10-Q 1 q903.txt 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003, or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to___________ __________________ Commission file number 0-17272 __________________ TECHNE CORPORATION (Exact name of registrant as specified in its charter) MINNESOTA 41-1427402 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 614 MCKINLEY PLACE N.E. (612) 379-8854 MINNEAPOLIS, MN 55413 (Registrant's telephone number, (Address of principal including area code) executive offices) (Zip Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes (X) No ( ) At November 7, 2003, 41,034,576 shares of the Company's Common Stock (par value $.01) were outstanding. TECHNE CORPORATION FORM 10-Q SEPTEMBER 30, 2003 INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 2003 (unaudited) and June 30, 2003 3 Consolidated Statements of Earnings for the quarter ended September 30, 2003 and 2002 (unaudited) 4 Consolidated Statements of Cash Flows for the quarter ended September 30, 2003 and 2002 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13 ITEM 4. CONTROLS AND PROCEDURES 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 14 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 14 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14 ITEM 5. OTHER INFORMATION 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15 SIGNATURE 15 2 PART I. FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS TECHNE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) (unaudited) 9/30/03 6/30/03 --------- --------- ASSETS Cash and cash equivalents $ 44,020 $ 39,371 Short-term available-for-sale investments 87,868 78,130 Trade accounts receivable, net 17,902 18,387 Interest receivable 2,109 2,054 Inventories 6,603 6,332 Deferred income taxes 4,389 4,237 Prepaid expenses 1,254 1,004 --------- --------- Total current assets 164,145 149,515 Property and equipment, net 81,389 81,166 Goodwill, net 12,540 12,540 Intangible assets, net 4,018 4,418 Deferred income taxes 8,555 8,715 Other long-term assets 6,654 6,923 --------- --------- $ 277,301 $ 263,277 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Trade accounts payable $ 3,744 $ 2,216 Salaries, wages and related accounts payable 2,089 1,781 Other accounts payable and accrued expenses 703 2,605 Income taxes payable 2,815 2,972 Current portion of long-term debt 1,246 1,234 --------- --------- Total current liabilities 10,597 10,808 Long-term debt, less current portion 15,538 15,852 --------- --------- Total liabilities 26,135 26,660 Commitments and contingencies (Note D) Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 41,029,576 and 40,913,226, respectively 410 409 Additional paid-in capital 65,193 63,279 Retained earnings 182,381 169,809 Accumulated other comprehensive income 3,182 3,120 --------- --------- Total stockholders' equity 251,166 236,617 --------- --------- $ 277,301 $ 263,277 ========= ========= See notes to consolidated financial statements (unaudited). 3 TECHNE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands, except per share data) (unaudited) QUARTER ENDED 9/30/03 6/30/03 -------- -------- Net sales $ 37,993 $ 34,548 Cost of sales 8,663 8,690 -------- -------- Gross margin 29,330 25,858 Operating expenses: Selling, general and administrative 5,083 4,951 Research and development 4,963 4,833 Amortization of intangible assets 400 484 Interest expense 175 323 Interest income (726) (790) Other non-operating expense, net 78 150 -------- -------- 9,973 9,951 -------- -------- Earnings before income taxes 19,357 15,907 Income taxes 6,785 5,462 -------- -------- Net earnings $ 12,572 $ 10,445 ======== ======== Earnings per share: Basic $ 0.31 $ 0.25 Diluted $ 0.30 $ 0.25 Weighted average common shares outstanding: Basic 40,965 41,363 Diluted 41,600 42,286 See notes to consolidated financial statements (unaudited). 4 TECHNE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) QUARTER ENDED ------------------- 9/30/03 9/30/02 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 12,572 $ 10,445 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,494 1,558 Deferred income taxes 9 19 Losses by equity method investees 608 698 Other 122 122 Change in operating assets and operating liabilities: Trade accounts and interest receivable 457 418 Inventories (265) (74) Prepaid expenses (308) (86) Trade and other accounts payable (402) (590) Salaries, wages and related accounts 308 (1,306) Income taxes payable 733 8,719 -------- -------- Net cash provided by operating activities 15,328 19,923 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (1,312) (6,801) Purchase of short-term available-for-sale investments (21,775) (15,180) Proceeds from sale or maturity of short-term available-for-sale investments 11,871 14,167 Increase in other long-term assets (400) -- -------- -------- Net cash used in investing activities (11,616) (7,814) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 1,003 79 Repurchase of common stock -- (5,865) Payments on long-term debt (302) (229) -------- -------- Net cash provided by (used in) financing activities 701 (6,015) -------- -------- Effect of exchange rate changes on cash 236 395 Net increase in cash and cash equivalents 4,649 6,489 Cash and cash equivalents at beginning of period 39,371 26,392 -------- -------- Cash and cash equivalents at end of period $ 44,020 $ 32,881 ======== ======== See notes to consolidated financial statements (unaudited). 