BIO-RAD LABORATORIES, INC. This discussion should be read in conjunction with the information contained in our consolidated financial statements and the accompanying notes which are an integral part of the statements. 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 andClinical Diagnostics , with the mission to provide scientists with specialized tools needed for biological research and health care specialists with products needed for clinical diagnostics.
We sell more than 9,000 products and services to a diverse client base comprised of scientific research, healthcare, education and government customers worldwide. We do not disclose quantitative information about our different products and services as it is impractical to do so based primarily on the numerous products and services that we sell and the global markets that we serve.
We manufacture and supply our customers with a range of reagents, apparatus and
equipment to separate complex chemical and biological materials and to identify,
analyze and purify components. Because our customers require standardization
for their experiments and test results, much of our revenues are recurring.
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We are impacted by the support of many governments for both research and
healthcare. The current global economic outlook is still uncertain as the need
to control government social spending by many governments limits opportunities
for growth. Adding to this uncertainty is the withdrawal of the United Kingdom
from the European Union . Approximately 39% of our 2020 consolidated net sales
are derived from the United States and approximately 61% are derived from
international locations, with Europe being our largest international region. The
international sales are largely denominated in local currencies such as the
Euro, Swiss Franc, Japanese Yen, Chinese Yuan and British Sterling. As a result,
our consolidated net sales expressed in dollars benefit when the U.S. dollar
weakens and suffer when the dollar strengthens. When the U.S. dollar
strengthens, we benefit from lower cost of sales from our own international
manufacturing sites as well as non-U.S. suppliers, and from lower international
operating expenses. We regularly discuss our changes in revenue and expense
categories in terms of both changing foreign exchange rates and in terms of a
currency neutral basis, if notable, to explain the impact currency has on our
results.
COVID-19
The full impact of the COVID-19 pandemic is inherently uncertain at the time of
this report. The COVID-19 pandemic has impacted and, we expect, will continue to
disrupt parts of our business operations, impacting our financial conditions and
results of operations in a variety of ways. We saw strong demand for products
associated with COVID-19 testing and related research, however, we saw lower
demand for many of our products in the rest of our business. For more discussion
relating to the impacts of the COVID-19 pandemic, please see "Item 1A, Risk
Factors" to this Annual Report.
Cyberattack
As we previously disclosed onDecember 9, 2019 on a Form 8-K filed with theSecurities and Exchange Commission (SEC), we detected a cyberattack on our network on the evening ofDecember 5, 2019 PST and immediately took affected systems offline as part of our comprehensive response to contain the activity ("December 2019 Cyberattack"). The virus was targeted at Windows-based systems and did not attack our global ERP system (SAP) and other non-Windows-based systems. Critical systems were back online within a few days of the incident. As part of our in-depth investigation into this incident, we engaged outside cyber security experts to assist us with investigation and remediation efforts. We have found no evidence of unauthorized transfer or misuse of personal data, and there is no indication that customer systems were affected.
We have insurance coverage for costs resulting from cyberattacks. We did not pay a ransom in connection with this incident.
Acquisitions
OnApril 1, 2020 , (the "Acquisition Date") we acquired all equity interests ofCelsee, Inc. ("Celsee") for total consideration of$99.3 million , including the estimated fair value of contingent consideration. The contingent consideration of up to$60.0 million is payable in cash, upon the achievement of certain net revenues for the period beginning onJanuary 1, 2021 and ending onDecember 31, 2022 .
Celsee is a manufacturer of instruments and consumables for the isolation, detection, and analysis of single cells. We believe this acquisition will complement our Life Science product offerings. The acquisition was included in our Life Science segment's results of operations from the Acquisition Date.
