Bio-Rad(BIO_B) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Presents Bio-Rad's unaudited condensed consolidated financial statements for Q1 2021, including balance sheets, income, comprehensive income, cash flows, equity changes, and detailed notes on accounting policies, fair value, goodwill, debt, and segment information Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Total Assets | $13,933,160 | $12,972,618 | | Total Liabilities | $3,324,101 | $3,092,678 | | Total Stockholders' Equity | $10,609,059 | $9,879,940 | | Other Investments | $10,503,038 | $9,561,140 | - Total assets increased by $960.5 million, primarily driven by a significant increase in other investments[6][7] Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (in thousands) | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | YoY Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :--------- | | Net Sales | $726,796 | $571,644 | +27.1% | | Gross Profit | $400,627 | $317,368 | +26.2% | | Income from Operations | $100,862 | $74,373 | +35.6% | | Change in Fair Market Value of Equity Securities | $(1,179,403) | $(827,671) | N/A (Gain) | | Net Income | $977,414 | $685,912 | +42.5% | | Basic EPS | $32.77 | $22.97 | +42.7% | | Diluted EPS | $32.38 | $22.72 | +42.5% | - Net income significantly increased by 42.5%, largely influenced by a substantial gain from the change in fair market value of equity securities[8] Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | YoY Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :--------- | | Net Income | $977,414 | $685,912 | +42.5% | | Foreign Currency Translation Adjustments, net of income taxes | $(214,323) | $(62,011) | N/A | | Other Comprehensive Loss, net of income taxes | $(214,022) | $(61,607) | N/A | | Comprehensive Income | $763,392 | $624,305 | +22.3% | - Comprehensive income increased by 22.3% despite a significant foreign currency translation adjustment loss[10] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | YoY Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :--------- | | Net Cash Provided by Operating Activities | $113,610 | $62,808 | +80.9% | | Net Cash Used in Investing Activities | $(48,327) | $(12,422) | +289.0% | | Net Cash Used in Financing Activities | $(47,347) | $(98,617) | -52.0% | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $10,589 | $(54,208) | N/A | - Net cash provided by operating activities increased significantly by 80.9% year-over-year[12] Condensed Consolidated Statements of Changes in Stockholders' Equity Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric | December 31, 2020 (in thousands) | March 31, 2021 (in thousands) | Change | | :----- | :------------------------------- | :---------------------------- | :----- | | Total Stockholders' Equity | $9,879,940 | $10,609,059 | +$729,119 | | Net Income | N/A | $977,414 | N/A | | Other Comprehensive Loss, net of tax | N/A | $(214,022) | N/A | | Purchase of Treasury Stock | N/A | $(49,998) | N/A | - Total stockholders' equity increased by $729.1 million, primarily driven by net income, partially offset by other comprehensive loss and treasury stock repurchases[16] Notes to Condensed Consolidated Financial Statements 1. BASIS OF PRESENTATION AND USE OF ESTIMATES Details GAAP basis for unaudited financial statements, management estimates, key accounting policies (revenue, reagent rentals, warranties, doubtful accounts), and recent accounting pronouncement adoptions Basis of Presentation - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP and reflect all necessary normal recurring adjustments[19] - Interim period results are not necessarily indicative of the results for the entire year[19] Use of Estimates - Management makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses[21] - Estimates are based on historical experience and market-specific assumptions, but actual results could differ materially[21] Revenue Recognition - Revenue is recognized from product sales, services, intellectual property licenses, and instrument rentals upon transfer of control to customers[22] - Contracts with multiple products and services are generally accounted for as distinct performance obligations, requiring judgment in allocation and timing[24] - A provision for estimated product returns is recorded at the time revenue is recognized, reducing the transaction price[25] Reagent Rental Agreements - Reagent rental agreements provide instrument use and consumables on a per-test basis, often including maintenance and training[29] - These arrangements are predominantly classified as operating leases with variable payments, recognized as income upon delivery or consumption of reagents[33] Revenue from Lease elements of reagent rental arrangements | Revenue Source | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------- | :-------------------------------- | :-------------------------------- | | Lease elements of reagent rental arrangements (as % of total revenue) | 2% | 3% | Contract costs - Costs to obtain contracts (e.g., sales force incentives) are expensed as incurred if the amortization period is one year or less[34] - These costs are recorded within Selling, general and administrative expense[34] Disaggregation of Revenue This section disaggregates revenue by geographic region and details deferred revenue balances Net Sales by Geographic Region (in millions) | Geographic Region | Three Months Ended March 31, 2021 (in millions) | Three Months Ended March 31, 2020 (in millions) | YoY Change | | :---------------- | :---------------------------------------------- | :---------------------------------------------- | :--------- | | Europe | $247.7 | $195.7 | +26.6% | | Asia | $168.9 | $111.4 | +51.6% | | United States | $271.4 | $229.5 | +18.3% | | Other | $38.8 | $35.0 | +10.9% | | Total Net Sales | $726.8 | $571.6 | +27.1% | - Deferred revenue increased from $60.0 million at December 