BIO-RAD LABORATORIES INC

Previous wording

Overview. We are a multinational manufacturer and worldwide distributor of our own life science research and clinical diagnostics products. Our business is organized into two reportable segments, Life Science and Clinical Diagnostics, with the mission to provide scientists with specialized tools needed for biological research and health care specialists with products needed for clinical diagnostics.

Current wording

Overview. We are a multinational developer, manufacturer and worldwide distributor of our own life science research and clinical diagnostics products. Our business is organized into two reportable segments: Life Science and Clinical Diagnostics, with the mission to provide scientists with specialized tools needed for biological research and health care specialists with products needed for clinical diagnostics.

Previous wording

We rely on the support of many governments for both research and healthcare. The current global economic outlook is still uncertain as the need to control government social spending by many governments limits opportunities for growth. Approximately 42% of our 2023 consolidated net sales are derived from the United States and approximately 58% are derived from international locations, with Europe being our largest international region. The international sales are largely denominated in local currencies such as the Euro, Swiss Franc, Japanese Yen, Chinese Yuan and British Sterling. As a result, our consolidated net sales expressed in dollars benefit when the U.S. dollar weakens and suffer when the dollar strengthens. When the dollar strengthens, we benefit from lower cost of sales from our own international manufacturing sites, and from lower international operating expenses. We regularly discuss our changes in revenue and expense categories in terms of both changing foreign exchange rates and in terms of a currency neutral basis, if notable, to explain the impact currency has on our results.

Current wording

We rely on the support of many governments for both research and healthcare. The current global economic outlook is still uncertain as the need to control social spending by many governments limits opportunities for growth. Approximately 41% of our 2024 consolidated net sales are derived from the United States and approximately 59% are derived from international locations, with Europe being our largest international region. The international sales are largely denominated in local currencies such as the Euro, Swiss Franc, Japanese Yen, Chinese Yuan and British Sterling. As a result, our consolidated net sales expressed in dollars benefit when the U.S. dollar weakens and suffer when the dollar strengthens. When the dollar strengthens, we benefit from lower cost of sales from our own international manufacturing sites, and from lower international operating expenses. We regularly discuss our changes in revenue and expense categories in terms of both changing foreign exchange rates and in terms of a currency neutral basis, if notable, to explain the impact currency has on our results.

Previous wording

We are impacted by global economic conditions and our business was negatively impacted by the recent economic constraints in China and the ongoing challenges impacting the biopharma market and small biotech companies. We expect that these conditions will continue to negatively impact our business in 2024.

Current wording

We are impacted by ongoing global economic and geopolitical conditions and our business continued to be negatively impacted by the ongoing challenges impacting the biopharma market and small biotech companies. We expect that these conditions will continue to impact our business in 2025.

Previous wording

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.

Current wording

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.

Previous wording

We elected the fair value option under ASC 825, Financial Instruments for accounting of the Loan to Sartorius-Herbst Beteiligungen II GmbH to simplify the accounting. The Loan includes certain value appreciation rights that are due upon repayment of the Loan. The fair value of the Loan and value appreciation right is estimated under the income approach using a discounted cash flow, and option pricing model, respectively. The significant assumptions used to estimate fair value of the Loan include an estimate of the discount rate and cash flows of the Loan and the significant assumptions used to estimate the fair value of the value appreciation right include volatility, the risk-free interest rate, expected life (in years) and expected dividend. The inputs are subject to estimation uncertainty and actual amounts realized may materially differ. An increase in the expected volatility may result in a significantly higher fair value, whereas a decrease in expected life may result in a significantly lower fair value. All subsequent changes in fair value of the Loan and value appreciation right, including accrued interest are recognized in (Gains) losses from change in fair market value of equity securities and loan receivable in our consolidated statements of income (loss).

Current wording

We elected the fair value option under ASC 825, Financial Instruments for accounting of the Loan to Sartorius-Herbst Beteiligungen II GmbH to simplify the accounting. The Loan includes certain value appreciation rights that are due upon repayment of the Loan. The fair value of the Loan and value appreciation right is estimated under the income approach using a discounted cash flow, and option pricing model, respectively. The significant assumptions used to estimate fair value of the Loan include an estimate of the discount rate and cash flows of the Loan and the significant assumptions used to estimate the fair value of the value appreciation right include volatility, the risk-free interest rate, expected life (in years) and expected dividend. The inputs are subject to estimation uncertainty and actual amounts realized may materially differ. An increase in the expected volatility may result in a significantly higher fair value, whereas a decrease in expected life may result in a significantly lower fair value. All subsequent changes in fair value of the Loan and value appreciation right, including accrued interest are recognized in Losses from change in fair market value of equity securities and loan receivable in our consolidated statements of income (loss).

