SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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)
Delaware 94-1381833
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) 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
No Change
Former name, former address and former fiscal year, if changed since last
report.
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 commonstock ,as of the latest practicable date--
Shares Outstanding
Title of each Class at July 31, 2002
Class A Common Stock,
Par Value $0.0001 per share 20,305,064
Class B Common Stock,
Par Value $0.0001 per share 4,851,192
<page>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
<table>
<caption> Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
<s> <c> <c> <c> <c>
NET SALES . . . . . . . . . . . . . . . . . . $214,660 $195,354 $424,842 $398,022
Cost of goods sold . . . . . . . . . . . . . 92,386 87,111 181,228 179,831
-------- -------- -------- --------
GROSS PROFIT . . . . . . . . . . . . . . . . 122,274 108,243 243,614 218,191
Selling, general and administrative expense . (69,486) (63,909) (135,222) (125,806)
Product research and development expense . . (19,806) (17,701) (40,047) (36,129)
Goodwill amortization . . . . . . . . . . . . -- (2,021) -- (4,042)
Loss on sale of assets. . . . . . . . . . . . -- -- -- (5,150)
Interest expense . . . . . . . . . . . . . . (5,982) (5,940) (11,536) (12,529)
Foreign exchange losses . . . . . . . . . . . (2,059) (33) (2,809) (849)
Other, net . . . . . . . . . . . . . . . . . 489 (289) (962) (1,734)
-------- -------- -------- --------
INCOME BEFORE TAXES . . . . . . . . . . . . . 25,430 18,350 53,038 31,952
Provision for income taxes . . . . . . . . . (9,198) (6,789) (18,033) (11,822)
-------- -------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . $ 16,232 $ 11,561 $ 35,005 $ 20,130
======== ======== ======== ========
Basic earnings per share:
Net income . . . . . . . . . . . . . . . . $0.65 $0.47 $1.40 $0.82
======== ======== ======== ========
Weighted average common shares . . . . . . 25,098 24,598 25,015 24,554
======== ======== ======== ========
Diluted earnings per share:
Net income . . . . . . . . . . . . . . . . $0.62 $0.46 $1.35 $0.80
======== ======== ======== ========
Weighted average common shares . . . . . . 26,085 25,362 25,951 25,242
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
</table>
1
<page>
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
<table>
<caption> June 30, December 31,
2002 2001
<s> <c> <c>
ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 25,655 $ 47,129
Accounts receivable . . . . . . . . . . . . . . . . . . 199,973 194,400
Inventories . . . . . . . . . . . . . . . . . . . . . . 154,779 139,179
Prepaid expenses, taxes and other current assets . . . . 61,424 50,120
-------- --------
Total current assets . . . . . . . . . . . . . . . . 441,831 430,828
Net property, plant and equipment . . . . . . . . . . . 137,835 132,974
Goodwill, net . . . . . . . . . . . . . . . . . . . . . 75,873 75,873
Other assets . . . . . . . . . . . . . . . . . . . . . . 48,585 44,353
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . . $704,124 $684,028
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 69,414 $ 64,903
Accrued payroll and employee benefits . . . . . . . . . 55,939 58,434
Notes payable and current maturities of long-term debt . 11,156 9,931
Sales, income and other taxes payable . . . . . . . . . 18,836 18,633
Other current liabilities . . . . . . . . . . . . . . . 47,356 47,205
-------- --------
Total current liabilities . . . . . . . . . . . . . . 202,701 199,106
Long-term debt, net of current maturities . . . . . . . 149,417 188,423
Deferred tax liabilities . . . . . . . . . . . . . . . . 11,092 12,622
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . 363,210 400,151
STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 par value, 7,500,000 shares
authorized; none outstanding . . . . . . . . . . . . . -- --
Class A common stock, $0.0001 par value, 50,000,000 shares
authorized; outstanding - 20,285,484 at June 30, 2002
and 20,166,636 at December 31, 2001. . . . . . . . . . 2 2
Class B common stock, $0.0001 par value, 20,000,000 shares
authorized; outstanding - 4,852,592 at June 30, 2002
and 4,826,562 at December 31, 2001 . . . . . . . . . . -- --
Additional paid-in capital . . . . . . . . . . . . . . . 33,751 32,171
Class A treasury stock, 0 shares at June 30, 2002
and 161,336 shares at December 31, 2001 at cost . . . -- (1,863)
Retained earnings . . . . . . . . . . . . . . . . . . . 311,983 276,554
Accumulated other comprehensive income:
Currency translation and other . . . . . . . . . . . . (4,822) (22,987)
-------- --------
Total stockholders' equity. . . . . . . . . . . . . . 340,914 283,877
-------- --------
Total liabilities and stockholders' equity. . . . . $704,124 $684,028
======== ========
The accompanying notes are an integral part of these statements.