31, 2020, to $66.2 million at March 31, 2021[36] Warranty liabilities - Warranty costs are estimated and recorded at the time revenue is recognized, based on historical experience and specific warranty terms[38] Warranty Liabilities (in millions) | Metric | Three Months Ended March 31, 2021 (in millions) | Three Months Ended March 31, 2020 (in millions) | | :----- | :---------------------------------------------- | :---------------------------------------------- | | Balance at beginning of period | $9.8 | $9.0 | | Provision for warranty | $2.7 | $1.9 | | Actual warranty costs | $(2.6) | $(2.7) | | Balance at end of period | $9.9 | $8.2 | Allowance for Doubtful Accounts - Trade accounts receivable are recorded at net invoice value, with reserves for uncollectible amounts based on historical loss rates and forward-looking estimates[40] Allowance for Doubtful Accounts (in millions) | Metric | Three Months Ended March 31, 2021 (in millions) | Three Months Ended March 31, 2020 (in millions) | | :----- | :---------------------------------------------- | :---------------------------------------------- | | Balance at beginning of period | $19.8 | $20.2 | | Provision (recovery) for expected credit losses | $(0.6) | $(0.8) | | Write-offs charged against the allowance | $(0.6) | $(0.5) | | Balance at end of period | $18.6 | $18.9 | Recent Accounting Pronouncements Adopted - The company adopted ASU 2020-04 (Reference Rate Reform), ASU 2020-01 (Investments), and ASU 2019-12 (Income Taxes)[43][44] - None of the adopted ASUs are expected to have a material impact on the condensed consolidated financial statements[43][44] 2. FAIR VALUE MEASUREMENTS Details fair value measurements, classifying financial assets and liabilities into a three-level hierarchy, with breakdowns for cash, investments, equity securities (Sartorius AG), and foreign exchange contracts Fair Value Hierarchy - Fair value is determined based on market participant assumptions, prioritizing observable inputs[45] - The fair value hierarchy consists of Level 1 (quoted prices in active markets), Level 2 (other significant observable inputs), and Level 3 (significant unobservable inputs)[45] Financial Assets and Liabilities Financial Assets and Liabilities at Fair Value (in millions) | Category | March 31, 2021 (in millions) | December 31, 2020 (in millions) | | :------- | :--------------------------- | :------------------------------ | | Total Financial Assets at Fair Value | $10,925.9 | $9,990.5 | | Level 1 Assets | $10,601.1 | $9,666.8 | | Level 2 Assets | $324.8 | $323.7 | | Level 3 Assets | $0 | $0 | | Total Financial Liabilities at Fair Value | $1.8 | $1.7 | - As of March 31, 2021, total financial assets carried at fair value were $10.93 billion, predominantly in Level 1 equity securities[47] Equity Securities - A $1,179.4 million gain from the change in fair market value of equity securities was recorded for the three months ended March 31, 2021, primarily due to the investment in Sartorius AG[53] - As of March 31, 2021, Bio-Rad owns approximately 37% of Sartorius AG's ordinary voting shares and 28% of its preference shares[54] Available-for-sale investments Available-for-sale Investments (in millions) | Investment Type | March 31, 2021 (in millions) | December 31, 2020 (in millions) | | :-------------- | :--------------------------- | :------------------------------ | | Total Available-for-sale investments | $282.3 | $267.6 | | Corporate debt securities | $162.2 | $133.2 | | U.S. government sponsored agencies | $71.8 | $76.9 | - Unrealized losses of $0.1 million as of March 31, 2021, are due to market conditions (interest rates, economic conditions) and not credit concerns[63][65] Forward Foreign Exchange Contracts - Forward foreign exchange contracts are used to manage foreign exchange risk of intercompany receivables and payables, not for speculative purposes[68] Forward Foreign Exchange Contracts (in millions) | Contract Type | Notional Value (in millions) | Unrealized Gain/Loss (in millions) | | :------------ | :--------------------------- | :--------------------------------- | | Sell foreign currency | $284.0 | $(0.4) | | Purchase foreign currency | $252.3 | $0 | Other Investments This section provides a table detailing other investments, including those measured at cost and equity method investments Other Investments (in millions) | Investment Type | March 31, 2021 (in millions) | December 31, 2020 (in millions) | | :-------------- | :--------------------------- | :------------------------------ | | Investments measured at cost | $6.5 | $0.5 | | Equity method investments | $35.2 | $38.4 | 3. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS Details goodwill and other purchased intangible assets, noting stable net goodwill, a slight decrease in total purchased intangibles, and quarterly amortization expense Goodwill Goodwill, net (in millions) | Segment | Goodwill, net (in millions) | | :------ | :-------------------------- | | Life Science | $236.1 | | Clinical Diagnostics | $55.8 | | Total | $291.9 | - Net goodwill remained unchanged at $291.9 million from December 31, 2020, to March 31, 2021[72] Purchased Intangible Assets Purchased Intangible Assets, Net Carrying Amount (in millions) | Intangible Asset Type | March 31, 2021 Net Carrying Amount (in millions) | December 31, 2020 Net Carrying Amount (in millions) | | :-------------------- | :----------------------------------------------- | :------------------------------------------------ | | Customer relationships/lists | $26.8 | $29.4 | | Know how | $20.1 | $21.2 | | Developed product technology | $108.5 | $111.0 | | Licenses | $27.2 | $28.2 | | Tradenames | $2.2 | $2.4 | | Covenants not to compete | $2.4 | $2.5 | | In-process research and development | $4.6 | $4.8 | | Total purchased intangible assets | $191.8 | $199.5 | - Total purchased intangible assets, net, decreased