<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________________
Commission file number 1-7928
BIO-RAD LABORATORIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-1381833
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1000 Alfred Nobel Drive, Hercules, CA 94547
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (510) 724-7000
<TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<CAPTION>
Market Value on
Name of Each Exchange Shares Outstanding March 2, 1998 of Stocks
Title of Each Class on Which Registered March 2, 1998 Held by Non-Affiliates
------------------- --------------------- ------------------ ------------------------
<S> <S> <C> <C>
Class A Common Stock
Par Value $1.00 per share American Stock Exchange 9,829,009 $206,256,814
Class B Common Stock
Par Value $1.00 per share American Stock Exchange 2,591,569 $ 11,465,947
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark 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 months
(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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
Documents Incorporated by Reference
Document Form 10-K Parts
_________________________________________ ____________________
(1) Annual Report to Stockholders for the
fiscal year ended December 31, 1997
(specified portions) I, II, IV
(2) Definitive Proxy Statement to be mailed
to stockholders in connection with the
registrant's 1998 Annual Meeting of
Stockholders (specified portions) III
<PAGE>
P A R T I
ITEM 1. BUSINESS
General
Founded in 1957, Bio-Rad Laboratories, Inc. ("Bio-Rad" or the
"Company") was initially engaged in the development and produc-
tion of specialty chemicals used in biochemical, pharmaceutical
and other life science research applications. In 1967, the Com-
pany entered the field of clinical diagnostics with the develop-
ment of its first test kit based on separation techniques and
materials developed for life sciences research. Recognizing that
the fields of clinical diagnostics and life sciences research
were evolving toward more automated techniques, Bio-Rad expanded
into the field of analytical and measuring instrument systems
through internal research and development efforts and
acquisitions in the late 1970's and 1980's.
As Bio-Rad broadened its product lines, it has also widened its
geographical market. The Company controls its distribution chan-
nels in twenty-five countries outside the U.S.A. through
subsidiaries whose primary focus is customer service and product
distribution.
During 1996 and 1997, the Company has made five acquisitions.
The assets acquired from Chiron Diagnostics Corporation and
Chiron Corporation on December 5, 1997, enhanced the product line
offering for diagnostic controls. The remaining acquisitions
broadened product line offerings within the Analytical
Instruments and Life Science segments. Bio-Rad manufactures and
supplies the life sciences research, healthcare, analytical
chemistry, semiconductor 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.
Business Segments
The Company operates in three industry segments designated Life
Science, Clinical Diagnostics and Analytical Instruments. Each
operates in both the U.S. and international markets. For
financial information on geographic and industry segments, see
Note 15 on pages 23 and 24 of Exhibit 13.1, which is incorporated
herein by reference. Exhibit 13.1 is the Company's Consolidated
Financial Statements, which is an excerpt from the Company's 1997
Annual Report to Stockholders.
Description of Business
Life Science
The Life Science segment develops, manufactures, sells and
services electrophoresis, gene transfer, chromatography,
immunoassay, imaging and image analysis products including
specialty chemical and biological materials, separation and
purification systems, laser scanning confocal microscopes and
1
<PAGE>
accessories. These products are used to separate, purify and
analyze complex chemical mixtures and are sold to universities,
private industry, government agencies and clinical and hospital
laboratories. They are used in biochemistry, molecular biology,
cancer research, immunology, and other areas of life science and
genetic research. In addition, these products are sold to
industrial and commercial customers, including pharmaceutical,
biotechnology and food processing companies, for research and
development, manufacturing and quality control applications.
Clinical Diagnostics
The Clinical Diagnostics segment develops and manufactures
automated test systems, test kits and specialized quality
controls for the healthcare market. Hospitals and clinical
laboratories use these products to assist physicians in
diagnosing and monitoring their patients. Many of these products
are based on innovative applications of technologies originally
developed for life science research. Bio-Rad also develops,
manufactures and distributes controls for immunoassay testing,
therapeutic drug monitoring and other applications.
Analytical Instruments
Bio-Rad's Analytical Instruments segment develops, manufactures,
sells and services FT-IR spectrometer systems, semiconductor
measurement test and manufacturing instruments and spectral
reference publications. Purchasers of these products include
government agencies, universities, research institutions and
industrial companies. These products are used in industrial and
scientific research, in manufacturing and in quality control
applications.
Raw Materials and Components
The Company utilizes a wide variety of chemicals, biological
materials, electronic components, machined metal parts, optical
parts, minicomputers and peripheral devices. Most of these
materials and components are available from numerous sources and
the Company has not experienced difficulty in securing adequate
supplies.
Patents and Trademarks
The Company owns numerous U.S. and international patents and
patent licenses. Bio-Rad believes, however, that its ability to
develop and manufacture its products depends primarily on its
know-how, technology and special skills. Under several patent
license agreements, Bio-Rad pays royalties on the sales of
certain products. Bio-Rad views these patents and license
agreements as valuable assets, however, no individual agreement
is of material importance to any segment or to the Company's
business as a whole.
2
<PAGE>
Seasonal Operations and Backlog
The Company's business is not inherently seasonal, however, the
European custom of concentrating vacation during the summer
months usually has had a negative impact on third quarter sales
volume and operating income.
For the most part, the Company operates in markets characterized
by short lead times and the absence of significant backlogs. The
Company produces several analytical instruments against an order
backlog. Management has concluded that backlog information is
not material to the Company's business as a whole.
Sales and Marketing
Each of Bio-Rad's divisions maintains a sales force or works in
conjunction with other divisions to sell its products on a direct
basis. Each sales force is technically trained in the
disciplines associated with its products. Sales are also
generated through direct mail advertising, exhibits at trade
shows and technical meetings, and by extensive advertising in
technical and trade publications. Sales and marketing efforts
are augmented by technical service departments that assist
customers in effective product utilization and in new product
applications. Bio-Rad also produces and distributes technical
literature and holds seminars for customers on the use of its
products.
Bio-Rad products are sold to a broad and diversified customer
base. In 1997, no single customer accounted for as much as 3% of
Bio-Rad's total sales. A number of the Company's customers,
particularly in Life Science, are substantially dependent for
their funding on government grants and research contracts. A
portion of the Analytical Instruments segment is dependent upon
large semiconductor manufacturers; the loss of these customers or
a severe downturn in the semiconductor market would have a
detrimental effect on the results of the segment.
Most of the Company's international sales are generated by
wholly-owned subsidiaries and their branch offices in Australia,
Austria, Belgium, Canada, Denmark, England, Finland, France,
Germany, Hong Kong, Hungary, India, Israel, Italy, Japan, Korea,
the Netherlands, New Zealand, Norway, People's Republic of China,
Poland, Singapore, Spain, Sweden and Switzerland. Certain of
these subsidiaries also have manufacturing facilities. While
Bio-Rad's international operations are subject to certain risks
common to foreign operations in general, such as changes in
governmental regulations, import restrictions and foreign
exchange fluctuations, the Company's international operations are
principally in developed nations, which the Company regards as
presenting no significantly greater risks to its operations than
are present in the United States.
3
<PAGE>
Competition
Most markets served by Bio-Rad's product groups are competitive.
Bio-Rad's competitors range in size from start-ups to large
multi-nationals. Reliable independent information on sales and
market share of products produced by Bio-Rad's competitors is not
generally available. Bio-Rad believes, however, based on its own
marketing information, that while some competitors are dominant
with respect to certain individual products, no one company,
including Bio-Rad, is dominant with respect to a material portion
of any segment of Bio-Rad's business.
Product Research and Development
The Company conducts extensive product research and development
activities in all areas of its business, employing approximately
350 people worldwide in these activities. Research and
development have played a major role in Bio-Rad's growth and are
expected to continue to do so in the future. New products and
new applications for existing products are being developed
continuously by Bio-Rad's researchers. In its development and
testing of new products and applications, Bio-Rad consults with
scientific and medical professionals at universities, at
hospitals and medical schools, and in industry. Bio-Rad spent
approximately $46.1 million, $39.6 million and $34.7 million on
R&D activities during the years ended December 31, 1997, 1996 and
1995, respectively.
Regulatory Matters
Certain of the Company's products (primarily diagnostic products)
are subject to regulation in the United States by the Center for
Devices and Radiological Health of the United States Food and
Drug Administration (FDA) and in other jurisdictions by state and
foreign government authorities. FDA regulations require that
some new products have pre-marketing approval by the FDA and
require certain of Bio-Rad's products to be manufactured in
accordance with "good manufacturing practices," to be extensively
tested and to be properly labeled to disclose test results and
performance claims and limitations.
