Bio-Rad Laboratories, Inc.
SUMMARY OF OPERATIONS (In thousands, except per share data)
________________________________________________________________________________________________________________________
Year Ended December 31,
2000 1999 1998 1997 1996 1995
Net sales (1) $725,884 $555,399 $447,863 $432,078 $423,262 $400,935
Cost of goods sold (2) 343,364 255,223 202,438 189,331 182,046 171,942
Gross profit 382,520 300,176 245,425 242,747 241,216 228,993
Selling, general and administrative expense (1) 247,613 200,367 172,899 169,956 159,989 154,589
Product research and development expense 68,140 51,210 41,381 46,138 39,580 34,714
Purchased in-process research and
development expense - 15,500 - - - -
Restructuring costs - - - - 2,700 1,500
Income from operations 66,767 33,099 31,145 26,653 38,947 38,190
Other income (expense):
Interest expense (30,612) (12,741) (3,731) (1,216) (3,027) (4,465)
Other, net 9,288 (3,942) 6,814 (2,709) 553 (183)
Income before taxes, extraordinary charge
and cumulative effect of change in accounting
principle 45,443 16,416 34,228 22,728 36,473 33,542
Provision for income taxes 13,633 4,695 9,926 6,364 9,118 8,386
Income before extraordinary charge and cumulative
effect of change in accounting principle 31,810 11,721 24,302 16,364 27,355 25,156
Extraordinary charge (3) - - - - (1,176) -
Cumulative effect of change in accounting
principle, net of taxes of $515 (4) (710) - - - - -
Net income $ 31,100 $ 11,721 $ 24,302 $ 16,364 $ 26,179 $ 25,156
Basic earnings per share before
extraordinary charge and cumulative effect
of change in accounting principle (5) $2.61 $0.97 $1.98 $1.33 $2.23 $2.06
Extraordinary charge (3)(5) - - - - (0.10) -
Cumulative effect of change in accounting
principle (4) (0.06) - - - - -
Basic earnings per share (5) $2.55 $0.97 $1.98 $1.33 $2.13 $2.06
Weighted average common shares (5) 12,211 12,110 12,264 12,260 12,273 12,206
Cash dividends paid per common share - - - - - -
Total assets $646,278 $668,862 $367,299 $351,876 $284,925 $285,098
Long-term debt, net of current maturities $203,360 $239,211 $ 42,339 $ 38,952 $ 6,721 $20,922
_______________________________________________________________________________________________________________________
<FN>
(1) Restated to give effect to current presentation of freight charged to customers as a component of sales in
compliance with FASB EITF Issue 00-10, Accounting for Shipping and Handling Fees and Costs.
(2) In 1996, cost of goods sold includes a charge of $2.1 million for a write-down of inventory associated with the
restructuring costs.
(3) Extraordinary charge for redemption of subordinated debt: 1996 - $1,176, net of tax effect of $817.
(4) Cummulative effect on prior years (to 12/31/99) of accounting change per SEC Staff Accounting Bulletin 101, on
Revenue Recognition.
(5) Restated to give effect to a stock split in the form of a 50% stock dividend in 1996.
1
Bio-Rad Laboratories, Inc.
Consolidated Balance Sheets
(In thousands)
________________________________________________________________________________________
December 31,
Assets 2000 1999
Current Assets:
Cash and cash equivalents $ 13,954 $ 17,087
Accounts receivable, less allowance of $10,255 in 2000
and $9,582 in 1999 182,242 193,898
Inventories:
Raw materials 32,993 32,398
Work in process 30,071 31,936
Finished goods 69,455 61,943
Total inventories 132,519 126,277
Deferred tax assets 20,770 20,584
Prepaid expenses and other current assets 20,183 20,871
Total current assets 369,668 378,717
Property, Plant and Equipment:
Land and improvements 8,337 8,937
Buildings and leasehold improvements 66,039 73,230
Equipment 180,827 168,401
Total property, plant and equipment 255,203 250,568
Accumulated depreciation (136,171) (124,626)
Net property, plant and equipment 119,032 125,942
Goodwill, net of accumulated amortization of
$13,990 in 2000 and $5,881 in 1999 90,970 105,350
Other Assets 66,608 58,853
Total Assets $646,278 $668,862
________________________________________________________________________________________
The accompanying notes are an integral part of these statements.
2
Bio-Rad Laboratories, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
__________________________________________________________________________________________
December 31,
Liabilities and Stockholders' Equity 2000 1999
Current Liabilities:
Accounts payable $ 62,965 $ 64,737
Accrued payroll and employee benefits 52,354 59,919
Notes payable 6,490 11,547
Current maturities of long-term debt 11,656 10,413
Sales, income and other taxes payable 8,413 14,086
Other current liabilities 47,430 41,819
Total current liabilities 189,308 202,521
Long-Term Debt, net of current maturities 203,360 239,211
Deferred Tax Liabilities 8,992 7,016
Total liabilities 401,660 448,748
Commitments and Contingent Liabilities - -
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 2000 - 10,042,200;
1999 - 9,977,862 10,042 9,978
Class B common stock, $1.00 par value, 6,000,000 shares
authorized; outstanding 2000 - 2,435,928;
1999 - 2,484,716 2,436 2,485
Additional paid-in capital 19,120 18,830
Class A treasury stock, 244,499 shares in 2000 and (5,415) (7,392)
335,450 shares in 1999 at cost
Retained earnings 231,821 200,993
Accumulated other comprehensive income(loss):
Currency translation and other (13,386) (4,780)
Total stockholders' equity 244,618 220,114
Total Liabilities and Stockholders' Equity $646,278 $668,862
__________________________________________________________________________________________
The accompanying notes are an integral part of these statements.
3
Bio-Rad Laboratories, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
______________________________________________________________________________________________________________________
Year Ended December 31,
2000 1999 1998
Net sales $725,884 $555,399 $447,863
Cost of goods sold 343,364 255,223 202,438
Gross profit 382,520 300,176 245,425
Selling, general and administrative expense 247,613 200,367 172,899
Product research and development expense 68,140 51,210 41,381
Purchased in-process research and development expense - 15,500 -
Income from operations 66,767 33,099 31,145
Other income (expense):
Interest expense (30,612) (12,741) (3,731)
Investment income, net 895 873 8,790
Other, net 8,393 (4,815) (1,976)
Income before taxes and cumulative effect of change
in accounting principle 45,443 16,416 34,228
Provision for income taxes 13,633 4,695 9,926
Income before cumulative effect of change in
accounting principle 31,810 11,721 24,302
Cumulative effect on prior years (to 12/31/99) of
accounting change, net taxes of $515 (see Note 1) (710) - -
Net income $ 31,100 $ 11,721 $ 24,302
Basic earnings per share:
Income before cumulative effect of change in
accounting principle $2.61 $0.97 $1.98
Cumulative effect on prior years (to 12/31/99)
of accounting change (0.06) - -
Net income $2.55 $0.97 $1.98
Weighted average common shares 12,211 12,110 12,264
Diluted earnings per share:
Income before cumulative effect of change in
accounting principle $2.59 $0.96 $1.97
Cumulative effect on prior years (to 12/31/99)
of accounting change (0.06) - -
Net income $2.53 $0.96 $1.97
Weighted average common shares 12,284 12,165 12,358
_______________________________________________________________________________________________________________________
The accompanying notes are an integral part of these statements.
4
Bio-Rad Laboratories, Inc.