Previous wording

The following shows cost of goods sold, gross profit, expense items and net income as a percentage of net sales:

Current wording

The following table shows Cost of goods sold, Gross profit, components of operating expense, and Net loss as a percentage of Net sales:

Previous wording

Net sales (sales) for the year ended December 31, 2023 were $2.67 billion, compared to $2.80 billion for the year ended December 31, 2022, a decrease of 4.7%. COVID-related sales were approximately $3.6 million for the year ended December 31, 2023 compared to approximately $109.2 million for the year ended December 31, 2022. On a currency neutral basis, for the year ended December 31, 2023 sales decreased by approximately 4.1% compared to the same period in 2022. Currency neutral sales decreased mainly in APAC and EMEA. Excluding COVID-related sales, sales decreased 0.4% on a currency neutral basis from the year ended December 31, 2022. Sales of our Life Sciences segment in 2023 were negatively impacted by demand constraints from biopharma and small biotech customers in the biopharma market and the economic environment in China. In addition, the Russia sanctions impacted both our Life Science and Clinical Diagnostics segments.

Current wording

Net sales (sales) for the year ended December 31, 2024 were $2.57 billion, compared to $2.67 billion for the year ended December 31, 2023, a decrease of 3.9%. On a currency neutral basis, for the year ended December 31, 2024 sales decreased by approximately 3.6% compared to the same period in 2023. The decrease in sales was driven by lower sales in our Life Science segment.

Previous wording

The Clinical Diagnostics segment sales for the year ended December 31, 2023 were $1.49 billion, an increase of 2.6% compared to the year ended December 31, 2022. On a currency neutral basis, sales increased 3.2% compared to the year ended December 31, 2022. COVID-related sales were $0.7 million in the year ended December 31, 2023 compared to approximately $4.0 million in the year ended December 31, 2022. Excluding COVID-related sales, sales increased 3.4% on a currency neutral basis. The currency neutral sales increase was primarily driven by an increased demand for our diagnostic testing systems, primarily diabetes, blood typing, and quality control products, especially in Asia Pacific and EMEA, partially offset by a decline in our infectious disease products and lower sales due to Russia sanctions.

Current wording

The Clinical Diagnostics segment sales for the year ended December 31, 2024 were $1.54 billion, an increase of 3.3% compared to the year ended December 31, 2023. On a currency neutral basis, sales increased 3.7% compared to the year ended December 31, 2023. The currency neutral sales increase was primarily driven by an increased demand for our quality control and blood typing products. Currency neutral sales increased across all regions.

Previous wording

Consolidated gross margin was 53.4% for the year ended December 31, 2023 compared to 55.9% for the year ended December 31, 2022. Gross margin for the Life Science segment and Clinical Diagnostics segment for the year ended December 31, 2023 decreased by approximately 4.1 percentage points and 0.7 percentage points, respectively, from the year ended December 31, 2022. The decrease in gross margin was primarily driven by product mix, increased material costs and inventory reserves.

Current wording

Consolidated gross margin was 53.7% for the year ended December 31, 2024 compared to 53.4% for the year ended December 31, 2023. Gross margin for the Life Science segment and Clinical Diagnostics segment for the year ended December 31, 2024 increased by approximately 0.3 percentage points and 0.5 percentage points, respectively, from the year ended December 31, 2023. The increase in gross margin was primarily driven by favorable product mix and cost control measures, partially offset by higher restructuring and material costs.

Previous wording

Consolidated selling, general and administrative expense (SG&A) increased to $841.7 million or 31.5% of sales for the year ended December 31, 2023 compared to $827.8 million or 29.5% of sales for the year ended December 31, 2022. The increase to SG&A expense was primarily driven by restructuring costs as well as higher facility-related expenses, partially offset by lower employee-related expenses.