slightly to $191.8 million at March 31, 2021[73] Amortization Expense Amortization Expense (in millions) | Metric | Three Months Ended March 31, 2021 (in millions) | Three Months Ended March 31, 2020 (in millions) | | :----- | :---------------------------------------------- | :---------------------------------------------- | | Amortization expense | $7.2 | $5.9 | - Amortization expense related to purchased intangible assets increased to $7.2 million for the three months ended March 31, 2021[75] 4. SUPPLEMENTAL CASH FLOW INFORMATION Provides a reconciliation of net income to net cash from operating activities, highlighting non-cash adjustments like fair value changes in equity securities and deferred income taxes Supplemental Cash Flow Information (in millions) | Adjustment | Three Months Ended March 31, 2021 (in millions) | Three Months Ended March 31, 2020 (in millions) | | :--------- | :---------------------------------------------- | :---------------------------------------------- | | Net income | $977.4 | $685.9 | | Depreciation and amortization | $32.7 | $33.6 | | Share-based compensation | $11.7 | $9.7 | | Change in fair market value of equity securities | $(1,179.4) | $(827.7) | | Increase in deferred income taxes | $274.8 | $171.8 | | Net cash provided by operating activities | $113.6 | $62.8 | - Net cash provided by operating activities was $113.6 million, with a significant non-cash adjustment from the change in fair market value of equity securities[76] 5. LONG-TERM DEBT Details long-term debt, which decreased to $10.9 million, and the $200.0 million unsecured revolving credit facility, noting no outstanding borrowings and compliance with financial covenants Principal Components of Long-Term Debt Long-Term Debt (in millions) | Metric | March 31, 2021 (in millions) | December 31, 2020 (in millions) | | :----- | :--------------------------- | :------------------------------ | | Finance leases and other debt | $12.6 | $14.1 | | Less current maturities | $(1.7) | $(1.8) | | Long-term debt | $10.9 | $12.3 | - Long-term debt, net of current maturities, decreased to $10.9 million at March 31, 2021[77] Credit Agreement - Bio-Rad has a $200.0 million unsecured revolving credit facility maturing in April 2024[78] - No outstanding borrowings under the Credit Agreement as of March 31, 2021, but $0.2 million was utilized for domestic standby letters of credit[78] - The company was in compliance with all financial ratios and covenants as of March 31, 2021[79] 6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Details components of accumulated other comprehensive income (loss), which significantly decreased to $68.4 million due to a substantial foreign currency translation adjustment loss Accumulated Other Comprehensive Income (Loss) (in millions) | Component | January 1, 2021 (in millions) | March 31, 2021 (in millions) | Change | | :-------- | :---------------------------- | :--------------------------- | :----- | | Foreign currency translation adjustments | $298.6 | $84.3 | $(214.3) | | Foreign other postemployment benefits adjustments | $(26.0) | $(24.1) | +$1.9 | | Net unrealized holding gains on available-for-sale investments | $9.8 | $8.2 | $(1.6) | | Total accumulated other comprehensive income (loss) | $282.4 | $68.4 | $(214.0) | - Accumulated other comprehensive income decreased by $214.0 million, primarily driven by foreign currency translation adjustments[81] 7. EARNINGS PER SHARE Provides basic and diluted earnings per share calculations, showing increases to $32.77 and $32.38 respectively for Q1 2021, reflecting higher net income Earnings Per Share | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | YoY Change | | :----- | :-------------------------------- | :-------------------------------- | :--------- | | Basic Net Income Per Share | $32.77 | $22.97 | +42.7% | | Diluted Net Income Per Share | $32.38 | $22.72 | +42.5% | | Basic Weighted Average Shares Outstanding (in thousands) | 29,823 | 29,865 | -0.14% | | Diluted Weighted Average Common Shares (in thousands) | 30,186 | 30,196 | -0.03% | - Both basic and diluted EPS increased by over 42% year-over-year, reflecting the increase in net income[85] 8. OTHER INCOME AND EXPENSE, NET Details components of other income and expense, net, which significantly increased to $17.4 million for Q1 2021, driven by higher investment income and realized gains Other Income and Expense, Net (in millions) | Component | Three Months Ended March 31, 2021 (in millions) | Three Months Ended March 31, 2020 (in millions) | YoY Change | | :-------- | :---------------------------------------------- | :---------------------------------------------- | :--------- | | Investment income | $(18.3) | $(2.8) | N/A | | Realized gains on investments | $(0.1) | $(0.4) | N/A | | Other-than-temporary impairment loss on investment | $0.8 | $0 | N/A | | Other (income) expense, net | $(17.4) | $(3.3) | N/A | - Other income, net, increased by $14.1 million, primarily due to Sartorius AG dividends of $19.0 million in Q1 2021[86][132] 9. INCOME TAXES Discusses income tax rate and unrecognized tax benefits, noting an increased effective tax rate of 24.7% due to restructuring and gross unrecognized tax benefits of $57.5 million Effective Income Tax Rate | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----- | :-------------------------------- | :-------------------------------- | | Effective income tax rate | 24.7% | 23.7% | - The increase in effective income tax rate was due to the restructuring initiative announced in February 2021[133] Gross Unrecognized Tax Benefits (in millions) | Metric | March 31, 2021 (in millions) | December 31, 2020 (in millions) | | :----- | :--------------------------- | :------------------------------ | | Gross unrecognized tax benefits | $57.5 | $55.8 | - Within the next 12 months, unrecognized tax benefits could decrease by up to $16.7 