-----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, JDeQ6wyir99/Wc4ZIp0u7yFrO4HJmTe4s+LS4+j9Yj2Dm7t0oBnOq/NTSVQ2EWLu BN2nGNycxxKha54UblMyiw== 0000012208-04-000008.txt : 20040507 0000012208-04-000008.hdr.sgml : 20040507 20040507145923 ACCESSION NUMBER: 0000012208-04-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040507 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07928 FILM NUMBER: 04788752 BUSINESS ADDRESS: STREET 1: 1000 ALFRED NOBEL DR CITY: HERCULES STATE: CA ZIP: 94547 BUSINESS PHONE: 5107247000 10-Q 1 r10q0304.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004. 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 (I.R.S. Employer of incorporation or organization) Identification No.) 1000 Alfred Nobel Drive, Hercules, California 94547 (Address of principal executive offices) (Zip Code) (510) 724-7000 (Registrant's telephone number, including area code) No Change Former name, former address and former fiscal year, if changed since last report. Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act). Yes X No_____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date-- SharesOutstanding Title of each Class at April 30, 2004 Class A Common Stock, Par Value $0.0001 per share 20,844,735 Class B Common Stock, Par Value $0.0001 per share 4,846,440 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited) ------------------------- Three Months Ended March 31, 2004 2003 ------------------------- NET SALES $ 266,645 $ 245,969 Cost of good sold 115,866 103,256 ------- ------- GROSS PROFIT 150,779 142,713 Selling, general and administrative expense 88,492 77,159 Product research and development expense 25,224 21,388 Purchased in-process research and development expense 900 -- Interest expense 5,050 4,651 Foreign exchange losses 202 769 Other (income) and expense, net 216 (604) ------- ------- INCOME BEFORE TAXES 30,695 39,350 Provision for income taxes (8,717) (12,986) ------- ------- NET INCOME $ 21,978 $ 26,364 ======= ======= Basic earnings per share: Net income $ 0.86 $ 1.04 ======= ======= Weighted average common shares 25,624 25,284 ======= ======= Diluted earnings per share: Net income $ 0.83 $ 1.01 ======= ======= Weighted average common shares 26,444 26,057 ======= ======= The accompanying notes are an integral part of these statements. 1 BIO-RAD LABORATORIES, INC. Condensed Consolidated Balance Sheets (In thousands, except share data) (Unaudited) ------------------------- March 31, December 31, 2004 2003 ASSETS: ------------------------- Cash and cash equivalents $ 141,548 $ 148,642 Accounts receivable, net 228,925 234,085 Inventories, net 190,034 190,258 Prepaid expenses, taxes and other current assets 102,442 97,893 --------- --------- Total current assets 662,949 670,878 Net property, plant and equipment 182,964 179,123 Goodwill, net 72,741 69,503 Other assets 78,909 67,354 --------- --------- Total assets 997,563 986,858 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 57,033 $ 53,995 Accrued payroll and employee benefits 59,761 71,650 Notes payable and current maturities of long-term debt 8,530 10,423 Sales, income and other taxes payable 21,752 20,833 Other current liabilities 74,120 77,425 --------- --------- Total current liabilities 221,196 234,326 Long-term debt, net of current maturities 226,171 225,835 Deferred tax liabilities 14,581 13,991 Other long-term liabilities 17,293 16,899 --------- --------- Total liabilities 479,241 491,051 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 - 20,819,714 at March 31, 2004 and 20,709,127 at December 31, 2003 2 2 Class B common stock, $0.0001 par value, 20,000,000 shares authorized; outstanding - 4,847,940 at March 31, 2004 and 4,834,290 at December 31, 2003 1 1 Additional paid-in capital 44,312 42,164 Retained earnings 442,990 421,012 Accumulated other comprehensive income: Currency translation and other 31,017 32,628 --------- --------- Total stockholders' equity 518,322 495,807 --------- --------- Total liabilities and stockholders' equity $ 997,563 $ 986,858 ========= ========= The accompanying notes are an integral part of these statements. 2 BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) ------------------------- Three Months EndedThree Months Ended March 31, 2004 2003 ------------------------- Cash flows from operating activities: Cash received from customers $ 270,680 $ 250,079 Cash paid to suppliers and employees (226,543) (207,392) Interest paid (9,360) (8,529) Income tax payments (9,682) (12,537) Miscellaneous receipts 2,211 99 --------- --------- Net cash provided by operating activities 27,306 21,720 Cash flows from investing activities: Capital expenditures, net (13,417) (10,981) Payments for acquisitions and investments (17,996) (5,957) Net purchases of marketable securities (2,426) (1,049) Foreign currency hedges, net (830) (2,741) --------- --------- Net