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Bio-Rad Laboratories
Annual Report 2013
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CELIAC PATIENT
NEONATAL PATIENT
SALES DIRECTOR
HOSPITAL LIAISON
CLINICIAN
PROCESS ENGINEER
SCIENCE INTERN
NURSE CLINICIAN
CERTIFIED CONSULTANT
STAFF SCIENTIST
NURSING SUPERVISOR
OB/GYN NURSE
PATIENT
PATIENT
SENIOR SCIENTIST
CLINICAL SPECIALIST
NURSING OFFICER
LAB TECH
SALES SPECIALIST
DIRECTOR OF SALES
CASE MANAGER
ADMIN ASSISTANT
DIETICIAN
PATIENT SERVICE REP PATIENT
ACCOUNT EXECUTIVE
PATIENT
CHEMIST
PATIENT
HIGH SCHOOL SENIOR
CARDIOLOGIST
MED RECORDS CLERK PATIENT
DIR. PURCHASING
BIOLOGY STUDENT
ENGINEER
PROJECT ANALYST
VIROLOGIST
SURGEON
PHYSICIAN
BUYER/PLANNER
ANALYST
INTERN SUPERVISOR
PRODUCT MANAGER
DISTRIBUTION MGR.
LIFE SCIENTIST
UNIVERSITY ADMIN
ADMINISTRATOR
NURSE MANAGER, ER SHIPPING MGR
BIOCHEMIST
OSTEOPATHIC PHYS.
GENETICIST
INFORMATION TECH
SOCIAL WORKER
MICROBIOLOGIST
PATIENT
NEUROLOGIST
HS BIOLOGY TEACHER GROUP LEADER
STUDENT
REGISTERED NURSE
PATIENT
IMMUNOLOGIST
SCIENCE STUDENT
SALES MANAGER
ASSISTANT PROFESSOR ELECTROCHEMIST
NURSE MANAGER
CASE MANAGER
ANALYTICAL CHEMIST
ENGINEERING LEAD
ENGINEER
ER NURSE DIRECTOR
PRIMARY CARE MD
NURSING INTERN
DATA ANALYST
NURSING STUDENT
PHARMACIST
BIOLOGIST
DIABETOLOGIST
UNIVERSITY STUDENT
ELECTROCHEMIST
PHARMACOLOGIST
ER DIRECTOR
FIELD SALES REP.
HS SCIENCE STUDENT
FLUIDICS ENGINEER
PROTEIN ANALYST
PATIENT
PATIENT
CASE MNGT. NURSE
SALES TEAM LEAD
ACTIVITY ASSISTANT
UNIV STUDENT
ACCOUNTANT
MICROBIOLOGIST
PEDIATRIC SURGEON
STUDENT NURSE
STUDENT
HEMATOLOGIST
SCIENTIST
STUDENT
SCIENTIST
PHYSICIAN
SCIENCE MENTOR
STUDENT
ADMINISTRATION ASST.
GENETICIST
SOCIAL SERVICE DIR
INTERNIST
PATIENT
SUPPLY MGR
HOSPITAL EXECUTIVE ADMITTING NURSE
RESEARCH ASSISTANT
ENGINEER
PATIENT
PRODUCT MANAGER
BIOLOGIST
PROFESSOR
SALES REP
PLANT SUPERVISOR
DEPARTMENT HEAD
BUYER/PLANNER
CLINICAL LAB ASST.
PHD CANDIDATE
LAB MANAGER
SHIPPING CLERK
CELIAC PATIENT
PRESIDENT
SALES SUPPORT ASST.
PATIENT
INSTRUMENT SPECIALIST
PLANT ENGINEER
MICROBIOLOGY SUPR
LAB RESEARCHER
INSTRUCTOR
PROJECT MANAGER
MDS COORDINATOR
MEDICAL ASSISTANT
PEDIATRIC NURSE
ENDOCRINOLOGIST
R&D MANAGER
SR. PRODUCT MGR
ORDERLY
TECHNICAL WRITER
FACILITIES MANAGER
PATIENT
STAFF ADMIN ASSOC.
PHLEBOTOMIST
R&D ENGINEER
BIOLOGY STUDENT
PATIENT
PATIENT
SALES REP
LABORATORY INTERN
PATIENT
TECH LEAD
CLINICIAN
STAFFING COORDINATOR
A SHARED
INSPIRATION.
ADMISSIONS COORD.
ANESTHESIOLOGIST
HOSPITAL DIRECTOR
REGISTERED NURSE
We are in this together.
INTERN
LAB SCIENTIST
UROLOGIST
PEDIATRICIAN
PHARMACOLOGIST
NANOTECHNOLOGIST RADIOLOGY TECH
ADMITTING SUPER.
ENVIRO. CHEMIST
RESEARCHER
ENDOCRINOLOGIST
RESEARCH CHEMIST
POLYMER CHEMIST
PHYSICIAN
SR. R&D ENGINEER
PATIENT
CARDIOLOGIST
PATIENT
STUDENT CHEMIST
DELIVERY DRIVER
LABORATORY MGR
GENETICIST
ISS MISSION 37 CREW GENETICIST
IMMUNOLOGIST
HOSPITAL BUYER
NURSE
ADMINISTRATION ASST.
For over 60 years, Bio-Rad has touched
the lives of countless people around the
world—researchers, healthcare providers,
clinicians, patients, instructors, and
students—in a common effort to advance
scientific discovery and improve healthcare.
From researching the inner workings
of proteins and rocketing a bacterial
experiment into space, to improving the
diagnosis and treatment of diabetes, the
many people we interact with do one thing
above all else—they inspire us.
IT IS TO THEM THAT WE
DEDICATE THIS YEAR’S
ANNUAL REPORT.
2 Bio-Rad 2013 Annual Report
LETTE R TO OUR SH AR E HOL DE R S
As I look back, 2013 was an interesting year. We were pleased with
As I look back, 2013 was an interesting year. We were pleased with
As I look back, 2013 was an interesting year. We were pleased with
the progress given all of the events that unfolded during the year.
the progress given all of the events that unfolded during the year.
the progress given all of the events that unfolded during the year.
Sales reached over $2.1 billion, another milestone for the Company.
Sales reached over $2.1 billion, another milestone for the Company.
Sales reached over $2.1 billion, another milestone for the Company.
Growth was 3.9% on a currency neutral basis—respectable given the
Growth was 3.9% on a currency neutral basis—respectable given the
Growth was 3.9% on a currency neutral basis—respectable given the
slow growth in our markets over the past few years.
slow growth in our markets over the past few years
slow growth in our markets over the past few years
The picture in each of our major
Western Europe, by comparison,
Western Europe, by comparison,
Western Europe, by comparison,
new platforms including the S3™
geographies around the world was
was rather more predictable.
was rather more predictable.
was rather more predictable.
cell sorter, which enters us into the
characteristically different in 2013.
Diagnostic laboratory consolidation
Diagnostic laboratory consolidation
Diagnostic laboratory consolidation
growing area of single cell biology.
We entered the year anticipating a
in France continued the pace set
in France continued the pace set
in France continued the pace set
Complementing this ‘cell’ focus was
stabilizing U.S. market. This outlook
in the previous year and general
in the previous year and general
in the previous year and general
the acquisition of a line of antibodies
was tempered by sequestration in
pressures on medical costs by
pressures on medical costs by
pressures on medical costs by
that enables us to provide content
the first half of 2013 and, in the last
governments throughout Europe
governments throughout Europe
governments throughout Europe
and offer a complete solution for our
half, congressional dysfunction and
represented business as usual.
represented business as usual.
represented business as usual.
customers. We also introduced the
a resultant government shutdown.
The same can probably be said of
The same can probably be said of
The same can probably be said of
second generation of our excit-
The impact of these events was felt
research budgets, which contin-
research budgets, which contin-
research budgets, which contin-
ing Droplet Digital™ PCR platform,
in our life science business, where
ued to be constrained during the
ued to be constrained during the
ued to be constrained during the
enhancing performance and lower-
funding constraints affected pur
funding constraints affected pur-
funding constraints affected pur-
year. Higher growth in Asia, Latin
year. Higher growth in Asia, Latin
year. Higher growth in Asia, Latin
ing manufacturing costs. This new
chase of our reagents and instru-
America, and the emerging markets
America, and the emerging markets
America, and the emerging markets
technology played a major role in
ments used in biological research
generally continued to be robust,
generally continued to be robust,
generally continued to be robust,
advancing science and healthcare
and discovery.
helping to provide ballast to the
helping to provide ballast to the
helping to provide ballast to the
by helping to determine a ‘functional
The clinical diagnostics side of our
other markets.
cure’ of HIV in a newborn ... a first.
business fared a little better under
During the year we took the oppor-
During the year we took the oppor-
During the year we took the oppor-
Last in this lineup is our new NGC™
the circumstances, although the
tunity to restructure our distribu-
tunity to restructure our distribu
tunity to restructure our distribu
platform. Bio-Rad’s roots are in
Affordable Care Act mandated
tion network in China, which had
tion network in China, which had
tion network in China, which had
chromatography, a separation
reductions in reimbursements for
a short term effect on growth, but
a short term effect on growth, but
a short term effect on growth, but
technique for biomolecules. The
diagnostic tests to help offset costs
better positions us for the future.
better positions us for the future.
better positions us for the future.
2013 launch of this new instrument
of increased coverage under the
program. Especially disappointing
for us was the implementation of a
medical device tax which cost us
more than $5 million in 2013, money
that would have otherwise been in-
vested in people and new products.
If all these external factors were
If all these external factors were
If all these external factors were
If all these external factors were
If all these external factors were
not enough, we had to scramble to
not enough, we had to scramble to
platform broadened our reach in
this very important area.
replace our auditors late in the year
replace our auditors late in the year
Our bottom line results reflect
and have been working to resolve
and have been working to resolve
conscious investments we are
our outstanding FCPA matter with
our outstanding FCPA matter with
making in our future. These are
the government.
In addition to our top-line progress,
In addition to our top-line progress,
there were numerous other accom-
there were numerous other accom-
in new product technology areas
and also in infrastructure we need
to sustain our growth.
plishments throughout the year.
plishments throughout the year.
One of the areas of significant invest-
New product flow remained healthy,
New product flow remained healthy,
ment and focus over the last two
as we successfully introduced three
as we successfully introduced three
years has been a project to imple-
ment a standardized ERP system
across the Company and to replace
a patchwork of business systems
that we grew up with or inherited
with acquisitions over the years.
A SHARED
FUTURE.
Bio-Rad 2013 Annual Report 3
N ORMAN SC HWARTZ | P RES IDEN T
We met our 2013 implementation
goal of successfully deploying
Phase 1 of our new ERP system,
and are now focused on Phase 2
of this multiyear project, which
should start to show benefits to
the business as we roll out suc-
cessive phases.
I would like to take this opportunity
to recognize the contributions of
Al Hillman, who is retiring from
the Board. Al has been a valued
Board member since 1980 and
his association with the Company
dates back to the 1960s.
2014 brings with it a tone of
optimism. While we still expect
budgets to be tight, there is an
undertone of increased confidence
in our markets. In addition, we have
good momentum from products
introduced last year that should
carry through 2014. Finally, our
new products and platforms to be
introduced throughout 2014, along
with some targeted acquisitions,
give us cause to look forward to a
good year ahead.
Thank you for your continued
interest in Bio-Rad.
Norman Schwartz
PRESIDENT
4 Bio-Rad 2013 Annual Report
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CHRIS DESCRIBES THE NEXT-GENERATION IN CHROMATOGRAPHY
Years ago, when the human genome was
mapped, instead of discovering how and why
diseases occur within the human body, we
ended up with even more questions. Genes
alone cannot explain the complexity of how the
human body works and what goes wrong
when a disease occurs.
At The Fraser Lab, we’re study-
Recently, we were approached
The software is also intuitive and
ing how some cellular messenger
by Bio-Rad, who wanted input
allows us to visually follow the path
RNAs (ribonucleic acid, a family
for their next-generation medium-
of our sample to see how we are
of large biological molecules that
pressure preparative chromatog-
doing with our purification scheme
perform multiple vital roles in the
raphy (NGC) systems. After having
at any given point. This reduces
coding, decoding, regulation, and
used these types of systems
the risk of sample being lost in the
expression of genes) are translated
for over 10 years, we had some
process or running the column dry
into proteins. We’re also trying
definite likes and dislikes about the
due to incorrect programming. Un-
to understand how some viruses
process. Bio-Rad was an incredibly
like traditional instruments that are
essentially hijack a cell’s machinery
attentive listener, highly responsive,
complex and intimidating for junior
so the virus can use it to make its
and very willing to make changes
researchers, the NGC system is
own protein, which can lead to
based on our suggestions. I never
extremely easy to use. They can
tumor growth.
would have expected that from
learn to use it straight away with
Part of our research requires
most companies.
little training.
the need to purify components,
The result is their family of NGC™
It’s all of the features we like in one
namely proteins, using a lab
chromatography systems, which is
scalable instrument.
technique called chromatography
making life so much easier for us.
that’s used to separate complex
Built in a modular way, the individual
mixtures based on their physical
components let us tailor the system
size or charge.
to best suit our needs. The front-
facing design offers convenient
access to valves and columns. Now
we can easily pump large volumes
of sample directly onto the columns
without reconfiguring the system.
Obtaining highly pure proteins as
components is allowing us to make
models and predictions about
things we can test in cells, and
the NGC helps us obtain these
components very rapidly and very
well. Now we have a product that
we really, really like … that’s doing
exactly what we want and how we
want it to happen.”
A SHARED
OUTLOOK.
UNLIKE TRADITIONAL
INSTRUMENTS,
WHICH ARE COMPLEX
AND INTIMIDATING
FOR JUNIOR
RESEARCHERS, THE
NGC SYSTEM IS
EXTREMELY SIMPLE,
REDUCING THE NEED
FOR HAND-HOLDING
AND TRAINING TIME.”
CHRIS FRASER | ASST. PROFESSOR, DEPT. MOLECULAR & CELLULAR BIOLOGY | UC DAVIS
HOW IT WORKS: NGC CHROMATOGRAPHY SYSTEMS
Bio-Rad’s family of NGC medium-pressure
chromatography systems offers biomolecule
purification at the research, laboratory and
process development-scale levels, providing
a total laboratory solution. At the core of the
flexible platform is a modular and scalable
system that adapts to a lab’s requirements and
is easily customized to align with a researcher’s
needs. Included with the instruments is an
intuitive software package for system control
and evaluation as well as downstream data
analysis. The system’s small footprint allows
the instrument to be used on a lab bench, in a
laboratory refrigerator, or in a coldroom.
NANCY VILLA | UC DAVIS
ISS EXPEDITION 37 CREW
THE BIO-RAD
PEOPLE SHOWED
US A DIFFERENT
FORMULATION
THAT WE COULD
USE THAT
DOESN’T HAVE
THIS TYPE OF
NUTRIENT IN IT.
WE HADN’T EVEN
THOUGHT ABOUT
ANYTHING LIKE
THAT!”
KELSEY JIANG | STUDENT | VALLEY CHRISTIAN HIGH SCHOOL
DAN SALDANA | MENTOR
A SHARED
ASPIRATION.
Bio-Rad 2013 Annual Report 7
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KELSEY DESCRIBES THE BIOTECHNOLOGY EXPLORER PROGRAM
I got involved in our high school’s International
Space Station lab program last year, when I was
a senior. It was awesome. We got to design
an actual, self-contained experiment that was
launched on a rocket to the Space Station,
worked automatically, and was then brought
back to earth a month later by the astronauts in
the Soyuz space capsule.
There were four different
was growing. We had used
told us that the broth we were
groups involved in our school’s
many Bio-Rad kits from their
planning to feed the bacteria
experiment, and because I love
Biotechnology Explorer™ program
in space actually has a type of
biology, I was put in the life
in our freshman biology classes,
nutrient in it that would itself glow.
sciences group. We met twice a
so we were familiar with the pGLO
Since we wanted only the bacteria
week after school, sometimes on
kit, which gave us everything we
to glow, this would have given us
the weekends, designing a self-
needed for our experiment.
incorrect data and invalidated our
contained experiment ‘lab’ that
would show what would happen
to bacterial growth in microgravity.
We hypothesized that bacterial
growth and antibiotic resistance
may differ in space—which would
have implications for space travel
and give us insights into the
behavior of bacteria on earth.
One of the problems we faced
was that there was going to
be a long wait time from when
we finished packing up the
completed experiment to when
it was activated on the Space
experiment. So the Bio-Rad people
showed us a different formulation
that we could use that doesn’t
have this type of nutrient in it.
We hadn’t even thought about
anything like that!
Station. So we had to freeze-dry
When we opened the lab after
the bacteria—kind of like putting
its trip to space we saw some
it in hibernation—until it got to the
glowing. Overall, however, the
We chose E. coli, a type of bacteria
microgravity environment. But we
results we got were inconclusive,
that lives in the digestive tracts of
didn’t really know how to do this.
which is why the school’s Space
animals and humans. Most people
think of this as a disease-causing
agent, but there are many types of
E. coli and most of them are
harmless. Our idea was to use
Bio-Rad’s pGLO™ Bacterial
Transformation kit to implant a
glowing gene from a jellyfish into
the bacteria, which, if it glowed in
space, would indicate that the E. coli
Bio-Rad was very happy to help
us. They were really interested
in what we planned to do and
gave us lots of insights into how
we could construct our lab. But
even more than that were their
suggestions on how to re-animate
the bacteria once in space. They
Station experiment this year will
have even better controls. One
thing we did see, though, was that
the bacteria started to grow right
at the valve insert—directly where
the nutrient broth was coming in.
I guess bacteria—like us—can be
pretty hungry sometimes.”
A SHARED
ASPIRATION.
8 Bio-Rad 2013 Annual Report
HOW IT WORKS: pGLO BACTERIAL TRANSFORMATION KIT
Using Bio-Rad’s pGLO Bacterial Transformation kit, students
are able to transform bacteria by introducing a gene from the
bioluminescent jellyfish Aequorea Victoria that encodes green
fluorescent protein (GFP). With this activity, students analyze
the growth of bacteria on various media and examine the
roles of external and internal factors in gene regulation. When
bacteria transformed with pGLO plasmid are grown on plates
containing arabinose (a sugar), the GFP gene switches on,
causing the bacteria to express GFP and display a glowing
brilliant green under UV light.
Bio-Rad 2013 Annual Report 9
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THE SAME TRANSFORMATION PROCEDURE
EMPLOYED BY THE STUDENTS AT VALLEY
CHRISTIAN HIGH SCHOOL TO CREATE A
LAB THEY LATER LAUNCHED ONTO THE
INTERNATIONAL SPACE STATION HAS BEEN
USED TO CREATE “DESIGNER PROTEINS.”
THESE PROTEINS HAVE LED TO THE
EXPLOSION OF NEW HEALTH TREATMENTS,
AGRICULTURAL APPLICATIONS, AND
ENVIRONMENTAL SOLUTIONS.
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JANE RELATES THE STORY OF AN HbA1c STUDY
As a medical technologist involved with hemoglobin A1c (HbA1c), part
of my job is to read medical journals to find the latest information on this
subject. A while back, an article caught my eye that led to correspon-
dence with the author about an unusual case study regarding HbA1c.
HbA1c is commonly used in rela-
from the patient’s chart that a
physician would have thought her
tion to diabetes. It is a fraction of
fingerstick glucose test done in the
HbA1c results were in the normal
glucose (sugar) and hemoglobin
office the day of her visit had mea-
range when in fact the doctor
(a protein in our red blood cells).
sured her fasting blood glucose
knew this individual was diabetic.
When glucose combines with
level at 130—a level that did not
hemoglobin it makes ‘glyco-hemo-
correlate with her HbA1c result.
For lab technicians, the worst
thing you want is to give the wrong
globin’ or HbA1c; this is measured
primarily to identify the average
glucose level in a diabetic over
the life of the red cells, a duration
of about three months. Unlike a
momentary blood draw, HbA1c
normalizes the frequent spikes and
fluctuations of glucose levels that
occur over the course of a typical
day and averages it over that
three-month period. Think of it as
a ‘batting average’, rather than a
singular, individual glucose at-bat,
for a patient.
The study in question concerned
an African-American woman,
relatively healthy, who had visited
her doctor to check her diabetes
status. Her HbA1c blood test that
came back from the lab—per-
formed using a standard immuno-
assay test—indicated a reading of
4.7, which is within the ‘normal’
range. The doctor, however, noted
Concerned, the doctor contacted
result. And while immunoassay is
the lab, which then decided to
ideal for a great many chemistry
retest the patient’s sample with a
screenings, it is not, for HbA1c,
Bio-Rad D-10™ hemoglobin test-
where you may not even be aware
ing system. The D-10 provides not
that the result might be incorrect.
merely a number as a result, but
also a picture, which allows labo-
ratorians to see a more complete
picture in the glyco-hemoglobin
molecule, not just its physical
structure, as with the immunoas-
say test.
To get the word out about this, I
wrote a paper, ‘HbA1c Does Not
Always Estimate Average Glu-
cose,’ co-authored with Kristina
Behan, the medical technologist
who wrote the original article. In
this new paper, which appeared in
The results obtained by the D-10
the journal Clinical Laboratory Sci-
were indeed different from those of
ence, we recommend that all initial
the immunoassay. The new results
patient screenings for HbA1c be
were confirmed by a separate lab,
performed on an HPLC analyzer,
which revealed that the patient
like the D-10 system.
had a sickle cell trait and a beta
thalassemia trait, a cell disorder
than can interfere with a standard,
immunoassay HbA1c test. Had the
original immunoassay result been
accepted—without question—the
I’m happy to say that the article
received a ‘Clinical Significance’
award from the publication, and
am even more gratified that since
publication, multiple, if not many,
labs have changed their practices
in this regard.”
A SHARED
INTENTION.
Bio-Rad 2013 Annual Report 11
FOR LAB
TECHNICIANS, THE
WORST THING YOU
WANT IS TO GIVE THE
WRONG RESULT. AND
WHILE IMMUNOASSAY
IS IDEAL FOR A GREAT
MANY CHEMISTRY
SCREENINGS, IT IS
NOT, FOR HbA1c,
WHERE YOU MAY NOT
EVEN BE AWARE THAT
THE RESULT MIGHT BE
INCORRECT.”
JANE MERSCHEN | SENIOR PRODUCT MANAGER
HOW IT WORKS: THE D-10 HEMOGLOBIN TESTING SYSTEM
The D-10 hemoglobin testing system is the smallest and most cost-effective
automated high-performance liquid chromatography platform available today.
Designed for small- to medium-volume laboratories and clinics, the D-10 provides
a fully automated system that combines A1c diabetes monitoring and beta
thalassemia testing on a single platform. Fast switching between programs is
easily achieved without changing reagents or cartridge. Primary tube sampling,
touch screen operation, automatic bar code reading, and an interactive training
CD combine to make the system remarkably intuitive, and easy to use.
WE BEGAN USING
BIO-RAD’S QX100
DROPLET DIGITAL
PCR SYSTEM AND
WE’VE BEEN AMAZED
AT HOW EASILY AND
ACCURATELY WE
COULD MEASURE
THESE LOW-COPY
EVENTS IN A SAMPLE
OF DNA.”
GARY LEE | SENIOR SCIENTIST | SANGAMO BIOSCIENCES
NEONATAL PATIENT
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Bio-Rad 2013 Annual Report 13
GARY DISCUSSES DROPLET DIGITAL PCR AND HIV RESEARCH
At Sangamo BioSciences, we’re working at the DNA level to develop
therapies designed to provide a functional cure for HIV, the virus that causes
AIDS. A functional cure means that although the virus may not be entirely
gone, infected subjects are controlling the virus without the help from
antiretroviral drugs—which can often have significant side effects.
Our primary therapeutic concept is
traditional method, but it proved to
thing that is biologically real and
to knock out the CCR5 gene, the
be inefficient for detecting very low
relevant—since we are using a
major co-receptor for HIV infec-
levels of HIV DNA or ‘low copy’
technology that is generating data
tion. CCR5 is a protein that can be
events—which, surprisingly, is
we can really trust.
found on the surface of white blood
the norm in an infected individual.
cells. It’s involved in the immune
If you take a blood sample of
system and is necessary for HIV
someone who is HIV positive and
entry into cells—the first step of
isolate the DNA from the white
infection. We take a patient’s T cells
blood cells, most often you’ll only
(a type of white blood cell targeted
find one copy of HIV DNA in 1,000
by HIV) and use our technology to
to 10,000 cells. That’s not much!
eliminate the CCR5 gene. Without
We needed another way to more
this protein, the patient’s T cells are
efficiently quantify this needle in
resistant to HIV infection. Our aim
the haystack.
As you may have seen in the news
early last year, the Bio-Rad system
was also used to determine one of
two HIV cures to date. A baby in
Mississippi born infected with the
HIV virus was immediately placed
on antiretroviral drugs, which sup-
press virus replication. The therapy
proved to be successful, pushing
the virus down to undetectable
is to partially restore the patient’s
immune system so it can mount an
immune response against the virus
to either produce a functional cure,
or potentially also reduce what is
referred to as the ‘HIV reservoir’
(or the HIV DNA) in the body.