Consolidated Statements of Cash Flows
(In thousands)
________________________________________________________________________________________________________
Year Ended December 31,
2000 1999 1998
Cash flows from operating activities:
Cash received from customers $707,046 $527,132 $436,029
Cash paid to suppliers and employees (632,803) (453,266) (395,265)
Interest paid (27,124) (9,307) (3,833)
Income tax payments (12,294) (17,237) (9,370)
Miscellaneous payments (10,578) (2,341) (226)
Net cash provided by operating activities 24,247 44,981 27,335
Cash flows from investing activities:
Capital expenditures, net (31,406) (27,275) (21,176)
Payments for acquisitions - (202,828) -
Proceeds from divestitures 34,118 - -
Purchases of marketable securities and investments (326) (2,216) (19,086)
Sales of marketable securities and investments 795 6,600 16,367
Foreign currency hedges, net 6,115 2,401 (1,360)
Net cash provided by (used in) investing activities 9,296 (223,318) (25,255)
Cash flows from financing activities:
Net payments on notes payable (4,325) (13,493) (1,365)
Long-term borrowings 438,487 353,108 133,710
Payments on long-term debt (473,278) (151,788) (130,666)
Arrangement and other fees for
long-term acquisition financing (4,500) (5,008) -
Proceeds from issuance of common stock 305 343 103
Purchase of treasury stock (378) (2,233) (4,665)
Reissuance of treasury stock 2,083 1,322 1,978
Net cash provided by (used in) financing activities (41,606) 182,251 (905)
Effect of exchange rate changes on cash 4,930 3,092 (1,937)
Net increase (decrease) in cash and cash equivalents (3,133) 7,006 (762)
Cash and cash equivalents at beginning of year 17,087 10,081 10,843
Cash and cash equivalents at end of year $ 13,954 $ 17,087 $ 10,081
________________________________________________________________________________________________________
The accompanying notes are an integral part of these statements.
5
Bio-Rad Laboratories, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
______________________________________________________________________
Year Ended December 31,
2000 1999 1998
Common Stock, $1.00 par value:
Balance at beginning of year $12,463 $ 12,427 $ 12,421
Issuance of common stock 15 36 6
Balance at end of year 12,478 12,463 12,427
Additional Paid-In Capital:
Balance at beginning of year 18,830 18,523 18,426
Issuance of common stock 290 307 97
Balance at end of year 19,120 18,830 18,523
Treasury Stock:
Balance at beginning of year (7,392) (7,047) (6,006)
Purchase of treasury stock (378) (2,233) (4,665)
Reissuance of treasury stock 2,355 1,888 3,624
Balance at end of year (5,415) (7,392) (7,047)
Retained Earnings:
Balance at beginning of year 200,993 189,838 167,182
Net income 31,100 11,721 24,302
Reissuance of treasury stock at
less than cost (272) (566) (1,646)
Balance at end of year 231,821 200,993 189,838
Accumulated Other
Comprehensive Income (Loss):
Balance at beginning of year (4,780) 593 4,654
Other comprehensive loss (8,606) (5,373) (4,061)
Balance at end of year (13,386) (4,780) 593
________ ________ ________
Total Stockholders' Equity $244,618 $220,114 $214,334
Comprehensive Income:
Net income $ 31,100 $ 11,721 $ 24,302
Currency translation adjustments (8,804) (4,833) 1,241
Net unrealized holding gains 533 66 819
Reclassification adjustments for
gains included in net income (335) (606) (6,121)
Total Comprehensive Income $ 22,494 $ 6,348 $ 20,241
_________________________________________________________________________
The accompanying notes are an integral part of these statements.
6
Bio-Rad Laboratories, Inc.
Notes to Consolidated Financial Statements
(In thousands of dollars, except share and per share data)
_________________________________________________________________
1. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Bio-Rad
Laboratories, Inc. and all subsidiaries ("Bio-Rad" or the "Company")
after elimination of intercompany balances and transactions. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Changes in such estimates may
affect amounts reported in the future.
Reclassifications
Certain prior period amounts have been reclassified to conform with
the current year presentation. Pursuant to Financial Accounting
Standards Board Emerging Issues Task Force Issue No.00-10, "Accounting
for Shipping and Handling Fees and Costs", the Company has also
reclassified freight billed to customers from selling, general and
administrative expenses to net sales. The amounts reclassified were
$5,910 and $5,921 for 1999 and 1998, respectively. Related freight
costs are included in selling, general and administrative expenses as
the responsibility for negotiating sales terms rests with the sales
organization and not manufacturing.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid in-
vestments with original maturities of three months or less which are
readily convertible into cash. Cash equivalents are stated at cost,
which approximates fair market value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of trade accounts
receivable. The Company performs credit evaluation procedures and
with the exception of certain developing countries, generally does not
require collateral. As a result of increased risk in these countries,
some Bio-Rad sales are subject to collateral letters of credit.
Credit risk is limited due to the large number of customers and their
dispersion across many geographic areas. However, a significant
amount of trade receivables are with national healthcare systems in
countries within the European Economic Community. The Company does
not currently anticipate a credit risk associated with these receiv-
ables.
7
Inventory Valuation
Inventories are valued at the lower of average cost or market and
include material, labor and overhead costs.
Property, Plant and Equipment
Property, plant and equipment are carried at historical cost.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets ranging from two to thirty years.
Leasehold improvements are amortized over the lives of the respective
leases or the lives of the improvements, whichever is shorter.
Included in property, plant and equipment is reagent rental equipment.
The Company provides these instruments to its customers for use with
the Company's reagents. Depreciation is taken over the useful life of
the equipment, which does not exceed five years.
Marketable Securities
The Company's marketable securities, included in Other Assets, are
classified as available-for-sale and are recorded at current market
value. Unrealized holding gains and losses are included as a separate
component of stockholders' equity. Realized gains and losses are
included in investment income. For the purpose of determining realized
gains and losses, the cost of securities sold is based upon specific
identification.
Goodwill
Goodwill, representing the excess of the cost over the net tangible
and identifiable intangible assets of acquired businesses, is stated
at cost and is amortized on a straight-line basis over the estimated
future periods to be benefited, typically ten to fifteen years.
Goodwill, other intangibles and other long-lived assets are
periodically reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Revenue Recognition and Warranty
Bio-Rad recognizes revenues when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or
determinable and collectibility is probable. Generally, these
criteria are met at the time product is shipped. Provision is made at
the time the related revenue is recognized for estimated product
returns and other offerings which may occur under programs the Company
has with its customers.
The Company warrants certain equipment against defects in design,
materials and workmanship, generally for one year. Upon shipment of
equipment sold which includes a warranty, the Company establishes, as
part of cost of goods sold, a provision for the expected costs of such
warranty.
8
Foreign Currency Translation
Balance sheet accounts of international subsidiaries are translated at
the current exchange rate as of the end of the accounting period.
Income statement items are translated at average exchange rates. The
resulting translation adjustment is recorded as a separate component
of stockholders' equity.
Forward Exchange Contracts
The Company does not use derivative financial instruments for
speculative or trading purposes. As part of distributing its
products, the Company regularly enters into intercompany transactions.
The Company enters into forward foreign exchange contracts to hedge
against future movements in foreign exchange rates that affect foreign
currency denominated intercompany receivables and payables. These
contracts generally have maturity dates of 60 days or less, relate
primarily to currencies of industrial countries and are marked to
market at each balance sheet date. The resulting gains or losses are
included in other income and expense and offset exchange losses or
gains on the related receivables and payables. Unrealized gains and
losses are not deferred. Exchange gains and losses on these contracts
are net of premiums and discounts which result from interest rate
differentials between the U.S. and the countries of the currencies
being traded. The cash flows related to these contracts are
classified as cash flows from investing activities in the Statement of
Cash Flows.
Stock Compensation Plans
Stock-based compensation is recognized using the intrinsic value
method. For disclosure purposes, pro forma net income and earnings
per share are provided as if the fair value method had been applied.