As a multinational manufacturer and distributor of sophisticated
instrumentation equipment, Bio-Rad must meet a wide array of
electromagnetic compatibility and safety compliance requirements
to satisfy regulations in the United States, the European
Community and other jurisdictions. The Company is also subject
to government regulation of the use and handling of radioactive
materials and controlled substances. The Company believes it is
in compliance with these and other regulations.
4
<PAGE>
Certain of the Company's production processes involve the use of
materials whose use is subject to federal, state and local
environmental regulations. The Company regularly evaluates its
processes and procedures to ensure compliance with applicable
environmental standards and regulations. Although, from time to
time, modification of processes and procedures may be required
which will require additional capital expenditures, the Company
presently believes that any such expenditures will have no
material adverse effect on the future results of operations or
the financial position of the Company.
Employees
At December 31, 1997, Bio-Rad had approximately 2,650 full-time
employees. Fewer than 8% of Bio-Rad's employees are covered by a
collective bargaining agreement which will expire on October 31,
1998. Bio-Rad considers its employee relations in general to be
good.
ITEM 2. PROPERTIES
Bio-Rad owns its Corporate headquarters located in Hercules,
California. The principal manufacturing and research locations
for each segment are as follows:
Life Science Richmond, California Owned/Leased
Hercules, California Owned
Hemel Hempstead, England Leased
Milan, Italy Leased
Clinical Diagnostics Hercules, California Owned/Leased
Irvine, California Leased
Munich, Germany Leased
Nazareth-Eke, Belgium Leased
Analytical Instruments Cambridge, Massachusetts Owned
York, England Owned
Philadelphia, Pennsylvania Owned
Most manufacturing and research facilities also house
administration, sales and distribution activities for the
segment.
In addition, the Company leases office and warehouse facilities
in California, Colorado, Florida, New Mexico, Australia, Austria,
Belgium, Canada, Denmark, England, Finland, France, Germany, Hong
Kong, Hungary, India, Israel, Italy, Japan, Korea, the
Netherlands, New Zealand, Norway, People's Republic of China,
Poland, Singapore, Spain, Sweden and Switzerland. These
facilities are used principally for administration, sales,
service and distribution for all three segments.
5
<PAGE>
The Company has leased space in California, New York, Canada and
England that is not currently being utilized. For the most part,
reserves for future lease payments were recorded at the time the
Company stopped using these facilities. The Company has
subleased or is attempting to sublease these properties.
The Life Science segment's northern California distribution and
instrument manufacturing facility lease expires late in 1998 and
may require a major investment. The Company is reviewing several
options including relocating and leasing, or constructing a
facility on its Hercules campus. All other facilities are
believed to be adequate to support the Company's current and
anticipated production requirements. Historically, adequate
space to expand sales and distribution channels has been
available and is leased as needed.
ITEM 3. LEGAL PROCEEDINGS
Note 13, "Legal Proceedings," appearing on page 21 of Exhibit
13.1 is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's
security holders during the fourth quarter of the fiscal year
covered by this report.
P A R T II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Note 17, "Information Concerning Common Stock," appearing on
pages 25 and 26 of Exhibit 13.1 is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The table headed "Summary of Operations" appearing on page 1 of
Exhibit 13.1 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The section headed "Management's Discussion and Analysis of
Results of Operations and Financial Condition" appearing on pages
28 through 33 of Exhibit 13.1 is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Public Accountants and the Consolidated
6
<PAGE>
Financial Statements and Notes thereto appearing on pages 2
through 27 of Exhibit 13.1 are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
P A R T III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections labeled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" of the definitive
Proxy Statement mailed to stockholders in connection with the
1998 Annual Meeting of Stockholders (the 1998 Proxy Statement)
are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections labeled "Executive Compensation and Other
Information," "Compensation of Directors," "Compensation
Committee Interlocks and Insider Participation," "Report of the
Compensation Committee of the Board of Directors" and "Stock
Performance Graph" of the 1998 Proxy Statement are incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The section labeled "Principal and Management Stockholders" of
the 1998 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section labeled "Compensation of Directors" of the 1998 Proxy
Statement is incorporated herein by reference.
7
<PAGE>
P A R T IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Index to Financial Statements
The following Consolidated Financial Statements are
included in the 1997 Annual Report and are incorporated
herein by reference pursuant to Item 8:
Page in
Exhibit 13.1
Consolidated Balance Sheets
at December 31, 1997 and 1996 2-3
Consolidated Statements of Income
for each of the three years in the
period ended December 31, 1997 4
Consolidated Statements of Cash Flows
for each of the three years in the period
ended December 31, 1997 5
Consolidated Statements of Changes in
Stockholders' Equity for each of the three
years in the period ended December 31, 1997 6
Notes to Consolidated Financial Statements 7-26
Report of Independent Public Accountants 27
2. Index to Financial Statement Schedule
Page in
Form 10-K
Schedule II Valuation and Qualifying Accounts 9
Report of Independent Public Accountants
on Schedule II 10
All other financial statement schedules are omitted because
they are not required or because the required information is
included in the Consolidated Financial Statements or the Notes
thereto.
3. Index to Exhibits
The exhibits listed in the accompanying Index to Exhibits on
pages 12 and 13 of this report are filed or incorporated by
reference as part of this report.
(b) Reports on Form 8-K
Bio-Rad filed a Form 8-K dated December 5, 1997, reporting the
acquisition of assets from Chiron Diagnostics Corporation and
Chiron Corporation.
8
<PAGE>
BIO-RAD LABORATORIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
Reserve for doubtful accounts receivable
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions of Year
<S> <C> <C> <C> <C>
1997 $ 3,688 $ 1,088 $(1,402) $ 3,374
====== ====== ====== ======
1996 $ 3,094 $ 952 $ (358) $ 3,688
====== ====== ====== ======
1995 $ 2,894 $ 462 $ (262) $ 3,094
====== ====== ====== ======
</TABLE>
<TABLE>
Valuation allowance for deferred tax assets
<CAPTION>
Deductions
Balance at Charged to Balance
Beginning Costs and at End
of Year Additions Expenses of Year
<S> <C> <C> <C> <C>
1997 $ 5,572 $ - $(2,287) $ 3,285
====== ====== ====== ======
1996 $ 6,478 $ - $ (906) $5,572
====== ====== ====== ======
1995 $ 7,209 $ - $ (731) $ 6,478
====== ====== ====== ======
</TABLE>
9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
To the Stockholders and Board of Directors of
Bio-Rad Laboratories, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in
Bio-Rad Laboratories, Inc.'s annual report to stockholders
incorportated by reference in this Form 10-K, and have issued our
report thereon dated February 4, 1998. Our audit was made for
the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the index, Item 14(a)2, is the
responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
San Francisco, California,
February 4, 1998
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BIO-RAD LABORATORIES, INC.
By: /s/ Sanford S. Wadler
Sanford S. Wadler
Secretary
Date: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ David Schwartz President and Director March 26, 1998
(David Schwartz)
Principal Financial Officer:
/s/ T. C. Chesterman Vice President, March 26, 1998
(Thomas C. Chesterman) Chief Financial Officer
Principal Accounting Officer:
/s/ James R. Stark Corporate Controller March 26, 1998
(James R. Stark)
Other Directors:
/s/ James J. Bennett Director March 26, 1998
(James J. Bennett)
/s/ Albert J. Hillman Director March 26, 1998
(Albert J. Hillman)
/s/ Philip L. Padou Director March 26, 1998
(Philip L. Padou)
/s/ Alice N. Schwartz Director March 26, 1998
(Alice N. Schwartz)
/s/ Norman Schwartz Director March 26, 1998
(Norman Schwartz)
/s/ Burton A. Zabin Director March 26, 1998
(Burton A. Zabin)
11
<PAGE>
BIO-RAD LABORATORIES, INC.
INDEX TO EXHIBITS
ITEM 14(a)3
The following documents are filed as part of this report:
Exhibit No.
3.1 Restated Certificate of Incorporation, as of
September 15, 1988. (1)
3.2 Bylaws of the Registrant, as amended February 19,
1980. (2)
10.4 1994 Stock Option Plan. (3)
10.5 Amended 1988 Employee Stock Purchase Plan. (4)
10.6 Employees' Deferred Profit Sharing Retirement Plan
(Amended and Restated effective January 1, 1997). (5)
10.9 Credit Agreement dated as of February 18, 1994, by and
among the Registrant, the Lenders and The First
National Bank of Chicago, as agent. (6)
10.9.1 Amendment dated as of September 30, 1994, to the Credit
Agreement dated as of February 18, 1994, by and among
the Registrant, the Lenders and The First National Bank
of Chicago, as agent. (7)
10.9.2 Amendment dated as of May 30, 1995, to the Credit
Agreement dated as of February 18, 1994, by and among
the Registrant, the Lenders and The First National Bank
of Chicago, as agent. (7)
10.9.3 Amendment dated as of July 10, 1996, to the Credit
Agreement dated as of February 18, 1994, by and among
the Registrant, the Lenders and The First National Bank
of Chicago, as agent. (8)
10.9.4 Amendment dated as of June 30, 1997, to the Credit
Agreement as of February 18, 1994, by and among the
Registrant, the Lenders and the First National Bank of
Chicago, as agent. (5)
10.10 Non-competition and employment continuation agreement
with James J. Bennett. (9)
10.11 Employment and non-compete agreement with Dr. Burton A.
Zabin. (10)
13.1 Excerpt from Annual Report to Stockholders' for the
fiscal year ended December 31, 1997, (to be deemed
filed only to the extent required by the instructions
to exhibits for reports on Form 10-K).
