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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________to __________
Commission file number 001-07928
BIO-RAD LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1381833
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
1000 Alfred Nobel Drive, Hercules, California 94547
(Address of principal executive offices) (Zip Code)
(510) 724-7000
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last
report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A Common Stock, Par Value $0.0001 per share BIO New York Stock Exchange
Class B Common Stock, Par Value $0.0001 per share BIO.B New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securiti
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (
subject to such filing Yes No
requirements for
the past 90 days.
es Exchange
2) has been
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T ((s)232,405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit files)
.
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer,"
"accelerated filer," "smaller reporting company," and "emerging growth
company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes No
.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Shares Outstanding at July 29, 2024: Class A - 22,794,641 Class B - 5,076,017
-------------------------------------------------------------------------------
BIO-RAD LABORATORIES, INC.
FORM 10-Q JUNE 30, 2024
TABLE OF CONTENTS
Part I - Financial Information 4
Item 1. Financial Statements 4
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Income (Loss) 6
Condensed Consolidated Statements of Comprehensive Income 7
(Loss)
Condensed Consolidated Statements of Cash Flows 8
Condensed Consolidated Statements of Changes in Stockholders' Equity 9
Notes to Condensed Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 31
Item 3. Quantitative and Qualitative Disclosures about Market Risk 36
Item 4. Controls and Procedures 36
Part II - Other Information 37
Item 1. Legal Proceedings 37
Item 1A. Risk Factors 37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
Item 3. Defaults Upon Senior Securities 49
Item 4. Mine Safety Disclosures 49
Item 5. Other Information 49
Item 6. Exhibits 51
Signatures 52
2
-------------------------------------------------------------------------------
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Other than statements of historical fact, statements made in this report
include forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include, without limitation, statements we make regarding our future financial
performance, operating results, plans and objectives. Forward-looking
statements generally can be identified by the use of forward-looking
terminology, such as "believe," "expect," "anticipate," "may," "will,"
"intend," "estimate," "continue," or similar expressions or the negative of
those terms or expressions. Such statements involve risks and uncertainties,
which could cause actual results to vary materially from those expressed in or
indicated by the forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events.
However, actual results may differ materially from those currently anticipated
depending on a variety of risk factors including, but not limited to, the
risks relating to our international operations, supply chain issues, global
economic and geopolitical conditions, our ability to develop and market new or
improved products, our ability to compete effectively, foreign currency
exchange fluctuations, reductions in government funding or capital spending of
our customers, international legal and regulatory risks, product quality and
liability issues, our ability to integrate acquired companies, products or
technologies into our company successfully, changes in the healthcare
industry, natural disasters and other catastrophic events beyond our control,
and other risks and uncertainties identified under "Part II, Item 1A, Risk
Factors" of this Quarterly Report on Form 10-Q. We caution you not to place
undue reliance on forward-looking statements, which reflect an analysis only
and speak only as of the date hereof. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise, except as required by law.
3
-------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
June 30, 2024 December 31, 2023
ASSETS: (Unaudited)
Cash and cash equivalents $ 406,913 $ 403,815
Short-term investments 1,209,193 1,203,327
Restricted investments 5,560 5,560
Accounts receivable, less allowance for credit losses of $ 445,506 489,017
14,043
as of June 30, 2024 and $
14,926
as of December 31, 2023
Inventory 803,693 780,517
Prepaid expenses 153,013 140,040
Other current assets 32,376 26,054
Total current assets 3,056,254 3,048,330
Property, plant and equipment, net 533,767 529,007
Operating lease right-of-use assets 181,473 194,730
Goodwill, net 412,116 413,569
Purchased intangibles, net 307,093 320,514
Other investments 5,099,554 7,698,070
Other assets 98,189 94,850
Total assets $ 9,688,446 $ 12,299,070
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
-------------------------------------------------------------------------------
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Balance Sheets
(continued)
(In thousands, except share data)
June 30, 2024 December 31, 2023
LIABILITIES AND STOCKHOLDERS' EQUITY: (Unaudited)
Accounts payable $ 126,693 $ 144,625
Accrued payroll and employee benefits 132,460 139,929
Current maturities of long-term debt and notes payable 483 486
Income and other taxes payable 35,896 35,759
Current operating lease liabilities 41,513 40,379
Other current liabilities 149,916 161,621
Total current liabilities 486,961 522,799
Long-term debt, net of current maturities 1,199,724 1,199,052
Deferred income taxes 878,462 1,475,495
Operating lease liabilities 150,975 165,478
Other long-term liabilities 193,537 195,113
Total liabilities 2,909,659 3,557,937
Stockholders' equity:
Preferred stock, $ - -
0.0001
par value,
7,500,000
shares authorized; issued and outstanding -
none
Class A common stock, shares issued 2 2
25,189,806
and
25,169,944
as of June 30, 2024 and December 31, 2023, respectively; shares outstanding
23,122,664
and
23,422,506
as of June 30, 2024 and December 31, 2023, respectively
Class B common stock, shares issued and outstanding, 1 1
5,076,066
as of June 30, 2024 and
5,095,930
as of December 31, 2023, respectively
Additional paid-in capital 474,729 449,075
Class A treasury stock at cost, ( (
2,067,142 723,642 632,536
and ) )
1,747,438
shares as of June 30, 2024 and December 31, 2023, respectively
Retained earnings 7,479,059 9,260,629
Accumulated other comprehensive loss ( (
451,362 336,038
) )
Total stockholders' equity 6,778,787 8,741,133
Total liabilities and stockholders' equity $ 9,688,446 $ 12,299,070
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
-------------------------------------------------------------------------------
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Income (Loss)
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Net sales $ 638,476 $ 681,110 $ 1,249,296 $ 1,357,954
Cost of goods sold 283,357 318,627 568,211 633,054
Gross profit 355,119 362,483 681,085 724,900
Selling, general and 194,719 207,824 409,602 433,377
administrative expense
Research and 58,904 65,042 125,279 139,993
development expense
Income from operations 101,496 89,617 146,204 151,530
Interest expense 12,264 12,343 24,541 24,680
Foreign currency ( ( ( (
exchange gains, net 1,699 1,253 3,653 3,600
) ) ) )
Losses from change in fair market value 2,895,355 1,595,442 2,473,178 1,612,967
of equity securities and loan receivable
Other income, net ( ( ( (
18,143 16,488 52,659 66,919
) ) ) )
Loss before income taxes ( ( ( (
2,786,281 1,500,427 2,295,203 1,415,598
) ) ) )
Benefit from income taxes 620,795 338,176 513,633 322,309
Net loss $ ( $ ( $ ( $ (
2,165,486 1,162,251 1,781,570 1,093,289
) ) ) )
Basic and diluted loss per share:
Net loss $ ( $ ( $ ( $ (
per share 76.26 39.59 62.61 37.09
) ) ) )
Weighted average 28,395 29,355 28,457 29,475
common shares
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
-------------------------------------------------------------------------------
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Net loss $ ( $ ( $ ( $ (
2,165,486 1,162,251 1,781,570 1,093,289
) ) ) )
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ( 36,605 ( 91,823
24,694 116,362
) )
Foreign other post-employment benefits adjustments ( 237 884 271
470
)
Net unrealized holding gains (losses) on available-for-sale investments ( ( 154 1,866
227 1,352
) )
Other comprehensive income (loss) ( 35,490 ( 93,960
25,391 115,324
) )
Comprehensive loss $ ( $ ( $ ( $ (
2,190,877 1,126,761 1,896,894 999,329
) ) ) )
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
-------------------------------------------------------------------------------
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
Six Months Ended
June 30,
2024 2023
Cash flows from operating activities:
Cash received $ 1,265,453 $ 1,360,206
from customers
Cash paid to suppliers and employees ( (
1,084,925 1,173,285
) )
Interest paid, net ( (
23,301 23,535
) )
Income tax payments, net ( (
52,172 31,556
) )
Dividend proceeds and 51,097 65,422
miscellaneous receipts, net
Proceeds from (payments for) forward 11,286 (
foreign exchange contracts, net 1,067
)
Net cash provided by operating activities 167,438 196,185
Cash flows from investing activities:
Payments for purchases of ( (
property, plant and equipment 82,457 70,364
) )
Proceeds from dispositions of 92 39
property, plant and equipment
Payments for purchases of marketable ( (
securities and investments 654,541 341,522
) )
Proceeds from sales of marketable 536,544 195,932
securities and investments
Proceeds from maturities of 126,342 173,426
marketable securities and investments
Net cash used in investing activities ( (
74,020 42,489
) )
Cash flows from financing activities:
Payments on long-term borrowings ( (
236 231
) )
Payments for debt issuance costs ( -
617
)
Proceeds from issuance of common stock and from reissuance of treasury stock 10,188 9,521
under the employee stock purchase plan and upon exercise of stock options
Tax payments from net share settlement ( (
152 312
) )
Payments for purchases of treasury stock ( (
105,749 207,407
) )
Net cash used in financing activities ( (
96,566 198,429
) )
Effect of foreign exchange 6,494 670
rate changes on cash
Net increase (decrease) in cash, 3,346 (
cash equivalents and restricted cash 44,063
)
Cash, cash equivalents and restricted 404,369 434,544
cash at beginning of period
Cash, cash equivalents and $ 407,715 $ 390,481
restricted cash at end of period
Reconciliation of cash, cash equivalents and restricted cash (in thousands):
June 30,
2024 2023
Cash and cash equivalents $ 406,913 $ 390,001
Restricted cash included 384 82
in Other current assets
Restricted cash included in Other assets 418 398
Total cash, cash equivalents and restricted cash shown $ 407,715 $ 390,481
in the condensed consolidated statements of cash flows
These restricted cash items are primarily related to performance guarantees
and other restricted deposits.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
-------------------------------------------------------------------------------
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
(Unaudited)
Common Stock Additional Treasury Stock Retained Earnings Accumulated Other Total Stockholders'
Paid-in Capital Comprehensive Equity
Income (Loss)
Balance at $ 3 $ 449,075 $ ( $ 9,260,629 $ ( $ 8,741,133
December 632,536 336,038
31, 2023 ) )
Net income - - - 383,916 - 383,916
Other - - - - ( (
comprehensive 89,933 89,933
loss, net of tax ) )
Stock compensation - 15,262 - - - 15,262
expense
Purchase of - - ( - - (
treasury stock 4,702 4,702
) )
Reissuance of - ( 7,215 - - 5,505
treasury stock 1,710
)
Excise tax on - - ( - - (
stock repurchase 47 47
) )
Balance at $ 3 $ 462,627 $ ( $ 9,644,545 $ ( $ 9,051,134
March 31, 630,070 425,971
2024 ) )
Net loss - - - ( - (
2,165,486 2,165,486
) )
Other - - - - ( (
comprehensive 25,391 25,391
loss, net of tax ) )
Stock compensation - 14,999 - - - 14,999
expense
Purchase of - - ( - - (
treasury stock 100,000 100,000
) )
Reissuance of - ( 7,428 - - 4,683
treasury stock 2,745
)
Shares withheld - ( - - - (
related to net 152 152
share settlement ) )
of equity awards
Excise tax on - - ( - - $ (
stock repurchase 1,000 1,000
) )
Balance at $ 3 $ 474,729 $ ( $ 7,479,059 $ ( $ 6,778,787
June 30, 723,642 451,362
2024 ) )
Common Stock Additional Treasury Stock Retained Earnings Accumulated Other Total Stockholders'
Paid-in Capital Comprehensive Income (Loss) Equity
Balance at $ 3 $ 447,454 $ ( $ 9,898,203 $ ( $ 9,615,252
December 31, 2022 263,586 466,822
) )
Net income - - - 68,962 - 68,962
Other comprehensive - - - - 58,470 58,470
income, net of tax
Stock compensation - 16,608 - - - 16,608
expense
Reissuance of - ( 5,290 ( - 4,424
treasury stock 660 206
) )
Balance at $ 3 $ 463,402 $ ( $ 9,966,959 $ ( $ 9,763,716
March 31, 2023 258,296 408,352
) )
Net loss - - - ( - (
1,162,251 1,162,251
) )
Other comprehensive - - - - 35,490 35,490
income, net of tax
Stock compensation - 12,559 - - - 12,559
expense
Purchase of - - ( - - (
treasury stock 207,407 207,407
) )
Reissuance of - ( 6,919 ( - 4,786
treasury stock 2,089 44
) )
Balance at $ 3 $ 473,872 $ ( $ 8,804,664 $ ( $ 8,446,893
June 30, 2023 458,784 372,862
) )
The accompanying notes are an integral part of these condensed consolidated
financial statements.
9
-------------------------------------------------------------------------------
BIO-RAD LABORATORIES, INC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION AND USE OF ESTIMATES
Basis of Presentation
In this report, "Bio-Rad," "we," "us," "the Company" and "our" refer to
Bio-Rad Laboratories, Inc. and its subsidiaries. The accompanying unaudited
condensed consolidated financial statements of Bio-Rad have been prepared in
accordance with accounting principles generally accepted in the United States
of America (GAAP) and reflect all adjustments which are, in the opinion of
management, necessary to fairly state the results of the interim periods
presented. All such adjustments are of a normal recurring nature. Results for
the interim period are not necessarily indicative of the results for the
entire year. The condensed consolidated balance sheet at December 31, 2023
has been derived from the audited consolidated financial statements at that
date but does not include all of the information and footnotes required by
GAAP for complete financial statements. The condensed consolidated financial
statements should be read in conjunction with the notes to the consolidated
financial statements contained in our Annual Report on Form 10-K for the year
ended December 31, 2023.
We evaluate subsequent events and the evidence they provide about conditions
existing at the date of the balance sheet as well as conditions that arose
after the balance sheet date but through the date the financial statements are
issued. The effects of conditions that existed at the balance sheet date are
recognized in the financial statements. Events and conditions arising after
the balance sheet date but before the financial statements are issued are
evaluated to determine if disclosure is required to keep the financial
statements from being misleading. To the extent such events and conditions
exist, disclosures are made regarding the nature of events and the estimated
financial effects of those events and conditions.
Use of Estimates
The preparation of the condensed consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingencies at the date of
the financial statements as well as the reported amounts of revenues and
expenses during the reporting periods. Bio-Rad bases its estimates on
historical experience and on various other market-specific and other relevant
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Such estimates include, but are not limited to, revenue recognition, the
valuation of inventory, the valuation of acquired intangible assets, valuation
of accounts receivable, estimation of warranty reserve, estimation of legal
reserves, the recognition and measurement of current and deferred income tax
assets and fair value measurement of the Loan receivable. Actual results could
differ materially from those estimates.
Revenue Recognition
We recognize revenue from operations through the sale of products, services,
license of intellectual property and rental of instruments. Revenue from
contracts with customers is recognized upon transfer of control of promised
products or services to customers in an amount that reflects the consideration
we expect to receive in exchange for those products or services. Revenue is
recognized net of any taxes collected from customers (sales tax, value added
tax, etc.), which are subsequently remitted to government authorities.
We enter into contracts that can include various combinations of products and
services, which are generally accounted for as distinct performance
obligations. A product or service is considered distinct if it is separately
identifiable from other deliverables in the arrangement and if a customer can
benefit from such product or service on its own or with other resources that
are readily available to the customer. The transaction consideration is
10
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allocated between separate performance obligations of an arrangement based on
the stand-alone selling price ("SSP") for each distinct product or service.
We recognize revenue from product sales at the point in time when we have
satisfied our performance obligation by transferring control of the product to
the customer. We use judgment to evaluate whether and when control has
transferred and consider the right to payment, legal title, physical
possession, risks and rewards of ownership, and customer acceptance if it is
not a formality, as indicators to determine the transfer of control to the
customer. For products that include installation, the product and installation
are separate performance obligations. The product revenue is recognized when
control has transferred to the customer, generally upon delivery, and
installation service revenue is recognized when the product installation is
completed.