Earnings Per Share
Basic earnings per share are calculated on the basis of the weighted
average number of common shares outstanding for each period. Diluted
earnings per share are calculated assuming the exercise of certain
stock options. Treasury stock is not considered outstanding for
purposes of calculating weighted average shares.
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined
using available market information or other appropriate valuation
methodologies. Estimates are not necessarily indicative of the
amounts that could be realized in a current market exchange as
considerable judgement is required in interpreting market data used to
develop estimates of fair value. The use of different market
9
assumptions or estimation techniques could have a material effect of
the estimated fair value amounts.
The estimated fair value of Bio-Rad's financial instruments were as
follows:
Year Ended December 31,
2000 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
Other assets $ 66,608 $ 65,000 $ 58,853 $ 59,000
Long-term debt $ 203,360 $ 212,000 $ 239,211 $ 239,000
Other Assets include financial instruments (e.g., notes receivable)
that have fair values based on discounted cash flows, market
quotations, and other appropriate valuation techniques. Long-term
debt has an estimated fair value based on quoted market prices for the
same or similar issues.
For certain of the Company's financial instruments, including cash and
cash equivalents, accounts receivable, marketable securities, notes
payable, accounts payable, and forward exchange contracts, the
carrying amounts approximate fair value.
Accounting Change
During the fourth quarter of 2000, the Company modified its revenue
recognition policies to comply with guidelines outlined by the SEC in
Staff Accounting Bulletin 101. The effects of the change in revenue
recognition policies, as of January 1, 2000, are reported as the
cumulative effect of an accounting change in the fourth quarter of
2000. This change did not have a significant effect on previously
reported quarterly or prior years' income.
2. Acquisitions and Dispositions
In July 2000, Accent Semiconductor Technology, Inc. ("ASTI") acquired
the assets and certain liabilities of the Company's semiconductor and
optoelectronic metrology business. The proceeds of approximately
$36,000 represent $27,000 in cash, an $8,000 note receivable due in
five years and an 18% passive equity interest in ASTI. The Company
used $17,000 of the cash proceeds to reduce borrowings on the term
loan portion of the Senior Credit facility. The equity interest in
ASTI will be held as a long-term investment on the cost method.
In October 1999, the Company acquired Pasteur Sanofi Diagnostic S.A.,
a French corporation ("PSD"), from its shareholders, Sanofi-Synthelabo
S.A. and Institut Pasteur. PSD was founded by the Institut Pasteur and
operates in the HIV and infectious disease diagnostic product market.
10
The Company paid $202,828 for all of the capital stock of PSD (and
certain ancillary assets and assumed liabilities related to PSD).
The purchase of PSD was financed with the proceeds from a $200,000
Senior Credit Agreement and a $100,000 Senior Subordinated Credit
Agreement (see Note 5). The acquisition was accounted for using the
purchase method of accounting. The 1999 operating results of PSD have
been included in the Consolidated Statement of Income from the date of
acquisition.
As a result of the acquisition, the Company recorded $88,630 of
goodwill. Goodwill reflects the excess of the purchase price,
purchase liabilities and liabilities assumed over the fair value of
net identifiable assets and in-process research and development
projects acquired. Acquired in-process research and development of
$15,500 was charged to expense in the fourth quarter of 1999 in
accordance with generally accepted accounting principles. Purchase
liabilities recorded included approximately $14,000 for severance and
other employee costs and $4,000 for the consolidation and closure of
certain leased facilities. The closure of facilities identified by
the Company were completed in fiscal 2000, with lease payments, net of
sublease revenues, continuing until all contractual obligations are
met. As of December 31, 2000, expenses charged against these reserves
were approximately $12,400 for severance and other employee costs and
$1,600 for facilities and asset related write-offs.
As the Company's 1999 financial statements include only three months
of operations of PSD, the following selected unaudited pro forma
information is being provided to present a summary of the combined
results of Bio-Rad and PSD as if the acquisition had occurred as of
January 1, 1998, giving effect to purchase accounting adjustments and
actual costs of financing. The pro forma data is for informational
purposes only and may not necessarily reflect the results of
operations of Bio-Rad had PSD operated as part of the Company for the
years ended December 31, 1999 and 1998.
Unaudited Pro Forma
Year Ended December 31,
1999 1998
Sales $727,900 $675,700
Net income (loss) $ 6,300 $(5,000)
Basic earnings (loss)per share $0.52 $(0.41)
The pro forma amounts reflect the results of operations for Bio-Rad
and PSD and the following purchase accounting adjustments for the
periods presented:
Amortization of intangible assets and goodwill was based on the
purchase price allocation for the period presented.
Amortization of debt financing fees and expenses over the
relative term of the following debt: Senior Credit
Agreement, Senior Subordinated Credit Facility and Senior
Subordinated Notes.
11
The additional interest expense on debt incurred to finance
the acquisition was offset by a reduction of historical interest
resulting from the elimination of PSD's debt.
The estimated income tax effect on the pro forma
adjustments, including a limitation on the deductibility of
goodwill amortization.
The pro forma statements do not include the $15,500 write-
off of in-process research and development. This charge is
included in the Consolidated Statements of Operations of the
Company for 1999.
3. Investment Income
Investment income in 1998 included $8,620 of net realized gains from
the sales of marketable securities. The majority of the Company's
marketable securities portfolio was sold in 1999 in preparation for
the purchase of PSD.
4. Investment in Affiliates
In December 1997, Bio-Rad began investing in Instrumentation
Laboratory, S.p.A. (IL), an Italian based clinical diagnostics
company. At December 31, 2000, Bio-Rad held approximately 28% of the
outstanding stock of IL. A privately held company based in Spain
controls over 51% of the outstanding stock of IL. The investment in
IL is reviewed as published financial statements are made available to
the Company. The most recently published financial statements for IL
are as of November 1999.
Given the limited availability of financial information, that no
organized market exists for the shares to be traded and that Bio-Rad
does not have the ability to significantly influence the operating and
financial policies of IL, the investment has been recorded at its cost
of $18,809 and is included in Other Assets.
5. Notes Payable and Long-Term Debt
Notes payable include local credit lines maintained by the Company's
subsidiaries aggregating approximately $25,611, of which $19,121 was
unused at December 31, 2000. At December 31, 1999 these lines
aggregated approximately $32,742, of which $21,195 was unused. The
weighted average interest rate on these lines was 7.29% and 5.76% at
December 31, 2000 and 1999, respectively. The Company guarantees most
of these credit lines.
12
The principal components of Long-Term Debt are as follows:
Year Ended December 31,
2000 1999
Senior Subordinated Credit
Agreement $ - $100,000
Senior Credit Agreement:
Term loan 63,000 100,000
Revolving credit agreement 1,750 49,000
Senior Subordinated Notes 148,467 -
Capitalized leases 1,799 624
215,016 249,624
Less current maturities 11,656 10,413
Long-Term Debt $203,360 $239,211
In September 1999, the Company entered into a $200,000 Senior Credit
Agreement and a $100,000 Senior Subordinated Credit Agreement to
finance the acquisition of PSD and certain related assets and to
provide funds for working capital needs. The Senior Credit Agreement
included a term loan and revolving facility, each in the amount of
$100,000. The term loan has since been reduced through permanent
repayments to $63,000. 1999 debt issue costs related to these
financings were $8,600.
The Company entered into a $100,000 Senior Subordinated Credit
Agreement dated January 31, 2000. This agreement had a one-year term
and provided for an automatic rollover for an additional term maturing
in September 2005. The proceeds of this transaction were used to
replace the Senior Subordinated Credit Agreement dated September 30,
1999. Fees paid in January 2000 to replace and initiate the Senior
Subordinated Credit Agreements were $4,000. This loan was repaid in
February 2000.
