Bio-Rad(BIO_B) - 2020 Q1 - Quarterly Report

FORM 10-Q General Information Identifies Bio-Rad Laboratories, Inc. as the registrant for the Q1 2020 Form 10-Q, detailing its incorporation, ID, and executive offices Registrant Information This section provides the basic identification details of Bio-Rad Laboratories, Inc. as a registrant filing a Quarterly Report on Form 10-Q for the period ended March 31, 2020, including its incorporation state, IRS Employer ID, and principal executive offices - Registrant: BIO-RAD LABORATORIES, INC.[1] - Incorporation Jurisdiction: Delaware[1] - Filing Type: Quarterly Report (Form 10-Q) for the period ended March 31, 2020[1] Securities Registered Details the company's Class A and Class B Common Stock registration on the New York Stock Exchange with their respective trading symbols Securities Registered | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |:------------------------------------------|:------------------|:------------------------------------------| | Class A Common Stock, Par Value $0.0001 per share | BIO | New York Stock Exchange | | Class B Common Stock, Par Value $0.0001 per share | BIOb | New York Stock Exchange | Filing Status Confirms Bio-Rad's compliance with SEC filing requirements and its status as a large accelerated filer - Filed all required reports in the preceding 12 months: Yes[2] - Subject to filing requirements for the past 90 days: Yes[2] - Interactive Data File submitted electronically: Yes[3] - Filer Status: Large accelerated filer[3] - Not an emerging growth company or shell company[3][4] Common Shares Outstanding Reports the outstanding shares of Class A and Class B Common Stock as of April 29, 2020 Common Shares Outstanding | Class | Shares Outstanding at April 29, 2020 | |:------------|:-------------------------------------| | Class A | 24,567,292 | | Class B | 5,080,867 | INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS Clarifies the report contains forward-looking statements subject to risks and uncertainties, with no obligation to update them Forward-Looking Statements Disclaimer This section clarifies that the report contains forward-looking statements regarding future financial performance, operations, plans, and objectives, including the potential impact of the COVID-19 pandemic. These statements are subject to risks and uncertainties that could cause actual results to differ materially, and the company disclaims any obligation to update them - Report includes forward-looking statements on future financial performance, operating results, plans, and objectives[6] - Statements involve risks and uncertainties, which could cause actual results to vary materially[6] - Specific risk factors are identified under 'Part II, Item 1A, Risk Factors'[6] - Company undertakes no obligation to publicly update or revise forward-looking statements, except as required by law[6] PART I – FINANCIAL INFORMATION Presents Bio-Rad's unaudited condensed consolidated financial statements for Q1 2020, including balance sheets, income, comprehensive income, cash flows, and equity changes, with explanatory notes Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Bio-Rad Laboratories, Inc., including balance sheets, income statements, comprehensive income, cash flows, and changes in stockholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of March 31, 2020, and December 31, 2019 Condensed Consolidated Balance Sheets (In thousands) | Item | March 31, 2020 (Unaudited) | December 31, 2019 | |:------------------------------------------|:---------------------------|:------------------| | ASSETS | | | | Cash and cash equivalents | $603,551 | $660,672 | | Short-term investments | $433,150 | $453,973 | | Total current assets | $2,082,587 | $2,180,155 | | Property, plant and equipment, net | $486,174 | $499,339 | | Other investments | $5,434,760 | $4,638,205 | | Total assets | $8,684,359 | $8,008,859 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $118,221 | $107,014 | | Accrued payroll and employee benefits | $130,202 | $180,084 | | Current maturities of long-term debt | $426,308 | $426,172 | | Total current liabilities | $869,254 | $905,495 | | Total liabilities | $2,391,280 | $2,253,802 | | Total stockholders' equity | $6,293,079 | $5,755,057 | | Total liabilities and stockholders' equity| $8,684,359 | $8,008,859 | - Total assets increased by $675.5 million (8.4%) from December 31, 2019, to March 31, 2020, primarily driven by a significant increase in other investments[8] - Total liabilities increased by $137.4 million (6.1%) over the same period, mainly due to an increase in deferred income taxes[9] - Total stockholders' equity increased by $538.0 million (9.4%) from December 31, 2019, to March 31, 2020[9] Condensed Consolidated Statements of Income Details the company's revenues, expenses, and net income for the three months ended March 31, 2020, and 2019 Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:-------------------------------------------|:----------------------------------|:----------------------------------| | Net sales | $571,644 | $553,979 | | Cost of goods sold | $254,276 | $242,217 | | Gross profit | $317,368 | $311,762 | | Selling, general and administrative expense| $193,692 | $207,581 | | Research and development expense | $49,303 | $47,575 | | Income from operations | $74,373 | $56,606 | | Change in fair market value of equity securities | $(827,671) | $(1,059,230) |\n| Net income | $685,912 | $865,195 | | Basic earnings per share | $22.97 | $29.03 | | Diluted earnings per share | $22.72 | $28.74 | - Net sales