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BIO RAD LABORATORIES INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
[August 06, 2014]

BIO RAD LABORATORIES INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations


(Edgar Glimpses Via Acquire Media NewsEdge) This discussion should be read in conjunction with the information contained in both our Consolidated Financial Statements for the year ended December 31, 2013 and the financial statements for the three and six months ended June 30, 2014.



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. Forward-looking statements generally can be identified by the use of forward-looking terminology, such as "believe," "expect," "may," "will," "intend," "estimate," "continue," or similar expressions or the negative of those terms or expressions. Such statements involve risks and uncertainties, which could cause actual results to vary materially from those expressed in or indicated by the forward-looking statements. We have based these forward looking statements on our current expectations and projections about future events. However, actual results may differ materially from those currently anticipated depending on a variety of risk factors including among other things: changes in general domestic and worldwide economic conditions; our ability to successfully develop and market new products; our reliance on and access to necessary intellectual property; our ability to successfully integrate any acquired business; our substantial leverage and ability to service our debt; competition in and government regulation of the industries in which we operate; and the monetary policies of various countries. We caution you not to place undue reliance on forward-looking statements, which reflect an analysis only and speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events, or otherwise except as required by Federal Securities law.

Overview. We are a multinational manufacturer and worldwide distributor of our own life science research and clinical diagnostics products. Our business is organized into two 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 8,000 products and services to a diverse client base comprised of scientific research, healthcare, education and government customers worldwide. We do not disclose quantitative information about our different products and services as it is impractical to do so based primarily on the numerous products and services that we sell and the global markets that we serve.

We manufacture and supply our customers with a range of reagents, apparatus and equipment to separate complex chemical and biological materials and to identify, analyze and purify components. Because our customers require standardization for their experiments and test results, much of our revenues are recurring.

We are impacted by the support of many governments for both research and healthcare. The current global economic outlook remains uncertain as the need to control government social spending by many governments limits opportunities for growth. Approximately 32% of our year-to-date 2014 consolidated net sales are derived from the United States and approximately 68% are derived from international locations, with Europe being our largest region overall. Our international sales are largely denominated in local currencies such as Euros, Swiss Franc, Japanese Yen, China Yuan and British Sterling. As a result, our consolidated net sales expressed in dollars benefit when the U.S. dollar weakens and suffer when the dollar strengthens. When the U.S. dollar strengthens, we benefit from lower cost of sales from our own international manufacturing sites as well as non-U.S. suppliers, and from lower international operating expenses.

In April 2014, we acquired 100% of the issued and outstanding stock of GnuBIO, Inc. (GnuBIO). This acquisition was accounted for as a business combination and is included in our Clinical Diagnostics segment's results of operations from the acquisition date. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management's estimates and assumptions. The deferred tax liability established was primarily a result of the difference in the book basis and tax 25 -------------------------------------------------------------------------------- basis related to the identifiable intangible assets. The estimated fair values of assets acquired and liabilities assumed, specifically deferred taxes, may be subject to change as additional information is received and certain tax returns are finalized. Thus the provisional measurements of fair value set forth below are subject to change. We expect to finalize the allocation once all relevant information is obtained by management, but will not extend beyond one year from the closing date of acquisition.

The preliminary fair values of the net assets acquired from GnuBIO as of the acquisition date were determined to be $46.4 million of indefinite-lived intangible assets (specifically in-process research and development), $15.2 million of goodwill and $11.2 million of net tangible liabilities. The fair value of the consideration as of the acquisition date was $50.4 million, which includes $39.7 million paid in cash at the closing date and $10.7 million in contingent consideration potentially payable to GnuBIO's shareholders. The contingent consideration was based on a probability-weighted income approach that could reach $70.0 million upon the achievement of all development/regulatory and sales milestones. The contingent consideration for the development/regulatory milestones was valued at $10.7 million, based on assumptions regarding the probability of achieving the milestones, with such amounts discounted to present value. The contingent consideration for the sales milestones was determined to be negligible, using the risk-neutral probability of being in the money based on a Black-Scholes framework. We believe that GnuBIO's innovative DNA workflow is well-suited for the clinical diagnostics sequencing market and will leverage our leadership role in the area of droplet digital PCR.

