UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000. 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) Identification No.) 1000 Alfred Nobel Drive, Hercules, California 94547 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (510) 724-7000 Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date-- <TABLE> <CAPTION> Shares Outstanding Title of each Class at Jule 31, 2000 <S> <C> Class A Common Stock, Par Value $1.00 per share 10,014,655 Class B Common Stock, Par Value $1.00 per share 2,463,473 </TABLE>
PART I - FINANCIAL INFORMATION Item 1. Financial Statements. BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 <S> <C> <C> <C> <C> NET SALES . . . . . . . . . . . . . . . . . . $185,087 $115,794 $368,773 $241,532 Cost of goods sold . . . . . . . . . . . . . 87,193 50,553 173,913 106,109 GROSS PROFIT . . . . . . . . . . . . . . . . 97,894 65,241 194,860 135,423 Selling, general and administrative expense . 62,265 41,805 122,983 84,822 Product research and development expense . . 17,380 10,916 35,251 21,450 INCOME FROM OPERATIONS . . . . . . . . . . . 18,249 12,520 36,626 29,151 Interest expense . . . . . . . . . . . . . . (7,802) (807) (16,568) (1,703) Investment income, net . . . . . . . . . . . 195 349 483 423 Other, net . . . . . . . . . . . . . . . . . (3,180) (1,025) (8,733) (1,705) INCOME BEFORE TAXES . . . . . . . . . . . . . 7,462 11,037 11,808 26,166 Provision for income taxes . . . . . . . . . 2,388 3,156 3,779 7,483 NET INCOME . . . . . . . . . . . . . . . . . $ 5,074 $ 7,881 $ 8,029 $ 18,683 ======== ======== ======== ======== Basic earnings per share: Net income . . . . . . . . . . . . . . . . $0.42 $0.65 $0.66 $1.54 ======== ======== ======== ======== Weighted average common shares . . . . . . 12,218 12,095 12,198 12,102 ======== ======== ======== ======== Diluted earnings per share: Net income . . . . . . . . . . . . . . . . $0.41 $0.65 $0.65 $1.54 ======== ======== ======== ======== Weighted average common shares . . . . . . 12,270 12,176 12,261 12,144 ======== ======== ======== ======== </TABLE> 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) <TABLE> <CAPTION> June 30, December 31, 2000 1999 <S> <C> <C> ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . $ 13,071 $ 17,087 Accounts receivable . . . . . . . . . . . . . . . . . 193,662 193,898 Inventories . . . . . . . . . . . . . . . . . . . . . 139,325 126,277 Prepaid expenses, taxes and other current assets . . . 37,970 41,455 Total current assets . . . . . . . . . . . . . . . 384,028 378,717 Net property, plant and equipment . . . . . . . . . . 125,990 125,942 Marketable securities . . . . . . . . . . . . . . . . 1,346 1,169 Other assets . . . . . . . . . . . . . . . . . . . . . 153,673 163,034 Total assets . . . . . . . . . . . . . . . . . . $665,037 $668,862 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Notes payable and current maturities of long-term debt $ 19,564 $ 21,960 Accounts payable . . . . . . . . . . . . . . . . . . . 59,121 64,737 Accrued payroll and employee benefits . . . . . . . . 50,839 59,919 Sales, income and other taxes payable . . . . . . . . 12,011 14,086 Other current liabilities . . . . . . . . . . . . . . 49,698 41,819 Total current liabilities . . . . . . . . . . . . . 191,233 202,521 Long-term debt, net of current maturities . . . . . . 242,935 239,211 Deferred tax liabilities . . . . . . . . . . . . . . . 8,527 7,016 Total liabilities . . . . . . . . . . . . . . . . . 442,695 448,748 STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value, 2,300,000 shares authorized; none outstanding . . . . . . . . . . . . -- -- Class A common stock, $1.00 par value, 15,000,000 shares authorized; outstanding - 10,014,655 at June 30, 2000 and 9,977,862 at December 31, 1999 . . . . . . . . . 10,015 9,978 Class B common stock, $1.00 par value, 6,000,000 shares authorized; outstanding - 2,463,473 at June 30, 2000 and 2,484,716 at December 31, 1999 . . . . . . . . . 2,463 2,485 Additional paid-in capital . . . . . . . . . . . . . . 19,104 18,830 Class A treasury stock, 258,816 shares at June 30, 2000 and 335,450 shares at December 31, 1999 at cost . . (5,703) (7,392) Retained earnings . . . . . . . . . . . . . . . . . . 208,802 200,993 Accumulated other comprehensive income: Currency translation . . . . . . . . . . . . . . . . (12,531) (4,741) Net unrealized holding gain (loss) on marketable securities 192 (39) Total stockholders' equity . . . . . . . . . . . . 222,342 220,114 Total liabilities and stockholders' equity . . . $665,037 $668,862 ======== ======== </TABLE> The accompanying notes are an integral part of these statements. 2
