SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001. 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 or organization) 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 No Change Former name, former address and former fiscal year, if changed since last report. 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 commonstock, as of the latest practicable date-- Shares Outstanding Title of each Class at April 30, 2001 Class A Common Stock, Par Value $1.00 per share 10,051,800 Class B Common Stock, Par Value $1.00 per share 2,426,328
BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited) Three Months Ended March 31, 2001 2000 NET SALES . . . . . . . . . . . . . . . . . . $202,668 $185,463 Cost of goods sold . . . . . . . . . . . . . 91,318 86,720 GROSS PROFIT . . . . . . . . . . . . . . . . 111,350 98,743 Selling, general and administrative expense . 62,599 62,495 Product research and development expense . . 18,428 17,871 INCOME FROM OPERATIONS . . . . . . . . . . . 30,323 18,377 Interest expense . . . . . . . . . . . . . . (6,589) (8,766) Other, net . . . . . . . . . . . . . . . . . (10,132) (5,265) INCOME BEFORE TAXES . . . . . . . . . . . . . 13,602 4,346 Provision for income taxes . . . . . . . . . 5,033 1,391 NET INCOME . . . . . . . . . . . . . . . . . $ 8,569 $ 2,955 ======== ======== Basic earnings per share: Net income . . . . . . . . . . . . . . . $0.70 $0.24 ======== ======== Weighted average common shares . . . . . 12,254 12,177 ======== ======== Diluted earnings per share: Net income . . . . . . . . . . . . . . . $0.68 $0.24 ======== ======== Weighted average common shares 12,547 12,256 ======== ======== The accompanying notes are an integral part of these statements. 1
BIO-RAD LABORATORIES, INC. Condensed Consolidated Balance Sheets (In thousands, except share data) <TABLE> <CAPTION> March 31, December 31, 2001 2000 (Unaudited) <S> <C> <C> ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . $ 9,994 $ 13,954 Accounts receivable, net . . . . . . . . . . . . . . . 191,792 182,242 Inventories . . . . . . . . . . . . . . . . . . . . . 136,713 132,519 Prepaid expenses, taxes and other current assets . . . 42,044 40,953 Total current assets . . . . . . . . . . . . . . . 380,543 369,668 Net property, plant and equipment . . . . . . . . . . 118,787 119,032 Goodwill, net . . . . . . . . . . . . . . . . . . . . 87,881 90,970 Other assets . . . . . . . . . . . . . . . . . . . . . 63,668 66,608 Total assets . . . . . . . . . . . . . . . . . . $650,879 $646,278 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable . . . . . . . . . . . . . . . . . . . $ 62,046 $ 62,965 Accrued payroll and employee benefits . . . . . . . . 45,290 52,354 Notes payable and current maturities of long-term debt 17,992 18,146 Sales, income and other taxes payable . . . . . . . . 14,312 8,413 Other current liabilities . . . . . . . . . . . . . . 51,900 47,430 Total current liabilities . . . . . . . . . . . . . 191,540 189,308 Long-term debt, net of current maturities . . . . . . 202,901 203,360 Deferred tax liabilities . . . . . . . . . . . . . . . 9,173 8,992 Total liabilities . . . . . . . . . . . . . . . . . 403,614 401,660 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 - 10,051,800 at March 31, 2001 and 10,042,200 at December 31, 2000 . . . . . . . . . 10,052 10,042 Class B common stock, $1.00 par value, 6,000,000 shares authorized; outstanding - 2,426,328 at March 31, 2001 and 2,435,928 at December 31, 2000 . . . . . . . . . 2,426 2,436 Additional paid-in capital . . . . . . . . . . . . . . 19,120 19,120 Class A treasury stock, 206,519 shares at March 31, 2001 and 244,499 shares at December 31, 2000 at cost . . (4,574) (5,415) Retained earnings . . . . . . . . . . . . . . . . . . 240,402 231,821 Accumulated other comprehensive income: Currency translation . . . . . . . . . . . . . . . . (20,266) (13,545) Net unrealized holding gain on marketable securities 105 159 Total stockholders' equity . . . . . . . . . . . . 247,265 244,618 Total liabilities and stockholders' equity . . . $650,879 $646,278 ======== ======== The accompanying notes are an integral part of these statements. </TABLE> 2
BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 2001 2000 <S> <C> <C> Cash flows from operating activities: Cash received from customers . . . . . . . . . . . . . $183,233 $183,781 Cash paid to suppliers and employees . . . . . . . . . (168,730) (176,672) Interest paid. . . . . . . . . . . . . . . . . . . . . (10,291) (7,353) Income tax payments . . . . . . . . . . . . . . . . . (1,265) (2,676) Miscellaneous payments . . . . . . . . . . . . . . . . (732) (2,902) Net cash provided by (used in) operating activities. . 2,215 (5,822) Cash flows from investing activities: Capital expenditures, net. . . . . . . . . . . . . . . (9,278) (8,318) Net sales of marketable securities and investments. . . 62 105 Foreign currency hedges, net . . . . . . . . . . . . . 1,056 2,330 Net cash used in investing activities. . . . . . . . . (8,160) (5,883) Cash flows from financing activities: Net repayments under line-of-credit arrangements. . . (2,825) (5,009) Long-term borrowings. . . . . . . . . . . . . . . . . 