INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS This report contains forward-looking statements regarding future performance and objectives, which are subject to significant risks and uncertainties - Forward-looking statements in this annual report involve future financial performance, operating results, plans, and objectives, which are subject to risks and uncertainties that could cause actual results to differ materially from expectations6 - Risk factors include the impact of the COVID-19 pandemic, global economic conditions, new product development capabilities, competition, foreign exchange fluctuations, reduced government funding, supply chain issues, product quality and liability, acquisition integration, and international legal and regulatory risks6 Part I. Business Overview Bio-Rad Laboratories, Inc, a multinational manufacturer, operates through its Life Science and Clinical Diagnostics segments General The company manufactures and distributes products for the life science research and clinical diagnostics markets globally - Bio-Rad Laboratories, Inc is a multinational manufacturer and global distributor of products for life science research and clinical diagnostics7 - The company operates a direct sales channel in 36 countries, supplemented by distributors and agents7 Description of Business The company's business is divided into Life Science and Clinical Diagnostics, with significant international sales Net Sales Breakdown for 2020 | Metric | Percentage (%) | | :--- | :--- | | By Business Segment: | | | Life Science | 49 | | Clinical Diagnostics | 51 | | By Geographic Region: | | | United States | 39 | | Other Global Markets | 61 | - The Life Science segment offers approximately 6,000 reagents, apparatus, and laboratory instruments for markets including proteomics, genomics, biopharmaceutical production, cell biology, and food safety, with a global addressable market of about $14 billion10 - The Clinical Diagnostics segment provides over 3,000 products, including more than 300 in-vitro diagnostic (IVD) tests, focusing on high-margin, high-growth market segments with a global addressable market of about $16 billion1112 Raw Materials and Components The company faces procurement challenges due to the COVID-19 pandemic and reliance on single-source suppliers for certain components - The company utilizes a variety of chemicals, biological materials, and electronic components, most of which are available from multiple sources, though the COVID-19 pandemic has created procurement challenges and certain components rely on single suppliers13 Patents, Trademarks and Licenses The company's competitive advantage relies on its extensive intellectual property portfolio and specialized expertise - The company holds over 2,200 U.S. and international patents and numerous trademarks, supplemented by third-party patent licenses, and considers its knowledge, technology, and expertise crucial for product development and manufacturing15 Seasonal Operations and Backlog The company's business is not inherently seasonal, and it does not maintain a significant order backlog - The company's business is not inherently seasonal, although summer holidays in Europe typically affect third-quarter sales and operating income16 - The market is characterized by short delivery lead times, resulting in no significant order backlog, which management deems unimportant for the overall business16 Sales and Marketing The company employs a direct sales force and various intermediaries to serve a diverse global customer base - The company's global operations are supported by approximately 880 direct sales and sales management personnel, complemented by distributors, agents, and other sales and marketing intermediaries1718 - The customer base is broad and diverse, including universities, research institutions, hospitals, laboratories, diagnostic manufacturers, and companies in the biotechnology, pharmaceutical, chemical, and food industries19 - Sales are influenced by external factors such as government grants and research contracts, while international operations face risks from government regulations, import restrictions, and foreign exchange fluctuations2021 Competition The company operates in highly competitive markets against a range of competitors from startups to large multinational corporations - The markets served by the company are highly competitive, with competitors ranging from start-up companies to large multinational corporations22 - Key competitors in the Life Science segment include Becton Dickinson, GE Biosciences, Merck Millipore, and Thermo Fisher Scientific, with competition based on performance specifications and integrated solutions23 - Major competitors in the Clinical Diagnostics segment include Roche, Abbott Laboratories, Siemens, Danaher, and Thermo Fisher, with competition based on service, quality, and product portfolio24 Research and Development The company invests heavily in research and development to drive innovation across all business areas - The company conducts extensive R&D activities across all business areas, with approximately 880 employees globally engaged in R&D to continuously develop new products and applications25 Regulatory Matters The company's products and operations are subject to stringent regulations from the FDA and other global authorities - The company's products, primarily diagnostic and blood donor screening products, are subject to strict regulation by the U.S. FDA and other national government agencies covering development, testing, manufacturing, marketing, post-market surveillance, distribution, advertising, and labeling26 - The company is also subject to healthcare regulations and enforcement by federal, state, and foreign jurisdictions, including anti-kickback, fraud and abuse, false claims, privacy and security, and physician sunshine acts27 - Product sales depend on the coverage and reimbursement levels from third-party payors, and healthcare reform measures may limit reimbursement amounts, thereby affecting sales and revenue28 - The company's operations must also comply with federal, state, local, and foreign environmental laws and regulations concerning transportation, emissions, and hazardous waste handling31 Human Capital Resources The company focuses on fostering a diverse, equitable, and inclusive culture for its global workforce of approximately 8,000 employees - As of December 31, 2020, the company had approximately 8,000 employees, with about 45% in the Americas, 40% in Europe, the Middle East, and Africa, and 15% in the Asia Pacific