-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JImaKMTNYt0wkkQ03V4cnQ2fzPvIGPGAMK1Kxw4HM7UCw+vM79ha3yCcWhQxVUsH szWTZONqaaSm3pe7bFjgAA== 0000012208-97-000003.txt : 19970328 0000012208-97-000003.hdr.sgml : 19970328 ACCESSION NUMBER: 0000012208-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIO RAD LABORATORIES INC CENTRAL INDEX KEY: 0000012208 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 941381833 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07928 FILM NUMBER: 97564253 BUSINESS ADDRESS: STREET 1: 1000 ALFRED NOBEL DR CITY: HERCULES STATE: CA ZIP: 94547 BUSINESS PHONE: 5107247000 10-K 1 10-K 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, 1996 OR __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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 Securities registered pursuant to Section 12(b) of the Act:
Market Value on Name of each exchange Shares outstanding March 20, 1997 of stocks Title of each class on which registered March 20, 1997 held by non-affiliates ------------------- --------------------- ------------------ ------------------------ Class A Common Stock Par Value $1.00 per share American Stock Exchange 9,786,229 $215,611,963 Class B Common Stock Par Value $1.00 per share American Stock Exchange 2,615,803 $ 13,683,695
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. [ ] Documents Incorporated by Reference Document Form 10-K Parts _________________________________________ ____________________ (1) Annual Report to Stockholders for the fiscal year ended December 31, 1996 (specified portions) I, II, IV (2) Definitive Proxy Statement to be mailed to stockholders in connection with the registrant's 1997 Annual Meeting of Stockholders (specified portions) III P A R T I ITEM 1. BUSINESS General Founded in 1957, Bio-Rad Laboratories, Inc. ("Bio-Rad" or the "Company") was initially engaged in the development and produc- tion of specialty chemicals used in biochemical, pharmaceutical and other life science research applications. In 1967, the Com- pany entered the field of clinical diagnostics with the develop- ment of its first test kit based on separation techniques and materials developed for life sciences research. Recognizing that the fields of clinical diagnostics and life sciences research were evolving toward more automated techniques, Bio-Rad expanded into the field of analytical and measuring instrument systems through internal research and development efforts and acquisitions in the late 1970's and 1980's. As Bio-Rad broadened its product lines, it has also widened its geographical market. The Company controls its distribution chan- nels in twenty-two countries outside the U.S.A. through subsidiaries whose primary focus is customer service and product distribution. Bio-Rad manufactures and supplies the life sciences research, healthcare, analytical chemistry, semiconductor and other markets with a broad range of products and systems used to separate complex chemical and biological materials and to identify, analyze and purify their components. Business Segments The Company operates in three industry segments designated Life Science, Clinical Diagnostics and Analytical Instruments. Each operates in both the U.S. and international markets. For finan- cial information on geographic and industry segments, see Note 13 on pages 22 and 23 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 1996 Annual Report to Stockholders. Description of Business Life Science The Life Science segment develops, manufactures, sells and services electrophoresis, gene transfer, chromatography, immunoassay, imaging and image analysis products including specialty chemical and biological materials, separation and purification systems, laser scanning confocal microscopes and accessories. These products are used to separate, purify and analyze complex chemical mixtures and are sold to universities, private industry, government agencies and clinical and hospital laboratories. They are used in biochemistry, molecular biology, cancer research, immunology, and other areas of life science and genetic research. In addition, these products are sold to 1 industrial and commercial customers, including pharmaceutical, biotechnology and food processing companies, for research and development, manufacturing and quality control applications. Clinical Diagnostics The Clinical Diagnostics segment develops and manufactures automated test systems, test kits and specialized quality controls for the healthcare market. Hospitals and clinical laboratories use these products to assist physicians in diagnosing and monitoring their patients. Many of these products are based on innovative applications of technologies originally developed for life science research. Bio-Rad also develops, manufactures and distributes controls for immunoassay testing, therapeutic drug monitoring and other applications. Analytical Instruments Bio-Rad's Analytical Instruments segment develops, manufactures, sells and services FT-IR spectrometer systems, semiconductor measurement test and manufacturing instruments and spectral reference publications. Purchasers of these products include government agencies, universities, research institutions and industrial companies. These products are used in industrial and scientific research, in manufacturing and in quality control applications. Raw Materials and Components The Company utilizes a wide variety of chemicals, biological materials, electronic components, machined metal parts, optical parts, minicomputers and peripheral devices. Most of these materials and components are available from numerous sources and the Company has not experienced difficulty in securing adequate supplies. Patents and Trademarks The Company owns numerous U.S. and international patents and patent licenses. Bio-Rad believes, however, that its ability to develop and manufacture its products depends primarily on its know-how, technology and special skills. Under several patent license agreements, Bio-Rad pays royalties on the sales of certain products. Bio-Rad views these patents and license agreements as valuable assets, however, no individual agreement is of material importance to any segment or to the Company's business as a whole. 2 Seasonal Operations and Backlog The Company's business is not inherently seasonal, however, the European custom of concentrating vacation during the summer months usually has had a negative impact on third quarter sales volume and operating income. For the most part, the Company operates in markets characterized by short lead times and the absence of significant backlogs. The Company produces several analytical instruments against an order backlog. Management has concluded that backlog information is not material to the Company's business as a whole. Sales and Marketing Each of Bio-Rad's divisions maintains a sales force or works in conjunction with other divisions to sell its products on a direct basis. Each sales force is technically trained in the disciplines associated with its products. Sales are also generated through direct mail advertising, exhibits at trade shows and technical meetings, and by extensive advertising in technical and trade publications. Sales and marketing efforts are augmented by technical service departments that assist customers in effective product utilization and in new product applications. Bio-Rad also produces and distributes technical literature and holds seminars for customers on the use of its products. Bio-Rad products are sold to a broad and diversified customer base. In 1996, no single customer accounted for as much as 2% 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, India, Israel, Italy, Japan, Korea, the Netherlands, New Zealand, People's Republic of China, 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 3 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 345 people worldwide in these activities. Research and development have played a major role in Bio-Rad's growth and are expected to continue to do so in the future. New products and new applications for existing products are being developed continuously by Bio-Rad's researchers. In its development and testing of new products and applications, Bio-Rad consults with scientific and medical professionals at universities, at hospitals and medical schools, and in industry. Bio-Rad spent approximately $39.6 million, $34.7 million and $30.2 million on R&D activities during the years ended December 31, 1996, 1995 and 1994, respectively. Regulatory Matters Certain of the Company's products (primarily diagnostic products) are subject to regulation in the United States by the Center for Devices and Radiological Health of the United States Food and Drug Administration (FDA) and in other jurisdictions by state and foreign government authorities. FDA regulations require that some new products have pre-marketing approval by the FDA and require certain of Bio-Rad's products to be manufactured in accordance with "good manufacturing practices", to be extensively tested and to be properly labeled to disclose test results and performance claims and limitations. As a multinational manufacturer and distributor of sophisticated instrumentation equipment, Bio-Rad must meet a wide array of electromagnetic compatibility and safety compliance requirements to satisfy regulations in the United States, the European Community and other jurisdictions. The Company is also subject to government regulation of the use and handling of radioactive materials and controlled substances. The Company believes it is in compliance with these and other regulations. 