-----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, BcLJCjYAHepYAGkzwRM9fI3xMWVPHtzlG6H37rZgr3hXBgzLZ+lppZ1xGX6vxQRm 1j5eaoplOXHmmlPuqUYxDQ== 0000012208-02-000003.txt : 20020415 0000012208-02-000003.hdr.sgml : 20020415 ACCESSION NUMBER: 0000012208-02-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 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: 02590777 BUSINESS ADDRESS: STREET 1: 1000 ALFRED NOBEL DR CITY: HERCULES STATE: CA ZIP: 94547 BUSINESS PHONE: 5107247000 10-K 1 r10k01.txt 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, 2001 OR __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________________ Commission file number 1-7928 BIO-RAD LABORATORIES, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 94-1381833 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1000 Alfred Nobel Drive, Hercules, CA 94547 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (510) 724-7000 Securities registered pursuant to Section 12(b) of the Act:
Market Value on Name of Each Exchange Shares Outstanding March 8, 2002 of Stocks Title of Each Class on Which Registered March 8, 2002 Held by Non-Affiliates ------------------- --------------------- ------------------ ------------------------ Class A Common Stock Par Value $0.0001 per share American Stock Exchange 20,098,301 $547,626,288 Class B Common Stock Par Value $0.0001 per share American Stock Exchange 4,875,492 $ 20,679,638
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, 2001 (specified portions) I, II, IV (2) Definitive Proxy Statement to be mailed to stockholders in connection with the registrant's 2001 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 production of specialty chemicals used in biochemical, pharmaceutical and other life science research applications. In 1967, the Company entered the field of clinical diagnostics with the development of its first test kit based on separation techniques and materials developed for life science research. Recognizing that the fields of clinical diagnostics and life science research were evolving toward more automated techniques, Bio-Rad expanded into the field of analytical and measuring instrument systems through internal research and development efforts and acquisitions in the late 1970's and 1980's. As Bio-Rad broadened its product lines, it also expanded its geographical market. The Company has distribution channels in thirty countries outside the United States through subsidiaries whose primary focus is customer service and product distribution. On October 1, 1999 Bio-Rad acquired the stock of Pasteur Sanofi Diagnostics (PSD) and the rights to certain ancillary assets for $210 million. PSD was founded by the Institut Pasteur to commercialize its diagnostic research, and holds certain exclusive licenses from the Institut Pasteur in the HIV and infectious disease diagnostic product market. PSD also expanded the geographic reach and market penetration for the Company's product particularly in Latin America, Africa and France. During 2000 and 2001, the Company sold the majority of its analytical instruments product lines. These divestitures will allow the company to focus on its core segments of Life Science and Clinical Diagnostics. Bio-Rad manufactures and supplies the life science research, healthcare, analytical chemistry and other markets with a broad range of products and systems used to separate complex chemical and biological materials and to identify, analyze and purify their components. Description of Business Business Segments The Company operates in two industry segments designated as Life Science and Clinical Diagnostics. Each operates in both the United States and international markets. For a description of business and financial information on industry and geographic segments, see Note 14 on pages 22 through 25 of Exhibit 13.1, which is incorporated herein by reference. 1 Life Science Segment. Life science is the study of the characteristics, behavior, and structure of living organisms and their component systems. Life science researchers use a variety of products and systems-- including reagents, instruments, software and apparatus-- to advance the study of life processes, drug discovery, biotechnology and food pathogen testing, primarily within a laboratory setting. We focus on selected segments of the life science market-- proteomics, genomics and cell biology -- for which we estimate 2001 worldwide sales totaled approximately $3 billion. The primary technological applications that we supply to these segments consist of electrophoresis, image analysis, molecular detection, chromatography, gene transfer, sample preparation and amplification. The primary end-users in our sectors of the market are universities and medical schools, industrial research organizations, government agencies, pharmaceutical manufacturers, biotechnology researchers and food testing laboratories. Clinical Diagnostics Segment. The clinical diagnostics industry encompasses a broad array of technologies incorporated into a variety of tests used to detect, identify and quantify substances in blood or other bodily fluids and tissues. The test results are used as aids for medical diagnosis, detection, evaluation, monitoring and treatment of diseases and other medical conditions. The bulk of tests are performed in vitro (literally, "in glass"), while the remainder consists of in vivo ("in the body") tests. The most common type of in vitro tests are routine chemistry tests that measure important health parameters, such as glucose, cholesterol or sodium, as part of routine blood checks. Other diagnostic tests are more specialized and require more sophisticated equipment and materials than do routine tests. These specialized tests are also lower-volume and higher-priced than routine tests. We estimate that in 2001 sales to the global clinical diagnostics industry totaled approximately $21 billion. The primary end-users in the areas of the clinical diagnostics industry we target are hospital laboratories, reference laboratories, physician office laboratories, government agencies and other diagnostics manufacturers. 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. 2 Patents and Trademarks We own numerous U.S. and international patents and patent licenses. We believe, however, that our ability to develop and manufacture our products depends primarily on our knowledge, technology and special skills. Under several patent license agreements, we pay royalties on the sales of certain products. We view these patents and license agreements as valuable assets. 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 only limited instruments against an order backlog. Management has concluded that backlog information is not material to the Company's business as a whole. Sales and Marketing Each of Bio-Rad's segments maintains a sales force to sell its products on a direct basis. Each sales force is technically trained in the disciplines associated with its products. Sales are also generated through direct mail advertising, exhibits at trade shows and technical meetings, telemarketing, the Company website 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. Our customer base is broad and diversified. In 2001, no single customer accounted for more than 2% of our total net sales. Our sales are affected by certain external factors. For example, a number of our customers, particularly in the life science segment, are substantially dependent on government grants and research contracts for their funding. A significant reduction of government funding would have a detrimental effect on the results of this segment. Most of the Company's international sales are generated by wholly-owned subsidiaries and their branch offices in Australia, Austria, Belgium, Brazil, Canada, the Czech Republic, Denmark, England, Finland, France, Germany, Hong Kong, Hungary, India, Israel, Italy, Japan, Korea, Mexico, the Netherlands, New Zealand, Norway, People's Republic of China, Poland, Portugal, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan and Thailand. 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 3 regulations, import restrictions and foreign exchange fluctuations, the Company's international operations are principally in developed nations, which the Company regards as presenting no significantly greater risks to its operations than are present in the United States. Competition Most markets served by our product groups are competitive. Our competitors range in size from start-ups to large multinational corporations. Reliable independent information on sales and market share of products produced by our competitors is not generally available. We believe, however, based on our own marketing information, that while some competitors are dominant with respect to certain individual products, no one company, including us, is dominant with respect to a material portion of any segment of our business. Life Science Segment. Because of the breadth of its product lines, Life Science does not face the same competitor for all of its products. Competitors in this market include Amersham Biosciences, Qiagen, Zeiss and Applied Biosystems. We compete primarily on meeting performance specifications. Clinical Diagnostics Segment. Competitors in this segment range in size from small private companies to large multinational corporations. We compete only in very specific market niches and do not attempt to pursue the most competitive general diagnostics markets. We compete based on our technological ability to provide customers with very specific tests and believe we are usually a significant competitor within our market niche. Competitors include Abbott Laboratories, bioMerieux, Inc., Roche Diagnostics, BioChem Pharma, Inova, diaSorin and Medical Analysis Systems. Product Research and Development The Company conducts extensive product research and development activities in all areas of our business, employing approximately 470 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. Our research teams are continuously developing new products and new applications for existing products. In our development and testing of new products and applications, we consult with scientific and medical professionals at universities, hospitals and medical schools, and in industry. We spent approximately $76.5 million, $68.1 million and $51.2 million (excluding $15.5 million of purchased in- process research and development expense)on research and development activities during the years ended December 31, 2001, 2000 and 1999, respectively. Regulatory Matters The manufacturing, marketing and labeling of certain of our products (primarily diagnostic products) are subject to regulation in the United States by the Center for Devices and 4 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 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, we 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 FDA must approve an export permit application before companies can market products outside the U.S. prior to the products' receipt of FDA approval. The requirements relating to testing and trials, product licensing, pricing and reimbursement vary widely among countries. Our operations are subject to federal, state, local and foreign environmental laws and regulations that govern such activities as emissions to air and discharges to water, as well as handling and disposal practices for solid, hazardous and medical wastes. In addition to environmental laws that regulate our operations, we are also subject to environmental laws and regulations that create liabilities and clean-up responsibility for spills, disposals or other releases of hazardous substances into the environment as a result of our operations or otherwise impacting real property that we own or operate. The environmental laws and regulations also subject us to claims by third parties for damages resulting from any spills, disposals or releases resulting from our operations or at any of our properties. Employees At December 31, 2001, Bio-Rad had approximately 4,300 full-time employees. Fewer than 12% of Bio-Rad's 2,100 U. S. employees are covered by a collective bargaining agreement which will expire on November 7, 2002. Many of Bio-Rad's non-U.S. full-time employees, especially in France, are covered by collective bargaining agreements. Bio-Rad considers its employee relations in general to be good. 5 ITEM 2. PROPERTIES We own our Corporate headquarters located in Hercules, California. The principal manufacturing and research locations for each segment are as follows: Approximate Segment Location Square Ftg. Owned/Leased Life Science Richmond, California 201,000 Owned/Leased Hercules, California 95,400 Owned Hemel Hempstead, England 102,000 Leased Milan, Italy 50,000 Leased Clinical Diagnostics Hercules, California 135,000 Owned/Leased Irvine, California 137,000 Leased Greater Seattle, Washington 127,600 Owned/Leased Lille, France 182,000 Owned Paris, France 162,000 Leased Munich, Germany 55,000 Leased Nazareth-Eke, Belgium 30,000 Leased Most manufacturing and research facilities also house administration, sales and distribution activities. In addition, we lease office and warehouse facilities in a variety of locations around the world. The facilities are used principally for sales, service, distribution and administration for both segments. The Life Science segment's Richmond, California distribution and instrument manufacturing facility lease expires in November 2005. The Marnes la Coquette facility near Paris, France which served as the corporate headquarters for PSD, as well as a significant manufacturing and research facility has been renewed until December 31, 2005. The Company is currently reviewing plans to either build or lease additional facilities at or near its Northern California headquarters. Historically, adequate space to expand sales and distribution channels has been available and we have leased space as needed. ITEM 3. LEGAL PROCEEDINGS Note 13, "Legal Proceedings," appearing on page 22 of the Exhibit 13.1 is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A special shareholders' meeting was held on February 4, 2002. The following matters are described in detail on pages 5 through 10 of the Company's definitive Proxy Statement dated January 2, 2002, filed with the Securities and Exchange Commission and incorporated herein by reference. 