Service revenues on extended warranty contracts are recognized ratably over
the life of the service agreement as a stand-ready performance obligation. For
arrangements that include a combination of products and services, the
transaction price is allocated to each performance obligation based on
stand-alone selling prices. The method used to determine the stand-alone
selling prices for product and service revenues is based on the observable
prices when the product or services have been sold separately.
We recognize revenues for a functional license of intellectual property at a
point in time when the control of the license and technology transfers to the
customer. For license agreements that include sales or usage-based royalty
payments to us, we recognize revenue at the later of (i) when the related sale
of the product occurs, or (ii) when the performance obligation to which some
or all of the royalty has been allocated has been satisfied, or partially
satisfied.
The primary purpose of our invoicing terms is to provide customers with simple
and predictable methods of purchasing our products and services, not to either
provide or receive financing to or from our customers. We record contract
liabilities when cash payments are received or due in advance of our
performance.
We do not disclose the value of unsatisfied performance obligations for
contracts with an original expected length of one year or less. Our payment
terms vary by the type and location of our customer, and the products and
services offered. The term between invoicing and when payment is due is not
significant.
In addition, we offer a reagent rental program which provides our customers
the ability to use an instrument and consumables (reagents) on a per test
basis. These agreements may also include maintenance of the instruments placed
at customer locations as well as initial training. We initially determine if a
reagent rental arrangement contains a lease at contract commencement. Where we
have determined that such an arrangement contains a lease, we then determine
the lease classification. Our reagent rental arrangements are predominantly
classified as operating leases and any sales-type leases have historically
been immaterial and we do not enter into direct finance leases.
We concluded that the use of the instrument (referred to as "lease elements")
in our reagent rental agreements is not governed by the revenue recognition
guidance of ASC 606 but instead is addressed by the lease guidance in ASC 842.
Accordingly, we first allocate the transaction price between the lease
elements and the non-lease elements based on relative standalone selling
prices. Our reagent rental arrangements are predominantly comprised of
variable lease payments that fluctuate depending on the volume of reagents
purchased, as such arrangements generally do not contain any fixed or minimum
lease payments. Maintenance services and reagent sales are allocated to the
non-lease elements and recognized as income over time as control is
transferred. Maintenance services are recognized ratably over the period
whereas reagents revenue is recognized upon transfer of control when either
(i) the consumables are delivered or (ii) the consumables are consumed by the
customer.
Revenue attributed to the lease elements of our reagent rental arrangements
represented approximately
3
% of total revenue for both the three and six months ended June 30, 2024 and
2023. Such revenue forms part of the Net sales in our condensed consolidated
statements of income (loss).
11
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Contract costs:
We elected a practical expedient and expense costs to obtain contracts as
incurred as the amortization period would have been one year or less. These
costs include our internal sales force and certain partner sales incentive
programs and are recorded within Selling, general and administrative expense
in our condensed consolidated statements of income (loss).
Disaggregation of Revenue:
The following table presents our revenues disaggregated by geographic region
(in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
United States $ 254.2 $ 287.7 $ 507.1 $ 584.7
EMEA 206.5 211.2 406.7 416.0
APAC 131.2 143.0 248.4 278.8
Other (primarily Canada and Latin America) 46.6 39.2 87.1 78.5
Total net sales $ 638.5 $ 681.1 $ 1,249.3 $ 1,358.0
The disaggregation of our revenue by geographic region is based primarily on
the location of the use of the product or service, and by industry segment
sources. The disaggregation of our revenues by industry segment sources are
presented in our Segment Information footnote (see Note 11).
Deferred revenues primarily represent unrecognized fees billed or collected
for extended service arrangements, including installation services. The
deferred revenue balance at June 30, 2024 and December 31, 2023 was $
67.4
million and $
68.3
million, respectively. The short-term deferred revenue balance at June 30,
2024 and December 31, 2023 was $
52.0
million and $
51.1
million, respectively.
We warrant certain equipment against defects in design, materials and
workmanship, generally for a period of one year. We estimate the cost of
warranties at the time the related revenue is recognized based on historical
experience, specific warranty terms and customer feedback. These costs are
recorded within Cost of goods sold in our condensed consolidated statements of
income (loss).
Warranty liabilities are included in Other current liabilities and Other
long-term liabilities in the condensed consolidated balance sheets. Change in
our warranty liability for the six months ended June 30, 2024 and 2023 were as
follows (in millions):
Six Months Ended
June 30,
2024 2023
Balance at beginning of period $ 8.4 $ 10.6
Provision for warranty 3.4 4.2
Actual warranty costs ( (
4.0 5.8
) )
Balance at end of period $ 7.8 $ 9.0
Accounts Receivable and Allowance for Credit Losses
We record trade accounts receivable at the net invoice value and such
receivables are non-interest bearing. We consider receivables past due based
on the contractual payment terms. Amounts later determined and specifically
identified to be uncollectible are charged or written off against the
allowance for credit losses.
12
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Any adjustments made to our historical loss experience reflect current
differences in asset-specific risk characteristics, including, for example,
accounts receivable by customer type (public or government entity versus
private entity) and by geographic location of customer.
Changes in our allowance for credit losses were as follows (in millions):
Six Months Ended
June 30,
2024 2023
Balance at beginning of period $ 14.9 $ 15.0
Provision for expected credit losses 2.0 1.2
Write-offs charged against the allowance ( (
2.9 0.4
) )
Balance at end of period $ 14.0 $ 15.8
Recent Accounting Pronouncements Issued and to be Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU
2023-07, "Improvements to Reportable Segment Disclosures." The ASU includes
enhanced disclosure requirements, primarily related to significant segment
expenses that are regularly provided to and used by the chief operating
decision maker (CODM). The amendments are to be applied retrospectively to all
prior periods presented in the financial statements. ASU 2023-07 is effective
for fiscal years beginning after December 15, 2023 and interim periods within
fiscal years beginning after December 15, 2024, with early adoption permitted.
We are currently evaluating the effect of adopting this pronouncement on our
financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740):
Improvements to Income Tax Disclosures". The ASU includes enhanced disclosure
requirements, primarily related to the rate reconciliation and income taxes
paid information. The amendments are to be applied prospectively in the
financial statements. ASU 2023-09 is effective for fiscal years beginning
after December 15, 2024, with early adoption permitted. We are currently
evaluating the effect of adopting this pronouncement on our disclosures.
In March 2024, the U.S. Securities and Exchange Commission ("SEC") adopted the
final rule under SEC Release No. 33-11275, The Enhancement and Standardization
of Climate-Related Disclosures for Investors. This rule will require
registrants to disclose certain climate-related information in registration
statements and annual reports. The disclosure requirements will not apply
before the Company's fiscal year beginning January 1, 2025. However on April
4, 2024, the SEC issued an order staying the rule pending the completion of an
ongoing judicial review. We are monitoring SEC developments and evaluating the
final rule to determine its impact on our disclosures.
2. FAIR VALUE MEASUREMENTS
We determine the fair value of an asset or liability based on the assumptions
that market participants would use in pricing the asset or liability in an
orderly transaction between market participants at the measurement date. The
identification of market participant assumptions provides a basis for
determining what inputs are to be used for pricing each asset or liability. A
fair value hierarchy has been established which gives precedence to fair value
measurements calculated using observable inputs over those using unobservable
inputs. This hierarchy prioritizes the inputs into three broad levels as
follows:
.
Level 1: Quoted prices in active markets for identical instruments
.
Level 2: Other significant observable inputs (including quoted prices in
active markets for similar instruments)
.
Level 3: Significant unobservable inputs (including assumptions in determining
the fair value of certain investments)
13
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Financial assets and liabilities carried at fair value and measured on a
recurring basis as of June 30, 2024 are classified in the hierarchy as follows
(in millions):
Level 1 Level 2 Level 3 Total
Financial assets carried at fair value:
Cash equivalents:
Time deposits - 40.3 - 40.3
Money market funds 76.3 - - 76.3
Total cash equivalents (a) 76.3 40.3 - 116.6
Restricted investments (b) 7.2 - - 7.2
Equity securities (c) 4,825.6 - - 4,825.6
Loan under the fair value option (d) - - 305.6 305.6
Available-for-sale investments:
Corporate debt securities - 545.0 - 545.0
U.S. government sponsored agencies - 246.1 - 246.1
Foreign government obligations - 2.6 - 2.6
Municipal obligations - 8.3 - 8.3
Asset-backed securities - 333.6 - 333.6
Total available-for-sale investments (e) - 1,135.6 - 1,135.6
Forward foreign exchange contracts (f) - 1.5 - 1.5
Total financial assets carried at fair value $ 4,909.1 $ 1,177.4 $ 305.6 $ 6,392.1
Financial liabilities carried at fair value:
Forward foreign exchange contracts (g) $ - $ 1.2 $ - $ 1.2
Contingent consideration (h) - - 17.9 17.9
Total financial liabilities carried at fair value $ - $ 1.2 $ 17.9 $ 19.1
14
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Financial assets and liabilities carried at fair value and measured on a
recurring basis as of December 31, 2023 are classified in the hierarchy as
follows (in millions):
Level 1 Level 2 Level 3 Total
Financial assets carried at fair value:
Cash equivalents:
Commercial paper $ - $ 12.5 $ - $ 12.5
Time deposits - 36.6 - 36.6
U.S. government sponsored agencies - 7.0 - 7.0
Money market funds 28.0 - - 28.0
Total cash equivalents (a) 28.0 56.1 - 84.1
Restricted investments (b) 7.1 - - 7.1
Equity securities (c) 7,399.3 - - 7,399.3
Loan under the fair value option (d) - - 325.7 325.7
Available-for-sale investments:
Corporate debt securities - 531.6 - 531.6
U.S. government sponsored agencies - 255.9 - 255.9
Foreign government obligations - 12.7 - 12.7
Municipal obligations - 12.1 - 12.1
Asset-backed securities - 323.7 - 323.7
Total available-for-sale investments (e) - 1,136.0 - 1,136.0
Forward foreign exchange contracts (f) - 4.1 - 4.1
Total financial assets carried at fair value $ 7,434.4 $ 1,196.2 $ 325.7 $ 8,956.3
Financial liabilities carried at fair value:
Forward foreign exchange contracts (g) $ - $ 11.7 $ - $ 11.7
Contingent consideration (h) - - 17.5 17.5
Total financial liabilities carried at fair value $ - $ 11.7 $ 17.5 $ 29.2
(a)
Cash equivalents are included in Cash and cash equivalents in the condensed
consolidated balance sheets.
(b)
Restricted investments are included in the following accounts in the condensed
consolidated balance sheets (in millions):
June 30, 2024 December 31, 2023
Restricted investments $ 5.6 $ 5.6
Other investments 1.6 1.5
Total $ 7.2 $ 7.1
(c)
Equity securities are included in the following accounts in the condensed
consolidated balance sheets (in millions):
June 30, 2024 December 31, 2023
Short-term investments $ 73.6 $ 67.2
Other investments 4,752.0 7,332.1
Total $ 4,825.6 $ 7,399.3
(d)
The Loan under the fair value option is included in Other investments in the
condensed consolidated balance sheets.
15
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(e)
Available-for-sale investments are included in Short-term investments in the
condensed consolidated balance sheets.
(f)
Forward foreign exchange contracts in an asset position are included in Other
current assets in the condensed consolidated balance sheets.
(g)
Forward foreign exchange contracts in a liability position are included in
Other current liabilities in the condensed consolidated balance sheets.
(h)
Contingent considerations in a liability position are included in Other
long-term liabilities in the condensed consolidated balance sheets. The
changes in the fair value of contingent consideration included in Research and
development expense amounted to $
0.2
million and $
0.4
million in the condensed consolidated statements of income (loss) for the
three and six months ended June 30, 2024, respectively. No conditions
triggering payment of the contingent consideration were met as of June 30,
2024.
Level 1 Fair Value Measurements
As of June 30, 2024, we own
12,987,900
ordinary voting shares and
9,588,908
preferenc
e
shares of Sartorius AG (Sartorius), of Goettingen, Germany, a process
technology supplier to the biotechnology, pharmaceutical, chemical and food
and beverage industries. We own approximately
38
% of the outstanding ordinary shares (excluding treasury shares) and
27
% of the preference shares of Sartorius as of June 30, 2024. The Sartorius
family trust (Sartorius family members are beneficiaries of the trust) holds a
majority interest of the outstanding ordinary shares of Sartorius. We do not
have the ability to exercise significant influence over the operating and
financial policies of Sartorius primarily because we do not have any
representative or designee on Sartorius' board of directors and have tried and
failed to obtain access to operating or financial information necessary to
apply the equity method of accounting.
The change in fair market value of our investment in Sartorius for the three
and six months ended June 30, 2024 were a loss of $
2,874.4
million and a loss of $
2,472.1
million, respectively, and are recorded in our condensed consolidated
statements of income (loss).
Level 2 Fair Value Measurements
To estimate the fair value of Level 2 debt securities as of June 30, 2024 and
December 31, 2023, our primary pricing provider uses Refinitiv as the primary
pricing source. Our pricing process allows us to select a hierarchy of pricing
sources for securities held. If Refinitiv does not price a Level 2 security
that we hold, then the pricing provider will utilize our custodian supplied
pricing as the secondary pricing source.
Available-for-sale investments consist of the following (in millions):
June 30, 2024
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair
Value
Short-term investments:
Corporate debt securities $ 547.3 $ 0.7 $ ( $ 545.0
3.0
)
Municipal obligations 8.3 - - 8.3
Asset-backed securities 335.1 0.5 ( 333.6
2.0
)
U.S. government sponsored agencies 248.1 0.1 ( 246.1
2.1
)
Foreign government obligations 2.6 - - 2.6
$ 1,141.4 $ 1.3 $ ( $ 1,135.6
7.1
)
16
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The following is a summary of the amortized cost and estimated fair value of
our debt securities at June 30, 2024 by contractual maturity date (in
millions):
Amortized Estimated Fair
Cost Value
Mature in less than one year $ 216.1 $ 214.8
Mature in one to five years 730.8 727.4
Mature in more than five years 194.5 193.4
Total $ 1,141.4 $ 1,135.6
Available-for-sale investments consist of the following (in millions):
December 31, 2023
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair
Value
Short-term investments:
Corporate debt securities $ 534.1 $ 0.8 $ ( $ 531.6
3.3
)
Municipal obligations 12.2 - ( 12.1
0.1
)
Asset-backed securities 325.7 0.7 ( 323.7
2.7
)
U.S. government sponsored agencies 257.4 0.1 ( 255.9
1.6
)
Foreign government obligations 12.8 - ( 12.7
0.1
)
Total $ 1,142.2 $ 1.6 $ ( $ 1,136.0
7.8
)
As of June 30, 2024, there were no significant continuous unrealized losses
greater than 12 months.
Our evaluation of credit losses for available-for-sale investments included t
he extent to which the fair value is less than the amortized cost basis,
adverse conditions specifically related to the debt security, an industry or
geographic area, and any changes in the rating of a security by a rating
agency. Credit loss impairments are limited to the amount that the fair value
of an instrument is less than its amortized cost basis.
At June 30, 2024, we have concluded that all payments related to our
available-for-sale investments
are expected to be made in full and on time at
par value. The diminution of value in the intervening period is due to market
conditions such as illiquidity and interest rate movements and not due to
significant, inherent credit concerns surrounding the issuer.
As a result, we have no allowances for credit losses on our available-for-sale
investments portfolio as of June 30, 2024.