4 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, 1996, Bio-Rad had approximately 2,535 full-time employees. Fewer than 8% of Bio-Rad's employees are covered by a collective bargaining agreement which will expire on October 31, 1998. Bio-Rad considers its employee relations in general to be good. ITEM 2. PROPERTIES Bio-Rad owns its Corporate headquarters located in Hercules, California. The principal manufacturing and research locations for each segment are as follows: Life Science Richmond, California Owned/Leased Hercules, California Owned Hemel Hempstead, England Leased Milan, Italy Leased Clinical Diagnostics Hercules, California Owned/Leased Anaheim, California Leased Munich, Germany Leased Analytical Instruments Cambridge, Massachusetts Owned/Leased 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, New Mexico, Australia, Austria, Belgium, Canada, Denmark, England, Finland, France, Germany, Hong Kong, India, Israel, Italy, Japan, Korea, the Netherlands, New Zealand, People's Republic of China, Singapore, Spain, Sweden and Switzerland. These facilities are used principally for administration, sales, service and distribution for all three segments. The company has leased space in California, Canada, England and 5 New York that is not currently being utilized. For the most part, reserves for future lease payments were recorded at the time the Company stopped using these facilities. The Company has subleased or is attempting to sublease these properties. The Company has recently leased a new facility in California that will replace the existing research, manufacturing and warehouse facilities in Anaheim California during 1997. All 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 11, "Legal Proceedings", appearing on pages 20 and 21 of Exhibit 13.1 is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year covered by this report. P A R T II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Note 15, "Information Concerning Common Stock", appearing on pages 24 and 25 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 27 through 31 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 26 of Exhibit 13.1 are incorporated herein by reference. 6 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 1997 Annual Meeting of Stockholders (the 1997 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 1997 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 1997 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section labeled "Compensation of Directors" of the 1997 Proxy Statement is incorporated herein by reference. 7 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 1996 Annual Report and are incorporated herein by reference pursuant to Item 8: Page in Exhibit 13.1 Consolidated Balance Sheets at December 31, 1996 and 1995 2-3 Consolidated Statements of Income for each of the three years in the period ended December 31, 1996 4 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1996 5 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1996 6 Notes to Consolidated Financial Statements 7-25 Report of Independent Public Accountants 26 2. Index to Financial Statement Schedule Page in Form 10-K Schedule II Valuation and Qualifying Accounts 9 Report of Independent Public Accountants on Schedule II 10 All other financial statement schedules are omitted because they are not required or because the required information is included in the Consolidated Financial Statements or the Notes thereto. 3. Index to Exhibits The exhibits listed in the accompanying Index to Exhibits on pages 12 and 13 of this report are filed or incorporated by reference as part of this report. (b) Reports on Form 8-K There were no reports on Form 8-K filed by the Company during the last quarter of the period covered by this report. 8 BIO-RAD LABORATORIES, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1996, 1995 and 1994 (In thousands) Reserve for doubtful accounts receivable
Additions Balance at Charged to Balance Beginning Costs and at End of Year Expenses Deductions of Year 1996 $3,094 $ 952 $ (358) $3,688 ===== ===== ===== ===== 1995 $2,894 $ 462 $ (262) $3,094 ===== ===== ===== ===== 1994 $2,033 $1,283 $ (422) $2,894 ===== ===== ===== =====
Valuation allowance for deferred tax assets
Deductions Balance at Charged to Balance Beginning Costs and at End of Year Additions Expenses of Year 1996 $ 6,478 $ - $ (906) $ 5,572 ====== ====== ====== ====== 1995 $ 7,209 $ - $ (731) $ 6,478 ====== ====== ====== ====== 1994 $12,353 $ - $(5,144) $ 7,209 ====== ====== ====== ======
9 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II To the Stockholders and Board of Directors of Bio-Rad Laboratories, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Bio-Rad Laboratories, Inc.'s annual report to stockholders incorportated by reference in this Form 10-K, and have issued our report thereon dated February 4, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index, Item 14(a)2, is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP San Francisco, California, February 4, 1997 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BIO-RAD LABORATORIES, INC. By: /s/ Sanford S. Wadler Sanford S. Wadler Secretary Date: March 26, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Principal Executive Officer: /s/ David Schwartz President and Director March 26, 1997 (David Schwartz) Principal Financial Officer: /s/ T. C. Chesterman Chief Financial Officer March 26, 1997 (Thomas C. Chesterman) Principal Accounting Officer: /s/ James R. Stark Corporate Controller March 26, 1997 (James R. Stark) Other Directors: /s/ James J. Bennett Director March 26, 1997 (James J. Bennett) /s/ Albert J. Hillman Director March 26, 1997 (Albert J. Hillman) /s/ Philip L. Padou Director March 26, 1997 (Philip L. Padou) /s/ Alice N. Schwartz Director March 26, 1997 (Alice N. Schwartz) /s/ Norman Schwartz Director March 26, 1997 (Norman Schwartz) /s/ Burton A. Zabin Director March 26, 1997 (Burton A. Zabin) 11 BIO-RAD LABORATORIES, INC. INDEX TO EXHIBITS ITEM 14(a)3 The following documents are filed as part of this report: Exhibit No. 3.1 Restated Certificate of Incorporation, as of September 15, 1988. (1) 3.2 Bylaws of the Registrant, as amended February 19, 1980. (2) 10.4 1994 Stock Option Plan. (3) 10.5 Amended 1988 Employee Stock Purchase Plan. (4) 10.6 Employees' Deferred Profit Sharing Retirement Plan. (5) 10.9 Credit Agreement dated as of February 18, 1994, by and among the Registrant, the Lenders and The First National Bank of Chicago, as agent. (6) 10.9.1 Amendment dated as of September 30, 1994 to the Credit Agreement dated as of February 18, 1994, by and among the Registrant, the Lenders and The First National Bank of Chicago, as agent. (7) 10.9.2 Amendment dated as of May 30, 1995 to the Credit Agreement dated as of February 18, 1994, by and among the Registrant, the Lenders and The First National Bank of Chicago, as agent. (7) 10.9.3 Amendment dated as of July 10, 1996 to the Credit Agreement dated as of February 18, 1994, by and among the Registrant, the Lenders and The First National Bank of Chicago, as agent. (8) 10.10 Non-competition and employment continuation agreement with James J. Bennett. 11.1 Computation of Earnings Per Share. 13.1 Excerpt from Annual Report to Stockholders' for the fiscal year ended December 31, 1996 (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. 12 (2) Incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-7 Registration No. 2-66797, which became effective April 22, 1980. (3) Incorporated by reference from the Exhibits to the Company's Form S-8 filing, dated April 28, 1994. (4) Incorporated by reference from the Exhibits to the Company's Form S-8 filing, dated April 28, 1994. (5) Incorporated by reference from the Exhibits to the Company's Form 10-K filing for the fiscal year ended December 31, 1994, dated March 23, 1995. (6) Incorporated by reference from the Exhibits to the Company's Form 10-K filing for the fiscal year ended December 31, 1993, dated March 24, 1994. (7) Incorporated by reference from the Exhibits to the Company's September 30, 1995 Form 10-Q filing dated November 3, 1995. (8) Incorporated by reference from the Exhibits to the Company's September 30, 1996 Form 10-Q filing dated November 8, 1996. 13 EX-10 2 EXHIBIT 10.10 - CONTRACT WITH OFFICER DATE: January 15, 1997 TO: Jim Bennett FROM: David Schwartz SUBJECT: CONFIDENTIAL This letter will confirm our discussions concerning the most appropriate utilization of your expertise and experience after you decide to leave your present position as Executive Vice President/Chief Operating Officer of Bio-Rad ("Present Position"), in return for your signing this "non-compete" agreement. 1. You will give Bio-Rad at least six months' notice if you decide to leave your Present Position. Additionally, you will provide such notice so that, including the hours worked under Paragraph 3 below, your total hours worked in any year in which the end of the six-month notice period occurs will not exceed 999 hours. 2. You will be nominated by the management of Bio-Rad to continue as a member of the Board of Directors; and if this nomination is ratified by the shareholders, you will remain a director for a minimum of three years. 3. After you leave your present Position, you will continue as an employee taking on a variety of assignments as mutually agreed to with the CEO for a total of six weeks of cumulative work during each twelve- month period, for up to five consecutive 12-month periods following your leaving your Present Position. You will be paid for the six weeks of cumulative work per twelve-month period at the weekly rate of $2,500/week, plus the same weekly pay rate as is in effect for your Present Position when your notice period ends. If you cease being a Director, the cumulative weekly payments shall be reduced by $2,500. This salary will be paid in 24 equal installments during each 12-month period. Mutually agreed assignments extending beyond the six weeks of cumulative work will be compensated at the same weekly pay rate as is in effect when your notice period ends. Medical, dental, vacation, sick leave, profit sharing, bonus, further grants of stock options, and any other benefits or payments not excepted in this letter will cease when you leave your Present Position. 4. You will be permitted to exercise all vested stock options granted to you prior to leaving your Present Position. If you become unable to carry out your assigned duties under this letter, or if you retire, the Stock Option Committee has granted you the right to exercise your stock options for up to two years after you cease employment. 5. If you compete in any way with Bio-Rad during the term of your employment, or two years thereafter, you will forfeit your right to exercise your stock options and to receive the payments provided for in this letter. If this letter correctly confirms our agreement, please sign in the space provided for below and return one original to me. The other original is for your files. Cordially, /s/ David Schwartz David Schwartz I hereby confirm and agree to the conditions of the agreement as stated above. /s/ James J. Bennett James J. Bennett EX-11 3 EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE Bio-Rad Laboratories, Inc. (In thousands, except per share data)