million, primarily related to various foreign jurisdictions[93] 10. SEGMENT INFORMATION Provides financial information by operating segment for Q1 2021, detailing net sales and profit/loss for Life Science and Clinical Diagnostics, and noting the recast segment reporting methodology Segment Financial Information (in millions) | Segment | Net Sales (2021, in millions) | Net Sales (2020, in millions) | Segment Net Profit (Loss) (2021, in millions) | Segment Net Profit (Loss) (2020, in millions) | | :------ | :---------------------------- | :---------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Life Science | $366.5 | $227.2 | $102.3 | $23.7 | | Clinical Diagnostics | $358.5 | $340.3 | $(1.9) | $43.8 | | Other Operations | $1.8 | $4.1 | $0.1 | $1.1 | - Starting in 2021, all operating expenses, interest expense, and corporate overhead are fully allocated to reportable segments, and historical segment information has been recast[96] 11. LEGAL PROCEEDINGS Details ongoing legal claims and actions, where ultimate liability is not estimable, but management believes no material adverse effect on financial results, position, or liquidity is expected - The company is a party to various claims, legal actions, and complaints arising in the ordinary course of business[98] - Management does not believe any ultimate liability will have a material adverse effect on results of operations, financial position, or liquidity, but resolution could be material depending on the level of income for the period[98] 12. RESTRUCTURING COSTS Details the February 2021 strategy-driven restructuring plan, primarily impacting European operations, with a $71.2 million accrual and $75.6 million in employee termination benefits charged to expense - A strategy-driven restructuring plan was announced in February 2021 to improve operating performance, primarily impacting European operations[99] - The plan includes elimination of positions, consolidation of functions, and relocation of manufacturing operations from Europe to Asia, expected to be substantially complete by the end of 2022[99] Restructuring Costs (in millions) | Metric | March 31, 2021 (in millions) | | :----- | :--------------------------- | | Restructuring accrual | $71.2 | | Charged to expense - employee termination benefits | $75.6 | | Cash payments | $(2.0) | 13. LEASES: FINANCE AND OPERATING WHERE WE ACT AS LESSEE Describes operating and finance leases for buildings, vehicles, and equipment, with ROU assets and liabilities recognized based on present value, totaling $207.6 million for operating and $11.4 million for finance leases Lease Expense Components Lease Expense Components (in millions) | Lease Expense Component | Three Months Ended March 31, 2021 (in millions) | Three Months Ended March 31, 2020 (in millions) | | :---------------------- | :---------------------------------------------- | :---------------------------------------------- | | Operating lease cost | $11.7 | $12.6 | | Total finance lease cost | $0.3 | $0.3 | | Sublease income | $0.7 | $0.7 | Supplemental Cash Flow Information Cash Flow from Leases (in millions) | Cash Flow from Leases | Three Months Ended March 31, 2021 (in millions) | Three Months Ended March 31, 2020 (in millions) | | :-------------------- | :---------------------------------------------- | :---------------------------------------------- | | Operating cash flows from operating leases | $11.8 | $11.4 | | Operating cash flows from finance leases | $0.1 | $0.2 | | Financing cash flows from finance leases | $0.2 | $0.1 | | Operating lease ROU assets obtained | $4.2 | $10.8 | Balance Sheet Information Lease Balance Sheet Information (in millions) | Metric | March 31, 2021 (in millions) | December 31, 2020 (in millions) | | :----- | :--------------------------- | :------------------------------ | | Operating lease right-of-use assets | $196.2 | $202.1 | | Total operating lease liabilities | $207.6 | $211.6 | | Total finance lease liabilities | $11.4 | $11.5 | Maturities of Lease Liabilities Lease Liabilities Maturities | Metric | Operating Leases | Finance Leases | | :----- | :--------------- | :------------- | | Weighted Average Remaining Lease Term (years) | 8 | 16 | | Weighted Average Discount Rate | 3.9% | 6.2% | | Total Lease Payments (in millions) | $246.4 | $19.7 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides an overview of Bio-Rad's business, discusses COVID-19 and restructuring impacts, and analyzes Q1 2021 results of operations, liquidity, and capital resources Overview - Bio-Rad is a multinational manufacturer and distributor of life science research and clinical diagnostics products, organized into two reportable segments[113] - International sales accounted for approximately 63% of year-to-date 2021 consolidated net sales, making the company susceptible to foreign currency exchange fluctuations[116] - Much of the company's revenues are recurring due to customer requirements for standardization[115] COVID-19 - The COVID-19 pandemic has impacted and is expected to continue to disrupt parts of the company's business operations, financial conditions, and results[117] - The company saw strong demand for products associated with COVID-19 testing and related research, but also experienced decreases in product demand in certain other businesses[117][160] - Ongoing challenges include raw material and component supply, transportation issues, and potential facility shutdowns due to outbreaks[161][162] Restructuring - A strategy-driven restructuring plan was announced in February 2021 to improve operating performance[118] - The plan primarily impacts European operations, including position eliminations, function consolidation, and manufacturing relocation to Asia, expected to be substantially complete by the end of 2022[118] Restructuring Expenses (in millions) | Expense Category | Three Months Ended March 31, 