Bio-Rad Laboratories, Inc. — Q2 2010 Form 10-Q
Reporting period: Three and six months ended June 30, 2010. Bio-Rad develops and sells life-science research and clinical-diagnostics products; about 68% of first-half sales were international.
Financial performance
Amounts in millions, except per-share data.
| Metric | Q2 2010 | Q2 2009 | First half 2010 | First half 2009 |
|---|---|---|---|---|
| Net sales | $467.7 | $427.2 | $921.9 | $828.1 |
| Gross profit / margin | $268.3 / 57.4% | $242.0 / 56.6% | $525.4 / 57.0% | $470.9 / 56.9% |
| Operating income | $68.2 | $55.9 | $131.4 | $107.3 |
| Income before taxes | $55.4 | $49.3 | $105.2 | $92.5 |
| Net income attributable to Bio-Rad | $38.0 | $38.0 | $72.8 | $68.2 |
| Diluted EPS | $1.35 | $1.37 | $2.59 | $2.47 |
- Sales increased 9.5% in Q2 and 11.3% in the first half year over year. Management reported currency-neutral growth of approximately 9.0% for Q2 and 8.4% for the first half; the Biotest acquisition contributed approximately $14.5 million and $27.2 million, respectively.
- Q2 segment sales were $150.7 million for Life Science (approximately flat year over year) and $314.1 million for Clinical Diagnostics (+14.5%). First-half sales were $302.0 million (+4.1%) and $613.9 million (+15.4%), respectively.
- SG&A was 33.4% of Q2 sales and 33.6% of first-half sales, versus 33.6% and 34.3% in 2009. R&D expense was $43.9 million in Q2 and $84.1 million in the first half.
- Interest expense rose to $14.3 million in Q2 and $28.8 million in the first half, principally reflecting the $300 million 8.0% notes issued in May 2009. Effective tax rates rose to 30% from 20% for Q2 and to 30% from 23% for the first half.
Cash, liquidity and debt
- First-half operating cash flow was $58.7 million, down from $111.9 million in 2009. Management cited higher supplier and royalty payments, intellectual-property dispute settlements, income taxes and interest, as well as slower-than-expected collections in some European countries.
- First-half investing cash outflow was $103.1 million, including $35.6 million of capital expenditures and acquisition/investment payments. Financing cash inflow was $4.2 million. Cash and cash equivalents declined $35.7 million to $614.2 million.
- At June 30, cash, cash equivalents and short-term investments totaled $717.7 million. Current assets were $1,555.8 million and current liabilities $389.5 million.
- Debt was reported as $743.6 million, including $9.3 million of current maturities and $734.3 million of long-term debt. A $200 million revolving credit agreement was entered into in June; no amount was drawn at quarter-end. The company reported compliance with debt covenants.
Material changes, outlook and risks
- Bio-Rad acquired certain Biotest AG diagnostic businesses for €45 million (approximately $64.9 million) in January. The acquisition added $12.8 million of goodwill and $21.2 million of identifiable intangibles. Management said Biotest broadened immunohematology offerings and provided access to U.S. markets; it weighed on Clinical Diagnostics margins because of purchase accounting, lower volumes and a higher cost structure.
- Management described reagent and apparatus markets as good, but noted slower growth related to more measured grant funding. Large capital-equipment demand remained soft as some pharmaceutical and biotechnology customers delayed or reduced spending. Life Science faced particular research-funding weakness in Europe.
- Management expected higher future capital spending, including international e-commerce platforms and a global ERP system, and continued to review potential acquisitions. No specific earnings or revenue guidance was provided.
- In May, the company voluntarily disclosed to the DOJ and SEC conduct in certain overseas operations that may have violated FCPA anti-bribery, books-and-records or internal-control provisions and company policies. The investigation’s scope, outcome and potential sanctions could not be predicted; any sanctions or remedial measures could materially affect the business.
- Other risks highlighted include substantial leverage, foreign-currency exposure, reliance on government and customer funding, competition, regulation, acquisition integration, and possible investment write-downs. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Updates on the Audit Committee, DOJ and SEC investigations, potential liabilities, and any resulting compliance or business restrictions.
- Whether slower European collections improve, and whether operating cash flow recovers from the first-half decline.
- Biotest integration progress and its effect on Clinical Diagnostics margins and sales growth.
- Debt service, covenant headroom, and planned capital spending, alongside the company’s liquidity needs.
- Effects of currency movements, grant funding and customer capital-spending trends on reported sales and margins.