5 TECHNE CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) A. BASIS OF PRESENTATION: The unaudited consolidated financial statements of Techne Corporation and Subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America and with instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. A summary of significant accounting policies followed by the Company is detailed in the Annual Report to Shareholders for fiscal 2003. The Company follows these policies in preparation of the interim unaudited consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these unaudited consolidated financial statements be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2003 included in the Company's Annual Report to Shareholders for fiscal 2003. Certain consolidated balance sheet captions appearing in this interim report are as follows (in thousands): 9/30/03 6/30/03 -------- -------- ACCOUNTS RECEIVABLE Accounts receivable $ 18,171 $ 18,655 Less allowance for doubtful accounts 269 268 -------- -------- NET ACCOUNTS RECEIVABLE $ 17,902 $ 18,387 ======== ======== INVENTORIES Raw materials $ 2,774 $ 2,618 Supplies 103 119 Finished goods 3,726 3,595 -------- -------- TOTAL INVENTORIES $ 6,603 $ 6,332 ======== ======== PROPERTY AND EQUIPMENT Land $ 3,264 $ 2,999 Buildings and improvements 67,874 64,930 Building construction in progress 16,227 18,310 Laboratory equipment 16,506 16,372 Office equipment 3,136 3,106 Leasehold improvements 540 537 -------- -------- 107,547 106,254 Less accumulated depreciation and amortization 26,158 25,088 -------- -------- NET PROPERTY AND EQUIPMENT $ 81,389 $ 81,166 ======== ======== 6 9/30/03 6/30/03 -------- -------- GOODWILL $ 38,846 $ 38,846 Less accumulated amortization 26,306 26,306 -------- -------- NET GOODWILL $ 12,540 $ 12,540 ======== ======== INTANGIBLE ASSETS Customer list $ 18,010 $ 18,010 Technology licensing agreements 500 500 Acquisition costs 230 230 -------- -------- 18,740 18,740 Less accumulated amortization 14,722 14,322 -------- -------- NET INTANGIBLE ASSETS $ 4,018 $ 4,418 ======== ======== In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 addresses the consolidation by businesses of variable interest entities and requires businesses to consolidate a variable interest entity if it has a variable interest that will absorb a majority of the entity's expected losses if they occur, or receive a majority of the entity's expected returns if they occur, or both. FIN 46 is effective for variable interest entities created after January 31, 2003. For variable interest entities created prior to January 31, 2003, the provisions of FIN 46 are applicable to the Company for the quarter ending December 31, 2003. The Company has assessed its relationships with ChemoCentryx, Inc. and Discovery Genomics, Inc., development stage companies in which the Company has 26% and 39% equity investments, respectively. The Company has determined that neither investment is required to be consolidated in the Company's financial statements pursuant to FIN 46. B. EARNINGS PER SHARE: Shares used in the earnings per share computations are as follows (in thousands): QUARTER ENDED ------------------- 9/30/03 9/30/02 -------- -------- Weighted average common shares outstanding-basic 40,965 41,363 Dilutive effect of stock options and warrants 635 923 -------- -------- Weighted average common shares outstanding-diluted 41,600 42,286 ======== ======== The dilutive effect of stock options and warrants in the above table excludes all options for which the exercise price was higher than the average market price for the period. The number of potentially dilutive option shares excluded from the calculation was 516,000 and 573,000 at September 30, 2003 and 2002, respectively. During the quarter ended September 30, 2002, the Company purchased and retired 248,000 shares of Company common stock at a market value of $5,865,000. The effect of the purchases was a 210,000 reduction in the weighted average common shares outstanding for the quarter ended September 30, 2002. The Board of Directors has authorized the Company, subject to market conditions and share price, to purchase and retire up to $40 million of its common stock. From the start of the repurchase program through November 7, 2003, approximately 2,398,000 shares have been purchased at a market value of $33,176,000. 