Christine A. Tsingos – Chief Financial Officer and Executive Vice President, Norman D. Schwartz – Chief Executive Officer, President and Chairman Ronald W. Hutton – Vice President and Treasurer.

S. Brandon Couillard – Jefferies LLC.

Ladies and gentlemen, welcome and thanks for joining the Third Quarter 2014 Bio-Rad Laboratories Earnings Call. My name is Ryan. I'll be the operator on the event. And at this time, all participants are in listen-only mode. Later, however, we will be opening the lines to facilitate questions and answers.

(Operator Instructions) And as a reminder, we are recording for replay. Now I turn the call over to Mr. Ron Hutton, Vice President and Treasurer..

Thanks Ryan. Before we begin the call, I would like to caution everyone that we will be making forward-looking statements about management's goals, plans, and expectations.

Because our actual results may differ materially from these plans and expectations, I encourage you to review our filings with the SEC where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today.

With that, I'd like to turn the call over to Christine Tsingos, Executive Vice President and Chief Financial Officer..

Thanks, Ron. Good afternoon everyone, and thank you for joining us. Today, we are pleased to report net sales for the quarter of $530.6 million, an increase of 5.1% on a reported basis and versus the same period last year sales of $505.1 million. On a currency neutral basis, sales increased 4.3% when compared to last year.

During the quarter, we experienced good currency neutral sales growth across many of our key life science and diagnostic product lines, including sales of our digital PCR instruments and consumables, as well as our blood typing and autoimmune testing products.

On a geographic basis, sales in the emerging markets in China showed good growth for the quarter. The reported gross margin for the quarter was slightly lower than expected at 54.4% and compares to 56.3% in the year ago period.

The current quarter gross margin was negatively impacted by $3.1 million of one-time cost associated with the consolidation and closing of some of our smaller manufacturing sites in Europe. Excluding these shutdown related costs, the gross margin for the quarter was in line with our guidance at 55%.

We would also remind you that the gross margin in the year ago period reflected a $2.9 million, one-time benefit related to a correction in the valuation of finished goods inventory.

And finally, the total non-cash purchase accounting expense recorded in cost of goods sold related to prior acquisitions was $8.1 million for the quarter, which compares to $8.2 million in the year-ago period. SG&A expenses for the third quarter were $202.6 million or 38.2% of sales compared to $202.2 million and 40% of sales last year.

The current quarter SG&A also includes a $9.6 million accrual in connection with the final settlement of the previously disclosed investigation related to the Foreign Corrupt Practices Act. Also included in SG&A this quarter is $3.5 million of favorable impact due to a reduction in the valuation of the purchase consideration for GnuBIO.

And finally, quarterly SG&A includes $2.1 million for amortization of intangibles related to prior acquisitions. Research and development expense in Q3 was 9.9% of sales or $52.8 million and essentially flat compared to last year.

This comparison reflects a decline in spending associated with the completion and launch of new products in the life science space, which were offset by approximately $3 million of incremental spend for the development of a new diagnostic sequencing platform based on the GnuBIO technology.

Going forward, we expect R&D expense to continue to be around 10% of sales.

Excluding the one-time expenses related to the consolidation and closing of manufacturing sites and the incremental FCPA reserves, as well as considering the benefit from the reduction in acquisition purchase valuation, the operating margin would have been approximately 8% for the third quarter.

During the quarter, interest and other income was a net expense of $10.8 million, which includes an additional $2.4 million of accrued interest associated with the resolution of the FCPA matter. The total net expense of $10.8 million this quarter compares to $34.3 million of net expense in the year ago period.

When comparing to the prior period, remember that Q3 of last year included costs of $15.6 million associated with the redemption of our 8% subordinated notes.

The effective tax rate used for the third quarter was approximately 49% and primarily the result of the relatively low pretax income combined with losses in certain foreign locations where no tax benefit is expected and the additional FCPA related penalties which are not tax deductible.

Given this high quarterly tax rate and assuming no reinstatement of the federal R&D tax credit during the remainder of the year, the effective tax rate for the full year 2014 will likely be in the 36% to 38% range. Excluding any discrete items that may occur, our best estimate for a Q4 rate is 32% to 33%.

Net income for the third quarter was $11.5 million, which compares to a net loss of $7 million in the year ago period. Diluted earnings per share for the quarter were $0.39. Excluding the additional accrual of $12 million for the FCPA matter, we estimate that earnings per share for the third quarter would have been $0.73.

