leasehold
improvements being made to the 2201 Kennedy building. The new space will be
occupied by R&D Systems Biotechnology Division in stages through early fiscal
1997. The remaining additions in fiscal 1996 and the major additions in fiscal
1995 were for laboratory and computer equipment. Total expenditures for
capital additions relating to leasehold improvements, laboratory and computer
equipment planned for the remainder of fiscal 1996 are expected to cost
approximately $2,200,000 and are expected to be financed through cash from
operating activities and maturities of short-term investments.
Cash Flows From Financing Activities
Cash of $167,656 and $112,199 was received during the six months ended December
31, 1995 and 1994, respectively, for the exercise of options for 29,750 and
21,795 shares of common stock. During the first six months of fiscal 1996,
options for 80,000 shares of common stock were exercised in a noncash
transaction by the surrender of 31,645 shares of the Company's common stock
with a market value of $601,250.
During the first six months of fiscal 1996, the Company purchased and retired
32,500 shares of Company common stock at a market value of $607,753.
In May 1995, the Company announced a plan to purchase and retire up to
$5,000,000 of its common stock. Through February 1, 1996, 81,200 shares have
been purchased at a market value of $1,306,959. Subject to market conditions
and share price, the Company plans to continue to purchase and retire Company
common stock.
The Company has never paid dividends and has no plans to do so in fiscal 1996.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS
Information relating to the Company's Annual Meeting of Shareholders held
on October 19, 1995, is contained in the Company's Form 10-Q for the
quarter ended September 30, 1995, which is incorporated herein by
reference.
ITEM 5 - OTHER INFORMATION
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995: Statements in this filing, and elsewhere, which look forward in
time involve risks and uncertainties which may affect the actual
results of operations. The following important factors, among others,
have affected and, in the future, could affect the Company's actual
results: the introduction and acceptance of new biotechnology and
hematology products, the levels and particular directions of research
into cytokines by the Company's customers, the impact of the growing
number of producers of cytokine research products and the related price
competition, the retention of hematology OEM and proficiency survey
business, and the Company's expansion of marketing efforts in Europe.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See exhibit index immediately following signature page.
B. REPORTS ON FORM 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNE CORPORATION
(Company)
Date: February 13, 1996 /s/ Thomas E. Oland
-------------------
Thomas E. Oland
President, Chief Executive and
Financial Officer
EXHIBIT INDEX
TO
FORM
10-Q
TECHNE CORPORATION
Exhibit
Number Description
- -------- ---------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 4,102,802
<SECURITIES> 11,155,052
<RECEIVABLES> 7,453,815
<ALLOWANCES> 139,000
<INVENTORY> 3,324,827
<CURRENT-ASSETS> 27,434,663
<PP&E> 14,794,610
<DEPRECIATION> 7,002,329
<TOTAL-ASSETS> 36,953,916
<CURRENT-LIABILITIES> 3,826,491
<BONDS> 0
<COMMON> 94,210
0
0
<OTHER-SE> 32,566,815
<TOTAL-LIABILITY-AND-EQUITY> 36,953,916
<SALES> 25,308,777
<TOTAL-REVENUES> 25,308,777
<CGS> 9,296,859
<TOTAL-COSTS> 9,296,859
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315
<INCOME-PRETAX> 4,979,035
<INCOME-TAX> 1,506,000
<INCOME-CONTINUING> 3,473,035
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,473,035
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
