ITEM 1. BUSINESS
General
Founded in 1957, Bio-Rad Laboratories, Inc. ("Bio-Rad" or the "Company") was initially engaged in the development and production of specialty chemicals used in biochemical, pharmaceutical and other life science research applications. In 1967, the Company entered the field of clinical diagnostics with the development of its first test kit based on separation techniques and materials developed for life science research. Recognizing that the fields of clinical diagnostics and life science research were evolving toward more automated techniques, Bio-Rad expanded into the field of analytical and measuring instrument systems through internal research and development efforts and acquisitions in the late 1970's and 1980's.
As Bio-Rad broadened its product lines, it also expanded its geographical market. The Company controls its distribution channels in thirty countries outside the U.S.A. through subsidiaries whose primary focus is customer service and product distribution.
During 1996 and 1997, the Company made five acquisitions. The assets acquired from Chiron Diagnostics Corporation and Chiron Corporation on December 5, 1997, enhanced the product line offering for diagnostic controls. The remaining acquisitions broadened product line offerings within the Analytical Instruments and Life Science segments.
On October 1, 1999 Bio-Rad acquired the stock of Pasteur Sanofi Diagnostics ("PSD") and the rights to certain ancillary assets for $210 million. PSD was founded by the Institut Pasteur to commercialize its diagnostic research, and holds certain exclusive licenses from the Institut Pasteur in the HIV and infectious disease diagnostic product market. PSD also expanded the geographic reach and market penetration for the Company's product particularly in Latin America, Africa and France.
Bio-Rad manufactures and supplies the life science research, healthcare, analytical chemistry, semiconductor and other markets with a broad range of products and systems used to separate complex chemical and biological materials and to identify, analyze and purify their components.
Description of Business
Business Segments
The Company operates in three industry segments designated Life Science, Clinical Diagnostics and Analytical Instruments. Each operates in both the U.S.A. and international markets. For a description of business and financial information on industry and geographic segments, see Note 13 on pages 22 through 25 of Exhibit 13.1, which is incorporated herein by reference.
Life Science Segment.
Life science is the study of the characteristics, behavior, and structure of living organisms and their component systems. Life science researchers use a variety of products and systems-- including reagents, instruments, software and apparatus-- to advance the study of life processes, drug discovery and biotechnology, primarily within a laboratory setting.
We focus on selected segments of the life science market-- laboratory devices, biomaterials, imaging products and microscopy systems-- for which we estimate 2000 worldwide sales totaled approximately $1.6 billion. The primary technological applications that we supply to these segments are diverse and consist of electrophoresis, image analysis and microplate readers, chromatography, gene transfer and sample preparation and amplification. The primary end-users in our sectors of the market are universities and medical schools, industrial research organizations, government agencies, pharmaceutical manufacturers and biotechnology researchers.
Clinical Diagnostics Segment.
The clinical diagnostics industry encompasses a broad array of technologies incorporated into a variety of tests used to detect, identify and quantify substances in blood or other bodily fluids and tissues. The test results are used as aids for medical diagnosis, detection, evaluation, monitoring and treatment of diseases and other medical conditions. The bulk of tests are performed in vitro (literally, "in glass"), while the remainder consists of in vivo ("in the body") tests. The most common type of in vitro tests are routine chemistry tests that measure important health parameters, such as glucose, cholesterol or sodium, as part of routine blood checks. A second type of diagnostic tests, on which we focus, are more specialized and require more sophisticated equipment and materials than do routine tests. These specialized tests are also lower-volume and higher-priced than routine tests. We estimate that in 2000, sales to the global clinical diagnostics industry totaled approximately $20 billion.
The primary end-users in the areas of the clinical diagnostics industry we target are hospital laboratories, reference laboratories, physician office laboratories, government agencies and other diagnostics manufacturers.
Analytical Instruments Segment.
The analytical instruments segment develops, manufacturers, sells and services FT-IR spectroscopy systems, semiconductor tests and manufacturing instruments, spectral reference publications and software. On July 31, 2000, Bio-Rad sold the assets of its Semiconductor product line to Accent Semiconductor Technology Inc., and will no longer directly compete in this market.
Spectrometers measure the infrared spectra of materials, providing quantitative and qualitative information about their
chemical composition. The primary end-users for spectrometers are scientists and researchers in a wide range of industries, including chemicals, pharmaceuticals, biotechnology and food. Applications for the products are varied but range from general analytical purposes to research and development and quality control.
