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, 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 month (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-- SharesOutstanding Title of each Class at October 31, 2001 Class A Common Stock, Par Value $1.00 per share 10,068,318 Class B Common Stock, Par Value $1.00 per share 2,425,228 <page> 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> <caption> Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 <s> <c> <c> <c> <c> NET SALES . . . . . . . . . . . . . . . . . . $186,104 $175,761 $584,126 $548,050 Cost of goods sold . . . . . . . . . . . . . 79,918 84,090 256,848 258,003 GROSS PROFIT . . . . . . . . . . . . . . . . 106,186 91,671 327,278 290,047 Selling, general and administrative expense . 67,203 60,063 195,143 186,562 Product research and development expense . . 18,425 16,372 54,554 51,623 INCOME FROM OPERATIONS . . . . . . . . . . . 20,558 15,236 77,581 51,862 Interest expense . . . . . . . . . . . . . . (6,071) (7,345) (18,600) (23,913) Other, net . . . . . . . . . . . . . . . . . (3,301) 13,555 (15,843) 5,305 INCOME BEFORE TAXES . . . . . . . . . . . . . 11,186 21,446 43,138 33,254 Provision for income taxes . . . . . . . . . 4,139 7,527 15,961 11,306 NET INCOME . . . . . . . . . . . . . . . . . $ 7,047 $ 13,919 $ 27,177 $ 21,948 ======== ======== ======== ======== Basic earnings per share: Net income . . . . . . . . . . . . . . . . $ 0.57 $1.14 $2.21 $1.80 ======== ======== ======== ======== Weighted average common shares . . . . . . 12,351 12,217 12,302 12,204 ======== ======== ======== ======== Diluted earnings per share: Net income . . . . . . . . . . . . . . . . $0.55 $1.14 $2.14 $1.79 ======== ======== ======== ======== Weighted average common shares . . . . . . 12,763 12,238 12,673 12,248 ======== ======== ======== ======== The accompanying notes are an integral part of these statements. </table> 1 <page> BIO-RAD LABORATORIES, INC. Condensed Consolidated Balance Sheets (In thousands, except share data) (Unaudited) <table> <caption> September 30, December 31, 2001 2000 <s> <c> <c> ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . $ 32,326 $ 13,954 Accounts receivable . . . . . . . . . . . . . . . . . 186,394 182,242 Inventories . . . . . . . . . . . . . . . . . . . . . 158,946 132,519 Prepaid expenses, taxes and other current assets . . . 42,308 40,953 Total current assets . . . . . . . . . . . . . . . 419,974 369,668 Net property, plant and equipment . . . . . . . . . . 131,300 119,032 Goodwill . . . . . . . . . . . . . . . . . . . . . . . 84,715 90,970 Other assets . . . . . . . . . . . . . . . . . . . . . 48,512 66,608 Total assets . . . . . . . . . . . . . . . . . . $684,501 $646,278 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable . . . . . . . . . . . . . . . . . . . $ 67,835 $ 62,965 Accrued payroll and employee benefits . . . . . . . . 55,846 52,354 Notes payable and current maturities of long-term debt 19,993 18,146 Sales, income and other taxes payable . . . . . . . . 22,080 8,413 Other current liabilities . . . . . . . . . . . . . . 48,939 47,430 Total current liabilities . . . . . . . . . . . . . 214,693 189,308 Long-term debt, net of current maturities . . . . . . 191,282 203,360 Deferred tax liabilities . . . . . . . . . . . . . . . 6,205 8,992 Total liabilities . . . . . . . . . . . . . . . . . 412,180 401,660 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 - 10,068,318 at September 30, 2001 and 10,042,200 at December 31, 2000 . . . . . . . . 10,068 10,042 Class B common stock, $1.00 par value, 6,000,000 shares authorized; outstanding - 2,425,228 at September 30, 2001 and 2,435,928 at December 31, 2000 . . . . . . . . . 2,425 2,436 Additional paid-in capital . . . . . . . . . . . . . . 19,528 19,120 Class A treasury stock, 135,006 shares at September 30, 2001 and 244,499 shares at December 31, 2000 at cost . . (3,119) (5,415) Retained earnings . . . . . . . . . . . . . . . . . . 259,350 231,821 Accumulated other comprehensive income: Currency translation and other . . . . . . . . . . . (15,931) (13,386) Total stockholders' equity . . . . . . . . . . . . 272,321 244,618 Total liabilities and stockholders' equity . . . $684,501 $646,278 ======== ======== The accompanying notes are an integral part of these statements. </table> 2 <page> BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) <table> <caption> Nine Months Ended September 30, 2001 2000 <s> Cash flows from operating activities: <c> <c> Cash received from customers . . . . . . . . . . . . $572,326 $531,125 Cash paid to suppliers and employees . . . . . . . . (487,845) (478,181) Interest paid. . . . . . . . . . . . . . . . . . . . (21,554) (21,656) Income tax payments . . . . . . . . . . . . . . . . (6,348) (7,768) Miscellaneous receipts (payments) . . . . . . . . . 