cash used in investing activities (34,669) (20,728) Cash flows from financing activities: Net borrowings (repayments)under line-of-credit arrangements (2,055) 3,381 Long-term borrowings -- 6,000 Payments on long-term debt (117) (13,035) Proceeds from issuance of common stock 2,148 1,242 --------- --------- Net cash used in financing activities (24) (2,412) Effect of exchange rate changes on cash 293 (1,090) --------- --------- Net decrease in cash and cash equivalents (7,094) (2,510) Cash and cash equivalents at beginning of period 148,642 27,733 --------- --------- Cash and cash equivalents at end of period $ 141,548 $ 25,223 ========= ========= Reconciliation of net income to net cash provided by operating activities: Net income $ 21,978 $ 26,364 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,500 9,896 Decrease in accounts receivable 3,627 2,036 Decrease (increase)in inventories 1,182 (4,398) Decrease in other current assets 2,476 9,120 Increase in accounts payable and other current liabilities (17,777) (12,309) Increase (decrease) in income taxes payable 8,478 (11,485) Other (3,158) 2,496 --------- --------- Net cash provided by operating activities $ 27,306 $ 21,720 ========= ========= The accompanying notes are an integral part of these statements. 3 BIO-RAD LABORATORIES, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Bio-Rad Laboratories, Inc. ("Bio-Rad" or the "Company"), have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments which are, in the opinion of management, necessary to fairly state the results of the interim periods presented. All such adjustments are of a normal recurring nature. Results for the interim period are not necessarily indicative of the results for the entire year. The condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in the Company's Annual Report for the year ended December 31, 2003. Certain prior year items have been reclassified to conform to the current year's presentation. 2. INVENTORIES The principal components of inventories are as follows (in millions): March 31, December 31, 2004 2003 --------------------------- Raw materials $ 45.7 $ 38.8 Work in process 38.2 38.8 Finished goods 106.1 112.7 ------- ------- $190.0 $ 190.3 ======= ======= 3. PROPERTY, PLANT AND EQUIPMENT The principal components of property, plant and equipment are as follows (in millions): March 31, December 31, 2004 2003 -------------------------- Land and improvements $ 9.9 $ 9.9 Buildings and leasehold improvements 106.1 106.0 Equipment 283.8 273.1 ------- ------- 399.8 389.0 Accumulated depreciation (216.8) (209.9) ------- ------- Net property, plant and equipment $ 183.0 $ 179.1 ======= ======= 4 4. GOODWILL AND INTANGIBLES The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" as of January 1, 2002, which provides that goodwill is no longer subject to amortization over its useful life. Goodwill is subject to an annual assessment for impairment applying a fair-value based test. As part of the acquisition of the controls business of Hematronix in March 2004, (see Note 5) the Company added $3.2 million of goodwill and $9.3 million of intangible assets including in-process research and development. Other than in-process research and development, these intangible assets will be amortized over 5-7.5 years at an estimated annual amount of $1.3 million. 5. ACQUISITIONS AND INVESTMENTS In March 2004, the Company purchased for cash the controls business of Hematronix, Inc. of Plano, Texas. Bio-Rad acquired tangible and intangible assets and assumed certain liabilities for approximately $17 million. Acquired in-process research and development of $0.9 million was charged to expense in the first quarter. The Company purchased shares of ordinary stock of Sartorius AG, of Goettingen, Germany, a process technology supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries for approximately $1.3 million during the three months ended March 31, 2004. The Company accounts for this investment using the cost method. 6. PRODUCT WARRANTY LIABILITY The Company warrants certain equipment against defects in design, materials and workmanship, generally for one year. Upon shipment of that equipment, the Company establishes, as part of cost of goods sold, a provision for the expected cost of such warranty. Components of the product warranty liability included in Other current liabilities and Other long-term liabilities, were as follows (in millions): 2004 2003 ------ ------ January 1, $ 9.1 $ 7.1 Provision for warranty 3.3 3.0 Actual warranty costs (3.1) (2.4) ------ ------ March 31, $ 9.3 $ 7.7 ====== ====== 5 7. LONG-TERM DEBT In August, 2003, the Company sold $225.0 million principal amount of Senior Subordinated Notes due 2013. The notes pay a fixed rate of interest of 7.5% per year. During 2003, the Company also negotiated a new