<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999.
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission file number 1-7928
BIO-RAD LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
A Delaware Corporation 94-1381833
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1000 Alfred Nobel Drive, Hercules, California 94547
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 724-7000
Indicate by check whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date--
<TABLE>
<CAPTION>
Shares Outstanding
Title of each Class at July 31, 1999
<S> <C>
Class A Common Stock,
Par Value $1.00 per share 9,974,862
Class B Common Stock,
Par Value $1.00 per share 2,487,716
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . $115,794 $107,898 $241,532 $224,072
Cost of goods sold . . . . . . . . . . . . . 50,553 49,041 106,109 101,139
GROSS PROFIT . . . . . . . . . . . . . . . . 65,241 58,857 135,423 122,933
Selling, general and administrative expense . 41,805 41,511 84,822 82,568
Product research and development expense . . 10,916 10,629 21,450 20,541
INCOME FROM OPERATIONS . . . . . . . . . . . 12,520 6,717 29,151 19,824
Interest expense . . . . . . . . . . . . . . (807) (1,091) (1,703) (1,876)
Investment income, net . . . . . . . . . . . 349 4,856 423 5,630
Other, net . . . . . . . . . . . . . . . . . (1,025) (409) (1,705) (1,145)
INCOME BEFORE TAXES . . . . . . . . . . . . . 11,037 10,073 26,166 22,433
Provision for income taxes . . . . . . . . . 3,156 2,922 7,483 6,506
NET INCOME . . . . . . . . . . . . . . . . . $ 7,881 $ 7,151 $ 18,683 $ 15,927
======== ======== ======== ========
Basic earnings per share:
Net income . . . . . . . . . . . . . . . . $0.65 $0.58 $1.54 $1.30
======== ======== ======== ========
Weighted average common shares . . . . . . 12,095 12,263 12,102 12,237
======== ======== ======== ========
Diluted earnings per share:
Net income . . . . . . . . . . . . . . . . $0.65 $0.58 $1.54 $1.29
======== ======== ======== ========
Weighted average common shares . . . . . . 12,176 12,414 12,144 12,376
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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BIO-RAD LABORATORIES, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . $ 11,595 $ 10,081
Accounts receivable . . . . . . . . . . . . . . . . . 104,929 106,010
Inventories . . . . . . . . . . . . . . . . . . . . . 91,687 92,411
Prepaid expenses, taxes and other current assets . . . 26,787 26,887
Total current assets . . . . . . . . . . . . . . . 234,998 235,389
Net property, plant and equipment . . . . . . . . . . 82,845 82,130
Marketable securities . . . . . . . . . . . . . . . . 6,879 6,174
Other assets . . . . . . . . . . . . . . . . . . . . . 46,590 43,606
Total assets . . . . . . . . . . . . . . . . . . $371,312 $367,299
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable and current maturities of long-term debt $ 6,986 $ 9,393
Accounts payable . . . . . . . . . . . . . . . . . . . 23,528 26,706
Accrued payroll and employee benefits . . . . . . . . 24,274 27,351
Sales, income and other taxes payable . . . . . . . . 2,975 6,396
Other current liabilities . . . . . . . . . . . . . . 27,442 27,398
Total current liabilities . . . . . . . . . . . . . 85,205 97,244
Long-term debt, net of current maturities . . . . . . 42,248 42,339
Deferred tax liabilities . . . . . . . . . . . . . . . 15,102 13,382
Total liabilities . . . . . . . . . . . . . . . . . 142,555 152,965
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 2,300,000 shares
authorized; none outstanding . . . . . . . . . . . . -- --
Class A common stock, $1.00 par value, 15,000,000 shares
authorized; outstanding - 9,974,862 at June 30, 1999
and 9,973,679 at December 31, 1998 . . . . . . . . . 9,975 9,974
Class B common stock, $1.00 par value, 6,000,000 shares
authorized; outstanding - 2,487,716 at June 30, 1999