Year Ended December 31, 1996 1995 1994 Computation for Consolidated Statements of Income: Income before extraordinary charge $27,355 $25,156 $15,598 Extraordinary charge, net of tax efect (1,176) - - _______ _______ _______ Net income $26,179 $25,156 $15,598 ======= ======= ======= Weighted average common shares 12,273 12,206 12,113 ======= ======= ======= Earnings per share: Earnings per share before extraordinary charge $2.23 $2.06 $1.29 Extraordinary charge per share (.10) - - _______ _______ _______ Earnings per share $2.13 $2.06 $1.29 ======= ======= ======= Additional Primary Computation (1): Weighted average common shares per above 12,273 12,206 12,113 Add-Dilutive effect of outstanding options (as determined by the application of the treasury stock method) 199 224 156 _______ _______ _______ Weighted average common shares, as adjusted 12,472 12,430 12,269 ======= ======= ======= Primary earnings per share: Earnings per share before extraordinary charge $2.19 $2.02 $1.27 Extraordinary charge per share (.09) - - _______ _______ _______ Earnings per share $2.10 $2.02 $1.27 ======= ======= ======= Fully Diluted Computation (1): Weighted average common shares per above 12,273 12,206 12,113 Add-Dilutive effect of outstanding options (as determined by the application of the treasury stock method) 252 239 164 _______ _______ _______ Weighted average common shares, as adjusted 12,525 12,445 12,277 ======= ======= ======= Fully diluted earnings per share: Earnings per share before extraordinary charge $2.18 $2.02 $1.27 Extraordinary charge per share (.09) - - _______ _______ _______ Earnings per share $2.09 $2.02 $1.27 ======= ======= ======= (1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
EX-13 4 EXHIBIT 13.1 - EXCERPT FROM 1996 ANNUAL REPORT EXHIBIT 13.1 Bio-Rad Laboratories, Inc. SUMMARY OF OPERATIONS (In thousands, except per share data)
Year Ended December 31, 1996 1995 1994 1993 1992 1991 _____________________________________________________________________________________________________________________ Net sales $418,789 $396,618 $355,299 $328,553 $330,301 $310,669 Cost of goods sold (1) 182,046 171,942 155,805 151,063 138,173 133,787 Gross profit 236,743 224,676 199,494 177,490 192,128 176,882 Selling, general and administrative expense 155,516 150,272 132,591 129,187 133,934 125,224 Product research and development expense 39,580 34,714 30,172 34,204 34,655 28,240 Restructuring costs 2,700 1,500 - 3,816 9,023 1,290 Income from operations 38,947 38,190 36,731 10,283 14,516 22,128 Other income (expense): Interest expense, net (3,027) (4,465) (6,138) (8,406) (9,368) (7,858) Other, net 553 (183) (6,596) 2,801 22,357 (763) Income before taxes and extraordinary charge 36,473 33,542 23,997 4,678 27,505 13,507 Provision for income taxes 9,118 8,386 8,399 1,877 11,951 5,353 Income before extraordinary charge 27,355 25,156 15,598 2,801 15,554 8,154 Extraordinary charge (2) (1,176) - - - - - Net income $ 26,179 $ 25,156 $ 15,598 $ 2,801 $ 15,554 $ 8,154 ====== ====== ====== ===== ====== ===== Earnings per share before extraordinary charge $2.23 $2.06 $1.29 $0.23 $1.31 $0.69 Extraordinary charge (2) (.10) - - - - - Earnings per share $2.13 $2.06 $1.29 $0.23 $1.31 $0.69 ====== ====== ====== ===== ====== ===== Weighted average common shares 12,273 12,206 12,113 11,990 11,886 11,807 Cash dividends paid per common share - - - - - - Total assets $284,925 $285,098 $263,650 $259,890 $272,730 $253,142 Long-term debt, net of current maturities $ 6,721 $ 20,922 $ 26,287 $ 47,834 $ 57,909 $ 64,906 _____________________________________________________________________________________________________________________ (1) In 1996, cost of goods sold includes a charge of $2.1 million for write-down of inventory associated with the restructuring costs. (2) Extraordinary charge for redemption of subordinated debt: 1996 - $1,176, net of tax effect of $817.
1 Bio-Rad Laboratories, Inc. Consolidated Balance Sheets (In thousands)
________________________________________________________________________________________ December 31, Assets 1996 1995 Current Assets: Cash and cash equivalents $ 9,390 $ 14,774 Accounts receivable, less allowance of $3,688 in 1996 and $3,094 in 1995 97,795 92,061 Inventories 69,738 75,357 Deferred tax assets 14,947 12,274 Prepaid expenses and other current assets 6,665 7,126 Total current assets 198,535 201,592 Property, Plant and Equipment: Land and improvements 8,057 8,057 Buildings and leasehold improvements 52,050 51,786 Equipment 107,847 99,486 Total property, plant and equipment 167,954 159,329 Less accumulated depreciation 96,092 86,363 Net property, plant and equipment 71,862 72,966 Marketable Securities 7,432 5,902 Other Assets 7,096 4,638 Total Assets $284,925 $285,098 ======== ======== ________________________________________________________________________________________
The accompanying notes are an integral part of these statements. 2 Bio-Rad Laboratories, Inc. Consolidated Balance Sheets (In thousands, except share data)
__________________________________________________________________________________________ December 31, Liabilities and Stockholders' Equity 1996 1995 Current Liabilities: Notes payable $ 4,484 $ 13,614 Current maturities of long-term debt 1,058 655 Accounts payable 21,262 19,946 Accrued payroll and employee benefits 23,717 23,908 Sales, income and other taxes payable 3,988 7,082 Other current liabilities 24,630 24,612 Total current liabilities 79,139 89,817 Long-Term Debt, net of current maturities 6,721 20,922 Deferred Tax Liabilities 15,557 17,300 Total liabilities 101,417 128,039 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 1996 - 9,740,922; 1995 - 9,593,283 9,741 9,593 Class B common stock, $1.00 par value, 6,000,000 shares authorized; outstanding 1996 - 2,579,803; 1995 - 2,646,063 2,580 2,646 Additional paid-in capital 17,067 15,887 Class A treasury stock, 31,216 shares in 1996 at cost (839) - Class B treasury stock, 30,000 shares in 1996 at cost (800) - Retained earnings 151,003 124,857 Currency translation 3,570 3,527 Net unrealized holding gain on marketable securities 1,186 549 Total stockholders' equity 183,508 157,059 Total Liabilities and Stockholders' Equity $284,925 $285,098 ======== ======== __________________________________________________________________________________________
The accompanying notes are an integral part of these statements. 3 Bio-Rad Laboratories, Inc. Consolidated Statements of Income (In thousands, except per share data)
___________________________________________________________________________________________________ Year Ended December 31, 1996 1995 1994 Net sales $418,789 $396,618 $355,299 Cost of goods sold 182,046 171,942 155,805 Gross profit 236,743 224,676 199,494 Selling, general and administrative expense 155,516 150,272 132,591 Product research and development expense 39,580 34,714 30,172 Restructuring costs 2,700 1,500 - Income from operations 38,947 38,190 36,731 Other income (expense): Interest expense (3,027) (4,465) (6,138) Investment income, net 2,385 1,230 314 Other, net (1,832) (1,413) (6,910) Income before taxes and extraordinary charge 36,473 33,542 23,997 Provision for income taxes 9,118 8,386 8,399 Income before extraordinary charge 27,355 25,156 15,598 Extraordinary charge, net of tax effect of $817 (1,176) - - Net income $ 26,179 $ 25,156 $ 15,598 ======== ======== ======== Earnings per share before extraordinary charge $2.23 $2.06 $1.29 Extraordinary charge per share (.10) - - Earnings per share $2.13 $2.06 $1.29 ===== ===== ===== Weighted average common shares 12,273 12,206 12,113 ====== ====== ====== ___________________________________________________________________________________________________
The accompanying notes are an integral part of these statements. 4 Bio-Rad Laboratories, Inc. Consolidated Statements of Cash Flows (In thousands)
