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, 1996. 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 October 31, 1996 <S> <C> Class A Common Stock, Par Value $1.00 per share 9,728,798 Class B Common Stock, Par Value $1.00 per share 2,590,003 </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, <S> <C> <C> <C> <C> 1996 1995 1996 1995 NET SALES . . . . . . . . . . . . . . . . . . $ 96,559 $ 92,905 $304,812 $288,684 Cost of goods sold . . . . . . . . . . . . . 40,712 39,968 129,256 123,188 GROSS PROFIT . . . . . . . . . . . . . . . . 55,847 52,937 175,556 165,496 Selling, general and administrative expense . 37,287 36,268 113,780 110,142 Product research and development expense . . 9,745 8,520 28,957 25,409 Restructuring costs . . . . . . . . . . . . . -- 1,500 -- 1,500 INCOME FROM OPERATIONS . . . . . . . . . . . 8,815 6,649 32,819 28,445 Interest expense . . . . . . . . . . . . . . (779) (1,080) (2,362) (3,512) Investment income, net. . . . . . . . . . . . 481 509 1,781 995 Other, net . . . . . . . . . . . . . . . . . 415 (158) (677) (587) INCOME BEFORE TAXES . . . . . . . . . . . . . 8,932 5,920 31,561 25,341 Provision for income taxes . . . . . . . . . 2,233 1,480 7,890 6,335 NET INCOME . . . . . . . . . . . . . . . . . $ 6,699 $ 4,440 $ 23,671 $ 19,006 ======== ======== ======== ======== Earnings per share . . . . . . . . . . . . . $0.55 $0.36 $1.93 $1.56 ======== ======== ======== ======== Weighted average common shares . . . . . . . 12,289 12,219 12,276 12,195 ======== ======== ======== ======== </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, 1996 1995 <S> <C> <C> ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . $ 25,305 $ 14,774 Accounts receivable . . . . . . . . . . . . . . . . . 88,221 92,061 Inventories . . . . . . . . . . . . . . . . . . . . . 74,097 75,357 Prepaid expenses, taxes and other current assets. . . 19,568 19,400 Total current assets . . . . . . . . . . . . . . . 207,191 201,592 Net property, plant and equipment . . . . . . . . . . 71,771 72,966 Marketable securities . . . . . . . . . . . . . . . . 6,565 5,902 Other assets . . . . . . . . . . . . . . . . . . . . 5,236 4,638 Total assets . . . . . . . . . . . . . . . . . . $ 290,763 $ 285,098 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY: Notes payable and current maturities of long-term debt $ 11,806 $ 14,269 Accounts payable . . . . . . . . . . . . . . . . . . 16,784 19,946 Accrued payroll and employee benefits . . . . . . . . 22,220 23,908 Sales, income and other taxes payable . . . . . . . . 3,600 7,082 Other current liabilities . . . . . . . . . . . . . . 20,689 24,612 Total current liabilities . . . . . . . . . . . . 75,099 89,817 Long-term debt, net of current maturities . . . . . . 16,916 20,922 Deferred tax liabilities . . . . . . . . . . . . . . 17,741 17,300 Total liabilities . . . . . . . . . . . . . . . . 109,756 128,039 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 - 9,710,486 at September 30, 1996 and 9,593,283 at December 31, 1995 . . . . . . . . 9,710 9,593 Class B common stock, $1.00 par value, 6,000,000 shares authorized; outstanding - 2,607,003 at September 30, 1996 and 2,646,063 at December 31, 1995. . . . . . . . . 2,607 2,646 Additional paid-in capital . . . . . . . . . . . . 16,954 15,887 Treasury stock, 23,000 shares of Class A common stock in 1996 at cost . . . . . . . . . . . . . . . . . . (652) -- Retained earnings . . . . . . . . . . . . . . . . . . 148,528 124,857 Currency translation . . . . . . . . . . . . . . . . 2,751 3,527 Net unrealized holding gain on marketable securities. 1,109 549 Total stockholders' equity . . . . . . . . . . . . 181,007 157,059 Total liabilities and stockholders' equity . . $ 290,763 $ 285,098 ========= ========= </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, 1996 1995 <S> <C> <C> Cash flows from operating activities: Cash received from customers . . . . . . . . . . . . $306,034 $286,917 Cash paid to suppliers and employees . . . . . . . . (266,093) (255,789) Interest paid. . . . . . . . . . . . . . . . . . . . (2,998) (3,778) Income tax payments . . . . . . . . . . . . . . . . (12,824) (4,366) Miscellaneous receipts . . . . . . . . . . . . . . . 551 360 Net cash provided by operating activities. . . . . . 24,670 23,344 Cash flows from investing activities: Capital expenditures, net. . . . . . . . . . . . . . (10,317) (9,017) Payments for acquisitions . . . . . . . . . . . . . -- (819) Marketable securities investment activity, net . . . 736 9 Foreign currency hedges, net . . . . . . . . . . . . 