As you’re probably aware, yesterday, we announced the final resolution with the U.S. government regarding past violations of the Foreign Corrupt Practices Act related to certain of our international locations. As such, we will pay $55 million during the fourth quarter, an amount which has been fully reserved for.

Over the past four years, we have conducted a thorough investigation and implemented numerous new policies and practices to help prevent something like this from happening again. We are pleased to finally put this matter behind us.

And now for certain segment information, life science reported sales for the third quarter grew an impressive 6.1% to $172.8 million. On a currency neutral basis, sales increased 5.5% versus last year. Sales of our Droplet Digital PCR instruments and consumables continued to do very well.

Growth during the quarter was also helped by strong sales of process media, protein separation products, and traditional amplification consumables.

On a geographic basis, life science sales growth in Europe, North America, and the emerging markets was particularly strong during the quarter and was partially offset by continued headwinds in Asia-Pacific and Japan.

Life science sales in the China market also showed good growth during the third quarter that are still challenged on a year-to-date basis. Our clinical diagnostic group posted strong sales of $354.7 million, an increase of 4.7% compared to last year. On a currency-neutral basis, sales increased 3.9%.

This growth was primarily fueled by good demand for our blood typing and autoimmune testing products, including solid growth in sales of BioPlex 2200 assays. On a geographic view, diagnostic currency-neutral sales for the quarter increased most notably in the emerging markets, Asia-Pacific and China.

The growth was tempered somewhat by a challenging economic environment in Europe and Japan, where sales declined versus last year. And now for a quick review of the balance sheet, as of September 30, total cash and short-term investments were $703 million.

Cash from operations during the quarter was sizable $91 million and more than $233 million year-to-date, which compares to $98 million for the first nine months of 2013. This significant improvement versus last year is primarily the result of improved collections, as well as lower interest and income taxes paid.

Adjusted EBITDA also remained strong at $77 million for the quarter. Net capital expenditures for the quarter were $27.3 million. Given the year-to-date run rate, our full year expectation for CapEx is now slightly lower in the $125 million to $135 million range. And finally depreciation and amortization for the quarter was $37 million.

Moving to our outlook for the remainder of the year, we continue to anticipate full year currency neutral sales growth of around 2.5% and in line with the guidance set at the beginning of the year. However, it is important to point out that given the significant strengthening of the U.S.

dollar we wouldn’t be surprised to see sales growth for the year fall below the 2% level on a reported basis. For the fourth quarter alone, the difference in September exchange rates versus currency neutral exchange rate could result in a sales headwind of more than $23 million on a reported basis.

In terms of growth and using current exchange rates, reported sales in the fourth quarter could be flat to down compared to last year. On our last earnings call we stated cautioned in our ability to achieve our guidance of an 8% operating margin for the full year especially considering having a year-to-date margin of just over 6%.

Today we reiterate that caution. And if we couple that with a likelihood of sales challenges in the fourth quarter resulting from the current exchange rate environment, the full-year operating margin on a reported basis maybe closer to 7%.

As has been our practice in prior years, we will share our thinking and outlook for 2015 in February during the fourth quarter earnings call. And now we are happy to take your questions.

Ryan?.

(Operator Instructions) And our first question here comes from Brandon Couillard with Jefferies..

Thanks. Good afternoon..

Hi, Brandon..

Christine, maybe I missed this, but just to make sure, excluding all the one-time items, FCPA and the one-time revaluation benefit et cetera, did you say EPS in the quarter would have been more or like $0.73?.

So, for the $0.73 what we used were the FCPA matter, and that was it. So, I always I’m hesitant to do this, Brandon, because we report on a GAAP basis, but there were kind of three big one-time items in the quarter. There was cost of $3.1 million in cost of goods sold for some manufacturing shutdown.

There was the incremental $12 million for the FCPA accrual. And then we also had a benefit of about $3.5 million in the purchase evaluation as the earn out for GnuBIO.

The $0.73 estimate is really just excluding the $12 million for FCPA, the $3.1 million cost of manufacturing shutdown is kind of offset by the $3.5 million upside and you know what we don’t like to go down that pro forma route. So….

That’s helpful..

Okay..

Thanks. That’s helpful.

And then Norman or Christine, could you take a moment and just elaborate on some of the internal changes that have been made in terms of like centralizing a number of the functions globally, and how that might position you better for the ERP rollout? And then secondly as a corollary, should we anticipate any material cost savings from some of the actions you’ve taken to date such as consolidating a number of these manufacturing sites in Europe?.

Yeah, okay.