21.1 Listing of Subsidiaries.
12
<PAGE>
23.1 Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
________________________________________________________________
(1) Incorporated by reference from the Exhibits to the
Company's Form 10-K filing for the fiscal year ended
December 31, 1992, dated March 26, 1993.
(2) Incorporated by reference from the Exhibits to the
Company's Registration Statement on Form S-7
Registration No. 2-66797, which became effective
April 22, 1980.
(3) Incorporated by reference from the Exhibits to the
Company's Form S-8 filing, dated April 28, 1994.
(4) Incorporated by reference from the Exhibits to the
Company's Form S-8 filing, dated April 28, 1994.
(5) Incorporated by reference from the Exhibits to the
Company's September 30, 1997, Form 10-Q filing dated
November 13, 1997.
(6) Incorporated by reference from the Exhibits to the
Company's Form 10-K filing for the fiscal year ended
December 31, 1993, dated March 24, 1994.
(7) Incorporated by reference from the Exhibits to the
Company's September 30, 1995, Form 10-Q filing dated
November 3, 1995.
(8) Incorporated by reference from the Exhibits to the
Company's September 30, 1996, Form 10-Q filing dated
November 8, 1996.
(9) Incorporated by reference from the Exhibits to the
Company's Form 10-K filing for the fiscal year ended
December 31, 1996, dated March 26, 1997.
(10) Incorporated by reference from the Exhibits to the
Company's June 30, 1997, Form 10-Q filing dated
August 6, 1997.
13
<PAGE>
EXHIBIT 13.1
Bio-Rad Laboratories, Inc.
SUMMARY OF OPERATIONS (In thousands, except per share data)
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________________
Year Ended December 31,
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net sales $426,914 $418,789 $396,618 $355,299 $328,553 $330,301
Cost of goods sold (1) 189,331 182,046 171,942 155,805 151,063 138,173
Gross profit 237,583 236,743 224,676 199,494 177,490 192,128
Selling, general and administrative expense 164,792 155,516 150,272 132,591 129,187 133,934
Product research and development expense 46,138 39,580 34,714 30,172 34,204 34,655
Restructuring costs - 2,700 1,500 - 3,816 9,023
Income from operations 26,653 38,947 38,190 36,731 10,283 14,516
Other income (expense):
Interest expense (1,216) (3,027) (4,465) (6,138) (8,406) (9,368)
Other, net (2,709) 553 (183) (6,596) 2,801 22,357
Income before taxes and extraordinary charge 22,728 36,473 33,542 23,997 4,678 27,505
Provision for income taxes 6,364 9,118 8,386 8,399 1,877 11,951
Income before extraordinary charge 16,364 27,355 25,156 15,598 2,801 15,554
Extraordinary charge (2) - (1,176) - - - -
Net income $ 16,364 $ 26,179 $ 25,156 $ 15,598 $ 2,801 $ 15,554
Basic earnings per share before
extraordinary charge (3) $1.33 $2.23 $2.06 $1.29 $0.23 $1.31
Extraordinary charge (2)(3) - (.10) - - - -
Basic earnings per share (3) $1.33 $2.13 $2.06 $1.29 $0.23 $1.31
Weighted average common shares (3) 12,260 12,273 12,206 12,113 11,990 11,886
Cash dividends paid per common share - - - - - -
Total assets $351,876 $284,925 $285,098 $263,650 $259,890 $272,730
Long-term debt, net of current maturities $ 38,952 $ 6,721 $ 20,922 $ 26,287 $ 47,834 $ 57,909
_______________________________________________________________________________________________________________________
<FN>
(1) In 1996, cost of goods sold includes a charge of $2.1 million for write-down of inventory associated with the
restructuring costs.
(2) Extraordinary charge for redemption of subordinated debt: 1996 - $1,176, net of tax effect of $817.
(3) Restated to give effect to a stock split in the form of a 50% stock dividend in 1996.
</TABLE>
1
<PAGE>
Bio-Rad Laboratories, Inc.
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
________________________________________________________________________________________
December 31,
Assets 1997 1996
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 10,843 $ 9,390
Accounts receivable, less allowance of $3,374 in
1997 and $3,688 in 1996 96,965 97,795
Inventories 91,428 69,738
Deferred tax assets 15,524 14,947
Prepaid expenses and other current assets 12,658 6,665
Total current assets 227,418 198,535
Property, Plant and Equipment:
Land and improvements 8,057 8,057
Buildings and leasehold improvements 55,477 52,050
Equipment 115,097 107,847
Total property, plant and equipment 178,631 167,954
Accumulated depreciation (99,953) (96,092)
Net property, plant and equipment 78,678 71,862
Marketable Securities 18,092 7,432
Goodwill and Other Assets 27,688 7,096
Total Assets $351,876 $284,925
________________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Bio-Rad Laboratories, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
__________________________________________________________________________________________
December 31,
Liabilities and Stockholders' Equity 1997 1996
<S> <C> <C>
Current Liabilities:
Notes payable $ 9,872 $ 4,484
Current maturities of long-term debt 930 1,058
Accounts payable 32,385 21,262
Accrued payroll and employee benefits 24,825 23,717
Sales, income and other taxes payable 5,055 3,988
Other current liabilities 27,715 24,630
Total current liabilities 100,782 79,139
Long-Term Debt, net of current maturities 38,952 6,721
Deferred Tax Liabilities 15,465 15,557
Total liabilities 155,199 101,417
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 1997 - 9,824,509;
1996 - 9,740,922 9,825 9,741
Class B common stock, $1.00 par value, 6,000,000 shares
authorized; outstanding 1997 - 2,596,069;
1996 - 2,579,803 2,596 2,580
Additional paid-in capital 18,426 17,067
Class A treasury stock, 193,539 shares in 1997 and (5,206) (839)
31,216 shares in 1996 at cost
Class B treasury stock, 30,000 shares in 1997 and 1996 at cost (800) (800)
Retained earnings 167,182 151,003
Currency translation (1,149) 3,570
Net unrealized holding gain on marketable securities 5,803 1,186
Total stockholders' equity 196,677 183,508
Total Liabilities and Stockholders' Equity $351,876 $284,925
__________________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Bio-Rad Laboratories, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
______________________________________________________________________________________________________________________
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net sales $426,914 $418,789 $396,618
Cost of goods sold 189,331 182,046 171,942
Gross profit 237,583 236,743 224,676
Selling, general and administrative expense 164,792 155,516 150,272
Product research and development expense 46,138 39,580 34,714
Restructuring costs - 2,700 1,500
Income from operations 26,653 38,947 38,190
Other income (expense):
Interest expense (1,216) (3,027) (4,465)
Investment income, net 1,601 2,385 1,230
Other, net (4,310) (1,832) (1,413)
Income before taxes and extraordinary charge 22,728 36,473 33,542
Provision for income taxes 6,364 9,118 8,386
Income before extraordinary charge 16,364 27,355 25,156
Extraordinary charge, net of tax effect of $817 - (1,176) -
Net income $ 16,364 $ 26,179 $ 25,156
Basic earnings per share:
Income before extraordinary charge $1.33 $2.23 $2.06
Extraordinary charge - (.10) -
Net income $1.33 $2.13 $2.06
Weighted average common shares 12,260 12,273 12,206
Diluted earnings per share:
Income before extraordinary charge $1.32 $2.19 $2.02
Extraordinary charge - (.09) -
Net income $1.32 $2.10 $2.02
Weighted average common shares 12,394 12,472 12,430
_____________________________________________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Bio-Rad Laboratories, Inc.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
________________________________________________________________________________________________________
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $414,694 $409,144 $387,729
Cash paid to suppliers and employees (381,489) (354,641) (339,702)
Interest paid (1,155) (3,710) (4,008)
Income tax payments (10,950) (16,923) (5,679)
Miscellaneous receipts (payments) 9 (717) (108)
Net cash provided by operating activities 21,109 33,153 38,232
Cash flows from investing activities:
Capital expenditures, net (23,571) (15,235) (12,307)
Payments for acquisitions (31,238) (1,290) (829)
Purchases of marketable securities and investments (8,352) (2,710) (3,098)
Sales of marketable securities and investments 3,419 2,968 2,959
Foreign currency hedges, net 3,817 1,423 (638)
Net cash used in investing activities (55,925) (14,844) (13,913)
Cash flows from financing activities:
Net borrowings under line-of-credit arrangements 4,665 (8,940) (8,063)
Long-term borrowings 87,275 5,024 59,400
Payments on long-term debt (55,329) (20,841) (65,535)
Proceeds from issuance of common stock 1,459 1,262 1,093
Purchase of treasury stock (5,302) (1,887) -
Reissuance of treasury stock 750 215 -
Net cash provided by (used in) financing activities 33,518 (25,167) (13,105)
Effect of exchange rate changes on cash 2,751 1,474 (191)
Net increase (decrease) in cash and cash equivalents 1,453 (5,384) 11,023
Cash and cash equivalents at beginning of year 9,390 14,774 3,751