</table>
2
<page>
<table>
<caption>
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
2002 2001
<s>
Cash flows from operating activities: <c> <c>
Cash received from customers . . . . . . . . . . . . . . . $428,480 $380,038
Cash paid to suppliers and employees . . . . . . . . . . . (354,877) (333,934)
Interest paid. . . . . . . . . . . . . . . . . . . . . . . (10,460) (11,594)
Income tax payments . . . . . . . . . . . . . . . . . . . (26,048) (2,699)
Miscellaneous receipts (payments). . . . . . . . . . . . . 875 5,188
------- --------
Net cash provided by operating activities. . . . . . . . . 37,970 36,999
Cash flows from investing activities:
Capital expenditures, net. . . . . . . . . . . . . . . . . (18,974) (19,651)
Net sales (purchases) of marketable securities
and investments. . . . . . . . . . . . . . . . . . . . . (114) 92
Foreign currency hedges, net . . . . . . . . . . . . . . . (1,142) 1,183
Payments for acquisitions . . . . . . . . . . . . . . . . (8,568) --
------- --------
Net cash used in investing activities. . . . . . . . . . . (28,798) (18,376)
Cash flows from financing activities:
Net borrowings(payments)under line-of-credit arrangements. 6,980 (1,528)
Long-term borrowings . . . . . . . . . . . . . . . . . . . 33,523 74,250
Payments on long-term debt . . . . . . . . . . . . . . . . (77,866) (81,899)
Proceeds from issuance of common stock . . . . . . . . . . 1,580 361
Treasury stock activity, net . . . . . . . . . . . . . . . 2,287 2,018
------- --------
Net cash used in financing activities. . . . . . . . . . . (33,496) (6,798)
Effect of exchange rate changes on cash . . . . . . . . . . . . 2,850 287
------- --------
Net increase (decrease) in cash and cash equivalents . . . . . (21,474) 12,112
Cash and cash equivalents at beginning of period. . . . . . . . 47,129 13,954
-------- --------
Cash and cash equivalents at end of period. . . . . . . . . . . $ 25,655 $ 26,066
======== ========
Reconciliation of net income to net cash provided
by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,005 $ 20,130
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 17,340 20,246
Foreign currency hedge transactions, net . . . . . . . . 1,142 (1,183)
Gains on disposition of marketable securities. . . . . . (108) (81)
(Increase) decrease in accounts receivable . . . . . . . 6,778 (13,982)
Increase in inventories . . . . . . . . . . . . . . . . (8,998) (13,761)
Increase in other current assets . . . . . . . . . . . . (9,575) (608)
Increase (decrease) in accounts payable
and all other current liabilities. . . . . . . . . . . (6,891) 6,460
Increase (decrease) in income taxes payable . . . . . . (1,796) 9,562
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 5,073 10,216
-------- --------
Net cash provided by operating activities . . . . . . . . . . . $ 37,970 $ 36,999
======== ========
Non-cash investing and financing activities:
Liabilities assumed in building purchase. . . . . . . . . . . $ -- $ 3,777
======== ========
The accompanying notes are an integral part of these statements.
</table>
3
<page>
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"), have been prepared in accordance with accounting
principles generally accepted in the United States of America and
reflect all adjustments which are, in the opinion of management,
necessary to fairly state the results of the interim periods
presented. All such adjustments are of a normal recurring
nature. Results for the interim period are not necessarily
indicative of the results for the entire year. The condensed
consolidated financial statements should be read in conjunction
with the notes to the consolidated financial statements contained
in the Company's Annual Report for the year ended December 31,
2001.
Beginning January 1, 2002, the Company has classified freight
costs related to shipping and handling as part of cost of goods
sold rather than in selling, general and administrative expense
as allowed by Financial Accounting Standards Board Emerging
Issues Task Force Issue No. 00-10, "Accounting for Shipping and
Handling Fees and Costs." Prior period shipping costs, as well
as certain other items, have been reclassified to conform to the
current year presentation.
