UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000. 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 1-7928 BIO-RAD LABORATORIES, INC. (Exact name of registrant as specified in its charter) Delaware 94-1381833 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) 1000 Alfred Nobel Drive, Hercules, California 94547 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (510) 724-7000 Indicate by check 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date-- <TABLE> <CAPTION> Shares Outstanding Title of each Class at October 31, 2000 <S> <C> Class A Common Stock, Par Value $1.00 per share 10,027,600 Class B Common Stock, Par Value $1.00 per share 2,450,528 </TABLE>
PART I - FINANCIAL INFORMATION Item 1. Financial Statements BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited) <TABLE> Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 <S> <C> <C> <C> <C> NET SALES . . . . . . . . . . . . . . . . . . $174,086 $113,527 $542,859 $355,059 Cost of goods sold . . . . . . . . . . . . . 84,090 51,899 258,003 158,008 GROSS PROFIT . . . . . . . . . . . . . . . . 89,996 61,628 284,856 197,051 Selling, general and administrative expense . 58,388 43,618 181,371 128,440 Product research and development expense . . 16,372 10,999 51,623 32,449 INCOME FROM OPERATIONS . . . . . . . . . . . 15,236 7,011 51,862 36,162 Interest expense . . . . . . . . . . . . . . (7,345) (755) (23,913) (2,458) Investment income, net. . . . . . . . . . . . 340 516 823 939 Other, net . . . . . . . . . . . . . . . . . 13,215 (815) 4,482 (2,520) INCOME BEFORE TAXES . . . . . . . . . . . . . 21,446 5,957 33,254 32,123 Provision for income taxes . . . . . . . . . 7,527 1,704 11,306 9,187 NET INCOME . . . . . . . . . . . . . . . . . $ 13,919 $ 4,253 $ 21,948 $ 22,936 ======== ======== ======== ======== Basic earnings per share: Net income . . . . . . . . . . . . . . . . $ 1.14 $0.35 $1.80 $1.89 ======== ======== ======== ======== Weighted average common shares . . . . . . 12,217 12,111 12,204 12,105 ======== ======== ======== ======== Diluted earnings per share: Net income . . . . . . . . . . . . . . . . $1.14 $0.35 $1.79 $1.89 ======== ======== ======== ======== Weighted average common shares . . . . . . 12,238 12,195 12,248 12,164 ======== ======== ======== ======== </TABLE> The accompanying notes are an integral part of these statements. 1
BIO-RAD LABORATORIES, INC. Condensed Consolidated Balance Sheets (In thousands, except share data) (Unaudited) <TABLE> September 30, December 31, 2000 1999 <S> <C> <C> ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . $ 8,586 $ 17,087 Accounts receivable . . . . . . . . . . . . . . . . . 182,616 193,898 Inventories . . . . . . . . . . . . . . . . . . . . . 124,814 126,277 Prepaid expenses, taxes and other current assets . . . 38,905 41,455 Total current assets . . . . . . . . . . . . . . . 354,921 378,717 Net property, plant and equipment . . . . . . . . . . 119,439 125,942 Marketable securities . . . . . . . . . . . . . . . . 1,225 1,169 Other assets . . . . . . . . . . . . . . . . . . . . . 158,583 163,034 Total assets . . . . . . . . . . . . . . . . . . $634,168 $668,862 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Notes payable and current maturities of long-term debt $ 13,786 $ 21,960 Accounts payable . . . . . . . . . . . . . . . . . . . 56,082 64,737 Accrued payroll and employee benefits . . . . . . . . 51,459 59,919 Sales, income and other taxes payable . . . . . . . . 19,948 14,086 Other current liabilities . . . . . . . . . . . . . . 42,550 41,819 Total current liabilities . . . . . . . . . . . . . 183,825 202,521 Long-term debt, net of current maturities . . . . . . 211,630 239,211 Deferred tax liabilities . . . . . . . . . . . . . . . 10,009 7,016 Total liabilities . . . . . . . . . . . . . . . . . 405,464 448,748 STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value, 2,300,000 shares authorized; none outstanding . . . . . . . . . . . . -- -- Class A common stock, $1.00 par value, 15,000,000 shares authorized; outstanding - 10,015,100 at September 30, 2000 and 9,977,862 at December 31, 1999 . . . . . . . . . 10,015 9,978 Class B common stock, $1.00 par value, 6,000,000 shares authorized; outstanding - 2,463,028 at September 30, 2000 and 2,484,716 at December 31, 1999 . . . . . . . . . 2,463 2,485 Additional paid-in capital . . . . . . . . . . . . . . 19,104 18,830 Class A treasury stock, 259,565 shares at September 30, 2000 and 335,450 shares at December 31, 1999 at cost . . (5,749) (7,392) Retained earnings . . . . . . . . . . . . . . . . . . 222,708 200,993 Accumulated other comprehensive income: Currency translation . . . . . . . . . . . . . . . . (20,031) (4,741) Net unrealized holding gain (loss) on marketable securities 194 (39) Total stockholders' equity . . . . . . . . . . . . 228,704 220,114 Total liabilities and stockholders' equity . . . $634,168 $668,862 ======== ======== </TABLE> The accompanying notes are an integral part of these statements. 2
BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) <TABLE> Nine Months Ended September 30, 2000 1999 <S> <C> <C> Cash flows from operating activities: Cash received from customers . . . . . . . . . . . . $531,125 $350,345 Cash paid to suppliers and employees . . . . . . . . (478,181) (311,890) Interest paid. . . . . . . . . . . . . . . . . . . . (21,656) (2,508) Income tax payments. . . . . . . . . . . . . . . . . (7,768) (12,987) Miscellaneous receipts (payments). . . . . . . . . . (5,155) (47) -------- -------- Net cash provided by operating activities. . . . . . 18,365 22,913 Cash flows from investing activities: Capital expenditures, net. . . . . . . . . . . . . . (23,941) (17,809) Receipts for divestitures . . . . . . . . . . . . . 27,000 - Purchases of marketable securities and investments . (370) (2,148) Sales of marketable securities and investments . . . 714 6,230 Foreign currency hedges, net . . . . . . . . . . . . 5,705 1,585 -------- -------- Net cash provided by (used in) investing activities. 9,108 (12,142) Cash flows from financing activities: Net borrowings under line-of-credit arrangements . . (4,911) (143) Long-term borrowings . . . . . . . . . . . . . . . . 407,509 94,225 Payments on long-term debt . . . . . . . . . . . . . (437,598) (103,032) Arrangement and other fees for long-term financing . (4,500) - Proceeds from issuance of common stock . . . . . . . 289 292 Treasury stock activity, net . . . . . . . . . . . . 1,410 (1,196) -------- --------- Net cash used in financing activities. . . . . . . . (37,801) (9,854) Effect of exchange rate changes on cash . . . . . . . . . 1,827 828 Net increase (decrease) in cash and cash equivalents. . . (8,501) 1,745 Cash and cash equivalents at beginning of period. . . . . 17,087 10,081 Cash and cash equivalents at end of period. . . . . . . . $ 8,586 $11,826 ======= ======= Reconciliation of net income to net cash provided by operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . $ 21,948 $ 22,936 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . 32,430 16,589 Foreign currency hedge transactions, net . . . . . (5,705) (1,585) Gains on disposition of marketable securities. . . (407) (870) Increase in accounts receivable . . . . . . . . . (4,240) (2,268) Increase in inventories . . . . . . . . . . . . . (14,180) (4,800) Increase (decrease) in other current assets. . . . 808 (733) Increase (decrease) in accounts payable and other current liabilities. . . . . . . . . . . . . . . (5,899) 1,126 Increase (decrease) in income taxes payable. . . . 4,592 (5,232) Other. . . . . . . . . . . . . . . . . . . . . . . (10,982) (2,250) Net cash provided by operating activities . . . . . . . . $ 18,365 $ 22,913 ======= ======= </TABLE> The accompanying notes are an integral part of these statements. 3
BIO-RAD LABORATORIES, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Bio-Rad Laboratories, Inc. ("Bio-Rad" or the "Company"), reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements should be read in conjunction with the notes to consolidated financial statements contained in the Company's Annual Report for the year ended December 31, 1999 (the Company's 1999 Annual Report). Certain amounts in the financial statements of the prior year have been reclassified to be consistent with the 2000 presentation. 2. INVENTORIES The principal components of inventories are as follows: September 30, December 31, 2000 1999 (in thousands) Raw materials $ 31,027 $ 32,398 Work in process 33,893 31,936 Finished goods 59,894 61,943 -------- -------- $124,814 $126,277 ======== ======== 3. PROPERTY, PLANT AND EQUIPMENT The principal components of property, plant and equipment are as follows: September 30, December 31, 2000 1999 (in thousands) Land and improvements $ 8,853 $ 8,937 Buildings and leasehold improvements 67,352 73,230 Equipment 162,341 168,401 -------- -------- 238,546 250,568 Accumulated depreciation (119,107) (124,626) -------- -------- Net property, plant and equipment $119,439 $125,942 ======== ======== 4
