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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, 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 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 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 ( ).
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 13, 1996 as
reported on The Nasdaq Stock Market was approximately $141,904,000. 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 13, 1996:
9,496,728.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 1996 Annual Meeting of
Shareholders are incorporated by reference into Part III.
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 1996 R&D Europe opened a sales
subsidiary, R&D Systems GmbH (R&D GmbH), in Germany. The Company also has
a foreign sales corporation, Techne Export Inc.
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 cell growth in 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. BBP,
which the Company renamed R&D Systems Europe Ltd., continues to distribute
R&D Systems' biotechnology products, distributes products for serveral
other biotechnology companies and develops and manufactures its own line of
biotechnology products.
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 1996, R&D Systems'
Hematology Division revenues accounted for approximately 20% of
consolidated revenues of $54,589,054. Revenues from R&D Systems'
Biotechnology Division and R&D Europe were 50% and 30% of consolidated
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 DNA 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 intercellular messengers. 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. In fiscal 1996, the Biotechnology Division
expanded its Quantikine line by introducing a line of murine assay kits.
These kits are used by research scientists doing cytokine studies using
animal models.
The Biotechnology Division of R&D Systems also has a line of flow cytometry
reagent kits sold 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 Fluorokine and Quantikine product
lines enable researchers to not only quantitate cytokines, but to better
understand their interactions with cells and the function of these
cytokines.
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.
Assay Kits. This product line includes R&D Systems' human and murine
Quantikine kits which allow research scientists to quantify the amount
of specific cytokines in a sample of blood or tissue. Also included in
this product line are R&D Europe's adhesion molecule assay kits, sold under
the Parameter tradename. 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.
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.
DNA and Related Products. Designer genes and designer probes are
synthetic DNAs used in the study of gene function. 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, Sysmex, 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 and 3500
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).
Whole Blood Flow Cytometry Control. This product, released in early
fiscal 1997, is a control for flow cytometry instruments. These
instruments are used to identify and quantify white blood cells by their
surface antigens.
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 its 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 whole blood flow cytometry control and an
extended range linearity kit. R&D Systems has submitted 510(k)
applications to the FDA on these products and obtained FDA clearance to
release these products in fiscal 1996 and early fiscal 1997. R&D Systems
is currently developing controls for the Coulter STKS hematology instrument
and Abbott Cell-Dyn instruments.
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 $10,413,264,
$8,604,398 and $6,470,751 for fiscal years 1996, 1995 and 1994,
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 1996.
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 1996 and total royalties paid were
$362,925.
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
$1,469,609 were paid to Amgen in fiscal 1996 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 has developed and is currently developing new products from the
rights received under this agreement. Research payments made to British
Bio-technology Group, plc. in fiscal 1996 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 quarterly installments of $100,000 from July 1, 1995 through December
31, 1997.
Original Equipment Manufacturers (OEM) agreements represent the largest
market for hematology controls and calibrators made by R&D Systems. In
fiscal year 1996, OEM contracts accounted for $5,777,032 or 53% of
Hematology Division revenues and 11% 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, 1996. 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,
1997. 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.
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.
Competitive Technologies, Inc. owns a patent on the assay for transferrin
receptor. Competitive Technologies has granted R&D Systems a worldwide
exclusive license to make, market and sell transferrin receptor assay
diagnostic kits which use microtiterplate technology at a royalty rate of
8% of sales of these kits.
Celltrix Pharmaceuticals, Inc. owns a patent on TGFb-R (transforming growth
factor beta receptor) and has granted R&D Systems a non-exclusive right to
develop, manufacture and sell the receptor and diagnostic assay kits for
measuring the receptor. R&D pays Celltrix a 7% royalty on sales of the
receptor and a 12% royalty on kit sales.
The Texas A&M University System has patents on a recombinant baculovirus
expression vector system used by R&D Systems to express certain of its
proteins. Texas A&M has granted R&D Systems a nonexclusive license to make
and sell products manufactured using the patented process for a royalty fee
of 2% of sales of these products.
For fiscal 1996, $15,105,000 of sales were subject to one or more of the
above licenses and total royalties paid under the licenses were $554,000.
R&D Systems has obtained federal trademark registration for its hematology
control trademark CBC-3D, CBC-7, CBC-8, CBC-Laser, PLATELET-TROL and
StatusFlow 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, although R&D Europe historically experiences a slowing of sales
during the summer months.
SIGNIFICANT CUSTOMERS
No single customer accounted for more than 10% of total revenues during
fiscal years 1996, 1995 and 1994.
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 1995.
