Bio-Rad(BIO_B) - 2021 Q4 - Annual Report

Part I Business Bio-Rad Laboratories is a global manufacturer and distributor of life science research and clinical diagnostics products, operating in two segments with significant international sales and subject to extensive regulations 2021 Business Segment Sales Breakdown | Segment | Percentage of Net Sales (FY 2021) | | :--- | :--- | | Life Science | 48% | | Clinical Diagnostics | 52% | 2021 Geographic Sales Breakdown | Region | Percentage of Net Sales (FY 2021) | | :--- | :--- | | United States | 39% | | International | 61% | - The Life Science segment addresses an estimated worldwide market of approximately $19 billion, serving customers in research, biopharmaceutical production, and food safety[13] - The Clinical Diagnostics segment serves an estimated worldwide market of approximately $16 billion, providing over 3,000 products for in vitro diagnostics (IVD) to clinical laboratories[14][15] - The company owns over 2,200 U.S. and international patents and numerous trademarks, but believes its primary competitive advantage lies in its knowledge, technology, and specialized skills[17] - As of December 31, 2021, the company had approximately 7,900 employees, with 46% in the Americas, 39% in EMEA, and 15% in Asia Pacific[39] Risk Factors The company faces significant operational, market, and financial risks, including supply chain disruptions, intense competition, foreign currency fluctuations, and IT system challenges - The COVID-19 pandemic has caused and may continue to cause supply chain challenges, including shortages of raw materials like plastics and electronic components, leading to significant backorders and delays expected to continue in 2022[48][51] - International operations, which generated 61% of net sales in 2021, expose the company to risks from complex foreign laws, trade restrictions, and geopolitical events like Brexit[56][57] - Changes in the market value of the company's significant equity position in Sartorius AG materially impact financial results and could potentially lead to the company being deemed an "investment company" under the Investment Company Act of 1940[71][72] - The company is engaged in a multi-year implementation of a new global ERP system, which has experienced delays and could adversely affect business operations if significant disruptions occur[78] - The company is subject to substantial government regulation, including from the FDA and the EU's new In-Vitro Diagnostics Regulation (EU IVDR), which imposes stricter requirements and could increase costs or delay product marketing[88][92] - A significant majority of voting stock is held by the Schwartz family, allowing them to elect a majority of directors and control matters affecting the company, which may create conflicts of interest[118][119] Unresolved Staff Comments The company has no unresolved staff comments from the Securities and Exchange Commission - None[123] Properties The company operates principal manufacturing and research facilities globally for its Life Science and Clinical Diagnostics segments, utilizing both owned and leased properties Principal Manufacturing and Research Locations | Segment | Location | Ownership | | :--- | :--- | :--- | | Life Science | Singapore | Leased | | Life Science | Oxford, England | Leased | | Clinical Diagnostics | Irvine, California | Leased | | Clinical Diagnostics | Greater Seattle Area, Washington | Leased | | Clinical Diagnostics | Lille, France | Owned | | Clinical Diagnostics | Cressier, Switzerland | Owned/Leased | | Clinical Diagnostics | Dreieich, Germany | Owned/Leased | | Shared | Greater San Francisco Bay Area, CA | Owned/Leased | | Shared | Greater Paris Area, France | Leased | | Shared | Leipzig, Germany | Leased | Legal Proceedings The company is involved in various legal claims in the ordinary course of business, with no expected material adverse effect on its financial position or results - The company is a party to various claims and legal actions arising in the ordinary course of business but does not expect any resulting liability to have a material adverse effect on its financial results or position[126] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[127] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Bio-Rad's common stock trades on the NYSE, with no history or current plans for cash dividends, and a share repurchase program with $223.1 million remaining - The company has never paid a cash dividend and has no present plans to do so[129] - As of December 31, 2021, $223.1 million remained available under the authorized Share Repurchase Program No shares were purchased during the three months ended December 31, 2021[130] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2021, net sales grew 14.8% to $2.92 billion, driven by segment growth, with net income significantly boosted by a $4.93 billion gain from equity securities Financial Performance Summary (FY 2021 vs. FY 2020) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2.92B | $2.55B | +14.8% | | Currency-Neutral Sales Growth | 12.7% | N/A | N/A | | Gross Margin | 56.1% | 56.5% | -0.4 p.p. | | Net Income | $4.25B | $3.81B | +11.5% | | Change in Fair Value