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 March 31, 1998. 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 May 6, 1998 <S> <C> Class A Common Stock, Par Value $1.00 per share 9,949,046 Class B Common Stock, Par Value $1.00 per share 2,471,532 </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 March 31, 1998 1997 <S> <C> <C> NET SALES . . . . . . . . . . . . . . . . . . $116,174 $105,854 Cost of goods sold . . . . . . . . . . . . . 52,098 43,713 GROSS PROFIT . . . . . . . . . . . . . . . . 64,076 62,141 Selling, general and administrative expense . 41,057 40,718 Product research and development expense . . 9,912 10,808 INCOME FROM OPERATIONS . . . . . . . . . . . 13,107 10,615 Interest expense . . . . . . . . . . . . . . (785) (285) Investment income, net . . . . . . . . . . . 774 448 Other, net . . . . . . . . . . . . . . . . . (736) (370) INCOME BEFORE TAXES . . . . . . . . . . . . . 12,360 10,408 Provision for income taxes . . . . . . . . . 3,584 2,914 NET INCOME . . . . . . . . . . . . . . . . . $ 8,776 $ 7,494 ======== ======== Basic earnings per share: Net income . . . . . . . . . . . . . . . $0.72 $0.61 ======== ======== Weighted average common shares . . . . . 12,211 12,276 ======== ======== Diluted earnings per share: Net income . . . . . . . . . . . . . . . $0.71 $0.60 ======== ======== Weighted average common shares 12,325 12,450 ======== ======== </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> March 31, December 31, 1998 1997 (Unaudited) <S> <C> <C> ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . $ 12,626 $ 10,843 Accounts receivable . . . . . . . . . . . . . . . . . 103,080 96,965 Inventories . . . . . . . . . . . . . . . . . . . . . 94,137 91,428 Prepaid expenses, taxes and other current assets . . . 28,553 28,182 Total current assets . . . . . . . . . . . . . . . 238,396 227,418 Net property, plant and equipment . . . . . . . . . . 78,261 78,678 Marketable securities . . . . . . . . . . . . . . . . 25,745 18,092 Other assets . . . . . . . . . . . . . . . . . . . . . 27,167 27,688 Total assets . . . . . . . . . . . . . . . . . . $369,569 $351,876 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Notes payable and current maturities of long-term debt $ 11,712 $ 10,802 Accounts payable . . . . . . . . . . . . . . . . . . . 28,544 32,385 Accrued payroll and employee benefits . . . . . . . . 22,200 24,825 Sales, income and other taxes payable . . . . . . . . 7,887 5,055 Other current liabilities . . . . . . . . . . . . . . 28,140 27,715 Total current liabilities . . . . . . . . . . . . . 98,483 100,782 Long-term debt, net of current maturities . . . . . . 44,869 38,952 Deferred tax liabilities . . . . . . . . . . . . . . . 18,843 15,465 Total liabilities . . . . . . . . . . . . . . . . . 162,195 155,199 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 - 9,829,234 at March 31, 1998 and 9,824,509 at December 31, 1997 . . . . . . . . . 9,830 9,825 Class B common stock, $1.00 par value, 6,000,000 shares authorized; outstanding - 2,591,344 at March 31, 1998 and 2,596,069 at December 31, 1997 . . . . . . . . . 2,591 2,596 Additional paid-in capital . . . . . . . . . . . . . . 18,426 18,426 Class A treasury stock, 169,550 shares at March 31, 1998 and 193,539 shares at December 31, 1997 at cost . . (4,560) (5,206) Class B treasury stock, 30,000 shares at March 31, 1998 and December 31, 1996 at cost . . . . . . . . . . . (800) (800) Retained earnings . . . . . . . . . . . . . . . . . . 175,697 167,182 Accumulated other comprehensive income: Currency translation . . . . . . . . . . . . . . . . (1,505) (1,149) Net unrealized holding gain on marketable securities 7,695 5,803 Total stockholders' equity . . . . . . . . . . . . 207,374 196,677 Total liabilities and stockholders' equity . . . $369,569 $351,876 ======== ======== </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> Three Months Ended March 31, 1998 1997 <S> <C> <C> Cash flows from operating activities: Cash received from customers . . . . . . . . . . . . . $108,476 $ 99,499 Cash paid to suppliers and employees . . . . . . . . . (106,699) (99,019) Interest paid. . . . . . . . . . . . . . . . . . . . . (697) (282) Income tax payments . . . . . . . . . . . . . . . . . (1,031) (982) Miscellaneous receipts (payments). . . . . . . . . . . (137) 82 Net cash used in operating activities. . . . . . . . . (88) (702) Cash flows from investing activities: Capital expenditures, net. . . . . . . . . . . . . . . (4,228) (4,842) Marketable securities investment activity, net . . . . (1,875) (1,132) Foreign currency hedges, net . . . . . . . . . . . . . 