COMPETITION
The market for cytokines and research diagnostic assay kits in the United
States and Europe is being supplied by a number of biotechnology companies,
including Genzyme, PerSeptive Biosystems Inc., BioSource International,
Endogen, Sigma Chemical Co., Amersham International and Calbiochem. 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., 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 270 full-time and 31 part-time employees as of June 30,
1996. R&D Europe had 71 full-time employees as of June 30, 1996.
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 1996.
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):
Fiscal Years Ended June 30,
----------------------------
Net Sales to Unaffiliated Customers 1996 1995 1994
- ----------------------------------- -------- -------- --------
R&D Systems:
US $30,997 $27,794 $24,516
Europe 3,009 3,243 3,124
Asia 2,807 1,885 1,322
Canada 935 667 711
Other 482 251 186
R&D Europe:
England 5,413 4,849 3,590
Germany 3,507 3,034 2,462
France 2,133 1,716 958
Other Europe 4,301 3,199 2,715
Other 1,005 1,078 746
Gross Margin
- ------------
R&D Systems (US) 27,207 22,658 18,661
R&D Europe (England) 8,066 6,595 4,680
R&D GmbH (Germany) 317 - -
Net Earnings (Loss)
- -------------------
Parent and R&D Systems (US) 8,081 6,228 5,370
R&D Europe (England) 892 478 (276)
R&D GmbH (Germany) (335) - -
Identifiable Assets
- -------------------
Parent and R&D Systems (US) 38,382 29,151 22,796
R&D Europe (England) 5,387 4,911 4,010
R&D GmbH (Germany) 624 - -
CAUTIONARY STATEMENTS
As provided for under the Private Securities Litigation Reform Act of 1995,
the Company wishes to caution investors that the following important
factors, among others, in some cases have affected and in the future could
affect the Company's actual results of operations and cause such results to
differ materially from those anticipated in forward-looking statements made
in this document and elsewhere by or on behalf of the Company:
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
exist 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 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,
which the Company moved into in May 1996, is located at 2201 Kennedy
Street. This building houses administrative and Biotechnology Division
manufacturing and research operations. The Company currently occupies 87,000
square feet in this building and plans to occupy an additional 20,000 square
feet in early fiscal 1997, leaving approximately 98,000 square feet available
for future expansion. In the first half of fiscal 1997, the Company will
also occupy an additional 20,000 square feet in newly constructed space
connecting the three buildings. This space will hold a new library and
additional warehouse space. The current lease for the above buildings
extends through December 2013. Base rent for fiscal 1996 was $1,138,000.
R&D Europe leases approximately 12,500 square feet in two buildings in
Abingdon, England where all of R&D Europe Ltd. operations are located. In
fiscal 1996 R&D GmbH began leasing approximately 2,500 square feet for a
sales office in Wiesbaden-Nordenstadt, Germany. Base rent for the
facilities in England and Germany was $230,000 and $35,000, respectively,
in fiscal 1996.
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 1996 fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
(a) The names, ages and positions of each executive officer of the Company
are as follows:
Name Age Position Officer Since
---- --- -------- -------------
Thomas E. Oland 55 Chairman of the Board, President,
Treasurer and Director 1985
Dr. James A.
Weatherbee 53 Vice President and Chief Scientific
Officer 1995
Dr. Monica Tsang 51 Vice President, Research 1995
Dr. Thomas C.
Detwiler 63 Vice President, Scientific and
Regulatory Affairs 1995
Dr. Gerald J. Allen 46 Vice President, Diagnostics 1995
Marcel Veronneau 42 Vice President, Hematology Operations 1995
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.
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. 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.
1996 SALES PRICE 1995 SALES PRICE
---------------- ----------------
HIGH LOW HIGH LOW
---- ---- ---- -----
1st Quarter $20.50 $13.25 $11.00 $ 8.75
2nd Quarter 24.25 17.63 12.63 8.75
3rd Quarter 26.13 17.75 15.88 9.75
4th Quarter 33.00 22.50 15.25 12.75
As of September 13, 1996, there were approximately 409 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
(in thousands, except per share data)
Selected Statement of Earnings
Data for the Years Ended June 30 1996 1995 1994(2) 1993 1992(1)
- -------------------------------- ------- ------- ------- ------- -------
Net sales $54,589 $47,716 $40,330 $28,738 $22,304
Gross margin 35,590 29,253 23,341 15,598 11,665
Earnings before income taxes 12,592 9,648 7,223 6,469 3,253
Net earnings 8,638 6,706 5,094 4,382 1,964
Net earnings per common and common
equivalent share .89 .70 .54 .46 .21
(in thousands)
Selected Balance Sheet Data
as of June 30 1996 1995 1994(2) 1993 1992(1)
- -------------------------------- ------- ------- ------- ------- -------
Total assets $44,393 $34,062 $26,806 $20,374 $15,693
Long-term debt -- -- -- 30 2,066
Stockholders' equity 38,874 29,520 22,955 17,758 11,183
(1) 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.