1,075 (616) Net cash used in investing activities. . . . . . . . (8,506) (10,443) Cash flows from financing activities: Net borrowings under line-of-credit arrangements. . (6,116) (8,227) Additions to long-term debt . . . . . . . . . . . . -- 53,800 Payments on long-term debt. . . . . . . . . . . . . (657) (55,034) Proceeds from issuance of common stock. . . . . . . 1,145 844 Purchase of treasury stock. . . . . . . . . . . . . (652) -- Net cash used in financing activities . . . . . . . (6,280) (8,617) Effect of exchange rate changes on cash . . . . . . . . . 647 (471) Net increase in cash and cash equivalents . . . . . . . . 10,531 3,813 Cash and cash equivalents at beginning of period. . . . . 14,774 3,751 Cash and cash equivalents at end of period. . . . . . . . $ 25,305 $ 7,564 ======== ======== Reconciliation of net income to net cash provided by operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . $ 23,671 $ 19,006 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . 12,201 12,296 Gains on disposition of marketable securities. . . (843) (858) Foreign currency hedges, net . . . . . . . . . . . (1,503) 948 (Increase) decrease in accounts receivable . . . . 2,809 (2,592) (Increase) decrease in inventories . . . . . . . . 447 (8,952) (Increase) decrease in other current assets . . . 450 (196) Increase (decrease) in accounts payable and other current liabilities. . . . . . . . . . . . . . . (6,731) 1,654 Increase (decrease) in income taxes payable . . . (4,404) 1,586 Other. . . . . . . . . . . . . . . . . . . . . . . (1,427) 452 Net cash provided by operating activities . . . . . . . . $ 24,670 $ 23,344 ======== ======== </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, 1995 (the Company's 1995 Annual Report). Certain amounts in the financial statements of the prior year have been reclassified to be consistent with the 1996 presentation. 2. INVENTORIES <TABLE> The principal components of inventories are as follows: <CAPTION> September 30, December 31, 1996 1995 (in thousands) <S> <C> <C> Raw materials $ 27,512 $ 26,467 Work in process 19,716 17,189 Finished goods 26,869 31,701 $ 74,097 $ 75,357 ======== ======== </TABLE> 3. PROPERTY, PLANT AND EQUIPMENT <TABLE> The principal components of property, plant and equipment are as follows: <CAPTION> September 30, December 31, 1996 1995 (in thousands) <S> <C> <C> Land and improvements $ 8,057 $ 8,057 Buildings and leasehold improvements 51,997 51,786 Equipment 107,197 99,486 167,251 159,329 Less accumulated depreciation 95,480 86,363 Net property, plant and equipment $ 71,771 $ 72,966 ======== ======== </TABLE> 4
4. STOCK SPLIT Retroactive adjustments for all periods presented have been made, as appropriate, to common stock and per share amounts to reflect the 3-for-2 stock split effected in the form of a 50% stock dividend paid May 31, 1996. 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, 1995. <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, 1996 1995 1996 1995 1995 <S> <C> <C> <C> <C> <C> Net sales 100.0 100.0 100.0 100.0 100.0 Cost of goods sold 42.2 43.0 42.4 42.7 43.4 Gross profit 57.8 57.0 57.6 57.3 56.6 Selling, general and administrative 38.6 39.0 37.3 38.1 37.9 Product research and development 10.1 9.2 9.5 8.8 8.7 Restructuring costs - 1.6 - 0.5 0.4 Income from operations 9.1 7.2 10.8 9.9 9.6 ===== ===== ===== ===== ===== </TABLE> Three Months Ended September 30, 1996 Compared to Three Months Ended September 30, 1995 Corporate Results - Sales, Margins and Expenses Bio-Rad's net sales (sales) in the third quarter of 1996 increased 4% to $96.6 million from $92.9 million reported in the third quarter of 1995. The effects of a strengthened U.S. dollar, principally versus the Japanese yen, reduced the increase in consolidated sales compared to sales based on 1995 exchange rates by approximately $2.4 million or 3%. Compared to the third quarter of 1995, sales increased 6% in Clinical Diagnostics, 3% in Life Science and 2% in Analytical Instruments. Excluding the effects of the strengthened U.S. dollar, sales increased 7% in Clinical Diagnostics, 7% in Life Science and 6% in Analytical Instruments. During the third quarter of 1996, the increased Clinical Diagnostics sales were principally in the diabetes monitoring product line aided by the prior year increased investment in sales personnel and support. Sales increases in the Life Science segment are attributed to Bio-Rad's molecular biology and microscopy products. In the Analytical Instruments segment sales of spectroscopy equipment continued to increase at double digit rates, a trend started in the fourth quarter of 1995. 6