486 1,894 Net cash used in investing activities. . . . . . . . . (5,617) (4,080) Cash flows from financing activities: Net borrowings under line-of-credit arrangements. . . 1,065 6,695 Long-term borrowings. . . . . . . . . . . . . . . . . 28,760 6,425 Payments on long-term debt. . . . . . . . . . . . . . (22,914) (8,589) Proceeds from issuance of common stock. . . . . . . . - 1,123 Treasury stock activity, net. . . . . . . . . . . . . 385 (1,339) Net cash provided by financing activities . . . . . . 7,296 4,315 Effect of exchange rate changes on cash . . . . . . . . . . 192 1,744 Net increase in cash and cash equivalents . . . . . . . . . 1,783 1,277 Cash and cash equivalents at beginning of period. . . . . . 10,843 9,390 Cash and cash equivalents at end of period. . . . . . . . . $ 12,626 $ 10,667 ======== ======== Reconciliation of net income to net cash provided by operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . $ 8,776 $ 7,494 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . . 5,131 4,217 Foreign currency hedge transactions, net . . . . . . (486) (2,261) Gains on dispositions of marketable securities . . . (743) (313) Increase in accounts receivable. . . . . . . . . . . (6,806) (3,808) Increase in inventories. . . . . . . . . . . . . . . (2,867) (5,125) Increase in other current assets . . . . . . . . . . (616) (1,941) Decrease in accounts payable and other current liabilities . . . . . . . . . . . . (5,382) (915) Increase in income taxes payable . . . . . . . . . . 2,605 1,917 Other. . . . . . . . . . . . . . . . . . . . . . . . 300 33 Net cash used in operating activities . . . . . . . . . . . $ (88) $ (702) ======== ======== </TABLE> The accompanying notes are an integral part of these statements. 3
BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Changes in Stockholders' Equity (In thousands) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 1998 1997 <S> <C> <C> Common Stock: Balance at beginning of period $ 12,421 $ 12,321 Issuance of common stock - 83 Balance at end of period 12,421 12,404 Additional Paid-In Capital: Balance at beginning of period 18,426 17,067 Issuance of common stock - 1,040 Balance at end of period 18,426 18,107 Treasury Stock: Balance at beginning of period (6,006) (1,639) Purchase of treasury stock - (1,339) Reissuance of treasury stock 646 - Balance at end of period (5,360) (2,978) Retained Earnings: Balance at beginning of period 167,182 151,003 Net income 8,776 7,494 Reissuance of treasury stock at less than cost (261) - Balance at end of period 175,697 158,497 Accumulated Other Comprehensive Income: Balance at beginning of period 4,654 4,756 Currency translation adjustments (356) (3,068) Net unrealized holding gains 2,420 253 Reclassification adjustment for gains included in net income (528) (313) Balance at end of period 6,190 1,628 ________ ________ Total Stockholders' Equity $207,374 $187,658 ======== ======== Comprehensive Income: Net income $ 8,776 $ 7,494 Currency translation adjustments (356) (3,068) Net unrealized holding gains 2,420 253 Reclassification adjustment for gains included in net income (528) (313) Total Comprehensive Income $10,312 $ 4,366 ======= ======= </TABLE> The accompanying notes are an integral part of these statements. 4
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, 1997 (the Company's 1997 Annual Report). Certain amounts in the financial statements of the prior year have been reclassified to be consistent with the 1998 presentation. 2. INVENTORIES <TABLE> The principal components of inventories are as follows: <CAPTION> March 31, December 31, 1998 1997 (in thousands) <S> <C> <C> Raw materials $ 28,293 $ 27,257 Work in process 20,720 21,242 Finished goods 45,124 42,929 $ 94,137 $ 91,428 ======== ======== </TABLE> 3. PROPERTY, PLANT AND EQUIPMENT <TABLE> The principal components of property, plant and equipment are as follows: <CAPTION> March 31, December 31, 1998 1997 (in thousands) <S> <C> <C> Land and improvements $ 8,057 $ 8,057 Buildings and leasehold improvements 55,698 55,477 Equipment 118,085 115,097 181,840 178,631 Accumulated depreciation (103,579) (99,953) Net property, plant and equipment $ 78,261 $ 78,678 ======== ======== </TABLE> 5
4. EARNINGS PER SHARE Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 114,000 and 174,000 shares, for the year-to-date periods ended March 31, 1998 and 1997, respectively. Options to purchase 265,000 and 93,000 shares of common stock were outstanding during 1998 and 1997, respectively, but were excluded from the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common shares. The options were still outstanding at March 31, 1998. 6
