<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, 1998
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________________
Commission file number 1-7928
BIO-RAD LABORATORIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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 1, 1999 of Stocks
Title of Each Class on Which Registered March 1, 1999 Held by Non-Affiliates
------------------- --------------------- ------------------ ------------------------
<S> <S> <C> <C>
Class A Common Stock
Par Value $1.00 per share American Stock Exchange 9,973,679 $157,742,498
Class B Common Stock
Par Value $1.00 per share American Stock Exchange 2,488,899 $ 6,756,600
</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, 1998
(specified portions) I, II, IV
(2) Definitive Proxy Statement to be mailed
to stockholders in connection with the
registrant's 1999 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 science research. Recognizing that
the fields of clinical diagnostics and life science 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 also expanded its
geographical market. The Company controls its distribution chan-
nels in twenty-seven countries outside the U.S.A. through
subsidiaries whose primary focus is customer service and product
distribution.
During 1996 and 1997, the Company 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 science 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.
Description of Business
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 a
description of business and financial information on industry and
geographic segments, see Note 14 on pages 19 through 22 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 1998 Annual Report to Stockholders.
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.
1
<PAGE>
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.
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 segments maintains a sales force 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, telemarketing, 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. The Company maintains
an internet website, http://www.bio-rad.com, to further enhance
its marketing efforts.
Bio-Rad products are sold to a broad and diversified customer
base. In 1998, 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,
Mexico, the Netherlands, New Zealand, Norway, People's Republic
2
<PAGE>
of China, Poland, Russia, 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.
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
330 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, hospitals
and medical schools, and in industry. Bio-Rad spent
approximately $41.4 million, $46.1 million and $39.6 million on
R&D activities during the years ended December 31, 1998, 1997 and
1996, 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
3
<PAGE>
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.
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, 1998, Bio-Rad had approximately 2,675 full-time
employees. Fewer than 7% of Bio-Rad's employees are covered by a
collective bargaining agreement which will expire on November 7,
2002. 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, Mexico, the
Netherlands, New Zealand, Norway, People's Republic of China,
Poland, Russia, Singapore, Spain, Sweden and Switzerland. These
facilities are used principally for sales, service, distribution
and administration for all three segments.
4
<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.
Life Science segment's northern California distribution and
instrument manufacturing facility lease expires in November 2000.
The lease is not automatically renewable at that time. It is
anticipated that the distribution and instrument manufacturing
facility will be moved to a new location in northern California
prior to November 2000. 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 19 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 16, "Information Concerning Common Stock," appearing on page
23 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
25 through 32 of Exhibit 13.1 is incorporated herein by
reference.
5
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The section headed "Financial Risk Management" appearing on pages
31 and 32 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
Financial Statements and Notes thereto appearing on pages 2
through 24 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
1999 Annual Meeting of Stockholders (the 1999 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 1999 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 1999 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section labeled "Compensation of Directors" of the 1999 Proxy
Statement is incorporated herein by reference.
6
<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 1998 Annual Report and are incorporated
herein by reference pursuant to Item 8:
Page in
Exhibit 13.1
Consolidated Balance Sheets
at December 31, 1998 and 1997 2-3
Consolidated Statements of Income
for each of the three years in the
period ended December 31, 1998 4
Consolidated Statements of Cash Flows
for each of the three years in the period
ended December 31, 1998 5
Consolidated Statements of Changes in
Stockholders' Equity for each of the three
years in the period ended December 31, 1998 6
Notes to Consolidated Financial Statements 7-23
Report of Independent Public Accountants 24
2. Index to Financial Statement Schedule
Page in
Form 10-K
Schedule II Valuation and Qualifying Accounts 8
Report of Independent Public Accountants
on Schedule II 9
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 11 and 12 of this report are filed or incorporated by
reference as part of this report.
(b) Reports on Form 8-K
There are no reports on Form 8-K filed by the Company during the last
quarter of the period covered by this report.
7
<PAGE>
BIO-RAD LABORATORIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997 and 1996
(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>
1998 $ 3,374 $ 1,616 $(1,361) $ 3,629
====== ====== ====== ======
1997 $ 3,688 $ 1,088 $(1,402) $ 3,374
====== ====== ====== ======
1996 $ 3,094 $ 952 $ (358) $ 3,688
====== ====== ====== ======
</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>
1998 $ 3,285 $ 2,057 $ - $ 5,342
====== ====== ====== ======
1997 $ 5,572 $ - $(2,287) $ 3,285
====== ====== ====== ======
1996 $ 6,478 $ - $ (906) $5,572
====== ====== ====== ======
8
<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
incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 3, 1999. 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 3, 1999
9
<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 25, 1999
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 25, 1999
(David Schwartz)
Principal Financial Officer:
/s/ T. C. Chesterman Vice President, March 25, 1999
(Thomas C. Chesterman) Chief Financial Officer
Principal Accounting Officer:
/s/ James R. Stark Corporate Controller March 25, 1999
(James R. Stark)
Other Directors:
/s/ James J. Bennett Director March 25, 1999
(James J. Bennett)
/s/ Albert J. Hillman Director March 25, 1999
(Albert J. Hillman)
/s/ Philip L. Padou Director March 25, 1999
(Philip L. Padou)
/s/ Alice N. Schwartz Director March 25, 1999
(Alice N. Schwartz)
/s/ Norman Schwartz Director March 25, 1999
(Norman Schwartz)
_______________________ Director March 25, 1999
(Burton A. Zabin)
10
<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 and Restated 1988 Employee Stock Purchase Plan.
(4)
10.6 Employees' Deferred Profit Sharing Retirement Plan
(Amended and Restated effective January 1, 1997). (5)
10.10 Non-competition and employment continuation agreement
with James J. Bennett. (6)
10.11 Employment and non-compete agreement with Dr. Burton A.
Zabin. (7)
10.12 Credit Agreement dated as of May 15, 1998, by and among
the Registrant, the Lenders, and The First National
Bank of Chicago, as agent. (8)
10.12.1 Amendment dated as of February 12, 1999, to the Credit
Agreement dated as of May 15, 1998, by and among the
Registrant, the Lenders, and The First National Bank of
Chicago, as agent.
13.1 Excerpt from Annual Report to Stockholders' for the
fiscal year ended December 31, 1998, (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.
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.
11
<PAGE>
(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 September 30, 1998, Form 10-Q filing dated
November 10, 1998.
(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, 1996, dated March 26, 1997.
(7) Incorporated by reference from the Exhibits to the
Company's June 30, 1997, Form 10-Q filing dated
August 6, 1997.
(8) Incorporated by reference from the Exhibits to the
Company's June 30, 1998, Form 10-Q filing dated August
13, 1998.
12
</TABLE>
<PAGE>
EXHIBIT 10.12.1
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is
made and dated as of the 12 day of February, 1999, by and among THE
FIRST NATIONAL BANK OF CHICAGO ("FNBC"), UNION BANK OF CALIFORNIA,
N.A., ABN AMRO BANK N.V., and BANQUE NATIONALE DE PARIS (each of the
above parties, a "Lender", and collectively, the "Lenders"), FNBC as
agent for the Lenders (in such capacity, the "Agent"), and BIO-RAD
LABORATORIES, INC., a Delaware corporation (the "Borrower").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of May 15,
1998 among the Agent, the Lenders and the Borrower (as amended to
date, the "Agreement"), the Lenders agreed to extend credit to the
Borrower on the terms and subject to the conditions set forth
therein. All capitalized terms not otherwise defined herein shall
have the meanings given to such terms in the Agreement.