increased by 3.2% year-over-year, from $554.0 million in Q1 2019 to $571.6 million in Q1 2020[11] - Gross profit increased by 1.8% year-over-year, from $311.8 million in Q1 2019 to $317.4 million in Q1 2020[11] - Net income decreased by 20.8% year-over-year, from $865.2 million in Q1 2019 to $685.9 million in Q1 2020, primarily due to a smaller gain from the change in fair market value of equity securities[11] Condensed Consolidated Statements of Comprehensive Income Outlines net income and other comprehensive income (loss) components for the three months ended March 31, 2020, and 2019 Condensed Consolidated Statements of Comprehensive Income (In thousands) (Unaudited) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:------------------------------------------------------------------|:----------------------------------|:----------------------------------| | Net income | $685,912 | $865,195 | | Other comprehensive income (loss): | | | | Foreign currency translation adjustments, net of income taxes | $(62,011) | $(36,402) | | Foreign other post-employment benefits adjustments, net of income taxes | $731 | $359 | | Net unrealized holding (loss) gain on AFS debt investments, net of income taxes | $(327) | $2,036 | | Other comprehensive loss, net of income taxes | $(61,607) | $(34,007) | | Comprehensive income | $624,305 | $831,188 | - Comprehensive income decreased by 24.9% year-over-year, from $831.2 million in Q1 2019 to $624.3 million in Q1 2020, largely influenced by the decrease in net income and a larger foreign currency translation loss[13] - Foreign currency translation adjustments resulted in a loss of $62.0 million in Q1 2020, compared to a loss of $36.4 million in Q1 2019, indicating a stronger negative impact from currency fluctuations[13] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2020, and 2019 Condensed Consolidated Statements of Cash Flows (In thousands, unaudited) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:--------------------------------------------|:----------------------------------|:----------------------------------| | Net cash provided by operating activities | $62,808 | $42,943 | | Net cash used in investing activities | $(12,422) | $(22,713) | | Net cash (used in) provided by financing activities | $(98,617) | $2,161 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(54,208) | $24,373 | | Cash, cash equivalents, and restricted cash at end of period | $608,443 | $458,537 | - Net cash provided by operating activities increased by 46.2% to $62.8 million in Q1 2020 from $42.9 million in Q1 2019[15] - Net cash used in investing activities decreased by 45.3% to $12.4 million in Q1 2020 from $22.7 million in Q1 2019[15] - Net cash from financing activities shifted from a $2.2 million inflow in Q1 2019 to a $98.6 million outflow in Q1 2020, primarily due to treasury stock repurchases[15] Condensed Consolidated Statements of Changes in Stockholders' Equity Presents the changes in each component of stockholders' equity for the three months ended March 31, 2020 Condensed Consolidated Statements of Changes in Stockholders' Equity (In thousands) (Unaudited) | Item | Balance at Dec 31, 2019 | Net Income | Other Comprehensive Loss, net of tax | Issuance of Common Stock | Stock Compensation Expense | Purchase of Treasury Stock | Balance at Mar 31, 2020 | |:-------------------------------------------|:------------------------|:-----------|:-------------------------------------|:-------------------------|:---------------------------|:---------------------------|:------------------------| | Common Stock | $3 | — | — | — | — | — | $3 | | Additional Paid-in Capital | $410,020 | — | — | $4,068 | $9,654 | — | $423,742 | | Treasury Stock | $(38,397) | — | — | — | — | $(100,005) | $(138,402) | | Retained Earnings | $5,470,779 | $685,912 | — | — | — | — | $6,156,691 | | Accumulated Other Comprehensive Income (Loss) | $(87,348) | — | $(61,607) | — | — | — | $(148,955) | | Total Stockholders' Equity | $5,755,057 | $685,912 | $(61,607) | $4,068 | $9,654 | $(100,005) | $6,293,079 | - Total stockholders' equity increased by $538.0 million from December 31, 2019, to March 31, 2020, reaching $6,293.1 million[17] - The increase was primarily driven by net income of $685.9 million and stock compensation expense of $9.7 million, partially offset by a $100.0 million purchase of treasury stock and an accumulated other comprehensive loss of $61.6 million[17] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. BASIS OF PRESENTATION AND USE OF ESTIMATES Explains the accounting principles, estimates, and revenue recognition policies used in preparing the financial statements Basis of Presentation Describes the preparation of unaudited condensed consolidated financial statements in accordance with GAAP - Unaudited condensed consolidated financial statements prepared in accordance with GAAP[20] - All adjustments are of a normal recurring nature and necessary for fair presentation[20] - Interim results are not necessarily indicative of full-year results[20] - Subsequent events are evaluated for recognition or disclosure up to the financial statement issuance date[21] Use of Estimates Highlights management's use of estimates and assumptions in financial statement preparation and their potential variability - Preparation of financial statements requires management to make estimates and assumptions affecting reported amounts of assets, liabilities, revenues, and expenses[22] - Estimates are based on historical experience and market-specific assumptions[22] - Actual results could differ materially