45,500 369,251 Payments on long-term debt. . . . . . . . . . . . . . (43,113) (353,047) Arrangement and other fees for long-term financing. . -- (4,500) Proceeds from issuance of common stock. . . . . . . . 841 290 Treasury stock activity, net. . . . . . . . . . . . . 12 1,205 Net cash provided by financing activities . . . . . . 415 8,190 Effect of exchange rate changes on cash . . . . . . . . . . 1,570 1,749 Net decrease in cash and cash equivalents . . . . . . . . . (3,960) (1,766) Cash and cash equivalents at beginning of period. . . . . . 13,954 17,087 Cash and cash equivalents at end of period. . . . . . . . . $ 9,994 $ 15,321 ======== ======== Reconciliation of net income to net cash provided by operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . $ 8,569 $ 2,955 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . . 10,302 10,688 Foreign currency hedge transactions, net . . . . . . (1,056) (2,330) Gains on dispositions of marketable securities . . . (64) (304) Decrease (increase) in accounts receivable . . . . . (16,645) 2,910 Increase in inventories . . . . . . . . . . . . . . (7,180) (10,922) Decrease (increase)in other current assets . . . . . (1,596) 193 Increase (decrease)in accounts payable and other current liabilities . . . . . . . . . . . . 2,885 (7,502) Increase (decrease) in income taxes payable. . . . . 4,210 (1,041) Other. . . . . . . . . . . . . . . . . . . . . . . . 2,790 (469) Net cash provided by operating activities . . . . . . . . . $ 2,215 $ (5,822) ======== ======== The accompanying notes are an integral part of these statements. </TABLE> 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 the consolidated financial statements contained in the Company's Annual Report for the year ended December 31, 2000. Certain amounts in the financial statements of the prior year have been reclassified to be consistent with the 2001 presentation. 2. INVENTORIES The principal components of inventories are as follows: March 31, December 31, 2001 2000 (in thousands) Raw materials $ 35,109 $ 32,993 Work in process 30,349 30,071 Finished goods 71,255 69,455 $136,713 $132,519 ======== ======== 3. PROPERTY, PLANT AND EQUIPMENT The principal components of property, plant and equipment are as follows: March 31, December 31, 2001 2000 (in thousands) Land and improvements $ 8,312 $ 8,337 Buildings and leasehold improvements 65,836 66,039 Equipment 169,571 180,827 243,719 255,203 Accumulated depreciation (124,932) (136,171) Net property, plant and equipment $118,787 $119,032 ======== ======== 4. ACQUISITIONS AND DISPOSITIONS In July 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 $36,000 represent $27,000 in cash, an 4
$8,000 note receivable due in five years and an 18% passive equity interest in ASTI. The Company used $17,000 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. In October 1999, the Company acquired Pasteur Sanofi Diagnostics S.A., a French corporation, from its shareholders, Sanofi- Synthelabo S.A. and Institut Pasteur. Purchase liabilities recorded included approximately $14,000 for severance and other employee costs and $4,000 for the consolidation and closure of certain leased facilities. The closure of facilities identified by the Company were completed in fiscal 2000, with lease payments net of sublease revenues continuing until all contractual obligations are met. As of March 31, 2001, expenses charged against these reserves were approximately $12,900 for severance and other employee costs and $2,000 for facilities and asset related write-offs. 5. EARNINGS PER SHARE Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 293,000 and 79,000 shares, for the three month periods ended March 31, 2001 and 2000, respectively. Options to purchase 215,000 shares of common stock were outstanding during the three month period ended March 31, 2000, 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. There were no anti-dilutive shares for the three month period ended March 31, 200l. 6. OTHER INCOME AND EXPENSE The components of Other, net were: Three Months Ended March 31, 2001 2000 (in thousands) Goodwill amortization $(2,021) $(1,990) Non-operating litigation costs, net (700) (542) Write-down of investment in affiliates (2,000) -- Write-down of spectroscopy instrument assets (4,500) -- Other (911) (2,733) Total Other, net $(10,132) $(5,265) ======= ======= In the first quarter of 2001, the Company took a $4,500 non-cash pre-tax charge reflecting the potential impact of a non-binding letter of intent to sell the spectroscopy instrument business to a new owner. Additionally, the Company took a $2,000 non-cash pre-tax charge to adjust the value of an investment based on on-going discussions with the investment's management concerning its future capital structure. 5