7 C. SEGMENT INFORMATION: Following is financial information relating to the Company's operating segments (in thousands): QUARTER ENDED ------------------- 9/30/03 9/30/02 -------- -------- External sales Hematology $ 4,281 $ 3,774 Biotechnology 24,032 22,487 R&D Systems Europe 9,680 8,287 -------- -------- Total external sales $ 37,993 $ 34,548 ======== ======== Intersegment sales Hematology $ -- $ -- Biotechnology 4,621 4,150 R&D Systems Europe -- 14 -------- -------- Total intersegment sales $ 4,621 $ 4,164 ======== ======== Earnings before income taxes Hematology $ 1,430 $ 1,165 Biotechnology 15,828 14,244 R&D Systems Europe 3,349 1,811 Corporate and other (1,250) (1,313) -------- -------- Total earnings before income taxes $19,357 $15,907 ======== ======== D. CONTINGENCIES: Portions of the Company's short-term available-for-sale investments were held in brokerage accounts carried by a clearing firm which in September 2001 was placed in bankruptcy. The trustee appointed pursuant to the Securities Investor Protection Act has released to the Company cash and securities representing approximately 99% of the total value of the accounts and has withheld securities and cash equivalents in the amount of approximately $250,000 pending resolution of the bankruptcy proceeding. Management believes that all of its securities and cash equivalents will be returned to the Company as the trustee has available the assets of customers' accounts and third-party insurance. Accordingly, no impairment loss has been recognized at this time. E. STOCK OPTIONS: As permitted by Statement of Financial Accounting Standards (SFAS) No. 123, the Company has elected to continue following the guidance of Accounting Principles Board (APB) Opinion No. 25 for measurement and recognition of stock-based transactions with employees. No compensation cost has been recognized for stock options granted to employees under the plans because the exercise price of all options granted was at least equal to the fair value of the common stock at the date of grant. If compensation cost for employee options granted under the Company's stock option plans had been determined based on the fair value at the grant dates, consistent with the methods provided in SFAS No. 123, the Company's net earnings and earnings per share would have been as follows (in thousands, except per share data): 8 QUARTER ENDED ------------------- 9/30/03 9/30/02 -------- -------- Net earnings: As reported $ 12,572 $ 10,445 Less employee stock-based compensation, net of taxes 94 119 -------- -------- Pro forma $ 12,478 $ 10,326 ======== ======== Basic earnings per share: As reported $ 0.31 $ 0.25 Less employee stock-based compensation 0.01 0.00 -------- -------- Pro forma $ 0.30 $ 0.25 ======== ======== Diluted earnings per share: As reported $ 0.30 $ 0.25 Less employee stock-based compensation 0.00 0.01 -------- -------- Pro forma $ 0.30 $ 0.24 ======== ======== The fair value of options granted under the Company's stock option plans were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used: QUARTER ENDED ------------------- 9/30/03 9/30/02 -------- -------- Dividend yield -- -- Expected volatility 49%-52% 52% Risk free interest rates 4.1%-4.4% 4.5% Expected lives 7-10 years 7 years ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Quarter Ended September 30, 2003 vs. Quarter Ended September 30, 2002 Overview Techne Corporation (the Company) has two operating subsidiaries: Research and Diagnostic Systems, Inc. (R&D Systems) located in Minneapolis, Minnesota and R&D Systems Europe Ltd. (R&D Europe) located in Abingdon, England. R&D Systems has two divisions: Biotechnology and Hematology. The Biotechnology Division's principal products are purified cytokines (proteins), antibodies and assay kits, which are sold primarily to biomedical researchers at pharmaceutical companies and academic and government research laboratories. The Hematology Division's principal products are whole blood hematology controls and calibrators which are sold to hospital and clinical laboratories to check the performance of their hematology instruments to assure the accuracy of hematology test results. R&D Europe sells R&D Systems' biotechnology products in Europe directly, through a branch office in France and through a sales subsidiary in Germany. 