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, 2002. 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-- Shares Outstanding Title of each Class at April 30, 2002 Class A Common Stock, Par Value $0.0001 per share 20,240,414 Class B Common Stock, Par Value $0.0001 per share 4,854,992 <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) Three Months Ended March 31, 2002 2001 NET SALES . . . . . . . . . . . . . . . . . . $210,182 $202,668 Cost of goods sold . . . . . . . . . . . . . 88,842 92,720 -------- -------- GROSS PROFIT . . . . . . . . . . . . . . . . 121,340 109,948 Selling, general and administrative expense . 65,657 61,197 Product research and development expense . . 20,241 18,428 -------- -------- INCOME FROM OPERATIONS . . . . . . . . . . . 35,442 30,323 Interest expense . . . . . . . . . . . . . . (5,554) (6,589) Other, net . . . . . . . . . . . . . . . . . (2,280) (10,132) -------- -------- INCOME BEFORE TAXES . . . . . . . . . . . . . 27,608 13,602 Provision for income taxes . . . . . . . . . 8,835 5,033 -------- -------- NET INCOME . . . . . . . . . . . . . . . . . $ 18,773 $ 8,569 ======== ======== Basic earnings per share: Net income . . . . . . . . . . . . . . . $0.75 $0.35 ======== ======== Weighted average common shares . . . . . 24,930 24,508 ======== ======== Diluted earnings per share: Net income . . . . . . . . . . . . . . . $0.73 $0.34 ======== ======== Weighted average common shares 25,789 25,094 ======== ======== The accompanying notes are an integral part of these statements. 1 <page> BIO-RAD LABORATORIES, INC. Condensed Consolidated Balance Sheets (In thousands, except share data) <table> <caption> March 31, December 31, 2002 2001 <s> (Unaudited) ASSETS: <c> <c> Cash and cash equivalents . . . . . . . . . . . . . . $ 44,946 $ 47,129 Accounts receivable, net . . . . . . . . . . . . . . . 196,004 194,400 Inventories . . . . . . . . . . . . . . . . . . . . . 141,667 139,179 Prepaid expenses, taxes and other current assets . . . 53,264 50,120 -------- -------- Total current assets . . . . . . . . . . . . . . . 435,881 430,828 Net property, plant and equipment . . . . . . . . . . 132,779 132,974 Goodwill, net . . . . . . . . . . . . . . . . . . . . 75,873 75,873 Other assets . . . . . . . . . . . . . . . . . . . . . 42,225 44,353 -------- -------- Total assets . . . . . . . . . . . . . . . . . . $686,758 $684,028 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable . . . . . . . . . . . . . . . . . . . $ 67,848 $ 64,903 Accrued payroll and employee benefits . . . . . . . . 50,720 58,434 Notes payable and current maturities of long-term debt 10,095 9,931 Sales, income and other taxes payable . . . . . . . . 23,947 18,633 Other current liabilities . . . . . . . . . . . . . . 41,844 47,205 -------- -------- Total current liabilities . . . . . . . . . . . . . 194,454 199,106 Long-term debt, net of current maturities . . . . . . 174,343 188,423 Deferred tax liabilities . . . . . . . . . . . . . . . 13,026 12,622 -------- -------- Total liabilities . . . . . . . . . . . . . . . . . 381,823 400,151 -------- -------- STOCKHOLDERS' EQUITY: Preferred stock, $0.0001 par value, 7,500,000 shares authorized; none outstanding . . . . . . . . . . . . -- -- Class A common stock, $0.0001 par value, 50,000,000 shares authorized; outstanding - 20,198,344 at March 31, 2002 and 20,166,636 at December 31, 2001 . . . . . . . . . 2 2 Class B common stock, $0.0001 par value, 20,000,000 shares authorized; outstanding - 4,861,492 at March 31, 2002 and 4,826,562 at December 31, 2001 . . . . . . . . . -- -- Additional paid-in capital . . . . . . . . . . . . . . 32,831 32,171 Class A treasury stock, 45,879 shares at March 31, 2002 and 161,336 shares at December 31, 2001 at cost . . (530) (1,863) Retained earnings . . . . . . . . . . . . . . . . . . 295,535 276,554 Accumulated other comprehensive income: Currency translation and other . . . . . . . . . . . (22,903) (22,987) -------- -------- Total stockholders' equity . . . . . . . . . . . . 304,935 283,877 -------- -------- Total liabilities and stockholders' equity . . . $686,758 $684,028 ======== ======== </table> The accompanying notes are an integral part of these statements. 2 <page> BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Cash Flows (In thousands) <table> (Unaudited) <caption> Three Months Ended March 31, 2002 2001 <s> -------- -------- Cash flows from operating activities: <c> <c> Cash received from customers . . . . . . . . . . . . . $206,711 $183,233 Cash paid to suppliers and employees . . . . . . . . . (174,479) (168,730) Interest paid. . . . . . . . . . . . . . . . . . . . . (9,785) (10,291) Income tax payments . . . . . . . . . . . . . . . . . (4,797) (1,265) Miscellaneous receipts (payments) . . . . . . . . . . 