Bio-Rad Laboratories | Annual Report 2010
bio-rad laboratoriesannual report 2010 Bio-Rad Laboratories
Annual Report
PAGE 1
YEAr 2010
With numbers like these, it doesn’t take much more
convincing to see that Bio-Rad is one of the leaders
in the life science and clinical diagnostics markets.
Now well into our second half-century of operation,
Bio-Rad continues to advance and improve, with
products, processes, and customer support
that add up to new levels of technological and
operational achievement.
12345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041 12345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041Letter to our SharehoLderS2010 was a year in which the economy loomed large. Even with support of government stimulus, the U.S. economy struggled along. Europe was hit by the financial crisis that washed through the U.S. in 2009. So far, Asia Pacific appears to have been relatively unaffected.In the face of all of this, Bio-Rad has continued to progress. Sales reached a record $1.9 billion, an increase of 8% over last year. Our focus on operating income has also served us well as we continue to realize bottom line improvements. Our operating margin, which a few short years ago was around 10%, is now closer to 15%. As we implement operational changes around the Company, we expect to realize additional improvements over the next several years.Norman SchwartzPresidentDavid SchwartzChairman of the Board Bio-Rad Laboratories
Annual Report
PAGE 3
YEAr 2010
Aside from the numbers, there are
Late in the year, we were able to take
In March 2011, Jim Bennett retired
several key accomplishments of
advantage of favorable conditions in
from the Board of Directors, a position
note. First is the successful addition
the financial markets, refinancing a
he held since 1977. Jim served the
of the Biotest blood typing products.
portion of our long-term debt at lower
Company in several key operating po-
We acquired this product line in
interest rates. Of note is the fact that
sitions during his 33-year association
the early days of 2010 and with it,
these bonds are rated investment
with Bio-Rad and will be remembered
access to the very important U.S.
grade—a first for the Company.
for his numerous contributions.
blood typing market. Also in this
product area, we completed the
development of and introduced the
IH-1000, a high volume instrument to
meet the needs of high volume labo-
ratories in international markets.
2011 ushers in a new year of chal-
As we round the corner to $2 billion,
lenges and opportunities. Europe
we are beginning to put in place many
is expected to have another tough
of the tools needed to take us through
economic year and with it, continued
the next phase of growth. Key among
pressure on research budgets. The
them is a global information manage-
tone in U.S. research markets seems
ment system (ERP). In conjunction
In our Life Science business, we
to be a little more upbeat but, with
with this, we are determining how to
introduced over 150 new products,
fresh faces in Congress, optimism
take better advantage of the size and
including several new thermal cyclers
could soon be dashed. Asia and
scale of our operations and what our
to meet the increasing needs for
emerging market areas continue to
organization should look like to take
DNA amplification. Other success
grow at above-average rates, bolster-
us to the next level.
stories include our new line of
ing what might otherwise be a slow
precast gels, allowing researchers
year for our Life Science products. In
to complete an electrophoresis
spite of higher levels of unemployment
separation in 15 minutes—a task
and pressure to control healthcare
that formerly took one hour. Also,
costs, the outlook for our Clinical
we successfully launched the TC-10
Diagnostics business continues to
cell counter, automating and making
be positive. Part of this is testament
more accurate a previously manual,
to the value of diagnostics, which
time-consuming chore in the lab.
allows for early detection of a health
2011 will, no doubt, be another year of
challenges and opportunities, and we
are looking forward to your continued
interest in Bio-Rad.
problem, leading to better outcomes
norman Schwartz
and lower costs, overall, to the
PreSiDent
healthcare system.
David Schwartz
Chairman of the BoarD
123456789101112131415161718192021222324252627282930313233343536373839404112345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041 BIOTECHNOLOGY EXPLOrEr PrOGrAM
Where do breakthroughs
come from?
Meet Scott Chilton, 24, a third-year Ph.D. candidate in the Molecular and Cellular Biology
Department at Harvard University. Scott is studying how a particular species of bacterium
imports DNA into its genome. Scott earned his Bachelor of Science in biology from
Massachusetts Institute of Technology, and before that he was a talented and curious high
school student in Tracy, California, where he wanted to be, at various times, an architect,
a teacher, a space explorer, a rollercoaster designer—and, of course, a biologist.
Scott traces his early interest in biology
back to two sources: Kirk Brown, his
high school science teacher, and
Bio-Rad’s Biotechnology™ Explorer kits
that his teacher used to make science
come to life for his classes. “Scott just
loved working with the program’s content
and was so passionate about molecular
biology,” says Mr. Brown. “His favorite
area of study was the ELISA Immuno
Explorer™ Kit, which uses a powerful,
antibody-based biodetection tool to hunt
for pathogens in water, food, or air.”
Scott is just one of over 9 million students
in 36 countries around the globe who
have used Bio-Rad’s Biotechnology
Explorer kits in class since the program’s
inception in 1997. By providing hands-on
experience with instruments and tech-
niques that are actually used in labs, the
program gives students relevant training
and introduces them to what it is like to
be a scientist in today’s world.
Scott credits the Biotechnology Explorer
kits with sparking his interest in science
education. “I think my experience with the
kits really helped me develop my under-
standing of how research worked, and
where I thought I could fit into the process,”
says Scott, “and that later guided me
when I began applying to college.”
That understanding clearly paid off for
Scott. In the summer after his freshman
year at MIT, he interned at Bio-Rad,
where he helped to optimize a protocol
that would speed up the run time of
certain gels used in DNA electropho-
resis. During his sophomore year he
worked in a laboratory researching how
bacterial genes respond to starvation.
Then, after his junior year, he interned
at the Salk Institute in San Diego, where
he was part of a team using small
molecule fluorescent sensors to study
enzyme development in plants.
As a former student, Scott has an
interesting perspective of why the
Biotechnology Explorer kits are so
useful in a classroom environment.
“The kits help a teacher—one who
may not have a lot of experience in a
particular area of biotechnology—intro-
duce the concepts to their students.
12345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041Scott ChiltonThird-year Ph.D. Candidate, Harvard University Bio-Rad Laboratories
Annual Report
PAGE 5
YEAr 2010
They also allow a teacher, with more back-
ground, to tailor this experience to their
classroom to make it relevant to student
interests or fit within their curriculum.”
Most young people have a natural curiosity
about the world around them and enjoy
science from an early age. The hard part
has always been to keep them engaged
as they progress through school. Tools
like the Biotechnology Explorer program
continue to provide that spark.
Just ask Scott Chilton.
12345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041123456789101112131415161718192021222324252627282930313233343536373839404136countries in which the program is available14years the Biotechnology explorer program has Been in existence9 million students worldwide who have participated in the program since its inception 93,000,000
units of blood collected
through donation globally
each year
BLOOd TYPING
one-stop testing.
Boca Raton Regional Hospital in Florida had been well acquainted with the benefits of automated
blood testing. For years, its technologists had worked with an automated yet unreliable blood typing
instrument. In 2008, seeing rising demand for blood work, due in part to the area’s senior population,
Flora Bialen, the hospital’s Blood Bank Supervisor, began looking into upgrading their system.
“We were certainly looking for greater
reliability,” Flora said, “both in operation
and in results. But we also had to have
state-of-the-art automation, where you
literally open the door, load the sample,
and walk away.”
That’s where the Bio-Rad line of auto-
mated blood testing systems came in.
Bio-Rad offers automated blood typing
and screening systems based on two
technologies: microplate and gel card,
to cater to the needs and preferences
of its customers. The TANGO® optimo
automated blood typing system, avail-
able in the U.S. and internationally, uses
microplate technology. In addition to
the TANGO optimo, Bio-Rad customers
outside the U.S. also have the option to
use gel card technology with the com-
pany’s IH-1000 automated blood typing
system. Released in 2010, the IH-1000
system was designed for higher-volume
blood testing and can process up to 400
patient samples per day. Both of these
approaches offer significant productivity
advantages over the traditional, manual
method of using test tubes for typing,
cross-matching, and antibody identifica-
tion, all of which can be extremely labor-
intensive and time-consuming.
Flora and Boca Raton Regional Hospital
ultimately chose the TANGO optimo
system, after putting a unit through its
paces at the hospital. “Promises made
by the sales team, field service engi-
neers, and technical staff were met and
exceeded,” Flora said. “They laid out a
plan that was followed to the letter. We
felt well taken care of and our needs were
well met along the way. Every step from
start to finish was looked after and the
accountability of everyone was great.”
Once installed, the TANGO optimo system
exceeded expectations, processing as
many as 150 samples a day. Technolo-
gists just add a sample—anytime, without
having to wait to test in batches—and
the system does the rest. The TANGO
optimo, in fact, holds enough reagents
to run 24 hours a day for a full week,
unattended, as its own internal
123456789101112131415161718192021222324252627282930313233343536373839404112345678910111213141516171819202122232425262728293031323334353637383940412 EvEry 2 sEconds, an individual in thE u.s. nEEds blood146,000 blood samples that can be processed by the Ih-1000 system per year42 Days, after which DonateD reD blooD cells expire Bio-Rad Laboratories
Annual Report
PAGE 7
YEAr 2010
maintenance systems monitor perfor-
mance. This frees up blood bank staff
to do other, more productive tasks. “As
a result of using TANGO optimo, we are
able to do more testing in less time with
less staff,” says Flora. “Our department
is the very definition of a ‘lean process.’”
In addition to reagent stability, consis-
tent results, and easy-to-use software,
both the TANGO optimo and the
IH-1000 system are known for their
full-automation and walk-away reliabil-
ity, which allow laboratories to more
efficiently manage their blood testing
workload.
Both systems also offer extremely high
sensitivity and specificity—being able to
identify extremely rare types of antibod-
ies and red cells in a patient’s blood with
greater reliability.
The lab’s experience with the TANGO
optimo system inspired Flora and her
team at Boca Raton Regional Hospital to
purchase a second instrument last year.
Now, the blood bank has the ability to
increase sample testing volume, validate
the results, and, of course, perform a
greater variety of tasks in the time they
are not testing blood. All in all, it’s a very
powerful addition to patient care.
123456789101112131415161718192021222324252627282930313233343536373839404112345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041 rHEuMATOId ArTHrITIs
collaboration
for the common good.
Rheumatoid arthritis, also referred to as simply “RA”, is a chronic
autoimmune disease in which cells of the immune system attack
tissues of the joints. As a result, inflammation of the joints and
surrounding tissues can occur, causing pain, fatigue, and swelling,
and may result in significant deformity of joints and disability.
Prior to therapies introduced over the past
15 years, about half of rheumatoid arthritis
patients were work-disabled within 10
years of diagnosis. The disease frequently
occurs in people from 20 to 50 years old,
although it can occur at any age. Its cause
is unknown, and there is no cure.
Fortunately, scientists are giving this
critical area of research the attention
it deserves.
One of these is Dr. William H. Robinson,
an Associate Professor at Stanford
University and a Staff Physician at the VA
Palo Alto Health Care System. In addition
to his teaching and clinical responsibilities
as a rheumatologist, Dr. Robinson is also
a dedicated researcher. Since 2003, he
has run a research laboratory investigat-
ing the molecular mechanisms underlying
autoimmune and rheumatic diseases.
12345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041Dr. William H. Robinson Associate Professor of Medicine, Stanford University Bio-Rad Laboratories
Annual Report
PAGE 9
YEAr 2010
22%
percent of adults in the u.s.
who reported having
doctor-diagnosed arthritis
34,000,000
people worldwide suffer
from rheumatoid arthritis
up to 100
biomolecules
in a single patient sample
can be analyzed simultaneously
by the bio-plex® suspension
array system
What does the future hold? With approxi-
mately one-half of a percent of all human
beings—some 34 million people—afflict-
ed by rheumatoid arthritis, Dr. Robinson’s
objective is to develop a novel diagnostic
panel of biomarkers that transform the
management of this disease. He and
his team have made major progress,
but significant work remains.
When you consider the contributions
made by Dr. Robinson and his team—
and by teams like his around the world—
the odds are getting better in our battle
against this debilitating disease.
A major objective of Dr. Robinson’s
research is to develop novel indicators to
diagnose rheumatoid arthritis along with
therapies to treat it.
Over the past several years, one of Dr.
Robinson’s tools in this battle has been
Bio-Rad’s line of multiplex products.
Bio-Rad is a leader in the application of
this technology to detect autoimmune
and other human diseases.
“Bio-Rad’s products have significantly
accelerated our work,” says Dr. Rob-
inson. “The Bio-Plex, which we use for
many of our profiling experiments, has
allowed us to identify novel biomarkers
for use in diagnosing RA.” This is critical,
as autoimmune diseases generally affect
multiple body systems and produce highly
divergent and often misleading symptoms,
making accurate diagnosis a challenge.
For individuals who develop rheumatoid
arthritis, early intervention may result in
long-term remission of the disease. As
a result, there is a great need to identify
these individuals so that clinicians can
intervene with the goal of preventing joint
damage. Dr. Robinson has discovered
biomarkers that identify patients with very
early rheumatoid arthritis—even before
they exhibit overt arthritis symptoms. His
laboratory has also discovered other bio-
markers that help guide clinicians in their
selection of therapies that are best suited
for an individual. This is one example of
how personalized medicine may evolve
in the future.
In addition to his own research, Dr.
Robinson is helping Bio-Rad’s R&D
group develop biomarker assays. “We
are currently validating our candidate
biomarkers in multiple independent RA
sample sets,” says Dr. Robinson. “Initial
results are highly promising.”
123456789101112131415161718192021222324252627282930313233343536373839404112345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041 BRCA2
Protein
BrCA2
When dna
needs to be repaired.
It’s called BRCA2, the breast cancer type 2 susceptibility protein. Since the discovery
of the BRCA2 gene in 1994, biochemists have sought to understand how mutations of
this gene lead to breast and ovarian cancers. While most inheritable forms of cancers
are associated with mutations in numerous genes, the link between the BRCA2 gene
and breast and ovarian cancers is unusually direct. Over 50 percent of the hereditary
forms of these cancers are the result of the mutation of the BRCA2 gene.
b e fo r e brca2 wa s
su c c e ssfu l ly pu r ifi ed,
af t e r b e ing s tud i ed
fo r 15 y ea r s
However, genes are only the blueprints for
proteins, providing the code that determines
how proteins are made. It is the protein that
performs the various biological functions
of a cell. A mutation in a gene sometimes
leads to the production of a mutated protein,
which often does not function as a normal
protein should. So when the link between
the BRCA2 gene and breast and ovarian
cancers was discovered, researchers began
in earnest to isolate and purify the BRCA2
protein to gain a greater understanding of its
role in both cellular processes and as a pos-
sible target for cancer therapies.
It wasn’t easy; BRCA2 is no ordinary
protein. It is notorious for its large size,
instability, and its tendency to fall apart as
researchers attempt to purify it. Adding
to these obstacles is the fact that there is
simply not a lot of it produced by the cell,
which makes it even more difficult to find.
12345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041Dr. Ryan JensenUniversity of California, Davis15 minutesto get results from Bio-Rad’s tGX precast gels4years 35Years Bio-Rad has been an industry leader in the manufacture and marketing of electrophoresis products Bio-Rad Laboratories
Annual Report
PAGE 11
YEAr 2010
Bio-Rad
TGX Precast Gels
Understanding the role played by the
BRCA2 protein in breast and ovarian
cancers has been the subject of study of
Dr. Ryan Jensen and his colleagues at the
University of California, Davis for over six
years. “BRCA2 has been claimed by many
to be one of the most difficult proteins to
purify,” Dr. Jensen says. “However, under-
standing how it functions would allow us
to make mutations in the protein—the
same mutations that are found in tumors
from patients—and then try to understand
how and why these defective versions of
the protein are not working properly.”
“BRCA2 is a DNA repair protein,” explains
Dr. Jensen. “It’s like a sensor that’s con-
stantly checking for any mistakes in the
DNA. If it finds any, it repairs them.” So if
the BRCA2 protein is defective and does
not perform its usual repair function,
then DNA damage can begin to ac-
cumulate. Eventually DNA (gene) errors
get translated into proteins that can’t do
their job. “Ultimately, everything in the
cell breaks down and either the cell will
die, or worse, it will learn to adapt and
become what we call a cancer cell,”
Dr. Jensen says.
Taking on the challenge of purifying the
BRCA2 protein, Dr. Jensen and his team
relied on Bio-Rad’s Mini-PROTEAN® TGX™
precast gels to help them monitor the
purity and abundance of the protein
throughout the many steps of the separa-
tion process. These gels consistently
revealed tight, crisp bands corresponding
to the BRCA2 protein—bands that often
failed to appear when the process was
conducted with hand-poured gels, as
Dr. Jensen had done previously.
“As I was optimizing the purification of
BRCA2,” notes Dr. Jensen, “the TGX gels
allowed me track the protein so that as I
changed conditions for the purification,
I could see whether the variables I was
adjusting were improving or detracting
from the purification. On top of that, the
gels were extremely easy to use. I have
never had a TGX gel fail.”
In 2010, Dr. Jensen and his colleagues
succeeded. They successfully purified this
unusually large and complex protein.
With the purified protein in hand, the real
work of understanding the molecular
repair process can now begin. And that
can lead to DNA repair on a much larger,
more personal level for millions of people
worldwide.
123456789101112131415161718192021222324252627282930313233343536373839404112345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041 microns,
the diameter of
a human hair
million,
people worldwide who
have diabetes
years that bio-rad
has provided chromatography
media used for purification
dIABETEs
purely supportive.
Based in China, Dongyangguang Group is a manufacturer of chemical and
biopharmaceutical drugs for markets throughout the world. One of its products,
a diabetes drug, required nothing less than 100 percent purity before it could
be released commercially. So they turned to Bio-Rad for help.
Drugs that are administered intravenously,
such as Dongyangguang Group’s drug,
have the potential to interact with various
biological systems in the human body.
Therefore, any impurities in a drug have
the potential to cause unwanted side
effects, such as allergic reactions—or
worse. For this reason, pharmaceutical
companies go to great lengths to ensure
that medications they produce are pure
and safe for human use.
The challenge for companies such as
Dongyangguang Group is how to purify
their drugs and make the process as
efficient as possible.
Biopharmaceutical drugs are created
or “manufactured,” in a biological “host”
organism such as a human cell, plant
cell, or bacteria. Once the protein of
interest—the drug—is produced, it is
removed from its host cell and under-
goes a purification process to remove
any materials that are tagging along.
By the end of this process, all that
should remain is the protein of interest,
which is later administered to a human
as medication.
To purify their drug, Dongyangguang
Group uses a Bio-Rad process chroma-
tography system, at the heart of which
are the “media” or extremely small
1234567891011121314151617181920212223242526272829303132333435363738394041123456789101112131415161718192021222324252627282930313233343536373839404145 MICRONS, size of a single chromatography particle120 220 50
Bio-Rad Laboratories
Annual Report
PAGE 13
YEAr 2010
particles—just 45 microns in size—that
have a surface charge to enable them to
either attract or repel the drug as it moves
through the column. By varying the pH and
salt concentration of the buffer solution,
the protein of interest is isolated from any
unwanted contaminates. To achieve the
level of drug purity required, this purification
process may, in fact, take several chroma-
tography steps.
Bio-Rad’s solution not only helped remove
impurities from the proteins, it also in-
creased the amount of protein—now in its
pure form—flowing out of the chromatog-
raphy column by the end of the purifica-
tion process. As an extra bonus, since
the Bio-Rad resins are recoverable,
Dongyangguang Group was able to
reuse them 30 times before they were
considered spent, a 200 percent in-
crease over their previous method, and
an obvious source of efficiencies and
cost savings for the company.
By working closely with Bio-Rad and
its innovative solution, Dongyangguang
Group was able to resolve a technical
challenge in removing impurities from its
product, while significantly reducing its
operating costs.
All of which added up to the highest
performance possible.
123456789101112131415161718192021222324252627282930313233343536373839404112345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041 THE BusINEss Of BIO-rAd
bio-rad laboratories has played a leading role
in the advancement of scientific discovery for
nearly 60 years by providing a broad range of
innovative tools and services to the life science
research and clinical diagnostics markets.
Founded in 1952, Bio-Rad has a global team of more than 6,800 employees and serves more
than 100,000 research and industry customers worldwide through its global network of operations.
Throughout its existence, Bio-Rad has built strong customer relationships that advance scientific
research and development efforts and support the introduction of new technology used in the
growing fields of genomics, proteomics, drug discovery, food safety, medical diagnostics, and more.
L I f E s C I E N C E s
C L I N I C A L d I A G N O s T I C s
Bio-Rad’s Life Science Group develops,
The Clinical Diagnostics Group develops,
manufactures, and markets a wide range
manufactures, sells, and supports a
of laboratory instruments, apparatus,
large portfolio of products for medical
and consumables used for research in
screening and diagnostics. Bio-Rad is a
functional genomics, proteomics, and
leading specialty diagnostics company
food safety. The group ranks among the
and its products are recognized as the
top five life science companies world-
gold standard for diabetes monitoring
wide, and maintains a solid reputation for
and quality control (QC) systems. The
quality, innovation, and a longstanding
company is also well known for its blood
focus on the success of its customers.
virus testing and detection, blood typing,
Bio-Rad’s life science products are based
autoimmune and genetic disorders testing,
on technologies used to separate, purify,
and internet-based software products.
identify, analyze, and amplify biological
Bio-Rad’s clinical diagnostics products
materials such as proteins and nucleic
incorporate a broad range of technologies
acids. These technologies include elec-
used to detect, identify, and quantify
trophoresis, imaging, multiplex immuno-
substances in bodily fluids and tissues.
assay, chromatography, microbiology,
The results are used as aids to support
bioinformatics, protein function analysis,
medical diagnosis, detection, evaluation,
transfection, amplification, and real-time
and the monitoring and treatment of
PCR. Bio-Rad products support researchers
diseases and other medical conditions.
in laboratories throughout the world.
12345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041 Bio-Rad Laboratories
Annual Report
PAGE 15
YEAr 2010
2010 fINANCIAL HIGHLIGHTs
f i v e - y e a r r e C o r D
( i n m i l l i o n S , e x C e P t f o r r e t u r n o n S a l e S
a n D P e r S h a r e D ata )
Net Sales
Gross Profit
R&D Expense
Net Income Attributable to Bio-Rad
Return On Sales
Book Value Per Share
Basic Earnings Per Share
Cash Flow from Operations
2006
2007
2008
2009
2010
$ 1,273.9
$
712.5
$ 123.4(1)
$
103.3
8.1%
30.92
3.92
118.2
$
$
$
$ 1,461.1
$ 791.4
$ 140.5(1)
$
93.0
6.4%
36.12
3.48
$
$
$ 191.6
$ 1,764.4
$ 1,784.2
$
$
$
$
$
$
962.5
159.5
89.5
5.1%
38.11
3.30
191.4
$
$
$
$
$
$
999.8
163.6
144.6
8.1%
45.76
5.28
325.1
$ 1,927.1
$ 1,091.5
$
$
172.3
185.5
9.6%
$
55.17
$
$
6.70
225.9
1. exCluDeS $7.7 million anD $4.1 million of PurChaSeD r&D in 2007 anD 2006, reSPeCtively
2010 SaleS By region
net SaleS
( i n m i l l i o n S )
CaSh flow
from oPerationS
( i n m i l l i o n S )
1
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$
6
.
1
9
1
$
4
.