Current wording

Consolidated selling, general and administrative expense (SG&A) decreased to $814.0 million or 31.7% of sales for the year ended December 31, 2024 compared to $841.7 million or 31.5% of sales for the year ended December 31, 2023. The decrease to SG&A expense was primarily due to lower restructuring costs and a reduction in discretionary spending.

Previous wording

Consolidated research and development (R&D) expense decreased to $247.4 million or 9.3% of sales for the year ended December 31, 2023 compared to $256.9 million or 9.2% of sales for the year ended December 31, 2022. The decrease in R&D expense in the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to a change in the fair value of contingent consideration, partially offset by higher restructuring costs and continued investment in research and development.

Current wording

Consolidated research and development (R&D) expense increased to $295.9 million or 11.5% of sales for the year ended December 31, 2024 compared to $247.4 million or 9.3% of sales for the year ended December 31, 2023. The increase in R&D expense in the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to a one-time acquired in-process research and development expense of $29.5 million in 2024 and an increase in the fair value of contingent consideration of $12.5 million impacting R&D expense in 2024 compared to a decrease in the fair value of contingent consideration of $14.0 million impacting R&D expense in 2023.

Previous wording

Interest expense for the years ended December 31, 2023 and 2022 was $49.4 million and $38.1 million, respectively, an increase of $11.3 million compared to the prior year period. The increase was primarily due to the sale in March 2022 of the $1.2 billion Senior Notes.

Current wording

Interest expense for the years ended December 31, 2024 and 2023 was $48.9 million and $49.4 million, respectively, which primarily consisted of interest expense related to the $1.2 billion Senior Notes.

Previous wording

Foreign currency exchange (gains) and losses consist primarily of foreign currency transaction gains and losses on intercompany net receivables and payables and the change in fair value of our forward foreign exchange contracts used to manage our foreign currency exchange risk. Foreign currency exchange net gains were $7.3 million and $0.2 million for the years ended December 31, 2023 and December 31, 2022, respectively. Gains and losses are primarily due to the estimating process inherent in the timing of product shipments and intercompany debt payments, market volatility, and the change in the fair value of our foreign exchange contracts.

Current wording

Foreign currency exchange (gains) losses, net consist primarily of foreign currency transaction gains and losses on intercompany net receivables and payables and the change in fair value of our forward foreign exchange contracts used to manage our foreign currency exchange risk. Foreign currency exchange net gains were $3.9 million and $7.3 million for the years ended December 31, 2024 and December 31, 2023, respectively. Gains and losses are primarily due to the estimating process inherent in the timing of product shipments and intercompany debt payments, market volatility, and the change in the fair value of our foreign exchange contracts.

Previous wording

(Gains) losses from change in fair market value of equity securities and loan receivable was a loss of $1.25 billion and $5.19 billion for the years ended December 31, 2023 and 2022, respectively. The change in the fair market value primarily resulted from the recognition of lower holding losses of $1.26 billion compared to holding losses of $5.07 billion in the year ended December 31, 2022 on our position in Sartorius AG. In addition, lower losses from the change in fair market value of our loan receivable of $6.8 million in the year ended December 31, 2023, compared to holding losses of $100.6 million in the year ended December 31, 2022 contributed to the change.

Current wording

Losses from change in fair market value of equity securities and loan receivable was $2.66 billion and $1.25 billion for the years ended December 31, 2024 and 2023, respectively. The change in the fair market value primarily resulted from the recognition of higher holding losses of $2.68 billion compared to $1.26 billion in the year ended December 31, 2023 on our position in Sartorius AG. In addition, holding gains from the change in fair market value of our loan receivable of $12.5 million in the year ended December 31, 2024, compared to holding losses of $6.8 million in the year ended December 31, 2023 contributed to the change.

Previous wording

Other income, net includes investment and dividend income, interest income on our cash and cash equivalents, short-term investments and long-term marketable securities. Other income, net for the year ended December 31, 2023 increased to $106.4 million compared to $44.6 million for the year ended December 31, 2022. The increase was primarily due to higher interest rates favorably impacting our investments resulting from cash invested from the $1.2 billion Senior Notes issued in March 2022. The increase to Other income, net also resulted from a $3 million higher dividend from Sartorius AG in 2023 compared to 2022, and from no credit loss or other than temporary impairment in 2023 compared to a credit loss of $8 million and other than temporary impairment losses of $12 million in 2022.