Additionally, the Company has changed the presentation of the
income statement to eliminate the subtotal "Income from
Operations" and provide further clarification of items previously
grouped in "Other,net."
2. INVENTORIES
The principal components of inventories are as follows (in
thousands):
June 30, December 31,
2002 2001
Raw materials $ 35,844 $ 33,488
Work in process 30,021 28,715
Finished goods 88,914 76,976
-------- --------
$154,779 $139,179
======== ========
4
<page>
3. PROPERTY, PLANT AND EQUIPMENT
The principal components of property, plant and equipment are as
follows (in thousands):
June 30, December 31,
2002 2001
Land and improvements $ 9,587 $ 9,658
Buildings and leasehold
improvements 77,316 75,231
Equipment 218,207 191,284
-------- --------
305,110 276,173
Accumulated depreciation (167,275) (143,199)
-------- --------
Net property, plant and equipment $137,835 $132,974
======== ========
4. GOODWILL
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted
for under the purchase method of accounting and addresses the
initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. SFAS No.
142 addresses the initial recognition and measurement of goodwill
and other intangible assets subsequent to their acquisition.
SFAS No. 142 provides that intangible assets with finite useful
lives will be amortized and that goodwill and intangible assets
with indefinite lives will not be amortized, but will be required
to be tested at least annually for impairment. The Company
adopted SFAS No. 142 on January 1, 2002. At that date, the
Company stopped the amortization of goodwill, with a net carrying
value of $75.9 million, and annual amortization of approximately
$8.0 million that had resulted from purchases of businesses
completed prior to the adoption of SFAS No. 141.
5
<page>
Had the Company been accounting for its goodwill under SFAS No.
142 for all periods presented, the Company's net income and net
income per share would have been as follows (in thousands):
<table>
<caption> Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
<s> <c> <c> <c> <c>
Reported Net Income $16,232 $11,561 $35,005 $20,130
Add back goodwill amortization,
net of tax -- 1,273 -- 2,546
------- ------- ------- -------
Pro forma adjusted net income $16,232 $12,834 $35,005 $22,676
Basic earnings per share:
Reported basic earnings per share $ 0.65 $ 0.47 $ 1.40 $ 0.82
Goodwill amortization, net of tax -- 0.05 -- 0.10
Pro forma adjusted basic ------ ------ ------ ------
earnings per share $ 0.65 $ 0.52 $ 1.40 $ 0.92
====== ====== ====== ======
Diluted earnings per share:
Reported basic earnings per share $ 0.62 $ 0.46 $ 1.35 $ 0.80
Goodwill amortization, net of tax -- 0.05 -- 0.10
Pro forma adjusted basic ------ ------ ------ ------
earnings per share $ 0.62 $ 0.51 $ 1.35 $ 0.90
====== ====== ====== ======
</table>
5. EARNINGS PER SHARE
The Company calculates basic earnings per share (EPS) and diluted EPS
in accordance with SFAS No. 128, "Earnings per Share." Basic EPS is
computed by dividing net income (loss) by the weighted average number
of common shares outstanding for that period. Diluted EPS takes into
account the effect of dilutive instruments, such as stock options, and
uses the average share price for the period in determining the number
of common stock equivalents that are to be added to the weighted
average number of shares outstanding. Common stock equivalents are
excluded from the diluted earnings per share calculation if the effect
would be anti-dilutive.
Weighted average shares used for diluted earnings per share include
the dilutive effect of outstanding stock options of 987,000 and
764,000 shares for the three month periods ended June 30, 2002 and
2001, respectively. There were no anti-dilutive shares for the three
month periods ended June 30, 2002 and 2001.
Weighted average shares used for diluted earnings per share include
the dilutive effect of outstanding stock options of 936,000 and
688,000 shares for the six month periods ended June 30, 2002 and 2001,
respectively. There were no anti-dilutive shares for the six month
periods ended June 30, 2002 and 2001.
6. ACQUISITIONS AND DISPOSITIONS
On June 28, 2002, the Company purchased for cash the microarray and
robotics technologies business of Virtek Biotech Inc., a subsidiary of
Virtek Vision International Inc. of Waterloo, Ontario, Canada. The
purchased business had annual sales of approximately $8.3 million
Canadian. Bio-Rad acquired the assets for approximately $7 million US
and will include these operations in its Life Science segment.