The Company sold $150,000 aggregate principal amount of Senior
Subordinated Notes due in 2007 under an indenture dated February 17,
2000. The notes were offered at 98.832% of par and pay a fixed rate
of interest of 11.625% per year. The notes are redeemable at the
Company's option prior to the due date under certain terms and
conditions. The Company's obligations under the notes are not secured
and rank junior to all the Company's existing and future senior debt.
The proceeds from this transaction were used (1) to repay the $100,000
Senior Subordinated Credit Agreement dated January 31, 2000, (2) to
permanently retire $20,000 of the $100,000 term loan, and (3) to repay
a portion of the outstanding borrowings under the revolving facility.
The term loan and revolving facility are secured by an interest in the
Company's assets through September 2004. Interest on both loans is
based upon either the Eurodollar, the Federal Funds effective or
corporate based (prime) rate. The term loan interest rate was 8.14%
at December 31, 2000. The interest rate on the revolving facility at
December 31, 2000 was 9.50%. A commitment fee ranging from .25% to
.50% annually is charged on the daily unused portion of the revolving
credit agreement.
13
The Senior Credit Agreement (including amendments) and the Senior
Subordinated Notes require the Company, among other things, to comply
with certain financial ratios and covenants. The Company was in
compliance with all financial ratios as of December 31, 2000. These
agreements also contain certain other restrictions, including
limitations on payments of cash dividends, sales of assets, incurrence
of indebtedness, the creation of liens, making certain investments and
engaging in sale/leaseback transactions.
Maturities of long-term debt at December 31, 2000, are as follows:
2001 - $11,656; 2002 - $14,566; 2003 - $17,540; 2004 - $21,036;
2005 - $0; thereafter - $150,218.
6. Income Taxes
The U.S. and international components of income before taxes are
as follows:
Year Ended December 31,
2000 1999 1998
U.S. $ 6,429 $ 15,176 $ 24,173
International 39,014 1,240 10,055
Income before taxes and
cumulative effect of change
in accounting principle $ 45,443 $ 16,416 $ 34,228
The provision for income taxes consists of:
Year Ended December 31,
2000 1999 1998
Current:
U.S. Federal $ (4,576) $ 4,583 $ 8,564
International 15,284 8,323 4,974
U.S. State 585 853 374
11,293 13,759 13,912
Deferred 2,340 (9,064) (3,986)
Provision for income taxes $ 13,633 $ 4,695 $ 9,926
14
The Company's income tax provision differs from the amount
computed by applying the U.S. federal statutory rate to income
before taxes as follows:
Year Ended December 31,
2000 1999 1998
U.S. statutory tax rate 35% 35% 35%
State taxes, net of
federal income tax benefit 2 2 (1)
Foreign Sales Corporation
tax benefit (3) (10) (5)
Research and development
tax credit (2) (1) (1)
Difference between U.S. and
foreign tax rates (net of
foreign tax credits) (1) 12 -
Loss carryforwards utilized 0 (5) (1)
Amortization of goodwill 1 4 -
Foreign losses not benefited 4 31 -
Favorable resolution of U.S.
income tax disputes (1) (40) -
Foreign exchange gain/(loss)
recognized (6) - -
Other 1 1 2
Provision for income taxes 30% 29% 29%
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of deferred tax
assets and liabilities are as follows:
Year Ended December 31,
2000 1999
Deferred Tax Assets:
Reserves for obsolete inventory,
warranty and bad debts $ 11,845 $ 12,622
Eliminated intercompany profit 3,823 3,661
Tax benefit of foreign loss
carryforwards 12,629 16,457
Other 9,493 11,975
37,790 44,715
Valuation allowance (17,020) (24,131)
Deferred Tax Assets $ 20,770 $ 20,584
Deferred Tax Liabilities:
Deferred gain on condemnation $ 3,444 $ 3,522
Depreciation 1,325 1,567
Development cost of Hercules
facility 1,483 1,385
Other 2,740 542
Deferred Tax Liabilities $ 8,992 $ 7,016
15
The valuation allowance is needed to reduce the deferred tax
assets to an amount that is more likely than not to be realized.
The net change in the valuation allowance in 2000 was a decrease
of $7,111, primarily resulting from a utilization of tax loss
carryforwards. Carryforwards resulting from the acquisition of
PSD, which were not valued at the acquisition date, adjusted the
recorded goodwill by approximately $5,800. The net change in
1999 was an increase of $18,789 primarily resulting from an
increase in tax loss carryforwards.
At December 31, 2000, Bio-Rad's international subsidiaries had
combined net operating loss carryforwards of $31,759. A portion
of these loss carryforwards will expire in the following years:
2002 - $629; 2003 - $145; 2004 - $172; and 2005 - $1,582. The
remainder of these loss carryforwards have no expiration date.
The utilization of these carryforwards is limited to the separate
taxable income of each individual subsidiary.
Bio-Rad does not provide for taxes which would be payable if the
cumulative undistributed earnings of its international subsidiaries,
approximately $55,666 at December 31, 2000, were remitted to the U.S.
parent company. Unless it becomes advantageous for tax or foreign
exchange reasons to remit a subsidiary's earnings, such earnings are
indefinitely reinvested in subsidiary operations. The withholding tax
and U.S. federal income taxes on these earnings, if remitted, would in
large part be offset by tax credits.
7. Stockholders' Equity
Stock Classification
The Company's outstanding stock consists of Class A Common Stock
(Class A) and Class B Common Stock (Class B). Each share of Class A
and Class B participates equally in the earnings of Bio-Rad, and is
identical in most respects except that Class A has limited voting
rights. Each share of Class A is entitled to one-tenth of a vote on
most matters, and each share of Class B is entitled to one vote.
Additionally, Class A stockholders are entitled to elect 25% of the
Board of Directors and Class B stockholders are entitled to elect the
balance of the directors. Cash dividends may be paid on Class A
shares without paying a cash dividend on Class B shares but no cash
dividend may be paid on Class B shares unless at least an equal cash
dividend is paid on Class A shares. Class B shares are convertible at
any time into Class A shares on a one-for-one basis at the option of
the stockholder.
Stock Option Plans
Bio-Rad maintains incentive and non-qualified stock option plans for
officers and certain other key employees. Under the Amended 1994
Stock Option Plan (the Plan), the Company may grant options to its
employees for up to 1,175,000 shares of common stock provided that no
option shall be granted after March 1, 2004. Under the plans, Class A
and Class B options are granted at prices not less than fair market
value on the date of grant, are exercisable on a cumulative basis at a
16
rate not greater than 25% per annum commencing one year after the date
of grant. Under an amendment to the Plan effective September 19, 2000,
options expire ten years after the grant date with the exception of
options granted in 1999 which expire five years after the grant date.
The Company has made no charge to income with respect to any stock
options. At the time options are exercised, the par value of the
shares is credited to common stock and the excess is credited to
additional paid-in capital. The Company may receive income tax
benefits from the exercise of non-qualified stock options and from
certain dispositions of stock received by employees under qualified or
incentive stock options. The fair value of each option granted since
January 1, 1995, was estimated on the date of the grant using the
Black-Scholes option-pricing model with the following assumptions for
grants in 2000, 1999 and 1998, respectively: no dividend yield for
all periods; weighted average expected lives of 4.1 years in 2000,
3.9 in 1999 and 3.8 years in 1998; expected volatility of 30%, 34% and
35%; and risk-free interest rates of 6.71%, 4.79% and 5.44% for 2000,
1999 and 1998, respectively.
