Bio-Rad(BIO_B) - 2021 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents Bio-Rad Laboratories, Inc.'s unaudited condensed consolidated financial statements and management's discussion for the period ended June 30, 2021 Item 1. Financial Statements This section presents Bio-Rad Laboratories, Inc.'s unaudited condensed consolidated financial statements for the period ended June 30, 2021, including balance sheets, income statements, comprehensive income statements, cash flow statements, statements of changes in stockholders' equity, and detailed notes to these financial statements Condensed Consolidated Balance Sheets This section provides a snapshot of Bio-Rad's financial position, detailing assets, liabilities, and stockholders' equity as of June 30, 2021, and December 31, 2020 Condensed Consolidated Balance Sheets (In thousands): | Item | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :---------------- | | ASSETS: | | | | Cash and cash equivalents | $732,836 | $662,205 | | Short-term investments | $428,562 | $328,913 | | Total current assets | $2,289,093 | $2,139,835 | | Other investments | $11,580,390 | $9,561,140 | | Total assets | $15,117,556 | $12,972,618 | | LIABILITIES AND STOCKHOLDERS' EQUITY: | | | | Total current liabilities | $587,052 | $631,536 | | Deferred income taxes | $2,542,189 | $2,076,785 | | Total liabilities | $3,522,676 | $3,092,678 | | Total stockholders' equity | $11,594,880 | $9,879,940 | | Total liabilities and stockholders' equity | $15,117,556 | $12,972,618 | - Total assets increased by $2.14 billion (16.5%) from December 31, 2020, to June 30, 2021, primarily driven by a significant increase in 'Other investments'[8] - Total stockholders' equity increased by $1.71 billion (17.4%) from December 31, 2020, to June 30, 2021[9] Condensed Consolidated Statements of Income This section presents Bio-Rad's financial performance over specific periods, detailing net sales, gross profit, operating income, and net income, along with earnings per share Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited): | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $715,931 | $536,880 | $1,442,727 | $1,108,524 | | Gross profit | $401,598 | $292,988 | $802,225 | $610,356 | | Income from operations | $124,782 | $51,742 | $225,644 | $126,115 | | Change in fair market value of equity securities | $(1,030,691) | $(1,183,488) | $(2,210,094) | $(2,011,159) | | Net income | $914,114 | $966,429 | $1,891,528 | $1,652,341 | | Basic earnings per share | $30.71 | $32.59 | $63.49 | $55.52 | | Diluted earnings per share | $30.32 | $32.15 | $62.70 | $54.84 | - Net sales increased by 33.4% for the three months ended June 30, 2021, and by 30.1% for the six months ended June 30, 2021, compared to the respective prior-year periods[10] - Net income decreased for the three months ended June 30, 2021, but increased for the six months ended June 30, 2021, primarily influenced by changes in the fair market value of equity securities[10] Condensed Consolidated Statements of Comprehensive Income This section details Bio-Rad's comprehensive income, including net income and other comprehensive income (loss) components, such as foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (In thousands) (Unaudited): | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $914,114 | $966,429 | $1,891,528 | $1,652,341 | | Other comprehensive income (loss), net of income taxes | $56,732 | $87,813 | $(157,290) | $26,206 | | Comprehensive income | $970,846 | $1,054,242 | $1,734,238 | $1,678,547 | - Other comprehensive income (loss) for the six months ended June 30, 2021, was a loss of $157.3 million, primarily due to foreign currency translation adjustments[11] Condensed Consolidated Statements of Cash Flows This section outlines Bio-Rad's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2021, and 2020 Condensed Consolidated Statements of Cash Flows (In thousands, unaudited): | Item | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $268,234 | $154,930 | | Net cash used in investing activities | $(148,604) | $(100,995) | | Net cash used in financing activities | $(44,482) | $(101,596) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $70,046 | $(50,519) | | Cash, cash equivalents, and restricted cash at end of period | $737,161 | $612,132 | - Net cash provided by operating activities increased significantly to $268.2 million for the six months ended June 30, 2021, up from $154.9 million in the prior year, driven by