BIO-RAD LABORATORIES, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 2000 1999 <S> <C> <C> Cash flows from operating activities: Cash received from customers . . . . . . . . . . . . . . . $365,227 $234,532 Cash paid to suppliers and employees . . . . . . . . . . . (333,482) (210,815) Interest paid. . . . . . . . . . . . . . . . . . . . . . . (11,890) (1,800) Income tax payments . . . . . . . . . . . . . . . . . . . (5,317) (8,829) Miscellaneous receipts (payments). . . . . . . . . . . . . (2,573) 21 Net cash provided by operating activities. . . . . . . . . 11,965 13,109 Cash flows from investing activities: Capital expenditures, net. . . . . . . . . . . . . . . . . (17,057) (10,967) Purchases of marketable securities and investments . . . . (370) (1,597) Sales of marketable securities and investments . . . . . . 574 937 Foreign currency hedges, net . . . . . . . . . . . . . . . 3,461 2,530 Net cash used in investing activities. . . . . . . . . . . (13,392) (9,097) Cash flows from financing activities: Net payments under line-of-credit arrangements . . . . . . (2,143) (1,713) Long-term borrowings . . . . . . . . . . . . . . . . . . . 347,498 37,250 Payments on long-term debt . . . . . . . . . . . . . . . . (343,543) (38,658) Arrangement and other fees for long-term financing . . . . (4,500) - Proceeds from issuance of common stock . . . . . . . . . . 289 292 Treasury stock activity, net . . . . . . . . . . . . . . . 1,469 (1,483) Net cash used in financing activities. . . . . . . . . . . (930) (4,312) Effect of exchange rate changes on cash . . . . . . . . . . . . (1,659) 1,814 Net increase in cash and cash equivalents . . . . . . . . . . . (4,016) 1,514 Cash and cash equivalents at beginning of period. . . . . . . . 17,087 10,081 Cash and cash equivalents at end of period. . . . . . . . . . . $ 13,071 $ 11,595 ======== ======== Reconciliation of net income to net cash provided by operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,029 $ 18,683 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . 21,726 10,776 Foreign currency hedge transactions, net . . . . . . . . (3,461) (2,530) Gains on disposition of marketable securities. . . . . . (392) (356) (Increase) decrease in accounts receivable . . . . . . . 504 (3,952) Increase in inventories . . . . . . . . . . . . . . . . (15,004) (1,219) (Increase) decrease in other current assets. . . . . . . 3,186 (685) Decrease in accounts payable and other current liabilities. . . . . . . . . . . . . . . . . . (6,376) (3,943) Decrease in income taxes payable . . . . . . . . . . . . (971) (3,159) Other. . . . . . . . . . . . . . . . . . . . . . . . . . 4,724 (506) Net cash provided by operating activities . . . . . . . . . . . $ 11,965 $ 13,109 ======== ======== </TABLE> 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"), reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in the Company's Annual Report for the year ended December 31, 1999 (the Company's 1999 Annual Report). Certain amounts in the financial statements of the prior year have been reclassified to be consistent with the 2000 presentation. 2. INVENTORIES The principal components of inventories are as follows: June 30, December 31, 2000 1999 (in thousands) Raw materials $ 36,298 $ 32,398 Work in process 38,252 31,936 Finished goods 64,775 61,943 $139,325 $126,277 ======== ======== 3. PROPERTY, PLANT AND EQUIPMENT The principal components of property, plant and equipment are as follows: June 30, December 31, 2000 1999 (in thousands) Land and improvements $ 8,897 $ 8,937 Buildings and leasehold improvements 68,843 73,230 Equipment 173,335 168,401 251,075 250,568 Accumulated depreciation (125,085) (124,626) Net property, plant and equipment $125,990 $125,942 ======== ======== 4. ACQUISITIONS In October 1999, the Company acquired Pasteur Sanofi Diagnostics S.A.. At that time, liabilities were recorded of approximately $14.0 million for severance and other employee costs and $4.0 4
million for the consolidation and closure of certain leased facilities. As of June 30, 2000, expenses charged against these reserves were approximately $4.1 million for severance and other employee costs and $1.0 million for facilities. 5. EARNINGS PER SHARE Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 52,000 and 81,000 shares, for the three month period ended June 30, 2000 and 1999, respectively. Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options of 63,000 and 42,000 shares, for the year-to-date periods ended June 30, 2000 and 1999, respectively. Options to purchase 241,000 and 214,000 shares of common stock were outstanding for the three month period ended June 30, 2000 and 1999, 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. Options to purchase 209,000 and 294,000 shares of common stock were outstanding for the year-to-date periods ended June 30, 2000 and 1999, respectively, but were excluded from the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common shares. The options were still outstanding at June 30, 2000. 