The primary end-users for spectral databases, chemists and spectroscopists, use them to identify a sample through the spectrum it produces against a spectra of known compounds. A variety of market segments use these products, including the chemical, pharmaceutical, biotechnology, forensic and environmental chemistry industries, as well as academic researchers.
Raw Materials and Components
The Company utilizes a wide variety of chemicals, biological materials, electronic components, machined metal parts, optical parts, minicomputers and peripheral devices. Most of these materials and components are available from numerous sources and the Company has not experienced difficulty in securing adequate supplies.
Patents and Trademarks
We own numerous U.S. and international patents and patent licenses. We believe, however, that our ability to develop and manufacture our products depends primarily on our knowledge, technology and special skills. Under several patent license agreements, we pay royalties on the sales of certain products. We view these patents and license agreements as valuable assets.
The clinical diagnostics segment has a broad portfolio of intellectual property which it uses to advance and promote its competitive position within the market of blood viruses, bacteriology, immuno-hematology, infectious diseases and cardiovascular testing. Its portfolio is comprised of owned patents, patent rights licensed from Institut Pasteur and other rights secured under third-party licensing agreements. Additionally, this segment has a wide array of patents and patent applications which are owned and licensed in the area of HIV testing. These include patents on purified virus proteins, antigens used for detection of HIV, monoclonal antibodies, cloned DNA sequences, primers and probes.
Seasonal Operations and Backlog
The Company's business is not inherently seasonal, however, the European custom of concentrating vacation during the summer months usually has had a negative impact on third quarter sales volume and operating income.
For the most part, the Company operates in markets characterized by short lead times and the absence of significant backlogs. The Company produces some analytical instruments against an order
backlog. Management has concluded that backlog information is not material to the Company's business as a whole.
Sales and Marketing
Each of Bio-Rad's segments maintains a sales force to sell its products on a direct basis. Each sales force is technically trained in the disciplines associated with its products. Sales are also generated through direct mail advertising, exhibits at trade shows and technical meetings, telemarketing, the Company website and by extensive advertising in technical and trade publications. Sales and marketing efforts are augmented by technical service departments that assist customers in effective product utilization and in new product applications. Bio-Rad also produces and distributes technical literature and holds seminars for customers on the use of its products.
Our customer base is broad and diversified. In 2000, no single customer accounted for more than 3% of our total net sales. Our sales are affected by certain external factors. For example, a number of our customers, particularly in the life science segment, are substantially dependent on government grants and research contracts for their funding. A significant reduction of government funding would have a detrimental effect on the results of this segment.
Most of the Company's international sales are generated by wholly-owned subsidiaries and their branch offices in Australia, Austria, Belgium, Brazil, Canada, the Czech Republic, Denmark, England, Finland, France, Germany, Hong Kong, Hungary, India, Israel, Italy, Japan, Korea, Mexico, the Netherlands, New Zealand, Norway, People's Republic of China, Poland, Portugal, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan and Thailand. Certain of these subsidiaries also have manufacturing facilities. While Bio-Rad's international operations are subject to certain risks common to foreign operations in general, such as changes in governmental regulations, import restrictions and foreign exchange fluctuations, the Company's international operations are principally in developed nations, which the Company regards as presenting no significantly greater risks to its operations than are present in the United States.
Competition
Most markets served by our product groups are competitive. Our competitors range in size from start-ups to large multinational corporations. Reliable independent information on sales and market share of products produced by our competitors is not generally available. We believe, however, based on our own marketing information, that while some competitors are dominant with respect to certain individual products, no one company, including us, is dominant with respect to a material portion of any segment of our business.
Life Science Segment. Because of the breadth of its product lines, Life Science does not face the same competitor for all of
its products. Competitors in this market include Amersham Pharmacia Biotech, Life Technologies, Qiagen, Zeiss and Applied Biosystems. We compete primarily on meeting performance specifications.
Clinical Diagnostics Segment. Competitors in this segment range in size from small private companies to large multinational corporations. We compete only in very specific market niches and do not attempt to pursue the most competitive general diagnostics markets. We compete based on our technological ability to provide customers with very specific tests and believe we are usually a significant competitor within our market niche. Competitors include Abbott Laboratories, bioMerieux, Inc., Roche Diagnostics, BioChem Pharma, Inova, diaSorin and Medical Analysis Systems.