(2) The Company acquired its English subsidiary, R&D Systems Europe Ltd.
effective July 1, 1993.
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.
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
of hematology 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 and is 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 1996, R&D Europe incorporated a sales subsidiary, R&D Systems GmbH,
in Germany. The Company also has a foreign sales corporation, Techne Export
Inc.
RESULTS OF OPERATIONS
Net sales for fiscal 1996 were $54,589,054, an increase of $6,872,888 (14%)
from fiscal 1995. Sales by R&D Europe for the period increased $2,482,778
(18%), while sales by R&D Systems increased $4,390,110 (13%). Approximately
43% of the increase in consolidated sales for the fiscal year was due to the
increase in sales of R&D Systems' immunoassay (Quantikine) kits. Currently
there are 67 kits on the market, including a new line of murine assay kits
added during the fiscal year. Sales of immunoassay kits by R&D Systems and
R&D Europe for fiscal 1996 were $21,502,403 compared to $18,568,719 in fiscal
1995. In addition, 14% 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 13% of the increase 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 Company anticipates increases in sales
for fiscal 1997 in both its U.S. and European subsidiary related to increased
volumes of current products and the release of new products.
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' Quantikine kits. 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.
Net sales for fiscal 1994 were $40,329,632, an increase of $11,591,811 (40%)
from fiscal 1993. The majority of the increase was due to the acquisition of
R&D Europe in fiscal 1994. Sales by R&D Europe for the fiscal year were
$10,470,795. 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.
Gross margins, as a percentage of sales, increased from 61.3% in fiscal 1995
to 65.2% in fiscal 1996. R&D Europe gross margins increased from 47.5% to
51.2% as a result of 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. Biotechnology Division gross margins
increased slightly from 67.4% to 69.3% due to lower packaging costs and lower
manufacturing costs due to increased production volumes. Hematology Division
gross margins increased from 36.4% in fiscal 1995 to 40.1% in fiscal 1996.
This increase in gross margin for the Hematology Division was the result of
changes in product mix and lower raw material costs.
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 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.
Selling, general and administrative expenses increased $1,776,325 (16%) in
fiscal 1996. The largest increase in selling, general and administrative
expenses was attributable to R&D Europe operations. During fiscal 1996, R&D
Europe opened a sales subsidiary in Germany and costs associated with start-up
and operations were approximately $735,000. In addition, $339,000 of the
increase in selling, general and administrative expenses was due to R&D
Europe's increase in sales and marketing staff in England and increased
advertising.
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 the Biotechnology and Hematology Division administrative and sales
staff added since the prior year. In addition, approximately $537,000 of the
increase 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 $990,000 (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 Biotechnology
product catalog.
Research and development expenses increased $1,808,866, $2,133,647 and
$2,807,132 in fiscal 1996, 1995, and 1994, 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, the development and release of several new Hematology
Division control products and the development and release of a line of
molecular biology products by R&D Europe. Included in research and development
expenses for fiscal 1996, 1995 and 1994 were $1,250,000, $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, some of which were
released in fiscal 1996, are expected to contribute to future revenues and
earnings of the Company. Also included in research and development in fiscal
1996 is $400,000 related to a Research and Development Agreement with Cistron
Biotechnology, Inc. Management of the Company believes that R&D Systems and
R&D Europe will continue to develop new products.
Earnings before taxes increased from $9,648,042 in fiscal 1995 to $12,591,870
in fiscal 1996. This increase in earnings was primarily the result of a
$2,203,098 increase in R&D Systems' Biotechnology Division earnings and a
$786,053 increase in Hematology Division earnings. The increase in earnings
before taxes was due to increased sales and gross margins, partially offset
by higher expenses.
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.
Income taxes for fiscal 1996 were provided at a rate of approximately 31% of
consolidated pretax earnings. U.S. federal and state taxes have been reduced as
a result of tax exempt interest income, the benefit of the foreign sales
corporation, and the state credit for research and development expenditures.
Foreign income taxes have been provided at a rate of 36% of pretax earnings
from United Kingdom operations partially offset by a tax benefit as a result
of a loss from German operations.
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 federal and state 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%.