Current wording

Other income, net includes investment and dividend income, interest income on our cash and cash equivalents, short-term investments and long-term marketable securities. Other income, net for the year ended December 31, 2024 decreased to $90.3 million compared to $106.5 million for the year ended December 31, 2023. The decrease was primarily attributable to lower dividend income from Sartorius AG in 2024 compared to 2023.

Previous wording

Our effective tax rates were 25.0% and 22.9% for the years ended December 31, 2023 and 2022, respectively. The effective tax rates for the years ended December 31, 2023 and 2022 were primarily driven by the unrealized gain/loss in equity securities that was taxed at 22.3% and 22.5%, respectively, as well as the geographical mix of earnings.

Current wording

Our effective tax rates were 21.3% and 25.0% for the years ended December 31, 2024 and 2023, respectively. The effective tax rates for the years ended December 31, 2024 and 2023 were primarily driven by the unrealized gain/loss in equity securities that was taxed at 22.6% and 22.3%, respectively, as well as the geographical mix of earnings.

Previous wording

that our previously unrecognized tax benefits could decrease by approximately $17.2 million.

Current wording

that our previously unrecognized tax benefits could decrease by approximately $18.1 million.

Previous wording

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes an Alternative Minimum Tax based on the Adjusted Financial Statement Income of Applicable Corporations. Based on our initial evaluation, we do not believe the Inflation Reduction Act will have a material impact on our income tax provision and cash taxes. We continue to monitor the changes in tax laws and regulations to evaluate their potential impact on our business.

Current wording

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which included an Alternative Minimum Tax based on the Adjusted Financial Statement Income of Applicable Corporations. We do not believe the Inflation Reduction Act will have a material impact on our income tax provision and cash taxes, but we continue to monitor U.S. Department of the Treasury guidance and regulations.

Previous wording

Bio-Rad operates and conducts business globally, primarily through subsidiary companies established in the markets in which we trade. Goods are manufactured in a small number of locations, and are then shipped to local distribution facilities around the world. Our product mix is diversified, and certain products compete largely on product efficacy, while others compete on price. Gross margins are generally sufficient to exceed normal operating costs, and funding for research and development of new products, as well as routine outflows for capital expenditures, interest and taxes. In addition to the annual positive cash flow from operating activities, additional liquidity is readily available via the sale of short-term investments and access to our $200.0 million unsecured revolving credit facility (Credit Agreement, as amended) that we entered into in April 2019, and to a lesser extent international lines of credit. Borrowings under the Credit Agreement, as amended, are available on a revolving basis and can be used to make permitted acquisitions, for working capital and for other general corporate purposes. We had no outstanding borrowings under the 2019 Credit Agreement, as amended, as of December 31, 2023, however, $0.2 million was utilized for domestic standby letters of credit that reduced our borrowing availability. In March 2022, we issued $400 million aggregate principal amount of 3.3% Senior Notes due 2027, and $800 million aggregate principal amount of 3.7% Senior Notes due 2032. Net cash proceeds from the bond issuance after deducting the underwriting discount and estimated offering expenses was $1.186 billion. Interest on the Notes is payable semiannually in arrears on March 15 and September 15 of each year until the principal is paid or made available for payment. Management believes that this availability, together with cash flow from operations, will be adequate to meet our current objectives for operations, research and development, capital additions for manufacturing and distribution, plant and equipment, information technology systems and acquisitions of reasonable proportion to our existing total available capital.

Current wording

Bio-Rad operates and conducts business globally, primarily through subsidiary companies established in the markets in which we trade. Goods are manufactured in a small number of locations, and are then shipped to local distribution facilities around the world. Our product mix is diversified, and certain products compete largely on product efficacy, while others compete on price. Gross margins are generally sufficient to exceed normal operating costs, and funding for research and development of new products, as well as routine outflows for capital expenditures, interest and taxes. In addition to the annual positive cash flow from operating activities, additional liquidity is readily available via the sale of short-term investments and access to our $200.0 million unsecured Revolving Credit Agreement that we entered into in February 2024, and to a lesser extent international lines of credit. Borrowings under the Revolving Credit Agreement are available on a revolving basis and can be used to make acquisitions, for working capital and for other general corporate purposes. We had no outstanding borrowings under the Revolving Credit Agreement as of December 31, 2024, however, $5.7 million was utilized for domestic standby letters of credit that reduced our borrowing availability. As of December 31, 2024, our short-term investments include the net cash proceeds from the sale of Senior Notes of $1.186 billion. Interest is payable semiannually in arrears on March 15 and September 15 of each year. Management believes that this availability, together with cash flow from operations, will be adequate to meet our current objectives for operations, research and development, capital additions for manufacturing and distribution, plant and equipment, information technology systems and acquisitions of reasonable proportion to our existing total available capital for the next twelve months and beyond.