6 The following proposals were approved by both the Class A and Class B shareholders: Votes Votes Broker For Against Abstentions Non-Votes Authorized Shares Proposal Class A 5,340,103 2,298,436 6,386 1,434,125 Class B 2,194,247 4,313 3,533 104,533 Par Value Proposal Class A 7,576,420 47,697 20,807 1,434,125 Class B 2,192,140 6,239 3,714 104,533 The following proposals were approved by the combined votes of the Class A and Class B shareholders: Votes Votes For Against Abstentions Written Ballot Proposal 2,962,565 246,277 5,689 Technical Amendment Proposal 3,126,635 81,184 6,712 P A R T II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Note 16, "Information Concerning Common Stock," appearing on page 26 of Exhibit 13.1 is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The table headed "Summary of Operations and Selected Financial Data" appearing on page 1 of Exhibit 13.1 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The section headed "Management's Discussion and Analysis of Results of Operations and Financial Condition" appearing on pages 28 through 37 of Exhibit 13.1 is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The section headed "Financial Risk Management" appearing on page 36 of Exhibit 13.1 is incorporated herein by reference. 7 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and Notes thereto and the Report of Independent Public Accountants appearing on pages 2 through 27 of Exhibit 13.1 are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART 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 2002 Annual Meeting of Stockholders ("the 2002 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 2002 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 2002 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section labeled "Certain Relationships and Related Party Transactions" and "Compensation of Directors" of the 2002 Proxy Statement is incorporated herein by reference. 8 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 Exhibit 13.1 and are incorporated herein by reference pursuant to Item 8: Page in Exhibit 13.1 Consolidated Balance Sheets at December 31, 2001 and 2000 2-3 Consolidated Statements of Income for each of the three years in the period ended December 31, 2001 4 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2001 5 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 2001 6 Notes to Consolidated Financial Statements 7-26 Report of Independent Public Accountants 27 2. Index to Financial Statement Schedule Page in Form 10-K Schedule II Valuation and Qualifying Accounts 10 Report of Independent Public Accountants on Schedule II 11 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 13 through 15 of this report are filed or incorporated by reference as part of this report. (b) Reports on Form 8-K None. 9 BIO-RAD LABORATORIES, INC,. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2001, 2000 and 1999 (In thousands) Reserve for doubtful accounts receivable Additions Balance at Charged to Balance Beginning Costs and at End of Year Expenses Deductions Other of Year 2001 . . . $10,255 $5,200 $(3,946) -- $11,509 2000 . . . $9,582 $4,298 $(3,625) -- $10,255 1999 . . . $3,629 $3,123 $(2,449) $5,279(A) $9,582 Valuation allowance for deferred tax assets Deductions Balance at Charged to Balance Beginning Costs and at End of Year Additions Expenses Other(A) of Year 2001 . . . . $17,020 $4,059 $(2,793) $(5,484) $12,802 2000 . . . . $24,131 $ -- $(3,431) $(3,680) $17,020 1999 . . . . $5,342 $ -- $ (553) $19,342 $24,131 (A) Valuation arising from the acquisition of PSD. 10 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II To Bio-Rad Laboratories, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Bio-Rad Laboratories, Inc.'s annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 4, 2002. Our audits were 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 the 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 audits 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. ARTHUR ANDERSEN LLP San Francisco, California February 4, 2002 11 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 27, 2002 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 27, 2002 (David Schwartz) Principal Financial Officer: /s/ Norman Schwartz Vice President and March 27, 2002 (Norman Schwartz) Director Principal Accounting Officer: /s/ James R. Stark Corporate Controller March 27, 2002 (James R. Stark) Other Directors: Director March 27, 2002 (James J. Bennett) /s/ Albert J. Hillman Director March 27, 2002 (Albert J. Hillman) Director March 27, 2002 (Ruediger A. Naumann) /s/ Philip L. Padou Director March 27, 2002 (Philip L. Padou) /s/ Alice N. Schwartz Director March 27, 2002 (Alice N. Schwartz) 12 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 February 8, 2002. 3.2 Bylaws of the Registrant, as amended February 19, 1980. (1) 4.1 Credit Agreement dated as of September 30, 1999 among Bio-Rad Laboratories, Inc., the lenders named therein, Bank One, N.A., as Administrative Agent, ABN Amro Bank N.V. as Syndication Agent and Union Bank of California, N.A. as Documentation Agent. (2) 4.1.1 Amendment dated as of January 31, 2000, to the Credit Agreement dated as of September 30, 1999, by and among Bio-Rad Laboratories, Inc. the lenders named therein, and Bank One, N.A. as Agent. (3) 4.1.2 Amendment dated as of June 21, 2000 to the Credit Agreement dated as of September 30, 1999, among Bio-Rad Laboratories, Inc., the lenders named therein, Banc One, N.A. as Administrative Agent, ABN AMRO Bank N.V. as Syndication Agent, and Union Bank of California, N.A. as Documentation Agent. (4) 4.2 Senior Subordinated Credit Agreement dated as of September 30, 1999 among Bio-Rad Laboratories, Inc., the lenders named therein and Bank One Capital Markets, Inc., as agent. (2) 4.4 Senior Subordinated Credit Agreement dated as of January 31, 2000 among Bio-Rad Laboratories, Inc., the lenders named therein and UBS AG, Stamford Branch, as Agent. (3) 4.5 The Indenture dated as of February 17, 2000 for 11.625% Senior Subordinated Notes due 2007 among Bio-Rad Laboratories, Inc., as Issuer, and Norwest Bank Minnesota, N.A., as Trustee. (3) 4.6 The Registration Rights Agreement dated as of February 17, 2000 by and among Bio-Rad Laboratories, Inc. and Warburg Dillon Reed LLC and ABN AMRO Incorporated. (3) 10.4 1994 Stock Option Plan. (5) 10.4.1 Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan dated April 28, 1998. (6) 10.4.2 Second Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan dated December 6, 1999. (6) 13 10.4.3 Third Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan dated September 19, 2000. (6) 10.5 Amended and Restated 1988 Employee Stock Purchase Plan. (7) 10.6 Employees' Deferred Profit Sharing Retirement Plan (Amended and Restated effective January 1, 1997). (9) 10.10 Non-competition and employment continuation agreement with James J. Bennett. (9) 10.12 Split Dollar Life Insurance Agreement dated September 17, 1999 between the Schwartz Irrevocable Descendants Trust and Bio-Rad Laboratories, Inc. (3) 13.1 Excerpt from Annual Report to Stockholders' for the fiscal year ended December 31, 2001, (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. 22.1 Proxy Statement dated January 2, 2002, pages 5 through 10 (definitive form filed January 4, 2002, and incorporated by reference). 23.1 Consent of Independent Public Accountants. ______________________________________________________________ (1) 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. (2) Incorporated by reference from Exhibits to the Company's Form 8-K dated October 1, 1999. (3) Incorporated by reference from the Exhibits to the Company's Form 10-K filing for the fiscal year ended December 31, 1999, dated March 28, 2000. (4) Incorporated by reference from Exhibits to the Company's June 30, 2000, Form 10-Q filing dated August 14, 2000. (5) Incorporated by reference from the Exhibits to the Company's Form S-8 filing, dated April 28, 1994. (6) Incorporated by reference from the Exhibits to the Company's Form 10-K filing for the fiscal year ended December 31, 2000, dated March 28, 2001. (7) Incorporated by reference from the Exhibits to the Company's September 30, 1998, Form 10-Q filing dated November 10, 1998. 14 (8) Incorporated by reference from the Exhibits to the Company's September 30, 1997, Form 10-Q filing dated November 13, 1997. (8) Incorporated by reference from the Exhibits to the Company's Form 10-K filing for the fiscal year ended December 31, 1996, dated March 26, 1997. 15 EX-3 3 ex3_1.txt EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF BIO-RAD LABORATORIES, INC. (a Delaware Corporation) The original Certificate of Incorporation of the corporation was filed with the Secretary of State of Delaware on March 10, 1975 and a restated Certificate of Incorporation was filed on April 25, 1989. The following Restated Certificate of Incorporation (the Restated Certificate) has been duly adopted by the Board of Directors and the Stockholders pursuant to Sections 242 and 245 of the Delaware General Corporation Law. 1. The name of the corporation is BIO-RAD LABORATORIES, INC. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is: Specifically, to engage in the research, development, manufacture and marketing of chemicals, chemical compounds and products and related instruments and apparatus. Generally to conduct and carry on the business of manufacturing, selling and distributing chemicals, chemical preparations, compounds, and materials of every kind and description and all instruments, apparatus, articles and products related thereto; and to purchase, manufacture, produce, refine, mine or otherwise acquire, invest in, own, hold, use, mortgage, pledge,sell, assign, transfer, or otherwise dispose of, trade and deal in and with, any and all kinds of chemicals and source materials, ingredients, mixtures, derivatives, and compounds thereof, and any and all kinds of products of which any of the foregoing constitutes an ingredient or in the production of which any of the foregoing is used, including, without limitation, industrial chemicals of all kinds. To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. (a)The total number of shares of all classes of stock which the corporation shall be authorized to issue is 77,500,000 shares, divided into three classes of shares of stock as follows: 50,000,000 shares of Class A Common Stock, par value $0.0001 per share (Class A Common), 20,000,000 shares of Class B Common Stock, par value $0.0001 per share (Class B Common), and 7,500,000 shares of Preferred Stock, par value $0.0001 per share (Preferred Stock). (b) Except as set forth in this Article 4.(b), the Class A Common shares and Class B Common shares shall be identical in all respects and shall have equal rights and privileges. A. Dividends. (1) Subject to paragraph (2) of this paragraph A, whenever a dividend is paid to holders of Class B Common shares, the corporation shall also pay to holders of Class A Common shares a dividend at least equal in amount per share. The corporation may pay dividends to holders of Class A Common shares in excess of dividends paid, or without paying dividends, to holders of Class B Common shares. (2) If at any time a dividend is to be paid in Class B Common shares or Class A Common shares (a Stock Dividend), such Stock Dividend may be declared and paid only as follows: (i)So long as no Class A Common shares have been issued or are outstanding, Class A Common shares may be paid to holders of Class B Common shares; or (ii) Class A Common shares may be paid to holders of Class A Common shares and Class B Common shares may be paid to holders of Class B Common shares. Whenever a Stock Dividend is paid, the same number of shares shall be paid in respect of each outstanding Class A or Class B Common share. The corporation shall not combine or subdivide shares of either of such classes without at the same time making a proportionate combination or subdivision of shares of the other of such classes. B. Voting. The holders of Class B Common shares shall have exclusive voting power except as may be provided to holders of the Preferred shares pursuant to Article 4.(c) of this Restated Certificate and except as follows: (1) With respect to the election of directors, the holders of Class A Common shares voting as a separate class shall be entitled to elect that number of directors which constitutes twenty-five percent of the authorized number of members of the Board of Directors and, if such twenty- five percent is not a whole number, then the holders of Class A Common shares shall be entitled to elect the nearest higher whole number of directors that is at least twenty-five percent of such membership. Holders of Class B Common shares voting as a separate class, subject to voting rights that may be granted to holders of Preferred shares pursuant to Article 4.(c) of this Restated Certificate shall be entitled to elect the remaining directors. Unless, and to the extent that, the by-laws of the corporation shall so require, the election of directors of the corporation need not be by written ballot. (2) The holders of Class A Common shares shall be entitled to vote as a separate class on the removal, with or without cause, of any director elected by the holders of Class A Common shares and the holders of Class B Common shares (subject to voting rights of Preferred shares granted pursuant to Article 4.