Analytical Instruments Segment. We compete in the high-end analytical instruments market primarily on the basis of technology and features. Competitors in this segment include Thermo Nicolet Instruments (a business unit of Thermo Electron Corp.) and PerkinElmer (formerly EG&G) in spectroscopy.
Product Research and Development
The Company conducts extensive product research and development activities in all areas of our business, employing approximately 432 people worldwide in these activities. Research and development have played a major role in Bio-Rad's growth and are expected to continue to do so in the future. Our research teams are continuously developing new products and new applications for existing products. In our development and testing of new products and applications, we consult with scientific and medical professionals at universities, hospitals and medical schools, and in industry, most notably with the Institut Pasteur. We spent approximately $68.1 million, $51.2 million (excluding $15.5 million of purchased in-process research and development expense), and $41.4 million on research and development activities during the years ended December 31, 2000, 1999 and 1998, respectively.
Regulatory Matters
The manufacturing, marketing and labeling of certain of our products (primarily diagnostic products) are subject to regulation in the United States by the Center for Devices and Radiological Health of the United States Food and Drug Administration ("FDA") and in other jurisdictions by state and foreign government authorities. FDA regulations require that some new products have pre-marketing approval by the FDA and require certain products to be manufactured in accordance with "good manufacturing practices," to be extensively tested and to be properly labeled to disclose test results and performance claims and limitations.
As a multinational manufacturer and distributor of sophisticated instrumentation equipment, we must meet a wide array of electromagnetic compatibility and safety compliance requirements
to satisfy regulations in the United States, the European Community and other jurisdictions. The FDA must approve an export permit application before companies can market products outside the U.S. prior to the products' receipts of FDA approval. The requirements relating to testing and trials, product licensing, pricing and reimbursement vary widely among countries.
Our operations are subject to federal, state, local and foreign environmental laws and regulations that govern such activities as emissions to air and discharges to water, as well as handling and disposal practices for solid, hazardous and medical wastes. In addition to environmental laws that regulate our operations, we are also subject to environmental laws and regulations that create liabilities and clean-up responsibility for spills, disposals or other releases of hazardous substances into the environment as a result of our operations or otherwise impacting real property that we own or operate. The environmental laws and regulations also subject us to claims by third parties for damages resulting from any spills, disposals or releases resulting from our operations or at any of our properties.
Employees
At December 31, 2000, Bio-Rad had approximately 3,800 full-time employees. Fewer than 7% of Bio-Rad's 1,900 U. S. employees are covered by a collective bargaining agreement which will expire on November 7, 2002. Many of Bio-Rad's non-U.S. full-time employees, especially in France, are covered by collective bargaining agreements. Bio-Rad considers its employee relations in general to be good.
ITEM 2.
ITEM 2. PROPERTIES
We own our Corporate headquarters located in Hercules, California. The principal manufacturing and research locations for each segment are as follows:
Approximate Segment Location Square Ftg. Owned/Leased
Life Science Richmond, California 191,000 Owned/Leased Hercules, California 95,400 Owned Hemel Hempstead, England 102,000 Leased Milan, Italy 50,000 Leased
Clinical Diagnostics Hercules, California 112,000 Owned/Leased Irvine, California 137,000 Leased Greater Seattle, Washington 127,600 Owned/Leased Lille, France 182,000 Owned Paris, France 162,000 Leased Munich, Germany 55,000 Leased Nazareth-Eke, Belgium 30,000 Leased
Analytical Instruments Cambridge, Massachusetts 40,000 Leased Philadelphia, Pennsylvania 28,000 Owned
Most manufacturing and research facilities also house administration, sales and distribution activities. In addition, we lease office and warehouse facilities in a variety of locations around the world. The facilities are used principally for sales, service, distribution and administration for all three segments.
The Life Science segment's Richmond, California distribution and instrument manufacturing facility lease expires in November 2001. While we are currently negotiating a renewal, the lease is not automatically renewable. The Marnes la Coquette facility near Paris, France which served as the corporate headquarters for PSD, as well as a significant manufacturing and research facility has recently been renewed until December 31, 2005.