9 Net Sales Net sales for the quarter ended September 30, 2003 were $37,993,000, an increase of $3,445,000 (10%) from the quarter ended September 30, 2002. R&D Systems' Biotechnology Division net sales increased $1,545,000 (7%) and R&D Systems' Hematology Division net sales increased $507,000 (13%) for the quarter ended September 30, 2003. The higher than usual growth in Hematology Division sales for the quarter ended September 30, 2003 was primarily due to sales of $160,000 to a distributor obtained in January 2003 and $263,000 in increased sales to OEM customers. R&D Europe net sales increased $1,393,000 (17%) for the quarter ended September 30, 2003. In British pounds, R&D Europe's net sales increased 13% for the quarter. Gross margins Gross margins for the first quarter of fiscal 2004 were 77.2% compared to 74.9% for the same quarter in fiscal 2003. The majority of the increase in margin percentage was the result of R&D Europe's gross margins increasing from 39.9% in the first quarter of fiscal 2003 to 49.2% in the first quarter of fiscal 2004. This increase was due to favorable exchange rates as a result of a weaker U.S. dollar to the British pound and the expiration, on June 30, 2003, of a five-year, 5% royalty agreement associated with the purchase of Genzyme, Inc.'s reagent business in fiscal 1999. R&D Europe expensed $408,000 in the quarter ended September 30, 2002 under this agreement. In addition, Biotechnology Division gross margins increased from 78.5% to 79.4% for the quarter ended September 30, 2003 and Hematology Division gross margins increased from 43.4% to 45.2% for the quarter ended September 30, 2003. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $132,000 (3%) from the first quarter of last year mainly as a result of increased wages and benefits ($156,000), accounting fees ($71,000) and directors and officers insurance ($44,000), partially offset by lower bonus and profit sharing accruals ($155,000). Research and Development Expenses Research and development expenses increased $130,000 (3%) for the quarter ended September 30, 2003 as compared to the quarter ended September 30, 2002. Included in research and development expenses are the Company's share of losses by ChemoCentryx, Inc. (CCX) and Discovery Genomics, Inc. (DGI), development stage companies in which the Company has invested. Research and development expenses are composed of the following (in thousands): QUARTER ENDED ------------------- 9/30/03 9/30/02 -------- -------- R&D Systems' expenses $ 4,355 $ 4,136 ChemoCentryx, Inc. losses 436 519 Discovery Genomics, Inc. losses 172 178 -------- -------- Total research and development expenses $ 4,963 $ 4,833 ======== ======== Excluding CCX and DGI losses, research and development expenses for the first quarter of fiscal 2004 increased $219,000 (5%) from the first quarter of last year. 10 The Company's net investment in CCX and DGI at September 30, 2003 was $2,075,000 and $1,715,000, respectively. The Company has financial exposure to the losses of CCX and DGI to the extent of its net investment in each of the companies. In addition, as development stage companies, both CCX and DGI are dependent on their ability to raise additional funds to continue their research and development efforts. If such funding were unavailable or inadequate to fund operations, the Company would potentially recognize an impairment loss to the extent of its remaining net investment. Other Non-operating Income/Expense Other non-operating income/expense consists mainly of foreign currency transaction gains and losses, rental income, and real estate taxes and utility expenses related to properties under construction/renovation. Net Earnings Earnings before income taxes increased $3,450,000 from $15,907,000 in the first quarter of fiscal 2003 to $19,357,000 in the first quarter of fiscal 2004. The increase in earnings before income taxes was due primarily to the increase in sales and improved gross margins. Income taxes for the quarter ended September 30, 2003 were provided at a rate of approximately 35% of consolidated pretax earnings compared to 34% for the quarter ended September 30, 2002. U.S. federal taxes have been reduced by the credit for research and development expenditures and the benefit for foreign sales. Foreign income taxes have been provided at rates which approximate the tax rates in the countries in which R&D Europe operates. Without significant business developments, the Company expects income tax rates for the remainder of fiscal 2004 to range from 35% to 36%. 