Consolidated gross margin increased to 57.8% for the third quarter of 1996 from 57.0% for the third quarter of 1995. The 0.8% increase is attributed to a greater proportion of total sales from the Clinical Diagnostics segment where margins are generally higher than the other segments of the Company's business. Selling, general and administrative expense (SG&A) decreased to 38.6% of Sales in the third quarter of 1996 from 39.0% of Sales in the third quarter of 1995. Control over expenses in Clinical Diagnostics and Life Science allowed Bio-Rad to succeed in growing SG&A slower than sales for the third consecutive quarter. Management continues to monitor SG&A spending in an effort to improve overall profitability. Product research and development expense (R&D) increased from the third quarter of 1995, both in absolute dollars and as a percent of sales. R&D spending increased in Life Science and Analytical Instruments but was down slightly in Clinical Diagnostics. The Life Science segment made a $1.5 million provision for the cost of closing its New York warehouse and distribution center in the third quarter of 1995. The elimination of the redundant costs associated with operating two warehouses and sales order offices has contributed to the limited growth of SG&A in this segment and allowed for some expenses to be redirected to provide greater customer coverage and direct contact. Corporate Results - Non-Operating Items Interest expense was $301,000, or 28% less in the third quarter of 1996 than the comparable period of 1995 principally as a result of lower average borrowings. Average borrowings in the third quarter of 1996 were 33% less than average borrowings in the same period of 1995. Net other income and expenses in the third quarter of 1996 is primarily exchange gains. Bio-Rad's hedging program is limited to nonspeculative forward foreign exchange contracts (with major financial institutions) which primarily hedge the exposure of intercompany receivables and payables. No significant items were included in other income and expense for the third quarter of 1995. The Company's effective tax rate for both the third quarter of 1996 and 1995 was 25%. The tax rate reflects the utilization of loss carryforwards, foreign sales corporation benefits, foreign tax credits and research and development tax credits. 7
Nine Months Ended September 30, 1996 Compared to Nine Months ended September 30, 1995 Corporate Results - Sales, Margins and Expenses Bio-Rad's sales in the nine months ended September 30, 1996, at $304.8 million, were 6% greater than sales in the comparable period of 1995. On a year-to-date basis, the effects of a strengthened U.S. dollar decreased consolidated sales compared to sales based on 1995 exchange rates by approximately $6.4 million. Sales increased in all segments of the Company's business. Excluding the effects of the strengthened U.S. dollar, sales increased 15% in Analytical Instruments, 7% in Clinical Diagnostics and 5% in Life Science. The growth in Analytical Instruments is attributed to growth in sales of spectroscopy equipment. Clinical Diagnostics is experiencing worldwide growth led by increases in U.S. sales. Consolidated gross margins were 57.6% for the nine months ended September 30, 1996 up from 57.3% for the nine months ended September 30, 1995. Improved gross margins in the Analytical Instruments segment are the result of sales increases. Gross margins in Clinical Diagnostics were relatively unchanged year- over-year. In Life Science year-to-date gross margins are down less than 1% when compared to the same period of 1995; this is attributed primarily to unabsorbed factory overhead. SG&A decreased to 37.3% of Sales in the first nine months of 1996 from 38.1% in the first nine months of 1995. While spending increased in absolute dollars in all segments, the Life Science and Clinical Diagnostics segments succeeded in growing sales faster than SG&A for the first nine months of 1996. Management continues to monitor SG&A spending in an effort to improve overall profitability. R&D increased from the first nine months of 1995, both in absolute dollars and as a percent of sales. As planned, R&D was expanded and spending increased in all segments as part of Bio- Rad's continuing commitment to long-term growth. Spending increases were most significant in the Analytical Instruments and Life Science segments. The Life Science segment made a $1.5 million provision for the cost of closing its New York warehouse and distribution center in the third quarter of 1995. The elimination of the redundant costs associated with operating two warehouses and sales order offices has contributed to the limited growth of SG&A in this segment and allowed for some expenses to be redirected to provide greater customer coverage and direct contact. 8
