SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997, 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
(Address of principal (Zip code) number including area code
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
At November 11, 1997, 18,888,532 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>
9/30/97 6/30/97
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 9,065,649 $ 8,598,367
Short-term investments 19,668,315 16,153,890
Accounts receivable (net) 9,086,026 9,114,447
Inventories 4,126,020 4,087,161
Deferred income taxes 1,431,000 1,322,000
Other current assets 779,092 521,493
----------- -----------
Total current assets 44,156,102 39,797,358
Deferred income taxes 1,796,000 1,703,000
Prepaid license fee 211,200 250,800
Fixed assets (net) 11,734,381 11,252,741
Intangible assets (net) 322,840 365,311
Other assets 662,465 552,500
----------- -----------
TOTAL ASSETS $58,882,988 $53,921,710
=========== ===========
LIABILITIES & EQUITY
Trade accounts payable $ 2,089,671 $ 1,609,362
Salary and related accruals 1,425,179 1,790,035
Other payables 525,098 498,873
Income taxes payable 2,564,611 1,000,096
----------- -----------
Total current liabilities 6,604,559 4,898,366
Deferred rent 1,120,500 942,300
Common stock, par value $.01 per
share; authorized 50,000,000;
issued and outstanding 18,873,432
and 18,875,456, respectively 188,734 188,755
Additional paid-in capital 12,996,303 12,653,449
Retained earnings 37,665,105 34,808,768
Accumulated foreign currency
translation adjustments 307,787 430,072
----------- -----------
Total stockholders' equity 51,157,929 48,081,044
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $58,882,988 $53,921,710
=========== ===========
</TABLE>
See notes to unaudited Consolidated Financial Statements.
<PAGE>
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
9/30/97 9/30/96
----------- -----------
<S> <C> <C>
Sales $15,537,143 $14,026,978
Cost of sales 4,545,906 4,778,130
----------- -----------
Gross margin 10,991,237 9,248,848
Operating expenses (income):
Selling, general and administrative 4,003,404 3,317,235
Research and development 2,465,848 2,882,844
Amortization expense 42,471 58,877
Interest expense - 28,083
Interest income (243,868) (158,460)
----------- -----------
6,267,855 6,128,579
----------- -----------
Earnings before income taxes 4,723,382 3,120,269
Income taxes 1,461,000 945,000
----------- -----------
NET EARNINGS $ 3,262,382 $ 2,175,269
=========== ===========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE (Note B) $ 0.17 $ 0.11
=========== ===========
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 19,511,234 19,576,892
=========== ===========
</TABLE>
See notes to unaudited Consolidated Financial Statements.
<PAGE>
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
9/30/97 9/30/96
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,262,382 $ 2,175,269
Adjustments to reconcile net earnings
to net cash provided
by operating activities:
Depreciation and amortization 568,311 533,905
Deferred income taxes (232,000) (421,000)
Tax benefit from exercise of options 11,000 -
Decrease in prepaid license fee 39,600 39,600
Deferred rent 178,200 79,500
Other 90,535 -
Change in current assets and
current liabilities:
(Increase) decrease in:
Accounts receivable (37,671) 306,634
Inventories (69,720) (61,037)
Other current assets (260,492) 11,892
Increase (decrease) in:
Trade account/other payables 526,582 (255,865)
Salary and related accruals (360,692) (664,387)
Income taxes payable 1,587,089 847,915
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,303,124 2,592,426
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (7,245,876) (4,800,000)
Proceeds from sale of short-
term investments 3,731,451 4,320,000
Increase in other long term assets - (250,000)
Additions to fixed assets (1,030,222) (2,154,141)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (4,544,647) (2,884,141)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 5,288 14,938
Repurchase of common stock (280,000) (1,543,443)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (274,712) (1,528,505)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (16,483) 13,924
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS 467,282 (1,806,296)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 8,598,367 7,422,084
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 9,065,649 $ 5,615,788
=========== ===========
</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 1997. 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, 1997 included in the Company's Annual Report to Shareholders
for Fiscal 1997.