higher sales and Sartorius AG dividends[13][156] - Net cash used in investing activities increased to $148.6 million, primarily due to increased net cash outflows from marketable securities and investments, partially offset by no acquisitions in 2021 compared to the Celsee acquisition in 2020[13][158] - Net cash used in financing activities decreased to $44.5 million, mainly due to a $50.0 million decrease in cash used for treasury stock repurchases[13][159] Condensed Consolidated Statements of Changes in Stockholders' Equity This section details the changes in Bio-Rad's stockholders' equity, including net income, other comprehensive income, stock issuance, and treasury stock transactions Condensed Consolidated Statements of Changes in Stockholders' Equity (In thousands) (Unaudited): | Item | Balance at Dec 31, 2020 | Net Income (Q1 2021) | Other Comprehensive Loss (Q1 2021) | Issuance of Common Stock (Q1 2021) | Stock Compensation Expense (Q1 2021) | Purchase of Treasury Stock (Q1 2021) | Balance at Mar 31, 2021 | Net Income (Q2 2021) | Other Comprehensive Income (Q2 2021) | Issuance of Common Stock (Q2 2021) | Stock Compensation Expense (Q2 2021) | Reissuance of Treasury Stock (Q2 2021) | Balance at Jun 30, 2021 | | :----------------------------------- | :---------------------- | :------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :--------------------------------- | :---------------------- | :------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :------------------------------------- | :---------------------- | | Common Stock | $3 | — | — | — | — | — | $3 | — | — | — | — | — | $3 | | Additional Paid-in Capital | $429,376 | — | — | $4,052 | $11,673 | — | $445,101 | — | — | $3,548 | $11,428 | $(379) | $459,698 | | Treasury Stock | $(99,907) | — | — | — | — | $(49,998) | $(149,905) | — | — | — | — | $443 | $(149,462) | | Retained Earnings | $9,268,012 | $977,414 | — | — | — | — | $10,245,426 | $914,114 | — | — | — | $(65) | $11,159,475 | | Accumulated Other Comprehensive Income (Loss) | $282,456 | — | $(214,022) | — | — | — | $68,434 | — | $56,732 | — | — | — | $125,166 | | Total Stockholders' Equity | $9,879,940 | $977,414 | $(214,022) | $4,052 | $11,673 | $(49,998) | $10,609,059 | $914,114 | $56,732 | $3,548 | $11,428 | $(1) | $11,594,880 | - Total stockholders' equity increased from $9.88 billion at December 31, 2020, to $11.59 billion at June 30, 2021, primarily due to net income and additional paid-in capital, partially offset by treasury stock repurchases and other comprehensive loss[16] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, fair value measurements, and other critical financial information 1. BASIS OF PRESENTATION AND USE OF ESTIMATES This note outlines the basis for preparing the unaudited condensed consolidated financial statements in accordance with GAAP, emphasizing the use of management estimates and assumptions. It details the company's revenue recognition policies, including treatment of multiple performance obligations, product returns, service revenues, and reagent rental agreements. It also provides disaggregated revenue by geographic region and information on warranty provisions and allowance for doubtful accounts, along with recent accounting pronouncements adopted - Revenue from contracts with customers is recognized upon transfer of control of promised products or services, net of estimated product returns[22][25] - Reagent rental agreements, predominantly operating leases with variable payments, accounted for approximately 2% and 3% of total revenue for the three and six months ended June 30, 2021 and 2020, respectively[33] Net Sales Disaggregated by Geographic Region (in millions): | Region | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Europe | $229.1 | $174.0 | $476.7 | $369.7 | | Asia | $172.1 | $129.0 | $341.0 | $240.4 | | United States | $274.6 | $205.4 | $546.0 | $434.9 | | Other | $40.1 | $28.5 | $79.0 | $63.5 | | Total net sales | $715.9 | $536.9 | $1,442.7 | $1,108.5 | Changes in Allowance for Doubtful Accounts (in millions): | Item | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $19.8 | $20.2 | | Provision for expected credit losses | $0.6 | $1.2 | | Write-offs charged against the allowance | $(3.1) | $(1.2) | | Recoveries collected | — | $0.1 | | Balance at end of period | $17.3 | $20.3 | 2. FAIR VALUE MEASUREMENTS This note details the company's fair value measurements for financial assets and liabilities, categorized into Level 1, 