Cash and cash equivalents at end of year $ 10,843 $ 9,390 $ 14,774
________________________________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Bio-Rad Laboratories, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(In thousands, except share data)
<TABLE>
<CAPTION>
______________________________________________________________________
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Common Shares:
Balance at beginning of year 12,320,725 12,239,346 12,159,190
Issuance of common stock 99,853 81,631 80,156
Cash paid in lieu of fractional
shares on 3-for-2 stock split - (252) -
Balance at end of year 12,420,578 12,320,725 12,239,346
_______________________________________________________________________
Common Stock:
Balance at beginning of year $ 12,321 $ 12,239 $ 12,159
Issuance of common stock 100 82 80
Balance at end of year 12,421 12,321 12,239
Additional Paid-In Capital:
Balance at beginning of year 17,067 15,887 14,874
Issuance of common stock 1,359 1,188 1,013
Cash paid in lieu of fractional
shares on 3-for-2 stock split - (8) -
Balance at end of year 18,426 17,067 15,887
Treasury Stock:
Balance at beginning of year (1,639) - -
Purchase of treasury stock (5,302) (1,887) -
Reissuance of treasury stock 935 248 -
Balance at end of year (6,006) (1,639) -
Retained Earnings:
Balance at beginning of year 151,003 124,857 99,701
Net income 16,364 26,179 25,156
Loss on reissuance of treasury stock (185) (33) -
Balance at end of year 167,182 151,003 124,857
Currency Translation:
Balance at beginning of year 3,570 3,527 2,566
Change in currency translation (4,719) 43 961
Balance at end of year (1,149) 3,570 3,527
Net Unrealized Holding Gain
On Marketable Securities:
Balance at beginning of year 1,186 549 518
Change in net unrealized holding
gain 4,617 637 31
Balance at end of year 5,803 1,186 549
________ ________ ________
Total Stockholders' Equity $196,677 $183,508 $157,059
_________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Bio-Rad Laboratories, Inc.
Notes to Consolidated Financial Statements
_________________________________________________________________
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. Certain amounts in the
financial statements of prior years have been reclassified to be
consistent with the 1997 presentation.
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 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 the Pacific Rim, generally does not require
collateral. As a result of increased risk in certain Pacific Rim
countries, many 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 receivables.
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.
7
<PAGE>
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, primarily ten years. The Company
reviews the recoverability of goodwill annually.
Revenue Recognition and Warranty
Bio-Rad recognizes revenues when products are shipped or services are
rendered and all significant obligations of the Company have been met.
Where appropriate, the Company also establishes a concurrent reserve
for returns and allowances.
The Company warrants certain equipment against defects in design,
materials and workmanship, generally for one year. Upon shipment of
equipment sold at a price which includes a warranty, the Company
establishes, as part of cost of goods sold, a reserve for the expected
costs of such warranty.
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 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 offsetting 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 resulting 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.
8
<PAGE>
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
For certain of the Company's financial instruments, including cash and
cash equivalents, accounts receivable, notes payable, accounts payable
and forward exchange contracts, the carrying amounts approximate fair
value. The fair values of other instruments are disclosed in relevant
notes to the financial statements.
_________________________________________________________________
2. Acquisitions
In December 1997, the Company acquired, for cash, the assets used by
Chiron Diagnostics Corporation in the business of manufacturing,
marketing and sale of diagnostic controls (exclusive of blood gas
controls). The business is being combined with the Clinical
Diagnostics controls business based in southern California.
In October 1997, the Company acquired, for cash, substantially all of
the assets of Protein Databases, Inc. The assets purchased will be
utilized by the Life Science segment in its imaging products.
In September 1997, the Company acquired, for cash, certain assets
related to the design and manufacture of the optical production
profiler from Pacific Scientific Company. This expands the
semiconductor products offered by the Analytical Instruments segment.
<TABLE>
In conjunction with these acquisitions, liabilities were assumed and
incurred as follows (in thousands):
<CAPTION>
<S> <C>
Assigned value of assets acquired $12,173
Goodwill 20,959
Cash paid (31,238)
Liabilities assumed and incurred $ 1,894
_________________________________________________________________
</TABLE>
9
<PAGE>
3. Inventories
<TABLE>
The principal components of inventories are as follows (in thousands):
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Raw materials $ 27,257 $ 26,920
Work in process 21,242 19,866
Finished goods 42,929 22,952
Inventories $ 91,428 $ 69,738
</TABLE>
At December 31, 1997, inventories from acquisitions amounted to
$9,052,000 and were comprised principally of the controls inventory
purchased in December.
________________________________________________________________
4. Marketable Securities
The Company's marketable securities 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.
The Company's portfolio is comprised principally of equity securities
with an aggregate market value of $18,092,000 and $7,432,000 and cost
of $12,289,000 and $6,246,000 at December 31, 1997 and 1996,
respectively. At December 31, 1997, gross unrealized holding gains
and losses were $6,039,000 and $236,000, respectively. At December
31, 1996, gross unrealized holding gains and losses were $1,465,000
and $279,000, respectively.
For the purpose of determining realized gains and losses, the cost of
securities sold is based upon specific identification. Information
regarding the proceeds and gross realized gains and losses from sales
of securities is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Proceeds $ 3,419 $ 2,968 $ 2,959
Gross realized gains $ 1,211 $ 1,130 $ 1,118
Gross realized losses (82) - (123)
Net realized gain $ 1,129 $ 1,130 $ 995
_________________________________________________________________
</TABLE>
5. Notes Payable and Long-Term Debt
Notes payable include local credit lines maintained by the Company's
subsidiaries aggregating approximately $29,535,000, of which
$21,535,000 was unused at December 31, 1997. The weighted average
interest rate on these lines was 5.78% and 7.68% at December 31, 1997
10
<PAGE>
and 1996, respectively. The parent company guarantees most of these
credit lines. The carrying amounts of notes payable, which includes
borrowings under these lines and cash overdrafts, approximate their
fair value.
<TABLE>
The principal components of long-term debt are as follows (in
thousands):
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Revolving credit agreement $38,000 $ 5,000
Capitalized leases 1,046 1,530
Other 836 1,249
39,882 7,779
Less current maturities 930 1,058
Long-Term Debt $38,952 $ 6,721
</TABLE>
The Company has a $60 million revolving credit agreement which
provides for borrowings on an unsecured basis through April 2000.
Interest is based on money market rates or the prime rate. The
applicable interest rate at December 31, 1997 and 1996 was 6.49% and
5.98%, respectively. A fee ranging from 0.15% to 0.30% annually is
charged on the daily unborrowed portion of the commitment.
The Company redeemed all of its 10.9% Subordinated Notes in
December 1996. This redemption resulted in an extraordinary
charge of $1,176,000, net of income tax benefits of $817,000. The
debt was extinguished with current operating funds and $5,000,000
borrowed from the Company's revolving credit agreement.
The revolving credit agreement (including amendments) requires the
Company, among other things, to comply with certain financial
ratio covenants. The Company was in compliance with all financial
ratio covenants as of December 31, 1997. This agreement also
contains certain other restrictions, including the limitation of
cash dividends. Approximately $2,811,000 of retained earnings
were available for payment of cash dividends at December 31, 1997.
Maturities of long-term debt at December 31, 1997, are as follows:
1998 - $930,000; 1999 - $777,000; 2000 - $38,130,000; 2001 -
$45,000; subsequent to 2001 - $0.
The fair value of the Company's long-term debt is estimated based
on the current rates available to the Company for similar issues
of comparable maturities. At December 31, 1997, the estimated
fair value is $39,882,000.