Preliminarily, the Company does not believe it has acquired any
goodwill or non-amortizable intangible assets.
6
<page>
In the first quarter of 2001, the Company recorded a $4.5 million non-
cash pre-tax charge reflecting the potential impact of a non-binding
letter of intent to sell the spectroscopy instrument business to a new
owner. The Company also had a write-down of $0.7 million on the value
of a production facility.
7. EXCHANGE GAINS AND LOSSES
Exchange losses include premiums and discounts on forward foreign
exchange contracts and mark-to-market adjustments on foreign
exchange contracts.
8. OTHER, NET
In the first quarter of 2002, the Company recorded a $2.0 million
non-cash pre-tax charge reflecting the write-down of the Company's
investment in Digilab, LLC. This reduced the investment value to
zero.
In the first quarter of 2001, the Company recorded a $2.0 million non-
cash pre-tax charge to adjust the value of its investment in
Instrumentation Laboratory, S.p.A based on on-going discussions with
the investees management concerning its future capital structure.
9. COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" requires disclosure
of total non-stockholder changes in equity, which include unrealized
gains and losses on securities classified as available-for sale
under SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", foreign currency translation adjustments accounted
for under SFAS No. 52 "Foreign Currency Translation" and minimum
pension liability adjustments made pursuant to SFAS No. 87 "Employers'
Accounting for Pensions."
The components of the Company's total comprehensive income were
(in thousands):
<table>
<caption> Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
<s> <c> <c> <c> <c>
Net Income $ 16,232 $ 11,561 $ 35,005 $ 20,130
Currency translation adjustments 18,116 (3,965) 18,055 (10,686)
Net unrealized holding
gains (losses) on securities 21 (42) 182 (39)
Reclassification adjustments for
gains included in net income (56) (11) (72) (68)
-------- -------- -------- --------
Total comprehensive income $ 34,313 $ 7,543 $ 53,170 $ 9,337
======== ======== ======== ========
</table>
7
<page>
10. SEGMENT INFORMATION
Information regarding industry segments for the three months ended
June 30, 2002 and 2001 is as follows (in thousands):
Life Clinical Other
Science Diagnostics Operations
Segment net sales 2002 $100,705 $111,704 $ 2,251
2001 $ 87,700 $102,286 $ 5,368
Segment profit(loss) 2002 $15,757 $ 9,763 $ (412)
2001 $15,567 $10,870 $(1,688)
Information regarding industry segments for the six months ended
June 30, 2002 and 2001 is as follows (in thousands):
Life Clinical Other
Science Diagnostics Operations
Segment net sales 2002 $201,212 $219,587 $ 4,043
2001 $179,875 $205,274 $12,873
Segment profit(loss) 2002 $34,992 $20,575 $ (765)
2001 $34,275 $18,962 $(2,616)
Segment results are presented in the same manner as the Company
presents its operations internally to make operating decisions and
assess performance. Net corporate operating income (expense)
consists of receipts and expenditures that are not the primary
responsibility of segment operating management.
Interest expense is charged to segments based on the carrying amount
of inventory and receivables employed by that segment. The following
reconciles total segment profit to consolidated income before taxes
(in thousands):
<table>
<caption> Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
<s> <c> <c> <c> <c>
Total segment profit $25,108 $24,749 $54,802 $50,621
Net corporate operating, interest
and other income (expense) not
allocated to segments 1,892 (4,056) 2,007 (6,894)
Goodwill amortization -- (2,021) -- (4,042)
Loss on sale of assets -- -- -- (5,150)
Foreign exchange losses (2,059) (33) (2,809) (849)
Other, net 489 (289) (962) (1,734)
------- ------- ------- -------
Consolidated income before taxes $25,430 $18,350 $53,038 $31,952
======= ======= ======= =======
</table>
8
<page>
11. NEW FINANCIAL ACCOUNTING STANDARDS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-
lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of", but retains the fundamental provisions for
recognizing and measuring impairment of long-lived assets to be
held and used or disposed of by sale. The Statement also
supersedes the accounting and reporting provisions for the
disposal of a segment of a business, and eliminates the exception
to consolidation for a subsidiary for which control is likely to
be temporary. SFAS No. 144 eliminates the conflict between
accounting models for treating the dispositions of long-lived
assets that existed between SFAS No. 121 and the guidance for a
segment of a business accounted for as a discontinued operation by
adopting the methodology established in SFAS No. 121, and also
resolves implementation issues of SFAS No. 121. This Statement is
effective for fiscal years beginning after December 15, 2001. The
Company has adopted SFAS No. 144 for its fiscal year beginning
January 1, 2002. The adoption of SFAS No. 144 did not have an
impact on the financial position, results of operations or cash
flows of the Company.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements 4, 44 and 64, Amendment to FASB Statement 13, and
Technical Corrections." One of the major changes of this
statement is to change the accounting for the classification of
gains and losses from the extinguishment of debt. Upon adoption,
the Company will follow APB 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" in determining whether such
extinguishment of debt may be classified as extraordinary. The
provisions of this statement related to the rescission of
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt" shall be applied in fiscal years beginning after
May 15, 2002 with early application encouraged. The Company
is currently evaluating the impact of this Statement.