2, and 3 inputs. It highlights significant equity securities, particularly the investment in Sartorius AG, and available-for-sale debt investments. The note also covers foreign currency exchange contracts used for hedging and the accounting for other investments Financial Assets and Liabilities Carried at Fair Value (in millions) as of June 30, 2021: | Item | Level 1 | Level 2 | Level 3 | Total | | :----------------------------------- | :------ | :------ | :------ | :-------- | | Financial assets: | | | | | | Cash equivalents | $102.7 | $78.4 | — | $181.1 | | Restricted investments | $6.8 | — | — | $6.8 | | Equity securities | $11,607.8 | — | — | $11,607.8 | | Available-for-sale investments | — | $359.9 | — | $359.9 | | Forward foreign exchange contracts | — | $0.7 | — | $0.7 | | Total financial assets | $11,717.3 | $439.0 | — | $12,156.3 | | Financial liabilities: | | | | | | Forward foreign exchange contracts | — | $0.5 | — | $0.5 | | Contingent consideration | — | — | $0.1 | $0.1 | | Total financial liabilities | — | $0.5 | $0.1 | $0.6 | - The company's investment in Sartorius AG significantly impacts financial results, with fair market value changes resulting in gains of $1.03 billion and $2.21 billion for the three and six months ended June 30, 2021, respectively[53] - As of June 30, 2021, Bio-Rad owns approximately 37% of Sartorius AG's ordinary voting shares and 28% of its preference shares[54] Summary of Forward Foreign Exchange Contracts (in millions) as of June 30, 2021: | Contract Type | Notional Value | Unrealized (Gain)/Loss | | :----------------------------------- | :------------- | :--------------------- | | Contracts to sell foreign currency | $274.5 | $0.1 (Loss) | | Contracts to purchase foreign currency | $203.5 | $(0.3) (Gain) | 3. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS This note provides a breakdown of goodwill by segment and details identifiable purchased intangible assets, including their weighted-average remaining amortization periods, purchase price, accumulated amortization, and net carrying amounts. It also reports the amortization expense for these assets Goodwill by Segment (in millions) as of June 30, 2021 and December 31, 2020: | Segment | Goodwill | Accumulated Impairment Losses | Goodwill, Net | | :----------------------------------- | :------- | :---------------------------- | :------------ | | Life Science | $277.9 | $(41.8) | $236.1 | | Clinical Diagnostics | $349.2 | $(293.4) | $55.8 | | Total | $627.1 | $(335.2) | $291.9 | Purchased Intangible Assets (in millions) as of June 30, 2021: | Asset Type | Weighted-Average Remaining Amortization Period (years) | Purchase Price | Accumulated Amortization | Net Carrying Amount | | :----------------------------------- | :----------------------------------------------------- | :------------- | :----------------------- | :------------------ | | Customer relationships/lists | 5.38 | $114.0 | $(89.1) | $24.9 | | Know how | 4.25 | $193.7 | $(174.7) | $19.0 | | Developed product technology | 13.68 | $217.6 | $(111.8) | $105.8 | | Licenses | 7.26 | $65.3 | $(39.0) | $26.3 | | Tradenames | 7.58 | $6.4 | $(4.3) | $2.1 | | Covenants not to compete | 3.47 | $4.6 | $(2.4) | $2.2 | | Other | — | $0.1 | $(0.1) | — | | Total definite-lived intangible assets | | $601.7 | $(421.4) | $180.3 | | In-process research and development | | $4.6 | — | $4.6 | | Total purchased intangible assets | | $606.3 | $(421.4) | $184.9 | Amortization Expense (in millions): | Period | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Amortization expense | $7.2 | $7.2 | $14.4 | $13.1 | 4. SUPPLEMENTAL CASH FLOW INFORMATION This note provides a reconciliation of net income to net cash provided by operating activities, detailing various adjustments including depreciation, share-based compensation, changes in fair market value of equity securities, and changes in working capital accounts Reconciliation of Net Income to Net Cash Provided by Operating Activities (in millions): | Item | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net income | $1,891.5 | $1,652.3 | | Depreciation and amortization | $66.4 | $68.3 | | Share-based compensation | $23.1 | $18.5 | | Changes in fair market value of equity securities | $(2,210.1) | $(2,011.2) | | Increase in deferred income taxes | $503.8 | $437.4 | | Net cash provided by operating activities | $268.2 | $154.9 | - A significant non-cash adjustment to reconcile net income to operating cash flow is the change