11
<PAGE>
_________________________________________________________________
6. Income Taxes
<TABLE>
The U.S. and international components of income before taxes and
extraordinary charge are as follows (in thousands):
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
U.S. $ 11,343 $ 23,766 $ 24,592
International 11,385 12,707 8,950
Income before taxes and
extraordinary charge $ 22,728 $ 36,473 $ 33,542
</TABLE>
<TABLE>
The provision for income taxes consists of (in thousands):
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Current:
U.S. Federal $ 3,277 $ 7,613 $ 6,764
International 3,226 6,070 2,115
U.S. State 552 1,122 1,008
7,055 14,805 9,887
Deferred:
U.S. Federal (705) (4,473) (1,843)
International 376 (699) 695
U.S. State (362) (515) (353)
(691) (5,687) (1,501)
Provision for income taxes $ 6,364 $ 9,118 $ 8,386
</TABLE>
12
<PAGE>
<TABLE>
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 (dollars in thousands):
<CAPTION>
Year Ended December 31,
1997 1996 1995
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory tax rate $ 7,955 35% $12,766 35% $11,740 35%
State taxes, net of
federal income tax benefit 124 1 395 1 426 1
Effect of international
losses and differences
between international
and U.S. tax rates 842 4 1,806 5 781 2
Foreign Sales Corporation
tax benefit (1,370) (6) (1,343) (4) (1,539) (4)
Research and development
tax credit (546) (2) (413) (1) (265) (1)
Benefit of excess foreign
tax credits on
repatriation of foreign
earnings (684) (3) (253) (1) (908) (3)
Loss carryforwards utilized (1,279) (6) (1,518) (4) (1,678) (5)
Amortization of goodwill 565 2 46 - - -
Other 757 3 (2,368) (6) (171) -
Provision for income taxes $ 6,364 28% $ 9,118 25% $ 8,386 25%
</TABLE>
13
<PAGE>
<TABLE>
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 (in thousands):
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Deferred Tax Assets:
Reserves for obsolete inventory,
warranty and bad debts $ 10,418 $ 10,167
Eliminated intercompany profit 3,483 3,610
Tax benefit of foreign loss
carryforwards 1,822 3,157
Other 3,086 3,585
18,809 20,519
Valuation allowance (3,285) (5,572)
Deferred Tax Assets $ 15,524 $ 14,947
Deferred Tax Liabilities:
Deferred gain on condemnation $ 4,426 $ 6,717
Depreciation 1,921 602
Development cost of Hercules
facility 1,438 1,445
Other 7,680 6,793
Deferred Tax Liabilities $ 15,465 $ 15,557
</TABLE>
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 1997 and 1996 was a
decrease of $2,287,000 and $906,000, respectively, primarily
resulting from unanticipated utilization of foreign loss
carryforwards.
At December 31, 1997, Bio-Rad's international subsidiaries had
combined net operating loss carryforwards of $5,353,000. A
portion of these loss carryforwards will expire in the following
years: 2000 - $162,000; 2001 - $13,000; 2002 - $1,041,000 and
2004 - $228,000. 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 $19,442,000 at December 31, 1997, 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.
_________________________________________________________________
14
<PAGE>
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 other respects except that (i) Class A has limited
voting rights, each share of Class A being entitled to one-tenth of a
vote on most matters and each share of Class B being entitled to one
vote; (ii) Class A stockholders are entitled to elect 25% of the Board
of Directors (rounded up to the nearest whole number) and Class B
stockholders are entitled to elect the balance of the directors; (iii)
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 an at least equal cash dividend is paid on Class A
shares; and (iv) 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 Split
Retroactive adjustments have been made, as appropriate, to common
stock and per share amounts to reflect the 3-for-2 stock split
effected in the form of a 50% stock dividend in May 1996.
Stock Option Plans
Bio-Rad maintains incentive and non-qualified fixed stock option plans
for officers and certain other key employees. Under the 1994 Stock
Option Plan, the Company may grant options to its employees for up to
675,000 shares of common stock provided that no option shall be
granted after March 1, 2004. The Amended and Restated 1984 Stock
Option Plan provided that no option could be granted after March 1,
1994. Under both 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 rate not greater than 25% per
annum commencing one year after the date of grant and expire five
years after the date of grant.
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 1997, 1996 and 1995, respectively: no dividend yield for
all periods; expected lives of 1.8 and 2.8 years for all periods;
expected volatility of 33%, 33% and 38%; and risk-free interest rates
ranging from 5.63% to 6.15%, 4.85% to 5.27% and 6.78% to 7.43%.
15
<PAGE>
<TABLE>
Activity under the plans is summarized below (amounts reported in the Price columns
represent the weighted average exercise price):
<CAPTION>
Year Ended December 31,
1997 1996 1995
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 482,900 $16.34 427,457 $12.39 356,640 $ 9.66
Granted 147,050 32.54 147,000 26.55 145,800 18.27
Exercised (90,445) 11.88 (59,576) 11.12 (39,552) 9.91
Forfeited (19,909) 25.38 (31,981) 20.21 (35,431) 11.96
Expired (2,578) 12.04 - - - -
Outstanding at end of year 517,018 21.40 482,900 16.34 427,457 12.39
Options exercisable at year-end 172,689 149,605 103,437
Weighted average fair value of
options granted during the year $10.76 $8.57 $6.76
</TABLE>
<TABLE>
The following table summarizes information about fixed stock options outstanding at December 31, 1997:
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
<S> <C> <C> <C> <C> <C>
$ 7.37 - $ 9.46 123,681 0.9 years $ 8.33 85,877 $ 8.53
$10.36 - $20.03 130,750 1.9 17.07 55,989 16.85
$25.92 - $31.63 155,938 3.3 27.59 30,823 26.53
$32.63 - $35.89 106,649 4.1 32.81 - -
$ 7.37 - $35.89 517,018 2.5 21.40 172,689 14.44
</TABLE>
16
<PAGE>
Employee Stock Purchase Plan
Under the Amended 1988 Employee Stock Purchase Plan (the Plan), the
Company has authorized the sale of 645,000 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 43,785 shares for $982,000, 30,888 shares for $742,000 and 40,603
shares for $670,000 to employees in 1997, 1996 and 1995, respectively.
At December 31, 1997, 115,572 shares remained authorized under the
Plan.
The fair value of the employees' purchase rights since January 1,
1995, was estimated using the Black-Scholes model with the following
assumptions for 1997, 1996 and 1995, respectively: no dividend yield
for all periods; an expected life of three months for all periods;
expected volatility ranging from 19% to 30%, from 26% to 38% and from
20% to 32%; and risk-free interest rates ranging from 5.02% to 5.41%,
from 4.90% to 4.99% and from 5.12% to 5.66%. The weighted average
fair value of those purchase rights granted in 1997, 1996 and 1995 was
$5.50, $6.81 and $4.45, respectively.
Pro Forma Disclosures
<TABLE>
Had compensation cost for the Company's stock-based compensation plans
been determined based upon the fair value at grant dates for awards
under those plans consistent with the method of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation", the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net income As reported $16,364 $26,179 $25,156
Pro forma $15,173 $25,348 $24,651
Diluted earnings per As reported $1.32 $2.10 $2.02
share Pro forma $1.22 $2.03 $1.98
</TABLE>
Under the requirements of SFAS No. 123, the above disclosures relate
only to options granted after December 15, 1994, and do not include
the impact of outstanding options that were made prior to the period
for which SFAS No. 123 is effective. During the initial phase-in
period of SFAS No. 123, since the employee stock options vest over
several years and additional grants are likely to be made in future
years, the disclosures are not likely to be representative of the
effects on reported pro forma net income or earnings per share in
future years.
17
<PAGE>
8. Earnings Per Share
In the fourth quarter of 1997, Bio-Rad adopted SFAS No. 128, "Earnings
per Share". Basic earnings per share as required by SFAS No. 128 are
equal to earnings per share as historically reported by Bio-Rad. No
historical restatement was necessary.
Weighted average shares used for diluted earnings per share include
the dilutive effect of outstanding stock options of 134,000, 199,000
and 224,000 shares, for the years ended December 31, 1997, 1996 and
1995, respectively.
Options to purchase 133,000 shares of common stock were outstanding
during 1997, 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 1997. No options were
excluded in 1996 or 1995.
9. Restructuring Costs
In the fourth quarter of 1996, the Clinical Diagnostics segment
provided a $2,700,000 restructuring charge and a $2,100,000 charge to
cost of goods sold related to product line restructuring in the
immunoassay market and closure of the related production and research
facility in northern California. The restructuring charge consisted
primarily of lease-related costs and write-offs of production and
research equipment dedicated to the Company's closed system
immunoassay product line. The charge to cost of goods sold reflected
the adjustment to inventory necessary to reduce the carrying value of
inventory to its net realizable value. Cash outlays are primarily for
lease-related costs and commenced in the first quarter of 1997.