6. OTHER INCOME AND EXPENSE <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 (in thousands) <S> <C> <C> <C> <C> Goodwill amortization $(2,021) $ (517) $(4,011) $(1,034) Settlement payment to investment Bank -- -- (3,000) -- Legal fees (1,139) (603) (1,681) (635) Other, net (20) 95 (41) (36) Total other, net $(3,180) $(1,025) $(8,733) $(1,705) ======= ======= ======= ======= 7. COMPREHENSIVE INCOME The components of the Company's total comprehensive income were: Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 (in thousands) Net Income $ 5,074 $ 7,881 $ 8,029 $18,683 Currency translation adjustments (1,978) (976) (7,790) (3,302) Net unrealized holding gains (losses) on securities 35 875 498 486 Reclassification adjustments for gains included in net income (50) (216) (267) (253) Total comprehensive income $ 3,081 $ 7,564 $ 470 $15,614 ======= ======= ======= ======= </TABLE> 5
8. SEGMENT INFORMATION Information regarding industry segments for the three months ended June 30, 2000 and 1999 is as follows (in thousands): Life Clinical Analytical Science Diagnostics Instruments Segment net sales 2000 $61,994 $106,140 $ 17,836 1999 55,857 44,617 15,810 Segment profit (loss) 2000 $ 1,430 $ 9,744 $ (261) 1999 4,885 6,603 (142) Information regarding industry segments for the six months ended June 30, 2000 and 1999 is as follows (in thousands): Life Clinical Analytical Science Diagnostics Instruments Segment net sales 2000 $128,823 $205,726 $ 36,215 1999 116,061 92,633 34,114 Segment profit 2000 $ 8,563 $ 12,736 $ 80 1999 11,732 15,681 762 Inter-segment sales are primarily between Life Science and Clinical Diagnostics and are priced to give Life Science a representative gross margin. 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: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 (in thousands) <S> <C> <C> <C> <C> Total segment profit $10,913 $11,346 $21,379 $28,175 Gross profit on inter-segment sales (440) (231) (1,001) (637) Net corporate operating, interest and other expense not allocated to segments (1,185) 90 (5,042) (761) Goodwill amortization (2,021) (517) (4,011) (1,034) Investment income, net 195 349 483 423 Consolidated income before taxes $ 7,462 $11,037 $11,808 $26,166 ======= ======= ======= ======= </TABLE> 6
9. SUBSEQUENT EVENT On July 31, 2000, Accent Semiconductor Technologies (Accent) acquired the assets and certain liabilities of the Company's semiconductor and optoelectronic metrology business. The proceeds of approximately $36.00 million represent $27.0 million in cash, a note receivable due in five years and a less than 20% equity interest in Accent. 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 Accent will be held as a long-term investment on the cost method. 7
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. This discussion should be read in conjunction with the information contained both in this report and in the Company's Consolidated Financial Statements for the year ended December 31, 1999, and Form 8-K filed with the Securities and Exchange Commission on October 15, 1999 regarding the acquisition of Pasteur Sanofi Diagnostics S.A. ("PSD"). The following table shows operating income and expense items as a percentage of net sales: <TABLE> <CAPTION> Three Months Ended Six Months Ended Year Ended June 30, June 30, December 31, 2000 1999 2000 1999 1999 <S> <C> <C> <C> <C> <C> Net sales 100.0 100.0 100.0 100.0 100.0 Cost of goods sold 47.1 43.7 47.2 43.9 46.5 Gross profit 52.9 56.3 52.8 56.1 53.5 Selling, general and administrative 33.6 36.1 33.3 35.1 35.4 Product research and development 9.4 9.4 9.6 8.9 9.3 Purchased in-process research and development - - - - 2.8 Income from operations 9.9 10.8 9.9 12.1 6.0 ===== ===== ===== ===== ===== Net income 2.7 6.8 2.2 7.7 2.1 ===== ===== ===== ===== ===== </TABLE> Forward Looking Statements Other than statements of historical fact, statements made in this report include forward looking statements, such as statements with respect to the Company's future financial performance, operating results, plans and objectives. Actual results may differ materially from those currently anticipated depending on a variety of risk factors including the successful integration of PSD, our substantial debt and debt service obligations, increased competition, technological development, access to necessary intellectual property, the ability to achieve management objectives, government regulation, the continued performance of business partners, and the monetary policies of various countries. 8