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. Liquidity and Capital Resources At September 30, 2003, cash and cash equivalents and short-term available- for-sale investments were $131,888,000 compared to $117,501,000 at June 30, 2003. The Company believes it can meet its future cash, working capital and capital addition requirements through currently available funds, cash generated from operations and maturities of short-term available-for-sale investments. The Company has an unsecured line of credit of $750,000. The interest rate on the line of credit is at prime. There were no borrowings on the line in the prior or current fiscal year. Cash Flows From Operating Activities The Company generated cash of $15,328,000 from operating activities in the first three months of fiscal 2004 compared to $19,923,000 for the first three months of fiscal 2003. The decrease was mainly the result of higher U.S. income tax payments made in the first quarter of fiscal 2004 compared to the first quarter of fiscal 2003, partially offset by increased earnings, the tax benefit from exercise of stock options and decreased profit sharing and stock bonus contributions. The Company made U.S. income tax payments of $5.2 million in the quarter ended September 30, 2003 compared to a net refund of $3.9 million in the quarter ended September 30, 2002. The Company's U.S. tax liability for the quarter ended September 30, 2003 was reduced $912,000 as a result of the exercise of stock options which are deductible by the Company for tax but not financial statement purposes. Cash paid for profit sharing and stock bonus contributions were $440,000 for the quarter ended September 30, 2003 compared to $2,172,000 for the quarter ended September 30, 2002. 11 Cash Flows From Investing Activities Capital expenditures for fixed assets for the first three months of fiscal 2004 and 2003 were $1,312,000 and $6,801,000, respectively. Included in first quarter fiscal 2004 and 2003 capital additions were $130,000, and $6.3 million, respectively, for renovation and construction of property in Minneapolis. Also included in fiscal 2004 capital additions was $935,000 related to property in southeast Minnesota. The Company is currently constructing additional facilities at this site to house goats used in the production of its antibodies. Included in fiscal 2003 capital additions was $180,000 for the completion of a parking ramp. The remaining capital additions in the first three months of fiscal 2004 and 2003 were for laboratory and computer equipment and remodeling of laboratory space. Remaining expenditures in fiscal 2004 for laboratory and computer equipment are expected to cost approximately $1.2 million and are expected to be financed through currently available funds and cash generated from operating activities. Costs to finish construction of the goat facilities in southeast Minnesota are expected to be approximately $1 million with completion in mid fiscal 2004. Costs to finish the renovation of the Minneapolis property are estimated at approximately $8 million and will be completed as additional laboratory space is needed for the Company's operations. All construction is expected to be financed through currently available funds and cash generated from operating activities. During the three months ended September 30, 2003 the Company purchased $21,775,000 and had sales or maturities of $11,871,000 of short-term available-for-sale investments. During the three months ended September 30, 2002, the Company purchased $15,180,000 and had sales or maturities of $14,167,000 of short-term available-for-sale investments. The Company's investment policy is to place excess cash in short-term bonds and other short-term investments. The objective of this policy is to obtain the highest possible return with minimal risk, while keeping the funds accessible. Cash Flows From Financing Activities Cash of $1,003,000 and $79,000 was received during the three months ended September 30, 2003 and 2002, respectively, for the exercise of options for 116,000 and 13,000 shares of common stock. During the first three months of fiscal 2003, the Company purchased and retired 248,000 shares of Company common stock at a market value of $5,865,000. The Board of Directors has authorized the Company, subject to market conditions and share price, to purchase and retire up to $40 million of its common stock. From the start of the repurchase program through November 7, 2003, approximately 2,398,000 shares have been purchased at a market value of $33,176,000. The Company has never paid cash dividends and has no plans to do so in fiscal 2004. 