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 federal and state 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 an operating loss by R&D Europe.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments at June 30, 1996, were
$19,249,535, an increase of 21% from the prior year. At June 30, 1995, cash,
equivalents and short-term investments were $15,945,223 compared to
$10,866,047 at June 30, 1994, an increase of 47%. The Company has an unsecured
line of credit of $750,000 available at June 30, 1996. The interest rate on
the line of credit is at the prime rate of 8.25% at June 30, 1996.
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 $9,759,549, $7,313,658 and
$6,304,449 in fiscal 1996, 1995 and 1994, 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 $6,376,922, $1,311,371 and $1,331,932 in fiscal 1996,
1995 and 1994, respectively. Included in fiscal 1996 capital additions are
leasehold improvements of $4,329,000 related to R&D Systems' expansion into an
adjacent building. The remaining capital additions in fiscal 1996, 1995, and
1994 were for laboratory, manufacturing and computer equipment. Total capital
additions for equipment and leasehold improvements planned for fiscal 1997 are
expected to be approximately $4.1 million (including $2.5 million committed at
June 30, 1996 to R&D Systems' expansion and remodeling). All capital additions
are expected to be financed through currently available cash, cash generated
from operations and maturities of short-term investments.
The Company invested a net $1,199,721, $5,529,371 and $1,259,964 in short-term
investments in fiscal 1996, 1995 and 1994, 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 payment to Cistron Biotechnology,
Inc. under a License and Supply Agreement. The agreement grants the Company a
sublicense to sell recombinant interleukin-1 beta protein and interleukin-1
precursor assays made by Cistron to the research market worldwide. The payment
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-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 from July 1, 1995 through
December 31, 1997 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 five
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 $569,125, $211,962 and $29,024 for the exercise of options
and warrants for 95,000, 84,604 and 13,235 shares of common stock in fiscal
1996, 1995 and 1994, respectively.
In fiscal 1996 and 1995, the Company purchased and retired 36,200 and 45,000
shares of Company common stock at a market value of $676,206 and $630,752,
respectively. In May 1995, the Company announced a plan to purchase and retire
up to $5 million of its common stock. Subject to market conditions, the Company
plans to continue purchasing and retiring common stock. Any such purchases will
be funded from currently available cash. Net cash of $29,875 and $36,201 was
used to reduce short and long term debt in fiscal 1995 and 1994, respectively.
The Company has never paid dividends and has no plans to do so in fiscal
1997. The Company's earnings will be retained for reinvestment in the
business.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
TECHNE Corporation and Subsidiaries
Year Ended June 30,
1996 1995 1994
----------- ----------- -----------
Net sales $54,589,054 $47,716,166 $40,329,632
Cost of sales 18,998,931 18,463,597 16,988,623
----------- ----------- -----------
Gross margin 35,590,123 29,252,569 23,341,009
Operating expenses (income):
Selling, general and
administrative 12,950,472 11,174,147 9,235,143
Research and development (Note E) 10,413,264 8,604,398 6,470,751
Amortization of intangible assets
(Note A) 235,508 291,619 572,175
Interest expense 2,242 8,641 21,755
Interest income (603,233) (474,278) (181,477)
----------- ----------- -----------
22,998,253 19,604,527 16,118,347
----------- ----------- -----------
Earnings before income taxes 12,591,870 9,648,042 7,222,662
Income taxes (Note H) 3,954,000 2,942,000 2,129,000
----------- ----------- -----------
Net earnings $ 8,637,870 $ 6,706,042 $ 5,093,662
=========== =========== ===========
Net earnings per common and common
equivalent share $.89 $.70 $.54
Average common and common equivalent
shares outstanding 9,721,425 9,521,956 9,517,200
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
TECHNE Corporation and Subsidiaries
June 30,
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 7,422,084 $ 5,317,493
Short-term available-for-sale
investments (Note A) 11,827,451 10,627,730
Trade accounts receivable, less allowance
for doubtful accounts of $113,000 and
$143,000, respectively 8,379,531 7,385,783
Inventories (Note B) 3,653,117 3,265,840
Deferred income taxes (Note H) 1,262,000 813,000
Prepaid expenses 744,824 396,073
----------- -----------
Total current assets 33,289,007 27,805,919
Equipment and leasehold improvements (Note C) 9,045,267 4,328,429
Intangible assets (Note A) 600,819 836,327
Prepaid license fee 409,200 567,600
Deferred income taxes (Note H) 1,049,000 524,000
----------- -----------
$44,393,293 $34,062,275
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,720,873 $ 1,548,530
Salaries, wages and related accounts 1,725,124 1,350,650
Other accounts payable and accrued expenses 876,346 662,353
