Bio-Rad Laboratories, Inc 10-Q for FY2020 Q3
Bio-Rad Laboratories, Inc. (BIO)
10-Q
2020-10-30
For: 2020-09-30
View Original
Added on
April 11, 2026
About this 10-Q
Bio-Rad Laboratories, Inc filed this 10-Q on October 30, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $647.26M
- up 15.5% from $560.63M a year earlier
- Net income
- $1.31B
- compared with a net loss of $258.82M a year earlier
- Diluted EPS
- $43.64
- compared with -$8.68 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | |||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| For the quarterly period ended | |||||
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 | |||||
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| 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. | ☒ | No | ☐ | |||||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files).
| ☒ | No | ☐ | ||||||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | No | ☒ | ||||||||||||
.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Common Shares Outstanding at October 22, 2020: | Class A - | Class B - | ||||||||||||
BIO-RAD LABORATORIES, INC.
FORM 10-Q SEPTEMBER 30, 2020
TABLE OF CONTENTS
2
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Other than statements of historical fact, statements made in this 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. These forward-looking statements may also include statements regarding the impact of the COVID-19 pandemic on Bio-Rad’s results and operations and steps governments, universities, hospitals and private industry, including diagnostic laboratories, are taking or may take as a result of the pandemic. Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “believe,” “expect,” “anticipate,” “may,” “will,” “intend,” “estimate,” “continue,” or similar expressions or the negative of those terms or expressions. Such statements involve risks and uncertainties, which could cause actual results to vary materially from those expressed in or indicated by the forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. However, actual results may differ materially from those currently anticipated depending on a variety of risk factors including, but not limited to, those identified under “Part II, Item 1A, Risk Factors” of this Quarterly Report on Form 10-Q. We caution you not to place undue reliance on forward-looking statements, which reflect an analysis only and speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
3
PART I – FINANCIAL INFORMATION
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
| September 30, 2020 | December 31, 2019 | ||||||||||
| ASSETS: | (Unaudited) | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Restricted investments | |||||||||||
Accounts receivable, less allowance for doubtful accounts of $ | |||||||||||
| Inventories: | |||||||||||
| Raw materials | |||||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total inventories | |||||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment | |||||||||||
| Less: accumulated depreciation and amortization | ( | ( | |||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill, net | |||||||||||
| Purchased intangibles, net | |||||||||||
| Other investments | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Balance Sheets
(continued)
(In thousands, except share data)
| September 30, 2020 | December 31, 2019 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | (Unaudited) | ||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued payroll and employee benefits | |||||||||||
| Current maturities of long-term debt and notes payable | |||||||||||
| Income and other taxes payable | |||||||||||
| Current operating lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of current maturities | |||||||||||
| Deferred income taxes | |||||||||||
| Operating lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Class A common stock, shares issued | |||||||||||
Class B common stock, shares issued and outstanding, | |||||||||||
| Additional paid-in capital | |||||||||||
Class A treasury stock at cost, | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expense | |||||||||||||||||||||||
| Research and development expense | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Foreign currency exchange losses, net | |||||||||||||||||||||||
| Change in fair market value of equity securities | ( | ( | ( | ||||||||||||||||||||
| Other income, net | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) before income taxes | ( | ||||||||||||||||||||||
| (Provision for) benefit from income taxes | ( | ( | ( | ||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
| Basic earnings (loss) per share: | |||||||||||||||||||||||
| Net income (loss) per basic share | $ | $ | ( | $ | $ | ||||||||||||||||||
| Weighted average common shares - basic | |||||||||||||||||||||||
| Diluted earnings (loss) per share: | |||||||||||||||||||||||
| Net income (loss) per diluted share | $ | $ | ( | $ | $ | ||||||||||||||||||
| Weighted average common shares - diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments, net of income taxes | ( | ( | |||||||||||||||||||||
| Foreign other post-employment benefits adjustments, net of income taxes | |||||||||||||||||||||||
| Net unrealized holding (loss) gain on available-for-sale (AFS) debt investments, net of income taxes | ( | ||||||||||||||||||||||
| Other comprehensive income (loss), net of income taxes | ( | ( | |||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Cash received from customers | $ | $ | |||||||||
| Cash paid to suppliers and employees | ( | ( | |||||||||
| Interest paid, net | ( | ( | |||||||||
| Income tax payments, net | ( | ( | |||||||||
| Investment proceeds and miscellaneous receipts, net | |||||||||||
| Proceeds from 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 | |||||||||||
| Proceeds from divestiture of a division | |||||||||||
| Payments for acquisitions, net of cash received | ( | ( | |||||||||
| (Payments for) recovery of 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: | |||||||||||
| Payments on long-term borrowings | ( | ( | |||||||||
| Payments for credit agreement renewal fees | ( | ||||||||||
| Payments of contingent consideration | ( | ( | |||||||||
| Proceeds from issuances of common stock for share-based compensation | |||||||||||
| Tax payments from net share settlement | ( | ( | |||||||||
| Proceeds from reissuances of treasury stock for share-based compensation, net | |||||||||||
| Payments for purchases of treasury stock | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of foreign exchange rate changes on cash | ( | ||||||||||
| Net increase in cash, cash equivalents, and restricted cash | |||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that agrees to the same amounts shown in the condensed consolidated statements of cash flows (in thousands):
| September 30, 2020 | September 30, 2019 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in Other current assets | |||||||||||
| Restricted cash included in Other assets | |||||||||||
| Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows | $ | $ | |||||||||
These restricted cash items are primarily related to performance guarantees and other restricted deposits.
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Reissuance of treasury stock | — | ( | ( | — | |||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Reissuance of treasury stock | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||
9
BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(continued)
(In thousands)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Reissuance of treasury stock | — | — | ( | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2019 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance at June 30, 2019 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Reissuance of treasury stock | — | ( | ( | — | |||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
BIO-RAD LABORATORIES, INC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.BASIS OF PRESENTATION AND USE OF ESTIMATES
Basis of Presentation
In this report, “Bio-Rad,” “we,” “us,” “the Company” and “our” refer to Bio-Rad Laboratories, Inc. and its subsidiaries. The accompanying unaudited condensed consolidated financial statements of Bio-Rad have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and reflect all adjustments which are, in the opinion of management, necessary to fairly state the results of the interim periods presented. All such adjustments are of a normal recurring nature. Results for the interim period are not necessarily indicative of the results for the entire year. The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
We evaluate subsequent events and the evidence they provide about conditions existing at the date of the balance sheet as well as conditions that arose after the balance sheet date but through the date the financial statements are issued. The effects of conditions that existed at the balance sheet date are recognized in the financial statements. Events and conditions arising after the balance sheet date but before the financial statements are issued are evaluated to determine if disclosure is required to keep the financial statements from being misleading. To the extent such events and conditions exist, disclosures are made regarding the nature of events and the estimated financial effects of those events and conditions.
Use of Estimates
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods. Bio-Rad bases its estimates on historical experience and on various other market-specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.
Revenue Recognition
We recognize revenue from operations through the sale of products, services, and rental of instruments. Revenue from contracts with customers is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally accounted for as distinct performance obligations. Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities.
11
Our contracts from customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment, and may or may not impact the timing of revenue recognition. Revenue associated with equipment that requires factory installation is not recognized until installation is complete and customer acceptance, if required, has occurred. Certain equipment requires installation due to the fact that the instruments are being operated in a clinical/laboratory environment, and the installation services could result in modification of the equipment in order to ensure that the instruments are working according to customer specifications, which are subject to validation tests upon completion of the installation. In these arrangements, which require factory installation, the delivery of the equipment and the installation are separate performance obligations. We will recognize the transaction price allocated to the equipment only upon customer acceptance, as the transfer of control in relation to the equipment has occurred at that point as the customer has the ability to direct the use of and obtain substantially all of the remaining benefits from the asset. The transaction price allocated to the installation services is also recognized upon customer acceptance because without the completion of the installation services and related customer acceptance the customer cannot receive any of the benefits of the service.
At the time revenue is recognized, a provision is recorded for estimated product returns as this right is considered variable consideration. Accordingly, when product revenues are recognized, the transaction price is reduced by the estimated amount of product returns.
Service revenues on extended warranty contracts are recognized ratably over the life of the service agreement as a stand-ready performance obligation. For arrangements that include a combination of products and services, the transaction price is allocated to each performance obligation based on stand-alone selling prices. The method used to determine the stand-alone selling prices for product and service revenues is based on the observable prices when the product or services have been sold separately.
The primary purpose of our invoicing terms is to provide customers with simple and predictable methods of purchasing our products and services, not to either provide or receive financing to or from our customers. We record contract liabilities when cash payments are received or due in advance of our performance.
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Our payment terms vary by the type and location of our customer, and the products and services offered. The term between invoicing and when payment is due is not significant.
Reagent Rental Agreements
Reagent rental agreements are a diagnostic industry sales method that provides use of an instrument and consumables (reagents) to a customer on a per test basis. These agreements may also include maintenance of the instruments placed at customer locations as well as initial training. We initially determine if a reagent rental arrangement contains a lease at contract commencement. Where we have determined that such an arrangement contains a lease, we next must ascertain its lease classification for purposes of applying appropriate accounting treatment as an operating, sales-type or direct financing lease. For purposes of determining the lease term used in performing the lease classification test, we include the noncancellable period of the lease together with those periods covered by the option to extend the lease if the customer is reasonably certain to exercise that option, the periods covered by an option to terminate the lease if the customer is reasonably certain not to exercise that option, and the periods covered by the option to extend (or not to terminate) the lease in which exercise of the option is controlled by the Company. While most of our reagent rental arrangements contain either the option for a lessee to extend and/or cancel, the period in which the contract is enforceable is a very short period and therefore the lease term has been limited to the noncancellable period. Generally these arrangements do not contain an option for the lessee to purchase the underlying asset.
12
We concluded that the use of the instrument (referred to as “lease elements”) is not within the guidance of ASC 606 but rather ASC 842. Accordingly, we first allocate the transaction price between the lease elements and the non-lease elements based on relative standalone selling prices. The determination of the transaction price requires judgment and consideration of any fixed/minimum payments as well as estimates of variable consideration. After allocation, the amount of variable payments allocated to lease components will be recognized as income under ASC 842, while the amount of variable payments allocated to non-lease components will be recognized as income in accordance with ASC 606.
Upon our adoption of ASC 842 in 2019, the maintenance services, along with the reagents, are now allocated to the non-lease elements and will be recognized as income in accordance with ASC 606. This change is in accordance with the requirements of ASC 842, and has resulted in a decrease in the amount of rental income and a corresponding increase in the amount of maintenance service revenue that is included in Net sales in our condensed consolidated statements of income. Generally, the terms of the arrangements result in the transfer of control for reagents upon either (i) when the consumables are delivered or (ii) when the consumables are consumed by the customer.
Our reagent rental arrangements are predominantly comprised of variable lease payments that fluctuate depending on the volume of reagents purchased, as very few of such arrangements contain any fixed/minimum lease payments. Further, our reagent rental arrangements are predominantly classified as operating leases, and any sales-type leases represent in aggregate an immaterial amount of lease income. Our reported lease income is primarily variable in nature and is recognized upon delivery or as the reagents are consumed by the customer.
Revenue allocated to the lease elements of these reagent rental arrangements represents approximately 3
Contract costs:
As a practical expedient, we expense as incurred costs to obtain contracts as the amortization period would have been one year or less. These costs include our internal sales force and certain partner sales incentive programs and are recorded within Selling, general and administrative expense in our condensed consolidated statements of income.
Disaggregation of Revenue:
The following table presents our revenues disaggregated by geographic region based primarily on the location of the use of the product or service (in millions):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Europe | $ | $ | $ | $ | ||||||||||||||||||||||
| Asia | ||||||||||||||||||||||||||
| United States | ||||||||||||||||||||||||||
| Other (primarily Canada and Latin America) | ||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||||||||||||
The disaggregation of our revenue by industry segment sources is presented in our Segment Information footnote (see Note 11).
13
We warrant certain equipment against defects in design, materials and workmanship, generally for a period of one year. We estimate the cost of warranties at the time the related revenue is recognized based on historical experience, specific warranty terms and customer feedback. These costs are recorded within Cost of goods sold in our condensed consolidated statements of income.
Warranty liabilities are included in Other current liabilities and Other long-term liabilities in the condensed consolidated balance sheets. Change in our warranty liability for the nine month period ended September 30, 2020 and 2019 were as follows (in millions):
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2020 | 2019 | |||||||
| Balance at beginning of period | $ | $ | ||||||
| Provision for warranty | ||||||||
| Actual warranty costs | ( | ( | ||||||
| Balance at end of period | $ | $ | ||||||
Allowance for Doubtful Accounts
We record trade accounts receivable at the net invoice value and such receivables are non-interest bearing. We consider receivables past due based on the contractual payment terms. We review our exposure to accounts receivable and reserve for amounts if collectability is no longer reasonably assured based on an assessment of various factors including historical loss rates and expectations of forward-looking loss estimates.
Any adjustments made to our historical loss experience reflect current differences in asset-specific risk characteristics, including, for example, accounts receivable by customer type (public or government entity versus private entity) and by geographic location of customer.
Changes in our allowance for doubtful accounts were as follows (in millions):
| December 31, 2019 | $ | ||||
| Provision for expected credit losses | |||||
| Write-offs charged against the allowance | ( | ||||
| Recoveries collected | |||||
| September 30, 2020 | $ | ||||
14
Implementation Costs for Cloud Computing Arrangements
The balance of capitalized implementation costs for cloud computing arrangements, net of accumulated amortization, was $7.0 million and $3.1 million at September 30, 2020 and December 31, 2019, respectively. These costs were primarily for implementing business analytics software and were recorded in Other current assets and Other assets in the condensed consolidated balance sheets.
Recent Accounting Pronouncements Adopted
In May 2020, the SEC issued Final Rule Release No. 33-10786, "Amendments to Financial Disclosures About Acquired and Disposed Businesses" that amends financial statement requirements for acquisitions and dispositions of businesses, and related pro forma financial information. Among other changes, the final rule modifies the significance tests and improves disclosure requirements. We early adopted this final rule as of April 1, 2020, which did not have a material effect on our condensed consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)" The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022. We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. The ASU is currently not expected to have a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements," which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. We adopted this standard effective January 1, 2020, which did not have a material impact on our condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." ASU 2016-13 replaces the incurred loss approach with an expected loss model for instruments measured at amortized cost and requires entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount as done under the former other-than-temporary impairment model. We adopted ASU 2016-13 as of January 1, 2020 using the cumulative effect transition method. We have evaluated our impacted instruments for credit quality indicators, and have determined that there is no cumulative effect transition adjustment to retained earnings as of our adoption date. ASU 2016-13 had an insignificant impact to our condensed consolidated financial statements for the nine months ended September 30, 2020. See also Note 3, Fair Value Measurements, and the section above under the caption “Allowance for Doubtful Accounts.”
Recent Accounting Pronouncements to be Adopted
In January 2020, the FASB issued ASU 2020-01, "Clarifying the Interactions between Topic 321 Investments—Equity Securities, Topic 323 Investments—Equity Method and Joint Ventures, and Topic 815 Derivatives and Hedging." ASU 2020-01 clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323 for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. ASU 2020-01 also clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted, including interim periods for which financial statements have not been issued. We are currently evaluating the effect of ASU 2020-01.
15
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes," which eliminates certain exceptions within ASC 740, Income Taxes, and clarifies other aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We are currently evaluating the effect of adopting this pronouncement on our financial statements and disclosures.
In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 eliminates and adds certain disclosures for defined benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020 using a retrospective approach. Early adoption is permitted. We are currently evaluating the disclosures but do not expect ASU 2018-14 to have a material impact to our disclosures for defined benefit plans.
2.ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
Celsee Acquisition:
On April 1, 2020 (the "Acquisition Date"), we acquired all equity interests of Celsee, Inc. ("Celsee") for total consideration of $99.3 million (as described in the table below), including the estimated fair value of contingent consideration. The contingent consideration of up to $60.0 million is payable in cash, upon the achievement of certain net revenues for the period beginning on January 1, 2021 and ending on December 31, 2022.
Celsee is a manufacturer of instruments and consumables for the isolation, detection, and analysis of single cells. We believe this acquisition will complement our Life Science product offerings. The acquisition was included in our Life Science segment's results of operations from the Acquisition Date.
Celsee met the definition of a business, and therefore is accounted for as a business combination.
The fair value of consideration transferred for the Celsee acquisition consists of the following (in millions):
| Purchase price (cash) | $ | |||||||||||||
| Fair value of contingent consideration (earn-out) | ||||||||||||||
| Fair value of total consideration transferred | $ | |||||||||||||
The following table summarizes the final fair values of the assets acquired and liabilities assumed at the Acquisition Date (in millions):
| Fair Value | ||||||||||||||
| Cash and cash equivalents | $ | |||||||||||||
| Intangible assets | ||||||||||||||
| Deferred tax assets | ||||||||||||||
| Deferred tax liabilities | ( | |||||||||||||
| Other identifiable assets acquired, net | ||||||||||||||
| Net identifiable assets acquired | ||||||||||||||
| Goodwill | ||||||||||||||
| Net assets acquired | $ | |||||||||||||
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Goodwill related to the acquisition is primarily attributable to opportunities and economies of scale from combining the operations and technologies of Bio-Rad and Celsee, and is not deductible for tax purposes.
The following table summarizes the final fair values and estimated useful lives of the components of identifiable intangible assets acquired as of the Acquisition Date (in millions):
| Fair Value | Estimated Useful Life (years) | |||||||||||||
| Developed product technology | $ | |||||||||||||
| Customer relationships | ||||||||||||||
| Covenants not to compete | ||||||||||||||
| In-process research and development | ||||||||||||||
| Total identifiable intangible assets acquired | $ | |||||||||||||
Intangible assets acquired as a result of the Celsee acquisition are being amortized over their estimated useful lives using the straight-line method of amortization, which materially approximates the distribution of the economic value of the identified intangible assets. Amortization of acquired developed technology of $0.9 million and $1.8 million for the three and nine months ended September 30, 2020, respectively, are included in Cost of goods sold in the condensed consolidated statements of income. Amortization of the acquired customer relationships of $0.2 million and $0.4 million and covenants not to compete of $0.1 million and $0.2 million for the three and nine months ended September 30, 2020, respectively, are included in Selling, general and administrative expense in the condensed consolidated statements of income.
In-process research and development (IPR&D) is accounted for as an indefinite-lived asset. Once the project is completed, the carrying value of the IPR&D will be amortized over the estimated useful life of the asset. IPR&D is assessed for impairment on an annual basis until the project is completed.
We believe the values of acquired intangible assets reported above represent their fair values and approximate the amounts a market participant would pay for these intangible assets as of the Acquisition Date.
The final allocation of the payments reflects the effects of working capital and deferred tax adjustments made during the measurement period. These adjustments resulted in a $0.3 million decrease in deferred tax assets, a $0.4 million increase in goodwill and a0.3 million increase in deferred tax liabilities compared to the preliminary balances reported at June 30, 2020 and had no impact on our condensed consolidated statements of income, for the three and nine months ended September 30, 2020.
We included Celsee's fair value of assets acquired and liabilities assumed in our condensed consolidated balance sheets beginning on the Acquisition Date. The results of operations for Celsee subsequent to the Acquisition Date have been included in, but are immaterial to, our condensed consolidated statements of income for the three and nine months ended September 30, 2020. Pro forma results of operations for the Celsee acquisition have not been presented because they are not material to the condensed consolidated statements of income.
Distributor Acquisition:
In October 2019, we acquired all the issued and outstanding shares of a foreign distributor for approximately $4.2 million, which included cash payments at closing, net of closing cash, of $3.6 million, and $0.6 million in contingent consideration potentially payable to the sellers. In addition, we recorded a net gain of $0.4 million for the settlement of preexisting conditions concurrent with the acquisition that was recorded in Selling, general and administrative expense. The acquisition was included in our Clinical Diagnostics segment's results of operations from the acquisition date and was accounted for as a business combination. The amount of acquisition-related costs was minimal as Bio-Rad primarily represented itself during the acquisition process. Pro forma financial statements are not provided as the acquisition is immaterial to Bio-Rad taken as a whole for the periods presented.
17
The final allocation of the payments was $3.4 million to customer relationships, a definite-lived intangible, $0.2 million to deferred tax asset, $0.8 million to deferred tax liability related to the purchased intangible and $1.4 million to acquired net assets. The final allocation of payments was unchanged from our preliminary allocation for the period ended December 31, 2019.
DIVESTITURE
Informatics Divestiture:
In April 2020, we received $12.2 million for the sale of our Informatics division, which focused on providing and developing comprehensive, high-quality spectral databases and associated software. The division was part of our Other Operations segment. In connection with this sale, we recorded an $11.7 million gain in Other income, net, in the condensed consolidated statements of income for the nine months ended September 30, 2020.
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)
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Financial assets and liabilities carried at fair value and measured on a recurring basis as of September 30, 2020 are classified in the hierarchy as follows (in millions):
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial assets carried at fair value: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Commercial paper | $ | $ | $ | $ | |||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| U.S. government sponsored agencies | |||||||||||||||||||||||
| Time deposits | |||||||||||||||||||||||
| Money market funds | |||||||||||||||||||||||
| Total cash equivalents (a) | |||||||||||||||||||||||
| Restricted investments (b) | |||||||||||||||||||||||
| Equity securities (c) | |||||||||||||||||||||||
| Available-for-sale investments: | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| U.S. government sponsored agencies | |||||||||||||||||||||||
| Foreign government obligations | |||||||||||||||||||||||
| Other foreign obligations | |||||||||||||||||||||||
| Municipal obligations | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Total available-for-sale investments (d) | |||||||||||||||||||||||
| Forward foreign exchange contracts (e) | |||||||||||||||||||||||
| Total financial assets carried at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Financial liabilities carried at fair value: | |||||||||||||||||||||||
| Forward foreign exchange contracts (f) | $ | $ | $ | $ | |||||||||||||||||||
| Contingent consideration (g) | |||||||||||||||||||||||
| Total financial liabilities carried at fair value | $ | $ | $ | $ | |||||||||||||||||||
19
Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2019 are classified in the hierarchy as follows (in millions):
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial assets carried at fair value: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Commercial paper | $ | $ | $ | $ | |||||||||||||||||||
| Time deposits | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Money market funds | |||||||||||||||||||||||
| Total cash equivalents (a) | |||||||||||||||||||||||
| Restricted investments (b) | |||||||||||||||||||||||
| Equity securities (c) | |||||||||||||||||||||||
| Available-for-sale investments: | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| U.S. government sponsored agencies | |||||||||||||||||||||||
| Foreign government obligations | |||||||||||||||||||||||
| Other foreign obligations | |||||||||||||||||||||||
| Municipal obligations | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Total available-for-sale investments (d) | |||||||||||||||||||||||
| Forward foreign exchange contracts (e) | |||||||||||||||||||||||
| Total financial assets carried at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Financial liabilities carried at fair value: | |||||||||||||||||||||||
| Forward foreign exchange contracts (f) | $ | $ | $ | $ | |||||||||||||||||||
| Contingent consideration (g) | |||||||||||||||||||||||
| Total financial liabilities carried at fair value | $ | $ | $ | $ | |||||||||||||||||||
(a)Cash equivalents are included in Cash and cash equivalents in the condensed consolidated balance sheets.
(b) Restricted investments are included in the following accounts in the condensed consolidated balance sheets (in millions):
| September 30, 2020 | December 31, 2019 | ||||||||||
| Restricted investments | $ | $ | |||||||||
| Other investments | |||||||||||
| Total | $ | $ | |||||||||
(c) Equity securities are included in the following accounts in the condensed consolidated balance sheets (in millions):
| September 30, 2020 | December 31, 2019 | ||||||||||
| Short-term investments | $ | $ | |||||||||
| Other investments | |||||||||||
| Total | $ | $ | |||||||||
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The unrealized gains on our equity securities for the three and nine months ended September 30, 2020 were $1,580.3 million and $3,591.5 million, respectively, and were primarily due to our investment in Sartorius AG and are recorded in our condensed consolidated statements of income.
As of September 30, 2020, we own 12,987,900 ordinary voting shares and 9,588,908 preference shares of Sartorius AG (Sartorius), of Goettingen, Germany, a process technology supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries. We own approximately 37 % of the ordinary outstanding voting shares (excluding treasury shares) and 28 % of the preference shares of Sartorius as of September 30, 2020. 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.