B. The parties hereto have agreed to certain amendments to the
Agreement, all as more particularly described below.
NOW, THEREFORE, in consideration of the foregoing Recitals and
for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as
follows:
AGREEMENT
1. Dividends. To reflect the agreement of the parties hereto
to amend the Borrower's covenant on dividends, effective as of the
First Amendment Effective Date (as defined in Paragraph 3 below),
Section 6.10 of the Agreement is hereby amended to read in its
entirety as follows:
"6.10 Dividends. The Borrower will not, nor will it permit
any Subsidiary to, declare or pay any dividends or make any
distributions on its capital stock (other than (i) dividends
payable in its own capital stock and (ii) excluding share
repurchases used solely to fund employee stock purchase plans
and employee stock option plans, provided such share repurchases
do not exceed $4,000,000 in any fiscal year (including, without
limitation, the fiscal year ended December 31, 1998)) or redeem,
purchase or otherwise acquire or retire any of its capital stock
at any time outstanding ("Restricted Payments"), except that any
Subsidiary may declare and pay dividends to the Borrower or to a
wholly-owned Subsidiary and the Borrower may make Restricted
Payments in any one fiscal quarter up to an amount not in excess
of 50% of the sum of consolidated net income during the four
fiscal quarters ending on the date of determination less any
Restricted Payments paid during such period, provided that
during the term of this Agreement the total amount of Restricted
Payments made shall not exceed $25,000,000 and further, provided
1
<PAGE>
no Restricted Payment may be made if prior to, and after giving
effect thereto, any Default or Unmatured Default exists."
2. Reaffirmation of Other Loan Documents. The Borrower hereby
affirms and agrees that (a) the execution and delivery by the
Borrower of and the performance of its obligations under this
Amendment shall not in any way amend, impair, invalidate or otherwise
affect any of the obligations of the Borrower under the Agreement or
any other Loan Document, (b) the term "Obligations" as used in the
Loan Documents include, without limitation, the Obligations of the
Borrower under the Agreement as amended by this Amendment, and
(c) except as expressly amended hereby, the Loan Documents remain in
full force and effect as written.
3. First Amendment Effective Date. This Amendment shall be
effective on the earliest date (the "First Amendment Effective
Date") upon which the Agent has received (a) duly executed copies of
this Amendment from each of the Lenders, the Agent and the Borrower,
and (b) such board resolutions, incumbency certificates and other
additional documentation as the Agent may request in connection
herewith.
4. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Lenders as follows:
(a) The Borrower has the corporate power and authority and
the legal right to execute, deliver and perform this Amendment and
has taken all necessary corporate action to authorize the execution,
delivery and performance of this Amendment.
(b) This Amendment has been duly executed and delivered on
behalf of the Borrower and constitutes the legal, valid and binding
obligation of the Borrower enforceable against the Borrower in
accordance with its terms.
5. Counterparts. This Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute one
and the same agreement.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the day and year first above written.
BIO-RAD LABORATORIES, INC.
By: /s/ Ronald W. Hutton
Name: Ronald W. Hutton
Title: Treasurer
THE FIRST NATIONAL BANK OF CHICAGO,
as the Agent and as a Lender
By: /s/ Mark A. Isley
Name: Mark A. Isley
Title: First Vice President
UNION BANK OF CALIFORNIA, N.A., as a Lender
By: /s/ Michael E. Cooper
Name: Michael E. Cooper
Title: Vice President
ABN AMRO BANK N.V., as a Lender
By: /s/ Gina M. Brusatori
Name: Gina M. Brusatori
Title: Group Vice President
By: /s/ Dianne D. Barkley
Name: Dianne D. Barkley
Title: Group Vice President
3
<PAGE>
BANQUE NATIONALE DE PARIS, as a Lender
By: /s/ Debra Wright
Name: Debra Wright
Title: Vice President
By: /s/ Mark McElwain
Name: Mark McElwain
Title: Assistant Vice President
4
la-268130
<PAGE>
EXHIBIT 13.1
Bio-Rad Laboratories, Inc.
SUMMARY OF OPERATIONS (In thousands, except per share data)
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________________
Year Ended December 31,
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net sales $441,942 $426,914 $418,789 $396,618 $355,299 $328,553
Cost of goods sold (1) 202,438 189,331 182,046 171,942 155,805 151,063
Gross profit 239,504 237,583 236,743 224,676 199,494 177,490
Selling, general and administrative expense 166,978 164,792 155,516 150,272 132,591 129,187
Product research and development expense 41,381 46,138 39,580 34,714 30,172 34,204
Restructuring costs - - 2,700 1,500 - 3,816
Income from operations 31,145 26,653 38,947 38,190 36,731 10,283
Other income (expense):
Interest expense (3,731) (1,216) (3,027) (4,465) (6,138) (8,406)
Other, net 6,814 (2,709) 553 (183) (6,596) 2,801
Income before taxes and extraordinary charge 34,228 22,728 36,473 33,542 23,997 4,678
Provision for income taxes 9,926 6,364 9,118 8,386 8,399 1,877
Income before extraordinary charge 24,302 16,364 27,355 25,156 15,598 2,801
Extraordinary charge (2) - - (1,176) - - -
Net income $ 24,302 $ 16,364 $ 26,179 $ 25,156 $ 15,598 $ 2,801
Basic earnings per share before
extraordinary charge (3) $1.98 $1.33 $2.23 $2.06 $1.29 $0.23
Extraordinary charge (2)(3) - - (.10) - - -
Basic earnings per share (3) $1.98 $1.33 $2.13 $2.06 $1.29 $0.23
Weighted average common shares (3) 12,264 12,260 12,273 12,206 12,113 11,990
Cash dividends paid per common share - - - - - -
Total assets $367,299 $351,876 $284,925 $285,098 $263,650 $259,890
Long-term debt, net of current maturities $ 42,339 $ 38,952 $ 6,721 $ 20,922 $ 26,287 $ 47,834
_______________________________________________________________________________________________________________________
<FN>
(1) In 1996, cost of goods sold includes a charge of $2.1 million for a 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 1998 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 10,081 $ 10,843
Accounts receivable, less allowance of $3,629 in 1998
and $3,374 in 1997 106,010 96,965
Inventories:
Raw materials 26,038 27,257
Work in process 21,614 21,242
Finished goods 44,759 42,929
Total inventories 92,411 91,428
Deferred tax assets 18,340 15,524
Prepaid expenses and other current assets 8,547 12,658
Total current assets 235,389 227,418
Property, Plant and Equipment:
Land and improvements 8,057 8,057
Buildings and leasehold improvements 56,280 55,477
Equipment 133,838 115,097
Total property, plant and equipment 198,175 178,631
Accumulated depreciation (116,045) (99,953)
Net property, plant and equipment 82,130 78,678
Marketable Securities 6,174 18,092
Goodwill 18,616 20,959
Other Assets 24,990 6,729
Total Assets $367,299 $351,876
________________________________________________________________________________________
</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 1998 1997
<S> <C> <C>
Current Liabilities:
Notes payable $ 8,721 $ 9,872
Current maturities of long-term debt 672 930
Accounts payable 26,706 32,385
Accrued payroll and employee benefits 27,351 24,825
Sales, income and other taxes payable 6,396 5,055
Other current liabilities 27,398 27,715
Total current liabilities 97,244 100,782
Long-Term Debt, net of current maturities 42,339 38,952
Deferred Tax Liabilities 13,382 15,465
Total liabilities 152,965 155,199
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 1998 - 9,973,679;
1997 - 9,824,509 9,974 9,825
Class B common stock, $1.00 par value, 6,000,000 shares
authorized; outstanding 1998 - 2,452,899;