4. ACQUISITIONS AND DISPOSITIONS In October 1999, the Company acquired Pasteur Sanofi Diagnostics S.A.. At that time, liabilities were recorded of approximately $14.0 million for severance and other employee costs and $4.0 million for the consolidation and closure of certain leased facilities. As of September 30, 2000, expenses charged against these reserves were approximately $9.7 million for severance and other employee costs and $1.6 million for facilities and asset- related write-offs. On July 31, 2000, Accent Semiconductor Technology Inc. (ASTI) acquired the assets and certain liabilities of the Company's semiconductor and optoelectronic metrology business. The proceeds of approximately $36.0 million represent $27.0 million in cash, a note receivable due in five years and an 18% equity interest in ASTI. The Company used $17.0 million of the cash proceeds to reduce borrowings on the term loan portion of the Senior Credit facility. The equity interest in ASTI will be held as a long-term investment on the cost method. 5. EARNINGS PER SHARE Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 21,000 and 84,000 shares, for the three month period ended September 30, 2000 and 1999, respectively. Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 44,000 and 59,000 shares, for the year-to-date periods ended September 30, 2000 and 1999, respectively. Options to purchase 439,000 and 137,000 shares of common stock were outstanding for the three month period ended September 30, 2000 and 1999, respectively, but were excluded from the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common shares. Options to purchase 241,000 and 262,000 shares of common stock were outstanding for the year-to-date periods ended September 30, 2000 and 1999, respectively, but were excluded from the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common shares. The options were still outstanding at September 30, 2000. 5
6. OTHER INCOME AND EXPENSE <TABLE> Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (in thousands) <S> <C> <C> <C> <C> Goodwill amortization $(2,033) $ (517) $(6,044) $(1,551) Gain on sale of SMD 16,690 -- 16,690 -- Settlement payment to investment Bank -- -- (3,000) -- Legal fees (982) (16) (2,663) (651) Other, net (460) (282) (501) (318) ------- -------- -------- -------- Total other, net $13,215 $ (815) $ 4,482 $(2,520) ======= ======= ======= ======= </TABLE> 7. COMPREHENSIVE INCOME The components of the Company's total comprehensive income were: <TABLE> Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (in thousands) <S> <C> <C> <C> <C> Net Income $13,919 $ 4,253 $21,948 $22,936 Currency translation adjustments (7,500) 1,670 (15,290) (1,632) Net unrealized holding gains (losses) on securities 11 (404) 509 82 Reclassification adjustments for gains included in net income (9) (367) (276) (620) ------- ------- ------- ------- Total comprehensive income $ 6,421 $ 5,152 $ 6,891 $20,766 ======= ======= ======= ======= </TABLE> 8. SEGMENT INFORMATION Information regarding industry segments for the three months ended September 30, 2000 and 1999 is as follows (in thousands): Life Clinical Analytical Science Diagnostics Instruments Segment net sales 2000 $ 63,877 $101,507 $ 9,358 1999 53,416 45,478 15,002 Segment profit (loss) 2000 $ 1,915 $ 8,249 $ (2,094) 1999 1,976 5,091 180 6
Information regarding industry segments for the nine months ended September 30, 2000 and 1999 is as follows (in thousands): Life Clinical Analytical Science Diagnostics Instruments Segment net sales 2000 $192,700 $307,233 $ 45,573 1999 169,477 138,111 49,116 Segment profit (loss) 2000 $ 10,478 $ 20,985 $ (2,014) 1999 13,708 20,772 942 Inter-segment sales are primarily between Life Science and Clinical Diagnostics and are priced to give Life Science a representative gross margin. Interest expense is charged to segments based on the carrying amount of inventory and receivables employed by that segment. The following reconciles total segment profit to consolidated income before taxes: <TABLE> Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (in thousands) <S> <C> <C> <C> <C> Total segment profit $ 8,070 $ 7,247 $29,449 $35,422 Gross profit on inter-segment sales (334) (176) (1,335) (813) Net corporate operating, interest and other expense (income) not allocated to segments 15,403 (1,113) 10,361 (1,874) Goodwill amortization (2,033) (517) (6,044) (1,551) Investment income, net 340 516 823 939 ------- ------- ------- ------- Consolidated income before taxes $21,446 $ 5,957 $33,254 $32,123 ======= ======= ======= ======= </TABLE> 7
ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. This discussion should be read in conjunction with the information contained both in this report and in the Company's Consolidated Financial Statements for the year ended December 31, 1999. Pro-forma information regarding the acquisition of Pasteur Sanofi Diagnostics S.A.("PSD") is included in the Company's Form 8-K dated October 1, 1999. The following table shows operating income and expense items as a percentage of net sales: <TABLE> Three Months Ended Nine Months Ended Year Ended September 30, September 30, December 31, 2000 1999 2000 1999 1999 <S> <C> <C> <C> <C> <C> Net sales 100.0 100.0 100.0 100.0 100.0 Cost of goods sold 48.3 45.7 47.5 44.5 46.5 Gross profit 51.7 54.3 52.5 55.5 53.5 Selling, general and administrative 33.5 38.4 33.4 36.2 35.4 Product research and development 9.4 9.7 9.5 9.1 9.3 Purchased in-process research and development - - - - 2.8 ----- ----- ----- ----- ----- Income from operations 8.8 6.2 9.6 10.2 6.0 ===== ===== ===== ===== ===== Net Income 8.0 3.7 4.0 6.5 2.1 ===== ===== ===== ===== ===== Forward Looking Statements Other than statements of historical fact, statements made in this report include forward looking statements, such as statements with respect to the Company's future financial performance, operating results, plans and objectives. Actual results may differ materially from those currently anticipated depending on a variety of risk factors including the successful integration of PSD, our substantial debt and debt service obligations, increased competition, technological development, access to necessary intellectual property, the ability to achieve management objectives, government regulation, the continued performance of business partners, and the monetary policies of various countries. 8
Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999 Corporate Results - Sales, Margins and Expenses Net sales (sales) in the third quarter of 2000 were $174.1 million compared to $113.5 million in the third quarter of 1999, an increase of 53.4%. Sales increased 19.6% in Life Science, 123.2% in Clinical Diagnostics, and decreased 37.6% in Analytical Instruments when compared to the third quarter of 1999. In the third quarter of 2000 the Clinical Diagnostics segment benefited from $48.4 million of sales arising from the recently acquired PSD product lines. Excluding these sales, Bio-Rad sales and Clinical Diagnostics sales grew by 10.7% and 16.8%, respectively. The growth in Life Science is attributed to product offerings used in the fields of proteomics, molecular biology, and drug discovery. Clinical Diagnostics experienced growth in the area of clinical quality control. Sales in the Analytical Instruments segment declined as the Company sold its semiconductor and manufacturing instrument product line (SMD) to Accent Semiconductor Technology Inc. (ASTI) effective August 1, 2000. The remaining product lines in this segment are the Company's spectroscopy analytical equipment and spectral reference database. Both businesses had lower sales in the quarter than in the prior period. Bio-Rad sales continue to be impacted by the strengthening dollar especially in comparison to the Euro. Excluding the acquisition, comparable period sales declined $4.1 million or 3.3% applying constant exchange rates. Consolidated gross margins were 51.7% for the third quarter of 2000 compared to 54.3% for the third quarter of 1999 and 53.5% for all of 1999. Excluding the impact of the acquisition, gross margins would have been 54.4%, unchanged from the prior year. Margins on the PSD products are lower than the Company's historical rates. Gross margins increased in Life Science 0.6%. Clinical Diagnostics margins, after eliminating the acquired product lines, exceeded the prior year-to-date due in part, to a payment on a warranty claim from a supplier of approximately $1.7 million. The positive impact of this event was offset by the strengthening U.S. dollar's impact on foreign currency denominated sales. Selling, general and administrative expense (SG&A) decreased to 33.5% of sales in the third quarter of 2000 from 38.4% of sales in the third quarter of 1999. The program to integrate the PSD business into Clinical Diagnostics is substantially complete, including planned workforce reductions of approximately 200 employees since the acquisition date. 9