Informatics Divestiture
InApril 2020 , we received$12.2 million for the sale of our Informatics division, which focused on providing and developing comprehensive, high-quality spectral databases and associated software. The division was part of our Other Operations segment. In connection with this sale, we recorded an$11.7 million gain in Other income, net, in the consolidated statements of income for the year endedDecember 31, 2020 . 27 --------------------------------------------------------------------------------
Restructurings
OnFebruary 3, 2021 , we initiated a strategy-driven restructuring plan in furtherance of our ongoing program to improve operating performance. The restructuring plan primarily impacts our operations inEurope and includes the elimination of certain positions, the consolidation of certain functions, and the relocation of certain manufacturing operations fromEurope toAsia . The restructuring plan is expected to eliminate a total of approximately 530 positions and the subsequent creation of a total of approximately 325 new positions. We anticipate the restructuring plan will be implemented in phases and is expected to be substantially completed by the end of fiscal year 2022. We estimate that as a result of this restructuring plan we will incur between approximately$125 million and$130 million in total cost, which we anticipate will consist of: (i) approximately$86 million cash expenditures in the form of one-time termination benefits to the affected employees, including cash severance payments, healthcare benefits, and related transition assistance; (ii) approximately$19 million in capital expenditures associated with the restructuring plan; and (iii) between approximately$20 million and$25 million in one-time transition costs, including employee transition costs, supply chain costs and regulatory costs. We anticipate that we will record approximately$80 million to$90 million of the charges related to this restructuring plan in the first quarter of fiscal year 2021. The amounts are preliminary estimates based on the information currently available to management. It is possible that additional charges and future cash payments could occur in relation to the restructuring actions.
Critical Accounting Policies and Estimates
The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. However, future events may cause us to change our assumptions and estimates, which may require adjustment. Actual results could differ from these estimates. We have determined that for the periods reported in this Annual Report on Form 10-K the following accounting policies and estimates are critical in understanding our financial condition and results of operations. Accounting for Income Taxes We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax rate may be affected by the changes in or interpretations of tax laws and tax agreements in any given jurisdiction, utilization of net operating loss and tax credit carryforwards, changes in geographical mix of income and expense, and changes in our assessment of matters such as the ability to realize deferred tax assets. As a result of these considerations, we must estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating current tax exposure together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, considering all available evidence such as historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax strategies. When we determine that it is not more likely than not that we will realize all or part of our deferred tax assets, an adjustment is charged to earnings in the period when such determination is made. Likewise, if we later determine that it is more likely than not that all or a part of our deferred tax assets would be realized, the previously provided valuation allowance would be reversed. 28 -------------------------------------------------------------------------------- We make certain estimates and judgments about the application of tax laws, the expected resolution of uncertain tax positions and other matters surrounding the recognition and measurement of uncertain tax benefits. In the event that uncertain tax positions are resolved for amounts different than our estimates, or the related statutes of limitations expire without the assessment of additional income taxes, we will be required to adjust the amounts of the related assets and liabilities in the period in which such events occur. Such adjustments may have a material impact on our income tax provision and our results of operations. Business Acquisitions Accounting for business acquisitions requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. In a business combination, we allocate the purchase price to the acquired business' identifiable assets and liabilities at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. To date, the assets acquired and liabilities assumed in our business combinations have primarily consisted of acquired working capital and definite-lived intangible assets. The carrying value of acquired working capital approximates its fair value, given the short-term nature of these assets and liabilities. We estimate the fair value of definite-lived intangible assets acquired using a discounted cash flow approach, which includes an analysis of the future cash flows expected to be generated by such assets and the risk associated with achieving such cash flows. The key assumptions used in the discounted cash flow model include the discount rate that is applied to the discretely forecasted future cash flows to calculate the present value of those cash flows and the estimate of future cash flows attributable to the acquired intangible assets, which include revenue, operating expenses and taxes. Our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill.
Goodwill represents the excess of (a) the aggregate of the fair value of consideration transferred in a business combination over (b) the fair value of assets acquired, net of liabilities assumed.Goodwill is not amortized, but is subject to annual impairment tests as described below. We conduct a goodwill impairment analysis annually in the fourth quarter or more frequently if indicators of impairment exist or if a decision is made to sell or exit a business. Significant judgments are involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, a trend of negative or declining cash flows, a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods, or other relevant entity-specific events such as changes in management, key personnel, strategy or customers, contemplation of bankruptcy, or litigation. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill. We first may assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test included inU.S. GAAP. To the extent our assessment identifies adverse conditions, or if we elect to bypass the qualitative assessment, goodwill is tested at the reporting unit level using a quantitative impairment test.