1997 - 2,596,069 2,453 2,596
Additional paid-in capital 18,523 18,426
Class A treasury stock, 306,368 shares in 1998 and (7,047) (5,206)
193,539 shares in 1997 at cost
Class B treasury stock, 30,000 shares in 1997 at cost - (800)
Retained earnings 189,838 167,182
Accumulated other comprehensive income:
Currency translation 92 (1,149)
Net unrealized holding gain on marketable securities 501 5,803
Total stockholders' equity 214,334 196,677
Total Liabilities and Stockholders' Equity $367,299 $351,876
__________________________________________________________________________________________
</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,
1998 1997 1996
<S> <C> <C> <C>
Net sales $441,942 $426,914 $418,789
Cost of goods sold 202,438 189,331 182,046
Gross profit 239,504 237,583 236,743
Selling, general and administrative expense 166,978 164,792 155,516
Product research and development expense 41,381 46,138 39,580
Restructuring costs - - 2,700
Income from operations 31,145 26,653 38,947
Other income (expense):
Interest expense (3,731) (1,216) (3,027)
Investment income, net 8,790 1,601 2,385
Other, net (1,976) (4,310) (1,832)
Income before taxes and extraordinary charge 34,228 22,728 36,473
Provision for income taxes 9,926 6,364 9,118
Income before extraordinary charge 24,302 16,364 27,355
Extraordinary charge, net of tax effect of $817 - - (1,176)
Net income $ 24,302 $ 16,364 $ 26,179
Basic earnings per share:
Income before extraordinary charge $1.98 $1.33 $2.23
Extraordinary charge - - (.10)
Net income $1.98 $1.33 $2.13
Weighted average common shares 12,264 12,260 12,273
Diluted earnings per share:
Income before extraordinary charge $1.97 $1.32 $2.19
Extraordinary charge - - (.09)
Net income $1.97 $1.32 $2.10
Weighted average common shares 12,358 12,394 12,472
_______________________________________________________________________________________________________________________
</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,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $436,029 $414,694 $409,144
Cash paid to suppliers and employees (395,265) (381,489) (354,641)
Interest paid (3,833) (1,155) (3,710)
Income tax payments (9,370) (10,950) (16,923)
Miscellaneous receipts (payments) (226) 9 (717)
Net cash provided by operating activities 27,335 21,109 33,153
Cash flows from investing activities:
Capital expenditures, net (21,176) (23,571) (15,235)
Payments for acquisitions - (31,238) (1,290)
Purchases of marketable securities and investments (19,086) (8,352) (2,710)
Sales of marketable securities and investments 16,367 3,419 2,968
Foreign currency hedges, net (1,360) 3,817 1,423
Net cash used in investing activities (25,255) (55,925) (14,844)
Cash flows from financing activities:
Net borrowings under line-of-credit arrangements (1,365) 4,665 (8,940)
Long-term borrowings 133,710 87,275 5,024
Payments on long-term debt (130,666) (55,329) (20,841)
Proceeds from issuance of common stock 103 1,459 1,262
Purchase of treasury stock (4,665) (5,302) (1,887)
Reissuance of treasury stock 1,978 750 215
Net cash provided by (used in) financing activities (905) 33,518 (25,167)
Effect of exchange rate changes on cash (1,937) 2,751 1,474
Net increase (decrease) in cash and cash equivalents (762) 1,453 (5,384)
Cash and cash equivalents at beginning of year 10,843 9,390 14,774
Cash and cash equivalents at end of year $ 10,081 $ 10,843 $ 9,390
________________________________________________________________________________________________________
</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)
<TABLE>
<CAPTION>
______________________________________________________________________
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Common Stock, $1.00 par value:
Balance at beginning of year $12,421 $ 12,321 $ 12,239
Issuance of common stock 6 100 82
Balance at end of year 12,427 12,421 12,321
Additional Paid-In Capital:
Balance at beginning of year 18,426 17,067 15,887
Issuance of common stock 97 1,359 1,188
Cash paid in lieu of fractional
shares on 3-for-2 stock split - - (8)
Balance at end of year 18,523 18,426 17,067
Treasury Stock:
Balance at beginning of year (6,006) (1,639) -
Purchase of treasury stock (4,665) (5,302) (1,887)
Reissuance of treasury stock 3,624 935 248
Balance at end of year (7,047) (6,006) (1,639)
Retained Earnings:
Balance at beginning of year 167,182 151,003 124,857
Net income 24,302 16,364 26,179
Reissuance of treasury stock at
less than cost (1,646) (185) (33)
Balance at end of year 189,838 167,182 151,003
Accumulated Other Comprehensive Income:
Balance at beginning of year 4,654 4,756 4,076
Currency translation adjustments 1,241 (4,719) 43
Net unrealized holding gains 819 5,746 1,767
Reclassification adjustment for
gains included in net income (6,121) (1,129) (1,130)
Balance at end of year 593 4,654 4,756
________ ________ ________
Total Stockholders' Equity $214,334 $196,677 $183,508
Comprehensive Income:
Net income $ 24,302 $ 16,364 $ 26,179
Currency translation adjustments 1,241 (4,719) 43
Net unrealized holding gains 819 5,746 1,767
Reclassification adjustments for
gains included in net income (6,121) (1,129) (1,130)
Total Comprehensive Income $ 20,241 $ 16,262 $ 26,859
_________________________________________________________________________
</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 1998 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>
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.
For the purpose of determining realized gains and losses, the cost of
securities sold is based upon specific identification.
Goodwill
Goodwill, representing the excess of the cost over the net tangible
and identifiable intangible assets of acquired businesses, is stated
at cost and is amortized on a straight-line basis over the estimated
future periods to be benefited, typically ten 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 provision 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 generally have maturity dates of 60 days or less, relate
primarily to currencies of industrial countries and are marked to
market at each balance sheet date. The resulting gains or losses are
included in other income and expense 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
8
<PAGE>
classified as cash flows from investing activities in the statement of
cash flows.
Stock Compensation Plans
Stock-based compensation is recognized using the intrinsic value
method. For disclosure purposes, pro forma net income and earnings
per share are provided as if the fair value method had been applied.
Earnings Per Share
Basic earnings per share are calculated on the basis of the weighted
average number of common shares outstanding for each period. Diluted
earnings per share are calculated assuming the exercise of certain
stock options. Treasury stock is not considered outstanding for
purposes of calculating weighted average shares.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and
cash equivalents, accounts receivable, notes payable, accounts
payable, long-term debt 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 selling diagnostic controls (exclusive of blood gas
controls). The business has been 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 have been
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 expanded 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. Marketable Securities
The Company's portfolio is comprised principally of equity securities
with an aggregate market value of $6,174,000 and $18,092,000 and cost
of $5,469,000 and $12,289,000 at December 31, 1998 and 1997,
respectively. At December 31, 1998, gross unrealized holding gains
and losses were $1,044,000 and $339,000, respectively. At December
31, 1997, gross unrealized holding gains and losses were $6,039,000
and $236,000, respectively.