We believe all of our other facilities are adequate to support our current and anticipated production requirements. Historically, adequate space to expand sales and distribution channels has been available and we have leased space as needed.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Note 12, "Legal Proceedings," appearing on page 22 of Exhibit 13.1 is incorporated herein by reference.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Note 15, "Information Concerning Common Stock," appearing on page 26 of Exhibit 13.1 is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The table headed "Summary of Operations" appearing on page 1 of Exhibit 13.1 is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The section headed "Management's Discussion and Analysis of Results of Operations and Financial Condition" appearing on pages 28 through 36 of Exhibit 13.1 is incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The section headed "Financial Risk Management" appearing on pages 34 and 35 of the Exhibit 13.1 is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes thereto and the Report of Independent Public Accountants appearing on pages 1 through 27 of Exhibit 13.1 are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections labeled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the definitive Proxy Statement mailed to stockholders in connection with the 2001 Annual Meeting of Stockholders ("the 2001 Proxy Statement") are incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The sections labeled "Executive Compensation and Other Information," "Compensation of Directors," "Compensation Committee Interlocks and Insider Participation," "Report of the Compensation Committee of the Board of Directors" and "Stock Performance Graph" of the 2001 Proxy Statement are incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section labeled "Principal and Management Stockholders" of the 2001 Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section labeled "Compensation of Directors" of the 2001 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements
The following Consolidated Financial Statements are included in the 2000 Annual Report and are incorporated herein by reference pursuant to Item 8: Page in Exhibit 13.1 Consolidated Balance Sheets at December 31, 2000 and 1999 2-3
Consolidated Statements of Income for each of the three years in the period ended December 31, 2000 4
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2000 5
Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 2000 6
Notes to Consolidated Financial Statements 7-26
Report of Independent Public Accountants 27
2. Index to Financial Statement Schedule
Page in Form 10-K
Schedule II Valuation and Qualifying Accounts 10
Report of Independent Public Accountants on Schedule II 11
All other financial statement schedules are omitted because they are not required or because the required information is included in the Consolidated Financial Statements or the Notes thereto.
3. Index to Exhibits
The exhibits listed in the accompanying Index to Exhibits on pages 13 through 15 of this report are filed or incorporated by reference as part of this report.
(b) Reports on Form 8-K
None.
BIO-RAD LABORATORIES, INC,. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2000, 1999 and 1998 (In thousands)
Reserve for doubtful accounts receivable
Additions Balance at Charged to Balance Beginning Costs and at End of Year Expenses Deductions Other of Year
2000 . . . $9,582 $4,298 $(3,624) -- $10,255
1999 . . . $3,629 $3,123 $(2,449) $5,279(A) $9,582
1998 . . . $3,374 $1,616 $(1,361) $ - $3,629
Valuation allowance for deferred tax assets
Deductions Balance at Charged to Balance Beginning Costs and at End of Year Additions Expenses Other of Year
2000 . . . . $24,131 $ -- $(7,111) -- $17,020
1999 . . . . $5,342 $ -- $ (553) $19,342(A) $24,131
1998 . . . . $3,285 $2,057 $ -- $ -- $5,342
(A) Valuation arising from the acquisition of PSD.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
To Bio-Rad Laboratories, Inc.:
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Bio-Rad Laboratories, Inc.'s annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 6, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index, Item 14(a)2, is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP
San Francisco, California February 6, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIO-RAD LABORATORIES, INC.
By: /s/ Sanford S. Wadler Sanford S. Wadler Secretary
Date: March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ David Schwartz President and Director March 28, 2001 (David Schwartz)
Principal Financial Officer:
/s/ T. C. Chesterman Vice President, March 28, 2001 (Thomas C. Chesterman) Chief Financial Officer
Principal Accounting Officer:
/s/ James R. Stark Corporate Controller March 28, 2001 (James R. Stark)
Other Directors:
/s/ James J. Bennett Director March 28, 2001 (James J. Bennett)
/s/ Albert J. Hillman Director March 28, 2001 (Albert J. Hillman)
/s/ Philip L. Padou Director March 28, 2001 (Philip L. Padou)
/s/ Alice N. Schwartz Director March 28, 2001 (Alice N. Schwartz)
/s/ Norman Schwartz Director March 28, 2001 (Norman Schwartz)
/s/ Burton A. Zabin Director March 28, 2001 (Burton A. Zabin)
BIO-RAD LABORATORIES, INC. INDEX TO EXHIBITS ITEM 14(a)3
The following documents are filed as part of this report:
Exhibit No.