Income taxes payable 706,679 557,447
----------- -----------
Total current liabilities 5,029,022 4,118,980
Deferred rent 490,200 423,200
Contingencies and commitments (Note E) -- --
Stockholders' equity (Note F):
Undesignated capital stock, no par; authorized
5,000,000 shares; none issued or outstanding -- --
Common stock, par value $.01 a share;
authorized 50,000,000 shares; issued and
outstanding 9,519,528 and 9,375,346 shares,
respectively 95,195 93,753
Additional paid-in capital 11,448,558 8,546,974
Retained earnings 27,245,416 20,734,653
Accumulated foreign currency translation
adjustments 84,902 144,715
----------- -----------
Total stockholders' equity 38,874,071 29,520,095
----------- -----------
$44,393,293 $34,062,275
=========== ===========
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TECHNE Corporation and Subsidiaries
ACCUMU-
LATED
FOREIGN
CURRENCY
COMMON STOCK ADDITIONAL TRANSLA-
------------------ PAID-IN RETAINED TION AD-
SHARES AMOUNT CAPITAL EARNINGS JUSTMENT
--------- ------- ----------- ----------- --------
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 F) 30,993 310 64,406 -- --
Surrender and retire-
ment of stock to
exercise options
(Note K) (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 F) 93,695 936 236,026 -- --
Surrender and retire-
ment of stock to
exercise options
(Note K) (2,500) (25) (6,850) (18,125) --
Repurchase and re-
tirement of common
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
Net earnings -- -- -- 8,637,870 --
Common stock issued:
Exercise of options
(Note F) 239,689 2,397 2,018,584 -- --
Surrender and retire-
ment of stock to
exercise options
(Note K) (59,307) (593) -- (1,451,263) --
Repurchase and re-
tirement of common
stock (36,200) (362) -- (675,844) --
Tax benefit from
exercise of non-
qualified stock
options -- -- 883,000 -- --
Change in foreign
currency transla-
tion adjustments
(Note A) -- -- -- -- (59,813)
--------- ------- ----------- ----------- --------
Balances at June 30,
1996 9,519,528 $95,195 $11,448,558 $27,245,416 $ 84,902
========= ======= =========== =========== ========
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE K)
TECHNE Corporation and Subsidiaries
YEAR ENDED JUNE 30,
1996 1995 1994
------------ ------------ -----------
Cash flows from operating activities:
Net earnings $ 8,637,870 $ 6,706,042 $ 5,093,662
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 1,872,176 1,654,814 1,837,176
Deferred income taxes (974,000) (188,000) (759,000)
Tax benefit from exercise
of options 883,000 207,000 --
Decrease in prepaid license fee 158,400 -- --
Increase in deferred rent 67,000 130,800 147,600
Other 90,025 (45,134) 119,312
Change in current assets and
current liabilities, net of
acquisition:
(Increase) decrease in:
Trade and other accounts
receivable (1,151,878) (791,147) (444,890)
Inventories (406,752) (732,090) (154,778)
Prepaid expenses (351,486) (193,473) 82,627
Increase (decrease) in:
Trade and other accounts
payable 404,125 338,131 116,486
Salaries, wages and related
accounts 376,333 208,268 (99,215)
Income taxes payable 154,736 18,447 365,469
------------ ------------ -----------
Total adjustments 1,121,679 607,616 1,210,787
------------ ------------ -----------
Net cash provided by operating
activities 9,759,549 7,313,658 6,304,449
Cash flows from investing activities:
Additions to equipment and
leasehold improvements (6,376,922) (1,311,371) (1,331,932)
Purchase of short-term available-
for-sale investments (11,859,797) (10,438,674) (4,684,964)
Proceeds from sale of short-term
available-for-sale investments 10,660,076 4,909,303 3,425,000
Increase in prepaid license fee -- (567,600) --
Acquisition, net of cash acquired -- -- (1,788,558)
------------ ------------ -----------
Net cash used in investing
activities (7,576,643) (7,408,342) (4,380,454)
Cash flows from financing activities:
Issuance of common stock 569,125 211,962 29,024
Repurchase of common stock (676,206) (630,752) --
Payments on long-term debt -- (29,875) (36,201)
------------ ------------ -----------
Net cash used in financing
activities (107,081) (448,665) (7,177)
Effect of exchange rate changes on
cash 28,766 (17,504) (17,586)
------------ ------------ -----------
Net increase (decrease) in cash
and cash equivalents 2,104,591 (560,853) 1,899,232
Cash and cash equivalents at
beginning of year 5,317,493 5,878,346 3,979,114
------------ ------------ -----------
Cash and cash equivalents at end
of year $ 7,422,084 $ 5,317,493 $ 5,878,346
============ ============ ===========
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TECHNE Corporation and Subsidiaries
Years Ended June 30, 1996, 1995 and 1994
A. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS: The Company is engaged domestically in the
development and manufacture of biotechnology products and hematology
calibrators and controls through its wholly-owned subsidiary, Research and
Diagnostic Systems, Inc. Through its wholly-owned English subsidiary, R&D
Systems Europe Ltd., the Company develops, manufactures and distributes
biotechnology products throughout Europe. In fiscal 1996, R&D Systems Europe
Ltd. incorporated a sales subsidiary, R&D Systems GmbH, in Germany. The
Company also has a foreign sales corporation, Techne Export Inc.
ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES: There are no concentrations of business transacted
with a particular customer or supplier nor concentrations of revenue from a
particular product or geographic area that would severely impact the Company
in the near term.
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.
RESEARCH AND DEVELOPMENT: Research and development expenditures are expensed
as incurred. Development activities generally relate to creating new products,
improving or creating variations of existing products, or modifying existing
products to meet new applications.
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 also 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.
Proceeds from sales of available-for-sale securities were $10,660,076 during
fiscal 1996 and $4,909,303 during fiscal 1995. 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, June 30, 1995 and 1996 were not material.
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
fifteen 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. in fiscal 1994 (Note L), are being
amortized on a straight-line basis over the estimated useful lives and
consist of the following:
JUNE 30,
USEFUL LIFE 1996 1995
----------- ---------- ----------
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 2,134,728 1,899,220
---------- ----------
$ 600,819 $ 836,327
========== ==========
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.
RECENT ACCOUNTING STANDARDS: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," which requires adoption of the
disclosure provisions no later than fiscal years beginning after December 15,
1995 and adoption of the recognition and measurement provisions for
nonemployee transactions no later than after December 15, 1995. The new
standard defines a fair value method of accounting for stock options and
other equity instruments. Companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based
transactions, but are required to disclose in a note to the financial
statements pro forma net income and earnings per share as if the Company had
applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has not yet determined if it will elect to change to the fair value method, nor
has it determined the effect the new standard will have on net income and
earnings per share should it elect to make such a change. Adoption of the new
standard will have no effect on the Company's cash flows.
In April 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company
intends to adopt this standard in fiscal year 1997 and does not expect it to
have a material impact on the Company's financial position or results of
operations.
RECLASSIFICATIONS: Certain reclassifications have been made to prior years'
financial statements to conform to the current year presentation. These
reclassifications had no impact on net earnings or stockholders' equity as
previously reported.
B. INVENTORIES:
Inventories consist of:
JUNE 30,
1996 1995
---------- ----------
Raw materials $1,808,605 $1,743,533
Finished goods 1,710,272 1,397,792
Work in process 34,917 11,964
Supplies 99,323 112,551
---------- ----------
$3,653,117 $3,265,840
========== ==========
C. EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of:
JUNE 30,
1996 1995
----------- -----------
Cost:
Leasehold improvements $ 6,114,009 $ 1,758,724
Laboratory equipment 8,463,653 6,844,497
Office and computer equipment 2,417,311 2,065,032
----------- -----------
16,994,973 10,668,253
Less accumulated depreciation
and amortization 7,949,706 6,339,824
----------- -----------
$ 9,045,267 $ 4,328,429
=========== ===========
D. DEBT:
The Company's short-term line of credit facility consists of an unsecured line
of credit of $750,000 at June 30, 1996. The interest rate charged on the line
of credit is at the prime rate of 8.25% at June 30, 1996. There were no
borrowings on the line in the current year.
E. 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,
1996, 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:
- --------------------
1997 $ 1,484,335
1998 1,709,646
1999 1,963,352
2000 2,290,270
2001 2,513,243
Thereafter 31,488,983
-----------
$41,449,829
===========
Total rent expense was approximately $1,489,000, $1,180,000, and $1,191,000 for
the years ended June 30, 1996, 1995 and 1994, respectively.
The Company is obligated at June 30, 1996 for approximately $2.5 million for
leasehold improvements planned in fiscal 1997.
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 Ltd. 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 Ltd. 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, $1,250,000 and $1,100,000 for the
years ended June 30, 1996, 1995 and 1994 under this agreement. Remaining
payments under the agreement are $1,400,000 for the year ending June 30, 1997.