Included in Other current assets are $
9.8
million and $
11.9
million of interest receivable as of June 30, 2024 and December 31, 2023,
respectively, primarily associated with securities in our available-for-sale
investments portfolio. Associated interest on these securities is typically
payable semi-annually. Due to the short-term nature of our interest receivable
asset, we have made an accounting policy election not to measure an allowance
for credit losses for accrued interest receivable. We consider any uncollected
interest receivable that is overdue greater than one year to be impaired for
purposes of write-off. For the six months ended June 30, 2024, we have not
written-off any uncollected interest receivable.
As part of distributing our products, we regularly enter into intercompany
transactions. We enter into forward foreign exchange contracts to manage
foreign exchange risk of future movements in foreign exchange rates that
affect foreign currency denominated intercompany receivables and payables. We
do not use derivative financial instruments for speculative or trading
purposes. We do not seek hedge accounting treatment for these contracts. As a
result, these contracts, generally with maturity dates of 90 days or less, are
recorded at their fair value at each balance sheet date. The notional amounts
provide one measure of foreign exchange exposures as of June 30, 2024 and do
not represent the amount of Bio-Rad's exposure to loss. The estimated fair
value of these contracts was
17
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derived using the spot rates and forward points from Refinitiv on the last
business day of the quarter. The resulting gains or losses from foreign
exchange contracts offset gains or losses from foreign currency remeasurement
of the related receivables and payables, both of which are included in Foreign
currency exchange gains, net in the condensed consolidated statements of
income (loss).
The following is a summary of our forward foreign currency exchange contracts
(in millions):
Contracts to sell foreign currency: June 30, 2024 December 31, 2023
Notional value $ 698.1 $ 873.5
Unrealized gain/(loss) $ 0.5 $ (
8.1
)
Contracts to purchase foreign currency:
Notional value $ 59.1 $ 133.6
Unrealized (loss)/gain $ ( $ 0.5
0.1
)
Included in Other investments in the condensed consolidated balance sheet are
investments without readily determinable fair value measured at cost with
adjustments for observable price changes or impairments. The carrying value of
these investments was $
6.5
million as of June 30, 2024 and December 31, 2023.
Also included in Other investments in the condensed consolidated balance sheet
are our equity method investments, for which our share of the equity method
investees earnings is included in Other income, net in our condensed
consolidated statements of income (loss). The carrying value of these
investments, net of impairments, was $
33.9
million and $
32.3
million as of June 30, 2024 and December 31, 2023, respectively.
The carrying value and fair value of our long-term debt were as follows (in
millions):
June 30, 2024 December 31, 2023
Carrying Value Fair Value Carrying Value Fair Value
Senior notes $ 1,190.3 $ 1,093.3 $ 1,189.5 $ 1,102.5
Other long-term debt 9.4 9.4 9.6 9.6
Total $ 1,199.7 $ 1,102.7 $ 1,199.1 $ 1,112.1
The fair value of our long-term debt was determined based on quoted market
prices and on borrowing rates available to the company at the respective
period ends, which represent level 2 measurements.
Level 3 Fair Value Investments
During the fourth quarter of 2021, we extended a collateralized loan to
Sartorius-Herbst Beteiligungen II Gmbh ("SHB"), a private limited company
incorporated under the laws of Germany, with a principal amount of
400
million due on January 31, 2029, subject to certain events which could trigger
payment prior to maturity ("Loan"). SHB used the Loan proceeds to partially
finance the acquisition of interests under the Sartorius family trust
("Trust") from a beneficiary of the Trust. The Loan is collateralized by the
pledge of certain of the Trust interests, which upon termination of the Trust
in mid-2028 represent the right to receive Sartorius ordinary shares. Interest
on the loan is payable annually in arrears at
1.5
% per annum, and the entire principal amount is due at maturity. In addition
to contractual interest, we are entitled to certain value appreciation rights
associated with the acquired Trust interests, which upon termination of the
Trust represent the right to receive Sartorius ordinary shares, that is due
upon repayment of the Loan. We elected the fair value option under ASC 825,
Financial Instruments for accounting of the Loan to SHB to simplify the
accounting. The fair value of the Loan and value appreciation right is
estimated under the income approach using a discounted cash flow, and option
pricing model, respectively, which results in a fair value measurement
categorized in Level 3. The significant assumptions used to estimate fair
value of the Loan include an estimate of the discount rate and cash flows of
the Loan and the significant assumptions used to estimate the fair value of
the value appreciation right include volatility, the risk-free interest rate,
expected life (in years) and
18
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expected dividend. The inputs are subject to estimation uncertainty and actual
amounts realized may materially differ. An increase in the expected volatility
may result in a significantly higher fair value, whereas a decrease in
expected life may result in a significantly lower fair value. All subsequent
changes in fair value of the Loan and value appreciation right, including
accrued interest are recognized in Losses from change in fair market value of
equity securities and loan receivable in our condensed consolidated statements
of income (loss). The overall change in fair market value reflected in Losses
from change in fair market value of equity securities and loan receivable
during the three months ended June 30, 2024 was a loss of $
22.7
million, which includes a $
6.2
million gain from change in fair market value of the Loan and a $
28.9
million loss from change in fair market value of the value appreciation right.
The overall change in fair market value reflected in Losses from change in
fair market value of equity securities and loan receivable during the six
months ended June 30, 2024 was a loss of $
10.4
million, which includes a $
15.0
million gain from change in fair market value of the Loan and a $
25.4
million loss from change in fair market value of the value appreciation right.
The decrease in the fair market value of the value appreciation right was due
to a decrease in the value of the Sartorius ordinary shares. As of June 30,
2024, the
400
million principal amount of the loan is still due on January 31, 2029.
The following table provides a reconciliation of the Level 3 Loan measured at
estimated fair value (in millions):
December 31, 2023 $ 325.7
Net decrease in estimated fair market value of the loan included in $ (
Losses in fair market value of equity securities and loan receivable 10.4
)
Foreign currency exchange losses, net $ (
9.7
)
June 30, 2024 $ 305.6
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3. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Changes to goodwill by segment are as follows (in millions):
Life Clinical Total
Science Diagnostics
Balances as of January 1, 2024:
Goodwill $ 333.3 $ 415.5 $ 748.8
Accumulated impairment losses ( ( (
41.8 293.4 335.2
) ) )
Goodwill, net 291.5 122.1 413.6
Foreign currency adjustments - ( (
1.5 1.5
) )
Period change, net - ( (
1.5 1.5
) )
Balances as of June 30, 2024:
Goodwill 333.3 414.0 747.3
Accumulated impairment losses ( ( (
41.8 293.4 335.2
) ) )
Goodwill, net $ 291.5 $ 120.6 $ 412.1
Information regarding our identifiable purchased intangible assets with finite
and indefinite lives is as follows (in millions):
June 30, 2024
Weighted-Average Remaining Amortization Period (years) Purchase Accumulated Net
Price Amortization Carrying
Amount
Customer relationships/lists 5.0 $ 105.0 $ ( $ 8.4
96.6
)
Know how 1.3 166.3 ( 5.6
160.7
)
Developed product technology 11.7 216.8 ( 80.0
136.8
)
Licenses 4.4 58.9 ( 14.9
44.0
)
Tradenames 5.1 5.9 ( 1.3
4.6
)
Covenants not to compete 1.8 6.3 ( 1.2
5.1
)
Total finite-lived intangible assets 559.2 ( 111.4
447.8
)
In-process research and development 195.7 - 195.7
Total purchased intangible assets $ 754.9 $ ( $ 307.1
447.8
)
20
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December 31, 2023
Weighted-Average Remaining Amortization Period (years) Purchase Accumulated Net
Price Amortization Carrying
Amount
Customer relationships/lists 5.2 $ 108.7 $ ( $ 9.8
98.9
)
Know how 1.8 168.9 ( 7.8
161.1
)
Developed product technology 12.0 217.8 ( 84.9
132.9
)
Licenses 4.9 59.2 ( 16.8
42.4
)
Tradenames 5.6 6.1 ( 1.4
4.7
)
Covenants not to compete 2.3 6.4 ( 1.6
4.8
)
Total finite-lived intangible assets 567.1 ( 122.3
444.8
)
In-process research and development 198.2 - 198.2
Total purchased intangible assets $ 765.3 $ ( $ 320.5
444.8
)
Amortization expense related to purchased intangible assets is as follows (in
millions):
Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Amortization expense $ 5.3 $ 5.9 $ 10.8 $ 11.9
4. INVENTORY
Following are the components of Inventory at June 30, 2024 and December 31,
2023 (in millions):
June 30, 2024 December 31, 2023
Inventory:
Raw materials $ 235.0 $ 231.6
Work in process 255.0 246.0
Finished goods 313.7 302.9
Total Inventory $ 803.7 $ 780.5
21
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5. SUPPLEMENTAL CASH FLOW INFORMATION
The reconciliation of net loss to net cash provided by operating activities is
as follows (in millions):
Six Months Ended
June 30,
2024 2023
Net loss $ ( $ (
1,781.6 1,093.3
) )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 73.5 71.4
Reduction in the carrying amount of right-of-use assets 20.9 19.9
Share-based compensation 30.3 29.2
Losses from change in fair market value of equity securities and loan receivable 2,473.2 1,613.0
Payments for operating lease liabilities ( (
21.4 19.8
) )
Decrease in accounts receivable 33.0 5.2
Increase in inventories ( (
31.2 55.3
) )
(Increase) decrease in other current assets ( 16.5
31.0
)
Decrease in accounts payable and other current liabilities ( (
26.6 34.7
) )
Increase in income taxes payable 5.6 31.5
Decrease in deferred income taxes ( (
575.1 391.6
) )
Increase (decrease) in other long-term liabilities ( 6.3
0.2
)
Other ( (
2.0 2.1
) )
Net cash provided by operating activities $ 167.4 $ 196.2
Non-cash investing activities:
Purchased property, plant and equipment $ 7.8 $ 12.0
Purchased marketable securities and investments $ 2.2 $ 1.2
Sold marketable securities and investments $ 9.8 $ -
22
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6. LONG-TERM DEBT
The principal components of long-term debt are as follows (in millions):
June 30, December 31,
2024 2023
3.3 $ 400.0 $ 400.0
%, Senior Notes due 2027
3.7 800.0 800.0
%, Senior Notes due 2032
Less unamortized discounts and debt issuance costs ( (
9.7 10.5
) )
Long-term debt less unamortized discounts and debt issuance costs 1,190.3 1,189.5
Finance leases and other debt 9.9 10.1
Less current maturities ( (
0.5 0.5
) )
Long-term debt $ 1,199.7 $ 1,199.1
On February 13, 2024, we entered into a new $
200.0
million unsecured revolving credit agreement ("Revolving Credit Agreement")
with a group of financial institutions. The Revolving Credit Agreement
replaced the Company's previous credit agreement, dated as of April 15, 2019.
Borrowings under the Revolving Credit Agreement are on a revolving basis and
can be used to make acquisitions, for working capital and for other general
corporate purposes. The Revolving Credit Agreement requires Bio-Rad to comply
with certain financial ratios and other customary covenants and provisions.
The Revolving Credit Agreement matures on February 13, 2029. As of June 30,
2024,
no
borrowings were outstanding under the Revolving Credit Agreement, although
available capacity was reduced by immaterial outstanding letters of credit. We
were in compliance with the covenants for the Revolving Credit Agreement
during the six months ended June 30, 2024.
7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) included in our condensed
consolidated balance sheets consists of the following components (in millions):
Foreign currency Foreign other post-employment Net unrealized holding Total accumulated other
translation adjustments benefits adjustments gains (losses) comprehensive income (loss)
on available-for-sale investments
Balances as of $ ( $ ( $ 0.9 $ (
January 334.1 2.8 336.0
1, 2024: ) ) )
Other comprehensive income ( 0.3 ( (
(loss), before 116.6 0.1 116.4
reclassifications ) ) )
Amounts reclassified - ( 0.3 -
from Accumulated 0.3
other comprehensive )
income (loss)
Income tax effects 0.3 0.8 ( 1.0
0.1
)
Other comprehensive income ( 0.8 0.1 (
(loss), net of 116.3 115.4
income taxes ) )
Balances as of $ ( $ ( $ 1.0 $ (
June 30, 2024: 450.4 2.0 451.4
) ) )
23
-------------------------------------------------------------------------------
Foreign currency Foreign other post-employment Net unrealized holding Total accumulated other
translation adjustments benefits adjustments gains (losses) comprehensive income (loss)
on available-for-sale investments
Balances as of $ ( $ 10.0 $ ( $ (
January 466.5 10.3 466.8
1, 2023: ) ) )
Other comprehensive 92.1 0.5 1.4 94.0
income,
before reclassifications
Amounts reclassified - ( 1.0 0.8
from Accumulated 0.2
other comprehensive )
income (loss)
Income tax effects ( - ( (
0.3 0.6 0.9
) ) )
Other comprehensive 91.8 0.3 1.8 93.9
income,
net of income taxes
Balances as of $ ( $ 10.3 $ ( $ (
June 30, 2023: 374.7 8.5 372.9
) ) )
All amounts reclassified out of accumulated other comprehensive income (loss)
were reclassified into other income, net in the condensed consolidated
statements of income (loss). The reclassification adjustments are calculated
using the specific identification method.
The impact to loss before income taxes for amounts reclassified out of
accumulated other comprehensive income (loss) into other income, net in the
condensed consolidated statements of income (loss) were as follows (in
millions):
Three Months Ended Six Months Ended
June 30, June 30,
Components of comprehensive income (loss) 2024 2023 2024 2023
Amortization of foreign other post-employment benefit items $ 0.4 $ 0.3 $ 0.3 $ 0.2
Net holding losses on equity securities and available-for-sale investments $ ( $ ( $ ( $ (
0.5 1.2 0.3 1.0
) ) ) )
8. LOSS PER SHARE
Bio-Rad's issued and outstanding stock consists of Class A Common Stock (Class
A) and Class B Common Stock (Class B). Each share of Class A and Class B
common stock participates equally in the earnings and losses of Bio-Rad, and
each share is identical to the next in all respects except as follows. Class A
common stock has limited voting rights compared to Class B. Each share of
Class A is entitled to one tenth of a vote on most matters, whereas each share
of Class B is always entitled to
one
vote. Additionally, Class A stockholders are entitled to elect
25
% of the directors, with Class B stockholders electing the remaining
directors. Cash dividends may be paid on Class A shares without paying a cash
dividend on Class B shares. In contrast, no cash dividend may be paid on Class
B shares unless at least an equal cash dividend is paid on Class A shares.
Class B shares are convertible at any time into Class A shares on a
one-for-one basis at the option of the stockholder.
We compute net loss per share of Class A Common Stock (Class A) and Class B
Common Stock (Class B) using the two-class method required for participating
securities. Our participating securities include Class A and Class B. Each
share of Class A and Class B participates equally in earnings and losses, but
may not participate equally in dividend distributions. No dividends were
distributed or declared during any of the periods presented. Loss is
attributable equally to each share of Class A and Class B common stock and is
determined based on the weighted average number of the respective class of
common stock outstanding for the six months ended June 30, 2024 and 2023.
24
-------------------------------------------------------------------------------
Accordingly, basic loss per share is computed by dividing net income
attributable to Bio-Rad by the weighted average number of common shares
outstanding for that period. Diluted loss per share takes into account the
effect of dilutive instruments, such as stock options, restricted stock and
performance stock, and uses the average share price for the period in
determining the number of potential common shares that are to be added to the
weighted average number of shares outstanding. Potential common shares are
excluded from the diluted loss per share calculation if the effect of
including such securities would be anti-dilutive.