________________________________________________________________________________________________________ Year Ended December 31, 1996 1995 1994 Cash flows from operating activities: Cash received from customers $409,144 $387,729 $354,463 Cash paid to suppliers and employees (354,641) (339,702) (290,163) Interest paid (3,710) (4,008) (6,725) Income tax payments (16,923) (5,679) (2,586) Miscellaneous payments (717) (108) (6,715) Net cash provided by operating activities 33,153 38,232 48,274 Cash flows from investing activities: Capital expenditures, net (15,235) (12,307) (9,798) Payments for acquisitions (1,290) (829) - Purchases of marketable securities and investments (2,710) (3,098) (1,417) Sales of marketable securities and investments 2,968 2,959 1,261 Foreign currency hedges, net 1,423 (638) (3,102) Net cash used in investing activities (14,844) (13,913) (13,056) Cash flows from financing activities: Net borrowings under line-of-credit arrangements (8,940) (8,063) (8,839) Long-term borrowings 5,024 59,400 65,500 Payments on long-term debt (20,841) (65,535) (90,381) Proceeds from issuance of common stock 1,262 1,093 823 Purchase of treasury stock (1,887) - - Reissuance of treasury stock 215 - - Net cash used in financing activities (25,167) (13,105) (32,897) Effect of exchange rate changes on cash 1,474 (191) (1,682) Net increase (decrease) in cash and cash equivalents (5,384) 11,023 639 Cash and cash equivalents at beginning of year 14,774 3,751 3,112 Cash and cash equivalents at end of year $ 9,390 $ 14,774 $ 3,751 ======== ======== ======== ________________________________________________________________________________________________________
The accompanying notes are an integral part of these statements. 5 Bio-Rad Laboratories, Inc. Consolidated Statements of Changes in Stockholders' Equity (In thousands, except share data)
__________________________________________________________________________ Year Ended December 31, 1996 1995 1994 Common Shares: Balance at beginning of year 12,239,346 12,159,190 12,046,215 Issuance of common stock 81,631 80,156 112,975 Cash paid in lieu of fractional shares on 3-for-2 stock split (252) - - Balance at end of year 12,320,725 12,239,346 12,159,190 __________________________________________________________________________ Common Stock: Balance at beginning of year $ 12,239 $ 12,159 $ 12,046 Issuance of common stock 82 80 113 Balance at end of year 12,321 12,239 12,159 Additional Paid-In Capital: Balance at beginning of year 15,887 14,874 14,164 Issuance of common stock 1,188 1,013 710 Cash paid in lieu of fractional shares on 3-for-2 stock split (8) - - Balance at end of year 17,067 15,887 14,874 Treasury Stock: Balance at beginning of year - - - Purchase of treasury stock (1,887) - - Reissuance of treasury stock 248 - - Balance at end of year (1,639) - - Retained Earnings: Balance at beginning of year 124,857 99,701 84,103 Net income 26,179 25,156 15,598 Loss on reissuance of treasury stock (33) - - Balance at end of year 151,003 124,857 99,701 Currency Translation: Balance at beginning of year 3,527 2,566 (3) Change in currency translation 43 961 2,569 Balance at end of year 3,570 3,527 2,566 Net Unrealized Holding Gain On Marketable Securities: Balance at beginning of year 549 518 - Adoption of SFAS 115 effective January 1, 1994 - - 1,572 Change in net unrealized holding gain (loss) 637 31 (1,054) Balance at end of year 1,186 549 518 ________ ________ ________ Total Stockholders' Equity $183,508 $157,059 $129,818 ======== ======== ======== __________________________________________________________________________
The accompanying notes are an integral part of these statements. 6 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 1996 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 generally does not require collateral. 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 foresee 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 Revenue Recognition and Warranty Bio-Rad recognizes revenues when products are shipped or services rendered and all significant obligations of the Company have been met. Sales to end-users made through distributors or, on a non-recourse basis through factors, are recorded net of applicable discounts and factoring expenses. Factoring expenses were $1,096,000, $1,398,000 and $1,544,000 in 1996, 1995 and 1994, respectively. Where appropriate, the Company also establishes a concurrent reserve for returns and allowances. The Company warrants certain equipment against defects in design, materials and workmanship generally for one year. Upon shipment of equipment sold at a price which includes a warranty, the Company establishes, as part of cost of goods sold, a reserve for the expected costs of such warranty. Foreign Currency Translation Balance sheet accounts of international subsidiaries are translated at the current exchange rate as of the end of the accounting period. Income statement items are translated at average exchange rates. The resulting translation adjustment is recorded as a separate component of stockholders' equity. Forward Exchange Contracts As part of distributing its products, the Company regularly enters into intercompany transactions. The Company enters into forward foreign exchange contracts as a hedge against foreign currency denominated intercompany receivables and payables. These nonspeculative contracts have maturity dates of 60 days or less, relate primarily to currencies of industrial countries and are marked to market at each balance sheet date. The resulting gains or losses are included in other income and expense offsetting exchange losses or gains on the related receivables and payables. Unrealized gains and losses are not deferred. Exchange gains and losses on these contracts are net of premiums and discounts resulting from interest rate differentials between the U.S. and the countries of the currencies being traded. The cash flows related to these contracts are classified as cash flows from investing activities in the statement of cash flows. Stock Compensation Plans Bio-Rad accounts for its stock-based compensation plans using the intrinsic value method as promulgated by APB Opinion 25 and related Interpretations. Accordingly, no compensation cost has been recognized with respect to any stock-based compensation plan. Earnings Per Share Earnings per share are calculated on the basis of the weighted average number of common shares outstanding for each period. 8 Fair Value of Financial Instruments For certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, notes payable, accounts payable and forward exchange contracts, the carrying amounts approximate fair value. The fair values of other instruments are disclosed in relevant notes to the financial statements. _________________________________________________________________ 2. Inventories The principal components of inventories are as follows (in thousands):
December 31, 1996 1995 Raw materials $ 26,920 $ 26,467 Work in process 19,866 17,189 Finished goods 22,952 31,701 -------- -------- Inventories $ 69,738 $ 75,357 ======== ========
________________________________________________________________ 3. Marketable Securities The Company's marketable securities are classified as available-for- sale and are recorded at current market value with an offsetting adjustment to stockholders' equity. The Company's portfolio is comprised principally of equity securities with an aggregate market value of $7,432,000 and $5,902,000 and cost of $6,246,000 and $5,353,000 at December 31, 1996 and 1995, respectively. Unrealized holding gains and losses pertaining to marketable securities are included as a separate component of stockholders' equity until realized. At December 31, 1996, gross unrealized holding gains and losses were $1,465,000 and $279,000, respectively. At December 31, 1995, gross unrealized holding gains and losses were $909,000 and $360,000, respectively. For the purpose of determining realized gains and losses, the cost of securities sold is based upon specific identification. Information regarding the proceeds and gross realized gains and losses from sales of securities is as follows: 9
Year Ended December 31, 1996 1995 1994 Proceeds $ 2,968 $ 2,959 $ 1,261 ======== ======= ======= Gross realized gains $ 1,130 $ 1,118 $ 432 Gross realized losses - (123) (141) -------- ------- ----- Net realized gain $ 1,130 $ 995 $ 291 ======== ======= =======
_________________________________________________________________ 4. Notes Payable and Long-Term Debt Notes payable include local credit lines maintained by the Company's subsidiaries aggregating approximately $38,843,000, of which $34,726,000 was unused at December 31, 1996. The weighted average interest rate on these lines was 7.68% and 8.71% at December 31, 1996 and 1995, respectively. The parent company guarantees most of these credit lines. The carrying amounts of notes payable, which includes borrowings under these lines and cash overdrafts, approximate their fair value. The principal components of long-term debt are as follows (in thousands):
December 31, 1996 1995 Revolving credit agreement $ 5,000 $ - 10.9% Subordinated Notes - 20,000 Capitalized leases 1,530 1,526 Other 1,249 51 _______ _______ 7,779 21,577 Less current maturities 1,058 655 _______ _______ Long-Term Debt $ 6,721 $20,922 ======= =======
The Company has a $60 million revolving credit agreement which provides for borrowings on an unsecured basis through April 1999. The outstanding balance is $5,000,000 and $0 at December 31, 1996 and 1995, respectively. Interest is at spreads over money market rates or at the prime rate. The applicable interest rate at December 31, 1996 and 1995 was 5.98% and 8.50%, respectively. A fee ranging from 0.15% to 0.30% annually is charged on the daily unborrowed portion of the commitment. 10 The 10.9% Subordinated Notes were redeemed 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, 1996. This agreement also contains certain other restrictions, including the limitation of cash dividends. Approximately $8,113,000 of retained earnings were available for payment of cash dividends at December 31, 1996. Maturities of long-term debt at December 31, 1996 are as follows: 1997 - $1,058,000; 1998 - $907,000; 1999 - $5,645,000; 2000 - $118,000; 2001 - $51,000; subsequent to 2001 - $0. The fair value of the Company's long-term debt is estimated based on the current rates available to the Company for similar issues of comparable maturities. At December 31, 1996 the estimated fair value is $7,779,000. 11 _________________________________________________________________ 5. Income Taxes The U.S. and international components of income before taxes and extraordinary charge are as follows (in thousands):
