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, 1995. 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) A Delaware Corporation 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 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 common stock, as of the latest practicable date-- <TABLE> <CAPTION> Shares Outstanding Title of each Class at September 30, 1995 <S> <C> Class A Common Stock, Par Value $1.00 per share 6,384,995 Class B Common Stock, Par Value $1.00 per share 1,766,067 </TABLE>
PART I - FINANCIAL INFORMATION Item 1. Financial Statements BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Income (In thousands, except per share data) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 <S> <C> <C> <C> <C> NET SALES . . . . . . . . . . . . . . . . . . $ 92,905 $ 83,834 $288,684 $258,618 Cost of goods sold . . . . . . . . . . . . . 39,968 36,233 123,188 112,247 GROSS PROFIT . . . . . . . . . . . . . . . . 52,937 47,601 165,496 146,371 Selling, general and administrative expense . 36,268 32,975 110,142 96,875 Product research and development expense . . 8,520 7,296 25,409 21,896 Restructuring costs . . . . . . . . . . . . . 1,500 -- 1,500 -- INCOME FROM OPERATIONS . . . . . . . . . . . 6,649 7,330 28,445 27,600 Interest expense . . . . . . . . . . . . . . (1,080) (1,506) (3,512) (4,852) Investment income, net. . . . . . . . . . . . 509 (2) 995 523 Other, net . . . . . . . . . . . . . . . . . (158) (813) (587) (5,733) INCOME BEFORE TAXES . . . . . . . . . . . . . 5,920 5,009 25,341 17,538 Provision for income taxes . . . . . . . . . 1,480 1,126 6,335 6,138 NET INCOME . . . . . . . . . . . . . . . . . $ 4,440 $ 3,883 $ 19,006 $ 11,400 ======== ======== ======== ======== Earnings per share . . . . . . . . . . . . . $0.55 $0.48 $2.34 $1.41 ======== ======== ======== ======== Weighted average common shares . . . . . . . 8,146 8,086 8,130 8,066 ======== ======== ======== ======== </TABLE> The accompanying notes are an integral part of these unaudited statements. 1
BIO-RAD LABORATORIES, INC. Condensed Consolidated Balance Sheets (In thousands, except share data) <TABLE> <CAPTION> September 30, December 31, 1995 1994 <S> <C> <C> ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . $ 7,564 $ 3,751 Accounts receivable . . . . . . . . . . . . . . . . . 85,903 81,714 Inventories . . . . . . . . . . . . . . . . . . . . . 83,921 73,339 Prepaid expenses, taxes and other current assets. . . 19,852 19,526 Total current assets . . . . . . . . . . . . . . . 197,240 178,330 Net property, plant and equipment . . . . . . . . . . 73,797 75,625 Marketable securities . . . . . . . . . . . . . . . . 6,008 4,743 Other assets . . . . . . . . . . . . . . . . . . . . 4,723 4,952 Total assets . . . . . . . . . . . . . . . . . . $ 281,768 $ 263,650 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY: Notes payable and current maturities of long-term debt $ 14,269 $ 21,593 Accounts payable . . . . . . . . . . . . . . . . . . 18,434 21,116 Accrued payroll and employee benefits . . . . . . . . 22,313 21,191 Sales, income and other taxes payable . . . . . . . . 7,878 6,377 Other current liabilities . . . . . . . . . . . . . . 24,159 19,601 Total current liabilities . . . . . . . . . . . . 87,053 89,878 Long-term debt, net of current maturities . . . . . . 25,696 26,287 Deferred tax liabilities . . . . . . . . . . . . . . 17,631 17,667 Total liabilities . . . . . . . . . . . . . . . . 130,380 133,832 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 - 6,384,995 at September 30, 1995 and 6,311,128 at December 31, 1994 . . . . . . . 6,385 6,311 Class B common stock, $1.00 par value, 6,000,000 shares authorized; outstanding - 1,766,067 at September 30, 1995 and 1,794,999 at December 31, 1994. . . . . . . . 1,766 1,795 Additional paid-in capital . . . . . . . . . . . . . . 19,726 18,927 Retained earnings . . . . . . . . . . . . . . . . . . 118,707 99,701 Currency translation . . . . . . . . . . . . . . . . 3,871 2,566 Net unrealized holding gain on available-for-sale securities 933 518 Total stockholders' equity . . . . . . . . . . . . 151,388 129,818 Total liabilities and stockholders' equity . . $ 281,768 $ 263,650 ========= ========= </TABLE> The accompanying notes are an integral part of these unaudited statements. 2
BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Cash Flows (In thousands) <TABLE> <CAPTION> Nine Months Ended September 30, 1995 1994 <S> <C> <C> Cash flows from operating activities: Cash received from customers . . . . . . . . . . . . $286,917 $259,893 Cash paid to suppliers and employees . . . . . . . . (255,789) (214,378) Interest paid. . . . . . . . . . . . . . . . . . . . (3,778) (5,116) Income tax payments . . . . . . . . . . . . . . . . (4,366) (2,875) Miscellaneous receipts (payments). . . . . . . . . . 360 (722) Net cash provided by operating activities. . . . . . 23,344 36,802 Cash flows from investing activities: Capital expenditures, net. . . . . . . . . . . . . . (9,017) (6,227) Payments for acquisitions . . . . . . . . . . . . . (819) -- Marketable securities investment activity, net . . . 9 177 Foreign currency hedges, net . . . . . . . . . . . . (616) (2,933) Net cash used in investing activities. . . . . . . . (10,443) (8,983) Cash flows from financing activities: Net borrowings under line-of-credit arrangements. . (8,227) (8,502) Additions to long-term debt . . . . . . . . . . . . 53,800 38,000 Payments on long-term debt. . . . . . . . . . . . . (55,034) (55,086) Proceeds from issuance of common stock. . . . . . . 844 584 Net cash used in financing activities . . . . . . . (8,617) (25,004) Effect of exchange rate changes on cash . . . . . . . . . (471) (2,070) Net increase in cash and cash equivalents . . . . . . . . 3,813 745 Cash and cash equivalents at beginning of period. . . . . 3,751 3,112 Cash and cash equivalents at end of period. . . . . . . . $ 7,564 $ 3,857 ======== ======== Reconciliation of net income to net cash provided by operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . $ 19,006 $ 11,400 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . 12,296 12,388 Gains on disposition of marketable securities. . . (858) (322) Foreign currency hedges, net . . . . . . . . . . . 948 3,409 Increase in accounts receivable . . . . . . . . . (2,592) (706) (Increase) decrease in inventories . . . . . . . . (8,952) 863 (Increase) decrease in other current assets . . . (196) 372 Increase in accounts payable and other current liabilities. . . . . . . . . . . . . . . 1,654 6,430 Increase in income taxes payable . . . . . . . . . l,586 2,943 Other. . . . . . . . . . . . . . . . . . . . . . . 452 25 Net cash provided by operating activities . . . . . . . . $ 23,344 $ 36,802 ======== ======== </TABLE> The accompanying notes are an integral part of these unaudited statements. 3
BIO-RAD LABORATORIES, INC. Notes to Condensed Consolidated Financial Statements 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, 1994 (the Company's 1994 Annual Report). Certain amounts in the financial statements of the prior year have been reclassified to be consistent with the 1995 presentation. 2. INVENTORIES <TABLE> The principal components of inventories are as follows: <CAPTION> September 30, December 31, 1995 1994 (in thousands) <S> <C> <C> Raw materials $ 29,431 $ 23,713 Work in process 19,591 19,813 Finished goods 34,899 29,813 $ 83,921 $ 73,339 ======== ======== </TABLE> 3. PROPERTY, PLANT AND EQUIPMENT <TABLE> The principal components of property, plant and equipment are as follows: <CAPTION> September 30, December 31, 1995 1994 (in thousands) <S> <C> <C> Land and improvements $ 8,057 $ 8,057 Buildings and leasehold improvements 51,836 50,757 Equipment 98,890 91,600 158,783 150,414 Less accumulated depreciation 84,986 74,789 Net property, plant and equipment $ 73,797 $ 75,625 ======== ======== </TABLE> 4
4. RESTRUCTURING COSTS In the third quarter of 1995, the Life Science segment announced it would close its sales office and warehouse located in New York by the end of the year. The functions performed at this location were considered redundant and can be absorbed by the California operations. In conjunction with this decision, the Company recorded $1,500,000 of restructuring costs. These charges consisted primarily of lease related costs and employee separation costs. 5
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, 1994. <TABLE> The following table shows operating income and expense items as a percentage of net sales: <CAPTION> Three Months Ended Nine Months Ended Year Ended September 30, September 30, December 31, 1995 1994 1995 1994 1994 <S> <C> <C> <C> <C> <C> Net sales 100.0 100.0 100.0 100.0 100.0 Cost of goods sold 43.0 43.2 42.7 43.4 43.9 Gross profit 57.0 56.8 57.3 56.6 56.1 Selling, general and administrative 39.0 39.4 38.1 37.4 37.3 Product research and development 9.2 8.7 8.8 8.5 8.5 Restructuring Costs 1.6 - 0.5 - - Income from operations 7.2 8.7 9.9 10.7 10.3 ===== ===== ===== ===== ===== </TABLE> Three Months Ended September 30, 1995 Compared to Three Months Ended September 30, 1994 Corporate Results - Sales, Margins and Expenses Bio-Rad's net sales (sales) in the third quarter of 1995 increased 11% to $92.9 million from $83.8 million reported in the third quarter of 1994. Compared to the third quarter of 1994, sales increased 15% in Life Science and Analytical Instruments and 4% in Clinical Diagnostics. The effects of a weakened U.S. dollar account for approximately $3.3 million of the increase in consolidated sales compared to sales based on 1994 exchange rates. Excluding the affects of the weakened U.S. dollar, sales increased 11% in Life Science, 10% in Analytical Instruments and 1% in Clinical Diagnostics. Life Science growth is occurring in Bio-Rad's traditional laboratory products and in genetic imaging products. The increase in Analytical Instruments sales is attributable to the continued strength of the semiconductor 6