SG&A expense as a percent of sales for the Life Science segment declined 2.4%. Sales grew at 19.6% while SG&A grew only 12.1%, due in part to a large single bulk chemical sale estimated to be a one year supply for that customer. Product research and development expense (R&D) was 9.4% of sales including the operations of PSD, declining slightly from the 9.7% of the prior period. The Life Science segment increased their rate of spending in support of new products to increase their offering in proteomics. Clinical Diagnostics spending contracted slightly. Corporate Results - Non-Operating Items The third quarter includes a gain on the disposition of assets and selected liabilities of the Company's semiconductor test and manufacturing equipment to ASTI of $16.7 million. The Company received $27.0 million in cash, an $8.0 million note due in five years and an 18% interest in ASTI. $17.0 million of the cash proceeds were used to pay down the "term loan" portion of the Senior Credit Agreement. The cash remaining after tax deposits and expenses of the sale was used to reduce the "line of credit". Interest expense increased significantly from the prior year reflecting the debt incurred to finance the acquisition of PSD. Other income and expense in both years includes goodwill amortization $2.0 million and $0.5 million respectively, and non- operating legal costs. The Company's effective tax rate rose in the third quarter as the 2000 annual rate was revised from 32% to 34% from the sale of the SMD assets, the limitation on the deductibility of interest expense in the United States, the utilization of loss carryforwards and a change in the geographical source of taxable income. The Company's effective tax rate in the prior year was 29% and did not consider the decreased profitability due to greater interest expense and goodwill amortization attributed to the PSD acquisition. Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999 Corporate Results - Sales Margins and Expenses Sales in the nine month period of 2000 were $542.9 million compared to $355.1 million in the comparable period of 1999, an increase of 52.9%. For the first nine months of 2000, the effect from a strengthened U.S. dollar reduced sales $11.8 million when compared to equivalent sales based upon the 1999 exchange rates. Including the currency impact, sales increased 13.7% for Life Science, 122.5% for Clinical Diagnostics and decreased in Analytical Instruments. The semiconductor product lines historically represented greater than 50% of Analytical Instruments. Life Science sales increased for proteomics and 10
molecular biology products. Clinical Diagnostics sales growth is attributable to the $150.5 million of sales from the PSD acquisition and $18.6 million from the pre-acquisition product lines. Consolidated gross margins were 52.5% for the first nine months of 2000 compared to 55.5% for the first nine months of 1999 and 53.5% for all of 1999. Life Science margins improved to 54.3% on higher than planned sales volume, improved manufacturing efficiency, off-set in part by the effect of a strengthening U.S. dollar on foreign currency denominated sales. Clinical Diagnostics margins declined excluding the acquired PSD product lines, as service costs, re-engineering costs and manufacturing variances were incurred on outsourced diagnostic equipment, along with the impact of a strengthened US dollar lowering the margin on U.S. manufactured goods. Analytical Instruments margins, excluding the semiconductor products divested, declined on lower sales volumes not covering fixed manufacturing costs. SG&A decreased to 33.4% of sales in the first nine months of 2000 from 36.2% of sales in the comparable period of 1999. The Life Science segment increased SG&A expenditures by $7.6 million investing in e-commerce capabilities, distribution and marketing infrastructure. Clinical Diagnostics expenditures declined as a percent of sales due to personnel attrition, lay-offs and the postponement of discretionary spending during the integration phase of the PSD acquisition. The Company expects the impact of personnel reductions to benefit future periods. Consolidated R&D increased by $19.2 million in the first nine months of 2000 compared to the first nine months of 1999 including the activity from the PSD acquisition. Life Science and Clinical Diagnostics each increased their R&D expenditures in line with development plans in the area of proteomics, drug discovery, new diagnostic testing platforms and expanded quality control systems. Corporate Results - Non-operating Items Interest expense was $23.9 million, reflecting the debt incurred to finance the acquisition of PSD. In January 2000, the Company incurred an additional $1.0 million of non recurring bank fees to replace the $100 million bridge loan with a similar debt instrument from a different lender with preferable terms. Other income and expense includes goodwill amortization of $6.0 million, non-operating legal costs of $2.7 million and a $3.0 million non-recurring payment to settle a dispute arising under the terms of an engagement letter between the Company and an investment bank. The year-to-date results include the gain on disposition of the semiconductor product line to ASTI of $16.7 million. 11