five-year $150 million revolving credit facility. Interest on the facility varies upon a number of factors including the duration of the specific borrowing and is based upon either the Eurodollar, the Federal Funds effective or the Company corporate-based rate. 8. EARNINGS PER SHARE The Company calculates basic earnings per share (EPS) and diluted EPS in accordance with SFAS No. 128, "Earnings per Share." Basic EPS is computed by dividing net income (loss) by the weighted average number of common shares outstanding for that period. Diluted EPS takes into account the effect of dilutive instruments, such as stock options, and uses the average share price for the period in determining the number of common stock equivalents that are to be added to the weighted average number of shares outstanding. Common stock equivalents are excluded from the diluted earnings per share calculation if the effect would be anti-dilutive. Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 820,000 and 773,000 shares, for the three months ended March 31, 2004 and 2003, respectively. Options to purchase 7,000 and 50,000 shares of common stock were outstanding during the three month periods ended March 31, 2004 and 2003 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. 9. STOCK OPTIONS AND PURCHASE PLANS Stock Option Plans ------------------ The Company maintains incentive and non-qualified stock option plans for officers and certain other key employees. Under the 2003 Stock Option Plan, 306,990 shares were granted during the first quarter of 2004. Under the 1994 Stock Option Plan, 302,993 shares were granted during the first quarter of 2003. No options have been issued to non-employees. The Company applies the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for those plans. No stock- based employee compensation expense is reflected in net income as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. 6 Had compensation cost for the Company's stock option and stock purchase plans been accounted for under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's pro forma net income and earnings per share would have been as follows (in millions, except per share data): Three Months Ended March 31, -------------------- 2004 2003 -------------------- Net income, as reported $ 22.0 $ 26.4 Deduct: Total stock based employee compensation expense determined under fair value methods for all awards, net of related tax effects 0.6 0.6 ------ ------ Pro forma net income $ 21.4 $ 25.8 ====== ====== Earnings per share: Basic - as reported $ 0.86 $ 1.04 ====== ====== Basic - pro forma $ 0.83 $ 1.02 ====== ====== Diluted - as reported $ 0.83 $ 1.01 ====== ====== Diluted - pro forma $ 0.81 $ 0.99 ====== ====== For purposes of the pro forma disclosures, the estimated fair value of the options granted is amortized to expense over the options' vesting period. The fair value of options granted was estimated using the Black-Scholes model with the following weighted average assumptions: Three Months Ended March 31, ------------------ 2004 2003 ------------------ Expected volatility 39% 37% Risk-free interest rate 2.73% 2.65% Expected life (in years) 4.3 4.2 Expected dividend -- -- The weighted average fair value of employee stock options granted during the three months ended March 31, 2004 and 2003 was $18.74 and $11.85, respectively. Employee Stock Purchase Plan ---------------------------- The Company has an employee stock purchase plan that provides that eligible employees may contribute up to 10% of their compensation up to $25,000 annually toward the quarterly purchase of the Company's Class A common stock. The employees purchase price is 85% of the lesser of the fair market value of the stock on the first business day or the last business day of each calendar quarter. No compensation expense is recorded in connection with the plan. The Company has 7 authorized the sale of 1,890,000 shares of common stock under the plan. The Company sold 17,273 shares for $0.7 million and 18,641 shares for $0.6 million under the plan to employees for the three months ended March 31, 2004 and 2003, respectively. At March 31, 2004, 251,966 shares remain authorized under the plan. The fair value of the employees' purchase rights was estimated using the Black-Scholes model with the following assumptions: Three Months Ended March 31, ------------------ 2004 2003 ------------------ Expected volatility 20.74% 36.69% Risk free interest rate 0.87% 1.01% Expected life (in years) .25 .25 Expected dividend -- -- The weighted average fair value of those purchase rights granted during the three months ended March 31, 2004 and 2003 was $11.15 and $7.99, respectively. 10. FOREIGN EXCHANGE LOSSES Foreign exchange losses include premiums and discounts on forward foreign exchange contracts and mark-to-market adjustments on foreign exchange contracts. 