The weighted average number of common shares outstanding used to calculate
basic and diluted loss per share, and the anti-dilutive shares that are
excluded from the diluted loss per share calculation are as follows (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Basic weighted average 28,395 29,355 28,457 29,475
shares outstanding
Effect of potentially dilutive stock options, - - - -
restricted stock and performance stock awards
Diluted weighted average 28,395 29,355 28,457 29,475
common shares outstanding
Anti-dilutive shares 413 234 398 237
9. OTHER INCOME, NET
Other income, net includes the following components (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Interest and investment income $ ( $ ( $ ( $ (
16.6 16.5 50.6 66.8
) ) ) )
Net realized losses on investments 0.1 0.8 0.3 1.5
Other income ( ( ( (
1.6 0.8 2.4 1.6
) ) ) )
Other income, net $ ( $ ( $ ( $ (
18.1 16.5 52.7 66.9
) ) ) )
10. INCOME TAXES
Our effective income tax rate was
22.3
% and
22.5
% for the three months ended June 30, 2024 and 2023, respectively. Our
effective income tax rate was
22.4
% and
22.8
% for the six months ended June 30, 2024 and 2023, respectively.
The realization of deferred tax assets are dependent upon the generation of
sufficient taxable income of the appropriate character in future periods. We
regularly assess our ability to realize our deferred tax assets and establish
a valuation allowance if it is more likely than not that some portion, or all,
of our deferred tax assets will not be realized. In assessing the
realizability of our deferred tax assets, we weigh all available positive and
negative evidence. Due to the weight of objectively verifiable negative
evidence, we believe that it is more likely than not that certain of our
federal, state and foreign deferred tax assets will not be realized as of June
30, 2024, and have maintained a valuation allowance on such deferred tax
assets. The valuation allowance against our federal, state and foreign
deferred tax assets increased by $
22.1
million for the period ended June 30, 2024 compared to the year ended December
31, 2023.
Our income tax returns are audited by U.S. federal, state and foreign tax
authorities.
We are currently under examination by many of these tax authorities. The tax
years open to examination include the years 2012 and
25
-------------------------------------------------------------------------------
forward for the U.S. and certain foreign jurisdictions including France,
Germany, India and Switzerland. There are differing interpretations of tax
laws and regulations, and as a result, significant disputes may arise with
these tax authorities involving issues of the timing and amount of deductions
and allocations of income among various tax jurisdictions. We evaluate our
exposures associated with our tax filing positions on a quarterly basis.
We record liabilities for unrecognized tax benefits related to uncertain tax
positions. We do not believe any currently pending uncertain tax positions
will have a material adverse effect on our condensed consolidated financial
statements, although an adverse resolution of one or more of these uncertain
tax positions in any period may have a material impact on the results of
operations for that period.
Our gross unrecognized tax benefits were $
87.1
million and $
84.7
million as of June 30, 2024 and December 31, 2023, respectively. The increase
in our gross unrecognized tax benefits is primarily attributable to an
increase of uncertain tax accruals in various jurisdictions.
As of June 30, 2024, based on the expected outcome of certain examinations or
as a result of the expiration of statutes of limitation for certain
jurisdictions, we believe that within the next twelve months it is reasonably
possible that our previously unrecognized tax benefits could decrease by up to
$
2.9
million. Substantially all such amounts will impact our effective income tax
rate if recognized.
11. SEGMENT INFORMATION
Information regarding net sales and operating profit (loss) for the three
months ended June 30, 2024 and 2023 are as follows (in millions):
Life Clinical Other
Science Diagnostics Operations
Net sales 2024 $ 250.5 $ 387.9 $ 0.1
2023 $ 300.2 $ 380.1 $ 0.8
Operating profit (loss) 2024 $ 19.1 $ 82.6 $ (
0.2
)
2023 $ 28.0 $ 61.8 $ (
0.2
)
Information regarding net sales and operating profit (loss) for the six months
ended June 30, 2024 and 2023 are as follows (in millions):
Life Clinical Other
Science Diagnostics Operations
Net sales 2024 $ 492.2 $ 756.6 $ 0.5
2023 $ 623.8 $ 732.2 $ 2.0
Operating profit (loss) 2024 $ 10.9 $ 135.7 $ (
0.4
)
2023 $ 63.7 $ 88.1 $ (
0.3
)
Segment results are presented in the same manner as we present our operations
internally to make operating decisions and assess performance. Our chief
operating decision maker ("CODM") views all operating expenses and corporate
overhead as directly supporting the strategies of our segments, and these
costs are fully allocated to our reportable segments.
26
-------------------------------------------------------------------------------
The following reconciles total operating profit to consolidated loss before
income taxes (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Operating $ 101.5 $ 89.6 $ 146.2 $ 151.5
profit
Interest expense ( ( ( (
12.3 12.4 24.5 24.7
) ) ) )
Foreign currency 1.7 1.3 3.7 3.6
exchange gains, net
Losses from change in fair market value ( ( ( (
of equity securities and loan receivable 2,895.3 1,595.4 2,473.3 1,612.9
) ) ) )
Other income, net 18.1 16.5 52.7 66.9
Consolidated loss $ ( $ ( $ ( $ (
before income taxes 2,786.3 1,500.4 2,295.2 1,415.6
) ) ) )
12. LEGAL PROCEEDINGS
We are a party to various claims, legal actions and complaints arising in the
ordinary course of business. We record a reserve when we believe a loss
arising from these matters is probable and can be reasonably estimated.
Significant judgment is required in both the determination of the probability
of a loss and the determination as to whether a loss is reasonably estimable.
As additional information becomes available, any potential liability related
to these matters is assessed and the estimates revised. While we do not
believe, at this time, that any ultimate liability resulting from any of these
matters will have a material adverse effect on our results of operations,
financial position or liquidity, we cannot give any assurance regarding the
ultimate outcome of these matters and their resolution could be material to
our operating results for any particular period, depending on the level of
income for the period.
13. RESTRUCTURING COSTS
In February 2021, we announced a strategy-driven restructuring plan in
furtherance of our ongoing program to improve operating performance.
The restructuring plan primarily impacted our operations in EMEA and included
the elimination of certain positions, the consolidation of certain functions,
and the relocation of certain manufacturing operations from EMEA to APAC. The
restructuring plan was implemented in phases and is substantially complete as
of June 30, 2024. The timing of the remaining employee termination benefit
payments is in accordance with statutory requirements. The adjustments to
expense recorded were primarily due to changes in the estimates of employee
termination benefits. From February 2021 to June 30, 2024, total restructuring-r
elated expenses were $
72.3
million.
The following table summarizes the activity of our February 2021 plan accrued
restructuring reserve (in millions):
Life Science Clinical Diagnostics Total
Balances as of January 1, 2024: $ 0.2 $ 12.8 $ 13.0
Adjustment to expense 0.1 1.5 1.6
Cash payments ( ( (
0.1 7.7 7.8
) ) )
Foreign currency adjustments - ( (
0.4 0.4
) )
Balances as of June 30, 2024: $ 0.2 $ 6.2 $ 6.4
During the fiscal year ended December 31, 2023, and continuing into the six
months ended June 30, 2024, management approved a restructuring action to
further streamline and improve operating performance. The restructuring plan
was approved and implemented in phases. The plan is expected to be
substantially completed by the end of 2024.
27
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During the six months ended June 30, 2024, a new phase of the restructuring
plan was approved, resulting in restructuring expenses of $
4.5
million, representing estimated termination benefits to employees. The
adjustments to expense recorded were primarily due to changes in the estimates
of employee termination benefits on previously approved phases. The timing of
the remaining employee termination benefit payments is in accordance with
statutory requirements. Excluded from the accrued restructuring plan reserves
are $
1.5
million of restructuring expense related to the facility closure costs
impacting the Life Science segment. From February 2023 to June 30, 2024, total
restructuring-related expenses were $
29.9
million, primarily representing estimated termination benefits to employees.
The following table summarizes the activity of our 2023 accrued restructuring
plan reserve (in millions):
Life Science Clinical Diagnostics Total
Balances as of January 1, 2024: $ 3.0 $ 7.8 $ 10.8
Charged to expense - employee termination benefits 2.1 2.4 4.5
Adjustment to expense ( ( (
0.4 1.5 1.9
) ) )
Cash payments ( ( (
3.6 6.5 10.1
) ) )
Foreign currency adjustments - ( (
0.3 0.3
) )
Balances as of June 30, 2024: $ 1.1 $ 1.9 $ 3.0
Combined, the accrued restructuring plan reserve of $
9.4
million as of June 30, 2024 was recorded in Accrued payroll and employee
benefits in the condensed consolidated balance sheets. The amounts reflected
in Cost of goods sold, Selling, general and administrative expense and
Research and development expense for the three months ended June 30, 2024 were
$
0.6
million, $(
1.4
) million and $(
0.6
) million, respectively, in the condensed consolidated statements of income
(loss). The amounts reflected in Cost of goods sold, Selling, general and
administrative expense and Research and development expense for the six months
ended June 30, 2024 were $
1.1
million, $
3.1
million and $
1.5
million, respectively, in the condensed consolidated statements of income
(loss).
14. LEASES
We have operating leases and to a lesser extent finance leases, for buildings,
vehicles and equipment. Our leases have remaining lease terms of
1
year to
15
years, which includes our determination to exercise renewal options.
We determine if an arrangement is a lease at inception. Operating leases are
included in Operating lease right-of-use ("ROU") assets, Current operating
lease liabilities, and Operating lease liabilities in our condensed
consolidated balance sheets. Finance leases are included in Property, plant
and equipment, Current maturities of long-term debt, and Long-term debt, net
of current maturities in our condensed consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term
and lease liabilities represent our obligation to make lease payments arising
from the lease. Operating lease ROU assets and liabilities are recognized at
the commencement date based on the present value of lease payments over the
lease term. As our leases do not provide an implicit rate, we use our
incremental borrowing rate based on the information available at the
commencement date in determining the present value of lease payments.
Operating lease ROU assets also include any lease payments made and excludes
lease incentives. Our lease terms may include options to extend or terminate
the lease. For purposes of determining the lease term used in the measurement
of operating lease ROU assets and operating lease liabilities, we include the
noncancellable period of the lease together with those periods covered by the
option to extend the lease if we are reasonably certain to exercise that
option, the periods covered by an option to terminate the lease if we are
reasonably certain not to exercise that option, and the periods covered by the
option to extend (or to not terminate) the lease in which exercise of the
option is controlled by the lessor. Lease expense is recognized on a
straight-line basis over the lease term. Where we act as lessee, we elected
not to separate lease and non-lease components.
28
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The components of lease expense were as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Operating lease cost $ 16.8 $ 15.7 $ 34.9 $ 31.5
Finance lease cost:
Amortization of right-of-use assets $ 0.1 $ 0.1 $ 0.2 $ 0.2
Interest on lease liabilities 0.2 0.2 0.4 0.4
Total finance lease cost $ 0.3 $ 0.3 $ 0.6 $ 0.6
Operating lease cost includes original reduction in the carrying amount of ROU
assets, the impact of remeasurements, modifications, impairments and
abandonments.
Our short-term leases are expensed as incurred, reflecting leases with a lease
term of one year or less, and are not significant for the three and six months
ended June 30, 2024 and 2023. Operating lease variable cost is primarily
comprised of reimbursed actual common area maintenance, property taxes and
insurance, which are immaterial for the three and six months ended June 30,
2024 and 2023.
Supplemental cash flow information related to leases was as follows (in
millions):
Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 10.5 $ 9.8 $ 21.4 $ 19.8
Operating cash flows from finance leases $ 0.2 $ 0.2 $ 0.4 $ 0.4
Financing cash flows from finance leases $ 0.1 $ 0.1 $ 0.2 $ 0.2
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases $ 3.7 $ 10.1 $ 11.2 $ 12.3
Supplemental balance sheet information related to leases was as follows (in
millions):
June 30, 2024 December 31, 2023
Operating Leases
Operating lease right-of-use assets $ 181.5 $ 194.7
Current operating lease liabilities $ 41.5 $ 40.4
Operating lease liabilities 151.0 165.5
Total operating lease liabilities $ 192.5 $ 205.9
Finance leases are included in Property, plant and equipment, Current
maturities of long-term debt, and Long-term debt and notes payable, net of
current maturities (in millions):
29
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June 30, 2024 December 31, 2023
Finance Leases
Property, plant and equipment, gross $ 11.8 $ 11.9
Less: accumulated depreciation and amortization ( (
6.0 5.9
) )
Property, plant and equipment, net $ 5.8 $ 6.0
Current maturities of long-term debt and notes payable $ 0.5 $ 0.5
Long-term debt, net of current maturities 9.4 9.6
Total finance lease liabilities $ 9.9 $ 10.1
June 30, 2024 December 31, 2023
Weighted Average Remaining Lease Term
Operating leases - in years 7 7
Finance leases - in years 14 14
Weighted Average Discount Rate
Operating leases 4.0 % 3.9 %
Finance leases 6.5 % 6.4 %
Maturities of lease liabilities were as follows (in millions):
Year Ending December 31, Operating Leases Finance Leases
2024 (excluding the six months ended June 30, 2024) $ 22.7 $ 0.6
2025 47.7 1.1
2026 36.2 1.1
2027 28.1 1.1
2028 21.7 1.1
Thereafter 62.4 10.8
Total lease payments 218.8 15.8
Less imputed interest ( (
26.3 5.9
) )
Total $ 192.5 $ 9.9
The value of our operating lease portfolio is principally for facilities with
longer durations than the lesser value vehicles, and other equipment with
shorter terms and higher turn-over.
As of June 30, 2024, operating leases that have not commenced are not material.
15. SUBSEQUENT EVENTS
On July 29, 2024, Bio-Rad's board of directors authorized increasing the
amount available under the company's 2023 Share Repurchase Program to allow
the company to repurchase up to an additional $
500
million of the company's outstanding common stock. Repurchases may be made at
management's discretion from time to time on the open market, through trading
plans in accordance with Rule 10b5-1 under the Securities Exchange Act of
1934, as amended, or through privately negotiated transactions. The 2023 Share
Repurchase Program has no time limit and may be suspended for periods or
discontinued at any time.
30
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion should be read in conjunction with the information contained
in both our consolidated financial statements for the year ended December 31,
2023 and the condensed consolidated financial statements for the three and six
months ended June 30, 2024.
Overview
. We are a multinational manufacturer and worldwide distributor of our own
life science research and clinical diagnostics products. Our business is
organized into two reportable segments, Life Science and Clinical Diagnostics,
with the mission to provide scientists with specialized tools needed for
biological research and health care specialists with products needed for
clinical diagnostics.
We sell more than 12,000 products and services to a diverse client base
comprised of scientific research, healthcare, education and government
customers worldwide. We do not disclose quantitative information about our
different products and services as it is impractical to do so based primarily
on the numerous products and services that we sell and the global markets that
we serve.
We manufacture and supply our customers with a range of reagents, apparatus
and equipment to separate complex chemical and biological materials and to
identify, analyze and purify components. As our customers require
standardization for their experiments and test results, much of our revenues
are recurring in nature.
We rely on the support of many governments for both research and healthcare.
The current global economic outlook is still uncertain as the need to control
social spending by many governments limits opportunities for growth.
Approximately 41% of our year-to-date 2024 consolidated net sales are derived
from the United States and approximately 59% are derived from international
locations, with Europe being our largest international region. The
international sales are largely denominated in local currencies such as the
Euro, Swiss Franc, Japanese Yen, Chinese Yuan and British Sterling. As a
result, our consolidated net sales expressed in dollars benefit when the U.S.
dollar weakens and suffer when the dollar strengthens. When the U.S. dollar
strengthens, we benefit from lower cost of sales from our own international
manufacturing sites, and from lower international operating expenses. We
regularly discuss our changes in revenue and expense categories in terms of
both changing foreign exchange rates and in terms of a currency neutral basis,
if notable, to explain the impact currency has on our results.
We are impacted by ongoing global economic conditions and our business
continued to be negatively impacted by the ongoing challenges impacting the
biopharma market and small biotech companies. We expect that these conditions
will continue to impact our business in 2024.