17
Activity under the plans is summarized below (amounts reported in the Price columns
represent the weighted average exercise price):
Year Ended December 31,
2000 1999 1998
Shares Price Shares Price Shares Price
Outstanding at beginning of year 645,115 $24.18 561,047 $23.73 517,018 $21.40
Granted 530,945 22.52 166,080 19.89 150,653 23.54
Exercised (65,250) 18.95 (60,914) 8.47 (89,625) 10.09
Forfeited (111,338) 24.61 (19,712) 25.10 (14,677) 25.07
Expired (38,583) 18.21 (1,386) 7.37 (2,322) 9.46
Outstanding at end of year 960,889 $23.80 645,115 $24.18 561,047 $23.73
Options exercisable at year-end 272,048 $26.92 280,825 $24.72 222,539 $19.86
Weighted average fair value of
options granted during the year $6.91 $6.46 $7.62
The following summarizes information about stock options outstanding at December 31, 2000:
Options Outstanding Options Exercisable
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 12/31/00 Contractual Life Exercise Price at 12/31/00 Exercise Price
$19.69 - $19.88 120,281 3.1 years $19.74 27,668 $19.73
$21.50 - $21.50 295,865 9.7 21.50 0 0
$21.86 - $23.88 280,566 8.4 23.43 43,173 22.99
$23.94 - $35.89 264,177 6.1 28.63 201,207 28.75
$19.69 - $35.89 960,889 7.5 23.80 272,048 26.92
18
Employee Stock Purchase Plan
Under the Amended and Restated 1988 Employee Stock Purchase Plan (the
Plan), the Company has authorized the sale of 745,000 shares of Class
A to eligible employees. The purchase price of the shares under the
Plan is the lesser of 85% of the fair market value on the first day of
each calendar quarter, or 85% of the fair market value on the last day
of each calendar quarter. Employees may designate up to 10% of their
compensation for the purchase of stock. Under the Plan, the Company
sold 57,101 shares for $1,136, 58,762 shares for $1,098 and 51,446
shares for $1,129 to employees in 2000, 1999 and 1998, respectively.
At December 31, 2000, 48,263 shares remained authorized under the
Plan.
The fair value of the employees' purchase rights since 1995 was
estimated using the Black-Scholes model with the following assumptions
for 2000, 1999 and 1998, respectively: no dividend yield for all
periods; an expected life of three months for all periods; expected
volatility ranging from 28% to 43%, from 22% to 35% and from 28% to
38%; and risk-free interest rates ranging from 5.45% to 6.46%, from
4.28% to 4.88% and from 4.27% to 5.23%. The weighted average fair
value of those purchase rights granted in 2000, 1999 and 1998 was
$5.10, $4.74 and $5.55, respectively.
Pro Forma Disclosures
If compensation cost for the Company's stock-based compensation plans
had been determined based upon the fair value at grant dates for
awards under those plans, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated
below:
Year Ended December 31,
2000 1999 1998
Net income As reported $31,100 $11,721 $24,302
Pro forma $29,874 $10,469 $23,026
Diluted earnings per As reported $2.53 $0.96 $1.97
share Pro forma $2.45 $0.86 $1.86
Since employee stock options vest over several years, and
additional grants are likely to be made in the future, the
disclosures may not be representative of the effects on reported
pro forma net income or earnings per share in future years.
19
8. Earnings Per Share
Weighted average shares used for diluted earnings per share
include the dilutive effect of outstanding stock options of
73,000, 55,000 and 94,000 shares, for the years ended
December 31, 2000, 1999 and 1998, respectively.
Options to purchase 201,000, 261,000 and 229,000 shares of common
stock were outstanding during 2000, 1999 and 1998, 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 the end of 2000.
9. Other Income and Expense
Other, net includes the following income and (expense)
components:
Year Ended December 31,
2000 1999 1998
Amortization of goodwill $(8,109) $(3,813) $(2,068)
Exchange gains (losses) (420) (886) 22
Other non-operating litigation
costs, net (3,339) 73 117
Gain on sale of fixed assets 5,155 - -
Gain on sale of semiconductor
division 16,690 - -
Miscellaneous other items (1,584) (189) (47)
Other, net $ 8,393 $(4,815) $(1,976)
Non-operating litigation costs represent fees incurred to
litigate intellectual property issues. Management does not
believe that the outcome of these actions would have a material
adverse effect on the future results of operations or the
financial position of the Company. The Company will continue to
incur costs relating to these issues.
Exchange gains (losses) include premiums and discounts on forward
foreign exchange contracts.
20
10. Supplemental Cash Flow Information
The reconciliation of net income to net cash provided by operating
activities is as follows:
Year Ended December 31,
2000 1999 1998
Net income $31,100 $11,721 $24,302
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 33,722 23,090 18,510
Amortization 9,587 4,405 2,465
Foreign currency hedge transactions, net (6,115) (2,401) 1,360
Gains on dispositions of marketable securities (479) (850) (8,620)
Increase in accounts receivable, net (329) (16,082) (5,739)
(Increase) decrease in inventories (18,915) 4,095 (166)
Decrease in other current assets 914 5,609 4,629
Increase (decrease) in accounts payable and
other current liabilities (586) 26,153 (4,808)
Increase (decrease) in income taxes payable (4,599) 4,804 1,040
Increase (decrease) in deferred taxes 3,383 (16,946) (5,292)
Gain on sale of semiconductor division
and fixed assets (21,845) - -
Other (1,591) 1,383 (346)
Net cash provided by operating activities $24,247 $44,981 $27,335
11. Commitments and Contingent Liabilities
Rents and Leases
Net rental expense under operating leases was $12,953 in 2000,
$13,607 in 1999 and $12,622 in 1998. Leases are principally
for facilities and automobiles.
Annual future minimum lease payments at December 31, 2000, under
operating leases are as follows: 2001 - $13,373; 2002 - $9,012; 2003 -
$6,601; 2004 - $4,605; 2005 - $3,992; subsequent to 2005 - $7,214.
Deferred Profit Sharing Retirement Plan
The Company has a profit sharing plan covering substantially all U.S.
employees. Contributions are made at the discretion of the Board of
Directors. Bio-Rad has no liability other than for the current year's
contribution. Contributions charged to income were $4,815, $4,030 and
$3,566 in 2000, 1999 and 1998, respectively.
Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts as a hedge
against foreign currency denominated intercompany receivables and
payables. At December 31, 2000, the Company had contracts maturing in
January 2001 to sell foreign currency with a market value of $46,700
and to purchase foreign currency with a market value of $11,827. At
21
December 31, 1999, the Company had contracts maturing in January 2000
to sell foreign currency with a market value of $64,390 and to purchase
foreign currency with a market value of $6,339.
Letters of Credit
In the ordinary course of business, the Company is at times required to
post letters of credit. These letters of credit are required by
certain insurance companies to ensure payments of certain charges. The
Company was contingently liable for approximately $763 of standby
letters of credit with a bank as of December 31, 2000.
12. Legal Proceedings
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of
management, the outcome of these claims, legal actions and complaints
would not have a material adverse effect on the future results of
operations or the financial position of the Company.
13. Segment Information
Bio-Rad is a multinational manufacturer and worldwide distributor of
life science research products, clinical diagnostics and analytical
instruments. Bio-Rad has three reportable segments: Life Science,
Clinical Diagnostics and Analytical Instruments. These reportable
segments are strategic business lines that offer different products and
services and require different marketing strategies.
The Life Science segment develops, manufactures, sells and services
liquid chromatography, electrophoresis, gene amplification and
transformation, imaging and image analysis, and nucleic acid sample
preparation products. These products are sold to university and
medical school laboratories, pharmaceutical and biotechnology
companies, and government and industrial research facilities.
The Clinical Diagnostics segment develops, manufactures, sells and
services automated test systems, informatics systems, test kits and
specialized quality controls for the healthcare market. These products
are sold to reference laboratories, hospital laboratories, state
newborn screening facilities, physicians office laboratories, and
insurance and forensic testing laboratories.
