XML 60 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
3. Fair Value Measurements
 6 Months Ended
Jun. 30, 2012
Fair Value Measures And Disclosures  
Fair Value Measurements
3.FAIR VALUE MEASUREMENTS

We determine the fair value of an asset or liability based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction between market participants at the measurement date.  The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability.  A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritizes the inputs into three broad levels as follows:

•
Level 1: Quoted prices in active markets for identical instruments
•
Level 2: Other significant observable inputs (including quoted prices in active markets for similar instruments)
•
Level 3: Significant unobservable inputs (including assumptions in determining the fair value of certain investments)


Financial assets and liabilities carried at fair value and measured on a recurring basis as of June 30, 2012 are classified in the hierarchy as follows (in millions):

 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets Carried at Fair Value:
 
 
 
 
 
 
 
Cash equivalents (a):
 
 
 
 
 
 
 
Commercial paper
$
—

 
$
81.1

 
$
—

 
$
81.1

Asset-backed securities
—

 
1.4

 
—

 
1.4

 U.S. government sponsored agencies
—

 
12.3

 
—

 
12.3

Time deposits
30.0

 
—

 
—

 
30.0

Money market funds
34.2

 
—

 
—

 
34.2

Total cash equivalents
64.2

 
94.8

 
—

 
159.0

Available-for-sale investments (b):
 
 
 
 
 
 
 
Corporate debt securities
—

 
192.3

 
—

 
192.3

Brokered certificates of deposit
—

 
2.5

 
—

 
2.5

U.S. government sponsored agencies
—

 
86.4

 
—

 
86.4

Foreign government obligations
—

 
4.2

 
—

 
4.2

Municipal obligations
—

 
8.7

 
—

 
8.7

Marketable equity securities
185.8

 
—

 
—

 
185.8

Asset-backed securities
—

 
68.1

 
—

 
68.1

Total available-for-sale investments
185.8

 
362.2

 
—

 
548.0

Forward foreign exchange contracts (c)
—

 
0.5

 
—

 
0.5

Total financial assets carried at fair value
$
250.0

 
$
457.5

 
$
—

 
$
707.5

 
 
 
 
 
 
 
 
Financial Liabilities Carried at Fair Value:
 
 
 
 
 
 
 
Forward foreign exchange contracts (d)
$
—

 
$
3.1

 
$
—

 
$
3.1

Contingent consideration (e)
—

 
—

 
16.6

 
16.6

Total financial liabilities carried at fair value
$
—

 
$
3.1

 
$
16.6

 
$
19.7



Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2011 are classified in the hierarchy as follows (in millions):

 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets Carried at Fair Value:
 
 
 
 
 
 
 
Cash equivalents (a):
 
 
 
 
 
 
 
Commercial paper
$
—

 
$
106.0

 
$
—

 
$
106.0

Bonds
—

 
8.6

 
—

 
8.6

Time deposits
21.6

 
—

 
—

 
21.6

Money market funds
58.3

 
—

 
—

 
58.3

Total cash equivalents
79.9

 
114.6

 
—

 
194.5

Available-for-sale investments (b):
 
 
 
 
 
 
 
Corporate debt securities
—

 
170.6

 
—

 
170.6

Brokered certificates of deposit
—

 
1.8

 
—

 
1.8

U.S. government sponsored agencies
—

 
36.9

 
—

 
36.9

Foreign government obligations
—

 
5.7

 
—

 
5.7

Municipal obligations
—

 
5.0

 
—

 
5.0

Marketable equity securities
134.8

 
—

 
—

 
134.8

Asset-backed securities
—

 
11.2

 
—

 
11.2

Total available-for-sale investments
134.8

 
231.2

 
—

 
366.0

Forward foreign exchange contracts (c)
—

 
0.8

 
—

 
0.8

Total financial assets carried at fair value
$
214.7

 
$
346.6

 
$
—

 
$
561.3

 
 
 
 
 
 
 
 
Financial Liabilities Carried at Fair Value:
 
 
 
 
 
 
 
Forward foreign exchange contracts (d)
$
—

 
$
1.2

 
$
—

 
$
1.2

Contingent consideration (e)
—

 
—

 
24.1

 
24.1

Total financial liabilities carried at fair value
$
—

 
$
1.2

 
$
24.1

 
$
25.3



(a)
Cash equivalents are included in Cash and cash equivalents in the Condensed Consolidated Balance Sheets.

(b)
Available-for-sale investments are included in the following accounts in the Condensed Consolidated Balance Sheets (in millions):
 
June 30,
2012
 
December 31, 2011
Short-term investments
$
378.8

 
$
238.8

Other assets
169.2

 
127.2

Total
$
548.0

 
$
366.0



(c)
Forward foreign exchange contracts in an asset position are included in Prepaid expenses, taxes and other current assets in the Condensed Consolidated Balance Sheets.

(d)
Forward foreign exchange contracts in a liability position are included in Other current liabilities in the Condensed Consolidated Balance Sheets.