In 2011 we began using Bio-Rad’s
levels. Even though she eventu-
QX100™ Droplet Digital™ PCR
ally—and prematurely—went off
system and we’ve been amazed at
the antiretroviral therapy, when the
how easily and accurately we could
now-toddler was later tested in
measure these low-copy events
2013 using the QX100, research-
in a sample of DNA and therefore
ers could find no signs of HIV in
quantify the HIV reservoir in the
her blood.
One of the challenges we faced
subjects we’re treating. In addition,
was quantifying this HIV reservoir
the system provides the level of
in the subjects we were treating
reliability needed for clinical studies.
so we could monitor how well
We can repeat our measurements
the drug was working. We were
and see the same changes over
using qPCR (or real time PCR), the
time, so we’re more confident in
what the assay is telling us—some-
For us, the QX100 system provides
a significant improvement over
previous qPCR technologies as we
can now more accurately detect
the HIV reservoir in our subjects
and we are more confident in the
results than ever before.”
A SHARED
AMBITION.
14 Bio-Rad 2013 Annual Report
HOW IT WORKS: THE QX200™ DROPLET DIGITAL™ PCR SYSTEM
Polymerase Chain Reaction, or PCR, is used to produce many copies of specific DNA
sequences of interest. This method provides researchers with sufficient DNA material
for detecting genes of interest in a biological sample or manipulating, modifying, and
cloning the desired sequences to further study their role in cellular processes. Bio-Rad
has been an important contributor to this area of technology for nearly two decades
and entered the “digital” era of PCR in 2011, when it introduced the QX100 Droplet
Digital PCR system. Shortly thereafter, the company launched the QX200 Droplet
Digital PCR system, which offers researchers even more flexibility in the design of their
PCR experiments. By partitioning a sample and PCR reaction mix into approximately
20,000 individual droplets, the QX200 system is able to count nucleic acids molecule
by molecule, to help detect rare mutations (including distinguishing rare sequences in
tumors), precise measurement of copy number variation, and absolute quantification
of gene expression.
Bio-Rad 2013 Annual Report 15
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ANTIRETROVIRAL DRUGS MADE
AVAILABLE IN THE ’90S HELP MANY
INFECTED WITH HIV LIVE WITH THE
DISEASE BY SUPPRESSING THE VIRUS
FROM REPLICATING IN THEIR BODIES;
HOWEVER, THESE DRUGS DO NOT
ELIMINATE THE VIRUS ENTIRELY.
SOME RESEARCHERS BELIEVE
THAT EDITING T CELLS TO MIMIC A
NATURALLY OCCURRING RESISTANCE
TO THE HIV VIRUS HOLDS THE KEY
TO ELIMINATING THE NEED FOR
LIFELONG ANTIRETROVIRAL DRUGS
AND COULD EVENTUALLY LEAD TO A
FUNCTIONAL CURE.
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WAFA RELATES A STORY ABOUT CELIAC PATIENT IN FRANCE
A few years ago, a six-year-old boy was brought into Hôpitaux de
Lyon, in France, suspected of having celiac disease. This autoimmune
digestive disease is a problem some people have when ingesting gluten,
a protein found in foods such as bread, pasta, and cereal. With this
disease, the body’s immune system develops antibodies that cause
chronic inflammation in the small intestine, destroying the villi that line
the walls of the organ. The villi are tiny, finger-shaped tissues that enable
the body’s absorption of vitamins, sugars, and other nutrients as food
passes through. Celiac disease can have especially severe consequences
in children because the diminished absorption of vitamins and other
nutrients may cause stunted growth and even neurological disorders.
Although the Lyon hospital is
Transglutaminase (tTG), a serology
After receiving the positive result,
widely respected for its work with
marker for celiac disease diagno-
the hospital followed up with the
celiac disease in children, this
sis. The test came back negative:
boy and tested him again a few
disorder is, in general, difficult
no celiac disease shown. How-
months later. This time, the Bio-Rad
to diagnose. This is because its
ever, the hospital also decided to
assay found an even stronger
range of clinical symptoms, such
perform the test using Bio-Rad’s
positive result—high levels of anti-
as weight loss or gain, abdominal
anti-tTG assay. This time, the test
bodies to tTG. An intestinal biopsy
pain, bloating, and feeling weak
came back positive, indicating that
was performed to confirm the re-
and tired all of the time, are also
the boy may have celiac disease.
sults, and the boy was immediately
common symptoms of other
problems—such as irritable bowel
syndrome (IBS), Crohn’s disease,
intestinal infections, and lactose
intolerance—with the result that a
patient may be treated for one of
these problems first.
The only treatment for celiac is
placed on a gluten-free diet.
removing gluten from the diet.
Without the heightened sensitiv-
This can be an extreme measure
ity of the Bio-Rad assay, this boy
especially for children, as gluten
may have suffered with the disease
is so prevalent in the average diet
longer than necessary. I was glad
and quite difficult to eliminate. In
that we were able to make such a
addition, timeliness in diagnosis is
difference in this child’s life.”
In this case, the hospital took
also a factor, as the disease gets
a blood sample from the boy
worse as it progresses.
and, using what was otherwise
standard laboratory procedures,
tested for IgA antibodies to tissue
A SHARED RESPONSIBILITY.
Bio-Rad 2013 Annual Report 17
WITHOUT THE
HEIGHTENED
SENSITIVITY OF
THE BIO-RAD
ASSAY, THIS
BOY MAY HAVE
SUFFERED WITH
THE DISEASE
LONGER THAN
NECESSARY.
I WAS GLAD THAT
WE WERE ABLE
TO MAKE SUCH
A DIFFERENCE IN
THIS CHILD’S LIFE.”
CELIAC PATIENT
WAFA HERZALLAH | PRODUCT SPECIALIST
A SHARED RESPONSIBILITY.
18 Bio-Rad 2013 Annual Report
WITHIN A COUPLE OF WEEKS AFTER
ELIMINATING GLUTEN FROM THE
DIET, MANY PEOPLE WITH CELIAC
DISEASE FIND THAT THEIR SYMPTOMS
IMPROVE. WITHIN THREE MONTHS,
SYMPTOMS SHOULD COMPLETELY
DISAPPEAR, ALTHOUGH IT TAKES
UP TO SIX MONTHS OR MORE ON A
GLUTEN-FREE DIET FOR THE VILLI TO
RETURN TO NORMAL.
SHOWN LEFT, A MICROSCOPIC VIEW
OF NORMAL VILLI, WHICH LINE THE
WALLS OF THE SMALL INTESTINES
AND ALLOW THE BODY TO ABSORB
VITAMINS, SUGARS, AND OTHER
NUTRIENTS AS FOOD PASSES
THROUGH. TO THE RIGHT IS VILLI
FROM AN INDIVIDUAL SUFFERING
FROM CELIAC DISEASE.
Bio-Rad 2013 Annual Report 19
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HOW IT WORKS: BIO-RAD’S AUTOIMMUNE EIA ANTI-TISSUE TRANSGLUTAMINASE (tTG) IgA OR IgG KITS
The Bio-Rad kits are used to detect the presence of autoantibodies
to tissue transglutaminase (tTG) in human serum. Tissue
transglutaminase is a ubiquitous enzyme found in many parts of
the human body. Antibodies to tissue transglutaminase are found in
individuals with celiac disease and are used as a diagnostic marker
for this autoimmune disorder. Celiac disease is characterized by
damage in the small intestine that is sustained by a diet containing
gluten. Bio-Rad’s new generation of automated anti-tTG IgA and
IgG serologic tests are highly sensitive and specific for the early
diagnosis of celiac disease, offering clinicians confidence in their
test results and ultimately better outcomes for their patients.
WITH BIO-RAD’S
WORKFLOW, THE
RESEARCHER
SAW RESULTS
THAT OFFERED
A GREATER
DEGREE OF
ACCURACY AND
THEREFORE
WOULD PROVIDE
THE COMPANY
WITH MORE
CONFIDENCE IN
THEIR DATA.”
DANIEL BRAUNSCHWEIG | FIELD SALES REPRESENTATIVE
A SHARED
HOPE.
Bio-Rad 2013 Annual Report 21
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DANIEL DISCUSSES HCP DETECTION
Last year we had a Bay Area pharmaceutical company call in to
Technical Support in need of a solution to help them with host cell
protein (HCP) testing. This pharma company develops drug therapies
for orphan (or rare) diseases with limited treatment options that affect
just a small percentage of the population. One of their scientists had
just attended a conference in Washington, D.C., in which Bio-Rad had
presented information on its ‘2D blotting workflow’ that may be used
as part of the process of HCP testing. He was interested.
HCP detection is crucial to phar-
Our 2D blotting workflow enables
had been using was a combination
maceutical companies in providing
a comprehensive analysis and
of products from different com-
safe biopharmaceutical products.
identification of HCPs in an accu-
panies that were pieced together
These ‘host’ cells, which include
rate and easy-to-use package. The
and which, in the end, produced
mammalian and yeast cells as well
U.S. Food and Drug Administration
subjective results. With Bio-Rad’s
as other cells, are specifically used
(FDA) regulations require HCPs be
workflow however, the researcher
to express (or produce) proteins
reduced to the lowest levels pos-
saw results that offered a greater
that later become biologic drugs.
sible, so this is something pharma
degree of accuracy and therefore
As you can imagine, host cells
companies need to test at every
would provide the company with
are complex systems that contain
stage of drug manufacturing and
more confidence in their data.
hundreds to thousands of HCPs
then report results back to the
that can potentially affect the
FDA. Accurately monitoring HCPs
biopharmaceutical product. Failure
during the drug development
to identify and sufficiently remove
process also helps manufactur-
harmful HCP impurities—early in
ers select the best methods with
drug development—can result
which to reduce these impurities.
in reduced drug efficacy or, even
worse, adverse patient reactions.
The scientist and his supervisor
arranged a visit to Bio-Rad to
view the workflow and evaluate its
results. They spent two days with
us, putting the system through its
paces, and came away extremely
Bio-Rad’s approach to HCP analy-
impressed, understanding right
sis appealed to this researcher
away the implications of using
since it is a complete, optimized
such a workflow for their own
workflow from start to finish, but
work. They immediately purchased
also because it offers more sensi-
the system, and have begun to
tive and reproducible results with
integrate it into their lab.”
higher resolution than other meth-
ods. The process this company
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Protein
Protein
Transfer
Transfer
2
2
2D Gel
2D Gel
Electrophoresis
Electrophoresis
1
1
Protein Staining and
Protein Staining and
Western Blotting
Western Blotting
Image Overlay
Image Overlay
and Analysis
and Analysis
3
3
4
4
PROTEAN® i12™ IEF System
PROTEAN® i12™ IEF System
Trans-Blot® Turbo™ Transfer System
Trans-Blot® Turbo™ Transfer System
ChemiDoc™ MP Imaging System
ChemiDoc™ MP Imaging System
PDQuest™ 2-D Analysis Software
PDQuest™ 2-D Analysis Software
BIO-RAD’S 2D BLOTTING WORKFLOW CONSISTS OF BEST-
IN-CLASS TOOLS AND INSTRUMENTS THAT ARE DESIGNED
TO WORK TOGETHER TO PERFORM EACH STEP OF THE
WORKFLOW FOR HOST CELL PROTEIN TESTING.
Bio-Rad 2013 Annual Report 23
2D Gel
2D Gel
Electrophoresis
Electrophoresis
1
1
Protein
Protein
Transfer
Transfer
2
2
Protein Staining and
Protein Staining and
Western Blotting
Western Blotting
Image Overlay
Image Overlay
and Analysis
and Analysis
3
3
4
4
PROTEAN® i12™ IEF System
PROTEAN® i12™ IEF System
Trans-Blot® Turbo™ Transfer System
Trans-Blot® Turbo™ Transfer System
ChemiDoc™ MP Imaging System
ChemiDoc™ MP Imaging System
PDQuest™ 2-D Analysis Software
PDQuest™ 2-D Analysis Software
HOW IT WORKS: 2D BLOTTING WORKFLOW
The PROTEAN i12 IEF system establishes the first step, using gel
electrophoresis to separate proteins by charge and producing effective
and reproducible sample separation. Next, the Criterion™ precast gels
separate the proteins by size. The separated proteins are then transferred
(or blotted) to a membrane using the Trans-Blot Turbo transfer system.
After a period of incubation with host cell antibodies, this membrane is
then stained for the total protein and then the blot is imaged (similar to
taking a photo) with the ChemiDoc MP imaging system. The resulting
images are analyzed with PDQuest 2-D analysis software to determine the
percentage of proteins recognized by those antibodies.
24 Bio-Rad 2013 Annual Report
BIO-RAD AT A GLANCE
Founded in 1952, Bio-Rad has a global team of more
than 7,750 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
Bio-Rad’s Life Science Group
develops, manufactures, and
markets a wide range of laboratory
instruments, apparatus, and
consumables used for research in
functional genomics, proteomics,
cell biology, and food safety. The
group ranks among the top five
life science companies worldwide,
and maintains a solid reputation
nucleic acids, cells, and bacteria.
products are recognized as
These technologies include
the gold standard for diabetes
electrophoresis, imaging, multiplex
monitoring and quality control (QC)
immunoassay, chromatography,
systems. The company is also well
microbiology, bioinformatics, protein
known for its blood virus testing,
function analysis, transfection, flow
blood typing, and autoimmune and
cytometry, amplification, and real-time
genetic disorders testing.
and Droplet Digital PCR. Bio-Rad
products support researchers in
laboratories throughout the world.
for quality, innovation, and a long-
CLINICAL DIAGNOSTICS
standing focus on the success of its
The Clinical Diagnostics Group
customers. Bio-Rad’s life science
develops, manufactures, sells,
products are based on technologies
and supports a large portfolio
of products for laboratory
used to separate, purify, identify,
analyze, and amplify biological
materials such as proteins,
diagnostics. Bio-Rad is a leading
of diseases and other medical
diagnostics company and its
conditions.
Bio-Rad’s clinical diagnostics
products incorporate a broad range
of technologies used to detect,
identify, and quantify substances in
bodily fluids and tissues. The results
are used as aids to support medical
diagnosis, detection, evaluation,
and the monitoring and treatment
2013 FINANCIAL HIGHLIGHTS
F I V E -Y E A R R E C O R D *
(IN MILLIONS, EXCEP T FOR RETURN O N SALES
AND PER SHARE DATA)
2009
2010
2011
2012
2013
Net Sales
Gross Profit
R&D Expense
$ 1,784.2
$ 1,927.1
$ 2,073.5
$ 2,069.2
$ 2,132.7
$ 1,000.4
$ 1,091.8
$ 1,178.8
$ 1,155.2
$ 1,178.5
$ 154.1
$ 166.5
$ 177.6
$ 209.2
$ 211.0
Net Income Attributable to Bio-Rad
$ 145.4
$ 186.2
$ 179.0
$ 165.5
$
77.8
Return On Sales
8.1%
9.7%
8.6%
8.0%
3.6%
Book Value Per Share
$ 45.80
$ 55.25
$ 61.98
$ 70.75
$ 75.99
Basic Earnings Per Share
$
5.31
$
6.73
$
6.39
$
5.85
$
2.72
Cash Flow From Operations
$ 322.6
$ 229.1
$ 262.7
$ 276.0
$ 175.5
* Amounts include correction of immaterial errors and reclassification of certain amounts to
be consistent with the presentation in Form 10-K for the year ended December 31, 2013.
NET SALES
NET SALES
(IN MILLIONS)
CASH FLOW
BASIC EARNINGS
NET SALES
CASH FLOW
BASIC EARNINGS
6
.
2
2
3
$
NET SALES
CASH FLOW
2013 SALES
BY REGION
42%
Europe
39%
Americas
19%
Pacific
Rim
NET SALES
CASH FLOW
CASH FLOW
FROM OPERATIONS
(IN MILLIONS)
0
.
6
7
2
$
7
.
2
6
2
$
1
.
9
2
2
$
5
.
5
7
1
$
09
10
11
12
13
5
.
3
7
0
,
2
$
2
.
9
6
0
,
2
$
7
.
2
3
1
,
2
$
1
.
7
2
9
,
1
$
2
.
4
8
7
,
1
$
09
10
11
12
13
BASIC EARNINGS
BASIC EARNINGS
PER SHARE
3
7
.
6
$
9
3
.
6
$
5
8
.
5
$
1
3
.
5
$
2
7
.
2
$
09
10
11
12
13
BASIC EARNINGS
26 Bio-Rad 2013 Annual Report
BIO-RAD SALES HISTORY
$2.0 billion
$1.9 billion
$1.8 billion
$1.7 billion
$1.6 billion
$1.5 billion
$1.4 billion
$1.3 billion
$1.2 billion
$1.1 billion
$1.0 billion
$900 million
$800 million
$700 million
$600 million
$500 million
$400 million
$300 million
$200 million
$100 million
1959
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________________ to _________________________________
Commission file number 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
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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
Yes
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.
Yes
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).
Yes
No
No
No
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.
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
(Do not check if a smaller reporting
company)
Smaller reporting company
Accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
As of June 30, 2013, 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 $2,226,524,962 and the aggregate market value of the registrant's Class B Common Stock
held by non-affiliates was approximately $37,350,568.
As of March 5, 2014, there were 23,702,410 shares of Class A Common Stock and 5,091,990 of Class B Common Stock outstanding.
Documents Incorporated by Reference
(1)
Definitive Proxy Statement to be mailed to stockholders in connection with the
registrant's 2014 Annual Meeting of Stockholders (specified portions)
III
Document
Form 10-K Parts
BIO-RAD LABORATORIES, INC.
FORM 10-K DECEMBER 31, 2013
TABLE OF CONTENTS
Part I.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
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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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 direct distribution
channels in over 35 countries outside the United States through subsidiaries whose focus is sales, customer service
and product distribution. In some regions, sales efforts are supplemented by distributors and agents.
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 33% and
66%, respectively, of our net sales for the year ended December 31, 2013. We generated approximately 32% of our
consolidated net sales for the year ended December 31, 2013 from U.S. sales and approximately 68% from sales in
our remaining worldwide markets.
For a description of business and financial information on industry and geographic segments, see Note 14 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 the life sciences market, 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 currently estimate that the worldwide market for products in these selected
segments was approximately $7 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.
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 seek to focus on the
higher margin, higher growth segments of this market.
3
We supply more than 3,000 different products that cover more than 300 clinical diagnostic tests to the IVD test
market. We currently estimate that the worldwide sales for products in the markets we serve were approximately
$10 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 equipment, reagents and consumable products. An installed base of diagnostic test systems therefore
typically 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 trademarks. We also pay royalties on the sales of certain
products under several patent license agreements. We view these patents, trademarks and license agreements as
valuable assets; however, we believe that our ability to develop and manufacture our products depends primarily on
our knowledge, technology and special skills rather than our patent and trademark positions.
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
approximately 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. We believe that this direct sales approach allows us to sell a broader range of our products and have more
direct contact with our customers; however, we also use distributors and agents, particularly in many of our
international markets.
Our customer base is broad and diversified. Our worldwide customer base includes (1) prominent university and
research institutions, providing us access to more than 150,000 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 2013, no single customer accounted for more than
two percent of our total net sales. Our sales are affected by a number of 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 has in the past and will in the
future 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
4
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. We seek to compete primarily in market
segments where our products and technology offer customers specific advantages over the competition.
Because of the breadth of its product lines, our Life Science segment does not face the same competitors for all of
its products. Competitors in this market include GE Biosciences, Life Technologies, Merck Millipore and Thermo
Fisher Scientific. We compete primarily based on meeting performance specifications and offering complete
solutions.
Major competitors of our Clinical Diagnostics segment include Roche, Abbott Laboratories (Diagnostic Division),
Siemens Medical Diagnostics Solutions, Danaher, Thermo Fisher, Becton Dickinson, bioMérieux, Ortho Clinical
Diagnostics, Tosoh, Immucor and DiaSorin.
Research and Development
We conduct extensive research and development activities in all areas of our business, employing approximately
820 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 within our industry. We spent
approximately $211.0 million, $209.2 million and $177.6 million on research and development activities in 2013,
2012 and 2011, respectively.
Regulatory Matters
The development, testing, manufacturing, marketing, post-market surveillance, distribution, advertising 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 clearance or approval by the FDA and require certain products to be manufactured in
accordance with FDA's “good manufacturing practice” regulations, to be extensively tested and to be properly
labeled to disclose test results and performance claims and limitations. After a product that is subject to FDA
regulation is placed on the market, numerous regulatory requirements apply, including, for example, the
requirement that we comply with recordkeeping and reporting requirements, such as the FDA’s medical device
reporting regulations and reporting of corrections and removals. The FDA enforces these requirements by
inspection and market surveillance. The FDA has authority to take various administrative and legal actions against
us for our, or our products', failure to comply with relevant legal or regulatory requirements, including issuing
warning letters, initiating product seizures, requesting or requiring product recalls or withdrawals, and other civil or
criminal sanctions, among other things.
We are also subject to additional healthcare regulation and enforcement by the federal government and by
authorities in the states and foreign jurisdictions in which we conduct our business. Such laws include, without
limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security and physician
sunshine laws and regulations. If our operations are found to be in violation of any of such laws or any other
governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and
criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in
federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate
our business and our financial results.
5
Sales of our products will depend, in part, on the extent to which our products or diagnostic tests using our products
will be covered by third-party payors, such as government health care programs, commercial insurance and
managed healthcare organizations. These third-party payors are increasingly reducing reimbursements for certain
medical products and services. In addition, the U.S. government, state legislatures and foreign governments have
continued implementing cost containment programs, including price controls and restrictions on reimbursement.
Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions
with existing controls and measures, could further limit our net revenue and results. Decreases in third-party
reimbursement for our products or diagnostic tests using our products, or a decision by a third-party payor to not
cover our products could reduce or eliminate utilization of our products and have a material adverse effect on our
sales, results of operations and financial condition. In addition, state and federal healthcare reform measures have
been and will be adopted in the future, any of which could limit the amounts that federal and state governments will
pay for healthcare products and services, which could result in reduced demand for our products or additional
pricing pressures.
As a multinational manufacturer and distributor of sophisticated instrumentation, 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, 2013, Bio-Rad had approximately 7,750 employees. Approximately seven percent of Bio-Rad's
approximately 3,000 U.S. employees are covered by a collective bargaining agreement, which will expire on
November 8, 2016. 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, as amended. 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. The information on our website is not part of this Annual Report on Form 10-K.
6
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 effect 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 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 investigation, we 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), each of which commenced an investigation. The Audit Committee of our Board of Directors
(Audit Committee) assumed direct responsibility for reviewing these matters and hired experienced independent
counsel to conduct an investigation and provide legal advice. We provided additional information to the DOJ and
the SEC as the Audit Committee's investigation progressed. Following the completion of the Audit Committee’s
investigation, we continue to cooperate with the DOJ and SEC investigations and to provide information to them.
The DOJ and SEC investigations are continuing and we are presently unable to predict the duration, scope or results
of these investigations 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 engaged in discussions with the DOJ and SEC
concerning a resolution of these matters, but we are unable to estimate the outcome of these discussions or whether
we will be able to reach mutually acceptable settlements. At this point, we are unable to estimate a range of
reasonably possible outcomes of this matter that differs from our Estimated loss contingency recorded in the latter
half of 2013 of $35.0 million, including $5.0 million of accrued interest. However, 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 rates. We have not to date determined whether any of the activities in question
violated the laws of the foreign jurisdictions in which they took place.
On April 13, 2011, a shareholder derivative lawsuit was filed against each of our directors in the Superior Court for
Contra Costa County, California. The case, which also names the Company as a nominal defendant, is captioned
City of Riviera Beach General Employees' Retirement System v. David Schwartz, et al., Case No. MSC11-00854.
In the complaint, the plaintiff alleges that our directors breached their fiduciary duties by failing to ensure that we
had sufficient internal controls and systems for compliance with the FCPA. Purportedly seeking relief on our
behalf, the plaintiff seeks an award of unspecified compensatory and punitive damages, costs and expenses
(including attorneys' fees), and a declaration that our directors have breached their fiduciary duties. We and the
individual defendants filed a demurrer requesting dismissal of the complaint in this case, as well as a motion to stay
this matter pending resolution of the above-referenced investigations by the DOJ and SEC. Following a hearing on
September 30, 2011, the court sustained our demurrer and dismissed the complaint, without prejudice, and granted
the plaintiff additional time to file an amended complaint. The court denied our motion to stay this matter because
it dismissed the complaint. The parties have agreed to a stipulated dismissal of this case, without prejudice, and to a
tolling of the statute of limitations pending the resolution of the DOJ and SEC investigations.
7
We have identified a material weakness in our internal control over financial reporting at December 31, 2013.
Our failure to establish and maintain effective internal control over financial reporting could result in material
misstatements in our financial statements, our failure to meet our reporting obligations and cause investors to
lose confidence in our reported financial information, which in turn could cause the trading price of our
common stock to decline.
Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial
statements. In connection with our assessment of the effectiveness of internal control over financial reporting and
the preparation of our financial statements for the year ended December 31, 2013, we identified a material
weakness in the design of monitoring controls over operations at certain of our locations both within the United
States and overseas, as well as a lack of documentation required to operate these controls appropriately. As a result
there is a reasonable possibility that a material misstatement to our annual or interim consolidated financial
statements could occur and not be detected or prevented. See Item 9A. “Controls and Procedures”.
Under standards established by the Public Company Accounting Oversight Board, 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.
Under the criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission in Internal
Control - An Integrated Framework, a material weakness in the design of monitoring controls indicates that we have
not sufficiently developed and/or documented (i.e. designed) internal controls by which management can review
and oversee (i.e. monitor) our financial information to detect and correct material errors or that the personnel
responsible for performing the review did not have the sufficient skillset or knowledge of the subject matter to
perform a proper assessment.
In connection with our assessment of our internal control over financial reporting at December 31, 2013, we
determined that the precision at which our controls are designed and documented, and the completeness and
timeliness of communication between some of our locations are not sufficient to detect and correct a material
misstatement in our consolidated financial statements. The reference to the precision of certain of our controls
indicates that, where we do have monitoring controls, we do not have within them the appropriate thresholds (i.e.
precision) used by management to detect the magnitude of errors that could, either individually or in aggregate,
result in a material misstatement. The reference to communications between some of our locations indicates that
we have not included in all of our monitoring controls specificity about required communication channels and
timelines for communication between elements of the Company when errors are detected.
For example, during 2013, we identified two financial adjustments that were not timely detected through our
management review controls because the control’s precision, or threshold, for error detection was set too high to
prevent a potential material misstatement and, once detected, the error was not communicated to our corporate
finance management in an adequate and timely fashion to correct our financial statements.
Specifically, during the third quarter of 2013, we identified certain immaterial errors requiring adjustment to prior
years and quarters related to the valuation of finished goods inventory in our Life Science segment. The inventory
adjustment had developed over a period of years and was not identified prior to 2013 because of a failure to perform
detailed management reviews of account reconciliations at a sufficient level of precision to identify the error in
prior periods. The methodology used to account for the inventory valuation was not documented, which also
contributed to the failure to identify the issue on a timely basis. In addition, following detection at the local level,
higher levels of the organization were not informed about this issue in a timely manner. As a result, we over-
expensed inventory for non-sales transactions, such as inventory used for demonstration purposes and product
samples, which resulted in an understatement of inventory balances in prior periods. We have commenced
remediation of this deficiency by enhancing the related reconciliation control and lowering the quarterly threshold
for communicating errors.
8
In addition, in the fourth quarter of 2013, our independent registered public accounting firm identified an
immaterial financial adjustment pertaining to our Japanese pension liability. The adjustment had developed over a
period of years and was not identified prior to 2013 as no monitoring control had been designed to detect this error.
The error resulted from an incorrect methodology applied at the local level. The lack of any monitoring control
allowed the error to cumulate over a number of years. We have commenced remediation of this deficiency by
designing a monitoring control for our pension liabilities and providing training to local personnel.
We are actively engaged in developing a remediation plan designed to address the material weakness in our internal
control over financial reporting. We plan to enhance our monitoring controls by (i) designing and documenting
additional management review controls, (ii) documenting, as needed, precision and specificity to existing
management review controls, and (iii) supplementing resources and providing training to effectively perform
management review controls.
However, we cannot assure you that we will be able to remediate this material weakness or that additional material
weaknesses in our internal control over financial reporting will not be identified in the future. For example, we
have previously identified different material weaknesses in internal controls at December 31, 2012 and December
31, 2011, both of which we believe have been remediated, but we identified a new material weakness at December
31, 2013. Such material weaknesses have adversely affected us in the past and could affect us in the future, and the
results of our periodic management evaluations and annual auditor attestation reports regarding the effectiveness of
our internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002. Any
failure to implement and document new and more precise monitoring controls or to implement organizational
changes including skillset enhancements through resource changes or education to improve detection and
communication of financial misstatements across all levels of the organization could result in additional 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.
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.
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,
funding, reimbursement constraints 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. Although signs of limited recovery may
exist in some markets, there are continued concerns about systemic economic imbalance, the availability and cost of
credit, declining asset values and geopolitical issues that contribute to increased market volatility and uncertain
expectations for the global economy. These conditions, combined with greater volatility in business activity levels
and consumer confidence, high unemployment and volatile oil prices, contributed to unprecedented levels of
volatility in the capital markets in recent years. Continuing 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 private sector investors to reduce and, in some cases,
cease to provide credit to governments, businesses and consumers. These factors have led to depressed spending by
some governments, businesses and consumers. Our customers and suppliers may experience cash flow concerns
and, as a result, customers may modify, delay or cancel plans to purchase our products and suppliers may increase
their prices, reduce their output or change terms of sales. Additionally, if customers' or suppliers' 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. Sovereign nations either delaying payment
for goods and services or renegotiating their debts could impact our liquidity. The situation in these sovereign
nations is continuously evolving and we have no greater knowledge of the situation other than what is publicly
reported. As of December 31, 2013 and December 31, 2012, we had accounts receivable, net of allowance for
doubtful accounts, in Spain, Italy, Greece and Portugal of $66.0 million and $64.8 million, respectively.
9
Suppliers 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 suppliers 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:
assimilate the operations and personnel of acquired companies;
retain acquired business customers;
•
•
• minimize potential disruption to our ongoing business;
retain key technical and management personnel;
•
integrate acquired companies into our strategic and financial plans;
•
accurately assess the value of target companies, products and technologies;
•
comply with new regulatory requirements;
•
harmonize standards, controls, procedures and policies;
•
• minimize the impact to our relationships with our employees and customers; and
•
assess, document and remediate any deficiencies in disclosure controls and procedures and internal control
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
consolidated, and 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
10
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, as well as compliance with our global controls, policies
and procedures.
A significant portion of our sales are made outside of the United States. Our foreign subsidiaries generated 68% of
our net sales in 2013. 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, additional scrutiny over certain financial instruments and currency exchange
rate risks. In particular, political unrest in Southeast Asia, the Middle East and Eastern Europe may affect our sales
in those regions. In addition, we have a dispersed international sales team, and we use distributors and agents in
many of our international operations. This structure makes it more difficult for us to ensure that our international
selling operations comply with our global policies and procedures. In addition, changes to the distributors and
agents we use could have an impact on our sales and access to our customers. We cannot assure you that shifts in
currency exchange rates, especially significant strengthening of the U.S. dollar compared to the Euro and Swiss
Franc, 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 programs are based on a wide variety of
factors, including the resources available to make such purchases, the availability of funding from grants by
governments or government agencies, the spending priorities for various types of equipment and the policies
regarding capital expenditures during industry downturns or recessionary periods. If 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 and 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 gross margins for products we sell in clinical diagnostics markets.
In the United States, there have been, and we expect there will continue to be, a number of legislative and
regulatory changes to the healthcare system that could affect our revenues and profitability and the revenues and
profitability of our customers. Our business is impacted by the level of reimbursement available for clinical tests
from Medicare, Medicaid, other governmental payors and commercial third party payors. Payment for many
diagnostic tests furnished to Medicare fee-for-service beneficiaries is made based on the Medicare Clinical
Laboratory Fee Schedule (CLFS), a fee schedule established and adjusted from time to time by the Centers for
Medicare and Medicaid Services (CMS). In recent years, payments under the CLFS have decreased and may
decrease further in future years. Some commercial payors are guided by the CLFS in establishing their
reimbursement rates. Clinicians may decide not to order clinical diagnostic tests if third party payments are
inadequate, and we cannot predict whether third party payors will offer adequate reimbursement for tests utilizing
our products to make them commercially attractive.
Moreover, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and
Education Reconciliation Act, or collectively, the PPACA, impose significant new programs and responsibilities
affecting U.S. pharmaceutical and medical device industries. The PPACA, among other things, establishes annual
11
fees and taxes on manufacturers of certain medical devices, including our devices, and promotes programs that
increase the federal government's comparative effectiveness research, which may be used to evaluate the selection
of medical services by clinicians and others. PPACA also mandates a reduction in payments for clinical laboratory
services paid under the CLFS of 1.75% for the years 2011 through 2015. In addition, a productivity adjustment is
made to the CLFS payment amount, further reducing payment rates. These changes in payments apply to some or
all of the clinical laboratory test services we furnish to Medicare beneficiaries.
In addition, other legislative changes have been proposed and adopted in the United States since the PPACA was
enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending
reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted
deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals,
thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate
reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013. On
January 2, 2013, the American Taxpayer Relief Act of 2012, or the ATRA, was signed into law, which, among other
things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer
treatment centers, and increased the statute of limitations period for the government to recover overpayments to
providers from three to five years.
To the extent that the healthcare industry seeks to address the need to contain costs stemming from reform measures
such as those contained in PPACA and ATRA, or in future legislation, by limiting the number of clinical tests being
performed or the amount of reimbursement available for such tests, 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 would 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.
12
We may experience difficulties implementing our new global enterprise resource planning system.
We are engaged in a multi-year implementation of a new global enterprise resource planning system (ERP). The
ERP is designed to accurately maintain our books and records and provide information important to the operation of
our business to our management team. The ERP will continue to require significant investment of human and
financial resources. In implementing the ERP, we may experience significant delays, increased costs and other
difficulties. Any significant disruption or deficiency in the design and implementation of the ERP could adversely
affect our ability to process orders, ship product, send invoices and track payments, fulfill contractual obligations or
otherwise operate our business. In 2013, we experienced system implementation issues in our Clinical Diagnostics
segment that impacted invoicing and caused an increase in accounts receivable. While we have invested significant
resources in planning, project management and training, additional and significant implementation issues may arise.
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
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, and any changes in regulation or violations of regulations
by us could adversely affect our business, prospects, results of operations or financial condition.
Some of our products (primarily diagnostic products), production processes and marketing are subject to federal,
state, local and foreign regulation, including by the FDA and its foreign counterparts. The FDA regulates our
diagnostic products as medical devices pursuant to the Federal Food, Drug and Cosmetic Act. Unless an exemption
applies, each medical device marketed in the United States must first receive either clearance of a 510(k) premarket
notification or approval of a premarket approval application (PMA) from the FDA, depending on the risk
classification of the device. Medical devices can be marketed only for the indications for which they are cleared or
approved. The FDA has also generally chosen to not enforce applicable regulations, including premarket
requirements, with respect to certain diagnostic products referred to as laboratory developed tests, which are tests
developed by a single laboratory for use only in that laboratory. However, the FDA has indicated, since 2010, that
it intends to reconsider its policy regarding enforcement and to begin drafting an oversight framework for such
tests. After a device receives 510(k) clearance, any modification that could significantly affect its safety or
effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could
require a PMA approval. After a device is placed on the market, regardless of the classification or pre-market
pathway, it remains subject to significant regulatory requirements, including, for example, recordkeeping and
reporting requirements, such as the FDA’s medical device reporting regulations and reporting of corrections and
removals. The FDA has broad regulatory and enforcement powers. If the FDA determines that we have failed to
comply with applicable regulatory requirements, it can impose a variety of enforcement actions ranging from public
warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of
approvals, seizure or recall of our products, total or partial shutdown of production, withdrawal of approvals or
clearances already granted, and criminal prosecution. The FDA can also require us to repair, replace or refund the
cost of devices that we manufactured or distributed.
13
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing
regulations, or take other actions, which may prevent or delay approval or clearance of our products or impact our
ability to modify our currently approved or cleared products on a timely basis. For example, the FDA recently
initiated a review of the premarket clearance process in response to internal and external concerns regarding the 510
(k) program. In January 2011, the FDA announced several proposed action items intended to reform the review
process governing the clearance of medical devices to improve the efficiency and transparency of the clearance
process, as well as bolster patient safety. Some of these proposals, if enacted, could impose additional regulatory
requirements upon us, which could delay our ability to obtain new 510(k) clearances, increase the costs of
compliance or restrict our ability to maintain our current clearances. Moreover, as part of the Food and Drug
Administration Safety and Innovation Act, or FDASIA, Congress reauthorized the Medical Device User Fee
Amendments with various FDA performance goal commitments and enacted several “Medical Device Regulatory
Improvements” and miscellaneous reforms which are further intended to clarify and improve medical device
regulation both pre- and post-clearance or approval. Any delay in, or failure to receive or maintain, clearance or
approval for our products could prevent us from generating revenue from these products and adversely affect our
business operations and financial results. Additionally, the FDA and other regulatory authorities have broad
enforcement powers. Regulatory enforcement or inquiries, or other increased scrutiny on us, could affect the
perceived safety and efficacy of our products and dissuade our customers from using our products. Many foreign
governments have similar rules and regulations regarding the importation, registration, labeling, sale and use of our
products. Such agencies may also impose new requirements that may require us to modify or re-register products
already on the market or otherwise impact our ability to market our products in those countries.
We are also subject to government regulation of the use and handling of a number of materials and controlled
substances. The U.S. Drug Enforcement Administration establishes registration, security, recordkeeping, reporting,
storage, distribution and other requirements for controlled substances pursuant to the Controlled Substances Act of
1970. Failure to comply with present or future laws and regulations could result in substantial liability to us,
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 subject to federal and state healthcare fraud and abuse laws and regulations and could face substantial
penalties if we are unable to fully comply with such laws.
We are subject to healthcare fraud and abuse regulation and enforcement by both the federal government and the
states and foreign governments in which we conduct our business. These healthcare laws and regulations include,
for example:
•
•
•
•
the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from soliciting,
receiving, offering or providing remuneration, directly or indirectly, in return for or to induce either the
referral of an individual for, or the purchase order or recommendation of, any item or services for which
payment may be made under a federal healthcare program such as the Medicare and Medicaid programs;
federal false claims laws, which prohibit, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party
payors that are false or fraudulent, and which may apply to entities like us to the extent that our interactions
with customers may affect their billing or coding practices;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which established new
federal crimes for knowingly and willfully executing a scheme to defraud any healthcare benefit program or
making false statements in connection with the delivery of or payment for healthcare benefits, items or
services;
the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health
Information Technology for Economic and Clinical Health Act, which governs the conduct of certain
electronic healthcare transactions and protects the security and privacy of protected health information; and
14
•
state or foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims
laws, which may apply to items or services reimbursed by any third-party payor, including commercial
insurers.
The risk of our being found in violation of these laws is increased by the fact that many of these laws are broad and
their provisions are open to a variety of interpretations. Further, the PPACA amends the intent requirement of the
federal anti-kickback and criminal health care fraud statutes. A person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it. In addition, the government may assert that a claim
including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or
fraudulent claim for purposes of the false claims statutes.
Further, the PPACA includes provisions known as the Physician Payment Sunshine Act, which requires certain
manufacturers of drugs, biologics, devices and medical supplies to record any transfers of value to U.S. physicians
and U.S. teaching hospitals. Manufacturers must also disclose investment interests held by physicians and their
family members. Failure to submit the required information may result in civil monetary penalties of up an
aggregate of $150,000 per year (and up to an aggregate of $1 million per year for “knowing failures”), for all
payments, transfers of value or ownership or investment interests not reported in an annual submission, and may
result in liability under other federal laws or regulations. Manufacturers have been required to perform data
collection since August 1, 2013 and must report such data to the Centers for Medicare and Medicaid Services by
March 31, 2014 and by the 90th day of each subsequent calendar year. Several states in the U.S. have also
implemented similar reporting requirements and/or mandate implementation of compliance programs. An
increasing number of countries worldwide either have adopted or are considering similar laws requiring
transparency of interactions with health care professionals. The shifting compliance environment and the need to
build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance
and/or reporting requirements increases the possibility that a healthcare company may violate one or more of the
requirements.
These laws will continue to impose administrative, cost and compliance burdens on us. In addition, any action
against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant
legal expenses and divert our management's attention from the operation of our business. If our operations are
found to be in violation of any of the laws described above or any other governmental regulations that apply to us,
we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from the Medicare
and Medicaid programs, and the curtailment or restructuring of our operations, any of which could adversely affect
our ability to operate our business and our financial results.
Regulations related to “conflict minerals” could adversely impact our business.
On August 22, 2012, the SEC adopted a rule requiring disclosures by public companies of their use of specified
minerals (tantalum, tin, tungsten and gold) that are necessary to the functionality or production of products
manufactured or contracted to be manufactured. The rule, which is effective for 2013 and requires a disclosure
report to be filed by May 31, 2014, requires companies to perform due diligence, disclose and report whether or not
the specified minerals originated from the Democratic Republic of Congo or an adjoining country and directly or
indirectly financed or benefited armed groups in that region. We have incurred, and will continue to incur,
additional costs in order to comply with the disclosure requirements of this rule, such as costs related to determining
the source of the specified minerals used in our products. In addition, we might incur additional costs due to
possible changes to our products, processes, or sources of supply as a consequence of our due diligence activities.
As our supply chain is complex, we may not be able to sufficiently verify the origins of the specified minerals used
in our products through our due diligence procedures, which may harm our reputation. In addition, we may
encounter challenges to satisfy those customers who require that all of the components of our products be certified
as conflict-free, which could place us at a competitive disadvantage if we do not do so.
15
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.
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.
At February 14, 2014, the Schwartz family collectively held approximately 15% of our Class A Common Stock and
94% 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 determination 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.
16
Natural disasters, terrorist attacks, acts of war or other events beyond our control may cause damage or
disruption to us and our employees, facilities, information systems, security systems, vendors and customers,
which could significantly impact our net sales, costs and expenses, and financial condition.
We have significant manufacturing and distribution facilities, particularly in the western United States, France,
Switzerland, Germany and Singapore. In particular, the western United States has experienced a number of
earthquakes, wildfires, floods, landslides and other natural disasters in recent years. The occurrences could damage
or destroy our facilities which may result in interruptions to our business and losses that exceed our insurance
coverage. In addition, strikes or other labor unrest could cause disruption to our business. 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 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, 2013 we and our subsidiaries had approximately $437.4 million of outstanding indebtedness.
The following chart shows certain important credit statistics.
Total debt
Bio-Rad’s stockholders’ equity
Debt to equity ratio
At December 31,
2013
(dollars in millions)
437.4
$
2,186.7
$
0.2
Our incurrence of substantial amounts of debt may have important consequences. For instance, it could:
• make it more difficult for us to satisfy our financial obligations, including those relating to our outstanding
•
•
•
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 which we
operate;
17
•
•
place us at a competitive disadvantage compared with some of our competitors that have less debt; and
limit our ability to obtain additional financing required to fund working capital and capital expenditures and
for other general corporate purposes.
Our 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 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:
•
•
•
• make investments;
•
•
•
•
incur additional debt;
acquire other businesses or assets through merger or purchase;
create liens;
enter into transactions with affiliates;
sell assets;
in the case of some of our subsidiaries, guarantee debt; and
declare or pay dividends, redeem stock or make other distributions to 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, a 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.
18
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
Pleasanton, California
Singapore
Shanghai, China
Oxford, England
Hercules, California
Benicia, California
Irvine, California
Greater Seattle area, Washington
Lille, France
Greater Paris area, France
Nazareth-Eke, Belgium
Cressier, Switzerland
Dreieich, Germany
Owned/Leased
Owned/Leased
Owned/Leased
Leased
Leased
Leased
Leased
Owned/Leased
Leased
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 investigation, we 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), each of which commenced an investigation. The Audit Committee of our Board of Directors
(Audit Committee) assumed direct responsibility for reviewing these matters and hired experienced independent
counsel to conduct an investigation and provide legal advice. We provided additional information to the DOJ and
the SEC as the Audit Committee's investigation progressed. We continue to cooperate with the DOJ and SEC
investigations and to provide information to them.
The DOJ and SEC investigations are continuing and we are presently unable to predict the duration, scope or results
of these investigations 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
19
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. While we have been engaged in discussions with the
DOJ and SEC concerning a resolution of these matters, we are unable to estimate a range of reasonably possible
outcomes of this matter that differs from our Estimated loss contingency recorded in the latter half of 2013 of $35.0
million, including $5.0 million of accrued interest. 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 determined
whether any of the activities in question violated the laws of the foreign jurisdictions in which they took place.
On April 13, 2011, a shareholder derivative lawsuit was filed against each of our directors in the Superior Court for
Contra Costa County, California. The case, which also names the Company as a nominal defendant, is captioned
City of Riviera Beach General Employees' Retirement System v. David Schwartz, et al., Case No. MSC11-00854.
In the complaint, the plaintiff alleges that our directors breached their fiduciary duties by failing to ensure that we
had sufficient internal controls and systems for compliance with the FCPA. Purportedly seeking relief on our
behalf, the plaintiff seeks an award of unspecified compensatory and punitive damages, costs and expenses
(including attorneys' fees), and a declaration that our directors have breached their fiduciary duties. We and the
individual defendants filed a demurrer requesting dismissal of the complaint in this case, as well as a motion to stay
this matter pending resolution of the above-referenced investigations by the DOJ and SEC. Following a hearing on
September 30, 2011, the court sustained our demurrer and dismissed the complaint, without prejudice, and granted
the plaintiff additional time to file an amended complaint. The court denied our motion to stay this matter because
it dismissed the complaint. The parties have agreed to a stipulated dismissal of this case, without prejudice, and to a
tolling of the statute of limitations pending the resolution of the DOJ and SEC investigations.
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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.
20
2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Class A
Class B
High
Low
High
Low
$
$
$
$
125.00
126.98
127.17
126.50
109.93
109.62
118.00
106.91
$
$
115.25
111.49
110.02
106.10
99.00
91.52
95.05
96.19
$
$
124.41
122.95
125.50
125.00
110.26
109.50
115.38
105.25
115.59
114.00
110.75
106.75
99.72
92.10
95.63
96.26
On February 14, 2014, we had 331 holders of record of Class A Common Stock and 135 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 of Part III of this report for the security ownership of certain beneficial owners and management and
for securities authorized for issuance under equity compensation plans.
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, 2008, and
reinvestment of dividends if paid:
(1) The Peer Group consists of the following public companies: Danaher, 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.
21
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
Impairment losses on goodwill and long-
lived assets
Interest expense
Foreign exchange losses, net
Other (income) expense, net
Income before income taxes and
noncontrolling interests
Provision for income taxes
Net (income) loss attributable to
noncontrolling interests
Net income attributable to Bio-Rad
Basic earnings per share
Diluted earnings per share
Cash dividends paid per common share
Total assets
Long-term debt, net of current maturities
$
$
$
$
$
$
$
2,132,694
954,216
1,178,478
798,070
210,952
—
61,271
8,566
(12,766)
112,385
(34,574)
(21)
77,790
2.72
2.69
$
$
$
$
2013
2012
Year Ended December 31,
2011
2010
2009
$
2,069,235
914,077
1,155,158
681,778
209,204
$
2,073,529
894,700
1,178,829
695,984
177,604
$
1,927,118
835,310
1,091,808
634,413
166,486
1,784,244
783,871
1,000,373
600,708
154,130
—
51,112
5,040
(21,883)
229,907
(64,361)
—
53,135
13,842
(7,583)
245,847
(67,034)
—
63,717
3,884
(3,875)
227,183
(39,533)
3,802
47,024
5,003
(6,871)
196,577
(46,597)
(69)
200
(1,445)
(4,545)
165,477
5.85
5.78
$
$
$
179,013
6.39
6.29
$
$
$
186,205
6.73
6.61
$
$
$
145,435
5.31
5.23
—
— $
— $
— $
— $
3,388,790
435,615
$
$
3,443,503
732,414
$
$
3,099,743
731,698
$
$
3,064,914
731,100
$
$
2,537,288
737,919
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
22
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 scientists with specialized products 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,
education and government customers worldwide. We do not disclose quantitative information about our different
products and services as it is impractical to do so based primarily on the numerous products and services that we
sell and the global markets that we serve.
We manufacture and supply our customers with a range of reagents, apparatus and equipment to separate complex
chemical and biological materials and to identify, analyze and purify components. Because our customers require
standardization for their experiments and test results, much of our revenues are recurring.
We are impacted by the support of many governments for both research and healthcare. The current global
economic outlook is becoming increasingly uncertain as the need to control government social spending by many
governments limits opportunities for growth. Approximately 32% of our 2013 consolidated net sales are derived
from the United States and approximately 68% are derived from international locations, with Europe being our
largest region overall. The international sales are largely denominated in local currencies such as the Euro, Swiss
Franc, Japanese Yen, China Yuan and British Sterling. As a result, our consolidated net sales expressed in dollars
benefit when the U.S. dollar weakens and suffer when the dollar strengthens. When the U.S. dollar strengthens, we
benefit from lower cost of sales from our own international manufacturing sites as well as non-U.S. suppliers and
from lower international operating expenses.
During the latter half of 2013, we accrued an aggregate of $35.0 million associated with our initial efforts to resolve
the investigations by the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC)
relating to the United States Foreign Corrupt Practices Act (FCPA), of which $30.0 million was expensed to Selling,
general and administrative expenses and $5.0 was expensed to Interest expense.
In September 2013, we redeemed all of our $300.0 million 8.0% Senior Subordinated Notes for $312.0 million,
including a call premium of $12.0 million, and expensed the remaining original issuance bond discount of $2.5
million and unamortized bond issuance costs of $1.1 million, all of which are included in Interest expense in our
Condensed Consolidated Statements of Income.