The Analytical Instruments segment develops, manufactures, sells and
services FT-IR spectroscopy systems, semiconductor test and
manufacturing instruments, spectral reference publications and
software. These products are sold to industrial companies, government
institutions, academia and forensic analysis laboratories. The
Company's semiconductor business was sold in 2000 (see Note 2).
22
The accounting policies of the segments are the same as those described
in Significant Accounting Policies (see Note 1). Segment profit or
loss used for corporate management purposes includes an allocation of
corporate expense based upon sales and an allocation of interest
expense based upon accounts receivable and inventories. Segments are
expected to manage only assets completely under their control.
Accordingly, segment assets include primarily accounts receivable,
inventories and gross machinery and equipment.
Information regarding industry segments at December 31, 2000, 1999 and
1998 and for the years then ended is as follows:
Life Clinical Analytical
Science Diagnostics Instruments
Segment net sales 2000 $269,805 $409,004 $ 53,101
1999 238,007 251,842 67,974
1998 213,570 172,008 66,100
Allocated interest expense 2000 $ 9,322 $ 19,370 $ 1,909
1999 3,761 7,775 1,206
1998 1,501 1,464 571
Depreciation and 2000 $ 6,380 $ 25,655 $ 858
amortization 1999 8,003 15,466 1,335
1998 7,328 11,242 1,652
Segment profit (loss) 2000 $ 15,342 $ 25,337 $ (2,395)
1999 16,643 18,749 2,928
1998 12,649 20,228 (2,166)
Segment assets 2000 $152,179 $308,437 $ 14,441
1999 131,689 320,419 35,387
1998 124,219 129,089 38,607
Capital expenditures 2000 $ 6,763 $ 27,508 $ 755
1999 10,673 13,388 1,378
1998 6,487 15,213 1,912
Inter-segment sales are primarily from Life Science to Clinical
Diagnostics and are priced to give Life Science a market
representative gross margin. This represents the difference
between total segment net sales and consolidated net sales. The
difference between total segment allocated interest expense,
depreciation and amortization, and capital expenditures and the
corresponding consolidated amounts is attributable to the
Company's corporate headquarters.
23
The following reconciles total segment profit to consolidated
income before taxes and cumulative effect of change in accounting
principle:
Year Ended December 31,
2000 1999 1998
Total segment profit $38,284 $38,320 $30,711
Gross profit on inter-segment sales (1,755) (1,204) (1,925)
Net corporate operating, interest
and other income and expense
not allocated to segments (8,671) (6,073) (3,348)
Gain on sale of Semiconductor
Division 16,690 - -
Purchased in-process research and
development - (15,500) -
Investment income, net 895 873 8,790
Consolidated income before taxes
and cumulative effect of change
in accounting principle $45,443 $16,416 $34,228
The following reconciles total segment assets to consolidated total
assets:
December 31,
2000 1999 1998
Total segment assets $475,057 $487,495 $291,915
Cash and other current assets 54,907 58,542 36,968
Net property, plant and
equipment excluding segment
specific gross machinery and
equipment (41,264) (41,378) (11,364)
Other long-term assets 157,578 164,203 49,780
Total assets $646,278 $668,862 $367,299
The following presents sales to external customers by geographic area
based primarily on the location of the use of the product or service:
Year Ended December 31,
2000 1999 1998
Europe $275,062 $188,969 $141,004
Pacific Rim 128,311 110,729 88,917
United States 274,541 231,705 201,230
Other (primarily Canada
and Latin America) 47,970 23,996 16,712
Total net sales $725,884 $555,399 $447,863
24
The following presents long-lived assets by geographic area based
upon the location of the asset:
Year Ended December 31,
2000 1999 1998
Europe $ 26,663 $ 34,129 $ 7,860
Pacific Rim 6,550 6,954 4,933
United States 239,817 247,293 118,628
Other (primarily Canada
and Latin America) 3,580 1,769 489
Total long-lived assets $276,610 $290,145 $131,910
14. Quarterly Financial Data - (unaudited)
Summarized quarterly financial data for 2000 and 1999 are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
2000
Net sales $185,463 $186,826 $175,761 $177,834
Gross profit 98,743 99,633 91,671 92,473
Net income 2,955 5,074 13,919 9,152
Basic earnings
per share $0.24 $0.42 $1.14 $0.75
Diluted earnings
per share $0.24 $0.41 $1.14 $0.74
1999
Net sales $127,378 $117,284 $115,066 $195,671
Gross profit 71,822 66,731 63,167 98,456
Net income (loss) 10,802 7,881 4,253 (11,215)
Basic earnings (loss)
per share $0.89 $0.65 $0.35 $(0.92)
Diluted earnings (loss)
per share $0.89 $0.65 $0.35 $(0.92)
25
15. Information Concerning Common Stock - (unaudited)
The Company's Class A and Class B Common Stock are listed on the
American Stock Exchange with the symbols BIO.A and BIO.B,
respectively. The following sets forth, for the periods indicated,
the high and low prices for the Company's Class A and Class B Common
Stock.
Class A Class B
High Low High Low
2000
First Quarter 33 21.25 33.25 22.63
Second Quarter 27.25 21 28.25 21.50
Third Quarter 25 21 24.25 21.50
Fourth Quarter 34 22.20 33.50 23.88
1999
First Quarter 21.75 18.88 21.38 19.38
Second Quarter 29 20.38 27.50 23.38
Third Quarter 28 25.63 27 25.88
Fourth Quarter 27.50 22.50 27.13 23.13
On February 28, 2001 the Company had 963 holders of record of
Class A Common Stock and 250 holders of record of Class B Common
Stock. Bio-Rad has never paid a cash dividend and has no present
plans to pay cash dividends.
26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Bio-Rad Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of
Bio-Rad Laboratories, Inc. (a Delaware Corporation) and
subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the period
ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Bio-Rad Laboratories, Inc. and subsidiaries as of
December 31, 2000 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
San Francisco, California
February 6, 2001
27
Bio-Rad Laboratories, Inc.
Management's Discussion and Analysis
________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This discussion should be read in conjunction with the
information contained in the Company's Consolidated Financial
Statements and the accompanying notes which are an integral part
of the statements. References are to the Notes to Consolidated
Financial Statements.
The following shows operating income and expense items as a
percentage of net sales:
Year Ended December 31,
2000 1999 1998
Net sales 100.0 100.0 100.0
Cost of goods sold 47.3 46.0 45.2
Gross profit 52.7 54.0 54.8
Selling, general and
administrative expense 34.1 36.0 38.6
Product research and
development expense 9.4 9.2 9.2
Purchased in-process
research and development - 2.8 -
Income from operations 9.2 6.0 7.0
===== ===== =====
Net income 4.3 2.1 5.4
===== ===== =====
The year 2000 operations of Bio-Rad Laboratories include a full
year's operations of Pasteur Sanofi Diagnostics, S.A. (PSD). The
acquisition of PSD was made in October 1999 with the potential
benefits of complementary product lines, increased geographic
reach and the opportunity to achieve increased operational
efficiencies. During the first half of the year 2000, Bio-Rad
consolidated selling, marketing and general and administrative
operations in Europe and North America. Reductions in both
employees and facilities were completed in compliance with legal
guidelines in Europe to improve profitability. On August 1,
2000, the Company sold its semiconductor equipment test and
manufacturing product line for cash and a note receivable. The
cash was used to pay down debt under the senior credit facility.