1
9
1
$
2
.
8
1
1
$
44%
Europe
18%
Pacific
rim
38%
Americas
B a S i C e a r n i n g S
P e r S h a r e
0
7
.
6
$
8
2
.
5
$
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9
.
3
$
8
4
.
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0
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06 07 08 09 10
06 07 08 09 10
06 07 08 09 10
123456789101112131415161718192021222324252627282930313233343536373839404112345678910111213141516171819202122232425262728293031323334353637383940411234567891011121314151617181920212223242526272829303132333435363738394041
BIO-rAd sALEs HIsTOrY
$1.93 Billion
1234567891011121314151617181920212223242526272829303132333435363738394041123456789101112131415161718192021222324252627282930313233343536373839404119591965197019751980198519901995200020052010$1.2 billion$1.1 billion$1.3 billion$1.5 billion$1.6 billion$1.7 billion$1.8 billion$1.9 billion$1.4 billion$1 billion$900 million$800 million$700 million$600 million$500 million$300 million$200 million$100 million$400 million UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2010
OR
For the transition period from
to
Commission file number 1-7928
BIO-RAD LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
1000 Alfred Nobel Drive, Hercules, California
(Address of principal executive offices)
94-1381833
(I.R.S. Employer Identification No.)
94547
(Zip Code)
Registrant's telephone number, including area code
(510) 724-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Class A Common Stock Par Value $0.0001 per share
Class B Common Stock Par Value $0.0001 per share
Securities registered pursuant to Section 12(g) of the Act: NONE
Name of Each Exchange
on Which Registered
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ X ] Yes
[ ] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes
[ X ] No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[ X ] Yes
[ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
[ X ] Yes
[ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated file
[ X ]
[ ]
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
[ ]
[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ X ] No
As of June 30, 2010, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the
Registrant’s Class A Common Stock held by non-affiliates was approximately $1,631,417,539 and the aggregate market value of the registrant’s
Class B Common Stock held by non-affiliates was approximately $39,684,790.
[ ] Yes
As of February 15, 2011, there were 22,707,800 shares of Class A Common Stock and 5,172,343 of Class B Common Stock outstanding.
(1) Definitive Proxy Statement to be mailed to stockholders in connection with the
registrant's 2011 Annual Meeting of Stockholders (specified portions)
Documents Incorporated by Reference
Document
III
Form 10-K Parts
Bio-Rad Laboratories, Inc.
Form 10-K December 31, 2010
TABLE OF CONTENTS
Part I.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Part II.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements And Supplementary Data
Item 9. Changes And Disagreements With Accountants On Accounting And Financial Disclosure
Item 9A. Controls And Procedures
Item 9B. Other Information
Part III.
Item 10. Directors, Executive Officers And Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters
Item 13. Certain Relationships And Related Transactions, And Director Independence
Item 14. Principal Accountant Fees And Services
Part IV.
Item 15. Exhibits And Financial Statement Schedules
Signatures
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3
6
14
14
15
16
16
18
19
29
30
67
67
72
72
72
72
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74
75
2
PART I.
ITEM 1. BUSINESS
General
Founded in 1952 and incorporated in 1957, Bio-Rad Laboratories, Inc. (referred to in this report as “Bio-Rad,”
“we,” “us,” and “our”) was initially engaged in the development and production of specialty chemicals used in
biochemical, pharmaceutical and other life science research applications. We entered the field of clinical
diagnostics with the development of our first test kit based on separation techniques and materials developed for
life science research. Through internal research and development efforts and acquisitions we have expanded
into various markets. Today, Bio-Rad manufactures and supplies the life science research, healthcare, analytical
chemistry and other markets with a broad range of products and systems used to separate complex chemical and
biological materials and to identify, analyze and purify their components.
As we broadened our product lines, we also expanded our geographical market. We have distribution channels
in over 30 countries outside the United States through subsidiaries whose focus is customer service and product
distribution.
Description of Business
Business Segments
Today, Bio-Rad operates in two industry segments designated as Life Science and Clinical Diagnostics. Both
segments operate worldwide. Our Life Science segment and our Clinical Diagnostics segment generated 34%
and 66%, respectively, of our net sales for the year ended December 31, 2010. We generated approximately
31% of our consolidated net sales for the year ended December 31, 2010 from U.S. sales and approximately
69% from sales in our remaining worldwide markets.
For a description of business and financial information on industry and geographic segments, see Note 13 on
pages 63 through 66 of Item 8 of Part II of this report.
Life Science Segment
Our Life Science segment is at the forefront of discovery, creating advanced tools to answer complex biological
questions. We are a market leader in our industry, developing, manufacturing and marketing a range of more
than 5,000 reagents, apparatus and laboratory instruments that serve a global customer base. Many of our
products are used in established research techniques, biopharmaceutical production processes and food testing
regimes. These techniques are typically used to separate, purify and identify biological materials such as
proteins, nucleic acids and bacteria within a laboratory or production setting. We focus on selected segments of
the life sciences market in proteomics (the study of proteins), genomics (the study of genes), biopharmaceutical
production, cell biology and food safety. We estimate that the worldwide market for products in these selected
segments is approximately $5.0 billion. Our principal life science customers include universities and medical
schools, industrial research organizations, government agencies, pharmaceutical manufacturers, biotechnology
researchers, food producers and food testing laboratories.
3
Clinical Diagnostics Segment
Our Clinical Diagnostics segment designs, manufactures, sells and supports test systems, informatics systems,
test kits and specialized quality controls that serve clinical laboratories in the global diagnostics market. Our
products currently address specific niches within the in vitro diagnostics (“IVD”) test market, and we focus on
the higher margin, higher growth segments of this market.
We supply more than 3,000 different products that cover more than 300 clinical diagnostic tests to the IVD test
market. We estimate that the worldwide sales for products in the markets we serve were approximately
$10.0 billion. IVD tests are conducted outside the human body and are used to identify and measure substances
in a patient’s tissue, blood or urine. Our products consist of reagents, instruments and software, typically
provided to our customers as an integrated package to allow them to generate reproducible test results. Revenue
in this business is highly recurring, as laboratories typically standardize test methodologies, which are
dependent on a particular supplier’s reagents and consumable products. An installed base of diagnostic test
systems creates an ongoing source of revenue through the sale of test kits for each sample analyzed on an
installed system. Our principal clinical diagnostic customers include hospital laboratories, reference
laboratories, transfusion laboratories and physician office laboratories.
Raw Materials and Components
We utilize a wide variety of chemicals, biological materials, electronic components, machined metal parts,
optical parts, minicomputers and peripheral devices. Most of these materials and components are available from
numerous sources and we have not experienced difficulty in securing adequate supplies.
Patents and Trademarks
We own numerous U.S. and international patents and patent licenses. We believe, however, that our ability to
develop and manufacture our products depends primarily on our knowledge, technology and special skills. We
pay royalties on the sales of certain products under several patent license agreements. We view these patents
and license agreements as valuable assets.
Seasonal Operations and Backlog
Our business is not inherently seasonal. However, the European custom of concentrating vacation during the
summer months usually tempers third quarter sales volume and operating income.
For the most part, we operate in markets characterized by short lead times and the absence of significant
backlogs. Management has concluded that backlog information is not material to our business as a whole.
Sales and Marketing
We conduct our worldwide operations through an extensive direct sales force and service network, employing
more than 1,000 sales and service people around the world. Our sales force typically consists of experienced
industry practitioners with scientific training, and we maintain a separate specialist sales force for each of our
segments. Our direct sales approach contrasts with the distributor approach used by some of our competitors,
allowing us to sell a broader range of our products and have more direct contact with our customers.
4
Our customer base is broad and diversified. Our worldwide customer base includes (1) prominent university
and research institutions affiliated with more than 100,000 scientists in the U.S. alone; (2) hospital, public health
and commercial laboratories; (3) other leading diagnostic manufacturers; and (4) leading companies in the
biotechnology, pharmaceutical, chemical and food industries. In 2010, no single customer accounted for more
than two percent of our total net sales. Our sales are affected by certain external factors. For example, a number
of our customers, particularly in the Life Science segment, are substantially dependent on government grants
and research contracts for their funding. A significant reduction of government funding would have a
detrimental effect on the results of this segment.
Most of our international sales are generated by our wholly-owned subsidiaries and their branch offices. Certain
of these subsidiaries also have manufacturing facilities. Bio-Rad’s international operations are subject to certain
risks common to foreign operations in general, such as changes in governmental regulations, import restrictions
and foreign exchange fluctuations. However, our international operations are principally in developed nations,
which we regard as presenting no significantly greater risks to our operations than are present in the United
States.
Competition
The markets served by our product groups are highly competitive. Our competitors range in size from start-ups
to large multinational corporations with significant resources and reach. Reliable independent information on
sales and market share of products produced by our competitors is not generally available. We believe, however,
based on our own estimates, no one company is so dominant that it prevents other companies, including Bio-
Rad, from competing effectively. We compete mainly in market segments where our products and technology
offer customers specific advantages over the competition.
Because of the breadth of its product lines, the Life Science segment does not face the same competitors for all
of its products. Competitors in this market include GE Biosciences, Life Technologies, Millipore and Thermo
Fisher Scientific. We compete primarily based on meeting performance specifications.
Major competitors in the Clinical Diagnostics segment include Roche, Abbott Laboratories (Diagnostic
Division), Siemens Medical Diagnostics Solutions, Beckman Coulter, Becton-Dickinson, bioMérieux, Ortho
Clinical Diagnostics, Tosoh, Immucor, Cepheid, and DiaSorin.
Research and Development
We conduct extensive research and development activities in all areas of our business, employing approximately
780 people worldwide in these activities. Research and development have played a major role in Bio-Rad's
growth and are expected to continue to do so in the future. Our research teams are continuously developing new
products and new applications for existing products. In our development of new products and applications, we
interact with scientific and medical professionals at universities, hospitals and medical schools, and in the
industry. We spent approximately $172.3 million, $163.6 million and $159.5 million on research and
development activities during the years ended December 31, 2010, 2009 and 2008, respectively.
Regulatory Matters
The manufacturing, marketing and labeling of certain of our products (primarily diagnostic products) are subject
to regulation in the United States by the Center for Devices and Radiological Health of the United States Food
and Drug Administration (FDA) and in other jurisdictions by state and foreign government authorities. FDA
regulations require that some new products have pre-marketing approval by the FDA and require certain
products to be manufactured in accordance with “good manufacturing practices,” to be extensively tested and to
be properly labeled to disclose test results and performance claims and limitations.
5
As a multinational manufacturer and distributor of sophisticated instrumentation equipment, we must meet a
wide array of electromagnetic compatibility and safety compliance requirements to satisfy regulations in the
United States, the European Community and other jurisdictions.
Our operations are subject to federal, state, local and foreign environmental laws and regulations that govern
such activities as transportation of goods, 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 liabilities and clean-up
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 could 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.
These regulatory requirements vary widely among countries.
Employees
At December 31, 2010, Bio-Rad had approximately 6,880 full-time employees. Fewer than eight percent of
Bio-Rad's approximately 2,870 U.S. employees are covered by a collective bargaining agreement which will
expire on November 7, 2012. Many of Bio-Rad's non-U.S. full-time employees, especially in France, are
covered by collective bargaining agreements. We consider our employee relations in general to be good.
Available Information
Bio-Rad files annual, quarterly, and current reports, proxy statements, and other documents with the Securities
and Exchange Commission (SEC) under the Securities Exchange Act of 1934. The public may read and copy
any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington,
DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and
information statements, and other information regarding issuers, including Bio-Rad, that file electronically with
the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.
Bio-Rad’s website address is www.bio-rad.com. We make available, free of charge through our website, our
Form 10-Ks, 10-Qs and 8-Ks, and any amendments to these forms, as soon as reasonably practicable after filing
with the SEC.
ITEM 1A. RISK FACTORS
The following risk factors should be read carefully in connection with evaluating our business and the forward-
looking information contained in this Annual Report on Form 10-K. We believe that any of the following risks
could have a material affect on our business, operations, industry, financial position or our future financial
performance. While we believe that we have identified and discussed below the key risk factors affecting our
business, there may be additional risks and uncertainties that are not presently known or that are not currently
believed to be significant that may adversely affect our business, operations, industry, financial position and
financial performance in the future.
The ongoing investigation by our Audit Committee and by government agencies of possible violations by
us of the United States Foreign Corrupt Practices Act and similar laws could have a material adverse
effect on our business.
Based on an internal review, we have identified conduct in certain of our overseas operations that may have
violated the anti-bribery provisions of the United States Foreign Corrupt Practices Act (FCPA) and is likely to
6
have violated the FCPA’s books and records and internal controls provisions and our own internal policies. In
May 2010, we voluntarily disclosed these matters to the U.S. Department of Justice (DOJ) and the Securities
and Exchange Commission (SEC), which each commenced an investigation. The Audit Committee of our
Board of Directors (Audit Committee) has assumed direct responsibility for reviewing these matters and has
hired experienced independent counsel to conduct an investigation and provide legal advice. We have provided,
and intend to continue to provide, additional information to the DOJ and the SEC as the Audit Committee’s
investigation progresses.
The Audit Committee’s investigation and the DOJ and SEC investigations are continuing and we are presently
unable to predict the duration, scope or results of the Audit Committee’s investigation, of the investigations by
the DOJ or the SEC or whether either agency will commence any legal actions. The DOJ and the SEC have a
broad range of civil and criminal sanctions under the FCPA and other laws and regulations including, but not
limited to, injunctive relief, disgorgement, fines, penalties, modifications to business practices including the
termination or modification of existing business relationships, the imposition of compliance programs and the
retention of a monitor to oversee compliance with the FCPA. The imposition of any of these sanctions or
remedial measures could have a material adverse effect on our business, including our results of operations, cash
balance and credit ratings. We have not to date assessed whether any of the activities in question violated the
laws of the foreign jurisdictions in which they took place.
We have identified three significant deficiencies in our internal control over financial reporting as of
December 31, 2010 that, when considered and taken together, constitute a material weakness in our
internal control over financial reporting as of December 31, 2010. Our failure to establish and maintain
effective internal control over financial reporting could result in 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.
In connection with our Audit Committee’s investigation of our compliance with the FCPA discussed above, our
management identified three significant deficiencies in our internal control over financial reporting as of
December 31, 2010 that, when considered and taken together, constitute a material weakness in our internal
control over financial reporting as of December 31, 2010. A significant deficiency is defined as a deficiency, or
a combination of deficiencies, in internal control over financial reporting that is less severe than a material
weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material misstatement of our annual or
interim financial statements will not be prevented or detected on a timely basis.
The three significant deficiencies that we identified are the result of: (i) a number of entity-level control
deficiencies, including our lack of a comprehensive FCPA policy and training program; our lack of a formal,
effective disclosure committee to facilitate our compliance with Section 302 of the Sarbanes-Oxley Act of 2002;
inadequate policies regarding enterprise-wide risk assessment and management related to doing business in
high-risk, emerging markets; our failure to perform background checks on certain parties prior to entering into
material contracts with such parties; our lack of compliance with our existing Code of Business Ethics and
Conduct in certain countries; and ineffective disclosure of significant exceptions to compliance with company
policies through our quarterly management sub-certification process; (ii) a number of control deficiencies
related to our expenditure processes at certain of our international subsidiaries and (iii) a number of control
deficiencies related to our revenue and accounts receivable process at certain of our international subsidiaries.
For more information about these three significant deficiencies and the resulting material weakness in our
internal control over financial reporting and the remediation efforts that we have initiated and intend to initiate
to attempt to remediate these three significant deficiencies and the resulting material weakness, please see Item
9A (“Controls and Procedures”) in this report.
7
We cannot assure you that we will be able to remediate these significant deficiencies and the resulting material
weakness or that additional significant deficiencies or material weaknesses in our internal control over financial
reporting will not be identified in the future. 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 significant deficiencies or material weaknesses, result in material misstatements in our financial
statements and cause us to fail to meet our reporting obligations, which in turn could cause the trading price of
our common stock to decline. Any such failure could also adversely affect 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.
Adverse changes in general domestic and worldwide economic conditions and instability and disruption
of credit markets could adversely affect our operating results, financial condition or liquidity.
Recent global market and economic conditions have been unprecedented and challenging with tighter credit
conditions, slower growth and recession in most major economies. Although signs of recovery may exist, there
are continued concerns about the systemic impact of inflation, the availability and cost of credit, a declining real
estate market and geopolitical issues that contribute to increased market volatility and uncertain expectations for
the global economy. These conditions, combined with declining business activity levels and consumer
confidence, increased unemployment and volatile oil prices, contributed to unprecedented levels of volatility in
the capital markets in recent years. Any additional, continued or recurring disruptions in the capital and credit
markets may adversely affect our business, results of operations, cash flows and financial condition.
As a result of these market conditions, the cost and availability of credit has been and may continue to be
adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets
generally and the strength of counterparties specifically has led many lenders and institutional investors to
reduce, and in some cases, cease to provide credit to businesses and consumers. These factors have led to a
decrease in spending by businesses and consumers alike. Our customers and vendors may experience cash flow
concerns and, as a result, customers may modify, delay or cancel plans to purchase our products and vendors
may increase their prices, reduce their output or change terms of sales. Additionally, if customers’ or vendors’
operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain
credit, customers may not be able to pay, or may delay payment of, amounts owed to us.
Vendors may restrict credit or impose less favorable payment terms. Any inability of current and/or potential
customers to pay us for our products or any demands by vendors for accelerated payment terms may adversely
affect our earnings and cash flow. Additionally, strengthening of the U.S. dollar associated with the global
financial crisis may adversely affect the results of our international operations when those results are translated
into U.S. dollars.
Furthermore, the disruption in the credit markets could impede our access to capital, especially if we are unable
to maintain our current credit ratings. Should we have limited access to additional financing sources when
needed, we may decide to defer capital expenditures or seek other higher cost sources of liquidity, which may or
may not be available to us on acceptable terms. Continued turbulence in the U.S. and international markets and
economies, and prolonged declines in business and consumer spending may adversely affect our liquidity and
financial condition, and the liquidity and financial condition of our customers, including our ability to refinance
maturing liabilities and access the capital markets to meet liquidity needs.
We cannot assure you that we will be able to integrate acquired companies, products or technologies into
our company successfully, or we may not 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. In order to be successful in these activities, we must, among other
things:
8
assimilate the operations and personnel of acquired companies;
retain acquired business customers;
(cid:120)
(cid:120)
(cid:120) minimize potential disruption to our ongoing business;
retain key technical and management personnel;
(cid:120)
integrate acquired companies into our strategic and financial plans;
(cid:120)
accurately assess the value of target companies, products and technologies;
(cid:120)
comply with new regulatory requirements;
(cid:120)
harmonize standards, controls, procedures and policies;
(cid:120)
(cid:120) minimize the impact to our relationships with our employees and customers; and
(cid:120)
assess, document and remediate any deficiencies in disclosure controls and procedures and
internal controls over financial reporting
The benefits of any acquisition may prove to be less than anticipated and may not outweigh the costs reported in
our financial statements. Completing any potential future acquisition could cause significant diversion of our
management’s time and resources. If we acquire 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.
We cannot assure you that we will successfully overcome these risks or any other problems we encounter in
connection with any acquisitions, and any such acquisitions could adversely affect our business, financial
position or operating results.
The industries and market segments in which we operate are highly competitive, and we may not be able
to compete effectively with larger companies with greater financial resources than we have.
The life science and clinical diagnostics markets are each highly competitive. Some of our competitors have
greater financial resources than we do and are less leveraged than we are, making them better equipped to
license technologies and intellectual property from third parties or to fund research and development,
manufacturing and marketing efforts. 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. Our competitors can be expected to
continue to improve the design and performance of their products and to introduce new products with
competitive price and performance characteristics. Maintaining these advantages will require us to continue to
invest in research and development, sales and marketing and customer service and support. We cannot assure
you that we will have sufficient resources to continue to make such investments or that we will be successful in
maintaining such advantages.
We have significant international operations which subject us to various risks such as general economic
and market conditions in the countries in which we operate.
A significant portion of our sales are made outside of the United States. Our foreign subsidiaries generated 69%
of our net sales for the year ended December 31, 2010. Our international operations are subject to risks
common to foreign operations, such as general economic and market conditions in the countries in which we
operate, changes in governmental regulations, political instability, import restrictions and currency exchange
rate risks. We cannot assure you that shifts in currency exchange rates, especially significant strengthening of
the U.S. dollar compared to the Euro, will not have a material adverse effect on our operating results and
financial condition.
We are dependent on government funding and the capital spending programs of our customers, and the
effect of healthcare reform on government funding and our customers’ ability to purchase our products is
uncertain.
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 policies are based on a wide
9
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 among various types of equipment and
the policies regarding capital expenditures during industry downturns or recessionary periods. If government
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, financial condition or results of operations could be materially adversely
affected.
Healthcare reform and the growth of managed care organizations have been and continue to be significant
factors in the clinical diagnostics market. 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 costs. Consolidation among
healthcare providers has resulted in fewer, more powerful groups, whose purchasing power gives them cost
containment leverage. These competitive forces place constraints on the levels of overall pricing, and thus could
have a material adverse effect on our profit margins for products we sell in clinical diagnostics markets. To the
extent that the healthcare industry seeks to address the need to contain costs by limiting the number of clinical
tests being performed, our results of operations could be materially and 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.
Our failure to improve our product offerings and develop and introduce new products may negatively
impact our business.
Our future success depends on our ability to continue to improve our product offerings and develop and
introduce new product lines and extensions that integrate new technological advances. If we are unable to
integrate technological advances into our product offerings or to design, develop, manufacture and market new
product lines and extensions successfully and in a timely manner, our operating results will be adversely
affected. We cannot assure you that our product and process development efforts will be successful or that new
products we introduce will achieve market acceptance.
If we experience a disruption of our information technology systems, or if we fail to successfully
implement, manage and integrate our information technology and reporting systems, it could harm our
business.
Our information technology (IT) systems are an integral part of our business, and a serious disruption of our IT
systems could have a material adverse effect on our business and results of operations. We depend on our IT
systems to process orders, manage inventory 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. If we fail to
successfully manage and integrate our IT systems, reporting systems and operating procedures, it could
adversely affect our business or operating results.
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. For instance, it may be possible for
10
unauthorized third parties to copy our intellectual property, to reverse engineer or obtain and use information
that we regard as proprietary, or to develop equivalent technologies independently. Additionally, third parties
may assert patent, copyright and other intellectual property rights to technologies that are important to us. 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. We may
find it necessary to enforce our patents or other intellectual property rights or to defend ourselves against
claimed infringement of the rights of others through litigation, which could result in substantial costs to us and
divert our resources. We also could incur substantial costs to redesign our products, to defend any legal action
taken against us or to pay damages to an infringed party. The foregoing matters could adversely impact our
business.
We are subject to substantial government regulation.
Some of our products (primarily diagnostic products), production processes and marketing are subject to federal,
state, local and foreign regulation, including the FDA and its foreign counterparts. We are also subject to
government regulation of the use and handling of a number of materials and controlled substances. Failure to
comply with present or future regulations could result in substantial liability to us, 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 are currently subject to environmental regulations and enforcement proceedings.
Our operations are subject to federal, state, local and foreign environmental laws and regulations that govern
such activities as transportation of goods, 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 clean-up
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 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 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 can provide no assurance, however, that
such matters or any future obligations to comply with environmental laws and regulations will not have a
material impact on our operations or financial condition.