from these estimates[22] Revenue Recognition Details the company's policies for recognizing revenue from product sales, services, and instrument rentals - Revenue is recognized from sales of products, services, and instrument rentals[23] - Revenue from contracts with customers is recognized upon transfer of control of promised products or services[23] - Contracts often include multiple distinct performance obligations[25] - Revenue for equipment requiring factory installation is recognized upon completion of installation and customer acceptance[25] - A provision for estimated product returns is recognized at the time revenue is recognized[26] - Service revenues on extended warranty contracts are recognized ratably over the agreement life[27] Reagent Rental Agreements Explains the accounting treatment for reagent rental agreements, including lease classification and revenue allocation - Reagent rental agreements provide instrument use and consumables on a per-test basis, often including maintenance and training[30] - Agreements are evaluated for lease classification under ASC 842; most are classified as operating leases[30][34] - Transaction prices are allocated between lease and non-lease elements based on standalone selling prices[32] - Maintenance services and reagents are allocated to non-lease elements and recognized under ASC 606[33] - Revenue from lease elements of reagent rental agreements was approximately 3% of total revenue for both Q1 2020 and Q1 2019[35] Disaggregation of Revenue Presents net sales disaggregated by geographic region for the reported periods Revenues Disaggregated by Geographic Region (in millions, unaudited) | Region | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:-------------------------------------|:----------------------------------|:----------------------------------| | Europe | $195.7 | $185.9 | | Asia | $111.4 | $106.4 | | United States | $229.5 | $226.1 | | Other (primarily Canada and Latin America) | $35.0 | $35.6 | | Total net sales | $571.6 | $554.0 | - Total net sales increased by $17.6 million (3.2%) year-over-year[37] - Europe showed the largest absolute increase in sales, up $9.8 million (5.3%)[37] Deferred Revenues and Warranty Liabilities Discusses the accounting for deferred revenues and the provision for estimated product warranty costs - Deferred revenues, mostly for unrecognized fees from extended service arrangements, increased from $45.8 million at December 31, 2019, to $50.9 million at March 31, 2020[39] - Warranty liabilities are established for expected costs of equipment defects and reevaluated quarterly[40] Change in Warranty Liability (in millions) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:-----------------------------|:----------------------------------|:----------------------------------| | Balance at beginning of period | $9.0 | $10.1 | | Provision for warranty | $1.9 | $1.4 | | Actual warranty costs | $(2.7) | $(2.2) | | Balance at end of period | $8.2 | $9.3 | Allowance for Doubtful Accounts Outlines the methodology and components of the allowance for doubtful accounts - Allowance for doubtful accounts is based on past events, current conditions, and future forecasts, considering asset-specific risk characteristics[42] Components of Allowance for Doubtful Accounts (in millions) | Item | Amount | |:-----------------------------------|:-------| | December 31, 2019 | $20.2 | | Provision for expected credit losses | $(0.9) | | Write-offs charged against the allowance | $(0.5) | | Recoveries collected | $0.1 | | March 31, 2020 | $18.9 | - The allowance for doubtful accounts decreased from $20.2 million at December 31, 2019, to $18.9 million at March 31, 2020[43] Implementation Costs for Cloud Computing Arrangements Reports on the capitalization and amortization of costs related to cloud computing arrangements - Capitalized implementation costs for cloud computing arrangements, net of amortization, were $3.9 million at March 31, 2020, up from $3.1 million at December 31, 2019[45] - These costs are primarily for business analytics software[45] Recent Accounting Pronouncements Adopted Summarizes the impact of recently adopted accounting standards on the financial statements - Adopted ASU No. 2020-04 (Reference Rate Reform) in March 2020, not expected to have a material impact[46] - Adopted ASU 2018-13 (Fair Value Measurement Disclosure Framework) effective January 1, 2020, with no material impact[47] - Adopted ASU 2016-13 (Measurement of Credit Losses on Financial Instruments) effective January 1, 2020, with an insignificant impact and no cumulative effect transition adjustment to retained earnings[48] Recent Accounting Pronouncements to be Adopted Outlines accounting pronouncements that will be adopted in future periods and their anticipated impact - Evaluating ASU 2020-01 (Clarifying Interactions between Topic 321, 323, and 815) effective for fiscal years beginning after December 15, 2020[49] - Evaluating ASU 2019-12 (Simplifying the Accounting for Income Taxes) effective for fiscal years beginning after December 15, 2020[51] - Evaluating ASU 2018-14 (Disclosure Framework - Defined Benefit Plans) effective for fiscal years ending after December 15, 2020, not expected to have a material impact on disclosures[52] 2. ACQUISITIONS Details the acquisition of a foreign distributor in October 2019 and its financial allocation - In October 2019, Bio-Rad acquired a foreign distributor for approximately $4.2 million, including $3.6 million cash and $0.6 million in contingent consideration[53] - The acquisition was included in the