and 2,452,899 at December 31, 1998 . . . . . . . . . 2,488 2,453
Additional paid-in capital . . . . . . . . . . . . . . 18,779 18,523
Class A treasury stock, 364,111 shares at June 30, 1999
and 306,368 shares at December 31, 1998 at cost . . (8,023) (7,047)
Retained earnings . . . . . . . . . . . . . . . . . . 208,014 189,838
Accumulated other comprehensive income:
Currency translation . . . . . . . . . . . . . . . . (3,210) 92
Net unrealized holding gain on marketable securities 734 501
Total stockholders' equity . . . . . . . . . . . . 228,757 214,334
Total liabilities and stockholders' equity . . . $371,312 $367,299
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers . . . . . . . . . . . . . . . $234,532 $217,238
Cash paid to suppliers and employees . . . . . . . . . . . (210,815) (204,528)
Interest paid. . . . . . . . . . . . . . . . . . . . . . . (1,800) (1,850)
Income tax payments . . . . . . . . . . . . . . . . . . . (8,829) (3,322)
Miscellaneous receipts (payments). . . . . . . . . . . . . 21 (151)
Net cash provided by operating activities. . . . . . . . . 13,109 7,387
Cash flows from investing activities:
Capital expenditures, net. . . . . . . . . . . . . . . . . (10,967) (8,205)
Purchases of marketable securities and investments . . . . (1,597) (16,067)
Sales of marketable securities and investments . . . . . . 937 7,284
Foreign currency hedges, net . . . . . . . . . . . . . . . 2,530 1,428
Net cash used in investing activities. . . . . . . . . . . (9,097) (15,560)
Cash flows from financing activities:
Net payments under line-of-credit arrangements . . . . . . (1,713) (174)
Long-term borrowings . . . . . . . . . . . . . . . . . . . 37,250 96,110
Payments on long-term debt . . . . . . . . . . . . . . . . (38,658) (87,433)
Proceeds from issuance of common stock . . . . . . . . . . 292 58
Treasury stock activity, net . . . . . . . . . . . . . . . (1,483) 1,150
Net cash provided by (used in) financing activities. . . . (4,312) 9,711
Effect of exchange rate changes on cash . . . . . . . . . . . . 1,814 1,101
Net increase in cash and cash equivalents . . . . . . . . . . . 1,514 2,639
Cash and cash equivalents at beginning of period. . . . . . . . 10,081 10,843
Cash and cash equivalents at end of period. . . . . . . . . . . $ 11,595 $ 13,482
======== ========
Reconciliation of net income to net cash provided
by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,683 $ 15,927
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 10,776 10,210
Foreign currency hedge transactions, net . . . . . . . . (2,530) (1,428)
Gains on disposition of marketable securities. . . . . . (356) (5,634)
Increase in accounts receivable. . . . . . . . . . . . . (3,952) (4,789)
Increase in inventories . . . . . . . . . . . . . . . . (1,219) (2,925)
(Increase) decrease in other current assets. . . . . . . (685) 708
Decrease in accounts payable and other
current liabilities. . . . . . . . . . . . . . . . . . (3,943) (8,238)
Increase (decrease) in income taxes payable. . . . . . . (3,159) 3,802
Other. . . . . . . . . . . . . . . . . . . . . . . . . . (506) (246)
Net cash provided by operating activities . . . . . . . . . . . $ 13,109 $ 7,387
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
BIO-RAD LABORATORIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Bio-Rad Laboratories, Inc. ("Bio-Rad" or the
"Company"), reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of the
interim periods presented. All such adjustments are of a normal
recurring nature. The condensed consolidated financial
statements should be read in conjunction with the notes to
consolidated financial statements contained in the Company's
Annual Report for the year ended December 31, 1998 (the Company's
1998 Annual Report). Certain amounts in the financial statements
of the prior year have been reclassified to be consistent with
the 1999 presentation.