Certain Consolidated Balance Sheet captions appearing in this interim
report are as follows:
<TABLE>
<CAPTION>
9/30/97 6/30/97
----------- -----------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable $ 9,136,026 $ 9,166,447
Less reserve for bad debts 50,000 52,000
----------- -----------
NET ACCOUNTS RECEIVABLE $ 9,086,026 $ 9,114,447
=========== ===========
INVENTORIES
Raw materials $ 2,102,254 $ 2,105,836
Work in process - 89,100
Supplies 140,432 121,483
Finished goods 1,883,334 1,770,742
----------- -----------
TOTAL INVENTORIES $ 4,126,020 $ 4,087,161
=========== ===========
FIXED ASSETS
Laboratory equipment $ 9,554,121 $ 9,513,329
Office equipment 2,733,508 2,671,947
Leasehold improvements 9,778,124 9,063,354
----------- -----------
22,065,753 21,248,630
Less accumulated depreciation
and amortization 10,331,372 9,995,889
----------- -----------
NET FIXED ASSETS $11,734,381 $11,252,741
=========== ===========
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 2,412,707 2,370,236
----------- -----------
NET INTANGIBLE ASSETS $ 322,840 $ 365,311
=========== ===========
</TABLE>
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
will be effective for the Company beginning July 1, 1998. SFAS No. 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. The Company believes that this statement will not have a material
impact on results reported in its financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which will be effective for the Company
beginning July 1, 1998. SFAS No. 130 requires the disclosure of comprehensive
income and its components in the Company's financial statements. The Company
anticipates the effect of SFAS No. 130 will result in disclosure of
unearned compensation on stock options and foreign currency translation
adjustments on the face of the comprehensive income statement.
B. STOCK SPLIT:
On October 23, 1997, the Company declared a two-for-one stock split to be
effected in the form of a 100% stock dividend to shareholders of record on
November 10, 1997. The payment date for the stock split was November 17,
1997. All earnings per share and share amounts included in these financial
statements have been restated to reflect the stock split.
C. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
9/30/97 9/30/96
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<S> <C> <C>
Primary:
Weighted average number of common shares 18,868,132 19,003,312
Dilutive effect of stock options
and warrants 643,102 573,580
----------- -----------
Average common and common equivalent
shares outstanding 19,511,234 19,576,892
=========== ===========
Fully diluted:
Weighted average number of common shares 18,868,132 19,003,312
Dilutive effect of stock options
and warrants 731,816 574,844
----------- -----------
Average common and common equivalent
shares outstanding 19,599,948 19,578,156
=========== ===========
</TABLE>
Fully diluted earnings per share are not separately reported since the
effect of dilution is less than three percent.
Effective for the quarter ended December 31, 1997, the Company will adopt
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share". All prior period earnings per share amounts will be restated
to conform to the new standard. Earnings per share for the quarter ended
September 30, 1997 computed under SFAS 128 would have resulted in basic and
diluted earnings per share of $.17.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter Ended September 30, 1997
vs. Quarter Ended September 30, 1996
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
sells R&D Systems' biotechnology products in Europe, both directly and
through a sales subsidiary in Germany. The Company has a foreign sales
corporation, Techne Export Inc.
Net Sales
Net sales for the quarter ended September 30, 1997 were $15,537,143, an
increase of $1,510,165 (11%) from the quarter ended September 30, 1996.
R&D Systems sales increased $1,776,287 (18%) and R&D Europe sales decreased
$266,122 (7%) from the quarter ended September 30, 1996, respectively. The
decrease in R&D Europe sales was not unexpected due to the discontinuance
of the molecular biology product line. R&D Europe sales of continuing
product lines increased 17% from the first quarter of last year.