Clinical Diagnostics segment and accounted for as a business combination[53] - The final allocation of payments included $3.4 million to customer relationships, $0.2 million to deferred tax asset, $0.8 million to deferred tax liability, and $1.4 million to acquired net assets[54] 3. FAIR VALUE MEASUREMENTS Provides information on financial assets and liabilities measured at fair value, categorized by hierarchy levels Fair Value Hierarchy Explains the three-level hierarchy used for fair value measurements based on input observability - Fair value is determined based on market participant assumptions, prioritizing observable inputs[55] - Hierarchy levels: Level 1 (quoted prices in active markets), Level 2 (other significant observable inputs), Level 3 (significant unobservable inputs)[55] Financial Assets and Liabilities at Fair Value (March 31, 2020) Presents a detailed breakdown of financial assets and liabilities measured at fair value as of March 31, 2020 Financial Assets and Liabilities Carried at Fair Value (in millions) - March 31, 2020 | Item | Level 1 | Level 2 | Level 3 | Total | |:------------------------------------------|:----------|:----------|:----------|:----------| | Financial assets: | | | | | | Total cash equivalents | $122.9 | $75.6 | — | $198.5 | | Restricted investment | $5.6 | — | — | $5.6 | | Equity securities | $5,448.4 | — | — | $5,448.4 | | Total available-for-sale investments | — | $393.2 | — | $393.2 | | Forward foreign exchange contracts | — | $0.7 | — | $0.7 | | Total financial assets | $5,576.9| $469.5| — | $6,046.4| | Financial liabilities: | | | | | | Forward foreign exchange contracts | — | $1.3 | — | $1.3 | | Contingent consideration | — | — | $3.5 | $3.5 | | Total financial liabilities | — | $1.3 | $3.5 | $4.8 | - Total financial assets carried at fair value were $6,046.4 million, with equity securities (primarily Sartorius AG) being the largest component at $5,448.4 million (Level 1)[57] - Total financial liabilities carried at fair value were $4.8 million, including $3.5 million in Level 3 contingent consideration[57] Financial Assets and Liabilities at Fair Value (December 31, 2019) Presents a detailed breakdown of financial assets and liabilities measured at fair value as of December 31, 2019 Financial Assets and Liabilities Carried at Fair Value (in millions) - December 31, 2019 | Item | Level 1 | Level 2 | Level 3 | Total | |:------------------------------------------|:----------|:----------|:----------|:----------| | Financial assets: | | | | | | Total cash equivalents | $101.1 | $53.0 | — | $154.1 | | Restricted investment | $5.6 | — | — | $5.6 | | Equity securities | $4,664.4 | — | — | $4,664.4 | | Total available-for-sale investments | — | $402.9 | — | $402.9 | | Forward foreign exchange contracts | — | $0.9 | — | $0.9 | | Total financial assets | $4,771.1| $456.8| — | $5,227.9| | Financial liabilities: | | | | | | Forward foreign exchange contracts | — | $1.0 | — | $1.0 | | Contingent consideration | — | — | $4.9 | $4.9 | | Total financial liabilities | — | $1.0 | $4.9 | $5.9 | - Total financial assets at fair value increased by $818.5 million from December 31, 2019, to March 31, 2020, primarily due to an increase in equity securities[59] - Total financial liabilities at fair value decreased by $1.1 million over the same period[59] Equity Securities Details the company's equity securities, primarily the investment in Sartorius AG, and related unrealized gains Equity Securities (in millions) | Account | March 31, 2020 | December 31, 2019 | |:-------------------------|:---------------|:------------------| | Short-term investments | $40.1 | $51.0 | | Other investments | $5,408.3 | $4,613.4 | | Total | $5,448.4 | $4,664.4 | - Year-to-date unrealized gains on equity securities were $827.7 million as of March 31, 2020, primarily from the investment in Sartorius AG[60] - Bio-Rad owns over 37% of the outstanding voting shares of Sartorius AG but does not have significant influence over its operations[61] Available-for-sale Investments Provides information on available-for-sale debt investments, including their fair value and contractual maturities Available-for-sale Investments (in millions) | Account | March 31, 2020 | December 31, 2019 | |:-------------------------|:---------------|:------------------| | Short-term investments | $393.1 | $402.8 | | Other investments | $0.1 | $0.1 | | Total | $393.2 | $402.9 | Available-for-sale Investments by Contractual Maturity (in millions) - March 31, 2020 | Maturity Period | Amortized Cost | Estimated Fair Value | |:---------------------------|:---------------|:---------------------| | Less than one year | $163.8 | $163.9 | | One to five years | $167.3 | $167.6 | | More than five years | $60.5 | $61.7 | | Total | $391.6 | $393.2 | - Unrealized losses on available-for-sale investments totaled $2.4 million as of March 31, 2020, primarily due to changes in interest rates and market conditions[73][75] - No credit impairment losses are anticipated, as all payments are expected to be made in full and on time[79] Forward Foreign Exchange Contracts Describes the use of forward foreign exchange contracts to manage currency risk and their fair value - Bio-Rad uses forward foreign exchange contracts to manage foreign exchange risk on intercompany receivables and payables, not for speculative purposes[82] Summary of Forward Foreign Exchange Contracts (in millions) - March 31, 2020 | Contract Type | Notional Value | Unrealized Gain/(Loss) | |:--------------------------------------------|:---------------|:-----------------------| | Contracts