2021 (in millions) | | :--------------- | :---------------------------------------------- | | Cost of goods sold | $23.9 | | Selling, general and administrative expense | $34.7 | | Research and development expense | $17.0 | | Total Restructuring Expenses | $75.6 | Results of Operations -- Sales, Margins and Expenses This section analyzes consolidated and segment net sales, gross margins, and operating expenses for the three months ended March 31, 2021 Consolidated and Segment Net Sales (in millions) | Metric | Q1 2021 | Q1 2020 | YoY Change | Currency Neutral YoY Change | | :----- | :------ | :------ | :--------- | :-------------------------- | | Consolidated Net Sales | $726.8M | $571.6M | +27.1% | +23.4% | | Life Science Sales | $366.5M | $227.2M | +61.3% | +56.9% | | Clinical Diagnostics Sales | $358.5M | $340.3M | +5.4% | +2.2% | Consolidated Margins and Expenses | Metric | Q1 2021 | Q1 2020 | | :----- | :------ | :------ | | Consolidated Gross Margin | 55.1% | 55.5% | | Selling, General and Administrative Expense (% of sales) | 31.1% | 33.9% | | Research and Development Expense (% of sales) | 10.2% | 8.6% | - Life Science segment growth was primarily driven by qPCR, Western Blotting, Droplet Digital PCR, and Process Media products, with a significant portion from COVID-19 related products[124] - Clinical Diagnostics margins were significantly impacted by $23.9 million in expenses related to the restructuring plan[126] Results of Operations – Non-operating This section analyzes non-operating items including interest expense, foreign currency exchange, changes in fair market value of equity securities, and other income for Q1 2021 Non-operating Results (in millions) | Metric | Q1 2021 (in millions) | Q1 2020 (in millions) | YoY Change | | :----- | :-------------------- | :-------------------- | :--------- | | Interest Expense | $0.4 | $5.7 | -93.0% | | Foreign Currency Exchange Losses, net | $0.1 | $0.9 | -88.9% | | Change in Fair Market Value of Equity Securities | $1,179.4 (gain) | $827.7 (gain) | +42.5% | | Other Income, net | $17.4 | $3.3 | +427.3% | - Interest expense decreased significantly due to the repayment of $425.0 million Senior Notes in December 2020[129] - Other income, net, increased substantially, primarily due to $19.0 million in Sartorius AG dividends in Q1 2021 (compared to none in Q1 2020)[132] Liquidity and Capital Resources This section discusses the company's cash, cash equivalents, short-term investments, and credit facility, assessing their adequacy to meet operational and strategic objectives Liquidity Metrics (in billions) | Metric | March 31, 2021 (in billions) | | :----- | :--------------------------- | | Cash, cash equivalents and short-term investments | $1.03 | | % held in foreign subsidiaries | 31% | - The company has access to a $200.0 million unsecured revolving credit facility, with no outstanding borrowings as of March 31, 2021[138] - Management believes current liquidity is adequate to meet objectives for operations, R&D, capital additions, and acquisitions[138] Cash Flows from Operations This section analyzes the increase in net cash provided by operating activities, primarily driven by higher customer receipts and Sartorius AG dividends Net Cash Provided by Operations (in millions) | Metric | Q1 2021 (in millions) | Q1 2020 (in millions) | YoY Change | | :----- | :-------------------- | :-------------------- | :--------- | | Net Cash Provided by Operations | $113.6 | $62.8 | +80.9% | - The increase was primarily due to higher cash received from customers (COVID-19 related sales) and Sartorius AG dividends[143] - These increases were partially offset by higher cash paid to suppliers, employees (including restructuring programs), and for income taxes[143] Cash Flows from Investing Activities This section analyzes the significant increase in net cash used in investing activities, primarily due to changes in marketable securities and investments Net Cash Used in Investing Activities (in millions) | Metric | Q1 2021 (in millions) | Q1 2020 (in millions) | YoY Change | | :----- | :-------------------- | :-------------------- | :--------- | | Net Cash Used in Investing Activities | $48.3 | $12.4 | +289.5% | - The increase was primarily attributable to a $38.0 million increase in net cash outflows from maturities, sales, and purchases of marketable securities and investments, partially offset by lower capital expenditures[146] Cash Flows from Financing Activities This section analyzes the decrease in net cash used in financing activities, primarily attributable to lower cash used for treasury stock repurchases Net Cash Used in Financing Activities (in millions) | Metric | Q1 2021 (in millions) | Q1 2020 (in millions) | YoY Change | | :----- | :-------------------- | :-------------------- | :--------- | | Net Cash Used in Financing Activities | $47.3 | $98.6 | -52.0% | - The decrease was primarily attributable to a $50.0 million decrease in cash used to purchase treasury stock[147] Treasury Shares This section details the company's share repurchase program, including the number of Class A shares repurchased and the remaining authorization Treasury Share Repurchases | Metric | Q1 2021 | Q1 2020 | | :----- | :------ | :------ | | Class A Common Stock Repurchased (shares) | 89,506 | 291,941 | | Cost of Repurchases (in millions) | $50.0 | $100.0 | | Remaining under Share Repurchase Program (in millions) | $223.1 | N/A | - As of March 31, 2021, $223.1 million remained under the Share Repurchase Program[148] Recent Accounting Pronouncements Adopted This section confirms no substantial changes in significant accounting policies during Q1 2021, beyond those detailed in Note 1 - No substantial changes in significant accounting policies during the three months ended March 31, 2021, other than those discussed in Note 1[122][149] Item 3. Quantitative and Qualitative