Results of Operations
The following table shows cost of goods sold, gross profit, components of
operating expense, losses from change in fair market value of equity
securities and loan receivable, and net loss as a percentage of net sales:
Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 44.4 46.8 45.5 46.6
Gross profit 55.6 53.2 54.5 53.4
Selling, general and 30.5 30.5 32.8 31.9
administrative expense
Research and 9.2 9.5 10.0 10.3
development expense
Losses from change in fair market value 453.5 234.2 198.0 118.8
of equity securities and loan receivable
Net loss (339.2) (170.6) (142.6) (80.5)
31
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Critical Accounting Policies and Estimates
An accounting policy is deemed to be critical if it affects our financial
statements materially and requires subjective or complex judgements by
management. An accounting estimate is deemed to be critical if it requires
assumptions about matters that are highly uncertain at the time the estimate
is made, if different estimates reasonably could have been used, or if changes
in the estimate that are reasonably likely to occur could materially impact
the financial statements. Management believes that there have been no
significant changes during the three and six months ended June 30, 2024 to the
items that we disclosed as our critical accounting policies and estimates in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2023.
There have been no substantial changes in our significant accounting policies
during the three and six months ended June 30, 2024, compared with the
significant accounting policies described in our Annual Report on Form 10-K
for the year ended December 31, 2023.
Three Months Ended June 30, 2024 Compared to
Three Months Ended June 30, 2023
Results of Operations -- Sales, Margins and Expenses
Percentage sales growth in currency neutral amounts are calculated by
translating prior period sales in each local currency using the current period
monthly average foreign exchange rates for that currency and comparing that to
current period sales.
Net sales (sales) for the second quarter of 2024 were $638.5 million compared
to $681.1 million in the second quarter of 2023, a decrease of 6.3%. On a
currency neutral basis, second quarter 2024 sales decreased by approximately
5.4% compared to the same period in 2023. The decrease in net sales was driven
by lower sales in our Life Science segment.
The Life Science segment sales for the second quarter of 2024 were $250.5
million, a decrease of 16.5% compared to the same period last year. On a
currency neutral basis, sales decreased 15.9% compared to the second quarter
in 2023, driven broadly by ongoing weakness in the biotech and biopharma
end-markets. Currency neutral sales decreased across all regions.
The Clinical Diagnostics segment sales for the second quarter of 2024 were
$387.9 million, an increase of 2.1% compared to the same period last year. On
a currency neutral basis, sales increased 3.2% compared to the second quarter
in 2023. The currency neutral sales increase was primarily driven by an
increased demand for quality controls and blood typing. Currency neutral sales
increased across all regions.
Consolidated gross margin was 55.6% for the second quarter of 2024 compared to
53.2% for the second quarter of 2023. Gross margin for the Life Science
segment for the second quarter of 2024 increased by approximately 2.8
percentage points from the same period last year. The increase in gross margin
was primarily driven by cost control measures and product mix, partially
offset by lower sales volume and higher material costs. Gross margin for the
Clinical Diagnostics segment for the second quarter of 2024 increased by
approximately 2.3 percentage points from the same period last year. The
increase in gross margin was primarily driven by cost control measures, higher
sales volume, and product mix, partially offset by higher material costs.
Selling, general and administrative (SG&A) expense for the second quarter of
2024 was $194.7 million or 30.5% of sales, compared to $207.8 million, or
30.5% of sales for the second quarter of 2023. The decrease in SG&A expense
was primarily due to lower employee-related expenses, lower restructuring
costs, and a reduction in discretionary spending.
Research and development (R&D) expense for the second quarter of 2024 was
$58.9 million or 9.2% of sales, compared to $65.0 million or 9.5% of sales in
the second quarter of 2023. The decrease in R&D expense was primarily due to
cost control and lower restructuring costs.
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Results of Operations - Non-operating
Interest expense was $12.3 million for both the second quarter of 2024 and
2023, which primarily consisted of interest expense related to the $1.2
billion Senior Notes.
Foreign currency exchange gains, net consist primarily of foreign currency
transaction gains and losses on intercompany net receivables and payables and
the change in fair value of our forward foreign exchange contracts used to
manage our foreign currency exchange risk. Foreign currency exchange gains,
net was $1.7 million for the second quarter of 2024 compared to foreign
currency exchange gains, net of $1.3 million for the second quarter of 2023.
Gains and losses are primarily due to the estimating process inherent in the
timing of product shipments and intercompany debt payments, market volatility,
and the change in the fair value of our foreign exchange contracts.
Losses from change in fair market value of equity securities and loan
receivable was $2.90 billion and $1.60 billion for the second quarter of 2024
and 2023, respectively. The change in the fair market value primarily resulted
from the recognition of higher holding losses of $2.87 billion in the second
quarter of 2024 compared to holding losses of $1.58 billion in the second
quarter of 2023 on our position in Sartorius AG. In addition, higher losses
from the change in fair value of our loan receivable of $22.7 million
in the second quarter of 2024 compared to a loss of $18 million in the second
quarter of 2023 contributed to the change.
Other income, net for the second quarter of 2024 was $18.1 million compared to
$16.5 million for the second quarter of 2023. The difference in Other income,
net was primarily attributable to lower net realized loss on investments.
Our effective income tax rate was 22.3% and 22.5% for the second quarter of
2024 and 2023, respectively. The effective tax rate reported in these periods
was primarily affected by the accounting treatment of our equity securities.
The difference in the rate is primarily driven by geographical mix of earnings.
Six Months Ended June 30, 2024 Compared to
Six Months Ended June 30, 2023
Results of Operations -- Sales, Margins and Expenses
Net sales (sales) for the first six months of 2024 were $1.25 billion compared
to $1.36 billion in the first six months of 2023, a decrease of 8.0%. On a
currency neutral basis, the first six months of 2024 sales decreased by
approximately 7.5% compared to the same period in 2023. The decrease in net
sales was driven by lower sales in our Life Science segment.
The Life Science segment sales for the first six months of 2024 were $492.2
million, a decrease of 21.1% compared to the same period last year. On a
currency neutral basis, sales decreased 20.8% compared to the first six months
of 2023, driven broadly by ongoing weakness in the biotech and biopharma
end-markets. Currency neutral sales decreased across all regions.
The Clinical Diagnostics segment sales for the first six months of 2024 were
$756.6 million, an increase of 3.3% compared to the same period last year. On
a currency neutral basis, sales increased 4.0% compared to the first six
months of 2023. The currency neutral sales increase was primarily driven by an
increased demand for quality controls and blood typing. Currency neutral sales
increased across all regions.
Consolidated gross margins were 54.5% for the first six months of 2024
compared to 53.4% for the first six months of 2023. Gross margins for the Life
Science segment for the first six months of 2024 decreased by approximately
0.4 percentage points from the same period last year. The decrease in gross
margin was primarily driven by lower sales volume, higher material costs,
partially offset by product mix and cost control measures. Gross margin for
the Clinical Diagnostics segment for the first six months of 2024 increased by
approximately 2.6 percentage points
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from the same period last year. The increase in gross margins was primarily
driven by higher sales volume, favorable product mix, and cost control
measures, partially offset by higher material costs.
Selling, general and administrative (SG&A) expense for the first six months of
2024 was $409.6 million or 32.8% of sales, compared to $433.4 million or 31.9%
of sales for the first six months of 2023. The decrease in SG&A expense was
primarily due to lower employee-related expenses, lower restructuring costs,
and a reduction in discretionary spending.
Research and development (R&D) expense for the first six months of 2024 was
$125.3 million or 10.0% of sales, compared to $140.0 million or 10.3% of sales
in the first six months of 2023. The decrease in R&D expense was primarily due
to cost control, lower restructuring costs, and lower employee-related
expenses.
Results of Operations - Non-operating
Interest expense for the first six months of 2024 and 2023 was $24.5 million
and $24.7 million, respectively, which primarily consisted of interest expense
related to the $1.2 billion Senior Notes.
Foreign currency exchange gains, net consist primarily of foreign currency
transaction gains and losses on intercompany net receivables and payables and
the change in fair value of our forward foreign exchange contracts used to
manage our foreign currency exchange risk. Foreign currency exchange gains,
net was $3.7 million for the first six months of 2024 compared to $3.6 million
for the first six months of 2023. Gains and losses are primarily due to the
estimating process inherent in the timing of product shipments and
intercompany debt payments, market volatility, and the change in the fair
value of our foreign exchange contracts.
Losses from change in fair market value of equity securities and loan
receivable was $2.47 billion and $1.61 billion for the first six months of
2024 and 2023, respectively. The change in the fair market value primarily
resulted from the recognition of higher holding losses of $2.47 billion in the
first six months of 2024 compared to holding losses of $1.60 billion in the
first six months of 2023 on our position in Sartorius AG. In addition, lower
losses from the change in fair value of our loan receivable of $10.4 million
in the first six months of 2024 compared to a loss of $24.0 million in the
first six months of 2023 contributed to the change.
Other income, net for the first six months of 2024 was $52.7 million compared
to $66.9 million for the first six months of 2023. The difference in Other
income, net was primarily attributable to lower dividend income from Sartorius
AG.
Our effective income tax rate was 22.4% and 22.8% for the first six months of
2024 and 2023, respectively. The effective tax rate reported in the first half
of both 2024 and 2023 was primarily affected by the accounting treatment of
our equity securities. The difference in the rate is primarily driven by
geographical mix of earnings.
Liquidity and Capital Resources
Bio-Rad operates and conducts business globally, primarily through subsidiary
companies established in the markets in which we trade. Goods are
manufactured in a small number of locations, and are then shipped to local
distribution facilities around the world. Our product mix is diversified, and
certain products compete largely on product efficacy, while others compete on
price. Gross margins are generally sufficient to exceed normal operating
costs, and funding for research and development of new products, as well as
routine outflows for capital expenditures, interest and taxes. In addition to
the annual positive cash flow from operating activities, additional liquidity
is readily available via the sale of short-term investments and access to our
$200.0 million unsecured Revolving Credit Agreement that we entered into in
February 2024, and to a lesser extent international lines of credit.
Borrowings under the Revolving Credit Agreement are available on a revolving
basis and can be used to make acquisitions, for working capital and for other
general corporate purposes. We had no outstanding borrowings under the
Revolving Credit Agreement as of June 30, 2024, however, an immaterial amount
was utilized for domestic standby letters of credit that reduced our borrowing
availability. As of June 30, 2024, our short-term investments include the net
cash proceeds from the sale of Senior Notes of $1.186 billion. Interest is
payable semiannually in arrears on May 15 and September 15 of each year.
Management believes that this availability,
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together with cash flow from operations, will be adequate to meet our current
objectives for operations, research and development, capital additions for
manufacturing and distribution, plant and equipment, information technology
systems and acquisitions of reasonable proportion to our existing total
available capital.
At June 30, 2024, we had available $1.62 billion in cash, cash equivalents and
short-term investments, of which approximately 18% was held in our foreign
subsidiaries. The amount of funds held in the United States can fluctuate due
to the timing of receipts and payments in the ordinary course of business and
due to other reasons, such as acquisitions and borrowings. As part of our
ongoing liquidity assessments, we regularly monitor the mix of domestic and
foreign cash flows (both inflows and outflows).
It is generally our intention to repatriate certain foreign earnings to the
extent that such repatriations are not restricted by local laws, and there are
no substantial incremental costs.
Cash Flows from Operations
Net cash provided by operations was $167.4 million and $196.2 million for the
six months ended June 30, 2024 and 2023, respectively. The decrease in
operating cash flows was primarily due to lower cash received from customers,
higher income tax paid and lower dividend proceeds, partially offset by lower
cash paid to suppliers and employees and higher proceeds from foreign exchange
contracts.
Cash Flows from Investing Activities
Net cash used in investing activities was $74.0 million and $42.5 million for
the six months ended June 30, 2024 and 2023, respectively. The increase in
cash used in investing activities was primarily due to the timing of our
purchases, maturities and sales of marketable securities and investments, and
higher capital expenditures.
Cash Flows from Financing Activities
Net cash used in financing activities was $96.6 million and $198.4 million for
the six months ended June 30, 2024, and 2023, respectively. The decrease in
net cash used in financing activities was primarily attributable to lower
payments for purchases of treasury stock.
Treasury Shares
During the second quarter of 2024, 21,017 shares of Class A treasury stock
with an aggregate total cost of $7.4 million were reissued to fulfill grants
to employees under our restricted stock program and our Employee Stock
Purchase Program. Upon reissuing the Class A treasury stock, A
dditional paid-in-capital was reduced by
$2.7 million
from share reissuance activity during the quarter
.
During the second quarter of 2024, we repurchased 346,226 shares of Class A
common stock for $100 million under our 2023 Share Repurchase Program. We
designated these repurchased shares as treasury stock. As of June 30, 2024,
$174.0 million remained available for repurchases under the 2023 Share
Repurchase Program.
On July 29, 2024, Bio-Rad's board of directors authorized increasing the
amount available under the company's 2023 Share Repurchase Program to allow
the company to repurchase up to an additional $500 million of the company's
outstanding common stock.
During the first quarter of 2024, 19,755 shares of Class A treasury stock with
an aggregate total cost of $7.2 million were reissued to fulfill grants to
employees under our restricted stock program and our Employee Stock Purchase
Program. Upon reissuing the Class A treasury stock, Additional paid-in-capital
was reduced by $1.7 million from share reissuance activity during the quarter.
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During the first quarter of 2024, we repurchased 14,250 shares of Class A
common stock for $4.7 million under our 2023 Share Repurchase Program. We
designated these repurchased shares as treasury stock.
During the second quarter of 2023, 17,428 shares of Class A treasury stock
with an aggregate total cost of $6.9 million were reissued to fulfill grants
to employees under our restricted stock program and our Employee Stock
Purchase Program.
Upon reissuing the Class A treasury stock, Additional paid-in-capital was
reduced by $2.1 million from share reissuance activity during the quarter..
During the second quarter of 2023, we repurchased 549,863 shares of Class A
common stock for $207.4 million under our Share Repurchase Program. We
designated these repurchased shares as treasury stock.
During the first quarter of 2023, 12,853 shares of Class A treasury stock with
an aggregate total cost of $5.3 million were reissued to fulfill grants to
employees under our restricted stock program and our Employee Stock Purchase
Program. Upon reissuing the Class A treasury stock, Additional paid-in-capital
was reduced by $0.7 million from share reissuance activity during the quarter.
Recent Accounting Pronouncements Adopted
We did not adopt any new accounting pronouncements during the three and six
months ended June 30, 2024.
Item 3.
Quantitative and
Qualitative Disclosures about Market Risk
During the six months ended June 30, 2024, there have been no material changes
from the disclosures about market risk provided in our Annual Report on Form
10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), that are designed to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in Securities and Exchange Commission rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO"), as appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and
procedures, management recognized that disclosure controls and procedures, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and
procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
Subject to the limitations noted above, our management, with the participation
of our CEO and CFO, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of the period covered
by this Quarterly Report on Form 10-Q. Based on that evaluation, the CEO and
CFO have concluded that, as of such date, our disclosure controls and
procedures were effective to meet the objective for which they were designed
and operate at the reasonable assurance level.
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Changes to Internal Control Over Financial Reporting
We identified no changes in internal control over financial reporting that
occurred during our quarter ended June 30, 2024 that have materially affected,
or that are reasonably likely to materially affect, our internal control over
financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are a party to various claims, legal actions and complaints arising in the
ordinary course of business. While we do not believe, at this time, that any
ultimate liability resulting from any of these matters will have a material
adverse effect on our results of operations, financial position or liquidity,
we cannot give any assurance regarding the ultimate outcome of these matters
and their resolution could be material to our operating results for any
particular period, depending on the level of income for the period.