(d) Available-for-sale investments are included in the following accounts in the condensed consolidated balance sheets (in millions):
| September 30, 2020 | December 31, 2019 | ||||||||||
| Short-term investments | $ | $ | |||||||||
| Other investments | |||||||||||
| Total | $ | $ | |||||||||
(e) Forward foreign exchange contracts in an asset position are included in Other current assets in the condensed consolidated balance sheets.
(f) Forward foreign exchange contracts in a liability position are included in Other current liabilities in the condensed consolidated balance sheets.
(g) Contingent consideration liability is included in the following accounts in the condensed consolidated balance sheets (in millions):
| September 30, 2020 | December 31, 2019 | ||||||||||
| Other current liabilities | $ | $ | |||||||||
| Other long-term liabilities | |||||||||||
| Total | $ | $ | |||||||||
During the first quarter of 2016, we recognized a contingent consideration liability upon our acquisition of a high performance analytical flow cytometer platform from Propel Labs. At the acquisition date, the amount of contingent consideration was determined based on a probability-weighted income approach related to the achievement of sales milestones, ranging from 39 % to 20 % for the calendar years 2017 through 2020. The sales milestones could potentially range from $0 to an unlimited amount. In the first and third quarters of 2020, we paid $1.3 million and $0.4 million per the purchase agreement. The contingent consideration was accrued at its estimated fair value of $1.6 million as of September 30, 2020.
During the fourth quarter of 2019, we recognized a contingent consideration liability for earn-out targets related to our acquisition of a foreign distributor. The first earn-out payment of $0.7 million was paid by the acquisition date and the remaining payment is due in the second half of 2020. The maximum earn-out payment due is $1.4 million. The contingent consideration was accrued at its estimated fair value of $0.6 million as of September 30, 2020.
21
During the second quarter of 2020, we recognized a contingent consideration liability upon our acquisition of Celsee, Inc. which represents the future potential earn-out payments of up to $60.0 million payable in cash upon the achievement of certain net revenues for the period beginning on January 1, 2021 and ending on December 31, 2022. The fair value of the earn-out as of the Acquisition Date was approximately $0.1 million which was determined by using a Black-Scholes-Merton option-pricing valuation model that includes significant assumptions and unobservable inputs such as the projected revenues of Celsee over the earn-out period and the probability of the earn-out threshold being met. The fair value of the contingent consideration is remeasured at each reporting period based on the assumptions and inputs on the date of remeasurement. The fair value of the earn-out was approximately $0.1 million as of September 30, 2020.
The following table provides a reconciliation of the Level 3 contingent consideration liabilities measured at estimated fair value (in millions):
| December 31, 2019 | $ | ||||
| Analytical flow cytometer platform: | |||||
| Payment of sales milestone | ( | ||||
| Decrease in estimated fair value of contingent consideration included in Selling, general and administrative expense | ( | ||||
| Foreign distributor: | |||||
| Change in estimated fair value of contingent consideration included in Selling, general and administrative expense | |||||
| Celsee, Inc.: | |||||
| Fair value of contingent consideration | |||||
| September 30, 2020 | $ | ||||
To estimate the fair value of Level 2 debt securities as of September 30, 2020, our primary pricing provider uses Reuters as the primary pricing source. Our pricing process allows us to select a hierarchy of pricing sources for securities held. If Reuters does not price a Level 2 security that we hold, then the pricing provider will utilize our custodian supplied pricing as the secondary pricing source.
22
Available-for-sale investments consist of the following (in millions):
| September 30, 2020 | ||||||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Allowances for Credit Losses | Fair Value | ||||||||||||||||||||||
| Short-term investments: | ||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Municipal obligations | ||||||||||||||||||||||||||
| Asset-backed securities | ( | |||||||||||||||||||||||||
| U.S. government sponsored agencies | ||||||||||||||||||||||||||
| Foreign government obligations | ||||||||||||||||||||||||||
| Other foreign obligations | ||||||||||||||||||||||||||
| ( | ||||||||||||||||||||||||||
| Long-term investments: | ||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||
The following is a summary of the amortized cost and estimated fair value of our debt securities at September 30, 2020 by contractual maturity date (in millions):
| Amortized Cost | Estimated Fair Value | ||||||||||
| Mature in less than one year | $ | $ | |||||||||
| Mature in one to five years | |||||||||||
| Mature in more than five years | |||||||||||
| Total | $ | $ | |||||||||
Available-for-sale investments consist of the following (in millions):
| December 31, 2019 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Municipal obligations | |||||||||||||||||||||||
| Asset-backed securities | ( | ||||||||||||||||||||||
| U.S. government sponsored agencies | ( | ||||||||||||||||||||||
| Foreign government obligations | |||||||||||||||||||||||
| Other foreign obligations | |||||||||||||||||||||||
| ( | |||||||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
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The following is a summary of investments with gross unrealized losses and the associated fair value (in millions):
| September 30, 2020 | ||||||||||||||||||||||||||
| Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||||||
| Description of securities: | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||||||||
| Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||||||
| Description of securities: | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||
| U.S government sponsored agencies | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
The unrealized losses of $0.1 million as of September 30, 2020 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.
As outlined in Note 1, we adopted ASU 2016-13 as of January 1, 2020. ASU 2016-13 replaced the incurred loss approach with an expected loss model for instruments measured at amortized cost and requires entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount as done under the former other-than-temporary impairment model.
The factors we considered in our evaluation included the extent to which the fair value is less than the amortized cost basis, adverse conditions specifically related to the debt security, an industry or geographic area, and any changes in the rating of a security by a rating agency. Credit loss impairments are limited to the amount that the fair value of an instrument is less than its amortized cost basis.
At September 30, 2020, we have concluded that all payments related to our available-for-sale investments are expected to be made in full and on time at par value. The diminution of value in the intervening period is due to market conditions such as illiquidity and interest rate movements and not due to significant, inherent credit concerns surrounding the issuer. As a result, we have no allowances for credit losses on our available-for-sale investments portfolio as of September 30, 2020.
Included in Other current assets are $1.5 million and $2.0 million of interest receivable as of September 30, 2020 and December 31, 2019, respectively, primarily associated with securities in our available-for-sale investments portfolio. Associated interest on these securities is typically payable semi-annually. Due to the short-term nature of our interest receivable asset, we have made an accounting policy election not to measure an allowance for credit losses for accrued interest receivable. We consider any uncollected interest receivable that is overdue greater than one year to be impaired for purposes of write-off. For the three and nine months ended September 30, 2020, we have not written-off any uncollected interest receivable.
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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 September 30, 2020 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 currency exchange losses, net in the condensed consolidated statements of income.
The following is a summary of our forward foreign exchange contracts (in millions):
| September 30, | |||||
| 2020 | |||||
| Contracts maturing in October through December 2020 to sell foreign currency: | |||||
| Notional value | $ | ||||
| Unrealized gain | $ | ||||
| Contracts maturing in October through December 2020 to purchase foreign currency: | |||||
| Notional value | $ | ||||
| Unrealized loss | $ | ( | |||
The estimated fair value of our current maturities of long-term debt, excluding leases, as of September 30, 2020 and December 31, 2019 that is not recognized at fair value in the condensed consolidated balance sheets has an estimated fair value based on quoted market prices for the same or similar issues.
The estimated fair value of our long-term debt and the level of the fair value hierarchy within which the fair value measurement is categorized are as follows (in millions):
| September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Fair Value Hierarchy Level | Carrying Amount | Estimated Fair Value | Fair Value Hierarchy Level | ||||||||||||||||||||||||||||||
| Current maturities of long-term debt, excluding leases | $ | $ | 2 | $ | $ | 2 | |||||||||||||||||||||||||||||
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4.GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Changes to goodwill by segment were as follows (in millions):
| Life Science | Clinical Diagnostics | Total | |||||||||||||||
| Balances as of December 31, 2019: | |||||||||||||||||
| Goodwill | $ | $ | $ | ||||||||||||||
| Accumulated impairment losses | ( | ( | ( | ||||||||||||||
| Goodwill, net | |||||||||||||||||
| Acquisitions (*) | |||||||||||||||||
| Other adjustments (**) | ( | ( | |||||||||||||||
| Balances as of September 30, 2020: | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Accumulated impairment losses | ( | ( | ( | ||||||||||||||
| Goodwill, net | $ | $ | $ | ||||||||||||||
* Acquisitions consist of $29.8 million recorded for Celsee, Inc. (see Note 2, "Acquisitions and Divestitures").
** Goodwill decreased by $2.0 million due to the release from an escrow account setup during our acquisition of a small U.S. private company, which should have been classified as a prepaid asset in its opening balance sheet as of the March 2, 2019 acquisition date.
Information regarding our identifiable purchased intangible assets with definite and indefinite lives is as follows (in millions):
| September 30, 2020 | |||||||||||||||||||||||
| Weighted-Average Remaining Amortization Period (years) | Purchase Price | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||
| Customer relationships/lists | $ | $ | ( | $ | |||||||||||||||||||
| Know how | ( | ||||||||||||||||||||||
| Developed product technology | ( | ||||||||||||||||||||||
| Licenses | ( | ||||||||||||||||||||||
| Tradenames | ( | ||||||||||||||||||||||
| Covenants not to compete | ( | ||||||||||||||||||||||
| Other | — | ( | |||||||||||||||||||||
| Total definite-lived intangible assets | ( | ||||||||||||||||||||||
| In-process research and development | — | ||||||||||||||||||||||
| Total purchased intangible assets | $ | $ | ( | $ | |||||||||||||||||||
26
| December 31, 2019 | |||||||||||||||||||||||
| Weighted-Average Remaining Amortization Period (years) | Purchase Price | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||
| Customer relationships/lists | $ | $ | ( | $ | |||||||||||||||||||
| Know how | ( | ||||||||||||||||||||||
| Developed product technology | ( | ||||||||||||||||||||||
| Licenses | ( | ||||||||||||||||||||||
| Tradenames | ( | ||||||||||||||||||||||
| Covenants not to compete | ( | ||||||||||||||||||||||
| Other | — | ( | |||||||||||||||||||||
| Total definite-lived intangible assets | ( | ||||||||||||||||||||||
| In-process research and development | — | ||||||||||||||||||||||
| Total purchased intangible assets | $ | $ | ( | $ | |||||||||||||||||||
Amortization expense related to purchased intangible assets is as follows (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | |||||||||||||||||||
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5. SUPPLEMENTAL CASH FLOW INFORMATION
The reconciliation of net income to net cash provided by operating activities is as follows (in millions):
| Nine Months Ended | |||||||||||
| September 30, 2020 | September 30, 2019 | ||||||||||
| Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Reduction in the carrying amount of right-of-use assets | |||||||||||
| Share-based compensation | |||||||||||
| Gains on dispositions of securities | ( | ( | |||||||||
| Other-than-temporary impairment losses on investment | |||||||||||
| Changes in fair market value of equity securities | ( | ( | |||||||||
| Losses on dispositions of fixed assets | |||||||||||
| Gain on divestiture of a division | ( | ||||||||||
| Changes in fair value of contingent consideration | ( | ( | |||||||||
| Payments for operating lease liabilities | ( | ( | |||||||||
| (Increase) decrease in accounts receivable | ( | ||||||||||
| Increase in inventories | ( | ( | |||||||||
| (Increase) decrease in other current assets | ( | ||||||||||
| Increase (decrease) in accounts payable and other current liabilities | ( | ||||||||||
| Increase (decrease) in income taxes payable | ( | ||||||||||
| Increase in deferred income taxes | |||||||||||
| Increase in other long term liabilities | |||||||||||
| Other | ( | ( | |||||||||
| Net cash provided by operating activities | $ | $ | |||||||||
| 1 | |||||||||||
| Non-cash investing activities: | |||||||||||
| Purchased property, plant and equipment | $ | $ | |||||||||
| Purchased marketable securities and investments | $ | $ | |||||||||
1
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6. LONG-TERM DEBT
The principal components of long-term debt are as follows (in millions):
| September 30, 2020 | December 31, 2019 | ||||||||||
| 4.875% Senior Notes due 2020 principal amount | $ | $ | |||||||||
| Less unamortized discount and debt issuance costs | ( | ( | |||||||||
| 4.875% Senior Notes less unamortized discount and debt issuance costs | |||||||||||
| Finance leases and other debt | |||||||||||
| Less current maturities | ( | ( | |||||||||
| Long-term debt | $ | $ | |||||||||
Senior Notes due 2020
In December 2010, Bio-Rad sold $425.0 million principal amount of Senior Notes due December 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 at each year end to the 4.875 % Notes including limitations on the following: liens, sale and leaseback transactions, mergers, consolidations or sales of assets and other covenants. We were in compliance with these covenants as of September 30, 2020. There are no restrictive covenants relating to total indebtedness, interest coverage, stock repurchases, recapitalizations, dividends and distributions to shareholders or current ratios.
Credit Agreement
In April 2019, Bio-Rad entered into a $200.0 million unsecured revolving credit facility ("Credit Agreement"). Borrowings under the Credit Agreement are 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 Credit Agreement as of September 30, 2020; however, $0.2 million was utilized for domestic standby letters of credit that reduced our borrowing availability as of September 30, 2020. The Credit Agreement matures in April 2024. If we had borrowed against our Credit Agreement, the borrowing rate would have been 1.355 % at September 30, 2020, which is based on the 3-month LIBOR.
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 and create liens. We were in compliance with all of these ratios and covenants as of September 30, 2020.
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7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income included in our condensed consolidated balance sheets consists of the following components (in millions):
| Foreign currency translation adjustments | Foreign other post-employment benefits adjustments | Net unrealized holding gains on available-for-sale investments | Total accumulated other comprehensive income (loss) | |||||||||||
| Balances as of January 1, 2020: | $ | ( | $ | ( | $ | $ | ( | |||||||
| Other comprehensive income (loss), before reclassifications | ( | |||||||||||||
| Amounts reclassified from Accumulated other comprehensive income | ( | |||||||||||||
| Income tax effects | ( | ( | ||||||||||||
| Other comprehensive income, net of income taxes | ||||||||||||||
| Balances as of September 30, 2020: | $ | $ | ( | $ | $ | |||||||||
| Foreign currency translation adjustments | Foreign other post-employment benefits adjustments | Net unrealized holding gains on available-for-sale investments | Total accumulated other comprehensive income (loss) | |||||||||||
| Balances as of January 1, 2019: | $ | ( | $ | ( | $ | $ | ( | |||||||
| Other comprehensive (loss) income, before reclassifications | ( | ( | ||||||||||||
| Amounts reclassified from Accumulated other comprehensive income | ( | |||||||||||||
| Income tax effects | ( | ( | ( | |||||||||||
| Other comprehensive (loss) income, net of income taxes | ( | ( | ||||||||||||
| Balances as of September 30, 2019: | $ | ( | $ | ( | $ | $ | ( | |||||||
The reclassification adjustments are calculated using the specific identification method.
The impact to income before taxes for amounts reclassified out of Accumulated other comprehensive income into the condensed consolidated statements of income, with presentation location, were as follows (in millions):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| Components of Comprehensive income | 2020 | 2019 | 2020 | 2019 | Location | |||||||||||||||||||||||||||
| Amortization of foreign other post-employment benefit items | $ | ( | $ | ( | $ | ( | $ | ( | Other (income) expense, net | |||||||||||||||||||||||
| Net holding gains on equity securities and available-for-sale investments | $ | $ | $ | $ | Other (income) expense, net | |||||||||||||||||||||||||||
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8. 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 of including such securities would be anti-dilutive.
The weighted average number of common shares outstanding used to calculate basic and diluted earnings per share, and the anti-dilutive shares that are excluded from the diluted earnings per share calculation are as follows (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Basic weighted average shares outstanding | |||||||||||||||||||||||
Effect of potentially dilutive stock options and restricted stock awards | |||||||||||||||||||||||
| Diluted weighted average common shares | |||||||||||||||||||||||
| Anti-dilutive shares | |||||||||||||||||||||||
9. OTHER INCOME AND EXPENSE, NET
Other (income) expense, net includes the following components (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
| Interest and investment income | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Net realized gains on investments | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Other-than-temporary impairment losses on investments | |||||||||||||||||||||||||||||||||||
| Gain on divestiture of a division | ( | ||||||||||||||||||||||||||||||||||
| Other expense (income) | ( | ( | |||||||||||||||||||||||||||||||||
| Other (income), net | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
Other-than-temporary impairment losses on equity method investments were recorded in light of the investees' financial condition.
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10. INCOME TAXES
Our effective income tax rate was 21.9 % and 22.8 % for the three months ended September 30, 2020 and 2019, respectively. Our effective income tax rate was 22.5 % and 22.8 % for the nine months ended September 30, 2020 and 2019, respectively.
The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. We regularly assess our ability to realize our deferred tax assets and establish a valuation allowance if it is more likely than not that some portion, or all, of our deferred tax assets will not be realized. In assessing the realizability of our deferred tax assets, we weigh all available positive and negative evidence. Due to the weight of objectively verifiable negative evidence, we believe that it is more likely than not that our California and certain foreign deferred tax assets will not be realized as of September 30, 2020, and have maintained a valuation allowance on such deferred tax assets.
Our income tax returns are routinely audited by U.S. federal, state and foreign tax authorities. We are currently under examination by many of these tax authorities. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues around the timing and amount of deductions and allocations of income among various tax jurisdictions. We evaluate our exposures associated with our tax filing positions on a quarterly basis.
We record liabilities for unrecognized tax benefits related to uncertain tax positions. We do not believe any currently pending uncertain tax positions will have a material adverse effect on our condensed consolidated financial statements, although an adverse resolution of one or more of these uncertain tax positions in any period may have a material impact on the results of operations for that period.
Our gross unrecognized tax benefits were $54.4 million and $39.2 million as of September 30, 2020 and December 31, 2019, respectively. The net increase to our gross unrecognized tax benefits is primarily the result of a $13.3 million reassessment of a tax position taken in a prior period as a result of new information obtained during the current year.
As of September 30, 2020, based on the expected outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by up to $4.7 million primarily related to various foreign jurisdictions.
11. SEGMENT INFORMATION
Information regarding operating segments for the three months ended September 30, 2020 and 2019 is as follows (in millions):
| Life Science | Clinical Diagnostics | Other Operations | ||||||||||||||||||
| Segment net sales | 2020 | $ | $ | $ | ||||||||||||||||
| 2019 | $ | $ | $ | |||||||||||||||||
| Segment net profit (loss) | 2020 | $ | $ | $ | ( | |||||||||||||||
| 2019 | $ | $ | $ | ( | ||||||||||||||||
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| Life Science | Clinical Diagnostics | Other Operations | ||||||||||||||||||
| Segment net sales | 2020 | $ | $ | $ | ||||||||||||||||
| 2019 | $ | $ | $ | |||||||||||||||||
| Segment net profit (loss) | 2020 | $ | $ | $ | ( | |||||||||||||||
| 2019 | $ | $ | $ | ( | ||||||||||||||||
Segment results are presented in the same manner as we present our operations internally to make operating decisions and assess performance. Net corporate operating and other expense for segment results 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. Interest expense is charged to segments based on the carrying amount of inventory and receivables employed by that segment. The following reconciles total segment profit to consolidated income before income taxes (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Total segment profit | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency exchange losses, net | ( | ( | ( | ( | |||||||||||||||||||
Net corporate operating and other expense not allocated to segments | ( | ( | ( | ( | |||||||||||||||||||
| Change in fair market value of equity securities | ( | ||||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Consolidated income (loss) before income taxes | $ | $ | ( | $ | $ | ||||||||||||||||||
12. LEGAL PROCEEDINGS
We are a party to various claims, legal actions and complaints arising in the ordinary course of business. We cannot at this time reasonably estimate a range of exposure, if any, of the potential liability with respect to these matters. While 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, 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.
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13. RESTRUCTURING COSTS
In December 2018, we announced the closure of a small manufacturing facility in France. Restructuring charges for the facility closure are included in our Clinical Diagnostics segment's results of operations. The liability of $1.9 million as of September 30, 2020 was recorded in Accrued payroll and employee benefits in the condensed consolidated balance sheets. From December 2018 to September 30, 2020, total expenses were $4.0 million
The following table summarizes the activity for the facility closure restructuring reserves for severance and exit costs (in millions):
| Balances as of December 31, 2019: | $ | |||||||||||||
| Cash payments | ( | |||||||||||||
| Foreign currency translation losses | ||||||||||||||
| Balances as of September 30, 2020: | $ | |||||||||||||
In November 2019, we announced our strategy-driven restructuring plan. We expect that a significant portion of the net savings resulting from this restructuring plan will be repurposed in alignment with our portfolio strategy.
The restructuring plan includes a workforce reduction in Europe, the United States and Canada, and is expected to be incurred through 2020. The liability of $6.8 million as of September 30, 2020 was recorded in Accrued payroll and employee benefits in the condensed consolidated balance sheets. The amounts reflected in Cost of goods sold, Selling, general and administrative expense and Research and development expense were $(1.0 ) million and $(4.5 ) million in the condensed consolidated statements of income for the three and nine months ended September 30, 2020, respectively. From November 2019 to September 30, 2020, total expenses were $20.8 million.
The following table summarizes the activity of our European and North American reorganization restructuring reserves for severance (in millions):
| Life Science | Clinical Diagnostics | Total | ||||||||||||||||||
| Balances as of December 31, 2019: | $ | $ | $ | |||||||||||||||||
| Adjustment to expense | ( | ( | ( | |||||||||||||||||
| Cash payments | ( | ( | ( | |||||||||||||||||
| Foreign currency translation losses | ||||||||||||||||||||
| Balances as of September 30, 2020: | $ | $ | $ | |||||||||||||||||
In June 2020, we announced a restructuring plan to consolidate certain finance and administrative activities in Europe and the United States. The restructuring plan is expected to be completed by March 2021. The liability of $3.1 million as of September 30, 2020 was recorded in Accrued payroll and employee benefits in the condensed consolidated balance sheets. The amounts reflected in Selling, general and administrative expense were $(0.2 ) million and $3.6 million for the three and nine months ended September 30, 2020, respectively.
The following table summarizes the restructuring activities related to the finance and administrative reorganization (in millions):
| Life Science | Clinical Diagnostics | Total | ||||||||||||||||||
| Balances as of December 31, 2019: | $ | $ | $ | |||||||||||||||||
| Charged to expense | ||||||||||||||||||||
| Adjustment to expense | ( | ( | ( | |||||||||||||||||
| Cash payments | ( | ( | ( | |||||||||||||||||
| Balances as of September 30, 2020: | $ | $ | $ | |||||||||||||||||
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14. LEASES: FINANCE, AND OPERATING WHERE WE ACT AS LESSEE
For operating leases where we act as lessor in reagent rental agreements, see Note 1. We have operating leases and to a lesser extent finance leases, for buildings, vehicles and equipment. For operating leases, we have elected not to separate lease and non-lease components for buildings, vehicles and equipment. Our leases have remaining lease terms of 1 year to 19 years, which includes our determination to exercise renewal options.
We determine if an arrangement is a lease at inception. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Operating lease ROU assets also include any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease. For purposes of determining the lease term used in the measurement of operating lease ROU assets and operating lease liabilities, we include the noncancellable period of the lease together with those periods covered by the option to extend the lease if we are reasonably certain to exercise that option, the periods covered by an option to terminate the lease if we are reasonably certain not to exercise that option, and the periods covered by the option to extend (or to not terminate) the lease in which exercise of the option is controlled by the lessor. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The components of lease expense were as follows (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Finance lease cost: | |||||||||||||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | |||||||||||||||||||
| Interest on lease liabilities | |||||||||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Sublease income | $ | $ | $ | $ | |||||||||||||||||||
The sublease is for a building with a term that ends in 2025, with no options to extend or renew.
Operating lease cost includes original reduction in the carrying amount of ROU assets, the impact of remeasurements, modifications, impairments and abandonments.
Our short-term leases are expensed as incurred, reflecting leases with a lease term of one year or less, and are not significant for both the three and nine months ended September 30, 2020 and 2019. Operating lease variable cost is primarily comprised of reimbursed actual common area maintenance, property taxes and insurance, which are immaterial for both the three and nine months ended September 30, 2020 and 2019.