to sell foreign currency | $58.6 | $0.2 | | Contracts to purchase foreign currency | $237.1 | $(0.9) | - These contracts are recorded at fair value, with gains or losses offsetting exchange gains or losses on related receivables and payables[82] Contingent Consideration Reports on the contingent consideration liability, its changes, and related payments Contingent Consideration Liability (in millions) | Account | March 31, 2020 | December 31, 2019 | |:--------------------------|:---------------|:------------------| | Other current liabilities | $3.5 | $3.3 | | Other long-term liabilities | — | $1.6 | | Total | $3.5 | $4.9 | - Contingent consideration liability decreased from $4.9 million at December 31, 2019, to $3.5 million at March 31, 2020[64] - This decrease was primarily due to a $1.3 million payment for a sales milestone related to the analytical flow cytometer platform acquisition and a $0.1 million decrease in its estimated fair value[64][67] 4. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS Details the company's goodwill by segment and identifiable purchased intangible assets, including amortization Goodwill by Segment (in millions) | Segment | December 31, 2019 | March 31, 2020 | |:-------------------|:------------------|:---------------| | Life Science | $208.3 | $208.3 | | Clinical Diagnostics | $55.8 | $55.8 | | Total Goodwill, net| $264.1 | $264.1 | - Net goodwill remained unchanged at $264.1 million from December 31, 2019, to March 31, 2020[86] Identifiable Purchased Intangible Assets (in millions) - March 31, 2020 | Intangible Asset | Purchase Price | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Amortization Period (years) | |:-----------------------------|:---------------|:-------------------------|:--------------------|:-------------------------------------------------------| | Customer relationships/lists | $105.1 | $(74.5) | $30.6 | 6.26 | | Know how | $187.0 | $(162.4) | $24.6 | 5.48 | | Developed product technology | $142.1 | $(94.4) | $47.7 | 8.14 | | Licenses | $76.0 | $(45.2) | $30.8 | 8.51 | | Tradenames | $6.4 | $(3.7) | $2.7 | 8.34 | | Covenants not to compete | $3.1 | $(1.4) | $1.7 | 5.76 | | In-process R&D | $0.2 | — | $0.2 | — | | Total | $520.0 | $(381.7) | $138.3 | | - Amortization expense for purchased intangible assets was $5.9 million for Q1 2020, up from $5.5 million in Q1 2019[90] 5. SUPPLEMENTAL CASH FLOW INFORMATION Provides a reconciliation of net income to net cash provided by operating activities and other non-cash investing activities Reconciliation of Net Income to Net Cash Provided by Operating Activities (in millions) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:------------------------------------------------------------------|:----------------------------------|:----------------------------------| | Net income | $685.9 | $865.2 | | Depreciation and amortization | $33.6 | $32.9 | | Share-based compensation | $9.7 | $8.5 | | Changes in fair market value of equity securities | $(827.7) | $(1,059.2) | | Increase in deferred income taxes | $171.8 | $238.5 | | Net cash provided by operating activities | $62.8 | $42.9 | - Net cash provided by operating activities increased by $19.9 million (46.4%) year-over-year, despite a decrease in net income[92] - Non-cash investing activities included $6.0 million for purchased property, plant and equipment and $2.7 million for purchased marketable securities and investments in Q1 2020[92] 6. LONG-TERM DEBT Outlines the principal components of long-term debt, including Senior Notes and credit facilities, and compliance with covenants Principal Components of Long-Term Debt (in millions) | Item | March 31, 2020 | December 31, 2019 | |:------------------------------------------|:---------------|:------------------| | 4.875% Senior Notes due 2020 | $424.5 | $424.4 | | Finance leases and other debt | $14.0 | $15.4 | | Total | $438.5 | $439.8 | | Less current maturities | $(426.3) | $(426.2) | | Long-term debt | $12.2 | $13.6 | - The company has $425.0 million principal amount of 4.875% Senior Notes due in December 2020[95] - Bio-Rad has a $200 million unsecured Credit Agreement, with no outstanding borrowings as of March 31, 2020, but $0.2 million utilized for standby letters of credit[96] - The company was in compliance with all debt covenants as of March 31, 2020[95][97] 7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Details the components and changes in accumulated other comprehensive income (loss) for the period Accumulated Other Comprehensive Income (Loss) (in millions) | Component | Balance at Jan 1, 2020 | Other Comprehensive (Loss) Income, net of income taxes | Balance at Mar 31, 2020 | |:------------------------------------------|:-----------------------|:-------------------------------------------------------|:------------------------| | Foreign currency translation adjustments | $(72.4) | $(62.0) | $(134.4) | | Foreign other post-employment benefits adjustments | $(22.2) | $0.7 | $(21.5) | | Net unrealized gains on available-for-sale investments | $7.2 | $(0.3) | $6.9 | | Total | $(87.4) | $(61.6) | $(149.0) | - Accumulated other comprehensive loss increased from $(87.4) million at January 1, 2020, to $(149.0) million at March 31, 2020[99] - The primary driver of this change was a $(62.0) million foreign currency translation adjustment loss, net of income taxes[99] 8. EARNINGS PER SHARE Presents the calculation of basic and diluted earnings per share, including weighted average shares outstanding Weighted Average Common Shares Outstanding (in