In January 2013, we acquired 100% of the outstanding shares of AbD Serotec, a division of MorphoSys AG, for total consideration of $62.2 million (net of cash received of $7.3 million). This acquisition was accounted for as a business combination and is included in our Life Science segment's results of operations from the acquisition date. The final fair values of the net assets acquired consist of definite-lived intangible assets of $44.0 million, goodwill of $14.9 million and net tangible assets of $3.3 million. We believe that with AbD Serotec's comprehensive catalog of antibodies, we are able to offer our customers total assay solutions that can be validated on many of our research platforms for western blotting, multiplex protein expression, ELISA and cell sorting.

During the first quarter of 2014, we accrued an additional $8.0 million associated with our efforts to resolve the investigations by the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) relating to the United States Foreign Corrupt Practices Act (FCPA), of which $9.8 million was expensed to Selling, general and administrative expense and $1.8 million reduced Interest expense. As of June 30, 2014, the aggregate accrual for the Estimated loss contingency was $43.0 million, including $3.2 million of accrued interest.

During the third quarter of 2013, we revised the classification of one item for all periods presented from "Provision for income taxes" to "Research and development expense" in our Consolidated Statements of Income to conform to the current year presentation. The item reclassified pertains to a refundable French R&D tax credit, which after the reclassification reduces Research and development expense. We believe this presentation is appropriate as we are not required to have taxable income in order to earn the credits. As a result of recording this reclassification, there is an additional impact to our income tax provision due to the application of our effective income tax rate throughout the year. This causes the income tax provision impact to not always equal the pre-tax impact on a quarterly basis, but it does equal on an annual basis. The effect of these items for the second quarter of 2013 were as follows: a reduction of $1.4 million to Research and development expense, an increase of $1.5 million to Provision for income taxes, and a decrease of $0.1 million to Net income attributable to Bio-Rad. The effect of these items for the six months ended June 30, 2013 were as follows: a reduction of $3.0 million to Research and development expense, an increase of $2.4 million to Provision for income taxes, and an increase of $0.6 million to Net income attributable to Bio-Rad.

During the first quarter of 2013, we reported payments for contingent consideration as cash outflows from investing activities in error. Amounts paid pertaining to the purchase accounting contingent liability should have been classified as cash outflows from financing activities. Amounts paid in excess of the purchase accounting contingent liability should have been classified as cash outflows from operating activities. We have adjusted the amounts previously reported in our Form 10-Q for the six-month period ended June 30, 2013 in conjunction with the filing 26 -------------------------------------------------------------------------------- of this 10-Q by reducing cash outflows from investing activities by $13.5 million and increasing cash outflows from financing activities and operating activities by $13.1 million and $0.4 million, respectively.

During the six-month period ended June 30, 2013, we reported payments for/proceeds from forward foreign exchange contracts as cash flows from investing activities in error. Cash flows from forward foreign exchange contracts should have been classified as cash flows from operating activities.

We have adjusted the amounts previously reported in our Form 10-Q for the six month-period ended June 30, 2013 in conjunction with the filing of this 10-Q by reducing cash inflows from investing activities by $5.0 million and increasing cash inflows from operating activities by $5.0 million.

During the third quarter of 2012, we recognized a contingent consideration liability upon our acquisition of a new cell sorting system from Propel Labs, Inc. The fair value of the contingent consideration was based on a probability-weighted income approach related to the achievement of certain development and sales milestones. The development milestone was achieved and paid in 2013. Based on the most recent valuation, the sales milestones could potentially range from $0 to a maximum of 60.0%, 51.32% and 50.38% of annual cell sorting system purchase orders starting September 2013, September 2014 and September 2015, with payment to occur upon the anniversary of the completion of a certain number of cell sorting systems for three consecutive years, respectively. These maximum payout ratios begin at annual cell sorting system purchase orders in excess of $20 million, $30 million and $45 million for the three consecutive years, respectively. The contingent consideration was revalued by a reduction of $5.4 million in 2014 to Selling, general and administrative expense to its estimated fair value of $15.4 million as of June 30, 2014.

The following shows cost of goods sold, gross profit, expense items and net income as a percentage of net sales: Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of goods sold 44.6 42.9 45.3 44.2 Gross profit 55.4 57.1 54.7 55.8Selling, general and administrative expense 36.5 37.2 38.1 37.2 Research and development expense 10.4 9.9 10.3 10.0 Net income attributable to Bio-Rad 5.9 6.6 3.7 5.3 Critical Accounting Policies and Estimates As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013, we have identified accounting for income taxes, valuation of goodwill and long-lived assets, valuation of inventories, warranty reserves, valuation of investments, allowance for doubtful accounts and litigation accruals as the accounting policies and estimates critical to the operations of Bio-Rad.