instrument market. The diagnostic market remains very competitive in response to concerns regarding healthcare spending. Consolidated gross margins for the third quarter of 1995 increased slightly from the third quarter of 1994. Gross margins increased in Analytical Instruments and were constant in Life Science and Clinical Diagnostics. The increase in Analytical Instruments gross margin is principally attributable to increased sales volume. Although selling, general and administrative expense (SG&A) increased from the third quarter of 1994 in absolute dollars, it decreased as a percent of sales. SG&A was 39.0% of sales compared to 39.4% of sales for the third quarter of 1994. The majority of the increased spending was for personnel and product advertising to support future growth. SG&A in the Life Science and Clinical Diagnostics segments increased at a rate greater than the increase in sales while SG&A in the Analytical Instruments segment decreased as a percent of sales. Analytical Instruments is characterized by long lead times in completing sales and SG&A can fluctuate more significantly than in Life Science and Clinical Diagnostics. As planned, research and development expense (R&D) was expanded and spending increased in all segments as part of Bio-Rad's continuing commitment to long-term growth. In the third quarter of 1995, the Life Science segment reported $1.5 million of restructuring costs (see Note 4). Corporate Results - Non-Operating Items Interest expense was $426,000 less in the third quarter of 1995 than the comparable period of 1994. This principally reflects a 30% reduction in average borrowings in the third quarter of 1995 compared to the third quarter of 1994. No significant items were included in net other income and expense for the third quarter of 1995. Net other income and expense in the third quarter of 1994 was primarily legal costs. The Company's effective tax rate in the third quarter of 1995 was 25% compared to 22% for the third quarter of 1994 and 35% for the year 1994. It was during the third quarter of 1994 that the Company recognized that sustained profitability would accelerate the use of foreign tax loss carryforwards and successful progress on closing prior years Federal tax returns would result in a lower effective tax rate. The lower effective tax rate in 1995 is the result of changes in the source of taxable income and fewer non- deductible expenses and reserves. The tax rate reflects the utilization of foreign loss carryforwards, foreign sales corporation benefits and foreign tax credits. These benefits are expected to continue into 1996. 7
Nine Months Ended September 30, 1995 Compared to Nine Months ended September 30, 1994 Corporate Results - Sales, Margins and Expenses Bio-Rad's sales in the nine months ended September 30, 1995, at $288.7 million, were 12% greater than sales in the comparable period of 1994. On a year-to-date basis, the effects of a weakened U.S. dollar account for approximately $13.0 million of the $30.1 million increase in consolidated sales compared to sales based on 1994 exchange rates. Sales increased in all segments of the Company's business. Excluding the affects of the weakened U.S. dollar, sales increased 17% in Analytical Instruments, 8% in Life Science and 1% in Clinical Diagnostics. Analytical Instruments is benefiting from ongoing demand in the semiconductor instrument market. Life Science is experiencing growth in both laboratory products and genetic imaging products. The diagnostic market remains extremely competitive in response to continuing healthcare cost pressure in developed countries. Consolidated gross margins were 57.3% for the nine months ended September 30, 1995 up from 56.6% for the nine months ended September 30, 1994 and 56.1% for the entire year of 1994. The increase in gross margin occurred in all segments of the Company's business and is principally attributable to the aforementioned weakened dollar increasing the gross margin of foreign sales. While the Company sells its products worldwide, they are primarily manufactured in the United States. For the year-to-date September 30, 1995, both SG&A and R&D increased when compared to 1994. The majority of the increase was spent for personnel and product advertising to support future growth. Approximately $4.9 million of the growth in SG&A is attributed to the weakened U.S. dollar. Life Science and Clinical Diagnostics have increased SG&A at a rate greater than the increase in sales while Analytical Instruments has increased SG&A at a rate less than the increase in sales. R&D spending is continuing as planned to support Bio-Rad's commitment to long-term growth. In the third quarter of 1995, the Life Science segment reported $1.5 million of restructuring costs for the planned closing of its east coast distribution center (see Note 4). The closing of this facility is expected to save an estimated $1.0 million annually. Corporate Results - Non-Operating Items As a result of lower average borrowings, interest expense was $1.3 million less for the nine months ended September 30, 1995 than the comparable period of 1994. Average borrowings in the first nine months of 1995 were 33% less than average borrowings in the same period of 1994. 8