Loss of key personnel could hurt our business.
Our products and services are highly technical in nature. In general, only highly qualified and trained scientists
have the necessary skills to develop and market our products and provide our services. In addition, some of our
manufacturing positions are highly technical. We face intense competition for these professionals from our
competitors, customers, marketing partners and other companies throughout our industry. We generally do not
enter into employment agreements requiring these employees to continue in our employment for any period of
time. Any failure on our part to hire, train and retain a sufficient number of qualified personnel could
substantially damage our business. Additionally, if we were to lose a sufficient number of our research and
development scientists and were unable to replace them or satisfy our needs for research and development
through outsourcing, it could adversely affect our business.
11
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 of February 15, 2011, the Schwartz family collectively held approximately 16% of our Class A Common
Stock and 90% of our Class B Common Stock. As a result, the Schwartz family is able to elect a majority of the
directors, effect fundamental changes in our direction and control matters affecting us, including the allocation
of business opportunities that may be suitable for our company. In addition, this concentration of ownership
and voting power may have the effect of delaying or preventing a change in control of our company.
The Schwartz family may exercise its control over us according to interests that are different from other
investors’ or debtors’ interests.
Our business could be adversely impacted if we have deficiencies in our disclosure controls and
procedures or internal control over financial reporting.
The design and effectiveness of our disclosure controls and procedures and internal control over financial
reporting may not prevent all errors, misstatements or misrepresentations. We cannot assure you that our
disclosure controls and procedures over internal control of financial reporting will be effective in accomplishing
all control objectives all of the time. Deficiencies, particularly a material weakness in internal control over
financial reporting, which may occur in the future could result in misstatements of our results of operations,
restatements of our financial statements, a decline in our stock price, or otherwise materially adversely affect our
business, reputation, results of operation, financial condition or liquidity.
Natural disasters, terrorist attacks or acts of war may cause damage or disruption to us and our
employees, facilities, information systems, security systems, vendors and customers, which could
significantly impact our net sales, costs and expenses, and financial condition.
We have significant manufacturing and distribution facilities, particularly in the western United States, France
and Switzerland. In particular, the western United States has experienced a number of earthquakes, wildfires,
floods, landslides and other natural disasters in recent years. The occurrences could damage or destroy our
facilities which may result in interruptions to our business and losses that exceed our insurance coverage.
Terrorist attacks, such as those that occurred on September 11, 2001, have contributed to economic instability in
the United States, and further acts of terrorism, bioterrorism, violence or war could affect the markets in which
we operate, our business operations, our expectations and other forward-looking statements contained or
incorporated in this document. Any of these events could cause a decrease in our revenue, earnings and cash
flows.
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
instruments. Financial markets are quite 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
12
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 or other market considerations.
We have substantial debt and have the ability to incur additional debt. The principal and interest
payment obligations of such debt may restrict our future operations and impair our ability to meet
our obligations under our notes.
As of December 31, 2010 we and our subsidiaries have approximately $964.3 million of outstanding
indebtedness. In addition, we are permitted to incur additional debt provided we comply with the limitation on
the incurrence of additional indebtedness and disqualified capital stock covenants contained in the indenture
governing our Senior Subordinated Notes due 2016 (8.0% Notes).
The following chart shows certain important credit statistics.
(cid:3)
Total debt
Bio-Rad’s stockholders’ equity
Debt to equity ratio
At December 31, 2010
(in millions)
$
964.3
$ 1,536.7
0.6
Our incurrence of substantial amounts of debt may have important consequences. For instance, it could:
(cid:120) make it more difficult for us to satisfy our financial obligations, including those relating to our
(cid:120)
outstanding notes;
require us to dedicate a substantial portion of our cash flow from operations to the payment of
interest and principal due under our debt, including our outstanding notes, 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
(cid:120)
(cid:120)
which we operate;
(cid:120) place us at a competitive disadvantage compared with some of our competitors that have less debt;
(cid:120)
and
limit our ability to obtain additional financing required to fund working capital and capital
expenditures and for other general corporate purposes.
Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance
and on economic, financial, competitive and other factors, many of which are beyond our control. Our business
may not generate sufficient cash flow, and future financings may not be available to provide sufficient net
proceeds, to meet these obligations or to successfully execute our business strategy.
Our existing credit facility, the indenture governing our 8.0% Notes and the terms of our other debt instruments,
including agreements we may enter in the future, contain or will contain covenants imposing significant
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. These covenants place restrictions on
our ability to, among other things:
incur additional debt;
(cid:120)
(cid:120) acquire other businesses or assets through merger or purchase;
(cid:120) create liens;
(cid:120) make investments;
13
(cid:120) enter into transactions with affiliates;
(cid:120) sell assets;
(cid:120)
(cid:120) declare or pay dividends, redeem stock or make other distributions to
in the case of some of our subsidiaries, guarantee debt; and
stockholders.
Our existing credit facility also requires that we meet certain financial tests and maintain certain financial ratios,
including a maximum consolidated leverage ratio test, minimum consolidated interest coverage ratio test and a
minimum net worth 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. If we were unable to
repay debt to our senior secured lenders, these lenders could proceed against the collateral securing that debt.
The collateral is substantially all of our personal property assets, the assets of our domestic subsidiaries and 65%
of the capital stock of certain of our foreign subsidiaries. In addition, acceleration of our other indebtedness
may cause us to be unable to make interest payments on our outstanding notes and repay the principal amount of
our outstanding notes or may cause the future subsidiary guarantors, if any, to be unable to make payments
under the guarantees.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own our corporate headquarters located in Hercules, California. The principal manufacturing and research
locations for each segment are as follows:
Segment
Location
Life Science
Clinical
Diagnostics
Richmond, California
Hercules, California
Singapore
Shanghai, China
Hercules, California
Benicia, California
Irvine, California
Greater Seattle area, Washington
Plano, Texas
Lille, France
Greater Paris area, France
Nazareth-Eke, Belgium
Cressier, Switzerland
Dreieich, Germany
14
Owned/Leased
Owned/Leased
Owned/Leased
Leased
Leased
Owned/Leased
Leased
Leased
Owned/Leased
Leased
Owned
Leased
Leased
Owned/Leased
Owned/Leased
Most manufacturing and research facilities also house administration, sales and distribution activities. In
addition, we lease office and warehouse facilities in a variety of locations around the world. The facilities are
used principally for sales, service, distribution and administration for both segments.
ITEM 3. LEGAL PROCEEDINGS
Based on an internal review, we have identified conduct in certain of our overseas operations that may have
violated the anti-bribery provisions of the United States Foreign Corrupt Practices Act (FCPA) and is likely to
have violated the FCPA’s books and records and internal controls provisions and our own internal policies. In
May 2010, we voluntarily disclosed these matters to the U.S. Department of Justice (DOJ) and the Securities
and Exchange Commission (SEC), which each commenced an investigation. The Audit Committee of our
Board of Directors (Audit Committee) has assumed direct responsibility for reviewing these matters and has
hired experienced independent counsel to conduct an investigation and provide legal advice. We have provided,
and intend to continue to provide, additional information to the DOJ and the SEC as the Audit Committee’s
investigation progresses.
The Audit Committee’s investigation and the DOJ and SEC investigations are continuing and we are presently
unable to predict the duration, scope or results of the Audit Committee’s investigation, of the investigations by
the DOJ or the SEC or whether either agency will commence any legal actions. The DOJ and the SEC have a
broad range of civil and criminal sanctions under the FCPA and other laws and regulations including, but not
limited to, injunctive relief, disgorgement, fines, penalties, modifications to business practices including the
termination or modification of existing business relationships, the imposition of compliance programs and the
retention of a monitor to oversee compliance with the FCPA. We are unable to estimate the outcome of this
matter, however, the imposition of any of these sanctions or remedial measures could have a material adverse
effect on our business or financial condition. We have not to date assessed whether any of the activities in
question violated the laws of the foreign jurisdictions in which they took place.
In addition, we are party to various other claims, legal actions and complaints arising in the ordinary course of
business. We do not believe, at this time, that any ultimate liability resulting from any of these other matters
will have a material adverse effect on our results of operations, financial position or liquidity. However, we
cannot give any assurance regarding the ultimate outcome of these other matters and their resolution could be
material to our operating results for any particular period, depending on the level of income for the period.
15
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Information Concerning Common Stock
Bio-Rad’s Class A and Class B Common Stock are listed on the New York Stock Exchange with the symbols
BIO and BIO.B, respectively. The following sets forth, for the periods indicated, the high and low intraday
sales prices for our Class A and Class B Common Stock.
2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Class A
Class B
High
Low
High
Low
$ 105.60
93.36
113.68
104.44
$ 100.99
96.20
80.61
75.60
$ 89.02 $ 104.57
80.00
92.72
85.57 112.94
89.82 103.14
$ 88.16 $ 100.00
94.98
68.90
80.20
63.31
74.37
51.33
$ 89.82
83.82
87.25
90.00
$ 88.69
69.34
66.25
52.04
On February 15, 2011, we had 366 holders of record of Class A Common Stock and 161 holders of record of
Class B Common Stock. Bio-Rad has never paid a cash dividend and has no present plans to pay cash
dividends.
See Item 12 for the security ownership of certain beneficial owners and management and for securities
authorized for issuance under equity compensation plans.
16
Stock Performance Graph
The following graph compares the cumulative stockholder returns over the past five years for our Class A
Common Stock, the S&P 400 MidCap Index and a selected peer group, assuming $100 invested on December
31, 2005, and reinvestment of dividends if paid:
S
R
A
L
L
O
D
200
150
100
50
0
2005
2006
2007
2008
2009
2010
Bio-Rad
Peer Group(1)
S&P MidCap 400
(1) The Peer Group consists of the following public companies: Beckman Coulter, Becton Dickinson, Thermo
Fisher Scientific, Meridian Bioscience, PerkinElmer and Life Technologies. Companies in our peer group
reflect our participation in two different markets: life science research products and clinical diagnostics. No
single public or private company has a comparable mix of products which serve the same markets. In many
cases, only one division of a peer group company competes in the same market as we do. Collectively, however,
our peer group reflects products and markets similar to those of Bio-Rad.
This stock performance graph shall not be deemed incorporated by reference by any general statement
incorporating by reference into any filing under the Securities Act or the Exchange Act, and shall not otherwise
be deemed filed under these Acts.
17
ITEM 6. SELECTED FINANCIAL DATA
Bio-Rad Laboratories, Inc.
Selected Financial Data
(in thousands, except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expense
Research and development expense
Purchased in-process research and development expense
Impairment losses on goodwill and long-lived assets
Interest expense
Foreign exchange losses, net
Other (income) expense, net (1)
Income before income taxes and noncontrolling interests
Provision for income taxes
Net income attributable to noncontrolling interests
2010
2009
2008
2007 (2)
2006
Year Ended December 31,
$
1,927,118
$ 1,784,244
$ 1,764,365
$ 1,461,052
$ 1,273,930
835,630
1,091,488
635,213
172,266
--
--
63,717
3,884
(3,875)
220,283
(33,348)
(1,445)
784,401
999,843
601,468
163,585
--
3,802
47,024
5,003
(6,871)
185,832
(36,667)
(4,545)
801,843
962,522
591,304
159,518
--
28,757
32,113
7,634
353
142,843
(44,579)
(8,754)
669,690
791,362
507,978
140,535
7,656
--
31,606
2,576
(19,832)
120,843
(26,548)
(1,301)
561,394
712,536
438,949
123,376
4,100
--
32,022
1,053
(28,991)
142,027
(38,764)
--
Net income attributable to Bio-Rad
$
185,490
$
144,620
$
89,510
$
92,994
$
103,263
Basic earnings per share
Diluted earnings per share
$
$
6.70
$
5.28
$
3.30
$
3.48
$
6.59
$
5.20
$
3.24
$
3.41
$
3.92
3.83
Cash dividends paid per common share
$
--
$
--
$
--
$
--
$
--
Total assets
$ 3,062,764
$ 2,535,853
$ 2,037,264
$ 1,971,594
$ 1,596,168
Long-term debt, net of current maturities
$
731,100
$
737,919
$ 445,979
$ 441,805
$
425,625
(1)
(2)
See Note 9 to the consolidated financial statements for components of Other (income) expense, net. Included in 2006 is interest and investment income of $22.2 million, and
gains on sales of investments of $4.7 million.
Included in 2007 are the fourth quarter operating results of an acquisition. See Note 2 to the consolidated financial statements.
18
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion should be read in conjunction with the information contained in our consolidated financial
statements and the accompanying notes which are an integral part of the statements.
Other than statements of historical fact, statements made in this Annual Report include forward-looking
statements, such as statements with respect to our future financial performance, operating results, plans and
objectives that involve risk and uncertainties. Forward-looking statements generally can be identified by the use
of forward-looking terminology such as “believe,” “expect,” “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 among other things: changes in general domestic and worldwide
economic conditions; our ability to successfully develop and market new products; our reliance on and access to
necessary intellectual property; our ability to successfully integrate any acquired business; our substantial
leverage and ability to service our debt; competition in and government regulation of the industries in which we
operate; and the monetary policies of various countries. 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 Federal Securities law.
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 primary segments, Life Science and Clinical
Diagnostics, with the mission to provide customers with specialized tools needed for biological research and
clinical diagnostics.
We sell more than 8,000 products and services to a diverse client base comprised of scientific research,
healthcare, industry, education and government customers worldwide. 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. Because our customers rely on consistency for their
experiments and test results, we believe that more than 70% of our revenue is considered recurring.
We continue to build upon our worldwide reputation for quality, innovative products and well-recognized brand
names within our industry. Our reach is global, as we currently provide products and services to more than
85,000 customers in 130 countries worldwide. Approximately 31% of our 2010 consolidated net sales are from
the United States and approximately 69% are from international locations. The international sales are largely
denominated in local currencies such as Euros, Swiss Franc, Japanese Yen, Singapore Dollar and British
Sterling. As a result, our consolidated net sales expressed in dollars benefit when the U.S. dollar weakens and
suffer when the U.S. dollar strengthens. When the U.S. dollar strengthens, we benefit from lower cost of sales
from our own international manufacturing sites as well as non-U.S. suppliers and from lower international
operating expenses.
On January 6, 2010, we acquired certain diagnostic businesses of Biotest AG (Biotest). This 45 million Euro
(approximately $64.9 million) acquisition broadened our product offering in the area of immunohematology and
provided access to the U.S. markets for these products.
19
The following shows cost of goods sold, gross profit, expense items and net income as a percentage of net sales:
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expense
Research and development expense
Net income attributable to Bio-Rad
Year Ended December 31,
2009
100.0
44.0
56.0
33.7
9.2
8.1
2010
100.0
43.4
56.6
33.0
8.9
9.6
2008
100.0
45.4
54.6
33.5
9.0
5.1
We intend that the discussions of critical accounting policies and estimates and recent accounting
pronouncements that follow will assist you in understanding how such principles, estimates and accounting
pronouncements affect our financial condition and results of operations as well as significant factors that caused
changes in our financial condition and results of operations for the years ended December 31, 2010 and 2009.
Critical Accounting Policies and Estimates
The accompanying discussion and analysis of our financial condition and results of operations are based upon
our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted
accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities and
contingencies as of the date of the financial statements and reported amounts of revenues and expenses during
the reporting periods. We evaluate our estimates on an on-going basis. We base our estimates on historical
experience and on other 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. However, future events may cause us to change our assumptions and estimates,
which may require adjustment. Actual results could differ from these estimates. We have determined that for
the periods reported in this Annual Report on Form 10-K the following accounting policies and estimates are
critical in understanding our financial condition and results of operations.
Accounting for Income Taxes. Management is required to make estimates related to our income tax provision in
each of the jurisdictions in which we operate. This process involves estimating our current tax exposure
together with assessing temporary differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which are included within our
Consolidated Balance Sheets. Management then assesses the likelihood that the deferred tax assets will be
recovered from future taxable income and to the extent management believes that recovery is not likely, a
valuation allowance must be established. To the extent management establishes a valuation allowance or
increases this allowance in a period, an increase to expense within the Provision for income taxes in the
Consolidated Statements of Income may result.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax
benefits recognized in the financial statements on a particular tax position are measured based on the largest
benefit that has a greater than a 50% likelihood of being realized upon settlement. The amount of unrecognized
tax benefits is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to
existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a
tax examination, or resolution of an examination. We recognize both accrued interest and penalties, where
appropriate, related to unrecognized tax benefits in income tax expense.
20
Significant management judgment is required in determining the provision for income taxes, deferred tax assets
and liabilities, and any valuation allowance recorded in connection with the deferred tax assets. We have
recorded a valuation allowance of $37.0 million and $37.9 million as of December 31, 2010 and 2009,
respectively, due to uncertainties related to our ability to utilize some of the deferred tax assets, primarily
consisting of certain foreign net operating losses carried forward. The valuation allowance is based on
management’s current estimates of taxable income for the jurisdictions in which we operate and the period over
which the deferred tax assets will be recoverable. In the event that actual results differ from these estimates, or
these estimates are adjusted in future periods, an additional valuation allowance may need to be established
which would increase the tax provision, lowering income and impacting our financial position. Should
realization of these previously reserved deferred tax assets occur, the provision for income taxes may decrease,
raising income and positively impacting Bio-Rad’s financial position.
Valuation of Goodwill and Long-lived Assets. Goodwill represents the excess of the cost over the fair value of
net tangible and identifiable intangible assets of acquired businesses. Goodwill amounts are assigned to
reporting units at the time of acquisition and are adjusted for any subsequent significant transfers of business
between reporting units. We assess the impairment of goodwill annually in the fourth quarter or whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. We perform the
impairment tests of goodwill at our reporting unit level, which is one level below our reporting segments. The
goodwill impairment test consists of a two-step process. The first step of the goodwill impairment test, used to
identify potential impairment, compares the fair value of a reporting unit to its carrying value, including
goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired, and the second step of the impairment test is not required. The second step, if
required, compares the implied fair value of the reporting unit goodwill with the carrying amount of that
goodwill. The fair value of a reporting unit is allocated to all of the assets and liabilities of that unit (including
any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the
fair value of the reporting unit was the price paid to acquire the reporting unit. If the carrying amount of the
reporting unit’s goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal
to that excess.
We use projected discounted cash flow models to determine the fair value of a reporting unit. The discounted
cash value projected for goodwill may be different from the fair value that would result from an actual
transaction between a willing buyer and a willing seller. Projections such as discounted cash flow models are
inherently uncertain and accordingly, actual future cash flows may differ materially from projected cash flows.
Management judgment is required in developing the assumptions for the discounted cash flow model. These
assumptions include revenue growth rates, profit margins, future capital expenditures, working capital needs,
expected foreign currency rates, discount rates and terminal values. We estimate future cash flows using current
and long-term high level strategic financial forecasts. These forecasts take into account the current economic
environment. The discount rates used are compiled using independent sources, current trends in similar
businesses and other observable market data. Changes to these rates might result in material changes in the
valuation and determination of the recoverability of goodwill. For example, an increase in the discount rate
used to discount cash flows will decrease the computed fair value. In order to evaluate the sensitivity of the fair
value calculations on the goodwill impairment test, we apply a 10% decrease to the fair value of each reporting
unit.
To validate the reasonableness of the reporting unit fair values, we reconcile the aggregate fair values of the
reporting units to the enterprise market capitalization including an implied control premium. In performing the
reconciliation we may, depending on the volatility of the market value of our stock price, use either the stock
price on the valuation date or the average stock price over a range of dates around the valuation date. We
compare the implied control premium to premiums paid in observable recent transactions of comparable
companies to determine if the fair values of the reporting units are reasonable.
21
For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped
with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of
the cash flows of other assets and liabilities. We assess the impairment of long-lived assets (including
identifiable intangibles) whenever events or changes in circumstances indicate that the carrying value may not
be recoverable. Factors that we consider important that could trigger an impairment review include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
significant under-performance relative to expected, historical or projected future operating results;
significant changes in the manner of use of the long-lived assets, intangible assets or the strategy
for our overall business;
a current expectation that, more likely than not, a long-lived asset will be sold or otherwise
disposed of before the end of its previously estimated useful life; and
significant negative industry, legal, regulatory or economic trends.
When management determines that the carrying value of long-lived assets may not be recoverable based upon
the existence of one or more of the above indicators of impairment, we test for any impairment based on a
projected undiscounted cash flow method. Projected future operating results and cash flows of the asset or asset
group are used to establish the fair value used in evaluating the carrying value of long-lived and intangible
assets. We estimate the future cash flows of the long-lived assets using current and long-term financial
forecasts. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the asset. If this is the case, an
impairment loss would be recognized. The impairment loss recognized is the amount by which the carrying
amount exceeds the fair value.
In 2009 and 2008, our reviews indicated impairment charges of $3.8 million and $1.6 million, respectively,
related to the developed technology intangible assets of certain product lines that were acquired in 2006. Also
in 2008, our review indicated an impairment charge of $27.2 million related to goodwill from a 1999
acquisition. The goodwill impairment was caused primarily by the continuing decline in the BSE (bovine
spongiform encephalopathy) product line. There were no impairment losses recorded in 2010.
Valuation of Inventories. We value inventory at the lower of the actual cost to purchase and/or manufacture the
inventory, or the current estimated realizable value of the inventory. We review inventory quantities on hand
and reduce the cost basis of excess and obsolete inventory based primarily on an estimated forecast of product
demand, production requirements and the quality, efficacy and potency of raw materials. This review is done on
a quarterly basis or, if warranted by the circumstances, more frequently. In addition, our industry is
characterized by technological change, frequent new product development and product obsolescence that could
result in an increase in the amount of obsolete inventory quantities on hand. Our estimates of future product
demand may prove to be inaccurate, and if too high, we may have overstated the carrying value of our
inventory. In the future, if inventory is determined to be overvalued, we would be required to write down the
value of inventory to market and recognize such costs in our cost of goods sold at the time of such
determination. Therefore, although we make efforts to ensure the accuracy of our forecasts of future product
demand and perform procedures to safeguard overall inventory quality, any significant unanticipated changes in
demand, technological developments, regulations, storage conditions or other environment factors affecting
biological materials, could have a significant impact on the value of our inventory and reported results of
operations.
Valuation of Investments. We regularly review our investments for factors that may indicate that a decline in
the fair value of an investment below its carrying value is other-than-temporary. Some factors considered in
evaluating whether or not a decline in fair value is other-than-temporary include our ability and intent to retain
the investment for a period of time sufficient to allow for a recovery in value, the duration and extent to which
the fair value has been less than cost and the financial condition and prospects of the issuer. Such reviews are
inherently uncertain in that the value of the investment may not fully recover or may decline further in future
periods resulting in realized losses.