Item 1A. Risk Factors
In evaluating our business and whether to invest in any of our securities, you
should carefully read the following risk factors in addition to the other
information contained in this report. We believe that any of the following
risks (some of which have occurred and any of which may occur in the future)
could have a material effect on our business, results of operations or
financial condition, our industry or the trading price of our common stock. We
operate in a continually changing business environment, and new risks and
uncertainties emerge from time to time. We cannot predict these new risks and
uncertainties, nor can we assess the extent to which any such new risks and
uncertainties or the extent to which the risks and uncertainties set forth
below may adversely affect our business, results of operations, financial
condition, our industry, the value of our equity holdings, or the trading
price of our common stock. Please carefully consider the following discussion
of significant factors, events and uncertainties that make an investment in
our securities risky and provide important information for the understanding
of the "forward-looking" statements discussed in this report. Additional or
unforeseen effects from the global economic climate may give rise to or
amplify many of these risks discussed below.
Business, Economic, Legal and Industry Risks
Our international operations expose us to additional costs and legal and
regulatory risks, which could have a material adverse effect on our business,
results of operations and financial condition.
We have significant international operations. We have direct distribution
channels in over 35 countries outside the United States, and during the six
months ended June 30, 2024 our foreign entities generated 59% of our net
sales. Compliance with complex foreign and U.S. laws and regulations that
apply to our international operations increases our cost of doing business.
These numerous and sometimes conflicting laws and regulations include, among
others, data privacy requirements, labor relations laws, tax laws, unfair
competition regulations, import and trade restrictions, tariffs, duties,
quotas and other trade barriers, export requirements, U.S. laws such as the
Foreign Corrupt Practices Act ("FCPA") and other U.S. federal laws and
regulations established by the office of Foreign Asset Control, foreign laws
such as the UK Bribery Act 2010 or other foreign laws which prohibit corrupt
payments to governmental officials or certain payments or remunerations to
customers. In addition, changes in laws or regulations potentially could be
disruptive to our operations and business relationships in the affected
regions.
Given the high level of complexity of the foreign and U.S. laws and
regulations that apply to our international operations, we may inadvertently
breach some provisions, for example, through fraudulent or negligent behavior
of individual employees, our failure to comply with certain formal
documentation requirements, or otherwise. In addition, we operate in some
countries in which the business environment is subject to a higher risk of
corruption. Our success depends, in part, on our ability to anticipate these
risks and manage these challenges through policies, procedures and internal
controls. However, we have a dispersed international sales organization, and
we use distributors and agents in many of our international operations. This
structure makes it more difficult for us to
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ensure that our international selling operations comply with laws and
regulations, and our global policies and procedures.
Violations of these laws and regulations could result in fines, criminal
sanctions against us, our officers or our employees, requirements to obtain
export licenses, cessation of business activities in sanctioned countries,
implementation of compliance programs, and prohibitions on the conduct of our
business. Violations of laws and regulations also could result in prohibitions
on our ability to offer our products in one or more countries and could
materially damage our reputation, our brand, our international expansion
efforts, our ability to attract and retain employees, or our business, results
of operations and financial condition. See also our risk factors regarding the
COVID-19 pandemic, government regulations, and global economic conditions
below.
The industries and market segments in which we operate are highly competitive,
and we may not be able to compete effectively.
The life science and clinical diagnostics markets are each highly competitive.
Some of our competitors have greater financial resources than we do, making
them better equipped to license technologies and intellectual property from
third parties or to fund research and development, manufacturing and marketing
efforts, or to source high-demand materials and components. Moreover,
competitive and regulatory conditions in many markets in which we operate
restrict our ability to fully recover, through price increases, higher costs
of acquired goods and services resulting from inflation and other drivers of
cost increases.
Many public tenders have become more competitive due to governments
lengthening the commitments of their public tenders to multiple years, which
reduce the number of tenders in which we can participate annually.
Because the value of these multiple-year tenders is so high, our competitors
have been more aggressive with their pricing.
Our failure to compete effectively and/or pricing pressures resulting from
competition could adversely affect our business, results of operations and
financial condition.
We may not be able to grow our business because of our failure to develop new
or improved products.
Our future growth depends in part on our ability to continue to improve our
product offerings and develop and introduce new products that integrate
technological advances. If we are unable to integrate technological advances
into our product offerings or to design, develop, manufacture and market new
products successfully and in a timely manner, our business, results of
operations and financial condition will be adversely affected. Supply chain
disruptions, including those caused by the COVID-19 pandemic, have caused some
delays to our ability to develop and introduce new products. We have
experienced product launch delays in the past and may do so in the future. We
cannot assure you that our product and process development efforts will be
successful or that new products we introduce will achieve market acceptance.
Failure to launch successful new products or improvements to existing products
may cause our products to become obsolete, which could harm our business,
results of operations and financial condition.
Global economic and geopolitical conditions could adversely affect our
operations.
In recent years, we have been faced with challenging global economic
conditions. U.S. and international markets have experienced inflationary
pressures, and inflation rates in the U.S. and in other countries in which we
operate have been at elevated levels. Our raw material costs have increased,
and we are not always able to recover these increased costs from our
customers. Russia's invasion of Ukraine and sanctions against Russia also are
causing disruptions to global economic conditions and are negatively impacting
our business in Russia. The escalation, in October 2023, of the conflict
between Israel and Hamas also has caused some disruptions to the global
business environment (including impacting international logistics), the
stability of the Middle East region and our business in that region. It is
unknown how long any of these disruptions will continue and whether such
disruptions will become more severe. In addition, we expect moderating
economic growth and changing government policies in China will continue to
affect our commercial opportunities in the country. The bank failures in March
2023 and the resulting volatility in the banking sector did cause and could
continue to cause disruptions to global economic conditions and may impact
access to cash and other financial resources by our customers and suppliers. A
deterioration in the global economic environment may result in a decrease in
demand for our products, increased competition, downward pressure on prices
for our products and longer sales cycles. A weakening of macroeconomic
conditions is also adversely affecting our suppliers, which could continue to
result in interruptions in the supply of components and raw materials
necessary for our products and raw material cost increases. Additionally, the
United States and other countries, such as China and India, have imposed
tariffs on certain goods. Further escalation of tariffs or other trade
barriers could adversely impact our profitability and/or our competitiveness.
See also our risk
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factors regarding our international operations above and regarding the
COVID-19 pandemic and government regulations below.
Reductions in government funding and the capital spending programs of our
customers could have a material adverse effect on our business, results of
operations or financial condition.
Our customers include universities, clinical diagnostics laboratories,
government agencies, hospitals and pharmaceutical, biotechnology and chemical
companies. The capital spending programs of these institutions and companies
have a significant effect on the demand for our products. Such programs are
based on a wide variety of factors, including the resources available to make
such purchases, the availability of funding from grants by governments or
government agencies, the spending priorities for various types of equipment
and the policies regarding capital expenditures during industry downturns or
recessionary periods. If funding to our customers were to decrease, or if our
customers were to decrease or reallocate their budgets in a manner adverse to
us, our business, results of operations or financial condition could be
materially and adversely affected.
A reduction or interruption in the supply of components and raw materials has
adversely affected and could continue to adversely affect our manufacturing
operations and related product sales.
The manufacture of our products requires the timely delivery of sufficient
amounts of quality components and materials. We manufacture our products
around the world. We acquire our components and materials from many suppliers
in various countries. We work closely with our suppliers to ensure the
continuity of supply, but we cannot guarantee these efforts will always be
successful. Further, while we seek to diversify our sources of components and
materials, in certain instances we acquire components and materials from a
sole supplier. The COVID-19 pandemic created delays and shortages in the
supply of components and raw materials. These shortages, along with challenges
in ramping up new production facilities, caused a backlog of sales orders,
some of which we consider to be significant, and delays in certain new product
development activities. Some of the backlog of sales orders continued into
2023 but has now moderated to a more typical level. We have experienced raw
material cost increases, some of which will likely continue. In addition, due
to the regulatory environment in which we operate, we may need to cease use of
certain essential components and materials and be unable to establish
acceptable replacement sources for such components or materials. When our
supply is reduced or interrupted or of poor quality, and we are unable to
develop alternative sources for such supply, our ability to manufacture our
products in a timely or cost-effective manner is adversely affected, which
affects our ability to sell our products. See also our risk factor regarding
the COVID-19 pandemic below.
Pandemics or disease outbreaks, such as the COVID-19 pandemic, have affected
and could materially adversely affect our business, operations, financial
condition and results of operations.
The COVID-19 pandemic has had, and similar outbreaks could again have, an
adverse effect on the United States and global economies, as well as on
aspects of our business, operations and financial condition and those of third
parties on whom we rely. If a new pandemic were to occur, we expect that parts
of our business could again suffer negative impacts, and that our customers,
suppliers, logistics providers, and the global economy could also be
negatively impacted.
Breaches of our information systems could have a material adverse effect on
our business and results of operations.
We have experienced and expect to continue to experience attempts by
individuals and organizations to attack and penetrate our layered security
controls, like the December 2019 Cyberattack that was previously discussed in
Item 7 of our Annual Report for the period ended December 31, 2019. Through
our sales and eCommerce channels, we collect and store confidential
information that customers provide to, among other things, purchase products
or services, enroll in promotional programs and register on our web site. We
also acquire and retain information about suppliers and employees in the
normal course of business. Such information on our systems includes personally
identifiable information and, in limited instances, protected health
information. We also create and maintain proprietary information that is
critical to our business, such as our product designs and manufacturing
processes. Despite recent initiatives to improve our technology systems, such
as our enterprise resource planning implementation and the centralization of
our global information technology organization, we could experience a
significant data security breach. The Company is also subject to phishing and
other fraud schemes including fraudulent vendor communications with requests
for payments and fraudulent attempts to redirect payments to improper bank
accounts, some of which have been successful. While the Company has adopted
training and process
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changes to limit the success of such fraudulent activity, the Company will be
unable to stop all such fraudulent activity which may lead to unrecoverable
payments to criminal accounts. Because the techniques used to obtain
unauthorized access, disable or degrade service, or sabotage systems change
frequently and often are not recognized until launched against a target, we
may not be able to anticipate all of these techniques or to implement adequate
preventive measures. Computer hackers have attempted to penetrate and will
likely continue to attempt to penetrate our and our vendors' information
systems and, if successful, could misappropriate confidential customer,
supplier, employee or other business information, such as our intellectual
property. Third parties could also gain control of our systems and use them
for criminal purposes while appearing to be us. As a result, we could lose
existing customers, have difficulty attracting new customers, be exposed to
claims from customers and suppliers, financial institutions, payment card
associations, employees and other persons, have regulatory sanctions or
penalties imposed, incur additional expenses or lose revenues as a result of a
data privacy breach, or suffer other adverse consequences. Our operations and
ability to process sales orders, particularly through our eCommerce channels,
could also be disrupted, as they were in the December 2019 Cyberattack. Any
significant breakdown, intrusion, interruption, corruption, or destruction of
our systems, as well as any data breaches, could have a material adverse
effect on our business and results of operations. See also our risk factors
regarding our information technology systems below.
If our information technology systems are disrupted, or if we fail to
successfully implement, manage and integrate our information technology and
reporting systems, our business, results of operations and financial condition
could be harmed.
Our information technology (IT) systems are an integral part of our business,
and a significant disruption of our IT systems (which increasingly include
cloud-based systems provided by third party vendors) could have a material
adverse effect on our business, results of operations and financial condition.
We depend on our IT systems to process orders, manage inventory, pay our
vendors and collect accounts receivable. Our IT systems also allow us to
efficiently purchase products from our suppliers and ship products to our
customers on a timely basis, maintain cost-effective operations and provide
customer service. We cannot assure you that our contingency plans will allow
us to operate at our current level of efficiency.
Our ability to implement our business plan in a rapidly evolving market
requires effective planning, reporting and analytical processes. We expect
that we will need to continue to improve and further integrate our IT systems,
reporting systems and operating procedures by training and educating our
employees with respect to these improvements and integrations on an ongoing
basis in order to effectively run our business. We may suffer interruptions in
service, loss of data or reduced functionality when we upgrade or change
systems or migrate to cloud-based systems. If we fail to successfully manage
and integrate our IT systems, reporting systems and operating procedures, it
could adversely affect our business, results of operations and financial
condition. See also our risk factors regarding our data security above and
events beyond our control below.
We are subject to foreign currency exchange fluctuations, which could have a
material adverse effect on our results of operations and financial condition.
A significant portion of our operations and sales are outside of the United
States. When we make purchases and sales in currencies other than the U.S.
dollars, we are exposed to fluctuations in foreign currencies relative to the
U.S. dollar that may adversely affect our results of operations and financial
condition. Our international sales are largely denominated in local
currencies. As a result, the strengthening of the U.S. dollar negatively
impacts our consolidated net sales expressed in U.S. dollars. Conversely, when
the U.S. dollar weakens, our expenses at our international sites increase. In
addition, the volatility of other currencies may negatively impact our
operations outside of the United States and increase our costs to hedge
against currency fluctuations. In addition, we hold investments and a loan
receivable that are subject to foreign exchange fluctuations. We cannot assure
you that future shifts in currency exchange rates will not have a material
adverse effect on our results of operations and financial condition.
Changes in the market value of our position in Sartorius AG materially impact
our financial results.
Changes in the market value of our position in Sartorius AG will continue to
materially impact our consolidated statements of income (loss) and other
financial statements. A decline in the market value of our position in
Sartorius AG will result in decreases in net income due to write-downs in the
value of the equity securities. An increase in the market value of our
position in Sartorius AG will result in a favorable impact to net income
independent of the actual operating performance of our business. Depending on
the extent of the decline or of the
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increase in the market value of our position in Sartorius AG, these negative
or positive impacts on us could continue to be material.
Our share price may change significantly based upon changes in the market
value of our position in Sartorius AG, independent of the actual performance
of our business. Additionally, non-operating income for a period may be
significantly impacted by any distribution of dividends by Sartorius AG,
particularly when the dividends amount varies in comparison to prior year
periods.
The value of our position in Sartorius AG might cause us to be deemed an
investment company under the Investment Company Act of 1940.
As a result of the market value of our position in Sartorius AG, we might be
deemed to be an "investment company" under Section 3(a)(1)(C) of the
Investment Company Act of 1940, as amended (the "Investment Company Act") The
Company does not believe it is an investment company primarily in reliance on
Section 3(b)(1) of the Investment Company Act because we are "primarily
engaged" in a business other than that of investing, reinvesting, owning,
holding or trading in securities. Rather, we are primarily engaged in the
development, manufacturing and marketing of products for the life science
research and clinical diagnostic markets, and we believe that our historical
development, our public representations of policy, the activity of our
officers and directors, the nature of our present assets, the sources of our
present income, and the public perception of the nature of our business all
support the conclusion that we are an operating company and not an investment
company. Although we have discussed this issue with the staff of the SEC and
we are comfortable with our position, if it is determined later that the
Company may not rely on Section 3(b)(1) or any other exemption under the
Investment Company Act and the Company were deemed to be an unregistered
investment company, such determination would have a material adverse effect on
our business as we would need to register as an investment company and be
subject to the regulations of the Investment Company Act which are designed to
restrict and regulate mutual funds rather than operating companies. It could
also call into question the validity of all contracts to which the Company is
a party. If it appeared likely that we would be deemed to be an investment
company, we may modify our position in Sartorius AG in order to avoid such
determination.
We may incur losses in future periods due to write-downs in the value of
financial instruments.
We have positions in a variety of financial instruments including asset backed
securities and other similar investments. Financial markets are volatile and
the markets for these securities can be illiquid. The value of these
securities will continue to be impacted by external market factors including
default rates, changes in the value of the underlying property, such as
residential or commercial real estate, rating agency actions, the prices at
which observable market transactions occur and the financial strength of
various entities, such as financial guarantors who provide insurance for the
securities.