(c) of this Restated Certificate) shall be entitled to vote as a separate class on the removal, with or without cause, of any director elected by the holders of Class B Common shares; provided that any director may be removed for cause by vote of the holders of the Class A and Class B Common shares voting as a single class, in which event the holders of Class A Common shares shall have one-tenth vote per share and the holders of Class B Common shares shall have one vote per share. (3) The holders of the Class A Common shares and the holders of the Class B Common shares shall be entitled to vote as separate classes on such other matters as may be required by law or this Restated Certificate to be submitted to such holders voting as separate classes. (4) The holders of Class A and Class B Common shares shall in all matters not specified in paragraph (1), (2) or (3) of this paragraph B vote together as a single class (subject to voting rights that may be granted to any holders of Preferred shares pursuant to Article 4.(c) of this Restated Certificate); provided that the holders of Class A Common shares shall have one-tenth of a vote for each share and the holders of Class B Common shares shall have one vote for each share. (5) Any vacancy in the office of a director elected by the holders of the Class A Common shares may be filled by a vote of such holders voting as a separate class and any vacancy in the office of a director elected by the holders of the Class B Common shares may be filled by a vote of such holders voting as a separate class (subject to voting rights of the Preferred shares granted pursuant to Article 4.(c) of this Restated 2 Certificate) and, in the absence of a stockholder vote, in the case of a vacancy in the office of a director elected by either class, such vacancy may be filled by the remaining directors as provided in the by-laws. Any director elected by the Board of Directors to fill a vacancy shall serve until the next annual meeting of the stockholders and until his or her successor has been chosen and has qualified. If permitted by the by-laws, the Board of Directors may increase the number of directors, and any newly created directorships so created may be filled by the Board of Directors; provided that, so long as the holders of Class A Common shares have the rights provided in paragraphs B.(1) and B.(5) of this Article 4.(b) in respect of the next previous annual meeting of stockholders, the Board of Directors may be so enlarged by the Board of Directors only to the extent that at least twenty-five percent of the enlarged Board consists of directors elected (a) by the holders of the Class A Common shares, (b) by persons appointed to fill vacancies created by the death, resignation or removal of persons elected by the holders of the Class A Common shares, (c) by directors elected by the holders of the Class A Common shares, or (d) by persons elected to fill newly created directorships in the manner provided by clauses (a), (b) or (c) above. (6) The Class A Common shares will not have the rights to elect directors set forth in paragraphs B.(1) and B.(5) of this Article 4.(b) if, on the record date for any stockholder meeting at which directors are to be elected, the number of issued and outstanding Class A Common shares is less than ten percent of the aggregate number of issued and outstanding Class A Common shares and Class B Common shares. In such case, all directors to be elected at such meeting shall be elected by holders of Class A Common shares and Class B Common shares voting together as a single class (subject to voting rights that may be granted to any holders of Preferred shares pursuant to Article 4.(c) of this Restated Certificate); provided that, with respect to said election, the holders of Class A Common shares hall have one-tenth of a vote for each share and the holders of Class B Common shares shall have one vote for each share. (7) Notwithstanding anything in this paragraph B to the contrary,the holders of Class A Common shares shall have exclusive voting power on all matters, except as may be provided to holders of the Preferred shares pursuant to Article 4.(c) of this Restated Certificate, at any time when no Class B Common shares are issued and outstanding. C. Conversion. Each holder of record of Class B Common shares may at any time or from time to time, in such holders sole discretion and at such holders option, convert any whole number or all of such holders Class B Common shares into fully paid and non-assessable Class A Common shares at the rate (subject to adjustment as hereinafter provided) of one Class A Common share for each Class B Common share surrendered for conversion. Any such conversion may be effected by any holder of Class B Common shares surrendering such holders certificate or certificates for the Class B Common shares to be converted, duly endorsed, at the office of the corporation or any transfer agent for the Class B Common shares, together with a written notice to the corporation at such office that such holder elects to convert all or a specified number of Class B Common shares and stating the name or names in which such holder desires the certificate or certificates for such Class A Common shares to be issued. Promptly thereafter, the corporation shall issue and deliver to such holder or such holders nominee or nominees, a certificate or certificates for the number of Class A Common shares to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made at the close of business on the date of such surrender and the person or persons entitled to receive the Class A Common shares issuable on such conversion shall be treated for all purposes as the record holder or holders of such Class A Common shares on that date. The number of Class A Common shares into which the Class B Common shares may be converted shall be subject to adjustment from time to time in the event of any capital reorganization, reclassification of the stock of the corporation, consolidation or merger of the corporation with or into another corporation or sale or conveyance of all or substantially all of the assets of the corporation to another corporation or other entity or person. Each Class B Common share shall thereafter be convertible into such kind and amount of securities or other assets, or both, as are issuable or distributable in respect of the number of Class A Common shares into which each Class B Common share is convertible immediately prior to such reorganization, reclassification, consolidation, merger, sale or 3 conveyance. In any such case, appropriate adjustments shall be made by the Board of Directors of the corporation in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Class B Common shares, to the end that the provisions set forth herein (including provisions for adjustment of the conversion rate) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other assets thereafter deliverable on conversion of the Class B Common shares. No fraction of a Class A Common share shall be issued on conversion of any Class B Common share but, in lieu thereof, the corporation shall pay in cash therefor the pro rata fair market value of any such fraction. Such fair market value shall be based, in the case of publicly traded securities, on the last sale price for such securities on the business day next prior to the date such fair market value is to be determined (or, in the event no sale is made on that day, the average of the closing bid and asked prices for that day on the principal stock exchange on which Class A Common shares are traded or, if the Class A Common shares are not then listed on any national securities exchange, the average of the closing bid and asked prices for that day quoted by the NASDAQ System) or, in the case of other property, the fair market value on such day determined by a qualified independent appraiser expert in evaluating such property and appointed by the Board of Directors of the corporation. Any such determination of fair market value shall be final and binding on the corporation and on each holder of Class B Common shares or Class A Common shares. The corporation shall at all times reserve and keep available out of the authorized and unissued Class A Common shares, solely for the purpose of effecting the conversion of the outstanding Class B Common shares, such number of Class A Common shares as shall from time to time be sufficient to effect the conversion of all outstanding Class B Common shares and if, at any time, the number of authorized and unissued Class A Common shares shall not be sufficient to effect conversion of the then outstanding Class B Common shares, the corporation shall take such corporate action as may be necessary to increase the number of authorized and unissued Class A Common shares to such number as shall be sufficient for such purposes. (c) The Preferred shares may be issued from time to time in one or more series. The Board of Directors is hereby authorized to fix or alter the designations, preferences, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions, of such Preferred shares, including without limitation of the generality of the foregoing, dividend rights, dividend rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices and liquidation preferences of any wholly unissued series of Preferred shares, and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. 5. The corporation is to have perpetual existence. 6. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the by-laws of the corporation. 7. A director of the corporation shall not be personally liable to the corporation or any stockholder for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the directors duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article 7 to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation 4 shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of any provision of this Article 7 by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. 8. The corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article. IN WITNESS WHEREOF, the undersigned have executed this certificate as of February 5, 2002. /s/David Schwartz, President /s/Sanford S. Wadler, Secretary The undersigned, the President and Secretary of Bio-Rad Laboratories, Inc., a Delaware corporation, declare under penalty of perjury that the matters set out in the foregoing Restated Certificate of Incorporation are true of their own knowledge. /s/David Schwartz, President /s/Sanford S. Wadler, Secretary . . 5 . . EX-13 4 ex13.txt
Bio-Rad Laboratories, Inc. EXHIBIT 13.1 SUMMARY OF OPERATIONS AND SELECTED FINANCIAL DATA (in thousands, except per share data) ________________________________________________________________________________________________________________________ Year Ended December 31, 2001 2000 1999 1998 1997 1996 Net sales $817,509 $725,884 $555,399 $447,863 $432,078 $423,262 Cost of goods sold (1) 356,330 343,364 255,223 202,438 189,331 182,046 ------- ------- ------- ------- ------- ------- Gross profit 461,179 382,520 300,176 245,425 242,747 241,216 Selling, general and administrative expense 272,610 247,613 200,367 172,899 169,956 159,989 Product research and development expense 76,543 68,140 51,210 41,381 46,138 39,580 Purchased in-process research and development expense - - 15,500 - - - Restructuring costs - - - - - 2,700 ------- ------ ------ ------ ------ ------ Income from operations 112,026 66,767 33,099 31,145 26,653 38,947 Other income (expense): Interest expense (24,088) (30,612) (12,741) (3,731) (1,216) (3,027) Other, net (22,969) 9,288 (3,942) 6,814 (2,709) 553 -------- -------- -------- ------- ------- ------- Income before taxes, extraordinary charge and cumulative effect of change in accounting principle 64,969 45,443 16,416 34,228 22,728 36,473 Provision for income taxes 20,790 13,633 4,695 9,926 6,364 9,118 ------ ------ ------ ------ ------ ------ Income before extraordinary charge and cumulative effect of change in accounting principle 44,179 31,810 11,721 24,302 16,364 27,355 Extraordinary charge (2) - - - - - (1,176) Cumulative effect of change in accounting principle (3) - (710) - - - - -------- -------- -------- -------- -------- -------- Net income $ 44,179 $ 31,100 $ 11,721 $ 24,302 $ 16,364 $ 26,179 ======== ======== ======== ======== ======== ======== Basic earnings per share before extraordinary charge and cumulative effect of change in accounting principle (4) $1.79 $1.30 $0.48 $0.99 $0.67 $1.12 Extraordinary charge (2)(4) - - - - - (0.05) Cumulative effect of change in accounting principle (3)(4) - (0.03) - - - - -------- -------- -------- -------- -------- -------- Basic earnings per share (4) $1.79 $1.27 $0.48 $0.99 $0.67 $1.07 ======== ======== ======== ======== ======== ======== Weighted average common shares (4) 24,648 24,422 24,220 24,528 24,520 24,546 Cash dividends paid per common share - - - - - - Total assets $684,028 $646,278 $668,862 $367,299 $351,876 $284,925 Long-term debt, net of current maturities $188,423 $203,360 $239,211 $ 42,339 $ 38,952 $ 6,721 _______________________________________________________________________________________________________________________ (1) In 1996, cost of goods sold includes a charge of approximately $2,100 for a write-down of inventory associated with restructuring costs. (2) Extraordinary charge for redemption of subordinated debt: 1996 - $1,176, net of tax effect of $817. (3) Cummulative effect on prior years (to 12/31/99) of accounting change per SEC Staff Accounting Bulletin 101, on Revenue Recognition, net of tax effect of $515. (4) Restated to give effect to a stock split in the form of a 100% stock dividend in 2002.