Net other income and expense for the nine months ended September 30, 1995 is primarily legal costs. Net other income and expense for the nine months ended September 30, 1994 included reserves for estimated damages in a legal action, legal costs and hedging costs related to foreign exchange exposures. The Company's effective tax rate in 1995 was 25% compared to 35% for 1994. The lower effective tax rate is the result of changes in the source of taxable income and fewer non-deductible expenses and reserves. The tax rate reflects the utilization of foreign loss carryforwards, foreign sales corporation benefits and foreign tax credits. These benefits are expected to continue into 1996. Financial Condition At September 30, 1995, the Company had available $7.6 million in cash and cash equivalents and $55.3 million under its principal revolving credit agreement. In addition, Bio-Rad held marketable securities with a market value of $6.0 million, most of which could be readily converted to cash. In July, Bio-Rad completed the acquisition of an infrared spectrometer product line which will complement instrumentation in the spectroscopy division. This acquisition is expected to augment growth in the Analytical Instruments segment, but will not have a material affect on the financial position of the Company. Available funds and cash flows from operations are adequate to meet the Company's objectives for operations and research and development. The Company may consider additional acquisition opportunities to enhance growth. Future cash flows would be affected if any significant acquisition was consummated. Net cash provided by operations was $23.3 million for the nine months ended September 30, 1995 compared to $36.8 million for the comparable period of 1994. Increases in inventories and accounts receivable as described below account for the majority of the difference. For the ninth consecutive quarter, cash provided by operations and limited capital expenditures have allowed Bio-Rad to improve its debt to equity ratio. At September 30, 1995 consolidated net inventories increased by $10.6 million from December 31, 1994. Approximately $1.2 million of the increase is attributed to the weakened U.S. dollar. The remainder is principally due to increases in Life Science instrumentation production to meet customer service requirements and increases in Clinical Diagnostics for new products. Inventory control remains critical to management's efforts to moderate capital growth requirements. At September 30, 1995, consolidated accounts receivable were $4.2 million higher than at December 31, 1994. Approximately $1.6 million of the increase is attributed to the weakened U.S. dollar. 9
Additionally, the reorganization of the Italian healthcare reimbursement system has temporarily slowed payments until the administrative transition is complete. The collection of accounts receivable is also slowed by increases in the sales of complex systems. PART II. OTHER INFORMATION Item 1. Legal Proceedings. As reported in the Company's 1994 Annual Report in 1994, the Company was named as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, at one site in Louisiana. On March 23, 1995, the Company was notified that the Environmental Protection Agency does not intend to pursue the Company as a potentially responsible party in connection with this site. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following documents are filed as part of this report: Exhibit No. 10.9.1 Amendment dated as of September 30, 1994 to the Credit Agreement dated as of February 18, 1994, by and among the Registrant, the lenders and The First National Bank of Chicago, as agent. 10.9.2 Amendment dated as of May 30, 1995 to the Credit Agreement dated as of February 18, 1994, by and among the Registrant, the lenders and The First National Bank of Chicago, as agent. 11.1 Computation of Earnings Per Share. 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, 1995. 10
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 3, 1995 /s/ Thomas L Braje Thomas L. Braje, Vice President, Chief Financial Officer Date: November 3, 1995 /s/ James R. Stark James R. Stark, Corporate Controller 11