of Securities | +$4.93B | +$4.50B | +9.6% | Segment Sales Growth (FY 2021 vs. FY 2020) | Segment | Reported Growth | Currency-Neutral Growth | | :--- | :--- | :--- | | Life Science | +13.7% | +12.0% | | Clinical Diagnostics | +16.1% | +13.6% | - In October 2021, the company acquired Dropworks, Inc., a digital PCR development company, for a total consideration of $125.5 million to complement its Life Science offerings[140][141] - A restructuring plan announced in February 2021, primarily impacting European operations, resulted in charges of $64.4 million for the year ended December 31, 2021[142] - In November 2021, the company extended a €400 million collateralized loan to Sartorius-Herbst Beteiligungen II GmbH, due in 2029[143] - Net cash provided by operations increased to $656.5 million in 2021 from $575.3 million in 2020, primarily due to higher sales, increased dividends from Sartorius AG, and lower interest payments[191] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency exchange rates and interest rates, managed through operational means and derivatives, with interest rate risk deemed insignificant - The company manages foreign exchange risk through operational means (e.g., matching revenues and costs in the same currency) and by using forward foreign exchange contracts[210] - A hypothetical 10% adverse movement in foreign exchange rates would result in an approximate net-present-value loss of $32.8 million on the company's derivative positions as of December 31, 2021[211] - Interest rate risk associated with debt instruments was not significant as of December 31, 2021, as the debt consists primarily of fixed-rate instruments[212] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for FY2021, including the auditor's report and various financial statements - This item includes the company's audited consolidated financial statements and the report from its independent registered public accounting firm, KPMG LLP[214][216] - The auditor's report identified two critical audit matters: the assessment of the lease term for reagent rental agreements and the accounting for the investment in Sartorius AG, specifically evaluating the ability to exercise significant influence[220][224][227] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section is not applicable to the company - Not applicable[452] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[454] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[456] - No changes in internal control over financial reporting occurred during the year that materially affected, or are reasonably likely to materially affect, these controls[458] Other Information The Board adopted an Executive Change in Control Severance Plan on February 10, 2022, providing benefits to named executive officers upon qualifying termination - On February 10, 2022, the company's board of directors adopted an Executive Change in Control Severance Plan[461] - The plan provides benefits such as cash severance, pro-rated bonuses, COBRA reimbursement, and accelerated equity vesting for named executive officers upon a qualifying termination following a change in control[462] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable to the company - Not applicable[465] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement, and the company has a code of ethics - Required information is incorporated by reference from the company's 2022 Proxy Statement[466] - The company has adopted a code of business ethics and conduct applicable to all employees and directors, available on its website[467] Executive Compensation Information regarding executive compensation, including discussion, tables, and termination payments, is incorporated by reference from the 2022 Proxy Statement - Required information regarding executive compensation is incorporated by reference from the 2022 Proxy Statement[469] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2022 Proxy Statement, with 1,897,388 securities available for future issuance under equity plans - Information on security ownership is incorporated by reference from the 2022 Proxy Statement[470] Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 567,301 | $246.41 | 1,897,388 | | Not approved by security holders | — | — | — | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the company's 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[472] Principal Accountant Fees and Services KPMG LLP serves as the independent registered public accounting firm, with fee and service information incorporated by reference from the 2022 Proxy Statement - The company's independent registered public accounting firm is KPMG LLP[472] - Required information on accountant fees and services is incorporated by reference from the 2022 Proxy Statement[473] Part IV Exhibits and Financial Statement Schedules This section indexes financial statements, notes the omission of schedules, and lists all exhibits filed or incorporated by reference into the Form 10-K - This item provides an index to the financial statements (located in Item 8) and a list of all exhibits filed as part of the report[474][475] Form 10-K Summary This item is not applicable, and no summary is provided - None[487]