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 September 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 October 31, 1997 <S> <C> Class A Common Stock, Par Value $1.00 per share 9,816,971 Class B Common Stock, Par Value $1.00 per share 2,601,595 </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 Nine Months Ended September 30, September 30, 1997 1996 1997 1996 <S> <C> <C> <C> <C> NET SALES . . . . . . . . . . . . . . . . . . $ 99,491 $ 96,559 $311,097 $304,812 Cost of goods sold . . . . . . . . . . . . . 44,656 40,712 135,400 129,256 GROSS PROFIT . . . . . . . . . . . . . . . . 54,835 55,847 175,697 175,556 Selling, general and administrative expense . 39,935 37,287 121,202 113,780 Product research and development expense . . 10,991 9,745 33,004 28,957 INCOME FROM OPERATIONS . . . . . . . . . . . 3,909 8,815 21,491 32,819 Interest expense . . . . . . . . . . . . . . (219) (779) (779) (2,362) Investment income, net. . . . . . . . . . . . 420 481 1,318 1,781 Other, net . . . . . . . . . . . . . . . . . (480) 415 (1,187) (677) INCOME BEFORE TAXES . . . . . . . . . . . . . 3,630 8,932 20,843 31,561 Provision for income taxes . . . . . . . . . 1,016 2,233 5,836 7,890 NET INCOME . . . . . . . . . . . . . . . . . $ 2,614 $ 6,699 $ 15,007 $ 23,671 ======== ======== ======== ======== Earnings per share . . . . . . . . . . . . . $0.21 $0.55 $1.22 $1.93 ======== ======== ======== ======== Weighted average common shares . . . . . . . 12,264 12,289 12,278 12,276 ======== ======== ======== ======== </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> September 30, December 31, 1997 1996 (Unaudited) <S> <C> <C> ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . . . $ 4,672 $ 9,390 Accounts receivable . . . . . . . . . . . . . . . . . . . 89,319 97,795 Inventories . . . . . . . . . . . . . . . . . . . . . . . 82,411 69,738 Prepaid expenses, taxes and other current assets. . . . . 25,737 21,612 Total current assets . . . . . . . . . . . . . . . . . 202,139 198,535 Net property, plant and equipment . . . . . . . . . . . . 74,783 71,862 Marketable securities . . . . . . . . . . . . . . . . . . 15,185 7,432 Other assets . . . . . . . . . . . . . . . . . . . . . . 7,790 7,096 Total assets . . . . . . . . . . . . . . . . . . . . $299,897 $284,925 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Notes payable and current maturities of long-term debt. . $ 4,516 5,542 Accounts payable . . . . . . . . . . . . . . . . . . . . 27,846 21,262 Accrued payroll and employee benefits . . . . . . . . . . 22,976 23,717 Sales, income and other taxes payable . . . . . . . . . . 4,361 3,988 Other current liabilities . . . . . . . . . . . . . . . . 24,653 24,630 Total current liabilities . . . . . . . . . . . . . . 84,352 79,139 Long-term debt, net of current maturities . . . . . . . . 4,718 6,721 Deferred tax liabilities . . . . . . . . . . . . . . . . 15,998 15,557 Total liabilities . . . . . . . . . . . . . . . . . . 105,068 101,417 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 - 9,814,441 at September 30, 1997 and 9,740,922 at December 31, 1996 . . . . . . . . . . 9,814 9,741 Class B common stock, $1.00 par value, 6,000,000 shares authorized; outstanding - 2,601,595 at September 30, 1997 and 2,579,803 at December 31, 1996 . . . . . . . . . . 2,602 2,580 Additional paid-in capital . . . . . . . . . . . . . . . 18,230 17,067 Class A treasury stock, 163,975 shares at September 30, 1997 and 31,216 shares at December 31, 1996 at cost. . . . . (4,473) (839) Class B treasury stock, 30,000 shares at September 30, 1997 and 30,000 shares at December 31, 1996 at cost. . . . . (800) (800) Retained earnings . . . . . . . . . . . . . . . . . . . . 165,880 151,003 Currency translation . . . . . . . . . . . . . . . . . . (658) 3,570 Net unrealized holding gain on marketable securities. . . 4,234 1,186 Total stockholders' equity . . . . . . . . . . . . . . 194,829 183,508 Total liabilities and stockholders' equity . . . . $299,897 $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> Nine Months Ended September 30, 1997 1996 <S> <C> <C> Cash flows from operating activities: Cash received from customers . . . . . . . . . . . . $310,386 $306,034 Cash paid to suppliers and employees . . . . . . . . (283,612) (266,093) Interest paid. . . . . . . . . . . . . . . . . . . . (804) (2,998) Income tax payments . . . . . . . . . . . . . . . . (9,539) (12,824) Miscellaneous receipts . . . . . . . . . . . . . . . 80 551 Net cash provided by operating activities. . . . . . 16,511 24,670 Cash flows from investing activities: Capital expenditures, net. . . . . . . . . . . . . . (16,092) (10,317) Payments for acquisitions . . . . . . . . . . . . . (787) -- Marketable securities investment activity, net . . . (3,797) 736 Foreign currency hedges, net . . . . . . . . . . . . 2,734 1,075 Net cash used in investing activities. . . . . . . . (17,942) (8,506) Cash flows from financing activities: Net borrowings under line-of-credit arrangements . . (599) (6,116) Long-term borrowings . . . . . . . . . . . . . . . . 31,375 -- Payments on long-term debt . . . . . . . . . . . . . (33,563) (657) Proceeds from issuance of common stock . . . . . . . 1,258 1,145 Treasury stock activity, net . . . . . . . . . . . . (3,764) (652) Net cash used in financing activities . . . . . . . (5,293) (6,280) Effect of exchange rate changes on cash . . . . . . . . . 2,006 647 Net increase (decrease) in cash and cash equivalents. . . (4,718) 10,531 Cash and cash equivalents at beginning of period. . . . . 