in fair market value of equity securities, which was a negative $2.21 billion for the six months ended June 30, 2021[76] 5. LONG-TERM DEBT This note details the company's long-term debt, primarily consisting of finance leases and other debt, and provides information on its $200.0 million unsecured revolving credit facility. The company had no outstanding borrowings under the credit agreement as of June 30, 2021, and was in compliance with all financial ratios and covenants Long-Term Debt (in millions): | Item | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :---------------- | | Finance leases and other debt | $12.5 | $14.1 | | Less current maturities | $(1.7) | $(1.8) | | Long-term debt | $10.8 | $12.3 | - Bio-Rad has a $200.0 million unsecured revolving credit facility, with no outstanding borrowings as of June 30, 2021, and was in compliance with all covenants[79][80] - The reduction in interest expense for the six months ended June 30, 2021, was primarily due to the repayment of $425.0 million Senior Notes in December 2020[131][145] 6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) This note presents the components of accumulated other comprehensive income (loss), including foreign currency translation adjustments, foreign post-employment benefits adjustments, and net unrealized holding gains on available-for-sale investments, along with reclassification adjustments and income tax effects Accumulated Other Comprehensive Income (Loss) (in millions): | Component | Balance at Jan 1, 2021 | Other Comprehensive (Loss) Income, before reclassifications | Amounts reclassified from AOCI | Income Tax Effects | Other Comprehensive (Loss) Income, net of income taxes | Balance at Jun 30, 2021 | | :----------------------------------- | :--------------------- | :---------------------------------------------------------- | :----------------------------- | :----------------- | :----------------------------------------------------- | :---------------------- | | Foreign currency translation adjustments | $298.6 | $(158.4) | — | $0.2 | $(158.2) | $140.4 | | Foreign post-employment benefits adjustments | $(26.0) | $1.3 | $1.6 | $(0.3) | $2.6 | $(23.4) | | Net unrealized holding gains on available-for-sale investments | $9.8 | $(2.0) | $(0.1) | $0.5 | $(1.6) | $8.2 | | Total accumulated other comprehensive income (loss) | $282.4 | $(159.1) | $1.5 | $0.4 | $(157.2) | $125.2 | - Accumulated other comprehensive income decreased from $282.4 million at January 1, 2021, to $125.2 million at June 30, 2021, primarily due to foreign currency translation adjustments[82] 7. EARNINGS PER SHARE This note outlines the calculation of basic and diluted earnings per share, including the weighted average number of common shares outstanding and the effect of potentially dilutive securities Weighted Average Common Shares Outstanding (in thousands): | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic weighted average shares outstanding | 29,764 | 29,652 | 29,793 | 29,759 | | Effect of potentially dilutive stock options and restricted stock awards | 384 | 406 | 374 | 372 | | Diluted weighted average common shares outstanding | 30,148 | 30,058 | 30,167 | 30,131 | | Anti-dilutive shares | 23 | 3 | 23 | 40 | 8. OTHER INCOME AND EXPENSE, NET This note details the components of other (income) expense, net, including interest and investment income, net realized gains on investments, impairment losses, and gains on divestitures Other (Income) Expense, Net (in millions): | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest and investment income | $(0.7) | $(10.0) | $(19.0) | $(12.8) | | Net realized gains on investments | — | $(0.2) | $(0.1) | $(0.6) | | Other-than-temporary impairment loss on investment | — | $4.6 | $0.8 | $4.6 | | Gain on divestiture of a division | — | $(11.7) | — | $(11.7) | | Other expense | $0.8 | $0.1 | $1.0 | — | | Other (income) expense, net | $0.1 | $(17.2) | $(17.3) | $(20.5) | - Other (income) expense, net, shifted from $17.2 million income in Q2 2020 to $0.1 million loss in Q2 2021, primarily due to a $11.7 million gain on the sale of the Informatics division in Q2 2020 and timing of Sartorius AG dividends[87][134] 9. INCOME TAXES This note provides the effective income tax rates for the periods presented and discusses the company's assessment of deferred tax assets, ongoing tax examinations, and liabilities for unrecognized tax benefits Effective Income Tax Rates: | Period | 2021 | 2020 | | :----------------------------------- | :--- | :--- | | Three Months Ended June 30 | 21.0% | 22.4% | | Six Months Ended June 30 | 22.9% | 23.0% | - The decrease in the effective income tax rate for the three months ended June 30, 2021, was primarily due to the release of reserves from the lapse of certain statutes of limitations[89][135] - Gross unrecognized tax benefits were $53.1 million as of June 30, 2021, a decrease from $55.8 million at December 31, 2020, mainly due to the release of reserves[93] - The company believes it is reasonably possible that unrecognized tax benefits could decrease by up to $18.8 million within the next twelve months due to expected outcomes of examinations or expiration of statutes of limitations[94] 10. SEGMENT INFORMATION This note presents financial information for Bio-Rad's two operating segments: Life Science and Clinical Diagnostics, along with a reconciliation of total segment profit to consolidated income before income taxes. It also notes a change in allocation methodology for operating expenses and interest expense starting in 2021 Segment Net Sales (in millions): | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Life Science | $334.2 | $252.1 | $700.7 | $479.2 | | Clinical Diagnostics | $380.2 | $283.2 | $738.8 | $623.4 | | Other Operations | $1.5 | $1.6 | $3.2 | $5.9 | | Total Net Sales | $715.9 | $536.9 | $1,442.7 | $1,108.5 | Segment Net Profit (Loss) (in millions): | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Life Science | $64.6 | $35.4 | $166.9 | $59.1 | | Clinical Diagnostics | $60.1 | $10.5 | $58.2 | $54.3 | | Other Operations | $(0.3) | $0.1 | $(0.2) | $1.2 | | Total Segment Profit | $124.4 | $46.0 | $224.9 | $114.6 | - Life Science segment sales increased by 32.6% (27.1% currency neutral) in Q2 2021 and 46.2% (41.1% currency neutral) in H1 2021, driven by qPCR, Western Blotting, Droplet Digital PCR, and Process Media products, including those supporting COVID-19 research[126][140] - Clinical Diagnostics segment sales increased by 34.3% (28.0% currency neutral) in Q2 2021 and 18.5% (14.1% currency neutral) in H1 2021, primarily due to higher lab utilization and growth in the quality controls business as the market recovers from COVID-19[127][141] 11. LEGAL PROCEEDINGS This note states that Bio-Rad is involved in various legal claims and actions in the ordinary course of business. While the company does not currently believe these will have a material adverse effect on its financial position, it cannot guarantee the ultimate outcome - Bio-Rad is a party to various claims and legal actions arising in the ordinary course of business[99] - Management does not believe that any ultimate liability from these matters will have a material adverse effect on results of operations, financial position, or liquidity, but cannot provide absolute assurance[99] 12. RESTRUCTURING COSTS This note details the company's strategy-driven restructuring plan, announced in February 2021, which primarily impacts European operations through position elimination, function consolidation, and manufacturing relocation. It provides the restructuring accrual and the impact on various expense categories - In February 2021, Bio-Rad announced a restructuring plan to improve operating performance, primarily affecting European operations by eliminating positions, consolidating functions, and relocating manufacturing to Asia[101] - The restructuring plan is expected to be substantially complete by the end of 2022[101] Restructuring Accrual and Expense Impact (in millions): | Item | June 30, 2021 Accrual | Three Months Ended June 30, 2021 Expense Impact | Six Months Ended June 30, 2021 Expense Impact | | :----------------------------------- | :-------------------- | :---------------------------------------------- | :-------------------------------------------- | | Total restructuring accrual | $61.6 | | | | Cost of goods sold | | $1.1 | $25.0 | | Selling, general and administrative expense | | $(6.9) | $27.8 | | Research and development expense | | $(1.9) | $15.1 | 13. LEASES: FINANCE AND OPERATING WHERE WE ACT AS LESSEE This note describes Bio-Rad's accounting for operating and finance leases where it acts as a lessee, including the recognition of right-of-use (ROU) assets and lease liabilities. It provides details on lease costs, cash flows, balance sheet information, weighted average lease terms, discount rates, and maturities of lease liabilities Components of Lease Expense (in