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 six months ended June 30, 2014 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, 2013. For a full discussion of these policies and estimates, please refer to our Form 10-K for the period ended December 31, 2013 filed with the SEC.

27 -------------------------------------------------------------------------------- Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013 Results of Operations -- Sales, Margins and Expenses Net sales (sales) for the second quarter of 2014 were $536.8 million compared to $525.3 million in the second quarter of 2013, an increase of 2.2%. Excluding the impact of foreign currency, second quarter 2014 sales increased by approximately 1.1% compared to the same period in 2013. Currency neutral sales growth was primarily in Eastern Europe, partially offset by decreased sales primarily in Western Europe and Latin America.

The Life Science segment sales for the second quarter of 2014 were $170.3 million, a decrease of 0.1% compared to the same period last year. On a currency neutral basis, sales decreased 1.1% compared to the second quarter in 2013. The currency neutral sales decrease was realized primarily in our protein separations product lines, partially offset by growth in process chromatography, Droplet Digital™ PCR and cell biology products. The currency neutral sales decrease was primarily in Asia, most notably in China, partially offset by sales growth primarily in Europe.

The Clinical Diagnostics segment sales for the second quarter of 2014 were $362.9 million, an increase of 3.2% compared to the same period last year. On a currency neutral basis, sales increased 2.1% compared to the second quarter in 2013. The Clinical Diagnostics segment had incremental growth across most product lines on a currency neutral basis. Currency neutral sales growth was primarily in Eastern Europe and China, with the U.S. being relatively flat and a decline in Western Europe.

Consolidated gross margins were 55.4% for the second quarter of 2014 compared to 57.1% for the second quarter of 2013. Life Science segment gross margins for the second quarter of 2014 increased by approximately 1.2 percentage points from the same period last year primarily due to higher margins and stable pricing, mostly for Droplet Digital™ PCR, cell biology and process chromatography products. Clinical Diagnostics segment gross margins for the second quarter of 2014 decreased by approximately 3.3 percentage points from the same period last year. The decrease was primarily due to price pressure and higher manufacturing costs compared to the same period in 2013.

Selling, general and administrative expenses (SG&A) represented 36.5% of sales for the second quarter of 2014 compared to 37.2% of sales for the second quarter of 2013. Overall, SG&A was relatively flat, reflecting mostly minimal decreases overall of various expenses, such as lower professional fees, lower marketing and advertising expenses and lower bad debt expense. These decreases were offset by an increase in employee-related expenses, reflecting an increase in headcount that includes the GnuBIO acquisition.

Research and development expense (R&D) increased to $55.7 million or 10.4% of sales in the second quarter of 2014 compared to $51.8 million or 9.9% of sales in the second quarter of 2013. Life Science segment R&D increased in the second quarter of 2014 from the prior year quarter, with concentrated efforts in genomics and laboratory separations. Clinical Diagnostics segment R&D increased in the second quarter of 2014 from the prior year period primarily due to continued investments in new instrument platforms and assays, and diagnostic applications using the recently acquired droplet digital PCR technology.

Results of Operations - Non-operating Interest expense for the second quarter of 2014 decreased by $6.1 million to $5.6 million compared to $11.7 million for the second quarter of 2013 primarily due to the absence of interest expense in the second quarter of 2014 associated with the $300.0 million principal amount of Senior Subordinated Notes (8.0% Notes), which were redeemed on September 30, 2013.

28 -------------------------------------------------------------------------------- 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 gains, net for the quarter ended June 30, 2014 was $0.3 million compared to foreign currency exchange losses, net of $0.9 million for the prior year period primarily attributable to a favorable result (gains) of the estimating process inherent in the timing of shipments and payments, net of higher transaction costs.

Other (income) expense, net for the second quarter of 2014 was $8.4 million income compared to $8.6 million income for the second quarter of 2013, reflecting relatively flat activity that includes dividend income for both periods from our investment in Sartorius AG.