1 Bio-Rad Laboratories, Inc. Consolidated Balance Sheets (in thousands)
________________________________________________________________________________________ December 31, Assets 2001 2000 Current Assets: Cash and cash equivalents $ 47,129 $ 13,954 Accounts receivable, less allowance of $11,509 in 2001 and $10,255 in 2000 194,400 182,242 Inventories: Raw materials 33,488 32,993 Work in process 28,715 30,071 Finished goods 76,976 69,455 ------- ------- Total inventories 139,179 132,519 Deferred tax assets 27,537 20,770 Prepaid expenses and other current assets 22,583 20,183 ------- ------- Total current assets 430,828 369,668 Property, Plant and Equipment: Land and improvements 9,658 8,337 Buildings and leasehold improvements 75,231 66,039 Equipment 191,284 180,827 ------- ------- Total property, plant and equipment 276,173 255,203 Accumulated depreciation (143,199) (136,171) ------- ------- Net property, plant and equipment 132,974 119,032 Goodwill, net of accumulated amortization of $21,736 in 2001 and $13,990 in 2000 75,873 90,970 Other Assets 44,353 66,608 -------- -------- Total Assets $684,028 $646,278 ======== ======== ________________________________________________________________________________________
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 2001 2000 Current Liabilities: Accounts payable $ 64,903 $ 62,965 Accrued payroll and employee benefits 58,434 52,354 Notes payable 4,211 6,490 Current maturities of long-term debt 5,720 11,656 Sales, income and other taxes payable 18,633 8,413 Other current liabilities 47,205 47,430 ------- ------- Total current liabilities 199,106 189,308 Long-Term Debt, net of current maturities 188,423 203,360 Deferred Tax Liabilities 12,622 8,992 ------- ------- Total liabilities 400,151 401,660 Commitments and Contingent Liabilities - - Stockholders' Equity: Preferred stock, $0.0001 par value, 7,500,000 shares authorized; none outstanding - - Class A common stock, $0.0001 par value, 50,000,000 shares authorized; outstanding 2001 - 20,166,636; 2000 - 20,084,400 2 2 Class B common stock, $0.0001 par value, 20,000,000 shares authorized; outstanding 2001 - 4,826,562; 2000 - 4,871,856 - - Additional paid-in capital 32,171 31,596 Class A treasury stock, 161,336 shares in 2001 and 488,998 shares in 2000 at cost (1,863) (5,415) Retained earnings 276,554 231,821 Accumulated other comprehensive loss: Currency translation and other (22,987) (13,386) -------- -------- Total stockholders' equity 283,877 244,618 -------- -------- Total Liabilities and Stockholders' Equity $684,028 $646,278 ======== ======== __________________________________________________________________________________________
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, 2001 2000 1999 Net sales $817,509 $725,884 $555,399 Cost of goods sold 356,330 343,364 255,223 ------- ------- ------- Gross profit 461,179 382,520 300,176 Selling, general and administrative expense 272,610 247,613 200,367 Product research and development expense 76,543 68,140 51,210 Purchased in-process research and development expense - - 15,500 ------- ------- ------- Income from operations 112,026 66,767 33,099 Other income (expense): Interest expense (24,088) (30,612) (12,741) Other, net (22,969) 9,288 (3,942) ------- ------- ------- Income before taxes and cumulative effect of change in accounting principle 64,969 45,443 16,416 Provision for income taxes 20,790 13,633 4,695 ------- ------- ------- Income before cumulative effect of change in accounting principle 44,179 31,810 11,721 Cumulative effect of accounting change, net of taxes of $515 (see Note 1) - (710) - -------- -------- -------- Net income $ 44,179 $ 31,100 $ 11,721 ======== ======== ======== Basic earnings per share: Income before cumulative effect of change in accounting principle $1.79 $1.30 $0.48 Cumulative effect of accounting change - (0.03) - --------- -------- -------- Net income $1.79 $1.27 $0.48 ========= ======== ======== Weighted average common shares 24,648 24,422 24,220 ========= ======== ======== Diluted earnings per share: Income before cumulative effect of change in accounting principle $1.74 $1.30 $0.48 Cumulative effect of accounting change - (0.03) - --------- -------- -------- Net income $1.74 $1.27 $0.48 ========= ======== ======== Weighted average common shares 25,442 24,568 24,330 ========= ======== ======== _______________________________________________________________________________________________________________________
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, 2001 2000 1999 Cash flows from operating activities: Cash received from customers $787,179 $707,046 $527,132 Cash paid to suppliers and employees (665,572) (636,054) (453,266) Interest paid (22,064) (23,873) (9,307) Income tax payments (5,296) (12,294) (17,237) Miscellaneous (payments) receipts 5,248 (10,578) (2,341) -------- -------- -------- Net cash provided by operating activities 99,495 24,247 44,981 Cash flows from investing activities: Capital expenditures, net (43,228) (31,406) (27,275) Payments for acquisitions (4,650) - (202,828) Proceeds from divestitures - 34,118 - Purchases of marketable securities and investments (567) (326) (2,216) Sales of marketable securities and investments 497 795 6,600 Foreign currency hedges, net 410 6,115 2,401 ------- ------- -------- Net cash provided by (used in) investing activities (47,538) 9,296 (223,318) Cash flows from financing activities: Net payments on notes payable (1,884) (4,325) (13,493) Long-term borrowings 74,250 438,487 353,108 Payments on long-term debt (97,209) (473,278) (151,788) Arrangement and other fees for long-term acquisition financing - (4,500) (5,008) Proceeds from issuance of common stock 575 305 343 Purchase of treasury stock (261) (378) (2,233) Reissuance of treasury stock 4,367 2,083 1,322 ------- ------- ------- Net cash provided by (used in) financing activities (20,162) (41,606) 182,251 Effect of exchange rate changes on cash 1,380 4,930 3,092 Net increase (decrease) in cash and cash equivalents 33,175 (3,133) 7,006 Cash and cash equivalents at beginning of year 13,954 17,087 10,081 -------- -------- -------- Cash and cash equivalents at end of year $ 47,129 $ 13,954 $ 17,087 ======== ======== ======== ________________________________________________________________________________________________________
The accompanying notes are an integral part of these statements. 5 Bio-Rad Laboratories, Inc. Consolidated Statements of Changes in Stockholders' Equity (in thousands)
______________________________________________________________________ Year Ended December 31, 2001 2000 1999 Common Stock, $0.0001 par value: Balance at beginning of year $ 2 $ 2 $ 2 Issuance of common stock - - - Balance at end of year 2 2 2 Additional Paid-In Capital: Balance at beginning of year 31,596 31,291 30,948 Issuance of common stock 575 305 343 Balance at end of year 32,171 31,596 31,291 Treasury Stock: Balance at beginning of year (5,415) (7,392) (7,047) Purchase of treasury stock (261) (378) (2,233) Reissuance of treasury stock 3,813 2,355 1,888 Balance at end of year (1,863) (5,415) (7,392) Retained Earnings: Balance at beginning of year 231,821 200,993 189,838 Net income 44,179 31,100 11,721 Reissuance of treasury stock at more than (less than) cost 554 (272) (566) Balance at end of year 276,554 231,821 200,993 Accumulated Other Comprehensive Income (Loss): Balance at beginning of year (13,386) (4,780) 593 Other comprehensive loss (9,601) (8,606) (5,373) Balance at end of year (22,987) (13,386) (4,780) ________ ________ ________ Total Stockholders' Equity $283,877 $244,618 $220,114 ======== ======== ======== Comprehensive Income, net of tax: Net income $ 44,179 $ 31,100 $ 11,721 Currency translation adjustments (9,458) (8,804) (4,833) Net unrealized holding gains(losses) (12) 533 66 Reclassification adjustments for gains included in net income (131) (335) (606) -------- -------- -------- Total Comprehensive Income $ 34,578 $ 22,494 $ 6,348 ======== ======== ======== _________________________________________________________________________
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 trans- actions. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts report- ed in the financial statements and accompanying notes. Changes in such estimates may affect amounts reported in the future. Reclassifications Certain prior period amounts have been reclassified to conform with the current year 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 fair market value. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable. The Company performs credit evaluation procedures and with the exception of certain developing countries, generally does not require collateral. As a result of increased risk in these countries, some Bio-Rad sales are subject to collateral letters of credit. Credit risk is limited due to the large number of customers and their dispersion across many geographic areas. However, a significant amount of trade receivables are with national healthcare systems in countries within the European Economic Community. The Company does not currently anticipate a credit risk associated with these receivables. Inventory Valuation Inventories are valued at the lower of average cost or market and include material, labor and overhead costs. Management periodically reviews the need for an inventory obsolescence reserve. In evaluating this reserve, technology changes, competition, customer demand and manufacturing quality are considered. 7 Property, Plant and Equipment Property, plant and equipment are carried at historical cost. Included in property, plant and equipment is reagent rental equipment. The Company provides these instruments to its customers for use with the Company's reagents. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Buildings and leasehold improvements are amortized over 15-30 years or the lives of the leases or improvements, whichever is shorter. Equipment is depreciated over 3-12 years. Goodwill Goodwill, representing the excess of the cost over the net tangible and identifiable intangible assets of acquired businesses, is stated at cost and through December 31, 2001 has been amortized on a straight-line basis over the estimated future periods to be benefited, typically ten to fifteen years. Goodwill, other intangibles and other long-lived assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Beginning January 1, 2002, the Company will adopt Statement of Financial Accounting Standards 142, "Goodwill and Other Intangible Assets" which provides that goodwill is no longer subject to amortization over its useful life. Goodwill will be subject to an annual assessment for impairment applying a fair-value based test. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between carrying amounts and tax bases of assets and liabilities. Revenue Recognition and Warranty Bio-Rad recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable. Generally, these criteria are met at the time product is shipped. Provision is made at the time the related revenue is recognized for estimated product returns and other offerings which may occur under programs the Company has with its customers. During the fourth quarter of 2000, the Company modified its revenue recognition policies with regard to certain complex instruments that require factory installation at the customer site to comply with guidelines outlined by the Securities and Exchange Commission in Staff Accounting Bulletin No. 101. The effects of the change in revenue recognition policies, as of January 1, 2000, are reported as the cumulative effect of an 8 accounting change in the fourth quarter of 2000 amounting to $0.7 million. This change did not have a significant effect on previously reported quarterly or prior years' income. The Company warrants certain equipment against defects in design, materials and workmanship, generally for one year. Upon shipment of equipment sold which includes a warranty, the Company establishes, as part of cost of goods sold, a provision for the expected costs of such warranty. Shipping and Handling Pursuant to Financial Accounting Standards Board Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company classifies all freight billed to customers as net sales. These costs amounted to $7.9 million, $6.9 million, and $5.9 million for 2001, 2000, and 1999, respectively. Related freight costs are included in selling, general and administrative expenses as the responsibility for negotiating sales terms rests with the sales organization and not manufacturing. Research and Development Internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Foreign Currency Translation Balance sheet accounts of international subsidiaries are translated at the current exchange rate as of the end of the accounting period. Income statement items are translated at average exchange rates. The resulting translation adjustment is recorded as a separate component of stockholders' equity. Forward Exchange Contracts The Company does not use derivative financial instruments for speculative or trading purposes. As part of distributing its products, the Company regularly enters into intercompany transactions. The Company enters into forward foreign exchange contracts to hedge against future movements in foreign exchange rates that affect foreign currency denominated intercompany receivables and payables. In accordance with Statement of Financial Accounting Standards 133 "Accounting for Derivative Instruments and Hedging Activities," the Company does not seek hedge accounting treatment for these contracts. As a result, these contracts, generally with maturity dates of 90 days or less and related primarily to currencies of industrial countries, are marked to market at each balance sheet date. The resulting gains or losses are included in other income and expense and offset exchange losses or gains on the related receivables and payables. Exchange gains and losses on these contracts are net of premiums and discounts 9 which result 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 Stock-based compensation is recognized using the intrinsic value method. For disclosure purposes, pro forma net income and earnings per share are provided as if the fair value method had been applied. Earnings Per Share Basic earnings per share are calculated on the basis of the weighted average number of common shares outstanding for each period. Diluted earnings per share are calculated assuming the exercise of certain stock options. Treasury stock is not considered outstanding for purposes of calculating weighted average shares. Fair Value of Financial Instruments The estimated fair value of financial instruments has been determined using available market information or other appropriate valuation methodologies. Estimates are not necessarily indicative of the amounts that could be realized in a current market exchange as considerable judgment is required in interpreting market data used to develop estimates of fair value. The use of different market assumptions or estimation techniques could have a material effect on the estimated fair value amounts. The estimated fair value of Bio-Rad's financial instruments were as follows(in millions): Year Ended December 31, 2001 2000 Carrying Fair Carrying Fair Amount Value Amount Value Other Assets $ 44.4 $ 44.0 $ 66.6 $65.0 Total Long-Term Debt $ 194.1 $ 201.0 $ 215.1 $224.0 Other Assets include financial instruments (e.g., notes receivable) that have fair values based on discounted cash flows, market quotations, and other appropriate valuation techniques. Long-term debt has an estimated fair value based on quoted market prices for the same or similar issues. For certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, marketable securities, notes payable, accounts payable, and forward exchange contracts, the carrying amounts approximate fair value. 