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Corporate Results - Sales, Margins and Expenses Net sales (sales) in the second quarter of 2000 were $185.1 million compared to $115.8 million in the second quarter of 1999, an increase of 60%. Sales increased 11.0% in Life Science, 137.9% in Clinical Diagnostics, and 12.8% in Analytical Instruments when compared to the second quarter of 1999. In the second quarter of 2000 both Bio-Rad and the Clinical Diagnostics segment benefited from $53.0 million of sales arising from the recently acquired PSD product lines. Excluding the sales attributable to the acquisition, Bio-Rad sales and Clinical Diagnostics sales grew by 14.3% and 19.6%, respectively. The growth in Life Science is attributed to product offerings used in the fields of proteomics and drug discovery. Clinical Diagnostics experienced growth in the area of clinical quality control. In the Analytical Instruments segment, sales of the Company's semiconductor test and manufacturing instruments rebounded significantly but were offset by sales declines in the Company's Spectroscopy product line. Consolidated gross margins were 52.9% for the second quarter of 2000 compared to 56.3% for the second quarter of 1999 and 53.5% for all of 1999. Excluding the impact of the acquisition, gross margins would have been 55.3%. Margins on the PSD products are lower than the Company's historical rates. Gross margins declined in Life Science 0.6%, due to the strengthening U.S. dollar lowering margins on foreign currency denominated sales and sales volume declines in the Microscopy product lines. Analytical Instruments gross margin increased as a result of increased sales volume for the semiconductor products along with firmer pricing. Clinical Diagnostics margins were impacted by the strengthening U.S. dollar's impact on foreign currency denominated sales and increased service and re-engineering costs on diagnostic equipment supplied by outside contractors. Selling, general and administrative expense (SG&A) decreased to 33.6% of sales in the second quarter of 2000 from 36.1% of sales in the second quarter of 1999. The program to integrate the PSD business has been substantially completed as of June 30, 2000. The planned work force reductions were completed as of June 30. Clinical Diagnostic's headcount has fallen by 183 since October 1, 1999, the acquisition date. SG&A expense as a percent of sales grew for Life Science as the segment continued its investments in e-commerce and other distribution and marketing infrastructure. Product research and development expense (R&D) remained unchanged at 9.4% of sales including the operations of PSD. 9
Corporate Results - Non-Operating Items Interest expense increased significantly from the prior year reflecting the debt incurred to finance the acquisition of PSD. Investment income in both years includes gains on sales of marketable securities. Net other income and expense in both years includes net goodwill amortization and non-operating legal costs. The Company's effective tax rate rose to 32% for the second quarter of 2000 compared to 29% in the second quarter of 1999. The increased rate reflects the limitation on the deductibility of goodwill amortization associated with the acquisition of PSD, the utilization of loss carryforwards and a change in the geographical source of taxable income. Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Corporate Results - Sales Margins and Expenses Sales in the first half of 2000 were $368.8 million compared to $241.5 million in the first half of 1999, an increase of 52.7%. For the first half of 2000, the effect from a strengthened U.S. dollar reduced sales $7.7 million when compared to sales based upon the 1999 exchange rates. Including the currency impact, sales increased 11.0% for Life Science, 122.1% for Clinical Diagnostics and 6.2% for Analytical Instruments. Life Science sales increased in its core products and its imaging products. Clinical Diagnostics sales growth is attributable to $102.1 million of sales from the PSD acquisition and $11.0 million from the pre-acquisition product lines. The market has improved for the Company's semiconductor test and manufacturing equipment, the most significant product line in the Analytical Instruments segment. The Spectroscopy business remains in decline and the Company is reviewing its strategic options now that it has announced the sale of its semiconductor business to Accent Semiconductor Technologies (Accent). Consolidated gross margins were 52.8% for the first six months of 2000 compared to 56.1% for the first six months of 1999 and 53.5% for all of 1999. Life Science margins declined by 0.6% to 54.4% due to the effect of a strengthening U.S. dollar on foreign currency denominated sales and product sales mix partially offset by improved manufacturing efficiency from increased volume. Clinical Diagnostics margins declined excluding the PSD product lines, as service costs, re-engineering costs and manufacturing variances were incurred on outsourced diagnostic equipment. Analytical Instruments margins improved on stronger semiconductor sales growth compared to the prior period when the semiconductor industry had not begun to emerge from the l998-l999 downturn. SG&A decreased to 33.3% of sales in the first half of 2000 from 35.1% of sales in the comparable period of 1999. The Life Science segment grew SG&A expenditures by $5.2 million investing in e-commerce capabilities and distribution and marketing 10