9,390 14,774 Cash and cash equivalents at end of period. . . . . . . . $ 4,672 $ 25,305 ======== ======== Reconciliation of net income to net cash provided by operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . $ 15,007 $ 23,671 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . 13,147 12,201 Foreign currency hedge transactions, net . . . . . (2,918) (1,503) Gains on disposition of marketable securities. . . (927) (843) Decrease in accounts receivable. . . . . . . . . . 2,993 2,809 (Increase) decrease in inventories . . . . . . . . (14,302) 447 (Increase) decrease in other current assets . . . (4,381) 450 Increase (decrease) in accounts payable and other current liabilities. . . . . . . . . . . . . . . 8,941 (6,731) Increase (decrease) in income taxes payable . . . 598 (4,404) Other. . . . . . . . . . . . . . . . . . . . . . . (1,647) (1,427) Net cash provided by operating activities . . . . . . . . $ 16,511 $ 24,670 ======== ======== </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> September 30, December 31, 1997 1996 (in thousands) <S> <C> <C> Raw materials $ 32,638 $ 26,920 Work in process 20,947 19,866 Finished goods 28,826 22,952 $ 82,411 $ 69,738 ======== ======== </TABLE> 3. PROPERTY, PLANT AND EQUIPMENT <TABLE> The principal components of property, plant and equipment are as follows: <CAPTION> September 30, December 31, 1997 1996 (in thousands) <S> <C> <C> Land and improvements $ 8,057 $ 8,057 Buildings and leasehold improvements 52,278 52,050 Equipment 114,871 107,847 -------- -------- 175,206 167,954 Less accumulated depreciation 100,423 96,092 Net property, plant and equipment $ 74,783 $ 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 Nine Months Ended Year Ended September 30, September 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 44.9 42.2 43.5 42.4 43.5 Gross profit 55.1 57.8 56.5 57.6 56.5 Selling, general and administrative 40.2 38.6 39.0 37.3 37.1 Product research and development 11.0 10.1 10.6 9.5 9.5 Restructuring costs - - - - 0.6 Income from operations 3.9 9.1 6.9 10.8 9.3 ===== ===== ===== ===== ===== </TABLE> Three Months Ended September 30, 1997 Compared to Three Months Ended September 30, 1996 Corporate Results - Sales, Margins and Expenses Bio-Rad's net sales (sales) in the third quarter of 1997 increased 3% to $99.5 million from $96.6 million reported in the third 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 $5 million or 5%. Compared to the third quarter of 1996, sales increased 11% in Analytical Instruments, 4% in Clinical Diagnostics and were unchanged in Life Science. During the third quarter of 1997, the increased Analytical Instruments sales were principally to U.S. semiconductor customers. The growth in Clinical Diagnostics is attributable to both the segment's control business and clinical chromatography business. The effects of differences in foreign exchange rates in 1997 compared to 1996 negatively impacted Analytical Instruments by 4.4%, Clinical Diagnostics by 6.1% and Life Science by 4.7%. Competition remains fierce across all segments and globally governments continue to try to limit the growth in healthcare related spending. 6
Consolidated gross margin decreased to 55.1% for the third quarter of 1997 from 57.8% for the third quarter of 1996. The decrease occurred in both the Life Science and Clinical Diagnostics segments of the Company's business. The impact of a strengthened U.S. dollar results in lower margins because a disproportionate share of the Company's products are manufactured in the U.S.. A strengthened U.S. dollar has the effect of lowering international sales revenue and related gross margin. Competition from local manufacturers often limit Bio-Rad's ability to raise prices. Additional contributing factors to the lower margin were selective discounting and higher than expected post sales support costs. Selling, general and administrative expense (SG&A) rose to 40.2% of sales in the third quarter of 1997 from 38.6% of sales in the third quarter of 1996. Since the first quarter of 1997 absolute dollar expenditures have remained flat. Reduced expenses outside the U.S., caused by the impact of the strengthening U.S. dollar, were offset by growth in the U.S. as the Company maintained its investment in direct sales, sales support, service and improved automated systems to meet customer requirements. Product research and development expense (R&D) increased from the third quarter of 1996, 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 significantly in the Life Science and Analytical Instruments segments of the Company's business, while spending in the Clinical Diagnostics segment remained essentially flat. Corporate Results - Non-Operating Items Interest expense was $0.6 million less in the third quarter of 1997 than the comparable period of 1996 principally as a result of lower average borrowings. Average borrowings in the third quarter of 1997 were 68% 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 third quarter of 1997 or the third quarter of 1996. The Company's effective tax rate for the third 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. The benefits available in 1997 will not be available at the same level as 1996 and should continue to decline over the next several years. 7