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, 1997. <TABLE> The following table shows operating income and expense items as a percentage of net sales: <CAPTION> Three Months Ended Year Ended March 31, December 31, 1998 1997 1997 <S> <C> <C> <C> Net sales 100.0 100.0 100.0 Cost of goods sold 44.8 41.3 44.3 Gross profit 55.2 58.7 55.7 Selling, general and administrative 35.4 38.5 38.7 Product research and development 8.5 10.2 10.8 Income from operations 11.3 10.0 6.2 ===== ===== ===== </TABLE> Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 Corporate Results - Sales, Margins and Expenses Net sales (sales) in the first quarter of 1998 were $116.2 million compared to $105.9 million in the first quarter of 1997. For the first quarter of 1998, the effect of a strengthened U.S. dollar reduced international sales by approximately $4.6 million when compared to sales based upon 1997 exchange rates. Sales increased in all segments of the Company's business: 25% in Analytical Instruments, 16% in Clinical Diagnostics and 1% in Life Science. Sales increases in Analytical Instruments are attributed to continued growth in the products sold into the semiconductor test and manufacturing equipment market as well as increases in spectrometer sales. Approximately half of the increase in Clinical Diagnostics sale growth can be directly attributed to the acquisition of the Chiron Diagnostics controls business in the fourth quarter of 1997. Consolidated gross margins were 55.2% for the first quarter of 1998 compared to 58.7% for the first quarter of 1997 and 55.7% 7
for all of 1997. Gross margins declined in all three of the Company's segments. Life Science margins declined as a result of the strengthening dollar in Asia and Europe and price discounting in Europe. Diagnostic margins declined, in part, from the Chiron acquisition, where several supply agreements existed to wholesale diagnostic controls. Also, higher service costs and some price erosion lowered diagnostic margins in the diabetes product line. Analytical Instruments margins reflect a significant product mix change for the quarter which should improve as sales mix returns to historical averages. Selling, general and administrative expense (SG&A) decreased to 35.4% of sales in the first quarter of 1998 from 38.5% of sales in the comparable period of 1997. The strengthened U.S. dollar reduced international SG&A by approximately $1.4 million or 1.2% of sales. In order to improve overall operating results, management has made a concentrated effort to control SG&A spending during the first quarter of 1998. On a currency neutral basis, SG&A for both Life Science and Analytical Instruments remained at 1997 levels. Clinical Diagnostics increased SG&A spending but at a rate far less than sales growth. The fourth quarter acquisition did not add significantly to the fixed SG&A burden of Clinical Diagnostics. Product research and development expense (R&D) decreased from the first quarter of 1997, both in absolute dollars and as a percent of sales. Compared to the first quarter of 1997, only Analytical Instruments increased R&D spending. As part of the Company's continuing commitment to long-term growth, 1997 was a year of expanding R&D. In 1998, management plans to continue R&D spending, but monitor it to maintain an appropriate growth rate. Corporate Results - Non-Operating Items Interest expense was $500,000 more in the first quarter of 1998 than the comparable period of 1997 principally as a result of higher average borrowings. Borrowings increased in connection with acquisitions in the fourth quarter of 1997. 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 quarter of 1998 includes net goodwill amortization and non-operating legal costs. Net other income and expense in the first quarter of 1997 was primarily net exchange losses and goodwill amortization. As expected, the Company's effective tax rate increased from 28% to 29% for the first quarter of 1998. The tax rate for both years reflects the utilization of loss carryforwards, foreign sales corporation benefits and foreign tax credits. However, as 8