22
Warranty Reserves. We warrant certain equipment against defects in design, materials and workmanship,
generally for a period of one year. Upon delivery and on acceptance of that equipment, we establish, as part of
cost of goods sold, a provision for the expected costs of such warranty repairs based on historical experience,
specific warranty terms and customer feedback. A review is performed on a quarterly basis to assess the
adequacy of our warranty reserve and it is adjusted if necessary. The warranty reserve is based on actual
experience and expected future costs to be incurred. Should realized costs be higher than expected costs, cost of
goods sold would be lower in the period of estimation and higher when realized.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses
resulting from the collectibility of our customer accounts. The amount of the allowance is determined by
analyzing known uncollectible accounts, the age of our receivables, economic conditions in the customers’
country or industry, historical losses and our customers’ general credit-worthiness. Amounts later determined
and specifically identified to be uncollectible are charged or written off against this allowance. Uncertainty in
the current economic environment, if prolonged, could result in greater amounts becoming uncollectible in the
future. Should the estimates of losses be higher than the actual uncollectible accounts, we would report lower
profitability when the estimates are made and higher profitability when the receivable is collected.
Litigation Accruals. We record as liabilities in our Consolidated Balance Sheets estimated amounts for claims
that are probable and can be reasonably estimated. The likelihood of a material change in these estimated
reserves is dependent on the possible outcome of settlement negotiations, regulatory or judicial review and the
development of facts and circumstances in extended litigation which could change claims or assessments when
both the amount and range of loss on some outstanding litigation is uncertain. We disclose in the footnotes of
the financial statements when we are unable to make a reasonable estimate of a material liability that could
result from unfavorable outcomes in litigation. As events occur, we will assess the potential liability related to
our pending litigation and revise our estimates. Such revisions could materially impact our results of operations.
Corporate Results -- Sales, Gross Margins and Expenses
Net sales
Net sales (sales) in 2010 increased 8.0% to $1.93 billion from $1.78 billion in 2009, with Biotest contributing
approximately $56.1 million to the growth in sales. Foreign currency had minimal impact on total sales growth.
Excluding the additional sales from the Biotest acquisition, 2010 sales grew by 4.8% on a currency neutral
basis. Currency neutral sales growth, excluding Biotest, was achieved in all regions, but was primarily driven
by growth in Asia Pacific, Eastern Europe and Latin America.
The Life Science segment sales in 2010 were $648.1 million, an increase of 2.6%, or 2.2% on a currency neutral
basis, compared to 2009. Sales growth was primarily attributed to real-time PCR products and a new product
line TC 10TM automated cell counter, partially offset by general market weakness, especially in Europe.
Currency neutral sales growth in the Life Science segment was primarily in Asia Pacific, Eastern Europe, Latin
America and North America, while European sales declined.
The Clinical Diagnostics segment reported sales in 2010 of $1.27 billion, an increase of 11.0% compared to
2009, with Biotest contributing approximately 4.9% to the sales growth. On a currency neutral basis, sales in
2010 increased 11.3% including Biotest compared to 2009. Clinical Diagnostics realized growth in its quality
controls product line and in immunohematology (before the inclusion of Biotest), diabetes and BioPlex® 2200
instruments and reagents. Sales growth was primarily in Asia Pacific, Eastern Europe and Latin America, and to
a lesser extent North America.
23
Our net sales increased by 1.1% in 2009 to $1.78 billion as compared to 2008. Excluding the impact of foreign
currency, 2009 sales increased by approximately 5.5% compared to 2008. Currency neutral sales growth was
generated primarily in the regions of Asia Pacific, the United States and developing or emerging markets in
Eastern Europe and Latin America. DiaMed Holding AG (DiaMed) distributors acquired in late 2008 and early
2009 also contributed to sales growth.
The Life Science segment sales decreased 1.9% in 2009 as compared to 2008. On a currency neutral basis sales
increased 0.8%. The decline in sales of BSE (bovine spongiform encephalopathy) products continued in 2009,
as both product prices and government-mandated tests declined. Excluding the impact of the BSE product line,
the Life Science segment grew by 1.3% in 2009 as compared to 2008. Product groups that showed growth
included real-time PCR instruments and reagents, the ProteOnTM protein interaction analysis system and the
Biotechnology ExplorerTM program. Sales growth in the Life Science segment was primarily in Asia Pacific,
Latin America and the U.S., while European sales represented the majority of declining sales.
The Clinical Diagnostics segment achieved sales growth of 3.0% in 2009 as compared to 2008. Excluding the
impact of foreign currency, sales increased 8.5% compared to 2008. Most Clinical Diagnostics major product
lines showed sales growth, such as BioPlex 2200 systems, quality controls and blood virus products. There was
a decline in sales of contract manufacturing as some of these contracts were not renewed. On a regional basis,
currency neutral sales growth was primarily provided by Asia Pacific, the United States and emerging markets
including Latin America, partially offset by sales declines in Europe.
Gross margin
Consolidated gross margins were 56.6% in 2010 compared to 56.0% in 2009. Life Science segment gross
margins in 2010 improved from 2009 by approximately 2.4%. The increase was primarily due to improved
manufacturing overhead absorption, reduction in costs and a favorable product mix toward higher margin
products. Clinical Diagnostics segment gross margins in 2010 decreased by approximately 0.4% from 2009.
The Biotest acquisition had a negative impact on Clinical Diagnostics segment gross margins due to higher
inventory values resulting from purchase accounting and overall lower margins than historically achieved by the
segment. Partially offsetting this decrease in gross margins was a favorable settlement of intellectual property
disputes and lower royalty expenses.
Consolidated gross margins were 56.0% in 2009 compared to 54.6% in 2008. Life Science segment gross
margins improved in 2009 compared to 2008 by 0.1%. The improvement was the result of better manufacturing
overhead absorption from a reduction in costs, the move of new products to more cost efficient off-shore
manufacturing, and sales mix favoring higher margin reagents rather than instruments with typically lower
margin. Clinical Diagnostics segment gross margins improved by approximately 2.2% in 2009 compared to
2008. Improvements included lower royalty payments paid to licensors as a result of the expiration of patents in
blood virus and immunohematology products, increased margin from the acquisition of DiaMed distributors and
the reduction of the impact of DiaMed pre-acquisition inventory subject to purchase accounting rules.
Additionally the BioPlex 2200 margins improved from greater placements and higher test volume.
Selling, general and administrative expense
Consolidated selling, general and administrative expense (SG&A) represented 33.0% of sales in 2010 compared
to 33.7% of sales in 2009. The growth rate in absolute SG&A spending was less than the rate of sales growth.
Moderation in spending for employee related costs and third party commissions lowered the rate of SG&A
spending to sales. Absolute dollar increases in SG&A were primarily in employee-related costs, travel and
related costs, and professional services.
24
Consolidated SG&A represented 33.7% of net sales for 2009 compared to 33.5% of net sales in 2008. Growth
in absolute SG&A spending was proportional to sales. The Clinical Diagnostics segment grew SG&A at a
slightly lower rate than the growth in its sales, while the Life Science segment’s reduced rate of spending in
SG&A was larger than the decline in its sales. Absolute dollar increases in SG&A were primarily in employee-
related expenses and purchased intangibles amortization, partially offset by lower travel costs and professional
services.
Research and development expense
Research and development expense was $172.3 million in 2010, or 8.9% of sales, compared to 9.2% of sales in
2009. Both the Life Science and Clinical Diagnostics segments research and development expense increased in
absolute dollars, however as a percent of sales, Clinical Diagnostics segment expense decreased from 2009.
Life Science segment efforts concentrated on genomics, proteomics process chromatography and food
diagnostics applications. The majority of the Clinical Diagnostics segment increase was related to an additional
emphasis in diabetes monitoring, clinical microbiology, expanded blood virus diagnostic tests and improved
automation.
Research and development expense was $163.6 million in 2009, or 9.2% of sales, compared to 9.0% of sales in
2008. Life Science segment development efforts were directed towards genomics, proteomics and process
chromatography applications. Clinical Diagnostics segment development efforts were focused on expanded
tests for the BioPlex 2200 testing platform, as well as other enhancements to existing automation and reagents
used for immunohematology, clinical microbiology and blood virus diagnostic tests and additional quality
control products. In absolute dollars, the increase was in the Clinical Diagnostic segment, partially offset by a
decrease in the Life Science segment.
Corporate Results – Non-operating
Interest expense
Interest expense in 2010 increased 35.5% to $63.7 million compared to 2009. The increase in interest expense
in 2010 from 2009 was primarily due to the payment of a call premium and the expensing of unamortized debt
issuance costs for the redemption of the $200.0 million of 6.125% Senior Subordinated Notes in December
2010, and the interest associated with the $300 million of 8.0% Senior Subordinated Notes due in 2016 that
were issued in May 2009. Our other principal debt obligation was the $225.0 million 7.5% Senior Subordinated
Notes, which were redeemed in January 2011.
Interest expense in 2009 increased 46.4% to $47.0 million when compared to 2008. The additional $300.0
million of 8.0% Senior Subordinated Notes that were issued in May 2009 had increased our indebtedness to
$742.6 million at December 31, 2009, which increased our interest expense in 2009 compared to 2008.
Foreign currency exchange gains and losses
Foreign currency exchange gains and losses consist 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. Net foreign currency exchange losses for 2010,
2009 and 2008 were $ 3.9 million, $5.0 million and $7.6 million, respectively. The 2010 and 2009 net foreign
currency exchange losses were attributable to greater market volatility, costs to hedge and the result of the
estimating process inherent in the timing of shipments and payments of intercompany debt. The 2008 net loss
reflected a number of unhedged European based intercompany loans denominated in Euros, British Sterling and
Swiss Francs, which arose as part of our acquisitions in December 2008. The significant volatility in December
2008 resulted in an approximate $3 million non-cash loss on these accounts. Additionally, we recorded a 2008
loss of $1.6 million on unhedged intercompany payables for our Brazilian subsidiaries, which we have not
historically hedged due to the high cost. All years are affected by the economic hedging program we employ to
hedge our intercompany receivables and payables.
25
Other income and expense, net
Other income and expense, net for 2010 includes investment and dividend income; generally interest income on
our cash and cash equivalents, short-term investments and long term marketable securities. Other income, net in
2010 was $3.9 million compared to $6.9 million in 2009. The decrease primarily resulted from non-recurring
income of $4.6 million in 2009 related to the relief of a foreign non-income based tax obligation, partially offset
by higher other-than-temporary impairment of investments in 2009 than in 2010.
Other income, net in 2009 was $6.9 million compared to other expense, net of $0.4 million in 2008. The 2009
other income, net included a relief of $4.6 million for a foreign non-income based tax obligation, higher interest
and dividend income, and lower charges for impairment on investments compared to 2008.
Effective tax rate
Our effective tax rate was 15% and 20% in 2010 and 2009, respectively. The effective tax rates in 2010 and
2009 both reflected tax benefits for nontaxable dividend income, research and development tax credits, and
differences between U.S. and foreign rates. The lower effective tax rate in 2010 was primarily due to a benefit
of approximately $22.4 million that related to U.S. foreign tax credits associated with a $163.9 million
distribution of earnings from our foreign affiliates to the U.S.
Our effective tax rate was 20%, and 31% in 2009 and 2008, respectively. The decrease was primarily related to
the completion in the fourth quarter of 2009 of a U.S. income tax examination covering the years 2001 through
2005, favorable tax rates associated with higher earnings from operations in lower-tax jurisdictions throughout
the world and a reduction in our balance of unrecognized tax benefits due to lapses of statutes.
Our effective tax rate may be impacted in the future, either favorably or unfavorably, by many factors including
but not limited to statutory tax rates, changes in tax laws or regulations, tax audits and settlements, and
generation of tax credits.
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. Funding for research and development of new products as well as routine outflows for
capital expenditures, and interest and tax expense are covered by cash flow from operations. 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 Amended and Restated Credit Agreement (Credit Agreement)
that we entered into in June 2010. Borrowings under the Credit Agreement are 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 Credit Agreement as of December 31, 2010. The Credit Agreement expires on June 21,
2014.
The continuing slow economic growth in developed nations may adversely affect our future results of
operations. Demand for our products and services could change more dramatically than in previous years based
on activity and support levels from government, universities, hospitals and private industry including diagnostic
laboratories. The need for certain sovereign nations with large annual deficits to curtail spending could lead to
slower growth of, or even a decline in our business. Sovereign nations either delaying payment for goods and
services or renegotiating their debts could impact our liquidity.
26
At December 31, 2010, we had $1,025.2 million in cash, cash equivalents and short-term investments. Taking
into consideration the cash needed to redeem our 7.50% Senior Subordinated Notes in January 2011, we had
available $790.6 million in cash, cash equivalents and short-term investments. Under domestic and international
lines of credit, we had $251.1 million available for borrowing as of December 31, 2010, of which $13.9 million
is reserved for standby letters of credit issued by our banks to guarantee our obligations to various companies.
Management believes that this availability, 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 future acquisitions.
The instability in credit markets along with inadequate capitalization in some parts of the financial services
industry could impact both our ability and our customer’s ability to access the necessary capital for acquisition,
equipment and technology modernization, and the financing of inventory and receivables. Without this crucial
intermediary function, manufacturers and end users may have to renegotiate existing arrangements, reduce
activity levels or seek other business partners.
Cash Flow from Operations
Net cash provided by operations was $225.9 million, $325.1 million and $191.4 million in 2010, 2009 and 2008,
respectively. The net decrease between 2010 and 2009 of $99.2 million primarily represented an increase in
cash paid to suppliers, including royalty payments covering multiple years and payments to settle intellectual
property disputes, higher payments on income taxes, and higher interest payments primarily from the call
premium and the redemption of the $200.0 million of 6.125% Senior Subordinated Notes in December 2010,
and the interest associated with the $300 million of 8.0% Senior Subordinated Notes due in 2016 that were
issued in May 2009. Partially offsetting this decrease was an increase in cash received from customers
compared to 2009. However, cash received from customers was at a slower rate than expected in 2010 due to a
slowdown in cash collections, as many governments, especially in Europe, address the need for deficit
reductions and sovereign borrowings. We continue to stress cash flow as a global company-wide goal.
The net change between 2009 and 2008 of $133.7 million represented a $121.9 million improvement in the net
change in cash received from customers and cash paid to suppliers. The largest item that contributed to the
increase in cash flows was primarily due to a decrease in inventory levels, which provided approximately $36
million of cash inflows in 2009. The expiration of some patents and slower payment patterns reduced royalty
payments. Moderation in the growth of headcount and the reduction in other SG&A costs all contributed to an
improved cash flow. Additionally, we experienced a reduction in taxes paid of $11.4 million.
We regularly review the allowance for uncollectible receivables and believe net accounts receivable are fully
realizable. We also routinely review inventory for the impact of obsolescence and changes in market prices
caused by the introduction of new products, technologies and in government reimbursement policies. We
expect the first quarter of 2011 cash flows from operations to be lower as Bio-Rad historically makes larger
payments for royalties, fourth quarter sales commissions to third parties and employee annual bonuses during
this period.
Cash Flow from Investing Activities
Net cash used in investing activities, including capital expenditures was $216.5 million, $176.0 million and
$146.1 million in 2010, 2009 and 2008, respectively. Capital expenditures in 2010 totaled $87.3 million,
compared to $66.8 million and $84.8 million in 2009 and 2008, respectively. Capital expenditures represent the
addition and replacement of production machinery and research equipment, ongoing manufacturing and facility
additions for expansions, regulatory and environmental compliance, and leasehold improvements. Also
included in capital expenditures were investments in business systems and data communication upgrades and
27
enhancements. We anticipate accelerating expenditures in future periods to expand our e-commerce platform
internationally and for implementation globally of a single instance ERP platform, for which we committed to
purchase software in December 2010. The estimated global implementation cost could reach approximately
$150 million and is estimated to take approximately five years to implement. All periods included equipment
placed with Clinical Diagnostics segment customers who then contract to purchase our reagents for use.
On January 6, 2010, we acquired certain diagnostic businesses of Biotest AG for 45 million Euros
(approximately $64.9 million) in cash. In September 2010, we acquired the remaining noncontrolling interests
of DiaMed France SA for 10.2 million Euros, or approximately $12.9 million, in cash. In 2010, 2009 and 2008,
we acquired the remaining shares of DiaMed Holding AG (DiaMed) for approximately $1.4 million, $30.0
million and $33.6 million, respectively. In 2008 we also paid cash for the acquisition of two distributors for
approximately $17 million. All of these acquisitions are included in our Clinical Diagnostics segment. We
anticipate that we will purchase in 2011 the remaining noncontrolling interests in two DiaMed subsidiaries,
which we estimate will cost approximately $5 million.
We continue to review other possible acquisitions to expand both our Life Science and Clinical Diagnostics
segments, including independent distributors of the DiaMed product line. We routinely meet with the principals
or brokers of the subject companies. We are evaluating additional acquisitions on a preliminary basis. It is not
certain that any of these transactions will advance beyond the preliminary stages or be completed.
Cash Flow from Financing Activities
Net cash provided by financing activities was $228.7 million, $293.9 million and $6.3 million in 2010, 2009 and
2008, respectively. Cash provided in 2010 was primarily due to Bio-Rad issuing $425.0 million principal
amount of 4.875% Senior Notes in December 2010, which yielded net proceeds of $422.6 million at an effective
rate of 4.946%. In December 2010, $204.3 million of the net proceeds were used to redeem our $200.0 million
6.125% Senior Subordinated Notes, including a call premium. In January 2011, the remaining proceeds,
together with cash on hand, were used to redeem our $225.0 million 7.50% Senior Subordinated Notes for
$234.6 million, including a call premium. This refinancing should lower our interest expense going forward.
Net cash provided by financing activities in 2009 was primarily due to Bio-Rad issuing $300 million of 8%
Senior Subordinated Notes in May 2009, which yielded net proceeds of $294.8 million at an effective rate of
8.3%. The net proceeds have been and will be used for working capital and general corporate purposes, which
may include acquisitions. Net cash provided by financing activities in 2008 principally reflected cash flow for
the exercise of stock options and receipts from the Employee Stock Purchase Plan transactions, partially offset
by payments on long-term debt that represented the reduction of acquired DiaMed debt.
The Credit Agreement that was entered into in June 2010, is secured by substantially all of our personal property
assets, the assets of our domestic subsidiaries and 65% of the capital stock of certain foreign subsidiaries. It is
guaranteed by all of our existing and future material domestic subsidiaries and expires in June 2014.
The Board of Directors has authorized the repurchase of up to $18 million of Bio-Rad’s common stock over an
indefinite period of time of which $3.3 million has yet to be repurchased. The Credit Agreement and the
indenture governing our 8.0% Senior Subordinated Notes restrict our ability to repurchase our stock. We did
not repurchase any shares of our common stock during 2010, 2009 or 2008.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have had or are reasonably likely to have a current or
future material effect on our financial condition, results of operations or liquidity.
28
Contractual Obligations
The following summarizes certain of our contractual obligations as of December 31, 2010 and the effect such
obligations are expected to have on our cash flows in future periods (in millions):
Contractual Obligations
Long-term debt, including current portion (1)
Interest payments
Operating lease obligations (2)
Purchase obligations (3)
Long-term liabilities (4)
Payments Due by Period
Less
1-3
Than
Total One Year Years
$ 0.6
48.0
46.0
1.3
20.7
$ 964.2 $ 233.1
27.2
223.0
33.1
132.7
57.9
59.2
--
46.4
3-5
Years
$ 0.2
48.0
24.3
--
2.0
More
than
5 Years
$ 730.3
99.8
29.3
--
23.7
(1)
These amounts represent expected cash payments, including capital lease obligations and are included in our
Consolidated Balance Sheets. See Note 5 of the Consolidated Financial Statements for additional information
about our debt.
(2) Operating lease obligations are described in Note 11 of the Consolidated Financial Statements.
(3)
(4)
Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding
to Bio-Rad and that specify all significant terms. Purchase obligations exclude agreements that are cancelable
without penalty.
Excluded from this table is our liability for income tax payable, including uncertain tax positions,
in the amount of $18.4 million. We are not able to reasonably estimate the timing of future cash flows of these
tax liabilities, therefore, our income tax obligations are excluded from the table above. See Note 6 of the
Consolidated Financial Statements.
Recent Financial Accounting Standards
In January 2010, the Financial Accounting Standards Board (FASB) issued a standard to improve disclosures
about fair value measurements. Specifically, the standard requires entities to disclose the amounts of significant
transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers; the reasons
for any transfers in or out of Level 3; and information in the reconciliation of recurring Level 3 measurements
about purchases, sales, issuances and settlements on a gross basis. The standard was effective for our interim
period ended March 31, 2010, except for the requirement to disclose information about purchases, sales,
issuances, and settlements in the reconciliation of recurring Level 3 measurements on a gross basis. Those
disclosures will be effective for our interim period ending March 31, 2011. This standard did not effect nor is
expected to effect our consolidated financial statements.
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Risk Management
The main goal of Bio-Rad’s financial risk management program is to reduce the variance in expected cash flows
arising from unexpected foreign exchange rate and interest rate changes. Financial exposures are managed
through operational means and by using various financial instruments, including cash and liquid resources,
borrowings, and forward and spot foreign exchange contracts. No derivative financial instruments are entered
into for the purpose of trading or speculation. Company policy requires that all derivative positions are
undertaken to manage the risks arising from underlying business activities. These derivative transactions do not
qualify for hedge accounting treatment per general standards for derivatives and hedging. Derivative
instruments used in these transactions are valued at fair value and changes in fair value are included in reported
earnings.
29
Foreign Exchange Risk. We operate and conduct business in many countries and are exposed to movements in
foreign currency exchange rates. We face transactional currency exposures that arise when we enter into
transactions denominated in currencies other than U.S. dollars. Additionally, our consolidated net equity is
impacted by the conversion of the net assets of our international subsidiaries for which the functional currency is
not the U.S. dollar.
Foreign currency exposures are managed on a centralized basis. This allows for the netting of natural offsets
and lowers transaction costs and net exposures. Where possible, we seek to manage our foreign exchange risk
in part through operational means, including matching same-currency revenues to same currency costs, and
same-currency assets to same-currency liabilities. Moreover, weakening in one currency can often be offset by
strengthening in another currency. Foreign exchange risk is also managed through the use of forward foreign
exchange contracts. Positions are primarily in Euro, Swiss Franc, British Sterling, Singapore Dollar and
Japanese Yen. The majority of forward contracts are for periods of 90 days or less. We record the change in
value of our foreign currency receivables and payables as a Foreign exchange (gain) loss on our Consolidated
Statements of Income along with the change in fair market value of the forward exchange contract used as an
economic hedge of those assets or liabilities.
Our forward contract holdings at year-end were analyzed to determine their sensitivity to fluctuations in foreign
currency exchange rates. All other variables were held constant. Market risk associated with derivative
holdings is the potential change in fair value of derivative positions arising from an adverse movement in
foreign exchange rates. A decline of 10% on quoted foreign exchange rates would result in an approximate net-
present-value loss of $49 million on our derivative position. This impact of a change in exchange rates excludes
the offset derived from the change in value of the underlying assets and liabilities, which could reduce the
adverse effect significantly.
Interest Rate Risk of Debt Instruments. Bio-Rad centrally manages the short-term cash surpluses and shortfalls
of its subsidiaries. Our holdings of variable rate debt instruments at year-end were analyzed to determine their
sensitivity to movements in interest rates. Due to the relatively small amount of short-term variable rate debt we
have outstanding, there would not be a material impact to earnings or cash flows if interest rates moved
adversely by 10%. Our long-term debt consists primarily of fixed-rate instruments, and is thus insulated from
interest rate changes. As of December 31, 2010, the overall interest rate risk associated with our debt was not
significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2010 and 2009
Consolidated Statements of Income for each of the three years in the period ended
December 31, 2010
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2010
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income
for each of the three years in the period ended December 31, 2010
Notes to Consolidated Financial Statements
Page
31
32
33-34
35
36
37
38-66
30
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of Bio-Rad Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Bio-Rad Laboratories, Inc. as of
December 31, 2010 and 2009, and the related consolidated statements of income, cash flows, and changes in
stockholders' equity and comprehensive income for the years then ended. Our audits also included the financial
statement schedule listed in the Index at Item 15(a)2. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Bio-Rad Laboratories, Inc. at December 31, 2010 and 2009, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Bio-Rad Laboratories, Inc.’s internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2011,
expressed an adverse opinion thereon.