region33 - The company is committed to a diverse, equitable, and inclusive work culture, actively recruiting, developing, and retaining a diverse talent pool, with mandatory training for management and employees34 - The company offers a competitive total rewards package, including salary, bonuses, stock awards, health benefits, a 401(k) plan, and an employee stock purchase plan, while implementing pay equity strategies35 - Employee health, well-being, and safety are high priorities, with safety performance managed and tracked globally and COVID-19 response measures implemented3638 - The company provides management and employee training programs to support growth and development, including an educational reimbursement program, with learning shifted to virtual platforms due to the pandemic39 Available Information The company's SEC filings are publicly available on the SEC's website and the company's investor relations website - Bio-Rad files annual, quarterly, and current reports, proxy statements, and other documents with the SEC, which are available on the SEC's website (http://www.sec.gov)[40](index=40&type=chunk) - The company's website (www.bio-rad.com) provides free access to its Form 10-Ks, 10-Qs, and 8-Ks, and their amendments41 Risk Factors The company faces numerous risks including the COVID-19 pandemic's impact, international operational complexities, and a highly competitive market environment Business, Economic, Legal and Industry Risks The company is exposed to a wide range of operational, financial, and regulatory risks that could materially affect its performance - The COVID-19 pandemic has adversely affected and is expected to continue to adversely affect the company's business, operations, financial condition, and results of operations, including decreased demand for certain products, supply chain challenges, and personnel risks454647484950 - International operations, accounting for 61% of 2020 net sales, face risks from complex foreign and U.S. laws, data privacy requirements, labor laws, tax laws, anti-corruption laws, trade restrictions, and Brexit, which could result in fines, sanctions, or reputational damage52535455 - The life science and clinical diagnostics markets are highly competitive, with some competitors having greater financial resources, potentially leading to pricing pressure and loss of market share5758 - Future growth depends on new product development and existing product improvements; failure to integrate technological advancements or launch new products successfully could render products obsolete and adversely affect the business59 - Information system security breaches, such as the 2019 cyberattack, could lead to the disclosure of confidential information, business interruptions, customer loss, regulatory penalties, and revenue loss6061 - The implementation of a global Enterprise Resource Planning (ERP) system may face significant delays, increased costs, and operational disruptions73 - Foreign currency fluctuations, such as a strengthening U.S. dollar, could negatively impact consolidated net sales reported in U.S. dollars and increase hedging costs6566 - Changes in the market value of the Sartorius AG investment could significantly impact financial performance and may cause the company to be deemed an "investment company," limiting its access to capital markets686970 - Reductions in government funding and customer capital spending plans could adversely affect demand for the company's products7879 - Changes in the healthcare industry, such as managed care trends, healthcare reform, and reduced third-party payor reimbursement, could adversely affect the gross margins and product utilization of the clinical diagnostics business818283 - Strict government regulations, such as FDA oversight of medical devices, and regulatory changes could lead to product approval delays, restricted market access, fines, or business interruptions84858788 - Acquisition integration may divert management resources and presents risks of contingent liabilities, goodwill impairment, and failure to achieve expected benefits9192 - Product quality and liability issues could damage the company's reputation, customer relationships, and financial condition93 - A lack of key technical personnel could impact product development, marketing, and sales capabilities94 - Supply chain disruptions for components and raw materials could affect manufacturing operations and product sales9697 - Higher-than-expected tax liabilities and changes in tax laws could adversely affect the financial condition and results of operations9899100101 - Environmental, health, and safety regulations and enforcement actions could lead to increased capital and operating costs, fines, or business damage103104105 - Restrictive covenants in debt agreements could affect the company's ability to operate and capitalize on business opportunities, with defaults potentially leading to debt acceleration106107 Risks Related to Being a Public Company The company faces risks associated with maintaining effective internal controls and meeting public reporting obligations - Failure to establish and maintain effective internal control over financial reporting could result in material misstatements in financial statements, failure to meet reporting obligations, and damage to investor confidence112113 General Business Risks Uncontrollable external events could disrupt the company's operations and supply chain - Natural disasters, terrorist attacks, war, or other uncontrollable events could cause damage or disruption to the company, its employees, facilities, information systems, suppliers, and customers114115 Risks Related to Our Common Stock The concentration of voting power and charter provisions present risks to minority shareholders - The Schwartz family holds a majority of the company's voting stock, enabling them to elect a majority of directors and control corporate affairs, which may lead to conflicts of interest with minority shareholders116 - Forum selection clauses in the company's charter could increase claim costs and limit shareholders' ability to bring lawsuits in certain judicial forums118119120 Unresolved Staff Comments There are no unresolved staff comments in this report - No unresolved staff comments121 Properties Bio-Rad owns and leases numerous properties worldwide for its manufacturing, research, administrative, and sales operations - The company owns its corporate headquarters located in Hercules, California124 Principal Manufacturing and Research Locations | Business Segment | Location | Owned/Leased | | :--- | :--- | :--- | | Life Science | San Francisco Bay Area, CA | Owned/Leased | | | Singapore | Leased | | | Oxford, United Kingdom | Leased | | Clinical Diagnostics | San Francisco Bay Area, CA | Owned/Leased | | | Irvine, CA | Leased | | | Greater Seattle Area, WA | Leased | | | Lille, France | Owned | | | Greater Paris Area, France | Leased | | | Nazareth-Eke, Belgium | Leased | | | Cressier, Switzerland | Owned/Leased | | | Dreieich, Germany | Owned/Leased | - Most manufacturing and research facilities also house administrative, sales, and distribution activities, and the company leases additional office and warehouse facilities globally124 Legal Proceedings The company is involved in various legal matters arising from its ordinary course of business - The company is a party to various claims, legal proceedings, and complaints arising in the ordinary course of business125 - Management does not currently believe that any ultimate liability will have a material adverse effect on the company's financial results, condition, or liquidity, but cannot guarantee the final outcome125 Mine Safety Disclosures Mine safety disclosures are not applicable to this report - Mine safety disclosures are not applicable126 Part II. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section details the market for Bio-Rad's common stock, shareholder information, and the company's stock repurchase program Information Concerning Common Stock Bio-Rad's Class A and B common stock are listed on the NYSE, and the company maintains an active stock repurchase program - Bio-Rad's Class A and Class B common stock are listed on the New York Stock Exchange under the ticker symbols BIO and BIOb, respectively128 - As of February 10, 2021, there were 174 holders of Class A common stock and 99 holders of Class B common stock128 - The company has never paid cash dividends and has no current plans to do so128 Stock Repurchase Program | Metric | Description | | :--- | :--- | | November 2017 Authorization | Board authorized repurchase of up to $250 million of common stock | | July 2020 Increase | Board authorized an additional repurchase of up to $200 million of stock | | Remaining Authorization as of Dec 31, 2020 | $273.1 million | Stock Performance Graph The stock performance graph compares Bio-Rad's cumulative shareholder return against market indices and a peer group - The stock performance graph compares the cumulative shareholder return of the company's Class A common stock with the S&P 400 MidCap Index and a selected peer group over the last five years132 - The peer group includes Danaher, Becton Dickinson, Thermo Fisher Scientific, Meridian Bioscience, and PerkinElmer, reflecting the company's participation in both the life science research products and clinical diagnostics markets132 Selected Financial Data This section presents key financial data for Bio-Rad Laboratories, Inc for the five-year period ending December 31, 2020 Selected Financial Data (2016-2020) | Metric (in thousands of dollars, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | 2,545,626 | 2,311,659 | 2,289,415 | 2,160,153 | 2,068,172 | | Cost of goods sold | 1,107,804 | 1,054,663 | 1,066,264 | 972,450 | 929,744 | | Gross profit | 1,437,822 | 1,256,996 | 1,223,151 | 1,187,703 | 1,138,428 | | Selling, general and administrative expenses | 800,267 | 824,625 | 834,783 | 806,790 | 814,697 | | Research and development expenses | 226,598 | 202,710 | 199,196 | 250,157 | 205,708 | | Goodwill and long-lived asset impairment losses | — | — | 292,513 | 11,506 | 62,305 | | Interest expense | 21,861 | 23,416 | 23,962 | 23,014 | 23,380 | | Foreign currency exchange losses, net | 1,771 | 2,245 | 2,861 | 9,128 | 4,542 | | Changes in fair value of equity securities | (4,495,825) | (2,030,987) | (606,230) | — | — | | Other income, net | (24,488) | (26,094) | (36,593) | (10,697) | (13,764) | | Income before taxes | 4,907,638 | 2,261,081 | 512,659 | 97,805 | 41,560 | | Income tax (provision) benefit | (1,101,371) | (502,406) | (147,045) | 24,444 | (15,560) | | Net income | 3,806,267 | 1,758,675 | 365,614 | 122,249 | 26,000 | | Basic earnings per share | 127.86 | 58.93 | 12.25 | 4.12 | 0.88 | | Diluted earnings per share | 126.20 | 58.27 | 12.10 | 4.07 | 0.88 | | Total assets | 12,972,618 | 8,008,859 | 5,611,068 | 4,273,012 | 3,850,504 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial performance for the year ended December 31, 2020, highlighting key operational and financial developments Overview The company operates globally in the life science and clinical diagnostics sectors, serving a diverse customer base - Bio-Rad is a multinational manufacturer and global distributor of products for life science research and clinical diagnostics, operating in two main segments137 - The company sells over 9,000 products and services to a diverse customer base including research, healthcare, education, and government institutions138 - Approximately 39% of 2020 consolidated net sales were from the U.S. and 61% from international markets, with Europe being the largest international region, making foreign exchange fluctuations impactful141 COVID-19 The COVID-19 pandemic has significantly impacted the company's operations, creating both challenges and opportunities - The COVID-19 pandemic continues to affect the company's business operations, financial condition, and results, with strong demand for COVID-19 testing and related research products but decreased demand for other products142 Cyberattack The company successfully managed a 2019 cyberattack with minimal disruption and is covered by insurance - The company detected a cyberattack in December 2019, immediately took affected systems offline, and restored critical systems within days without paying a ransom, with cyberattack insurance coverage in place143144 Acquisitions The company acquired Celsee, Inc to enhance its life science product portfolio - On April 1, 2020, the company acquired Celsee, Inc for a total consideration of $99.3 million, including contingent consideration, to complement its life science product line145146 Informatics Divestiture The company divested its Informatics division in April 2020 - In April 2020, the company sold its Informatics division for $12.2 million and recognized a gain of $11.7 million147 Restructurings The company has initiated a strategy-driven restructuring plan primarily affecting its European operations - On February 3, 2021, the company initiated a strategy-driven restructuring plan, mainly impacting European operations, involving the elimination of approximately 