Disclosures about Market Risk Reports no material changes in market risk disclosures for Q1 2021 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, 2021, compared to the Annual Report on Form 10-K for the year ended December 31, 2020[150] Item 4. Controls and Procedures Confirms effective disclosure controls and procedures as of March 31, 2021, with no material changes to internal control over financial reporting identified during the quarter Disclosure Controls and Procedures - Disclosure controls and procedures are designed to ensure timely and accurate reporting of information required by the Securities Exchange Act of 1934[151] - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2021, operating at a reasonable assurance level[153] Changes to Internal Control Over Financial Reporting - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[154] PART II – OTHER INFORMATION Item 1. Legal Proceedings Refers to Note 11 for legal proceedings, where management believes no material adverse effect on financial results, position, or liquidity is expected, despite unestimable ultimate liability - Refer to Note 11, 'Legal Proceedings' in Part I, Item 1 for details[155] - Management does not believe any ultimate liability from legal matters will have a material adverse effect on results of operations, financial position, or liquidity[98] Item 1A. Risk Factors Outlines significant factors and uncertainties that could materially affect Bio-Rad's business, including COVID-19, international operations, competition, product development, cybersecurity, foreign currency, and Sartorius AG market value Business, Economic, Legal and Industry Risks Details various business, economic, legal, and industry risks, including pandemics, international operations, market competition, product development, cybersecurity, and regulatory compliance Pandemics or disease outbreaks, such as the COVID-19 pandemic - The COVID-19 pandemic continues to adversely affect the United States and global economies, as well as aspects of the company's operations[158] - Demand for COVID-19 testing and research products increased, but other businesses experienced decreases due to reduced customer operations[160] - Ongoing challenges include raw material and component supply, transportation issues, and potential facility shutdowns due to outbreaks[161][162] International operations expose us to additional costs and legal and regulatory risks - Significant international operations (63% of net sales) expose the company to complex foreign and U.S. laws and regulations, increasing costs and risks[165] - Violations could result in fines, criminal sanctions, export license requirements, cessation of business activities, and reputational damage[168] - Past FCPA violations and a dispersed international sales organization make compliance challenging[168] The industries and market segments in which we operate are highly competitive - The life science and clinical diagnostics markets are highly competitive, with some competitors possessing greater financial resources[169] - Competitive and regulatory conditions restrict the ability to fully recover higher costs through price increases, leading to pricing pressures, especially in public tenders[169] We may not be able to grow our business because of our failure to develop new or improved products - Future growth depends on the ability to continuously improve product offerings and introduce new product lines and extensions that integrate technological advances[170] - Failure to integrate technological advances or successfully launch new products could lead to product obsolescence and adversely affect the business[170][171] Breaches of our information systems could have a material adverse effect on our business and results of operations - The company experiences ongoing attempts by computer programmers and hackers to attack and penetrate security controls[172] - Risks include misappropriation of confidential customer, supplier, employee, or proprietary business information, operational disruptions, regulatory sanctions, and reputational damage[172] - Increased use of remote work arrangements and rapidly evolving work scenarios in response to the COVID-19 pandemic expose the company to additional risk of cyberattack and disruption[172] If our information technology systems are disrupted, or if we fail to successfully implement, manage and integrate our information technology and reporting systems - A serious disruption of IT systems could have a material adverse effect on the business, results of operations, and financial condition[173][174] - The company depends on IT systems to process orders, manage inventory, collect accounts receivable, and maintain cost-effective operations[174] - Failure to successfully manage and integrate IT systems could adversely affect the business[175] We are subject to foreign currency exchange fluctuations - A significant portion of operations and sales outside the United States exposes the company to fluctuations in foreign currencies relative to the U.S. dollar[178] - A strengthening U.S. dollar negatively impacts consolidated net sales, while a weakening U.S. dollar increases international operating expenses[178] Changes in the market value of our position in Sartorius AG materially impact our financial results and might cause us to be deemed an investment company - Changes in the market value of the Sartorius AG investment materially impact consolidated statements of income, leading to significant gains or losses independent of operating performance[179] - The position in Sartorius AG risks the company being deemed an 'investment company' under the Investment Company Act, limiting access to capital markets[179][217] - The company's share price may change significantly based on Sartorius AG's market valuation, unrelated to actual business performance[180] We may incur