So in the organization, we have been moving to kind of a more globalized structure over the last few years, and this is kind of a final step as we appointed John Goetz as Chief Operating Officer and basically put all the operations in John’s hands, and at the same time, we took that opportunity to globalize some of the manufacturing operations, and the logistics have been worked on, so that all kind of came in under there.

And then, globalized the sales organization which had been somewhat globalized in the past, but this completes that globalization. So those are the kind of the basic changes that we made. It does prepare us well for the next phase of the implementation of ERP.

And of course we do expect to be able to kind of mine a lot of cost savings and kind of both effectiveness and efficiency out of the organization. You can imagine in manufacturing we’ve got many, many manufacturing sites around the world to be able to kind of reposition those as centers of excellence.

And on a logistics front, there is just a lot that we can do to drive logistics costs. I mean there are just a lot of places that we have that we can mine..

Yeah, so it’s probably too early to estimate or quantify the financial benefit of some of the odd changes Brandon in terms of globalizing, logistics, supply chain, sales et cetera. Obviously we believe there is upside there, but I think it’s too early for us to quantify that impact.

Having said that, just from the locations -- that manufacturing locations in Europe that we’ve been consolidating and shutting down this year, incremental operating income in 2015 from those actions is at least $3 million, probably in the $3 million to $4 million range.

So that’s beneficial, and then of course as we continue to roll out ERP and with the next deployment , there is probably some benefit. Not likely needle moving if you will, because as we’ve always said that the biggest benefit for us resides in Europe.

And as we move SAP through Europe, we’ll start to see some real measurable results, but each of these is a little bit of an incremental add in the right direction..

Super and then one more. In terms of the life science business, I mean pretty remarkable results in the context of what we’ve seen elsewhere in this space in the period.

Could you give us some color and more granularity on the trends geographically in the life science business? And then kind of what you’re seeing out of China in particular will be helpful?.

Okay, so if we take – the U.S. has done well, our North America has done well this quarter. And I think Europe continues too -- it seems to be on a rebound from last year. I think those are the two biggest areas of contribution to that growth number. And certainly, China continued to move along.

Although, I would say that we are a little bit cautious about China given what some of the other people have reported, and we’ll have to see how that plays out for the rest of the year..

I think from life science on a year-to-date basis China is still fairly, fairly flat. The pipeline going into Q4 seems pretty good for life science in China, a lot of that demand around the digital PCR is global demand that we’re seeing. The other thing in the quarter we had a good process media quarter and that’s kind of a lumpy business.

So some of the growth was driven by ordering in the process media side..

Super, I will hop back in the queue. Thank you..

(Operator Instructions) And our next question comes from Dan Leonard with Leerink..

Hi, this is Kevin (indiscernible) I’m filling in for Dan Leonard today. I just have one quick question. Could you please clarify the currency impact for the 4Q? I briefly caught it was 2.5% growth offsets – some of the other Asian region.

Could you please just clarify that?.

You’re talking about for the outlook..

Yes please..

I think that on a currency neutral basis, we’ve guided to 2.5% for the full year and I think we reiterate that guidance. In the fourth quarter, it’s clear that exchange rates are very different today. So on a reported basis, the growth rate could be much lower.

And if we just kind of look at forecasted sales for the fourth quarter and we measure those using currency neutral rates versus currency rate. The difference is it’s more than $20 million. So that on a reported basis could affect the growth rate for the year..

Got it. That’s helpful. Thank you very much..

You’re welcome..

And we have no other questions in queue..

Do you want to ask, some more time please?.

(Operator Instructions) Looks we have some follow-up coming through from Brandon..

Great, thank you. Christine, I don’t know if John’s actually there on hand or not, but in terms of the diagnostics business. Could you speak to some of the drivers of the growth in the period geographically and in particular and blood typing, do you think you’re gaining share from competitors in the U.S.

in terms of the growth you’ve seen there recently..

Hi, this is John, I’ll take that. In the blood typing arena our growth primarily came out of Europe and Asia Pacific, which is a good sign for us, it’s been pretty flap sledding there recently. And so having those uptick a little bit in this quarter was good. Yeah, I don’t see is taking share in the U.S. at this time.

Outside of that product line our autoimmune business did pretty well and that was a generally overall geographically speaking pretty even around the world. Beside from that, I think that’s it..

Super, thanks..

All right. We have no other questions in queue, so Christine I’ll pass back to you for any closing comments..

Okay, great. Thank you, Ryan. Well, thank you everyone for taking the time to join us today. Bye-bye..