Should we need to convert these positions to cash, we may not be able to sell
these instruments without significant losses due to current debtor financial
conditions, low trading volume of the securities, or other market
considerations.
As discussed further in the Notes to Condensed Consolidated Financial
Statements, in Note 2. Fair Value Measurements, under the heading "
Level 3 Fair Value Investments
", we made a loan of 400 million Euros to Sartorius-Herbst Beteiligungen II
GmbH in November 2021 that is secured by the pledge of certain trust interests
which upon termination of the trust represent the right to receive Sartorius
ordinary shares (the "Loan"). Prior to a termination of the trust, the trust
interests, which are provided as collateral for the Loan, are not tradable on
the capital markets and may, in case of an enforcement, have to be sold with a
significant discount to the value of the underlying shares.
We also have positions in equity securities, including our position in
Sartorius AG. Financial markets are volatile and the markets for these equity
securities can be illiquid as well. A decline in the market value of our
investments in equity securities has resulted and could continue to result in
significant losses due to write-downs in the value of the equity securities.
Also, if we need to convert these positions to cash, we may not be able to
sell these equity securities without significant losses. In addition,
significant declines in the value of the Sartorius ordinary shares have
reduced the value of the collateral for the Loan discussed in the previous
paragraph. The value of the collateral may be insufficient to cover the
repayment of the Loan if the decline in value continues, and Sartorius-Herbst
Beteiligungen II GmbH will likely have no other assets from which to repay the
Loan. Furthermore, the change in the market value of Sartorius ordinary shares
will have an impact on the value appreciation rights acquired in connection
with the Loan discussed in the previous paragraph.
Recent and planned changes to our organizational structure could negatively
impact our business.
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We made significant changes to our organizational structure over the past few
years, including the reorganization of aspects of our European operations that
was announced in February 2021 and additional restructurings approved in 2023
and 2024. These changes may have unintended consequences, such as distraction
of our management and employees, labor unrest, business disruption, disruption
of supply, attrition of our workforce, inability to attract or retain key
employees, and reduced employee morale or productivity.
Risks relating to intellectual property rights may negatively impact our
business.
We rely on a combination of copyright, trade secret, patent and trademark laws
and third-party nondisclosure agreements to protect our intellectual property
rights and products. However, we cannot assure you that our intellectual
property rights will not be challenged, invalidated, circumvented or rendered
unenforceable, or that meaningful protection or adequate remedies will be
available to us. Unauthorized third parties have attempted to copy our
intellectual property, reverse engineer or obtain and use information that we
regard as proprietary, or have developed equivalent technologies independently,
and may do so in the future. Additionally, third parties have asserted patent,
copyright and other intellectual property rights to technologies that are
important to us and may do so in the future. If we are unable to license or
otherwise access protected technology used in our products, or if we lose our
rights under any existing licenses, we could be prohibited from manufacturing
and marketing such products. From time to time, we also must enforce our
patents or other intellectual property rights or defend ourselves against
claimed infringement of the rights of others through litigation. As a result,
we could incur substantial costs, be forced to redesign our products, or be
required to pay damages or royalties to an infringed party. Any of the
foregoing matters could adversely impact our business, results of operations
and financial condition.
Changes in the healthcare industry could have an adverse effect on our
business, results of operations and financial condition.
There have been, and will continue to be, significant changes in the
healthcare industry in an effort to reduce costs. These changes include:
.
The trend towards managed care, together with healthcare reform of the
delivery system in the United States and efforts to reform in Europe, has
resulted in increased pressure on healthcare providers and other participants
in the healthcare industry to reduce selling prices. Consolidation among
healthcare providers and consolidation among other participants in the
healthcare industry has resulted in fewer, more powerful groups, whose
purchasing power gives them cost containment leverage. In particular, there
has been a consolidation of laboratories and a consolidation of blood
transfusion centers. These industry trends and competitive forces place
constraints on the levels of overall pricing and thus could have a material
adverse effect on our gross margins for products we sell in clinical
diagnostic markets.
.
Third party payors, such as Medicare and Medicaid in the United States, have
reduced their reimbursements for certain medical products and services. Our
Clinical Diagnostics business is impacted by the level of reimbursement
available for clinical tests from third party payors. In the United States
payment for many diagnostic tests furnished to Medicare fee-for-service
beneficiaries is made based on the Medicare Clinical Laboratory Fee Schedule
(CLFS), a fee schedule established and adjusted from time to time by the
Centers for Medicare and Medicaid Services (CMS). Some commercial payors are
guided by the CLFS in establishing their reimbursement rates. Laboratories and
clinicians may decide not to order or perform certain clinical diagnostic
tests if third party payments are inadequate, and we cannot predict whether
third party payors will offer adequate reimbursement for tests utilizing our
products to make them commercially attractive. Legislation, such as the
Patient Protection and Affordable Care Act, as amended by the Health Care and
Education Reconciliation Act (PPACA) and the Middle Class Tax Relief and Job
Creation Act of 2012, has reduced the payments for clinical laboratory
services paid under the CLFS. In addition, the Protecting Access to Medicare
Act of 2014 (PAMA) has made significant changes to the way Medicare will pay
for clinical laboratory services, which has further reduced reimbursement
rates.
To the extent that the healthcare industry seeks to address the need to
contain costs stemming from reform measures such as those contained in the
PPACA and the PAMA, or in future legislation, by limiting the number of
clinical tests being performed or the amount of reimbursement available for
such tests, our business, results of operations
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and financial condition could be adversely affected. If these changes in the
healthcare markets in the United States and Europe continue, we could be
forced to alter our approach in selling, marketing, distributing and servicing
our products.
We are subject to substantial government regulation, and any changes in
regulation or violations of regulations by us could adversely affect our
business, prospects, results of operations or financial condition.
Some of our products (primarily our Clinical Diagnostic products), production
processes and marketing are subject to U.S. federal, state and local, and
foreign regulation, including by the FDA in the United States and its foreign
counterparts. The FDA regulates our Clinical Diagnostic products as medical
devices, and we are subject to significant regulatory clearances or approvals
to market our Clinical Diagnostic products and other requirements including,
for example, recordkeeping and reporting requirements, such as the FDA's
medical device reporting regulations and reporting of corrections and
removals. The FDA has broad regulatory and enforcement powers. If the FDA
determines that we have failed to comply with applicable regulatory
requirements, it can impose a variety of enforcement actions ranging from
public warning letters, fines, injunctions, consent decrees and civil
penalties to suspension or delayed issuance of approvals, seizure or recall of
our products, total or partial shutdown of production, withdrawal of approvals
or clearances already granted, and criminal prosecution.
The FDA can also require us to repair, replace or refund the cost of devices
that we manufactured or distributed. In addition, the FDA may change its
clearance and approval policies, adopt additional regulations or revise
existing regulations, or take other actions, which may prevent or delay
approval or clearance of our products or impact our ability to modify our
currently approved or cleared products on a timely basis. Any delay in, or
failure to receive or maintain, clearance or approval for our products or
changes in regulation could prevent us from generating revenue from these
products and adversely affect our business operations and financial results.
Additionally, the FDA and other regulatory authorities have broad enforcement
powers. Regulatory enforcement or inquiries, or other increased scrutiny on
us, could affect the perceived safety and efficacy of our products and
dissuade our customers from using our products.
The FDA has issued a final rule applicable to certain clinical diagnostic
products referred to as laboratory developed tests. This change in the FDA
approach could negatively impact our customers who use our Life Science
products for laboratory developed tests.
Many foreign governments have similar rules and regulations regarding the
importation, registration, labeling, sale and use of our products. Such
agencies may also impose new requirements that may require us to modify or
re-register products already on the market or otherwise impact our ability to
market our products in those countries. The EU in-vitro Diagnostics Regulation
(the "EU IVDR") includes broad changes regarding in vitro diagnostic devices
and medical devices. The EU IVDR required us to modify or re-register some
products, and we expect will continue to result in additional costs for
ongoing compliance. In addition, Russia has enacted more stringent medical
product registration and labeling regulations, China has enacted stricter
labeling requirements, and we expect other countries, such as Brazil and
India, to impose more regulations that impact our product registrations. The
United Kingdom's withdrawal from the EU is resulting in additional regulatory
requirements associated with goods manufactured and sold in the United Kingdom
and additional complexities and delays with respect to goods, raw materials
and personnel moving between the United Kingdom and the EU. In addition, new
government administrations may interpret existing regulations or practices
differently. Due to these evolving and diverse requirements, we face uncertain
product approval timelines, additional time and effort to comply, as well as
the potential for reduced sales and/or fines for noncompliance. Increasing
protectionism in such countries also impedes our ability to compete with local
companies. We may not be able to participate in certain public tenders in
China, India and Russia because of increasing measures to restrict access to
such tenders for companies without local manufacturing capabilities.
Such regulations could adversely affect our business, results of operations
and financial condition. See also our risk factors regarding our international
operations and regarding global economic and geopolitical conditions above.
We are also subject to government regulation of the use and handling of a
number of materials and controlled substances. The U.S. Drug Enforcement
Administration establishes registration, security, recordkeeping, reporting,
storage, distribution and other requirements for controlled substances
pursuant to the Controlled Substances Act of 1970. Failure to comply with
present or future laws and regulations could result in substantial liability
to us,
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suspension or cessation of our operations, restrictions on our ability to
expand at our present locations or require us to make significant capital
expenditures or incur other significant expenses.
We cannot assure you that we will be able to integrate acquired companies,
products or technologies into our company successfully, or that we will be
able to realize the anticipated benefits from the acquisitions.
As part of our overall business strategy, we pursue acquisitions of and
investments in complementary companies, products and technologies. The
benefits of any acquisition or investment may prove to be less than
anticipated and may not outweigh the costs reported in our financial
statements. Completing any potential future acquisitions could cause
significant diversion of our management's time and resources. If we acquire or
invest in new companies, products or technologies, we may be required to
assume contingent liabilities or record impairment charges for goodwill and
other intangible assets over time. Goodwill and non-amortizable intangible
assets are subject to impairment testing, and potential periodic goodwill
impairment charges, amortization expenses related to certain intangible
assets, and other write-offs could harm our operating results. Impairment
tests are highly sensitive to changes in assumptions and minor changes to
assumptions could result in impairment losses. If the results forecast in our
impairment tests are not achieved, or business trends vary from the
assumptions used in forecasts, or external factors change detrimentally,
future impairment losses may occur, as they have occurred in the past.
Increased antitrust enforcement and greater government scrutiny of mergers in
the healthcare sector may impact our ability to consummate acquisitions. We
cannot assure you that we will successfully overcome these risks or any other
problems we encounter in connection with any acquisitions or investments, and
any such acquisitions or investments could adversely affect our business,
results of operations and financial condition.
Product quality and liability issues could harm our reputation and negatively
impact our business, results of operations and financial condition.
We must adequately address quality issues associated with our products,
including defects in our engineering, design and manufacturing processes, as
well as defects in third-party components included in our products. Our
instruments, reagents and consumables are complex, and identifying the root
cause of quality issues, especially those affecting reagents or third-party
components, is difficult. We may incur significant costs and expend
substantial time in researching and remediating such issues. Quality issues
could also delay our launching or manufacturing of new products. In addition,
quality issues, unapproved uses of our products, or inadequate disclosure of
risks related to our products, could result in product recalls or product
liability or other claims being brought against us. In responding to
shortages, we may source components from alternative suppliers and
distributors.
Quality issues associated with components from these alternative sources may
lead to product failures and associated costs notwithstanding our efforts to
detect and remediate such quality issues. These issues could harm our
reputation, impair our relationship with existing customers and harm our
ability to attract new customers, which could negatively impact our business,
results of operations and financial condition.
Lack of key personnel could hurt our business.
Our products are very technical in nature, and we operate in a complex and
competitive business environment. In general, only highly qualified and
well-trained scientists, technicians and other specialized individuals have
the necessary skills to develop, market and sell our products, and many of our
manufacturing positions require very specialized knowledge and skills. In
addition, the global nature of our business also requires that we have
sophisticated and experienced staff to comply with increasingly complex
international laws and regulations. We face intense competition for these
professionals from our competitors, customers, marketing partners and other
companies throughout our industry. If we do not offer competitive compensation
and benefits, we may fail to retain or attract a sufficient number of
qualified personnel, which could impair our ability to properly run our
business. Further, our ability to successfully execute organizational changes,
including management transitions within our senior leadership team, are
critical to our business success. If we are not able to fully integrate new
executives, these changes could impact our ability to successfully execute our
business strategy, which could adversely affect our business, results of
operations and financial condition.
We may have higher than anticipated tax liabilities.
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We are subject to income taxes in the United States and many foreign
jurisdictions. We report our results of operations based on our determination
of the amount of taxes owed in various tax jurisdictions in which we operate.
The determination of our worldwide provision for income taxes and other tax
liabilities requires estimation, judgment and calculations where the ultimate
tax determination may not be certain. Determination of our tax liabilities is
subject to review or examination by tax authorities in various tax
jurisdictions. Tax authorities have disagreed with our judgment in the past
and may disagree with positions we take in the future resulting in assessments
of additional taxes. Any adverse outcome of such review or examination could
have a negative impact on our operating results and financial condition.
Economic and political pressures to increase tax revenues in various
jurisdictions may make resolving tax disputes more difficult. In recent years,
the tax authorities in Europe have disagreed with our tax positions related to
hybrid debt, research and development credits, transfer pricing and indirect
taxes, among others. We regularly assess the likelihood of the outcome
resulting from these examinations to determine the adequacy of our provision
for income taxes. Although we believe our tax estimates are reasonable, the
final determination of tax audits and any related litigation could be
materially different from our historical income tax provisions and accruals.
Changes in tax laws or rates, changes in the interpretation of tax laws or
changes in the jurisdictional mix of our earnings could adversely affect our
financial position and results of operations.
On December 22, 2017, the U.S. enacted comprehensive tax legislation commonly
referred to as the Tax Cuts and Jobs Act (the "Tax Act") which made a number
of substantial changes to how the United States imposes income tax on
multinational corporations. The U.S Treasury, Internal Revenue Service and
other standard setting bodies continue to issue guidance and interpretation
relating to the Tax Act. As future guidance is issued, we may make adjustments
to amounts previously reported that could materially impact our financial
statements.
On August 16, 2022, President Biden signed into law the Inflation Reduction
Act of 2022, which includes an Alternative Minimum Tax based on the Adjusted
Financial Statement Income of Applicable Corporations. We do not believe the
Inflation Reduction Act will have a material impact on our income tax
provision and cash taxes, but we continue to monitor U.S. Department of the
Treasury guidance and regulations.
The tax effect of our position in Sartorius AG and the jurisdictional mix of
our earnings could continue to materially affect our financial results and
cash flow. In addition, the adoption of some or all of the recommendations set
forth in the Organization for Economic Co-operation and Development's project
on "Base Erosion and Profit Shifting" (BEPS) by tax authorities in the
countries in which we operate, could negatively impact our effective tax rate.
These recommendations focus on payments from affiliates in high tax
jurisdictions to affiliates in lower tax jurisdictions and the activities that
give rise to a taxable presence in a particular country.
On October 8, 2021, the OECD announced that 136 countries have agreed on a
two-pillar framework that would dramatically alter the taxation of
multinational enterprises and require that all profit be subject to a global
minimum tax rate of 15%. On December 15, 2022, the European Union formally
adopted the Pillar Two Directive and EU member states were expected to enact
the Pillar Two Directive by December 31, 2023. Other countries are taking
similar actions. We do not believe Pillar 2 legislation will have a material
impact on our income tax provision and cash taxes.
Environmental, health and safety regulations and enforcement proceedings may
negatively impact our business, results of operations and financial condition.