28
Corporate Results -- Sales, Margins and Expenses
Bio-Rad's net sales for 2000 were $725.9 million, an increase of
30.7% over the prior year. The year 2000 was positively impacted
by the inclusion of twelve months sales of PSD versus 1999 which
included sales for the fourth quarter only. The year 2000 was
negatively impacted by a strengthening U.S. dollar, the
divestiture of the semiconductor product line and expiration of a
distribution agreement. Adjusting for the above significant
items, sales growth would have been 8.4% using the 1999
proforma/acquisition sales of $727.9 million and adjusting for
currency changes and divested product lines.
The Diagnostic segment had growth of 5.4% adjusted for currency,
the acquisition of PSD and product line divestitures. Product
lines contributing to this growth were Bio-Rad's quality control
business, genetic tests and improved penetration for the PSD
product line in North America and Asia. The Life Science segment
had growth of 17.9% adjusted for currency. The increase reflects
increases in the sales of laboratory devices and consumables.
Analytical Instrument sales decreased on the divestiture of the
semiconductor business as well as a decline in the Company's
spectroscopy product lines.
Bio-Rad's net sales (sales) in 1999 were $555.4 million, an
increase of 24.0% over 1998 sales. Included in the 1999 fourth
quarter sales was $60.2 million from the PSD operations (see Note
2). Excluding this amount, Bio-Rad's sales grew by 10.6% over
the year 1998. For the year 1999, the impact from currency
translation on sales was less than $1.0 million. Excluding any
impact from currency for 1999, the Life Science and Clinical
Diagnostics segments (excluding the PSD acquisition) grew by
12.2% and 11.6%, respectively. The growth in the Life Science
segment is attributable to laboratory products and scientific
imaging equipment. The Clinical Diagnostics segment growth was a
result of the continuing demand for the Company's diabetes
monitoring and quality control systems.
Consolidated gross margins in 2000 were 52.7% compared to 54.0%
for the year 1999. The inclusion of a full year's operations of
the PSD product lines further reduced the Company's margins as
these products have overall lower margins than the Company's
other Diagnostic products. Excluding PSD, the products of this
segment had a decline of 1% on higher manufacturing and service
costs. The Life Science segment had no change in gross margin as
favorable manufacturing overhead absorption was offset by the
negative impact from declining margins on foreign sales.
Consolidated gross margins were 54.0% for 1999 compared to 54.8%
in the prior year. After adjusting for the acquisition of PSD,
gross margins for the businesses operated for full year were
29
55.9%, an improvement over the 54.8% recorded in 1998. The Life
Science segment's gross margin improved as sales growth provided
the opportunity to lower fixed factory overhead and new product
pricing remained firm. The Clinical Diagnostics segment's gross
margin experienced no change as pricing pressure in the
healthcare industry remained a considerable factor and the cost
of foreign sourced products rose as the Yen strengthened when
compared to the dollar. The Analytical Instruments segment's
gross margin improved as demand increased and pricing improved
for the Company's semiconductor test and manufacturing equipment.
Consolidated selling, general and administrative expense (SG&A)
decreased to 34.1% of sales from 36.0%. For the year 2000, the
Company implemented Financial Accounting Standards Board Emerging
Issues Task Force Issue 00-10 related to the standardized method
for recording shipping and handling charges billed separately to
customers. All prior periods presented have been adjusted to
consistently apply the gross method. There is no impact on
either income from operations or net income in any period
presented, only increased sales and increased selling expense.
Both the Life Science and Diagnostics segments grew SG&A expense
at a rate lower than sales growth. The Analytical Instruments
segment had slightly higher SG&A expense on a reduced sales base
as declining spectroscopy sales and the divestiture of the
semiconductor business did not permit proportional reductions in
SG&A without jeopardizing the ongoing business which would
further diminish the potential to find suitable strategic
options. The Company continues to make the efficient use of SG&A
expense a priority. The acquisition of PSD should allow the
Company to further leverage this expense in a larger sales
environment through the elimination of duplicate facilities and
more efficient operations.
Consolidated SG&A decreased to 36.0% of sales in 1999 when
compared to 38.6% for 1998. After adjustment for the PSD
acquisition, SG&A expense for the Company was 36.9%, a decline of
1.7% of sales from the prior year. For the Company excluding
PSD, total SG&A grew by less than 60% of sales growth. In
absolute dollars, the largest increase in SG&A expense was in the
Life Science segment as the Clinical Diagnostics segment grew
only slightly and the Analytical Instruments segment declined.
Product research and development expense (R&D) increased by 33.1%
or $16.9 million, which includes for 2000 a full year's expense
associated with the acquired PSD business. As a percentage of
sales R&D expense rose to 9.4% of sales from 9.2% in the prior
year as both the Life Science and Diagnostics segments have large
long term projects with opportunity for substantial future sales
and current opportunities including improvements to the existing
industrial diagnostic testing product line related to the
increased demand for BSE (Bovine Spongiform Encephalopathy or Mad
30
Cow Disease) tests. Expenditure levels as a percentage of sales
could rise in 2001 as the longer term projects will not be
completed until after 2001.
R&D increased by 23.7% in 1999 to $51.2 million including the
operations of PSD compared to $41.4 million for the year 1998.
Both Life Science and Clinical Diagnostics segments (excluding
PSD) increased R&D spending at a rate higher than sales growth as
the Company was focusing on R&D programs to increase sales
through new product development complementing recent
acquisitions. Included in income from operations is the write-
off of $15.5 million of "purchased in-process research and
development expense" related to the PSD acquisition (IPR&D).
IPR&D represents the value assigned in a purchase business
combination to research and development projects of the acquired
business that have been commenced but not completed at
acquisition in accordance with SFAS No. 2, "Accounting for
Research and Development Costs".
Corporate Results -- Non-Operating Items
Interest expense increased substantially for the year 2000
reflecting a full year's cost of borrowed funds to purchase PSD.
The Company, in early 2000, replaced the interim $100.0 million
Senior Subordinated Credit Facility with a $150.0 million
aggregate principal amount of Senior Subordinated Notes due in
2007. The additional capacity was used to reduce the $200.0
million Senior Credit Facility. The Company used a significant
portion of the proceeds from the sale of the semiconductor
product line to further reduce borrowing under the Senior Credit
Facility. At December 31, 2000, the debt to equity ratio was 91%
compared to 119% at year end 1999. At this time, no significant
asset sales are being considered that would further materially
reduce net borrowings and interest expense. Average borrowings
for the year 2000 and 1999 were $251.3 and $97.8 million,
respectively.
Net other income and expense for 2000 includes the gain on sale
of assets, amortization of goodwill, non-operating legal costs
and settlement costs related to cancelling a financing
arrangement (see Note 9). Net other income and expense for 1999
is comprised principally of amortization of goodwill. All years
include exchange gains and losses from nonspeculative forward
foreign exchange contracts which hedged the exposure of
intercompany receivables and payables. The net exchange gain or
loss results from the estimating inherent in projecting
intercompany balances and transaction charges.
Bio-Rad's consolidated effective tax rate was 30%, 29% and 29% in
2000, 1999 and 1998, respectively. The tax rate for all years
reflects the utilization of loss carryforwards, foreign sales
corporation benefits and foreign tax credits. The effective tax
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rate in future periods is expected to rise as the deductibility
of goodwill amortization and interest expenses, as well as the
utilization of loss carryforwards are dependent on the source and
amount of income generated by the Company.
Financial Condition
The Company became substantially leveraged as it entered into
expanded credit facilities to acquire PSD. As a result of the
debt service obligations undertaken, the Company has a risk of
limited liquidity and capital resources.
The Company has a Senior Credit Facility of $163.0 million
consisting of a $100.0 million revolving facility and a $63.0
million term loan (reduced from $100.0 million initially),
allowing for borrowings on a secured basis to September 2004.
Additionally, in February 2000, the Company completed the sale of
$150.0 million aggregate principal amount of Senior Subordinated
Notes due 2007.