millions): | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $11.8 | $12.4 | $23.5 | $25.0 | | Total finance lease cost | $0.3 | $0.3 | $0.7 | $0.7 | | Sublease income | $0.7 | $0.7 | $1.5 | $1.5 | Supplemental Balance Sheet Information Related to Leases (in millions): | Item | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $190.2 | $202.1 | | Total operating lease liabilities | $199.5 | $211.6 | | Total finance lease liabilities | $11.3 | $11.5 | Weighted Average Lease Term and Discount Rate: | Item | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :---------------- | | Operating leases - in years | 8 | 8 | | Finance leases - in years | 16 | 16 | | Operating leases - discount rate | 3.8% | 3.9% | | Finance leases - discount rate | 6.2% | 6.2% | 14. SUBSEQUENT EVENT This note discloses a subsequent event where Bio-Rad entered into a Settlement and Patent Cross License Agreement with 10x Genomics, Inc. on July 26, 2021, resolving all outstanding litigation. Bio-Rad will receive approximately $32 million in Q3 2021 and both companies will pay royalties through December 31, 2030 - On July 26, 2021, Bio-Rad entered a Settlement and Patent Cross License Agreement with 10x Genomics, Inc., resolving all litigation[112] - Bio-Rad will receive approximately $32 million from 10x Genomics in Q3 2021, primarily for royalties and interest related to past infringing product sales[112] - Both companies will pay royalties to each other for licensed products and services through December 31, 2030[112] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Bio-Rad's financial performance, condition, and results of operations for the three and six months ended June 30, 2021, compared to the prior year. It covers net sales, gross margins, operating expenses, non-operating items, and liquidity, highlighting the impact of the COVID-19 pandemic, restructuring efforts, and the investment in Sartorius AG - Bio-Rad operates in two reportable segments: Life Science and Clinical Diagnostics, providing specialized tools for biological research and clinical diagnostics products[115] - Approximately 62% of year-to-date 2021 consolidated net sales are derived from international locations, with Europe being the largest international region, exposing the company to foreign currency fluctuations[118] - The COVID-19 pandemic has led to continued but moderate demand for COVID-19 related products, while other businesses experienced recovery due to higher lab utilization[119][127][141] Key Financial Ratios (as a percentage of sales): | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of goods sold | 43.9% | 45.4% | 44.4% | 44.9% | | Gross profit | 56.1% | 54.6% | 55.6% | 55.1% | | Selling, general and administrative expense | 29.8% | 35.3% | 30.4% | 34.5% | | Research and development expense | 8.9% | 9.7% | 9.5% | 9.1% | | Change in fair market value of equity securities | 144.0% | 220.4% | 153.2% | 181.4% | | Net income | 127.7% | 180.0% | 131.1% | 149.1% | - Consolidated gross margins improved to 56.1% in Q2 2021 (from 54.6% in Q2 2020) and 55.6% in H1 2021 (from 55.1% in H1 2020), driven by favorable product mix and lower customs duty in Life Science, and favorable product costs in Clinical Diagnostics[128][142] - SG&A expenses increased in absolute terms but decreased as a percentage of sales, while R&D expenses increased due to headcount, employee-related expenses, and strategic initiatives, including those related to the Celsee acquisition and restructuring[129][130][143][144] - The company's liquidity is supported by $1.17 billion in cash, cash equivalents, and short-term investments as of June 30, 2021, and access to a $200.0 million unsecured revolving credit facility[151][153] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there have been no material changes in the company's disclosures about market risk during the six months ended June 30, 2021, compared to the Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes in market risk disclosures were identified for the six months ended June 30, 2021, compared to the prior annual report[163] Item 4. Controls and Procedures This section confirms that Bio-Rad's management, with the participation of the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of June 30, 2021, and concluded they were effective. It also states that no material changes in internal control over financial reporting occurred during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2021[165] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2021[166] PART