Bio-Rad(BIO) - 2020 Q4 - Annual Report

Part I Business Bio-Rad Laboratories, Inc. is a global manufacturer and distributor of life science research and clinical diagnostics products 2020 Net Sales Breakdown | Category | Percentage of Net Sales | | :--- | :--- | | By Segment | | | Life Science | 49% | | Clinical Diagnostics | 51% | | By Geography | | | U.S. Sales | 39% | | International Sales | 61% | - The Life Science segment develops and markets approximately 6,000 products for proteomics, genomics, biopharmaceutical production, and food safety, with an estimated addressable market of $14 billion[10] - The Clinical Diagnostics segment provides over 3,000 products for the in vitro diagnostics (IVD) market, with an estimated size of $16 billion, generating highly recurring revenue[11][12] - Key competitors include Thermo Fisher Scientific and Merck Millipore in Life Science, and Roche, Abbott Laboratories, and Siemens in Clinical Diagnostics[23][24] - As of December 31, 2020, the company had approximately 8,000 employees worldwide, with significant distribution across Americas, EMEA, and Asia Pacific regions[33] Risk Factors The company faces material risks from the COVID-19 pandemic, international operations, competition, cybersecurity, and foreign currency volatility - The COVID-19 pandemic has caused decreased demand for some products and significant supply chain challenges[47][48] - International operations, accounting for 61% of 2020 net sales, expose the company to foreign laws, trade restrictions, and currency fluctuations[53][66] - Cybersecurity risks, including a December 2019 cyberattack, could lead to data misappropriation and business disruption[60][61] - Fluctuations in the market value of the Sartorius AG investment materially impact financial results and pose a risk of being deemed an "investment company"[68][69] - Substantial government regulation from the FDA and foreign agencies could delay product approvals and increase compliance costs[85][87][88] - The Schwartz family holds a significant majority of voting stock, enabling control over director elections and company matters[116] Properties The company's corporate headquarters are in Hercules, California, with principal manufacturing and research facilities globally, both owned and leased Principal Manufacturing and Research Locations | Segment | Location | Ownership | | :--- | :--- | :--- | | Life Science | Greater San Francisco Bay Area, CA | Owned/Leased | | Life Science | Singapore, Singapore | Leased | | Life Science | Oxford, England | Leased | | Clinical Diagnostics | Greater San Francisco Bay Area, CA | Owned/Leased | | Clinical Diagnostics | Irvine, CA | Leased | | Clinical Diagnostics | Greater Seattle Area, WA | Leased | | Clinical Diagnostics | Lille, France | Owned | | Clinical Diagnostics | Cressier, Switzerland | Owned/Leased | | Clinical Diagnostics | Dreieich, Germany | Owned/Leased | Legal Proceedings The company is involved in various legal actions but does not anticipate a material adverse effect on its financial position or operations - The company is involved in various legal actions in the ordinary course of business, with no expected material adverse effect[125] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Bio-Rad's common stock trades on the NYSE, the company has never paid dividends, and a share repurchase program has $273.1 million remaining - The company's Class A and Class B Common Stock are listed on the NYSE under symbols BIO and BIOb[128] - Bio-Rad has never paid a cash dividend and has no current plans to initiate one[128] - As of December 31, 2020, $273.1 million remained available for stock repurchases under the authorized program[129] Selected Financial Data This section provides a five-year summary of key financial data, highlighting $2.55 billion in net sales and $3.81 billion in net income for 2020 Selected Financial Data (Years Ended December 31) | (In thousands, except per share data) | 2020 | 2019 | | :--- | :--- | :--- | | Net sales | $2,545,626 | $2,311,659 | | Gross profit | $1,437,822 | $1,256,996 | | Income before income taxes | $4,907,638 | $2,261,081 | | Net income | $3,806,267 | $1,758,675 | | Basic earnings per share | $127.86 | $58.93 | | Diluted earnings per share | $126.20 | $58.27 | | Total assets | $12,972,618 | $8,008,859 | Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales grew 10.1% to $2.55 billion in 2020, with net income significantly impacted by a $4.5 billion gain on equity securities Results of Operations Net sales increased 10.1% to $2.55 billion in 2020, driven by Life Science growth, while gross margin improved and non-operating income saw a $4.5 billion gain Net Sales Performance (2020 vs. 2019) | Metric | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Net Sales | $2.55B | $2.31B | +10.1% | | Life Science Sales | $1.23B | $0.89B | +39.0% | | Clinical Diagnostics Sales | $1.31B | $1.41B | -7.6% | - Consolidated gross margin improved to 56.5% in 2020 from 54.4% in 2019, driven by higher sales and favorable product mix in Life Science[179] - SG&A expenses decreased to $800.3 million (31.4% of sales) in 2020, primarily due to lower travel and marketing costs[180] - A $4.50 billion gain from the change in fair market value of equity securities was recognized in 2020, primarily from the Sartorius AG investment[184] Liquidity and Capital Resources The company maintained strong liquidity in 2020, with net cash from operations increasing