During the third quarter of 2013, we identified errors in the consolidated financial statements for the years 2011 and
2012 (and for all interim periods therein) and in the unaudited interim condensed consolidated financial statements
for the three month periods ended March 31, 2013 and June 30, 2013, related to the valuation of finished goods
inventory in our Life Science segment. We were inappropriately expensing inventory in amounts greater than actual
costs for non-sales transactions, primarily related to inventory being used for demonstration purposes and product
samples that are recorded to Selling, general and administrative expense. In addition, the Life Science segment
inventory error affected cost of goods sold as we relieved inventory at a higher cost than incurred on limited sales to
third parties produced in a non-U.S. manufacturing facility. The effect of correcting these errors in the 2011 and
2012 consolidated financial statements were increases to net income of $0.8 million and $1.7 million, respectively.
During the third quarter of 2013, we revised the classification of one item for all periods presented from “Provision
for income taxes” to “Research and development expense” in our Consolidated Statements of Income to conform to
the current year presentation. The item reclassified pertains to a refundable French R&D tax credit, which after the
reclassification reduces Research and development expense. We believe this presentation is appropriate as we are
not required to have taxable income in order to earn the credits. The effect of the reclassifications from Provision
23
for income taxes to Research and development expense for 2011 and 2012 was $8.8 million and $4.8 million,
respectively.
Management evaluated the materiality of all the errors described above from a qualitative and quantitative
perspective. Based on such evaluation, we have concluded that while the accumulation of these errors was
significant to the three months ended September 30, 2013, their correction would not be material to any individual
prior period, nor did they have an effect on the trend of financial results, taking into account the requirements of the
SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). Accordingly, we are correcting these errors in
every affected period in the 2013 Consolidated Financial Statements included in this Form 10-K.
In January 2013, we acquired 100% of the outstanding shares of AbD Serotec, a division of MorphoSys AG, for
total consideration of $62.2 million (net of cash received of $7.3 million). This acquisition was accounted for as a
business combination and is included in our Life Science segment's results of operations from the acquisition date.
The final fair values of the net assets acquired consist of definite-lived intangible assets of $44.0 million, goodwill
of $14.9 million and net tangible assets of $3.3 million. These amounts include certain immaterial measurement
period adjustments recorded during the second quarter of 2013. We believe that with AbD Serotec's comprehensive
catalog of antibodies, we are able to offer our customers total assay solutions that can be validated on many of our
research platforms for western blotting, multiplex protein expression, ELISA and cell sorting.
In August 2012, we acquired from Propel Labs, Inc. a new cell sorting system, an automated, easy-to-use, benchtop
cell sorting flow cytometer. This asset acquisition was accounted for as a business combination and is included in
our Life Science segment's results of operations from the acquisition date. The fair value of the consideration as of
the acquisition date was $49.6 million, which included $5.0 million paid in cash at the closing date and $44.6 million
in contingent consideration related to the achievement of certain development and sales milestones valued at $19.9
million and $24.7 million, respectively, that could potentially be payable to Propel Labs' shareholders. The
development milestones have been achieved and payments totaling $20 million were made in 2013. The contingent
consideration was revalued by a net reduction of $3.8 million in 2013 to Selling, general and administrative expense
to its estimated fair value of $20.8 million as of December 31, 2013. The fair values of the net assets acquired from
Propel Labs, Inc. as of the acquisition date were determined to be $17.4 million of goodwill, $32.1 million of
definite-lived intangible assets and $0.1 million of net tangible assets. The acquired cell sorting system fits well
into Bio-Rad's existing Life Science segment product offerings.
In July 2012, we acquired all of the outstanding shares of DiaMed Benelux for 4.6 million Euros (approximately
$5.6 million) in cash. This acquisition was accounted for as a business combination and is included in our Clinical
Diagnostics segment's results of operations from the acquisition date. We acquired net liabilities with a fair value of
$2.3 million and the fair values of the assets acquired as of the acquisition date were determined to be $3.0 million
of goodwill and $4.9 million of definite-lived intangible assets. DiaMed Benelux became the exclusive distributor
of certain Bio-Rad immunohematology products in the Benelux market as a result of our 2007 acquisition of
DiaMed Holding AG. This distributor acquisition is consistent with our stated objective to control the distribution
of our own products and services.
In January 2012, we purchased, for cash, certain assets from a raw material supplier for approximately $12.5
million. This asset acquisition was accounted for as a business combination and is included in our Clinical
Diagnostics segment's results of operations from the acquisition date. The fair value of the assets acquired at the
acquisition date was determined to be $6.3 million of net tangible assets, $5.1 million of intangible assets and $1.1
million of goodwill. In addition, we paid $2.0 million for employment agreements as an incentive to certain
employees of the acquired business to remain with Bio-Rad. Such amount was expensed over two years from the
date of acquisition. We believe this acquisition will allow us to secure the supply of critical raw materials and lower
our overall costs in the Clinical Diagnostics segment.
During the first quarter of 2012, we identified an error in the consolidated financial statements for the years 2007
through 2011, related to a foreign supplemental tax associated with social benefits. We incorrectly interpreted and
24
applied the local statutes to our circumstances. We accrued $6.1 million for these foreign supplemental taxes,
including penalties and interest, during the first quarter of 2012, all of which has been paid. The foreign
supplemental tax, and the related penalties and interest, were not deductible for income tax purposes, and as such
this error did not have an impact on Bio-Rad's provision for income taxes.
We evaluated the materiality of the error from a qualitative and quantitative perspective. Based on such evaluation,
we concluded that while the accumulation of the error was significant to the three-month period ended March 31,
2012, the correction was not material to any individual prior period or for the year ended December 31, 2012, nor
did it have an effect on the trend of financial results, taking into account the requirements of SAB 108.
During the fourth quarter of 2011 we recognized a contingent consideration liability upon our acquisition of
QuantaLife related to potential future payments due upon the achievement of certain sales and development
milestones. The contingent consideration was initially recognized at its estimated fair value of $24.1 million, based
on a probability-weighted income approach. As of the acquisition date of October 4, 2011, total contingent
consideration could have originally reached a maximum of $48 million upon the achievement of all sales milestones
and a development milestone. The development milestone was met as of December 31, 2012, resulting in a
payment of $6.0 million in January 2013. During 2012, the first three short-term sales milestones were not met and
therefore the fair value of the contingent consideration was lowered by $16.1 million and credited to Selling,
general and administrative expense. During 2013, we did not expect that any of the remaining sales milestones
would be met and therefore $2.0 million of the remaining contingent consideration liability was credited to Selling,
general and administrative expense.
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 exposures, as well as
making judgments regarding the recoverability of deferred tax assets in each jurisdiction. 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. Management
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 have recorded a valuation allowance of $64.0 million and $52.9 million as of December 31, 2013 and 2012,
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
25
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 deferred tax assets
for which a valuation allowance has been provided occur, the provision for income taxes may decrease, raising
income and positively impacting Bio-Rad’s financial position.
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 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. Our overall effective tax rate is subject to fluctuations
because of changes in the geographic mix of earnings, changes to statutory tax rates and tax laws, and because of
the impact of various tax audits and assessments, as well as generation of tax credits.
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 operating 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 a projected discounted cash flow model to determine the fair value of a reporting unit. This discounted cash
value method for determining 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 longer-term high level 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 accumulated fair values of all the reporting units are reasonable.
26
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:
•
•
•
•
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.
There were no impairment losses recorded in 2013, 2012 and 2011.
Valuation of Inventories. We value inventory at the lower of the actual cost to purchase and/or manufacture the
inventory, or the current estimated net 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 economic or environmental 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.
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.
27
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting
from the collectability 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 liabilities 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.
Results of Operations - Sales, Gross Margins and Expenses
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
Net sales
2013
Year Ended December 31,
2012
2011
100.0%
44.7
55.3
37.4
9.9
3.6
100.0%
44.2
55.8
32.9
10.1
8.0
100.0%
43.1
56.9
33.6
8.6
8.6
Net sales (sales) in 2013 were $2.13 billion compared to $2.07 billion in 2012. Excluding the impact of foreign
currency, 2013 sales increased by approximately 3.9% compared to 2012. Currency neutral sales growth was
reflected in most regions, primarily in the Americas, the emerging markets of Eastern Europe and the Pacific Rim,
while currency neutral sales in Western Europe decreased.
The Life Science segment sales in 2013 were $710.0 million, an increase of 3.1% compared to 2012. On a currency
neutral basis, sales increased 4.5% compared to 2012. The sales increase was primarily driven by sales from the
newly acquired AbD Serotec, our Droplet Digital™ PCR and cell biology product lines. Currency neutral sales
increased in Europe and the Americas, while Asia declined. A government austerity program has slowed Japanese
market growth.
The Clinical Diagnostics segment sales in 2013 were $1.41 billion, an increase of 3.1% compared to 2012. On a
currency neutral basis, sales increased 3.6% compared to 2012. Clinical Diagnostics had growth across most
product lines on a currency neutral basis, most notably from quality controls, diabetes and BioPlex® 2200 system.
Currency neutral sales growth was primarily in Eastern Europe, China, Asia Pacific and the Americas, while
currency neutral sales in Western Europe declined.
28
Sales in 2012 were relatively unchanged at $2.07 billion compared to 2011. Excluding the impact of foreign
currency, 2012 sales increased by approximately 3.6% compared to 2011. Currency neutral sales growth was
achieved in all regions, however Europe grew by less than 1% percent.
The Life Science segment sales in 2012 were $688.4 million, a decrease of 0.9% compared to 2011. On a currency
neutral basis, sales increased 1.5% compared to 2011. The currency neutral sales increase was primarily in
laboratory separation and process chromatography, as well as increased sales from the droplet digital PCR product
line associated with the QuantaLife acquisition. The Life Science segment currency neutral sales increased in
North America, Latin America, Europe and Asia.
The Clinical Diagnostics segment sales in 2012 were $1.37 billion, an increase of 0.1% compared to 2011. On a
currency neutral basis, sales increased 4.7% compared to 2011. Clinical Diagnostics product lines generating
growth were quality controls, diabetes, microbiology, blood virus and BioPlex® 2200 system. In 2011, sales were
impacted by a one-time blood typing equipment sale of approximately $8 million. Currency neutral sales growth
was achieved in the Pacific Rim, the Americas and the emerging markets, while currency neutral sales declined in
western Europe.
Gross margin
Beginning in 2013, the Patient Protection and Affordable Health Care and the Health Care and Education
Reconciliation Acts of 2010, among other initiatives, provided for a 2.3% annual excise tax on the sales of certain
medical devices in the U.S. Bio-Rad was required to pay this excise tax on most of our U.S. Clinical Diagnostic
sales, which we accounted for as a period cost in Cost of goods sold.
Consolidated gross margins were 55.3% in 2013 compared to 55.8% in 2012. Life Science segment gross margins
in 2013 increased from 2012 by approximately 0.5 percentage points primarily due to an incremental royalty
accrual related to a dispute with a third party, as well as a $3.8 million soil remediation expense associated with a
manufacturing plant, both of which occurred in 2012. The increase was partially offset by an increase in costs
related to inventory sold with a higher cost due to purchase accounting, and an increase in purchased intangibles
amortization expense of $6.1 million primarily related to the AbD Serotec and cell sorting system acquisitions.
Clinical Diagnostics segment gross margins in 2013 decreased from 2012 by approximately 1.2 percentage points
primarily due to some large low margin government tenders, a less favorable product mix, and an increase in
obsolescence charges. Gross margins also decreased by approximately 0.36% due to the excise tax on the sales of
certain medical devices in the U.S. that went into effect in 2013. Clinical Diagnostics segment lower gross margins
were partially offset by a foreign supplemental tax associated with social benefits of $4.1 million that occurred in
2012, and a $0.6 million French Competitiveness Tax Credit that was recorded in 2013.
Consolidated gross margins were 55.8% in 2012 compared to 56.9% in 2011. Life Science segment gross margins
in 2012 decreased from 2011 by approximately 3.2 percentage points primarily due to amortization expense of
$10.0 million related to the droplet digital PCR products and cell sorting system acquisitions, an incremental
royalty accrual related to a dispute with a third party, as well as a $3.8 million soil remediation expense associated
with a manufacturing plant. Clinical Diagnostics segment gross margins in 2012 were relatively unchanged from
2011, reflecting an increase of 0.1 percentage points.
Selling, general and administrative expense
Consolidated selling, general and administrative expenses (SG&A) represented 37.4% of sales in 2013 compared to
32.9% of sales in 2012. Increases in SG&A expense relative to sales were primarily driven by:
•
•
an increase of $43.6 million of employee-related expenses, our largest cost, associated with an increase in
headcount that included acquisitions,
an accrual of $30.0 million in connection with our initial efforts to resolve the SEC and DOJ investigations
relating to the FCPA that was recorded in the latter half of 2013,
29
•
•
•
•
•
•
an increase in professional services of $21.7 million primarily related to the first phase of a global single
instance ERP system being placed in service, and legal and accounting services,
the favorable impact of a 2012 revaluation to the fair value of the QuantaLife contingent consideration of
$16.1 million,
an increase of $9.6 million in software amortization primarily due to the first phase of the ERP platform
being placed in service,
an increase of $6.5 million in facilities primarily due to an expansion at our southern California facility and
our acquisition of AbD Serotec,
an increase of $5.7 million as 2012 benefited from lower bad debt expense, primarily in Spain due to a
large sum of payments by public agencies, causing us to revise our estimate for the allowance for doubtful
accounts, partially offset by
a decrease in the valuation of the cell sorting system contingent consideration of $3.8 million in 2013.
Consolidated selling, general and administrative expenses (SG&A) represented 32.9% of sales in 2012 compared to
33.6% of sales in 2011. Decreases in SG&A relative to sales were primarily driven by the 2012 adjustments to the
fair value of the QuantaLife contingent consideration of $16.1 million, a decline in third party commissions
compared to 2011, and a lower bad debt expense provision compared to 2011, primarily in Spain of approximately
$8.6 million associated with large payments made in June 2012 by public agencies that represented Spanish
balances that were significantly past due, partially offset by an increase in incentive compensation and professional
fees compared to 2011. The decrease in the contingent consideration liability for QuantaLife was primarily due to
not achieving the first three short-term milestones as a result of recent weakening in funding to the research and
development markets and a longer sales cycle for this new technology, causing a revision in sales forecasts for the
remaining sales milestone contractual period ending in March 2014.
Research and development expense
Research and development expense increased to $211.0 million or 9.9% of sales in 2013 compared to $209.2
million or 10.1% of sales in 2012. Life Science segment research and development expense decreased in 2013 from
2012 primarily due to projects nearing completion. Clinical Diagnostics segment research and development
expense increased in 2013 from 2012 primarily due to lower refundable French R&D tax credits, and a broadening
of on-going development across a wider range of products.
Research and development expense increased to $209.2 million or 10.1% of sales in 2012 compared to $177.6
million or 8.6% of sales in 2011, primarily in the Life Science segment. Life Science segment research and
development expense increased in 2012 from 2011 primarily related to the droplet digital PCR products and cell
sorting system acquisitions, which had high research and development costs relative to sales for these new products.
Clinical Diagnostics segment research and development expense increased in 2012 from 2011 primarily due to
increased investment in enhanced product offerings in blood typing, quality controls, diabetes and blood virus
product lines.
Results of Operations – Non-operating
Interest expense
Interest expense in 2013 increased 19.9% to $61.3 million compared to 2012 primarily due to the early redemption
of our 8.0% Notes on September 30, 2013, resulting in a $15.6 million expense. The redemption included a call
premium of $12.0 million, the expensing of $2.5 million of the remaining original issuance bond discount and the
expensing of unamortized debt issuance costs of $1.1 million. In addition, Interest expense included an expense of
$5.0 million of interest expense associated with our initial efforts to resolve the DOJ and SEC investigations
relating to the FCPA that was recorded in the latter half of 2013. The increase was partially offset by estimated
interest expense of $1.2 million included in the first quarter of 2012 that was associated with a foreign supplemental
tax related to social benefits, and interest on back royalties in 2012.
30
Interest expense in 2012 decreased 3.8% to $51.1 million compared to 2011 primarily due to the refinancing of a
portion of our debt that was completed in January 2011, lowering our overall borrowing costs.
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 2013, 2012 and 2011
were $8.6 million, $5.0 million and $13.8 million, respectively. The 2013, 2012 and 2011 net foreign currency
exchange losses were attributable to market volatility, increasing costs to hedge and the result of the estimating
process inherent in the timing of shipments and payments of intercompany debt. In addition, approximately $4.6
million of the 2011 loss was attributable to entering into a larger forward foreign exchange contract than required.
All years are affected by the economic hedging program we employ to hedge our intercompany receivables and
payables.
Other income and expense, net
Other income and expense, net includes investment and dividend income, generally interest income on our cash and
cash equivalents, short-term investments and long term marketable securities. Other (income) expense, net in 2013
decreased to $12.8 million income compared to $21.9 million income in 2012. The decrease was primarily due to
higher realized gains associated with the sale of equity investments in 2012 compared to realized losses in 2013,
and a 2012 gain of $4.3 million on the sale of a building in our Clinical Diagnostics segment. Sales of investments
in 2013 were used to provide cash to redeem all of the $300.0 million 8.0% Senior Subordinated Notes.
Other (income) expense, net in 2012 increased to $21.9 million income compared to $7.6 million income in 2011.
The increase was primarily due to higher realized gains on the sale of equity investments in 2012 of $8.0 million
compared to 2011 and a 2012 gain of $4.3 million on the sale of a building in our Clinical Diagnostics segment.
Effective tax rate
Our effective tax rate was 31%, 28% and 27% in 2013, 2012 and 2011, respectively. The effective tax rate for 2013
included a significant tax benefit related to the 2012 U.S. federal research credit, which was retroactively reinstated
on January 2, 2013. The effective tax rate for 2013 was higher than 2012 primarily due to an increase in tax
liabilities and audit settlements in our foreign jurisdictions, and a lower domestic production activities deduction as
a result of lower U.S. taxable income in 2013. The effective tax rates for 2013 and 2012 reflected tax benefits
related to adjustments to the fair value of the QuantaLife contingent consideration. The effective tax rate for 2011
reflected tax benefits from nontaxable dividend income and the release of tax liabilities.
The effective tax rates for all three periods were lower than the U.S. statutory rate primarily due to tax benefits from
differences between U.S. and foreign statutory tax rates, and research and development tax credits. Our foreign
income is earned primarily in France and Switzerland. Switzerland's statutory tax rate is significantly lower than
our U.S. statutory tax rate of 35%. Our effective tax rates are also significantly reduced by French tax incentives
related to our research and development activities.
Our effective tax rate may be impacted in the future, either favorably or unfavorably, by many factors including, but
not limited to, changes to statutory tax rates, changes in tax laws or regulations, tax audits and settlements, and
generation of tax credits.
31
Liquidity and Capital Resources
Bio-Rad operates and conducts business globally, primarily through subsidiary companies established in the
markets in which we trade. Goods are manufactured in a small number of locations, and are then shipped to local
distribution facilities around the world. Our product mix is diversified, and certain products compete largely on
product efficacy, while others compete on price. Gross margins are generally sufficient to exceed normal operating
costs, and funding for research and development of new products, as well as routine outflows of capital expenditure,
interest and taxes. In addition to the annual positive cash flow from operating activities, additional liquidity is
readily available via the sale of short-term investments and access to our $200.0 million 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, 2013. The Credit
Agreement expires on June 21, 2014.
At December 31, 2013, we had available $608.9 million in cash, cash equivalents and short-term investments, of
which approximately 39% was held in our foreign subsidiaries. We believe that our holdings of cash, cash
equivalents and short-term investments in the U.S. and in our foreign subsidiaries are sufficient to meet both the
current and long-term needs of our global operations. The amount of funds held in the United States can fluctuate
due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as
business-development activities. As part of our ongoing liquidity assessments, we regularly monitor the mix of
domestic and foreign cash flows (both inflows and outflows). Repatriation of overseas funds will result in
additional U.S. federal and state income tax payments. In general, it is our practice and intention to reinvest the
cash generated by our foreign subsidiaries in our foreign subsidiaries' operations.
Under domestic and international lines of credit, we had $218.8 million available for borrowing as of December 31,
2013, of which $8.2 million is reserved for standby letters of credit issued by our banks to guarantee our
obligations, mostly to meet the deductible amount under insurance policies for our benefit. Management believes
that this availability, together with cash flow from operating activities, 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 an acquisition of reasonable proportion to our existing total
available capital.
The continuing slow economic growth in developed nations, including sequestration in the U.S., 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, funding, reimbursement constraints 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. The situation in these sovereign nations is continuously evolving and we have no greater knowledge of
the situation other than what is publicly reported. As of December 31, 2013 and December 31, 2012, we had
accounts receivable, net of allowance for doubtful accounts, in Spain, Italy, Greece and Portugal of $66.0 million
and $64.8 million, respectively.
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.
32
Cash Flows from Operations
Net cash provided by operations was $175.5 million, $276.0 million and $262.7 million in 2013, 2012, and 2011,
respectively. The net decrease between 2013 and 2012 of $100.5 million primarily resulted from:
•
•
•
•
•
•
higher cash paid to employees, mostly due to an increase in headcount that included acquisitions,
an increase in outside services as we placed in service during the second quarter of 2013 the first phase of a
global single instance Enterprise Resource Planning (ERP) platform, moving to expense in the post-
implementation/operation stage from capitalizing in the application development stage in the prior year
period,
2012 benefited from an approximately $21 million payment for multiple years of Spanish receivables,
an increase in interest paid primarily due to the early redemption of the $300.0 million of 8.0% Senior
Subordinated Notes on September 30, 2013, and
a payment settlement for a royalties audit of $12 million in the second quarter of 2013,
slightly offset by lower income tax payments and higher customer receipts.
In 2014 we have begun another phase of the global single instance ERP platform in which we will be in the
application development stage and therefore expect to have lower associated expenses than in 2013 as qualified
expenses are capitalized. Capitalized expenses are reflected in cash flows from investing activities.
The net increase between 2012 and 2011 of $13.3 million primarily represented higher cash received from customers
that in part reflected improved payments in 2012 from Southern European customers, and a decline in interest paid
due to the refinancing of a portion of our debt that was completed in January 2011, partially offset by higher income
tax payments as 2011 included an income tax refund of approximately $25 million. Also affecting cash flows from
operations was the Enterprise Resource Planning (ERP) project that was considered in the preliminary project stage in
2011, which requires internal labor costs to be expensed, whereas in 2012 we were in the application development
stage," which requires internal labor costs to be capitalized and is currently included in cash flows from investing
activities. We continue to focus on cash flow improvements as a global company-wide goal.
We regularly review past due receivables to assess the allowance for doubtful accounts 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 2014 cash flows from operations to be lower than the fourth quarter of 2013 as Bio-Rad
historically has made larger payments for royalties, fourth quarter sales commissions to third parties and annual
employee bonuses during this period.
Cash Flows from Investing Activities
Net cash used in investing activities, including capital expenditures, was $5.4 million, $409.9 million and $386.3
million for 2013, 2012 and 2011, respectively. Capital expenditures in 2013 totaled $113.0 million, compared to
$152.4 million and $102.9 million in 2012 and 2011, respectively. Capital expenditures represent the addition and
replacement of production machinery and research equipment, ongoing manufacturing and facility additions for
expansion, regulatory, environmental and compliance. Also included in capital expenditures are investments in
business systems and data communication upgrades and enhancements. All periods include payments made for
equipment placed with Clinical Diagnostics segment customers who then contract to purchase our reagents for use.
Capital expenditures were lower in 2013 compared to 2012 as we placed in service the first phase of a global single
instance ERP platform in 2013 and began to expense costs capitalized during the application development stage in
2012. Capital expenditures were higher in 2012 than in 2011 as the first phase of the global single instance ERP
platform was nearing completion in 2012. However, as we continue to implement more phases of the ERP platform
and expand our e-commerce platform, we expect capital expenditures to increase and continue to remain historically
higher for the next four years or more. The current estimated global implementation cost for the single instance ERP
platform could exceed $250 million and is estimated to take approximately four or more years to fully implement.
33
Purchases for marketable securities and investments in 2013 were lower than 2012 and 2011 primarily due to
reallocating funds. Proceeds from the sale of marketable securities and investments was higher in 2013 than prior
years primarily to provide cash to redeem all of the $300.0 million 8.0% Senior Subordinated Notes.
Our investment objective is to maintain liquidity to meet anticipated operational and other corporate requirements,
consistent with our risk tolerance level.
Payments for acquisitions, net of cash received, and long-term investments was higher than the prior year period
primarily due to the following:
•
•
•
•
•
•
•
in January 2013, we acquired 100% of the outstanding shares of AbD Serotec, a division of MorphoSys AG,
for total consideration of $62.2 million (net of cash received of $7.3 million),
in August 2012, we acquired from Propel Labs, Inc. a new cell sorting system that included $5.0 million in
cash at the closing date,
in July 2012, we acquired all of the outstanding shares of DiaMed Benelux for 4.6 million Euros
(approximately $5.6 million) in cash,
in January 2012, we purchased, for cash, certain assets from a raw material supplier for approximately $12.5
million,
in October 2011, we acquired all the issued and outstanding stock of QuantaLife that included $150.3 million
in cash at the closing date,
in June 2011, we acquired the remaining outstanding shares of DiaMed S.E.A. Limited (DiaMed Thailand)
from multiple noncontrolling shareholders for approximately $0.2 million in cash, and
in February 2011, we acquired an additional 39% of Distribuidora de Analitica para Medicina Ibérica S.A.