The Company's effective tax rate increased to 34% for the first nine months of 2000 from 29% in the prior period. The increase reflects limitations on the deductibility of interest expense in the United Sales associated with the PSD acquisition, the utilization of loss carryforwards, the geographical source of taxable income, and the sale of the Company's semiconductor product line's assets. Financial Condition The Company as of September 30, 2000 had available approximately $92.0 million under its principal revolving credit agreement and $19.2 million under various foreign lines of credit. Cash and cash equivalents available were $ 8.6 million. The Company has achieved an EBITDA of $89.6 million year-to-date which has allowed it to lower its debt to equity ratio from 1.1 to 1.0 at the acquisition date of PSD to .99 to 1.0 at September 30, 2000. Debt has decreased by $32.6 since the acquisition. Lowering the total amount of debt will continue to be a focus for the Company. At September 30, 2000, consolidated accounts receivable were $182.6 million. The change from December 31, 1999 represents the net impact of a strengthened U.S. dollar lowering foreign denominated receivables, the sale of semiconductor receivables, an increase in the aging of receivables caused by a change in collection administration after the integration and an increase in sales activity to economies that require longer terms as a condition of sales. The Company believes that after a transition period administration will improve but increased working capital will be required for sales to under or lesser developed countries/economies. At September 30, 2000, Bio-Rad consolidated net inventories decreased by $1.5 million from December 31, 1999 including the reduction caused by the disposition of the semiconductor product line. Inventory increased in Life Science for new product introductions to take place before year-end related to proteomics and amplification applications as well as cyclical build-up in microscopy to meet projected year-end demand. Clinical Diagnostics inventory increased significantly from year-end as it was artificially low due to an outside supplier's manufacturing problems. Inventory for the Clinical Diagnostics quality controls business is characterized by long lead times and large infrequent batch production which is necessary to meet customers' requirements. Inventories also increased during the current year as Bio-Rad took delivery of the ancillary asset site in Brazil from Sanofi Synthelabo. Net capital expenditures totaled $23.9 million for the first nine months of 2000 compared to $17.8 million for the same period of 1999. Expenditures rose as the Company placed with customers the next generation of reagent rental equipment and invested in data 12
communication and business systems to standardize and integrate its new acquisition and production equipment. Reagent rental equipment is automated diagnostics instruments that consume the Company's reagents placed with Clinical Diagnostic customers who then commit to periodic reagent purchases. The Board of Directors has authorized the Company to repurchase up to $18 million of common stock over an indefinite period of time. From July 1996 through September 2000, the Company has repurchased 583,636 shares of Class A common stock and 30,000 shares of Class B common stock for a total of $14.5 million. The indenture restricts the Company's ability to repurchase its own stock to an amount not to exceed $4 million in the aggregate over the term of the indenture. Share repurchases made during the indenture amount to $0.4 million. As of July 31, 2000, the Company sold all the assets and transferred selected liabilities associated with its semiconductor product lines to ASTI. The cash proceeds of $27 million reduced borrowings by $17.0 million on the term loan portion of the Senior Credit facility and after tax deposits and expenses of the sales, the remainder was applied to the line of credit. The Analytical Instruments segment,after the transfer to ASTI comprises less than 5% of the Company's sales and net assets. Euro - A New European Currency On January 1, 1999, certain member countries of the European Union began to fix the conversion rates between their