Bio-Rad Laboratories, Inc. — 2011 Form 10-K
Business context and reporting period. Annual report for the year ended December 31, 2011. Bio-Rad sells life science research and clinical diagnostics products worldwide. Clinical Diagnostics generated about 66% of sales and Life Science 33%; approximately 70% of sales were outside the United States. The financial statements received an unqualified audit opinion.
Financial results and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Net sales | $2,073.5 million | $1,927.1 million |
| Gross profit / gross margin | $1,177.9 million / 56.8% | $1,091.5 million / 56.6% |
| Income from operations | $295.2 million | $284.0 million |
| Net income attributable to Bio-Rad | $178.2 million | $185.5 million |
| Diluted earnings per share | $6.26 | $6.59 |
| Cash provided by operating activities | $259.8 million | $225.9 million |
| Capital expenditures | $102.9 million | $88.5 million |
| Cash and cash equivalents | $574.2 million | $906.6 million |
| Short-term investments | $238.9 million | $118.6 million |
| Long-term debt, net of current maturities | $731.7 million | $731.1 million |
SG&A rose to 33.6% of sales from 33.0%; R&D was $186.4 million, or 9.0% of sales. The effective tax rate increased to 24% from 15%. Cash used in investing activities was $383.4 million, including acquisitions and investment purchases; financing activities used $213.6 million, including redemption of $225 million of 7.5% notes. Year-end cash plus short-term investments totaled $813.1 million. The company also reported $220.5 million available under domestic and international credit lines, with $12.6 million reserved for standby letters of credit; no borrowings were outstanding under its $200 million revolving credit agreement.
Fourth-quarter 2011 sales were $550.2 million versus $533.7 million in fourth-quarter 2010. Net income attributable to Bio-Rad was $59.2 million versus $67.9 million; diluted EPS was $2.08 versus $2.41.
Material changes versus the prior period
- Annual sales grew 7.6% reported, but approximately 3.1% excluding foreign-currency effects. Life Science sales rose 7.2% reported (3.4% currency-neutral); Clinical Diagnostics rose 7.8% (2.9% currency-neutral).
- Net income declined about 3.9% despite higher sales and operating income. Higher SG&A, foreign-exchange losses, and a higher tax provision contributed; interest expense fell 16.6% after debt refinancing.
- Operating cash flow increased $33.9 million, while cash and cash equivalents fell $332.3 million, reflecting investing and financing outflows.
- QuantaLife was acquired in October for estimated consideration of $179.4 million, including $150.3 million cash, a $5.0 million holdback, and $24.1 million estimated contingent consideration (potentially up to $48 million). Acquisition accounting remained preliminary at year-end.
Outlook, risks, contingencies, and unusual items
- No numerical revenue or earnings guidance was provided. Management cited uncertain global conditions, public-sector spending constraints, and weaker European sales; it expected first-quarter 2012 operating cash flow to be lower than fourth-quarter 2011 because of customary royalty, commission, and bonus payments.
- The DOJ and SEC investigations into possible FCPA violations remained ongoing. Bio-Rad said the outcome and potential sanctions could not be estimated and could materially affect operations or financial condition.
- A previously reported material weakness in internal control over financial reporting was deemed remediated as of year-end, and management and the auditor concluded controls were effective. However, significant deficiencies remained in revenue processes, reagent-rental controls at certain subsidiaries, and controls at some smaller international subsidiaries.
- A shareholder derivative complaint related to FCPA oversight was dismissed without prejudice; the plaintiff was given an extended deadline to amend. Other ordinary-course claims were not considered likely to have a material overall effect, though a particular period could be affected.
- Net receivables in Spain, Italy, Greece, and Portugal were $81.3 million. Management identified collection, sovereign-spending, and foreign-exchange risks. The 2011 foreign-exchange loss was $13.8 million, including $4.6 million attributed to entering into larger forward contracts than required.
- Bio-Rad had $732.5 million of debt as reported in its risk disclosures; the debt table reports $732.3 million before current maturities. Debt included $300 million of 8.0% subordinated notes due 2016 and $425 million of 4.875% senior notes due 2020. The company reported compliance with debt covenants at year-end.
- Management expected capital expenditures to rise as it implements a global ERP system; estimated implementation cost could reach approximately $150 million over about four more years.
Important facts for investors to verify
- Progress and possible financial or operational consequences of the FCPA investigations, and any amended derivative lawsuit.
- Whether remaining internal-control deficiencies are remediated and whether they affect reporting reliability.
- European public-sector receivable collections, bad-debt provisions, and currency-neutral sales trends.
- QuantaLife integration, milestone payments, and final purchase accounting; also the January 2012 supplier-asset acquisition for approximately $15.5 million.
- Cash deployment, debt service and covenant headroom, and the cost and execution of the ERP program.
- The filing gives no explicit numerical 2012 earnings or revenue guidance.