Our effective income tax rate was 35% and 29% for the three months ended June 30, 2014 and 2013, respectively. The effective tax rate for the second quarter of 2014 was higher due to an increase in tax liabilities, losses incurred in foreign jurisdictions for which no income tax benefit is expected, and due to adjustments principally related to filings of foreign tax returns.

The effective income tax rate for the three months ended June 30, 2014 does not include a benefit of the U.S. federal research credit as it has not been extended beyond 2013.

Our foreign taxes for all periods resulted primarily from taxable income earned in France and Switzerland. Switzerland's statutory tax rate is significantly lower than the U.S. statutory tax rate of 35%. Also, our effective tax rates for all periods are generally reduced by French tax incentives related to our research and development activities.

Our current effective tax rate may be impacted in the future, either favorably or unfavorably, by many factors including, but not limited to, changes to statutory tax rates, changes in tax laws or regulations, tax audits and settlements, and the generation of tax credits.

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013 Results of Operations -- Sales, Margins and Expenses Net sales (sales) for the first half of 2014 were $1.05 billion compared to $1.02 billion in the first half of 2013, an increase of 2.1%. Excluding the impact of foreign currency, the first half of 2014 sales increased by approximately 2.0% compared to the same period in 2013. Currency neutral sales growth was reflected in all regions, most notably in Eastern Europe and China.

The Life Science segment sales for the first half of 2014 were $331.8 million, an increase of 1.6% compared to the same period last year. On a currency neutral basis, the sales increase remained the same at 1.6% compared to the first half of 2013. The currency neutral sales increase was reflected across most product lines, except for the majority of protein separations products.

Currency neutral sales growth was primarily in Europe and Latin America, partially offset by decreased sales in Asia.

The Clinical Diagnostics segment sales for the first half of 2014 were $707.2 million, an increase of 2.3% compared to the same period last year. On a currency neutral basis, sales increased 2.1% compared to the first half of 2013.

Clinical Diagnostics had growth across most product lines on a currency neutral basis, most notably from quality control products. Currency neutral sales growth was primarily in Eastern Europe and China, with the U.S. being relatively flat and a decline in Western Europe.

Consolidated gross margins were 54.7% for the first half of 2014 compared to 55.8% for the first half of 2013. Life Science segment gross margins for the first half of 2014 increased by approximately 1.4 percentage points from the same period last year primarily due to higher margins mostly for process chromatography, Droplet Digital™ PCR and food testing products, and higher license expense in 2013. Clinical Diagnostics segment gross margins for the 29 -------------------------------------------------------------------------------- first half of 2014 decreased by approximately 2.2 percentage points from the same period last year. The decrease was primarily due to price pressure and higher manufacturing costs compared to the same period in 2013.

Selling, general and administrative expenses (SG&A) represented 38.1% of sales for the first half of 2014 compared to 37.2% of sales for the first half of 2013. Increases in SG&A expense relative to sales were primarily driven by: • an increase of $14.8 million of employee-related expenses, our largest cost, associated with increases in incentive compensation and related fringe benefits, and an increase in headcount that includes the GnuBIO acquisition, • an accrual of $9.8 million in connection with our efforts to resolve the SEC and DOJ investigations relating to the FCPA that was recorded in the first quarter of 2014, and • an increase in software amortization of $2.9 million.

Partially offsetting these costs were: • a decrease of $4.0 million for the valuations of contingent considerations for the cell sorting system in 2014 compared for the Droplet Digital™ PCR in 2013, • a decrease in bad debt expense of $3.7 million, primarily in Russia due to a distributor bad debt in 2013 and concentrated collection efforts, and • lower external marketing and advertising expenses, and lower professional fees.

Research and development expense (R&D) increased to $108.3 million or 10.3% of sales in the first half of 2014 compared to $102.2 million or 10.0% of sales in the first half of 2013. Life Science segment R&D increased in the first half of 2014 from the prior year period, with concentrated efforts in genomics and laboratory separations. Clinical Diagnostics segment R&D increased in the first half of 2014 from the prior year period primarily due to continued investments in new instrument platforms and assays, and diagnostic applications using the recently acquired droplet digital PCR technology.

Results of Operations - Non-operating Interest expense for the first half of 2014 decreased by $13.2 million to $9.4 million compared to $22.6 million for the first half of 2013 primarily due to the absence of interest expense in the first half of 2014 associated with the $300.0 million principal amount of Senior Subordinated Notes (8.0% Notes), which were redeemed on September 30, 2013. In addition, Interest expense was reduced by $1.8 million of interest expense associated with our initial efforts to resolve the DOJ and SEC investigations relating to the FCPA that was recorded in the first quarter of 2014.