Our operations are subject to federal, state, local and foreign environmental
laws and regulations that govern such activities as transportation of goods,
materials that we use in our products, emissions to air and discharges to
water, as well as handling and disposal practices for solid, hazardous and
medical wastes. In addition to environmental laws that regulate our
operations, we are also subject to environmental laws and regulations that
create liability and responsibility for spills, disposals or other releases of
hazardous substances into the environment as a result of our operations or
otherwise impacting real property that we own or operate. The environmental
laws and regulations also subject us to claims by third parties for damages
resulting from any spills, disposals or releases resulting from our operations
or at any of our properties. We must also comply with various health and
safety regulations in the United States and abroad in connection with our
operations.
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We may in the future incur capital and operating costs to comply with
currently existing laws and regulations, and possible new statutory
enactments, and these expenditures may be significant. We have incurred, and
may in the future incur, fines related to environmental matters and/or
liability for costs or damages related to spills or other releases of
hazardous substances into the environment at sites where we have operated, or
at off-site locations where we have sent hazardous substances for disposal. We
cannot assure you, however, that such matters or any future obligations to
comply with environmental or health and safety laws and regulations will not
adversely affect our business, results of operations or financial condition.
In addition, there is an increasing focus by U.S. and international
regulators, investors, customers, and other stakeholders on environmental,
social and governance (ESG) matters. Complying with new laws or regulations
concerning sustainability matters, climate related matters or other ESG
matters will result in increased compliance costs and create additional
non-compliance risks. Failure to adequately meet our stakeholder's
expectations or comply with any such laws or regulations may result in loss of
business, reputational damage, an inability to attract customers, an inability
to attract and retain top talent, and a negative impact on our business,
results of operations and financial condition.
We also have announced certain sustainability goals, which require ongoing
investment and operational changes. Our efforts may not achieve their intended
outcomes, and we may not achieve such goals, which could negatively impact our
reputation and business.
Our current and future debt and related covenants may restrict our future
operations.
We have substantial debt and have the ability to incur additional debt. As of
June 30, 2024, we had approximately $1.2 billion of outstanding long-term
indebtedness, primarily consisting of the 3.300% Senior Notes due in March
2027 and the 3.700% Senior Notes due in March 2032 as further discussed in
Note 6 of the condensed consolidated financial statements. In addition, we
have a revolving credit facility that provides for up to $200.0 million in
borrowing capacity, $0.2 million of which was utilized for domestic standby
letters of credit as of June 30, 2024. Our incurrence of substantial amounts
of debt may have important consequences. For instance, it could:
.
make it more difficult for us to satisfy our financial obligations, including
those relating to our outstanding debt;
.
require us to dedicate a substantial portion of our cash flow from operations
to the payment of interest and principal due under our debt, which will reduce
funds available for other business purposes;
.
increase our vulnerability to general adverse economic and industry conditions;
.
limit our flexibility in planning for, or reacting to, changes in our business
and the industries in which we operate;
.
place us at a competitive disadvantage compared with some of our competitors
that have less debt; and
.
limit our ability to obtain additional financing required to fund working
capital and capital expenditures and for other general corporate purposes.
Our existing credit facility, our Senior Notes and agreements we may enter in
the future, contain or may contain covenants imposing restrictions on our
business. These restrictions may affect our ability to operate our business
and may limit our ability to take advantage of potential business
opportunities as they arise. Existing covenants place restrictions on our
ability to, among other things: incur additional debt; acquire other
businesses or assets through merger or purchase; create liens; enter into
transactions with affiliates; sell assets; and in the case of some of our
subsidiaries, guarantee debt. Our existing credit facility also requires that
we comply with a maximum consolidated leverage ratio test. Our ability to
comply with these covenants may be affected by events beyond our control,
including prevailing economic, financial and industry conditions. The breach
of any of these restrictions could result in a default. An event of default
under our debt agreements would permit some of our lenders to declare all
amounts borrowed from them to be due and payable, together with accrued and
unpaid interest.
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We are subject to healthcare laws and regulations and could face substantial
penalties if we are unable to fully comply with such laws.
We are subject to healthcare regulation and enforcement by both the U.S.
federal government and the U.S. states and foreign governments in which we
conduct our business. These healthcare laws and regulations include, for
example:
.
the U.S. federal Anti-Kickback Statute, which prohibits, among other things,
persons or entities from soliciting, receiving, offering or providing
remuneration, directly or indirectly, in return for or to induce either the
referral of an individual for, or the purchase order or recommendation of, any
item or services for which payment may be made under a federal healthcare
program such as the Medicare and Medicaid programs;
.
U.S. federal false claims laws, which prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented,
claims for payment from Medicare, Medicaid, or other third-party payors that
are false or fraudulent. In addition, the U.S. federal government may assert
that a claim including items or services resulting from a violation of the
federal Anti-Kickback Statute constitutes a false or fraudulent claim for
purposes of the false claims statutes;
.
the U.S. Physician Payment Sunshine Act, which requires certain manufacturers
of drugs, biologics, devices and medical supplies to record any transfers of
value to U.S. physicians and U.S. teaching hospitals;
.
the Health Insurance Portability and Accountability Act ("HIPAA"), as amended
by the Health Information Technology for Economic and Clinical Health Act,
which governs the conduct of certain electronic healthcare transactions and
protects the security and privacy of protected health information; and
.
state or foreign law equivalents of each of the U.S. federal laws above, such
as anti-kickback and false claims laws, which may apply to items or services
reimbursed by any third-party payor, including commercial insurers.
These laws will continue to impose administrative, cost and compliance burdens
on us. The shifting compliance environment and the need to build and maintain
robust systems to comply with multiple jurisdictions with different compliance
and/or reporting requirements increases the possibility that a healthcare
company may violate one or more of these requirements. In addition, any action
against us for violation of these laws, even if we successfully defend against
it, could cause us to incur significant legal expenses and divert our
management's attention from the operation of our business. If our operations
are found to be in violation of any of the laws described above or any other
governmental regulations that apply to us, we may be subject to penalties,
including civil and criminal penalties, damages, fines, exclusion from the
Medicare and Medicaid programs, and the curtailment or restructuring of our
operations, any of which could adversely affect our ability to operate our
business, results of operations and financial condition.
Risks Related to Being a Public Company
Our failure to establish and maintain effective internal control over
financial reporting could result in material misstatements in our financial
statements, our failure to meet our reporting obligations and cause investors
to lose confidence in our reported financial information, which in turn could
cause the trading price of our common stock to decline.
Maintaining effective disclosure controls and procedures and internal controls
over financial reporting are necessary for us to produce reliable financial
statements. Material weaknesses in our internal control over financial
reporting have adversely affected us in the past and could affect us in the
future and the results of our periodic management evaluations and annual
auditor attestation reports regarding the effectiveness of our internal
control over financial reporting required by Section 404 of the Sarbanes-Oxley
Act of 2002. Any failure to maintain or implement new or improved internal
controls, or any difficulties that we may encounter in their maintenance or
implementation, could result in additional material weaknesses, result in
material misstatements in our consolidated financial statements and cause us
to fail to meet our reporting obligations. This could cause us to lose public
confidence and could cause the trading price of our common stock to decline.
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General Business Risks
Natural disasters, climate related events, terrorist attacks, acts of war or
other events beyond our control may cause damage or disruption to us and our
employees, facilities, information systems, security systems, vendors and
customers, which could significantly impact our business, results of
operations and financial condition.
We have significant manufacturing and distribution facilities, including in
the United States, France, Switzerland, Germany and Singapore. In particular,
the western United States has experienced a number of earthquakes, wildfires,
floods, landslides and other natural disasters in recent years. These
occurrences could damage or destroy our facilities which may result in
interruptions to our business and losses that exceed our insurance coverage.
In addition, lack of fuel resources due to geo-political instability (such as
Russia's reduction in energy resources supplied to Western Europe),
electricity outages, the inability to operate our production and distribution
facilities due to power grid failures or lack of fuel, and strikes or other
labor unrest at any of our sites or surrounding areas could cause disruption
to our business. Acts of terrorism, bioterrorism, violence or war (such as
Russia's invasion of Ukraine and the conflict between Israel and Hamas),
weather-related events, or public health issues such as the outbreak of a
contagious disease like COVID-19 could also affect the markets in which we
operate, our business operations and strategic plans. Political unrest may
affect our sales in certain regions, such as in Southeast Asia, the Middle
East and Eastern Europe. Any of these events could adversely affect our
business, results of operations and financial condition.
Risks Related to Our Common Stock
A significant majority of our voting stock is held by the Schwartz family,
which could lead to conflicts of interest.
We have two classes of voting stock: Class A Common Stock and Class B Common
Stock. With a few exceptions, holders of Class A and Class B Common Stock vote
as a single class. When voting as a single class, each share of Class A Common
Stock is entitled to one-tenth of a vote, while each share of Class B Common
Stock has one vote. In the election or removal of directors, the classes vote
separately and the holders of Class A Common Stock are entitled to elect 25%
of the Board of Directors, with holders of Class B Common Stock electing the
remaining directors. As a result of the Schwartz family's ownership of our
Class A and Class B Common Stock, they are able to elect a majority of our
directors, effect fundamental changes in our direction and control matters
affecting us, including the determination of business opportunities that may
be suitable for our company. The Schwartz family may exercise its control over
us according to interests that are different from other investors' or debtors'
interests. In particular, this concentration of ownership and voting power may
have the effect of delaying or preventing a change in control of our company.
The forum selection provision in our bylaws could increase costs to bring a
claim, discourage claims or limit the ability of the Company's stockholders to
bring a claim in a judicial forum viewed by the stockholders as more favorable
for disputes with the Company or the Company's directors, officers or other
employees
.
Our bylaws provide that unless we consent in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware (or, if the
Court of Chancery does not have jurisdiction, another state court located
within the State of Delaware or, if no state court located within the State of
Delaware has jurisdiction, the federal district court for the District of
Delaware) shall be the sole and exclusive forum for (i) any derivative action
or proceeding brought on behalf of the Company, (ii) any action asserting a
claim of breach of a fiduciary duty owed by any director, officer or other
employee of the Company to the Company or the Company's stockholders, (iii)
any action arising pursuant to any provision of the General Corporation Law of
the State of Delaware, the Certificate of Incorporation or the Bylaws (in each
case, as may be amended from time to time) or (iv) any action asserting a
claim against the Company or any of its directors, officers or other employees
governed by the internal affairs doctrine of the State of Delaware. This
choice of forum provision may increase costs to bring a claim, discourage
claims or limit a stockholder's ability to bring a claim in a judicial forum
that it finds favorable for disputes with the Company or the Company's
directors, officers or other employees, which may discourage such lawsuits
against the Company or the Company's directors, officers and other employees.
Alternatively, if a court were to find the choice of forum provision contained
in the Company's bylaws to be inapplicable or unenforceable in an action, the
Company may incur additional costs associated with resolving such action in
other jurisdictions.
48
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Application of the choice of forum provision may be limited in some instances
by applicable law. Section 27 of the Exchange Act creates exclusive federal
jurisdiction over all suits brought to enforce any duty or liability created
by the Exchange Act or the rules and regulations thereunder. As a result, the
choice of forum provision will not apply to actions arising under the Exchange
Act or the rules and regulations thereunder. Section 22 of the Securities Act
creates concurrent jurisdiction for federal and state courts over suits
brought to enforce any duty or liability created by the Securities Act or the
rules and regulations thereunder, subject to a limited exception for certain
"covered class actions." There is uncertainty, particularly in light of
current litigation, as to whether a court would enforce the choice of forum
provision with respect to claims under the Securities Act. Our stockholders
will not be deemed, by operation of the Company's choice of forum provision,
to have waived claims arising under the federal securities laws and the rules
and regulations thereunder.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
As of June 30, 2024, $174.0 million of stock remained available for
repurchases under the Company's 2023 Share Repurchase Program, which was
authorized by the Board of Directors in July 2023. Repurchases under the 2023
Share Repurchase Program may be made at management's discretion from time to
time on the open market, through trading plans in accordance with Rule 10b5-1
under the Securities Exchange Act of 1934, as amended, or through privately
negotiated transactions. The authorization has no expiration.
The following table contains information on the shares of our common stock
that we purchased or otherwise acquired during the three months ended June 30,
2024.
Period Total Number of Average Price Total Number of Shares Maximum Number (or Approximate
Shares Purchased Paid per Share Purchased as Part Dollar Value) of Shares that May
of Publicly Announced yet be Purchased Under the Plans
Plans or Programs or Programs (in millions)
April 1 to - $ - - $ 274.0
April 30, 2024
May 1 to May 221,893 $ 289.69 221,893 $ 209.7
31, 2024
June 1 to 124,333 $ 287.29 124,333 $ 174.0
June 30, 2024
On July 29, 2024, Bio-Rad's board of directors authorized increasing the
amount available under the company's 2023 Share Repurchase Program to allow
the company to repurchase up to an additional $500 million of the company's
outstanding common stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
49
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During the three months ended June 30, 2024,
no director or officer of the Company adopted or terminated a "Rule 10b5-1
trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is
defined in Item 408(a) of Regulation S-K
.
50
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Item 6. Exhibits
(a) Exhibits
The following documents are filed as part of this report:
Exhibit
No.
31.1 Chief Executive Officer Section 302 Certification
31.2 Chief Financial Officer Section 302 Certification
32.1 Chief Executive Officer Certification pursuant to 18 U.S.C Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Chief Financial Officer Certification pursuant to 18 U.S.C Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS The instance document does not appear in the interactive data file
because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104.1 The cover page Interactive Data File is formatted
in Inline XBRL and is contained in Exhibits 101
51
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
BIO-RAD LABORATORIES, INC.
(Registrant)
Date: August 2, 2024 /s/ Norman Schwartz
Norman Schwartz, Chairman of the Board,
President and Chief Executive Officer
Date: August 2, 2024 /s/ Roop K. Lakkaraju
Roop K. Lakkaraju, Executive Vice President,
Chief Financial Officer
52
Exhibit 31.1
Certification of Chief Executive Officer Required By
Exchange Act Rules 13a-14(a) and 15d-14(a)
I, Norman Schwartz, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Bio-Rad Laboratories, Inc.
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report fairly present, in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13-a-15(f) and
15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 2, 2024 /s/ Norman Schwartz
Norman Schwartz, Chairman of the Board,
President and Chief Executive Officer
Exhibit 31.2
Certification of Chief Financial Officer Required By
Exchange Act Rules 13a-14(a) and 15d-14(a)
I, Roop K. Lakkaraju, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Bio-Rad Laboratories, Inc.
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report fairly present, in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13-a-15(f) and
15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 2, 2024 /s/ Roop K. Lakkaraju
Roop K. Lakkaraju
Executive Vice President,
Chief Financial Officer
Exhibit 32.1
Certification of Periodic Report
I, Norman Schwartz, Chief Executive Officer of Bio-Rad Laboratories, Inc. (the
"Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350, that:
(1)
the Quarterly Report on Form 10-Q of the Company for the quarter ended June
30, 2024 (the "Report") fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)
the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: August 2, 2024 /s/ Norman Schwartz
Norman Schwartz, Chairman of the Board, President and
Chief Executive Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section 1350 and is not being filed as part of the Report or as a separate
disclosure document.
Exhibit 32.2
Certification of Periodic Report
I, Roop K. Lakkaraju, Chief Financial Officer of Bio-Rad Laboratories, Inc.
(the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350, that:
(1)
the Quarterly Report on Form 10-Q of the Company for the quarter ended June
30, 2024 (the "Report") fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)
the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: August 2, 2024 /s/ Roop K. Lakkaraju
Roop K. Lakkaraju
Executive Vice President,
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section 1350 and is not being filed as part of the Report or as a separate
disclosure document.
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