35
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | ||||||||||
| Operating cash flows from finance leases | $ | $ | $ | $ | ||||||||||
| Financing cash flows from finance leases | $ | $ | $ | $ | ||||||||||
| Right-of-use assets obtained in exchange for new lease obligations: | ||||||||||||||
| Operating leases | $ | $ | $ | $ | ||||||||||
| Finance leases | $ | $ | $ | $ | ||||||||||
Supplemental balance sheet information related to leases was as follows (in millions):
| September 30, 2020 | December 31, 2019 | |||||||
| Operating Leases | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Current operating lease liabilities | $ | $ | ||||||
| Operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
Finance leases are included in Property, plant and equipment, Current maturities of long-term debt, and Long-term debt, net of current maturities.
| September 30, 2020 | December 31, 2019 | |||||||
| Finance Leases | ||||||||
| Property, plant and equipment, gross | $ | $ | ||||||
| Less: accumulated depreciation and amortization | ( | ( | ||||||
| Property, plant and equipment, net | $ | $ | ||||||
| Current maturities of long-term debt and notes payable | $ | $ | ||||||
| Long-term debt, net of current maturities | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
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| September 30, 2020 | December 31, 2019 | |||||||
| Weighted Average Remaining Lease Term | ||||||||
| Operating leases - in years | ||||||||
| Finance leases - in years | ||||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
Maturities of lease liabilities were as follows (in millions):
Year Ending December 31, | Operating Leases | Finance Leases | |||||||||
| 2020 (excluding the nine months ended September 30, 2020) | $ | $ | |||||||||
| 2021 | |||||||||||
| 2022 | |||||||||||
| 2023 | |||||||||||
| 2024 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | |||||||||||
| Less imputed interest | ( | ( | |||||||||
| Total | $ | $ | |||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the information contained in both our consolidated financial statements for the year ended December 31, 2019 and the condensed consolidated financial statements for the three and nine months ended September 30, 2020.
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 clinical diagnostics.
We sell more than 9,000 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.
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We are impacted by 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. Adding to this uncertainty is the upcoming withdrawal of the United Kingdom from the European Union. Approximately 39% of our year-to-date 2020 consolidated net sales are derived from the United States and approximately 61% are derived from international locations, with Europe being our largest international region. The international sales are largely denominated in local currencies such as the Euro, Swiss Franc, Japanese Yen, Chinese Yuan and British Sterling. As a result, our consolidated net sales expressed in dollars benefit when the U.S. dollar weakens and suffer when the dollar strengthens. When the U.S. dollar strengthens, we benefit from lower cost of sales from our own international manufacturing sites as well as non-U.S. suppliers, 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.
COVID-19
The full impact of the COVID-19 pandemic is uncertain. The COVID-19 pandemic has negatively impacted and, we expect, will continue to disrupt our business operations, impacting our financial conditions and results of operations in a variety of ways. Governments in the countries in which we operate are passing legislation intended to alleviate the economic burdens of the COVID-19 pandemic. We are continuing to evaluate the impact of these governmental incentives to our customers, operations and financial condition. For more discussions on COVID-19, please see Item 1A. Risk Factors to this Form 10-Q.
Cyberattack
As we previously disclosed on December 9, 2019 on a Form 8-K filed with the Securities and Exchange Commission (SEC), we detected a cyberattack on our network on the evening of December 5, 2019 PST and immediately took affected systems offline as part of our comprehensive response to contain the activity (“December 2019 Cyberattack”). The virus was targeted at Windows-based systems and did not attack our global ERP system (SAP) and other non-Windows-based systems. Critical systems were back online within a few days of the incident. As part of our in-depth investigation into this incident, we engaged outside cyber security experts to assist us with investigation and remediation efforts. To date, we have found no evidence of unauthorized transfer or misuse of personal data, and there is no indication that customer systems were affected.
We have insurance coverage for costs resulting from cyberattacks. We have not recorded any estimated proceeds resulting from an insurance claim regarding this incident as we have not yet settled with the insurance provider on the nature of the costs that are eligible and the extent of coverage. We did not pay a ransom in connection with this incident.
Acquisition
On April 1, 2020, we acquired all equity interests of Celsee, Inc. ("Celsee") for total consideration of $99.3 million, including the estimated fair value of contingent consideration. The contingent consideration of up to $60.0 million is payable in cash, upon the achievement of certain net revenues for the period beginning on January 1, 2021 and ending on December 31, 2022.
Celsee is a manufacturer of instruments and consumables for the isolation, detection, and analysis of single cells. We believe this acquisition will complement our Life Science product offerings. The acquisition was included in our Life Science segment's results of operations from the acquisition date.
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Informatics Divestiture
In April 2020, we received $12.2 million for the sale of our Informatics division, which focused on providing and developing comprehensive, high-quality spectral databases and associated software. The division was part of our Other Operations segment. In connection with this sale, we recorded an $11.7 million gain in Other income, net, in the condensed consolidated statements of income for the nine months ended September 30, 2020.
Restructuring
In June 2020, we announced a restructuring plan to consolidate certain finance and administrative activities in Europe and the United States. The restructuring plan is expected to be completed by March 2021. The liability of $3.1 million as of September 30, 2020 was recorded in Accrued payroll and employee benefits in the condensed consolidated balance sheets. The amounts reflected in Selling, general and administrative expense were $(0.2) million and $3.6 million for the three and nine months ended September 30, 2020, respectively.
Results of Operations
The following table shows cost of goods sold, gross profit, components of operating expense, change in fair market value of equity securities, and net income as a percentage of net sales:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Cost of goods sold | 43.3 | 45.2 | 44.3 | 45.1 | |||||||||||||||||||
| Gross profit | 56.7 | 54.8 | 55.7 | 54.9 | |||||||||||||||||||
| Selling, general and administrative expense | 30.6 | 36.0 | 33.1 | 36.2 | |||||||||||||||||||
| Research and development expense | 9.2 | 8.6 | 9.2 | 8.6 | |||||||||||||||||||
| Change in fair market value of equity securities | 244.2 | (69.7) | 204.6 | 82.1 | |||||||||||||||||||
| Net income | 203.1 | (46.2) | 169.0 | 71.4 | |||||||||||||||||||
Critical Accounting Policies and Estimates
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Management believes that there have been no significant changes during the nine months ended September 30, 2020 to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Other than the recent accounting pronouncement adoptions as discussed in Note 1 to the condensed consolidated financial statements, there have been no substantial changes in our significant accounting policies during the nine months ended September 30, 2020, compared with the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2019.
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Three Months Ended September 30, 2020 Compared to
Three Months Ended September 30, 2019
Results of Operations -- Sales, Margins and Expenses
Percentage sales growth in currency neutral amounts are calculated by translating prior period sales in each local currency using the current period monthly average foreign exchange rates for that currency and comparing that to current period sales.
Net sales (sales) for the third quarter of 2020 were $647.3 million compared to $560.6 million in the third quarter of 2019, an increase of 15.5%. Excluding the impact of foreign currency, third quarter 2020 sales increased by approximately 14.9% compared to the same period in 2019. Currency neutral sales increased in all regions.
The Life Science segment sales for the third quarter of 2020 were $324.0 million, an increase of 50.2% compared to the same period last year. On a currency neutral basis, sales increased 48.8% compared to the third quarter in 2019. The currency neutral sales increase was primarily driven by growth in our PCR, Droplet Digital PCR, and Process Media product lines. A significant portion of the growth in the Life Science segment came from products used to support COVID-19 testing and research. All regions experienced double digit currency neutral sales growth compared to the third quarter of 2019.
The Clinical Diagnostics segment sales for the third quarter of 2020 were $322.2 million, a decrease of 5.7% compared to the same period last year. On a currency neutral basis, sales decreased 5.9% compared to the third quarter in 2019. The currency neutral sales decrease was primarily driven by lower demand as a result of COVID-19. The currency neutral sales decrease was across all regions in most product lines.
Consolidated gross margins were 56.7% for the third quarter of 2020 compared to 54.8% for the third quarter of 2019. Life Science segment gross margins for the third quarter of 2020 increased from the prior year period by approximately 5.3 percentage points. The increase was primarily driven by favorable product mix related to higher sales of PCR products, lower production costs, and higher absorption due to increased volumes. Clinical Diagnostics segment gross margins for the third quarter of 2020 decreased by approximately 1.9 percentage points from the same period last year. The decrease was primarily driven by lower sales, higher freight costs, and a customs duty charge relating to products shipped primarily in prior years.
Selling, general and administrative expenses (SG&A) decreased to $198.2 million or 30.6% of sales for the third quarter of 2020 compared to $201.6 million or 36.0% of sales for the third quarter of 2019. The decrease in SG&A expenses were primarily driven by lower travel, marketing and communication expenses mostly due to the impact of COVID-19. These expenses were partially offset by increases mostly due to employee-related expenses and third-party professional service costs.
Research and development (R&D) expense increased to $59.5 million or 9.2% of sales in the third quarter of 2020 compared to $47.9 million or 8.6% of sales in the third quarter of 2019. The increase in R&D expense in the Life Science segment was primarily driven by increased headcount from the recent Celsee acquisition and our continued investment in key areas to accelerate new product development. Clinical Diagnostics segment R&D decreased in the third quarter of 2020 from the prior year period, primarily due to lower spending as a result of COVID-19 restrictions and lower headcount related to restructuring programs.
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Results of Operations – Non-operating
Interest expense for the third quarter of 2020 and 2019 was $5.7 million and $5.5 million, respectively.
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 losses were $0.8 million for the third quarter of 2020 compared to $0.9 million for the third quarter of 2019. 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.
Change in fair market value of equity securities was a gain of $1.58 billion and a loss of $390.6 million for the third quarter of 2020 and 2019, respectively, primarily resulting from the recognition of holding gains in the third quarter of 2020 compared to holding losses in third quarter of 2019 on our position in Sartorius AG.
Other income, net for the third quarter of 2020 was $1.0 million compared to $4.4 million for the third quarter of 2019. The decrease of $3.4 million of income was primarily due to lower investment income and gains.
Our effective income tax rate was 21.9% and 22.8% for the three months ended September 30, 2020 and 2019, respectively.
Nine Months Ended September 30, 2020 Compared to
Nine Months Ended September 30, 2019
Results of Operations -- Sales, Margins and Expenses
Percentage sales growth in currency neutral amounts are calculated by translating prior period sales in each local currency using the current period monthly average foreign exchange rates for that currency and comparing that to current period sales.
Sales for the first nine months of 2020 were $1.76 billion compared to $1.69 billion in the first nine months of 2019, an increase of 4.1%. Excluding the impact of foreign currency, for the first nine months of 2020 sales increased by approximately 5.0% compared to the same period in 2019. Currency neutral sales were led by growth in Asia and Europe.
The Life Science segment sales for the first nine months of 2020 were $803.2 million, an increase of 24.7% compared to the same period last year. On a currency neutral basis, sales increased 25.1% compared to the first nine months of 2019. The currency neutral sales increase was primarily driven by growth in our PCR, Droplet Digital PCR, and Process Media product lines. Currency neutral sales increases occurred in Europe, Asia, and Latin America. Sales for the first nine months of 2020 benefited from the carryover related to the December 2019 Cyberattack, primarily in Asia, and from product lines used for COVID-19, partially offset by lower sales in North America due to the lab closures resulting from the COVID-19 pandemic.
The Clinical Diagnostics segment sales for the first nine months of 2020 were $945.6 million, a decrease of 8.5% compared to the same period last year. On a currency neutral basis, sales decreased 7.3% compared to the first nine months of 2019. The currency neutral sales decrease was across all regions in most product lines. Sales for the first nine months of 2020 benefited from the carryover related to the December 2019 Cyberattack. Sales in all regions were impacted negatively due to the impact of COVID-19 on our customer's operations.
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Consolidated gross margins were 55.7% for the first nine months of 2020 compared to 54.9% for the first nine months of 2019. Life Science segment gross margins for the first nine months of 2020 increased from the prior year period by approximately 1.4 percentage points primarily due to higher sales, favorable product mix and lower production costs, partially offset by $7.4 million cost of sales benefit in the first quarter of 2019 from an escrow release related to an acquisition from 2011, and a customs duty charge relating to products shipped primarily in prior years. Clinical Diagnostics segment gross margins for the first nine months of 2020 decreased by approximately 0.5 percentage points from the same period last year, driven primarily by lower sales, higher freight, excess and obsolete inventory costs and a customs duty charge relating to products shipped primarily in prior years, partially offset by lower field activity as a result of COVID-19.
SG&A expenses decreased to $581.1 million or 33.1% of sales for the first nine months of 2020 compared to $610.5 million or 36.2% of sales for the first nine months of 2019. The decrease in SG&A was primarily driven by lower travel, marketing and communications expenses mostly due to the impact of COVID-19. These expenses were partially offset by increases to employee-related expenses, facilities and third-party professional service costs.
R&D expense increased to $160.8 million or 9.2% of sales for the first nine months of 2020 compared to $145.6 million or 8.6% of sales for the first nine months of 2019. The increase in R&D expense in the Life Science segment was primarily driven by increased headcount from the recent Celsee acquisition and our continued investment in key areas to accelerate new product development. Clinical Diagnostics segment R&D decreased for the first nine months of 2020 from the prior year period primarily due to lower spending as a result of COVID-19 restrictions and lower headcount related to restructuring programs.
Results of Operations – Non-operating
Interest expense for the first nine months of 2020 and 2019 was $17.2 million and $17.4 million, respectively.
Foreign currency exchange net losses were $2.5 million for the first nine months of 2020 compared to $3.4 million for the first nine months of 2019. 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.
Change in fair market value of equity securities was a gain of $3.59 billion and $1.38 billion for the first nine months of 2020 and 2019, respectively, primarily resulting from the recognition of holding gains on our position in Sartorius AG.
Other (income) expense, net for the first nine months of 2020 was $21.5 million of income compared to $27.0 million of income for the first nine months of 2019. The decrease of $5.5 million was primarily due to lower investment income of $15.5 million and lower Sartorius AG dividend income of $6.8 million, partially offset by the gain on the sale of the Informatics division of $11.7 million in 2020.
Our effective income tax rate was 22.5% and 22.8% for the nine months ended September 30, 2020 and 2019, respectively.
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Liquidity and Capital Resources
Bio-Rad operates and conducts business globally, primarily through subsidiary companies established in the markets in which we trade. Goods are manufactured in a small number of locations, and are then shipped to local distribution facilities around the world. Our product mix is diversified, and certain products compete largely on product efficacy, while others compete on price. Gross margins are generally sufficient to exceed normal operating costs, and funding for research and development of new products, as well as routine outflows for capital expenditures, interest and taxes. In addition to the annual positive cash flow from operating activities, additional liquidity is readily available via the sale of short-term investments and access to our $200.0 million unsecured revolving credit facility (Credit Agreement) that we entered into in April 2019, and to a lesser extent international lines of credit. Borrowings under the 2019 Credit Agreement 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 of September 30, 2020, however, $0.2 million was utilized for domestic standby letters of credit that reduced our borrowing availability. 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. We have outstanding $425.0 million principal amount of Senior Notes that are due in December 2020 (4.875% Notes). We intend to repay the 4.875% Notes and believe that we have adequate resources to make the payment on the due date.
At September 30, 2020, we had available $1.15 billion in cash, cash equivalents and short-term investments, of which approximately 25% 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 and repay our 4.875% Notes. 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. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and foreign cash flows (both inflows and outflows).
It is generally our intention to repatriate certain foreign earnings to the extent that such repatriations are not restricted by local laws or accounting rules, and there are no substantial incremental costs.
Demand for our products and services could change more dramatically in the short-term than in previous years due to the outbreak of COVID-19 related constraints, as well as due to 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, international trade disputes and increased regulation 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.
Cash Flows from Operations
Net cash provided by operations was $290.6 million compared to $298.1 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in operating cash flows was primarily due to higher cash paid to suppliers and employees resulting primarily from supplies needed for COVID-19 products and to a lesser extent for employee restructuring programs. The decrease also consisted of lower investment income and, higher income taxes paid. These decreases were partially offset by higher cash received from customers due to the growth in sales.
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Cash Flows from Investing Activities
Our investing activities have consisted primarily of cash used for acquisitions, capital expenditures and activity related to the purchases, sales and maturities of marketable securities.
For the nine months ended September 30, 2020, net cash used in investing activities was $10.1 million, compared to net cash used in investing activities of $147.7 million for the same period in 2019. This decrease was primarily attributable to a $136.4 million increase in net proceeds from maturities, sales and purchases of marketable securities and a $17.3 million decrease in capital expenditures, partially offset by a $20.8 million increase in payments for acquisitions.
Cash Flows from Financing Activities
Our financing activities have consisted primarily of cash used for purchases of treasury stock, taxes paid on the vesting of restricted stock units and proceeds from the issuance of common stock for share-based compensation.
For the nine months ended September 30, 2020, net cash used in financing activities was $101.2 million, compared to net cash used in financing activities of $18.0 million for the same period in 2019. This increase was primarily attributable to a $80 million increase in cash used to purchase treasury stock.
Treasury Shares
During the second and third quarters of 2020, 116,935 shares of Class A treasury stock with an aggregate total cost of $38.3 million were reissued to fulfill grants to employees under our restricted stock program. Upon reissuing the Class A treasury stock, a loss of $9.0 million was incurred as they were reissued at a lower price than their average cost, which reduced Retained earnings, while $29.3 million reduced Additional paid-in capital.
During the third quarter of 2019, 117,833 shares of Class A treasury stock with an aggregate total cost of $33.2 million were reissued to fulfill grants to employees under our restricted stock program. Upon reissuing the Class A treasury stock, a loss of $8.4 million was incurred as they were reissued at a lower price than their average cost, which reduced Retained earnings, while $24.9 million reduced Additional paid-in capital.
The re-issuance of the treasury stock in 2020 and 2019 did not require cash payments or receipts and therefore did not affect liquidity.
During the first quarter of 2020, we repurchased 291,941 shares of Class A common stock for $100.0 million under our repurchase program compared to the repurchase of 66,143 shares of our common stock for $20.0 million in 2019. No shares were purchased during the second and third quarters of 2020. We designated these repurchased shares as treasury stock.
During the first quarter of 2019, 19,755 shares of Class A treasury stock with an aggregate total cost of $5.4 million were reissued to fulfill our Employee Stock Purchase Plan purchases. A loss of $1.6 million was incurred upon reissuing the Class A treasury stock as they were reissued at a lower price than their average cost, which reduced Retained earnings and resulted in net proceeds of $3.8 million.
In July 2020, the Board of Directors authorized increasing the Share Repurchase Program to allow the Company to repurchase up to an additional $200.0 million of stock. As of September 30, 2020, $273.1 million remained under the Share Repurchase Program.
Recent Accounting Pronouncements Adopted and to be Adopted
See Note 1 to the condensed consolidated financial statements for recent accounting pronouncements adopted and to be adopted.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
During the nine months ended September 30, 2020, there have been no material changes from the disclosures about market risk provided in our Annual Report on Form 10-K for the year ended December 31, 2019.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Subject to the limitations noted above, our management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the CEO and CFO have concluded that, as of such date, our disclosure controls and procedures were effective to meet the objective for which they were designed and operate at the reasonable assurance level.
Changes to Internal Control Over Financial Reporting
We identified no changes in internal control over financial reporting that occurred during our quarter ended September 30, 2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
See Note 12, “Legal Proceedings” in the Notes to the condensed consolidated financial statements of Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Item 1A. Risk Factors
Pandemics or disease outbreaks, such as the COVID-19 pandemic, could materially adversely affect our business, operations, financial condition, and results of operations.
The COVID-19 pandemic is having and is expected to continue to have an adverse effect on the United States and global economies, as well as on our operations and those of third parties on whom we rely. The COVID-19 pandemic has negatively impacted and, we expect, will continue to negatively impact our business, operations, financial conditions and results of operations in a variety of ways.
Although demand has increased for certain of our products being used in fighting the COVID-19 pandemic, we are experiencing more broadly an overall drop-off in product demand with reduced sales activity and customer orders. Many of our customers are sheltering in place, resulting in labs, universities and other customers' facilities being closed or opened at reduced capacity, hospital visits have declined as people delay elective surgeries and avoid non-essential trips to the hospital, and routine diagnostic testing has slowed dramatically. It is not known how long these declines will continue, and it is uncertain what impact these declines will have on future sales and customer orders once conditions improve.
On the supply side, we are experiencing challenges with the supply of raw materials and components used in the production of our products, with suppliers sheltering in place or opened at reduced capacity and otherwise unable to meet our increased demand for raw materials and inputs to manufacture our products being used in fighting the COVID-19 pandemic. In addition, we are experiencing transportation challenges in moving goods across regions, including reduced freight availability as many airlines have significantly scaled back flight operations and increased freight surcharges due to reduced freight capacity. Countries have closed their borders and imposed travel restrictions and may continue to impose measures that restrict the movement of our goods. The invocation by the U.S federal government of the Defense Production Act of 1950 with respect to our manufacturing operations, or the enforcement of comparable laws by other governmental entities, could disrupt our manufacturing and distribution operations.
With respect to our personnel, as a critical health care supplier, we continue to keep certain essential production, distribution and service teams onsite working in manufacturing and supply chain facilities throughout the world. Although we are adhering to government mandated and Environmental, Health and Safety protocols, an outbreak of COVID-19 at one or more of our facilities could nonetheless cause shutdowns of facilities and a reduction in our workforce, which could dramatically affect our ability to operate our business and our financial results.
The duration of the COVID-19 pandemic is unknown, and it is difficult to predict the full extent of potential impacts the pandemic will have in the future on our business, operations, and financial results, or on our customers, suppliers, logistics providers, or on the global economy as a whole. We expect that the COVID-19 pandemic will negatively affect our revenue growth and net income, and it is uncertain how materially the COVID-19 pandemic will affect our global operations, particularly if the effects continue or get worse over an extended period of time. Any or all of these effects would have an adverse effect on our operations, business, financial condition and results of operations.
Our international operations expose us to additional costs and legal and regulatory risks, which could have a material adverse effect on our business, results of operations and financial condition.
We have significant international operations. We have direct distribution channels in over 35 countries outside the United States, and during the first nine months of 2020 our foreign entities generated 61% of our net sales. Compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business. These numerous and sometimes conflicting laws and regulations include, among others, data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, tariffs, duties, quotas and other trade barriers, export requirements, U.S. laws such as the Foreign Corrupt Practices Act and other U.S. federal laws and regulations established by the office of Foreign Asset Control, foreign laws such as the UK Bribery Act 2010 or other foreign laws which prohibit corrupt payments to governmental officials or
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certain payments or remunerations to customers. In addition, changes in laws or regulations potentially could be disruptive to our operations and business relationships in the affected regions. For example, the United Kingdom's withdrawal from the European Union (commonly referred to as “Brexit”) could disrupt the free movement of goods, services and people between the United Kingdom and the European Union and result in increased regulatory, legal, labor and tax complexities.
Given the high level of complexity of the foreign and U.S. laws and regulations that apply to our international operations, there is a risk that we may inadvertently breach some provisions, for example, through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements, or otherwise. Our success depends, in part, on our ability to anticipate these risks and manage these challenges through policies, procedures and internal controls. However, we have a dispersed international sales organization, and we use distributors and agents in many of our international operations. This structure makes it more difficult for us to ensure that our international selling operations comply with laws and regulations, and our global policies and procedures.
Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Violations of laws and regulations also could result in prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, or our business, results of operations and financial condition. See also our risk factors regarding the COVID-19 pandemic above and regarding government regulations and global economic conditions below.
The industries and market segments in which we operate are highly competitive, and we may not be able to compete effectively.
The life science and clinical diagnostics markets are each highly competitive. Some of our competitors have merged, and some of our competitors have greater financial resources than we do, making them better equipped to license technologies and intellectual property from third parties or to fund research and development, manufacturing and marketing efforts. Moreover, competitive and regulatory conditions in many markets in which we operate restrict our ability to fully recover, through price increases, higher costs of acquired goods and services resulting from inflation and other drivers of cost increases. Many public tenders have become more competitive due to governments lengthening the commitments of their public tenders to multiple years, which reduce the number of tenders in which we can participate annually. Because the value of these multiple-year tenders is so high, our competitors have been more aggressive with their pricing. Our failure to compete effectively and/or pricing pressures resulting from competition could adversely affect our business, results of operations and financial condition.
We may not be able to grow our business because of our failure to develop new or improved products.