Year Ended December 31, 1996 1995 1994 U.S. $ 23,766 $ 24,592 $ 13,652 International 12,707 8,950 10,345 -------- -------- -------- Income before taxes and extraordinary charge $ 36,473 $ 33,542 $ 23,997 ======== ======== ========
The provision for income taxes consists of (in thousands):
Year Ended December 31, 1996 1995 1994 Current: U.S. Federal $ 7,613 $ 6,764 $ 368 International 6,070 2,115 3,476 U.S. State 1,122 1,008 663 -------- -------- -------- 14,805 9,887 4,507 Deferred (5,687) (1,501) 3,892 -------- -------- -------- Provision for income taxes $ 9,118 $ 8,386 $ 8,399 ======== ======== ========
12 The major components of the deferred income tax provision are as follows (in thousands):
Year Ended December 31, 1996 1995 1994 Change in eliminated intercompany profit $ 476 $ (29) $ 113 Change in reserves for obsolete inventory and warranty expense (817) (2,007) (1,020) Change in other reserves (4,718) 147 4,242 Difference between tax and book depreciation (537) (138) (116) Miscellaneous other items (91) 526 673 ------- ------- ------- Deferred income tax provision $(5,687) $(1,501) $ 3,892 ======= ======= =======
The reconciliation of the effective tax rate is as follows (dollars in thousands):
Year Ended December 31, 1996 1995 1994 Amount % Amount % Amount % U.S. statutory tax rate $12,766 35% $11,740 35% $ 8,399 35% State taxes, net of federal income tax benefit 395 1 426 1 515 2 Effect of international losses and differences between international and U.S. tax rates 1,806 5 781 2 1,291 5 Foreign Sales Corporation tax benefit (1,343) (4) (1,539) (4) (1,278) (5) Research and development tax credit (413) (1) (265) (1) (461) (2) Benefit of excess foreign tax credits on repatriation of foreign earnings (253) (1) (908) (3) (1,012) (4) Loss carryforwards utilized (1,518) (4) (1,678) (5) (2,704) (11) Other (2,322) (6) (171) - 3,649 15 ------- --- ------- --- ------- --- Provision for income taxes $ 9,118 25% $ 8,386 25% $ 8,399 35% ======= === ======= === ======= ===
13 Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities at December 31, 1996 are as follows (in thousands):
Deferred Deferred Tax Tax Assets Liabilities Tax benefit of foreign loss carryforwards $ 3,157 $ - Deferred gain on condemnation - 6,717 Eliminated intercompany profit 3,610 - Reserves for obsolete inventory, warranty and bad debts 10,167 - Restructuring reserve 1,923 - Tax benefit of IPRI loss carryforward 295 - Development cost of Hercules facility - 1,445 Write-off of investment in subsidiaries 484 - Depreciation - 602 Miscellaneous other items 883 6,793 ------- ------- 20,519 15,557 Valuation allowance (5,572) - ------- ------- Total $14,947 $15,557 ======= =======
The net change in the valuation allowance for deferred tax assets in 1996 was a decrease of $906,000 primarily resulting from unanticipated utilization of foreign loss carryforwards. At December 31, 1996, Bio-Rad's international subsidiaries had combined net operating loss carryforwards of $8,960,000. A portion of these loss carryforwards will expire in the following years: 1998 - $1,063,000; 1999 - $275,000; 2000 - $282,000; 2001 - $79,000; 2002 - $87,000 and 2004 - $567,000. The remainder of these loss carry- forwards have no expiration date. At December 31, 1996, Bio-Rad's domestic subsidiary, International Plant Research Institute (IPRI), had a net operating loss carryforward of $842,000 which will expire between 1998 and 2003. 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 $20,822,000 at December 31, 1996, were remitted to the U.S. parent company. Unless it becomes advantageous for tax or foreign exchange reasons to remit a subsidiary's earnings, such earnings are indefinitely reinvested in subsidiary operations. The withholding tax and U.S. federal income taxes on these earnings, if remitted, would in large part be offset by tax credits. _________________________________________________________________ 14 6. Stockholders' Equity Stock Classification The Company's outstanding stock consists of Class A Common Stock (Class A) and Class B Common Stock (Class B). Each share of Class A and Class B participates equally in the earnings of Bio-Rad, and is identical in most other respects except that (i) Class A has limited voting rights, each share of Class A being entitled to one-tenth of a vote on most matters and each share of Class B being entitled to one vote; (ii) Class A stockholders are entitled to elect 25% of the Board of Directors (rounded up to the nearest whole number) and Class B stockholders are entitled to elect the balance of the directors; (iii) cash dividends may be paid on Class A shares without paying a cash dividend on Class B shares, but no cash dividend may be paid on Class B shares unless an at least equal cash dividend is paid on Class A shares; and (iv) Class B shares are convertible at any time into Class A shares on a one for one basis at the option of the stockholder. Stock Split Retroactive adjustments have been made, as appropriate, to common stock and per share amounts to reflect the 3-for-2 stock split effected in the form of a 50% stock dividend in May 1996. Stock Option Plans Bio-Rad maintains incentive and non-qualified fixed stock option plans for officers and certain other key employees. Under the 1994 Stock Option Plan, the Company may grant options to its employees for up to 675,000 shares of common stock provided that no option shall be granted after March 1, 2004. The Amended and Restated 1984 Stock Option Plan provided that no option could be granted after March 1, 1994. Under both plans, Class A and Class B options are granted at prices not less than fair market value on the date of grant, are exercisable on a cumulative basis at a rate not greater than 25% per annum commencing one year after the date of grant and expire five years after the date of grant. The Company has made no charge to income with respect to any stock options. At the time options are exercised, the par value of the shares is credited to common stock and the excess is credited to additional paid-in capital. The Company may receive income tax benefits from the exercise of non-qualified stock options and from certain dispositions of stock received by employees under qualified or incentive stock options. The fair value of each option granted since January 1, 1995 was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions for grants in 1996 and 1995, respectively: no dividend yield for both periods; expected lives of 1.8 and 2.8 years for both periods; expected volatility of 33 percent and 38 percent; and risk-free interest rates ranging from 4.85% to 5.27% and 6.78% to 7.43%. 15 Activity under the plans is summarized below (amounts reported in the Price columns represent the weighted average exercise price):
Year Ended December 31, -------------------------------------------------------------------------- 1996 1995 1994 Shares Price Shares Price Shares Price Outstanding at beginning of year 427,457 $12.39 356,640 $ 9.66 376,140 $11.08 Granted 147,000 26.55 145,800 18.27 144,000 7.58 Exercised (59,576) 11.12 (39,552) 9.91 (10,482) 10.93 Forfeited (31,981) 20.21 (35,431) 11.96 (19,256) 8.94 Expired - - - - (133,762) 11.42 ------- ------- ------- Outstanding at end of year 482,900 16.34 427,457 12.39 356,640 9.66 ======= ======= ======= Options exercisable at year-end 149,605 103,437 68,718 ======= ======= ======= Weighted average fair value of options granted during the year $8.57 $6.76 -
The following table summarizes information about fixed stock options oustanding at December 31, 1996:
Options Outstanding Options Exercisable ---------------------------------------------------- ------------------------------- Number Weighted Average Number Range of Outstanding Remaining Weighted Average Exercisable Weighted Average Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price $ 7.37 - $ 9.46 156,317 1.9 years $ 8.38 70,553 $ 8.66 $10.36 - $18.21 187,143 2.1 15.72 78,114 14.07 $19.80 - $29.33 139,440 4.0 26.09 938 20.03 ------- ------- $ 7.37 - $29.33 482,900 2.6 16.34 149,605 11.55 ======= =======
16 Employee Stock Purchase Plan Under the Amended 1988 Employee Stock Purchase Plan (the Plan), the Company has authorized the sale of 645,000 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 30,888 shares for $742,000, 40,603 shares for $670,000 and 102,494 shares for $708,000 to employees in 1996, 1995 and 1994, respectively. At December 31, 1996, 159,357 shares remained autho- rized under the Plan. The fair value of the employees' purchase rights since January 1, 1995 was estimated using the Black-Scholes model with the following assumptions for 1996 and 1995, respectively: no dividend yield for both periods; an expected life of 3 months for both periods; expected volatility ranging from 26 to 38 percent and from 20 to 32 percent; and risk-free interest rates ranging from 4.90% to 4.99% and from 5.12% to 5.66%. The weighted average fair value of those purchase rights granted in 1996 and 1995 was $6.81 and $4.45, respectively. Pro Forma Disclosures 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 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:
Year Ended December 31, 1996 1995 Net income As reported $26,179 $25,156 Pro forma $25,348 $24,651 Earnings per share As reported $2.13 $2.06 Pro forma $2.07 $2.02