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Corporate Results - Sales, Margins and Expenses Bio-Rad's sales for the nine month period ended September 30, 1997 were $311.1 million, 2% greater than sales for the period ended September 30, 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 $13 million. Sales increased 3% in Life Science, 1% in Clinical Diagnostics and 1% 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 overall growth by approximately 5%. Excluding the effects of the strengthened U.S. dollar, sales increased 8% in Life Science, 6% in Clinical Diagnostics and 4% in Analytical Instruments. During the first quarter of 1996 both Analytical Instruments and Life Science 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 are down 1% from the comparable period of 1996. Gross margins in each segment have been adversely affected by the impact of a strengthened U.S. dollar. Additionally, Life Science has experienced increased warranty and service expenses and Analytical Instruments absorbed an unfavorable impact from excess manufacturing overhead in the United States. SG&A increased to 39.0% of sales for the nine months ended September 30, 1997 from 37.3% in the same period of 1996. SG&A spending has remained constant throughout 1997, it has increased in absolute dollars in all segments compared to 1996. The majority of the increased spending has been in personnel, advertising and travel expenses. Management continues to review SG&A spending in an effort to make only the necessary improvements to the Company's selling infrastructure to allow for improved customer service levels. R&D spending increased in the nine months ended September 30, 1997, 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 nine months ended September 30, 1996, spending increased in both the Life Science and Analytical Instruments segments by over 20%. R&D spending was relatively unchanged in Clinical Diagnostics. 8
Corporate Results - Non-Operating Items Interest expense was $1.6 million less for the period ended September 30, 1997 than the comparable period of 1996 principally as a result of lower average borrowings. The Company has a debt to equity ratio of less than 5% which is at a 20-year historical low. 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 period ended September 30, 1997 includes net exchange losses, goodwill amortization and non- operating legal costs. Bio-Rad regularly enters into forward foreign exchange contracts as a hedge against revaluation of foreign currency denominated intercompany receivables and payables. Net other income and expense in the nine months period ended September 30, 1996 was primarily non-operating legal costs partially offset by net exchange gains. As expected, the Company's effective tax rate increased from 25% to 28% for the September 30, 1997 year-to-date period. 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 and should continue to decline over the next several years. Financial Condition At September 30, 1997, the Company had available $4.7 million in cash and cash equivalents, $56.7 million under its principal revolving credit agreement and $15.2 million of marketable securities at market value, most of which could be readily converted to cash. Net cash provided by operations was $16.5 million for the year- to-date September 30, 1997 compared to $24.7 million for the comparable period of 1996. During the third quarter 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. 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. To date, the Company has repurchased $6.7 million of common stock, which will be used to satisfy the Company's obligations under the employee stock purchase and stock option plans. Management continues to believe shareholder value can be improved through the selective repurchase of the Company's stock. 9
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. Bio-Rad has announced that they have signed a letter of intent for Bio-Rad to purchase certain assets that comprise the quality controls business of Chiron Diagnostics Corporation (exclusive of blood gas controls). The completion of the transaction is subject to government approval and the execution of a final purchase and sale agreement. Should Bio-Rad choose to fund the entire purchase from its revolving credit agreement, the transaction is estimated to utilize approximately one-half of the capacity. Beyond this opportunity, no material acquisitions appear to have reached a stage beyond exploratory discussions. At September 30, 1997, consolidated accounts receivable decreased by $8.5 million from December 31, 1996. Excluding the effects of the strengthened U.S. dollar, accounts receivable decreased by $3.0 million. The decrease is temporary in nature and will most likely increase during the fourth quarter which historically has much higher sales volumes and a larger mix of instrument sales which involve a more intensive sales and collection effort. Management regularly reviews receivables and takes selective steps where advantageous to accelerate customer payments. At September 30, 1997, consolidated net inventories were $12.7 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. Additionally, some increase has occurred due to temporary shipping difficulties. These challenges should be remediated by year end. Management continues to monitor inventory levels and regularly reviews the impact of obsolescence in current inventory caused by the introduction of new products. 10
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. 10.6 Employees' Deferred Profit Sharing Retirement Plan (Amended and Restated Effective as of January 1, 1997). 10.9.4 Amendment dated as of June 30, 1997 to the Credit Agreement 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, 1997. 11
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, 1997 /s/ Sanford S. Wadler Sanford S. Wadler, Vice President, General Counsel and Secretary Date: November 13, 1997 /s/ James R. Stark James R. Stark, Corporate Controller 12