loss carryforwards are exhausted the benefits realized will decline in comparison to prior periods and the effective tax rate will rise. Financial Condition At March 31, 1997, the Company had available $12.6 million in cash and cash equivalents, $16.0 million under its principal revolving credit agreement and marketable securities with a market value of $25.7 million, a majority of which could be readily converted to cash. Financing activities, principally borrowings under the Company's principal revolving credit agreement, provided the Company with the cash flow necessary to support investing activities. At March 31, 1998, consolidated accounts receivable increased by $6.1 million from December 31, 1997. Excluding the effects of the strengthened U.S. dollar, accounts receivable increased by $6.8 million. The increase is a result of larger Diagnostic sales late in the quarter when compared to the prior period, the Company deciding to factor less in Southern Europe and a slow down in payments in Asia. Management will take selective steps where advantageous to accelerate customer payments and will continue to use credit terms to enhance its ability to sell. At March 31, 1998, consolidated net inventories were $2.7 million higher than at December 31, 1997. The increase in inventory occurred primarily in the Life Science segment and was designed to meet short term requirements as manufacturing process changes are implemented which, by year-end, should result in overall lower inventories. Management continues to monitor inventory levels and regularly reviews the impact of obsolescence in current inventory caused by the introduction of new products. In February 1998, the Board of Directors authorized the Company to repurchase up to an additional $10 million of common stock over an indefinite period of time. This is the third such authorization since July 1996 bringing the total authorized to $18 million. To date, the Company has repurchased 236,700 shares of Class A common stock and 30,000 shares of Class B common stock for a total of $7.2 million. The repurchase is designed to improve shareholder value and to satisfy the Company's obligations under the employee stock purchase and stock option plans. The Company has begun preliminary discussions with its banks regarding an increase to the principal revolving credit agreement and potential financing sources should funds be needed for further acquisitions or to fund a new facility on its Hercules campus. The Company continues to regularly review acquisition opportunities; currently no material acquisitions have reached a stage beyond exploratory discussions. 9
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. Actual results may differ materially from those currently anticipated depending on a variety of risk factors. 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 28, 1998, the following individuals were reelected to the Board of Directors: <TABLE> <CAPTION> Class of Common Stock Votes Votes Elected From For Withheld <S> <C> <C> <C> James J. Bennett Class B 2,491,512 663 Albert J. Hillman Class A 7,792,580 107,514 Philip L. Padou Class A 7,828,108 71,986 Alice N. Schwartz Class B 2,490,837 1,338 David Schwartz Class B 2,490,837 1,338 Norman Schwartz Class B 2,490,837 1,338 Burton A. Zabin Class B 2,491,512 663 The following proposals were approved at the Company's annual meeting: </TABLE> <TABLE> <CAPTION> Votes Votes Broker For Against Abstentions Non-Votes <S> <C> <C> <C> <C> Ratification of Arthur Andersen LLP as the Company's independent auditors 3,275,738 304 6,142 -- Amendment to the 1994 Stock Option Plan 2,928,271 48,237 9,440 296,236 </TABLE> The foregoing matters are described in detail on pages 12 and 13 of the Company's definitive Proxy Statement dated April 1, 1998, filed with the Securities and Exchange Commission and incorporated herein by reference. 10
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, 1998, pages 12 and 13, (definitive form filed April 2, 1998 and incorporated by reference). 27.1 Financial Data Schedule. 27.2 Restated Financial Data Schedule for the year ended December 31, 1995, and the quarters ended March 31, June 30, and September 30, 1996. 27.3 Restated Financial Data Schedule for the year ended December 31, 1996, and the quarters ended March 31, June 30, and September 30, 1997. (b) Reports on Form 8-K During the quarter ended March 31, 1998, Bio-Rad filed an amendment to the Form 8-K, dated December 5, 1997, related to the acquisition of assets from Chiron Diagnostics Corporation and Chiron Corporation. 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: May 14, 1998 /s/ Thomas C. Chesterman Thomas C. Chesterman, Vice President, Chief Financial Officer Date: May 14, 1998 /s/ James R. Stark James R. Stark, Corporate Controller 12