In April 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses
accounting for restructuring and similar costs. SFAS 146
supersedes previous accounting guidance, principally Emerging
Issues Task Force Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)."
SFAS 146 requires that the liability for costs associated with an
exit cost or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost was
recognized at the date of the Company's commitment to an exit
plan. SFAS 146 also establishes that the liability should
initially be measured and recorded at fair value. Accordingly,
SFAS 146 may affect the timing of recognizing future restructuring
costs as well as the amounts recognized. The Company is currently
evaluating the impact of this Statement and will adopt the
provisions of SFAS 146 for restructuring activities after
December 31, 2002.
9
<page>
12. LEGAL PROCEEDINGS
The Company is 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 complains will not have a material adverse effect on the
future results of operations or the financial position of the
Company.
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition.
The following discussion should be read in conjunction with the
Company's unaudited financial statements and notes thereto
included elsewhere in this Form 10-Q and the Company's
Consolidated Financial Statements for the year ended December 31,
2001.
The following table shows gross profit and expense items as a
percentage of net sales:
<table>
<caption> Three Months Ended Six Months Ended Year Ended
June 30, June 30, December 31,
2002 2001 2002 2001 2001
<s> <c> <c> <c> <c> <c>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 43.0 44.6 42.7 45.2 44.3
----- ----- ----- ----- -----
Gross profit 57.0 55.4 57.3 54.8 55.7
Selling, general and
administrative 32.4 32.7 31.8 31.6 32.4
Product research and
development 9.2 9.1 9.4 9.1 9.4
----- ----- ----- ----- -----
Net income 7.6% 5.9% 8.2% 5.1% 5.4%
===== ===== ===== ===== =====
</table>
Critical Accounting Policies
As previously disclosed in the Company's Annual Report on Form
10-K for the year ended December 31, 2001, the Company has
identified accounting for income taxes, valuation of long-lived
and intangible assets and goodwill, and valuation of inventories
as the accounting policies critical to the operations of the
Company. For a full discussion of these policies, please refer
to the Form 10-K.
Forward Looking Statements
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. 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 among other things: our ability
to successfully develop and market new products; our reliance on
and access to necessary intellectual property; our substantial
leverage and ability to service our debt; competition in and
10
<page>
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.
The Company manufactures and supplies the life science research,
healthcare, analytical chemistry and other markets with a broad
range of products and systems used to separate complex chemical
and biological materials and to identify, analyze and purify
their components.
Three Months Ended June 30, 2002
Compared to Three Months Ended June 30, 2001
Corporate Results - Sales, Margins and Expenses
Net sales (sales) for the second quarter of 2002 were $214.7
million compared to $195.4 million in the second quarter of 2001,
an increase of 9.9%. The favorable impact from a weakening U.S.
dollar amounted to less than 1% sales growth for the Company.
The divestiture of the Company's spectroscopy instrument product
line in October 2001 lowered reported sales growth by 2.5%. The
growth in the Life Science segment excluding the favorable impact
from currency translation was 14.3%. Life Science growth is
attributed to continuing demand for the Company's Bovine
Spongiform Encephalopathy (BSE) or "mad cow disease" test and for
the Company's other consumable laboratory research products.
Clinical Diagnostics growth of 8.1%, excluding the favorable
impact from currency translation, resulted from increased demand
for the Company's quality controls, autoimmune and diabetes
product line offerings.
