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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.
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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