2,504 (5,155) Net cash provided by operating activities. . . . . . 59,083 18,365 Cash flows from investing activities: Capital expenditures, net . . . . . . . . . . . . . (32,070) (23,941) Payments for acquisitions . . . . . . . . . . . . . (4,650) -- Receipts for divestitures . . . . . . . . . . . . . -- 27,000 Net sales of marketable securities and investments . 119 344 Foreign currency hedges, net . . . . . . . . . . . . 283 5,705 Net cash (used in) provided by investing activities. (36,318) 9,108 Cash flows from financing activities: Net payments under line-of-credit arrangements . . . (10) (4,911) Long-term borrowings . . . . . . . . . . . . . . . . 74,250 407,509 Payments on long-term debt . . . . . . . . . . . . . (84,562) (437,598) Arrangement and other fees for long-term financing . -- (4,500) Proceeds from issuance of common stock . . . . . . . 423 289 Treasury stock activity, net . . . . . . . . . . . . 2,648 1,410 Net cash used in financing activities. . . . . . . . (7,251) (37,801) Effect of exchange rate changes on cash . . . . . . . . . 2,858 1,827 Net increase (decrease) in cash and cash equivalents. . . 18,372 (8,501) Cash and cash equivalents at beginning of period. . . . . 13,954 17,087 Cash and cash equivalents at end of period. . . . . . . . $32,326 $ 8,586 ======= ======= Reconciliation of net income to net cash provided by operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . $ 27,177 $ 21,948 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . 30,688 32,430 Foreign currency hedge transactions, net . . . . . (283) (5,705) Gains on disposition of marketable securities. . . (80) (407) Increase in accounts receivable . . . . . . . . . (6,603) (4,240) Increase in inventories . . . . . . . . . . . . . (27,417) (14,180) (Increase) decrease in other current assets . . . (1,333) 808 Increase (decrease) in accounts payable and other current liabilities. . . . . . . . . . . . . . . 13,272 (5,899) Increase in income taxes payable . . . . . . . . . 10,435 4,592 Other. . . . . . . . . . . . . . . . . . . . . . . 13,227 (10,982) Net cash provided by operating activities . . . . . . . . $ 59,083 $ 18,365 ======= ======= The accompanying notes are an integral part of these statements. </table> 3 <page> 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, 2000 (the Company's 2000 Annual Report). 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: September 30, December 31, 2001 2000 (in thousands) Raw materials $ 40,735 $ 32,993 Work in process 30,260 30,071 Finished goods 87,951 69,455 $158,946 $132,519 ======== ======== 3. PROPERTY, PLANT AND EQUIPMENT The principal components of property, plant and equipment are as follows: September 30, December 31, 2001 2000 (in thousands) Land and improvements $ 9,686 $ 8,337 Buildings and leasehold improvements 75,059 66,039 Equipment 189,710 180,827 274,455 255,203 Accumulated depreciation (143,155) (136,171) Net property, plant and equipment $131,300 $119,032 ======== ======== 4 <page> 4. ACQUISITIONS AND DISPOSITIONS In October 1999, the Company acquired Pasteur Sanofi Diagnostics S.A., a French corporation, from it shareholders, Sanofi- Synthelabo S.A. and Institut Pasteur. Purchase liabilities recorded included approximately $14.0 million for severance and other employee costs and $4.0 million for the consolidation and closure of certain leased facilities. The closure of facilities identified by the Company were complete in fiscal 2000, with lease payments net of sublease revenues continuing until all contractual obligations are met. As of September 30, 2001, expenses charged against these reserves were approximately $13.0 million for severance and other employee costs and $2.2 million for facilities and asset-related write-offs. 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 $36.0 million represent $27.0 million in cash, an $8.0 million 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. In July 2001, the Company acquired Helix Diagnostics, Inc., a California company specializing in the development and manufacture of test kits for autoimmune disease for approximately $4.7 million. This acquisition included goodwill of $3.1 million. 5. EARNINGS PER SHARE Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 412,000 and 21,000 shares, for the three month period ended September 30, 2001 and 2000, respectively. Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 371,000 and 44,000 shares, for the year-to-date periods ended September 30, 2001 and 2000, respectively. There were no anti-dilutive options for the three month period ended September 30, 2001. Options to purchase 439,000 shares of common stock were outstanding for the three month period ended September 30, 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 options for the nine month period ended September 30, 2001. Options to purchase 241,000 shares of common stock were outstanding for the year-to-date period ended September 30, 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. 5 <page> 6. OTHER INCOME AND EXPENSE <table> <caption> Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 (in thousands) <s> <c> <c> <c> <c> Goodwill amortization $(2,022) $(2,033) $(6,064) $(6,044) Gain on sale of SMD -- 16,690 -- 16,690 Write-down of investment in affiliates (2,580) -- (4,760) -- Write-down of spectroscopy instrument product line -- -- (4,500) -- Reversal of litigation reserve 2,400 -- 2,400 -- Non-operating litigation costs, net 533 (982) (234) (2,663) Foreign exchange loss (1,536) (111) (2,385) (42) Other, net (96) (9) (300) (2,636) Total other, net $(3,301) $13,555 $(15,843) $ 5,305 ======= ======= ======= ======= </table> During 2001, the Company recorded a $4.8 million non-cash pre-tax charge to adjust the value of its investment in Instrumentation Laboratory S.p.A. (IL) based on information included in the investee's filings and tender offer. The most recently available audited financial statements for IL are as of November 2000. The Company recorded a $4.5 million 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. The sale was completed in the fourth quarter of 2001. See Footnote 9. The Company reversed a provision of $2.4 million for the settlement of patent litigation upon summary judgement in its favor and a subsequent settlement with the plaintiff. The Company additionally received reimbursement for some legal fees spent on this matter. Foreign exchange losses sustained by the Company's subsidiary in Brazil make up the majority of the foreign exchange losses recorded. 7. COMPREHENSIVE INCOME The components of the Company's total comprehensive income were: <table> <caption> Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 (in thousands) <s> <c> <c> <c> <c> Net Income $ 7,047 $13,919 $27,177 $21,948 Currency translation adjustments 8,294 (7,500) (2,392) (15,290) Net unrealized holding gains (losses) on securities (47) 11 (86) 509 Reclassification adjustments for gains included in net income 1 (9) (67) (276) Total comprehensive income $15,295 $ 6,421 $24,632 $ 6,891 ======= ======= ======= ======= </table> 6 <page> 8. SEGMENT INFORMATION Information regarding industry segments for the three months ended September 30, 2001 and 2000 is as follows (in thousands): Life Clinical Analytical Science Diagnostics Instruments Segment net sales 2001 $ 83,635 $ 97,474 $ 5,873 2000 64,763 102,296 9,358 Segment profit (loss) 2001 $ 10,782 $ 4,430 $ (2,029) 2000 1,915 8,249 (2,094) Information regarding industry segments for the nine months ended September 30, 2001 and 2000 is as follows (in thousands): Life Clinical Analytical Science Diagnostics Instruments Segment net sales 2001 $264,915 $302,749 $ 18,746 2000 195,385 309,739 45,573 Segment profit (loss) 2001 $ 45,771 $ 23,452 $ (4,645) 2000 10,478 20,985 (2,014) 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> <caption> Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 (in thousands) <s> <c> <c> <c> <c> Total segment profit $13,183 $ 8,070 $64,578 $29,449 Gross profit on inter-segment sales (433) (334) (1,142) (1,335) Net corporate operating, interest and other expense (income) not allocated to segments 477 15,403 (14,281) 10,361 Goodwill amortization (2,022) (2,033) (6,064) (6,044) Investment income, net (19) 340 47 823 Consolidated income before taxes $11,186 $21,446 $43,138 $33,254 ======= ======= ======= ======= </table> 9. SUBSEQUENT EVENT On October 18, 2001, the Company sold its spectroscopy business line to Atropos Technologies, L.L.C. The Company will retain a 25% ownership in the new company, Digilab L.L.C. 7 <page> 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: <table> <caption> Three Months Ended Nine Months Ended Year Ended September 30, September 30, December 31, 2001 2000 2001 2000 2000 <s> <c> <c> <c> <c> <c> Net sales 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold 42.9 47.8 44.0 47.1 47.3 Gross profit 57.1 