Future lease payments have been reserved through 2000. This reserve
may be offset in the future should the Company be successful in
efforts to sublease the property.
In the third quarter of 1995, the Life Science segment announced it
would close its sales office and warehouse located in New York. The
functions performed at this location were considered redundant and
have been absorbed by the California operations. In conjunction with
this decision, the Company recorded $1,500,000 of restructuring costs.
These charges consisted primarily of lease-related costs and employee
separation costs. Cash outlays related to this restructuring were
made with current operating funds, and were completed in 1996 with the
exception of lease-related costs. Future lease payments have been
reserved through 2001.
___________________________________________________________________
18
<PAGE>
10. Other Income and Expense
<TABLE>
Other, net includes the following income and (expense) components (in
thousands):
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Exchange gains (losses) $ (711) $ (641) $ 118
Other non-operating litigation
costs, net (1,606) (971) (1,350)
Miscellaneous other items (381) (88) (181)
Amortization of goodwill (1,612) (132) -
Other, net $(4,310) $(1,832) $(1,413)
</TABLE>
Exchange gains (losses) include premiums and discounts on forward
foreign exchange contracts.
________________________________________________________________
19
<PAGE>
11. Supplemental Cash Flow Information
<TABLE>
The reconciliation of net income to net cash provided by operating activities is as
follows (in thousands):
<CAPTION>
December 31,
1997 1996 1995
<S> <C> <C> <C>
Net income $16,364 $26,179 $25,156
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 19,470 17,870 16,681
Foreign currency hedge transactions, net (4,001) (1,275) 649
Gains on dispositions of marketable securities (1,129) (1,130) (995)
Increase in accounts receivable, net (6,176) (6,670) (9,261)
(Increase) decrease in inventories (14,831) 5,339 (984)
(Increase) decrease in other current assets (6,369) 435 1,560
Increase in accounts payable and
other current liabilities 18,775 1,411 5,531
Increase (decrease) in income taxes payable 1,122 (2,926) 1,153
Decrease in deferred taxes (1,276) (4,879) (1,321)
Other (840) (1,201) 63
Net cash provided by operating activities $21,109 $33,153 $38,232
______________________________________________________________________________
</TABLE>
20
<PAGE>
12. Commitments and Contingent Liabilities
Rents and Leases
Net rental expense under operating leases was $11,339,000 in
1997, $11,505,000 in 1996 and $11,105,000 in 1995. Leases are
principally for facilities and automobiles.
Annual future minimum lease payments at December 31, 1997, under
operating leases are as follows: 1998 - $10,775,000; 1999 -
$8,114,000; 2000 - $4,678,000; 2001 - $3,151,000; 2002 -
$3,026,000; subsequent to 2002 - $12,637,000.
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 $3,285,000, $3,165,000 and $2,870,000 in 1997, 1996 and
1995, respectively.
Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts as a
hedge against foreign currency denominated intercompany receiv-
ables and payables. At December 31, 1997, the Company had
contracts maturing in January 1998 to sell foreign currency with
a market value of $37,651,000 and to purchase foreign currency
with a market value of $559,000. At December 31, 1996, the
Company had contracts maturing in January and February 1997 to
sell foreign currency with a market value of $26,157,000 and to
purchase foreign currency with a market value of $680,000.
_________________________________________________________________
13. Legal Proceedings
In the third quarter of 1996, Bio-Rad and Fuji Photo Film Co.,
Ltd. reached a settlement in the action filed in Civil Department
No. 29 of the Tokyo District Court in July 1994 alleging in-
fringement of a Japanese patent which covers an autoradiographic
process. The settlement amounts were provided for in 1995 and
1994.
The Company is a party to various other claims, legal actions and
complaints arising in the ordinary course of business. One such
action relates to the U.S. Environmental Protection Agency which
has informed the Company that it may be a potentially responsible
party under the Comprehensive Environmental Response, Compensa-
tion and Liability Act, as amended, at one site in Colorado. In
the opinion of management the outcome of this and other claims,
legal actions and complaints would have no material adverse
effect on the future results of operations or the financial
position of the Company.
_________________________________________________________________
21
<PAGE>
14. Related Party Transactions
The Company regularly contracts for legal services with the law
firm of Townsend and Townsend and Crew. Albert J. Hillman was Of
Counsel in this law firm during 1997 and a non-employee member of
the Company's Board of Directors. The rate charged the Company
for these services is comparable to the rates charged others for
similar services.
_________________________________________________________________
<PAGE>
22
15. Industry Segment Information
<TABLE>
Bio-Rad is a multinational manufacturer and worldwide distributor of life science research
products, clinical diagnostics and analytical instruments. Information regarding
geographic areas at December 31, 1997, 1996 and 1995 and for the years then ended is as
follows (in thousands):
<CAPTION>
Consoli-
North Pacific Elimi- dated
Worldwide Operations America Europe Rim nations Total
<S> <C> <C> <C> <C> <C> <C>
Net sales to unaffiliated 1997 $199,390 $133,263 $ 94,261 $ - $426,914
customers 1996 184,325 141,413 93,051 - 418,789
1995 169,350 138,288 88,980 - 396,618
Net intercompany sales 1997 106,575 49,439 2,128 (158,142) -
1996 103,411 44,390 1,847 (149,648) -
1995 98,734 42,335 6,164 (147,233) -
Total net sales 1997 305,965 182,702 96,389 (158,142) 426,914
1996 287,736 185,803 94,898 (149,648) 418,789
1995 268,084 180,623 95,144 (147,233) 396,618
Income from operations 1997 17,194 4,692 4,767 - 26,653
1996 24,633 10,514 3,800 - 38,947
1995 25,076 11,030 2,084 - 38,190
Identifiable assets 1997 241,198 73,932 36,746 - 351,876
1996 176,900 74,412 33,613 - 284,925
1995 178,738 69,502 36,858 - 285,098
</TABLE>
Net intercompany sales and income from operations are recorded on the basis
of intercompany prices established by the Company.
23
<PAGE>
Net sales in North America include export sales from the Company's United
States operations of approximately $8,188,000, $7,577,000 and $6,163,000
in 1997, 1996 and 1995, respectively.
<TABLE>
Information regarding industry segments at December 31, 1997, 1996 and 1995 and for the
years then ended is as follows (in thousands):
<CAPTION>
Consoli-
Life Clinical Analytical dated
Market Segments Science Diagnostics Instruments Corporate Total
<S> <C> <C> <C> <C> <C> <C>
Net sales to unaffiliated 1997 $201,016 $150,098 $ 75,800 $ - $426,914
customers 1996 195,810 148,945 74,034 - 418,789
1995 193,145 137,426 66,047 - 396,618
Income (loss) from operations 1997 5,835 19,981 832 5 26,653
1996 15,828 17,397 5,136 586 38,947
1995 17,250 17,465 3,873 (398) 38,190
Identifiable assets 1997 116,933 134,792 43,504 56,647 351,876
1996 106,394 93,721 39,887 44,923 284,925
1995 115,256 94,321 32,804 42,717 285,098
Capital expenditures 1997 7,461 14,432 1,991 832 24,716
1996 7,103 7,514 2,133 791 17,541
1995 5,598 6,624 1,514 655 14,391
Depreciation 1997 7,164 7,553 1,792 804 17,313
1996 7,063 7,724 1,456 1,160 17,403
1995 6,986 6,510 1,555 1,181 16,232
</TABLE>
Sales between segments are immaterial. Capital expenditures include
capitalized leases of $331,000, $872,000 and $778,000 in 1997, 1996 and
1995, respectively.
___________________________________________________________________________
24
<PAGE>
16. Quarterly Financial Data - (unaudited)
<TABLE>
Summarized quarterly financial data for 1997 and 1996 are as follows
(in thousands, except per share data):
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
1997
<S> <C> <C> <C> <C>
Net sales $105,854 $105,752 $ 99,491 $115,817
Gross profit 62,141 58,721 54,835 61,886
Net income 7,494 4,899 2,614 1,357
Basic earnings per share $0.61 $0.40 $0.21 $0.11
Diluted earnings per share $0.60 $0.39 $0.21 $0.11
1996
Net sales $108,272 $ 99,981 $ 96,559 $113,977
Gross profit 61,432 58,277 55,847 61,187
Income before
extraordinary charge 9,461 7,511 6,699 3,684
Extraordinary charge - - - (1,176)
Net income 9,461 7,511 6,699 2,508
Basic earnings per share
before extraordinary
charge $0.77 $0.61 $0.55 $0.30
Basic earnings per share $0.77 $0.61 $0.55 $0.20
Diluted earnings per share
before extraordinary
charge $0.76 $0.60 $0.54 $0.29
Diluted earnings per share $0.76 $0.60 $0.54 $0.20
</TABLE>
______________________________________________________________________
17. 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, respec-
tively. The following sets forth, for the periods indicated, the high
and low sales prices for the Company's Class A and Class B Common
Stock.