(e)
Contingent consideration liability is included in the following accounts in the Condensed Consolidated Balance Sheet (in millions):

 
June 30, 2012
 
December 31, 2011
Other current liabilities
$
9.8

 
$
8.5

Other long-term liabilities
6.8

 
15.6

   Total
$
16.6

 
$
24.1



During the fourth quarter of 2011 we recognized a contingent consideration liability upon our acquisition of QuantaLife related to potential future payments due upon the achievement of certain sales and development milestones. The contingent consideration was initially recognized at its estimated fair value of $24.1 million, based on a probability-weighted income approach. The contingent consideration would reach $48 million upon the achievement of all sales and development milestones. As of June 30, 2012, the contingent consideration could potentially reach $45 million upon the achievement of the remaining sales and development milestones. The fair value of the contingent consideration was determined based on a probability-weighted income approach. As of June 30, 2012, the significant unobservable inputs used in the fair value measurement of the contingent consideration of achieving the sales milestone were credit adjusted discount rates ranging from 0.87% to 1.43%, a projected volatility of growth rate of 15% and a market price of risk of 0.4%. As of June 30, 2012, the significant unobservable inputs used in the fair value measurement of the contingent consideration of achieving the development milestone were a 95% probability with a risk-adjusted discount rate of 0.94%. Significant increases or decreases in these inputs in isolation could result in a significantly lower or higher fair value measurement. The decrease in the contingent consideration liability was primarily due to certain sales milestones not being achieved through June 30, 2012, which resulted in an $8.1 million adjustment recorded in the second quarter of 2012.

The following table provides a reconciliation of the Level 3 contingent consideration measured at fair value based on a third party valuation for the period ended June 30, 2012 (in millions):


 
2012
January 1
$
24.1

Decrease in fair value included in Selling, general and administrative expense
(7.5
)
June 30
$
16.6





To estimate the fair value of Level 2 debt securities as of December 31, 2011 and June 30, 2012, our primary pricing service relied on inputs from multiple industry-recognized pricing sources to determine the price for each investment. In addition, they performed reasonableness testing of their prices on a daily basis by comparing them to the prices reported by our custodians as well as prior day prices. If the price difference fell outside of tolerable levels, they investigated the cause and resolved the pricing issue. Based on a review of the results of this analysis, we utilized our primary pricing service for all Level 2 debt securities as none of these securities tested outside of the tolerable levels.

As of June 30, 2012, our primary pricing service inputs for Level 2 cash equivalents (municipal obligations), U.S. government sponsored agencies, municipal obligations, corporate and foreign government bonds and asset-backed securities consisted of market prices from a variety of industry standard data providers, security master files from large financial institutions and other third-party sources.  These multiple market prices were used by our primary pricing service as inputs into a distribution-curve based algorithm to determine the daily market value.

As of June 30, 2012, our primary pricing service inputs for Level 2 cash equivalents (commercial paper, including foreign government commercial paper, and time deposits), corporate debt securities (commercial paper), foreign government obligations (commercial paper) and time deposits consisted of dynamic and static security characteristics information obtained from several independent sources of security data.  The dynamic inputs such as credit rating, factor and variable-rate, were updated daily.  The static characteristics included inputs such as day count and first coupon upon initial security creation. These securities were typically priced via mathematical calculations reliant on these observable inputs. Other available-for-sale foreign government obligations were based on indicative bids from market participants.

As of December 31, 2011, our primary pricing service inputs for Level 2 cash equivalents (bonds), U.S. government sponsored agencies, municipal obligations, corporate debt securities (bonds) and asset-backed securities consisted of market prices from a variety of industry standard data providers, security master files from large financial institutions and other third-party sources.  These multiple market prices were used by our primary pricing service as inputs into a distribution-curve based algorithm to determine the daily market value.

As of December 31, 2011, our primary pricing service inputs for Level 2 cash equivalents (commercial paper), corporate debt securities (commercial paper), foreign government obligations (commercial paper) and time deposits consisted of dynamic and static security characteristics information obtained from several independent sources of security data.  The dynamic inputs such as credit rating, factor and variable-rate, were updated daily.  The static characteristics included inputs such as day count and first coupon upon initial security creation. These securities were typically priced via mathematical calculations reliant on these observable inputs. Other available-for-sale foreign government obligations were based on indicative bids from market participants.

Forward foreign exchange contracts: As part of distributing our products, we regularly enter into intercompany transactions.  We enter into forward foreign currency 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 related primarily to 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 June 30, 2012 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 published in the Wall Street Journal on the last business day of the quarter and the points provided by counterparties.  The resulting gains or losses offset exchange gains or losses on the related receivables and payables, both of which are included in Foreign exchange losses, net in the Condensed Consolidated Statements of Income. The cash flows related to these contracts are classified as Cash flows from investing activities in the Condensed Consolidated Statements of Cash Flows.