II – OTHER INFORMATION This section provides additional information beyond the financial statements, covering legal proceedings, risk factors, equity security sales, and other required disclosures Item 1. Legal Proceedings This section refers to Note 11 of the condensed consolidated financial statements for details on legal proceedings, indicating that the company is involved in various claims but does not anticipate a material adverse effect on its financial position or results of operations - The company refers to Note 11 for information on legal proceedings, stating that while it is a party to various claims, no material adverse effect on financial results is currently anticipated[99][167] Item 1A. Risk Factors This section outlines significant risks that could materially affect Bio-Rad's business, operations, financial condition, or stock price. Key risks include the ongoing impact of the COVID-19 pandemic, challenges in international operations, intense competition, the need for continuous product innovation, cybersecurity threats, foreign currency fluctuations, the volatility of the Sartorius AG investment, difficulties with ERP system implementation, organizational restructuring, intellectual property risks, global economic conditions, government funding reductions, healthcare industry changes, regulatory compliance, acquisition integration, product quality issues, reliance on key personnel, supply chain disruptions, and tax liabilities - The COVID-19 pandemic continues to pose risks, including potential decreases in demand for certain products, supply chain challenges (plastics, resins, electronic components), increased freight costs, and operational disruptions due to outbreaks at facilities[171][172][173][174][175] - International operations (62% of net sales) expose the company to complex foreign and U.S. laws, regulatory risks, and foreign currency fluctuations, which can increase costs and impact reported sales[118][176][177][191] - Changes in the market value of the Sartorius AG investment materially impact financial results, and its significant value could lead to the company being deemed an 'investment company' under the Investment Company Act, limiting access to capital markets[192][193][195] - The company faces risks from highly competitive markets, the need to develop new products, potential breaches of information systems, difficulties with ERP system implementation, and challenges in integrating acquired companies[181][183][184][187][199][216][217] - Substantial government regulation, particularly in the healthcare industry (FDA, foreign counterparts), and changes in tax laws or rates, could adversely affect business operations and financial condition[209][210][213][225][227] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on Bio-Rad's share repurchase program, including the authorization amount and shares repurchased during the three months ended June 30, 2021. It also notes the reissuance of treasury stock for employee compensation - The Board of Directors authorized a share repurchase program, increased in July 2020 by an additional $200.0 million, with $223.1 million remaining as of June 30, 2021[248] - During Q1 2021, the company repurchased 89,506 shares of Class A common stock for $50.0 million under the program[160] - No shares were purchased under the program during the three months ended June 30, 2021[251] - 1,164 shares of Class A treasury stock were reissued in Q2 2021 to fulfill employee grants under the restricted stock program, resulting in a $65 thousand loss[161] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[252] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[252] Item 5. Other Information This section states that there is no other information to report - No other information is reported[252] Item 6. Exhibits This section lists the exhibits filed as part of the report, including certifications from the CEO and CFO, and Inline XBRL documents - Exhibits include CEO and CFO certifications (Section 302 and Section 906 of Sarbanes-Oxley Act) and Inline XBRL documents[253][254][255] SIGNATURES This section contains the official signatures of the company's Chairman, President, CEO, and CFO, certifying the report's contents - The report is signed by Norman Schwartz, Chairman of the Board, President and Chief Executive Officer, and Ilan Daskal, Executive Vice President, Chief Financial Officer, on July 30, 2021[256]