In fiscal 1995, the Company entered into a Research and Development Agreement
with Cistron Biotechnology, Inc. under which the Company will pay $1,000,000 in
support of 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 of
$400,000, which are included in research and development expenses, were made
during the year ended June 30, 1996. Remaining payments under this agreement
are $400,000 and $200,000 for the years ending June 30, 1997 and 1998,
respectively.
F. STOCKHOLDERS' EQUITY:
The Company has granted stock options pursuant to employee stock option plans.
As of June 30, 1996, 493,906 and 280,000 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:
OPTION SHARES
OUTSTANDING EXERCISABLE PRICE RANGE
----------- ------------- ------------
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
Granted 219,500 -- 13.00-18.125
Became exercisable -- 110,376 5.375-18.125
Exercised (239,689) (239,689) 5.375-13.938
-------- --------
Balances at June 30, 1996 532,625 242,277 $7.063-18.125
======== ========
G. SIGNIFICANT CUSTOMERS:
No customer accounted for more than 10% of the Company's revenues for the years
ended June 30, 1996, 1995 and 1994.
H. INCOME TAXES:
The Company follows Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." The provisions for income taxes consist
of the following:
YEAR ENDED JUNE 30,
1996 1995 1994
----------- ---------- ----------
Earnings (loss) before income
taxes consist of:
Domestic $11,664,658 $8,766,494 $7,640,578
Foreign 927,212 881,548 (417,916)
----------- ---------- ----------
$12,591,870 $9,648,042 $7,222,662
=========== ========== ==========
Taxes on income consist of:
Currently payable:
Federal $ 2,922,000 $2,485,000 $2,685,000
State 217,000 176,000 203,000
Foreign 906,000 262,000 --
Tax benefit from exercise of
stock options 883,000 207,000 --
Net deferred (974,000) (188,000) (759,000)
----------- ---------- ----------
$ 3,954,000 $2,942,000 $2,129,000
=========== ========== ==========
The following is a reconciliation of the federal tax calculated at the
statutory rate of 35% to the actual income taxes provided:
YEAR ENDED JUNE 30,
1996 1995 1994
---------- ---------- -----------
Computed expected federal income
tax expense $4,407,000 $3,377,000 $2,528,000
State income taxes, net of federal
benefit 263,000 192,000 172,000
Amortization of intangibles -- -- (118,000)
Foreign sales corporation (288,000) (163,000) (123,000)
Research and development credits (70,000) (366,000) (227,000)
Tax exempt interest (150,000) (101,000) (32,000)
Graduated income tax rate (126,000) (97,000) (72,000)
Other (82,000) 100,000 1,000
---------- ---------- ----------
$3,954,000 $2,942,000 $2,129,000
========== ========== ==========
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:
JUNE 30,
1996 1995
---------- ----------
Inventory reserves $ 427,000 $ 324,000
Inventory costs capitalized 348,000 276,000
Foreign net operating loss
carryforward 144,000 --
Unrealized profit on intercompany
sales 169,000 75,000
Other 174,000 138,000
---------- ----------
Current assets 1,262,000 813,000
Excess of book over tax intangible
asset amortization 458,000 439,000
Excess of book over tax research
expense 392,000 --
Deferred rent 181,000 157,000
Other 18,000 (72,000)
---------- ----------
Noncurrent assets 1,049,000 524,000
---------- ----------
$2,311,000 $1,337,000
========== ==========
At June 30, 1996, approximately $480,000 of non-U.S. tax losses were
available for carryforward indefinitely.
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.
I. FOREIGN OPERATIONS AND EXPORT SALES:
Net sales of the Company's foreign subsidiaries are primarily made to
unaffiliated customers in Europe. The consolidated financial statements
include amounts for the Company's foreign subsidiaries as of and for the years
ended June 30 as follows:
1996 1995 1994
----------- ----------- -----------
Net sales $16,359,028 $13,876,250 $10,470,795
Net income 557,212 477,548 (275,916)
Total assets 6,011,726 4,911,259 4,009,826
Net assets 3,188,114 2,686,667 2,138,688
Capital expenditures 635,290 280,664 324,359
Depreciation expense 315,800 235,684 225,841
Export sales of the Company's domestic subsidiary consist of the following:
YEAR ENDED JUNE 30,
1996 1995 1994
---------- ---------- ----------
England $1,927,333 $2,288,132 $2,142,854
Asia 2,807,082 1,884,997 1,322,104
Other Europe 1,082,217 955,437 981,210
Canada 935,327 666,516 711,173
Other 482,151 250,786 185,685
---------- ---------- ----------
$7,234,110 $6,045,868 $5,343,026
========== ========== ==========
J. 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 $485,000, $407,500 and $371,000 for the years
ended June 30, 1996, 1995 and 1994, 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 $485,000, $407,500 and $371,000 for the years
ended June 30, 1996, 1995 and 1994, respectively.