2. INVENTORIES
<TABLE>
The principal components of inventories are as follows:
<CAPTION>
June 30, December 31,
1999 1998
(in thousands)
<S> <C> <C>
Raw materials $ 26,870 $ 26,038
Work in process 23,052 21,614
Finished goods 41,765 44,759
$ 91,687 $ 92,411
======== ========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
The principal components of property, plant and equipment are as
follows:
<CAPTION>
June 30, December 31,
1999 1998
(in thousands)
<S> <C> <C>
Land and improvements $ 8,057 $ 8,057
Buildings and leasehold
improvements 56,433 56,280
Equipment 135,023 133,838
199,513 198,175
Accumulated depreciation (116,668) (116,045)
Net property, plant and equipment $ 82,845 $ 82,130
======== ========
</TABLE>
4
<PAGE>
4. EARNINGS PER SHARE
Weighted average shares used for diluted earnings per share
include the dilutive effect of outstanding stock options of
81,000 and 151,000 shares, for the quarters ended June 30, 1999
and 1998, respectively.
Weighted average shares used for diluted earnings per share
include the dilutive effect of outstanding stock options of
42,000 and 139,000 shares, for the year-to-date periods ended
June 30, 1999 and 1998, respectively.
Options to purchase 294,000 and 140,000 shares of common stock
were outstanding during 1999 and 1998, respectively, but were
excluded from the computation of diluted earnings per share
because the exercise price of the options was greater than the
average market price of the common shares. The options were
still outstanding at June 30, 1999.
5. COMPREHENSIVE INCOME
<TABLE>
The components of the Company's total comprehensive income were:
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(in thousands)
<S> <C> <C> <C> <C>
Net Income $ 7,881 $ 7,151 $18,683 $15,927
Currency translation adjustments (976) (621) (3,302) (977)
Net unrealized holding
gains (losses) on securities 875 (985) 486 1,435
Reclassification adjustments for
gains included in net income (216) (3,472) (253) (4,000)
Total comprehensive income $ 7,564 $ 2,073 $15,614 $12,385
======= ======= ======= =======
</TABLE>
6. SEGMENT INFORMATION
<TABLE>
Information regarding industry segments for the three months ended
June 30, 1999 and 1998 is as follows (in thousands):
<CAPTION>
Life Clinical Analytical
Science Diagnostics Instruments
<S> <C> <C> <C> <C>
Segment net sales 1999 $55,857 $44,617 $15,810
1998 49,019 43,277 16,663
Segment profit (loss) 1999 $ 4,885 $ 6,603 $ (142)
1998 1,695 5,506 (1,361)
</TABLE>
5
<PAGE>
<TABLE>
Information regarding industry segments for the six months ended June
30, 1999 and 1998 is as follows (in thousands):
<CAPTION>
Life Clinical Analytical
Science Diagnostics Instruments
<S> <C> <C> <C> <C>
Segment net sales 1999 $116,061 $92,633 $34,114
1998 103,781 86,179 35,958
Segment profit (loss) 1999 $ 11,732 $15,681 $ 762
1998 8,239 10,577 (622)
</TABLE>
<TABLE>
Inter-segment sales are primarily between Life Science and Clinical
Diagnostics and are priced to give Life Science a representative gross
margin. The following reconciles total segment profit to consolidated
income before taxes:
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(in thousands)
<S> <C> <C> <C> <C>
Total segment profit $11,346 $ 5,840 $28,175 $18,194
Gross profit on inter-segment sales (231) (534) (637) (904)
Net corporate operating, interest
and other expense not allocated
to segments (427) (89) (1,795) (487)
Investment income, net 349 4,856 423 5,630
Consolidated income before taxes $11,037 $10,073 $26,166 $22,433
======= ======= ======= =======
</TABLE>
7. SUBSEQUENT EVENT
On July 3, 1999, Bio-Rad reached an agreement to acquire Pasteur
Sanofi Diagnostics (PSD) from Sanofi-Synthlabo S.A. and Institut
Pasteur, the shareholders of PSD. Bio-Rad will acquire 100% of the
shares of PSD and certain other ancillary assets for a purchase price
not to exceed $210 million.