11. OTHER INCOME AND EXPENSE Other (income) and expense, net includes the following components (in millions): Three Months Ended March 31, ------------------ 2004 2003 ------------------ Write-down of investment $ 2.4 $ -- Interest income (0.6) (0.6) Other (1.6) -- Total Other (income) ------- ------- and expense, net $ 0.2 $ (0.6) ======= ======= The quarter ended March 31, 2004 includes $2.4 million of expense for an other-than-temporary impairment of equity interest in Instrumentation Laboratory, S.p.A., which is accounted for using the cost method. 8 12. COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive Income" requires disclosure of total non-stockholder changes in equity, which include unrealized gains and losses on securities classified as available-for sale under SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities", foreign currency translation adjustments accounted for under SFAS No. 52 "Foreign Currency Translation" and minimum pension liability adjustments made pursuant to SFAS No. 87 "Employers' Accounting for Pensions." The components of the Company's total comprehensive income were (in millions): Three Months Ended March 31, ------------------ 2004 2003 ------------------ Net income $ 22.0 $ 26.4 Currency translation adjustments (3.7) 3.3 Net unrealized holding gains (losses) 2.1 -- ------ ------ Total comprehensive income $ 20.4 $ 29.7 ====== ====== 13. SEGMENT INFORMATION Information regarding industry segments for the three months ended March 31, 2004 and 2003 is as follows (in millions): Life Clinical Other Science Diagnostics Operations ---------------------------------- Segment net sales 2004 $ 125.6 $ 138.9 $ 2.2 2003 $ 117.5 $ 126.1 $ 2.4 Segment profit 2004 $ 15.0 $ 16.4 $ -- 2003 $ 21.6 $ 18.8 $ 0.3 Segment results are presented in the same manner as the Company presents its operations internally to make operating decisions and assess performance. Net corporate operating income (expense) consists of receipts and expenditures that are not the primary responsibility of segment operating management. Interest expense is charged to segments based on the carrying amount of inventory and receivables employed by that segment. The following reconciles total segment profit to consolidated income before taxes (in millions): 9 Three Months Ended March 31, ------------------ 2004 2003 ------------------ Total segment profit $ 31.4 $ 40.7 Foreign exchange losses (0.2) (0.8) Net corporate operating, interest and other income and expense not allocated to segments (0.3) (1.1) Other income and (expense),net (0.2) 0.6 ------- ------- Consolidated income before taxes $ 30.7 $ 39.4 ======= ======= 14. LEGAL PROCEEDINGS The Company is party to various claims, legal actions and complaints arising in the ordinary course of business. The Company does not believe that any ultimate liability resulting from any of these lawsuits will have a material adverse effect on its results of operations, financial position or liquidity. However, the Company cannot give any assurance regarding the ultimate outcome of these lawsuits and their resolution could be material to the Company's operating results for any particular period, depending upon the level of income for the period. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. This discussion should be read in conjunction with the information contained in both the Company's Consolidated Financial Statements for the year ended December 31, 2003 and this report for the quarter ended March 31, 2004. Other than statements of historical fact, statements made in this report include forward looking statements, such as statements with respect to the Company's future financial performance, operating results, plans and objectives that involve risk and uncertainties. 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 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. Overview. We are a multinational manufacturer and worldwide distributor of Life Science research and Clinical Diagnostics 10 products. Our business is organized into two primary segments, Life Science and Clinical Diagnostics, with the mission to provide scientists with specialized tools needed for biological research and clinical diagnostics. We sell more than 8,000 products and services to a diverse client base comprised of scientific research, healthcare, industry, education and government customers worldwide. We manufacture and supply our customers with a range of reagents, apparatus and equipment to separate complex chemical and biological materials and to identify, analyze and purify components. Because our customers require replication of results from experiments and tests, we estimate that approximately 70% of our revenues are recurring. Approximately 32% of our first quarter 2004 consolidated net sales are from the