BIO

Business Context and Reporting Period

Company: BIO-RAD LABORATORIES, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: Bio-Rad is a multinational manufacturer and distributor of Life Science research and Clinical Diagnostics products. The company operates two primary segments: Life Science and Clinical Diagnostics. Approximately 66% of sales are international, creating significant exposure to foreign currency fluctuations.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 5.0% to $400.9 million. On a currency-neutral basis, sales actually grew 3.2%, driven by the Pacific Rim and U.S. markets. The reported decline was primarily due to an 8.2% negative impact from a strengthening U.S. dollar.
• Profitability Improvement: Despite lower sales, Net Income increased 14.2% to $30.3 million. Gross margins expanded to 57.1% from 53.7%, aided by cost reductions in international manufacturing and the cessation of certain royalties in the Clinical Diagnostics segment.
• Segment Performance:
  • Life Science: Sales down 9.2% (3.0% currency-neutral) due to a slow research market and timing of product deliveries.
  • Clinical Diagnostics: Sales down 2.3% (7.2% currency-neutral) with growth in quality control, diabetes, and blood virus testing.
• Cash Flow: Operating cash flow improved significantly to a positive $6.4 million from a negative $2.2 million in the prior year, largely due to lower payments to suppliers and employees.
• Investment Impairments: The company recognized $2.5 million in other-than-temporary impairment losses on available-for-sale investments.

Guidance, Outlook, and Risks

• Outlook: Management notes that the market for reagents remains good, though growth has slowed due to measured public and private grant funding. The market for large capital equipment has slowed as customers delay spending. Bio-Rad is less impacted by capital spending trends as reagents and apparatus comprise over 70% of sales.
• Liquidity: The company maintains $222.8 million in cash and short-term investments and has $192.3 million available under its revolving credit facility. Management believes this is adequate for operations, R&D, and capital additions.
• Subsequent Event: On April 30, 2009, Bio-Rad acquired the remaining noncontrolling shares of DiaMed Holding AG for approximately $30 million, accounting for it as an equity transaction.
• Risks:
  • Economic Conditions: Global recession and credit market instability may cause customers to delay purchases or fail to pay.
  • Currency: Continued strengthening of the U.S. dollar could adversely affect international results.
  • Debt: The company has substantial debt ($450.2 million) with fixed rates maturing in 2013 and 2014. Covenants restrict additional debt, dividends, and asset sales.
  • Acquisitions: Risks associated with integrating acquired companies and realizing anticipated benefits.

Investor Verification Checklist

• Currency Impact: Verify the extent to which future sales growth is masked by U.S. dollar strength versus organic volume growth.
• Debt Covenants: Confirm continued compliance with leverage and interest coverage ratios given the economic downturn.
• Investment Portfolio: Monitor the valuation of available-for-sale investments, specifically asset-backed securities, for further impairment risks.
• Capital Spending: Assess the impact of delayed customer capital spending on the Life Science segment's equipment sales.
• Acquisition Integration: Review the financial contribution of the DiaMed acquisition and the recent purchase of remaining noncontrolling interests.