(DiaMed Spain) from multiple noncontrolling shareholders, increasing our ownership in DiaMed Spain to
90% for approximately 2.5 million Euros, or approximately $3.4 million in cash.
We continue to review possible acquisitions to expand both our Life Science and Clinical Diagnostics segments. We
routinely meet with the principals or brokers of the subject companies. It is not certain at this time that any of these
discussions involving material or significant acquisitions will advance to completion.
Cash Flows from Financing Activities
Net cash used in financing activities was $311.7 million and $213.6 million in 2013 and 2011, respectively, and net
cash provided by financing activities was $12.6 million in 2012. Net cash used in financing activities in 2013 was
primarily due to the early redemption of the $300.0 million of 8.0% Senior Subordinated Notes on September 30,
2013. Also in 2013, $20.0 million was paid to Propel Labs' shareholders in contingent consideration, of which $19.9
million was associated with the valuation as of the 2012 acquisition date and the remainder was recognized in cash
flows from operations. Additionally in 2013, $6.0 million was paid to QuantaLife in contingent consideration, of
which $5.6 million was associated with the valuation as of the 2011 acquisition date and the remainder was
recognized in cash flows from operations. Net cash provided in 2012 was primarily from proceeds from issuance of
our common stock. Net cash used in 2011 was attributable to the redemption in January 2011 of $225.0 million 7.5%
Senior Subordinated Notes, including a call premium of $2.8 million that was recorded in Interest expense in the
Consolidated Statements of Income. We have outstanding Senior Notes of $425.0 million, which are not due until
2020.
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. We are currently
evaluating our options on renewing the Credit Agreement or similar arrangements.
The Board of Directors has authorized the repurchase of up to $18.0 million of Bio-Rad's common stock, of which
$3.3 million has yet to be repurchased as of December 31, 2013. The Credit Agreement limits our ability to
34
repurchase our stock. In accordance with the terms of awards under the 2007 Incentive Award Plan, in June 2012, we
withheld 122 shares of our Class A common stock and 917 shares of our Class B common stock to satisfy tax
obligations due upon the vesting of restricted stock of certain of our employees, which is considered a repurchase of
our stock. All of the restricted stock has vested as of December 31, 2013 and therefore we do not anticipate any
repurchasing of shares for this purpose. We had no other repurchases of our stock during 2013, 2012 or 2011.
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.
Contractual Obligations
The following summarizes certain of our contractual obligations as of December 31, 2013 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 (1)
Operating lease obligations (2)
Purchase obligations (3)
Long-term liabilities (4)
$
Payments Due by Period
Less
Than
One Year
Total
1-3
Years
3-5
Years
More
than
5 Years
$
437.4
144.0
161.6
65.4
99.0
$
1.8
20.7
39.1
57.4
—
0.4
41.4
54.1
7.6
32.3
$
0.5 $
41.4
32.8
0.4
7.3
434.7
40.5
35.6
—
59.4
(1) These amounts represent expected cash payments, including capital lease obligations and notes payable, which are included in our
December 31, 2013 Consolidated Balance Sheets. Our debt is fixed and primarily consists of the 4.875% Notes. See Note 5 of the Consolidated
Financial Statements for additional information about our debt.
(2) Operating lease obligations are described in Note 12 of the Consolidated Financial Statements.
(3) 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.
(4) Excluded from this table is our liability for income taxes payable, including uncertain tax positions, in the amount of $17.8 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 for additional information about our income taxes.
Also excluded from this table is our $35.0 million accrual related to the United States Foreign Corrupt Practices Act (FCPA). We are not able
to reasonably estimate the timing of payments related to this accrual. See Note 13 of the Consolidated Financial Statements for additional
information about this accrual.
35
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. Derivative instruments used in these transactions are valued at fair value and changes in fair value are
included in reported earnings.
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, Brazilian Real 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
$46 million on our derivative position as of December 31, 2013. 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, 2013, the overall interest rate risk associated with our debt was not significant.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets at December 31, 2013 and 2012
Consolidated Statements of Income for each of the three years in the period ended
December 31, 2013
Consolidated Statements of Comprehensive Income for each of the three years in the period
December 31, 2013
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2013
Consolidated Statements of Changes in Stockholders’ Equity for each of the three years
in the period ended December 31, 2013
Notes to Consolidated Financial Statements
Page
38-41
42-43
44
45
46
47
48-85
37
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Laboratories, Inc.:
We have audited the accompanying consolidated balance sheet of
Laboratories, Inc. and subsidiaries (the
Company) as of December 31, 2013, and the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for the year ended December 31, 2013. In connection with our audit of the
consolidated financial statements, we also have audited the financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements and financial statement schedule based on our
audits.
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, the consolidated financial statements referred to above present fairly, in all material respects, the
Laboratories, Inc. and subsidiaries as of December 31, 2013, and the results of their
financial position of
operations and their cash flows for the year ended December 31, 2013, 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 consolidated financial statements taken as a whole, present 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),
Laboratories, Inc.’s internal control over financial reporting as of December 31, 2013, based on
criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 17, 2014 expressed an adverse
opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
San Francisco, California
March 17, 2014
38
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Laboratories, Inc.:
We have audited Bio-Rad Laboratories, Inc.’s (the Company) internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control
Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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 (Item 9A(b)). 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, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included 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.
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 a 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. A material weakness related to the design of monitoring controls
over operations at certain of the Company’s locations both within the United States and overseas and the completeness
and timeliness of communication between locations, as well as the precision at which these controls are designed and
documented, has been identified and included in management’s assessment. We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet and
consolidated statements of income, comprehensive income, stockholders’ equity, cash flows, and financial statement
schedule of Bio-Rad Laboratories, Inc. This material weakness was considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2013 consolidated financial statements, and this report does not affect
our audit opinion dated March 17, 2014, which expressed an unqualified opinion on those consolidated financial
statements.
39
In our opinion, because of the effect of the aforementioned material weakness 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, 2013, based on criteria established in Internal Control-Integrated Framework (1992) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ KPMG LLP
San Francisco, California
March 17, 2014
40
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 sheet of Bio-Rad Laboratories, Inc. as of December 31,
2012, and the related consolidated statements of income, comprehensive income, cash flows, and changes in
stockholders' equity for the two years ended December 31, 2012. 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, 2012, and the consolidated results of its operations
and its cash flows for the two years ended December 31, 2012 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.
Redwood City, California
March 18, 2013, except for the section in Note 1 entitled ‘Correction of Immaterial Errors, and Reclassification of
Certain Amounts’, as to which the date is March 17, 2014
/s/ Ernst & Young LLP
41
BIO-RAD LABORATORIES, INC.
Consolidated Balance Sheets
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for doubtful accounts of $32,471 at 2013 and
$29,202 at 2012
Inventories:
Raw materials
Work in process
Finished goods
Total inventories
Prepaid expenses
Other current assets
Total current assets
Property, plant and equipment:
Land and improvements
Buildings and leasehold improvements
Equipment
Total property, plant and equipment
Less: accumulated depreciation and amortization
Property, plant and equipment, net
Goodwill, net
Purchased intangibles, net
Other investments
Other assets
Total assets
December 31,
2013
2012
$
331,551
277,369
$
463,388
457,685
422,660
398,739
105,708
129,894
265,689
501,291
93,009
124,737
237,374
455,120
135,969
79,016
1,747,856
92,490
69,260
1,936,682
19,066
284,299
783,950
1,087,315
(657,960)
429,355
18,898
268,217
724,919
1,012,034
(595,096)
416,938
517,770
266,188
377,870
49,751
3,388,790
$
495,418
260,939
293,613
39,913
3,443,503
$
The accompanying notes are an integral part of these consolidated financial statements.
42
BIO-RAD LABORATORIES, INC.
Consolidated Balance Sheets
(continued)
(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
Deferred revenue
Estimated loss contingency
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
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; shares
issued - 23,680,749 and 23,332,532 at 2013 and 2012, respectively; shares
outstanding - 23,680,627 and 23,332,410 at 2013 and 2012, respectively
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; shares
issued - 5,096,780 and 5,149,771 at 2013 and 2012, respectively; shares
outstanding - 5,095,863 and 5,148,854 at 2013 and 2012, respectively
Additional paid-in capital
Class A treasury stock at cost, 122 shares at 2013 and 2012
Class B treasury stock at cost, 917 shares at 2013 and 2012
Retained earnings
Accumulated other comprehensive income
Total Bio-Rad stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2013
2012
$
$
148,510
130,658
1,786
33,555
19,556
26,390
30,000
97,017
487,472
130,867
135,955
1,750
34,779
29,718
26,288
—
113,043
472,400
435,615
162,110
116,871
1,202,068
732,414
115,054
108,095
1,427,963
—
2
—
2
1
239,986
(12)
(89)
1,606,117
340,717
2,186,722
—
2,186,722
3,388,790
$
1
212,244
(12)
(89)
1,528,327
274,532
2,015,005
535
2,015,540
3,443,503
$
The accompanying notes are an integral part of these consolidated financial statements.
43
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
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
Net (income) loss attributable to noncontrolling interests
Net income attributable to Bio-Rad
Basic earnings per share:
Net income per basic share attributable to Bio-Rad
Weighted average common shares - basic
Diluted earnings per share:
Net income per diluted share attributable to Bio-Rad
Weighted average common shares - diluted
Year Ended December 31,
2013
2012
2011
2,132,694 $
954,216
1,178,478
798,070
210,952
169,456
61,271
8,566
(12,766)
112,385
(34,574)
77,811
(21)
77,790 $
2,069,235 $
914,077
1,155,158
681,778
209,204
264,176
51,112
5,040
(21,883)
229,907
(64,361)
165,546
(69)
165,477 $
2,073,529
894,700
1,178,829
695,984
177,604
305,241
53,135
13,842
(7,583)
245,847
(67,034)
178,813
200
179,013
2.72 $
5.85 $
28,586
28,290
6.39
28,031
2.69 $
5.78 $
28,906
28,642
6.29
28,468
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
44
BIO-RAD LABORATORIES, INC.
Consolidated Statements of Comprehensive Income
(In thousands)
Year Ended December 31,
2013
2012
2011
Net income including noncontrolling interests
$
77,811
$
165,546
$
178,813
Other comprehensive income:
Foreign currency translation adjustments
16,682
23,668
(12,494)
Reclassification of realized portion of cumulative translation
adjustments due to liquidation, net of tax of $0.
Other post-employment benefits adjustments, net of tax of
$0.2 million, $2.8 million and ($0.4) million for 2013,
2012, and 2011, respectively.
Reclassification adjustments for net periodic other post-
employment benefit cost, net of tax of ($0.2) million, ($0.1)
million, and ($0.1) million for 2013, 2012, and 2011,
respectively.
Net unrealized holding gains on available-for-sale
investments, net of tax of ($28.8) million, ($38.1) million
and ($7.4) million for 2013, 2012, and 2011, respectively.
Reclassification adjustments for gains (losses) included in
Net income including noncontrolling interests, net of tax of
($0.1) million, $2.9 million, and ($0.1) million for 2013,
2012, and 2011, respectively.
Other comprehensive income, net of tax
Comprehensive income
(20)
70
(1,055)
(510)
(8,531)
1,286
546
253
355
49,459
65,448
12,663
192
66,349
144,160
(5,045)
75,863
104
859
241,409
179,672
Comprehensive (income) loss attributable to noncontrolling
interests
(185)
(90)
11
Comprehensive income attributable to Bio-Rad
$
143,975
$
241,319
$
179,683
Reclassification adjustments are calculated using the specific identification method.
The accompanying notes are an integral part of these consolidated financial statements.
45
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
Investment proceeds and miscellaneous receipts, net
Excess tax benefits from share-based compensation
Proceeds from (payments for) forward foreign exchange contracts, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from dispositions of property, plant and equipment
Payments for acquisitions, net of cash received, and long-term
investments
Payments for purchases of intangible assets
Payments for purchases of marketable securities and investments
Proceeds from sales of marketable securities and investments
Proceeds from maturities of marketable securities and investments
Net cash used in investing activities
Cash flows from financing activities:
Net payments on line-of-credit arrangements and notes payable
Payments on long-term borrowings
Proceeds from issuance of common stock
Payments of contingent consideration
Debt issuance costs on long-term borrowings
Purchase of treasury stock
Excess tax benefits from share-based compensation
Net cash (used in) provided by financing activities
Effect of foreign exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year Ended December 31,
2011
2012
2013
$ 2,090,030
(1,797,688)
(61,233)
(71,144)
16,760
(2,720)
1,471
175,476
$2,063,805
(1,654,943)
(46,369)
(93,697)
12,991
(2,889)
(2,870)
276,028
$ 2,018,755
(1,639,848)
(56,859)
(68,750)
9,686
(3,168)
2,919
262,735
(112,998)
1,214
(152,417)
6,325
(102,888)
234
(72,054)
(700)
(386,714)
289,779
276,052
(5,421)
(39,443)
(1,780)
(680,966)
131,295
327,052
(409,934)
(158,538)
(436)
(509,310)
48,825
335,781
(386,332)
48
(300,228)
11,237
(25,474)
—
—
2,720
(311,697)
9,805
(131,837)
463,388
$ 331,551
(191)
(620)
10,611
—
—
(101)
2,889
12,588
10,475
(110,843)
574,231
$ 463,388
(3,900)
(226,835)
14,249
—
(242)
—
3,168
(213,560)
4,837
(332,320)
906,551
$ 574,231
The accompanying notes are an integral part of these consolidated financial statements.
46
BIO-RAD LABORATORIES, INC.
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Bio-Rad
Stockholders'
Equity
Non-
controlling
Interests
Total
Stockholders'
Equity
Balance at December 31, 2010
Adjustment - see Note 1
Net income
Other comprehensive income, net
of tax
Issuance of common stock
Stock compensation expense
Tax benefit-exercise stock options
Purchase of additional controlling
interests and other
Balance at December 31, 2011
Net income
Other comprehensive income, net
of tax
Issuance of common stock
Stock compensation expense
Tax benefit-exercise stock options
Purchase of treasury stock
Balance at December 31, 2012
Net income
Other comprehensive income, net
of tax
Issuance of common stock
Stock compensation expense
Tax benefit-exercise stock options
Purchase of additional controlling
interests and other
Balance at December 31, 2013
$
$
3
—
—
—
—
—
—
—
3
—
—
—
—
—
—
3
—
—
—
—
—
—
3
$ 156,986
—
—
$ — $ 1,181,687
2,150
179,013
—
—
$ 198,020
—
—
$ 1,536,696
2,150
179,013
$ 3,823
—
(200)
$ 1,540,519
2,150
178,813
—
14,249
10,738
3,582
(221)
—
—
—
—
—
—
—
—
—
—
670
—
—
—
—
670
14,249
10,738
3,582
189
—
—
—
859
14,249
10,738
3,582
(221)
(3,367)
(3,588)
185,334
— 1,362,850
198,690
1,746,877
—
—
10,611
12,936
3,363
—
—
—
—
—
165,477
—
165,477
—
—
—
—
75,842
—
—
—
75,842
10,611
12,936
3,363
— (101)
(101)
—
212,244
—
—
1,528,327
77,790
—
274,532
—
(101)
2,015,005
77,790
—
11,237
13,657
3,135
—
—
—
—
—
—
—
—
66,185
—
—
—
66,185
11,237
13,657
3,135
445
69
21
—
—
—
—
535
21
164
—
—
—
1,747,322
165,546
75,863
10,611
12,936
3,363
(101)
2,015,540
77,811
66,349
11,237
13,657
3,135
(287)
$ 239,986
—
—
$ (101) $ 1,606,117
—
$ 340,717
(287)
$ 2,186,722
(720)
(1,007)
$ — $ 2,186,722
The accompanying notes are an integral part of these consolidated financial statements.
47
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 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.
Available-for-Sale Investments
Available-for-sale investments consist of corporate obligations, municipal securities, asset backed securities, U.S.
government sponsored 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 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
10).
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
48
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 certain 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 Union.
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 allowance.
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 method is used to relieve inventory for products sold.
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, reagent
rental equipment and capitalized software, including costs for software developed or obtained for internal use.
Property, plant and equipment are assessed for impairment quarterly 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 and capitalized software is depreciated over 3-12 years.
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 in the fourth
quarter 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 operating
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 a projected discounted cash flow model 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
49
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) quarterly 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:
•
•
•
•
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.
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 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. They are determined 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. When we establish or reduce the valuation allowance against our deferred tax assets, our provision
for income taxes will increase or decrease, respectively, in the period that determination to change the valuation
allowance is made.
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 the provision for income taxes.
50
Revenue Recognition
Revenue is recognized when pervasive evidence of an arrangement exists, the price to the buyer is fixed or
determinable, collectability is reasonably assured and title has passed to the customer or product has been delivered
absent specific contractual specifications. Revenue associated with equipment that requires factory installation is
not recorded until installation is complete and customer acceptance, if required contractually, has occurred. At the
time revenue is recognized, a provision is recognized for estimated product returns. 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.
Reagent agreements are a diagnostic industry sales method that provides use of an instrument and consumables
(reagents) to a customer on a per test basis. We evaluate our reagent agreements and account for these contracts
under the guidance pertaining to accounting for revenue arrangements with multiple deliverables. Our reagent
agreements represent one unit of accounting as the instrument and consumables are interdependent in producing a
diagnostic result that neither has a stand-alone value with respect to these agreements. All revenues that we earn
under our reagent agreements are recognized pursuant to the terms of each agreement and are based and entirely
contingent upon either (i) when the consumables to conduct a fixed number of tests are delivered or (ii) as reported
by the customer on a per test basis.
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, mostly 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.
Changes in 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
2013
2012
16.4 $
15.6
(16.4)
15.6 $
16.4
19.8
(19.8)
16.4
$
$
Internal research and development costs are expensed as incurred. Third-party research and development costs are
expensed when the contracted work has been performed.
Foreign Currency
Balance sheet accounts of international subsidiaries are translated at the current exchange rates as of the end of each
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
51
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 denominated primarily in
currencies of industrial countries, are recorded as an asset or liability measured at their fair value at each 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.
Noncontrolling Interests
A noncontrolling interest in a subsidiary is an ownership interest in a consolidated entity that is reported as equity in
the consolidated financial statements and separate from Bio-Rad’s equity. In addition, net income (loss) attributable
to noncontrolling interests is reported separately from net income attributable to Bio-Rad in the consolidated
financial statements. Our consolidated statements presented the full amount of assets, liabilities, income and
expenses of all of our consolidated subsidiaries, with a partially offsetting amount shown in noncontrolling interests
for the portion of assets and liabilities that were not controlled by us.
In February 2013, we acquired the remaining outstanding shares of Distribuidora de Analitica para Medicina Iberica
S.A. (DiaMed Spain) from the remaining noncontrolling shareholder for approximately 0.6 million Euros or $0.9
million in cash. This acquisition was accounted for as an equity transaction, which reduced Bio-Rad's
noncontrolling interests and additional paid-in capital by $0.6 million and $0.3 million, respectively, and therefore
there are no noncontrolling interests in Bio-Rad.
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 9.
Earnings Per Share
Basic earnings per share is computed by dividing net income attributable to Bio-Rad by the weighted average
number of common shares outstanding for that period. Diluted 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.
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.
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):
52
Basic weighted average shares outstanding
Effect of potentially dilutive stock options
and restricted stock awards
Diluted weighted average common shares
Anti-dilutive stock options and restricted stock awards
excluded from the computation of diluted EPS
Fair Value of Financial Instruments
Year Ended December 31,
2012
2011
2013
28,586
28,290
28,031
320
28,906
352
28,642
437
28,468
107
83
63
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 is 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).
CORRECTION OF IMMATERIAL ERRORS, AND RECLASSIFICATION OF CERTAIN AMOUNTS
Inventory Costing
During the third quarter of 2013, we identified errors in the consolidated financial statements for the years 2011 and
2012 (and for all interim periods therein) and in the unaudited interim condensed consolidated financial statements
for the three month periods ended March 31, 2013 and June 30, 2013, related to the valuation of finished goods
inventory in our Life Science segment. We were inappropriately expensing inventory in amounts greater than actual
costs for non-sales transactions, primarily related to inventory being used for demonstration purposes and product
samples that are recorded to Selling, general and administrative expense. In addition, the Life Science segment
inventory error affected cost of goods sold as we relieved inventory at a higher cost than incurred on limited sales to
third parties produced in a non-U.S. manufacturing facility. The effect of correcting these errors in the 2011 and
2012 consolidated financial statements were increases to net income of $0.8 million and $1.7 million, respectively.
Research and Development (R&D) Tax Credit
During the third quarter of 2013, we revised the classification of one item for all periods presented from “Provision
for income taxes” to “Research and development expense” in our Consolidated Statements of Income to conform to
the current year presentation. The item reclassified pertains to a refundable French R&D tax credit, which after the
reclassification reduces Research and development expense. We believe this presentation is appropriate as we are
not required to have taxable income in order to earn the credits. The effect of the reclassifications from Provision
for income taxes to Research and development expense for 2011 and 2012 was $8.8 million and $4.8 million,
respectively.
The impact of the immaterial error correction, and the reclassification, both described above on our Consolidated
Balance Sheet and Consolidated Statements of Income for the periods presented is as follows (in thousands, except
per share data):
53
December 31, 2012
As reported
Adjustment
As revised
Inventories: finished goods
$
230,624
$
Total inventories
Total current assets
Total assets
Income and other taxes payable
Total current liabilities
Total liabilities
Total stockholders' equity
448,370
1,929,932
3,436,753
32,299
469,920
1,425,483
2,011,270
Total liabilities and stockholders' equity
$
3,436,753
$
6,750
6,750
6,750
6,750
2,480
2,480
2,480
4,270
6,750
$
237,374
455,120
1,936,682
3,443,503
34,779
472,400
1,427,963
2,015,540
$
3,443,503
Year ended December 31,
2012
2011
As reported Adjustment As revised
As reported Adjustment As revised
Cost of goods sold
$
915,097 $
(1,020) $
914,077
$
895,640 $
(940) $
894,700
Gross profit
Selling, general and administrative
expense
1,154,138
1,020
1,155,158
1,177,889
940
1,178,829
682,898
(1,120)
681,778
696,294
(310)
695,984
Research and development expense
214,040
(4,836)
209,204
186,439
(8,835)
177,604
Income from operations
Income before income taxes
Provision for income taxes
Net income including noncontrolling
interests
Net income attributable to Bio-Rad
Net income per basic share
attributable to Bio-Rad
Net income per diluted share
attributable to Bio-Rad
$
$
$
257,200
222,931
59,084
6,976
6,976
5,277
264,176
229,907
64,361
295,156
235,762
57,739
10,085
10,085
9,295
305,241
245,847
67,034
163,847
1,699
165,546
178,023
790
178,813
163,778 $
1,699 $
165,477
5.79 $
0.06 $
5.72 $
0.06 $
5.85
5.78
$
$
$
178,223 $
790 $
179,013
6.36 $
0.03 $
6.26 $
0.03 $
6.39
6.29
Presentation and Disclosure of the Statements of Comprehensive Income
During the first quarter of 2013, we identified errors in the Consolidated Statements of Comprehensive Income for
2012, 2011 and 2010, and in the unaudited interim Condensed Consolidated Statements of Comprehensive Income
for all three quarters of 2012, which affected two line items within this financial statement. Specifically, we
incorrectly calculated the 1) net unrealized holding gains on available-for-sale (AFS) investments, net of tax, and 2)
reclassification adjustments for net holding gains/losses on AFS investments included in net income including
noncontrolling interests, net of tax.
Following are the amounts in thousands that should have been reported for the Consolidated Statements of
Comprehensive Income giving effect to the errors described above:
54
Net unrealized holding gains on AFS investments, net of income tax,
understated by $10,090 for the year ended 2012, and overstated by
$208 for the year ended 2011.
Income taxes on net unrealized holding gains on AFS investments,
understated by $5,874 for the year ended 2012, and overstated by
$121 for the year ended 2011.
Reclassification adjustments for net holding (gains) losses on AFS
investments included in Net income including noncontrolling
interests, net of income tax, understated by $10,090 for the year
ended 2012, and overstated by $208 for the year ended 2011.
Income taxes on reclassification adjustments for net holding gains/
losses on AFS investments included in Net income including
noncontrolling interests, understated by $5,874 for the year ended
2012, and overstated by $121 for the year ended 2011.
Year Ended December 31,
2012
2011
$65,448
$12,663
$38,108
$7,373
$(5,045)
$104
$(2,937)
$61
Management evaluated the materiality of all the errors described above from a qualitative and quantitative
perspective. Based on such evaluation, we have concluded that while the accumulation of these errors was
significant to the year ended December 31, 2013, their correction would not be material to any individual prior
period, nor did they have an effect on the trend of financial results, taking into account the requirements of the
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108).