486 (732) -------- -------- Net cash provided by operating activities . . . . . . 18,136 2,215 Cash flows from investing activities: Capital expenditures, net. . . . . . . . . . . . . . . (8,443) (9,278) Net sales (purchases) of marketable securities and investments . . . . . . . . . . . . . . . . . . (238) 62 Foreign currency hedges, net . . . . . . . . . . . . . 97 1,056 -------- -------- Net cash used in investing activities. . . . . . . . . (8,584) (8,160) Cash flows from financing activities: Net borrowings (repayments) under line-of-credit arrangements. . . . . . . . . . . . . . . . . . . 4,071 (2,825) Long-term borrowings. . . . . . . . . . . . . . . . . 22,500 45,500 Payments on long-term debt. . . . . . . . . . . . . . (40,774) (43,113) Proceeds from issuance of common stock. . . . . . . . 660 841 Treasury stock activity, net. . . . . . . . . . . . . 1,541 12 -------- -------- Net cash provided by (used in) financing activities . (12,002) 415 Effect of exchange rate changes on cash . . . . . . . . . . 267 1,570 -------- -------- Net decrease in cash and cash equivalents . . . . . . . . . (2,183) (3,960) Cash and cash equivalents at beginning of period. . . . . . 47,129 13,954 -------- -------- Cash and cash equivalents at end of period. . . . . . . . . $ 44,946 $ 9,994 ======== ======== Reconciliation of net income to net cash provided by operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . $ 18,773 $ 8,569 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . . 8,817 10,302 Increase in accounts receivable . . . . . . . . . . (2,099) (16,645) Increase in inventories . . . . . . . . . . . . . . (2,609) (7,180) Increase in other current assets . . . . . . . . . . (2,792) (1,596) Increase (decrease) in accounts payable and other current liabilities . . . . . . . . . . . . (9,454) 2,885 Increase in income taxes payable . . . . . . . . . . 5,211 4,210 Other. . . . . . . . . . . . . . . . . . . . . . . . 2,289 1,670 -------- -------- Net cash provided by operating activities . . . . . . . . . $ 18,136 $ 2,215 ======== ======== The accompanying notes are an integral part of these statements. 3 </table> <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 the consolidated financial statements contained in the Company's Annual Report for the year ended December 31, 2001. Certain amounts in the financial statements of the prior year have been reclassified to be consistent with the 2002 presentation. 2. INVENTORIES The principal components of inventories are as follows: March 31, December 31, 2002 2001 ------------------------- (in thousands) Raw materials $ 34,428 $ 33,488 Work in process 26,429 28,715 Finished goods 80,810 76,976 -------- -------- $141,667 $139,179 ======== ======== 3. PROPERTY, PLANT AND EQUIPMENT The principal components of property, plant and equipment are as follows: March 31, December 31, 2002 2001 -------------------------- (in thousands) Land and improvements $ 9,522 $ 9,658 Buildings and leasehold improvements 75,779 75,231 Equipment 197,838 191,284 -------- -------- 283,139 276,173 Accumulated depreciation (150,360) (143,199) -------- -------- Net property, plant and equipment $132,779 $132,974 ======== ======== 4. GOODWILL The Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" as of January 1, 2002, which provides that goodwill is no longer subject to amortization over its useful life. Goodwill will be subject to an annual assessment for impairment applying a fair-value based test. 4 <page> 5. EARNINGS PER SHARE Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 859,000 and 586,000 shares, for the three month periods ended March 31, 2002 and 2001, respectively. There were no anti- dilutive shares for the three month periods ended March 31, 2002 and 200l. 6. OTHER INCOME AND EXPENSE The components of Other, net are: Three Months Ended March 31, 2002 2001 --------------------- (in thousands) Goodwill amortization $ - $(2,021) Non-operating litigation costs, net (79) (700) Exchange losses (750) (816) Write-down of investment in affiliates (2,000) (2,000) Write-down of spectroscopy instrument assets - (4,500) Other 549 (95) -------- -------- Total Other, net $ (2,280) $(10,132) ======= ======= In the first quarter of 2002, the Company recorded a $2,000 non- cash pre-tax charge reflecting the write-down of the Company's investment in Digilab, LLC. This reduced the investment value to zero. In the first quarter of 2001, the Company recorded a $4,500 non- cash pre-tax charge reflecting the expected impact of the pending sale of the spectroscopy instrument business to a new owner. Additionally, the Company recorded 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. 