thousands) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:-------------------------------------------|:----------------------------------|:----------------------------------| | Basic weighted average shares outstanding | 29,865 | 29,801 | | Effect of potentially dilutive stock options and restricted stock awards | 331 | 303 | | Diluted weighted average common shares | 30,196 | 30,104 | | Anti-dilutive shares | 62 | 226 | - Basic EPS was $22.97 in Q1 2020 ($29.03 in Q1 2019) and Diluted EPS was $22.72 in Q1 2020 ($28.74 in Q1 2019)[11] - The number of anti-dilutive shares decreased significantly from 226 thousand in Q1 2019 to 62 thousand in Q1 2020[102] 9. OTHER INCOME AND EXPENSE, NET Details the components of other income and expense, net, and explains significant changes year-over-year Other (Income) Expense, Net (in millions) | Component | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:-------------------------------------------|:----------------------------------|:----------------------------------| | Interest and investment income | $(2.8) | $(19.5) |\n| Net realized gain on investments | $(0.4) | — | | Other-than-temporary impairment loss on investment | — | $1.6 | | Other (income) expense | $(0.1) | $(0.8) | | Total Other (income) expense, net | $(3.3) | $(18.7) | - Other (income) expense, net decreased from $18.7 million income in Q1 2019 to $3.3 million income in Q1 2020[103] - This decrease was primarily due to a $15.7 million reduction in Sartorius AG dividends, as their annual meeting was delayed due to COVID-19[159] 10. INCOME TAXES Discusses the effective income tax rate, valuation allowances, and unrecognized tax benefits - The effective income tax rate increased to 23.7% for Q1 2020 from 23.2% for Q1 2019, partly due to reassessment of a prior year tax position[105] - A valuation allowance is maintained on California and certain foreign deferred tax assets due to uncertainty of realization[106] - Gross unrecognized tax benefits increased by $12.5 million, from $39.2 million at December 31, 2019, to $51.7 million at March 31, 2020[109] 11. SEGMENT INFORMATION Provides disaggregated financial information for the Life Science and Clinical Diagnostics segments Segment Net Sales (in millions) | Segment | 2020 | 2019 | |:-------------------|:-------|:-------| | Life Science | $227.2 | $215.7 | | Clinical Diagnostics | $340.3 | $334.1 | | Other Operations | $4.1 | $4.2 | Segment Net Profit (Loss) (in millions) | Segment | 2020 | 2019 | |:-------------------|:------|:-------| | Life Science | $25.4 | $22.8 | | Clinical Diagnostics | $46.2 | $30.9 | | Other Operations | $0.7 | $(0.1) | - Life Science segment sales increased by 5.3% and net profit increased by 11.4% year-over-year[110] - Clinical Diagnostics segment sales increased by 1.9% and net profit increased by 49.5% year-over-year[110] 12. LEGAL PROCEEDINGS Describes the company's involvement in various legal claims and actions in the ordinary course of business - The company is party to various claims and legal actions in the ordinary course of business[113] - Cannot reasonably estimate the range of potential liability, but does not believe any ultimate liability will have a material adverse effect on results, financial position, or liquidity[113] 13. RESTRUCTURING COSTS Details the costs and liabilities associated with facility closures and organizational restructuring plans Restructuring Costs for a Facility Closure Reports on the expenses and remaining liability for the closure of a manufacturing facility in France - Closure of a small manufacturing facility outside Paris, France, announced in December 2018[114] - Total expenses from December 2018 to March 31, 2020, were $4.0 million[114] - The liability for the facility closure was $2.9 million as of March 31, 2020[114] Restructuring Costs for European and North American Reorganization Details the expenses and liability related to a strategy-driven workforce reduction in Europe, US, and Canada - Strategy-driven restructuring plan announced in November 2019, including workforce reduction in Europe, US, and Canada[117] - Total expenses from November 2019 to March 31, 2020, were $22.9 million[117] - The liability for this reorganization was $14.0 million as of March 31, 2020, recorded in Accrued payroll and employee benefits[117] 14. LEASES: FINANCE, AND OPERATING WHERE WE ACT AS LESSEE Provides information on the company's finance and operating leases, including lease expenses and balance sheet impacts - The company has operating and, to a lesser extent, finance leases for buildings, vehicles, and equipment, with remaining lease terms of 1 to 19 years[119] Components of Lease Expense (in millions) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:--------------------------|:----------------------------------|:----------------------------------| | Operating lease cost | $12.6 | $12.4 | | Total finance lease cost | $0.3 | $0.3 | | Sublease income | $0.7 | $0.7 | Supplemental Balance Sheet Information Related to Leases (in millions) | Item | March 31, 2020 | December 31, 2019 | |:------------------------------------------|:---------------|:------------------| | Operating lease right-of-use assets | $200.5 | $201.9 | | Total operating lease liabilities | $209.9 | $211.4 | | Total finance lease liabilities | $11.5 | $11.7 | - Weighted average remaining lease term for operating leases is 9 years (discount rate 4.1%) and for finance leases is 18 years (discount rate 6.5%)[125] 15. Subsequent Events Reports on significant events occurring after the balance sheet date, including acquisitions and