Accordingly, we are correcting these errors in every affected period in the 2013 Consolidated Financial Statements
included in this Form 10-K.
Recent Accounting Standards Updates
In February 2013, the Financial Accounting Standards Board (FASB) issued guidance requiring that companies
present either in a single note or parenthetically on the face of the financial statements, the effect of significant
amounts reclassified from each component of accumulated other comprehensive income based on its source and the
income statement line items affected by the reclassification. If a component is not required to be reclassified to net
income in its entirety, companies would instead cross reference to the related footnote for additional information.
We adopted this guidance as of January 1, 2013 and present it in a single note. This guidance is related to
disclosure only and therefore did not have an impact on our consolidated financial position, results of operations or
cash flows.
2.
ACQUISITIONS
In January 2013, we acquired 100% of the outstanding shares of AbD Serotec, a division of MorphoSys AG, for
total consideration of $62.2 million (net of cash received of $7.3 million). This acquisition was accounted for as a
business combination as AbD Serotec represented an integrated set of activities and assets that was capable of being
conducted and managed for the purpose of providing a return and therefore constitutes a business in accordance
with GAAP. The amount of acquisition-related costs was minimal as Bio-Rad primarily represented itself during
the acquisition process. This business acquisition is included in our Life Science segment's results of operations
from the acquisition date. We believe that with AbD Serotec's comprehensive catalog of antibodies, we are able to
55
offer our customers total assay solutions that can be validated on many of our research platforms for western
blotting, multiplex protein expression, ELISA and cell sorting.
During the second quarter of 2013, we finalized the determination of fair values of certain acquired intangible assets
and adjusted the preliminary carrying values of goodwill and certain other assets and liabilities to include final
information received, and an update to the weighted average tax rate applied to our valuation model and changes in
the determination of fair values of certain assets acquired and liabilities assumed. These factors that existed as of
the acquisition date resulted in an overall increase to intangible assets of $1.7 million, a reduction of goodwill of
$2.1 million and an increase to net tangible assets of $0.4 million. These measurement period adjustments did not
have a material impact on our previously reported condensed consolidated financial statements and, therefore, we
have not retrospectively adjusted those financial statements.
The final fair values of the net assets acquired consist of definite-lived intangible assets of $44.0 million, goodwill
of $14.9 million and net tangible assets of $3.3 million. A portion of the goodwill recorded may be deductible for
income tax purposes.
We do not consider this business combination to be material and therefore have not disclosed the pro forma results
of operations as required for material business combinations.
In August 2012, we acquired from Propel Labs, Inc. a new cell sorting system, an automated, easy-to-use, benchtop
cell sorting flow cytometer. The new system will be sold exclusively under the Bio-Rad brand as the S3TM Cell
Sorter. This asset acquisition was accounted for as a business combination as the new cell sorting system
represented an integrated set of activities and assets that is capable of being conducted and managed for the purpose
of providing a return and therefore constitutes a business in accordance with GAAP. The amount of acquisition-
related cost was minimal as Bio-Rad primarily represented itself during the acquisition process. This business
acquisition is included in our Life Science segment's results of operations from the acquisition date.
The fair value of the consideration as of the acquisition date was $49.6 million, which included $5.0 million paid in
cash at the closing date and $44.6 million in contingent consideration potentially payable to Propel Labs'
shareholders. The contingent consideration was based on a probability-weighted income approach related to the
achievement of certain development and sales milestones. The contingent consideration for the development
milestones was valued at $19.9 million, based on assumptions regarding the probability of achieving the milestones,
with such amounts discounted to present value. The contingent consideration for the sales milestones was valued at
$24.7 million, based on a statistically significant number of simulations for each potential outcome. The contingent
consideration was recognized at its estimated fair value of $20.8 million as of December 31, 2013. (See Note 3 for
further discussion of the contingent consideration valuation and underlying assumptions.)
The fair values of the net assets acquired from Propel Labs, Inc. as of the acquisition date were determined to be
$17.4 million of goodwill, $32.1 million of definite-lived intangible assets and $0.1 million of net tangible assets.
We expect the goodwill recorded to be deductible for income tax purposes. The acquired cell sorting system fits
well into Bio-Rad's existing Life Science segment product offerings.
In July 2012, we acquired 100% of the outstanding shares of DiaMed Benelux for 4.6 million Euros (approximately
$5.6 million) in cash. This acquisition was accounted for as a business combination as DiaMed Benelux
represented an integrated set of activities and assets that was capable of being conducted and managed for the
purpose of providing a return and therefore constitutes a business in accordance with GAAP. The amount of
acquisition-related cost was minimal as Bio-Rad primarily represented itself during the acquisition process. This
business acquisition is included in our Clinical Diagnostics segment's results of operations from the acquisition
date.
We acquired net liabilities with a fair value of $2.3 million and the fair values of the assets acquired as of the
acquisition date were determined to be $3.0 million of goodwill and $4.9 million of definite-lived intangible assets.
The goodwill recorded will not be deductible for income tax purposes. DiaMed Benelux became the exclusive
56
distributor of certain Bio-Rad immunohematology products in the Benelux market as a result of our 2007
acquisition of DiaMed Holding AG. This distributor acquisition is consistent with our stated objective to control
the distribution of our own products and services.
In January 2012, we purchased, for cash, certain assets from a raw material supplier for approximately $12.5
million. This asset acquisition was accounted for as a business combination as the certain assets acquired
represented an integrated set of activities and assets that is capable of being conducted and managed for the purpose
of providing a return and therefore constitutes a business in accordance with GAAP. The amount of acquisition-
related cost was minimal as Bio-Rad primarily represented itself during the acquisition process. This business
acquisition is included in the Clinical Diagnostics segment's results of operations from the acquisition date. The fair
value of the assets acquired at the acquisition date was determined to be $6.3 million of net tangible assets, $5.1
million of intangible assets and $1.1 million of goodwill. We expect the goodwill recorded to be deductible for
income tax purposes. In addition, we paid $2.0 million for employment agreements as an incentive to certain
employees of the acquired business to remain with Bio-Rad. Such amount was expensed over two years from the
date of acquisition. We believe this acquisition will allow us to secure the supply of critical raw materials and lower
our overall costs in the Clinical Diagnostics segment.
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 in an orderly transaction between market participants at the measurement date. The
identification of market participant assumptions provides a basis for determining what inputs are to be used for
pricing each asset or liability. A fair value hierarchy has been established which gives precedence to fair value
measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritizes
the inputs into three broad levels as follows:
• Level 1: Quoted prices in active markets for identical instruments
• Level 2: Other significant observable inputs (including quoted prices in active markets for similar
instruments)
• Level 3: Significant unobservable inputs (including assumptions in determining the fair value of certain
investments)
Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2013 are
classified in the hierarchy as follows (in millions):
57
Financial Assets Carried at Fair Value:
Cash equivalents (a):
Commercial paper
Foreign time deposits
U.S. government sponsored agencies
Money market funds
Total cash equivalents
Available-for-sale investments (b):
Corporate debt securities
Foreign brokered certificates of deposit
U.S. government sponsored agencies
Foreign government obligations
Municipal obligations
Marketable equity securities
Asset-backed securities
Total available-for-sale investments
Forward foreign exchange contracts (c)
Total financial assets carried at fair value
Financial Liabilities Carried at Fair Value:
Forward foreign exchange contracts (d)
Contingent consideration (e)
Total financial liabilities carried at fair value
Level 1
Level 2
Level 3
Total
$
— $
11.1
—
1.2
12.3
—
—
—
—
—
325.2
—
325.2
—
337.5 $
7.0 $
—
1.2
—
8.2
132.5
8.9
39.1
5.6
11.0
—
48.6
245.7
0.6
254.5 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
—
— $
1.1 $
—
1.1 $
— $
20.8
20.8 $
$
$
$
7.0
11.1
1.2
1.2
20.5
132.5
8.9
39.1
5.6
11.0
325.2
48.6
570.9
0.6
592.0
1.1
20.8
21.9
Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2012 are
classified in the hierarchy as follows (in millions):
58
Financial Assets Carried at Fair Value:
Cash equivalents (a):
Commercial paper
Foreign time deposits
U.S. government sponsored agencies
Money market funds
Total cash equivalents
Available-for-sale investments (b):
Corporate debt securities
Foreign brokered certificates of deposit
U.S. government sponsored agencies
Foreign government obligations
Municipal obligations
Marketable equity securities
Asset-backed securities
Total available-for-sale investments
Forward foreign exchange contracts (c)
Total financial assets carried at fair value
Financial Liabilities Carried at Fair Value:
Forward foreign exchange contracts (d)
Contingent consideration (e)
Total financial liabilities carried at fair value
Level 1
Level 2
Level 3
Total
$
— $
10.1
—
5.5
15.6
—
—
—
—
—
242.1
—
242.1
—
257.7 $
52.8
—
1.3
—
54.1
240.6
0.4
92.7
5.6
12.1
—
82.2
433.6
1.1
488.8
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
—
— $
0.8
—
0.8 $
— $
52.6
52.6 $
$
$
$
52.8
10.1
1.3
5.5
69.7
240.6
0.4
92.7
5.6
12.1
242.1
82.2
675.7
1.1
746.5
0.8
52.6
53.4
(a) Cash equivalents are included in Cash and cash equivalents in the Consolidated Balance Sheets.
(b) Available-for-sale investments are included in the following accounts in the Consolidated Balance Sheets
(in millions):
Short-term investments
Other investments
Total
December 31,
2013
December 31,
2012
$
$
277.4
293.5
570.9
$
$
457.7
218.0
675.7
(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.
(e) The contingent consideration liability is included in the following accounts in the Consolidated Balance
Sheet (in millions):
Other current liabilities
Other long-term liabilities
Total
59
December 31,
2013
December 31,
2012
$
$
6.1
14.7
20.8
$
$
27.3
25.3
52.6
During the fourth quarter of 2011, we recognized a contingent consideration liability upon our acquisition of
QuantaLife related to potential future payments due upon the achievement of certain sales and development
milestones. The contingent consideration was initially recognized at its estimated fair value of $24.1 million, based
on a probability-weighted income approach. As of the acquisition date of October 4, 2011, total contingent
consideration could have originally reached a maximum of $48 million upon the achievement of all sales milestones
and a development milestone. The development milestone was met as of December 31, 2012, resulting in a
payment of $6.0 million in January 2013. During 2012, the first three short-term sales milestones were not met and
therefore the fair value of the contingent consideration was lowered by $16.1 million and credited to Selling,
general and administrative expense. During 2013, we did not expect that any of the remaining sales milestones
would be met and therefore $2.0 million of the remaining contingent consideration liability was credited to Selling,
general and administrative expense.
During the third quarter of 2012, we recognized a contingent consideration liability upon our acquisition of a new
cell sorting system from Propel Labs, Inc. The fair value of the contingent consideration was based on a
probability-weighted income approach related to the achievement of certain development and sales milestones and
was recorded at $44.6 million in 2012. The development milestones have been achieved and payments totaling
$20.0 million were made in 2013. Based on the most recent valuation, the sales milestones could potentially range
from $0 to a maximum of 60.0%, 51.32% and 50.38% of annual cell sorting system purchase orders, with payment
to occur upon the anniversary of the completion of a certain number of cell sorting systems for three consecutive
years, respectively. These maximum payout ratios begin at annual cell sorting system purchase orders in excess of
$20 million, $30 million and $45 million for the three consecutive years, respectively. The contingent consideration
was revalued by a net reduction of $3.8 million in 2013 to Selling, general and administrative expense to its
estimated fair value of $20.8 million as of December 31, 2013.
The following table provides a reconciliation of the Level 3 contingent consideration liabilities measured at
estimated fair value based on original valuations and updated quarterly for the year ended December 31, 2013 (in
millions):
January 1
Payment of development milestone - QuantaLife
Payment of development milestone - Cell sorting system
Decrease in fair value of contingent consideration
included in Selling, general and administrative expense -
QuantaLife
Net decrease in estimated fair value of contingent
consideration included in Selling, general and
administrative expense - Cell sorting system
December 31
$
$
2013
52.6
(6.0)
(20.0)
(2.0)
(3.8)
20.8
The following table provides quantitative information about Level 3 inputs for fair value measurement of our
contingent consideration liabilities as of December 31, 2013. Significant increases or decreases in these inputs in
isolation could result in a significantly lower or higher fair value measurement.
60
Cell sorting
system
Valuation Technique
Probability-weighted
income approach
Unobservable Input
Sales milestone:
Credit adjusted discount rates
Projected volatility of growth rates
Market price of risk
Range
From
To
0.97%
13.0%
1.0%
1.93%
15.0%
N/A
To estimate the fair value of Level 2 debt securities as of December 31, 2013, our primary pricing provider
simplified its process during the first quarter of 2013 by eliminating certain pricing sources and established S&P
Capital IQ as the primary pricing source. The new pricing process allows us to select a hierarchy of pricing sources
for securities held. The chosen pricing hierarchy for our Level 2 securities, other than certificates of deposit and
commercial paper, is S&P Capital IQ as the primary pricing source and then our custodian as the secondary pricing
source. If S&P Capital IQ does not price a Level 2 security that we hold, then the pricing provider will utilize our
custodian supplied pricing.
For commercial paper as of December 31, 2013, pricing is determined by a straight-line calculation, starting with
the purchase price on the date of purchase and increasing to par at maturity. Interest bearing certificates of deposit
and commercial paper are priced at par.
In addition to the above, our primary pricing provider performed daily reasonableness testing of S&P Capital IQ
prices to custodian reported prices. Prices outside a tolerable variance of approximately 1% are investigated and
resolved.
To estimate the fair value of Level 2 debt securities as of December 31, 2012, our primary pricing service relied on
inputs from multiple industry-recognized pricing sources to determine the price for each investment. In addition,
our pricing service performed reasonableness testing of their prices on a daily basis by comparing them to the prices
reported by our custodians as well as prior day prices. If the price difference fell outside of predetermined tolerable
levels, they investigated the cause and resolved the pricing issue. Based on a review of the results of this analysis,
we utilized our primary pricing service for all Level 2 debt securities as none of these securities tested outside of the
tolerable levels.
As of December 31, 2012, our primary pricing service inputs for Level 2 U.S. government sponsored agencies,
municipal obligations, corporate and foreign government bonds, asset-backed securities and related cash
equivalents consisted of market prices from a variety of industry standard data providers, security master files from
large financial institutions and other third-party sources. These multiple market prices were used by our primary
pricing service as inputs into a distribution-curve based algorithm to determine the daily market value.
As of December 31, 2012, our primary pricing service inputs for Level 2 corporate debt securities (commercial
paper), bank deposits and related cash equivalents consisted of dynamic and static security characteristics
information obtained from several independent sources of security data. The dynamic inputs such as credit rating,
factor and variable-rate, were updated daily. The static characteristics included inputs such as day count and first
coupon upon initial security creation. These securities were typically priced utilizing mathematical calculations
reliant on these observable inputs. Other available-for-sale foreign government obligations were based on
indicative bids from market participants.
Available-for-sale investments consist of the following (in millions):
61
$
$
$
Short-term investments:
Corporate debt securities
Foreign brokered certificates of deposit
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
Total
Short-term investments:
Corporate debt securities
Foreign brokered certificates of deposit
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
Foreign government obligations
December 31, 2013
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair
Value
132.6 $
8.9
11.1
48.4
39.1
5.6
26.6
272.3
54.5
0.4
54.9
327.2 $
0.3 $
—
—
0.1
0.1
—
5.4
5.9
238.7
—
238.7
244.6 $
(0.4) $
—
(0.1)
(0.2)
(0.1)
—
—
(0.8)
—
(0.1)
(0.1)
(0.9) $
132.5
8.9
11.0
48.3
39.1
5.6
32.0
277.4
293.2
0.3
293.5
570.9
December 31, 2012
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair
Value
239.3 $
0.4
12.0
81.6
92.5
5.4
24.1
455.3
54.5
0.4
0.2
55.1
1.4 $
—
0.1
0.4
0.3
—
0.7
2.9
163.0
—
—
163.0
(0.1) $
—
—
(0.1)
(0.1)
—
(0.2)
(0.5)
—
(0.1)
—
(0.1)
240.6
0.4
12.1
81.9
92.7
5.4
24.6
457.7
217.5
0.3
0.2
218.0
675.7
Total
$
510.4 $
165.9 $
(0.6) $
The following is a summary of investments with gross unrealized losses and the associated fair value (in millions):
62
December 31,
2013
December 31,
2012
Fair value of investments in a loss position 12 months or more
Fair value of investments in a loss position less than 12 months
Gross unrealized losses for investments in a loss position 12 months or more
Gross unrealized losses for investments in a loss position less than 12 months
$
$
$
$
$
2.3 $
73.9
0.1 $
0.8 $
0.3
99.0
0.1
0.5
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, 2013 or at December 31, 2012.
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 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 denominated primarily in currencies of industrial countries, are recorded at their fair value at each balance
sheet date. The notional principal amounts provide one measure of the transaction volume outstanding as of
December 31, 2013 and do not represent the amount of Bio-Rad's exposure to loss. The estimated fair value of
these contracts was derived using the spot rates from Reuters 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 included in Foreign exchange losses, net in the Consolidated Statements of Income.
The following is a summary of our forward foreign currency exchange contracts (in millions):
Contracts maturing in January through March 2014 to sell foreign currency:
Notional value
Unrealized loss
Contracts maturing in January through March 2014 to purchase foreign currency:
Notional value
Unrealized loss
December 31,
2013
$
$
$
$
83.8
—
409.4
0.5
The following is a summary of the amortized cost and estimated fair value of our debt securities at December 31,
2013 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
63
Amortized
Cost
Estimated Fair
Value
$
$
97.5 $
109.1
39.5
246.1 $
97.6
109.2
38.9
245.7
The estimated fair value of financial instruments that are not recognized at fair value in the Consolidated Balance
Sheets and are included in Other investments, are presented in the table below. Fair value has been determined
using significant observable inputs, including quoted prices in active markets for similar instruments. 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 investments
include financial instruments, the majority of which has fair value based on similar, actively traded stock adjusted
for various discounts, including a discount for marketability. Long-term debt, excluding leases and current
maturities, has an estimated fair value based on quoted market prices for the same or similar issues.
The estimated fair value of the financial instruments discussed above and the level of the fair value hierarchy within
which the fair value measurement is categorized are as follows (in millions):
December 31, 2013
December 31, 2012
Other investments
Total long-term debt, excluding leases
and current maturities
Carrying
Amount
$
77.5 $
Estimated
Fair
Value
382.9
Fair Value
Hierarchy
Level
2
Carrying
Amount
68.4
$
Estimated
Fair
Value
$
272.5
Fair Value
Hierarchy
Level
2
$ 423.2 $
433.0
2
$
720.0 $
778.4
2
We own shares of ordinary voting stock of Sartorius AG (Sartorius), of Goettingen, Germany, a process technology
supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries. We own over 35% of the
outstanding voting shares (excluding treasury shares) of Sartorius as of December 31, 2013. 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 the ability to exercise significant
influence over the operating and financial policies of Sartorius. We account for this investment using the cost
method. The carrying value of this investment is included in Other investments in our Consolidated Balance
Sheets. Historically, we classified the estimated fair value of Sartorius ordinary voting stock as Level 1 under the
fair value hierarchy. However, because the stock is thinly traded and in conjunction with the valuation method
discussed above, we believe the classification as Level 1 was inappropriate and have classified the estimated fair
value as Level 2 for all periods presented in conjunction with this filing. The Level 2 classification is appropriate
given the valuation method employed, which incorporates an observable input of the fair value of the Sartorius’
actively traded preferred stock.
64
4.
GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Changes to goodwill by segment were as follows (in millions):
Balances as of January 1:
Goodwill
Accumulated impairment losses and write-offs
Goodwill, net
Acquisitions
Purchase adjustment
Goodwill written off related to excess property
Currency fluctuations
Balances as of December 31:
Goodwill
Accumulated impairment losses and write-offs
2013
2012
Life
Science
Clinical
Diagnostics
Total
Life
Science
Clinical
Diagnostics
Total
$
193.6
$
330.0
$ 523.6
$
176.8
$
319.3
$ 496.1
(27.2)
166.4
14.9
—
—
0.5
209.0
(27.2)
(1.0)
329.0
(28.2)
495.4
—
—
—
7.0
14.9
—
—
7.5
337.0
(1.0)
546.0
(28.2)
(27.2)
149.6
17.4
(0.6)
—
—
193.6
(27.2)
—
319.3
4.1
—
(1.0)
6.6
330.0
(1.0)
(27.2)
468.9
21.5
(0.6)
(1.0)
6.6
523.6
(28.2)
Goodwill, net
$
181.8
$
336.0
$ 517.8
$
166.4
$
329.0
$ 495.4
In conjunction with the acquisition of 100% of the outstanding shares of AbD Serotec in our Life Science segment
in January 2013, we recorded $14.9 million of goodwill and $44.0 million of definite-lived intangible assets: $33.0
million of developed product technology, $8.8 million of licenses, $1.3 million of customer relationships/lists, $0.4
million of tradenames and $0.5 million of other purchased intangibles. The weighted average useful lives of the
definite-lived intangible assets as of the acquisition date were 13.9, 13, 12, 2 and 1 years, respectively, with a total
weighted average useful life of 13.7 years.
In December 2012, we sold a building for $6.4 million in our Clinical Diagnostics segment that was associated with
a 1999 acquisition. We recognized a gain on the sale of $4.3 million and a portion of the goodwill recorded in a
1999 acquisition was written off of $1.0 million.
In conjunction with the purchase of certain assets from Propel Labs, Inc. in our Life Science segment in August
2012, we recorded $17.4 million of goodwill and $32.1 million of definite-lived intangible assets: $27.3 million of
developed product technology, $4.7 million of covenants not to compete and $0.1 million of other intangible assets.
In conjunction with the acquisition of 100% of the outstanding shares of DiaMed Benelux in our Clinical
Diagnostics segment in July 2012, we recorded $3.0 million of goodwill and $4.9 million of definite-lived
intangible assets: $3.8 million of customer relationships/lists and $1.1 million of tradenames.
In conjunction with the acquisition of certain assets from a raw material supplier in our Clinical Diagnostics
segment in January 2012, we recorded $1.1 million of goodwill and $5.1 million of definite-lived intangible assets
considered developed product technology.
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):
65
Customer relationships/lists
Know how
Developed product technology
Licenses
Tradenames
Covenants not to compete
Other
Customer relationships/lists
Know how
Developed product technology
Licenses
Tradenames
Covenants not to compete
Other
Average
Remaining
Life (years)
1-11
2-12
1-13
1-12
1-9
5-9
—
Average
Remaining
Life (years)
1-12
1-13
1-10
1-8
1-10
1-10
1
December 31, 2013
Purchase
Price
Accumulated
Amortization
Net
Carrying
Amount
99.8 $
194.6
109.5
44.9
4.3
4.9
0.6
458.6 $
(41.1) $
(89.3)
(36.2)
(22.4)
(2.1)
(0.7)
(0.6)
(192.4) $
58.7
105.3
73.3
22.5
2.2
4.2
—
266.2
December 31, 2012
Purchase
Price
Accumulated
Amortization
Net
Carrying
Amount
102.8 $
189.3
74.6
35.6
7.4
4.9
0.1
414.7 $
(38.4) $
(67.1)
(25.1)
(18.7)
(4.3)
(0.2)
—
(153.8) $
64.4
122.2
49.5
16.9
3.1
4.7
0.1
260.9
$
$
$
$
No material impairment losses related to intangible assets were recorded in 2013 or 2012.
Amortization expense related to purchased intangible assets for the years ended December 31, 2013, 2012 and 2011
was $45.0 million, $42.8 million and $39.1 million, respectively. Estimated future amortization expense (based on
existing intangible assets) for the years ending December 31, 2014, 2015, 2016, 2017, 2018 and thereafter is $42.0
million, $39.0 million, $35.6 million, $27.0 million, $24.1 million, and $98.5 million, respectively.
5.
NOTES PAYABLE AND LONG-TERM DEBT
Notes payable includes amounts borrowed against credit lines maintained locally by our international subsidiaries,
under which the borrowing capacity was approximately $20.1 million, of which $15.8 million was unused at
December 31, 2013. At December 31, 2012, borrowing capacity aggregated approximately $27.9 million, of which
$23.8 million was unused. The weighted average interest rate on these lines was 3.0% and 3.2% at December 31,
2013 and 2012, respectively. Bio-Rad guaranteed eight of these credit lines at December 31, 2013 and 2012.
The principal components of long-term debt are as follows (in millions):
66
8.0% Senior Subordinated Notes due 2016
4.875% Senior Notes due 2020, net of discount
Capital leases and other debt
Less current maturities
Long-term debt
Senior Subordinated Notes due 2016
December 31,
2013
December 31,
2012
$
— $
423.2
12.6
435.8
(0.2)
$
435.6 $
296.9
423.0
12.7
732.6
(0.2)
732.4
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. In September 2013, we redeemed all of the 8.0% Notes for
$312.0 million, including a call premium of $12.0 million, and expensed the remaining original issuance bond
discount of $2.5 million and unamortized bond issuance costs of $1.1 million. The total expense for the redemption
was $15.6 million and is included in Interest expense in our Consolidated Statements of Income.