Our future growth depends in part on our ability to continue to improve our product offerings and develop and introduce new product lines and extensions that integrate technological advances. In particular, we may not be able to keep up with changes in the clinical diagnostics industry, such as the trend toward molecular diagnostics or point-of-care tests. 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 business, results of operations and financial condition will be adversely affected. The COVID-19 pandemic may delay our ability to develop and introduce new products. We have experienced product launch delays in the past, and may do so in the future. We cannot assure you that our product and process development efforts will be successful or that new products we introduce will achieve market acceptance. Failure to launch successful new products or improvements to existing products may cause our products to become obsolete, which could harm our business, results of operations and financial condition.
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Breaches of our information systems could have a material adverse effect on our business and results of operations.
We have experienced and expect to continue to experience attempts by computer programmers and hackers to attack and penetrate our layered security controls, like the December 2019 Cyberattack that was previously discussed in Item 7 of our Annual Report for the period ended December 31, 2019. Through our sales and eCommerce channels, we collect and store confidential information that customers provide to, among other things, purchase products or services, enroll in promotional programs and register on our web site. We also acquire and retain information about suppliers and employees in the normal course of business. Such information on our systems includes personally identifiable information and, in limited instances, protected health information. We also create and maintain proprietary information that is critical to our business, such as our product designs and manufacturing processes. Despite recent initiatives to improve our technology systems, such as our enterprise resource planning implementation and the centralization of our global information technology organization, we could experience a significant data security breach. Increased use of remote work arrangements and rapidly evolving work scenarios in response to the COVID-19 pandemic expose us to additional risk of cyberattack and disruption. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may not be able to anticipate all of these techniques or to implement adequate preventive measures. Computer hackers have attempted to penetrate and will likely continue to attempt to penetrate our and our vendors’ information systems and, if successful, could misappropriate confidential customer, supplier, employee or other business information, such as our intellectual property. Third parties could also gain control of our systems and use them for criminal purposes while appearing to be us. As a result, we could lose existing customers, have difficulty attracting new customers, be exposed to claims from customers, financial institutions, payment card associations, employees and other persons, have regulatory sanctions or penalties imposed, incur additional expenses or lose revenues as a result of a data privacy breach, or suffer other adverse consequences. Our operations and ability to process sales orders, particularly through our eCommerce channels, could also be disrupted, as they were in the December 2019 Cyberattack. Any significant breakdown, intrusion, interruption, corruption, or destruction of our systems, as well as any data breaches, could have a material adverse effect on our business and results of operations. See also our risk factors regarding our information technology systems and our enterprise resource planning system (ERP) implementation below.
If our information technology systems are disrupted, or if we fail to successfully implement, manage and integrate our information technology and reporting systems, our business, results of operations and financial condition could be harmed.
Our information technology (IT) systems are an integral part of our business, and a serious disruption of our IT systems could have a material adverse effect on our business, results of operations and financial condition. We depend on our IT systems to process orders, manage inventory 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 may experience disruption of our IT systems due to redundancy issues with our network servers. We cannot assure you that our contingency plans will allow us to operate at our current level of efficiency.
Our ability to implement our business plan in a rapidly evolving market requires effective planning, reporting and analytical processes. We expect that we will need to continue to improve and further integrate our IT systems, reporting systems and operating procedures by training and educating our employees with respect to these improvements and integrations on an ongoing basis in order to effectively run our business. We may suffer interruptions in service, loss of data or reduced functionality when we upgrade or change systems. If we fail to successfully manage and integrate our IT systems, reporting systems and operating procedures, it could adversely affect our business, results of operations and financial condition. See also our risk factors regarding our data security above and ERP implementation and events beyond our control below.
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We are subject to foreign currency exchange fluctuations, which could have a material adverse effect on our results of operations and financial condition.
As stated above, a significant portion of our operations and sales are outside of the United States. When we make purchases and sales in currencies other than the U.S. dollars, we are exposed to fluctuations in foreign currencies relative to the U.S. dollar that may adversely affect our results of operations and financial condition. Our international sales are largely denominated in local currencies. As a result, the strengthening of the U.S. dollar negatively impacts our consolidated net sales expressed in U.S. dollars. Conversely, when the U.S. dollar weakens, our expenses at our international sites increase. In addition, the volatility of other currencies may negatively impact our operations outside of the United States and increase our costs to hedge against currency fluctuations. We cannot assure you that future shifts in currency exchange rates will not have a material adverse effect on our results of operations and financial condition.
Changes in the market value of our position in Sartorius AG may materially impact our financial results and might cause us to be deemed an investment company.
Changes in the market value of our position in Sartorius AG may continue to materially impact our consolidated statements of income and other financial statements. A decline in the market value of our position in Sartorius AG could result in significant losses due to write-downs in the value of the equity securities. An increase in the market value of our position in Sartorius AG could result in a significant and favorable impact to net income independent of the actual operating performance of our business. As a result of the market value of our position in Sartorius AG, we might be deemed to be an “investment company” under Section 3(a)(1)(C) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), even though we are primarily engaged in a business other than that of investing, reinvesting, owning, holding or trading in securities. Because the Company might be deemed an investment company under the Investment Company Act based on the market value of our position in Sartorius AG, the Company may not be able to access the capital markets or otherwise obtain additional financing until it is determined that the Company is not an investment company. The Company does not believe it is an investment company and intends to continue to conduct our operations so that we will not be deemed an investment company. If the Company were deemed to be an investment company such determination could have a material adverse effect on our business.
Our share price may change significantly based upon changes in the market valuation of Sartorius AG, and such change may be unrelated to the actual performance of our business. Non-operating income for a period may be significantly impacted by the timing of dividends paid by Sartorius AG, particularly in comparison to prior year periods.
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 volatile, particularly in light of the COVID-19 pandemic, 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 also have positions in equity securities, including our position in Sartorius AG. Financial markets are volatile and the markets for these equity securities can be illiquid as well. A decline in the market value of our investments in equity securities that we own could result in significant losses due to write-downs in the value of the equity securities. In addition, if we need to convert these positions to cash, we may not be able to sell these equity securities without significant losses.
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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 efficiently 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. For example, in our third deployment in Western Europe in April 2017, we experienced system implementation issues impacting the timing of payment of vendor invoices and resulting in delays in product availability and shipments. We also experienced lower productivity levels related to the April 2017 go-live of the ERP in Western Europe, which adversely impacted our sales during the second and third quarters of 2017. We expect to implement the remaining smaller phases of the ERP platform over the next few years. In addition, our efforts to centralize various business processes and functions within our organization in connection with our ERP implementation may continue to disrupt our operations and negatively impact our business, results of operations and financial condition.
Recent and planned changes to our organizational structure and executive management team could negatively impact our business.
We made significant changes to our organizational structure over the past few years. We have continued to reorganize aspects of our European operations since 2016. The Board of Directors appointed a new Chief Financial Officer effective April 6, 2019, a new Chief Operating Officer effective April 22, 2019, and a new Chief Accounting Officer effective April 1, 2020. At the beginning of 2020, we appointed a new executive to head our Clinical Diagnostics segment, and we restructured this segment based on functional groups rather than product line divisions. These changes may have unintended consequences, such as distraction of our management and employees, business disruption, attrition of our workforce, inability to attract or retain key employees, and reduced employee morale or productivity.
Violations of the U.S. Foreign Corrupt Practices Act or similar anti-corruption laws could have a material adverse effect on our business, results of operations and financial condition.
As further discussed above in our risk factor concerning our international operations, we have significant international operations which expose us to additional costs and legal and regulatory risks, including the risk of violating anti-corruption laws such as the U.S. Foreign Corrupt Practices Act (FCPA) or similar anti-corruption laws. As previously disclosed, we entered into a non-prosecution agreement (NPA) with the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) and consented to the entry of an Order by the SEC (SEC Order), effective November 3, 2014, which actions resolved both the DOJ and the SEC investigations into our violations of the FCPA. Any future violations of the FCPA could result in more punitive actions by the SEC and DOJ and/or could harm our reputation with customers, either of which could materially adversely affect our business, results of operations and financial condition.
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Our failure to establish and maintain effective internal control over financial reporting could result in material misstatements in our financial statements, our failure to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our common stock to decline.
Maintaining effective disclosure controls and procedures and internal controls over financial reporting are necessary for us to produce reliable financial statements. As previously discussed in Item 9A "Controls and Procedures" of our Annual Report for the period ended December 31, 2017, and Item 4 "Controls and Procedures" of our 2018 Form 10-Qs, management identified a material weakness in our internal control over financial reporting. Management concluded that the material weakness had been remediated as of December 31, 2018. However, we cannot assure you that additional deficiencies or material weaknesses in our internal control over financial reporting will not be identified in the future.
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 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 consolidated financial statements and cause us to fail to meet our reporting obligations. This could cause us to lose public confidence, and could cause the trading price of our common stock to decline. For further information regarding our controls and procedures, see Part I, Item 4 of this Quarterly Report on Form 10-Q.
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, unauthorized third parties have attempted to copy our intellectual property, reverse engineer or obtain and use information that we regard as proprietary, or have developed equivalent technologies independently, and may do so in the future. Additionally, third parties have asserted patent, copyright and other intellectual property rights to technologies that are important to us, and may do so in the future. If we are unable to license or otherwise access protected technology used in our products, or if we lose our rights under any existing licenses, we could be prohibited from manufacturing and marketing such products. From time to time, we also must enforce our patents or other intellectual property rights or defend ourselves against claimed infringement of the rights of others through litigation. As a result, we could incur substantial costs, be forced to redesign our products, or be required to pay damages or royalties to an infringed party. Any of the foregoing matters could adversely impact our business, results of operations and financial condition.
Global economic and geopolitical conditions could adversely affect our operations.
In recent years, we have been faced with very challenging global economic conditions. The COVID-19 pandemic is currently causing disruptions to global economic conditions. It is unknown how long such disruptions will continue and whether such disruptions will become more severe. A deterioration in the global economic environment may, and is currently, resulting generally in decreased demand for our products (other than with respect to certain of our products being used in fighting the COVID-19 pandemic), increased competition, downward pressure on the prices for our products and longer sales cycles. A weakening of macroeconomic conditions may, and currently is, also adversely affecting our suppliers, which could result in interruptions in supply in the future. We have also experienced delays in collecting receivables in certain countries in Western Europe, and we may experience similar delays in these and other countries or regions experiencing liquidity problems. In addition, a slowing of growth in the Chinese economy and in emerging markets could adversely affect our business, results of operations or financial condition. The worldwide decline in oil prices may impact the ability of countries dependent on oil revenue to fund
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the health care sector and research and development activities, which could result in a decreased demand for our products. There is also uncertainty surrounding the impact that Brexit will have on European and worldwide economic conditions and the stability of global financial markets, and a negative effect from any of these things could adversely affect our business, results of operations or financial condition. Additionally, the United States and other countries, such as China and India, recently have imposed tariffs on certain goods. While tariffs imposed by other countries on U.S. goods have not yet had a significant impact on our business, further escalation of tariffs or other trade barriers could adversely impact our profitability and/or our competitiveness. In addition, the geopolitical situation in locations such as the Middle East could adversely affect our business in such locations. See also our risk factors regarding the COVID-19 pandemic and our international operations above and regarding government regulations below.
Reductions in government funding and the capital spending programs of our customers could have a material adverse effect on our business, results of operations or financial condition.
Our customers include universities, clinical diagnostics laboratories, government agencies, hospitals and pharmaceutical, biotechnology and chemical companies. The capital spending programs of these institutions and companies have a significant effect on the demand for our products. Such programs are based on a wide variety of factors, including the resources available to make such purchases, the availability of funding from grants by governments or government agencies, the spending priorities for various types of equipment and the policies regarding capital expenditures during industry downturns or recessionary periods. If 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, results of operations or financial condition could be materially and adversely affected.
Changes in the healthcare industry could have an adverse effect on our business, results of operations and financial condition.
There have been, and will continue to be, significant changes in the healthcare industry in an effort to reduce costs. These changes include:
•The trend towards managed care, together with healthcare reform of the delivery system in the United States and efforts to reform in Europe, has resulted in increased pressure on healthcare providers and other participants in the healthcare industry to reduce selling prices. Consolidation among healthcare providers and consolidation among other participants in the healthcare industry has resulted in fewer, more powerful groups, whose purchasing power gives them cost containment leverage. In particular, there has been a consolidation of laboratories and a consolidation of blood transfusion centers. These industry trends and competitive forces place constraints on the levels of overall pricing, and thus could have a material adverse effect on our gross margins for products we sell in clinical diagnostic markets.
•Third party payors, such as Medicare and Medicaid in the United States, have reduced their reimbursements for certain medical products and services. Our Clinical Diagnostics business is impacted by the level of reimbursement available for clinical tests from third party payors. In the United States payment for many diagnostic tests furnished to Medicare fee-for-service beneficiaries is made based on the Medicare Clinical Laboratory Fee Schedule (CLFS), a fee schedule established and adjusted from time to time by the Centers for Medicare and Medicaid Services (CMS). Some commercial payors are guided by the CLFS in establishing their reimbursement rates. Laboratories and clinicians may decide not to order or perform certain clinical diagnostic tests if third party payments are inadequate, and we cannot predict whether third party payors will offer adequate reimbursement for tests utilizing our products to make them commercially attractive. Legislation, such as the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (PPACA) and the Middle Class Tax Relief and Job Creation Act of 2012, has reduced the payments for clinical laboratory services paid under the CLFS. In addition, the Protecting Access to Medicare Act of 2014 (PAMA) has made significant changes to the way Medicare will pay for clinical laboratory services, which has further reduced reimbursement rates.
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To the extent that the healthcare industry seeks to address the need to contain costs stemming from reform measures such as those contained in the PPACA and the PAMA, or in future legislation, by limiting the number of clinical tests being performed or the amount of reimbursement available for such tests, our business, results of operations and financial condition could be adversely affected. If these changes in the healthcare markets in the United States and Europe continue, we could be forced to alter our approach in selling, marketing, distributing and servicing our products.
We are subject to substantial government regulation, and any changes in regulation or violations of regulations by us could adversely affect our business, prospects, results of operations or financial condition.
Some of our products (primarily our Clinical Diagnostic products), production processes and marketing are subject to U.S. federal, state and local, and foreign regulation, including by the FDA in the United States and its foreign counterparts. The FDA regulates our Clinical Diagnostic products as medical devices, and we are subject to significant regulatory clearances or approvals to market our Clinical Diagnostic products and other requirements including, for example, recordkeeping and reporting requirements, such as the FDA’s medical device reporting regulations and reporting of corrections and removals. The FDA has broad regulatory and enforcement powers. If the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement actions ranging from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals, seizure or recall of our products, total or partial shutdown of production, withdrawal of approvals or clearances already granted, and criminal prosecution.
The FDA can also require us to repair, replace or refund the cost of devices that we manufactured or distributed.
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of our products or impact our ability to modify our currently approved or cleared products on a timely basis. Changes in the FDA’s review of certain clinical diagnostic products referred to as laboratory developed tests, which are tests developed by a single laboratory for use only in that laboratory, could affect some of our customers who use our Life Science instruments for laboratory developed tests. In the past, the FDA has chosen to not enforce applicable regulations and has not reviewed such tests for approval. However, the FDA has issued draft guidance that it may begin enforcing its medical device requirements, including premarket submission requirements, to such tests. 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. For example, in April 2017 the European Parliament voted to enact final regulations that include broad changes regarding in vitro diagnostic devices and medical devices, which will require us to modify or re-register some products and will result in additional costs. In addition, Russia has enacted more stringent medical product registration and labeling regulations, China has enacted stricter labeling requirements, and we expect other countries, such as Brazil and India, to impose more regulations that impact our product registrations. Brexit also will likely result in additional regulatory requirements associated with goods sold in the United Kingdom and will likely result in additional complexities and possible delays with respect to goods, raw materials and personnel moving between the United Kingdom and the European Union. In addition, new government administrations may interpret existing regulations or practices differently. For example, the Mexican health regulatory agency COFEPRIS in 2019 cited Bio-Rad’s Mexican subsidiary for operating practices that had been endorsed by a prior administration, which has impacted our ability to conduct our Clinical Diagnostics business in Mexico. Due to these evolving and diverse requirements, we face uncertain product approval timelines, additional time and effort to comply, as well as the potential for reduced sales and/or fines for noncompliance. Increasing protectionism in such countries also impedes our ability to compete with local companies. For example, we may not be able to participate
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in certain public tenders in Russia because of increasing measures to restrict access to such tenders for companies without local manufacturing capabilities. Such regulations could adversely affect our business, results of operations and financial condition. See also our risk factors regarding our international operations and regarding global economic and geopolitical conditions above.
We are also subject to government regulation of the use and handling of a number of materials and controlled substances. The U.S. Drug Enforcement Administration establishes registration, security, recordkeeping, reporting, storage, distribution and other requirements for controlled substances pursuant to the Controlled Substances Act of 1970. Failure to comply with present or future laws and regulations could result in substantial liability to us, suspension or cessation of our operations, restrictions on our ability to expand at our present locations or require us to make significant capital expenditures or incur other significant expenses.
We cannot assure you that we will be able to integrate acquired companies, products or technologies into our company successfully, or 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 acquisitions 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. Goodwill and non-amortizable intangible assets are subject to impairment testing, and potential periodic goodwill impairment charges, amortization expenses related to certain intangible assets, and other write-offs could harm our operating results. Impairment tests are highly sensitive to changes in assumptions and minor changes to assumptions could result in impairment losses. If the results forecast in our impairment tests are not achieved, or business trends vary from the assumptions used in forecasts, or external factors change detrimentally, future impairment losses may occur. For example, as we previously discussed in Item 7 of our Annual Report for the period ended December 31, 2017, one reporting unit, whose goodwill was primarily from the acquisitions of Biotest AG and DiaMed Holding AG, had excess fair value over book value of only 8% at December 31, 2017. The goodwill allocated to this reporting unit as of December 31, 2017 was $263.6 million. We impaired all the goodwill related to this reporting unit for the year ended December 31, 2018 because assumptions utilized in our 2017 forecast did not materialize.
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, results of operations and financial condition.
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Product quality and liability issues could harm our reputation and negatively impact our business, results of operations and financial condition.
We must adequately address quality issues associated with our products, including defects in our engineering, design and manufacturing processes, as well as defects in third-party components included in our products. Our instruments, reagents and consumables are complex, and identifying the root cause of quality issues, especially those affecting reagents or third-party components, is difficult. We may incur significant costs and expend substantial time in researching and remediating such issues. Quality issues could also delay our launching or manufacturing of new products. In addition, quality issues, unapproved uses of our products, or inadequate disclosure of risks related to our products, could result in product recalls or product liability or other claims being brought against us. These issues could harm our reputation, impair our relationship with existing customers and harm our ability to attract new customers, which could negatively impact our business, results of operations and financial condition.
Lack of key personnel could hurt our business.
Our products are very technical in nature. In general, only highly qualified and well-trained scientists have the necessary skills to develop, market and sell our products, and many of our manufacturing positions require very specialized knowledge and skills. In addition, the global nature of our business also requires that we have sophisticated and experienced staff to comply with increasingly complex international laws and regulations. We face intense competition for these professionals from our competitors, customers, marketing partners and other companies throughout our industry. In particular, the job market in Northern California, where many of our employees are located, is very competitive. If we do not offer competitive compensation and benefits, we may fail to retain or attract a sufficient number of qualified personnel, which could impair our ability to properly run our business.
In some cases we rely on temporary personnel or consultants, and we may do so in the future. Such temporary personnel or consultants may lack the knowledge and/or specific skills necessary for our business, require time to train without benefiting us through extended employment and increase our costs. In addition, as noted above, our strategic initiatives, such as our internal restructuring and ERP implementation, may be burdensome and disruptive and lead to employee dissatisfaction and attrition. Loss, including retirement, of long-term personnel may negatively impact our ability to conduct our business.
A reduction or interruption in the supply of components and raw materials could adversely affect our manufacturing operations and related product sales.
The manufacture of many of our products requires the timely delivery of sufficient amounts of quality components and materials. We manufacture our products in numerous manufacturing facilities around the world. We acquire our components and materials from many suppliers in various countries. We work closely with our suppliers to ensure the continuity of supply but we cannot guarantee these efforts will always be successful. Further, while we seek to diversify our sources of components and materials, in certain instances we acquire components and materials from a sole supplier. In addition, due to the regulatory environment in which we operate, we may be unable to quickly establish additional or replacement sources for some components or materials. If our supply is reduced or interrupted or of poor quality, and we are unable to develop alternative sources for such supply, our ability to manufacture our products in a timely or cost-effective manner could be adversely affected, which would adversely affect our ability to sell our products. See also our risk factor regarding the COVID-19 pandemic above.
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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 business, results of operations and financial condition.
We have significant manufacturing and distribution facilities, including 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. These occurrences could damage or destroy our facilities which may result in interruptions to our business and losses that exceed our insurance coverage. In addition, electricity outages, strikes or other labor unrest at any of our sites or surrounding areas could cause disruption to our business.
Acts of terrorism, bioterrorism, violence or war, or public health issues such as the outbreak of a contagious disease like COVID-19 could also affect the markets in which we operate, our business operations and strategic plans. Political unrest may affect our sales in certain regions, such as in Southeast Asia, the Middle East and Eastern Europe. Any of these events could adversely affect our business, results of operations and financial condition. See also our risk factor regarding the COVID-19 pandemic above for a discussion of the current risks we are experiencing and continue to face relating to the COVID-19 pandemic.
We may have higher than anticipated tax liabilities.
We are subject to income taxes in the United States and many foreign jurisdictions. We report our results of operations based on our determination of the amount of taxes owed in various tax jurisdictions in which we operate. The determination of our worldwide provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the ultimate tax determination may not be certain. Our determination of our tax liabilities is subject to review or examination by tax authorities in various tax jurisdictions. Tax authorities have disagreed with our judgment in the past and may disagree with positions we take in the future resulting in assessments of additional taxes. Any adverse outcome of such review or examination could have a negative impact on our operating results and financial condition.
Economic and political pressures to increase tax revenues in various jurisdictions may make resolving tax disputes more difficult. For example, in recent years, the tax authorities in Europe have disagreed with our tax positions related to hybrid debt, research and development credits, transfer pricing and indirect taxes, among others. We regularly assess the likelihood of the outcome resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals.
The results from various tax examinations, audits and litigation may differ from the liabilities recorded in our financial statements and could materially and adversely affect our financial results and cash flows in the periods in which those determinations are made.
Changes in tax laws or rates, changes in the interpretation of tax laws or changes in the jurisdictional mix of our earnings could adversely affect our financial position and results of operations.
On December 22, 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) which made a number of substantial changes to how the United States imposes income tax on multinational corporations. The U.S Treasury, Internal Revenue Service and other standard setting bodies continue to issue guidance and interpretation relating to the Tax Act. As future guidance is issued, we may make adjustments to amounts previously reported that could materially impact our financial statements.
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The full impact of the COVID-19 pandemic is uncertain. The COVID-19 pandemic has negatively impacted and, we expect, will continue to negatively impact our business operations, financial conditions and results of operations in a variety of ways and may impact our anticipated tax liabilities. Governments in the countries in which we operate are passing legislation intended to alleviate the economic burdens of the COVID-19 pandemic, including various tax incentives. We are continuing to evaluate the impact of these tax incentives to our financial statements.
Our global operations subject us to income and other taxes in the U.S. and in numerous foreign jurisdictions, each with different tax schemes and tax rates. In addition to the changes in tax laws and the interpretation of tax laws and tax rates in these jurisdictions, the jurisdictional mix of our earnings in countries with differing statutory tax rates can have a significant impact on our effective tax rate from period to period.
The tax effect of our position in Sartorius AG and the jurisdictional mix of our earnings could continue to materially affect our financial results and cash flow.
In addition, the adoption of some or all of the recommendations set forth in the Organization for Economic Co-operation and Development’s project on “Base Erosion and Profit Shifting” (BEPS) by tax authorities in the countries in which we operate, could negatively impact our effective tax rate. These recommendations focus on payments from affiliates in high tax jurisdictions to affiliates in lower tax jurisdictions and the activities that give rise to a taxable presence in a particular country.
Our reported financial results may be materially affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States, or U.S. GAAP, are subject to interpretation by the Financial Accounting Standards Board, or FASB, the U.S. Securities and Exchange Commission, or SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.
For example, in January 2016, the FASB issued Accounting Standards Update No. (ASU) 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities." Amendments under ASU 2016-01, among other items, require that all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting), such as our position in Sartorius AG, will be measured at fair value through earnings. The impact of adoption of ASU 2016-01 in the first quarter of 2018 materially impacted our condensed consolidated statements of income due to our position in Sartorius AG, and this impact may continue in future periods.