530 positions and the creation of about 325 new positions, expected to be completed by the end of fiscal 2022148 - The restructuring plan is estimated to cost between $125 million and $130 million, including approximately $86 million in severance, $19 million in capital expenditures, and $20 million to $25 million in one-time transition costs148 Critical Accounting Policies and Estimates The company's financial statements rely on key accounting policies and management estimates that are subject to change - The company's financial statements are prepared in accordance with U.S. GAAP, requiring management to make estimates and assumptions that may change due to future events149 - Income tax accounting involves estimating current tax liabilities and deferred tax assets and liabilities in various jurisdictions and assessing the realizability of deferred tax assets150151153 - Business acquisition accounting requires estimating the fair value of acquired tangible and intangible assets and assumed liabilities at the acquisition date, with goodwill representing the excess purchase price154155156 - Goodwill is tested for impairment annually, or more frequently if impairment indicators exist, by assessing whether a reporting unit's fair value is below its carrying amount157158159 - Intangible assets such as customer relationships, technology, licenses, and trade names are recorded at cost and amortized over their estimated useful lives of 3 to 20 years161162 - Long-lived assets are reviewed for impairment when indicators are present by comparing the asset's carrying value to future undiscounted net cash flows162163 - Revenue recognition is based on the transfer of promised goods or services to customers in an amount that reflects the expected consideration, net of estimated product returns164166167 - Revenue from reagent rental agreements involves allocating contract consideration to lease and non-lease components and is recognized under ASC 842 and ASC 606171172 - Inventory is valued at the lower of cost or net realizable value and is written down for excess and obsolete inventory based on product demand forecasts, production requirements, and raw material quality173 Results of Operations - Sales, Gross Margins and Expenses The company's 2020 results show strong sales growth in Life Science, offset by a decline in Clinical Diagnostics Cost of Goods Sold, Gross Profit, and Expenses as a Percentage of Net Sales | Metric | 2020 (%) | 2019 (%) | | :--- | :--- | :--- | | Net sales | 100.0 | 100.0 | | Cost of goods sold | 43.5 | 45.6 | | Gross profit | 56.5 | 54.4 | | Selling, general and administrative expenses | 31.4 | 35.7 | | Research and development expenses | 8.9 | 8.8 | Annual Change in Net Sales | Metric | 2020 ($ millions) | 2019 ($ millions) | Y-o-Y Growth (%) | Currency-Neutral Growth (%) | | :--- | :--- | :--- | :--- | :--- | | Consolidated Net Sales | 2,545.6 | 2,311.7 | 10.1 | 10.3 | | Life Science Segment Sales | 1,230.0 | 885.9 | 39.0 | 38.6 | | Clinical Diagnostics Segment Sales | 1,310.0 | 1,412.0 | (7.6) | (7.1) | - The Life Science segment's sales growth was driven by increases in gene expression, Droplet Digital PCR, and process media product lines, benefiting from COVID-19 diagnostic products, a carry-over effect from the 2019 cyberattack, and a $32 million intellectual property litigation settlement176 - The Clinical Diagnostics segment's sales decline was primarily due to the impact of COVID-19 on customer operations, though it benefited from the carry-over effect of the 2019 cyberattack178 - The consolidated gross margin increased to 56.5% in 2020 from 54.4% in 2019, mainly due to higher sales in the Life Science segment, a favorable product mix, and lower manufacturing costs179 - Selling, general, and administrative expenses decreased to $800.3 million in 2020 from $824.6 million in 2019, primarily due to a $35 million reduction in travel, marketing, and communication expenses resulting from COVID-19180 - Research and development expenses increased to $226.6 million in 2020 from $202.7 million in 2019, mainly due to accelerated innovation in key investment areas within the Life Science segment and expenses related to the Celsee business181 Results of Operations – Non-operating Non-operating results were significantly influenced by the fair value changes of the company's investment in Sartorius AG Annual Change in Non-operating Financial Data | Metric ($ millions) | 2020 | 2019 | | :--- | :--- | :--- | | Interest expense | 21.9 | 23.4 | | Foreign currency exchange losses, net | 1.8 | 2.2 | | Changes in fair value of equity securities | (4,495.8) | (2,031.0) | | Other income, net | (24.5) | (26.1) | | Effective tax rate | 22.4% | 22.2% | - The change in fair value of equity securities primarily reflects holding gains from the Sartorius AG investment, amounting to $4.5 billion in 2020 and $2.03 billion in 2019184 - The decrease in other income, net was mainly due to lower investment income and Sartorius AG dividend income, partially offset by the gain on the sale of the Informatics division185 - The effective tax rate was influenced by unrealized gains on equity securities (taxed at approximately 22%), the geographic mix of earnings, and taxes on foreign earnings186 Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018 A comparative analysis of 2019 and 2018 financial results is available in the prior year's Form 10-K report - For a discussion comparing fiscal years 2019 and 2018, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in the company's Form 10-K for the fiscal year ended December 31, 2019190 Liquidity and Capital Resources The company maintains strong liquidity through operating cash flows, investments, and an undrawn credit facility - The company maintains sufficient liquidity through positive cash flow from operating activities, sales of short-term investments, and a $200 million unsecured revolving credit facility, which had no outstanding borrowings as of December 31, 2020192 - As of December 31, 2020, the company held $991.1 million in cash, cash equivalents, and short-term investments, with approximately 37% held by foreign subsidiaries193 - The company plans to repatriate a portion of its foreign earnings unless restricted by local laws or accounting rules or if it would incur significant incremental costs194 - The COVID-19 pandemic, government funding, reimbursement limits, and international trade disputes could cause significant shifts in demand for products and services195 Cash Flow Summary ($ millions) | Cash Flow Type | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | 575.3 | 457.9 | | Net cash used in investing activities | (60.3) | (208.9) | | Net cash used in financing activities | (523.0) | (22.8) | - The increase in operating cash flow was primarily due to higher customer collections from increased sales of COVID-19 related products, partially offset by higher payments to suppliers and for employee-related expenses197 - The decrease in investing cash outflow was mainly due to a $159.5 million net increase from maturities, sales, and purchases of marketable securities and a $12.2 million gain from divestitures, partially offset by a $17.3 million increase in acquisition payments200 - The increase in financing cash outflow was primarily due to the repayment of $425 million in principal on senior notes and $72 million for treasury stock repurchases202 - In 2020, the company repurchased 291,941 shares of Class A common stock for $100 million; as of December 31, 2020, $273.1 million remained available under the stock repurchase program205207 Off-Balance Sheet Arrangements The company has no significant off-balance sheet arrangements - The company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material effect on its financial condition, results of operations, or liquidity208 Contractual Obligations This section outlines the company's contractual obligations as of year-end 2020 Contractual Obligations as of December 31, 2020 ($ millions) | Contractual Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt, including current portion | 14.1 | 1.8 | 2.2 | 0.8 | 9.3 | | Interest payments | 8.6 | 0.9 | 1.5 | 1.4 | 4.8 | | Operating lease obligations | 252.9 | 43.6 | 68.3 | 50.4 | 90.6 | | Purchase obligations | 16.6 | 14.1 | 2.3 | 0.2 | — | | Long-term liabilities | 134.0 | 2.7 | 19.3 | 9.4 | 102.6 | - Long-term liabilities primarily consist of other post-retirement benefits and long-term deferred revenue, excluding unrecognized tax liabilities and contingencies for which future cash flows cannot be reasonably estimated211 Recent Accounting Pronouncements Adopted and to be Adopted Information on recent accounting pronouncements is detailed in the notes to the consolidated financial statements - Please refer to Note 1 of the Notes to Consolidated Financial Statements for information on recent accounting pronouncements adopted and to be adopted212 Quantitative and Qualitative Disclosures About Market Risk The company manages financial risks, including foreign exchange and interest rate fluctuations, through operational and financial instruments Financial Risk Management The company aims to mitigate the impact of market volatility on its cash flows through a structured risk management approach - The company's financial risk management objective is to reduce the volatility of expected cash flows from unexpected changes in foreign exchange and interest rates214 - Risks are managed through operational means and financial instruments, including cash, liquid resources, borrowings, and forward foreign exchange contracts, with no speculative derivative trading214 Foreign Exchange Risk The company uses forward contracts and operational strategies to manage currency transaction and translation risks - The company faces transactional currency risk and translation risk from the net assets of its international subsidiaries, which it manages by matching revenues and expenses in the same currency and using forward foreign exchange contracts215216 - The primary currencies for forward contracts include the Euro, Swiss Franc, Japanese Yen, Chinese Yuan, and British Pound, with most contracts having a term of 90 days or less216 - As of December 31, 2020, a 10% adverse change in foreign exchange rates would result in a net present value loss of approximately $18 million on derivative positions, excluding the offsetting effect of changes in the value of underlying assets and liabilities217 Interest Rate Risk of Debt Instruments The company's exposure to interest rate risk is limited due to its fixed-rate long-term debt and minimal floating-rate debt - Due to the relatively small amount of short-term floating-rate debt instruments, a 10% adverse change in interest rates would not have a material impact on earnings or cash flows218 - Long-term debt instruments are primarily fixed-rate and therefore not subject to interest rate changes218 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements and supplementary data for Bio-Rad Laboratories, Inc for the year ended December 31, 2020 Reports of Independent Registered Public Accounting Firm The independent auditor's report provides an unqualified opinion on the company's financial statements and internal controls - KPMG LLP issued an unqualified opinion on the consolidated financial statements of Bio-Rad Laboratories, Inc as of December 31, 2020 and 2019, stating they are presented fairly in all material respects in conformity with U.S. GAAP222 - KPMG LLP also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020223231 - The company changed its method of accounting for leases effective January 1, 2019, due to the adoption of ASU 2016-02, Leases, and its related updates224 - A critical audit matter was the assessment of the lease term for reagent rental agreements, which required a high degree of auditor judgment to design and execute audit procedures227228229 Consolidated Balance Sheets The consolidated balance sheets present the company's financial position at the end of the 2020 and 2019 fiscal years Consolidated Balance Sheets Summary (as of December 31, in thousands of dollars) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Assets: | | | | Cash and cash equivalents | 662,205 | 660,672 | | Short-term investments | 328,913 | 453,973 | | Inventories | 419,424 | 392,672 | | Total assets | 12,972,618 | 8,008,859 | | Liabilities and Stockholders' Equity: | | | | Accounts payable | 139,451 | 107,014 | | Total current liabilities | 631,536 | 905,495 | | Long-term debt, less current portion | 12,258 | 13,579 | | Deferred income taxes | 2,076,785 | 997,787 | | Total liabilities | 3,092,678 | 2,253,802 | | Total stockholders' equity | 9,879,940 | 5,755,057 | Consolidated Statements of Income The consolidated statements of income detail the company's revenues, expenses, and net income over the past three fiscal years Consolidated Statements of Income Summary (for the year ended December 31, in thousands of dollars, except per share data) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net sales | 2,545,626 | 2,311,659 | 2,289,415 | | Cost of goods sold | 1,107,804 | 1,054,663 | 1,066,264 | | Gross profit | 1,437,822 | 1,256,996 | 1,223,151 | | Selling, general and administrative expenses | 800,267 | 824,625 | 834,783 | | Research and development expenses | 226,598 | 202,710 | 199,196 | | Operating (loss) income | 410,957 | 229,661 | (103,341) | | Changes in fair value of equity securities | (4,495,825) | (2,030,987) | (606,230) | | Income before taxes | 4,907,638 | 2,261,081 | 512,659 | | Income tax provision | (1,101,371) | (502,406) | (147,045) | | Net income | 3,806,267 | 1,758,675 | 365,614 | | Basic earnings per share | 127.86 | 58.93 | 12.25 | | Diluted earnings per share | 126.20 | 58.27 | 12.10 | Consolidated Statements of Comprehensive Income The consolidated statements of comprehensive income report net income and other comprehensive income items Consolidated Statements of Comprehensive Income Summary (for the year ended December 31, in thousands of dollars) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net income | 3,806,267 | 1,758,675 | 365,614 | | Other comprehensive income (loss), net of tax: | | | | | Foreign currency translation adjustments | 371,057 | (36,953) | (112,857) | | Foreign other post-retirement benefit adjustments | (3,806) | (7,363) | 7,549 | | Net unrealized holding gains (losses) on available-for-sale investments | 2,553 | 3,926 | (1,187) | | Other comprehensive income (loss), net of tax | 369,804 | (40,390) | (106,495) | | Comprehensive income | 4,176,071 | 1,718,285 | 259,119 | Consolidated Statements of Cash Flows The consolidated statements of cash flows summarize the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Summary (for the year ended December 31, in thousands of dollars) | Cash Flow Type | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 575,328 | 457,897 | 285,494 | | Net cash used in investing activities | (60,250) | (208,889) | (186,978) | | Net cash used in financing activities | (523,041) | (22,758) | (48,680) | | Effect of exchange rate changes on cash | 12,427 | 2,237 | (655) | | Net increase in cash, cash equivalents and restricted cash | 4,464 | 228,487 | 49,181 | | Cash, cash equivalents and restricted cash at end of year | 667,115 | 662,651 | 434,164 | Consolidated Statements of Changes in Stockholders' Equity This statement details the changes in the company's equity accounts over the past three fiscal years Consolidated Statements of Changes in Stockholders' Equity Summary (for the year ended December 31, in thousands of dollars) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Stockholders' equity at beginning of year | 5,755,057 | 4,020,331 | 2,930,250 | | Net income | 3,806,267 | 1,758,675 | 365,614 | | Other comprehensive income (loss), net of tax | 369,804 | (40,390) | (106,495) | | Purchase of treasury stock | (100,004) | (28,000) | (48,912) | | Stockholders' equity at end of year | 9,879,940 | 5,755,057 | 4,020,331 | Notes to Consolidated Financial Statements The notes provide detailed disclosures that supplement the information in the consolidated financial statements Note 1. Significant Accounting Policies This note outlines the significant accounting policies applied in the preparation of the consolidated financial statements - The company's consolidated financial statements include the accounts of Bio-Rad Laboratories, Inc and its wholly-owned and majority-owned subsidiaries, with intercompany balances and transactions eliminated248 - Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less, stated at cost, which approximates fair value249 - Short-term restricted investments of $5.6 million are held to collateralize workers' compensation and general liability insurance250 - Available-for-sale investments are reported at fair value, with unrealized gains and losses included in other comprehensive income; an expected loss model was adopted effective January 1, 2020251 - Credit risk is concentrated in cash, investments, foreign exchange contracts, and trade receivables, and is managed through dealings with high-credit-quality financial institutions and ongoing credit evaluations253254255 - Accounts receivable are recorded at net invoice value, with an allowance for doubtful accounts established based on historical loss rates and future loss estimates256 Allowance for Doubtful Accounts Activity ($ millions) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Beginning balance | 20.2 | 26.7 | 25.5 | | Provision for expected credit losses (2020), bad debt (reversal) expense (2019 & 2018) | 1.2 | (1.2) | 3.9 | | Write-offs | (1.6) | (6.6) | (2.7) | | Recoveries | — | 1.3 | — | | Ending balance | 19.8 | 20.2 | 26.7 | - Inventories are stated at the lower of cost or net realizable value, including materials, labor, and manufacturing overhead, and are written down based on demand forecasts and quality assessments257173 - Property, plant, and equipment are stated at cost less accumulated depreciation and amortization, with depreciation calculated using the straight-line method over useful lives of 1 to 50 years260261 - Lease arrangements are accounted for under ASU 2016-02 since January 1, 2019, recognizing most leases as assets and liabilities and enhancing disclosures263264265310 - Intangible assets include goodwill, acquired technology, licenses, trade names, and customer relationships; finite-lived intangibles are amortized over 3 to 20 years, while indefinite-lived intangibles (goodwill) are tested for impairment annually266269270271 - Income taxes are accounted for using the asset and liability method, recognizing deferred tax assets and liabilities and assessing their realizability, while recognizing tax benefits for uncertain tax positions272273275276 - Revenue is recognized upon transfer of promised goods or services to customers in an amount that reflects the expected consideration, net of estimated product returns278279280 - Revenue from reagent rental agreements involves allocating contract consideration to lease and non-lease components and is recognized under ASC 842 and ASC 606286287288290291 - Research and development costs are expensed as incurred296 - Foreign currency statements are translated at year-end exchange rates, with income statement items translated at average rates; translation adjustments are recorded as a separate component of stockholders' equity298 - Forward foreign exchange contracts are used to manage foreign exchange risk, are measured at fair value, and do not receive hedge accounting treatment300 - Equity investments are reported at fair value with unrealized gains and losses recognized in the income statement; the equity method is used for investments