Previous wording

At December 31, 2023, we had available $1.6 billion in cash, cash equivalents and short-term investments, of which approximately 16% was held in our foreign subsidiaries. The amount of funds held in the United States can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as acquisitions and borrowings. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and foreign cash flows (both inflows and outflows).

Current wording

At December 31, 2024, we had available $1.7 billion in cash, cash equivalents and short-term investments, of which approximately 14% was held in our foreign subsidiaries. The amount of funds held in the United States can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as acquisitions and borrowings. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and foreign cash flows (both inflows and outflows).

Previous wording

It is generally our intention to repatriate certain foreign earnings to the extent that such repatriations are not restricted by local laws or accounting rules, and there are no substantial incremental costs.

Current wording

It is generally our intention to repatriate certain foreign earnings to the extent that such repatriations are not restricted by local laws, and there are no substantial incremental costs.

Previous wording

Net cash provided by operations was $374.9 million and $194.4 million for the years ended December 31, 2023 and 2022, respectively. The increase in operating cash flows was primarily due to lower cash paid to suppliers and employees, higher dividend proceeds, and lower income tax paid, partially offset by higher interest paid, lower cash received from customers, and lower proceeds from foreign exchange contracts.

Current wording

Net cash provided by operations was $455.2 million and $374.9 million for the years ended December 31, 2024 and 2023, respectively. The increase in operating cash flows was primarily due to lower cash paid to suppliers and employees, lower income tax paid, and higher proceeds from foreign exchange contracts, partially offset by lower cash received from customers and lower dividend proceeds from Sartorius AG.

Previous wording

Net cash provided by investing activities was $20.2 million compared to net cash used for investing activities of $1,207.6 million for the years ended December 31, 2023 and 2022, respectively, primarily due to the timing of our purchases, maturities and sales of marketable securities and investments as a result of the cash proceeds from the sale of Senior Notes issued in March 2022.

Current wording

Net cash used in investing activities was $160.2 million compared to net cash provided by investing activities of $20.2 million for the years ended December 31, 2024 and 2023, respectively, primarily due to the timing of our purchases, maturities and sales of marketable securities and investments.

Previous wording

Our financing activities have consisted primarily of cash from the issuance of senior notes.

Current wording

Our financing activities have consisted primarily of cash used for stock related activity, including the issuance of common stock and repurchases of treasury stock.

Previous wording

During the year ended December 31, 2022, 135,744 shares of Class A treasury stock with an aggregate total cost of $58.4 million were reissued to fulfill grants to employees under our restricted stock program and our Employee Stock Purchase Program. Upon reissuing the Class A treasury stock, Additional paid-in capital was reduced by $51.8 million from share reissuance activity during the year.

Current wording

During the year ended December 31, 2024, 183,567 shares of Class A treasury stock with an aggregate total cost of $64.0 million were reissued to fulfill grants to employees under our restricted stock program and our Employee Stock Purchase Program. Upon reissuing the Class A treasury stock, Additional paid-in capital was reduced by $48.2 million from share reissuance activity during the year.

Previous wording

During the year ended December 31, 2023, we repurchased 1,267,757 shares of Class A common stock for $428.7 million under our share repurchase programs, compared to the repurchase of 496,692 shares of our common stock for $215.7 million during the year ended December 31, 2022. As of December 31, 2023, $278.7 million of stock remained available for repurchases under the Company's 2023 Share Repurchase Program. We designated these repurchased shares as treasury stock.

Current wording

During the year ended December 31, 2024, we repurchased 690,857 shares of Class A common stock for $201.6 million under our share repurchase programs, compared to the repurchase of 1,267,757 shares of our common stock for $428.7 million during the year ended December 31, 2023. As of December 31, 2024, $577.1 million of stock remained available for repurchases under the Company's 2023 Share Repurchase Program. We designated these repurchased shares as treasury stock.