7. COMPREHENSIVE INCOME The components of the Company's total comprehensive income were: Three Months Ended March 31, 2001 2000 (in thousands) Net Income $ 8,569 $ 2,955 Currency translation adjustments (6,721) (5,812) Net unrealized holding gains 3 463 Reclassification adjustments for gains included in net income (57) (217) Total comprehensive income (expense) $ 1,794 $(2,611) ======= ======= 8. SEGMENT INFORMATION Information regarding industry segments for the three months ended March 31, 2001 and 2000 is as follows (in thousands): Life Clinical Analytical Science Diagnostics Instruments Segment net sales 2001 $92,938 $102,989 $ 7,505 2000 $67,731 $100,461 $18,379 Segment profit(loss) 2001 $19,091 $ 8,122 $ (928) 2000 $ 7,133 $ 2,992 $ 341 Inter-segment sales are primarily between Life Science and Clinical Diagnostics and are priced to give Life Science a representative gross margin. The following reconciles total segment profit to consolidated income before taxes: Three Months Ended March 31, 2001 2000 (in thousands) Total segment profit $26,285 $10,466 Gross profit on inter-segment sales (384) (561) Net corporate operating, interest and other expense not allocated to segments (10,302) (3,857) Goodwill amortization (2,021) (1,990) Investment income, net 24 288 Consolidated income before taxes $13,602 $ 4,346 ======= ======= 6
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, 2000. The following table shows operating income and expense items as a percentage of net sales: Three Months Ended Year Ended March 31, December 31, 2001 2000 2000 Net sales 100.0 100.0 100.0 Cost of goods sold 45.1 46.8 47.3 Gross profit 54.9 53.2 52.7 Selling, general and administrative 30.8 33.7 34.1 Product research and development 9.1 9.6 9.4 Income from operations 15.0 9.9 9.2 ===== ===== ===== Net income 4.2 1.6 4.3 ===== ===== ===== 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. We have based these forward looking statements on our current expectations and projections about future events. However, actual results may differ materially from those currently anticipated depending on a variety of risk factors including among other things: our substantial leverage and ability to service our debt; our ability to successfully develop and market new products; our reliance on and access to necessary intellectual property; competition in and government regulation of the industries in which we operate; and the monetary policies of various countries. We undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events, or otherwise. Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000 Corporate Results - Sales, Margins and Expenses Net sales (sales) in the first quarter of 2001 were $202.7 million compared to $185.5 million in the first quarter of 2000, an increase of 9.3%. Sales increased 37.2% in Life Science and 2.5% in Clinical Diagnostics. The growth in Life Science is 7
attributed to a strong demand for the Company's products by proteomic and genomic researchers. Sales growth was especially strong in European markets as a result of the Company's BSE (Bovine Spongiform Encephalopathy) test used to detect the presence of prions linked to the Mad Cow Disease. Clinical Diagnostics growth was provided by products for diabetes monitoring, quality controls, blood virus and autoimmune testing. On a comparative basis, first quarter sales were adversely affected by the strength of the U.S. dollar versus the prior period. Reported growth would increase by 5% for both Life Science and Clinical Diagnostics if international sales were translated at a constant exchange rate. Sales in the Analytical Instruments segment declined as the Company sold its semiconductor instrument product line effective August 1, 2000. Consolidated gross margins were 54.9% for the first quarter of 2001 compared to 53.2% for the first quarter of 2000 and 52.7% for all of 2000. Gross margins improved in Life Science as many of the products providing sales growth yield higher margins than the segment's overall average. Clinical Diagnostics margins improved due to the cessation of a distributor agreement, improved manufacturing overhead absorption and adjustments made in the prior year to have the PSD manufacturing sites comply with the Company's obsolescence and excess inventory policies. Selling, general and administrative expense (SG&A) decreased to 30.8% of sales in the first quarter of 2001 from 33.7% of sales the first quarter of 2000. SG&A for Life Science increased 14.4% as sales grew 37.2%. Clinical Diagnostics experienced a small decline in SG&A expenditures as selling expenditures declined mainly in Europe from planned reductions which were part of the PSD acquisition, offset by increases in the rest of the world. The long-term goal for management remains a consistent gradual reduction in SG&A spending as a percent of sales. Product research and development expense decreased slightly to 9.1% as a percentage of sales from 9.6% for the first quarter of 2000. Corporate Results - Non-Operating Items Interest expense decreased from the prior year reflecting the reduction of debt. Net other income and expense in the first quarter of 2001 includes $6.5 million of non-cash pre-tax expense relating to the impact of transactions in negotiation to transfer ownership in the Company's spectroscopy instrument business and a change in the Company's valuation of an investment based on on-going discussions with the investment's management concerning its future capital structure. Net other income and expense in the first quarter of 2000 includes 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. Net other income and expense in both years includes net goodwill amortization and non-operating legal costs. 8
