Bio-Rad(BIO_B) - 2019 Q2 - Quarterly Report

Part I – Financial Information Financial Statements Bio-Rad's Q2 2019 financial statements reflect increased assets and net income, primarily from investment gains, and the adoption of ASC 842 for lease accounting Condensed Consolidated Balance Sheets Total assets increased to $7.65 billion by June 30, 2019, driven by 'Other investments', with corresponding increases in liabilities and stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $2,087,940 | $2,023,478 | | Other investments | $4,417,240 | $2,655,709 | | Total assets | $7,646,945 | $5,611,068 | | Total current liabilities | $445,977 | $450,795 | | Total liabilities | $2,160,135 | $1,590,737 | | Total stockholders' equity | $5,486,810 | $4,020,331 | - The company adopted the new lease accounting standard (ASC 842) in 2019, resulting in the recognition of $215.5 million in Operating lease right-of-use assets and corresponding current ($33.9 million) and long-term ($187.7 million) lease liabilities[8][9][118] Condensed Consolidated Statements of Income Q2 2019 net income significantly increased to $598.8 million, primarily due to a $716.4 million gain from equity securities, despite relatively flat net sales Q2 2019 vs Q2 2018 Income Statement (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Net sales | $572,619 | $575,911 | | Gross profit | $307,769 | $301,667 | | Income from operations | $56,390 | $43,792 | | Change in fair market value of equity securities | $716,389 | $286,398 | | Net income | $598,810 | $268,043 | | Diluted EPS | $19.86 | $8.87 | Six Months 2019 vs 2018 Income Statement (in thousands, except per share data) | Metric | Six Months 2019 | Six Months 2018 | | :--- | :--- | :--- | | Net sales | $1,126,598 | $1,127,430 | | Gross profit | $619,531 | $603,870 | | Income from operations | $112,996 | $87,438 | | Change in fair market value of equity securities | $1,775,619 | $1,102,332 | | Net income | $1,464,005 | $924,817 | | Diluted EPS | $48.60 | $30.63 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $198.3 million for the six months ended June 30, 2019, while investing and financing activities saw changes Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $198,345 | $118,208 | | Net cash used in investing activities | ($37,784) | ($102,658) | | Net cash (used in) provided by financing activities | ($13,484) | $499 | | Net increase in cash, cash equivalents, and restricted cash | $149,204 | $19,102 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, including ASC 842 adoption, a $20 million acquisition, significant unrealized gains from the Sartorius AG investment, and legal proceedings - Adopted ASC 842, "Leases," on January 1, 2019, resulting in the recognition of material right-of-use assets and lease liabilities on the balance sheet[50] - Completed a $20.0 million acquisition of a small private company in March 2019 to expand the Life Science segment's reagent offerings[55] - Recognized year-to-date unrealized gains of $1,775.7 million on equity securities as of June 30, 2019, primarily from the investment in Sartorius AG[63] - In the Wadler lawsuit, the Ninth Circuit Court of Appeals reversed the Dodd-Frank claim ($2.96 million), vacated the SOX claim for further proceedings, and affirmed the California public policy claim ($7.96 million)[106] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2019 sales, noting currency-neutral growth and improved gross margin, alongside strong liquidity and increased cash flow from operations Results of Operations - Three Months Ended June 30, 2019 Q2 2019 net sales saw currency-neutral growth of 2.7%, driven by Clinical Diagnostics, while consolidated gross margin improved to 53.7% and SG&A expenses decreased Q2 2019 Sales Performance vs. Q2 2018 | Metric | Value | Change (As Reported) | Change (Currency Neutral) | | :--- | :--- | :--- | :--- | | Consolidated Net Sales | $572.6M | -0.6% | +2.7% | | Life Science Sales | $212.4M | -2.5% | -0.1% | | Clinical Diagnostics Sales | $357.1M | +0.9% | +4.8% | - Consolidated gross margins increased to 53.7% from 52.4%, attributed to favorable product mix in Life Sciences and lower inventory-related costs in Clinical Diagnostics[137] - Selling, general and administrative (SG&A) expenses decreased by $9.1 million to $201.3 million, primarily due to lower professional fees, bad debt expense, and travel costs[138] Results