Senior Notes due 2020
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. Certain covenants apply to the 4.875% Notes including limitations on the
following: liens, sale and leaseback transactions, mergers, consolidations or sales of assets and other covenants.
There are no restrictive covenants relating to total indebtedness, interest coverage, stock repurchases,
recapitalizations, dividends and distributions to shareholders or current ratios. The net proceeds from the issuance
of the 4.875% Notes were used, together with cash on hand, to redeem all $200.0 million of our 6.125% Notes for
$204.3 million, including a call premium of $4.1 million in December 2010 and all $225.0 million of our 7.5%
Notes for $234.6 million, including a call premium of $2.8 million in January 2011.
Amended and Restated Credit Agreement (Credit Agreement)
In June 2010, Bio-Rad entered into a $200.0 million 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, 2013 or 2012. If we had
borrowed against our Credit Agreement, the borrowing rate would have been 2.0% at December 31, 2013. The
Credit Agreement expires on June 21, 2014.
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 requires 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, 2013.
Maturities of long-term debt at December 31, 2013 are as follows: 2014 - $0.2 million; 2015 - $0.2 million; 2016 -
$0.2 million; 2017 - $0.2 million; 2018 - $0.2 million; thereafter - $434.8 million.
67
6. INCOME TAXES
The U.S. and international components of income before taxes are as follows (in millions):
U.S.
International
Income before taxes
Year Ended December 31,
2012
2011
2013
$
$
5.7
106.7
112.4
$
$
110.6
119.3
229.9
$
$
111.8
134.0
245.8
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 (benefit) expense:
U.S. Federal
State
International
Deferred tax benefit
Non-current tax expense (benefit)
Provision for income taxes
Year Ended December 31,
2012
2011
2013
$
(5.0) $
0.6
38.3
33.9
4.8
(0.1)
(9.4)
(4.7)
5.4
34.4 $
4.1
37.3
75.8
(3.1)
(0.9)
(6.3)
(10.3)
(1.1)
$
34.6 $
64.4 $
29.0
3.5
42.0
74.5
6.7
0.4
(9.1)
(2.0)
(5.5)
67.0
The reconciliation between our effective tax rate on income before taxes and the statutory tax rate is as follows:
U. S. statutory tax rate
Impact of foreign operations
Research tax credits
Nontaxable subsidies
Tax settlements and changes to unrecognized tax benefits
Contingent consideration
Other
Provision for income taxes
Year Ended December 31,
2012
2011
2013
35%
(6)
(6)
(2)
5
(1)
6
31%
35%
(3)
—
(1)
—
(2)
(1)
28%
35%
(4)
(1)
(1)
(2)
—
—
27%
The effective tax rate for 2013 included a significant tax benefit related to the 2012 U.S. federal research credit,
which was retroactively reinstated on January 2, 2013. The effective tax rate for 2013 was higher than 2012
primarily due to an increase in tax liabilities and audit settlements in our foreign jurisdictions, and a lower domestic
production activities deduction as a result of lower U.S. taxable income in 2013. The effective tax rates for 2013
68
and 2012 reflected tax benefits related to adjustments to the fair value of the QuantaLife contingent consideration.
The effective tax rate for 2011 reflected tax benefits from nontaxable dividend income and the release of tax
liabilities.
The effective tax rates for all three periods were lower than the U.S. statutory rate primarily due to tax benefits from
differences between U.S. and foreign statutory tax rates, and research and development tax credits. Our foreign
income is earned primarily in France and Switzerland. Switzerland's statutory tax rate is significantly lower than
our U.S. statutory tax rate of 35%. Our effective tax rates are also significantly reduced by French tax incentives
related to our research and development activities.
Our effective tax rate may be impacted in the future, either favorably or unfavorably, by many factors including, but
not limited to, changes to statutory tax rates, changes in tax laws or regulations, tax audits and settlements, and
generation of tax credits.
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
Legal reserves
Other post-employment benefits, vacation and other reserves
Tax credit and net operating loss carryforwards
Other
Valuation allowance
Deferred tax liabilities:
Property and equipment
Investments and intangible assets
Net deferred tax liabilities
December 31,
2013
2012
$
$
27.5 $
12.0
22.2
62.3
19.0
(64.0)
79.0
17.2
147.0
164.2
(85.2) $
24.1
—
26.5
62.1
18.3
(52.9)
78.1
8.6
119.3
127.9
(49.8)
At December 31, 2013, Bio-Rad’s international subsidiaries had combined net operating loss carryforwards of
$116.6 million. Of these loss carryforwards, $114.6 million have no expiration date. We believe that it is more
likely than not that the benefit from most of these net operating loss carryforwards will not be realized. We have
provided a valuation allowance of $28.0 million relating to these net operating loss carryforwards.
At December 31, 2013, Bio-Rad had U.S. Federal net operating loss carryforwards of approximately $17 million as
a result of acquisitions. These carryforwards are subject to limitation on their utilization and will expire between
2018 and 2030. At December 31, 2013, Bio-Rad had U.S. Federal research tax credit carryforwards of $1.5 million,
which are subject to limitations on their utilization.
At December 31, 2013, Bio-Rad had approximately $53 million of California net operating loss carryforwards
related to the acquisition of QuantaLife. We believe that it is more likely than not that the benefit from these net
operating loss carryforwards will not be realized and have recorded a full valuation allowance against these losses.
At December 31, 2013, Bio-Rad had a deferred tax asset of $21.4 million relating to California research tax credit
carryforwards, including $2.0 million from the acquisition of QuantaLife, 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.
69
We believe that it is more likely than not that certain of these deferred tax assets described above will not be
realized in the foreseeable future. If or when recognized, the tax benefits relating to any reversal of the valuation
allowance on deferred tax assets at December 31, 2013 will be recognized as a reduction of income tax expense.
The tax years subject to examination by tax authorities in major jurisdictions that Bio-Rad operates in include the
years 2009 and forward for the U.S., and the years 2008 and forward for certain foreign jurisdictions, including
France, Switzerland and Germany.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (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
Acquisitions
Currency translation
Unrecognized tax benefits – December 31
2013
2012
2011
$
$
12.6 $
4.7
(0.8)
2.0
(0.3)
(1.7)
—
(0.3)
16.2 $
11.3 $
1.3
(0.8)
1.6
—
(3.0)
2.2
—
12.6 $
16.6
1.2
(0.4)
1.5
(2.2)
(5.1)
—
(0.3)
11.3
Substantially all our unrecognized tax benefits at December 31, 2013, 2012 and 2011 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 $3.4 million , $1.9 million
and $2.0 million as of December 31, 2013, 2012 and 2011, respectively.
At December 31, 2013, we believe that it is reasonably possible that $1.5 million of our unrecognized tax benefits
may be recognized by the end of 2014 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, 2013, Bio-Rad had not made a provision for U.S. or additional foreign withholding taxes on
approximately $537 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 $108
million.
70
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 all
respects except as follows. 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 75% 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 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
founders of Bio-Rad, the Schwartz family, collectively hold a majority of Bio-Rad’s voting stock. As a result, the
Schwartz family is able to exercise significant influence over Bio-Rad.
Changes to Bio-Rad's common stock shares are as follows (in thousands):
Class A Shares
Class B Shares
Balance at January 1, 2011
B to A conversions
Issuance of common stock
22,677
39
304
Balance at December 31, 2011
23,020
B to A conversions
Issuance of common stock
59
253
Balance at December 31, 2012
23,333
B to A conversions
Issuance of common stock
80
269
Balance at December 31, 2013
23,681
5,175
(39)
28
5,165
(59)
44
5,150
(80)
27
5,097
Treasury Shares
The Board of Directors has authorized the repurchase of up to $18.0 million of Bio-Rad's common stock, of which
$3.3 million has yet to be repurchased in the open market as of December 31, 2013. The Amended and Restated
Credit Agreement (Credit Agreement) limits our ability to repurchase our stock. In accordance with the terms of
awards under the 2007 Incentive Award Plan, in June 2012, we withheld 122 shares of our Class A common stock
and 917 shares of our Class B common stock to satisfy the minimum statutory tax obligations due upon the vesting
of restricted stock of certain of our employees, which is considered a repurchase of our stock. All of the restricted
stock has vested as of December 31, 2013, and therefore we do not anticipate any repurchasing of shares for this
purpose. We had no other repurchases of our stock during 2013 or 2012.
71
8.
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income included in our Consolidated Balance Sheets and Consolidated
Statements of Changes in Stockholders' Equity consists of the following components, all net of income taxes (in
millions):
Foreign
currency
translation
adjustments
Foreign other
post-
employment
benefits
adjustments
Net
unrealized
holding
gains on
available-
for-sale
investments
Bio-Rad
Accumulated
other
comprehensive
income
Total
Accumulated
other
comprehensive
income
Non-
controlling
interests
$
149.2 $
0.2 $
49.3 $
198.7 $
(0.2) $
198.5
23.6
0.1
23.7
(8.5)
65.4
80.5
0.2
(5.0)
(8.3)
60.4
(4.7)
75.8
—
—
—
80.5
(4.7)
75.8
$
172.9 $
(8.1) $
109.7 $
274.5 $
(0.2) $
274.3
16.7
(0.5)
49.5
(0.2)
16.5
0.5
—
0.2
49.7
65.7
0.5
66.2
—
0.2
0.2
65.7
0.7
66.4
$
189.4 $
(8.1) $
159.4 $
340.7 $
— $
340.7
Balance at January 1, 2012
Other comprehensive income
(loss), net of tax before
reclassifications
Amounts reclassified from
Accumulated other
comprehensive income
Net current-period Other
comprehensive income
(loss), net of tax
Balance at December 31,
2012
Other comprehensive income
(loss), net of tax before
reclassifications
Amounts reclassified from
Accumulated other
comprehensive income
Net current-period Other
comprehensive income, net
of tax
Balance at December 31,
2013
The effects on the Consolidated Statements of Income of amounts reclassified from Accumulated other comprehensive
income for the period ended December 31, 2012 are summarized in the following table:
72
Details about Accumulated other comprehensive
income components
Amortization of foreign other post-employment
benefit items
Net holding gains on available-for-sale investments
Amount
reclassified from
Accumulated other
comprehensive
income
$
(0.3)
0.1
(0.2)
7.9
(2.9)
5.0
Affected line item
Selling, general and administrative
expense
Income tax expense
Net of income taxes
Other (income) expense, net
Income tax expense
Net of income taxes
The effects on the Consolidated Statements of Income of amounts reclassified from Accumulated other comprehensive
income for the period ended December 31, 2013 are summarized in the following table:
Details about Accumulated other comprehensive
income components
Amortization of foreign other post-employment
benefit items
Net holding losses on available-for-sale investments
Amount reclassified
from Accumulated
other comprehensive
income
$
(0.7)
0.2
(0.5)
(0.3)
0.1
(0.2)
Affected line item
Selling, general and administrative
expense
Income tax expense
Net of income taxes
Other (income) expense, net
Income tax expense
Net of income taxes
9. 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 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, restricted stock units, stock appreciation rights and other
types of equity awards to employees. We no longer grant stock option grants under the 1994 Plan or 2003 Plan.
Since 2007, all share-based compensation grants have been from the 2007 Plan. A total of 1,650,360 shares have
been reserved for issuance of equity awards under the 2007 Plan and may be of either Class A or Class B common
stock. At December 31, 2013, there were 492,310 shares available to be granted in the future.
Under the above 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.
73
Employee Stock Purchase Plans
Our Amended and Restated 1988 Employee Stock Purchase Plan (1988 ESPP) and our 2011 Employee Stock
Purchase Plan (2011 ESPP) 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. As of January 1, 2012, we no longer issue shares from the 1988 ESPP.
The 2011 ESPP includes two components: a Code Section 423 Component that we intend to qualify as an
“employee stock purchase plan” under Section 423 of the U.S. Internal Revenue Code of 1986, as amended (the
“Code”) and a Non-423 Component, which authorizes the grant of purchase rights that does not qualify as an
“employee stock purchase plan” under Section 423 of the Code. We have authorized the sale of 600,000 shares of
Class A common stock under the 2011 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 2013, 2012 and 2011, we recognized share-based compensation expense of $13.7 million, $13.2 million and
$10.7 million, respectively. We did not capitalize any share-based compensation expense in inventory.
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.
Stock Options
The following table summarizes stock option activity:
Outstanding, January 1, 2011
Granted
Exercised
Forfeited/expired
Outstanding, December 31, 2011
Granted
Exercised
Forfeited/expired
Outstanding, December 31, 2012
Granted
Exercised
Forfeited/expired
Outstanding, December 31, 2013
Vested and expected to vest,
December 31, 2013
Exercisable, December 31, 2013
Weighted-
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value
(in millions)
4.53
4.41
3.23
$
$
$
28.3
28.0
25.2
Weighted-
Average
Exercise Price
57.12
99.49
42.44
62.98
63.50
107.32
44.66
87.78
70.83
117.67
54.16
91.32
78.72
$
$
$
$
$
$
$
$
$
$
$
$
$
Shares
1,057,819
58,500
(220,372)
(7,197)
888,750
55,250
(181,707)
(15,000)
747,293
55,050
(159,450)
(13,250)
629,643
612,946
472,193
$
$
77.91
70.14
74
The following summarizes information about stock options outstanding at December 31, 2013:
Range of
Exercise Prices
$ 53.75 - $ 62.47
$ 63.00 - $ 75.38
$ 84.57 - $107.32
$117.00 - $122.36
Totals
Number
Outstanding
191,930
178,413
204,250
55,050
629,643
Options Outstanding
Weighted-Average
Remaining
Contractual Term
(in years)
Weighted -
Average
Exercise
Price
Options Exercisable
Number
Exercisable
Weighted -
Average
Exercise Price
1.41
3.53
6.93
9.71
$
$
$
$
58.40
69.87
95.03
117.67
191,930
168,313
111,950
$
$
$
— $
472,193
58.40
69.56
91.11
—
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 2013, 2012 and 2011 was
approximately $11 million, $11 million and $14 million, respectively. The total fair value of options vested during
2013, 2012 and 2011 was $2.2 million, $2.3 million and $3.3 million, respectively.
Cash received from stock options exercised during 2013, 2012 and 2011 was $4.1 million, $3.4 million and $7.7
million, respectively. The actual tax benefit realized for the tax deductions from stock options exercised totaled
$6.6 million, $6.5 million and $6.0 million in 2013, 2012 and 2011, respectively.
As of December 31, 2013, there was $6.1 million of total unrecognized compensation cost from stock options. This
amount 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:
Expected volatility
Risk-free interest rate
Expected life (in years)
Expected dividend
Weighted-average fair value of options granted
Year Ended December 31,
2012
2011
2013
28%
2.65%
8.9
—
47.25
$
30%
1.53%
9.0
—
41.82
$
$
32%
1.71%
8.6
—
40.81
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:
75
2013
Year Ended December 31,
2012
2011
Restricted
Stock
Shares
Weighted-
Average
Grant-Date
Fair Value
Restricted
Stock
Shares
Weighted-
Average
Grant-Date
Fair Value
Restricted
Stock
Shares
Weighted-
Average
Grant-Date
Fair Value
$
12,957
(12,610) $
(347) $
88.09
88.09
88.00
$
39,629
(25,124) $
(1,548) $
84.07
81.98
84.20
$
68,893
(26,179) $
(3,085) $
83.21
81.98
82.63
— $
—
12,957
$
88.09
39,629
$
84.07
Nonvested shares, at
beginning of year
Vested
Cancelled/forfeited
Nonvested shares, at
end of year
As of December 31, 2013, there was no unrecognized compensation cost related to restricted stock.
Restricted Stock Units
Restricted stock units, which are rights to receive shares of company stock, were granted from 2007 through 2013
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-
Average
Grant-Date
Fair Value
Weighted-Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value
as of
December 31,
2013
(in millions)
Outstanding, January 1, 2011
Granted
Vested
Forfeited
Outstanding, December 31, 2011
Granted
Vested
Forfeited
Outstanding, December 31, 2012
Granted
Vested
Forfeited
Outstanding, December 31, 2013
242,222
127,920
(54,350)
(16,430)
299,362
138,840
(75,466)
(14,235)
348,501
144,445
(92,273)
(25,243)
375,430
$
$
$
$
$
$
$
$
$
$
$
$
$
80.61
98.25
79.67
80.70
88.31
107.32
85.52
89.31
96.45
117.09
92.26
96.08
105.44
2.13
$
46.4
As of December 31, 2013, there was approximately $30.5 million of total unrecognized compensation cost related
to restricted stock units. This amount is expected to be recognized over a remaining weighted-average period of
approximately 4 years.
Employee Stock Purchase Plans
The fair value of the employees’ purchase rights under the 2011 ESPP and the 1988 ESPP was estimated using a
Black-Scholes model with the following weighted-average assumptions:
76
Expected volatility
Risk-free interest rate
Expected life (in years)
Expected dividend
Weighted-average fair value
of purchase rights
Year Ended December 31,
2012
2011
2013
19%
0.05%
0.25
—
27%
0.07%
0.25
—
20%
0.06%
0.25
—
$21.76
$20.70
$20.35
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 103,669 shares for $10.0 million, 107,749 shares for $9.2 million and 96,362 shares for $8.1 million under
the 2011 ESPP and 1988 ESPP to employees in 2013, 2012 and 2011, respectively. At December 31, 2013, 388,582
shares remain authorized and available for issuance under the 2011 ESPP.
We currently issue new shares to satisfy stock option exercises, restricted stock issuances and ESPP stock
purchases.
10. OTHER INCOME AND EXPENSE, NET
Other (income) expense, net includes the following components (in millions):
Year Ended December 31,
2012
2013
2011
Interest and investment income
Net realized losses (gains) on investments
Other-than-temporary impairment losses on investments
Losses (gains) on disposal of property, plant and equipment
Miscellaneous other (income) expense items, net
$
(13.4) $
0.3
0.3
0.5
(0.5)
(11.4) $
(8.7)
1.0
(3.8)
1.0
Other (income) expense, net
$
(12.8) $
(21.9) $
(8.2)
(0.7)
2.1
0.2
(1.0)
(7.6)
Other-than-temporary impairment losses on investments were recorded in 2013, 2012 and 2011 on certain of our
available-for-sale investments in light of the continuing declines in their market prices at that time, primarily
associated with our investment in a sovereign nation with large deficits and our decision to sell holdings in a
particular adviser account.
In December 2012, we sold a building for $6.4 million in our Clinical Diagnostics segment that was associated with
a 1999 acquisition. We recognized a gain on the sale of $4.3 million and a portion of goodwill recorded in a 1999
acquisition was written off of $1.0 million.
77
11. 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 and amortization
Share-based compensation
Losses (gains) on dispositions of securities
Losses (gains) on dispositions of fixed assets
Excess tax benefits from share-based compensation
Changes in fair value of contingent consideration
(Increase) decrease in accounts receivable, net
Increase in inventories, net
Increase in other current assets
Increase (decrease) in accounts payable
and other current liabilities
(Decrease) increase in income taxes payable
Decrease in deferred income taxes
Write-off of goodwill
Net increase/decrease in other long-term liabilities/assets
Net cash provided by operating activities
Non-cash investing activities:
Purchased intangible assets
Purchased marketable securities and investments
Year Ended December 31,
2012
2011
2013
$
77.8 $
165.5 $
178.8
147.2
13.7
0.6
0.5
(2.7)
(5.8)
(24.2)
(33.4)
(4.2)
33.2
(38.0)
(4.0)
—
14.8
130.4
13.2
(7.6)
(4.8)
(2.9)
(16.1)
4.4
(4.3)
(5.6)
19.0
(18.0)
(10.3)
1.0
12.1
121.0
10.7
1.5
0.2
(3.2)
—
(20.1)
(45.2)
11.1
(6.6)
5.4
(1.6)
—
10.7
$
$
$
175.5 $
276.0 $
262.7
12.0 $
0.4 $
0.5 $
1.6 $
—
11.6
12. COMMITMENTS AND CONTINGENT LIABILITIES
Rents and Leases
Net rental expense under operating leases was $45.5 million, $41.4 million and $42.4 million in 2013, 2012 and
2011, respectively. Leases are principally for facilities and automobiles.
Annual future minimum lease payments at December 31, 2013 under operating leases are as follows: 2014 - $39.1
million; 2015 - $30.1 million; 2016 - $24.0 million; 2017 - $18.6 million; and 2018 and beyond - $49.8 million.
78
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 $13.5 million, $12.1 million and $12.1 million in 2013, 2012 and 2011, respectively.
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, 2013 and 2012 was $46.3 million
and $39.5 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, 2013, we had obligations that have been recognized on our balance sheet of $99.0 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.
The annual future fixed and determinable portion of our purchase obligations that have been recognized on our
balance sheet as of December 31, 2013 are as follows: 2015 to 2016 - $32.3 million, 2017 to 2018 - $7.3 million
and after 2018 - $59.4 million.
As of December 31, 2013, we had purchase obligations that have not been recognized on our balance sheet of $65.4
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.
The annual future fixed and determinable portion of our purchase obligations that have not been recognized on our
balance sheet as of December 31, 2013 are as follows: 2014 - $57.4 million, 2015 - $7.2 million, 2016 - $0.4 million
and 2017 - $0.4 million.
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 $8.2 million of standby letters of credit with banks as of December 31, 2013.
Contingent Consideration
During the fourth quarter of 2011, we recognized a contingent consideration liability upon our acquisition of
QuantaLife related to potential future payments due upon the achievement of certain sales and development
milestones. The contingent consideration was initially recognized at its estimated fair value of $24.1 million, based
on a probability-weighted income approach. As of the acquisition date of October 4, 2011, total contingent
consideration could have originally reached a maximum of $48 million upon the achievement of all sales milestones
and a development milestone. The development milestone was met as of December 31, 2012, resulting in a
payment of $6.0 million in January 2013. During 2012, the first three short-term sales milestones were not met and
therefore the fair value of the contingent consideration was lowered by $16.1 million and credited to Selling,
general and administrative expense. During 2013, we did not expect that any of the remaining sales milestones
would be met and therefore $2.0 million of the remaining contingent consideration liability was credited to Selling,
general and administrative expense.
During the third quarter of 2012, we recognized a contingent consideration liability upon our acquisition of a new
cell sorting system from Propel Labs, Inc. The fair value of the contingent consideration was based on a
79
probability-weighted income approach related to the achievement of certain development and sales milestones and
was recorded at $44.6 million in 2012. The development milestones have been achieved and payments totaling
$20.0 million were made in 2013. Based on the most recent valuation, the sales milestones could potentially range
from $0 to a maximum of 60.0%, 51.32% and 50.38% of annual cell sorting system purchase orders, with payment
to occur upon the anniversary of the completion of a certain number of cell sorting systems for three consecutive
years, respectively. These maximum payout ratios begin at annual cell sorting system purchase orders in excess of
$20 million, $30 million and $45 million for the three consecutive years, respectively. The contingent consideration
was revalued by a net reduction of $3.8 million to Selling, general and administrative expense to its estimated fair
value of $20.8 million as of December 31, 2013.
Concentrations of Labor Subject to Collective Bargaining Agreements
At December 31, 2013, approximately seven percent of Bio-Rad's approximately 3,000 U.S. employees are covered
by a collective bargaining agreement, which will expire on November 8, 2016. Many of Bio-Rad's non-U.S. full-
time employees, especially in France, are covered by collective bargaining agreements.
13.
LEGAL PROCEEDINGS
Based on an internal investigation, we 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), each of which commenced an investigation. The Audit Committee of our Board of Directors
(Audit Committee) assumed direct responsibility for reviewing these matters and hired experienced independent
counsel to conduct an investigation and provide legal advice. We provided additional information to the DOJ and
the SEC as the Audit Committee's investigation progressed. We continue to cooperate with the DOJ and SEC
investigations and to provide information to them.
The DOJ and SEC investigations are continuing and we are presently unable to predict the duration, scope or results
of these investigations 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. While we have been engaged in discussions with the
DOJ and SEC concerning a resolution of these matters, we are unable to estimate a range of reasonably possible
outcomes of this matter that differs from our Estimated loss contingency recorded in the latter half of 2013 of $35.0
million, including $5.0 million of accrued interest. 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 determined
whether any of the activities in question violated the laws of the foreign jurisdictions in which they took place.
On April 13, 2011, a shareholder derivative lawsuit was filed against each of our directors in the Superior Court for
Contra Costa County, California. The case, which also names the Company as a nominal defendant, is captioned
City of Riviera Beach General Employees' Retirement System v. David Schwartz, et al., Case No. MSC11-00854.