Bio-Rad has received a commitment for $300 million in new credit
facilities to finance the acquisition. Finalization of the
transaction is expected to occur on October 1, 1999, subject to
customary conditions, including the receipt of all necessary
regulatory approvals and certain other consents.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
This discussion should be read in conjunction with the
information contained both in this report and in the Company's
Consolidated Financial Statements for the year ended December 31,
1998.
<TABLE>
The following table shows operating income and expense items as a
percentage of net sales:
<CAPTION>
Three Months Ended Six Months Ended Year Ended
June 30, June 30, December 31,
1999 1998 1999 1998 1998
<S> <C> <C> <C> <C> <C>
Net sales 100.0 100.0 100.0 100.0 100.0
Cost of goods sold 43.7 45.5 43.9 45.1 45.8
Gross profit 56.3 54.5 56.1 54.9 54.2
Selling, general and
administrative 36.1 38.4 35.1 36.9 37.8
Product research and
development 9.4 9.9 8.9 9.2 9.4
Income from operations 10.8 6.2 12.1 8.8 7.0
===== ===== ===== ===== =====
Net income 6.8 6.6 7.7 7.1 5.5
===== ===== ===== ===== =====
</TABLE>
Forward Looking Statements
Other than statements of historical fact, statements made in this
report include forward looking statements, such as statements
with respect to the Company's future financial performance,
operating results, plans and objectives. Actual results may
differ materially from those currently anticipated depending on a
variety of risk factors including the successful integration of
PSD, increased competition, technological development, access to
necessary intellectual property, the ability to achieve
management objectives, government regulation, the continued
performance of business partners (particularly in relation to the
Year 2000 issue),and the monetary policies of various countries.
Three Months Ended June 30, 1999 Compared to
Three Months Ended June 30, 1998
Corporate Results - Sales, Margins and Expenses
Net sales (sales) in the second quarter of 1999 reached $115.8
million compared to $107.9 million in the second quarter of 1998.
Sales increased 13.9% in Life Science and 3.1% in Clinical
Diagnostics when compared to the second quarter of 1998. The
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<PAGE>
growth in Life Science is attributed to its core products and
especially to its imaging products. Clinical Diagnostics
experienced growth in its diabetes and quality control product
lines. Sales for the Analytical Instruments segment declined
5.1% in the second quarter of 1999 when compared to the prior
year. The decline is attributed to the slowdown in the markets
served by the Analytical Instruments segment, especially the
market for semiconductor test and manufacturing instruments.
Consolidated gross margins were 56.3% for the second quarter of
1999 compared to 54.5% for the second quarter of 1998 and 54.2%
for all of 1998. Gross margins improved in each reporting
segment. The improvements in Life Science gross margin are
attributed to a stronger Japanese currency improving the U.S.
dollar value of sales and improved manufacturing overhead
absorption from increased sales volume. Analytical Instruments'
margins improved from cost containment in response to the
industry slowdown. Also the prior period included some one time
costs to initiate its new direct European sales and service
operations.
Selling, general and administrative expense (SG&A) decreased to
36.1% of sales in the second quarter of 1999 from 38.4% of sales
in the comparable period of 1998. Both Analytical Instruments
and Clinical Diagnostics reduced SG&A spending in the second
quarter of 1999 when compared to 1998. Life Science increased
SG&A spending but at a rate half that of sales growth.
Product research and development expense (R&D) increased 3% from
the second quarter of 1998. Compared to the second quarter of
1998, both Life Science and Clinical Diagnostics increased R&D
spending. Analytical Instruments reduced its R&D spending.
Corporate Results - Non-Operating Items
Interest expense has declined consistent with lower average
borrowings when compared to the second quarter of 1998.
Investment income in both years includes gains on sales of
marketable securities; however, as planned, investment activity
in 1999 has decreased since the size of the marketable securities
portfolio was reduced in 1998. Net other income and expense in
both years includes net goodwill amortization and non-operating
legal costs.
The Company's effective tax rate was 29% for the second quarter
of both 1999 and 1998. The tax rate for both years reflects the
utilization of loss carryforwards, foreign sales corporation
benefits and foreign tax credits. These benefits are not
expected to continue indefinitely and, subject to completion of
the PSD acquisition, may change. No determination of the impact
to the Company's effective tax rate from the pending acquisition
has been made.
