SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996, or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to___________
__________________
Commission file number 0-17272
__________________
TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1427402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
614 MCKINLEY PLACE N.E.
MINNEAPOLIS, MN 55413 (612) 379-8854
(Address of principal (Registrant's telephone
executive offices) (Zip Code) number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
At May 1, 1996, 9,477,001 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 3/31/96 6/30/95
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 5,732,203 $ 5,317,493
Short-term investments 10,846,290 10,627,730
Accounts receivable (net) 8,488,399 7,385,783
Inventories 3,329,907 3,265,840
Deferred income taxes 1,144,000 813,000
Other current assets 464,018 396,073
----------- -----------
Total current assets 30,004,817 27,805,919
Deferred income taxes 544,000 524,000
Prepaid license fee 448,800 567,600
Fixed assets (net) 8,678,692 4,328,429
Intangible assets (net) 659,696 836,327
----------- -----------
TOTAL ASSETS $40,336,005 $34,062,275
=========== ===========
LIABILITIES & EQUITY
Trade accounts payable $ 1,594,540 $ 1,548,530
Salary and related accruals 1,356,710 1,350,650
Other payables 927,333 662,353
Income taxes payable 542,258 557,447
----------- -----------
Total current liabilities 4,420,841 4,118,980
Deferred rent 483,150 423,200
Common stock, par value $.01 per
share; authorized 50,000,000;
issued and outstanding 9,452,001
and 9,375,346, respectively 94,520 93,753
Additional paid-in capital 9,881,904 8,546,974
Retained earnings 25,441,706 20,734,653
Accumulated foreign currency
translation adjustments 13,884 144,715
----------- -----------
Total stockholders' equity 35,432,014 29,520,095
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $40,336,005 $34,062,275
=========== ===========
</TABLE>
See notes to unaudited Consolidated Financial Statements.
<PAGE>
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------------ ------------------------
3/31/96 3/31/95 3/31/96 3/31/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $14,713,361 $12,576,041 $40,022,138 $34,897,468
Cost of sales 5,018,310 5,003,971 14,315,169 13,905,344
----------- ----------- ----------- -----------
Gross margin 9,695,051 7,572,070 25,706,969 20,992,124
Operating expenses:
Selling, general and
administrative 3,521,315 2,888,020 9,785,432 8,233,788
Research and development 2,562,017 2,130,800 7,516,197 6,199,942
Amortization expense 58,876 58,877 176,631 232,741
Interest expense 402 1,543 717 7,521
Interest income (146,355) (145,974) (449,839) (320,981)
----------- ----------- ----------- -----------
5,996,255 4,933,266 17,029,138 14,353,011
----------- ----------- ----------- -----------
Earnings before income
taxes 3,698,796 2,638,804 8,677,831 6,639,113
Income taxes 1,188,000 855,000 2,694,000 2,041,000
----------- ----------- ----------- -----------
NET EARNINGS $ 2,510,796 $ 1,783,804 $ 5,983,831 $ 4,598,113
=========== =========== =========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.26 $ 0.19 $ 0.62 $ 0.48
=========== =========== =========== ===========
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 9,691,746 9,534,610 9,685,396 9,504,720
=========== =========== =========== ===========
</TABLE>
See notes to unaudited Consolidated Financial Statements.