3.1 Restated Certificate of Incorporation, as of September 15, 1988. (1)
3.2 Bylaws of the Registrant, as amended February 19, 1980. (2)
4.1 Credit Agreement dated as of September 30, 1999 among Bio-Rad Laboratories, Inc., the lenders named therein, Bank One, N.A., as Administrative Agent, ABN Amro Bank N.V. as Syndication Agent and Union Bank of California, N.A. as Documentation Agent. (3)
4.1.1 Amendment dated as of January 31, 2000, to the Credit Agreement dated as of September 30, 1999, by and among Bio-Rad Laboratories, Inc. the lenders named therein, and Bank One, N.A. as Agent. (4)
4.1.2 Amendment dated as of June 21, 2000 to the Credit Agreement dated as of September 30, 1999, among Bio-Rad Laboratories, Inc., the lenders named therein, Banc One, N.A. as Administrative Agent, ABN AMRO Bank N.V. as Syndication Agent, and Union Bank of California, N.A. as Documentation Agent. (5)
4.2 Senior Subordinated Credit Agreement dated as of September 30, 1999 among Bio-Rad Laboratories, Inc., the lenders named therein and Bank One Capital Markets, Inc., as agent. (3)
4.4 Senior Subordinated Credit Agreement dated as of January 31, 2000 among Bio-Rad Laboratories, Inc., the lenders names therein and UBS AG, Stamford Branch, as Agent. (4)
4.5 The Indenture dated as of February 17, 2000 for 11.625% Senior Subordinated Notes due 2007 among Bio-Rad Laboratories, Inc., as Issuer, and Norwest Bank Minnesota, N.A., as Trustee. (4)
4.6 The Registration Rights Agreement dated as of February 17, 2000 by and among Bio-Rad Laboratories, Inc. and Warburg Dillon Reed LLC and ABN AMRO Incorporated. (4)
10.4 1994 Stock Option Plan. (6)
10.4.1 Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan dated April 28, 1998.
10.4.2 Second Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan dated December 6, 1999.
10.4.3 Third Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan dated September 19, 2000.
10.5 Amended and Restated 1988 Employee Stock Purchase Plan. (7)
10.6 Employees' Deferred Profit Sharing Retirement Plan (Amended and Restated effective January 1, 1997). (8)
10.10 Non-competition and employment continuation agreement with James J. Bennett. (9)
10.11 Employment and non-compete agreement with Dr. Burton A. Zabin. (10)
10.12 Split Dollar Life Insurance Agreement dated September 17, 1999 between the Schwartz Irrevocable Descendants Trust and Bio-Rad Laboratories, Inc. (4)
13.1 Excerpt from Annual Report to Stockholders' for the fiscal year ended December 31, 2000, (to be deemed filed only to the extent required by the instructions to exhibits for reports on Form 10-K).
21.1 Listing of Subsidiaries.
23.1 Consent of Independent Public Accountants.
______________________________________________________________
(1) Incorporated by reference from the Exhibits to the Company's Form 10-K filing for the fiscal year ended December 31, 1992, dated March 26, 1993.
(2) Incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-7 Registration No. 2-66797, which became effective April 22, 1980.
(3) Incorporated by reference from Exhibits to the Company's Form 8-K dated October 1, 1999.
(4) Incorporated by reference from the Exhibits to the Company's Form 10-K filing for the fiscal year ended December 31, 1999, dated March 28, 2000.
(5) Incorporated by reference from Exhibits to the Company's June 30, 2000, Form 10-Q filing dated August 14, 2000.
(6) Incorporated by reference from the Exhibits to the Company's Form S-8 filing, dated April 28, 1994.
(7) Incorporated by reference from the Exhibits to the Company's September 30, 1998, Form 10-Q filing dated November 10, 1998.
(8) Incorporated by reference from the Exhibits to the Company's September 30, 1997, Form 10-Q filing dated November 13, 1997.
(9) Incorporated by reference from the Exhibits to the Company's Form 10-K filing for the fiscal year ended December 31, 1996, dated March 26, 1997.
(10) Incorporated by reference from the Exhibits to the Company's June 30, 1998, Form 10-Q filing dated August 6, 1998.