Consolidated gross margins were 57.0% for the second quarter of
2002 compared to 55.4% for the second quarter of 2001 and 55.7%
for all of 2001. The Company's gross margin benefited from an
improved sales mix as consumables, which have higher gross
margins than equipment, comprised a larger percentage of total
sales. Additionally, the divestiture of the spectroscopy
instrument product line, whose margins were considerably less
than the Company's overall average, had a positive impact. Life
Science margins improved as a result of the aforementioned change
in sales mix. Clinical Diagnostics margins declined in
comparison to the prior period because of higher production and
scrap costs. Also, the prior period benefited from the
settlement of a claim related to raw materials supplies that had
been scrapped in an earlier period.
Selling, general and administrative expense (SG&A) decreased
slightly to 32.4% of sales in the second quarter of 2002 from
32.7% of sales in the second quarter of 2001. Both Life Science
and Diagnostics grew selling and marketing expenses at a rate
faster than sales growth for the quarter. Slower growth in
general and administration expense reduced overall SG&A growth to
reported levels. The long-term goal for Bio-Rad remains a
consistent gradual reduction in SG&A spending as a percent of
sales.
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Product research and development expense remained virtually
unchanged at 9.2% of sales compared to 9.1% in the prior period.
The mix of spending changed slightly as Life Science increased
the rate of spending and Diagnostics decreased its rate of
spending. The Company plans to reinvest between 9% and 10% of
sales in research and development to continue to introduce new
and enhanced products.
Corporate Results - Other Items
In the second quarter of 2002, the final $22.5 million of the
Term Loan portion of the Senior Credit Facility was repaid.
Although the Company will have lower interest expense going
forward as a result of this transaction, interest expense for the
second quarter remained unchanged as compared to the prior year
as the Company expensed $0.5 million of unamortized debt issue
costs related to the Term Loan.
Foreign exchange losses increased by $2.0 million compared to the
prior period primarily as a result of losses recorded on the
books of the Company's Brazilian and Russian subsidiaries.
The Company's effective tax rate was 34% for the second quarter
of 2002 compared to 37% in the second quarter of 2001. For the
full year 2001, the effective tax rate was 32%. The increase
from 32% to 34% is the result of having improved profitability
concentrated in some higher tax rate locations coupled with local
tax losses in locations which do not provide a consolidated tax
benefit.
Six Months Ended June 30, 2002
Compared to Six Months Ended June 30, 2001
Corporate Results - Sales, Margins and Expenses
Net sales (sales) for the first half of 2002 were $424.8 million
compared to $398.0 million in the first half of 2001, an increase
of 6.7%. Adjusting for currency and divestitures, sales growth
from new and existing products was 11.1%. Sales increased 13.8%
in Life Science on a constant currency basis. Clinical
Diagnostics sales growth on a constant currency basis was 7.9%.
The growth in Life Science is attributed to continuing demand for
the Company's BSE test and consumable laboratory research
products. The growth in Clinical Diagnostics was from products
for quality controls, autoimmune testing and diabetes monitoring.
Foreign sales for the first half of 2002 were adversely affected
by a U.S. dollar that was stronger relative to the prior period.
The negative impact to total sales amounted to a reduction in the
sales growth rate of approximately 1.4%.
Consolidated gross margins were 57.3% for the first half of 2002
compared to 54.8% for the first half of 2001 and 55.7% for all of
2001. The increased sales of consumable laboratory products and
the BSE test have improved the overall Life Science gross margin.
Clinical Diagnostics margins increased by less than 1% as a
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result of a better sales mix and the timing of ordinary period
expenses.
Selling, general and administrative expense increased to 31.8% of
sales in the first half of 2002 from 31.6% of sales in the first
half of 2001. Overall, selling and marketing expense grew at a
rate faster than sales growth. In part this was due to increased
expenses for retaining and expanding the Life Science food
testing business and opportunities in proteomics and genomics.
Life Science has increased sales and customer services to support
this business. Clinical Diagnostics selling and marketing grew
at a rate near sales growth. General and administrative expense
grew at less than 3% for the Company and offset the other
increases.
Product research and development expense increased slightly to
$40.0 million or 9.4% of sales in the first half of 2002 compared
to 9.1% of sales in the prior year. Spending increased in both
Life Science and Clinical Diagnostics in absolute dollars. The
Company plans to reinvest between 9% and 10% of sales in research
and development going forward to support growth.