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 losses, net for the first half of 2014 increased slightly compared to the prior year period primarily attributable to higher transaction costs, mostly offset by a favorable result (gains) for the estimating process inherent in the timing of shipments and payments.

Other (income) expense, net for the first half of 2014 decreased to $9.0 million income compared to $10.0 million income for the first half of 2013 primarily due to lower various miscellaneous income and higher investment income in 2013.

Our effective income tax rate was 40% and 25% for the first half of 2014 and 2013, respectively. The effective tax rate for the first half of 2014 was higher due to an increase in tax liabilities, losses incurred in foreign jurisdictions for which no income tax benefit is expected, and due to adjustments principally related to filings of foreign tax returns. In addition, the effective tax rate for the first half of 2014 includes adjustments principally related to state taxes. The effective tax rate for the first half of 2014 does not include a benefit of the U.S. federal research credit as it has not been extended beyond 2013. The effective tax rate for the first half of 2013 reflected a significant tax benefit related to the 2012 U.S. federal research credit, which was retroactively reinstated on January 2, 2013.

30 -------------------------------------------------------------------------------- Our foreign taxes for all periods resulted primarily from taxable income earned in France and Switzerland. Switzerland's statutory tax rate is significantly lower than the U.S. statutory tax rate of 35%. Also, our effective tax rates for all periods are generally reduced by French tax incentives related to our research and development activities.

Our current effective tax rate may be impacted in the future, either favorably or unfavorably, by many factors including, but not limited to, changes to statutory tax rates, changes in tax laws or regulations, tax audits and settlements, and the generation of tax credits.

Liquidity and Capital Resources Bio-Rad operates and conducts business globally, primarily through subsidiary companies established in the markets in which we trade. Goods are manufactured in a small number of locations, and are then shipped to local distribution facilities around the world. Our product mix is diversified, and certain products compete largely on product efficacy, while others compete on price.

Gross margins are generally sufficient to exceed normal operating costs, and funding for research and development of new products, as well as routine outflows of 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 Credit Agreement that we entered into in June 2014.

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 June 30, 2014, however $5.0 million was utilized for domestic standby letters of credit that reduced our borrowing availability. The Credit Agreement matures in June 2019.

At June 30, 2014, we had $647.6 million in cash, cash equivalents and short-term investments, of which approximately 40% was held in our foreign subsidiaries. We believe that our holdings of cash, cash equivalents and short-term investments in the U.S. and in our foreign subsidiaries are sufficient to meet both the current and long-term needs of our global operations. The amount of funds held in the United States can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as business expansion activities. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and foreign cash flows (both inflows and outflows).

Repatriation of overseas funds will result in additional U.S. federal and state income tax payments. In general, it is our practice and intention to indefinitely reinvest the cash generated by our foreign subsidiaries in our foreign subsidiaries' operations.

Under our new domestic and international lines of credit, we had $212.2 million available for borrowing as of June 30, 2014, which was reduced by $8.1 million that was utilized for standby letters of credit issued by our banks to support our obligations, mostly to meet the deductible amount under insurance policies for our benefit. 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 an acquisition of reasonable proportion to our existing total available capital.

The continuing slow economic growth in developed nations and in the U.S., may adversely affect our future results of cash flows. Demand for our products and services could change more dramatically than in previous years based on activity, funding, reimbursement constraints and support levels from government, universities, hospitals and private industry, including diagnostic laboratories.

The need for certain sovereign nations with large annual deficits to curtail spending could lead to slower growth of, or even a decline in, our business.

Sovereign nations either delaying payment for goods and services or renegotiating their debts could impact our liquidity. The situation in these sovereign nations is continuously evolving and we have no greater knowledge of the situation other than what is publicly reported. As of June 30, 2014 and December 31, 2013, we had accounts receivable, net of allowance for doubtful accounts, in Spain, Italy, Greece and Portugal of $57.0 million and $66.0 million, respectively.

31 -------------------------------------------------------------------------------- The instability in credit markets along with low levels of capitalization in some parts of the financial services industry could impact both our ability and our customer's ability to access the necessary capital for acquisition, equipment and technology modernization, and the financing of inventories and receivables. Without this crucial intermediary function, manufacturers and end users may have to renegotiate existing arrangements, reduce activity levels or seek other business partners.

