UNITED STATES 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 June 30, 1997. 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 July 31, 1997 <S> <C> Class A Common Stock, Par Value $1.00 per share 9,803,908 Class B Common Stock, Par Value $1.00 per share 2,604,595 </TABLE>
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 Six Months Ended June 30, June 30, 1997 1996 1997 1996 <S> <C> <C> <C> <C> NET SALES . . . . . . . . . . . . . . . . . . $105,752 $ 99,981 $211,606 $208,253 Cost of goods sold . . . . . . . . . . . . . 47,031 41,704 90,744 88,544 GROSS PROFIT . . . . . . . . . . . . . . . . 58,721 58,277 120,862 119,709 Selling, general and administrative expense . 40,549 38,655 81,267 76,493 Product research and development expense . . 11,205 9,620 22,013 19,212 INCOME FROM OPERATIONS . . . . . . . . . . . 6,967 10,002 17,582 24,004 Interest expense . . . . . . . . . . . . . . (275) (743) (560) (1,583) Investment income, net . . . . . . . . . . . 450 1,000 898 1,300 Other, net . . . . . . . . . . . . . . . . . (337) (245) (707) (1,092) INCOME BEFORE TAXES . . . . . . . . . . . . . 6,805 10,014 17,213 22,629 Provision for income taxes . . . . . . . . . 1,906 2,503 4,820 5,657 -------- -------- -------- -------- NET INCOME . . . . . . . . . . . . . . . . . $ 4,899 $ 7,511 $ 12,393 $ 16,972 ======== ======== ======== ======== Earnings per share . . . . . . . . . . . . . $0.40 $0.61 $1.01 $1.38 ======== ======== ======== ======== Weighted average common shares . . . . . . . 12,293 12,282 12,285 12,269 ======== ======== ======== ======== </TABLE> The accompanying notes are an integral part of these statements. 1
BIO-RAD LABORATORIES, INC. Condensed Consolidated Balance Sheets (In thousands, except share data) <TABLE> <CAPTION> June 30, December 31, 1997 1996 (Unaudited) <S> <C> <C> ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . . . $ 5,483 $ 9,390 Accounts receivable . . . . . . . . . . . . . . . . . . . 96,776 97,795 Inventories . . . . . . . . . . . . . . . . . . . . . . . 77,318 69,738 Prepaid expenses, taxes and other current assets. . . . . 22,278 21,612 Total current assets . . . . . . . . . . . . . . . . . 201,855 198,535 Net property, plant and equipment . . . . . . . . . . . . 71,867 71,862 Marketable securities . . . . . . . . . . . . . . . . . . 11,132 7,432 Other assets . . . . . . . . . . . . . . . . . . . . . . 7,225 7,096 Total assets . . . . . . . . . . . . . . . . . . . . $292,079 $284,925 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Notes payable and current maturities of long-term debt. . $ 6,611 $ 5,542 Accounts payable . . . . . . . . . . . . . . . . . . . . 24,629 21,262 Accrued payroll and employee benefits . . . . . . . . . . 21,794 23,717 Sales, income and other taxes payable . . . . . . . . . . 2,242 3,988 Other current liabilities . . . . . . . . . . . . . . . . 24,302 24,630 Total current liabilities . . . . . . . . . . . . . . 79,578 79,139 Long-term debt, net of current maturities . . . . . . . . 2,100 6,721 Deferred tax liabilities . . . . . . . . . . . . . . . . 15,969 15,557 Total liabilities . . . . . . . . . . . . . . . . . . 97,647 101,417 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 - 9,793,288 at June 30, 1997 and 9,740,922 at December 31, 1996 . . . . . . . . . . 9,793 9,741 Class B common stock, $1.00 par value, 6,000,000 shares authorized; outstanding - 2,614,803 at June 30, 1997 and 2,579,803 at December 31, 1996 . . . . . . . . . . 2,615 2,580 Additional paid-in capital . . . . . . . . . . . . . . . 18,152 17,067 Class A treasury stock, 84,933 shares at June 30, 1997 and 31,216 shares at December 31, 1996 at cost. . . . . (2,277) (839) Class B treasury stock, 30,000 shares at June 30, 1997 and 30,000 shares at December 31, 1996 at cost. . . . . (800) (800) Retained earnings . . . . . . . . . . . . . . . . . . . . 163,330 151,003 Currency translation . . . . . . . . . . . . . . . . . . 639 3,570 Net unrealized holding gain on marketable securities. . . 2,980 1,186 Total stockholders' equity . . . . . . . . . . . . . . 194,432 183,508 Total liabilities and stockholders' equity . . . . $292,079 $284,925 ======== ======== </TABLE> The accompanying notes are an integral part of these statements. 2
BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 1997 1996 <S> <C> <C> Cash flows from operating activities: Cash received from customers . . . . . . . . . . . . . . . $205,601 $208,862 Cash paid to suppliers and employees . . . . . . . . . . . (192,327) (175,453) Interest paid. . . . . . . . . . . . . . . . . . . . . . . (584) (1,677) Income tax payments . . . . . . . . . . . . . . . . . . . (6,371) (8,502) Miscellaneous receipts . . . . . . . . . . . . . . . . . . 268 83 Net cash provided by operating activities. . . . . . . . . 6,587 23,313 Cash flows from investing activities: Capital expenditures, net. . . . . . . . . . . . . . . . . (9,051) (6,289) Marketable securities investment activity, net . . . . . . (1,340) 308 Foreign currency hedges, net . . . . . . . . . . . . . . . 2,076 1,114 Net cash used in investing activities. . . . . . . . . . . (8,315) (4,867) Cash flows from financing activities: Net borrowings under line-of-credit arrangements. . . . . 1,446 (7,649) Long-term borrowings . . . . . . . . . . . . . . . . . . 15,375 -- Payments on long-term debt. . . . . . . . . . . . . . . . (20,113) (433) Proceeds from issuance of common stock. . . . . . . . . . 1,172 720 Treasury stock activity, net. . . . . . . . . . . . . . . (1,504) -- Net cash used in financing activities . . . . . . . . . . (3,624) (7,362) Effect of exchange rate changes on cash . . . . . . . . . . . . 1,445 571 Net increase (decrease) in cash and cash equivalents. . . . . . (3,907) 11,655 Cash and cash equivalents at beginning of period. . . . . . . . 9,390 14,774 Cash and cash equivalents at end of period. . . . . . . . . . . $ 5,483 $ 26,429 ======== ======== Reconciliation of net income to net cash provided by operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,393 $ 16,972 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . 8,955 7,935 Foreign currency hedge transactions, net . . . . . . . . (2,260) (1,138) Gains on disposition of marketable securities. . . . . . (585) (656) (Increase) decrease in accounts receivable . . . . . . . (3,108) 1,972 (Increase) decrease in inventories . . . . . . . . . . . (9,095) 1,938 (Increase) decrease in other current assets. . . . . . . (902) 643 Increase (decrease) in accounts payable and other current liabilities. . . . . . . . . . . . . . . . . . 3,383 (606) Decrease in income taxes payable . . . . . . . . . . . . (1,604) (2,518) Other. . . . . . . . . . . . . . . . . . . . . . . . . . (590) (1,229) Net cash provided by operating activities . . . . . . . . . . . $ 6,587 $ 23,313 ======== ======== </TABLE> The accompanying notes are an integral part of these statements. 3
BIO-RAD LABORATORIES, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Bio-Rad Laboratories, Inc. ("Bio-Rad" or the "Company"), reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements should be read in conjunction with the notes to consolidated financial statements contained in the Company's Annual Report for the year ended December 31, 1996 (the Company's 1996 Annual Report). Certain amounts in the financial statements of the prior year have been reclassified to be consistent with the 1997 presentation. 2. INVENTORIES <TABLE> The principal components of inventories are as follows: <CAPTION> June 30, December 31, 1997 1996 (in thousands) <S> <C> <C> Raw materials $ 30,080 $ 26,920 Work in process 19,617 19,866 Finished goods 27,621 22,952 $ 77,318 $ 69,738 ======== ======== </TABLE> 3. PROPERTY, PLANT AND EQUIPMENT <TABLE> The principal components of property, plant and equipment are as follows: <CAPTION> June 30, December 31, 1997 1996 (in thousands) <S> <C> <C> Land and improvements $ 8,057 $ 8,057 Buildings and leasehold improvements 52,149 52,050 Equipment 109,344 107,847 -------- -------- 169,550 167,954 Less accumulated depreciation 97,683 96,092 -------- -------- Net property, plant and equipment $ 71,867 $ 71,862 ======== ======== </TABLE> 4
4. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share", effective for financial statements issued for periods ending after December 15, 1997. Under SFAS 128, Bio-Rad will be required to disclose basic earning per share and diluted earnings per share. Earnings per share as currently reported by Bio-Rad are equal to basic earnings per share as defined in SFAS 128. Historically, Bio-Rad has not been subject to certain provisions of the Accounting Principles Board Opinion No. 15 because common stock equivalents as defined within that statement resulted in dilution of less than 3%. 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, 1996. <TABLE> The following table shows operating income and expense items as a percentage of net sales: <CAPTION> Three Months Ended Six Months Ended Year Ended June 30, June 30, December 31, 1997 1996 1997 1996 1996 <S> <C> <C> <C> <C> <C> Net sales 100.0 100.0 100.0 100.0 100.0 Cost of goods sold 44.5 41.7 42.9 42.5 43.5 Gross profit 55.5 58.3 57.1 57.5 56.5 Selling, general and administrative 38.3 38.7 38.4 36.8 37.1 Product research and development 10.6 9.6 10.4 9.2 9.5 Restructuring costs - - - - 0.6 Income from operations 6.6 10.0 8.3 11.5 9.3 ===== ===== ===== ===== ===== </TABLE> Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996 Corporate Results - Sales, Margins and Expenses Bio-Rad's net sales (sales) in the second quarter of 1997 increased 6% to $105.8 million from $100.0 million reported in the second quarter of 1996. The effects of a strengthened U.S. dollar reduced the increase in consolidated sales compared to sales based on 1996 exchange rates by approximately $4 million or 4%. Compared to the second quarter of 1996, sales increased 20% in Analytical Instruments, 4% in Life Science and 2% in Clinical Diagnostics. During the second quarter of 1997, the increased Analytical Instruments sales were principally to U.S. semiconductor customers and included sales that resulted from an accommodation to customers relating to terms of delivery from the first quarter. Sales growth in the Life Science segment is attributed to new product introductions in the latter part of 1996 and early 1997. The modest growth in Clinical Diagnostics 6