<TABLE>
Information regarding the proceeds and gross realized gains and losses
from sales of securities is as follows (in thousands):
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Proceeds $ 16,367 $ 3,419 $ 2,968
Gross realized gains $ 9,168 $ 1,211 $ 1,130
Gross realized losses (548) (82) -
Net realized gain $ 8,620 $ 1,129 $ 1,130
</TABLE>
4. Investment in Affiliates
Beginning in December 1997, Bio-Rad began investing in Instrumentation
Laboratory, S.p.A. (IL), an Italian based clinical diagnostics company
with fiscal 1997 revenues in excess of $200 million. At December 31,
1998, Bio-Rad held approximately 26% of the outstanding stock of IL.
Grupo CH-Werfen, S.A., a privately held company based in Spain,
controls over 50% of the outstanding stock of IL. Approximately 29%
of the outstanding stock of IL is available in the U.S. evidenced by
American Depository Shares (Nasdaq:ILABY). The most recently
published financial statements for IL are as of February 28, 1998.
Prior to September 1998, Bio-Rad classified the investment as
Marketable Securities. Given the limited availability of financial
information and the low volume of shares traded in recent months, Bio-
Rad management does not believe there is a sufficient liquid market
for IL stock. Accordingly, the investment was reclassified to Other
Assets. Additionally, since Bio-Rad does not have the ability to
significantly influence the operating and financial policies of IL,
the investment has been recorded at its cost of $18,159,000.
An unrealized holding gain of $652,000 was included in comprehensive
income in 1997. This amount was reversed in 1998 when the investment
in IL was reclassified to Other Assets.
5. Notes Payable and Long-Term Debt
Notes payable include local credit lines maintained by the Company's
subsidiaries aggregating approximately $33,311,000, of which
$24,592,000 was unused at December 31, 1998. The weighted average
interest rate on these lines was 5.14% and 5.78% at December 31, 1998
and 1997, respectively. The parent company guarantees most of these
credit lines.
10
<PAGE>
<TABLE>
The principal components of long-term debt are as follows (in
thousands):
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Revolving credit agreement $42,000 $38,000
Capitalized leases 606 1,046
Other 405 836
43,011 39,882
Less current maturities 672 930
Long-Term Debt $42,339 $38,952
</TABLE>
The Company entered into a $100 million revolving credit agreement on
May 15, 1998, replacing the $60 million credit agreement previously in
place. The new agreement provides for borrowings on an unsecured
basis through May 2003. Interest is based upon Eurodollar or
corporate base (prime) rates. The applicable interest rates at
December 31, 1998 and 1997 were 5.96% and 6.49%, respectively. A fee
ranging from 0.15% to 0.30% annually is charged on the daily
unborrowed portion of the commitment.
The Company entered into interest rate swap agreements to reduce the
impact of changing interest rates on its revolving credit agreement.
At December 31, 1998, the Company had two interest rate swap
agreements with commercial banks, having an aggregate notional amount
of $25 million. The agreements essentially fix the Company's interest
rate exposure on $25 million worth of floating rate loans under its
revolving credit agreement at 6.30%. The agreements mature in
December 2000, and June 2002. The resulting applicable interest rate
was 6.23% on the revolving credit agreement. In terms of the interest
rate swap, the Company is exposed to credit loss in the event of
nonperformance by a counterparty, however the Company has not
experienced such nonperformance to date and considers such a
possibility remote.
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, 1998. This agreement also
contains certain other restrictions, including the limitation of
cash dividends. Approximately $11,486,000 of retained earnings
were available for payment of cash dividends at December 31, 1998.
Maturities of long-term debt at December 31, 1998, are as follows:
1999 - $672,000; 2000 - $213,000; 2001 - $116,000; 2002 - $10,000;
2003 - $42,000,000.
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,
1998 1997 1996
<S> <C> <C> <C>
U.S. $ 24,173 $ 11,343 $ 23,766
International 10,055 11,385 12,707
Income before taxes and
extraordinary charge $ 34,228 $ 22,728 $ 36,473
</TABLE>
<TABLE>
The provision for income taxes consists of (in thousands):
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Current:
U.S. Federal $ 8,564 $ 3,277 $ 7,613
International 4,974 3,226 6,070
U.S. State 374 552 1,122
13,912 7,055 14,805
Deferred (3,986) (691) (5,687)
Provision for income taxes $ 9,926 $ 6,364 $ 9,118
</TABLE>
<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:
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
U.S. statutory tax rate 35% 35% 35%
State taxes, net of
federal income tax benefit (1) 1 1
Foreign Sales Corporation
tax benefit (5) (6) (4)
Research and development
tax credit (1) (2) (1)
International taxes in excess
of U.S. Foreign Tax Credit - 1 4
Loss carryforwards utilized (1) (6) (4)
Amortization of goodwill - 2 -
Other 2 3 (6)
Provision for income taxes 29% 28% 25%
</TABLE>
12
<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,
1998 1997
<S> <C> <C>
Deferred Tax Assets:
Reserves for obsolete inventory,
warranty and bad debts $ 12,102 $ 10,418
Eliminated intercompany profit 3,265 3,483
Tax benefit of foreign loss
carryforwards 4,732 1,822
Other 3,583 3,086
23,682 18,809
Valuation allowance (5,342) (3,285)
Deferred Tax Assets $ 18,340 $ 15,524
Deferred Tax Liabilities:
Deferred gain on condemnation $ 4,473 $ 4,426
Depreciation 1,174 1,921
Development cost of Hercules
facility 1,413 1,438
Other 6,322 7,680
Deferred Tax Liabilities $ 13,382 $ 15,465
</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 1998 was an increase
of $2,057,000, primarily resulting from an increase in tax loss
carryforwards. The net change in 1997 was a decrease of
$2,287,000, primarily resulting from unanticipated utilization of
foreign loss carryforwards.
At December 31, 1998, Bio-Rad's international subsidiaries had
combined net operating loss carryforwards of $11,600,000. A
portion of these loss carryforwards will expire in the following
years: 1999 - $1,440,000; 2000 - $762,000; 2001 - $371,000; 2002
- $1,148,000; 2003 - $422,000; 2004 - $260,000; 2005 - $1,543,000
and 2008 - $243,000. 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 $24,923,000 at December 31, 1998, 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.
13
<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 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 at least an 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 Option Plans
Bio-Rad maintains incentive and non-qualified fixed stock option
plans for officers and certain other key employees. Under the
Amended 1994 Stock Option Plan, the Company may grant options to
its employees for up to 1,175,000 shares of common stock provided
that no option shall be granted after March 1, 2004. Under the
plans, Class A and Class B options are granted at prices not less
than fair market value on the date of grant, are exercisable on a
cumulative basis at a 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 1998, 1997 and
1996, respectively: no dividend yield for all periods; expected
lives of 2.0 and 2.9 years in 1998 and 1.8 and 2.8 years in 1997
and 1996; expected volatility of 35%, 33% and 33%; and risk-free
interest rates ranging from 5.39% to 5.48%, 5.63% to 6.15% and
4.85% to 5.27%.