52.2 56.0 52.9 52.7 Selling, general and administrative 36.2 34.2 33.4 34.0 34.1 Product research and development 9.9 9.3 9.3 9.4 9.4 Income from operations 11.0% 8.7% 13.3% 9.5% 9.2% ===== ===== ===== ===== ===== Net Income 3.8% 7.9% 4.7% 4.0% 4.3% ===== ===== ===== ===== ===== </table> 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 ability to successfully develop and market new products; our reliance on and access to necessary intellectual property; our substantial leverage and ability to service our debt; 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 September 30, 2001 Compared to Three Months Ended September 30, 2000 Corporate Results - Sales, Margins and Expenses Net sales (sales) in the third quarter of 2001 were $186.1 million compared to $175.8 million in the third quarter of 2000, an increase of 5.9%. Sales increased 29.1% in Life Science, decreased 4.7% in Clinical Diagnostics, and decreased 37.2% in Analytical Instruments when compared to the third quarter of 2000. A strengthening US dollar compared to the prior period lowered the growth of both the Life Science and Clinical Diagnostics segment by 3.5%. Additionally, the Clinical Diagnostics segment had divested itself of a distribution 8 <page> agreement that reduced comparable sales by 3.9%. On a constant dollar basis adjusted for currency and divestiture, Life Science grew 32.6% and Clinical Diagnostics grew 2.8%. The Life Science sales growth is attributable to proteomic/genomic research tools and continued sales of the Company's Bovine Spongiform Encophalopathy (BSE) test. Analytical Instruments sales will continue to contract as the spectroscopy product line was sold on October 18, 2001. This product line was the majority of the reported Analytical Instruments sales. Consolidated gross margins were 57.1% for the third quarter of 2001 compared to 52.2% for the third quarter of 2000 and 52.7% for all of 2000. Both Life Science and Clinical Diagnostics margins improved from the prior period. Life Science gross margins improved on increased sales of products with higher margins, coupled with the benefit of improved factory efficiency due to increased unit volume improving fixed overhead absorption. Clinical Diagnostics benefited from the resolution of several royalty issues, divestiture of a lower margin distribution agreement and factory efficiencies on shared production facilities with Life Science. Selling, general and administrative expense (SG&A) increased to 36.2% of sales in the third quarter of 2001 from 34.2% of sales in the third quarter of 2000. Life Science continues to add SG&A at a rate lower than its sales growth. Clinical Diagnostics SG&A spending increased at a rate greater than sales for the current quarter. Third quarter 2000 spending for Diagnostics was below the segment's baseline support levels as employee turnover and spending cuts in excess of planned reductions had occurred. The group has added personnel to "right size" and properly support its business going forward. Additionally, spending related to the integration of distribution, manufacturing and financial systems continue. Product research and development expense (R&D) was 9.9% of sales compared the 9.3% of the prior period. The Life Science segment increased their rate of spending in support of new products to increase their proteomics product line. Clinical Diagnostics spending increased for contract development and prototype units for a significant project. R&D spending will increase as the project progresses. Corporate Results - Non-Operating Items Interest expense decreased from the prior year reflecting a reduction of debt and lower interest rates on variable rate debt. Other income and expense in the current quarter includes a write- down on a foreign investee of $2.6 million as a result of recent available public financial filings, the reversal of a provision made several years ago to settle patent litigation and increased foreign exchange losses on the books of its Brazilian subsidiary arising from the devaluation of the Brazilian Real. The Company is putting into place measures to reduce foreign exchange exposures for the Brazilian subsidiary. 9 <page> Non-operating legal costs include a partial refund of legal costs in the patent litigation mentioned above. Both periods include goodwill amortization in similar amounts. The Company's effective tax rate remains at 37.0% for the third quarter of 2001 compared to 35.0% in the third quarter of 2000. The increased rate reflects the limitation on the deductibility of goodwill amortization associated with the acquisition of Pasteur Sanofi Diagnostics (PSD), reduced utilization of loss carryforwards and a change in the geographic source of taxable income. The Company will continue to evaluate factors which may influence the effective tax rate. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Corporate Results - Sales Margins and Expenses Sales in the nine month period of 2001 were $584.1 million compared to $548.1 million in the comparable period of 2000, an increase of 6.6%. For the first nine months of 2001, the effect from a strengthened U.S. dollar reduced sales $22.8 million or 4.2% when compared to equivalent sales based upon the 2000 exchange rates. Adjusting for the currency impact, sales increased 40.0% for Life Science, and 2.0% for Clinical Diagnostics. Life Science sales increased on the strength of shipments of its BSE test and proteomics/genomic products. Clinical Diagnostics sales growth is representative of the maturity and competitive market in which it operates and the divestiture of a distribution agreement in 2000. Analytical Instruments' decline is due to the sale of the semiconductor product line in 2000. Analytical Instruments will be further reduced by the recently announced sale of its spectroscopy product line. This divestiture fundamentally completes the Company's plans to divest of this segment in order to concentrate on Life Science and Clinical Diagnostics. Consolidated gross margins were 56.0% for the first nine months of 2001 compared to 52.9% for the first nine months of 2000 and 52.7% for all of 2000. Life Science margins improved on increased sales in higher margin products and improved manufacturing efficiency, offset in part by the effect of a strengthening U.S. dollar on foreign currency denominated sales. Clinical Diagnostic margins improved due to the divestiture of a distributor agreement, lower royalty costs, and improved factory overhead on shared facilities with Life Science. SG&A decreased to 33.4% of sales in the first nine months of 2001 from 34.0% of sales in the comparable period of 2000. Life Science continues to add SG&A at a rate lower than its sale growth while the absolute amount of spending increases. Clinical Diagnostics reduced spending in absolute dollars in each quarter of 2000 to improve profitability and integrate after the acquisition of PSD. In 2001, Clinical Diagnostics has added to SG&A in support of the baseline level management feels necessary 10 <page> to grow the business. The current SG&A spending levels remain 10% below the runrate from the quarter of acquisition. Consolidated R&D increased by $2.9 million in the first nine months of 2001 compared to the first nine months of 2000. Adjusting for the 2000 divestiture of the semiconductor division, R&D spending increased $6.9 million. 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 decreased from the prior year reflecting a reduction of debt, reduced borrowing rates on variable rate debt and the absence of a $1.0 million fee on a bridge loan in 2000. Net other income and expense includes $9.3 million of non-cash pre-tax expense relating to the transfer of ownership in the Company's spectroscopy business and a change in the valuation of an investee (See Note 6). Foreign exchange losses increased principally due to losses incurred on the devaluation of the Brazilian Real on foreign denominated payables at the Company's Brazilian subsidiary. The Company plans to arrange for local financing by year-end to lower its exposure, and avoid the significant premiums charge on currency contracts involving the Real. The Company received a favorable summary judgement on patent litigation which led to a settlement from the plaintiff and rendered a provision for settlement made in a prior year unnecessary. All periods include amortization of goodwill from acquisitions made prior to July 1, 2001. Beginning January 1, 2002, changes will occur in the accounting treatment of goodwill. See the comments regarding New Financial Accounting Standards which follows. The Company's effective tax rate rose to 37.0% for the 2001 year to date period compared to 34.0% in the same period of 2000. The increased rate reflects the limitation on the deductibility of goodwill amortization associated with the acquisition of PSD, reduced utilization of loss carryforwards, and a change in the geographical source of taxable income. The Company will continue to evaluate factors which may influence the effective tax rate. Financial Condition As of September 30, 2001, the Company had available