United States and approximately 68% are international sales largely denominated in local currency with the majority of these sales in Euros, Yen and British Sterling. As a result, our consolidated sales expressed in dollars benefit when the US dollar weakens and suffers when the dollar strengthens in relation to other currencies. Currency fluctuations benefited our consolidated sales expressed in US dollars in the current quarter ended March 31, 2004 as well as the prior period. On a currency neutral basis, the diagnostic market is growing in the 3% range comprised of specialty areas experiencing significant growth offset by flat to declining growth in the routine testing market. Pricing for routine diagnostic tests is impacted by declining reimbursement schedules particularly in the US, Japan and Germany. The ambient growth of the life science market is currently about 5% on a currency neutral basis. Some spending on government sponsored research has slowed or is being deferred especially in the US and Japan. Large capital instrumentation systems continue to lag with reagents leading the average. The market for BSE tests continues to be very dynamic as established countries consolidate testing resulting in competitive pricing pressures and lower selling prices. Growth in BSE testing will come from opening new testing markets. The following shows gross profit and expense items as a percentage of net sales: Three Months Year Ended Ended March 31, December 31, ----------------------------- 2004 2003 2003 ----------------------------- Net sales 100.0 100.0 100.0 Cost of goods sold 43.5 42.0 43.7 ----- ----- ----- Gross profit 56.5 58.0 56.3 Selling, general and administrative expense 33.2 31.4 32.4 Product research and development expense 9.5 8.7 9.4 Net income 8.2 10.7 7.6 11 Critical Accounting Policies As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2003, the Company has identified accounting for income taxes, valuation of long-lived and intangible assets and goodwill, and valuation of inventories as the accounting policies critical to the operations of the Company. For a full discussion of these policies, please refer to the Form 10-K. Three Months Ended March 31, 2004 Compared to --------------------------------------------- Three Months Ended March 31, 2003 --------------------------------- Corporate Results -- Sales, Margins and Expenses Net sales (sales) in the first quarter of 2004 rose 8.4% to $266.6 million from $246.0 million in the first quarter of 2003. The positive impact to sales from a weakening US dollar represented $22.4 million. For the Company in total, on a currency neutral basis, sales remained essentially flat compared to the prior quarter. The Clinical Diagnostics segment sales grew by 10% to $138.9 million, before adjustment to a currency neutral basis, while the Life Science segment sales grew 7%. Each segment benefited by approximately 9% as a result of weakening US dollar on a comparative basis. Clinical Diagnostics sales experienced sales growth for its quality control product line while sales declined in its blood Virus product line, in part due to a large first quarter 2003 bulk shipment absent from the current quarter. Life Science sales experienced growth in its multiplex immunoassays, image analysis and expression proteomic reagents and apparatus. Sales declined for the food science products as average selling prices declined in the very competitive BSE market and sales volume decreased for the segment's confocal microscopy products. Consolidated gross margins were 56.5% for the first quarter of 2004 compared to 58.0% for the first quarter of 2003 and 56.3% for all of 2003. Clinical Diagnostics gross margin remained unchanged when compared to the first quarter of 2003. Life Science gross margins declined in part due to lower average selling prices for the Company's BSE tests, which have been under competitive pricing pressure for several quarters. The Company has lowered the average selling price on these tests to retain its leading market share. Remaining declines in Life Science are due to a mix of higher royalty expenses and increased unfavorable manufacturing variances, due in part to the first quarter relocation of Life Science manufacturing into new facilities. Selling, general and administrative expenses (SG&A) represented 33.2% of sales for the first quarter of 2004 compared to 31.4% of sales in the prior period. Both the Clinical Diagnostics and Life Science segments increased SG&A spending at growth rates similar to the Company's growth rate. Increased spending reflects higher costs for facilities, professional services for information technology 12 improvements and other infrastructure investments and personnel costs. Product research and development expense increased 17.9% to $25.2 million in the first quarter of 