14
<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,
1998 1997 1996
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 517,018 $21.40 482,900 $16.34 427,457 $12.39
Granted 150,653 23.54 147,050 32.54 147,000 26.55
Exercised (89,625) 10.09 (90,445) 11.88 (59,576) 11.12
Forfeited (14,677) 25.07 (19,909) 25.38 (31,981) 20.21
Expired (2,322) 9.46 (2,578) 12.04 - -
Outstanding at end of year 561,047 23.73 517,018 21.40 482,900 16.34
Options exercisable at year-end 222,539 172,689 149,605
Weighted average fair value of
options granted during the year $7.62 $10.76 $8.57
</TABLE>
<TABLE>
The following table summarizes information about fixed stock options outstanding at December 31, 1998:
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
<S> <C> <C> <C> <C> <C>
$ 7.37 - $18.21 150,276 0.7 years $14.11 123,223 $13.23
$19.80 - $23.94 147,106 3.9 23.10 6,976 19.89
$25.92 - $31.63 161,971 2.4 27.53 66,952 27.14
$32.63 - $35.89 101,694 3.1 32.82 25,388 32.82
$ 7.37 - $35.89 561,047 2.5 23.73 222,539 19.86
</TABLE>
15
<PAGE>
Employee Stock Purchase Plan
Under the Amended and Restated 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 51,446
shares for $1,129,000; 43,785 shares for $982,000 and 30,888
shares for $742,000 to employees in 1998, 1997 and 1996,
respectively. At December 31, 1998, 64,126 shares remained
authorized under the Plan. Management anticipates a stockholder
resolution to extend 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 1998, 1997 and 1996, respectively: no
dividend yield for all periods; an expected life of three months
for all periods; expected volatility ranging from 28% to 38%, 19%
to 30% and from 26% to 38%; and risk-free interest rates ranging
from 4.27% to 5.23%, 5.02% to 5.41% and from 4.90% to 4.99%. The
weighted average fair value of those purchase rights granted in
1998, 1997 and 1996 was $5.55, $5.50 and $6.81, 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 (in
thousands except per share data):
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net income As reported $24,302 $16,364 $26,179
Pro forma $23,026 $15,173 $25,348
Diluted earnings per As reported $1.97 $1.32 $2.10
share Pro forma $1.86 $1.22 $2.03
</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. Since
employee stock options vest over several years, and additional
grants are likely to be made in the future, during the phase-in
period of SFAS No. 123 the disclosures are not likely to be
representative of the effects on reported pro forma net income or
earnings per share in future years.
16
<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
94,000, 134,000 and 199,000 shares, for the years ended December
31, 1998, 1997 and 1996, respectively.
Options to purchase 229,000 and 133,000 shares of common stock
were outstanding during 1998 and 1997, respectively, but were
excluded from the computation of diluted earnings per share
because the exercise price of the options was greater than the
average market price of the common shares. The options were
still outstanding at the end of 1998. No options were excluded
in 1996.
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 disposition 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 were primarily for
lease-related costs and commenced in the first quarter of 1997.
Future lease payments have been reserved through 2000. The
Company is reviewing the use of this property and the reserve may
be offset in the future should the Company sublease or utilize
the property for alternative purposes.
10. Other Income and Expense
<TABLE>
Other, net includes the following income and (expense) components
(in thousands):
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Amortization of goodwill $(2,068) $(1,612) $ (132)
Exchange gains (losses) 22 (711) (641)
Other non-operating litigation
costs, net 117 (1,606) (971)
Miscellaneous other items (47) (381) (88)
Other, net $(1,976) $(4,310) $(1,832)
</TABLE>
17
<PAGE>
Exchange gains (losses) include premiums and discounts on forward
foreign exchange contracts.
11. Supplemental Cash Flow Information
<TABLE>
The reconciliation of net income to net cash provided by operating
activities is as follows (in thousands):
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net income $24,302 $16,364 $26,179
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 20,975 19,470 17,870
Foreign currency hedge transactions, net 1,360 (4,001) (1,275)
Gains on dispositions of marketable securities (8,620) (1,129) (1,130)
Increase in accounts receivable, net (5,739) (6,176) (6,670)
(Increase) decrease in inventories (166) (14,831) 5,339
(Increase) decrease in other current assets 4,629 (6,369) 435
Increase (decrease) in accounts payable and
other current liabilities (4,808) 18,775 1,411
Increase (decrease) in income taxes payable 1,040 1,122 (2,926)
Decrease in deferred taxes (5,292) (1,276) (4,879)
Other (346) (840) (1,201)
Net cash provided by operating activities $27,335 $21,109 $33,153
</TABLE>
12. Commitments and Contingent Liabilities
Rents and Leases
Net rental expense under operating leases was $12,622,000 in
1998, $11,339,000 in 1997 and $11,505,000 in 1996. Leases are
principally for facilities and automobiles.
Annual future minimum lease payments at December 31, 1998, under
operating leases are as follows: 1999 - $9,076,000; 2000 -
$6,050,000; 2001 - $4,524,000; 2002 - $4,184,000; 2003 -
$3,599,000; subsequent to 2003 - $12,121,000.
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 $3,566,000, $3,285,000 and $3,165,000 in 1998, 1997 and
1996, respectively.
18
<PAGE>
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, 1998, the Company had
contracts maturing in January 1999 to sell foreign currency with
a market value of $48,053,000 and to purchase foreign currency
with a market value of $1,811,000. 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.
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.
14. Segment Information
The Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" in 1998 which changes the
way the Company reports information about its operating segments.
The information for 1997 and 1996 has been restated in order to
conform to the 1998 presentation.
Bio-Rad is a multinational manufacturer and worldwide distributor
of life science research products, clinical diagnostics and
analytical instruments. Bio-Rad has three reportable segments:
Life Science, Clinical Diagnostics and Analytical Instruments.
These reportable segments are strategic business lines that offer
different products and services and require different marketing
strategies.
The Life Science segment develops, manufactures, sells and
services liquid chromatography, electrophoresis, gene
amplification and transformation, imaging and image analysis, DNA
sequencing and sample preparation products. These products are
sold to university and medical school laboratories,
19
<PAGE>
pharmaceutical and biotechnology companies, and government and
industrial research facilities.
The Clinical Diagnostics segment develops, manufactures, sells
and services automated test systems, informatics systems, test
kits and specialized quality controls for the healthcare market.
These products are sold to reference laboratories, hospital
laboratories, state newborn screening facilities, physicians
office laboratories, and insurance and forensic testing
laboratories.
The Analytical Instruments segment develops, manufactures, sells
and services FT-IR spectroscopy systems, semiconductor test and
manufacturing instruments, spectral reference publications and
software. These products are sold to industrial companies,
government institutions, academia and forensic analysis
laboratories.
The accounting policies of the segments are the same as those
described in Significant Accounting Policies (see Note 1).
Segment profit or loss used for corporate management purposes
includes an allocation of corporate expense based upon sales and
an allocation of interest expense based upon accounts receivable
and inventories. In addition, certain items that are classified
as non-operating expenses and reported as other income and
expense on a consolidated basis are included in segment profit or
loss. Segments are expected to manage only assets completely
under their control. Accordingly, segment assets include
primarily accounts receivable, inventories and gross machinery
and equipment.