infrastructure. Clinical Diagnostics expenditures declined as a percent of sales due to personnel attrition, lay-offs and the postponement of discretionary spending during the integration phase of the PSD acquisition. The impact of personnel reductions should benefit future periods as approximately half of the planned redundancies were completed the last week of June, 2000. Consolidated R&D increased by $13.9 million in the first half of 2000 compared to the first half of 1999, $6.8 million excluding the PSD acquisition. Life Science and Clinical Diagnostics each increased their R&D expenditures in line with development plans in the area of proteomics, drug discovery, new diagnostic testing platforms and expanded quality control systems. Corporate Results - Non-operating Items Interest expense was $16.6 million, reflecting the debt incurred to finance the acquisition of PSD. In January 2000 the Company incurred an additional $1.0 million of non recurring bank fees to replace the $100 million bridge loan with a similar debt instrument from a different lender with preferable terms. The Company's effective tax rate increased to 32% for the first half of 2000 from 29% in the prior period. The increase reflects limitations on the deductibility of goodwill associated with the PSD acquisition, the utilization of loss carryforwards and the geographical source of taxable income. In addition, the rate may increase as a result of the sale of the Company's semiconductor product line's assets. The allocation of asset valuations and proceeds amongst the several buyers and sellers are subject to mutual review and consultation. Financial Condition The Company as of June 30, 2000 had available approximately $75.0 million under its principal revolving credit agreement and $16.1 million under various foreign lines of credit. Cash and cash equivalents available were $13.1 million. At June 30, 2000, consolidated accounts receivable remained unchanged from December 31, 1999. This represents the net impact of a strengthened U.S. dollar lowering foreign denominated receivables, and an increase in the aging of receivables caused by the decentralization of collection functions of the PSD organization from France and the United States to locally based Latin America and Asia sales organizations. The Company believes that after a transition period this will allow for overall improved customer relations and improved collection administration. At June 30, 2000, consolidated net inventories increased by $13.1 million from December 31, 1999. Inventory increased in Life 11
Science for new product introductions to take place before the year-end related to proteomics and amplification applications, as well as to build safety stock for key components used across multiple products. Clinical Diagnostics inventory at year end was artificially low due to outside suppliers manufacturing problems. Inventory for the quality controls include some large periodic bulk sales to be shipped later in the year. Inventory for the Clinical Diagnostics quality controls business is characterized by long lead times and large infrequent batch production which is necessary to meet customers requirements. Inventories also increased during the current year as Bio-Rad took delivery of the ancillary asset site in Brazil from Sanofi Synthelabo. Net capital expenditures totaled $17.1 million for the first half of 2000 compared to $11.0 million for the same period of 1999. Expenditures rose as the Company invested in data communication and business systems to standardize and integrate its new acquisition and production equipment. Capital expenditures include additions of reagent rental equipment placed with Clinical Diagnostic customers who then commit to purchasing the Company's diagnostic reagents. The Board of Directors has authorized the Company to repurchase up to $18 million of common stock over an indefinite period of time. From July 1996 through June 30, 2000, the Company has repurchased 567,786 shares of Class A common stock and 30,000 shares of Class B common stock for a total of $14.1 million. The indenture restricts the Company's ability to repurchase its own stock to an amount not to exceed $4 million in the aggregate over the term of the indenture. There have been no share repurchases made during the first six months of the year 2000. The Company had previously announced it's intention to sell or dispose of certain portions of the Analytical Instruments segment. As of July 31, 2000, the Company has