is attributable to the segment's control business and a sale to the U.S. military of the Company's flow cytometry products. Competition remains fierce and globally governments continue to try to limit the growth in healthcare related spending. Consolidated gross margin decreased to 55.5% for the second quarter of 1997 from 58.3% for the second quarter of 1996. The decrease occurred in all segments of the Company's business and was impacted by foreign exchange, discounts given to stimulate sales and post sales support. Because a large portion of the Company's products are manufactured in the U.S., a strengthened U.S. dollar has the effect of lowering the gross margin of international sales when competition from local manufacturers severely limits Bio-Rad's ability to raise prices. Selling, general and administrative expense (SG&A) declined to 38.3% of sales in the second quarter of 1997 from 38.7% of sales in the second quarter of 1996. In response to the lack of sales growth in the first quarter of 1997, the Company moderated SG&A spending in the second quarter to better balance its SG&A spending with the slower than expected sales. Product research and development expense (R&D) increased from the second quarter of 1997, both in absolute dollars and as a percent of sales. As part of Bio-Rad's ongoing commitment to long-term growth, R&D spending increased in all segments of the Company's business, with the most significant increase occurring in the Life Science segment. Corporate Results - Non-Operating Items Interest expense was $0.5 million less in the second quarter of 1997 than the comparable period of 1996 principally as a result of lower average borrowings. Average borrowings in the second quarter of 1997 were 57% less than average borrowings in the same period of 1996 as a result of the early extinguishment of $20.0 million of subordinated notes in December 1996. Investment income in both years includes gains on sales of marketable securities and interest income from short-term investments. No significant items were included in other income and expense for the second quarter of 1997 or the second quarter of 1996. The Company's effective tax rate for the second quarter of 1997 was 28% compared to 25% for all of 1996. The tax rate for both years reflects the utilization of foreign loss carryforwards, foreign sales corporation benefits and foreign tax credits. However, the benefits realized in 1997 will not be at the same level as 1996. 7
Six Months Ended June 30, 1997 Compared to Six Months ended June 30, 1996 Corporate Results - Sales, Margins and Expenses Bio-Rad's sales in the first half of 1997, at $211.6 million, were 2% greater than sales in the first half of 1996. On a year- to-date basis, the effects of a strengthened U.S. dollar decreased consolidated sales compared to sales based on 1996 exchange rates by approximately $8 million. Sales increased 5% in Life Science, but were down 1% in Clinical Diagnostics and 3% in Analytical Instruments. Sales growth in the Life Science segment is attributed to new product introductions in the latter part of 1996 and early 1997; the impact of foreign exchange reduced this growth by approximately 4%. Excluding the effects of the strengthened U.S. dollar, sales increased 3% in Clinical Diagnostics and were flat in Analytical Instruments. During the first quarter of 1996 Analytical Instruments benefited from the Japanese government financially stimulating the local economy with funds for capital expenditures; this was not repeated in 1997. 