divestitures - In April 2020, Bio-Rad acquired Celsee, Inc. for approximately $100 million plus up to $60 million in contingent consideration, to complement Life Science offerings[128] - In April 2020, the company received $12.2 million from the sale of its Informatics division, part of the Other Operations segment[129] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of Bio-Rad's financial condition and results for Q1 2020, covering business overview, COVID-19, cyberattack, acquisitions, restructuring, and financial performance Overview Provides a general description of Bio-Rad's business as a multinational manufacturer and distributor of life science and clinical diagnostics products - Bio-Rad is a multinational manufacturer and distributor of life science research and clinical diagnostics products, organized into two segments: Life Science and Clinical Diagnostics[131] - The company sells over 9,000 products and services globally, with approximately 60% of year-to-date 2020 consolidated net sales derived from international locations[132][134] - Foreign currency fluctuations, particularly the strengthening U.S. dollar, negatively impact consolidated net sales but can lower international operating expenses[134] COVID-19 Impact Discusses the negative impact of the COVID-19 pandemic on business operations, financial conditions, and product demand - The COVID-19 pandemic has negatively impacted and is expected to continue disrupting business operations, financial conditions, and results[136] - Experienced an overall drop-off in product demand due to customer facility closures and reduced sales activity, despite increased demand for certain COVID-19 related products[136] - Evaluating the impact of governmental incentives intended to alleviate economic burdens[136] Cyberattack Details the December 2019 cyberattack, its impact on systems, and anticipated ongoing expenses - A cyberattack was detected on December 5, 2019, affecting Windows-based systems, but not the global ERP system (SAP)[137] - Critical systems were back online within days, and no evidence of unauthorized transfer or misuse of personal data has been found[137] - Ongoing expenses related to the incident are anticipated into the first half of 2020, and losses are expected to exceed insurance coverage[137][138] Acquisitions Summarizes the October 2019 acquisition of a foreign distributor and its financial allocation - In October 2019, Bio-Rad acquired a foreign distributor for approximately $4.2 million, including cash payments and contingent consideration[139] - The acquisition was accounted for as a business combination within the Clinical Diagnostics segment[139] - The purchase price allocation included $3.4 million to customer relationships and $1.4 million to acquired net assets[140] Restructuring Costs for European and North American Reorganization Explains the strategy-driven restructuring plan, workforce reductions, and associated expenses and liabilities - A strategy-driven restructuring plan, announced in November 2019, involves workforce reductions in Europe, the United States, and Canada, with significant savings expected to be repurposed[142] - Total expenses from November 2019 to March 31, 2020, were $22.9 million, with a liability of $14.0 million as of March 31, 2020[142] - Restructuring charges impacted Cost of goods sold, Selling, general and administrative expense, and Research and development expense in Q1 2020[142] Restructuring Costs for a Facility Closure Reports on the expenses and remaining liability for the closure of a manufacturing facility in France - A small manufacturing facility closure outside Paris, France, announced in December 2018, incurred total expenses of $4.0 million through March 31, 2020[143] - Restructuring charges are included in the Clinical Diagnostics segment's results[143] - The remaining liability for the closure was $2.9 million as of March 31, 2020[143] Results of Operations -- Sales, Margins and Expenses Analyzes key financial metrics as a percentage of net sales, including gross profit and operating expenses Key Financial Metrics as a Percentage of Net Sales | Item | March 31, 2020 | March 31, 2019 | |:-------------------------------------------|:---------------|:---------------| | Net sales | 100.0% | 100.0% | | Cost of goods sold | 44.5% | 43.7% | | Gross profit | 55.5% | 56.3% | | Selling, general and administrative expense| 33.9% | 37.5% | | Research and development expense | 8.6% | 8.6% | | Change in fair market value of equity securities | 144.8% | 191.2% | | Net income | 120.0% | 156.2% | - Gross profit margin decreased from 56.3% in Q1 2019 to 55.5% in Q1 2020[146] - Selling, general and administrative expenses decreased as a percentage of sales from 37.5% to 33.9%[146] Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019 Compares net sales, segment performance, gross margins, and operating expenses for Q1 2020 versus Q1 2019 - Net sales increased by 3.2% to $571.6 million in Q1 2020; on a currency-neutral basis, sales increased by 4.3%[149] - Life Science segment sales increased by 5.3% (6.0% currency-neutral), driven by Droplet Digital PCR, Gene Expression, Food Science, and Antibody product lines[150] - Clinical Diagnostics segment sales increased by 1.9% (3.2% currency-neutral), with growth in Quality Controls and Blood Typing[151] - Consolidated gross margins decreased to 55.5% from 56.3%, primarily due to a $7.4 million cost of sales benefit in Q1 2019 from an escrow release[152] - SG&A expenses decreased by $13.9 million, mainly due to lower travel, marketing, and