The lenders have placed restrictions on the Company's ability to:
borrow further, service this and other debt, make expenditures
for capital improvements, pay dividends, repurchase the Company's
own stock and/or make strategic and tactical investments in
support of operating the business. The Company is also required
to comply with certain financial ratios. The amount of debt
undertaken in connection with this acquisition could materially
impact the financial condition of the Company should management's
plan for operating the new entity not be successful.
At December 31, 2000, the Company had available $14.0 million in
cash and cash equivalents, $19.1 million under its international
lines of credit, and $98.3 million under its principal revolving
credit agreement (see Note 5). Management believes that this
availability, together with cash flow from operations, will be
adequate to meet the Company's current objectives for operations,
research and development and investment in our systems and
equipment.
Net cash provided by operations was $24.2 million, $45.0 million
and $27.3 million in 2000, 1999 and 1998, respectively. The
largest contributing factor to the decline in net cash provided
is increased interest expense on borrowings to purchase PSD.
Consolidated net accounts receivable decreased approximately
$11.7 million in 2000 when compared to 1999. This decrease is
attributable in part to weakening foreign currencies causing a
decline in the value of foreign receivables. This decline was
offset by increased domestic receivables due to sales increases,
the inclusion of PSD ancillary asset sites after January 1, 2000
in Brazil and the Czech Republic, and increased representation in
countries with slower payment expectations. Bio-Rad's management
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regularly reviews the allowance for uncollectible receivables and
believes net receivables are fully realizable.
For the year ended December 2000, consolidated inventories rose
$6.2 million to $132.5 million. The Diagnostic segment had
inventory increases related to equipment orders which at year-end
1999 were unfilled due to a short-term supplier problem.
Additionally, the inclusion after January 1, 2000 of the
ancillary asset sites in Brazil and the Czech Republic added to
Diagnostics inventories. The Life Science segment had inventory
increases in line with sales activity. The component of
inventory at international locations declined as weakened local
currencies caused the value of foreign manufactured goods to
decline in U.S. dollar terms. Management regularly reviews the
impact of obsolescence on current inventory caused by the
introduction of new products. Management will continue its focus
on inventory control to moderate capital requirements.
A valuation reserve is necessary for deferred tax assets (see
Note 6) primarily because realization of tax benefits
attributable to foreign loss carryforwards is uncertain.
Net capital expenditures in 2000 totaled $31.4 million compared
to $27.3 million and $21.2 million in 1999 and 1998,
respectively. Expenditures in all years include clinical
diagnostic equipment placed with customers to be used with the
Company's diagnostic reagents. Management regularly approves
capital spending in the normal course of business.
The Board of Directors authorized the Company to repurchase up to
$18 million of the Company's common stock over an indefinite
period of time. Through December 2000, the Company has
repurchased 583,636 shares of Class A Common Stock and 30,000
shares of Class B Common Stock for a total of $14.5 million. The
Company's credit agreements restrict the Company's ability to
repurchase its own stock. Share repurchases made during 2000
amounted to $0.4 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.
Euro - A New European Currency
On January 1, 1999, certain member countries of the European
Union entered a three-year transition phase during which the euro
was introduced as a common currency in participating countries.
The euro is currently used for wholesale financial transactions
and will replace the legacy currencies that will be withdrawn
between January 1, 2002 and July 1, 2002.
This transition will have business implications including the
need to adjust internal systems to accommodate the euro and
cross-border price transparency. A group of Corporate and
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European managers have been assigned the task of preparing and
accommodating the changes required to continue to do business in
the European Union. The Company does not presently expect that
the efforts involved will have a material impact on operations,
financial position or liquidity. There will be increased
competitive pressures, and marketing strategies will need to be
continuously evaluated until the transition is complete. As a
result of competitive forces and emerging government regulations,
the Company cannot guarantee that all problems will be foreseen
and remediated, and that no material disruption will occur.
Year 2000
From December 31, 1999 continuing through the year 2000, the
Company monitored its information centers and operations for
transition issues related to the Year 2000. No material problems
were reported in any of the Company's facilities or operations
during the year. The Company did not experience any material
Year 2000 problems with its systems or products, nor did the
Company experience any material problems with any of its key
customers or suppliers.
Financial Risk Management
Bio-Rad uses derivative financial instruments to reduce the
Company's exposure to fluctuations in foreign exchange rates and,
on occasion interest rates. No derivative financial instruments
are entered into for the purpose of speculating or trading.
Company policy limits all derivative positions exclusively to
reducing risk by hedging an underlying economic exposure. In
most material cases, derivative investments do not qualify for
hedge accounting treatment under Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). Derivative
instruments used in these transactions will be valued at fair
value and changes in fair value will be consequently classified
into earnings.
Bio-Rad operates and conducts business in many foreign countries
and is exposed to movements in foreign currency exchange rates.
Additionally, Bio-Rad's consolidated net equity is impacted by
the conversion of the net assets of international subsidiaries
for which the functional currency is not the U.S. dollar.
Foreign currency exposures are managed on a centralized basis by
the Company's Treasury Department. This allows for the netting
of natural offsets and lowers transaction costs and exposures.
Bio-Rad currently makes more than 50% of its sales outside the
United States and weakening in one currency can often be offset
by strengthening in another.
Bio-Rad typically enters into forward exchange contracts to sell
its foreign currency. Contracts are entered into typically for
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30 to 60 days, primarily in British Sterling, Japanese Yen, and
euros or related currencies. The costs are recognized in income
monthly and generally are the reciprocal of the change in
underlying assets. Bio-Rad does not hold any derivative
contracts that hedge its foreign currency denominated net asset
exposures.
Bio-Rad uses sensitivity analysis to assess the market risk
associated with its foreign currency exchange risk. Market risk
is the potential change in fair value of derivative positions
from an adverse movement in currency exchange rates. The forward
foreign exchange contracts at December 31, 2000 had a net fair
value of $34.9 million. A 10% adverse loss on quoted foreign
currency exchange rates would result in a $3.5 million loss.
This impact of a change in exchange rates, excludes from the
analysis the offset derived from the change in the Company's
underlying assets and liabilities, which could reduce the effect
to zero.
The Company's long-term debt consists mostly of fixed rate
instruments in order to minimize earnings volatility related to
interest expense. While the Company has used derivative
instruments in the past, it did not hold any interest rate
derivative contracts at December 31, 2000. The current policy is
to manage interest costs using a mix of fixed and variable debt.
New Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
SFAS 133. Implementation was then delayed to fiscal years
beginning after June 15, 2000. This statement establishes
accounting and reporting standards requiring companies to record
all derivatives on the balance sheet as either assets or
liabilities and measure those instruments at fair value. The
manner in which companies are to record gains or losses resulting
from changes in the values of those derivatives depends on the
use of the derivative and whether it qualifies for hedge
accounting. The Company adopted SFAS 133 and subsequent
amendments as of the first day of fiscal year 2001 and will
currently not seek hedge accounting treatment, instead recording
the value adjustment to derivative instruments through earnings.
Forward Looking Statements
Other than statements of historical fact, statements made in this
Annual Report include forward looking statements, such as
statements with respect to the Company's future financial
performance, operating results, plans and objectives. We have
based these forward looking statements on our current
expectations and projections about future events. However,
actual results may differ materially from those currently
anticipated depending on a variety of risk factors including
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among other things: our ability to successfully integrate with
PSD; our substantial leverage and ability to service our debt;
our ability to successfully develop and market new products; our
reliance on and access to necessary intellectual property;
competition in and government regulation of the industries in
which we operate; and the monetary policies of various countries.
We undertake no obligation to publicly update or revise any
forward looking statements, whether as a result of new
information, future events, or otherwise.
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