Corporate Results - Other Items
Interest expense decreased from the prior year, reflecting a
reduction of debt. The decline would have been more significant
but the Company included the expensing of $0.5 million of
unamortized debt issue costs on the early pay off of the Term
Loan included in the Company's Senior Credit Facility. The Term
Loan was originally $100 million and called for repayment over a
five year period. The loan was repaid approximately 30 months
early.
Net other income and expense in the first half of 2002 includes a
$2.0 million non-cash pre-tax expense reflecting impairment in
the Company's investment in Digilab LLC. Foreign exchange losses
increased compared to the prior period primarily as a result of
losses recorded in the books of the Company's Brazilian
subsidiary. The Brazilian Real is extremely expensive to hedge,
as local borrowing rates approach 30% per annum. The Company
plans to take several actions to lower its overall exposure but
will not be able to eliminate the exposure. Foreign exchange
losses also include premiums and discounts for the Company's
hedging program.
The Company's effective tax rate declined to 34% for the first
half of 2002 compared to 37% in the first half of 2001. For the
full year 2001, the effective rate was 32%. The rise to 34% from
32% reflects increased profitability in countries with higher tax
rates and current period local tax losses which do not provide a
consolidated tax benefit.
Financial Condition
The Company, as of June 30, 2002, had available approximately
$100 million, or 100% of its principal revolving credit agreement
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and $23 million under various foreign lines of credit. Cash and
cash equivalents available were $25.7 million.
At June 30, 2002, consolidated accounts receivable increased by
$5.6 million from December 31, 2001. The increase was due to the
increasing value of receivables denominated in European and
Japanese currencies partially offset by improved collections
relative to sales for the year to date.
At June 30, 2002, consolidated net inventories increased by $15.6
million from December 31, 2001. Approximately 40% of this
increase is due to the strengthening of European and Japanese
currency against the U.S. dollar. The remaining increase largely
represents levels necessary to meet customer demands for Life
Science consumable products and in preparation for new product
launches in the Fall of 2002. Inventory for the Clinical
Diagnostics controls business is characterized by long lead times
and large infrequent batch production which is necessary to meet
customer requirements. Bio-Rad management regularly reviews
inventory valuation for excess, obsolete and slow moving
products.
Net capital expenditures totaled $19.0 million for the first six
months of 2002 compared to $19.7 million for the same period of
2001. Capital expenditures for the period include reagent rental
equipment placed with Clinical Diagnostic customers who then commit
to purchase the Company's diagnostic reagents for use. Other
expenditures represent the Company's investment in business systems
to standardize distribution software, data communication, production
equipment and improvements to production facilities. The Company
has completed its review of facilities requirements in Northern
California and will begin construction of new facilities for
manufacturing, laboratory and general office use. These facilities
will be built on Company owned land in the business park where
Corporate headquarters, Life Science and Diagnostics group
operations are now located. The estimated current cost of the
facility is approximately $25 million and it will take approximately
15 months to complete. No material amounts have been capitalized
through June 2002 for the project.
On June 28, 2002, the Company purchased for cash the microarray and
robotics technologies business of Virtek Biotech Inc., a subsidiary
of Virtek Vision International Inc. of Waterloo, Ontario, Canada.
The purchased business had annual sales of approximately $8.3
million Canadian. Bio-Rad acquired the assets for approximately $7
million US and will include these operations in its Life Science
segment. Preliminarily, the Company does not believe it has acquired
any goodwill or non-amortizable intangible assets.
The Company continues to review possible acquisitions to expand both
its Life Science and Diagnostics segments. The Company routinely
meets with the principals or brokers of the subject companies.
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Currently no discussions involving a material acquisition have
progressed beyond the most initial phases. Should the Company make
a material acquisition it would most likely require an increase in
borrowed funds, further increasing its financial leverage.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
During the six months ended June 30, 2002, there have been no
material changes from the disclosures about market risk provided
in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99.1 Certification of Chief Executive Officer
99.2 Certification of Principal Financial Officer
(b) Reports on Form 8-K
There were no reports on Form 8-K during the quarter ended
June 30, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
BIO-RAD LABORATORIES, INC.
(Registrant)
Date: August 14, 2002 /s/ Sanford S. Wadler
Sanford S. Wadler, Vice President,
General Counsel and Secretary
Date: August 14, 2002 /s/ James R. Stark
James R. Stark, Corporate Controller
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