<PAGE>
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
3/31/96 3/31/95
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 5,983,831 $ 4,598,113
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 1,302,753 1,213,051
Deferred income taxes (351,000) (66,000)
Prepaid license fee 118,800 -
Deferred rent 59,950 98,100
Other 419,354 (24,546)
Change in current assets and current liabilities:
Increase in:
Accounts receivable (1,252,323) (495,120)
Inventories (95,537) (357,294)
Other current assets (72,191) (163,397)
Increase (decrease) in:
Trade account/other payables 336,125 161,994
Salary and related accruals 8,530 34,226
Income taxes payable (1,900) (225,259)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,456,392 4,773,868
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (9,472,347) (8,625,970)
Proceeds from sale of short-term investments 9,253,787 4,399,303
Additions to fixed assets (5,511,836) (723,841)
Increase in long-term prepaid license fee - (607,200)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (5,730,396) (5,557,708)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long term debt - (29,875)
Issuance of common stock 364,125 179,151
Repurchase of common stock (676,206) -
----------- -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (312,081) 149,276
EFFECT OF EXCHANGE RATE CHANGES ON CASH 795 (16,771)
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS 414,710 (651,335)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 5,317,493 5,878,346
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 5,732,203 $ 5,227,011
=========== ===========
</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>
3/31/96 6/30/95
----------- -----------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable $ 8,612,399 $ 7,528,783
Less reserve for bad debts 124,000 143,000
----------- -----------
NET ACCOUNTS RECEIVABLE $ 8,488,399 $ 7,385,783
=========== ===========
INVENTORIES
Raw materials $ 1,817,997 $ 1,743,533
Work in process 44,557 11,964
Supplies 83,890 112,551
Finished goods 1,383,463 1,397,792
----------- -----------
TOTAL INVENTORIES $ 3,329,907 $ 3,265,840
=========== ===========
FIXED ASSETS
Laboratory equipment $ 7,798,165 $ 6,844,497
Office equipment 2,287,481 2,065,032
Leasehold improvements 6,014,582 1,758,724
----------- -----------
16,100,228 10,668,253
Less accumulated depreciation
and amortization 7,421,536 6,339,824
----------- -----------
NET FIXED ASSETS $ 8,678,692 $ 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 2,075,851 1,899,220
----------- -----------
NET INTANGIBLE ASSETS $ 659,696 $ 836,327
=========== ===========
</TABLE>
B. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
3/31/96 3/31/95
--------- ---------
<S> <C> <C>
Primary:
Weighted average number of common shares 9,415,540 9,357,473
Dilutive effect of stock options and warrants 269,856 147,247
--------- ---------
Average common and common equivalent shares
outstanding 9,685,396 9,504,720
========= =========
Fully diluted:
Weighted average number of common shares 9,415,540 9,357,473
Dilutive effect of stock options and warrants 299,878 160,863
--------- ---------
Average common and common equivalent shares
outstanding 9,715,418 9,518,336
========= =========
</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 Nine Months Ended March 31, 1996
vs. Quarter And Nine Months Ended March 31, 1995
------------------------------------------------
Techne Corporation has two operating subsidiaries: Research and Diagnostic
Systems, Inc. (R&D Systems) located in Minneapolis, Minnesota and R&D Systems
Europe Ltd. (R&D Europe) located in Abingdon, England. R&D Systems has two
divisions: Biotechnology and Hematology. The Biotechnology Division
manufactures purified cytokines (proteins), antibodies and assay kits which are
sold primarily to biomedical researchers and clinical research laboratories.
The Hematology Division develops and manufactures whole blood hematology
controls and calibrators which are sold to hospital and clinical laboratories
to check the performance of their hematology instruments to assure the accuracy
of hematology test results. R&D Europe is the distributor for R&D Systems'
biotechnology products in Europe. R&D Europe also develops and manufactures
its own line of biotechnology products and distributes products for several
other biotechnology companies. In fiscal 1996, R&D Europe opened a sales
subsidiary in Germany. The Company also has a foreign sales corporation,
Techne Export Inc.
Net Sales
Net sales for the quarter ended March 31, 1996 were $14,713,361, an increase of
$2,137,320 (17%) from the quarter ended March 31, 1995. Sales for the nine
months ended March 31, 1996 increased $5,124,670 (15%) from $34,897,468 to
$40,022,138. R&D Systems sales increased $1,497,338 (17%) and $3,096,399 (13%)
for the quarter and nine months ended March 31, 1996, respectively. R&D Europe
sales increased $639,982 (16%) and $2,028,271 (20%) for the same periods.
Approximately 67% of R&D Europe sales for the nine months ended March 31, 1996
were from the distribution of R&D Systems' products.