The increase in consolidated sales for the quarter was due, in part, to
increased sales of R&D Systems' cytokines and antibodies. Sales of
cytokines and antibodies by R&D Systems and R&D Europe for the quarter
ended September 30, 1997 were $5,477,828 compared to $4,046,445 for the
quarter ended September 30, 1996, an increase of $1,431,383.
In addition, sales of hematology products increased $505,335 for the
quarter ended September 30, 1997 due largely to the addition of two new OEM
customer during the quarter, plus increased sales to a current OEM customer
and increased retail and survey sales.
Gross Margins
Gross margins, as a percentage of sales, increased from the prior year.
Margins for the first quarter of fiscal 1998 were 70.7% compared to 65.9%
for the same quarter in fiscal 1997.
The increase for the quarter was due to changes in product mix to higher-
margin products and the conclusion of royalty payments to Amgen Inc. in
August 1996. Gross margins for R&D Europe, Hematology Division and
Biotechnology Division all increased for the quarter. R&D Europe gross
margins increased from 51.7% to 53.0%; Hematology Division gross margins
increased from 40.1% to 48.5%; and Biotechnology Division gross margins
increased from 68.8% to 73.1%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $686,169 (21%) from
the first quarter of fiscal 1997 to the first quarter of fiscal 1998. The
majority of the increase was due to additional occupancy and personnel
costs at R&D Systems, plus increased advertising and promotion costs by
both R&D Systems and R&D Europe. These increased costs were partially
offset by decreased personnel costs at R&D Europe as a result of the
restructuring in the third quarter of fiscal 1997.
Research and Development Expenses
Research and development expenses decreased $416,996 (14%) for the quarter
ended September 30, 1997. R&D Europe research and development expenses
decreased $631,662 for the quarter as a result of a decrease in payments
under the Joint Biological Research Agreement with British Bio-technology
Group, plc. of $314,146 and a decrease in personnel as a result of the
restructuring and the transfer of the majority of research and development
activities to R&D Systems. R&D Systems' research and development expenses
increased $214,666 for the quarter ended September 30, 1997. The increase
related to products currently under development, many of which have been or
will be released in fiscal 1998. Products currently under development
include both biotechnology and hematology products.
Net Earnings
Earnings before income taxes increased $1,603,113 from $3,120,269 in the
first quarter of fiscal 1997 to $4,723,382 in the first quarter of fiscal
1998. The increase in earnings before income taxes was due mainly to an
increase in Biotechnology Division and Hematology Division earnings of
$819,022 and $394,189, respectively, as a result of increased sales and
gross margins, and an increase in R&D Europe earnings of $474,292 as a
result of the decrease in research and development expenses.
Income taxes for the quarters ended September 30, 1997 and 1996 were
provided at a rate of approximately 31% and 30% of consolidated pretax
earnings, respectively. U.S. federal taxes have been reduced by the credit
for research and development expenditures and the benefit of the foreign
sales corporation. Foreign income taxes have been provided at rates which
approximate the tax rates in the United Kingdom and Germany.
Liquidity and Capital Resources
At September 30, 1997, cash and cash equivalents and short-term investments
were $28,733,964 compared to $24,752,257 at June 30, 1997. The Company has
been accumulating cash and short-term investments for future expansion
purposes. The Company believes it can meet its future cash, working
capital and capital addition requirements through currently available
funds, cash generated from operations and maturities of short-term
investments. The Company has an unsecured line of credit of $750,000. The
interest rate on the line of credit is at prime. There were no borrowings
on the line in the prior or current fiscal years.
Cash Flows From Operating Activities
The Company generated cash of $5,303,124 from operating activities in the
first three months of fiscal 1998 compared to $2,592,426 for the first
three months of fiscal 1997. The increase was mainly the result of
increased net earnings and increased current liabilities.
Cash Flows From Investing Activities
During the three months ended September 30, 1997 and 1996, the Company
increased short-term investments $3,514,425 and $480,000, respectively.