The following is a summary of our forward foreign currency exchange contracts (in millions):
 
June 30,
 
2012
 
 
Contracts maturing in July through September 2012 to sell foreign currency:
 
Notional value
$
49.9

Unrealized loss
$
0.8

Contracts maturing in July through September 2012 to purchase foreign currency:
 
Notional value
$
344.6

Unrealized loss
$
1.8



Available-for-sale investments consist of the following (in millions):

 
June 30, 2012
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair
Value
Short-term investments:
 
 
 
 
 
 
 
Corporate debt securities
$
191.8

 
$
0.6

 
$
(0.1
)
 
$
192.3

Brokered certificates of deposit
2.5

 
—

 
—

 
2.5

Municipal obligations
8.7

 
—

 
—

 
8.7

Asset-backed securities
67.6

 
0.2

 
—

 
67.8

U.S. government sponsored agencies
86.3

 
0.2

 
(0.1
)
 
86.4

Foreign government obligations
4.0

 
—

 
—

 
4.0

Marketable equity securities
17.2

 
0.2

 
(0.3
)
 
17.1

 
378.1

 
1.2

 
(0.5
)
 
378.8

Long-term investments:
 
 
 
 
 
 
 
Marketable equity securities
56.9

 
111.8

 
—

 
168.7

Asset-backed securities
0.5

 
—

 
(0.2
)
 
0.3

Foreign government obligations
0.2

 
—

 
—

 
0.2

 
57.6

 
111.8

 
(0.2
)
 
169.2

Total
$
435.7

 
$
113.0

 
$
(0.7
)
 
$
548.0



 
December 31, 2011
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair
Value
Short-term investments:
 
 
 
 
 
 
 
Corporate debt securities
$
170.9

 
$
0.1

 
$
(0.4
)
 
$
170.6

Brokered certificates of deposit
1.8

 
—

 
—

 
1.8

Municipal obligations
5.0

 
—

 
—

 
5.0

Asset-backed securities
10.8

 
—

 
—

 
10.8

U.S. government sponsored agencies
36.8

 
0.1

 
—

 
36.9

Foreign government obligations
5.4

 
—

 
—

 
5.4

Marketable equity securities
7.7

 
0.6

 
—

 
8.3

 
238.4

 
0.8

 
(0.4
)
 
238.8

Long-term investments:
 
 
 
 
 
 
 
Marketable equity securities
57.2

 
70.0

 
(0.7
)
 
126.5

Asset-backed securities
0.5

 
—

 
(0.1
)
 
0.4

Foreign government obligations
0.3

 
—

 
—

 
0.3

 
58.0

 
70.0

 
(0.8
)
 
127.2

Total
$
296.4

 
$
70.8

 
$
(1.2
)
 
$
366.0



The following is a summary of investments with gross unrealized losses and the associated fair value (in millions):

 
June 30,
2012
 
December 31, 2011
Fair value
$
156.1

 
$
77.8

Gross unrealized losses for investments in a loss position 12 months or more
$
0.1

 
$
0.4

Gross unrealized losses for investments in a loss position less than 12 months
$
0.6

 
$
0.8



The unrealized losses on these securities are due to a number of factors, including changes in interest rates, changes in economic conditions and changes in market outlook for various industries, among others.  Because Bio-Rad has the ability and intent to hold these investments with unrealized losses until a recovery of fair value, or for a reasonable period of time sufficient for a forecasted recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at June 30, 2012.

The following is a summary of the amortized cost and estimated fair value of our debt securities at June 30, 2012 by contractual maturity date (in millions):

 
Amortized
Cost
 
Estimated Fair
Value
Mature in less than one year
$
130.8

 
$
130.8

Mature in one to five years
184.1

 
184.4

Mature in more than five years
46.7

 
47.0

Total
$
361.6

 
$
362.2



The estimated fair value of financial instruments in the table below has been determined using available market information or other appropriate valuation methodologies.  Estimates are not necessarily indicative of the amounts that could be realized in a current market exchange as considerable judgment is required in interpreting market data used to develop estimates of fair value.  The use of different market assumptions or estimation techniques could have a material effect on the estimated fair value.  Other assets include some financial instruments that have fair values based on market quotations.  Long-term debt, excluding leases and current maturities, has an estimated fair value based on quoted market prices for the same or similar issues.

The estimated fair value of our financial instruments and the level of the fair value hierarchy within which the fair value measurements is categorized are as follows (in millions):

 
June 30, 2012
 
December 31, 2011
 
Carrying 
Amount 
 
Estimated 
Fair 
Value 
 
Fair Value Hierarchy Level
 
Carrying 
Amount 
 
Estimated 
Fair 
Value 
 
Fair Value Hierarchy Level
Other assets
$
233.3

 
$
355.6

 
1
 
$
186.6

 
$
252.4

 
1
Total long-term debt, excluding leases
and current maturities
$
719.5

 
$
771.8

 
2
 
$
719.1

 
$
759.1

 
2


We own shares of ordinary voting stock of Sartorius AG (Sartorius), of Goettingen, Germany, a process technology supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries.  We own over 30% of the outstanding voting shares (excluding treasury shares) of Sartorius as of June 30, 2012.  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.  In addition, the ordinary voting stock of Sartorius is thinly traded. Therefore, we account for this investment using the cost method.  The carrying value of this investment is included in Other assets in our Condensed Consolidated Balance Sheets.