/s/ Ernst & Young LLP
Palo Alto, California
February 28, 2011
31
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Bio-Rad Laboratories, Inc.
Hercules, California
We have audited the accompanying consolidated statements of income, changes in stockholders' equity and
comprehensive income, and cash flows of Bio-Rad Laboratories, Inc. and subsidiaries (the “Company”) for the
year ended December 31, 2008. Our audit also included the financial statement schedule for the year ended
December 31, 2008 listed in Item 15(a)2. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the results of the
Company’s operations and its cash flows for the year ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial statement
schedule for the year ended December 31, 2008, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the Consolidated Financial Statements, the accompanying consolidated financial
statements have been retrospectively adjusted for the adoption of new accounting standards for Noncontrolling
Interests and Interests Grants in Share-Based Payment Transactions.
/s/ Deloitte & Touche LLP
San Francisco, California
February 28, 2009 (May 18, 2009 as to the effects of the retrospective adoption of new accounting standards as
described in Note 1 to the financial statements)
32
Bio-Rad Laboratories, Inc.
Consolidated Balance Sheets
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, less allowance for doubtful accounts of
$25,052 at 2010 and $23,100 at 2009
Inventories:
Raw materials
Work in process
Finished goods
Total inventories
Deferred tax assets
December 31,
2010
2009
$
$
906,551
6,422
118,636
649,938
--
94,876
387,996
345,734
82,270
110,527
205,303
398,100
68,155
97,513
185,538
351,206
48,021
43,102
Prepaid expenses, taxes and other current assets
Total current assets
109,620
1,975,346
77,818
1,562,674
Property, plant and equipment:
Land and improvements
Buildings and leasehold improvements
Equipment
Total property, plant and equipment
Accumulated depreciation
Property, plant and equipment, net
Goodwill, net
Purchased intangibles, net
Long-term deferred tax assets
Other assets
TOTAL ASSETS
18,456
232,959
560,718
812,133
(478,516)
333,617
363,981
203,881
12,976
172,963
16,853
204,612
506,686
728,151
(425,734)
302,417
327,626
204,779
13,272
125,085
$ 3,062,764
$ 2,535,853
The accompanying notes are an integral part of these consolidated financial statements.
33
Bio-Rad Laboratories, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued payroll and employee benefits
Notes payable and current maturities of long-term debt
Income and other taxes payable
Accrued royalties
Other current liabilities
Total current liabilities
Long-term debt, net of current maturities
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingent liabilities
December 31,
2010
2009
$
113,440
131,381
233,181
50,935
23,944
113,746
666,627
731,100
59,738
64,780
1,522,245
$
92,988
126,702
5,132
42,322
46,692
106,136
419,972
737,919
42,894
55,855
1,256,640
STOCKHOLDERS’ EQUITY
Bio-Rad stockholders’ equity:
Preferred stock, $0.0001 par value, 7,500,000 shares authorized;
issued and outstanding - none
Class A common stock, $0.0001 par value, 80,000,000 shares authorized;
issued and outstanding – 22,677,300 at 2010 and 22,406,669 at 2009
Class B common stock, $0.0001 par value, 20,000,000 shares authorized;
issued and outstanding – 5,175,343 at 2010 and 5,119,402 at 2009
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income:
Currency translation and other
Total Bio-Rad stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
--
2
1
--
2
1
156,986
1,181,687
130,444
996,197
198,020
1,536,696
3,823
1,540,519
$ 3,062,764
133,082
1,259,726
19,487
1,279,213
$ 2,535,853
The accompanying notes are an integral part of these consolidated financial statements.
34
Bio-Rad Laboratories, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expense
Research and development expense
Impairment losses on goodwill and long-lived assets
Income from operations
Interest expense
Foreign exchange losses, net
Other (income) expense, net
Income before income taxes
Provision for income taxes
Net income including noncontrolling interests
Year Ended December 31,
2010
2009
2008
$ 1,927,118
$ 1,784,244
$ 1,764,365
835,630
1,091,488
635,213
172,266
--
284,009
63,717
3,884
(3,875)
220,283
(33,348)
186,935
784,401
999,843
601,468
163,585
3,802
230,988
47,024
5,003
(6,871)
185,832
(36,667)
149,165
(4,545)
801,843
962,522
591,304
159,518
28,757
182,943
32,113
7,634
353
142,843
(44,579)
98,264
(8,754)
Less: Net income attributable to noncontrolling interests
(1,445)
Net income attributable to Bio-Rad
Basic earnings per share:
$
185,490
$
144,620
$
89,510
Net income per share basic attributable to Bio-Rad
$
6.70
$
5.28
$
3.30
Weighted average common shares - basic
27,665
27,404
27,112
Diluted earnings per share:
Net income per share diluted attributable to Bio-Rad
$
6.59
$
5.20
$
3.24
Weighted average common shares - diluted
28,151
27,828
27,638
The accompanying notes are an integral part of these consolidated financial statements.
35
Bio-Rad Laboratories, Inc.
Consolidated Statements of Cash Flows (in thousands)
Cash flows from operating activities:
Cash received from customers
Cash paid to suppliers and employees
Interest paid
Income tax payments
Miscellaneous receipts (payments), net
Excess tax benefits from share-based compensation
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures, net
Payments for acquisitions, net of cash received,
and long-term investments
Payments on purchases of intangible assets
Purchases of marketable securities and investments
Sales and maturities of marketable securities
and investments
Proceeds from (payments for) foreign currency
economic hedges, net
Restricted cash
Net cash used in investing activities
Cash flows from financing activities:
Net payments on line-of-credit arrangements and
notes payable
Long-term borrowings
Payments on long-term borrowings
Proceeds from issuance of common stock
Debt issuance costs on long-term borrowings
Excess tax benefits from share-based compensation
Net cash provided by financing activities
Effect of foreign exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Non-cash investing activities:
Capital lease obligation for facilities
Purchased intangible assets
Year Ended December 31,
2010
2009
2008
$ 1,877,483
(1,536,935)
(59,834)
(55,502)
3,625
(2,928)
225,909
$ 1,778,316
(1,386,382)
(38,471)
(37,749)
10,024
(664)
325,074
$ 1,765,667
(1,495,669)
(30,792)
(49,159)
6,374
(5,050)
191,371
(87,263)
(66,795)
(84,809)
(89,307)
(4,081)
(240,286)
(35,990)
(9,566)
(147,554)
(53,014)
(4,000)
(77,800)
207,636
86,473
78,906
3,211
(6,422)
(216,512)
(2,520)
--
(175,952)
(5,390)
--
(146,107)
(830)
424,633
(206,706)
12,730
(4,010)
2,928
228,745
18,471
256,613
649,938
906,551
--
--
$
$
$
(2,303)
294,750
(6,823)
10,286
(2,641)
664
293,933
(1,642)
1,600
(11,589)
12,912
--
5,050
6,331
2,359
(8,835)
445,414
204,524
649,938
--
--
$
$
$
42,760
161,764
204,524
9,768
11,357
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
36
Bio-Rad Laboratories, Inc
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income
(in thousands)
Accumulated
Other
Comprehensive
Income (Loss)
Additional
Paid-in
Capital
Common
Stock
Retained
Earnings
Total
Bio-Rad
Non-
controlling
Interests
Total
Balance at January 1, 2008
$ 3
$ 98,629
$ 762,067
$ 110,224
$ 970,923
$ 35,201
$ 1,006,124
Net income
Currency translation adjustments
Other post-employment benefits
adjustments, net of tax of ($357)
Net unrealized holding losses,
net of tax of ($9,381)
*Reclassification adjustments for
losses included in net income,
net of tax of $0
Total comprehensive income
Issuance of common stock
Stock compensation expense
Tax benefit-exercise stock options
Purchase of additional
controlling interests
Balance at December 31, 2008
Net income
Currency translation adjustments
Other post-employment benefits
adjustments, net of tax of $432
Net unrealized holding gains,
net of tax of $2,768
*Reclassification adjustments for
gains included in net income,
net of tax of $1,279
Total comprehensive income
Issuance of common stock
Stock compensation expense
Tax benefit-exercise stock options
Purchase of additional
controlling interests
Balance at December 31, 2009
Net income
Currency translation adjustments
Other post-employment benefits
adjustments, net of tax of $750
Net unrealized holding gains,
net of tax of $8,574
*Reclassification adjustments for
gains included in net income,
net of tax of $224
Total comprehensive income
Issuance of common stock
Stock compensation expense
Tax benefit-exercise stock options
Purchase of additional controlling
interests and other
--
--
--
--
--
--
--
--
--
3
--
--
--
--
--
--
--
--
--
3
--
--
--
--
--
--
--
--
--
--
--
--
--
--
12,912
7,328
5,532
--
124,401
--
--
--
--
--
10,286
9,084
696
(14,023)
130,444
--
--
--
--
--
12,730
10,201
3,161
450
89,510
--
--
--
--
--
--
--
--
851,577
144,620
--
--
--
--
--
--
--
--
996,197
185,490
--
--
--
--
--
--
--
--
--
(17,496)
89,510
(17,496)
8,754
(1,175)
98,264
(18,671)
1,848
1,848
(19,162)
(19,162)
(10,256)
(10,256)
44,444
12,912
7,328
5,532
--
--
--
--
--
--
--
7,579
--
--
--
1,848
(19,162)
(10,256)
52,023
12,912
7,328
5,532
--
(13,279)
(13,279)
65,158
1,041,139
29,501
1,070,640
--
34,307
144,620
34,307
4,545
(195)
149,165
34,112
(1,072)
(1,072)
224
(848)
32,492
32,492
2,197
212,544
10,286
9,084
696
2,197
--
--
--
--
--
--
4,574
--
--
--
32,492
2,197
217,118
10,286
9,084
696
(14,023)
(14,588)
(28,611)
133,082
1,259,726
--
52,139
185,490
52,139
19,487
1,445
226
1,279,213
186,935
52,365
(2,311)
(2,311)
(224)
(2,535)
14,725
14,725
385
250,428
12,730
10,201
3,161
385
--
--
--
--
--
--
14,725
385
1,447
251,875
--
--
--
12,730
10,201
3,161
450
(17,111)
(16,661)
Balance at December 31, 2010
$ 3
$ 156,986
$ 1,181,687
$ 198,020
$ 1,536,696
$ 3,823
$ 1,540,519
The accompanying notes are an integral part of these consolidated statements. * Calculated using the specific identification method.
37
Bio-Rad Laboratories, Inc.
Notes to Consolidated Financial Statements
1.
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Bio-Rad Laboratories, Inc. and all of our wholly
and majority owned subsidiaries (referred to in this report as “Bio-Rad,” “we,” “us” and “our”) after elimination
of intercompany balances and transactions. The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual results could differ from those
estimates.
We have changed the presentation of our Consolidated Statements of Changes in Stockholders’ Equity and
Comprehensive Income, for all periods by presenting the headings in columns and the dates in rows. Previously
the headings were in rows and the dates were in columns. We believe this presentation is preferable as the roll
forward of the headings is easier to understand and the presentation is consistent with most other companies.
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 for those events and conditions.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months
or less which are readily convertible into cash. Cash equivalents are stated at cost, which approximates fair
value.
Restricted Cash
Restricted cash of 6 million Swiss Francs (approximately $6.4 million) represents a deposit in an escrow
account for the purchase of a leased building that is expected to take place in May 2011.
Available-for-Sale Investments
Available-for-sale investments consist of corporate obligations, municipal securities, asset backed securities,
U.S. agencies and marketable equity securities. Management classifies investments at the time of purchase and
reevaluates such classification at each balance sheet date. Investments with maturities beyond one year may be
classified as short-term based on their liquid nature and because such marketable securities represent the
investment of cash that is available for current operations. Available-for-sale investments are reported at fair
value based on quoted market prices and other observable market data. Unrealized gains and losses are reported
as a component of other comprehensive income, net of any related tax effect. Unrealized losses are
38
charged against income when a decline in the fair value of an individual security is determined to be other-than-
temporary. We review our available-for-sale investments for other-than-temporary losses on a quarterly basis.
Realized gains and losses and other-than-temporary impairments on investments are included in Other (income)
expense, net (see Note 9).
Concentration of Credit Risk
Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash
equivalents, investments, foreign exchange contracts and trade accounts receivable. Cash and cash equivalents
and investments are placed with various highly rated major financial institutions located in different geographic
regions. Bio-Rad has not sustained significant losses from instruments held at financial institutions.
The forward contracts used in managing our foreign currency exposures have an element of risk in that the
counterparties may be unable to meet the terms of the agreements. We attempt to minimize this risk by limiting
the counterparties to a diverse group of highly-rated domestic and international financial institutions. In the
event of non-performance by these counterparties, the carrying values of our financial instruments represent the
maximum amount of loss we would have incurred as of our fiscal year-end. However, we do not expect to
record any losses as a result of counterparty default.
We perform credit evaluation procedures related to our trade receivables and with the exception of certain
developing countries, generally do not require collateral. As a result of increased risk in these developing
countries, some Bio-Rad sales are subject to collateral letters of credit from our customers. Credit risk for trade
accounts receivable is generally limited due to the large number of customers and their dispersion across many
geographic areas. However, a significant amount of trade receivables are with national healthcare systems in
countries within the European Economic Community.
Accounts Receivable
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. The amount of the allowance is determined by analyzing known
uncollectible accounts, aged receivables, economic conditions in the customers’ country or industry, historical
losses and our customers’ credit-worthiness. Amounts later determined and specifically identified to be
uncollectible are charged or written off against this reserve.
Inventory
Inventories are valued at the lower of actual cost or market (net realizable value) and include material, labor and
overhead costs. The First-in, First-out (FIFO) method is used to remove inventory.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation and amortization. Included in
property, plant and equipment are buildings and equipment acquired under capital lease arrangements and
reagent rental equipment. Property, plant and equipment are assessed for impairment annually or whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable.
Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Buildings and
leasehold improvements are amortized over 15-30 years or the term of the leases or life of the improvements,
whichever is shorter. With the exception of reagent rental equipment, which is amortized over a 1-5 year
period, equipment is depreciated over 3-12 years.
39
Proceeds from the sale of property, plant and equipment of $1.2 million, $1.2 million and $0.9 million for 2010,
2009 and 2008, respectively, are included in Capital expenditures, net in the Consolidated Statements of Cash
Flows.
Goodwill
Goodwill represents the excess of the cost over the fair value of net tangible and identifiable intangible assets of
acquired businesses. Goodwill is assessed for impairment by applying fair value based tests annually or
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We
perform impairment tests of goodwill at our reporting unit level, which is one level below our reporting
segments. Our reporting units are identified as components for which discrete financial information is available
and is regularly reviewed by management. Goodwill amounts are assigned to reporting units at the time of
acquisition.
The goodwill impairment test consists of a two-step process. The first step of the goodwill impairment test,
used to identify potential impairment, compares the fair value of a reporting unit to its carrying value, including
goodwill. We use discounted cash flow models to determine the fair value of a reporting unit. If the fair value
of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and
the second step of the impairment test is not required. The second step, if required, compares the implied fair
value of the reporting unit goodwill with the carrying amount of that goodwill. The fair value of a reporting unit
is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the
reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price
paid to acquire the reporting unit. If the carrying amount of the reporting unit’s goodwill exceeds its implied
fair value, an impairment charge is recognized in an amount equal to that excess.
Long-Lived Assets
For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped
with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of
the cash flows of other assets and liabilities. We assess the impairment of long-lived assets (including
identifiable intangible assets) annually or whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Factors that we consider important that could trigger an impairment review
include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
significant under-performance relative to expected, historical or projected future operating results;
significant changes in the manner of use of the long-lived assets, intangible assets or the strategy
for our overall business;
a current expectation that, more likely than not, a long-lived asset will be sold or otherwise
disposed of at a loss before the end of its previously estimated useful life; and
significant negative industry, legal, regulatory or economic trends.
40
When management determines that the carrying value of long-lived assets may not be recoverable based upon
the existence of one or more of the above indicators of impairment, we test for any impairment based on a
projected undiscounted cash flow method. Projected future operating results and cash flows of the asset or asset
group are used to establish the fair value used in evaluating the carrying value of long-lived and intangible
assets. We estimate the future cash flows of the long-lived assets using current and long-term financial
forecasts. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the asset. If this is the case, an
impairment loss would be recognized. The impairment loss recognized is the amount by which the carrying
amount exceeds the fair value.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are determined based on the differences
between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In
making such determination, we consider all available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial
operations. To the extent we determine that we are able to realize our deferred income tax assets in the future in
excess of their net recorded amount, we make an adjustment to the valuation allowance which may reduce the
provision for income taxes.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax
benefits recognized in the financial statements on a particular tax position are measured based on the largest
benefit that has a greater than a 50% likelihood of being realized upon settlement. The amount of unrecognized
tax benefits is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to
existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a
tax examination, or resolution of an examination. We recognize both accrued interest and penalties, where
appropriate, related to unrecognized tax benefits in income tax expense.
Revenue Recognition
Revenue is recognized when pervasive evidence of an arrangement exists, the price to the buyer is fixed or
determinable, collectibility is reasonably assured and title has passed to the customer or product has been
delivered absent specific contractual specifications. Equipment that requires factory installation is not recorded
until installation is complete and customer acceptance, if required contractually, has occurred. At the time the
related revenue is recognized, a provision is recognized for estimated product returns. Reagent agreements are a
diagnostic industry sales method that provides use of an instrument if the customer exclusively purchases the
company’s reagents to use on that instrument. We have evaluated the reagent agreements and account for the
contracts under the terms of the guidance in regard to accounting for revenue arrangements with multiple
deliverables. All revenues that we earn under our reagent agreements are recognized pursuant to the terms of
each arrangement either when the reagent has been delivered to or used by the customer. Service revenues on
extended warranty contracts are recognized ratably over the life of the service agreement or as services are
performed, if not under contract.
41
Shipping and Handling
We classify all freight costs billed to customers as Net sales. Related freight costs are included in Cost of goods
sold.
Warranty
We warrant certain equipment against defects in design, materials and workmanship, generally for a period of
one year. Upon delivery of that equipment, we establish, as part of Cost of goods sold, a provision for the
expected costs of such warranty based on historical experience, specific warranty terms and customer
feedback. A review is performed on a quarterly basis to assess the adequacy of our warranty accrual.
Components of the warranty accrual, included in Other current liabilities and Other long-term liabilities, were as
follows (in millions):
January 1
Provision for warranty
Actual warranty costs
December 31
Research and Development
2010
$ 16.1
19.7
(17.5)
$ 18.3
2009
$ 15.8
16.8
(16.5)
$ 16.1
Internal research and development costs are expensed as incurred. Third-party research and development costs
are expensed when the contracted work has been performed. Purchased in-process research and development
costs before January 1, 2010 were expensed at the time of purchase. Beginning January 1, 2010 under a new
accounting standard, purchased in-process research and development costs acquired in a business combination
are capitalized as an intangible asset.
Foreign Currency
Balance sheet accounts of international subsidiaries are translated at the current exchange rates as of the end of
the accounting period. Income statement items are translated at average exchange rates for the period. The
resulting translation adjustments are recorded as a separate component of stockholders’ equity.
Foreign currency transaction gains and losses are included in Foreign exchange losses, net in the Consolidated
Statements of Income. Transaction gains and losses result primarily from fluctuations in exchange rates when
intercompany receivables and payables are denominated in currencies other than the functional currency of our
subsidiary that recorded the transaction.
Forward Foreign Exchange Contracts
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 exchange rates that affect
foreign currency denominated intercompany receivables and payables. We do not use derivative financial
instruments for speculative or trading purposes, nor do we seek hedge accounting treatment for any of our
contracts. As a result, these contracts, generally with maturity dates of 90 days or less and related primarily to
currencies of industrial countries, are recorded as an asset or liability measured at their fair value at each
42
balance sheet date. The resulting gains or losses offset exchange gains or losses, on the related receivables and
payables, all of which are recorded as Foreign exchange losses, net in the Consolidated Statements of Income.
The cash flows related to these contracts are classified as Cash flows from investing activities in the
Consolidated Statements of Cash Flows.
Noncontrolling Interests
On January 1, 2009 we adopted a new standard in regard to noncontrolling interests in consolidated financial
statements. This standard established new accounting and reporting standards for the noncontrolling interest in
a subsidiary and for the deconsolidation of a subsidiary. It clarified that a noncontrolling interest in a subsidiary
(minority interest) is an ownership interest in the consolidated entity that is reported as equity in the
consolidated financial statements and separate from the parent company’s equity. This statement requires
disclosure, on the face of the Consolidated Statements of Income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. These disclosure requirements were applied
retrospectively to all periods presented.
We do not own 100% of the voting stock of some of our consolidated subsidiaries. The remaining shares held
by third parties represent a noncontrolling (or minority) interest in these subsidiaries. Our consolidated
statements present the full amount of assets, liabilities, income and expenses of all of our consolidated
subsidiaries, with offsetting amounts shown in Noncontrolling interests for the portion of these items that are not
attributable to us.
Share-Based Compensation Plans
Stock-based compensation expense for all share-based payment awards granted is determined based on the
grant-date fair value. We recognize these compensation costs net of estimated forfeitures over the requisite
service period of the award, which is generally the vesting term of the share-based payment awards. We
estimated the forfeiture rate based on our historical experience. These plans are described more fully in Note 8.
Earnings per Share
Effective January 1, 2009, we adopted new guidance which specified that unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating
securities and are included in the computation of earnings per share (EPS) pursuant to the two-class method. As
our unvested restricted shares qualify as participating securities, we have included these shares in the
computation of EPS.
Basic earnings per share is computed by dividing net income (loss) attributable to Bio-Rad by the weighted
average number of common shares outstanding for that period. Diluted earnings per share takes into account the
effect of dilutive instruments, such as stock options and restricted 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 earnings per share
calculation if the effect would be anti-dilutive.
43
The weighted average number of common shares outstanding used to calculate basic and diluted earnings per
share and the anti-dilutive shares are as follows (in thousands):
Year Ended December 31,
2009
2010
2008
Basic weighted average shares outstanding
Effect of potentially dilutive stock options
and restricted stock awards
Diluted weighted average common shares
Anti-dilutive shares
27,665
27,404
27,112
486
28,151
424
27,828
526
27,638
114
176
105
Fair Value of Financial Instruments
For certain financial instruments, including cash and cash equivalents, short-term investments, accounts
receivable, marketable securities, notes payable, accounts payable and foreign exchange contracts, the carrying
amounts approximate fair value.
The estimated fair value of financial instruments are based on the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) using available market information or other appropriate
valuation methodologies in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants. Estimates are not necessarily indicative of the amounts that could be
realized in a current market exchange as considerable judgment is required in interpreting market data used to
develop estimates of fair value. The use of different market assumptions or estimation techniques could have a
material effect on the estimated fair value (see Note 3).