losses in future periods due to write-downs in the value of financial instruments - The company holds positions in various financial instruments, including equity and asset-backed securities, which are subject to volatile and illiquid financial markets[181][182] - A decline in market value or illiquidity could result in significant losses due to write-downs or inability to convert positions to cash without substantial losses[181][182] We may experience difficulties implementing our new global enterprise resource planning system - The multi-year implementation of a new global enterprise resource planning (ERP) system requires significant investment of human and financial resources[183] - Risks include significant delays, increased costs, and operational disruptions that could adversely affect critical business functions like order processing, invoicing, and contractual obligations[183] Recent and planned changes to our organizational structure could negatively impact our business - Recent and planned organizational changes, including the European reorganization, carry risks of management and employee distraction, business disruption, and supply issues[184] - Potential negative impacts include workforce attrition, inability to attract or retain key employees, and reduced employee morale or productivity[184] Risks relating to intellectual property rights may negatively impact our business - The company relies on a combination of copyright, trade secret, patent, and trademark laws to protect its intellectual property rights and products[185] - Risks include intellectual property rights being challenged, invalidated, circumvented, or infringed by unauthorized third parties[185] - Litigation could result in substantial costs, forced product redesigns, or required royalty payments[185] Global economic and geopolitical conditions could adversely affect our operations - Challenging global economic conditions, exacerbated by the COVID-19 pandemic, are causing decreased demand for some products, increased competition, and downward pressure on prices[186] - A weakening of macroeconomic conditions may adversely affect suppliers, leading to supply interruptions[186] - Further escalation of tariffs or other trade barriers could adversely impact profitability and competitiveness[186] Reductions in government funding and the capital spending programs of our customers - The capital spending programs of customers (universities, labs, government agencies) significantly affect demand for the company's products[189] - Decreases in government funding or reallocations of customer budgets could materially and adversely affect the business[189] Changes in the healthcare industry - Significant changes in the healthcare industry, driven by cost reduction efforts, are increasing pressure on pricing and reimbursement for medical products and services[190] - Reductions in third-party payor reimbursements (e.g., Medicare, Medicaid) for clinical diagnostic tests could adversely affect the Clinical Diagnostics business[191][192] We are subject to substantial government regulation - The company's products, particularly Clinical Diagnostic products, are subject to extensive U.S. (FDA) and foreign government regulations[195] - Non-compliance can lead to severe enforcement actions, including fines, injunctions, product recalls, and operational shutdowns[195] - Evolving regulations (e.g., European IVD devices, stricter registration rules in other countries) create uncertain approval timelines and additional costs[197] We cannot assure you that we will be able to integrate acquired companies, products or technologies into our company successfully - Acquisitions may yield less-than-anticipated benefits and divert management's time and resources[201] - Risks include assuming contingent liabilities and recording impairment charges for goodwill and other intangible assets[201] Product quality and liability issues could harm our reputation and negatively impact our business, results of operations and financial condition - Quality issues with complex instruments, reagents, and components can lead to significant costs for remediation and product launch delays[202] - Defects, unapproved uses, or inadequate risk disclosure could result in product recalls or product liability claims, harming reputation and customer relationships[202] Lack of key personnel could hurt our business - The company operates in a technical and competitive environment, requiring highly qualified scientists and specialized manufacturing staff[203] - Intense competition for these professionals, particularly in Northern California, poses a risk of failing to retain or attract sufficient qualified personnel[203] A reduction or interruption in the supply of components and raw materials - Manufacturing relies on the timely delivery of quality components and materials from numerous global suppliers, some of whom are sole suppliers[206] - The regulatory environment can hinder the ability to quickly establish additional or replacement sources for some components or materials[206] - Supply reductions, interruptions, or poor quality could adversely affect manufacturing operations and related product sales[206] We may have higher than anticipated tax liabilities - The company is subject to income taxes in the United States and many foreign jurisdictions, requiring estimation, judgment, and calculations for tax liabilities[207] - Disagreements with tax authorities during audits could result in additional tax assessments, negatively impacting operating results and financial condition[207] Changes in tax laws or rates, changes in the interpretation of tax laws or changes in the jurisdictional mix of our earnings - Changes in tax laws (e.g., U.S. Tax Cuts and Jobs Act, proposed 'American Jobs Plan' and 'Made in America Tax Plan') could increase the effective tax rate and cash tax