with significant influence306 - Recently adopted accounting standards include ASU 2020-04 (Reference Rate Reform), ASU 2018-13 (Fair Value Measurement Disclosures), and ASU 2016-13 (Measurement of Credit Losses on Financial Instruments)307308310 - Accounting standards to be adopted include ASU 2020-01 (Clarifying Interactions between Equity Securities, Equity Method, and Derivatives) and ASU 2019-12 (Simplifying the Accounting for Income Taxes)311312 Note 2. Acquisitions and Divestitures This note details the company's acquisition and divestiture activities during the reporting period - On April 1, 2020, the company acquired Celsee, Inc for a total consideration of $99.3 million to complement its life science product line, with $29.8 million recognized as goodwill314315316317 Fair Value and Estimated Useful Lives of Identifiable Intangible Assets from Celsee Acquisition ($ millions) | Intangible Asset | Fair Value | Estimated Useful Life (years) | | :--- | :--- | :--- | | Developed product technology | 70.3 | 18.9 | | Customer relationships | 3.6 | 4.0 | | Non-compete agreements | 1.4 | 3.0 | | In-process research and development | 4.6 | - | | Total | 79.9 | | - In October 2019, the company acquired a foreign distributor for approximately $4.2 million, recognizing $3.4 million in customer relationship intangible assets322323 - In August 2019, the company acquired Exact Diagnostics, LLC for approximately $60 million to accelerate market penetration in quality control and assay validation, with $28.7 million recognized as goodwill325326 - In March 2019, the company acquired a small, private U.S. company for approximately $20 million to expand its life science reagent product line, with $15.6 million recognized as goodwill327328329 - In April 2020, the company sold its Informatics division for $12.2 million, recognizing a gain of $11.7 million330 Note 3. Fair Value Measurements and Investments This note provides details on the fair value measurement of the company's financial assets and liabilities - The company determines fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, using a three-level fair value hierarchy332 Financial Assets and Liabilities by Fair Value Hierarchy as of December 31, 2020 ($ millions) | Financial Instrument | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Financial Assets: | | | | | | Cash equivalents | 77.7 | 55.1 | — | 132.8 | | Restricted investments | 6.7 | — | — | 6.7 | | Equity securities | 9,582.4 | — | — | 9,582.4 | | Available-for-sale investments | — | 267.6 | — | 267.6 | | Forward foreign exchange contracts | — | 1.0 | — | 1.0 | | Financial Liabilities: | | | | | | Forward foreign exchange contracts | — | 1.0 | — | 1.0 | | Contingent consideration | — | — | 0.7 | 0.7 | - As of December 31, 2020, the company held 12,987,900 ordinary voting shares and 9,588,908 preference shares of Sartorius AG, representing approximately 37% of the ordinary voting shares and 28% of the preference shares339 - In 2020, changes in the fair value of equity securities resulted in a gain of $4.4958 billion, primarily from the Sartorius AG investment337 Available-for-Sale Investments as of December 31, 2020 ($ millions) | Investment Type | Amortized Cost | Unrealized Gains | Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | | :--- | :--- | :--- | :--- | :--- | :--- | | Short-term investments: | | | | | | | Corporate debt securities | 130.5 | 2.7 | — | — | 133.2 | | Municipal bonds | 15.0 | 0.2 | — | — | 15.2 | | Asset-backed securities | 35.8 | 0.3 | — | — | 36.1 | | U.S. government sponsored agencies | 74.7 | 2.2 | — | — | 76.9 | | Foreign government bonds | 4.0 | — | — | — | 4.0 | | Other foreign bonds | 2.1 | — | — | — | 2.1 | | Long-term investments: | | | | | | | Asset-backed securities | 0.1 | — | — | — | 0.1 | | Total | 262.2 | 5.4 | — | — | 267.6 | - As of December 31, 2020, the company had no allowance for credit losses on its available-for-sale investment portfolio, as all payments are expected to be received in full and on time352 Forward Foreign Exchange Contracts Summary as of December 31, 2020 ($ millions) | Contract Type | Notional Value | Unrealized Gain (Loss) | | :--- | :--- | :--- | | Contracts to sell foreign currencies maturing Jan-Mar 2021 | 125.3 | (0.4) | | Contracts to purchase foreign currencies maturing Jan-Mar 2021 | 301.6 | 0.4 | - In December 2020, the company's 4.875% Senior Notes matured and were paid in full356 Note 4. Goodwill and Other Purchased Intangible Assets This note provides a breakdown of goodwill and other purchased intangible assets by business segment Changes in Goodwill by Business Segment ($ millions) | Metric | 2020 Life Science | 2020 Clinical Diagnostics | 2020 Total | 2019 Life Science | 2019 Clinical Diagnostics | 2019 Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net goodwill at beginning of year | 208.3 | 55.8 | 264.1 | 192.7 | 27.1 | 219.8 | | Acquisitions | 29.8 | — | 29.8 | 15.6 | 28.7 | 44.3 | | Other adjustments | (2.0) | — | (2.0) | — | — | — | | Net goodwill at end of year | 236.1 | 55.8 | 291.9 | 208.3 | 55.8 | 264.1 | Information on Identifiable Purchased Intangible Assets as of December 31, 2020 ($ millions) | Intangible Asset | Weighted-Average Amortization Period (years) | Purchase Price | Accumulated Amortization | Net Book Value | | :--- | :--- | :--- | :--- | :--- | | Customer relationships/lists | 5.51 | 116.6 | (87.2) | 29.4 | | Proprietary technology | 4.75 | 196.6 | (175.4) | 21.2 | | Developed product technology | 14.00 | 218.1 | (107.1) | 111.0 | | Licenses | 7.73 | 65.6 | (37.4) | 28.2 | | Trade names | 7.82 | 6.6 | (4.2) | 2.4 | | Non-compete agreements | 3.87 | 4.5 | (2.0) | 2.5 | | Other | — | 0.1 | (0.1) | — | | Total finite-lived intangible assets | | 608.1 | (413.4) | 194.7 | | In-process research and development | | 4.8 | — | 4.8 | | Total purchased intangible assets | | 612.9 | (413.4) | 199.5 | - No impairment losses related to goodwill and purchased intangible assets were recorded in 2020 and 2019363 - Amortization expense for purchased intangible assets was $27.5 million, $23.5 million, and $28.3 million for 2020, 2019, and 2018, respectively364 Note 5. Notes Payable and Long-Term Debt This note details the company's debt instruments, including credit facilities and senior notes - As of December 31, 2020, the company had $207.2 million available for borrowing and usage under its domestic and international credit facilities, with $4.9 million used for standby letters of credit and guarantee arrangements365 Major Components of Long-Term Debt ($ millions) | Debt Type | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | 4.875% Senior Notes due 2020 | — | 425.0 | | Less: unamortized discount and issuance costs | — | (0.6) | | Capital leases and other debt | 14.1 | 15.4 | | Less: current portion | (1.8) | (426.2) | | Long-term debt | 12.3 | 13.6 | - In December 2020, the 4.875% Senior Notes matured and were paid in full367 - In April 2019, the company entered into a $200 million unsecured revolving credit facility, with no outstanding borrowings as of December 31, 2020, but $0.2 million used for standby letters of credit367 - The credit agreement requires compliance with financial ratios and covenants, such as leverage and interest coverage ratios, and the company was in compliance with all requirements as of December 31, 2020 and 2019368 Note 6. Income Taxes This note provides a detailed analysis of the company's income tax provision, deferred tax assets and liabilities, and effective tax rate U.S. and International Components of Income Before Taxes ($ millions) | Region | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | United States | 2,339.7 | 1,034.0 | 363.4 | | International | 2,567.9 | 1,227.1 | 149.3 | | Total income before taxes | 4,907.6 | 2,261.1 | 512.7 | Components of the Provision for Income Taxes ($ millions) | Tax Type | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Current tax expense: | | | | | U.S. federal | 69.9 | 13.0 | 8.8 | | State | 12.0 | 4.4 | 2.2 | | International | 22.3 | 23.5 | 30.5 | | Total current tax expense | 104.2 | 40.9 | 41.5 | | Deferred tax expense: | | | | | U.S. federal | 893.5 | 409.7 | 114.0 | | State | 54.0 | 24.4 | 6.6 | | International | 31.5 | 16.1 | 0.3 | | Total deferred tax expense | 979.0 | 450.2 | 120.9 | | Non-current tax expense (benefit) | 18.2 | 11.3 | (15.4) | | Total provision for income taxes | 1,101.4 | 502.4 | 147.0 | Reconciliation of Effective Tax Rate to Statutory Rate | Item | 2020 (%) | 2019 (%) | 2018 (%) | | :--- | :--- | :--- | :--- | | U.S. statutory rate | 21.0 | 21.0 | 21.0 | | Effect of foreign operations | (9.9) | (9.7) | (4.1) | | Goodwill impairment | — | — | 5.6 | | U.S. tax on foreign income | 10.2 | 10.3 | 15.5 | | U.S. tax reform | — | — | (9.6) | | State taxes | 1.1 | 1.0 | 1.7 | | Other | — | (0.4) | (1.4) | | Provision for income taxes | 22.4 | 22.2 | 28.7 | - The effective tax rates for 2020 and 2019 were 22.4% and 22.2%, respectively, primarily influenced by unrealized gains on equity securities (taxed at approximately 22%), the geographic mix of earnings, and taxes on foreign earnings374 Major Components of Deferred Tax Assets and Liabilities ($ millions) | Item | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Deferred tax assets: | | | | Bad debt, inventory and warranty accruals | 29.6 | 23.9 | | Gross deferred tax assets | 247.0 | 205.2 | | Valuation allowance | (44.6) | (67.2) | | Total deferred tax assets | 202.4 | 138.0 | | Deferred tax liabilities: | | | | Investments and intangible assets | 2,143.4 | 1,001.4 | | Gross deferred tax liabilities | 2,227.2 | 1,086.2 | | Net deferred tax liabilities | (2,024.8) | (948.2) | - As of December 31, 2020, federal, state, and foreign net operating loss carryforwards were approximately $26.3 million, $64.5 million, and $255 million, respectively377 Reconciliation of Unrecognized Tax Benefits ($ millions) | Item | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Unrecognized tax benefits at beginning of year | 39.2 | 29.8 | 54.9 | | Increases for tax positions related to prior years | 14.0 | 7.6 | 0.6 | | Decreases for tax positions related to prior years | (1.5) | (0.7) | (20.2) | | Increases for tax positions related to current year | 3.4 | 3.0 | 4.6 | | Settlements | — | — | (6.8) | | Lapses of statute of limitations | (0.6) | (0.4) | (1.1) | | Currency translation | 1.3 | (0.1) | (2.2) | | Unrecognized tax benefits at end of year | 55.8 | 39.2 | 29.8 | - As of December 31, 2020, the cumulative accrued interest and penalties related to unrecognized tax benefits was $14.3 million381 Note 7. Stockholders' Equity This note describes the components of stockholders' equity, including common stock classes and the stock repurchase program - Bio-Rad's issued and outstanding stock includes Class A and Class B common stock, which are equal in terms of earnings but differ in voting rights and director elections383 - The Schwartz family holds a majority of the company's voting stock, giving them significant influence over the company383 Changes in Issued Common Stock (in thousands of shares) | Stock Type | 2020 Class A | 2020 Class B | 2019 Class A | 2019 Class B | 2018 Class A | 2018 Class B | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Beginning balance | 24,966 | 5,090 | 24,884 | 5,096 | 24,679 | 5,108 | | Conversion of Class B to Class A | 32 | (32) | 24 | (24) | 30 | (30) | | Issuance of common stock | 75 | 18 | 58 | 18 | 175 | 18 | | Ending balance | 25,073 | 5,076 | 24,966 | 5,090 | 24,884 | 5,096 | - The Board of Directors authorized a stock repurchase program in November 2017, increased the authorization in July 2020, and had $273.1 million remaining for repurchases as of December 31, 2020385387 - In 2020, the company repurchased 291,941 shares of Class A common stock for $100 million205 Note 8. Accumulated Other Comprehensive Income (Loss) This note details the components and changes in accumulated other comprehensive income (loss) Components of Accumulated Other Comprehensive Income (Loss) ($ millions) | Item | Foreign Currency Translation Adjustments | Foreign Other Post-Retirement Benefit Adjustments | Unrealized Holding Gains (Losses) on Available-for-Sale Investments | Total Accumulated Comprehensive Income (Loss) | | :--- | :--- | :--- | :--- | :--- | | Balance at January 1, 2019 | (35.5) | (14.8) | 3.3 | (47.0) | | Other comprehensive (loss) income before reclassifications | (36.5) | (10.0) | 4.8 | (41.7) | | Amounts reclassified from AOCI | — | 1.5 | (0.4) | 1.1 | | Income tax effect | (0.4) | 1.1 | (0.2) | 0.2 | | Balance at December 31, 2019 | (72.4) | (22.2) | 7.5 | (87.4) | | Other comprehensive income (loss) before reclassifications | 371.9 | (5.3) | 4.0 | 370.6 | | Amounts reclassified from AOCI | — | 0.3 | (0.3) | (0.3) | | Income tax effect | (0.9) | 1.2 | (0.5) | (0.5) | | Balance at December 31, 2020 | 298.6 | (26.0) | 10.0 | 282.4 | - All amounts reclassified from accumulated other comprehensive income were reclassified to other income, net in the Consolidated Statements of Income388 [Note 9. Share-Based Compensation/Equity Award an
Bio-Rad(BIO_B) - 2020 Q4 - Annual Report