10 2. Acquisitions In July 2001, the Company acquired all the outstanding shares of Helix, Inc., a manufacturer of diagnostic products for the autoimmune market. The business combination was recorded using the purchase method in accordance with Statement of Financial Accounting Standards 141, "Business Combinations." The acquisition cost was not material but did include a premium in excess of the net assets acquired. In October 1999, the Company acquired Pasteur Sanofi Diagnostics S.A., a French corporation (PSD). The Company paid $202.8 million for all of the capital stock of PSD (and certain ancillary assets and assumed liabilities related to PSD). The acquisition was accounted for using the purchase method of accounting. As the Company's 1999 financial statements include only three months of operations of PSD, the following selected unaudited pro forma information is being provided to present a summary of the combined results of Bio-Rad and PSD as if the acquisition had occurred as of January 1, 1998, giving effect to purchase accounting adjustments and actual costs of financing. The pro forma data is for informational purposes only and may not necessarily reflect the results of operations of Bio-Rad had PSD operated as part of the Company for the year ended December 31, 1999 (in millions of dollars, except per share data): Unaudited Pro Forma Year Ended December 31, 1999 Sales $727.9 Net income $6.3 Basic earnings per share $0.26 As a result of the acquisition, the Company recorded $88.6 million of goodwill. Acquired in-process research and development of $15.5 million was charged to expense in the fourth quarter of 1999. Purchase liabilities recorded included approximately $14.0 million for severance and other employee costs and $4.0 million for the consolidation and closure of certain leased facilities. The closure of facilities identified by the Company was completed in fiscal 2000, with lease payments, net of sublease revenues, continuing until all contractual obligations are met. As of December 31, 2001, expenses charged against these reserves were approximately $13.6 million for severance and other employee costs and $2.2 million for facilities and asset related write-offs. 11 3. Divestitures In October 2001, the Company sold the assets and certain liabilities of the Company's spectroscopy business to Digilab LLC. As a result, the Company recorded a loss on the sale of $4.5 million which is included in Other, net. The Company has a 25% interest in Digilab LLC which is included in Other Assets. In July 2000, Accent Semiconductor Technology, Inc. (ASTI) acquired the assets and certain liabilities of the Company's semiconductor and optoelectronic metrology business. The proceeds of approximately $36.0 million included $27.0 million in cash, an $8.0 million unsecured note receivable due in five years and an 18% equity interest in ASTI. The Company used $17.0 million of the cash proceeds to reduce borrowings on the term loan portion of the Senior Credit facility. The equity interest in ASTI is included in Other Assets on the cost method. 4. Investment in Affiliates In December 1997, Bio-Rad began investing in Instrumentation Laboratory, S.p.A. (IL), an Italian based clinical diagnostics company. At December 31, 2001, Bio-Rad held approximately 13% of the outstanding stock of IL. A privately held company based in Spain controls approximately 84% of the outstanding stock of IL. In April 2001, IL offered 46.5 million newly issued ordinary shares at 1.29 Euros per share ($1.16) to all registered shareholders. No shareholders other than the controlling shareholder subscribed. In consideration for the new shares, the controlling shareholder relieved IL of 60 million Euros of debt. In December 2001, the controlling shareholder offered to purchase for cash certain American Depository Shares (ADS) of IL for $0.50 per ADS. This tender offer was issued in an attempt to remove IL as a Securities and Exchange Commission (SEC) registrant. The tender offer did not result in the removal of IL as a SEC registrant. The most recently filed financial statements for IL are as of November 30, 2000. As a result of its interest in IL, the Company has had certain discussions with IL management. Based on a combination of many factors, including the lack of current financial information and IL's continued losses, the Company has determined that its investment has been permanently impaired. As such, the Company valued its investment in IL at $9.5 million as of December 31, 2001. This amount reflects a $9.4 million write-down since December 31, 2000, which has been recorded in Other, net. Although management believes that this investment is realizable, there is a possibility that future events may cause further impairment of this investment. 12 5. Notes Payable and Long-Term Debt Notes payable include local credit lines maintained by the Company's subsidiaries aggregating approximately $25.3 million, of which $21.1 million was unused at December 31, 2001. At December 31, 2000 these lines aggregated approximately $25.6 million, of which $19.1 million was unused. The weighted average interest rate on these lines was 5.43% and 7.29% at December 31, 2001 and 2000, respectively. The Company guarantees most of these credit lines. The principal components of Long-Term Debt are as follows(in millions): Year Ended December 31, 2001 2000 Senior Credit Agreement: Term loan $ 42.5 $ 63.0 Revolving credit facility - 1.8 Senior Subordinated Notes 148.7 148.5 Other debt 1.6 - Capitalized leases 1.3 1.8 -------- ------- 194.1 215.1 Less current maturities 5.7 11.7 -------- ------- Long-Term Debt $ 188.4 $ 203.4 ======== ======= In September 1999, the Company entered into a $200.0 million Senior Credit Agreement due in 2004 to finance the acquisition of PSD and certain related assets and to provide funds for working capital needs. The Senior Credit Agreement included a term loan and revolving facility, each in the amount of $100.0 million. The term loan has since been reduced through permanent repayments to $42.5 million. 1999 debt issue costs related to these financings were $8.6 million. The term loan and revolving facility are secured by an interest in the Company's assets through September 2004. Interest on both loans is based upon either the Eurodollar, the Federal Funds effective or corporate based (prime) rate. The term loan interest rate was 3.54% at December 31, 2001. The interest rate on the revolving facility at December 31, 2001 was 5.00%. A commitment fee ranging from .25% to .50% annually is charged on the daily unused portion of the revolving credit facility. The Company sold $150.0 million aggregate principal amount of Senior Subordinated Notes due in 2007 under an indenture dated February 17, 2000. The notes were offered at 98.832% of par and pay a fixed rate of interest of 11.625% per year. The notes may be redeemed after February 14, 2004 and before February 15, 2005 in whole or part at a redemption price of 105.813%; for the interim period to February 15, 2006 at 102.906%; thereafter at 100%. The Company's obligations under the notes are not secured and rank junior to all the Company's existing and future senior debt. 13 The Senior Credit Agreement (including amendments) and the Senior Subordinated Notes require the Company, among other things, to comply with certain financial ratios and covenants. The Company was in compliance with all financial ratios as of December 31, 2001 and 2000. These agreements also contain certain other restrictions, including limitations on payments of cash dividends, sales of assets, incurrence of indebtedness, the creation of liens, making certain investments and engaging in sale/leaseback transactions. Maturities of long-term debt at December 31, 2001, are as follows: 2002 - $5.7 million; 2003 - $18.6 million; 2004 - $21.1 million; 2005 - $0; 2006 - $0; thereafter - $148.7 million. 6. Income Taxes The U.S. and international components of income before taxes are as follows: Year Ended December 31, 2001 2000 1999 (in millions) U.S. $ (4.8) $ 6.4 $ 15.2 International 69.8 39.0 1.2 ------ ------ ------ Income before taxes and cumulative effect of change in accounting principle $ 65.0 $ 45.4 $ 16.4 ====== ====== ====== The provision (benefit) for income taxes consists of: Year Ended December 31, 2001 2000 1999 Current: (in millions) U.S. Federal $ 2.8 $ (4.6) $ 4.6 International 23.7 15.3 8.3 U.S. State .4 .6 .9 ------ ------ ------ 26.9 11.3 13.8 Deferred (6.1) 2.3 (9.1) ------ ------ ------ Provision for income taxes $ 20.8 $ 13.6 $ 4.7 ====== ====== ====== The Company's income tax provision differs from the amount computed by applying the U.S. federal statutory rate to income before taxes as follows: 14 Year Ended December 31, 2001 2000 1999 U.S. statutory tax rate 35% 35% 35% State taxes, net of federal income tax benefit (1) 2 2 Foreign Sales Corporation tax benefit (4) (3) (10) Difference between U.S. and foreign tax rates (net of foreign tax credits) (5) (1) 12 Loss carryforwards utilized (1) - (5) Amortization of goodwill 4 1 4 Foreign losses not benefited 1 4 31 Increase(decrease) in tax reserves 3 (1) (40) Foreign exchange loss recognized - (6) - Other - (1) - --- --- --- Provision for income taxes 32% 30% 29% === === === Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are as follows: Year Ended December 31, 2001 2000 Deferred Tax Assets: (in millions) Reserves for obsolete inventory, warranty and bad debts $ 11.7 $ 11.8 Elimination of intercompany profit 5.8 3.8 Tax benefit of foreign loss carryforwards 7.1 12.6 Basis difference in investment 3.1 - Other 12.6 9.6 ------ ------ 40.3 37.8 Valuation allowance (12.8) (17.0) ------ ------ Deferred Tax Assets $ 27.5 $ 20.8 ====== ====== Deferred Tax Liabilities: Deferred gain on condemnation $ 3.9 $ 3.5 Depreciation 2.5 1.3 Development cost of Hercules facility 1.5 1.5 Other 4.7 2.7 ------ ------ Deferred Tax Liabilities $ 12.6 $ 9.0 ====== ====== 15 At December 31, 2001, Bio-Rad's international subsidiaries had combined net operating loss carryforwards of $19.9 million. A portion of these loss carryforwards will expire in the following years: 2002 - $0.5 million; and 2005 - $0.3 million. The remainder of these loss carryforwards have no expiration date. The utilization of these carryforwards is limited to the separate taxable income of each individual subsidiary. The valuation allowance is needed to reduce the deferred tax assets to an amount that is more likely than not to be realized. The net change in the valuation allowance in 2001 was a decrease of $4.2 million, primarily resulting from a utilization of tax loss carryforwards. The net change in 2000 was a decrease of $7.1 million primarily resulting from the utilization of tax loss carryforwards. Utilization of carryforwards acquired as part of the acquisition of PSD which were not valued at the acquisition date adjusted the recorded goodwill by approximately $3.7 million and $5.8 million for 2001 and 2000, respectively. Bio-Rad does not provide for taxes which would be payable if the cumulative undistributed earnings of its international subsidiaries, approximately $79.3 million at December 31, 2001, 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. 7. Stockholders' Equity Subsequent Events At a special shareholders' meeting held on February 4, 2002, the shareholders voted to reduce the par value of common stock and preferred stock from $1.00 per share to $.0001 per share and to increase the number of authorized shares of capital stock from 23,300,000 to 77,500,000 shares. An adjustment was made in the Company's stockholders' equity section to reflect the reduction of par value by increasing paid-in capital. Class A common shares authorized were increased from 15,000,000 shares to 50,000,000 shares and Class B common shares authorized were increased from 6,000,000 to 20,000,000. Authorized shares of preferred stock were increased from 2,300,000 to 7,500,000. On February 6, 2002, the Company's Board of Directors authorized a two-for-one stock split effected in the form of a 100% stock dividend. As a result of the stock split, the accompanying financial statements reflect an increase in the number of outstanding shares of common stock and the transfer of the par value of these shares from paid-in capital. All share and per share amounts have been restated to reflect the retroactive effect of the stock split. 16 Stock Classification The Company's outstanding stock consists of Class A Common Stock (Class A) and Class B Common Stock (Class B). Each share of Class A and Class B participates equally in the earnings of Bio-Rad, and is identical in most respects except that Class A has limited voting rights. Each share of Class A is entitled to one-tenth of a vote on most matters, and each share of Class B is entitled to one vote. Additionally, Class A stockholders are entitled to elect 25% of the Board of Directors and Class B stockholders are entitled to elect the balance of the directors. Cash dividends may be paid on Class A shares without paying a cash dividend on Class B shares but no cash dividend may be paid on Class B shares unless at least an equal cash dividend is paid on Class A shares. Class B shares are convertible at any time into Class A shares on a one-for-one basis at the option of the stockholder. 