<TABLE>
Information regarding industry segments at December 31, 1998,
1997 and 1996 and for the years then ended is as follows (in
thousands):
<CAPTION>
Life Clinical Analytical
Science Diagnostics Instruments
<S> <C> <C> <C> <C>
Segment net sales 1998 $209,655 $170,002 $ 66,100
1997 205,704 150,095 75,800
1996 199,461 148,938 74,034
Allocated interest expense 1998 $ 1,501 $ 1,464 $ 571
1997 550 428 212
1996 1,344 1,237 541
Depreciation and
amortization 1998 $ 7,328 $ 11,242 $ 1,652
1997 7,258 7,553 3,768
1996 7,063 7,724 1,645
Segment profit (loss) 1998 $ 12,649 $ 18,160 $ (2,166)
1997 6,816 19,257 (1,003)
1996 15,716 15,805 4,327
20
<PAGE>
Segment assets 1998 $124,219 $129,089 $ 38,607
1997 116,289 111,453 44,964
1996 108,706 96,653 41,038
Capital expenditures 1998 $ 6,487 $ 15,213 $ 1,912
1997 7,461 14,432 1,991
1996 7,103 7,514 2,133
</TABLE>
Capital expenditures include capitalized leases of $311,000,
$331,000 and $872,000 in 1998, 1997 and 1996, respectively.
<TABLE>
Inter-segment sales are primarily between Life Science and
Clinical Diagnostics and are priced to give Life Science a market
representative gross margin. The difference between total
segment allocated interest expense, depreciation and
amortization, and capital expenditures and the corresponding
consolidated amounts is attributable to the Company's corporate
headquarters. The following reconciles total segment profit
(loss) to consolidated income before taxes and extraordinary
charge (in thousands):
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Total segment profit (loss) $28,643 $25,070 $35,848
Gross profit on inter-segment sales (1,925) (2,338) (1,791)
Net corporate operating, interest
and other expense not allocated
to segments (1,280) (1,605) 31
Investment income, net 8,790 1,601 2,385
Consolidated income before taxes
and extraordinary charge $34,228 $22,728 $36,473
</TABLE>
<TABLE>
The following reconciles total segment assets to consolidated total
assets (in thousands):
<CAPTION>
December 31,
1998 1997 1996
<S> <C> <C> <C>
Total segment assets $291,915 $272,706 $246,397
Cash and other current assets 36,968 39,025 31,002
Net property, plant and
equipment excluding segment
specific gross machinery and
equipment (11,364) (5,635) (7,002)
Other long-term assets 49,780 45,780 14,528
Total assets $367,299 $351,876 $284,925
</TABLE>
21
<PAGE>
<TABLE>
The following presents sales to external customers by geographic area
based primarily on the location of the use of the product or service
(in thousands):
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Europe $141,004 $132,551 $141,142
Pacific Rim 88,917 98,070 94,794
United States 195,309 184,533 171,445
Other (primarily Canada
and Latin America) 16,712 11,760 11,408
Total net sales $441,942 $426,914 $418,789
</TABLE>
<TABLE>
The following presents long-lived assets by geographic area based upon
the location of the asset (in thousands):
<CAPTION>
December 31,
1998 1997 1996
<S> <C> <C> <C>
Europe $ 7,860 $ 7,004 $ 8,060
Pacific Rim 4,933 3,885 4,295
United States 118,628 112,967 73,352
Other (primarily Canada
and Latin America) 489 602 683
Total long-lived assets $131,910 $124,458 $ 86,390
</TABLE>
15. Quarterly Financial Data - (unaudited)
<TABLE>
Summarized quarterly financial data for 1998 and 1997 are as follows (in
thousands, except per share data):
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1998
Net sales $116,174 $107,898 $ 98,982 $118,888
Gross profit 64,076 58,857 53,577 62,994
Net income 8,776 7,151 1,938 6,437
Basic earnings per share $0.72 $0.58 $0.16 $0.52
Diluted earnings per share $0.71 $0.58 $0.16 $0.52
1997
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
</TABLE>
22
<PAGE>
16. Information Concerning Common Stock - (unaudited)
<TABLE>
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.
<CAPTION>
Class A Class B
High Low High Low
<S> <C> <C> <C> <C>
1998
First Quarter 27 22-1/2 26-3/8 23-1/4
Second Quarter 34-1/8 24-1/8 33-3/4 27
Third Quarter 31-7/8 23-5/16 29-1/2 24-1/4
Fourth Quarter 24-3/4 19-1/2 22-3/8 19-3/4
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
</TABLE>
On February 22, 1999, the Company had 591 holders of record of Class
A Common Stock and 281 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.
23
<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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
San Francisco, California,
February 3, 1999
24
<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,
1998 1997 1996
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of goods sold 45.8 44.3 43.5
Gross profit 54.2 55.7 56.5
Selling, general and administrative 37.8 38.7 37.1
Product research and development 9.4 10.8 9.5
Restructuring costs - - 0.6
Income from operations 7.0 6.2 9.3
===== ===== =====
Income before extraordinary charge 5.5 3.8 6.5
===== ===== =====
</TABLE>
Corporate Results -- Sales, Margins and Expenses
Bio-Rad's net sales (sales) in 1998 were $441.9 million, an increase
of 3.5% over 1997 sales. 1998 marked the third consecutive year that
a strengthening U.S. dollar caused Bio-Rad to report slower sales
growth due to currency translation. The 1998 impact was 2.5% or $10.5
million, just slightly more than half of the impact in the prior year
when sales were reduced by 4.6%. When 1998 sales are compared to 1997
at constant 1997 exchange rates, sales for the Company grew 6.0%.
Eliminating the effect of a strengthened U.S. dollar, sales increased
16% and 4% in Clinical Diagnostics and Life Science, respectively.
The Analytical Instruments segment recorded 11% less in sales. The
growth in Clinical Diagnostics was largely attributed to the December
1997 purchase of the controls business from Chiron Diagnostics
Corporation. Life Science experienced strong growth in the U.S.
especially in the imaging and microscopy product lines. Europe
experienced slow growth, and Asia had a sales decline as research
spending was limited by many governments in the area. The Analytical
Instruments segment experienced lower sales as the markets it served
contracted almost worldwide. This slowdown impacted the products sold
25
<PAGE>
into the semiconductor test and manufacturing equipment market, which
has been very successful for the past several years.
Bio-Rad's sales in 1997 amounted to $426.9 million, an increase of
1.9% over sales in 1996. The effect of a strengthening U.S. dollar
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 8% in Life Science, 6% in
Analytical Instruments and 5% in Clinical Diagnostics. Life Science
sales growth was generated by its imaging product equipment and
related software, gene transfer products, convenience electrophoresis
and chromatography products. Analytical Instruments saw continued
growth in the products sold into the semiconductor test and
manufacturing equipment market.
Consolidated gross margins were 54.2% for 1998 compared to 55.7% in
the prior year. The decline in margins, as in 1997, reflects overall
lower prices on international sales caused by a strengthening U.S.
dollar and a majority of manufacturing costs being U.S. dollar
denominated. Clinical Diagnostics gross margins declined 3.1% of
sales, in part, from the Chiron acquisition (see Note 2), where
several large supply agreements existed. Additionally, this business
segment is seeing a continuing consolidation in its customer base.