8
<PAGE>
Six Months Ended June 30, 1999
Compared to Six Months Ended June 30, 1998
Corporate Results - Sales Margins and Expenses
Sales in the first half of 1999 were $241.5 million compared to
$224.1 million in the first half of 1998, an increase of 7.8%.
For the first half of 1999, the effect from a slightly weakened
U.S. dollar added $1.0 million to sales, when compared to sales
based upon the 1998 exchange rates. Sales increased 11.8% for
Life Science and 7.5% for Clinical Diagnostics. Sales of the
Company's Analytical Instruments declined 5.1%. Life Science
sales increased in its core products and its imaging products.
Clinical Diagnostics sales grew in its quality control and
diabetes product lines. The market remains slow for the
Company's Analytical Instruments segment, especially
semiconductor test and manufacturing equipment.
Consolidated gross margins were 56.1% for the first six months of
1999 compared to 54.9% for the first six months of 1998 and 54.2%
for all of 1998. Life Science margins improved on better than
planned sales, which caused an improvement in overhead
absorption, and a strengthening Japanese Yen, which translates to
an improvement in U.S. dollar sales value. Clinical Diagnostics
improvements are related to reducing manufacturing expenses and
activities related to a developing product line. Analytical
Instruments margins improved on lower sales due to continuing
cost reductions.
SG&A decreased to 35.1% of sales in the first half of 1999 from
36.9% of sales in the comparable period of 1998. To improve
overall profitability, one of the long-term objectives of
management is to control SG&A growth as a fraction of sales
growth. The Life Science segment grew SG&A expenditures at only
60% of sales growth. Clinical Diagnostics expenditures were
virtually unchanged and Analytical Instruments expenditures
declined for the first six months of 1999.
Consolidated R&D increased 4% in the first half of 1999 compared
to the first half of 1998. Life Science and Clinical Diagnostics
each expended R&D investments in line with overall profit goals.
Analytical Instruments R&D expenditures declined principally in
the semiconductor product line where the slowdown in
semiconductor capital spending affords the opportunity to balance
R&D expenditures with current sales activity.
Corporate Results - Non-operating Items
Interest expense was $1.7 million, a slight decline from the
prior year, as a result of lower average borrowings.
9
<PAGE>
Investment income includes gains on sales of marketable
securities and interest income from short term investments.
Investment income in both years includes gains on sales of
marketable securities, however, as planned, investment activity
in 1999 has decreased since the size of the marketable securities
portfolio was reduced in 1998.
Net other income and expense in the first half of 1999 and 1998
includes goodwill amortization and non-operating legal costs.
The Company's effective tax rate is unchanged at 29% for the
first half of 1999. The tax rate for both years reflects the
utilization of loss carryforwards, foreign sales corporation
benefits and foreign tax credits. These benefits are not
expected to continue indefinitely and, subject to completion of
the PSD acquisition, may change. No determination of the impact
to the Company's effective tax rate from the pending acquisition
has been made.
Financial Condition
At June 30, 1999, the Company had available $11.6 million in cash
and cash equivalents, $58.0 million under its principal revolving
credit agreement and marketable securities with a market value of
$6.9 million, a majority of which could be readily converted to
cash. Operating activities and cash on hand provided the Company
with the cash flow necessary to support current investing and
financing activities.
On July 3, 1999, the Company reached an agreement to purchase PSD
and its holdings including some ancillary assets from Sanofi-
Synthlabo S.A. and Institut Pasteur (see Note 7). The purchase
price, including repayment of PSD's outstanding debt, shall not
exceed $210 million. Bio-Rad has received a commitment for
$300 million in new credit facilities to finance the
acquisition. At the date of closing, estimated to be October 1,
1999, the Company will be substantially leveraged and the amount
of debt could materially impact the financial condition of the
Company should management's plan for operating the new entity not
be successful. The lender will place conditions on the loans
which could limit the Company's ability to: borrow further,
service this and other debt, make expenditures for capital
improvements, pay dividends, repurchase the Company's own stock
and/or make strategic and tactical investments in support of
operating the business.