In the complaint, the plaintiff alleges that our directors breached their fiduciary duties by failing to ensure that we
had sufficient internal controls and systems for compliance with the FCPA. Purportedly seeking relief on our
behalf, the plaintiff seeks an award of unspecified compensatory and punitive damages, costs and expenses
(including attorneys' fees), and a declaration that our directors have breached their fiduciary duties. We and the
individual defendants filed a demurrer requesting dismissal of the complaint in this case, as well as a motion to stay
this matter pending resolution of the above-referenced investigations by the DOJ and SEC. Following a hearing on
September 30, 2011, the court sustained our demurrer and dismissed the complaint, without prejudice, and granted
the plaintiff additional time to file an amended complaint. The court denied our motion to stay this matter because
80
it dismissed the complaint. The parties have agreed to a stipulated dismissal of this case, without prejudice, and to a
tolling of the statute of limitations pending the resolution of the DOJ and SEC investigations.
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.
14. 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 more than 8,000 different products and services and
require different marketing strategies. We do not disclose quantitative information about our different products and
services as it is impractical to do so based primarily on the numerous products and services that we sell and the
global markets that we serve.
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.
Segment results are presented in the same manner as we present our operations internally to make operating
decisions and assess performance. The accounting policies of the segments are the same as those described in
Significant Accounting Policies (see Note 1). Segment profit or loss includes an allocation of corporate expense
based upon sales and an allocation of interest expense based upon accounts receivable and inventories. 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. 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.
Information regarding industry segments at December 31, 2013, 2012, and 2011 and for the years then ended is as
follows (in millions):
81
Segment net sales
Allocated interest expense
Depreciation and amortization
Segment (loss) profit
Segment assets
Capital expenditures
Life
Science
Clinical
Diagnostics
Other
Operations
710.0 $
688.4
694.7
1,408.0 $
1,365.5
1,363.8
14.7
15.3
15.0
10.4 $
13.4
14.2
32.6 $
26.3
17.3
(13.7) $
13.2
46.7
30.1 $
37.8
38.9
91.5 $
92.9
93.2
176.2 $
202.6
206.7
389.1 $
359.9
980.9 $
917.0
19.8 $
17.3
72.8 $
76.8
0.1
0.2
0.2
0.1
0.1
0.2
1.1
1.6
1.3
5.1
4.3
0.2
0.1
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2013
2012
$
$
$
$
$
$
Net corporate operating expense consists of receipts and expenditures that are not the primary responsibility of
segment operating management and therefore are not allocated to the segments for performance assessment by our
chief operating decision maker. In 2013, this included the accrual of $35.0 million in connection with our initial
efforts to resolve the SEC and DOJ investigations relating to the FCPA that was recorded in the latter half of 2013
(see Note 13), and the $15.6 million expense for the redemption of our 8.0% Senior Subordinated Notes (see Note
5). The following reconciles total segment profit to consolidated income before taxes (in millions):
Year Ended December 31,
2012
2011
2013
Total segment profit
Foreign exchange losses
Net corporate operating, interest and other expense, net not
allocated to segments
Other income (expense), net
Consolidated income before taxes
$
163.6 $
(8.6)
217.4 $
(5.0)
254.7
(13.8)
(55.4)
12.8
(4.4)
21.9
(2.7)
7.6
$
112.4 $
229.9 $
245.8
The following reconciles total segment assets to consolidated total assets (in millions):
82
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,
2013
2012
1,375.1 $
835.1
(14.9)
517.8
675.7
3,388.8 $
1,281.2
1,092.0
(4.2)
495.4
579.1
3,443.5
$
$
The following presents net sales to external customers by geographic region based primarily on the location of the
use of the product or service (in millions):
Europe
Pacific Rim
United States
Other (primarily Canada and Latin America)
Total net sales
Year Ended December 31,
2012
2013
2011
886.1
413.3
677.7
155.6
2,132.7
$
$
837.0
425.7
656.7
149.8
2,069.2
$
$
896.4
398.4
631.0
147.7
2,073.5
$
$
The following presents Other assets and Property, plant and equipment, net by geographic region based upon the
location of the asset (in millions):
Europe
Pacific Rim
United States
Other (primarily Canada and Latin America)
Total Other assets and Property, plant and equipment, net
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
December 31,
2013
2012
$
$
217.4
28.2
579.9
13.4
838.9
$
$
199.1
30.0
487.8
18.1
735.0
During the third quarter of 2013, we identified errors in the consolidated financial statements for the years 2011 and
2012 (and for all interim periods therein) and in the unaudited interim condensed consolidated financial statements
for the three month periods ended March 31, 2013 and June 30, 2013, related to the valuation of finished goods
inventory in our Life Science segment. We were inappropriately expensing inventory in amounts greater than actual
costs for non-sales transactions, primarily related to inventory being used for demonstration purposes and product
samples that are recorded to Selling, general and administrative expense. In addition, the Life Science segment
inventory error affected cost of goods sold as we relieved inventory at a higher cost than incurred on limited sales to
third parties produced in a non-U.S. manufacturing facility.
During the third quarter of 2013, we revised the classification of one item for all periods presented from “Provision
for income taxes” to “Research and development expense” in our Consolidated Statements of Income to conform to
83
the current year presentation. The item reclassified pertains to a refundable French R&D tax credit, which after the
reclassification reduces Research and development expense. We believe this presentation is appropriate as we are
not required to have taxable income in order to earn the credits.
Management evaluated the materiality of all the errors described above from a qualitative and quantitative
perspective. Based on such evaluation, we have concluded that while the accumulation of these errors was
significant to the three months ended September 30, 2013, their correction would not be material to any individual
prior period, nor did they have an effect on the trend of financial results, taking into account the requirements of the
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108).
Accordingly, we are correcting these errors in every affected period in the 2013 Financial Statements included in
this Form 10-K.
The impact of the immaterial error correction, and the reclassification, both described above are presented on a as
reported, adjustment and as revised basis in the following summarized quarterly financial data for 2013 and 2012
(in millions, except per share data):
As reported:
2013
Net sales
Gross profit
Net income (loss) attributable to Bio-Rad
Basic earnings (loss) per share
Diluted earnings (loss) per share
2012
Net sales
Gross profit
Net income attributable to Bio-Rad
Basic earnings per share
Diluted earnings per share
Adjustments:
2013
Net sales
Gross profit
Net income (loss) attributable to Bio-Rad
Basic earnings (loss) per share
Diluted earnings (loss) per share
2012
Net sales
Gross profit
Net income attributable to Bio-Rad
Basic earnings per share
Diluted earnings per share
$
$
$
$
$
$
$
$
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
499.7 $
271.4
19.5
0.68 $
0.68 $
486.3 $
278.6
31.0
1.10 $
1.09 $
525.3 $
300.1
34.7
1.22 $
1.20 $
510.4 $
287.9
48.3
1.71 $
1.69 $
505.1 $
284.2
(7.1)
(0.25) $
(0.25) $
498.7 $
273.5
42.4
1.50 $
1.48 $
602.6
322.7
30.1
1.05
1.04
573.8
314.1
42.0
1.48
1.46
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
— $
—
0.7
0.03 $
0.02 $
— $
0.1
0.5
0.02 $
0.01 $
84
— $
—
(0.1)
(0.01) $
— $
— $
0.2
(0.2)
(0.01) $
(0.01) $
— $
—
—
— $
— $
— $
0.3
0.2
0.01 $
0.01 $
—
—
—
—
—
—
0.4
1.2
0.04
0.05
As revised:
2013
Net sales
Gross profit
Net income (loss) attributable to Bio-Rad
Basic earnings (loss) per share
Diluted earnings (loss) per share
2012
Net sales
Gross profit
Net income attributable to Bio-Rad
Basic earnings per share
Diluted earnings per share
$
$
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
499.7 $
271.4
20.2
0.71 $
0.70 $
486.3 $
278.7
31.5
1.12 $
1.10 $
525.3 $
300.1
34.6
1.21 $
1.20 $
510.4 $
288.1
48.1
1.70 $
1.68 $
505.1 $
284.2
(7.1)
(0.25) $
(0.25) $
498.7 $
273.8
42.6
1.51 $
1.49 $
602.6
322.7
30.1
1.05
1.04
573.8
314.5
43.2
1.52
1.51
During the first quarter of 2012, we identified an error in the consolidated financial statements for the years 2007
through 2011, related to a foreign supplemental tax associated with social benefits. We incorrectly interpreted and
applied the local statutes to our circumstances. We accrued $6.1 million for these foreign supplemental taxes,
including penalties and interest, during the first quarter of 2012, all of which has been paid. The foreign
supplemental tax, and the related penalties and interest, were not deductible for income tax purposes, and as such
this error did not have an impact on Bio-Rad's provision for income taxes.
We evaluated the materiality of this error from a qualitative and quantitative perspective. Based on such evaluation,
we concluded that while the accumulation of this error was significant to the three-month period ended March 31,
2012, the correction was not material to any individual prior period or for the year ended December 31, 2012, nor
did it have an effect on the trend of financial results, taking into account the requirements of the Securities and
Exchange Commission (SEC) Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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 Chief Financial Officer concluded that our disclosure
controls and procedures were not effective as a result of the material weakness in our internal control over
financial reporting at December 31, 2013, which we view as an integral part of our disclosure controls and
procedures, discussed in further detail below.
85
(b) Management’s Report on 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 Securities and Exchange Act of 1934, as
amended (Exchange Act). Our internal control is designed to provide reasonable assurance regarding the
preparation and fair presentation of our financial statements presented in accordance with generally
accepted accounting principles. 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.
Our management has used the criteria set forth in the report entitled “Internal Control - Integrated
Framework (1992)” 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 at
December 31, 2013.
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 our annual or interim
consolidated financial statements will not be prevented or detected on a timely basis.
In connection with our assessment of the effectiveness of internal control over financial reporting at
December 31, 2013, we identified the following material weakness that existed at December 31, 2013:
A material weakness exists in the design of monitoring controls over operations at certain of our locations
both within the United States and overseas, as well as a lack of documentation required to operate these
controls appropriately. Specifically, the precision at which these controls are designed and documented,
and the completeness and timeliness of communication between some of our locations are not sufficient to
detect and correct a material misstatement in our consolidated financial statements. As a result there was a
misstatement in a foreign pension accrual, and there is a reasonable possibility that a material
misstatement to our annual or interim consolidated financial statements could occur and not be detected or
prevented.
As a result of this material weakness, our management concluded that our internal control over financial
reporting was not effective at December 31, 2013 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.
KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial
statements of Bio-Rad Laboratories, Inc. for the year ended December 31, 2013 and has issued an
attestation report on the effectiveness of Bio-Rad’s internal control over financial reporting at December
31, 2013, as stated in their report.
(c) Completed and Planned Remediation Actions to Address the Material Weakness
Our management has discussed the results of the evaluation and assessment with our Audit Committee.
Management intends to enhance its management review controls used to monitor our financial
information worldwide. Our enhancements will increase the level of precision in our management review
controls. Management plans to enhance its review controls by (i) designing and documenting additional
management review controls, (ii) documenting, as needed, precision and specificity to existing
86
management review controls, and (iii) supplementing resources and providing training to effectively
perform management review controls.
We intend to formalize through documentation, communication and training the steps required for
investigation of financial deviations or differences from expectation detected in our management review
controls and the procedures for execution and communication of timely corrective actions, as needed. We
believe this planned increased level of precision in our management review controls will allow for earlier
detection of errors.
In addition, the design of our monitoring controls will follow a top-down approach that begins at the
financial statement level to identify and assess the overall risks to internal control over financial reporting.
We also plan to make organizational changes and develop skills in our employees across all functions
involved in the performance of internal control over financial reporting to ensure that we have adequate
local, regional and global monitoring, oversight and timely communication.
However, we cannot assure you that we will be able to remediate the material weakness or that additional
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.
(d) Changes in Internal Control Over Financial Reporting
In connection with our preparation of our financial statements for 2012 and our assessment of the
effectiveness of our internal controls over financial reporting, we determined that we had a material
weakness at December 31, 2012. The elements of this material weakness were significant deficiencies
with respect to our accounting close process, revenue recognition process, reagent rental process and
expenditure controls at our German subsidiary which, when aggregated, constituted a material weakness
at December 31, 2012. At December 31, 2013, management believes it has sufficient evidence to
conclude that the changes listed below, which were initiated throughout the year and which were designed
to remediate these significant deficiencies, were completely implemented during the three-month period
ended December 31, 2013. Changes designed to remediate these significant deficiencies that were
implemented during 2013 include the following:
Enhancements to the accounting close process
• Formalized our period end disclosure review controls.
• Enhanced our reconciliation review controls.
• Transferred experienced personnel and hired additional temporary staff to improve management of
the accounting function at our German subsidiary.
Enhancements to revenue recognition process
• Changed sales personnel in our Chinese subsidiary.
•
Implemented and enforced internal controls for analyzing credit risk.
Enhancements to the reagent rental process at certain of our international subsidiaries
Inventoried our reagent rental agreements.
•
• Reconciled reagent rental accounting records.
• Standardized the monitoring of reagent rental customer commitments.
Enhancements to our expenditure controls at our German subsidiary
87
• Transferred experienced personnel and hired additional temporary staff to improve management of
the accounting function of our German subsidiary.
• Enhanced our management review controls over expenditure budget to actual by adding precision.
• Addressed segregation of duty issues.
Despite these changes, we concluded that a material weakness exists at December 31, 2013 with respect to
our monitoring controls and the timeliness of communication.
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 2014 annual meeting of
stockholders (the “2014 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 an “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
2014 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 2014 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.
88
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 2014 Proxy Statement under “Principal and Management Stockholders.”
Equity Compensation Plan Information as of December 31, 2013
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
(b)(3)
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a))
(c)
1,005,073
$
—
1,005,073
$
78.72
—
78.72
880,892
(2)
—
880,892
Plan category
Equity compensation
plans approved by
security holders (1)
Equity compensation
plans not approved by
security holders
Total
(1) Consists of 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. 2011 Employee Stock Purchase Plan.
(2) Consists of 492,310 shares available under the Bio-Rad Laboratories, Inc. 2007 Incentive Award Plan and 388,582
shares available under the Bio-Rad Laboratories, Inc. 2011 Employee Stock Purchase Plan.
(3) Excludes Restricted Stock Units.
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
2014 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 2014 Proxy
Statement under “Report of the Audit Committee of the Board of Directors.”
89
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1
Index to Financial Statements – See Item 8 of Part II of this report “Financial Statements and
Supplementary Data" on page 37 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 92 through 95 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, 2013, 2012, and 2011
(in thousands)
Allowance for doubtful accounts receivable
Balance at
Beginning
of Year
Additions
Charged to Costs
and Expenses
Deductions
Balance at
End of Year
2013
2012
2011
$
$
$
29,202
33,259
25,052
$
$
$
9,181
7,597
15,112
$
$
$
(5,912)
(11,654)
(6,905)
$
$
$
32,471
29,202
33,259
Valuation allowance for current and long-term deferred tax assets
Balance at
Beginning
of Year
Additions Charged
(Credited) to
Income
Tax Expense
Deductions
Other (A)
Balance at
End of Year
2013
2012
2011
$
$
$
52,856
48,926
37,015
$
$
$
11,155
3,700
6,356
$
$
$
— $
— $
— $
— $
64,011
230
5,555
$
$
52,856
48,926
(A) Due to acquisitions.
90
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.
SIGNATURES
BIO-RAD LABORATORIES, INC.
By:
/s/ Christine A. Tsingos
Christine A. Tsingos
Executive Vice President, Chief Financial Officer
Date:
March 17, 2014
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/ Louis Drapeau
(Louis Drapeau)
/s/ Albert J. Hillman
(Albert J. Hillman)
/s/ Robert M. Malchione
(Robert M. Malchione)
/s/ Deborah J. Neff
(Deborah J. Neff)
/s/ Alice N. Schwartz
(Alice N. Schwartz)
Chairman of the Board, President
and Chief Executive Officer
March 17, 2014
Executive Vice President,
Chief Financial Officer
March 17, 2014
Vice President, Corporate Controller March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
Director
Director
Director
Director
Director
91
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. (2)
3.1.1 Certificate of Amendment to Restated Certificate of Incorporation of Bio-Rad Laboratories, Inc. (2)
3.2 Bylaws of Bio-Rad Laboratories, Inc. (2)
4.1 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. (3)
4.2 Exchange and Registration Rights Agreement dated as of August 11, 2003 for 7.50% Senior Subordinated
Notes due 2013. (3)
4.3 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. (4)
4.4 Exchange and Registration Rights Agreement dated as of May 26, 2009 for 8.00% Senior Subordinated Notes
due 2016. (4)
4.5 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. (5)
10.1 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. (6)
10.2 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. (6)
10.3 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. (6)
92
Exhibit No.
10.4 1994 Stock Option Plan. (7)
10.4.1 Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan dated April 28, 1998. (8)
10.4.2 Second Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan dated December 6, 1999. (8)
10.4.3 Third Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan dated September 19, 2000. (8)
10.4.4 Fourth Amendment to the Bio-Rad Laboratories, Inc. 1994 Stock Option Plan dated April 25, 2001. (8)
10.4.5 Amendment to the 1994 Stock Option Plan of Bio-Rad Laboratories, Inc., dated February 18, 2009. (9)
10.4.6 Amendment to the 1994 Stock Option Plan of Bio-Rad Laboratories, Inc., dated December 12, 2011. (20)
10.5 Amended and Restated 1988 Employee Stock Purchase Plan. (10)
10.5.1 Amendment to the Amended 1988 Employee Stock Purchase Plan. (11)
10.5.2 Amendment to the Bio-Rad Laboratories, Inc. Amended and Restated 1988 Employee Stock Purchase Plan (12)
10.6 Bio-Rad Laboratories, Inc. 2011 Employee Stock Purchase Plan (13)
10.7 Employees’ Deferred Profit Sharing Retirement Plan (Amended and Restated effective January 1, 1997). (14)
10.8 2003 Stock Option Plan. (15)
10.8.1 Amendment to the 2003 Stock Option Plan of Bio-Rad Laboratories, Inc. (16)
10.9 2007 Incentive Award Plan. (17)
10.9.1 Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the 2007
Incentive Award Plan. (18)
10.10 Form of Indemnification Agreement (19)
10.11 Second Amendment to the 2003 Stock Option Plan of Bio-Rad Laboratories, Inc., dated March 1, 2012. (21)
21.1 Listing of Subsidiaries.
23.1 Consent of KPMG LLP, Independent Registered Public Accounting Firm.
23.2 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1 Certification of Chief Executive Officer Required by Rule 13a-14(a) (17CFR 240.13a-14(a)).
31.2 Certification of Chief Financial Officer Required by Rule 13a-14(a) (17CFR 240.13a-14(a)).
93
Exhibit No.
32.1 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.
32.2 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.
101 Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company's
Annual Report on Form 10-K for the year ended December 31, 2013, is filed in XBRL (Extensible
Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income,
(iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows,
(v) the Consolidated Statements of Changes in Stockholders' Equity, (vi) the Notes to Consolidated Financial
Statements and (vii) Schedule II - Valuation and Qualifying Accounts.
(1) Incorporated by reference to Exhibit 2.1 to Bio-Rad’s June 30, 2007 Form 10-Q filing, dated August 8,
2007 (File No. 001-07928; Film No. 071035483).
(2) Incorporated by reference to the Exhibits to Bio-Rad's Form 10-K filing for the fiscal year ended
December 31, 2010 (File No. 001-07928; Film No. 11645568).
(3) Incorporated by reference to the Exhibits to Bio-Rad’s Form S-4 filing, dated September 19, 2003
(File No. 333-108957; Film No. 03903026).
(4) Incorporated by reference to the Exhibits to Bio-Rad’s Form 8-K filing, dated May 28, 2009 (File No.
001-07928; Film No. 09856654).
(5) Incorporated by reference to Exhibit 4.1 to Bio-Rad’s Form 8-K filing, dated December 9, 2010
(File No. 001-07928; Film No. 101242545).
(6) Incorporated by reference to the Exhibits to Bio-Rad’s 8-K filing, dated June 25, 2010 (File No. 001-07928;
Film No. 10917383).
(7) Incorporated by reference to Exhibit 4.1 to Bio-Rad’s Form S-8 filing, dated April 29, 1994 (File No.
033-53337; Film No. 94525059).
(8) Incorporated by reference to the Exhibits 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).
(9) Incorporated by reference to Exhibit 10.4.5 to Bio-Rad’s June 30, 2009 Form 10-Q filing, dated August 5, 2009
(File No. 001-07928; Film No. 09988587).
(10) 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).
(11) 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).
(12) 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 (File No. 001-07928; Film No. 10640714).
94
(13) Incorporated by reference to Exhibit 10.9 to Bio-Rad's June 30, 2011 Form 10-Q filing, dated August 4, 2011
(File No. 001-07928; Film No. 111008011).
(14) 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).
(15) 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).
(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).
(17) Incorporated by reference to Exhibit 4.1 to Bio-Rad’s Form S-8 filing, dated July 30, 2007 (File No.
333-144926; Film No. 071010234).
(18) Incorporated by reference to Exhibit to 10.8.1 Bio-Rad’s September 30, 2009 Form 10-Q filing, dated November
4, 2009 (File No. 001-07928; Film No. 091158805).
(19) Incorporated by reference to Exhibit 10.1 to Bio-Rad's Form 8-K filing, dated June 28, 2011 (File No.
001-07928; Film No. 11935120).
(20) Incorporated by reference to Exhibit 10.4.6 to Bio-Rad's Form 10-K filing for the fiscal year ended
December 31, 2011, dated February 29, 2012 (File No. 001-07928; File No. 12652048).
(21) Incorporated by reference to Exhibit 10.1 to Bio-Rad's June 30, 2012 Form 10-Q filing, dated August 9, 2012
(File No. 001-07928; Film No. 121019446).
95
BIO-RAD L ABOR ATORI ES COR PORATE I NFORMATION
DIREC TORS
Norman Schwartz
Chairman of the Board
Louis Drapeau
Director
Albert J. Hillman
Director
Robert M. Malchione
Director
Deborah J. Neff
Director
Alice N. Schwartz
Director
OFFIC ERS
Norman Schwartz
Chairman of the Board,
President and
Chief Executive Officer
Brad Crutchfield
Executive Vice President,
President,
Life Science
John Goetz
Executive Vice President,
President,
Clinical Diagnostics
Giovanni Magni
Executive Vice President,
International Sales
Christine Tsingos
Executive Vice President,
Chief Financial Officer
Shawn M. Soderberg
Executive Vice President,
General Counsel & Secretary
Ronald Hutton
Vice President, Treasurer
James Stark
Vice President,
Corporate Controller
OTHER EXECU T IVES
Michael Barcellos
Vice President,
General Manager,
Clinical Immunology,
Clinical Diagnostics
Steve Binder
Director,
Technology Development,
Clinical Diagnostics
Patrick Bugeon
Senior Vice President,
Operations Europe,
Clinical Diagnostics
George Cao
Vice President,
Commercial Manager,
Greater China
Patrick Carroll
Vice President,
Commercial Manager,
North America Sales,
Life Science
Jean-Francois Chauvet
Vice President,
General Manager,
Food Science, Life Science
Colleen Corey
Vice President, Corporate
Human Resources
Michael Crowley
Vice President,
Commercial Manager,
Europe
Diane Dahowski
Senior Vice President,
Operations, North America
U.S. Clinical Diagnostics
Patrice Deletoille
Vice President,
General Manager,
Infectious Diseases,
Clinical Diagnostics
Regis Duval
Vice President,
Commercial Manager,
Emerging Markets
H. Jeff Garner
Vice President, Manufacturing,
Life Science
Ted Tisch
Vice President,
General Manager,
Protein Function, Life Science
Shannon Hall
Vice President,
General Manager,
Laboratory Separations,
Life Science
John Hertia
Senior Vice President, Global
Technology & Systems
Annette Tumolo
Vice President, General
Manager, Digital Biology
Center, Life Science
Octavio Zendejas
Vice President,
Commercial Manager,
Latin America
AN NU AL MEETIN G
The Annual Meeting of
Stockholders will be held on
Tuesday, April 22, 2014
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 2013
Annual Report filed with the
Securities and Exchange
Commission on Form 10-K.
T RAN SF ER AG ENT
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211 Quality Circle, Suite 210
College Station, Texas 77845
800-962-4284
www.computershare.com
AU DI TO RS
KPMG LLP
San Francisco, California
C OMM ON S T OCK
Traded on the
New York Stock Exchange
Class A Common Stock
Symbol BIO
Class B Common Stock
Symbol BIOb
Chang Hong
Vice President,
Commercial Manager,
Asia Pacific
Michael Jackson
Vice President,
General Manager,
Clinical Systems,
Clinical Diagnostics
Scott Jenest
Senior Vice President,
Operations, Life Science
Leo Kaabi
Vice President,
General Manager,
Quality Systems,
Clinical Diagnostics
Daniel Merle
Director,
Business Development,
Clinical Diagnostics
Manuel Nyffeler
Vice President,
General Manager,
Immunohematology,
Clinical Diagnostics
Dave Reilly
Vice President,
Commercial Manager,
North America Sales,
Clinical Diagnostics
Jonathan Schimmel
Vice President,
General Manager,
Gene Expression,
Life Science
Sadashi Suzuki
Vice President,
Commercial Manager, Japan
Bio-Rad Laboratories
1000 Alfred Nobel Drive
Hercules, California 94547
510-724-7000
www.bio-rad.com