2004 compared to the prior quarter excluding $0.9 million of expense for acquired in-process research and development in the current quarter. Both Life Science and Clinical Diagnostics each increased their research and development expenditures by near equivalent amounts in absolute dollars. Areas of development for the Company are proteomics, process chromatography, food safety, new diagnostic tests and expanded quality control systems. Corporate Results- Other Items Interest expense increased from the prior year by 8.6%. This increase is the net effect of the Company increasing its average indebtedness from $112 million in the first quarter of 2003 to $235 million for the first quarter of 2004. During the second half of 2003, the Company refinanced all of its debt, represented largely by its 11-5/8% bonds, and replaced it with new 7.5% bonds. This has brought about a significant drop in the average borrowing rate. Exchange gains and losses consist of the premiums and discounts on forward foreign exchange contracts used to hedge against future movements in intercompany accounts receivable and accounts payable, and the revaluation of intercompany accounts receivable and payable where the cost of hedging is prohibitive or a cost effective market does not exist. Other income and expense for the first quarter of 2004 includes higher interest income on cash balances of approximately $140 million representing the net proceeds from the $225 million bond financing which have not been fully employed for an acquisition or other corporate needs. The Company also received a payment on the divestiture of product know-how which was transacted in a prior period, but was considered contingent at the time. These items were offset as the Company recorded a $2.4 million write-down of an investment due to a recapitalization. The Company's effective tax rate was 28% and 33% for the three month periods ended March 31, 2004 and 2003 respectively. The rate decline is principally the result of tax planning opportunities resulting from increased foreign profitability. Should legislation which the Company relied on to effect the lower rate remain unchanged the benefit is expected to last approximately 5 years. As of March 31, 2004, the Company had available $141.5 million in cash and cash equivalents, $30.2 million under international lines of credit and $150.0 million under the restated and amended Revolving Credit Facility. Management believes that the availability, together with cash flow from operations, will be adequate to meet the Company's current objectives for operations, research and development, capital additions for plant, equipment and systems and an acquisition or acquisitions with a total value of approximately $200 million. 13 Net cash provided by operations was $27.3 million and $21.7 million for the period ending March 31, 2004 and 2003, respectively. The Company's continued profitability, lack of excessive additional operating asset requirements, and lower tax rates have all contributed to the improvement in cash flow from operations on a comparative basis. At March 31, 2004, consolidated accounts receivable were $228.9 million, a decrease of $5.2 million from December 31, 2003. The decline represents both an impact from foreign currency, as the March 31, 2004 rate of the Euro declined when compared to year-end, and the essentially flat currency neutral sales. At March 31, 2004, consolidated net inventories remained virtually unchanged from December 31, 2003. Included in the reported amount is approximately $2.6 million attributable to the acquisition of the controls business of Hematronix. There was no substantial change in the mix of inventory held by operating segments. Net capital expenditures totaled $13.4 million for the first quarter of 2004 compared to $11.0 million for the same period of 2003. Capital expenditures represent the Company's investment in business systems, data communication, the addition and replacement of production machinery equipment and facility additions and leasehold improvements. All periods include reagent rental equipment placed with Clinical Diagnostics customers who then commit to purchase reagents for use. The Company continues to review possible acquisitions to expand both its Life Science and Clinical Diagnostics segments. The Company routinely meets with the principals or brokers of the subject companies. Should the Company make a material acquisition it would most likely require an increase in borrowed funds. The Board of Directors has authorized the Company to repurchase up to $18 million of the Company's common stock over an indefinite period of time. Through March 31, 2004, 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. There were no share repurchases made during 2003 or 2004. The repurchase is designed to both satisfy the Company's obligations under the employee stock purchase and stock option plans and to improve shareholder value. Item 3. Quantitative and Qualitative Disclosures about Market Risk During the three months ended March 31, 2004, there have been no material changes from the disclosures about market risk provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. 