At June 30, 1999, consolidated accounts receivable decreased by
$1.0 million from December 31, 1998. This reflects an increase
of $3.9 million offset by foreign exchange rate decline of $4.9
million. The increase is a result of second quarter 1999 sales
being weighted more heavily toward the end of the period when
compared to the fourth quarter of 1998.
10
<PAGE>
At June 30, 1999, consolidated net inventories were $0.7 million
lower than at December 31, 1998. As planned, inventory increased
in the Clinical Diagnostics segment. Inventory for the Clinical
Diagnostics controls business, a growth area for the Company, has
long lead times and large infrequent batch production which is
necessary to meet customers requirements. This increase was
offset by a decline from foreign exchange rate. Management
continues to monitor inventory levels and regularly reviews the
impact of obsolescence in current inventory caused by the
introduction of new products.
Net capital expenditures totaled $11.0 million for the first half
of 1999 compared to $8.2 million in the first half of 1998.
Capital expenditures include additions of reagent rental
equipment placed with Clinical Diagnostic customers who then
commit to purchasing the Company's diagnostic reagents for
use.
The Company has received several offers to sell its owned
facility located in Cambridge, Massachusetts. The facility
currently houses a portion of the manufacturing and distribution
for the Analytical Instruments segment which will require
relocation if the building is ultimately sold.
The Board of Directors has authorized the Company to repurchase
up to $18 million of common stock over an indefinite period of
time. From July 1996 through June 1999, the Company has
repurchased 567,786 shares of Class A common stock and 30,000
shares of Class B common stock for a total of $14.1 million. It
is contemplated that when the PSD acquisition financing is
completed, the Company's ability to repurchase its own stock
could be limited under the terms of any agreement.
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
11
<PAGE>
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 where significant.
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 and now expects certain suppliers not
to confirm compliance or to respond timely. A material adverse
impact may not 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.
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 85% 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
12
<PAGE>
overall; these costs were 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 the remainder of
1999 the Company will formulate and review additional contingency
plans based on the aforementioned significant supplier responses
and global infrastructure preparedness. The Company is planning
to organize a group solely to respond rapidly to Bio-Rad
technical information processing and communication exceptions.
Included is a reporting mechanism to accelerate to management
those issues that might cause a deterioration in Bio-Rad's
operations or competitiveness.
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. The FASB has now delayed the implementation until 2001.
This statement proposes to establish 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.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
During the three months and six months ended June 30, 1999, there
have been no material changes from the disclosures about market
risk provided in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following documents are filed as part of this report:
Exhibit No.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K for the quarter ended June 30,
1999.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
BIO-RAD LABORATORIES, INC.
(Registrant)
Date: August 11, 1999 /s/ Thomas C. Chesterman
Thomas C. Chesterman, Vice President,
Chief Financial Officer
Date: August 11, 1999 /s/ James R. Stark
James R. Stark, Corporate Controller
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from Bio-Rad Laboratories, Inc. Form 10-Q for the quarter ended
June 30, 1999 and is qualified in its entirety by reference
to such financial statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,595
<SECURITIES> 0
<RECEIVABLES> 104,929
<ALLOWANCES> 0
<INVENTORY> 91,687
<CURRENT-ASSETS> 234,998
<PP&E> 199,513
<DEPRECIATION> 116,668
<TOTAL-ASSETS> 371,312
<CURRENT-LIABILITIES> 85,205
<BONDS> 42,248
<COMMON> 12,463
0
0
<OTHER-SE> 216,294
<TOTAL-LIABILITY-AND-EQUITY> 371,312
<SALES> 241,532
<TOTAL-REVENUES> 241,532
<CGS> 106,109
<TOTAL-COSTS> 106,109
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,703
<INCOME-PRETAX> 26,166
<INCOME-TAX> 7,483
<INCOME-CONTINUING> 18,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,683
<EPS-BASIC> 1.54
<EPS-DILUTED> 1.54
</TABLE>