professional fees, and the strengthening U.S. dollar[153] - R&D expense increased to $49.3 million, driven by accelerated innovation in Life Science, partially offset by lower spending due to COVID-19 lab closures[155] Results of Operations – Non-operating Analyzes non-operating items such as interest expense, foreign currency exchange, equity security fair value changes, and income taxes - Interest expense was $5.7 million in Q1 2020, down from $6.0 million in Q1 2019[156] - Foreign currency exchange net losses decreased to $0.9 million in Q1 2020 from $1.3 million in Q1 2019[157] - Change in fair market value of equity securities resulted in a gain of $827.7 million in Q1 2020, lower than the $1,059.2 million gain in Q1 2019, primarily from Sartorius AG investment[158] - Other (income) expense, net, decreased to $3.3 million income in Q1 2020 from $18.7 million income in Q1 2019, mainly due to delayed Sartorius AG dividends[159] - Effective income tax rate was 23.7% in Q1 2020, up from 23.2% in Q1 2019, due to reassessment of a prior year tax position[160] Liquidity and Capital Resources Assesses the company's cash position, short-term investments, and ability to meet financial obligations, considering COVID-19 impacts - As of March 31, 2020, Bio-Rad had $1,036.7 million in cash, cash equivalents, and short-term investments, with approximately 22% held in foreign subsidiaries[164] - Management believes current liquidity, along with cash flow from operations and access to a $200.0 million unsecured Credit Agreement, is adequate to meet current and long-term needs[163] - The company is assessing options to repay its $425.0 million Senior Notes due in December 2020[163] - Demand for products and services could change dramatically due to COVID-19, funding constraints, and international trade disputes[166] Cash Flows from Operations Details the changes in net cash provided by operating activities and their primary drivers - Net cash provided by operations increased to $62.8 million in Q1 2020 from $42.9 million in Q1 2019[167] - The increase was primarily due to higher cash received from customers and higher net proceeds from forward foreign exchange contracts[167] - Partially offset by higher cash paid to suppliers and employees, including annual incentive bonuses[167] Cash Flows from Investing Activities Analyzes net cash used in investing activities, including capital expenditures and acquisitions - Net cash used in investing activities decreased to $12.4 million in Q1 2020 from $22.7 million in Q1 2019[169] - Capital expenditures were $21.6 million in Q1 2020, down from $23.6 million in Q1 2019[170] - No acquisitions occurred in Q1 2020, compared to $16.0 million paid for an acquisition in Q1 2019[171] - Subsequent events in April 2020 include the acquisition of Celsee, Inc. for $100 million and the sale of the Informatics division for $12.2 million[173] Cash Flows from Financing Activities Explains the net cash used in financing activities, primarily due to treasury stock repurchases - Net cash used in financing activities was $98.6 million in Q1 2020, a significant shift from $2.2 million provided in Q1 2019[174] - The primary driver for the outflow was the $100.0 million repurchase of 291,941 shares of Class A treasury stock[174][175] - Proceeds from common stock issuance for share-based compensation were $4.1 million in Q1 2020[174] Treasury Shares Reports on the repurchase and reissuance of treasury stock under the company's share repurchase program - During Q1 2020, Bio-Rad repurchased 291,941 shares of Class A treasury stock for $100.0 million under its repurchase program[175] - In Q1 2019, 19,755 Class A treasury shares were reissued for $3.8 million net proceeds, resulting in a $1.6 million loss due to reissuance at a lower price than average cost[176] Recent Accounting Pronouncements Adopted and to be Adopted Refers to Note 1 for details on recently adopted and future accounting pronouncements - Refer to Note 1 of the condensed consolidated financial statements for details on recent accounting pronouncements[178] Item 3. Quantitative and Qualitative Disclosures about Market Risk Reports no material changes in market risk disclosures compared to the prior year's Annual Report on Form 10-K - No material changes in market risk disclosures during the three months ended March 31, 2020, compared to the Annual Report on Form 10-K for 2019[179] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures and reports no material changes to internal control over financial reporting Disclosure Controls and Procedures Describes the design and effectiveness of disclosure controls and procedures as of March 31, 2020 - Disclosure controls and procedures are designed to ensure timely and accurate reporting of information required by the Exchange Act[180] - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of March 31, 2020[181] - Controls provide reasonable, not absolute, assurance and involve management judgment in cost-benefit evaluation[180] Changes to Internal Control Over Financial Reporting States that no material changes to internal control over financial reporting occurred during Q1 2020 - No changes in internal control over financial reporting occurred during Q1 2020 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[182] PART II – OTHER INFORMATION Presents additional information not included in the financial statements, covering legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings Refers to Note 12 for information on legal proceedings, indicating no new material developments - R