7. COMPREHENSIVE INCOME The components of the Company's total comprehensive income were: Three Months Ended March 31, 2002 2001 --------------------- (in thousands) Net Income $18,773 $ 8,569 Currency translation adjustments (61) (6,721) Net unrealized holding gains 161 3 Reclassification adjustments for gains included in net income (16) (57) ------- ------- Total comprehensive income $18,857 $ 1,794 ======= ======= 5 <page> 8. SEGMENT INFORMATION Information regarding industry segments for the three months ended March 31, 2002 and 2001 is as follows (in thousands): Life Clinical Other Science Diagnostics Operations Segment net sales 2002 $100,507 $107,883 $ 1,792 2001 $92,175 $102,988 $ 7,505 Segment profit(loss) 2002 $19,235 $ 10,812 $ (353) 2001 $18,708 $ 8,092 $ (928) The following reconciles total segment profit to consolidated income before taxes: Three Months Ended March 31, 2002 2001 -------------------- (in thousands) Total segment profit $29,694 $25,872 Net corporate operating, interest and other expense not allocated to segments 194 (2,138) Other, net (2,280) (10,132) ------- ------- Consolidated income before taxes $27,608 $13,602 ======= ======= 9. SUBSEQUENT EVENT On April 30, 2002, the Company retired the remaining $22,500 of the term loan portion of the Senior Credit Agreement. 6 <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, 2001. The following table shows operating income and expense items as a percentage of net sales: Three Months Ended Year Ended March 31, December 31, 2002 2001 2001 Net sales 100.0 100.0 100.0 Cost of goods sold 42.3 45.7 44.3 ----- ----- ----- Gross profit 57.7 54.3 55.7 Selling, general and administrative 31.2 30.2 32.6 Product research and development 9.6 9.1 9.4 ----- ----- ----- Income from operations 16.9 15.0 13.7 ===== ===== ===== Net income 8.9 4.2 5.4 ===== ===== ===== 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, 2002 Compared to Three Months Ended March 31, 2001 Corporate Results - Sales, Margins and Expenses Net sales (sales) in the first quarter of 2002 were $210.2 million compared to $202.7 million in the first quarter of 2001, an increase of 3.7%. Excluding the impact of currency and divestitures, real growth was 10%. Sales increased 9.0% in Life Science and 4.8% in Clinical Diagnostics and includes the impact 7 <page> of a stronger dollar lowering reported growth. The growth in Life Science is attributed to the demand for the Company's products for proteomic and genomic research and for the for the Company's BSE (Bovine Spongiform Encephalopathy) test used to detect the presence of prions linked to the Mad Cow Disease. The Company expects that the total number of BSE tests performed in the market will remain level for the year 2002, absent new countries making the decision to test. 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 4% for Life Science and 3% for Clinical Diagnostics if international sales were translated at a constant exchange rate. Consolidated gross margins were 57.7% for the first quarter of 2002 compared to 54.3% for the first quarter of 2001 and 55.7% for all of 2001. Gross margins improved in Life Science as the sales mix improved, as consumables and apparatus products represented an overall higher percentage of sales. These products have overall higher product margins than equipment. Clinical Diagnostics margins improved on lower manufacturing expenses and improved sales mix. Selling, general and administrative expense (SG&A) increased to 31.2% of sales in the first quarter of 2002 from 30.2% of sales in the first quarter of 2001. SG&A for Life Science increased 18.6% when compared to the first quarter of 2001. The first quarter of 2001 did not contain the requisite expenses to retain and expand the food testing business. Life Science has increased sales and customer support services to support this business. Clinical Diagnostics experienced an 8.8% increase in SG&A expenditures chiefly to expand customer service support in the U.S. and a movement to convert some remaining distributor sales to direct sales in Asia. 