8. Stock Option and Purchase Plans Stock Option Plans Bio-Rad maintains incentive and non-qualified stock option plans for officers and certain other key employees. No stock options have been issued to non-employees. Under the Amended 1994 Stock Option Plan (the Plan), the Company may grant options to its employees for up to 3,550,000 shares of common stock provided that no option shall be granted after March 1, 2004. Under the plans, Class A and Class B options are granted at prices not less than fair market value on the date of grant, are exercisable on a cumulative basis at a rate not greater than 25% per annum commencing one year after the date of grant. Under an amendment to the Plan effective September 19, 2000, options expire ten years after the grant date with the exception of options granted in 1999 which expire five years after the grant date. Options granted after January 1, 2001 will vest in increments of 20% over a five-year period on the yearly anniversary date of the grant. No options were granted in 2001. 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 2000 and 1999, respectively: no dividend yield for all periods; weighted average expected lives of 4.1 years in 2000 and 3.9 in 1999; expected volatility of 30% and 34%; and risk-free interest rates of 6.71% and 4.79% for 2000 and 1999, respectively. 17 Activity under the plans is summarized below (amounts reported in the Price columns represent the weighted average exercise price): Year Ended December 31, 2001 2000 1999 Shares Price Shares Price Shares Price Outstanding at beginning of year 1,921,778 $11.90 1,290,230 $12.09 1,122,094 $11.87 Granted - - 1,061,890 11.26 332,160 9.95 Exercised (287,622) 12.81 (130,500) 9.48 (121,828) 4.24 Forfeited (36,385) 10.61 (222,676) 12.31 (39,424) 12.55 Expired (25,070) 13.06 (77,166) 9.11 (2,772) 3.69 --------- --------- --------- Outstanding at end of year 1,572,701 $11.72 1,921,778 $11.90 1,290,230 $12.09 ========= ========= ========= Options exercisable at year-end 672,266 $12.60 544,096 $13.46 561,650 $12.36 ======= ======= ======= Weighted average fair value of options granted during the year $ - $3.46 $3.23 ===== ===== ===== The following summarizes information about stock options outstanding at December 31, 2001: Options Outstanding Options Exercisable Number Weighted Average Number Range of Outstanding Remaining Weighted Average Exercisable Weighted Average Exercise Prices at 12/31/01 Contractual Life Exercise Price at 12/31/01 Exercise Price $ 9.50 - $10.45 220,631 3.77 years $ 9.79 91,633 $ 9.73 $10.75 - $10.75 515,856 8.72 10.75 99,365 10.75 $11.25 - $11.94 521,852 7.53 11.69 204,220 11.56 $12.38 - $17.94 314,362 4.24 14.71 277,048 14.99 --------- ------- 1,572,701 6.73 11.72 672,266 12.60 ========= =======
18 Employee Stock Purchase Plan Under the Amended and Restated 1988 Employee Stock Purchase Plan (the Plan), the Company has authorized the sale of 1,490,000 shares of Class A to eligible employees. The purchase price of the shares under the Plan is the lesser of 85% of the fair market value on the first day of each calendar quarter, or 85% of the fair market value on the last day of each calendar quarter. Employees may designate up to 10% of their compensation for the purchase of stock. Under the Plan, the Company sold 88,982 shares for $1.2 million, 114,202 shares for $1.1 million, and 117,524 shares for $1.1 million to employees in 2001, 2000 and 1999, respectively. At December 31, 2001, 7,545 shares remained authorized under the Plan. The fair value of the employees' purchase rights since 1995 was estimated using the Black-Scholes model with the following assumptions for 2001, 2000 and 1999, respectively: no dividend yield for all periods; an expected life of three months for all periods; expected volatility ranging from 35% to 57%, from 28% to 43% and from 22% to 35%; and risk-free interest rates ranging from 2.36% to 5.68%, from 5.45% to 6.46% and from 4.28% to 4.88%. The weighted average fair value of those purchase rights granted in 2001, 2000 and 1999 was $4.48, $2.55 and $2.37, respectively. Pro Forma Disclosures If compensation cost for the Company's stock-based compensation plans had been determined based upon the fair value at grant dates for awards under those plans, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in millions, except per share data): Year Ended December 31, 2001 2000 1999 Net income As reported $44.2 $31.1 $11.7 Pro forma $42.9 $29.9 $10.5 Diluted earnings per As reported $1.74 $1.27 $0.48 share Pro forma $1.69 $1.23 $0.43 Since employee stock options vest over several years, and additional grants are likely to be made in the future, the disclosures may not be representative of the effects on reported pro forma net income or earnings per share in future years. 9. Earnings Per Share Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 794,000, 146,000 and 110,000 shares, for the years ended December 31, 2001, 2000 and 1999, respectively. There were no anti-dilutive shares for 2001. Options to purchase 401,000 and 522,000 shares of common stock were outstanding during 2000 and 1999, 19 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. 10. Other Income and Expense Other, net includes the following income and (expense) components: Year Ended December 31, 2001 2000 1999 (in millions) Amortization of goodwill $ (7.7) $ (8.1) $ (3.8) Exchange losses (2.1) (0.4) (0.9) Other non-operating litigation expenses, net 2.1 (3.3) 0.1 Gain on sale of fixed assets - 5.1 - Write-down of investments (10.9) - - Loss on sale of spectroscopy business (4.5) - - Gain on sale of semiconductor business - 16.7 - Miscellaneous other items 0.1 (0.7) 0.7 ------- ------ ------- Other, net $ (23.0) $ 9.3 $ (3.9) ======= ====== ======= Non-operating litigation expenses represent net fees incurred and reserves established to defend or negotiate intellectual property issues. Management does not believe that the outcome of these actions will have a material adverse effect on the future results of operations or the financial position of the Company. The Company will continue to incur costs relating to these issues. Exchange gains (losses) include premiums and discounts on forward foreign exchange contracts and mark-to-market adjustments on foreign exchange contracts. 20 11. Supplemental Cash Flow Information The reconciliation of net income to net cash provided by operating activities is as follows: Year Ended December 31, 2001 2000 1999 (in millions) Net income $ 44.2 $ 31.1 $ 11.7 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 32.6 33.7 23.1 Amortization 8.7 9.5 4.4 Foreign currency hedge transactions, net (0.4) (6.1) (2.4) Gains on dispositions of marketable securities (0.2) (0.5) (0.9) Increase in accounts receivable, net (22.6) (0.3) (16.1) (Increase) decrease in inventories (14.0) (18.9) 4.1 (Increase) decrease in other current assets (2.8) 0.9 5.6 Increase (decrease) in accounts payable and other current liabilities 11.7 (0.6) 26.2 Increase (decrease) in income taxes payable 17.6 (4.6) 4.8 Increase (decrease) in deferred taxes (1.7) 3.4 (16.9) Gain on sale of semiconductor business and fixed assets - (21.8) - Loss on sale of spectroscopy business and write-down of investments 15.4 - - Other 11.0 (1.6) 1.4 ------ ------ ------ Net cash provided by operating activities $ 99.5 $ 24.2 $ 45.0 ====== ====== ======
12. Commitments and Contingent Liabilities Rents and Leases Net rental expense under operating leases was $15.8 million in 2001, $13.0 million in 2000 and $13.6 million in 1999. Leases are principally for facilities and automobiles. Annual future minimum lease payments at December 31, 2001, under operating leases are as follows: 2002 - $12.8 million; 2003 - $8.9 million; 2004 - $6.2 million; 2005 - $4.8 million; 2006 - $3.8 million; subsequent to 2006 - $5.7 million. 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 $4.7 million, $4.8 million and $4.0 million in 2001, 2000 and 1999, respectively. 21 Foreign Exchange Contracts The Company enters into forward foreign exchange contracts as an economic hedge against foreign currency denominated intercompany receivables and payables. At December 31, 2001, the Company had contracts maturing in January through March 2002 to sell foreign currency with a nominal value of $51.3 million and an unrealized loss of $0.5 million. Contracts to purchase foreign currency had a nominal value of $22.7 million and an unrealized loss of $0.3 million. Insurance The Company carries a deductible for workers' compensation. Accruals for losses are based on the Company's claims experience and actuarial assumptions followed in the insurance industry. Actual losses could differ from accrued amounts. Letters of Credit In the ordinary course of business, the Company is at times required to post letters of credit. These letters of credit are required by certain insurance companies to ensure payments of certain charges. The Company was contingently liable for approximately $2.5 million of standby letters of credit with a bank as of December 31, 2001. Taxes Settlement of open tax years, as well as tax issues in other countries where the Company conducts its businesses, is not expected to have a material effect on the consolidated financial position or liquidity of the Company and, in the opinion of management, adequate provision has been made for income and franchise taxes for all years under examination or subject to future examination. 13. Legal Proceedings The Company is a party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the outcome of these claims, legal actions and complaints will not have a material adverse effect on the future results of operations or the financial position of the Company. 14. Segment Information Bio-Rad is a multinational manufacturer and worldwide distributor of life science research products and clinical diagnostics products. Bio-Rad has two reportable segments: Life Science and Clinical Diagnostics. These reportable segments are strategic business lines that offer different products and services and require different marketing strategies. The Life Science segment develops, manufactures, sells and services liquid chromatography, electrophoresis, gene amplification and transformation, imaging and image analysis, nucleic acid sample preparation, industrial 22 microbiology and immunodiagnostics products. These products are sold to university and medical school laboratories, pharmaceutical and biotechnology companies, food testing laboratories and government and industrial research facilities. The Clinical Diagnostics segment develops, manufactures, sells and services automated test systems, informatics systems, test kits and specialized quality controls for the healthcare market. These products are sold to reference laboratories, hospital laboratories, state newborn screening facilities, physicians office laboratories, and insurance and forensic testing laboratories. The remainder of the Company's former Analytical Instruments segment is included in other operations. The material product lines of this segment were sold in 2000 and 2001(see Note 3). The accounting policies of the segments are the same as those described in Significant Accounting Policies (see Note 1). Segment profit or loss used for corporate management purposes includes an allocation of corporate expense based upon sales and an allocation of interest expense based upon accounts receivable and inventories. Segments are expected to manage only assets completely under their control. Accordingly, segment assets include primarily accounts receivable, inventories and gross machinery and equipment. Information regarding industry segments at December 31, 2001, 2000 and 1999 and for the years then ended is as follows (in millions): Life Clinical Other Science Diagnostics Operations Segment net sales 2001 $382.2 $417.9 $20.4 2000 267.3 409.0 53.1 1999 238.0 251.8 68.0 Allocated interest expense 2001 $ 9.3 $ 14.3 $ 0.5 2000 9.3 19.4 1.9 1999 3.8 7.8 1.2 Depreciation and 2001 $ 7.2 $ 26.2 $ 0.4 amortization 2000 6.4 25.7 0.9 1999 8.0 15.5 1.3 Segment profit (loss) 2001 $ 74.2 $ 27.4 $(5.3) 2000 14.1 25.3 (2.4) 1999 16.6 18.7 2.9 Segment assets 2001 $194.2 $302.2 $ 3.4 2000 152.2 308.4 14.4 1999 131.7 320.4 35.4 Capital expenditures 2001 $ 10.0 $ 23.9 $ 0.1 2000 6.8 27.5 0.8 1999 10.7 13.4 1.4 Inter-segment sales are included in segment net sales. Inter-segment sales are primarily from Life Science to Clinical Diagnostics and are priced to give Life Science a market representative gross margin. This represents the 23 difference between total segment net sales and consolidated net sales. The difference between total segment allocated interest expense, depreciation and amortization, and capital expenditures and the corresponding consolidated amounts is attributable to the Company's corporate headquarters. The following reconciles total segment profit to consolidated income before taxes and cumulative effect of change in accounting principle: Year Ended December 31, 2001 2000 1999 (in millions) Total segment profit $ 96.3 $37.0 $38.2 Gross profit on inter-segment sales (1.4) (1.8) (1.2) Other, net (23.0) 9.3 (3.9) Purchased in-process research and development - - (15.5) Net corporate operating, interest and other income and expense not allocated to segments (6.9) 0.9 (1.2) ------ ----- ----- Consolidated income before taxes and cumulative effect of change in accounting principle $ 65.0 $45.4 $16.4 ====== ===== ===== The following reconciles total segment assets to consolidated total assets: December 31, 2001 2000 1999 (in millions) Total segment assets $499.8 $475.0 $487.5 Cash and other current assets 97.2 54.9 58.5 Net property, plant and equipment excluding segment specific gross machinery and equipment (33.3) (41.2) (41.4) Goodwill 75.9 91.0 105.4 Other long-term assets 44.4 66.6 58.9 ------ ------ ------ Total assets $684.0 $646.3 $668.9 ====== ====== ====== 24 The following presents sales to external customers by geographic area based primarily on the location of the use of the product or service: Year Ended December 31, 2001 2000 1999 (in millions) Europe $341.7 $275.1 $189.0 Pacific Rim 127.5 128.3 110.7 United States 296.9 274.5 231.7 Other (primarily Canada and Latin America) 51.4 48.0 24.0 ------ ------ ------ Total net sales $817.5 $725.9 $555.4 ====== ====== ====== The following presents long-lived assets by geographic area based upon the location of the asset: Year Ended December 31, 2001 2000 1999 (in millions) Europe $ 25.3 $ 26.7 $ 34.1 Pacific Rim 6.4 6.5 6.9 United States 217.0 239.8 247.3 Other(primarily Canada and Latin America) 4.5 3.6 1.8 ------ ------ ------ Total long-lived assets $253.2 $276.6 $290.1 ====== ====== ====== 15. Quarterly Financial Data - (unaudited) Summarized quarterly financial data for 2001 and 2000 are as follows (in millions, except per share data): First Second Third Fourth Quarter Quarter Quarter Quarter 2001 Net sales $202.7 $195.3 $186.1 $233.4 Gross profit 111.4 109.7 106.2 133.9 Net income 8.6 11.6 7.0 17.0 Basic earnings per share $0.35 $0.47 $0.29 $0.69 Diluted earnings per share $0.34 $0.46 $0.28 $0.66 2000 Net sales $185.5 $186.8 $175.8 $177.8 Gross profit 98.7 99.6 91.7 92.5 Net income 2.9 5.1 13.9 9.2 Basic earnings per share $0.12 $0.21 $0.57 $0.37 Diluted earnings per share $0.12 $0.21 $0.57 $0.37 25 16. 