liability[210][211] - The tax effect of the Sartorius AG position and the adoption of BEPS recommendations could negatively impact the effective tax rate[212] Environmental, health and safety regulations and enforcement proceedings - Operations are subject to federal, state, local, and foreign environmental, health, and safety regulations[214] - Non-compliance or releases of hazardous substances could lead to significant capital and operating costs, fines, liabilities for damages, and operational restrictions[215] Our debt may restrict our future operations - The company's revolving credit facility contains covenants that restrict business operations, including incurring additional debt, acquisitions, and dividend payments[216] - Breach of these covenants could result in a default, making all borrowed amounts due and payable[216] - Potential classification as an investment company due to Sartorius AG holdings could further limit access to capital markets and additional financing[217] We are subject to healthcare laws and regulations and could face substantial penalties if we are unable to fully comply with such laws - The company is subject to extensive U.S. federal, state, and foreign healthcare regulations, including the Anti-Kickback Statute, false claims laws, and HIPAA[219] - Non-compliance could lead to significant penalties, including civil and criminal penalties, fines, exclusion from Medicare and Medicaid programs, and operational restructuring[220] Risks Related to Being a Public Company As a public company, Bio-Rad faces risks related to maintaining effective internal controls over financial reporting, where failure could lead to material misstatements and stock price decline Our failure to establish and maintain effective internal control over financial reporting - Maintaining effective disclosure controls and procedures and internal controls over financial reporting is necessary for producing reliable financial statements[223] - Any failure could result in material misstatements, missed reporting obligations, loss of public confidence, and a decline in the trading price of common stock[223] General Business Risks General business risks include natural disasters, terrorist attacks, acts of war, or other uncontrollable events that could damage facilities, disrupt operations, and lead to unrecoverable losses Natural disasters, terrorist attacks, acts of war or other events beyond our control - Natural disasters (e.g., earthquakes, wildfires), terrorist attacks, acts of war, or public health issues (e.g., COVID-19) could damage manufacturing and distribution facilities[224][225] - Such events may result in interruptions to business and losses that exceed insurance coverage, adversely affecting operations and financial condition[225] Risks Related to Our Common Stock Risks include significant voting control by the Schwartz family, influencing fundamental changes and potentially delaying control changes, and a forum selection provision that could increase costs for stockholders' claims A significant majority of our voting stock is held by the Schwartz family - The Schwartz family's ownership of Class A and Class B Common Stock enables them to elect a majority of directors and control fundamental company matters[227] - This concentration of ownership and voting power may have the effect of delaying or preventing a change in control of the company[227] The forum selection provision in our bylaws could increase costs to bring a claim - The bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain claims[230] - This provision may increase costs, discourage claims, or limit stockholders' ability to bring a claim in a judicial forum they find more favorable[230] - The application of the choice of forum provision may be limited in some instances by applicable law, such as federal securities laws[231] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports on the company's share repurchase program, detailing Q1 2021 repurchases of 89,506 Class A shares for $50.0 million, with $223.1 million remaining - The Board of Directors authorized a share repurchase program, which was increased in July 2020 to allow for an additional $200.0 million of stock repurchases[232] Share Repurchase Program | Metric | Three Months Ended March 31, 2021 | | :----- | :-------------------------------- | | Class A Shares Purchased | 89,506 | | Average Price Paid per Share | $558.60 | | Total Cost of Repurchases (in millions) | $50.0 | | Remaining under Share Repurchase Program (in millions) | $223.1 | - As of March 31, 2021, $223.1 million remained under the Share Repurchase Program[148] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - No defaults upon senior securities[236] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[236] Item 5. Other Information Reports the results of the Annual Meeting of Stockholders on April 27, 2021, including the election of directors and ratification of KPMG LLP as independent auditors Submission of Matters to a Vote of Security Holders - The Annual Meeting of Stockholders was held on April 27, 2021[237] - All nominated directors were elected with affirmative votes[237] - KPMG LLP was ratified as the company's independent auditors for the fiscal year ending December 31, 2021[237] Item 6. Exhibits Lists exhibits filed with the report, including CEO and CFO certifications (Sections 302 and 906) and various Inline XBRL documents - Includes Chief Executive Officer and Chief Financial Officer certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[238] - Various Inline XBRL documents (instance, schema, calculation, definition, labels, presentation) are filed as exhibits[239] SIGNATURES - The report was signed on April 30, 2021, by Norman Schwartz, Chairman of the Board, President and Chief Executive Officer, and Ilan Daskal, Executive Vice President, Chief Financial Officer[241]