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 increased to 9.6% as a percentage of sales from 9.1% for the first quarter of 2001. Life Science and Clinical Diagnostics each increased their R&D expenditures in line with development plans in the areas 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 the reduction of debt. Net other income and expense in the first quarter of 2002 includes a $2.0 million non-cash pre-tax expense reflecting an impairment in the Company's valuation of an investment. Net other income and expense in the first quarter of 2001 included $6.5 million of non-cash pre-tax expense relating 8 <page> to the impact of transferring ownership of the Company's spectroscopy instrument business and an impairment in the Company's valuation of an investee based on on-going discussions with that investee's management concerning its future capital structure. Goodwill amortization of $2.0 million is included in the first quarter of 2001. Goodwill is not being amortized in 2002 consistent with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." The Company's effective tax rate declined to 32% for the first quarter of 2002 compared to 37% in the first quarter of 2001. The decreased rate reflects management's decision that a portion of the valuation reserve on deferred tax assets is no longer required as a result of greater expectation of future taxable income. Financial Condition The Company, as of March 31, 2002, had available approximately $97.5 million under its principal revolving credit agreement and $22.6 million under various foreign lines of credit. Cash and cash equivalents available were $44.9 million. On April 30, 2002, the Company retired the remaining $22.5 million outstanding on the term loan portion of the Senior Credit Agreement. At March 31, 2002, consolidated accounts receivable increased by $1.6 million from December 31, 2001 when a decline would be indicated when comparing sales activity from first quarter 2002 with fourth quarter 2001. The increase was chiefly in Europe and principally due to a combination of sales made late in the quarter, the minor extension of credit terms and system conversion issues which are temporary in nature. At March 31, 2002, consolidated net inventories increased by $2.5 million from December 31, 2001. Life Science increased inventory levels to meet increased customer demands for its consumable and apparatus products. Clinical Diagnostics increased inventory levels to meet customer demands for diabetes monitoring and blood virus product offerings. 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 $8.4 million for the first three months of 2002 compared to $9.3 million for the same period of 2001. Capital expenditures for the quarter include reagent rental equipment placed with Clinical Diagnostics customers who then commit to purchasing the Company's diagnostic reagents for use. The remaining expenditures represent additions to 9 <page> production equipment and the Company's investment in data communication and business systems to standardize and integrate its recent acquisitions. The Company now believes that continued growth will require additional space in Northern California for manufacturing, laboratory and general office use. Management is currently reviewing financing alternatives that could result in increased capital expenditures or lease commitments in 2002 and beyond of approximately $25-30 million. Item 3. Quantitative and Qualitative Disclosures About Market Risk During the three months ended March 31, 2002, 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, 2001. 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 23, 2002, 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 4,660,977 1,514 Albert J. Hillman Class A 14,739,524 105,937 Ruediger Naumann-Etienne Class B 4,662,033 458 Philip L. Padou Class A 14,738,024 107,437 Alice N. Schwartz Class B 4,660,977 1,514 David Schwartz Class B 4,662,033 458 Norman Schwartz Class B 4,662,033 458 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 6,083,877 46,721 16,439 -- Employee Stock Purchase Plan Amendment 5,572,028 32,413 5,412 537,185 10 <page> The foregoing matters are described in detail on pages 5, 6, 15, 16 and 17 of the Company's definitive Proxy Statement dated April 1, 2002, 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 1, 2002, pages 5, 6, 15, 16 and 17, (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, 2002. 11 <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: May 15, 2002 /s/ Sanford S. Wadler Sanford S. Wadler, Vice President, General Counsel and Secretary Date: May 15, 2002 /s/ James R. Stark James R. Stark, Corporate Controller 12 <page>