Recent Financial Accounting Standards
In January 2010, the Financial Accounting Standards Board (FASB) issued a standard to improve disclosures
about fair value measurements. Specifically, the standard requires entities to disclose the amounts of significant
transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers; the reasons
for any transfers in or out of Level 3; and information in the reconciliation of recurring Level 3 measurements
about purchases, sales, issuances and settlements on a gross basis. The standard was effective for our interim
period ended March 31, 2010, except for the requirement to disclose information about purchases, sales,
issuances, and settlements in the reconciliation of recurring Level 3 measurements on a gross basis. Those
disclosures will be effective for our interim period ending March 31, 2011. This standard did not effect nor is
expected to effect our consolidated financial statements as it is for disclosure purposes only.
2.
ACQUISITIONS
In January 2010, we acquired certain diagnostic businesses of Biotest AG (Biotest) for 45 million Euros
(approximately $64.9 million) in cash. The acquisition was accounted for as a business combination. The
operating results of these businesses are included in our Clinical Diagnostics segment. We acquired $30.9
million of net tangible assets, $12.8 million of goodwill and $21.2 million of intangible assets. The goodwill
recorded will not be deductible for tax purposes. Integrating the acquired portion of Biotest's diagnostic
businesses into our product portfolio broadened our product offering in the area of immunohematology and
provided us access to the U.S. markets with a range of products.
44
In October 2007, we began acquiring the outstanding shares of DiaMed Holding AG (DiaMed). DiaMed
develops, manufactures and markets worldwide a complete line of reagents used in blood typing and screening
as well as instruments and instrument systems that use its proprietary reagents, and is included in our Clinical
Diagnostics segment. The acquisition was performed in stages, with the final shares purchased in February
2010. Through December 2008, we acquired $38.1 million of net tangible assets, $202.0 million of goodwill
and $192.8 million of intangible assets. The final two purchases were accounted for as equity transactions,
which resulted in a net reduction of Bio-Rad’s additional paid in capital of $14.9 million. The following table
summarizes the purchase activity related to DiaMed (in millions):
October 2007
March 2008
December 2008
April 2009
February 2010
Percent
Voting
Interests
86%
3%
4%
6%
1%
100%
Consideration
Paid
$ 399.3
14.0
19.6
30.0
1.4
$ 464.3
In September 2010, we acquired the remaining noncontrolling interests of DiaMed France SA. We paid
10.2 million Euros (approximately $12.9 million) in cash. Approximately 1.5 million Euros (approximately
$1.9 million) will be due in 2011 as additional contingent consideration and is included in Other current
liabilities in the Consolidated Balance Sheet. As this acquisition was accounted for as an equity transaction,
Bio-Rad’s additional paid-in capital was increased by $1.2 million.
In December 2008, we acquired 100% of the shares of DiaMed Fennica Oy (Fennica) and 100% of the shares of
DiaMed (G.B.) Limited. These companies were independent distributors of DiaMed products and are included
in our Clinical Diagnostics segment. The total cash purchase price of these acquisitions was approximately
$17 million. We acquired $2.2 million of net tangible liabilities, $5.7 million of goodwill and $13.5 million of
intangible assets based on the completion of the purchase price allocations during 2009.
3.
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. 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
• Level 3
for similar instruments)
Significant unobservable inputs (including assumptions in determining
the fair value of certain investments)
45
Financial assets and liabilities carried at fair value on a recurring basis as of December 31, 2010 are classified in
the hierarchy as follows (in millions):
Financial Assets Carried at Fair Value:
Cash equivalents (a):
Commercial paper
Time deposits
Money market funds
Available-for-sale investments (b):
Corporate debt securities
U.S. government sponsored agencies
Foreign government obligations
Municipal obligations
Marketable equity securities
Asset-backed securities:
Collateralized mortgage obligations
Other mortgage-backed securities
Other
Forward foreign exchange contracts (c)
Total Financial Assets Carried at Fair Value
Financial Liabilities Carried at Fair Value:
Forward foreign exchange contracts (d)
Level 1
Level 2
Total
$ --
16.7
266.3
$ 179.6
25.0
--
$ 179.6
41.7
266.3
--
--
--
--
102.2
39.8
54.7
4.5
7.7
--
39.8
54.7
4.5
7.7
102.2
--
--
--
--
$ 385.2
0.1
2.5
0.3
0.5
$ 314.7
0.1
2.5
0.3
0.5
$ 699.9
$ --
$ 3.3
$ 3.3
(a) Cash equivalents are included in Cash and cash equivalents in the Consolidated Balance Sheets.
(b) Available-for-sale investments of $118.6 million are included in Short-term investments and $93.2
million are included in Other assets in the Consolidated Balance Sheets.
(c) Forward foreign exchange contracts in an asset position are included in Prepaid expenses, taxes and
other current assets in the Consolidated Balance Sheets.
(d) Forward foreign exchange contracts in a liability position are included in Other current liabilities in the
Consolidated Balance Sheets.
To estimate the fair value of Level 2 debt securities, excluding commercial paper and U.S. Treasury bills and
notes, we examine quarterly the pricing provided by two pricing services and we obtain indicative market prices
when there is insufficient correlation between the pricing services. To estimate the fair value of Level 2
commercial paper and U.S. Treasury bills and notes we examine quarterly the pricing from our primary pricing
service to ensure consistency with other similar securities. As a result of our analysis as of December 31, 2010,
we utilized our primary pricing service for all Level 2 debt securities for consistency since the results did not
require the use of alternative pricing.
In addition, we review for investment securities that may trade in illiquid or inactive markets by identifying
instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as
instances of a significant widening of the bid-ask spread in the brokered markets. As of December 31, 2010, we
did not have any investment securities in illiquid or inactive markets.
46
The inputs used by our primary pricing service for Level 2 cash equivalents, corporate debt securities, foreign
government obligations, U.S. government sponsored agencies and municipal obligations, vary depending on the
type of security being valued, but generally include benchmark yields, reported trades, broker/dealer quotes,
issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, corporate actions or
Nationally Recognized Municipal Securities Information Repository (NRMSIR) material event notices, plus
new issue money market rates.
The inputs used by our primary pricing service in estimating the fair value of Level 2 collateralized mortgage
obligations and other mortgage-backed securities include many of the inputs mentioned above in addition to
monthly payment information. These issues were priced by our primary pricing service against issues with
similar vintage and credit quality with adjustments for tranche, average life and extension risk.
Forward foreign exchange contracts: As part of distributing our products, we regularly enter into
intercompany transactions. We enter into forward foreign currency 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 and related primarily to currencies of industrial countries, are
recorded at their fair value at each balance sheet date. The fair value of these contracts was derived using the
spot rates published in the Wall Street Journal on the last business day of the quarter and the points provided by
counterparties. The resulting gains or losses offset exchange gains or losses on the related receivables and
payables, both of which are recorded as Foreign exchange losses, net in the Consolidated Statements of Income.
The cash flows related to these contracts are classified as Cash flows from investing activities in the
Consolidated Statements of Cash Flows. At December 31, 2010, we had contracts maturing in January through
March 2011 to sell foreign currency with a notional value of $54.1 million and an unrealized loss of $0.1
million and contracts to purchase foreign currency, which had a notional value of $432.7 million with an
unrealized loss of $2.7 million.
Financial assets carried at fair value on a recurring basis as of December 31, 2009 are classified in the hierarchy
as follows (in millions):
Assets:
Cash equivalents
Forward foreign exchange contracts
Available-for-sale investments:
Corporate debt securities
Municipal obligations
Asset-backed securities
U.S. government sponsored agencies
Foreign government obligations
Marketable equity securities
Level 1
Level 2
Total
$
301.4
--
$
$
89.8
0.3
391.2
0.3
--
--
--
--
--
64.2
23.8
2.4
5.5
41.5
17.9
0.2
23.8
2.4
5.5
41.5
17.9
64.4
Total
$
365.6
$
181.4
$
547.0
As of December 31, 2010 and 2009, we did not hold any financial assets that use Level 3 inputs to determine
fair value.
47
Available-for-sale investments consist of the following (in millions):
Short-term investments:
Corporate debt securities
Municipal obligations
Asset-backed securities
U.S. government sponsored agencies
Foreign government obligations
Marketable equity securities
Long-term investments:
Marketable equity securities
Asset-backed securities
December 31, 2010
Amortized
Unrealized
Cost
Gains
Unrealized
Losses
Estimated
Fair
Value
$ 39.8
7.7
1.9
54.7
4.5
8.8
117.4
45.5
0.7
46.2
$ --
--
--
--
--
1.3
1.3
47.9
0.1
48.0
$ --
--
--
--
--
(0.1)
(0.1)
(0.9)
(0.1)
(1.0)
$ 39.8
7.7
1.9
54.7
4.5
10.0
118.6
92.5
0.7
93.2
Total
$ 163.6
$ 49.3
$ (1.1)
$ 211.8
Short-term investments:
Corporate debt securities
Municipal obligations
Asset-backed securities
U.S. government sponsored agencies
Foreign government obligations
Marketable equity securities
Long-term investments:
Marketable equity securities
Asset-backed securities
December 31, 2009
Amortized
Unrealized
Cost
Gains
Unrealized
Losses
Estimated
Fair
Value
$ 23.8
2.4
0.9
41.5
17.9
8.6
95.1
29.9
5.0
34.9
$ --
--
--
--
--
0.4
0.4
26.4
0.2
26.6
$ --
--
--
--
--
(0.6)
(0.6)
(0.3)
(0.6)
(0.9)
$ 23.8
2.4
0.9
41.5
17.9
8.4
94.9
56.0
4.6
60.6
Total
$ 130.0
$ 27.0
$ (1.5)
$ 155.5
As of December 31, 2010 and 2009, we had investments with gross unrealized losses of $0.6 million and $1.5
million, respectively, that were in a loss position for 12 months or more. The number of investment positions
that were in an unrealized loss position were 43 and 37 as of December 31, 2010 and 2009, respectively.
48
The unrealized losses on these securities are due to a number of factors, including changes in interest rates,
changes in economic conditions and changes in market outlook for various industries, among others. Because
Bio-Rad has the ability and intent to hold these investments with unrealized losses until a recovery of fair value,
or for a reasonable period of time sufficient for a forecasted recovery of fair value, which may be maturity, we
do not consider these investments to be other-than-temporarily impaired at December 31, 2010.
The following is a summary of the amortized cost and estimated fair value of our debt securities at
December 31, 2010 by contractual maturity date (in millions):
Mature in less than one year
Mature in one to five years
Mature in more than five years
Total
Amortized
Cost
Fair
Value
$ 106.7
--
2.6
$ 109.3
$ 106.7
--
2.6
$ 109.3
The estimated fair value of financial instruments in the table below has been determined using available market
information or other appropriate valuation methodologies. Estimates are not necessarily indicative of the
amounts that could be realized in a current market exchange as considerable judgment is required in interpreting
market data used to develop estimates of fair value. The use of different market assumptions or estimation
techniques could have a material effect on the estimated fair value. Other assets include some financial
instruments that have fair values based on market quotations. Long-term debt has an estimated fair value based
on quoted market prices for the same or similar issues.
The estimated fair value of our financial instruments is as follows (in millions):
December 31, 2010
December 31, 2009
Carrying
Amount
Estimated
Fair
Value
Estimated
Carrying
Amount
Fair
Value
Other assets
Current maturities of long-term
debt, excluding leases
Total long-term debt, excluding
leases
$ 145.6
$ 205.6
$ 101.8
$ 119.6
$ 225.0
$ 228.1
$ --
$ --
$ 718.2
$ 734.8
$ 720.1
$ 734.1
We own shares of ordinary voting stock of Sartorius AG, of Goettingen, Germany, a process technology
supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries. We own over 30%
of the outstanding voting shares (excluding treasury shares) of Sartorius as of December 31, 2010. The
Sartorius family trust and Sartorius family members hold a controlling interest of the outstanding voting shares.
We do not have any representative or designee on Sartorius’ board of directors, nor do we have any other
influence over the operating and financial policies of Sartorius. Therefore, we account for this investment using
the cost method. The carrying value of this investment is included in Other assets in our Consolidated Balance
Sheets.
49
4.
GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Goodwill balances have been included in Corporate for segment reporting purposes in Note 13. Changes to
Goodwill were as follows (in millions):
Balances as of January 1:
Goodwill
Accumulated impairment losses
Goodwill, net
Updated purchase price allocation
Acquisitions
Currency fluctuations
Balances as of December 31:
Goodwill
Accumulated impairment losses
Goodwill, net
Life
Science
$ 70.7
(27.2)
43.5
--
--
--
70.7
(27.2)
$ 43.5
2010
Clinical
Diagnostics
Total
Life
Science
2009
Clinical
Diagnostics
Total
$ 284.1
--
284.1
--
12.8
23.6
320.5
--
$ 320.5
$ 354.8
(27.2)
327.6
--
12.8
23.6
$ 70.7
(27.2)
43.5
--
--
--
$ 278.3
--
278.3
(1.6)
--
7.4
$ 349.0
(27.2)
321.8
(1.6)
--
7.4
391.2
(27.2)
$ 364.0
70.7
(27.2)
$ 43.5
284.1
--
$ 284.1
354.8
(27.2)
$ 327.6
In conjunction with the acquisition of certain businesses of Biotest in January 2010 (see Note 2), we recorded
$12.8 million of goodwill and $21.2 million of intangible assets: $7.5 million of customer relationships, $9.5
million of developed product technology and $4.2 million of tradenames.
In 2009, the purchase price allocation was completed for the December 2008 acquisitions of DiaMed Fennica
Oy and DiaMed (G.B.) Limited.
In 2008, a $27.2 million impairment loss related to goodwill was recorded in the Life Science segment. The
goodwill was originally recorded as part of an acquisition in 1999. The impairment was caused primarily by the
continuing decline in sales of the BSE (bovine spongiform encephalopathy) product line. No impairment losses
related to goodwill were recorded in 2010 and 2009.
Other than goodwill, we have no intangible assets with indefinite lives. Information regarding our identifiable
purchased intangible assets with definite lives is as follows (in millions):
Average
Remaining
Life (years)
Customer relationships/lists
Know how
Developed product technology
Licenses
Tradenames
Covenants not to compete
Patents
Other
1-13
1-6
1-11
1-10
2-12
1-8
--
1
December 31, 2010
Purchase Accumulated
Amortization
$ (24.8)
(33.0)
(19.2)
(12.2)
(15.9)
(4.6)
(1.0)
(0.1)
$ (110.8)
Price
$ 102.3
92.6
47.9
35.4
29.5
5.9
1.0
0.1
$ 314.7
Net
Carrying
Amount
$ 77.5
59.6
28.7
23.2
13.6
1.3
--
--
$ 203.9
50
Average
Remaining
Life (years)
Customer relationships/lists
Know how
Developed product technology
Licenses
Tradenames
Covenants not to compete
Patents
Other
1-14
1-7
1-12
2-11
3-12
2-9
1
2
December 31, 2009
Purchase Accumulated
Amortization
$(15.9)
(28.5)
(16.5)
(12.2)
(8.8)
(3.4)
(0.9)
(0.1)
$(86.3)
Price
$ 90.3
92.0
40.5
37.6
23.6
6.0
1.0
0.1
$ 291.1
Net
Carrying
Amount
$ 74.4
63.5
24.0
25.4
14.8
2.6
0.1
--
$ 204.8
In 2009, a $3.8 million impairment loss related to intangible assets was recorded in the Life Science segment.
The intangible asset impairment related to the developed technology intangible assets of certain product lines
that were acquired in 2006. In 2008, a $1.6 million impairment loss related to intangible assets was recorded in
the Life Science segment. The intangible asset impairment related to the developed technology intangible assets
of certain product lines that were acquired in 2006. No impairment losses related to intangible assets were
recorded for 2010.
Amortization expense related to purchased intangible assets for the years ended December 31, 2010, 2009 and
2008 was $33.7 million, $31.7 million and $29.8 million, respectively. Estimated future amortization expense
(based on existing intangible assets) for the years ending December 31, 2011, 2012, 2013, 2014 and 2015 is
$32.9 million, $30.6 million, $26.3 million, $23.7 million and $20.7 million, respectively.
5.
NOTES PAYABLE AND LONG-TERM DEBT
Notes payable includes credit lines maintained locally by our international subsidiaries aggregating
approximately $51.2 million, of which $48.0 million was unused at December 31, 2010. At December 31,
2009, these lines aggregated approximately $52.7 million, of which $49.1 million was unused. The weighted
average interest rate on these lines was 1.4% and 4.0% at December 31, 2010 and 2009, respectively. Bio-Rad
guaranteed most of these credit lines.
The principal components of long-term debt are as follows (in millions):
December 31, December 31,
2010
2009
7.5% Senior Subordinated Notes
6.125% Senior Subordinated Notes
8.0% Senior Subordinated Notes
4.875% Senior Notes
Capital leases and other debt
$
Less current maturities
Long-term debt
$
225.0
--
295.6
422.6
21.0
964.2
(233.1)
731.1
$
$
225.0
200.0
295.1
--
22.5
742.6
(4.7)
737.9
51
In December 2010, Bio-Rad sold $425.0 million principal amount of Senior Notes due 2020 (4.875% Notes).
The sale yielded net cash proceeds of $422.6 million at an effective rate of 4.946%. The 4.875% Notes pay a
fixed rate of interest of 4.875% per year. We have the option to redeem any or all of the 4.875% Notes at any
time at a redemption price of 100% of the principal amount (plus a specified make-whole premium as defined in
the indenture governing the 4.875% Notes) and accrued and unpaid interest thereon to the redemption date. Our
obligations under the 4.875% Notes are not secured and rank equal in right of payment with all of our existing
and future unsubordinated indebtedness. The net proceeds from the issuance of the 4.875% Notes were used,
together with cash on hand, to redeem all $200 million of our 6.125% Notes (as defined below) in December
2010 and all $225 million of our 7.5% Notes (as defined below) in January 2011.
In June 2010, Bio-Rad entered into a $200.0 million Amended and Restated Credit Agreement (Credit
Agreement). Borrowings under the Credit Agreement are on a revolving basis and can be used for acquisitions,
for working capital and for other general corporate purposes. We had no outstanding borrowings under the
Credit Agreement as of December 31, 2010. The Credit Agreement expires on June 21, 2014.
In May 2009, Bio-Rad sold $300.0 million principal amount of Senior Subordinated Notes due 2016 (8.0%
Notes). The sale yielded net cash proceeds of $294.8 million at an effective interest rate of 8.3%. The 8.0%
Notes pay a fixed rate of interest of 8.0% per year. We have the option to redeem any or all of the 8.0% Notes
at any time prior to September 15, 2013 at a redemption price of 100% of the principal amount thereof plus a
specified make-whole premium (as defined in the indenture) governing the 8.0% Notes and accrued and unpaid
interest thereon to the redemption date. We also have the option to redeem any or all of the 8.0% Notes at any
time on or after September 15, 2013 at various declining redemption prices plus accrued and unpaid interest
thereon to the redemption date. Our obligations under the 8.0% Notes are not secured, rank equal in right of
payment with all of our existing and future senior subordinated indebtedness and rank junior in right of payment
to all of our existing and future unsubordinated indebtedness, including any borrowings under the Credit
Agreement and the 4.875% Notes.
In December 2004, Bio-Rad sold $200.0 million principal amount of Senior Subordinated Notes due 2014
(6.125% Notes). In December 2010, we redeemed all of the 6.125% Notes for $204.3 million, including a call
premium, which is included in Interest expense in our Consolidated Statements of Income.
In August 2003, Bio-Rad sold $225.0 million principal amount of Senior Subordinated Notes due 2013 (7.5%
Notes). In January 2011, we redeemed all of the 7.5% Notes for $234.6 million, including a call premium,
which will be included in Interest expense in our Consolidated Statements of Income.
The Credit Agreement is secured by substantially all of our personal property assets, the assets of our domestic
subsidiaries and 65% of the capital stock of certain of our foreign subsidiaries. It is guaranteed by all of our
existing and future material domestic subsidiaries. The Credit Agreement and the 8.0% Notes require Bio-Rad
to comply with certain financial ratios and covenants, among other things. These ratios and covenants include a
leverage ratio test and an interest coverage test, as well as restrictions on our ability to declare or pay dividends,
incur debt, guarantee debt, enter into transactions with affiliates, merge or consolidate, sell assets, make
investments, create liens and prepay subordinated debt. We were in compliance with all of these ratios and
covenants as of December 31, 2010.
Maturities of long-term debt at December 31, 2010 are as follows: 2011 - $233.1 million; 2012 - $0.4 million;
2013 - $0.2 million; 2014 - $0.1 million; 2015 - $0.1 million; thereafter - $730.3 million.
52
6.
INCOME TAXES
The U.S. and international components of income before taxes are as follows (in millions):
Year Ended December 31,
2009
2010
2008
U.S.
International
Income before taxes
$ 79.5 $ 87.2
140.8
98.6
$ 220.3 $ 185.8
$ 52.7
90.1
$ 142.8
The provision for income taxes consists of the following (in millions):
Current tax expense (benefit):
U.S. Federal
State
International
Current tax expense
Deferred tax expense (benefit):
U.S. Federal
State
International
Deferred tax benefit
Non-current tax expense
Provision for income taxes
Year Ended December 31,
2009
2008
2010
$
(5.1)
3.9
35.2
34.0
$ 24.9
4.4
17.3
46.6
$ 28.3
4.0
15.2
47.5
5.9
0.2
(10.2)
(4.1)
3.4
$ 33.3
(2.5)
(0.3)
(8.9)
(11.7)
2.5
0.1
(5.9)
(3.3)
0.4
$ 44.6
1.8
$ 36.7
The reconciliation between our effective tax rate on income before taxes and the statutory tax rate is as
follows:
Year Ended December 31,
2009
2010
2008
U. S. statutory tax rate
Impact of foreign operations
Research and development tax credits
Change in valuation allowance
Examination settlements
Repatriation of foreign earnings
Goodwill impairment
Other
Provision for income taxes
35%
(6)
(4)
--
--
(10)
--
--
15%
35%
(8)
(7)
1
(1)
--
--
--
20%
35%
(6)
(9)
3
2
--
7
(1)
31%
53
Deferred tax assets and liabilities reflect the tax effects of losses, credits, and temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of deferred tax assets and liabilities are as follows (in millions):
Deferred tax assets:
Bad debt, inventory and warranty accruals
Other reserves
Tax credit and net operating loss carryforwards
Other
Valuation allowance
Deferred tax liabilities:
Depreciation
Basis of capital assets and investments
Net deferred taxes
December 31,
2010
2009
$ 25.5
16.7
35.7
13.3
(37.0)
54.2
11.4
46.5
57.9
(3.7)
$
$ 28.0
14.2
34.1
15.0
(37.9)
53.4
10.0
35.4
45.4
8.0
$
At December 31, 2010, Bio-Rad’s international subsidiaries had combined net operating loss carryforwards of
$80.0 million. These loss carryforwards have no expiration date. We believe that it is more likely than not that
the benefit from these net operating loss carryforwards will not be realized. We have provided a valuation
allowance of $24.1 million on the deferred tax assets relating to these net operating loss carryforwards. If or
when recognized, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets at
December 31, 2010 will be recognized as a reduction of income tax expense.