Company management believes that these larger, more formal agreements
offer opportunities to offset pricing pressure through improved
planning and resultant efficiencies. Analytical Instruments margins
were negatively impacted by an increasingly weak semiconductor market
and the strengthening dollar. Life Science margins declined from
higher service and warranty costs, and were particularly impacted in
Asia.
Consolidated gross margins were 55.7% for 1997 compared to 56.5% for
1996. Gross margins overall were adversely affected 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 a $2.1 million 1996 write-down of inventory associated
with a discontinued product line (see Note 9). Analytical Instruments
gross margins declined 0.8% of sales largely in the Company's
spectroscopy equipment product line as a number of reengineering and
organizational changes were made to the manufacturing operations of
this product line. Life Science margins declined 2.1% 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.
Consolidated selling, general and administrative expense (SG&A)
decreased to 37.8% of sales in 1998 when compared to 38.7% for 1997.
Spending increased in absolute dollars only in the Clinical
Diagnostics segment yet at a growth rate of approximately half the
growth rate in sales. Life Science and Analytical Instruments each
had declines in absolute spending both from the currency effect on
26
<PAGE>
foreign incurred SG&A and cost elimination programs begun in late
1997. SG&A headcount increased by approximately 7%; these increases
took place in Asia and Latin America, developing markets for Bio-Rad,
which have cost structures lower than those in the U.S. and Europe.
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.
Product research and development expense (R&D) decreased in 1998 by
10% to $41.4 million. Spending declined in the Life Science and
Analytical Instruments segments and increased 3% in the Clinical
Diagnostics segment. Declines in Life Science and Analytical
Instruments were due to the completion or termination of projects.
Future spending levels are expected to be more conducive to improved
profitability while retaining the potential to grow the business.
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 $0.1 million. Life Science increased spending 24%.
Analytical Instruments increased spending 28% 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.
In the fourth quarter of 1996, the Clinical Diagnostics segment made a
provision of $2.7 million for lease-related occupancy costs and the
write-down of certain dedicated fixed assets associated with its
closed system immunoassay analyzer product line (see Note 9).
Corporate Results -- Non-Operating Items
Interest expense represents 0.8% of sales in 1998 compared to 0.3% in
1997 and 0.7% in 1996. The current year increase is attributable to
an increase in the amount of interest bearing debt primarily resulting
from the December 1997 acquisition. Average borrowings for the years
1998, 1997 and 1996 were $52.3 million, $14.7 million and $27.9
million, respectively. The decline in borrowings from 1996 to 1997
reflects the repayment of $20.0 million of 10.9% Subordinated Notes in
December 1996. The funds were generated from operations and resulted
in an extraordinary charge (see Note 5).
Investment income in 1998, 1997 and 1996 includes gains on sales of
marketable securities. During 1998, Bio-Rad realized significant
investment income, $8.6 million, as it sold some of its investment in
marketable securities in order to increase its investment in
Instrumentation Laboratory (see Note 4). 1996 included interest
27
<PAGE>
income of $0.8 million from short-term investments as a result of
accumulating cash prior to repaying the 10.9% Subordinated Notes.
Net other income and expense for 1998 is comprised principally of
amortization of goodwill (see Note 10). Net other income and expense
for 1997 was principally non-operating litigation costs and
amortization of goodwill. Net other income and expense for 1996 was
principally non-operating litigation costs and exchange losses. 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 from transaction charges.
Bio-Rad's consolidated effective tax rate was 29%, 28% and 25% in
1998, 1997 and 1996, respectively. The higher effective tax rate for
1998 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 indefinitely. However, for 1999 and 2000, the
rate should remain at existing levels, then begin to rise over time to
normalized statutory rates.
Financial Condition
Historically, the Company's 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, 1998, the Company had available $10.1 million in cash
and cash equivalents, $24.6 million under its international lines of
credit, $58.0 million under its principal revolving credit agreement
(see Note 5) and marketable securities with a market value of $6.2
million, a majority of which could be readily converted into cash (see
Note 3).
Net cash provided by operations was $27.3 million, $21.1 million and
$33.2 million in 1998, 1997 and 1996, respectively. The 1998 increase
in net cash provided by operations was caused by R&D spending declines
year-over-year and slower SG&A growth than sales.
Consolidated net accounts receivable increased 9.3% in 1998 when
compared to 1997. This increase is attributable to an increase in
fourth quarter sales, the virtual elimination of factored receivables
in Italy and Japan, and the late fourth quarter weakening of the U.S.
dollar when compared to December 31, 1997 exchange rates. Bio-Rad's
management regularly reviews the allowance for uncollectible
receivables and believes net receivables are fully realizable.
For the year ended December 1998, consolidated inventories rose 1% to
$92.4 million. The Life Science and Analytical Instruments segments
both had declining inventory levels from the prior year. The Clinical
Diagnostics segment added approximately $2.4 million to inventory as
28
<PAGE>
it began to manufacture products destined to fill some recently
completed supply contracts. Inventory for the Clinical Diagnostics
controls business, a growth area for the Company, is known for long
lead times and large, infrequent batch production to meet customer
requirements. The Company plans to increase its inventory levels in
1999 in this business segment. Management regularly reviews the
impact of obsolescence on current inventory caused by the introduction
of new products. Management will continue its focus on inventory
control 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 attributable to foreign loss
carryforwards is uncertain.
Net capital expenditures in 1998 totaled $21.2 million compared to
$23.6 million and $15.2 million in 1997 and 1996, respectively.
Expenditures in 1998 again included additions to the Clinical
Diagnostics segment's southern California manufacturing operations
facilities to accommodate the consolidation of the acquired assets in
the fourth quarter of 1997. Expenditures in all years include
clinical diagnostic equipment placed with customers to be used with
the Company's diagnostic reagents. Capital expenditures are expected
to increase substantially in 1999 when compared to the past three
years. Consideration is being given to relocating the Life Science
segment's northern California distribution and instrument
manufacturing facility. The final review and approval are scheduled
to take place in the first quarter of 1999. If approved, this will
require a major investment, which could begin as early as the second
quarter of 1999. The capital commitment to this project could be
approximately $25 million over two years. Management regularly
approves capital spending in the normal course of business.
Additionally, the Company will continue its investment in information
technology commenced in 1997 to provide the enterprise-wide
infrastructure necessary for achieving greater competitiveness and
further cost efficiencies.
By historical standards, Bio-Rad's liquidity remained strong in 1998.
Available funds and cash flow from operations are adequate to meet the
Company's objectives for operations, research and development, and
investment in its systems 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 1999, the Company has repurchased 504,700 shares of Class A
Common Stock and 30,000 shares of Class B Common Stock for a total of
$12.8 million. The repurchase is designed to improve shareholder
value and to satisfy the Company's obligations under the employee
stock purchase and stock option plans.
The Company continues to regularly review acquisition opportunities;
currently no material acquisitions have reached a stage beyond
exploratory discussions.
29
<PAGE>
Euro - A New European Currency
On January 1, 1999, certain member countries of the European Union
began to fix the conversion rates between their national currencies
and a common currency, the "Euro." Over the period January 1, 1999
through January 1, 2002 participating countries will gradually
transition from their national currencies to the Euro.