Corporate Results - Non-Operating Items Interest expense was $1.2 million, or 33% less in the first nine months of 1996 than the comparable period of 1995 principally as a result of lower average borrowings. Average borrowings in the first nine months of 1996 were 34% less than average borrowings in the same period of 1995. Investment income in the first nine months of both 1996 and 1995 includes gains on sales of marketable equity securities. 1996 also includes interest income of $578,000. Net other income and expense in the first nine months of both 1996 and 1995 is primarily non-operating legal costs. The Company's effective tax rate for the first nine months of 1996 and all of 1995 was 25%. The tax rate reflects the utilization of loss carryforwards, foreign sales corporation benefits, foreign tax credits and research and development tax credits. These benefits are not expected to continue at the same level in 1997. Financial Condition Net cash provided by operations was $25 million for the year-to- date September 30, 1996 compared to $23 million for the comparable period of 1995. For the first nine months of 1996, cash provided by operations and limited capital expenditures allowed Bio-Rad to further reduce interest bearing debt and continue to improve its debt to equity ratio. At September 30, 1996, the Company had available $25 million in cash and cash equivalents, $60 million under its principal revolving credit agreement and marketable securities with a market value of $7 million, most of which could be readily converted to cash. During the first nine months of 1996, Bio-Rad did not utilize its principal revolving credit facility. The majority of cash reserves has been invested in short-term instruments in accordance with the Company's investment policy. Available funds and cash flow from operations are adequate to meet the Company's objectives for operations, research and development and modest external growth. In early July 1996, the Board of Directors authorized the Company to repurchase up to $4 million of common stock over an indefinite period of time. During the third quarter the Company repurchased 23,000 shares of Class A Common Stock for $652,000. These shares will be used to satisfy the Company's obligations under the employee stock option and stock purchase plans. In the fourth quarter of 1996, Bio-Rad has acquired a small software company to compliment its spectral reference libraries 9
product line. The acquisition will be accounted for as a purchase. Bio-Rad is well positioned to make a substantial strategic acquisition should the opportunity arise. While the Company regularly reviews such opportunities, currently no material acquisitions have reached a stage beyond preliminary or exploratory discussions. At September 30, 1996, consolidated accounts receivable were $3.8 million lower than at December 31, 1995. The decline in receivables results principally from lower sales in the third quarter of 1996 when compared to the fourth quarter of 1995. At September 30, 1996 consolidated net inventories decreased by $1.3 million from December 31, 1995. The decline in inventory is the result of management's continuous attention to lowering inventory levels as a means to control capital requirements and improve the return on assets employed. Management regularly reviews the impact of obsolescence in current inventory caused by the introduction of new products. PART II. OTHER INFORMATION Item 1. Legal Proceedings. In July 1994, Fuji Photo Film Co., Ltd., filed in Civil Department No. 29 of the Tokyo District Court an application for a temporary injunction for cessation of infringement of a Japanese patent which covers an autoradiographic process. The parties have reached a settlement with respect to this action. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following documents are filed as part of this report: Exhibit No. 10.9.3 Amendment dated as of July 10, 1996 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, 1996. 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 8, 1996 /s/ Sanford S. Wadler Sanford S. Wadler, Vice President, General Counsel Date: November 8, 1996 /s/ James R. Stark James R. Stark, Corporate Controller 11