At December 31, 2010, Bio-Rad had U.S. Federal net operating loss carryforwards of $7.3 million as a result of
acquisitions. The utilization of these net operating loss carryforwards is subject to an annual limitation under
Internal Revenue Code Section 382 but are expected to be fully realized. The loss carryforwards will expire in
the following years: 2018 - $6.2 million; and 2028 - $1.1 million.
At December 31, 2010, Bio-Rad had a deferred tax asset of $9.1 million relating to California research and
development tax credit carryforwards, which may be carried forward indefinitely. Based on our judgment and
consistent with prior years, we have recorded a full valuation allowance against the deferred tax asset.
The following table summarizes at December 31, 2010 the tax years that are either currently under audit or
remain open and subject to examination by tax authorities in the major jurisdictions that Bio-Rad operates:
U.S.
France
Germany
Italy
Japan
Switzerland
2007-2010
2007-2010
2004-2010
2005-2009
2009-2010
2010
54
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year (in
millions):
Unrecognized tax benefits – January 1
Additions to tax positions related to prior years
Reductions to tax positions related to prior years
Additions to tax positions related to the current year
Settlements
Lapse of statute of limitations
Currency translation
Unrecognized tax benefits – December 31
2010
2009
2008
$ 17.5
4.1
(0.1)
3.3
(0.1)
(4.1)
--
$ 18.1
2.1
(4.3)
3.3
--
(1.9)
0.2
$ 20.6 $ 17.5
$ 22.3
1.9
(0.7)
2.4
(4.3)
(2.6)
(0.9)
$ 18.1
Substantially all our unrecognized tax benefits at December 31, 2010, 2009 and 2008 would affect the effective
tax rate if recognized.
Bio-Rad recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.
Related to the unrecognized tax benefits noted above, Bio-Rad has accrued interest of $2.8 million and
$2.5 million as of December 31, 2010 and 2009, respectively.
At December 31, 2010, we believe that it is reasonably possible that approximately $5.7 million of our
unrecognized tax benefits may be recognized by the end of 2011 as a result of statute lapses. These benefits are
related to uncertainty regarding sustainability of certain deductions and credits for tax years that remain subject
to examination by the relevant tax authorities.
In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in their
operations. As of December 31, 2010, Bio-Rad had not made a provision for U.S. or additional foreign
withholding taxes on approximately $393 million of the excess of the amount for financial reporting over the tax
basis of investments in foreign subsidiaries that are essentially permanent in duration. Generally, such amounts
become subject to U.S. taxation upon remittance of dividends and under certain other circumstances. If these
earnings were repatriated to the U.S., the deferred tax liability associated with these temporary differences
would be approximately $86 million.
7.
STOCKHOLDERS’ EQUITY
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 participates equally in the earnings of Bio-Rad, and is
identical in most respects except that Class A has limited voting rights. Each share of Class A is entitled to one-
tenth of a vote on most matters, and each share of Class B is entitled to one vote. Additionally, Class A
stockholders are entitled to elect 25% of the Board of Directors and Class B stockholders are entitled to elect the
balance of the directors. Cash dividends may be paid on Class A shares without paying a cash dividend on
Class B shares but no cash dividend may be paid on Class B shares unless at least an equal cash dividend is
55
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. The Schwartz family collectively holds a majority of Bio-Rad’s voting stock. As
a result, the Schwartz family is able to exercise significant influence over Bio-Rad.
8.
SHARE-BASED COMPENSATION/STOCK OPTION AND PURCHASE PLANS
Description of Share-Based Compensation Plans
Stock Option and Award Plans
We have three stock option plans for officers and certain other employees: the Amended 1994 Stock Option
Plan (1994 Plan); the 2003 Stock Option Plan (2003 Plan); and the 2007 Incentive Award Plan (2007 Plan).
The 1994 Plan and 2003 Plan authorized the grant of incentive stock options and non-qualified stock options to
employees. The 2007 Plan authorizes the grant of stock options, restricted stock awards, stock appreciation
rights and other types of equity awards to employees. We no longer make stock option grants under the 1994
Plan or 2003 Plan. A total of 1,650,360 shares have been reserved for issuance of equity awards and may be of
either Class A or Class B common stock. At December 31, 2010, there were 983,227 shares available to be
granted in the future.
Under these plans, Class A and Class B options are granted at prices not less than fair market value of the
underlying common stock on the date of grant. Generally, options granted have a term of 10 years and vest in
increments of 20% per year over a five-year period on the yearly anniversary date of the grant. Stock awards
issued under the 2007 Plan generally vest in increments of 20% per year over a five-year period on the yearly
anniversary date of the grant.
Employee Stock Purchase Plan (ESPP)
We have an employee stock purchase plan which provides that eligible employees may contribute up to 10% of
their compensation up to $25,000 annually toward the quarterly purchase of our Class A common stock. The
employees’ purchase price is 85% of the lesser of the fair market value of the stock on the first business day or
the last business day of each calendar quarter. We have authorized the sale of 2,390,000 shares of common
stock under the ESPP.
Share-Based Compensation Expense
Included in our share-based compensation expense is the cost related to stock option grants, ESPP stock
purchases, restricted stock and restricted stock unit awards. Share-based compensation expense is allocated to
Cost of goods sold, Research and development expense, and Selling, general and administrative expense in the
Consolidated Statements of Income.
For 2010, 2009 and 2008, we recognized pre-tax share-based compensation expense of $10.2 million,
$9.1 million and $7.3 million, respectively. We did not capitalize any share-based compensation expense.
For options and awards, we amortize the fair value on a straight-line basis. All stock compensation awards are
amortized over the requisite service periods of the awards, which are generally the vesting periods.
56
Stock Options
The following table summarizes stock option activity.
Outstanding, January 1, 2008
Granted
Exercised
Forfeited/expired
Outstanding, December 31, 2008
Granted
Exercised
Forfeited/expired
Outstanding, December 31, 2009
Granted
Exercised
Forfeited/expired
Outstanding, December 31, 2010
Vested and expected to vest,
December 31, 2010
Weighted-
Average
Shares
Exercise Price
1,488,275
59,000
(269,731)
(23,417)
1,254,127
58,500
(90,542)
(15,711)
1,206,374
58,500
(200,125)
(6,930)
$
$
$
$
$
$
$
$
$
$
$
$
43.06
88.35
25.09
53.99
48.84
75.07
38.20
59.15
50.78
84.57
26.81
61.08
1,057,819 $
57.12
1,041,954 $
56.75
Exercisable, December 31, 2010
842,617 $
52.04
Weighted-
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic
Value
(in millions)
4.40
4.34
3.59
$ 49.4
$ 49.1
$ 43.7
The following summarizes information about stock options outstanding at December 31, 2010:
Options Outstanding
Options Exercisable
Range of
Exercise Prices
$ 28.61 - $ 53.50
$ 53.75 - $ 57.49
$ 62.47 - $ 75.00
$ 75.32 - $ 88.48
Number
Outstanding
321,677
283,006
277,736
175,400
Weighted-
Average
Remaining
Contractual
Term
(in years)
1.95
3.65
5.51
8.35
Weighted -
Average
Exercise
Price
$ 37.12
$ 55.86
$ 65.33
$ 82.80
Number
Exercisable
321,677
283,006
196,634
41,300
Weighted -
Average
Exercise Price
$ 37.12
$ 55.86
$ 64.48
$ 82.78
Intrinsic value for stock options is defined as the difference between the current market value and the grant
price. The total intrinsic value on the date of exercise of stock options exercised during 2010, 2009 and 2008
was approximately $13 million, $4 million and $17 million, respectively.
57
Cash received from stock options exercised during 2010, 2009 and 2008 was $5.4 million, $3.5 million and $6.8
million, respectively. The actual tax benefit realized for the tax deductions from stock options exercised totaled
$5.0 million, $2.0 million and $6.3 million in 2010, 2009 and 2008, respectively.
As of December 31, 2010, there was $5.5 million of total unrecognized compensation cost from stock options.
The cost is expected to be recognized in the future over a weighted-average period of approximately 3 years.
The weighted-average fair value of stock options granted was estimated using a Black-Scholes option-pricing
model with the following weighted-average assumptions:
Year Ended December 31,
2009
2008
2010
Expected volatility
Risk-free interest rate
Expected life (in years)
Expected dividend
Weighted-average fair value of options granted
35%
2.40%
8.7
--
$ 38.19
34%
3.69%
8.4
--
$ 35.56
34%
3.92%
8.5
--
$ 42.21
Volatility is based on the historical volatilities of our common stock for a period equal to the stock option’s
expected life. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the
grant. The expected life represents the number of years that we estimate, based primarily on historical
experience, that the options will be outstanding prior to exercise. We do not anticipate paying any cash
dividends in the future and therefore use an expected dividend yield of zero.
Restricted Stock
Under the 2007 Plan, restricted stock was last granted in 2008 and there will be no further grants. The fair value
of each share of restricted stock is the market value as determined by the closing price of the stock on the day of
grant.
The following table summarizes restricted stock activity:
2010
Year Ended December 31,
2009
2008
Restricted
Stock
Shares
Weighted-
Average
Grant-Date
Fair Value
Restricted
Stock
Shares
Weighted-
Average
Grant-Date
Fair Value
Restricted
Weighted-
Average
Stock Grant-Date
Fair Value
Shares
--
101,247 $ 82.86
--
(28,518) $ 81.94
(3,836) $ 83.47
135,914 $ 82.64
--
--
(29,572) $ 81.94
(5,095) $ 82.45
75,720
78,485
(14,625)
(3,666)
$ 75.33
$ 88.09
$ 75.33
$ 77.24
68,893
$ 83.21 101,247
$ 82.86 135,914
$ 82.64
Nonvested shares, at
beginning of year
Granted
Vested
Cancelled/forfeited
Nonvested shares, at
end of year
As of December 31, 2010, there was approximately $4.0 million of total unrecognized compensation cost related
to restricted stock granted under the 2007 Plan. The cost is expected to be recognized over a remaining
weighted-average period of approximately 2 years.
58
Restricted Stock Units
Restricted stock units, which are rights to receive shares of company stock, were granted from 2007 through
2010 under the 2007 Plan. The fair value of each restricted stock unit is the market value as determined by the
closing price of the stock on the day of grant.
The following table summarizes restricted stock unit activity:
Restricted
Stock
Units
Weighted- Weighted-Average
Average
Grant-Date
Fair Value
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value
as of
December 31, 2010
(in millions)
Outstanding, January 1, 2008
Granted
Vested
Forfeited
Outstanding, December 31, 2008
Granted
Vested
Forfeited
Outstanding, December 31, 2009
Granted
Vested
Forfeited
26,750
37,445
(2,593)
(953)
$
$
$
$
$
60,649
120,685
$
(11,885) $
(6,251) $
$
163,198
126,330
$
(33,825) $
(13,481) $
75.32
88.00
75.32
79.58
83.08
74.40
79.77
80.20
77.01
84.57
78.41
79.71
Outstanding, December 31, 2010
242,222
$
80.61
2.24
$ 25.2
As of December 31, 2010, there was approximately $14.8 million of total unrecognized compensation cost
related to restricted stock units granted under the 2007 Plan. The cost is expected to be recognized over a
remaining weighted-average period of approximately 4 years.
Employee Stock Purchase Plan
The fair value of the employees’ purchase rights was estimated using a Black-Scholes model with the following
weighted-average assumptions:
Expected volatility
Risk-free interest rate
Expected life (in years)
Expected dividend
Weighted-average fair value
of purchase rights
Year Ended December 31,
2009
2010
2008
23%
.15%
.25
--
35%
.14%
.25
--
37%
1.87%
.25
--
$ 18.27
$ 16.71
$ 20.79
59
The major assumptions are primarily based on historical data. Volatility is based on the historical volatilities of
our common stock for a period equal to the expected life of the purchase rights. The risk-free interest rate is
based on the U.S. Treasury yield curve in effect at the time of the grant. We do not anticipate paying any cash
dividends in the future and therefore use an expected dividend yield of zero.
We sold 96,586 shares for $7.4 million, 109,025 shares for $6.8 million and 88,533 shares for $6.1 million
under the ESPP to employees in 2010, 2009 and 2008, respectively. At December 31, 2010, 132,018 shares
remain authorized under the ESPP.
We currently issue new shares to satisfy stock option exercises, restricted stock issuances and ESPP stock
purchases.
9.
OTHER INCOME AND EXPENSE, NET
Other (income) expense, net includes the following components (in millions):
Interest and investment income
Net realized (gains) losses on investments
Other-than-temporary impairment of investments
Foreign non-income tax relief
Miscellaneous other items
Other (income) expense, net
2010
Year Ended December 31,
2009
$ (5.7)
--
3.5
(4.6)
(0.1)
$ (6.9)
2008
$ (10.6)
0.7
10.9
--
(0.6)
0.4
$ (5.2)
(0.6)
0.2
--
1.7
$ (3.9)
$
Other-than-temporary impairments of investments were recorded in 2010, 2009 and 2008 on certain of our
available-for-sale investments in light of the continuing declines in their market prices at that time. We did not
believe these particular investments would recover their carrying value.
60
10.
SUPPLEMENTAL CASH FLOW INFORMATION
The reconciliation of net income including noncontrolling interests to net cash provided by operating activities is as
follows (in millions):
Net income including noncontrolling interests
Adjustments to reconcile net income including
noncontrolling interests to net cash provided by
operating activities (net of effects of acquisitions):
Depreciation
Amortization
Excess tax benefits from share-based compensation
Share-based compensation
Foreign currency economic hedge transactions, net
Losses (gains) on dispositions of securities
Decrease (increase) in accounts receivable, net
Decrease (increase) in inventories, net
Decrease (increase) in other current assets
Increase (decrease) in accounts payable
and other current liabilities
Increase (decrease) in income taxes payable
Decrease in deferred income taxes
Goodwill and purchased intangible asset impairments
Other
Net cash provided by operating activities
Year Ended December 31,
2010
2009
2008
$ 186.9
$ 149.2
$ 98.3
74.5
34.4
(2.9)
10.2
(3.2)
(0.5)
(37.0)
(15.9)
(9.3)
69.5
32.2
(0.7)
9.1
2.5
3.5
4.3
35.8
11.8
66.3
30.8
(5.1)
7.3
5.4
10.6
11.1
(51.9)
(0.6)
9.1
(19.3)
(6.5)
--
5.4
$ 225.9
6.1
8.7
(11.6)
3.8
0.9
$ 325.1
(3.6)
(1.6)
(3.2)
28.8
(1.2)
$ 191.4
11.
COMMITMENTS AND CONTINGENT LIABILITIES
Rents and Leases
Net rental expense under operating leases was $38.3 million in 2010, $37.0 million in 2009 and $38.8 million in
2008. Leases are principally for facilities and automobiles.
Annual future minimum lease payments at December 31, 2010 under operating leases are as follows: 2011 -
$33.1 million; 2012 - $27.2 million; 2013 - $18.8 million; 2014 - $14.7 million and subsequent to 2015 - $38.9
million.
Deferred Profit Sharing Retirement Plan
We have a profit sharing plan covering substantially all U.S. employees. Contributions are made at the
discretion of the Board of Directors. Bio-Rad has no liability other than for the current year’s contribution.
Contribution expense was $12.2 million, $11.5 million and $10.5 million in 2010, 2009 and 2008, respectively.
61
Other Post-Employment Benefits
In several foreign locations we are statutorily required to provide a lump sum severance or termination
indemnity to our employees. Under these plans, the vested benefit obligation at December 31, 2010 and 2009
was $28.8 million and $22.4 million, respectively, and has been included in Other current liabilities and Other
long-term liabilities in the Consolidated Balance Sheets. These plans are not required to be funded, and as such,
there is no trust or other device used to accumulate assets to settle these obligations.
Purchase Obligations
As of December 31, 2010, we had purchase obligations of $59.2 million, which include agreements to purchase
goods or services that are enforceable and legally binding to Bio-Rad and that specify all significant terms and
exclude agreements that are cancelable without penalty.
Letters of Credit
In the ordinary course of business, we are at times required to post letters of credit. The letters of credit are
issued by our banks to guarantee our obligations to various parties including insurance companies. We were
contingently liable for $13.9 million of standby letters of credit with banks as of December 31, 2010.
12.
LEGAL PROCEEDINGS
Based on an internal review, we have identified conduct in certain of our overseas operations that may have
violated the anti-bribery provisions of the United States Foreign Corrupt Practices Act (FCPA) and is likely to
have violated the FCPA’s books and records and internal controls provisions and our own internal policies. In
May 2010, we voluntarily disclosed these matters to the U.S. Department of Justice (DOJ) and the Securities
and Exchange Commission (SEC), which each commenced an investigation. The Audit Committee of our
Board of Directors (Audit Committee) has assumed direct responsibility for reviewing these matters and has
hired experienced independent counsel to conduct an investigation and provide legal advice. We have provided,
and intend to continue to provide, additional information to the DOJ and the SEC as the Audit Committee’s
investigation progresses.
The Audit Committee’s investigation and the DOJ and SEC investigations are continuing and we are presently
unable to predict the duration, scope or results of the Audit Committee’s investigation, of any investigations by
the DOJ or the SEC or whether either agency will commence any legal actions. The DOJ and the SEC have a
broad range of civil and criminal sanctions under the FCPA and other laws and regulations including, but not
limited to, injunctive relief, disgorgement, fines, penalties, modifications to business practices including the
termination or modification of existing business relationships, the imposition of compliance programs and the
retention of a monitor to oversee compliance with the FCPA. We are unable to estimate the outcome of this
matter, however, the imposition of any of these sanctions or remedial measures could have a material adverse
effect on our business or financial condition. We have not to date assessed whether any of the activities in
question violated the laws of the foreign jurisdictions in which they took place.
In addition, we are party to various other claims, legal actions and complaints arising in the ordinary course of
business. We do not believe, at this time, that any ultimate liability resulting from any of these other matters
will have a material adverse effect on our results of operations, financial position or liquidity. However, we
cannot give any assurance regarding the ultimate outcome of these other matters and their resolution could be
material to our operating results for any particular period, depending on the level of income for the period.
62
13.
SEGMENT INFORMATION
Bio-Rad is a multinational manufacturer and worldwide distributor of its own life science research products and
clinical diagnostics products. We have two reportable segments: Life Science and Clinical Diagnostics. These
reportable segments are strategic business lines that offer different products and services and require different
marketing strategies.
The Life Science segment develops, manufactures, sells and services reagents, apparatus and instruments used
for biological research. These products are sold to university and medical school laboratories, pharmaceutical
and biotechnology companies, food testing laboratories and government and industrial research facilities.
The Clinical Diagnostics segment develops, manufactures, sells and services automated test systems, informatics
systems, test kits and specialized quality controls for the healthcare market. These products are sold to reference
laboratories, hospital laboratories, state newborn screening facilities, physicians’ office laboratories, transfusion
laboratories and insurance and forensic testing laboratories.
Other Operations include the remainder of our former Analytical Instruments segment.
The accounting policies of the segments are the same as those described in Significant Accounting Policies (see
Note 1). Segment profit or loss used for corporate management purposes includes an allocation of corporate
expense based upon sales and an allocation of interest expense based upon accounts receivable and
inventories. Segments are expected to manage only assets completely under their control. Accordingly,
segment assets include primarily accounts receivable, inventories and gross machinery and equipment.
Goodwill balances have been included in corporate for segment reporting purposes.
63
Information regarding industry segments at December 31, 2010, 2009, and 2008 and for the years then ended is
as follows (in millions):
Segment net sales
Allocated interest expense
Depreciation and amortization
Segment profit
Segment assets
Capital expenditures
Life
Science
Clinical
Diagnostics
Other
Operations
$ 648.1
631.5
643.5
$ 1,265.3
1,139.9
1,106.4
$ 13.7
12.8
14.5
$
$
$
17.1
13.9
10.5
15.0
16.5
17.5
51.1
38.6
13.3
$ 332.0
311.1
$
10.6
10.4
$
$
$
(1)
(2)
$
$
46.4
32.8
21.4
84.9
78.2
74.9
171.4
145.7
139.8
807.0
711.4
62.3
49.8
$ 0.2
0.3
0.2
$ 0.2
0.3
0.1
$ 1.4
0.9
0.6
$ 6.1
5.8
$ 0.1
--
2010
2009
2008
2010
2009
2008
2010
2009
2008
2010
2009
2008
2010
2009
2010
2009
(1) The Life Science segment profit for 2009 included $3.8 million of intangibles
impairment expense (see Note 4).
(2) The Life Science segment profit for 2008 included $28.8 million of goodwill and
intangibles impairment expense (see Note 4).
64
The difference between total segment allocated interest expense, depreciation and amortization, and capital
expenditures and the corresponding consolidated amounts is attributable to our corporate headquarters. The
following reconciles total segment profit to consolidated income before taxes (in millions):
Total segment profit
Other income (expense), net
Foreign exchange losses
Net corporate operating, interest and other
income (expense), net not allocated
to segments
Consolidated income before taxes
Year Ended December 31,
2009
2008
2010
$ 223.9
3.9
(3.9)
$ 185.2
6.9
(5.0)
$ 153.7
(0.4)
(7.6)
(3.6)
$ 220.3
(1.3)
$ 185.8
(2.9)
$ 142.8
The following reconciles total segment assets to consolidated total assets (in millions):
Total segment assets
Cash and other current assets
Property, plant and equipment, net, excluding
segment specific gross machinery and equipment
Goodwill, net
Other long-term assets
Total assets
December 31,
2010
2009
$ 1,145.1
1,197.2
$ 1,028.3
873.9
(20.3)
364.0
376.8
$ 3,062.8
(23.9)
327.6
330.0
$ 2,535.9
The following presents net sales to external customers by geographic area based primarily on the location of the
use of the product or service (in millions):
Year Ended December 31,
2010
2009
2008
Europe
Pacific Rim
United States
Other (primarily Canada and Latin America)
Total net sales
$ 842.6
347.8
600.5
136.2
$ 1,927.1
$ 814.4
291.5
565.8
112.5
$ 1,784.2
$
872.1
253.3
525.3
113.7
$ 1,764.4
65
The following presents Other assets and Property, plant and equipment, net by geographic area based upon the
location of the asset (in millions).
December 31,
2010
2009
Europe
Pacific Rim
United States
Other (primarily Canada and Latin America)
Total Other assets and Property, plant and equipment, net
$
$
181.8 $ 163.9
17.2
23.1
233.7
287.8
13.9
12.7
506.6 $ 427.5
14.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 2010 and 2009 are as follows (in millions, except per share data):
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2010
Net sales
Gross profit
Net income attributable to Bio-Rad
Basic earnings per share
Diluted earnings per share
2009
Net sales
Gross profit
Net income attributable to Bio-Rad
Basic earnings per share
Diluted earnings per share
$
$
$
$
$
$
454.2
257.1
34.9
1.27
1.24
$ 467.7
268.3
38.0
1.37
1.35
$
$
$ 471.5
266.3
44.8
1.62
1.59
$
$
$
$
$
533.7
299.7
67.9
2.44
2.41
400.9
228.9
30.3
1.11
1.10
$ 427.2
242.0
38.0
1.39
1.37
$
$
$ 461.1
260.5
38.5
1.40
1.38
$
$
$ 495.1
268.5
37.9
1.38
1.35
$
$
66
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation,
our Chief Executive Officer and our Chief Financial Officer concluded that, although our disclosure controls
and procedures were generally effective in timely alerting them to material information relating to us and our
consolidated subsidiaries required to be disclosed in the reports we file and submit under the Securities
Exchange Act of 1934, as amended (the Exchange Act), they were not effective as disclosed below.