This transition will have business implications including the need to
adjust internal systems to accommodate the Euro and cross-border price
transparency. A group of Corporate and European managers have been
assigned the task of preparing and accommodating the changes required
to continue to do business in the European Union. The Company does
not presently expect that the efforts involved will have a material
impact on operations, financial position or liquidity. There will be
increased competitive pressures, and marketing strategies will need to
be continuously evaluated until the transition is complete. As a
result of competitive forces and emerging government regulations, the
Company cannot guarantee that all problems will be foreseen and
remediated, and that no material disruption will occur.
Year 2000
The Year 2000 issue is the result of computer programs being written
using two rather than four digits to define the date. Failure to
recognize "00" as the year 2000 could result in a temporary inability
to conduct normal business activities.
Bio-Rad currently operates in a decentralized processing environment.
The Company, with the assistance of outside consultants and
contractors, is well underway with phased identification, remediation,
replacement, validation and notification processes to minimize the
potential disruption to business from information technology and non-
information technology systems. The project start-up, inventory and
assessment phases are generally complete. For each location
remediations or scheduled replacements will be completed prior to the
Year 2000 deadline.
Bio-Rad's manufactured products have also been undergoing assessment
for Year 2000 readiness. Customers and investors can review the Year
2000 readiness status of the Company's products on its web site,
http://www.bio-rad.com.
The Company has identified significant suppliers and is requesting
information from them regarding the Year 2000 readiness of their
products or services. The Company has not yet received enough
responses to ascertain that a material adverse impact can be avoided.
It is not possible at this time to value the amount of business that
might be lost as a result of Bio-Rad's business partners' failure to
deliver products and services after December 31, 1999. Additionally,
global infrastructure comprised of banking, transportation,
communication, power generation and ordinary and necessary
governmental activities are critical to the Company's operations.
Should any of these suppliers not be fully functional after 1999 the
negative impact to the Company would be significant and material.
30
<PAGE>
The expenditures required in 1998 and 1999 to replace and remediate
Year 2000 non-compliant Bio-Rad information technology systems,
including equipment, is estimated at $8 million and primarily deals
with distribution system capabilities worldwide. Approximately half
of these costs have been incurred to date. Hardware and software
purchased and installed in connection with these projects will provide
both Year 2000 readiness and significant additional functionality.
Manufacturing systems have been remediated at a cost that is not
material to Bio-Rad overall; these costs have been included in
operating results in 1997 and 1998. While some systems enhancements
or modifications have been delayed to allow for the more significant
Year 2000 remediation to be completed, weighing both cost and benefit,
Bio-Rad management believes its response is prudent.
The Company as of this date has not identified the "most likely worst
case Year 2000 scenario." That scenario will be largely dependent on
the Company's significant worldwide suppliers and its assessment of
preparedness of the global infrastructure, including multiple national
governments. During 1999 the Company will formulate and review
contingency plans based on the aforementioned significant supplier
responses and global infrastructure preparedness.
Financial Risk Management
Bio-Rad uses derivative financial instruments to reduce the Company's
exposure to fluctuations in foreign exchange rates and interest rates.
No derivative financial instruments are entered into for the purpose
of speculating or trading. Company policy limits all derivative
positions exclusively to reducing risk by hedging an underlying
economic exposure that can be effectively correlated to the Company's
chosen hedging vehicle. Changes in the value of the derivative are
generally offset by reciprocal changes in Bio-Rad's underlying asset.
Bio-Rad operates and conducts business in many foreign countries and
is exposed to movements in foreign currency exchange rates.
Additionally, Bio-Rad's consolidated net equity is impacted by the
conversion of the net assets of international subsidiaries for which
the functional currency is not the U.S. dollar. Foreign currency
exposures are managed on a centralized basis by the Company's Treasury
Department. This allows for the netting of natural offsets and lowers
transaction costs and exposures. Bio-Rad currently makes
approximately 50% of its sales outside the United States and weakening
in one currency can often be offset by strengthening in another.
Bio-Rad typically enters into forward exchange contracts to sell its
foreign currency. Contracts are entered into typically for 30 to 60
days, primarily in British Sterling, Japanese Yen, Italian Lira and
German Marks. The costs are recognized in income monthly and
generally are the reciprocal of the change in underlying assets. Bio-
Rad does not hold any derivative contracts that hedge its foreign
currency denominated net asset exposures.
Bio-Rad uses sensitivity analysis to assess the market risk associated
with its foreign currency exchange risk. Market risk is the potential
change in fair value of derivative positions from an adverse movement
31
<PAGE>
in currency exchange rates. The forward foreign exchange contracts at
December 31, 1998 had a net fair value of $46 million. A 10% adverse
loss on quoted foreign currency exchange rates would result in a $4.6
million loss. This impact, of a change in exchange rates, excludes
from the analysis the offset derived from the change in the Company's
underlying assets and liabilities, which could reduce the effect to
zero.
The Company maintains a percentage of fixed and variable rate debt
within parameters subject to review by the Board of Directors. The
Treasury Department enters into swap agreements replacing a segment of
its variable rate debt with fixed rate debt. At December 31, 1998,
two swaps existed for $25 million. The agreements mature in December
2000, and June 2002 and have an interest rate of 6.3%. The debt
swapped was borrowings under the Company's principal revolving credit
agreement. The additional cost to fix $25 million of the Company's
floating rate debt was expensed as incurred.
New Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999, with early
adoption permitted. This statement establishes accounting and
reporting standards requiring companies to record all derivatives on
the balance sheet as either assets or liabilities and measure those
instruments at fair value. The manner in which companies are to
record gains or losses resulting from changes in the values of those
derivatives depends on the use of the derivative and whether it
qualifies for hedge accounting. The impact of SFAS No. 133 on the
Company's financial statements will depend on a variety of factors,
including future interpretive guidance from the FASB, the future level
of forecasted and actual foreign currency transactions, the extent of
the Company's hedging activities, the types of hedging instruments
used and the effectiveness of such instruments. However, the Company
does not expect the effect of adopting SFAS No. 133 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 including increased competition, technological development,
access to necessary intellectual property, the ability to achieve
management objectives (especially related to SG&A and inventory),
government regulation, the continued performance of business partners
(particularly in relation to the Year 2000 issue), and the monetary
policies of various countries.
32
<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 Mexico, S.A. de C.V. Mexico
Bio-Rad Laboratories B.V. The Netherlands
Sandia Systems, Inc. New Mexico, USA
Polaron Instruments, Inc. Pennsylvania, USA
Bio-Rad Laboratories Ltd. Russia
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). It should be noted that we have not audited any
financial statements of the Company subsequent to December 31,
1998 or performed any audit procedures subsequent to the date of
our report.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
San Francisco, California,
March 25, 1999
<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, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,081
<SECURITIES> 0
<RECEIVABLES> 109,639
<ALLOWANCES> 3,629
<INVENTORY> 92,411
<CURRENT-ASSETS> 235,389
<PP&E> 198,175
<DEPRECIATION> 116,045
<TOTAL-ASSETS> 367,299
<CURRENT-LIABILITIES> 97,244
<BONDS> 42,339
0
0
<COMMON> 12,427
<OTHER-SE> 201,907
<TOTAL-LIABILITY-AND-EQUITY> 367,299
<SALES> 441,942
<TOTAL-REVENUES> 441,942
<CGS> 202,438
<TOTAL-COSTS> 202,438
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,731
<INCOME-PRETAX> 34,228
<INCOME-TAX> 9,926
<INCOME-CONTINUING> 24,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,302
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.97
</TABLE>