The Company's effective tax rate rose to 37% for the first quarter of 2001 compared to 32% in the first quarter of 2000. The increased rate reflects the limitation on the deductibility of goodwill amortization associated with the acquisition of PSD, the utilization of loss carryforwards and a change in the geographical source of taxable income. Financial Condition The Company, as of March 31, 2001, had available approximately $95 million under its principal revolving credit agreement and $22 million under various foreign lines of credit. Cash and cash equivalents available were $10.0 million. At March 31, 2001, consolidated accounts receivable increased by $9.6 million from December 31, 2000. The increase was due to higher sales volume being offset by the declining value of European and Japanese currencies as well as an improved mix of more consumable sales and less instruments. At March 31, 2001, consolidated net inventories increased by $4.2 million from December 31, 2000. Life Science increased inventory levels to meet increased customer demands for its consumable and apparatus products. Clinical Diagnostic inventory levels remained flat as the inventory increase for the quality control product lines was offset by foreign held inventory declining due to currency translation. 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. Bio-Rad management regularly reviews inventory valuation for excess, obsolete and slow-moving products. Net capital expenditures totaled $9.3 million for the first three months of 2001 compared to $8.3 million for the same period of 2000. Capital expenditures for the quarter are principally for reagent rental equipment placed with Clinical Diagnostic customers who then commit to purchasing the Company's diagnostic reagents for use. The remaining expenditures represent the Company's investment in data communication and business systems to standardize and integrate its new acquisition and production equipment. The Company now believes that continued growth will cause it to require additional space in Northern California for manufacturing, laboratory and general office use. Management is currently reviewing its space requirements and financing alternatives that could result in increased capital expenditures later in 2001 and beyond. The Company has determined that the sale or disposal of certain remaining portions of the Analytical Instruments segment is appropriate. The Company took a $4.5 million non-cash charge in the first quarter of 2001 reflecting the potential impact of a non- binding letter of intent to sell the spectroscopy instrument business to a new owner. We cannot guarantee, however, that the 9
Company will be successful in completing this transaction. Should it not happen, the Company will immediately pursue other alternatives. 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. A group of Corporate and European managers have been assigned the task of preparing and accommodating the changes required to continue to do business in the European Union. 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. New Financial Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" effective for 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 Company adopted SFAS 133 and subsequent amendments as of the first day of fiscal year 2001 and will currently not seek hedge accounting treatment, instead recording the value adjustment to derivative instruments through earnings. Item 3. Quantitative and Qualitative Disclosures About Market Risk During the three months ended March 31, 2001, 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 31, 2000. 10
PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. At the Company's annual meeting of stockholders on April 24, 2001, the following individuals were reelected to the Board of Directors: Class of Common Stock Votes Votes Elected From For Withheld James J. Bennett Class B 2,318,267 558 Albert J. Hillman Class A 6,455,352 814,231 Philip L. Padou Class A 6,514,752 754,831 Alice N. Schwartz Class B 2,318,267 558 David Schwartz Class B 2,318,267 558 Norman Schwartz Class B 2,318,267 558 The following proposals were approved at the Company's annual meeting: Votes Votes Broker For Against Abstentions Non-Votes Ratification of Arthur Andersen LLP as the Company's independent auditors 3,044,280 1,222 282 -- Stock Option Plan Amendment 2,615,611 103,449 6,046 320,677 The foregoing matters are described in detail on pages 5, 6, 16, 17 and 18 of the Company's definitive Proxy Statement dated April 2, 2001, filed with the Securities and Exchange Commission and incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following documents are filed as part of this report: Exhibit No. 22.1 Proxy Statement dated April 2, 2001, pages 5, 6, 16, 17 and 18, (definitive form filed April 4, 2001, and incorporated by reference). (b) Reports on Form 8-K There were no reports on Form 8-K for the quarter ended March 31, 2001. 11
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: May 14, 2001 /s/ T. C. Chesterman T. C. Chesterman, Vice President, Chief Financial Officer Date: May 14, 2001 /s/ James R. Stark James R. Stark, Corporate Controller 12