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 and BIO.B, respectively. The following sets forth, for the periods indicated, the high and low prices for the Company's Class A and Class B Common Stock. Class A Class B High Low High Low 2001 First Quarter 21.00 14.88 20.25 15.00 Second Quarter 25.65 17.05 24.75 19.75 Third Quarter 28.88 21.00 27.00 22.50 Fourth Quarter 33.00 22.85 32.50 22.50 2000 First Quarter 16.50 10.63 16.63 11.32 Second Quarter 13.63 10.50 14.13 10.75 Third Quarter 12.50 10.50 12.13 10.75 Fourth Quarter 17.00 11.10 16.75 11.94 On March 8, 2002 the Company had 975 holders of record of Class A Common Stock and 222 holders of record of Class B Common Stock. Bio-Rad has never paid a cash dividend and has no present plans to pay cash dividends. 26 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, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted in the United States. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP San Francisco, California February 4, 2002, except for Note 7, as to which the date is February 6, 2002 27 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. Other than statements of historical fact, statements made in this Annual Report include forward looking statements, such as statements with respect to the Company's future financial performance, operating results, plans and objectives. We have based these forward looking statements on our current expectations and projections about future events. However, actual results may differ materially from those currently anticipated depending on a variety of risk factors including among other things: our ability to successfully develop and market new products; our reliance on and access to necessary intellectual property; our substantial leverage and ability to service our debt; competition in and government regulation of the industries in which we operate; and the monetary policies of various countries. We undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events, or otherwise. The following shows operating income and expense items as a percentage of net sales: Year Ended December 31, 2001 2000 1999 Net sales 100.0 100.0 100.0 Cost of goods sold 43.6 47.3 46.0 Gross profit 56.4 52.7 54.0 Selling, general and administrative expense 33.3 34.1 36.0 Product research and development expense 9.4 9.4 9.2 Purchased in-process research and development - - 2.8 ----- ----- ----- Income from operations 13.7 9.2 6.0 ===== ===== ===== Net income 5.4 4.3 2.1 ===== ===== ===== Results in 2001 include a full year's sales of a significant new product, the BSE (Bovine Spongiform Encepthalophy) test in the Life Science segment and the divestiture in October 2001 of the last material product line of the Company's former Analytical Instruments segment, the spectroscopy business (see Note 3). 28 Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. The Company evaluates its estimates on an on-going basis. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. In December 2001, the Securities and Exchange Commission (SEC) gave cautionary advice to all registrants to list their three to five most "critical accounting policies" in the Management Discussion and Analysis section. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of the Company's financial condition and results and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has identified the following accounting principles as the most critical for our financial disclosure: Accounting for Income Taxes. As part of the process of preparing Bio-Rad's consolidated financial statements management is required to estimate the Company's income taxes in each of the jurisdictions in which the Company operates. This process involves estimating Bio-Rad's actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. Management must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent management believes that recovery is not likely, a valuation allowance must be established. To the extent management establishes a valuation allowance or increases this allowance in a period, an expense within the tax provision in the statement of operations must be included. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against the net deferred tax assets. The Company has recorded a valuation allowance of $12.8 million as of December 31, 2001, due to uncertainties related to the Company's ability to utilize some of the deferred tax assets, primarily consisting of certain net operating losses carried forward, before they expire. The valuation allowance is based on management's estimates of taxable income by jurisdiction in which Bio-Rad operates and the period over which the deferred tax assets will be recoverable. In the event that actual results differ from these estimates or these estimates are adjusted in future periods an additional valuation allowance may need to be established which could materially impact 29 Bio-Rad's financial position and results of operations. Valuation of Long-lived and Intangible Assets and Goodwill. The Company assesses the impairment of identifiable intangibles, long-lived assets and related goodwill and enterprise level goodwill whenever events or changes in circumstances indicated that the carrying value may not be recoverable. Factors the Company considers important which could trigger an impairment review include the following: - significant under-performance relative to expected historical or projected future operating results; - significant changes in the manner of use of the acquired assets or the strategy for the Company's overall business; - significant negative industry or economic trends. When the Company determines that the carrying value of intangibles, long- lived assets and related goodwill and enterprise level goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in Bio-Rad's current business model. In 2002, Statement of Financial Accounting Standards 142, "Goodwill and Other Intangible Assets" (SFAS 142) became effective and as a result, the Company will cease to amortize approximately $75.9 million of goodwill. The Company had recorded approximately $7.7 million of amortization on these amounts during 2001. In lieu of amortization, the Company is required to perform an initial impairment review of goodwill in 2002 and an annual impairment review thereafter. The Company expects to complete the initial review during the second quarter of 2002. Bio-Rad currently does not expect to record an impairment charge upon completion of the initial impairment review. However, there can be no assurance that at the time the review is completed a material impairment charge will not be recorded. Valuation of Inventories. The Company values inventory at the lower of the actual cost to purchase and/or manufacture the inventory or the current estimated market value to the inventory. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on an estimated forecast of product demand and production requirements for the next twelve months. In addition, our industry is characterized by technological change, frequent new product development and product obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand. Additionally, the Company's estimates of future product demand may prove to be inaccurate, in which case the Company may have understated or overstated the provision required for excess and obsolete inventory. In the future, if inventory is determined to be overvalued, the Company would be required to recognize such costs in our cost of goods sold at the time of such determination. Likewise, if inventory is determined to be undervalued, the 30 Company may have over-reported cost of goods sold in previous periods and would be required to recognize such additional operating income at the time of sale. Therefore, although the Company makes every effort to ensure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of its inventory and reported operating results. Corporate Results -- Sales, Margins and Expenses Bio-Rad net sales for the year 2001 reached $817.5 million, an increase of 13% over the prior period. The year 2001 benefited from sales of the Company's BSE test which had negligible sales in the year 2000. Divestitures in the Analytical Instruments and Diagnostics segments along with a strengthening U.S. Dollar had the effect of lowering the Company's overall sales growth on a comparative basis. Adjusting for divestitures and the impact of currency, the growth in sales for the year 2001 was 25%. The Life Science segment had sales growth of 43% which includes sales of the BSE test and the negative impact of a strengthening dollar on international sales. Adjusting for currency and the industrial technology product line (BSE), the core Life Science products segment had real growth in the range of 15% to 20%. Product offerings with major contributions were proteomics and amplification equipment and reagents. The Diagnostics segment had growth of 2% before adjusting for divestitures and the negative impact from a strengthening dollar. After adjustment for these two factors, the Diagnostics segment had adjusted growth of 10%. Product lines demonstrating the most growth were the quality controls business, blood virus and diabetes monitoring. Bio-Rad's net sales for 2000 were $725.9 million, an increase of 30.7% over the prior year. The year 2000 benefited from the inclusion of twelve months sales of PSD versus 1999 which included sales for the fourth quarter only. The year 2000 was negatively impacted by a strengthening U.S. Dollar, the divestiture of the semiconductor product line and cessation of a distribution agreement. Adjusting for the above significant items, sales growth would have been 8.4% using the 1999 pro-forma/acquisition sales of $727.9 million. The Life Science segment in 2000 had growth of 17.9% adjusted for currency. The increase reflects increases in the sales of laboratory devices and consumables. The Diagnostics segment had growth of 5.4% adjusted for currency, the acquisition of PSD and product line divestitures. Product lines contributing to this growth were Bio-Rad's quality control business, genetic tests and improved penetration for the PSD product line in North America and Asia. Analytical Instrument sales decreased because of the divestiture of the semiconductor business as well as a decline in sales of the Company's spectroscopy product lines. Consolidated gross margins in 2001 were 56.4%, an improvement over 2000 reflecting several favorable factors. Life Science margins improved as a result of an improved sales mix in favor of reagents whose margins are 31 generally higher than that of the apparatus and equipment and favorable manufacturing overhead absorption from increased manufacturing activity without an equivalent increase in fixed factory spending. Diagnostics margins improved due to lower royalty costs on manufactured products, improved manufacturing efficiencies in France (where production facilities are shared with Life Science), the settlement of a royalty dispute providing a one-time increase in royalty income, and overall lower manufacturing costs in the quality control product lines. The positive results noted above were partially offset by the negative impact of a strengthening dollar on U.S. manufactured products sold into international markets. Consolidated gross margins in 2000 were 52.7% compared to 54.0% for the year 1999. The inclusion of a full year's operations of the PSD product lines reduced the Company's margins as these products have overall lower margins than the Company's other Diagnostics products. Excluding the PSD products, the remaining Diagnostics products had a decline of 1% on higher manufacturing and service costs. The Life Science segment had no change in gross margin as favorable manufacturing overhead absorption was offset by the negative impact from declining margins on international sales. Consolidated selling, general and administrative (SG&A) expense declined to 33.3% of sales in 2001 from 34.1% in the prior year. Spending increased in absolute dollars in each segment except Analytical Instruments. Life Science expenditures represent additions to sales and marketing headcount, increased customer support services and a continuing investment in e-commerce. Diagnostics expenditures focused on organizational changes and realigning the business after the acquisition of PSD as well as some strategic marketing initiatives in support of new product development. General and administrative expenses increased throughout the Company as internationally the Company replaced distributors with locally owned affiliates and expanded infrastructure to support a wider presence. The Company has increased its communication and information technology capabilities at higher operating and depreciation cost as new systems come on line replacing inadequate legacy systems. SG&A decreased to 34.1% of sales from 36.0%, for the year 2000. Both the Life Science and Diagnostics segments grew SG&A expense at a rate lower than sales growth in the year 2000. The Company made the efficient use of SG&A expense a priority after the PSD acquisition. The Company implemented Financial Accounting Standards Board Emerging Issues Task Force, Issue 00- 10 related to standardizing the method for recording shipping and handling charges billed separately to customers. All periods presented have been adjusted to consistently apply the gross method. There is no impact on either income from operations or net income in any period presented, only increased sales and an equivalent increase in selling expense. Product research and development expense (R&D) in 2001 increased by 12% or $8.4 million. As a percentage of sales, R&D expense was 9.4%, the same percentage as