<TABLE>
<CAPTION>
Class A Class B
High Low High Low
<S> <C> <C> <C> <C>
1997
First Quarter 33-1/2 25-1/2 32 26-3/4
Second Quarter 27-15/16 23-3/8 27-1/2 23-1/4
Third Quarter 30-3/4 26 30-1/8 26-1/4
Fourth Quarter 30-1/4 23-7/16 29-3/8 29
1996
First Quarter 28-1/2 24-11/12 27-5/6 25-11/12
Second Quarter 37 28 36-3/4 29-1/12
Third Quarter 36-5/8 26-5/8 36-3/8 26-1/2
Fourth Quarter 31 24 30-1/2 25-1/8
</TABLE>
25
<PAGE>
At February 17, 1998, the Company had 618 holders of record of Class
A Common Stock and 305 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
<PAGE>
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, 1997 and 1996, 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, 1997. 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 generally accepted
auditing standards. 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
San Francisco, California,
February 4, 1998
27
<PAGE>
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.
<TABLE>
The following table shows operating income and expense items as a
percentage of net sales:
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of goods sold 44.3 43.5 43.4
Gross profit 55.7 56.5 56.6
Selling, general and administrative 38.7 37.1 37.9
Product research and development 10.8 9.5 8.7
Restructuring costs - 0.6 0.4
Income from operations 6.2 9.3 9.6
===== ===== =====
Income before extraordinary charge 3.8 6.5 6.3
===== ===== =====
</TABLE>
Corporate Results -- Sales, Margins and Expenses
Bio-Rad's net sales (sales) in 1997 amounted to $426.9 million, an
increase of 1.9% over sales in 1996. Again in 1997, the continuing
effect of an ever strengthening U.S. dollar throughout 1997 caused a
reduction in sales growth of 4.6% or approximately $19.2 million.
When 1997 sales are compared to 1996 at constant 1996 exchange rates,
sales for the Company grew 6.5%. Sales increased in all segments of
the Company's business. Eliminating the effects of a strengthened
U.S. dollar, sales increased 7.5% in Life Science, 6.3% in Analytical
Instruments and 5.4% in Clinical Diagnostics. Life Science sales
growth was generated by its imaging product equipment and related
software, gene transfer products, convenience electrophoresis and
chromotography products. Analytical Instruments saw continued growth
in the products sold into the semiconductor test and manufacturing
equipment market.
Bio-Rad's sales in 1996 were $418.8 million, an increase of 5.6% over
sales in 1995. The effect of the strengthened U.S. dollar in 1996
exchange rates compared to 1995 exchange rates resulted in an
approximate 2% or $8.5 million decrease in consolidated sales. Sales
28
<PAGE>
increased in all segments of the Company's business. Excluding the
effects of the strengthened U.S. dollar, sales increased 16% in
Analytical Instruments, 8% in Clinical Diagnostics and 4% in Life
Science. The growth in Analytical Instruments was led by increased
sales of spectroscopy equipment but also included increased sales of
the Company's semiconductor test and manufacturing equipment,
especially in the fourth quarter. Clinical Diagnostics experienced
worldwide growth led by increases in U.S. sales.
Consolidated gross margins were 55.7% for 1997 compared to 56.5% for
1996. Gross margins overall were adversely affected in part by lower
prices on international sales caused by the strengthening U.S. dollar
and a majority of manufacturing costs being U.S. dollar denominated.
Clinical Diagnostics gross margins declined by 0.6% of sales after
adjustment for the $2.1 million (or 1.4% of sales impact) from the
fourth quarter 1996 write-down of inventory associated with a closed
system immunoassay analyzer product line (see Note 9). Analytical
Instruments gross margins declined 0.7% of sales largely in the
Company's spectroscopy equipment product line as a number of re-
engineering and organizational changes were made to the manufacturing
operations of this product line. The initiatives undertaken included
selective headcount reductions, the outsourcing of some components,
redesign of manufacturing processes and the lowering of manufacturing
overhead. Life Science margins declined 2.2% of sales. In addition
to the impact of lower overall prices mentioned above, this segment
experienced increased warranty and service expenses, increased returns
and allowances, and unfavorable manufacturing overhead absorption from
not achieving planned growth.
Consolidated gross margins were 56.5% for 1996 compared to 56.6% for
1995. Gross margins were negatively impacted by 0.5% from a $2.1
million charge in the fourth quarter of 1996 for the write-down of
Clinical Diagnostics inventory associated with the development and
production of a closed system immunoassay analyzer product line (see
Note 9). Improved gross margins in the Analytical Instruments segment
were the result of sales increases. Gross margins in Clinical
Diagnostics were relatively unchanged excluding the impact of the
fourth quarter inventory adjustment. In Life Science gross margins
were down less than 1% when compared to 1995; this was attributed to a
number of factors including exchange rates, sales mix and factory
inefficiencies.
Consolidated selling, general and administrative expense (SG&A)
increased to 38.7% of sales in 1997 from 37.1% in 1996. Spending
increased in absolute dollars in all segments, with each segment
growing SG&A faster than sales. While headcount grew approximately
2.5% (excluding the acquisition in December 1997), salaries rose at an
even faster rate particularly in the United States as the labor market
became tighter and the cost of retaining and recruiting personnel
increased. Additionally, the Company increased its expenditures on
information technology to add the necessary infrastructure for Bio-Rad
to remain competitive in serving its worldwide customer base. Beyond
personnel cost increases, Life Science increases were for advertising.
Analytical Instruments directed increased spending towards its
semiconductor product lines. Clinical Diagnostics had increased costs
29
<PAGE>
for recruiting and for providing demonstration equipment in support of
sales.
During 1996, SG&A decreased to 37.1% of sales from 37.9% in 1995.
While spending increased in absolute dollars in all segments, the
Clinical Diagnostics and Analytical Instruments segments succeeded in
growing sales faster than SG&A in 1996. In the Life Science segment
the growth in SG&A was proportional to the growth in sales.
Product research and development expense (R&D) increased in 1997 by
16.6% to $46.1 million compared to $39.6 million for the year 1996.
While spending increased in each segment, Clinical Diagnostics
remained virtually unchanged as spending increased $0.3 million. Life
Science increased spending 23%. Analytical Instruments increased
spending 27% as it prepared to meet new specifications for the next
generation of test and measurement equipment and for new products that
will complement the existing product line.
R&D increased in 1996 when compared to 1995, both in absolute dollars
and as a percent of sales. As planned, R&D was expanded and spending
increased in the Analytical Instruments and Life Science segments as
part of Bio-Rad's continuing commitment to long-term growth. R&D
spending declined approximately $0.6 million in the Clinical
Diagnostics segment.
In the fourth quarter of 1996, the Clinical Diagnostics segment made a
provision of $2.7 million for lease-related costs and write-down of
certain dedicated fixed assets associated with its closed system
immunoassay analyzer product line (see Note 9). Management determined
the marketing strategy was not competitive and has redirected
resources to an open systems approach.
The Life Science segment made a $1.5 million provision for the cost of
closing its New York warehouse and distribution center in the third
quarter of 1995 (see Note 9). Closing this facility has reduced costs
and enabled the Company to more efficiently use its remaining
distribution space.
Corporate Results -- Non-Operating Items
Interest expense represents 0.3% of sales in 1997 compared to 0.7% in
1996 and 1.1% in 1995. The decline is attributable to an overall
reduction in the amount of interest bearing debt. Average borrowings
for the years 1997, 1996 and 1995 were $14.7 million, $27.9 million
and $42.4 million, respectively. Interest expense will increase in
the coming year as a result of the borrowings made in connection with
the acquisitions in the fourth quarter of 1997 (see Note 2). In
December 1996, the Company repaid the $20.0 million 10.9% Subordinated
Notes resulting in an extraordinary charge (see Note 5).
Investment income in 1997, 1996 and 1995 includes gains on sales of
marketable securities. 1996 includes interest income of $0.8 million
from short-term investments as a result of accumulating cash prior to
repaying the 10.9% Subordinated Notes.