approximately $100.0 million under its principal revolving credit agreement and $29.0 million under various foreign lines of credit. Cash and cash equivalents available were $32.3 million. At September 30, 2001, consolidated accounts receivable were $186.4 million, a net increase of $4.2 million from December 31, 2000. The net increase is the result of increased sales offset by 11 <page> improved overall collections. The sales mix has increased in Europe which has overall shorter payment terms than Asia and Latin America and a strengthening US dollar lowered the value of receivables denominated in foreign currencies. At September 30, 2001, Bio-Rad consolidated net inventories increased by $26.4 million from December 31, 2000. Inventory increased in Life Science to meet fourth quarter forecasts for its consumables, apparatus, and equipment; typically its highest quarterly sales volume. Additionally, inventories have increased over concerns for appropriate safety stock levels given recent transportation security issues, the transition of some significant suppliers and seasonal lower production levels late in December and early January. Clinical Diagnostics inventory increased at September 30, 2001 to meet fourth quarter demand for the Company's reagent rental equipment especially in the diabetes lines. Inventory increased for quality control products to meet large bulk shipments in the fourth quarter and for a new supply agreement. 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. Net capital expenditures totaled $32.1 million for the first nine months of 2001 compared to $23.9 million for the same period of 2000. Expenditures rose as the Company increased placements of its reagent rental equipment with customers. 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. Clinical Diagnostics has also leased new space, made tenant improvements and acquired manufacturing equipment at the Hercules, California manufacturing location for growth, to fully comply with FDA standards and for good manufacturing practices. The Company believes that continued growth of its Life Science segment will necessitate the acquisition or construction of additional space in Northern California for manufacturing, laboratory and general office use. Management is currently reviewing Life Science space requirements and financing alternatives that could result in increased capital expenditures later in 2002 and beyond. On July 27, 2001, the Company purchased for cash all of the outstanding shares of Helix Diagnostics, Inc., an autoimmune diagnostics test manufacturer based near San Francisco. The amount paid was approximately $4.7 million and came from cash reserves. The purchase will add further competency in manufacturing autoimmune products to our existing Clinical Diagnostics segment. Management believes existing cash, together with funds generated from operations and funds from external sources will be sufficient to meet working capital and capital expenditure requirements through at least the next 12 months. 12 <page> 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. New Financial Accounting Standards In July 2001, The Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets". SFAS 141 is effective for any business combination initiated after June 30, 2001 and also includes the criteria for the recognition of intangible assets separately from goodwill. SFAS 142 will be effective for fiscal years beginning after December 15, 2001 and will require that goodwill not be amortized, but rather be subject to an impairment test at least annually. The effect to the Company's net income in the subsequent year will be a pre-tax increase in profit of approximately $8.0 million dollars for the elimination of goodwill amortization. Impairment testing as required by SFAS No. 142 will take place in the first half of 2002. The Company cannot determine prior to completion whether there will be an impairment loss recorded at that time. Item 3. Quantitative and Qualitative Disclosures About Market Risk During the nine months ended September 30, 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. 13 <page> PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None. (b) Reports on Form 8-K There were no reports on Form 8-K for the quarter ended September 30, 2001. 14 <page> 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 13, 2001 ____________________________________ T. C. Chesterman, Vice President, Chief Financial Officer Date: November 13, 2001 ____________________________________ James R. Stark, Corporate Controller 15