The conclusion that our disclosure controls and procedures were not effective relates in part to the results to date
of our Audit Committee’s investigation with the assistance of independent special counsel of our compliance
with the United States Foreign Corrupt Practices Act (FCPA). Based on that investigation, we have determined
that our previous lack of a comprehensive FCPA compliance policy and training program and other inadequate
entity-level controls, as discussed below, led us to fail to identify FCPA compliance issues that were presented.
We have commenced the initial implementation of changes in our disclosure controls and procedures to provide
greater assurance of future compliance with the requirements of the FCPA and to ensure that potential FCPA
issues are appropriately identified, reported and evaluated in the future. These initial remediation efforts
include:
(cid:404)
Our initiation of company-wide, comprehensive training of our personnel in the
requirements of the FCPA, including training with respect to those areas of our
operations that are most likely to raise FCPA compliance concerns;
(cid:404)
With the assistance of special counsel to the Audit Committee, which has
extensive experience in the area of FCPA compliance, our adoption of interim
FCPA compliance protocols and guidelines, which are expected to be followed by
the adoption of a comprehensive FCPA compliance policy that is appropriate for
us in light of our worldwide operations, particularly in geographical areas that
present challenges to regulatory compliance because of less mature legal
frameworks; and
(cid:404)
Our determination that, in the future, FCPA compliance will be a point of
emphasis to be evaluated quarterly by our internal legal group and our internal
audit group, and that a report on our FCPA compliance will be provided regularly
to the Audit Committee.
67
Management’s Annual Report on, and Changes in Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control system is
designed to provide reasonable assurance regarding the preparation and fair presentation of our financial
statements presented in accordance with generally accepted accounting principles. An internal control system
over financial reporting has inherent limitations and may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Our management has used the framework set forth in the report entitled “Internal Control – Integrated
Framework” published by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission to
evaluate the effectiveness of Bio-Rad’s internal control over financial reporting as of December 31, 2010.
Based on that evaluation and assessment, our management concluded that our internal control over financial
reporting was not effective as of December 31, 2010 to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States of America, to the extent and for the reasons set
forth below. Our management reviewed the results of its evaluation and assessment with our Audit Committee.
In connection with our Audit Committee’s investigation of our compliance with the FCPA discussed above, our
management identified three significant deficiencies in our internal control over financial reporting as of
December 31, 2010 that, when considered and taken together, constitute a material weakness in our internal
control over financial reporting as of December 31, 2010. A significant deficiency is defined as a deficiency, or
a combination of deficiencies, in internal control over financial reporting that is less severe than a material
weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material misstatement of our annual or
interim financial statements will not be prevented or detected on a timely basis.
Our conclusion that we have a material weakness in our internal control over financial reporting as of December
31, 2010 is not based on quantified misstatements in our historical financial statements or our financial
statements as of and for our fiscal year ended December 31, 2010, but instead on the risk that we may be unable
to prevent or detect on a timely basis potential material errors in our future financial statements. We do not
presently anticipate that the material weakness in our internal control over financial reporting as of December
31, 2010 will have any material effect on our previously reported financial results or our financial results for our
fiscal year ended December 31, 2010.
The three significant deficiencies that we identified in our internal control over financial reporting as of
December 31, 2010 are as follows:
Inadequate Entity-Level Controls. As of December 31, 2010, we identified a number of entity-level control
deficiencies that, when considered and taken together, constitute a significant deficiency in our internal control
over financial reporting as of December 31, 2010. These entity-level control deficiencies relate both to the
design and to the operation of our internal controls and include:
(cid:404)
(cid:404)
Our lack of a comprehensive FCPA policy and training program;
Our lack of a formal, effective disclosure committee to facilitate our compliance
with Section 302 of the Sarbanes-Oxley Act of 2002;
68
(cid:404)
(cid:404)
(cid:404)
(cid:404)
Inadequate policies regarding enterprise-wide risk assessment and management
related to doing business in high-risk, emerging markets;
Our failure to perform background checks on certain parties prior to entering into
material contracts with such parties;
Our lack of compliance with our existing Code of Business Ethics and Conduct in
certain countries; and
Ineffective disclosure of significant exceptions to compliance with company
policies through our quarterly management sub-certification process.
Inadequate Expenditure Processes at Certain of Our International Subsidiaries. As of December 31, 2010, we
identified a number of control deficiencies relating to our expenditure processes at certain of our international
subsidiaries that, when considered and taken together, constitute a significant deficiency in our internal control
over financial reporting as of December 31, 2010. These control deficiencies relate both to the design and to the
operation of our internal controls and include our lack of compliance with our existing management guidelines
for contract and expenditure authorization and with our Code of Business Ethics and Conduct and our inability
to produce documentary evidence to support certain contractual obligations.
Inadequate Revenue and Accounts Receivable Processes at Certain of Our International Subsidiaries. As of
December 31, 2010, we identified a number of control deficiencies relating to our revenue and accounts
receivable process at certain of our international subsidiaries that, when considered and taken together,
constitute a significant deficiency in our internal control over financial reporting as of December 31, 2010.
These control deficiencies relate both to the design and to the operation of our internal controls and include our
inability, in certain instances, to produce documentary evidence of effective operation of internal controls
relating to contract management; our lack of evidence regarding credit note authorizations; inadequate control
over changes to master customer files; and our lack of compliance with reagent rental contracts and sales cut-
off.
In addition to our FCPA-related remediation efforts described above under “Disclosure Controls and
Procedures,” we have commenced the initiation of a number of actions to attempt to remediate the foregoing
significant deficiencies and the resulting material weakness, including:
(cid:404)
(cid:404)
(cid:404)
Our institution of a formal FCPA policy and training program;
Our formation of a disclosure committee to facilitate our compliance with Section
302 of the Sarbanes-Oxley Act of 2002;
Our implementation of new procedures regarding the performance of background
checks on certain parties prior to entering into material contracts with such parties;
and
(cid:404)
Our termination of certain employees.
We are also in the process of evaluating and expect to initiate additional actions to attempt to remediate these
significant deficiencies and the resulting material weakness, including developing and implementing additional
policies, further strengthening our disclosure processes, and potentially increasing the resources that we devote
to our internal compliance and audit functions.
69
We cannot assure you that we will be able to remediate these significant deficiencies and the resulting material
weakness or that additional significant deficiencies or material weaknesses in our internal control over financial
reporting will not be identified in the future. 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 significant deficiencies or material weaknesses, result in material misstatements in our financial
statements and cause us to fail to meet our reporting obligations, which in turn could cause the trading price of
our common stock to decline.
Other than the changes discussed above, we identified no changes in our internal control over financial reporting
that occurred during our fiscal quarter ended December 31, 2010 that have materially affected, or that are
reasonably likely materially to affect, our internal control over financial reporting.
Ernst & Young LLP, an independent registered public accounting firm, has audited the consolidated financial
statements of Bio-Rad Laboratories, Inc. for the year ended December 31, 2010 and 2009 and has issued an
adverse attestation report on the effectiveness of Bio-Rad’s internal control over financial reporting as of
December 31, 2010, as stated in their report.
(b)
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Bio-Rad Laboratories, Inc.
We have audited Bio-Rad Laboratories, Inc.’s internal control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Bio-Rad Laboratories, Inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
70
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the company’s annual or interim
financial statements will not be prevented or detected on a timely basis. The following material weakness has
been identified and included in management’s assessment. Management has identified three significant
deficiencies related to entity level controls and the expenditure and revenue processes at certain of the
Company’s international subsidiaries that, when considered and taken together, represent a material weakness in
internal control over financial reporting.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Bio-Rad Laboratories, Inc. as of December 31, 2010 and
2009, and the related consolidated statements of income, changes in stockholders' equity and comprehensive
income, and cash flows for the years then ended. This material weakness was considered in determining the
nature, timing and extent of audit tests applied in our audit of the 2010 consolidated financial statements and this
report does not affect our report dated February 28, 2011, which expressed an unqualified opinion on those
financial statements.
In our opinion, because of the effect of the material weakness described above on the achievement of the
objectives of the control criteria, Bio-Rad Laboratories, Inc. has not maintained effective internal control over
financial reporting as of December 31, 2010, based on the COSO criteria.
/s/ Ernst & Young LLP
Palo Alto, California
February 28, 2011
71
ITEM 9B. OTHER INFORMATION
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Part of the information required to be furnished pursuant to this item is incorporated by reference from portions
of Bio-Rad’s definitive proxy statement to be mailed to stockholders in connection with our 2011 annual
meeting of stockholders (the “2011 Proxy Statement”) under “Election of Directors,” “Committees of the Board
of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance.”
Bio-Rad’s Board of Directors has determined that Mr. Louis Drapeau is the “audit committee financial expert,”
as defined in Item 407(d)(5) of Regulation S-K. Mr. Drapeau is also an “independent” director, as determined
in accordance with the independence standards set forth in Rule 10A-3 under the Securities Exchange Act of
1934, as amended, and Section 303A.02 of the New York Stock Exchange (NYSE) Listed Company Manual.
We have adopted a code of business ethics and conduct that applies to our principal executive officer, principal
financial officer, controller and all other employees and is available through our Corporate/Investor Relations
website (www.bio-rad.com). We will also provide a copy of the code of ethics to any person, without charge,
upon request, by writing to us at “Bio-Rad Laboratories, Inc., Investor Relations, 1000 Alfred Nobel Drive,
Hercules, CA 94547.”
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished pursuant to this item is incorporated by reference from portions of the
2011 Proxy Statement under “Compensation Discussion and Analysis,” “Summary Compensation Table,”
“Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and Stock
Vested Table,” “Pension Benefits,” “Nonqualified Defined Contribution and Other Nonqualified Deferred
Compensation Plans,” “Potential Payments on Termination or Change in Control,” “Director Compensation”
and “Compensation Committee Interlocks and Insider Participation.” In addition, the information from a
portion of the 2011 Proxy Statement under “Compensation Committee Report” is incorporated herein by
reference and furnished on this Form 10-K and shall not be deemed “filed” for purposes of Section 18 of the
Securities and Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the
Securities Act of 1933.
72
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Part of the information required to be furnished pursuant to this item is incorporated by reference from a portion
of the 2011 Proxy Statement under “Principal and Management Stockholders.”
Equity Compensation Plan Information as of December 31, 2010
Number of
securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
(b)
(c)
1,300,041
$ 46.47
1,115,245
(2)
--
--
--
1,300,041
$ 46.47
1,115,245
Plan category
Equity compensation
plans approved by
security holders (1)
Equity compensation plans
not approved by
security holders
Total
(1)
(2)
Consists of the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan, the 2003 Stock Option Plan of
Bio-Rad Laboratories, Inc., the Bio-Rad Laboratories, Inc. 2007 Incentive Award Plan and the Bio-
Rad Laboratories, Inc. Amended and Restated 1988 Employee Stock Purchase Plan.
Consists of 983,227 shares available under the Bio-Rad Laboratories, Inc. 2007 Incentive Award
Plan and 132,018 shares available for issuance under the Bio-Rad Laboratories, Inc. Amended and
Restated 1988 Employee Stock Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required to be furnished pursuant to this item is incorporated by reference from portions of the
2011 Proxy Statement under “Transactions with Related Persons” and “Committees of the Board of Directors.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required to be furnished by this item is incorporated by reference from a portion of the 2011
Proxy Statement under “Report of the Audit Committee of the Board of Directors.”
73
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1.
Index to Financial Statements – See Item 8 “Financial Statements and
Supplementary Data”on page 30 for a list of financial statements.
2.
Schedule II Valuation and Qualifying Accounts
All other financial statement schedules are omitted because they are not required or the required information
is included in the consolidated financial statements or the notes thereto.
3.
Index to Exhibits
The exhibits listed in the accompanying Index to Exhibits on pages 76 through 79 of this report are filed or
incorporated by reference as part of this report.
BIO-RAD LABORATORIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2010, 2009, and 2008
(in thousands)
Allowance for doubtful accounts receivable
Balance at
Beginning
of Year
$
$
$
23,100
19,567
21,410
Additions
Charged to Costs
and Expenses
7,984
7,783
7,602
$
$
$
2010
2009
2008
Deductions
$ (6,032)
$ (4,250)
$ (9,472)
Other (A)
--
$
--
$
27
$
Balance at
End of Year
$ 25,052
$ 23,100
$ 19,567
(A) Due to acquisitions.
Valuation allowance for current and long-term deferred tax assets
Balance at
Beginning
of Year
Additions Charged
(Credited) to Income
Tax Expense
2010
2009
2008
$
$
$
37,926
40,663
31,119
$
$
$
(2,631)
6,602
10,570
Deductions
$
--
$ (9,339)
$ (1,026)
Other (B)
$ 1,720
--
$
--
$
Balance at
End of Year
$ 37,015
$ 37,926
$ 40,663
(B) Due to acquisitions.
74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIO-RAD LABORATORIES, INC.
By:
/s/ Sanford S. Wadler
Sanford S. Wadler
Secretary
Date: February 28, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ Norman Schwartz
(Norman Schwartz)
Principal Financial Officer
/s/ Christine A. Tsingos
(Christine A. Tsingos)
Principal Accounting Officer
/s/ James R. Stark
(James R. Stark)
Other Directors:
/s/ James J. Bennett
(James J. Bennett)
/s/ Louis Drapeau
(Louis Drapeau)
/s/ Albert J. Hillman
(Albert J. Hillman)
/s/ Dr. Ted W. Love
(Dr. Ted. W. Love)
/s/ Alice N. Schwartz
(Alice N. Schwartz)
/s/ David Schwartz
(David Schwartz)
President and Director
February 28, 2011
Vice President,
Chief Financial Officer
February 28, 2011
Corporate Controller
February 28, 2011
Director
February 28, 2011
Director
February 28, 2011
Director
February 28, 2011
Director
February 28, 2011
Director
February 28, 2011
Director
February 28, 2011
75
BIO-RAD LABORATORIES, INC.
INDEX TO EXHIBITS ITEM 15(a)3
Exhibits 32.1 and 32.2 are furnished herewith and should not be deemed to be “filed under the
Securities Exchange Act of 1934.”
Exhibit
No.
2.1
Share Purchase Agreement as of May 14, 2007 by and among Bio-Rad Laboratories,
Inc. and certain selling shareholders regarding the purchase of 77.6765% of the equity
of DiaMed Holding AG. (1)
3.1
Restated Certificate of Incorporation of Bio-Rad Laboratories, Inc.
3.1.1
Certificate of Amendment to Restated Certificate of Incorporation of
Bio-Rad Laboratories, Inc.
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
Bylaws of Bio-Rad Laboratories, Inc.
Indenture dated as of August 11, 2003 for 7.50% Senior Subordinated Notes due 2013
among Bio-Rad Laboratories, Inc., as Issuer, and Wells Fargo Bank, N.A., as
Trustee. (2)
Exchange and Registration Rights Agreement dated as of August 11, 2003 for
7.50% Senior Subordinated Notes due 2013. (2)
Indenture dated as of May 26, 2009 for 8.00% Senior Subordinated Notes due 2016
Among Bio-Rad Laboratories, Inc., as Issuer, and Wells Fargo Bank, N.A., as
Trustee. (3)
Exchange and Registration Rights Agreement dated as of May 26, 2009 for
8.00% Senior Subordinated Notes due 2016. (3)
Indenture dated as of December 9, 2010 for 4.875% Senior Notes due 2020 among
Bio-Rad Laboratories, Inc., as Issuer, and Wilmington Trust FSB, as Trustee. (4)
Second Amended and Restated Credit Agreement, dated as of June 21, 2010, by and
among Bio-Rad Laboratories, Inc., the lenders referred to therein, JPMorgan Chase
Bank, N.A. as administrative agent, Union Bank of California N.A., and Wells Fargo
Bank, N.A., as co-syndication agents, and Bank of America, N.A. and HSBC Bank
USA, National Association, as co-documentation agents. (5)
Second Amended and Restated Security Agreement, dated as of June 21, 2010,
between Bio-Rad Laboratories, Inc. and JPMorgan Chase Bank, N.A.,
as administrative agent. (5)
Second Amended and Restated Pledge Agreement, dated as of June 21, 2010, between
Bio-Rad Laboratories, Inc. and JPMorgan Chase Bank, N.A., as administrative
agent. (5)
76
10.4
1994 Stock Option Plan. (6)
10.4.1
10.4.2
10.4.3
10.4.4
10.4.5
Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan
dated April 28, 1998. (7)
Second Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan
dated December 6, 1999. (7)
Third Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan
dated September 19, 2000. (7)
Fourth Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan
dated April 25, 2001. (7)
Amendment to the 1994 Stock Option Plan of Bio-Rad Laboratories, Inc., dated
February 18, 2009. (8)
10.5
Amended and Restated 1988 Employee Stock Purchase Plan. (9)
10.5.1
Amendment to the Amended 1988 Employee Stock Purchase Plan. (10)
10.5.2
Amendment to the Bio-Rad Laboratories, Inc. Amended and Restated 1988 Employee
Stock Purchase Plan (11)
10.6
Employees’ Deferred Profit Sharing Retirement Plan (Amended and Restated
effective January 1, 1997). (12)
10.7
2003 Stock Option Plan. (13)
10.7.1
Amendment to the 2003 Stock Option Plan of Bio-Rad Laboratories, Inc. (14)
10.8
2007 Incentive Award Plan. (15)
10.8.1
Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award
Agreement under the 2007 Incentive Award Plan. (16)
21.1
Listing of Subsidiaries.
23.1
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
23.2
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
31.1
31.2
Certification of Chief Executive Officer Required by Rule 13a-14(a)
(17CFR 240.13a-14(a)).
Certification of Chief Financial Officer Required by Rule 13a-14(a)
(17CFR 240.13a-14(a)).
77
32.1
32.2
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Incorporated by reference to Exhibit 2.1 to Bio-Rad’s June 30, 2007 Form 10-Q
filing, dated August 8, 2007.
Incorporated by reference to the Exhibits to Bio-Rad’s Form S-4 filing, dated
September 19, 2003.
Incorporated by reference to the Exhibits to Bio-Rad’s Form 8-K filing, dated
May 28, 2009.
Incorporated by reference to Exhibit 4.1 to Bio-Rad’s Form 8-K filing, dated
December 9, 2010.
Incorporated by reference to the Exhibits to Bio-Rad’s 8-K filing, dated
December 22, 2004.
Incorporated by reference to Exhibit 4.1 to Bio-Rad’s Form S-8 filing, dated
April 29, 1994.
Incorporated by reference to the Exhibits to Bio-Rad’s Form 10-K filing for
the fiscal year ended December 31, 2000, dated March 28, 2001 (File No. 001-7928;
Film No. 1582270).
Incorporated by reference to Exhibit 10.4.5 to Bio-Rad’s June 30, 2009
Form 10-Q filing, dated August 5, 2009.
Incorporated by reference to Exhibit 10.5 to Bio-Rad’s September 30, 1998
Form 10-Q filing, dated November 12, 1998 (File No. 001-7928;
Film No. 98743709).
Incorporated by reference to Exhibit 10.5.1 to Bio-Rad’s Form 10-K filing for
the fiscal year ended December 31, 2003, dated March 15, 2004 (File No. 001-7928;
Film No. 04669434).
Incorporated by reference to Exhibit 10.5.2 to Bio-Rad’s Form 10-K filing for the
fiscal year ended December 31, 2009, dated February 26, 2010.
Incorporated by reference to Exhibit 10.6 to Bio-Rad’s September 30, 1997
Form 10-Q filing, dated November 13, 1997 (File No. 001-7928; Film No. 9771652).
Incorporated by reference to Exhibit 10.7 to Bio-Rad’s March 31, 2003 Form 10-Q
filing, dated May 13, 2003 (File No. 001-7928; Film No. 03696450).
78
(14)
(15)
(16)
Incorporated by reference to Exhibit 10.7.1 to Bio-Rad’s March 31, 2007 Form 10-Q
filing, dated May 4, 2007 (File No. 001-7928; Film No. 07819469).
Incorporated by reference to Exhibit 4.1 to Bio-Rad’s Form S-8 filing, dated
July 30, 2007.
Incorporated by reference to Exhibit to 10.8.1 Bio-Rad’s September 30, 2009
Form 10-Q filing, dated November 4, 2009.
79
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D iRec toR s
David schwartz
Chairman of the Board
Louis Drapeau
Director
Albert J. Hillman
Director
ted W. Love, M.D.
Director
Alice N. schwartz
Director
Norman schwartz
Director
of fic eRs
David schwartz
Chairman of the Board
Norman schwartz
President and
Chief Executive Officer
Brad crutchfield
Vice President and
Group Manager,
Life Science
John Goetz
Vice President and
Group Manager,
Clinical Diagnostics
Giovanni Magni
Vice President and
International Sales Manager
christine A. tsingos
Vice President and
Chief Financial Officer
sanford s. Wadler
Vice President,
General Counsel
and Secretary
Ronald W. Hutton
Treasurer
Michael Jackson
Manager, Clinical Systems
James R. stark
Corporate Controller
otHeR executives
Noel Alberola
Manager, Europe Sales,
Life Science
steve Binder
Director,
Technology Development,
Clinical Diagnostics
shannon Hall
Manager,
Laboratory Separations
chang Hong
Regional Manager,
Asia Pacific
Michael Barcellos
Manager, BioPlex® 2200
scott Jenest
Group Operations Manager,
Life Sciences
Patrick Bugeon
Group Operations Manager,
Europe Clinical Diagnostics
Leo Kaabi
Manager, Quality Systems
John Bussell
Manager,
Immunohematology
Patrick carroll
Manager,
North America Sales,
Life Science
colleen corey
Director, Corporate
Human Resources
Michael crowley
Manager,
North America Sales,
Clinical Diagnostics
Ann Madden
Manager,
Clinical Microbiology
Daniel Merle
Manager,
Business Development,
Clinical Diagnostics
Jean-Marc chermette
Regional Manager,
Emerging Markets
sadashi suzuki
Regional Manager, Japan
ted tisch
Manager, Protein Function
Diane Dahowski
Group Operations Manager,
U.S. Clinical Diagnostics
Annette tumolo
Manager, Gene Expression
Patrice Deletoille
Manager, Blood Virus
H. Jeff Garner
Manager,
Manufacturing Operations
octavio Zendejas
Regional Manager,
Latin America
ANNuAL MeetiNG
The Annual Meeting of
Stockholders will be held
on Tuesday, April 26, 2011
at 4 PM, Pacific Time, at
the Corporate Offices of
the Company in Hercules,
California.
Bio-Rad will provide without
charge to each stockholder,
upon written request to
the Secretary, a copy of its
2010 Annual Report filed
with the Securities and
Exchange Commission on
Form 10-K.
tRANsfeR AGeNt
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AuDitoRs
ernst & Young LLP
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coMMoN stocK
Traded on the New York
Stock Exchange
Class A Common Stock
Symbol Bio
Class B Common Stock
Symbol Biob
bio-rad laboratoriesCorporate information Bio-Rad Laboratories
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www.bio-rad.com