Under the requirements of SFAS No. 123, the above disclosures relate only to options granted after December 15, 1994 and do not include the impact of outstanding options that were made prior to the period for which SFAS No. 123 is effective. During the initial phase-in period of SFAS No. 123, since the employee stock options vest over several years and additional grants are likely to be made in future years, the disclosures are not likely to be representative of the effects on reported pro forma net income or earnings per share in future years. 17 7. Restructuring Costs In the fourth quarter of 1996, the Clinical Diagnostics segment provided a $2,100,000 charge to cost of goods sold and a $2,700,000 restructuring charge related to product line restructuring in the immunoassay market and closure of the related production and research facility in northern California. The charge to cost of goods sold reflects the adjustment to inventory necessary to reduce the carrying value of inventory to its net realizable value. The restructuring charge consists primarily of lease related costs and write-offs of production and research equipment dedicated to the Company's closed system immunoassay product line. Cash outlays will be primarily for lease related costs and will commence in the first quarter of 1997. Future lease payments have been reserved through 2000. This reserve may be offset in the future should the Company be successful in efforts to sublease the property. In the third quarter of 1995, the Life Science segment announced it would close its sales office and warehouse located in New York. The functions performed at this location were considered redundant and have been absorbed by the California operations. In conjunction with this decision, the Company recorded $1,500,000 of restructuring costs. These charges consisted primarily of lease related costs and employee separation costs. Cash outlays related to this restructuring were made with current operating funds, and were completed in 1996 with the exception of lease related costs. Future lease payments have been reserved through 2001. Restructuring costs recorded in 1992 included reserves for future lease payments through 2001 on facilities no longer being utilized by the Company. At December 31, 1996 a liability of $1,191,000 remains for these leases. ___________________________________________________________________ 8. Other Income and Expense Other, net includes the following income and (expense) components (in thousands):
Year Ended December 31, 1996 1995 1994 Exchange gains (losses) $ (641) $ 118 $ (883) Other non-operating litigation costs, net (971) (1,350) (4,860) Redemption of subordinated notes - - (616) Miscellaneous other items (220) (181) (551) ------- ------- ------- Other, net $(1,832) $(1,413) $(6,910) ======= ======= =======
Exchange gains (losses) include premiums and discounts on forward foreign exchange contracts. ________________________________________________________________ 18 9. Supplemental Cash Flow Information The reconciliation of net income to net cash provided by operating activities is as follows (in thousands):
Year Ended December 31, 1996 1995 1994 Net income $26,179 $25,156 $15,598 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,870 16,681 16,847 Foreign currency hedge transactions, net (1,275) 649 3,054 Gains on dispositions of marketable securities (1,130) (995) (291) Increase in accounts receivable, net (6,670) (9,261) (2,136) (Increase) decrease in inventories 5,339 (984) 1,588 (Increase) decrease in other current assets 435 1,560 (964) Increase in accounts payable and other current liabilities 1,411 5,531 8,414 Increase (decrease) in income taxes payable (2,926) 1,153 1,541 Increase (decrease) in deferred taxes (4,879) (1,321) 3,938 Other (1,201) 63 685 _______ _______ _______ Net cash provided by operating activities $33,153 $38,232 $48,274 ======= ======= =======
_________________________________________________________________ 19 10. Commitments and Contingent Liabilities Rents and Leases Net rental expense under operating leases was $11,505,000 in 1996, $11,105,000 in 1995 and $10,754,000 in 1994. Leases are principally for facilities and automobiles. Annual future minimum lease payments at December 31, 1996 under operating leases are as follows: 1997 - $9,155,000; 1998 - $6,340,000; 1999 - $4,107,000; 2000 - $2,685,000; 2001 - $2,357,000; subsequent to 2001 - $8,091,000. 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 $3,165,000, $2,870,000 and $3,279,000 in 1996, 1995 and 1994, respectively. Foreign Exchange Contracts The Company enters into forward foreign exchange contracts as a hedge against foreign currency denominated intercompany receivables and payables. The contracts are marked to market at each balance sheet date, and the resulting net unrealized gains or losses offset exchange losses or gains on those receivables and payables. At December 31, 1996, the Company had contracts maturing in January 1997 to sell foreign currency with a market value of $26,157,000 and to purchase foreign currency with a market value of $680,000. At December 31, 1995, the Company had contracts maturing in January and February 1996 to sell foreign currency with a market value of $83,228,000 and to purchase foreign currency with a market value of $43,885,000. _________________________________________________________________ 11. 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 infringement of a Japanese patent which covers an autoradiographic process. The settle- ment amounts were provided for in 1995 and 1994. In the fourth quarter of 1994, the Company reached a settlement in an action in the U.S. District Court in the District of New Jersey, brought in March 1991, by Pharmacia LKB Biotechnology, Inc., et al. (Pharmacia) alleging infringement of Pharmacia's U.S. patent. The settlement provided for the payment by Bio-Rad to Pharmacia of $5,500,000. Additionally, both parties agreed to cross license various patents. The impact of the settlement and related legal fees on 1994 results was a charge of $4,860,000 recorded in other income and expense (see Note 8). 20 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, Compensation 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. _________________________________________________________________ 12. Related Party Transactions The Company regularly contracts for legal services with the law firm of Townsend and Townsend and Crew. Albert J. Hillman was of counsel in this law firm during 1996 and a non-employee member of the Company's Board of Directors. The rate charged the Company for these services is comparable to the rates charged others for similar services. _________________________________________________________________ 21 13. Industry Segment Information Bio-Rad is a multinational manufacturer and worldwide distributor of life science research products, clinical diagnostics and analytical instruments. Information regarding geographic areas at December 31, 1996, 1995 and 1994 and for the years then ended is as follows (in thousands):
Consoli- North Pacific Elimin- dated Worldwide Operations America Europe Rim ations Total Net sales to unaffiliated 1996 $184,325 $141,413 $ 93,051 $ - $418,789 customers 1995 169,350 138,288 88,980 - 396,618 1994 163,745 117,548 74,006 - 355,299 Net intercompany sales 1996 103,411 44,390 1,847 (149,648) - 1995 98,734 42,335 6,164 (147,233) - 1994 79,915 40,798 6,044 (126,757) - Total net sales 1996 287,736 185,803 94,898 (149,648) 418,789 1995 268,084 180,623 95,144 (147,233) 396,618 1994 243,660 158,346 80,050 (126,757) 355,299 Income from operations 1996 24,633 10,514 3,800 - 38,947 1995 25,076 11,030 2,084 - 38,190 1994 24,066 10,768 1,897 - 36,731 Identifiable assets 1996 176,900 74,412 33,613 - 284,925 1995 178,738 69,502 36,858 - 285,098 1994 163,914 66,748 32,988 - 263,650
Net intercompany sales and income from operations are recorded on the basis of intercompany prices established by the Company. 22 Net sales in North America include export sales from the Company's United States operations of approximately $7,577,000, $6,163,000 and $6,654,000 in 1996, 1995 and 1994, respectively. Information regarding industry segments at December 31, 1996, 1995 and 1994 and for the years then ended is as follows (in thousands):
Consoli- Life Clinical Analytical dated Market Segments Science Diagnostics Instruments Corporate Total Net sales to unaffiliated 1996 $196,249 $148,506 $ 74,034 $ - $418,789 customers 1995 193,145 137,426 66,047 - 396,618 1994 169,676 131,942 53,681 - 355,299 Income (loss) from operations 1996 14,642 18,583 5,136 586 38,947 1995 17,250 17,465 3,873 (398) 38,190 1994 17,706 18,573 1,186 (734) 36,731 Identifiable assets 1996 106,394 93,721 39,887 44,923 284,925 1995 115,256 94,321 32,804 42,717 285,098 1994 106,605 92,690 32,272 32,083 263,650 Capital expenditures 1996 7,103 7,514 2,133 791 17,541 1995 5,598 6,624 1,514 655 14,391 1994 4,031 5,558 1,538 388 11,515 Depreciation 1996 7,063 7,724 1,456 1,160 17,403 1995 6,986 6,510 1,555 1,181 16,232 1994 6,531 6,439 1,773 1,234 15,977
Sales between segments are immaterial. Capital expenditures include capitalized leases of $872,000, $778,000 and $784,000 in 1996, 1995 and 1994, respectively. ___________________________________________________________________________ 23 14. Quarterly Financial Data - (unaudited) Summarized quarterly financial data for 1996 and 1995 are as follows (in thousands, except per share data):
First Second Third Fourth Quarter Quarter Quarter Quarter Year 1996 Net sales $108,272 $ 99,981 $ 96,559 $113,977 $418,789 Gross profit 61,432 58,277 55,847 61,187 236,743 Income before extraordinary charge 9,461 7,511 6,699 3,684 27,355 Extraordinary charge - - - (1,176) (1,176) Net income 9,461 7,511 6,699 2,508 26,179 Earnings per share before extraordinary charge $0.77 $0.61 $0.55 $0.30 $2.23 Extraordinary charge per share - - - (0.10) (0.10) Earnings per share $0.77 $0.61 $0.55 $0.20 $2.13 1995 Net sales $ 97,858 $ 97,921 $ 92,905 $107,934 $396,618 Gross profit 56,041 56,518 52,937 59,180 224,676 Net income 8,053 6,513 4,440 6,150 25,156 Earnings per share $0.66 $0.54 $0.36 $0.50 $2.06
_______________________________________________________________________ 15. Information Concerning Common Stock - (unaudited) The Company's Class A and Class B Common Stock are listed on the American Stock Exchange with the symbols BIO.A and BIO.B, 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.