The Company's investment policy is to place excess cash in short-term tax-
exempt 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 $1,030,222 for the first three months of fiscal
1998, compared to $2,154,141 for the first three months of fiscal 1997.
Included in the fiscal 1998 and 1997 additions were $721,000 and $1,783,000
for leasehold improvements related to expansion and remodeling of
facilities by R&D Systems. The remaining additions in fiscal 1998 and 1997
were for laboratory and computer equipment. Total expenditures for capital
additions planned for the remainder of fiscal 1998 are expected to cost
approximately $2 million and are expected to be financed through currently
available funds and cash generated from operating activities.
Cash Flows From Financing Activities
Cash of $5,288 and $14,938 was received during the three months ended
September 30, 1997 and 1996, respectively, for the exercise of options for
1,094 and 2,000 shares of common stock. During the first three months of
fiscal 1998, options for 24,506 shares of common stock were exercised by
the surrender of 7,624 shares of the Company's common stock with a fair
market value of $126,194.
During the first three months of fiscal 1998 and 1997, the Company
purchased and retired 20,000 and 117,600 shares, respectively, of Company
common stock at market values of $280,000 and $1,543,443. In May 1995, the
Company announced a plan to purchase and retire up to $5,000,000 of its
common stock. Through November 1, 1997, 437,000 shares have been purchased
at a market value of $4,812,164. Subject to market conditions and share
price, the Company has extended its stock repurchase program and plans to
purchase and retire up to an additional $5,000,000 of common stock.
During the first three months of fiscal 1998, the Company granted stock
options with a fair value of $200,500 to a non-employee for services
rendered to the Company.
The Company has never paid cash dividends and has no plans to do so in
fiscal 1998.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS
(a) The Annual Meeting of the Registrant's shareholders was held on
Thursday, October 23, 1997.
(b) A proposal to set the number of directors at seven was adopted by a
vote of 14,865,274 in favor with 8,800 shares against, 26,780
shares abstaining and no shares represented by broker nonvotes.
(c) Proxies for the Annual Meeting were solicited pursuant to Regulation
14A under the Securities Exchange Act of 1934, there was no
solicitation in opposition to management's nominees as listed
in the proxy statement, and all such nominees were elected, as
follows:
Nominee For Withheld
------- --- --------
Thomas E. Oland 14,883,342 0
Roger C. Lucas 14,552,114 331,228
Howard V. O'Connell 14,882,942 400
G. Arthur Herbert 14,879,342 4,000
Randolph C. Steer 14,883,142 200
Lowell E. Sears 14,883,142 200
Christopher S. Henney 14,883,142 200
(d) A proposal to approve the 1997 Incentive Stock Option Plan was
adopted by a vote of 14,573,532 in favor with 274,822 shares against,
52,500 shares abstaining and no shares represented by broker
nonvotes.
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
27 Financial Data Schedule
B. REPORTS ON FORM 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNE CORPORATION
(Company)
Date: November 13, 1997 Thomas E. Oland
-------------------------
Thomas E. Oland
President, Chief Executive and
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 9,065,649
<SECURITIES> 19,668,315
<RECEIVABLES> 9,136,026
<ALLOWANCES> 50,000
<INVENTORY> 4,126,020
<CURRENT-ASSETS> 44,156,102
<PP&E> 22,065,753
<DEPRECIATION> 10,331,372
<TOTAL-ASSETS> 58,882,988
<CURRENT-LIABILITIES> 6,604,559
<BONDS> 0
0
0
<COMMON> 188,734
<OTHER-SE> 50,969,195
<TOTAL-LIABILITY-AND-EQUITY> 51,157,929
<SALES> 15,537,143
<TOTAL-REVENUES> 15,537,143
<CGS> 4,545,906
<TOTAL-COSTS> 4,545,906
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,723,382
<INCOME-TAX> 1,461,000
<INCOME-CONTINUING> 3,262,382
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,262,382
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