of Operations - Six Months Ended June 30, 2019 First-half 2019 net sales were flat but grew 3.4% currency-neutral, with Life Science leading growth and consolidated gross margin improving to 55.0% Six Months 2019 Sales Performance vs. Six Months 2018 | Metric | Value | Change (As Reported) | Change (Currency Neutral) | | :--- | :--- | :--- | :--- | | Consolidated Net Sales | $1.13B | 0.0% | +3.4% | | Life Science Sales | $428.1M | +3.0% | +5.6% | | Clinical Diagnostics Sales | $691.1M | -1.9% | +2.0% | - Consolidated gross margins for the six-month period increased to 55.0% from 53.6%, with Life Science margins benefiting from a $7.4 million escrow release related to a 2011 acquisition[149] Liquidity and Capital Resources The company maintains strong liquidity with $981.9 million in cash and investments, $198.3 million in operating cash flow, and access to a $200 million credit facility - As of June 30, 2019, the company had $981.9 million in cash, cash equivalents, and short-term investments, with approximately 23% held in foreign subsidiaries[159] - Net cash provided by operations increased to $198.3 million for the first half of 2019, up from $118.2 million in 2018[163] - In April 2019, the company entered into a new $200 million unsecured credit agreement maturing in April 2024, which remained undrawn as of June 30, 2019[158] Quantitative and Qualitative Disclosures about Market Risk No material changes in market risk disclosures were reported for the six months ended June 30, 2019, compared to the 2018 Form 10-K - No material changes in market risk disclosures were reported for the six months ended June 30, 2019, compared to the 2018 Form 10-K[175] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2019, the company's disclosure controls and procedures were effective[178] - No material changes to internal control over financial reporting were identified during the second quarter of 2019[178] Part II – Other Information Legal Proceedings This section refers to Note 12 for details on legal proceedings, primarily the ongoing whistleblower retaliation lawsuit involving former general counsel Sanford S. Wadler - The company directs readers to Note 12 in the financial statements for details on legal proceedings, which primarily discusses the Wadler lawsuit[179][106] Risk Factors The company faces diverse risks including international operations, ERP system implementation, data security, market value volatility of Sartorius AG investment, and extensive government regulations - International operations, which account for 60% of net sales, expose the company to risks from foreign laws (e.g., GDPR, UK Bribery Act), currency fluctuations, and geopolitical events like Brexit[185] - The multi-year implementation of a new global ERP system has previously caused disruptions in manufacturing, logistics, and invoicing, and future phases may continue to pose risks[193] - The adoption of ASU 2016-01 requires the company to measure its investment in Sartorius AG at fair value through earnings, which has materially impacted and may continue to cause volatility in the Consolidated Statements of Income[245][247] - The company is subject to substantial government regulation, particularly from the FDA, and changes in regulations in the U.S. and internationally (e.g., Europe, Russia, China) could require product modifications, re-registrations, and result in additional costs or fines[213][216] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 51,398 Class A shares for $15.0 million in Q2 2019 under its $250.0 million share repurchase program, with $186.1 million remaining Share Repurchases for Q2 2019 | Period | Total Shares Purchased (Class A) | Average Price Paid per Share | Approx. Value of Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | April 2019 | 0 | N/A | $201.1M | | May 2019 | 25,421 | $291.70 | $193.7M | | June 2019 | 25,977 | $292.01 | $186.1M | - The Board of Directors authorized a $250.0 million share repurchase program in November 2017 with no expiration date[265] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[268] Mine Safety Disclosures This item is not applicable to the company - Not applicable[269] Other Information The company reports no other information for this item - None[269] Exhibits This section lists exhibits filed, including CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files (101 series)[271]