Class A Class B High Low High Low 1996 First Quarter 28-1/2 24-11/12 27-5/6 25-11/12 Second Quarter 37 28 36-3/4 29-1/12 Third Quarter 36-5/8 26-5/8 36-3/8 26-1/2 Fourth Quarter 31 24 30-1/2 25-1/8 1995 First Quarter 19-1/4 16-7/12 18-2/3 16-1/2 Second Quarter 24-1/6 18-1/3 23-5/6 18-1/4 Third Quarter 27-1/6 23-1/2 26-11/12 23-1/2 Fourth Quarter 28-5/12 24-2/3 28-1/2 25-1/12
24 At February 14, 1997, the Company had 646 holders of record of Class A Common Stock and 323 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. 25 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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP San Francisco, California, February 4, 1997 26 Bio-Rad Laboratories, Inc. Management's Discussion and Analysis ________________________________________________________________ MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This discussion should be read in conjunction with the information contained in the Company's Consolidated Financial Statements and the accompanying notes which are an integral part of the statements. References are to the Notes to Consolidated Financial Statements. The following table shows operating income and expense items as a percentage of net sales:
1996 1995 1994 Net sales 100.0 100.0 100.0 Cost of goods sold 43.5 43.4 43.9 Gross profit 56.5 56.6 56.1 Selling, general and administrative 37.1 37.9 37.3 Product research and development 9.5 8.7 8.5 Restructuring costs 0.6 0.4 - _____ _____ _____ Income from operations 9.3 9.6 10.3 ===== ===== ===== Income before extraordinary charge 6.5 6.3 4.4 ===== ===== =====
_________________________________________________________________ Corporate Results -- Sales, Margins and Expenses Bio-Rad's net sales (sales) in 1996 were $418.8 million, an increase of 5.6% over sales in 1995. The effect of the strengthened U.S. dollar in 1996 exchange rates compared to 1995 exchange rates resulted in an approximate 2% or $8.5 million decrease in consolidated sales. Sales increased in all segments of the Company's business. Excluding the effects of the strengthened U.S. dollar, sales increased 16% in Analytical Instruments, 8% in Clinical Diagnostics and 4% in Life Science. The growth in Analytical Instruments was led by growth in sales of spectroscopy equipment but also included increased sales of the Company's semiconductor test and manufacturing equipment, especially in the fourth quarter. Clinical Diagnostics is experiencing renewed worldwide growth led by increases in U.S. sales. Bio-Rad's sales for 1995 were $396.6 million, representing growth of 11.6%. Compared to 1994, Life Science sales increased $23.5 million or 13.8%, Clinical Diagnostics increased $5.5 million or 4.2%, and Analytical Instruments increased $12.4 million or 23.0%. Overall for 1995, the weaker U.S. dollar had the effect of increasing foreign currency denominated sales approximately 4.0% or $14.4 million. Sales 27 were strong throughout 1995 for both Life Science and Analytical Instruments, particularly for the Company's semiconductor test and manufacturing equipment. Growth exceeded 15% for both of these segments throughout the year with the single exception of Life Science in the first quarter. Globally, competition was severe and markets weak for the Clinical Diagnostics segment. Consolidated gross margins were 56.5% for 1996 compared to 56.6% for 1995. Gross margins were negatively impacted by 0.5% from a $2.1 million charge in the fourth quarter of 1996 for the write-down of Clinical Diagnostics inventory associated with the development and production of a closed system immunoassay analyzer product line (see Note 7). Improved gross margins in the Analytical Instruments segment are the result of sales increases. Gross margins in Clinical Diagnostics were relatively unchanged excluding the impact of the fourth quarter inventory adjustment. In Life Science gross margins are down less than 1% when compared to 1995; this is attributable to a number of factors including exchange rates, sales mix and factory inefficiencies. Consolidated gross margins increased during 1995 to 56.6% from 56.1% in 1994. This increase is attributable to both increased revenue from foreign sales as a result of the weaker dollar and continuing improvements to the manufacturing process which have allowed the Company to operate at more efficient levels. During the fourth quarter of the year, it has been customary that larger instrument sales increase in relation to total sales resulting in a lower gross margin as a result of sales mix. Consolidated selling, general and administrative expense (SG&A) decreased to 37.1% of sales in 1996 from 37.9% in 1995. While spending increased in absolute dollars in all segments, the Clinical Diagnostics and Analytical Instruments segments succeeded in growing sales faster than SG&A in 1996. In the Life Science segment the growth in SG&A was proportional to the growth in sales. Management continues to seek efficiencies and reductions in SG&A spending in an effort to improve overall profitability. During 1995, SG&A increased to 37.9% from 37.3% in 1994. The increased spending represented investment in additional personnel for the direct sales force and their ancillary support. Support costs included computer hardware, demonstration equipment, advertising and sales support personnel. Spending exceeded sales growth in the Life Science and Clinical Diagnostics segments. Analytical Instruments succeeded in growing sales faster than SG&A primarily because of the demand for the Company's products sold to the semiconductor industry. Product research and development expense (R&D) increased in 1996 when compared to 1995, both in absolute dollars and as a percent of sales. As planned, R&D was expanded and spending increased in the Analytical Instruments and Life Science segments as part of Bio-Rad's continuing commitment to long-term growth. R&D spending was down approximately $0.6 million in the Clinical Diagnostics segment as management reduced spending during its evaluation of marketing strategies related to its closed system immunoassay analyzer product line that resulted in an 28 inventory write-down and restructuring charge. Management believes that an open system solution that allows Clinical Diagnostics to concentrate on reagents and less expensive capital equipment will have greater market acceptance. As part of the Company's continuing commitment to long-term growth, Bio-Rad increased R&D to 8.7% of sales in 1995 from 8.5% in 1994. In absolute dollars, spending increased $4.5 million with each segment participating in the year over year increased investment in R&D. In the fourth quarter of 1996, the Clinical Diagnostics segment made a provision of $2.7 million for lease related costs and write-down of certain dedicated fixed assets associated with its closed system immunoassay analyzer product line (see Note 7). Management determined that the Company's marketing strategy was not competitive and has redirected resources to an open systems approach which will allow for greater opportunity to provide reagents to its customers. Management expects this change of focus to result in increased sales opportun- ities and better utilization of R&D resources. The Life Science segment made a $1.5 million provision for the cost of closing its New York warehouse and distribution center in the third quarter of 1995 (see Note 7). After a marketing and service review, management concluded that the required service level for customers throughout the United States could be met by utilizing its West Coast facilities and personnel. The closing of this facility has eliminated redundant costs and enabled the Company to more efficiently use its remaining distribution space. Corporate Results -- Non-Operating Items Net interest expense represents 0.7% of sales in 1996 compared to 1.1% in 1995 and 1.7% in 1994. The decline is attributable to an overall reduction in the amount of interest bearing debt. Average borrowings for the years 1996, 1995 and 1994 were $27.9 million, $42.4 million and $62.7 million, respectively. Interest expense will be reduced even further in the coming year as a result of the repayment of the $20.0 million 10.9% Subordinated Notes in December 1996. This repayment resulted in an extraordinary charge (see Note 4). During 1995 interest rate changes had little impact on interest expense as the Company paid down short-term debt and the $20.0 million 10.9% Subordinated Notes became a larger percentage of total borrowings. Investment income in 1996, 1995 and 1994 includes gains on sales of marketable securities. 