to $575.3 million and $991.1 million in cash and short-term investments - As of December 31, 2020, the company held $991.1 million in cash and short-term investments, supplemented by a $200.0 million credit facility[192][193] - Net cash from operations increased by $117.4 million to $575.3 million in 2020, driven by higher receipts from COVID-19 related products[197] - The company fully repaid $425.0 million in Senior Notes in December 2020[192][202] - The company repurchased 291,941 shares of Class A common stock for $100.0 million in 2020 under its share repurchase program[205] Quantitative and Qualitative Disclosures About Market Risk The company's primary financial risks are foreign currency exchange rates and interest rates, managed through operational means and forward contracts - Foreign exchange risk is managed through operational means and forward contracts, primarily for Euro, Swiss Franc, Japanese Yen, Chinese Yuan, and British Sterling[216] - A hypothetical 10% decline in foreign exchange rates would result in an approximate $18 million net-present-value loss on derivative positions[217] - Interest rate risk on debt instruments was not significant as of December 31, 2020, due to minimal variable rate debt[218] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2020, including balance sheets, income statements, and cash flows, with detailed notes Consolidated Financial Statements The 2020 consolidated financial statements report total assets of $12.97 billion, net sales of $2.55 billion, and net income of $3.81 billion Key Balance Sheet Items (As of December 31) | (In thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Total current assets | $2,139,835 | $2,180,155 | | Equity securities | $9,561,140 | $4,638,205 | | Total assets | $12,972,618 | $8,008,859 | | Total current liabilities | $631,536 | $905,495 | | Total liabilities | $3,092,678 | $2,253,802 | | Total stockholders' equity | $9,879,940 | $5,755,057 | Consolidated Statement of Income Highlights (Year Ended December 31, 2020) | (In thousands) | Amount (in thousands) | | :--- | :--- | | Net sales | $2,545,626 | | Gross profit | $1,437,822 | | Income from operations | $410,957 | | Change in fair market value of equity securities | $4,495,825 (Gain) | | Net income | $3,806,267 | Notes to Consolidated Financial Statements The notes detail accounting policies and financial results, including the Celsee acquisition, the Sartorius AG investment, Senior Notes repayment, and segment performance - On April 1, 2020, the company acquired Celsee, Inc. for $99.3 million, integrating it into the Life Science segment[314][315] - The Sartorius AG investment, with a fair value of $9.58 billion as of December 31, 2020, represents approximately 37% of voting shares and 28% of preference shares[337][339] - The $425.0 million principal amount of 4.875% Senior Notes matured and was paid in full in December 2020[356][367] - In 2020, Life Science reported $256.3 million profit on $1.23 billion sales, and Clinical Diagnostics reported $149.1 million profit on $1.31 billion sales[431] - A new restructuring plan, initiated February 3, 2021, primarily impacts European operations with estimated costs between $125 million and $130 million[451] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with an unqualified opinion from KPMG LLP - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2020[455] - Management assessed and concluded that internal control over financial reporting was effective as of December 31, 2020, using the COSO framework[457] - No material changes in internal controls over financial reporting occurred during the year[459] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement, including the company's code of ethics - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement[462] - The company maintains a code of business ethics and conduct applicable to all employees, available on its corporate website[463] Executive Compensation Detailed information on executive compensation, including compensation tables and director compensation, is incorporated by reference from the 2021 Proxy Statement - All required executive compensation information is incorporated by reference from the 2021 Proxy Statement[465] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by major shareholders and management is incorporated by reference, including details on equity compensation plan securities Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Securities to be Issued Upon Exercise (a) | Securities Remaining for Future Issuance (c) | | :--- | :--- | :--- | | Approved by security holders | 671,506 | 2,003,600 | | Not approved by security holders | — | — | | Total | 671,506 | 2,003,600 | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information on related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement[467] Principal Accountant Fees and Services Information on fees paid to and services provided by KPMG LLP is incorporated by reference from the 2021 Proxy Statement's Audit Committee Report - Details on principal accountant fees and services are incorporated by reference from the 2021 Proxy Statement[467] Part IV Exhibits and Financial Statement Schedules This section provides an index to financial statements and lists all exhibits filed with or incorporated by reference into the Form 10-K - This section includes the index to financial statements and a comprehensive list of all exhibits filed with the annual report[468][470]