Cash Flows from Operations Net cash provided by operations was $149.8 million and $43.8 million for the six months ended June 30, 2014 and 2013, respectively. The increase in cash flows primarily resulted from: • higher cash received from customers primarily due to improved collections, in particular from Spain of approximately $11 million from public agencies in the first quarter of 2014, • a decrease in income taxes paid primarily due to a $20 million federal income tax quick refund related to 2013 that was received in the second quarter of 2014, and a $5 million federal income tax extension payment in 2013, and • a decrease in interest paid primarily due to the early redemption of the $300.0 million of 8.0% Senior Subordinated Notes on September 30, 2013, partially offset by • higher cash paid for forward exchange contracts, and • higher cash paid to suppliers and employees.

Cash Flows from Investing Activities Net cash used in investing activities was $101.9 million compared to $134.6 million for the six months ended June 30, 2014 and 2013, respectively.

Purchases, net of sales and maturities, of marketable securities and investments, and proceeds from sales of marketable securities and investments were both lower than the prior year period primarily due to sales of securities to provide cash to redeem the $300.0 million 8.0% Senior Subordinated Notes and therefore expect purchases, net of sales and maturities, to decline markedly year over year due to reduced amounts of cash to invest. In addition, we purchased longer dated securities to take advantage of higher returns on investments and therefore we experienced an additional decline in maturities and redemptions of securities. Net cash used in investing activities was also lower as the acquisition for GnuBIO was at a lower cost than compared to the acquisition of AbD Serotec in 2013. Purchases of intangible assets were higher in 2014 primarily due to the purchases of licenses.

Our investment objective is to maintain liquidity to meet anticipated operational and other corporate requirements in which capital is preserved and increased through investing in low risk, high quality securities with commensurate returns, consistent with our risk tolerance level.

We continue to review possible acquisitions to expand both our Life Science and Clinical Diagnostics segments. We routinely meet with the principals or brokers of the subject companies. It is not certain at this time that any of these discussions involving material or significant acquisitions will advance to completion.

Capital expenditures totaled $60.9 million and $58.6 million for the six months ended June 30, 2014 and 2013, respectively. Capital expenditures represent the addition and replacement of production machinery and research equipment, ongoing manufacturing and facility additions for expansion, regulatory, environmental and compliance. Also included in capital expenditures are investments in business systems and data communication upgrades and enhancements. All periods include equipment placed with Clinical Diagnostics segment customers who then contract to purchase our reagents for use. Capital expenditures were slightly higher for the six months ended June 30, 2014 compared to the same period last year as we have started the second phase of a global single instance ERP platform and are beginning to capitalize costs and expect capitalized costs to continue to increase throughout the remainder of the year. As we continue to implement more phases of the ERP platform and expand our e-commerce platform, we expect capital expenditures to continue to remain historically higher for the next four years 32 -------------------------------------------------------------------------------- or more. The current estimated global implementation cost for the single instance ERP platform could exceed $250 million and is estimated to take approximately four or more years to fully implement.

Cash Flows from Financing Activities Net cash provided by financing activities was $6.3 million compared to net cash used in financing activities of $6.1 million for the six months ended June 30, 2014 and 2013, respectively. Net cash used in financing activities for the six months ended June 30, 2013 was primarily due to $7.5 million paid to Propel Labs' shareholders in contingent consideration associated with the 2012 acquisition, and $5.6 million paid to QuantaLife in contingent consideration associated with the 2011 acquisition.

We have outstanding Senior Notes of $425 million, which are not due until 2020.

As indicated above, we redeemed all of the Senior Subordinated Notes of $300 million on September 30, 2013. We believe the current cash is sufficient to meet normal operating costs, and funding for research and development of new products, as well as routine outflows of capital expenditures, interest and taxes.

The Board of Directors has authorized the repurchase of up to $18.0 million of Bio-Rad's common stock, of which $3.3 million has yet to be repurchased as of June 30, 2014. The Credit Agreement may limit our ability to repurchase our stock. We had no repurchases of our stock during the first six months of 2014 or 2013.

Recent Accounting Standards Updates In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)," and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. We are currently evaluating the impact of the adoption of this accounting standard update on our consolidated financial statements.

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