1996 also includes interest income of $0.8 million from short-term investments. Interest income will decline in the coming year as the cash balances generating this income were used to repay the 10.9% Subordinated Notes. Net other income and expense for 1996 was principally non-operating litigation costs and exchange losses (see Note 8). Net other income and expense for 1995 was principally non-operating litigation costs (see Note 8). Net other income and expense for 1994 was principally comprised of non-operating litigation costs (see Note 11), exchange losses and the redemption premium on subordinated notes retired in 29 November 1994 (see Note 8). Bio-Rad's hedging program is limited to nonspeculative forward foreign exchange contracts (with major financial institutions) which hedge the exposure of intercompany receivables and payables. The net exchange gain or loss results from the estimating inherent in projecting intercompany balances and transaction charges. Bio-Rad's consolidated tax provision in both 1996 and 1995 was 25% decreasing from 35% in 1994. The lower effective tax rate for 1996 and 1995 is the result of changes in the source of taxable income and fewer non-deductible expenses and reserves. The tax rate reflects the utilization of loss carryforwards, foreign sales corporation benefits and foreign tax credits. These benefits are not expected to continue at the same level in 1997. Financial Condition Historically, the Company's ongoing and principal capital requirement was for working capital to fund its growth in operations. Since 1994, the Company's efforts to improve profitability and emphasize working capital control have mitigated much of this requirement. At December 31, 1996, the Company had available $9.4 million in cash and cash equivalents, $34.7 million under its international lines of credit, $55.0 million under its principal revolving credit agreement (see Note 4) and marketable securities with a market value of $7.4 million, most of which could be readily converted into cash (see Note 3). Net cash provided by operations was $33.2 million. This met all 1996 requirements for investing and reduced borrowings by $24.8 million including the early extinguishment of the Company's 10.9% Subordinated Notes which resulted in an extraordinary charge. In 1995 and 1994 the Company provided $38.2 million and $48.2 million, respectively, in cash from operations. The past three years have all benefited from the Company's program began in 1993 to improve profitability by lowering headcount, reducing inventory levels and reducing capital expenditures when compared to the three years ended December 31, 1993. The total amount of interest bearing debt has been reduced during the past three years by $66.3 million resulting in the Company's lowest ratio of interest bearing debt to equity. Consolidated net accounts receivable increased 6.2% in 1996 when compared to 1995. The fourth quarter rise in sales year over year was 5.6% and is the major source of the year-end increase. Bio-Rad's management regularly reviews the allowance for uncollectible receivables and believes net receivables are fully realizable. For the year ended December 1996, consolidated net inventories decreased approximately 7.5% to $69.7 million. The decrease occurred primarily in the Life Science segment as a result of focused attention on aggressive inventory management. Management regularly reviews the impact of obsolescence in current inventory caused by the introduction of new products. Management continues to focus on inventory control to moderate capital requirements. 30 A valuation reserve is necessary for deferred tax assets (see Note 5) primarily because realization of tax attribute carryforwards is uncertain. Net capital expenditures in 1996 totaled $15.2 million compared to $12.3 million and $9.8 million in 1995 and 1994, respectively. Constraint in the addition of machinery and equipment and leasehold improvements has been another component of management's cost reduction program contributing to lowering capital requirements. Expenditures in all years include clinical diagnostic equipment placed with customers to be used with the Company's diagnostic reagents. Management regularly approves capital spending in the normal course of business. Capital expenditures are expected to increase in 1997 when compared to the past three years. The Clinical Diagnostics segment's southern California manufacturing operations will have a new leased facility during 1997. The expected capital expenditures for leasehold improvements and equipment associated with this move are approximately $6 million. Bio-Rad's liquidity continued to improve during 1996. Available funds and cash flow from operations are adequate to meet the Company's objectives for operations, research and development, and modest external growth. In early July 1996, the Board of Directors authorized the Company to repurchase up to $4 million of common stock over an indefinite period of time. During the last half of 1996, the Company repurchased 40,000 shares of Class A common stock and 30,000 shares of Class B common stock for $1.9 million. These shares will be used to satisfy the Company's obligations under the employee stock option and stock purchase plans. In the fourth quarter of 1996, Bio-Rad acquired a small software company to compliment its spectral reference libraries product line and a small research company to provide additional technology to the semiconductor product lines. Funding for these acquisitions was provided by cash flow from operations. These acquisitions are not material to the financial position of the Company and have been accounted for as purchases. Bio-Rad is well positioned to make a substantial strategic acquisition should the opportunity arise. While the Company regularly reviews such opportunities, currently no material acquisitions are under review. New Financial Accounting Standards In June 1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities", effective for transactions occurring after December 31, 1996. The effective date for certain provisions of the statement was extended to transactions occurring after December 31, 1997 by SFAS No. 127 issued in December 1996. This statement will not have a material effect on the Company's financial statements. 31 EX-21 5 EXHIBIT 21.1 - LISTING OF SUBSIDIARIES 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-Rad Leasing, Inc. California, USA Bio-Rad Laboratories (Israel) Inc. California, USA Bio-Rad Pacific Limited California, USA International Plant Research Institute California, USA Bio-Metrics Properties Limited California, USA Bio-Rad Laboratories (Canada) Ltd. Canada Bio-Rad Micromeasurements (Canada) Inc. Canada 828584 Ontario Limited Canada Beijing Bio-Rad Analytical Biochemistry Instrument Co., Ltd. China SoftShell International Ltd. Colorado, USA Bio-Rad Export, Inc. (DISC) Delaware, USA Bio-Metrics Limited Delaware, USA Bio-Rad Scan Beam S/A Denmark Bio-Rad Limited England Bio-Rad Laboratories Limited England Bio-Rad Lasersharp Limited England Bio-Rad Microscience Limited England Emscope Engineering Limited England Sadtler Research Laboratories Ltd. England Bio-Metrics (U.K.) Limited England Micromeasurements Limited England Bio-Rad Micromeasurements Limited England Bio-Rad S.A. France SoftShell S.A.R.L. France Bio-Rad Laboratories GmbH Germany Bio-Rad China Limited Hong Kong Bio-Rad Laboratories (India) Private Limited India Bio-Rad Laboratories Ltd. Israel Bio-Rad Laboratories S.r.l. Italy Nippon Bio-Rad Laboratories K.K. Japan Bio-Rad Korea Ltd. Korea Bio-Rad Micromeasurements Inc. Massachusetts, USA Bio-Rad Laboratories B.V. The Netherlands Sandia Systems, Inc. New Mexico, USA Polaron Instruments, Inc. Pennsylvania, USA Bio-Rad Laboratories (Singapore) Limited Singapore Bio-Rad Laboratories S.A. Spain Bio-Rad Laboratories AB Sweden Bio-Rad Laboratories AG Switzerland - ---------------------------------------------------------------------------- EX-23 6 EXHIBIT 23.1 - CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23.1 - CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File Nos. 33-53335 and 33-53337). /s/Arthur Andersen LLP ARTHUR ANDERSEN LLP San Francisco, California, March 26, 1997 EX-27 7 EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Bio-Rad Laboratories, Inc. Form 10-K for the year ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1996 DEC-31-1996 9,390 0 101,483 3,688 69,738 198,535 167,954 96,092 284,925 79,139 6,721 12,321 0 0 171,187 284,925 418,789 418,789 182,046 182,046 0 0 3,027 36,473 9,118 27,355 0 1,176 0 26,179 2.13 0
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