Environmental, health and safety regulations and enforcement proceedings may negatively impact our business, results of operations and financial condition.
Our operations are subject to federal, state, local and foreign environmental laws and regulations that govern such activities as transportation of goods, 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 must also comply with various health and safety regulations in the United States and abroad in connection with our operations.
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We may in the future incur capital and operating costs to comply with currently existing laws and regulations, and possible new statutory enactments, and these expenditures may be significant. We have incurred, and may in the future incur, fines related to environmental matters and/or liability for costs or damages related to spills or other releases of hazardous substances into the environment at sites where we have operated, or at off-site locations where we have sent hazardous substances for disposal. We cannot assure you, however, that such matters or any future obligations to comply with environmental or health and safety laws and regulations will not adversely affect our business, results of operations or financial condition.
Our debt may restrict our future operations.
We have substantial debt and have the ability to incur additional debt. As of September 30, 2020, we had approximately $438.9 million of outstanding indebtedness, primarily consisting of the 4.875% Notes due in December 2020 which we intend to repay when due, as further discussed in Note 6 of the condensed consolidated financial statements. In addition, we have a revolving credit facility that provides for up to $200.0 million, $0.2 million of which has been utilized for domestic standby letters of credit. Our incurrence of substantial amounts of debt may have important consequences. For instance, it could:
•make it more difficult for us to satisfy our financial obligations, including those relating to our outstanding debt;
•require us to dedicate a substantial portion of our cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes;
•increase our vulnerability to general adverse economic and industry conditions;
•limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
•place us at a competitive disadvantage compared with some of our competitors that have less debt; and
•limit our ability to obtain additional financing required to fund working capital and capital expenditures and for other general corporate purposes.
Our existing credit facility and the terms of our other debt instruments, including agreements we may enter in the future, contain or will contain covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These covenants place restrictions on our ability to, among other things: incur additional debt; acquire other businesses or assets through merger or purchase; create liens; make investments; 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 comply with certain financial ratios, including a maximum consolidated leverage ratio test and a minimum consolidated interest coverage ratio test.
Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of any of these restrictions could result in a default. An event of default under our debt agreements would permit some of our lenders to declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest. 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.
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We are subject to healthcare laws and regulations and could face substantial penalties if we are unable to fully comply with such laws.
We are subject to healthcare regulation and enforcement by both the U.S. federal government and the U.S. states and foreign governments in which we conduct our business. These healthcare laws and regulations include, for example:
•the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from soliciting, receiving, offering or providing remuneration, directly or indirectly, in return for or to induce either the referral of an individual for, or the purchase order or recommendation of, any item or services for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs;
•U.S. federal false claims laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent. In addition, the U.S. federal government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes;
•the U.S. Physician Payment Sunshine Act, which requires certain manufacturers of drugs, biologics, devices and medical supplies to record any transfers of value to U.S. physicians and U.S. teaching hospitals;
•the Health Insurance Portability and Accountability Act ("HIPAA"), as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and
•state or foreign law equivalents of each of the U.S. federal laws above, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers.
These laws will continue to impose administrative, cost and compliance burdens on us. The shifting compliance environment and the need to build and maintain robust systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may violate one or more of these requirements. In addition, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business, results of operations and financial condition.
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Regulations related to “conflict minerals” could adversely impact our business.
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted disclosure requirements regarding the use of certain minerals, known as conflict minerals, which are mined from the Democratic Republic of Congo (DRC) and adjoining countries, as well as procedures regarding a manufacturer's efforts to identify the sourcing of such minerals and metals produced from those minerals. We have incurred, and will continue to incur, additional costs in order to comply with the SEC’s disclosure requirements. In addition, we might incur further 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 “DRC conflict free”, which could place us at a competitive disadvantage if we do not do so. We filed our report for the calendar year 2019 with the SEC on May 28, 2020.
Risks related to our common stock
A significant majority of our voting stock is held by the Schwartz family, which could lead to conflicts of interest.
We have two classes of voting stock: Class A Common Stock and Class B Common Stock. With a few exceptions, holders of Class A and Class B Common Stock vote as a single class. When voting as a single class, each share of Class A Common Stock is entitled to one-tenth of a vote, while each share of Class B Common Stock has one vote. In the election or removal of directors, the classes vote separately and the holders of Class A Common Stock are entitled to elect 25% of the Board of Directors, with holders of Class B Common Stock electing the remaining directors.
As a result of the Schwartz family's ownership of our Class A and Class B Common Stock, they are able to elect a majority of our directors, effect fundamental changes in our direction and control matters affecting us, including the determination of business opportunities that may be suitable for our company. The Schwartz family may exercise its control over us according to interests that are different from other investors’ or debtors’ interests. In particular, this concentration of ownership and voting power may have the effect of delaying or preventing a change in control of our company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In November 2017, the Board of Directors authorized a new share repurchase program, granting Bio-Rad authority to repurchase, on a discretionary basis, up to $250.0 million of outstanding shares of our common stock (“Share Repurchase Program”). In July 2020, the Board of Directors authorized increasing the Share Repurchase Program to allow us to repurchase up to an additional $200.0 million of stock. As of September 30, 2020, $273.1 million remained under the Share Repurchase Program.
Repurchases under the Share Repurchase Program may be made at management's discretion from time to time on the open market or through privately negotiated transactions. The authorization has no expiration.
The following table contains information on the shares of our common stock that we purchased or otherwise acquired during the three months ended September 30, 2020.
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| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May yet be Purchased Under the Plans or Programs (in millions) | ||||||||||
| July 1 to July 31, 2020 | — | $ | — | — | $ | 273.1 | ||||||||
| August 1 to August 31, 2020 | — | $ | — | — | $ | 273.1 | ||||||||
| September 1 to September 30, 2020 | — | $ | — | — | $ | 273.1 | ||||||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
(a) Exhibits
The following documents are filed as part of this report:
| Exhibit No. | |||||
| 10.1 | |||||
| 10.2 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101.INS | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. | ||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||
| 104.1 | The cover page Interactive Data File is formatted in Inline XBRL and is contained in Exhibits 101 | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
| BIO-RAD LABORATORIES, INC. | |||||||||||
| (Registrant) | |||||||||||
| Date: | October 30, 2020 | /s/ Norman Schwartz | |||||||||
| Norman Schwartz, Chairman of the Board, | |||||||||||
| President and Chief Executive Officer | |||||||||||
| Date: | October 30, 2020 | /s/ Ilan Daskal | |||||||||
| Ilan Daskal, Executive Vice President, | |||||||||||
| Chief Financial Officer | |||||||||||
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BIO-RAD LABORATORIES, INC.
2017 INCENTIVE AWARD PLAN
GLOBAL RESTRICTED STOCK Unit AWARD GRANT NOTICE
Bio-Rad Laboratories, Inc., a Delaware corporation, (the “Company”), pursuant to its 2017 Incentive Award Plan, as amended from time to time (the “Plan”), hereby grants to the individual listed below (“Holder”), Restricted Stock Units (“RSUs”) with respect to the number of shares of the Company’s Class A common stock set forth below (the “Shares”). This Restricted Stock Unit Award is subject to all of the terms and conditions as set forth herein and in the Global Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Restricted Stock Unit Agreement”), any country-specific provisions for Holder's country included in Exhibit B attached hereto (the "Country Addenda") and the Plan, each of which is incorporated herein by reference. Unless otherwise defined herein, capitalized terms used in this Grant Notice shall have the meanings given such terms in the Plan.
| Holder: | |||||
| Grant Date: | |||||
| Vesting Commencement Date: | |||||
| Total Number of RSUs: | |||||
| Award Number: | |||||
| Vesting Schedule: | 25% of the RSUs shall vest on the first anniversary of the Vesting Commencement Date and an additional 25% shall vest on each subsequent anniversary of the Vesting Commencement Date, such that 100% of the RSUs are vested on the fourth anniversary of the Vesting Commencement Date, subject to Holder continuing to be an Employee of the Company or one of its Subsidiaries. | ||||
Commencement Date and an additional 25% shall vest on each subsequent anniversary of the Vesting Commencement Date, such that 100% of the RSUs are vested on the fourth anniversary of the Vesting Commencement Date, subject to Holder continuing to be an Employee of the Company or one of its Subsidiaries.
By his or her acceptance of the RSUs through the Company's online acceptance procedure (or by his or her signature and the signature of the Company’s representative below), Holder agrees to be bound by the terms and conditions of the Plan, the Restricted Stock Unit Agreement, the Country Addenda and this Grant Notice. Holder has reviewed the Plan, the Restricted Stock Unit Agreement, the Country Addenda and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Restricted Stock Unit Agreement, the Country Addenda and the Plan. Holder hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator of the Plan upon any questions arising under the Plan, this Grant Notice, the Restricted Stock Unit Agreement or the Country Addenda.
BIO-RAD LABORATORIES, INC.: Holder: | HOLDER: | ||||||||||
| By: | /s/ Timothy S. Ernst __ | By: | |||||||||
| Print Name: | Timothy S. Ernst_____________ | Print Name: | |||||||||
| Title: | EVP, General Counsel & Secretary | ||||||||||
EXHIBIT A TO
BIO-RAD LABORATORIES, INC.
2017 INCENTIVE AWARD PLAN
GLOBAL RESTRICTED STOCK UNIT AWARD GRANT NOTICE
GLOBAL RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Global Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Restricted Stock Unit Award Agreement (this “Agreement”) is attached, Bio-Rad Laboratories, Inc., a Delaware corporation (the “Company”), has granted to Holder the right to receive the number of Restricted Stock Units (the “RSUs”) under the 2017 Incentive Award Plan, as amended from time to time (the “Plan”), as set forth in the Grant Notice.
All capitalized terms used in this Agreement without definition shall have the meanings ascribed in the Plan and the Grant Notice.
The RSUs are subject to the terms and conditions of the Plan, which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.
1.Grant and Vesting of the RSUs. As set forth in the Grant Notice, the Company hereby grants Holder RSUs, subject to all the terms and conditions in this Agreement, the Country Addenda, the Grant Notice and the Plan. The RSUs shall vest on the Vesting Date set forth on the Grant Notice, subject to Holder's continued employment with the Company or any Subsidiary through the applicable Vesting Date. In the event Holder ceases to be an Employee prior to a Vesting Date, the RSUs shall cease vesting immediately upon such cessation of employment and the unvested RSUs awarded by this Agreement shall be forfeited. However, no shares of Class A common stock (the “Shares”) shall be issued to Holder until the time set forth in Section 2 below. Prior to the actual issuance of any Shares, such RSUs will represent an unsecured obligation of the Company, payable only from the general assets of the Company. Only whole Shares shall be issued upon vesting of the RSUs, and the Company shall be under no obligation to issue any fractional Shares to Holder.
2.Issuance of Shares. Shares shall be issued to Holder on or as soon as administratively practicable following each vesting date as set forth in the Grant Notice (the “Vesting Date”) (and in no event later than 2 1/2 months following the end of the calendar year in which such Vesting Date or vesting event occurs After each Vesting Date the Company shall promptly cause to be issued (either in book-entry form or otherwise) to Holder or Holder’s beneficiaries, as the case may be, Shares with respect to RSUs that became vested on such Vesting Date. Notwithstanding the above, the Company may, in its discretion, pay to Holder all or a portion of any vested RSUs in cash in an amount equal to the Fair Market Value of such Shares on the applicable Vesting Date.
3.Dividend Equivalents. No Dividend Equivalents shall be paid to Holder prior to the Vesting Date; rather, such Dividend Equivalents, if any, will accrue, subject to forfeiture in the event Holder ceases to be an Employee prior to the Vesting Date, and be notionally credited to Holder’s RSU account and paid out in the form of additional Shares at the time that the underlying RSUs are paid as set forth in Section 2 above.
4.Acceleration of Vesting. Notwithstanding Section 1 above, pursuant to Section 13.2(d) of the Plan, the RSUs shall become fully vested upon a Change in Control.
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5.Taxes.
(a)Regardless of any action the Company, or, if different, Holder’s employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Holder’s participation in the Plan and legally applicable to Holder (“Tax-Related Items”), Holder acknowledges and agrees that the ultimate liability for all Tax-Related Items is and remains Holder’s responsibility and may exceed the amount actually withheld by the Company or the Employer. Holder further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including, but not limited to, the grant, vesting or settlement of the RSUs, the issuance of Shares upon settlement of the RSUs, the subsequent sale of Shares acquired under the Plan and the receipt of dividends or Dividend Equivalents, if any; and (ii) do not commit to and are under no obligation to structure the terms of the RSUs or any aspect of the RSUs to reduce or eliminate Holder’s liability for Tax-Related Items or achieve any particular tax result. Further, if Holder is subject to Tax-Related Items in more than one jurisdiction, Holder acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b)Prior to any relevant taxable or tax withholding event, as applicable, Holder agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy any withholding obligation for Tax-Related Items. In this regard, except as set forth in any separate 10b5-1 plan entered into by Holder and approved by the Company, Holder authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the withholding obligation for Tax-Related Items by one or any combination of the following:
(i) requiring Holder to pay an amount the Company determines to be an appropriate amount to satisfy the Tax-Related Items directly to the Company and/or the Employer in the form of cash, check or other cash equivalent;
(ii) withholding from proceeds of the sale of a number of Shares acquired upon settlement of the RSUs that the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the withholding obligations for Tax-Related Items either through a voluntary sale or through a mandatory sale arranged by the Company (on Holder’s behalf pursuant to this authorization), provided that Holder will be responsible for all brokerage fees and other costs of the sale and agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses related to any such sale and that no fractional Shares will be sold to cover the Tax-Related Items;
(iii) deducting an amount the Company determines to be an appropriate amount to satisfy the Tax-Related Items from wages or other cash compensation payable to Holder by the Company and/or the Employer;
(iv) withholding a number of vested whole Shares subject to the RSUs otherwise issuable to Holder that have a Fair Market Value equal to the amount the Company determines to be an appropriate amount to satisfy the withholding obligations for Tax-Related Items; and/or
(v) any other method of withholding determined by the Company and, to the extent required by Applicable Law or the Plan, approved by the Committee.
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(c)Notwithstanding anything to the contrary in this Section 5, if Holder is an officer of the Company within the meaning of Section 16 of the Exchange Act, the Board or Committee (as constituted to satisfy Rule 16b-3 of the Exchange Act) will determine which, if any, of the withholding methods set out in Section 5(b) will be used.
(d) In determining the appropriate amount to satisfy any withholding obligation for Tax-Related Items, the Company may refer to minimum statutory withholding rates or other applicable withholding rates, including up to the maximum statutory tax rate for the tax jurisdiction(s) applicable to Holder, provided that Holder may be required to pay Tax-Related Items in the event that a minimum statutory withholding rate is used or Holder may receive a refund in cash of any amount that was over-withheld based on a rate that exceeds Holder’s actual tax rate and, in this case, Holder will have no entitlement to the Class A common stock equivalent.
(e)If the obligation for Tax-Related Items is satisfied by withholding a number of whole Shares as described in Section 5(b)(iv) above, for tax purposes, Holder is deemed to have been issued the full number of Shares subject to the vested RSUs, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.
(f)The Company shall not be obligated to deliver any new certificate representing Shares issuable (or other indicia of Share ownership) with respect to the RSUs to Holder or Holder’s legal representative unless and until Holder or Holder’s legal representative shall have paid or otherwise satisfied in full the amount of all Tax-Related Items.
(g)This Agreement, the RSUs and payments made pursuant to this Agreement are intended to comply with or qualify for an exemption from Section 409A of the Code and the Treasury Regulations thereunder (“Section 409A”) and shall be interpreted in a manner consistent with that intention. Notwithstanding any other provision of this Agreement, the Company reserves the right, to the extent the Company deems necessary or advisable, in its sole discretion, to unilaterally amend the Plan and/or this Agreement to ensure that all RSUs are awarded in a manner that qualifies for exemption from or complies with Section 409A. This Section 5(g) does not create an obligation on the part of the Company to modify the terms of this Agreement or the Plan or to mitigate any additional tax, interest and/or penalties or other adverse tax consequences that may apply under Code Section 409A if compliance is not practical and does not guarantee that the RSUs or the delivery of Shares upon vesting/settlement of the RSU will not be subject to taxes, interest and penalties or any other adverse tax consequences under Section 409A of the Code. The Company will have no liability to the Holder or any other party if the RSU that is intended to be exempt from, or compliant with, Section 409A of the Code, is not so exempt or compliant or for any action taken by the Administrator with respect thereto.
6.Award Not Transferable. This grant of RSUs and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.
7.Rights as Stockholder. Neither Holder nor any person claiming under or through Holder will have any of the rights or privileges of a stockholder of the Company with respect to any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued and recorded on the records of the Company or its transfer agents or
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registrars, and delivered to Holder (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, Holder will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
8.Conditions to Issuance of Certificates. Notwithstanding any other provision of this Agreement, unless there is an available exemption from any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to issue or deliver any certificate or certificates for any Shares prior to the fulfillment of all of the following conditions: (a) the admission of the Shares to listing on all stock exchanges on which such Shares are then listed, (b) the completion of any registration or other qualification of the Shares under any state, federal, or local law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or other governmental regulatory body, which the Company shall, in its sole and absolute discretion, deem necessary and advisable, (c) the obtaining of any approval or other clearance from any governmental agency that the Company shall, in its absolute discretion, determine to be necessary or advisable, and (d) the lapse of any such reasonable period of time following the date the RSUs vest as the Company may from time to time establish for reasons of administrative convenience. Holder understands that the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the Shares. Further, Holder agrees that the Company shall have unilateral authority to amend the Plan and this Agreement without Holder’s consent to the extent necessary to facilitate compliance with securities or other laws applicable to the issuance of Shares.
9.Not a Contract of Employment. Nothing in this Agreement or in the Plan, or Holder’s participation in the Plan, shall confer upon Holder any right to continue to serve as an Employee or other service provider of the Company, any Subsidiary or the Employer and shall not interfere with the ability of the Company, any Subsidiary or the Employer to terminate Holder’s employment or service relationship at any time. Further, the grant of RSUs and Holder’s participation in the Plan will not be interpreted to form or amend an employment contract or service relationship with the Company or any Subsidiary.
10.Nature of Grant. In accepting the RSUs, Holder acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time to the extent permitted by the Plan;
(b)the grant of the RSUs is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of RSUs, or benefits in lieu of RSUs even if RSUs have been granted in the past;
(c)all decisions with respect to future awards of RSUs, if any, will be at the sole discretion of the Company;
(d)Holder’s participation in the Plan is voluntary;
(e)the RSUs and the Shares subject to the RSUs, and the income and value of same, are not intended to replace any pension rights or compensation;
(f)the RSUs and the Shares subject to the RSUs, and the income and value of same, are not part of normal or expected compensation or salary for any purposes, including, but not limited to,
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calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, holiday pay, pension or retirement or welfare benefits or similar payments;
(g)unless otherwise agreed with the Company, the RSUs and the Shares subject to the RSUs, and the income and value of same, are not granted for, or in connection with, any service the Holder may provide as a director of any Subsidiary;
(h)the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
(i)no claim or entitlement to compensation or damages shall arise from forfeiture of the RSUs resulting from termination of Holder’s employment or other service relationship (for any reason whatsoever and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Holder is employed or providing services or the terms of Holder’s employment or service agreement, if any);
(j)for purposes of the RSUs, Holder's employment or service relationship will be considered terminated as of the date Holder is no longer actively providing services to the Company, the Employer or any other Subsidiary of affiliate of the Company (regardless of the reason for the termination and whether or not such termination is later to be found invalid or in breach of employment laws in the jurisdiction where Holder is employed or providing services or the terms of Holder’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or determined by the Company, Holder’s right to vest in the RSUs under the Plan, if any, will terminate as of such date and will not be extended by any notice period (e.g., Holder's period of active service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where Holder is employed or providing services or the terms of Holder’s employment or service agreement, if any); the Company shall have the exclusive discretion to determine when Holder is no longer actively providing services for purposes of the RSU Award (including whether Holder may still be considered to be providing services while on a leave of absence);
(k)unless otherwise provided in the Plan or by the Company in its discretion, the RSUs and the benefits evidenced by this Agreement do not create any entitlement to have the RSUs or any such benefits transferred to, or assumed by, another company nor be exchanged, cashed-out or substituted for, in connection with any corporate transaction affecting the shares of the Company; and
(l)neither the Company, the Employer nor any Subsidiary shall be liable for any foreign exchange rate fluctuation between Holder’s local currency and the United States Dollar that may affect the value of the RSUs or of any amounts due to Holder pursuant to the settlement of the RSUs or the subsequent sale of any Shares acquired upon settlement.
11.No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Holder’s participation in the Plan, or Holder’s acquisition or sale of the underlying Shares. Holder understands and agrees he or she should consult with his or her own personal tax, legal and financial advisors regarding Holder’s participation in the Plan before taking any action related to the Plan.
12.Data Privacy Consent
This Section 12 replaces Section 11.8 of the Plan.
The Company is located at 1000 Alfred Nobel Drive, Hercules, California, 94547, U.S.A., and grants RSUs under the Plan to employees of the Company and its Subsidiaries, at the Company's sole
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discretion. In order to do so and to implement, administer and manage its Plan, the Company needs to collect, use and otherwise process Holder's personal data.
If Holder would like to participate in the Plan, Holder will need to review the following information about the processing of personal data by or on behalf of the Company and declare Holder's consent by electronically agreeing to or signing this Agreement.
(a) Controller and European Union Representative. The Company, located at 1000 Alfred Nobel Drive, Hercules, California 94547, U.S.A., is the controller responsible for the processing of Holder's personal data in connection with the Plan. For Holders located in the European Union, please be aware that the Company’s representative in the European Union is Bio-Rad Laboratories GmbH, Heidemannstrasse 164, 80939 Munich, Germany.
(b) Personal Data Subject to Processing. The personal data processed by the Company in the context of the Plan includes, without limitation, Holder’s name, home address and telephone number, email address, hire date, date of birth, social insurance number or other identification number, tax residency, salary, salary grade, citizenship, nationality, passport number, job title, payroll tax withholding rates and/or deductions as applicable to Participant, any shares of stock or directorships held in the Company or any Subsidiary, and details of all RSUs or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in Holder's favor, which the Company receives from Holder or the Employer (“Personal Data”).
(c) Purposes and Legal Basis of the Processing. The Company processes the Personal Data for the purpose of implementing, administering and managing Holder's participation in the Plan. For those jurisdictions requiring a legal basis for processing such Personal Data, the legal basis for the processing of Holder's Personal Data by the Company, its third-party service providers, and the Subsidiary of the Company Holder may transfer employment to as described in Section (d) below is Holder's declaration of consent provided by electronically agreeing to or signing this Agreement.
(d) Stock Plan Administration Service Providers and Other Data Recipients. The Company transfers Holder's Personal Data, or parts thereof, to E*TRADE Securities LLC, 11 Times Square, 32nd Floor, New York, NY 10036, the brokerage firm engaged by the Company to hold Holders’ shares and other amounts acquired under the Plan, and its affiliated company E*TRADE Financial Corporate Services, Inc., 4005 Winward Plaza Drive, Alpharetta, GA 30005 (collectively “E*TRADE”), and to Computershare Trust Company, N.A., 462 South 4th Street, Suite 1600, Louisville, KY 40202, the financial institution engaged by the Company to monitor and maintain records of the shares acquired by Holders under the Plan, and its affiliated company Computershare Communications Services, 1325 Remington Blvd., Bolingbrook, IL 60490 (collectively “Computershare”), independent service providers based in the United States which assist the Company with the implementation, administration and management of the Plan. In the future, the Company may select different or additional service providers and share Holder's Personal Data with such different or additional service providers that assist the Company with the implementation, administration and management of the Plan. The Company's service providers will open an account for Holder to receive and trade Shares acquired under the Plan. Holder will be asked to agree on separate terms and data processing practices with the service provider, which is a condition to Holder's ability to participate in the Plan. In addition to its service providers, the Company might disclose Holder’s Personal Data to the Subsidiary of the Company Holder may transfer employment to in the future if necessary to implement, administer and manage Holder’s participation in the Plan or comply with applicable reporting obligations or other legal requirements. Holder may, at any time, request a
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list with the names and addresses of any recipients of the Personal Data by contacting Holder’s local human resources representative.