12 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At September 30, 2003, the Company had a professionally managed investment portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of $87,868,000. These securities, like all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase. The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency rate changes. The Company is exposed to market risk from foreign exchange rate fluctuations of the euro and the British pound to the U.S. dollar as the financial position and operating results of the Company's U.K. and German subsidiaries are translated into U.S. dollars for consolidation. The Company's exposure to foreign exchange rate fluctuations also arises from transferring funds from the U.K. subsidiary to the U.S. parent and from transferring funds from the German subsidiary to the U.K. subsidiary. At September 30, 2003 and 2002, the Company had $750,000 and $409,000 dollar denominated intercompany debt at its U.K. subsidiary and at September 30, 2003, the U.K. subsidiary had $255,000 dollar denominated intercompany debt at its German subsidiary. These intercompany balances are revolving in nature and are not deemed to be long- term balances. The Company's U.K. subsidiary recognized net foreign currency gains of 49,000 pounds ($84,000) for the quarter ended September 30, 2003 and recognized net foreign currency losses of 31,000 pounds ($49,000) for the quarter ended September 30, 2002. The Company does not enter into foreign exchange forward contracts to reduce its exposure to foreign currency rate changes on intercompany foreign currency denominated balance sheet positions. As of September 30, 2003, the Company's long-term debt of $15,538,000 consisted of a mortgage note payable. The interest rate on the mortgage note was fixed at 7% through November 2002. The terms of the note payable were modified in December 2002 to include a floating interest rate at the one month LIBOR rate plus 2.5% with a floor of 4%. The floating interest rate on the mortgage note payable was below the 4% floor as of September 30, 2003. ITEM 4 - CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d- 15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company's internal control over financial reporting during the Company's most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 13 PART II. OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS See Item 3 of the Registrant's Annual Report of Form 10-K for the fiscal year ended June 30, 2003. ITEM 2 - CHANGES IN SECURITIES None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS (a) The Annual Meeting of the Registrant's shareholders was held on Thursday, October 23, 2003. (b) A proposal to set the number of directors at seven was adopted by a vote of 36,490,419 in favor with 42,211 shares against, 16,803 shares abstaining and no shares represented broker nonvotes. (c) Proxies for the Annual Meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to management's nominees as Listed in the Proxy Statement, and all such nominees were elected, as follows: Nominee For Withheld ------- --- -------- Thomas E. Oland 36,088,332 461,101 Roger C. Lucas 27,205,130 9,344,303 Howard V. O'Connell 35,959,057 590,376 G. Arthur Herbert 35,959,057 590,376 Randolph C. Steer 35,959,957 589,476 Christopher S. Henney 35,012,570 1,536,863 Robert V. Baumgartner 36,072,282 477,151 ITEM 5 - OTHER INFORMATION Forward Looking Information and Cautionary Statements: Statements in this filing, and elsewhere, which look forward in time involve risks and uncertainties which may affect the actual results of operations. The following important factors, among others, have affected and, in the future, could affect the Company's actual results: the introduction and acceptance of new biotechnology and hematology products, the levels and particular directions of research by the Company's customers, the impact of the growing number of producers of biotechnology research products and related price competition, the retention of hematology OEM (private label) and proficiency survey business, the impact of changes in foreign currency exchange rates, and the costs and results of research and product development efforts of the Company and of companies in which the Company has invested or with which it has formed strategic relationships. For additional information concerning such factors, see the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission. 14 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS See exhibit index following. B. REPORTS ON FORM 8-K Form 8-K dated October 23, 2003 furnishing pursuant to Item 12, the Registrant's press release reporting earnings for the first quarter of fiscal 2003 and segment information for the quarter ended September 30, 2003. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TECHNE CORPORATION (Company) Date: November 13, 2003 /s/ Thomas E. Oland ------------------------------- President, Chief Executive and Chief Financial Officer EXHIBIT INDEX TO FORM 10-Q TECHNE CORPORATION Exhibit # Description ----------- ----------------------- 31 Section 302 Certification 32 Section 906 Certification 15