national currencies and a common currency, the "Euro." Over the period January 1, 1999 through January 1, 2002 participating countries will gradually transition from their national currencies to the Euro. This transition will have business implications including the need to adjust internal systems to accommodate the Euro and cross-border price transparency. The Company has not experienced to date nor does it expect that these changes will have a material impact on operations, financial position or liquidity. There will be increased competitive pressures as a result of the change, and marketing strategies will need to be continuously evaluated until the transition is complete. As a result of competitive forces and government regulations, the Company cannot guarantee that all problems will be foreseen and remediated, and that no material disruption will occur. Year 2000 Issues To date, we have not experienced any material Year 2000 related issues. Although we cannot be certain, we expect minimal future Year 2000 issues based on the performance to date of our internal systems and the products we supply to our customers. 13
New Financial Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" effective for fiscal years beginning after June 15, 1999. The FASB has now delayed implementation to all fiscal quarters of fiscal years beginning after June 15, 2000. This statement establishes accounting and reporting standards requiring companies to record all derivatives on the balance sheet as either assets or liabilities and measure those instruments at fair value. The manner in which companies are to record gains or losses resulting from changes in the values of those derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. The impact of SFAS No. 133 on the Company's financial statements will depend on a variety of factors, including interpretive guidance from the FASB, the future level of forecasted and actual foreign currency transactions, the extent of the Company's hedging activities, the types of hedging instruments used and the effectiveness of such instruments. However, the Company does not expect the adoption of SFAS No. 133 to have a material effect on its financial statements. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin: No. 101 "Revenue Recognition in Financial Statements" (SAB101). SAB101 summarizes related views of the SEC Staff in applying generally accepted accounting principles to revenue recognition in financial statements including the time for recognizing revenue derived from sales involving contractual customer acceptance provisions where installation of the product occurs after shipment. The Company's current policy is to recognize revenues at the time the customer receives the goods, generally at the time of shipment. Applying the requirements of SAB101 to the present revenue recognition policy of the Company may result in a deferral of revenue on sales of the Company's more sophisticated instruments. A majority of the Company's product lines and revenue will not be involved in the mandated deferral process. The effect of the changes will be recognized as a cumulative effect of a change in accounting principle, if determined material, in the Company's fourth quarter ending December 31, 2000. When completed, the review may determine that the amount of revenue to be deferred is material. Item 3. Quantitative and Qualitative Disclosures About Market Risk During the nine months ended September 30, 2000, excluding its exposure to increased interest rates, there have been no material changes from the disclosures about market risk provided in the Company's Annual Report on Form 10-K for the year ended December 14
31, 1999. The issuance of the 11-5/8% Senior Subordinated Notes has reduced Bio-Rad's exposure to increases in interest rates. The Company has gone from having approximately all of its year- end debt based on floating interest rates to approximately 67% at fixed rate pricing. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following documents are filed as part of this report: Exhibit No. 27.1 Financial Data Schedule (b) Reports on Form 8-K There were no reports on Form 8-K for the quarter ended September 30, 2000. 15
SIGNATURES 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 thereto duly authorized. BIO-RAD LABORATORIES, INC. (Registrant) Date: November 14, 2000 /s/ T. C. Chesterman T. C. Chesterman, Vice President, Chief Financial Officer Date: November 14, 2000 /s/ James R. Stark James R. Stark, Corporate Controller 16
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