(e) International Data Transfers. For Holders residing outside of the United States, please be aware that the Company, E*TRADE and Computershare are located in the United States. Similarly, future service providers of the Company might be located in the United States or elsewhere outside of the European Union. Further, for Holders located in the European Union who transfer employment to a Subsidiary located outside of the European Union, please be aware that Holder’s Personal Data may be transferred to such Subsidiary located outside of the European Union. Depending on Holder's country of residence, Holder understands and acknowledges that the United States is not, and any other jurisdictions his or her Personal Data might be transferred to and processed in may not be, subject to an unlimited adequacy finding by the European Commission and might apply laws not providing a level of protection of Holder's Personal Data equivalent to the level of protection in his or her country of residence. As a result, in the absence of appropriate safeguards such as standard data protection clauses, the processing of Holder's Personal Data in the United States or, as the case may be, other jurisdictions outside the European Union might not be subject to substantive data processing principles or supervision by data protection authorities. In addition, Holder might not have enforceable rights regarding the processing of his or her Personal Data in such jurisdictions. By electronically agreeing or signing this Agreement, Holder explicitly declares his or her consent to the Company receiving and transferring Holder's Personal Data to E*TRADE, Computershare, as the case may be, future service providers of the Company, and to the Subsidiary Holder may transfer employment to without implementing standard data protection clauses or similar safeguards and such processing of Holder's Personal Data is exclusively based on Holder's consent.
(f) Data Retention. The Company and the Subsidiary Holder may transfer employment to will use Holder's Personal Data only as long as is necessary to implement, administer and manage Holder's participation in the Plan, or to comply with legal or regulatory obligations, including under tax and securities laws. This period may extend beyond Holder’s period of employment at the Company or at the Subsidiary Holder may transfer employment to the extent unsold shares of Company stock remain in Holder’s E*Trade account or such other account established in the future to serve the Plan in a similar manner. To the extent that the Company or the Subsidiary Holder may transfer employment to comply with legal or regulatory obligations, the legal basis, where required, for the processing of Holder's Personal Data would be compliance with the relevant laws or regulations or the pursuit by the Company or by the Subsidiary Holder may transfer employment to of respective legitimate interests not outweighed by Holder's interests, rights or freedoms. When the Company or the Subsidiary Holder may transfer employment to no longer needs Holder's Personal Data for any of the above purposes, it will cease processing it in this context and remove it from all of its systems used for such purposes to the fullest extent practicable.
(g) Data Subject Rights. Subject to the conditions set out in the applicable law, Holder may, without limitation, have the rights to (i) inquire whether and what kind of Personal Data the Company or the Subsidiary Holder may transfer employment to, holds about Holder and how it is processed, and to access or request copies of such Personal Data, (ii) request the correction or supplementation of Personal Data that is inaccurate, incomplete or out-of-date in light of the purposes underlying the processing, or to (iii) obtain the erasure of Personal Data no longer necessary for the purposes underlying the processing, processed based on withdrawn consent, processed for legitimate interests that, in the context of Holder's objection, do not prove to be compelling or processed in non-compliance with applicable legal requirements. In addition, Holder may, subject to the conditions set out in the applicable law and without limitation, have the rights to (iv) request the Company or the
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Subsidiary Holder may transfer employment to, to restrict the processing of Personal Data in certain situations where Holder feels its processing is inappropriate, (v) object, in certain circumstances, to the processing of Personal Data for legitimate interests, and to (vi) request portability of Personal Data that Holder has actively or passively provided to the Company or to the Subsidiary Holder transferred employment to (which does not include data derived or inferred from the collected data), where the processing of such Personal Data is based on consent or a contractual agreement with Holder and is carried out by automated means. In case of concerns, Holder may also have the right to lodge a complaint with the competent local data protection authority.
(h) Voluntariness and Consequences of Denial or Withdrawal of Consent. Holder's participation in the Plan and Holder's provision of consent is purely voluntary. Holder may deny or later withdraw Holder's consent at any time, with future effect and for any or no reason. If Holder does not consent, or if Holder later withdraws Holder’s consent, Holder's employment status, salary or service and career with the employer, a Subsidiary Holder may transfer employment to, will not be affected. The only consequence of denying or withdrawing Holder's consent is that the Company will not or no longer be able to grant RSUs or other equity awards to Holder or administer or maintain such awards. Therefore, denial or withdrawal of consent may affect Holder's ability to realize benefits from the RSUs and otherwise participate in the Plan. For more information on the consequences of Holder's denial or withdrawal of consent, Holder may contact his or her local human resources representative.
Finally, Holder understands that the Company may rely on a different legal basis for the collection, processing and/or transfer of the Personal Data either now or in the future and/or request Holder to provide another data privacy consent. If applicable and upon request of the Company or the Employer, Holder agrees to provide an executed acknowledgment or data privacy consent (or any other acknowledgments, agreements or consents) to the Company and/or the Employer that the Company and/or the Employer may deem necessary to obtain under the data privacy laws in Holder’ s country, either now or in the future. Holder understands that he or she may be unable to participate in the Plan if Holder fails to execute any such acknowledgment, agreement or consent requested by the Company and/or the Employer.
13.Governing Law and Venue. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of the Grant Notice and this Agreement, regardless of the law that might be applied under conflict of laws principles.
For purposes of litigating any dispute that arises under this grant of RSUs or this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California, agree that such litigation shall be conducted in the courts of Contra Costa County, California, or the federal courts for the United States for the Northern District of California, where this grant is made and/or to be performed.
14.Conformity to Securities Laws. Holder acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act, and any and all regulations and rules promulgated thereunder by the SEC, including without limitation Rule 16b-3 under the Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the RSUs are granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by Applicable Law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
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15.Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator, provided, that, except as may otherwise be provided by the Plan or this Agreement, no amendment, modification, suspension or termination of this Agreement shall adversely effect the RSUs in any material way without the prior written consent of Holder.
16.Notices. Notices required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the mail by certified or registered mail, with postage and fees prepaid, addressed to Holder to his or her address shown in the Company records, and to the Company at its principal executive office.
17.Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Holder and his or her heirs, executors, administrators, successors and assigns.
18.Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. Holder hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
19.Language. Holder acknowledges that he or she is sufficiently proficient in English to understand the terms and conditions of this Agreement. If Holder has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
20.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
21.Country Addenda. The RSUs shall be subject to any special terms and conditions set forth in Exhibit B to this Agreement for Holder’s country. Moreover, if Holder relocates to one of the countries included in Exhibit B, the special terms and conditions for such country will apply to Holder, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. Exhibit B constitutes part of this Agreement.
22.Imposition of Other Requirements. The Company reserves the right to impose other requirements on Holder’s participation in the Plan, on the RSUs and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Holder to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
23.Waiver. Holder acknowledges that a waiver by the Company of breach of any provision of the Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by Holder or any other Holder.
24.Insider Trading/Market Abuse Laws. Holder acknowledges that he or she may be subject to insider trading restrictions and/or market abuse laws based on the exchange (if any) on which Shares
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are listed, and in applicable jurisdictions, including but not limited to the United States, Holder’s country and the designated broker’s country, which may affect Holder’s ability to accept, acquire, sell or otherwise dispose of Shares, rights to Shares (e.g., RSUs) or rights linked to the value of Shares under the Plan during such times as Holder is considered to have “inside information” regarding the Company (as defined by the laws in applicable jurisdictions). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders Holder placed before he or she possessed inside information. Further, Holder could be prohibited from (i) disclosing the inside information to any third party, which may include fellow employees and (ii) “tipping” third parties or causing them otherwise to buy or sell securities. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Holder acknowledges he or she is responsible for complying with any applicable restrictions and is encouraged to speak to his or her personal legal advisor for further details regarding any applicable insider trading and/or market abuse laws in Holder’s country.
25.Foreign Asset / Account Reporting Requirements, Exchange Controls and Tax Requirements. Holder acknowledges that his or her country may have certain foreign asset and/or account reporting requirements and exchange controls which may affect his or her ability to acquire or hold Shares under the Plan or cash received from participating in the Plan (including from any dividends or Dividend Equivalents received or sale proceeds arising from the sale of Shares) in a brokerage or bank account outside his or her country. Holder understands that he or she may be required to report such accounts, assets or transactions to the tax or other authorities in his or her country. Holder also may be required to repatriate sale proceeds or other funds received as a result of Holder's participation in the Plan to his or her country through a designated bank or broker and/or within a certain time after receipt. In addition, Holder may be subject to tax payment and/or reporting obligations in connection with any income realized under the Plan and/or from the sale of Shares. Holder acknowledges that it is his or her responsibility to be compliant with all such requirements, and that Holder should consult his or her personal legal and tax advisors, as applicable, to ensure Holder's compliance.
26.Recovery of Erroneously Awarded Compensation. As an additional condition of receiving this Award, Holder agrees that the RSU and any proceeds or other benefits Holder may receive hereunder shall be subject to forfeiture and/or repayment to the Company to the extent and in the manner required (i) to comply with any requirements imposed under Applicable Law and/or the rules and regulations of the securities exchange or inter-dealer quotation system on which the Shares are listed or quoted, including, without limitation, pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and (ii) under the terms of any policy adopted by the Company as may be amended from time to time for reasons related to fraud, governance or similar considerations (and such requirements shall be deemed incorporated into this Agreement without the consent of Holder). Further, if Holder receives any amount in excess of what Holder should have received under the terms of the RSU for any reason (including without limitation by reason of a financial restatement, mistake in calculations or administrative error), all as determined by the Administrator, then Holder shall be required to promptly repay any such excess amount to the Company. For purposes of the foregoing, Holder expressly and explicitly authorizes the Company to issue instructions, on Holder’s behalf, to any brokerage firm and/or third party administrator engaged by the Company to hold Holder’s Shares and other amounts acquired under the Plan to re-convey, transfer or otherwise return such Shares and/or other amounts to the Company. This Section 26 is not the Company’s exclusive remedy with respect to such matters.
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EXHIBIT B TO
BIO-RAD LABORATORIES, INC.
2017 INCENTIVE AWARD PLAN
GLOBAL RESTRICTED STOCK UNIT AWARD GRANT NOTICE
COUNTRY ADDENDA
This Exhibit B, which is part of the Bio-Rad Laboratories, Inc. 2017 Incentive Award Plan Global Restricted Stock Unit Award Grant Notice and Global Restricted Stock Unit Award Agreement (the “Agreement”), contains individual country addenda which provide additional or different terms and conditions that govern the RSUs for Holders in such countries (“Addenda”). All capitalized terms used in this Exhibit B shall have the meanings ascribed in Grant Notice, the Agreement and/or the Plan, as applicable.
If the Holder is a citizen or resident of a country other than the one in which he or she is currently working and/or residing, is considered a resident of another country for local law purposes or transfers employment and/or residency between countries after the Grant Date, the Company shall, in its sole discretion, determine to what extent the terms and conditions included herein will apply to the Holder under these circumstances.
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ADDENDA
Australia
Australian Offer Document.
The Company is pleased to provide Holder with this offer to participate in the Plan. This offer sets out information regarding the grant of RSUs to Australian resident Employees of the Company and its Subsidiaries. This offer is provided by the Company to ensure compliance of the Plan with Australian Securities and Investments Commission (“ASIC”) Class Order 14/1000 and relevant provisions of the Corporations Act 2001.
In addition to the information set out in the Agreement, Holder also is being provided with copies of the following documents:
(a)the Plan;
(b)U.S. prospectus for the Plan; and
(c)Employee Information Supplement for Australia
(collectively, the “Additional Documents”).
The Additional Documents provide further information to help Holder make an informed investment decision about participating in the Plan. Neither the Plan nor the U.S. prospectus for the Plan is a prospectus for the purposes of the Corporations Act 2001.
Holder should not rely upon any oral statements made in relation to this offer. Holder should rely only upon the statements contained in the Agreement and the Additional Documents when considering participation in the Plan.
Tax Notification
The Plan is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997 (Cth) applies (subject to conditions in the Act).
Securities Law Notification
Investment in Shares involves a degree of risk. Holder who elects to participate in the Plan should monitor his or her participation and consider all risk factors relevant to the acquisition of Shares under the Plan as set out in the Agreement and the Additional Documents.
The information contained in this offer is general information only. It is not advice or information that takes into account Holder's objectives, financial situation and needs.
Holders should consider obtaining his or her own financial product advice from an independent person who is licensed by ASIC to give advice about participation in the Plan.
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Additional Risk Factors for Australian Residents
Holder should have regard to risk factors relevant to investment in securities generally and, in particular, to the holding of Shares. For example, the price at which Shares are quoted on the New York Stock Exchange may increase or decrease due to a number of factors. There is no guarantee that the price of the Shares will increase. Factors which may affect the price of Shares include fluctuations in the domestic and international market for listed stocks, general economic conditions, including interest rates, inflation rates, commodity and oil prices, changes to government fiscal, monetary or regulatory policies, legislation or regulation, the nature of the markets in which the Company operates and general operational and business risks.
In addition, Holder should be aware that the Australian dollar value of any Shares acquired at vesting will be affected by the U.S. dollar/Australian dollar exchange rate. Participation in the Plan involves certain risks related to fluctuations in this rate of exchange.
Class A Common Stock
Common stock of a U.S. corporation is analogous to ordinary shares of an Australian corporation. Each holder of the Company's Class A common stock is entitled to a one-tenth vote for every Share.
Dividends may be paid on the Shares out of any funds of the Company legally available for dividends at the discretion of the Board.
The Shares are traded on the New York Stock Exchange in the United States of America under the symbol “BIO”.
The Shares are not liable to any further calls for payment of capital or for other assessment by the Company and have no sinking fund provisions, pre-emptive rights, conversion rights or redemption provisions.
Ascertaining the Market Price of Shares
Holder may ascertain the current market price of the Shares as traded on the New York Stock Exchange at http://www.nyse.com under the symbol “BIO.” The Australian dollar equivalent of that price can be obtained at: http://www.rba.gov.au/statistics/frequency/exchange-rates.html.
This will not be a prediction of what the market price per Share will be when the RSUs vest or when the Shares are issued or of the applicable exchange rate on the actual Vesting Date or date the Shares are issued.
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ADDENDA
Belgium
No country specific provisions apply.
ADDENDA
B-4
Brazil
Compliance with Law
By accepting the RSUs, Holder acknowledges agreement to comply with applicable Brazilian laws and report and pay any and all Tax-Related Items associated with the vesting of the RSUs, the sale of any Shares acquired upon vesting of the RSUs and the receipt of any dividends.
Nature of Grant
This provision supplements Section 10 of the Agreement:
Holder also acknowledges agreement that, for all legal purposes, (i) the benefits provided to Holder under the Plan are unrelated to his or her employment; (ii) the Plan is not a part of the terms and conditions of Holder’s employment; (iii) the income from the RSUs, if any, is not part of Holder’s remuneration from employment; (iv) the value of the underlying Shares is not fixed and may increase or decrease over the vesting period without compensation to Holder, and (v) by participating in the Plan, the Holder is making an investment decision.
ADDENDA
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Canada
Restricted Stock Units Settled in cash or Shares
Notwithstanding any discretion in Section 9.5 of the Plan or Section 2 of the Agreement, RSUs granted to Holders in Canada shall be settled Shares only.
Nature of Grant
This provision replaces Section 10(j) of the Agreement:
For purposes of the RSUs, Holder’s employment or service relationship will be considered terminated, and the right (if any) to vest in the RSUs will terminate effective, as of the date that is the earliest of: (a) the date Holder’s employment or service relationship with the Company and its Subsidiaries is terminated, (b) the date Holder receives written notice of termination from the Employer, and (c) the date Holder is no longer actively providing services to the Company or any of its Subsidiaries, in any case regardless of any notice period or period of pay in lieu of such notice mandated under the employment laws in the jurisdiction where Holder is employed or the terms of Holder’s employment agreement, if any. In the event the date Holder is no longer providing active service cannot be reasonably determined under the terms of this Agreement and/or the Plan, the Company shall have the exclusive discretion to determine when Holder is no longer actively providing services for purposes of the RSUs (including whether Holder may still be considered to be actively providing services while on a leave of absence). Holder will not earn or be entitled to any pro-rated vesting for that portion of time before the date on which Holder’s right to vest terminates (as determined under this provision) nor will Holder be entitled to any compensation for lost vesting. Notwithstanding the foregoing, if applicable employment standards legislation explicitly requires continued entitlement to vesting during a statutory notice period, Holder’s right to vest in the RSUs under the Plan, if any, will terminate effective as of the last day of Holder’s minimum statutory notice period.
Securities Law Notification
Holder is permitted to sell the Shares acquired through the Plan through the designated broker appointed under the Plan, if any, provided the resale of Shares acquired under the Plan takes place outside of Canada through the facilities of a stock exchange on which the Shares are listed. The Shares are currently listed on the New York Stock Exchange under the ticker symbol “BIO” and Shares acquired under the Plan may be sold through this exchange.
The following provisions also will apply to Holders who are resident in Quebec:
Data Privacy
This provision supplements Section 12 of the Agreement:
Holder hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information from all personnel, professional or not, involved in the administration and operation of the Plan. Holder further authorizes the Company, any Subsidiary and E*TRADE (or any other stock plan service provider as may be selected by the Company to assist with the Plan) to disclose and discuss
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the Plan with their respective advisors. Holder further authorizes the Company and any Subsidiary to record such information and to keep such information in Holder’s employee file.
Consent to Receive Information in English
The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
Consentement Relatif à la Langue Utilisée
Les parties reconnaissent avoir expressement souhaité que la convention [“Agreement”], ainsi que tous les documents, avis et procédures judiciaries, éxecutés, donnés ou intentés en vertu de, ou liés, directement ou indirectement à la présente convention, soient rédigés en langue anglaise.
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ADDENDA
China
Immediate Sale of Shares upon Vesting
To facilitate local legal requirements, the Shares will be immediately sold upon vesting and Holder will be entitled to only the cash sale proceeds (less any Tax-Related Items or other withholding obligations set forth in Section 5 of the Agreement and any brokerage fees), unless the Committee later determines in its sole discretion that this restriction is no longer necessary or advisable for legal or administrative reasons. Holder should be aware that there may be some delay between the sale of the Shares and the payment of the proceeds to Holder due to applicable exchange control requirements. Holder understands and acknowledges that the Company is under no obligation to secure any particular sale price for the Shares acquired upon vesting of the RSUs or any particular exchange rate for converting the proceeds into local currency. By accepting this grant, Holder hereby instructs E*TRADE (or any successor broker designated by the Company), upon notification by the Company to E*TRADE (or such other broker) of the vesting of RSUs (or as soon as is administratively practical thereafter), to sell all the Shares issued upon vesting of the RSUs or held in Holder’s E*TRADE account, as applicable.
Exchange Control Requirements
Holder understands and agrees that Holder may be required to repatriate to China any proceeds from his or her participation in the Plan, including proceeds from the sale of Shares acquired upon vesting of RSUs, and any dividends or Dividend Equivalents paid to Holder in relation to RSUs through a special exchange control account established by the Company or any of its Subsidiaries in China. Holder hereby agrees that any proceeds from his or her participation in the Plan may be transferred to such special account prior to being delivered to Holder through his or her current or most recent PRC employer.
The proceeds may be paid to Holder in U.S. dollars or in local currency at the Company’s discretion. If the proceeds are paid in U.S. dollars, Holder understands that he or she will be required to set up a U.S. dollar account in China so that the proceeds may be deposited into this account.
If the proceeds from Holder’s participation in the Plan are converted to local currency, Holder acknowledges that the Company (and its Subsidiaries) is under no obligation to secure any currency conversion rate, and may face delays in converting the proceeds to local currency due to exchange control restrictions in China. Holder agrees to bear the risk of any currency conversion rate fluctuation between the date that Holder’s proceeds are delivered to the special exchange control account and the date the (i) Tax-Related Items are converted to local currency and remitted to the tax authorities, and (ii) net proceeds are converted to local currency and distributed to Holder.
Holder understands and acknowledges that the Company may face delays in distributing the proceeds to him or her due to exchange control requirements in China. As a result, Holder understands and acknowledges that neither the Company nor the Employer can be held liable for any delay in delivering the proceeds to Holder.
Holder agrees to sign any agreements, forms and/or consents that may be reasonably requested by the Company (or the Company’s designated broker) to effectuate any of the remittances, transfers, conversions or other processes affecting the proceeds. Holder further agrees to comply with any other
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requirements that may be imposed by the Company in the future to facilitate compliance with exchange control requirements in China. Finally, the Company reserves the right to impose such further restrictions or conditions as may be necessary to comply with changes in applicable laws in China.
* * * * *
Please note that the above provisions will apply to all RSUs granted to Holders who are nationals of the People’s Republic of China (“PRC”) under the Plan. If Holder is not a PRC national, the above provisions may not apply to him or her, to the extent determined by the Company in its sole discretion.
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ADDENDA
Czech Republic
No country specific provisions apply.
B-10
ADDENDA
Denmark
Danish Stock Option Act
In accepting the Agreement, Holder acknowledges that he or she has received an Employer Statement in Danish which sets forth information regarding the terms of the RSUs, to the extent that the Danish Stock Option Act applies to the RSUs.
Bio-Rad Laboratories, Inc.