Approximately 48% and 44% of the increase in consolidated sales for the quarter
and nine months, respectively, was due to the increase in sales of R&D Systems'
immunoassay (Quantikine) kits. Currently there are 64 kits on the market,
including a new line of murine assay kits added in the first nine months of
fiscal 1996. Sales of Quantikine kits by R&D Systems and R&D Europe for the
quarter and nine months ended March 31, 1996 were $5,931,111 and $15,940,850
compared to $4,904,692 and $13,667,265 for the quarter and nine months ended
March 31, 1995.
In addition, approximately 11% and 14% of the increase in consolidated sales
for the quarter and nine months, respectively, was due to increased sales of
other R&D Systems' products by R&D Europe. Another 9% and 14% of the increase
in consolidated sales for the quarter and nine months ended March 31, 1996 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 a 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 13% of the increase
in consolidated sales for the first nine months of fiscal 1996.
Gross Margins
Gross margins, as a percentage of sales, increased from the prior year.
Margins for the third quarter of fiscal 1996 were 65.9% compared to 60.2% for
the same quarter in fiscal 1995. Margins for the nine months ended March 31,
1996 were 64.2% compared to 60.2% for the same period in fiscal 1995.
The increase for the quarter and nine months was due to an increase in R&D
Europe, Hematology Division and Biotechnology Division gross margins. R&D
Europe gross margins were 52.9% compared to 48.2% for the quarter ended March
31, 1995 and 51.0 % compared to 47.5% for the nine months ended March 31, 1995.
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 and increased
margins on products sold through the new German subsidiary. Hematology
Division gross margins also increased from 37.6% to 40.0% for the quarter ended
March 31, 1996, and from 34.5% to 38.6% for the nine months ended March 31,
1996 as a result of changes in the product mix. R&D Systems' Biotechnology
Division gross margins increased from 64.9% to 69.5% for the quarter ended
March 31, 1996 and from 66.3% to 68.8% for the nine months ended March 31, 1996
as a result of lower packaging costs and lower manufacturing costs due to
increased production volumes.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $633,295 (22%) from the
third quarter of fiscal 1995 to the third quarter of fiscal 1996. These
expenses also increased $1,551,644 (19%) for the first nine months of fiscal
1996. The largest increase in selling, general and administrative expenses for
the quarter and nine 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 $189,000 and $509,000 for the quarter and nine months ended March
31, 1996. In addition, $39,000 and $153,000 of the increase in selling,
general and administrative expenses for the quarter and nine months was due to
additional sales staff added by R&D Europe since the prior year. R&D Europe
marketing expenses also increased $114,000 and $184,000 for the quarter and
nine months ended March 31, 1996, respectively, as a result of additional
promotion and literature expenditures. R&D Systems' selling, general and
administrative expenses also increased $122,000 and $310,000 for the quarter
and nine months ended March 31, 1996, mainly due to additional bonus and profit
sharing accruals.
Research and Development Expenses
Research and development expenses increased $431,217 (20%) for the quarter
ended March 31, 1996 and $1,316,255 (21%) for the nine months ended March 31,
1996. R&D Europe and R&D Systems' research and development expenses increased
$82,756 and $348,461, respectively, for the quarter ended March 31, 1996 and
$272,007 and $1,044,248, respectively, for the nine months ended March 31,
1996. The increases related to products currently under development, several
of which were released in the first nine months of fiscal 1996, including R&D
Europe's new line of molecular biology products and R&D Systems' new line of
murine immunoassay kits. Products currently under development include both
biotechnology and hematology products. Also included in R&D Systems' research
and development expense for the quarter and nine months ended March 31, 1996 is
$100,000 and $300,000, respectively, for payments to Cistron Biotechnology,
Inc. under a Research and Development Agreement signed in fiscal 1995.
Net Earnings
Earnings before income taxes increased $1,059,992 from $2,638,804 in the third
quarter of fiscal 1995 to $3,698,796 in the third quarter of fiscal 1996.