14 Item 4. Controls and Procedures The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level. There has been no change in the Company's internal controls over financial reporting during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. At the Company's annual meeting of stockholders on April 27, 2004, the following individuals were reelected to the Board of Directors: Class of Common Stock Votes Votes Elected From For Withheld --------------------------------------------------------------------- James J. Bennett Class B 4,728,670 2,042 Albert J. Hillman Class A 11,739,259 5,151,547 Ruediger Naumann-Etienne Class B 4,728,710 2,002 Philip L. Padou Class A 15,441,433 1,449,373 Alice N. Schwartz Class B 4,729,726 986 David Schwartz Class B 4,729,726 986 Norman Schwartz Class B 4,729,766 946 15 The following proposals were approved at the Company's annual meeting: Votes Votes For Against Abstentions ---------------------------------------------------------------------- Ratification of Deloitte & Touche LLP as the Company's independent auditors 6,380,376 39,040 376 Amend the Certificate Of Incorporation A Shares 15,780,321 1,080,823 29,662 Total Shares 6,305,968 110,808 3,016 The foregoing matters are described in detail on pages 5, 6, 19, 20 and 21 of the Company's definitive Proxy Statement dated March 31, 2004, filed with the Securities and Exchange Commission and incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following documents are filed as part of this report: Exhibit No. ----------- 22.1 Proxy Statement dated March 31, 2004, pages 5, 6, 19, 20 and 21 (definitive form filed March 26, 2004, and incorporated by reference). 31.1 Chief Executive Officer Section 302 Certification 31.2 Chief Financial Officer Section 302 Certification 32.1 Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K Bio-Rad filed a current report on Form 8-K with the SEC on February 12, 2004, announcing its results of operations and financial condition as of and for the fourth quarter and fiscal year ended December 31, 2003. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. BIO-RAD LABORATORIES, INC. (Registrant) Date: May 7, 2004 /s/ Christine A. Tsingos ----------- ------------------------------------- Christine A. Tsingos, Vice President, Chief Financial Officer Date: May 7, 2004 /s/ Sanford S. Wadler ----------- ------------------------------------ Sanford S. Wadler, Vice President, General Counsel and Secretary 17 EX-31 2 exb311.txt Exhibit 31.1 Certification of Chief Executive Officer Required By Exchange Act Rules 13a-14(a) and 15d-14(a) I, Norman Schwartz, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bio-Rad Laboratories, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present, in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the 1 disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 7, 2004 /s/ Norman Schwartz ------------- ------------------------- Norman Schwartz Chief Executive Officer 2 EX-31 3 exb312.txt Exhibit 31.2 Certification of Chief Financial Officer Required By Exchange Act Rules 13a-14(a) and 15d-14(a) I, Christine A. Tsingos, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bio-Rad Laboratories, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present, in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the 1 end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 7, 2004 /s/ Christine A. Tsingos ------------- ------------------------ Christine A. Tsingos Vice President, Chief Financial Officer 2 EX-32 4 exb321.txt Exhibit 32.1 Certification of Periodic Report I, Norman Schwartz, Chief Executive Officer of Bio-Rad Laboratories, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2004 (the "Report") fully complies with the requirements of Section 13 (a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 7, 2004 /s/ Norman Schwartz ------------- ------------------------- Norman Schwartz Chief Executive Officer EX-32 5 exb322.txt Exhibit 32.2 Certification of Periodic Report I, Christine A. Tsingos, Vice President and Chief Financial Officer of Bio-Rad Laboratories, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 1-Q of the Company for the quarterly period ended March 31, 2004 (the "Report") fully complies with the requirements of Section 13 (a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 7, 2004 /s/ Christine A. Tsingos ------------- ------------------------ Christine A. Tsingos Vice President, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----