Arbejdsgivererklæring / Employer Statement
(For medarbejdere i Danmark / For Employees in Denmark)
I henhold til § 3, stk. 1, i lov om brug af køberet eller tegningsret mv. i ansættelsesforhold ændret med virkning fra 1. januar 2019 (“Aktieoptionsloven”) er du berettiget til at modtage følgende oplysninger vedrørende tildeling af betingede aktier ("RSUer") i henhold til Bio-Rad Laboratories, Inc. (“Selskabets”) 2017 Incentive Award Plan (“Ordningen”), i en særskilt skriftlig erklæring. Denne erklæring indeholder kun de oplysninger, som er påkrævet i henhold til Aktieoptionsloven. De nærmere vilkår og betingelser for tildelingen af RSU'er er beskrevet i Ordningen og i de øvrige dokumenter, herunder den gældende stock unit-aftale (“Global Restricted Stock Unit Award Agreement”) og de dertil hørende landespecifikke tillæg (“Country Addenda”) (tilsammen benævnt “Aftalen”), som er udleveret til dig. I tilfælde af uoverensstemmelser mellem denne arbejdsgivererklæring og bestemmelserne i Ordningen eller Aftalen har denne arbejdsgivererklæring forrang. Begreber, der står med stort begyndelsesbogstav, men ikke er defineret i denne arbejdsgivererklæring, har den betydning, der er defineret i Ordningen og/eller i Aftalen. | Pursuant to Section 3(1) of the Danish Act on Stock Options in employment relations amended with effect from 1 January 2019 (the “Stock Option Act”), you are entitled to receive information regarding the Restricted Stock Units (the “RSUs”) granted to you by Bio-Rad Laboratories, Inc. (the “Company”) under the Company's 2017 Incentive Award Plan (the “Plan”) in a separate written statement. This statement contains information regarding the RSUs to the extent that the Stock Option Act applies. The terms and conditions related to your grant of RSUs are described in the Plan and other documents, including the applicable stock unit agreement (the “Global Restricted Stock Unit Award Agreement”) and any country-specific appendices attached thereto (the “Country Addenda”) (collectively, the “Agreement”), which have been made available to you. In the event of a conflict between a provision contained in this Employer Statement and provisions contained in the Plan or the Agreement, this Employer Statement shall prevail. Capitalized terms used but not defined herein shall have the same meaning as terms defined in the Plan and/or the Agreement. | ||||
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1. Tildelingsdato Tildelingstidspunktet for RSU'er er den dato vederlagsudvalget under selskabets bestyrelse (“Udvalget”) eller en hertil autoriseret fuldmægtig godkendte Tildelingen (defineret som Grant i henholdsvis Ordningen eller Aftalen) og besluttede, at den skulle effektueres. | 1. Grant Date The grant date of the RSUs is the date that the Compensation Committee of the Company's Board (the "Committee"), or another committee or subcommittee of the Board, approved your Grant and determined it would be effective. | ||||
2. Betingelser for tildeling af retten til RSU’er Tildelingen af RSU'er i henhold til Ordningen sker efter Bestyrelsens eller Udvalgets eget skøn. Med forbehold for eventuelle begrænsninger i Ordningen kan Bestyrelsen eller Udvalget til enhver tid ændre, modificere, suspendere eller ophæve Ordningen og en tildelingsaftale helt eller delvist. I henhold til Ordningens bestemmelser har du ikke nogen ret til eller noget krav på fremover at få tildelt RSU'er. | 2. Terms or conditions for grant of a right to RSUs The grant of RSUs under the Plan is made at the sole discretion of the Board and/or the Committee. Under the terms of the Plan, you have no entitlement or claim to receive future RSU grants or grants of any other awards. Further, the Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time, subject to the limitations set forth under the Plan. | ||||
3. Modningsdato Dine RSU'er modner typisk i lige store portioner over en periode på 4 år, idet en portion modner hvert år på årsdagen for tildelingen. Modning er dog betinget af, at du er ansat i Selskabet eller et datterskab (defineret som Subsidiary i henholdsvis Ordningen eller Aftalen) på hver modningsdato. De nærmere modningsvilkår gældende for din tildeling vil fremgå af Aftalen. | 3. Vesting Date RSUs typically vest in equal installments on each anniversary of the grant date for a period of four years, provided that you remain employed by the Company or any Subsidiary on each anniversary of the grant date. The exact vesting conditions applicable to your grant will be set forth in your Agreement. | ||||
4. Udnyttelsespris Du skal ikke betale noget vederlag for dine RSU'er, ligesom du ikke skal betale noget for at modtage de aktier (defineret som Shares i henholdsvis Ordningen eller Aftalen), der udstedes ved modning. | 4. Exercise Price You pay no monetary consideration to receive the RSUs nor do you pay any price to receive Shares issued upon vesting. | ||||
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5. Dine rettigheder ved fratræden Behandlingen af dine RSU'er ved ansættelsesforholdets ophør afhænger af vilkårene i Ordningen og i Aftalen, der kan opsummeres som følger: Alle RSU'er vil ophøre med at modne straks når dit ansættelsesforhold ophører og ikke modnede RSU'er tildelt i henhold til Aftalen vil bortfalde. | 5. Your rights upon termination of employment The treatment of your RSUs upon termination of employment will be determined according to the terms contained in the Plan and the Agreement, which can be summarized as follows: The RSUs will cease vesting immediately upon cessation of employment and the unvested RSUs awarded by the Agreement shall be forfeited. | ||||
6. Økonomiske aspekter ved deltagelse i Ordningen Tildelingen af RSU'er har ingen umiddelbare økonomiske konsekvenser for dig. Værdien af RSU'er indgår ikke i beregningen af feriepenge, pensionsbidrag eller øvrige vederlagsafhængige ydelser. Aktier er finansielle instrumenter, og investering i aktier vil altid være forbundet med en risiko. Muligheden for en gevinst på det tidspunkt, hvor du sælger de ordinære aktier afhænger ikke alene af Selskabets økonomiske udvikling, men også af den generelle udvikling på aktiemarkedet og andre forhold. Den fremtidige værdi af de ordinære aktier kendes ikke og kan ikke forudsiges med sikkerhed. | 6. Financial aspects of participating in the Plan The grant of RSUs has no immediate financial consequences for you. The value of the RSUs is not taken into account when calculating holiday allowances, pension contributions or other statutory consideration calculated on the basis of salary. Shares are financial instruments and investing in shares will always have financial risk. The possibility of profit at the time you sell your Shares will not only be dependent on the Company’s financial development, but also on the general development of the stock market, among other things. The future value of the Shares is unknown, indeterminable and cannot be predicted with certainty. | ||||
| Bio-Rad Laboratories, Inc. | Bio-Rad Laboratories, Inc. | ||||
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ADDENDA
France
Type of Award
The RSUs are not intended to qualify for specific tax or social security treatment in France.
Language Consent
By accepting the Agreement, Holder confirms having read and understood the documents relating to this grant (the Plan and the Agreement) which were provided in English language. Holder accepts the terms of those documents accordingly.
Consentement Relatif à la Langue Utilisée
En acceptant le Contrat, Holder confirme avoir lu et compris les documents relatifs à cette attribution (le Plan et le Contrat) qui ont été communiqués en langue anglaise. Holder accepte les termes de ces documents en connaissance de cause.
B-14
ADDENDA
Germany
No country specific provisions apply.
B-15
ADDENDA
Hong Kong
Restricted Stock Units Settled Only in Shares
Notwithstanding any discretion in Section 9.5 of the Plan or Section 2 of the Agreement, RSUs granted to Holders in Hong Kong shall be settled in Shares only.
Sales Restriction
If, for any reason, the RSUs vest and become non-forfeitable and Shares are issued to Holder within six months of the Grant Date, Holder agrees that he or she will not dispose of any Shares prior to the six-month anniversary of the Grant Date.
Nature of Scheme
The Company specifically intends that the Plan will not be an occupational retirement scheme for purposes of the Occupational Retirement Schemes Ordinance (“ORSO”). If the Plan is deemed to constitute an occupational retirement scheme for the purposes of the ORSO, the RSUs shall be void.
Securities Law Notification
WARNING: The RSUs and the Shares subject to the RSUs do not constitute a public offering of securities under Hong Kong law and are available only to Employees of the Company or its Subsidiaries participating in the Plan. Holder should be aware that the contents of the Agreement (including this Addenda), the Plan and any other RSU grant materials that Holder may receive have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong. Nor have the documents been reviewed by any regulatory authority in Hong Kong. The RSUs are intended only for the personal use of each Holder and may not be distributed to any other person. Holder is advised to exercise caution in relation to the offer. If Holder is in any doubt about any of the contents of the Agreement (including this Addenda), the Plan or any other RSU grant materials, Holder should obtain independent professional advice.
B-16
ADDENDA
Hungary
No country specific provisions apply.
ADDENDA
B-17
India
No country specific provisions apply.
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ADDENDA
Israel
Immediate Sale of Shares upon Termination
Pursuant to local law in Israel, the Employer is required to withhold Tax-Related Items (including income tax, national insurance and health tax contributions) at the time Holder sells the Shares acquired upon vesting of the RSUs. To facilitate compliance with this requirement, in the event of termination of Holder’s employment with the Employer, the Company or any Subsidiary for any reason, the Shares will be immediately sold upon termination and Holder will be entitled to only the cash sale proceeds (less any Tax-Related Items and any brokerage fees), unless the Committee later determines in its sole discretion that this restriction is no longer necessary. By accepting this grant, Holder hereby instructs E*TRADE (or another broker designated by the Company), upon notification by the Company to E*TRADE (or such other broker) of Holder’s termination of employment, to sell all the Shares acquired upon vesting of the RSUs and held in Holder’s account. In case of any dispute as to whether termination has occurred, the Committee shall have sole discretion to determine whether such termination has occurred and the effective date of such termination for purposes of the RSUs. The Company reserves the right to remove the immediate sale obligation, depending on the development of local laws, as determined in the Company’s sole discretion.
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ADDENDA
Italy
Plan Document Acknowledgment
In accepting the grant of RSUs, Holder acknowledges that he or she has received a copy of the Plan, has reviewed the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and the Agreement.
Holder further acknowledges that he or she has read and specifically and expressly approves the following clauses in the Agreement: Section 5: Taxes; Section 6: Award Not Transferable; Section 9: Not a Contract of Employment; Section 10: Nature of Grant; Section 12: Data Privacy Consent; Section 13: Governing Law and Venue; Section 18: Electronic Delivery and Acceptance; Section 22: Imposition of Other Requirements; and Section 26: Recovery of Erroneously Awarded Compensation.
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ADDENDA
Japan
No country specific provisions apply.
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ADDENDA
Luxembourg
No country specific provisions apply.
B-22
ADDENDA
Mexico
Plan Document Acknowledgement
By accepting the RSUs, Holder acknowledges that he or she has received a copy of the Plan, the Grant Notice, and the Agreement, including this Addenda, which Holder has reviewed. Holder acknowledges further that he or she accepts all the provisions of the Plan, the Grant Notice, and the Agreement, including this Addenda. Holder also acknowledges that he or she has read and specifically and expressly approves the terms and conditions set forth in Section 10: “Nature of Grant” in the Agreement, which clearly provides as follows:
(1) Holder’s participation in the Plan does not constitute an acquired right;
(2) The Plan and Holder’s participation in it are offered by the Company on a wholly discretionary basis;
(3) Holder’s participation in the Plan is voluntary; and
(4) The Company and its Subsidiaries are not responsible for any decrease in the value of any Shares acquired at vesting of the RSUs.
Labor Law Policy and Acknowledgment
By accepting the RSUs, Holder expressly recognizes that Bio-Rad Laboratories, Inc., with registered offices at 1000 Alfred Nobel Drive, Hercules, California 94547, U.S.A., is solely responsible for the administration of the Plan and that Holder’s participation in the Plan and acquisition of Shares do not constitute an employment relationship between Holder and the Company since Holder is participating in the Plan on a wholly commercial basis and his or her sole employer is Bio-Rad S.A. (“Bio-Rad Mexico”), located at Eugenia 197, Int. 10-A, Col. Narvarte, Delegación Benito Juarez, C.P 03020 Ciudad de México, Mexico. Based on the foregoing, Holder expressly recognizes that the Plan and the benefits that he or she may derive from participating in the Plan do not establish any rights between Holder and the employer, Bio-Rad Mexico, and do not form part of the employment conditions and/or benefits provided by Bio-Rad Mexico, and any modification of the Plan or its termination shall not constitute a change or impairment of the terms and conditions of Holder’s employment.
Holder further understands that his or her participation in the Plan is as a result of a unilateral and discretionary decision of the Company; therefore, the Company reserves the absolute right to amend and/or discontinue Holder’s participation at any time without any liability to Holder.
Finally, Holder hereby declares that he or she does not reserve to him- or herself any action or right to bring any claim against the Company for any compensation or damages regarding any provision of the Plan or the benefits derived under the Plan, and Holder therefore grants a full and broad release to the Company, and its affiliates, branches, representative offices, shareholders, directors, officers, employees, agents, or legal representatives with respect to any claim that may arise.
B-23
Spanish Translation
Reconocimiento del Documento del Plan
Al aceptar las Unidades de Acciones Restringidas (RSUs, por sus siglas en inglés), el Holdere reconoce que ha recibido una copia del Plan, el Anuncio de la Subvención y el Acuerdo, con inclusión de este Apéndice, que el Holdere ha revisado. El Holdere reconoce, además, que acepta todas las disposiciones del Plan, el Anuncio de la Subvención, y en el Acuerdo, incluyendo este Apéndice. El Holdere también reconoce que ha leído y que concretamente aprueba de forma expresa los términos y condiciones establecidos en la Sección 10: “Naturaleza de la Subvención” del Acuerdo, que claramente dispone lo siguiente:
(1) La participación del Holdere en el Plan no constituye un derecho adquirido;
(2) El Plan y la participación del Holdere en el Plan se ofrecen por la Compañía en su discrecionalidad total;
(3) Que la participación del Holdere en el Plan es voluntaria; y
(4) La Compañía y sus Subsidiarias no son responsables de ninguna disminución en el valor de las acciones adquiridas al conferir las RSUs.
Política Laboral y Reconocimiento
Al aceptar las Unidades de Acciones Restringidas (RSUs, por sus siglas en inglés), el Holdere expresamente reconoce que Bio-Rad Laboratories, Inc., con sus oficinas registradas y ubicadas en 1000 Alfred Nobel Drive, Hercules, California 94547, U.S.A., es la única responsable por la administración del Plan y que la participación del Holdere en el Plan y en su caso la adquisición de Acciones no constituyen una relación de trabajo entre el Holdere y la Compañía, ya que el Holdere participa en el Plan en un marco totalmente comercial y su único patrón es Bio-Rad S.A. (“Bio-Rad Mexico”), ubicado en Eugenia 197, Int. 10-A, Col. Narvarte, Delegación Benito Juarez, C.P 03020 Ciudad de México, Mexico. Derivado de lo anterior, el Holdere expresamente reconoce que el Plan y los beneficios que pudieran derivar de la participación en el Plan no establecen derecho alguno entre el Holdere y el patrón, Bio-Rad Mexico y no forma parte de las condiciones de trabajo y/o las prestaciones otorgadas por Bio-Rad Mexico y que cualquier modificación al Plan o su terminación no constituye un cambio o desmejora de los términos y condiciones de la relación de trabajo del Holdere.
Asimismo, el Holdere reconoce que su participación en el Plan es resultado de una decisión unilateral y discrecional de la Compañía; por lo tanto, la Compañía se reserva el derecho absoluto de modificar y/o terminar la participación del Holdere en cualquier momento y sin responsabilidad alguna frente el Holdere.
Finalmente, el Holdere por este medio declara que no se reserva derecho o acción alguna en contra de la Compañía por cualquier compensación o daños y perjuicios en relación con las disposiciones del Plan o de los beneficios derivados del Plan y por lo tanto, el Holdere otorga el más amplio finiquito que en derecho proceda a la Compañía, y sus afiliadas, subsidiarias, oficinas de representación, accionistas, directores, autoridades, empleados, agentes, o representantes legales en relación con cualquier demanda que pudiera surgir.
* * * * *
B-24
Securities Law Notification
The RSUs and the Shares offered under the Plan have not been registered with the National Register of Securities maintained by the Mexican National Banking and Securities Commission and cannot be offered or sold publicly in Mexico. In addition, the Plan, the Global Restricted Stock Unit Award Agreement and any other document relating to the RSUs may not be publicly distributed in Mexico. These materials are addressed to Holder only because of Holder’s existing relationship with the Company and its Subsidiaries and these materials should not be reproduced or copied in any form. The offer contained in these materials does not constitute a public offering of securities but rather constitutes a private placement of securities addressed specifically to individuals who are present employees of Bio-Rad Mexico made in accordance with the provisions of the Mexican Securities Market Law, and any rights under such offering shall not be assigned or transferred.
B-25
ADDENDA
Netherlands
Securities Law Notification
B-26
ADDENDA
Portugal
Language Consent
Holder hereby expressly declares that he or she has full knowledge of the English language and has read, understood and fully accepted and agreed with the terms and conditions established in the Plan and the Agreement.
Conhecimento da Lingua
O Holdere pelo presente declara expressamente que tem pleno conhecimento da língua inglesa e que leu, compreendeu e livremente aceitou e concordou com os termos e condições estabelecidas no Plano e no Acordo de Atribuição (Agreement em inglês).
B-27
ADDENDA
Russia
Data Privacy
This provision supplements Section 12 of the Agreement:
Holder may be required to sign a separate data privacy consent form in order to participate in the Plan. This form provides the Company with the authorization to collect and send certain personal data, as set forth in the consent form, to the United States to facilitate administration of the RSUs.
Securities Law Notification
This Addenda, the Grant Notice, the Agreement, the Plan and all other materials Holder may receive regarding his or her participation in the Plan do not constitute advertising or an offering of securities in Russia. The issuance of securities pursuant to the Plan has not and will not be registered in Russia and hence the securities described in any Plan-related documents may not be used for offering or public circulation in Russia.
B-28
ADDENDA
Singapore
Securities Law Notification
The grant of RSUs and the issuance of Shares under the Plan (if any) are being made in reliance on the “Qualifying Person” exemption under section 273(1)(f) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”). The Plan has not been lodged or registered as a prospectus with the Monetary Authority of Singapore. Holder should note that the RSUs are subject to section 257 of the SFA and Holder will not be able to make (i) any subsequent sale of the Shares in Singapore or (ii) any offer of such subsequent sale of the Shares subject to the RSUs in Singapore, unless such sale or offer in is made (i) after six months from the date of grant or (ii) pursuant to the exemptions under Part XIII Division 1 Subdivision (4) (other than section 280) of the SFA or pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.
Director Notification Obligation
If Holder is a director, associate director or shadow director of a Singapore Subsidiary, Holder may be subject to certain notification requirements under the Singapore Companies Act, regardless of whether he or she is a Singapore resident or employed in Singapore. To the extent applicable to directors of a Singapore Subsidiary, these requirements include an obligation to notify the Singapore Subsidiary in writing of an interest (e.g., RSUs, Shares) in the Company or any related companies within two days of (i) its acquisition or disposal, (ii) any change in a previously disclosed interest (e.g., when the RSUs vest), or (iii) becoming a director, associate director or shadow director is such an interest exists at that time. If Holder is the chief executive officer (“CEO”) of a Singapore Subsidiary and the above notification requirements are determined to apply to the CEO of a Singapore Subsidiary, the above notification requirements also may apply.
B-29
ADDENDA
South Korea
No country specific provisions apply.
B-30
ADDENDA
Spain
Nature of Grant
This provision supplements Section 10 of the Agreement:
In accepting the RSUs, Holder acknowledges the following:
(1) he or she understands and agrees to the terms of the Plan and the Agreement;
(2) he or she consents to participation in the Plan; and
(3) he or she has received a copy of the Plan and the Agreement.
Holder understands that the Company has unilaterally, gratuitously and in its sole discretion decided to grant RSUs under the Plan to individuals who may be Employees of the Company or its Subsidiaries throughout the world. The decision is a discretionary decision that is entered into upon the express assumption and condition that any grant will not bind the Company or any of its Subsidiaries presently or in the future over and above the terms and conditions of the Agreement and the Plan. Consequently, Holder understands that the RSUs are granted on the assumption and condition that the RSUs or the Shares acquired pursuant to the RSUs shall not become a part of any employment contract (either with the Company or any of its Subsidiaries) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. Further, Holder understands and freely accepts that there is no guarantee that any benefit whatsoever shall arise from any gratuitous or discretionary grant since the future value of the RSUs and underlying Shares is unknown and unpredictable. In addition, Holder understands this grant would not be made to Holder but for the assumptions and conditions referred to above; thus, Holder acknowledges and freely accepts that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then any grant of RSUs shall be null and void.
Finally, Holder understands and agrees that the RSUs will be forfeited without entitlement to the underlying Shares or to any amount as indemnification in the event of Holder’s cessation of employment in accordance with Section 2: Issuance of Shares of the Agreement. This will be the case even if Holder ceases to be an Employee for reasons including, but not limited to, the following: resignation, retirement, death, disability, disciplinary dismissal adjudged to be with Cause, disciplinary dismissal adjudged or recognized to be without Cause (i.e., subject to a “despido improcedente”), individual or collective layoff on objective grounds, whether adjudged to be with cause or adjudged or recognized to be without Cause, material modification of the terms of employment under Article 41 of the Workers’ Statute, relocation under Article 40 of the Workers’ Statute, Article 50 of the Workers’ Statute, unilateral withdrawal by the Employer, and under Article 10.3 of Royal Decree 1382/1985.
Securities Law Notification
No “offer of securities to the public,” as defined under Spanish law, has taken place or will take place in the Spanish territory. The Plan, the Grant Notice, the Agreement, this Addenda and all other materials Holder may receive regarding his or her participation in the Plan have not been nor will they be registered with the Comisión Nacional del Mercado de Valores (Spanish Securities Exchange Commission), and they do not constitute a public offering prospectus.
B-31
ADDENDA
Sweden
Authorization to Withhold
This provision supplements Section 5 of the Agreement:
Without limiting the Company’s and Employer’s authority to satisfy their withholding obligations for Tax-Related Items as set forth in the Agreement, in accepting the RSUs, Holder authorizes the Company to withhold Shares or to sell Shares otherwise issuable to Holder upon vesting/settlement to satisfy Tax-Related Items, regardless of whether the Company and/or Employer have an obligation to withhold such Tax-Related Items.
B-32
ADDENDA
Switzerland
Securities Law Notification
Neither this document nor any other materials relating to the RSUs (i) constitutes a prospectus according to articles 35 et seq. of the Swiss Federal Act on Financial Services (“FinSA”), (ii) may be publicly distributed nor otherwise made publicly available in Switzerland to any person other than an employee of the Company or a Subsidiary or (iii) has been or will be filed with, approved or supervised by any Swiss reviewing body according to article 51 FinSA or any Swiss regulatory authority, including the Swiss Financial Market Supervisory Authority (“FINMA”).
B-33
ADDENDA
United Arab Emirates (Dubai)
Securities Law Notification
The Agreement, the Plan, and other incidental communication materials related to the RSUs are intended for distribution only to Employees of the Company and its Subsidiaries for the purposes of an incentive scheme.
The Emirates Securities and Commodities Authority and the Central Bank have no responsibility for reviewing or verifying any documents in connection with this statement. Neither the Ministry of Economy nor the Dubai Department of Economic Development have approved this statement nor taken steps to verify the information set out in it, and have no responsibility for it.
The securities to which this statement relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities.
If Holder does not understand the contents of the Agreement or the Plan, he or she should consult an authorized financial adviser.
B-34
ADDENDA
United Kingdom
Restricted Stock Units Settled Only in Shares
Notwithstanding any discretion in Section 9.5 of the Plan or Section 2 of the Agreement, RSUs granted to Holders in the United Kingdom shall be settled in Shares only.
Taxes
This provision supplements Section 5 of the Agreement:
Without limitation to Section 5 of the Agreement, Holder hereby agrees that Holder is liable for all Tax-Related Items and hereby covenants to pay all such Tax-Related Items, as and when requested by the Company or, if different, the Employer or by Her Majesty’s Revenue & Customs (“HMRC”) (or any other tax authority or any other relevant authority). Holder also hereby agrees to indemnify and keep indemnified the Company and, if different, the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC (or any other tax authority or any other relevant authority) on Holder’s behalf.
Notwithstanding the foregoing, if Holder is a director or executive officer of the Company (within the meaning of Section 13(k) of the Exchange Act), the terms of the immediately foregoing provision will not apply. In the event that Holder is a director or executive officer of the Company and the income tax is not collected from or paid by Holder within ninety (90) days of the end of the U.K. tax year in which an event giving rise to the indemnification described above occurs, the amount of any uncollected income tax may constitute a benefit to Holder on which additional income tax and National Insurance contributions (“NICs”) may be payable. Holder will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for paying to the Company and/or the Employer (as appropriate) the amount of any NICs due on this additional benefit.
Joint Election
As a condition of participation in the Plan, Holder agrees to accept liability for any secondary Class 1 National Insurance contributions that may be payable by the Company and/or the Employer (or any successor to the Company or the Employer) in connection with the RSUs and any event giving rise to Tax-Related Items (“Employer NICs”).
Without prejudice to the foregoing, Holder agrees to enter into the following joint election with the Company, the form of such NICs Joint Election being formally approved by HMRC (the “NIC Joint Election”), and any other consents or elections required to accomplish the transfer of the Employer NICs to Holder. Holder further agrees to execute such other elections as may be required between Holder and any successor to the Company and/or the Employer for the purpose of continuing the effectiveness of the NIC Joint Election. Holder understands that the NIC Joint Election applies to any RSUs granted to him or her under the Plan after the execution of the NIC Joint Election. Holder agrees that the Employer NICs may be collected by the Company or the Employer by any of the methods set forth in Section 5 of the Agreement.
B-35
If Holder does not enter into the NIC Joint Election, he or she will not be entitled to vest in the RSUs or receive any benefit in connection with the RSUs unless and until he or she enters into a NIC Joint Election and no Shares or other benefit pursuant to the RSUs will be issued to the Holder under the Plan, without any liability to the Company and/or the Employer.
IMPORTANT NOTE: By accepting the Agreement, Holder is agreeing to be bound by the terms of the NIC Joint Election. Holder should read the terms of the NIC Joint Election carefully before accepting the Agreement and the NIC Joint Election. However, if requested by the Company, Holder agrees to separately execute the NIC Joint Election.
B-36
ATTACHMENT FOR THE UNITED KINGDOM
| Important Note on the Joint Election to Transfer | ||
| Employer National Insurance Contributions | ||
As a condition of participation in the Bio-Rad Laboratories, Inc. 2017 Incentive Award Plan (the “Plan”) and the restricted stock units (the “RSUs”) that have been granted to you (the “Holder”) by Bio-Rad Laboratories, Inc. (the “Company”), the Holder is required to enter into a joint election to transfer to the Holder any liability for employer National Insurance contributions (the “Employer’s Liability”) that may arise in connection with the grant of the RSUs or in connection with any restricted stock units that may be granted by the Company to the Holder under the Plan (the “Joint Election”).
If the Holder does not agree to enter into the Joint Election, the grant of the RSUs will be worthless and the Holder will not be able to vest in the RSUs or receive any benefit in connection with the RSUs.