1997 year-to-date consolidated gross margins were down slightly from the comparable period of 1996. Improved gross margins in the Clinical Diagnostics segment offset minor decreases in the Life Science and Analytical Instruments segments. SG&A increased to 38.4% of sales in the first half of 1997 from 36.8% in the first half of 1996. Although SG&A spending was moderated in the second quarter, it increased in absolute dollars in all segments. The majority of the increased spending was in personnel and advertising. Management continues to monitor SG&A spending in an effort to improve profitability but without sacrificing sales growth. R&D spending increased from the first half of 1996, both in absolute dollars and as a percent of sales. As part of Bio- Rad's continuing commitment to long-term growth, the Company continues to expand R&D. Compared to the first half of 1996, spending increased in both the Life Science and Analytical Instruments segments. R&D spending was down approximately $0.4 million in Clinical Diagnostics. Corporate Results - Non-Operating Items Interest expense was $1.0 million less in the first half of 1997 than the comparable period of 1996 principally as a result of lower average borrowings. The early extinguishment of $20.0 million of subordinated notes in December 1996 has reduced the Company's debt to a pre-1980 level. 8
Investment income in both years includes gains on sales of marketable securities and interest income from short-term investments. Net other income and expense in the first half of 1997 includes net exchange losses and goodwill amortization. Bio-Rad regularly enters into forward foreign exchange contracts as a hedge against foreign currency denominated intercompany receivables and payables. Net other income and expense in the first half of 1996 was primarily non-operating legal costs. As expected, the Company's effective tax rate increased from 25% to 28% for the first half of 1997. The tax rate for both years reflects the utilization of foreign loss carryforwards, foreign sales corporation benefits and foreign tax credits. However, the benefits realized in 1997 will not be at the same level as 1996. Financial Condition At June 30, 1997, the Company had available $5.5 million in cash and cash equivalents, $59.4 million under its principal revolving credit agreement and $11.1 million of marketable securities at market value, most of which could be readily converted to cash. Net cash provided by operations was $6.6 million for the year-to- date June 30, 1997 compared to $23.3 million for the comparable period of 1996. Available cash and cash provided by operations allowed Bio-Rad to make limited capital expenditures and to further reduce interest bearing debt. At June 30, 1997, Bio-Rad's debt to equity ratio was at less than 5%. During the first half of 1997, the Company continued to repurchase common stock, an action begun in July 1996 when the Board of Directors authorized the spending of up to $4 million. To date, the Company has repurchased $3.8 million of common stock, which will be used to satisfy the Company's obligations under the employee stock purchase and stock option plans. In early July 1997, the Board of Directors authorized the Company to repurchase up to an additional $4 million of common stock over an indefinite period of time. Management continues to believe shareholder value can be improved through the selective repurchase of the Company's stock. Available funds and cash flow from operations are adequate to meet the Company's objectives for operations, research and development and modest external growth. Bio-Rad remains well positioned to make a substantial strategic acquisition should the opportunity arise. At the present, the Company is contemplating at least two investment opportunities that would require the use of approximately $15 million. Beyond these, no acquisitions appear to have reached a stage beyond exploratory discussions. 9
At June 30, 1997, consolidated accounts receivable decreased by $1.0 million from December 31, 1996. Excluding the effects of the strengthened U.S. dollar, accounts receivable increased by $3.1 million. The increase is a result of local operations continuing to opportunistically use credit in the sales process, increased equipment sales and in some areas, a slow down in the payment process. Management regularly reviews receivables and takes selective steps where advantageous to accelerate customer payments. At June 30, 1997, consolidated net inventories were $7.6 million higher than at December 31, 1996. The increase in inventory occurred principally in the Life Science segment as a result of some sourcing difficulties related to new product introductions and planned increases in anticipation of demand in the fourth quarter. Management continues to monitor inventory levels and regularly reviews the impact of obsolescence in current inventory caused by the introduction of new products. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following documents are filed as part of this report: Exhibit No. 10.11 Employment and non-compete agreement with Dr. Burton A. Zabin. 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 June 30, 1997. 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: August 6, 1997 /s/ Thomas C. Chesterman T.C. Chesterman, Vice President, Chief Financial Officer Date: August 6, 1997 /s/ James R. Stark James R. Stark, Corporate Controller 11