in 2000. Life Science increased both the breadth of projects and the spending rate to accelerate the development of new products and applications for proteomic and genomic researchers, pharmaceutical 32 discovery, and food testing markets. Diagnostics expenditures increased on a significant project which will require a substantial allocation of R&D funds through 2003. Other areas of emphasis are blood screening and expanding the available products in the quality control product line. Product R&D expense in 2000 increased by 33.1% or $16.9 million, which includes a full year's expense associated with the acquired PSD business. As a percentage of sales R&D expense rose to 9.4% of sales from 9.2% in the prior year as both the Life Science and Diagnostics segments have large long-term projects and current opportunities including improvements to the existing industrial diagnostic testing product line related to the increased demand for BSE tests. Corporate Results -- Non-Operating Items Interest expense decreased by $6.5 million for the year 2001 as the Company repaid debt and benefited from overall lower average borrowing costs on its variable rate debt. Interest expense as a percentage of sales represents 2.9% and 4.2% for the years 2001 and 2000, respectively. Net other income and expense for 2001 (see Note 10) includes a non-cash write-down of an investment in a closely held foreign company and other investees, goodwill amortization, income related to a legal dispute previously provided for that was unnecessary upon settlement with the other party, other non- operating legal costs, and a non-cash loss on the disposition of the spectroscopy equipment business (see Note 3). Net other income and expense for the year 2000 includes a gain on the sale of the semiconductor manufacturing and test equipment business, non- operating legal costs, and settlement costs related to cancelling a financing arrangement. All years include exchange gains and losses from non-speculative forward foreign exchange contracts which hedge the exposure of intercompany receivables and payables. The exchange gain or loss results from the estimating inherent in projecting intercompany balances and transaction costs. Bio-Rad's consolidated effective tax rate was 32%, 30% and 29% in 2001, 2000 and 1999, respectively. The tax rate for all years reflects the utilization of loss carryforwards, foreign sales corporation benefits and foreign tax credits. The effective tax rate rose in 2001 as a result of an increase in tax reserves (see Note 6). Financial Condition As a result of the debt service obligations undertaken related to the acquisition of PSD, the Company has a risk of limited liquidity and capital resources. The Company has reduced its debt to equity ratio from 119% at December 31, 1999 to 70% at December 31, 2001. The Company has a Senior Credit Facility of $142.5 million consisting of a $100.0 million revolving facility and a $42.5 million term loan (reduced from an initial $100.0 million), allowing for borrowings on a secured basis to September 2004. In February 2000, the Company completed the sale of 33 $150.0 million aggregate principal amount of Senior Subordinated Notes due 2007. These notes may be redeemed after February 14, 2004 and before February 15, 2005 in whole or part at a redemption price of 105.813%; for the interim period to February 15, 2006 at 102.906%; thereafter at 100%. The lenders have placed restrictions on 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. The Company is also required to comply with certain financial ratios. At December 31, 2001, the Company had available $47.1 million in cash and cash equivalents, $21.1 million under its international lines of credit, and $100.0 million under its principal revolving credit agreement (see Note 5). Management believes that this availability, together with cash flow from operations, will be adequate to meet the Company's current objectives for operations, including research and development and any necessary investments in facilities and equipment. Net cash provided by operations was $99.5 million, $24.2 million and $45.0 million in 2001, 2000 and 1999, respectively. The largest contributing factors to the improvement in net cash provided are the Company's 2001 sales growth and overall lower spending (as a percentage of sales) for manufacturing and SG&A. Consolidated net accounts receivable increased $12.2 million in 2001 when compared to 2000. This increase is attributable to increased sales. Net receivable days outstanding declined as the geographic sales mix had higher sales in Europe and the United States who generally require less financing than other regions. Also, credit and collection policies have been more fully integrated from 2000 after the PSD acquisition. Bio-Rad's management regularly reviews the allowance for uncollectible receivables and believes net receivables are fully realizable. For the year ended December 31, 2001, consolidated inventories rose $6.7 million to $139.2 million. The Life Science segment had inventory increases in line with sales activity. The component of inventory at international locations declined as weakened local currencies caused the value of foreign manufactured goods to decline in U.S. dollar terms. Management regularly reviews the impact of obsolescence on current inventory caused by the introduction of new products. Management will continue its focus on inventory control to moderate capital requirements. A valuation reserve is necessary for deferred tax assets (see Note 6) primarily because realization of tax benefits attributable to foreign loss carryforwards is uncertain. Net capital expenditures in 2001 totaled $43.2 million compared to $31.4 million and $27.3 million in 2000 and 1999, respectively. The Company is currently reviewing plans to either build or lease additional facilities at or near its Northern California headquarters. Should the Company decide to build on its own property, the capital requirement necessary is in the 34 range of $30-$40 million dollars and is in addition to annual requirements for manufacturing equipment, reagent rental equipment and information technology improvements. 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. The Company continues to review possible acquisitions to expand both its Life Science and Diagnostics segments. The Company routinely meets with the principals or brokers of the subject companies. Currently no discussions involving a material acquisition have progressed beyond the most initial phases. Should the Company make a material acquisition it would most likely require an increase in borrowed funds, further increasing its financial leverage. On February 4, 2002 at a special meeting of the Company's shareholders, a resolution to increase the number of authorized Class A and Class B common shares to 50,000,000 and 20,000,000, respectively and a resolution to reduce the par value of common and preferred stock from $1.00 to $0.0001 were adopted along with several other technical provisions which will update and streamline the Company's charter. On February 6, 2002, at its regular meeting the Board of Directors approved a two-for-one stock split to be effected in the form of a 100% dividend, for holders of record on February 25, 2002. Retroactive adjustments have been made as appropriate to common stock and per share amounts for all years presented. Through December 31, 2001, the Company has cumulatively repurchased 1,179,272 shares of Class A Common Stock and 60,000 shares of Class B Common Stock for a total of $14.7 million. The Company's credit agreements restrict the Company's ability to repurchase its own stock. Share repurchases made during 2001 amounted to $0.3 million. The repurchase is designed to improve shareholder value and to satisfy the Company's obligations under the employee stock purchase and stock option plans. Euro - A New European Currency On January 1, 2002, the Euro became the common currency in participating countries of the European Union. This has 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 to monitor the changes required to continue to do business in the European Union. The Company does not expect the changes to 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. As a result of competitive forces and emerging government regulations, the Company cannot guarantee that all problems will be foreseen and remediated, and that no material disruption will occur. 35 Financial Risk Management Bio-Rad uses derivative financial instruments to reduce the Company's exposure to fluctuations in foreign exchange rates and, on occasion, interest rates. No derivative financial instruments are entered into for the purpose of speculating or trading. Company policy limits all derivative positions exclusively to reducing risk by hedging an underlying economic exposure. In most cases, derivative investments do not qualify for hedge accounting treatment under Statement of Financial Accounting Standards 133, "Accounting for Derivative Instruments and Hedging Activities". Derivative instruments used in these transactions will be valued at fair value and changes in fair value will be included in reported earnings. Bio-Rad operates and conducts business in many countries and is exposed to movements in foreign currency exchange rates. Additionally, Bio-Rad's consolidated net equity is impacted by the conversion of the net assets of international subsidiaries for which the functional currency is not the U.S. Dollar. Foreign currency exposures are managed on a centralized basis by the Company's Treasury Department. This allows for the netting of natural offsets and lowers transaction costs and exposures. Bio-Rad currently makes more than 50% of its sales outside the United States and weakening in one currency can often be offset by strengthening in another. Bio-Rad typically enters into forward exchange contracts to sell its foreign currency. Contracts are entered into typically for 30 to 60 days, primarily in British Sterling, Japanese Yen and the Euro or related currencies. The costs are recognized in income monthly and generally are the reciprocal of the change in underlying assets. Bio-Rad does not hold any derivative contracts that hedge its foreign currency denominated net asset exposures. Bio-Rad uses sensitivity analysis to assess the market risk associated with its foreign currency exchange risk. Market risk is the potential change in fair value of derivative positions from an adverse movement in currency exchange rates. As of December 31, 2001, the Company's market risk was not significant. The Company's long-term debt consists mostly of fixed rate instruments in order to minimize earnings volatility related to interest expense. While the Company has used derivative instruments in the past, it did not hold any interest rate derivative contracts at December 31, 2001. The current strategy is to manage interest costs using a mix of fixed and variable debt. New Financial Accounting Standards In June 2001, the Financial Accounting Standards Board issued SFAS 142, "Goodwill and Other Intangible Assets," which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead be reviewed annually for impairment using a fair-value based 36 approach. Intangible assets that have a finite life will continue to be amortized over their respective estimated useful lives. The Company will adopt provisions of SFAS 142 beginning January 1, 2002. Amortization expense for fiscal year 2001, 2000 and 1999 was $7.7 million, $8.1 million and $3.8 million, respectively. The Company is currently implementing the transition and annual procedures called for in SFAS 142. An impairment greater than prior years' goodwill amortization is not anticipated based on the limited review completed to date. 37 EX-21 5 ex21.txt EXHIBIT 21.1 - LISTING OF SUBSIDIARIES JURISDICTION OF SUBSIDIARY ORGANIZATION Bio-Rad Laboratories Pty. Limited Australia Bio-Rad Pty. Limited Australia Bio-Rad Laboratories Ges.m.b.H. Austria Bio-Rad Ges.m.b.H Austria Bio-Rad International, Inc. (FSC) Barbados Bio-Rad Laboratories N.V. - S.A. Belgium RSL N.V. Belgium Bio-Rad Laboratories Brasil Ltda. Brazil Bio-Metrics Properties, Limited California, USA Bio-Rad Laboratories (Israel) Inc. California, USA Bio-Rad Leasing Corporation California, USA Bio-Rad Pacific Limited California, USA Helix Diagnostics, Inc. California, USA Bio-Rad Laboratories (Canada) Limited Canada SoftShell International, Ltd. Colorado, USA Sanofi Prague spol. sr.o. Czech Republic Bio-Metrics, Limited Delaware, USA Bio-Rad Export, Inc. (DISC) Delaware, USA Bio-Rad France Bio-Rad Pasteur France ADIL Instruments France Bio-Rad Laboratories G.m.b.H. Germany Bio-Rad G.m.b.H. Germany Bio-Rad China Limited Hong Kong Bio-Rad Laboratories(India)Private Limited India Bio-Rad Laboratories Israel (1996) Limited Israel Bio-Rad Laboratories S.r.l. Italy Bio-Rad S.r.l. Italy Nippon Bio-Rad Laboratories K.K. Japan Bio-Rad Fujirebio Inc. Japan Bio-Rad Korea Ltd. Korea International Marketing Ventures, LTD. Maryland, USA Bio-Rad Micromeasurements, Inc. Massachusetts, USA Bio-Rad Laboratories Mexico, S.A. de C.V. Mexico Bio-Rad S.A. Mexico Bio-Rad Laboratories B.V. The Netherlands Sandia Systems, Inc. New Mexico, USA Polaron Instruments, Inc. Pennsylvania, USA Bio-Rad Polska Sp. z o.o. Poland Bio-Rad Laboratoires-Aparelhos e Reagentes Hospitalares, LDA Portugal Bio-Rad Laboratorii OOO Russia Bio-Rad Laboratories (Singapore) Pte. Limited Singapore Bio-Rad Laboratories (Pty) Limited South Africa Bio-Rad Laboratories S.A. Spain Bio-Rad Laboratories AB Sweden Bio-Rad Laboratories AG Switzerland Bio-Rad AG Switzerland Bio-Rad Laboratories Taiwan Limited Taiwan Sanofi Pacific Diagnostics Ltd. Thailand Bio-Rad Laboratories Limited Thailand Bio-Metrics (UK) Limited United Kingdom Bio-Rad Laboratories Europe Limited United Kingdom Bio-Rad Laboratories Limited United Kingdom Bio-Rad Lasersharp Limited United Kingdom Bio-Rad Limited United Kingdom Bio-Rad Micromeasurements Limited United Kingdom Bio-Rad Microscience Limited United Kingdom Emscope Engineering Limited United Kingdom Micromeasurements Limited United Kingdom Sadtler Research Laboratories Limited United Kingdom Bio-Rad Laboratories (UK) Limited United Kingdom Respiratory Diagnostics, Inc. Washington, USA EX-23 6 ex23_1.txt EXHIBIT 23.1 - CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports 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). ARTHUR ANDERSEN LLP San Francisco, California, March 27, 2002 -----END PRIVACY-ENHANCED MESSAGE-----