PERFORMANCE INCENTIVE PROGRAM: Under certain employment agreements with
executive officers, the Company recorded bonuses of $106,000, $80,000 and
$77,000 for the years ended June 30, 1996, 1995 and 1994, respectively. In
addition, options for 197,000, 45,000 and 17,667 shares of common stock were
granted to the executive officers during fiscal 1996, 1995 and 1994,
respectively.
K. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
The Company paid and received cash for the following items:
YEAR ENDED JUNE 30,
1996 1995 1994
---------- ---------- ----------
Income taxes paid $3,888,409 $2,933,578 $2,522,531
Interest paid 2,242 8,641 21,755
Interest received 665,214 380,316 181,638
Noncash transactions during the years ended June 30, 1996, 1995 and 1994
consisted of:
In 1996, stock options for 144,689 shares of common stock were exercised by
surrender of 59,307 shares of common stock at fair market value of $1,451,856.
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.
L. ACQUISITION:
On July 30, 1993, the Company purchased all of the stock, effective July 1,
1993, of British Biotechnology 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.
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, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1996. 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, 1996 and 1995 and the results of their operations and
cash flows for each of the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
August 16, 1996
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 sections entitled "Election of
Directors" and "Compliance With Section 16(a) of the Securities Exchange
Act" in the Company's proxy statement for its 1996 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 1996 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 1996 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, 1996,
1995 and 1994
Consolidated Balance Sheets as of June 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended June 30,
1996, 1995 and 1994
Notes to Consolidated Financial Statements for the Years
Ended June 30, 1996, 1995 and 1994
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, 1996.
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 27, 1996 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 27, 1996 Thomas E. Oland
---------------------
Thomas E. Oland
President, Treasurer and Director
(principal executive officer and
principal financial and accounting
officer)
September 27, 1996 Roger C. Lucas
---------------------
Dr. Roger C. Lucas, Director
September 27, 1996 Howard V. O'Connell
---------------------
Howard V. O'Connell, Director
September 27, 1996 G. Arthur Herbert
---------------------
G. Arthur Herbert, Director
September 27, 1996 Randolph C. Steer
---------------------
Dr. Randolph C. Steer, Director
September 27, 1996 Lowell E. Sears
---------------------
Lowell E. Sears, Director
September 27, 1996 Christopher S. Henney
---------------------
Dr. Christopher S. Henney, Director
EXHIBIT INDEX
for Form 10-K for the 1996 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 Thomas E. Oland
--incorporated by reference to Exhibit 10.2 of the Company's
Form 10, dated October 27, 1988*
10.2 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*
10.3 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*
10.4** Company's Profit Sharing Plan--incorporated by reference to
Exhibit 10.6 of the Company's Form 10, dated October 27, 1988*
10.5** Company's Stock Bonus Plan--incorporated by reference to
Exhibit 10.7 of the Company's Form 10, dated October 27, 1988*
10.6** 1987 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.14 of the Company's Form 10, dated October 27, 1988*
10.7 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*
10.8** 1988 Nonqualified Stock Option Plan--incorporated by reference
to Exhibit 10.16 of the Company's Form 10, dated October 27,
1988*
10.9 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*
10.10 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*
10.11 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*
10.12 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*
10.13 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*
10.14 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*
10.15 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*
10.16** 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*
10.17 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*
10.18 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*
10.19 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*
10.20 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*
10.21** Supplement to March 16, 1995 Agreement between the
Company and Roger C. Lucas dated July 1, 1995--incorporated by
reference to Exhibit 10.22 of the Company's Form 10-K for the
year ended June 30, 1995*
10.22 Agreement, dated October 27, 1995 for the first amendment to a
lease agreement between Craig Lyle Limited Partnership (Hillcrest
Development) and R&D Systems, Inc.--incorporated by reference
to Exhibit 10.1 of the Company's Form 10-Q for the quarter
ended September 30, 1995*
10.23 Agreement, dated July 3, 1996 for the second amendment to a
lease agreement between Hillcrest Development and R&D
Systems, Inc. EX-10.23
10.24** Employment Agreement, dated March 6, 1996, with James
Weatherbee EX-10.24
10.25** Employment Agreement, dated March 6, 1996, with Monica
Tsang EX-10.25
10.26** Employment Agreement, dated December 28, 1995 with
Thomas Detwiler EX-10.26
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
R&D Systems GmbH Germany
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