30
<PAGE>
Net other income and expense for 1997 included non-operating
litigation costs, amortization of goodwill and exchange losses (see
Note 10). Net other income and expense for 1996 was principally non-
operating litigation costs and exchange losses. Net other income and
expense for 1995 was principally non-operating litigation costs. Bio-
Rad's hedging program is limited to nonspeculative forward foreign
exchange contracts (with major financial institutions) which hedge 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 tax provision was 28% in 1997 and 25% in both
1996 and 1995. The higher effective tax rate for 1997 is the result
of changes in the source of taxable income and the diminishing
availability of loss carryforwards. The tax rate for all years
reflects the utilization of loss carryforwards, foreign sales
corporation benefits and foreign tax credits. These benefits are not
expected to continue at the same level in 1998 resulting in the tax
rate rising slowly over time.
Financial Condition
Historically, the Company's ongoing and principal capital requirement
was for working capital to fund its growth in operations. Since 1994,
the Company's efforts to improve profitability and emphasize working
capital control have limited much of this requirement.
At December 31, 1997, the Company had available $10.8 million in cash
and cash equivalents, $21.5 million under its international lines of
credit, $22.0 million under its principal revolving credit agreement
(see Note 5) and marketable securities with a market value of $18.1
million, a majority of which could be readily converted into cash (see
Note 4).
Net cash provided by operations was $21.1 million, $33.2 million and
$38.2 million in 1997, 1996 and 1995, respectively. The 1997 decrease
in net cash provided by operations was caused by an increase in
inventories as discussed below.
Consolidated net accounts receivable decreased 0.8% in 1997 when
compared to 1996. The effect of a strengthened U.S. dollar caused a
decline in net accounts receivable denominated in foreign currency.
This decline was offset by increased sales in the fourth quarter, by a
slowing in payments from certain customers purchasing large
instruments and by customers in Asia. Bio-Rad's management regularly
reviews the allowance for uncollectible receivables and believes net
receivables are fully realizable.
For the year ended December 1997, consolidated inventories, excluding
additions from current year acquisitions, rose 18% to $82.4 million.
Year-end inventories from acquisitions amounted to $9.0 million and
were comprised principally of the controls inventory purchased in
December 1997. The Life Science segment added significantly to the
increase in inventory for new products, to accommodate customer
demands for greater inventory availability levels and to support
31
<PAGE>
increased sales efforts. Additionally, the Analytical Instruments
segment added inventory to its semiconductor product line which is
generally built-to-order but has some planned 1998 new product
releases. Management regularly reviews the impact of obsolescence in
current inventory caused by the introduction of new products.
Management will renew its focus on inventory control in the coming
year to moderate capital requirements.
A valuation reserve is necessary for deferred tax assets (see Note 6)
primarily because realization of tax attribute carryforwards is
uncertain.
Net capital expenditures in 1997 totaled $23.6 million compared to
$15.2 million and $12.3 million in 1996 and 1995, respectively.
Expenditures in 1997 included the relocation of the Clinical
Diagnostics segment's southern California manufacturing operations to
a new leased facility. 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. Capital expenditures are
expected to increase in 1998 when compared to the past three years.
The Life Science segment's northern California distribution and
instrument manufacturing facility lease expires late in 1998 and may
require a major investment. The Company is reviewing several options
including relocating and leasing, or constructing a facility on its
Hercules campus. Additionally, the Company will continue its
investment in information technology begun in earnest in 1997 to
provide the enterprise-wide infrastructure necessary for achieving
greater competitiveness, further cost efficiencies and year 2000
compliance. Modifications to existing computer systems and
applications required to meet year 2000 needs have not had, and are
not expected to have, a material impact on the results of operations.
Bio-Rad's liquidity remained strong in 1997 by historical standards.
Available funds and cash flow from operations are adequate to meet the
Company's objectives for operations, research and development, and
investment in plant and equipment.
In February 1998, the Board of Directors authorized the Company to
repurchase up to an additional $10 million of common stock over an
indefinite period of time. This is the third such authorization since
July 1996 bringing the total authorized to $18 million. Through
January 1998, the Company has repurchased 236,700 shares of Class A
common stock and 30,000 shares of Class B common stock for a total of
$7.2 million. The repurchase is designed to improve shareholder value
and to satisfy the Company's obligations under the employee stock
purchase and stock option plans.
In December 1997, the Company's Clinical Diagnostics segment acquired
the assets used by Chiron Diagnostics Corporation in the business of
the manufacturing, marketing and sale of diagnostic controls
(exclusive of blood gas controls). Assets acquired included
inventory, equipment, leasehold improvements, a number of intangible
assets and an agreement to supply product to Chiron Diagnostics for up
to 10 years. Additionally, in the fourth quarter of 1997, the Life
32
<PAGE>
Science segment acquired certain assets, primarily source code, to
complement its imaging products and the Analytical Instruments segment
acquired certain assets, primarily inventory, related to the design
and manufacture of the optical production profiler. Funding for these
acquisitions came from the Company's existing revolving credit
agreement. These acquisitions have been accounted for using the
purchase method (see Note 2). The Company continues to regularly
review acquisition opportunities; currently no material acquisitions
have reached a stage beyond exploratory discussions.
New Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", effective for fiscal years beginning after
December 15, 1997. Under SFAS No. 130, the Company will be required
to report all items comprising comprehensive income in a financial
statement that is displayed with the same prominence as other
financial statements. Since much of the required information is
already disclosed, the Company does not expect the adoption of the
requirements of this statement to have a material effect on its
financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", effective for
fiscal years beginning after December 15, 1997. Under SFAS No. 131,
the Company will be required to modify its segment disclosures. The
Company does not expect the adoption of the requirements of this
statement to have a material effect on its financial statements.
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. Actual results may differ materially
from those currently anticipated depending on a variety of risk
factors.
33
<PAGE>
EXHIBIT 21.1 - LISTING OF SUBSIDIARIES
SUBSIDIARY JURISDICTION OF ORGANIZATION
Bio-Rad Laboratories Pty. Limited Australia
Bio-Rad Laboratories Ges.m.b.H. Austria
Bio-Rad International, Inc. (FSC) Barbados
Bio-Rad Laboratories S.A.-N.V. Belgium
RSL N.V. Belgium
Bio-Metrics Properties Limited California, USA
Bio-Rad Laboratories (Israel) Inc. California, USA
Bio-Rad Leasing, Inc. California, USA
Bio-Rad Pacific Limited California, USA
Bio-Rad Laboratories (Canada) Ltd. Canada
Beijing Bio-Rad Analytical
Biochemistry Instrument Co., Ltd. China
SoftShell International Ltd. Colorado, USA
Bio-Metrics Limited Delaware, USA
Bio-Rad Export, Inc. (DISC) Delaware, USA
Bio-Metrics (U.K.) Limited England
Bio-Rad Laboratories Europe Limited England
Bio-Rad Laboratories Limited England
Bio-Rad Lasersharp Limited England
Bio-Rad Limited England
Bio-Rad Micromeasurements Limited England
Bio-Rad Microscience Limited England
Micromeasurements Limited England
Sadtler Research Laboratories Ltd. England
Bio-Rad S.A. France
Bio-Rad Laboratories GmbH Germany
Bio-Rad China Limited Hong Kong
Bio-Rad Laboratories (India) Private Limited India
Bio-Rad Laboratories Ltd. Israel
Bio-Rad Laboratories S.r.l. Italy
Nippon Bio-Rad Laboratories K.K. Japan
Bio-Rad Korea Ltd. Korea
Bio-Rad Micromeasurements Inc. Massachusetts, USA
Bio-Rad Laboratories B.V. The Netherlands
Sandia Systems, Inc. New Mexico, USA
Polaron Instruments, Inc. Pennsylvania, USA
Bio-Rad Laboratories (Singapore) Limited Singapore
Bio-Rad Laboratories S.A. Spain
Bio-Rad Laboratories AB Sweden
Bio-Rad Laboratories AG Switzerland
<PAGE>
EXHIBIT 23.1 - CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by
reference in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 33-53335 and
33-53337).
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
San Francisco, California,
March 26, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from Bio-Rad Laboratories, Inc. Form 10-K for the year ended
December 31, 1997 and is qualified in its entirety by reference
to such financial statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,843
<SECURITIES> 0
<RECEIVABLES> 100,339
<ALLOWANCES> 3,374
<INVENTORY> 91,428
<CURRENT-ASSETS> 227,418
<PP&E> 178,631
<DEPRECIATION> 99,953
<TOTAL-ASSETS> 351,876
<CURRENT-LIABILITIES> 100,782
<BONDS> 38,952
<COMMON> 12,421
0
0
<OTHER-SE> 184,256
<TOTAL-LIABILITY-AND-EQUITY> 351,876
<SALES> 426,914
<TOTAL-REVENUES> 426,914
<CGS> 189,331
<TOTAL-COSTS> 189,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,216
<INCOME-PRETAX> 22,728
<INCOME-TAX> 6,364
<INCOME-CONTINUING> 16,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,364
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.32
</TABLE>