sold all the assets and transferred selected liabilities associated with its semiconductor product lines to Accent for proceeds of approximately $36 million. Proceeds represent $27 million in cash, a note receivable due in five years and a less than 20% equity interest in Accent which the Company will hold as a long term investment on the cost method. The Company has used $17.0 million of the cash proceeds to reduce borrowings on the term loan portion of the Senior Credit facility as called for by the Senior Credit Agreement. The Company is now in the process of reviewing its strategic options in regards to the remainder of the Analytical Instruments segment. This segment after the transfer to Accent will comprise less than 5% of the Company's sales and net assets. Euro - A New European Currency On January 1, 1999, certain member countries of the European Union began to fix the conversion rates between their national currencies 12
and a common currency, the "Euro." Over the period January 1, 1999 through January 1, 2002 participating countries will gradually transition from their national currencies to the Euro. This transition will have business implications including the need to adjust internal systems to accommodate the Euro and cross-border price transparency. A group of Corporate and European managers have been assigned the task of preparing and accommodating the changes required to continue to do business in the European Union. The Company has not experienced to date nor does it expect that these changes will have a material impact on operations, financial position or liquidity. There will be increased competitive pressures as a result of the change, and marketing strategies will need to be continuously evaluated until the transition is complete. As a result of competitive forces and government regulations, the Company cannot guarantee that all problems will be foreseen and remediated, and that no material disruption will occur. Year 2000 Issues To date, we have not experienced any material Year 2000 related issues. Although we cannot be certain, we expect minimal future Year 2000 issues based on the performance to date of our internal systems and the products we supply to our customers. New Financial Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" effective for fiscal years beginning after June 15, 1999. The FASB has now delayed implementation to all fiscal quarters of fiscal years beginning after June 15, 2000. This statement establishes accounting and reporting standards requiring companies to record all derivatives on the balance sheet as either assets or liabilities and measure those instruments at fair value. The manner in which companies are to record gains or losses resulting from changes in the values of those derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. The impact of SFAS No. 133 on the Company's financial statements will depend on a variety of factors, including interpretive guidance from the FASB, the future level of forecasted and actual foreign currency transactions, the extent of the Company's hedging activities, the types of hedging instruments used and the effectiveness of such instruments. However, the Company does not expect the adoption of SFAS No. 133 to have a material effect on its financial statements. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin: No. 101 "Revenue Recognition in Financial Statements" (SAB101). SAB101 summarizes related views 13
of the SEC Staff in applying generally accepted accounting principles to revenue recognition in financial statements. The Company has until the fourth quarter of 2000 to adhere to the guidance in SAB101. The impact of SAB101 on our consolidated financial statements has not been determined. Item 3. Quantitative and Qualitative Disclosures About Market Risk During the six months ended June 30, 2000, excluding its exposure to increased interest rates, 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, 1999. The issuance of the 11-5/8% Senior Subordinated Notes has reduced Bio-Rad's exposure to increases in interest rates. The Company has gone from having approximately all of its year-end debt based on floating interest rates to approximately 57% at fixed rate pricing. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following documents are filed as part of this report: Exhibit No. 4.1.2 Amendment dated 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. 27.1 Financial Data Schedule (b) Reports on Form 8-K There were no reports on Form 8-K for the quarter ended June 30, 2000. 14
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. BIO-RAD LABORATORIES, INC. (Registrant) Date: August 14, 2000 /s/ Thomas C. Chesterman Thomas C. Chesterman, Vice President, Chief Financial Officer Date: August 14, 2000 /s/ James R. Stark James R. Stark, Corporate Controller 15