By entering into the Joint Election:
•the Holder agrees that any Employer’s Liability that may arise in connection with or pursuant to the vesting of the RSUs (or any restricted stock units granted to the Holder under the Plan) or the acquisition of Shares or other taxable events in connection with the RSUs (or any other restricted stock units granted under the Plan) will be transferred to the Holder;
•the Holder authorises the Company and/or the Holder’s employer to recover an amount sufficient to cover this liability by any method set forth in the Global Restricted Stock Unit Award Agreement and/or the Joint Election; and
•the Holder acknowledges that even if he or she has accepted the Joint Election via the Company's online procedure, the Company or the Holder’s employer may still require the Holder to sign a paper copy of the Joint Election (or a substantially similar form) if the Company determines such is necessary to give effect to the Joint Election.
By accepting the RSUs through the Company’s online acceptance procedure (or by signing the Restricted Stock Unit Award Grant Notice), the Holder is agreeing to be bound by the terms of the Joint Election.
Please read the terms of the Joint Election carefully before
accepting the RSUs and the Joint Election.
Please print and keep a copy of the Joint Election
for your records.
B-37
BIO-RAD LABORATORIES, INC. 2017 INCENTIVE AWARD PLAN
(UK Employees)
Election To Transfer the Employer’s National Insurance Liability to the Employee
1.Parties
This Election is between:
(A) You, the Holder who has gained access to this Election (the “Employee”), who is employed by one of the employing companies listed in the attached schedule (the “Employer”) and who is eligible to receive restricted stock units (“RSUs”) pursuant to the terms and conditions of the Bio-Rad Laboratories, Inc. 2017 Incentive Award Plan, as amended from time to time (the “Plan”), and
(B) Bio-Rad Laboratories, Inc. of 1000 Alfred Nobel Drive, Hercules, California, 94547 (the “Company”), which may grant RSUs under the Plan and is entering into this Form of Election on behalf of the Employer.
2. Purpose of Election
2.1 This Election relates to RSUs granted by the Company under the Plan on or after September 1, 2017.
2.2 In this Election the following words and phrases have the following meanings:
“Taxable Event” means, in relation to the RSUs:
(i) the acquisition of securities pursuant to the RSUs (within section 477(3)(a) of ITEPA); and/or
(ii) the assignment or release of the RSUs in return for consideration (within section 477(3)(b) of ITEPA); and/or
(iii) the receipt of a benefit in connection with the RSUs, other than a benefit within (i) or (ii) above (within section 477(3)(c) of ITEPA); and/or
(iv) post-acquisition charges relating to shares acquired pursuant to the RSUs (within section 427 of ITEPA); and/or
(v) post-acquisition charges relating to shares acquired pursuant to the RSUs (within section 439 of ITEPA).
“ITEPA” means the Income Tax (Earnings and Pensions) Act 2003.
“SSCBA” means the Social Security Contributions and Benefits Act 1992.
2.3 This Election relates to the Employer’s secondary Class 1 National Insurance Contributions (the “Employer’s Liability”) which may arise on the occurrence of a Taxable Event in respect of the RSUs pursuant to section 4(4)(a) and/or paragraph 3B(1A) of Schedule 1 of the SSCBA.
B-38
2.4 This Election does not apply in relation to any liability, or any part of any liability, arising as a result of regulations being given retrospective effect by virtue of section 4B(2) of either the SSCBA or the Social Security Contributions and Benefits (Northern Ireland) Act 1992.
2.5 This Election does not apply to the extent that it relates to relevant employment income which is employment income of the earner by virtue of Chapter 3A of Part VII of ITEPA (employment income: securities with artificially depressed market value).
2.6 Any reference to the Company and/or the Employer shall include that entity’s successors in title and assigns as permitted in accordance with the terms of the Plan and the Global Restricted Stock Unit Award Agreement. This Election will have effect in respect of the RSUs and any awards which replace or replaced the RSUs following their grant in circumstances where section 483 of ITEPA applies.
3. Election
The Employee and the Company jointly elect that the entire liability of the Employer to pay the Employer’s Liability on the Taxable Event is hereby transferred to the Employee. The Employee understands that by accepting the RSUs (whether by clicking on the "ACCEPT" box where indicated in the Company's electronic acceptance procedure or by signing the Global Restricted Stock Unit Award Grant Notice in hard copy), he or she will become personally liable for the Employer’s Liability covered by this Election. This Election is made in accordance with paragraph 3B(1) of Schedule 1 to SSCBA.
4. Payment of the Employer’s Liability
4.1 The Employee hereby authorises the Company and/or the Employer to collect the Employer’s Liability from the Employee at any time after the Taxable Event:
(i) by deduction from salary or any other payment payable to the Employee at any time on or after the date of the Taxable Event; and/or
(ii) directly from the Employee by payment in cash or cleared funds; and/or
(iii) by arranging, on behalf of the Employee, for the sale of some of the securities which the Employee is entitled to receive in respect of the RSUs; and/or
(iv) by any other means specified in the Global Restricted Stock Unit Award Agreement.
4.2 The Company hereby reserves for itself and the Employer the right to withhold the transfer of any securities in respect of the RSUs to the Employee until full payment of the Employer’s Liability is received.
4.3 The Company agrees to procure the remittance by the Employer of the Employer’s Liability to HM Revenue and Customs on behalf of the Employee within 14 days after the end of the UK tax month during which the Taxable Event occurs (or within 17 days after the end of the UK tax month during which the Taxable Event occurs, if payments are made electronically).
B-39
5. Duration of Election
5.1 The Employee and the Company agree to be bound by the terms of this Election regardless of whether the Employee is transferred abroad or is not employed by the Employer on the date on which the Employer’s Liability becomes due.
5.2 This Election will continue in effect until the earliest of the following:
(i) the Employee and the Company agree in writing that it should cease to have effect;
(ii) on the date the Company serves written notice on the Employee terminating its effect;
(iii) on the date HM Revenue and Customs withdraws approval of this Election; or
(iv) after due payment of the Employer’s Liability in respect of the entirety of the RSUs to which this Election relates or could relate, such that the Election ceases to have effect in accordance with its terms.
Acceptance by the Employee
The Employee acknowledges that by accepting the RSUs (whether by clicking on the "ACCEPT" box where indicated in the Company's electronic acceptance procedure or by signing the Global Restricted Stock Unit Award Grant Notice in hard copy), the Employee agrees to be bound by the terms of this Election.
Acceptance by the Company
The Company acknowledges that, by arranging for the scanned signature of an authorised representative to appear on this Election, the Company agrees to be bound by the terms of this Election.
Signed for and on behalf of the Company
/s/ Timothy S. Ernst________________________________________________
Timothy S. Ernst
Executive Vice President, General Counsel and Secretary
B-40
SCHEDULE OF EMPLOYER COMPANIES
The following are Employer companies to which this Joint Election may apply:
Bio-Rad Laboratories Limited
| Registered Office: | The Junction, 3rd and 4th Floor, Station Road, Watford WD17 1ET, United Kingdom | ||||
| Company Registration Number: | 03044694 | ||||
| Corporation Tax District: | 346 | ||||
| Corporation Tax Reference: | 14667 70252 | ||||
| PAYE Reference: | 419/B264 | ||||
Bio-Rad AbD Serotec Ltd
| Registered Office: | Endeavor House, Langford Business Park, Langford Lane, Kidlington, Oxfordshire 0X5 1GE, United Kingdom | ||||
| Company Registration Number: | 01604642 | ||||
| Corporation Tax District: | 452 | ||||
| Corporation Tax Reference: | 51860 09929 | ||||
| PAYE Reference: | 075/M8038 | ||||
Bio-Rad Services UK Limited
| Registered Office: | The Junction, 3rd and 4th Floor, Station Road, Watford WD17 1ET, United Kingdom | ||||
| Company Registration Number: | 10348004 | ||||
| Corporation Tax District: | 346 | ||||
| Corporation Tax Reference: | 2221826951 | ||||
| PAYE Reference: | 475/ZB52231 | ||||
B-41
BIO-RAD LABORATORIES, INC.
2017 INCENTIVE AWARD PLAN
STOCK OPTION GRANT NOTICE
AND NON-QUALIFIED STOCK OPTION AGREEMENT
(United States HOLDERS)
Bio-Rad Laboratories, Inc., a Delaware corporation (the “Company”), pursuant to its 2017 Incentive Award Plan (the “Plan”), hereby grants to the holder listed below (“Holder”), an option to purchase the number of shares of the Company’s Class A common stock, par value $0.0001 (“Stock”), set forth below (the “Option”). This Option is subject to all of the terms and conditions set forth herein and in the Non-Qualified Stock Option Agreement attached hereto as Exhibit A (the “Stock Option Agreement”) which is incorporated herein by reference. Unless otherwise defined herein, the terms in this Grant Notice shall have the same defined meanings as defined in the Plan and the Stock Option Agreement.
Holder: | |||||
Grant Date: | |||||
Option Number: | |||||
Exercise Price per Share: | $ | ||||
Total Number of Shares Subject to the Option: | shares | ||||
Class: | |||||
Expiration Date: | |||||
Vesting Schedule: The Option shall become vested and exercisable in four equal and cumulative installments of twenty-five percent (25%) of the total number of shares of Stock subject to the Option on each of the first four (4) anniversaries of the Grant Date, provided that the Holder remains continuously employed in active service by the Company from the Grant Date through such date. If application of the vesting percentage causes a fractional share, such share shall be rounded down to the nearest whole share for each installment except for the last installment of the vesting schedule, which shall be exercisable for the full remainder of the shares of Stock subject to the Option.
By his or her signature, the Holder agrees to be bound by the terms and conditions of the Plan, the Stock Option Agreement and this Grant Notice. The Holder has reviewed the Stock Option Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Stock Option Agreement and the Plan. Holder hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or relating to the Option.
BIO-RAD LABORATORIES, INC. | HOLDER | |||||||||||||||||||
| By: | /s/ Timothy S. Ernst | By: | ||||||||||||||||||
| Print Name: | Timothy S. Ernst | Print Name: | ||||||||||||||||||
| Title: | EVP, General Counsel & Secretary | |||||||||||||||||||
EXHIBIT A
STOCK OPTION GRANT NOTICE
NON-QUALIFIED STOCK OPTION AGREEMENT
Pursuant to the Stock Option Grant Notice (the “Grant Notice”) to which this Non-Qualified Stock Option Agreement (this “Agreement”) is attached, Bio-Rad Laboratories, Inc., a Delaware corporation (the “Company”), has granted to the Holder an option under the Company’s 2017 Incentive Award Plan (the “Plan”) to purchase the number of shares of Stock indicated in the Grant Notice.
ARTICLE I.
GENERAL
1.1 Defined Terms. Wherever the following terms are used in this Agreement they shall have the meanings specified below, unless the context clearly indicates otherwise. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.
(a) “Administrator” shall mean the entity that conducts the general administration of the Plan as provided in Article 12 of the Plan. With reference to the duties of the Board under the Plan which have been delegated to one or more persons pursuant to Section 12.6, the term “Administrator” shall refer to such person(s), unless the Board has revoked such delegation.
(b) “Termination of Employment” shall mean the time when the Holder ceases to serve as an Employee for any reason, including, without limitation, a termination by resignation, discharge (with or without Cause), disability, death or retirement; but excluding terminations where the Holder simultaneously commences or remains in employment with the Company or any Subsidiary.
The Administrator, in its sole discretion, shall determine the effect of all matters and questions relating to any Termination of Employment, including, without limitation, whether a Termination of Employment has occurred, whether a Termination of Employment resulted from a discharge for Cause and all questions of whether particular leaves of absence constitute a Termination of Employment. For purposes of the Plan, a Holder’s employee-employer relationship shall be deemed to be terminated in the event that the Subsidiary employing such Holder ceases to remain a Subsidiary following any merger, sale of stock or other corporate transaction or event (including, without limitation, a spin-off).
1.2 Incorporation of Terms of Plan. The Option is subject to the terms and conditions of the Plan which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.
ARTICLE II.
GRANT OF OPTION
2.1 Grant of Option. In consideration of the Holder’s past and/or continued employment with or service to the Company or a Subsidiary and for other good and valuable consideration, effective as of the Grant Date set forth in the Grant Notice (the “Grant Date”), the
Company irrevocably grants to the Holder the Option to purchase any part or all of an aggregate of the number of shares of Stock set forth in the Grant Notice, upon the terms and conditions set forth in the Plan and this Agreement.
2.2 Exercise Price. The exercise price of the shares of Stock subject to the Option shall be as set forth in the Grant Notice, without commission or other charge; provided, however, that the price per share of the shares of Stock subject to the Option shall not be less than 100% of the Fair Market Value of a share of Stock on the Grant Date.
2.3 Consideration to the Company. In consideration of the grant of the Option by the Company, the Holder agrees to render faithful and efficient services to the Company or any Subsidiary. Nothing in the Plan or this Agreement shall confer upon the Holder any right to continue in the employ or service of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of the Holder at any time for any reason whatsoever, with or without Cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and the Holder.
ARTICLE III.
PERIOD OF EXERCISABILITY
3.1 Commencement of Exercisability.
(a) Subject to Sections 3.2, 3.3, 5.9 and 5.15, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice.
(b) No portion of the Option which has not become vested and exercisable at the date of the Holder’s Termination of Employment shall thereafter become vested and exercisable, except as may be otherwise provided by the Administrator or as set forth in a written agreement between the Company and the Holder.
(c) Notwithstanding Sections 3.1(a) and 3.1(b), pursuant to Section 13.2 of the Plan, the Option shall become fully vested and exercisable in the event of a Change in Control.
3.2 Duration of Exercisability. The installments provided for in the vesting schedule set forth in the Grant Notice are cumulative. Each such installment which becomes vested and exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and exercisable until it becomes unexercisable under Section 3.3.
3.3 Expiration of Option. The Option may not be exercised to any extent by anyone after the first to occur of the following events:
(a) The expiration of ten years from the Grant Date;
(b) The date of the Holder’s Termination of Employment, unless such termination occurs by reason of the Holder’s death; or
(c) The expiration of one year from the date of the Holder’s Termination of Employment by reason of the Holder’s death.
ARTICLE IV.
EXERCISE OF OPTION
4.1 Person Eligible to Exercise. Except as provided in Sections 5.2(b), during the lifetime of the Holder, only the Holder may exercise the Option or any portion thereof. After the death of the Holder, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by the Holder’s personal representative or by any person empowered to do so under the deceased the Holder’s will or under the then applicable laws of descent and distribution.
4.2 Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3.
4.3 Manner of Exercise. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary of the Company (or any third party administrator or other person or entity designated by the Company) of all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.3:
(a) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed or otherwise acknowledge electronically by the Holder or other person then entitled to exercise the Option or such portion thereof;
(b) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with Applicable Law;
(c) In the event that the Option shall be exercised pursuant to Section 11.3 of the Plan by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option, as determined in the sole discretion of the Administrator; and
(d) Full payment of the exercise price and applicable withholding taxes for the shares of stock with respect to which the Option, or portion thereof, is exercised, in a manner permitted by the Administrator in accordance with Sections 11.1 and 11.2 of the Plan, which may be in one or more of the forms of consideration permitted under Section 4.4.
Notwithstanding any of the foregoing, the Company shall have the right to specify all conditions of the manner of exercise, which conditions may vary by country and which may be subject to change from time to time.
4.4 Method of Payment. Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Holder:
(a) cash or check;
(b) subject to the authorization of the Administrator, shares of Stock (including, in the case of payment of the exercise price of an Option, shares of Stock issuable pursuant to the exercise of the Option) or shares of Stock held for such minimum period of time as may be established by the Administrator, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required;
(c) delivery of a written or electronic notice that the Holder has placed a market sell order with a broker acceptable to the Company with respect to shares of Stock then issuable upon exercise or vesting of an Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided that payment of such proceeds is then made to the Company upon settlement of such sale;
(d) other form of legal consideration acceptable to the Administrator in its sole discretion; or
(e) any combination of the above permitted forms of payment.
4.5 Conditions to Issuance of Stock Certificates. The shares of Stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares of Stock, treasury shares of Stock or issued shares of Stock which have then been reacquired by the Company. Such shares of Stock shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any shares of Stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares of Stock to listing on all stock exchanges on which such Stock is then listed;
(b) The completion of any registration or other qualification of such shares of Stock under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable;
(d) The receipt by the Company of full payment for such shares of Stock, including payment of any applicable withholding tax, which may be in one or more of the forms of consideration permitted under Section 4.4; and
(e) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may from time to time establish for reasons of administrative convenience.
4.6 Rights as Stockholder. The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares of Stock purchasable upon the exercise of any part of the Option unless and until such shares of Stock shall have been issued by the Company to such holder (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment will be made for a dividend or other right for which the record date is prior to the date the shares of Stock are issued, except as provided in Section 13.2 of the Plan.
4.7 Responsibility for Taxes. Holder hereby acknowledges and agrees that the ultimate liability for any and all tax, social insurance and payroll tax withholding legally payable by an employee or corporate officer under Applicable Law (including without limitation laws of foreign jurisdictions) (“Tax-Related Items”) is and remains Holder’s responsibility and liability and that the Company and/or Holder’s
employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant, vesting or exercise of the Option and the subsequent sale of the Shares; and (b) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate Holder’s liability for Tax-Related Items.
Prior to exercise of the Option, Holder shall pay or make adequate arrangements satisfactory to the Company and/or Holder’s employer to satisfy all withholding obligations of the Company and/or Holder’s employer. The Holder may provide that the payment to the Company (or other employer corporation) of all amounts which it is required to withhold in connection with any Tax-Related Items related to the exercise of the Option be satisfied by any payment means described in Section 4.4 hereof, including without limitation, by allowing to have the Company or any Subsidiary withhold shares of Stock otherwise issuable under an Option (or allow the surrender of shares of Stock). The number of shares of Stock which may be so withheld or surrendered shall be limited to the number of shares of Stock which have a fair market value on the date of withholding or surrender no greater than the aggregate amount of such liabilities based on the maximum individual statutory tax rate in the applicable jurisdiction at the time of such withholding (or such other rate as may be required to avoid adverse accounting consequences). The Administrator shall determine the fair market value of the shares of Stock, consistent with applicable provisions of the Code and other Applicable Law, for tax withholding obligations due in connection with a broker-assisted cashless Option exercise involving the sale of shares of Stock to pay the Option exercise price or any tax withholding obligation.
ARTICLE V.
OTHER PROVISIONS
5.1 Administration. The Administrator shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon Holder, the Company and all other interested persons. No member of the Committee or the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the Option.
5.2 Option Not Transferable.
(a) The Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the shares of Stock underlying the Option have been issued, and all restrictions applicable to such shares of Stock have lapsed. Neither the Option nor any interest or right therein shall be liable for the debts, contracts or engagements of Holder or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
(b) During the lifetime of Holder, only Holder may exercise the Option or any portion thereof. After the death of Holder, any exercisable portion of the Option may, prior to the
time when the Option becomes unexercisable under Section 3.3, be exercised by Holder’s personal representative or by any person empowered to do so under the deceased Holder’s will or under the then applicable laws of descent and distribution.
5.3 Adjustments. The Holder acknowledges that the Option is subject to modification and termination in certain events as provided in this Agreement and Section 13.2 of the Plan.
5.4 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at 1000 Alfred Nobel Drive, Hercules, CA 94547, and any notice to be given to Holder shall be addressed to Holder at the address that Holder has most recently provided to the Company’s human resources department. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to that party. Any notice which is required to be given to Holder shall, if Holder is then deceased, be given to the person entitled to exercise his or her Option pursuant to Section 4.1 by written notice under this Section 5.4. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.
5.5 Data Privacy Consent. Holder hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Holder’s personal data as described in this document by and among, as applicable, the Company, its Subsidiaries, or affiliates for the exclusive purpose of implementing, administering and managing Holder’s participation in the Plan. Holder further understands that Company, its Subsidiaries or affiliates hold certain personal information about Holder, including, but not limited to, Holder’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company or its Subsidiaries or affiliates and details of all Options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in Holder’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). Holder understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in Holder’s country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than Holder’s country. Holder authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing Holder’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom Holder may elect to deposit any Shares acquired upon exercise of the Option. Holder understands that Data will be held only as long as is necessary to implement, administer and manage Holder’s participation in the Plan. Holder understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or withdraw the consents herein by contacting in writing Holder’s local human resources representative. Holder understands that withdrawal of consent may affect Holder’s ability to exercise or realize benefits from the Option.
5.6 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
5.7 Governing Law; Severability. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws. If one or more of the provisions of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit the Agreement to be construed so as to foster the intent of the Agreement and the Plan.
5.8 Conformity to Securities Laws. The Holder acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by Applicable Law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
5.9 Amendments, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee or the Board, provided, that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the Option in any material way without the prior written consent of the Holder.
5.10 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth in Section 5.2, this Agreement shall be binding upon Holder and his or her heirs, executors, administrators, successors and assigns.
5.11 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Holder is subject to Section 16 of the Exchange Act, the Plan, the Option and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
5.12 Not a Contract of Employment. Nothing in this Agreement or in the Plan shall confer upon the Holder any right to continue to serve as an employee or other service provider of the Company or any of its Subsidiaries.
5.13 Entire Agreement. The Plan, the Grant Notice and this Agreement (including all Exhibits thereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Holder with respect to the subject matter hereof.
5.14 Section 409A. Notwithstanding any other provision of the Plan, this Agreement or the Grant Notice, the Plan, this Agreement and the Grant Notice shall be interpreted in accordance with Section 409A of the Code (“Section 409A”). In the event the Administrator determines that any amounts payable hereunder would otherwise be taxable under Section 409A, the Administrator may, in its discretion, adopt such amendments to the Plan, this Agreement or the Grant Notice or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate to
exempt this Option from Section 409A or comply with the requirements of Section 409A and thereby avoid the application of taxes under Section 409A.
5.15 Recovery of Erroneously Awarded Compensation. As an additional condition of receiving this Option, Holder agrees that the Option and any proceeds or other benefits Holder may receive hereunder shall be subject to forfeiture and/or repayment to the Company to the extent and in the manner required (i) to comply with any requirements imposed under Applicable Laws and/or the rules and regulations of the securities exchange or inter-dealer quotation system on which the Stock is listed or quoted, including, without limitation, pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and (ii) under the terms of any policy adopted by the Company as may be amended from time to time for reasons related to fraud, governance or similar considerations (and such requirements shall be deemed incorporated into this Agreement without the consent of Holder). Further, if Holder receives any amount in excess of what Holder should have received under the terms of the
Option for any reason (including without limitation by reason of a financial restatement, mistake in calculations or administrative error), all as determined by Administrator, then Holder shall be required to promptly repay any such excess amount to the Company. For purposes of the foregoing, Holder expressly and explicitly authorizes the Company to issue instructions, on Holder’s behalf, to any brokerage firm and/or third party administrator engaged by the Company to hold Holder’s Stock and other amounts acquired under the Plan to re-convey, transfer or otherwise return such Stock and/or other amounts to the Company. This Section 5.15 is not the Company’s exclusive remedy with respect to such matters.
Exhibit 31.1
Certification of Chief Executive Officer Required By
Exchange Act Rules 13a-14(a) and 15d-14(a)
I, Norman Schwartz, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Bio-Rad Laboratories, Inc.
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report fairly present, in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | October 30, 2020 | /s/ Norman Schwartz | |||||||||
| Norman Schwartz, Chairman of the Board, | |||||||||||
| President and Chief Executive Officer | |||||||||||
Exhibit 31.2
Certification of Chief Financial Officer Required By
Exchange Act Rules 13a-14(a) and 15d-14(a)
I, Ilan Daskal, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Bio-Rad Laboratories, Inc.
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report fairly present, in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | October 30, 2020 | /s/ Ilan Daskal | |||||||||
| Ilan Daskal | |||||||||||
| Executive Vice President, | |||||||||||
| Chief Financial Officer | |||||||||||
Exhibit 32.1
Certification of Periodic Report
I, Norman Schwartz, Chief Executive Officer of Bio-Rad Laboratories, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1)the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | October 30, 2020 | /s/ Norman Schwartz | |||||||||
| Norman Schwartz, Chairman of the Board, | |||||||||||
| President and Chief Executive Officer | |||||||||||
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
Certification of Periodic Report
I, Ilan Daskal, Chief Financial Officer of Bio-Rad Laboratories, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1)the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | October 30, 2020 | /s/ Ilan Daskal | |||||||||
| Ilan Daskal | |||||||||||
| Executive Vice President, | |||||||||||
| Chief Financial Officer | |||||||||||
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.