Earnings before income taxes for the nine months increased $2,038,718 from
$6,639,113 to $8,677,831. The increase in earnings before income taxes was
mainly due to an increase in Hematology Division earnings of $170,643 and
$703,696 for the quarter and nine months ended March 31, 1996, and an increase
in Biotechnology Division earnings of $959,370 and $1,392,411 for the quarter
and nine 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 and gross margins,
partially offset by higher expenses. R&D Europe earnings before income taxes
were not materially different from the third quarter and first nine months of
the prior year, with higher sales and gross margins offset by higher expenses.
Income taxes for the quarter and nine months ended March 31, 1996 were provided
at a rate of approximately 32% and 31% of consolidated pretax earnings. 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 34%, which
approximates the tax rates in the United Kingdom and Germany.
Liquidity and Capital Resources
At March 31, 1996, cash and cash equivalents and short-term investments were
$16,578,493 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 $6,456,392 from operating activities in the first
nine months of fiscal 1996 compared to $4,773,868 for the first nine 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 nine months ended March 31, 1996 and 1995, the Company increased
short-term investments $218,560 and $4,226,667, 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 $5,511,836 for the first nine months of fiscal 1996,
compared to $723,841 for the first nine months of fiscal 1995. Included in the
fiscal 1996 additions was $3,970,000 for partial payment on leasehold
improvements related to the previously announced expansion of facilties by R&D
Systems. The final payment on the leasehold improvements of $1,500,000 will be
made in early fiscal 1997. 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
planned for the remainder of fiscal 1996, which relate mainly to laboratory
equipment for the new space, are expected to cost approximately $1 million and
are expected to be financed through cash from operating activities.
Cash Flows From Financing Activities
Cash of $364,125 and $179,151 was received during the nine months ended March
31, 1996 and 1995, respectively, for the exercise of options for 64,500 and
59,604 shares of common stock. During the first nine months of fiscal 1996 and
1995, options for 80,000 and 9,091 shares of common stock, respectively, were
exercised in a noncash transaction by the surrender of 31,645 and 2,500 shares
of the Company's common stock with market values of $601,250 and $25,000,
respectively.
During the first nine months of fiscal 1996, the Company purchased and retired
36,200 shares of Company common stock at a market value of $676,206. In May
1995, the Company announced a plan to purchase and retire up to $5,000,000 of
its common stock. Through May 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
None
ITEM 5 - OTHER INFORMATION
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements in this filing, and elsewhere, which look forward in time
involve risks and uncertainties which may affect the actual results of
operations. The following important factors, among others, have affected
and, in the future, could affect the Company's actual results: the
introduction and acceptance of new biotechnology and hematology products,
the levels and particular directions of research into cytokines by the
Company's customers, the impact of the growing number of producers of
cytokine research products and related price competition, the retention of
hematology OEM and proficiency survey business, and the Company's expansion
of marketing efforts in Europe.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See exhibit index immediately following signature page.
B. REPORTS ON FORM 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNE CORPORATION
(Company)
Date: May 14, 1996 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,732,203
<SECURITIES> 10,846,290
<RECEIVABLES> 8,612,399
<ALLOWANCES> 124,000
<INVENTORY> 3,329,907
<CURRENT-ASSETS> 30,004,817
<PP&E> 16,100,228
<DEPRECIATION> 7,421,536
<TOTAL-ASSETS> 40,336,005
<CURRENT-LIABILITIES> 4,420,841
<BONDS> 0
0
0
<COMMON> 94,520
<OTHER-SE> 32,337,494
<TOTAL-LIABILITY-AND-EQUITY> 35,432,014
<SALES> 40,022,138
<TOTAL-REVENUES> 40,022,138
<CGS> 14,315,169
<TOTAL-COSTS> 14,315,169
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 717
<INCOME-PRETAX> 8,677,831
<INCOME-TAX> 2,694,000
<INCOME-CONTINUING> 5,983,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,983,831
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