For the year ended
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Intangible Assets
We acquired intangible assets in connection with certain of our business
acquisitions. These assets were recorded at their estimated fair values at the
acquisition date and are amortized over their respective estimated useful lives
using a method of amortization that reflects the pattern in which the economic
benefits of the intangible assets are used. Estimated useful lives are
determined based on our historical use of similar assets and the expectation of
future realization of cash flows attributable to the intangible assets. Changes
in circumstances, such as technological advances or changes to our business
model, could result in the actual useful lives differing from our current
estimates. In those cases where we determine that the useful life of an
intangible asset should be shortened, we amortize the net book value in excess
of the estimated salvage value over its revised remaining useful life. We did
not revise our previously assigned useful life estimates attributed to any of
our intangible assets during the years ended December 31, 2020 , 2019 and 2018.
The estimated useful lives used in computing amortization of intangible assets are as follows:
Customer relationships/lists 4 - 16 years Know how 14 years Developed product technology 7 - 20 years Licenses 12 - 13 years Tradenames 10 - 15 years Covenants not to compete 3 - 10 years Impairment of Long-Lived Assets We review our long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or an asset group may not be recoverable. Typical indicators that an asset may be impaired include, but are not limited to: •a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition; •a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset; or •a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated. Recoverability measurement and estimating of undiscounted cash flows for assets to be held and used is done at the lowest possible levels for which there are identifiable cash flows. If such assets are considered impaired, generally the amount of impairment recognized would be equal to the amount by which the carrying amount of the assets exceeds the fair value of the assets, which we would compute using a discounted cash flow approach. Assets to be disposed of are recorded at the lower of the carrying amount or fair value less costs to sell. Estimating future cash flows attributable to our long-lived assets requires significant judgment and projections may vary from cash flows eventually realized. There were no triggering events to cause us to record an impairment charge for the year endedDecember 31, 2020 . Revenue Recognition We recognize revenue from operations through the sale of products, services, license of intellectual property and rental of instruments. Revenue from contracts with customers is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally accounted for as distinct performance obligations. Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities. 30 -------------------------------------------------------------------------------- Our contracts from customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment, and may or may not impact the timing of revenue recognition. Revenue associated with equipment that requires factory installation is not recognized until installation is complete and customer acceptance, if required, has occurred. Certain equipment requires installation due to the fact that the instruments are being operated in a clinical/laboratory environment, and the installation services could result in modification of the equipment in order to ensure that the instruments are working according to customer specifications, which are subject to validation tests upon completion of the installation. In these arrangements, which require factory installation, the delivery of the equipment and the installation are separate performance obligations. We will recognize the transaction price allocated to the equipment only upon customer acceptance, as the transfer of control in relation to the equipment has occurred at that point as the customer has the ability to direct the use of and obtain substantially all of the remaining benefits from the asset. The transaction price allocated to the installation services is also recognized upon customer acceptance because without the completion of the installation services and related customer acceptance the customer cannot receive any of the benefits of the service. At the time revenue is recognized, a provision is recognized for estimated product returns as this right is considered variable consideration. Accordingly, when product revenues are recognized, the transaction price is reduced by the estimated amount of product returns. Service revenues on extended warranty contracts are recognized ratably over the life of the service agreement as a stand-ready performance obligation. For arrangements that include a combination of products and services, the transaction price is allocated to each performance obligation based on stand-alone selling prices. The method used to determine the stand-alone selling prices for product and service revenues is based on the observable prices when the product or services have been sold separately. The primary purpose of our invoicing terms is to provide customers with simple and predictable methods of purchasing our products and services, not to either provide or receive financing to or from our customers. We record contract liabilities when cash payments are received or due in advance of our performance.
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Our payment terms vary by the type and location of our customer, and the products and services offered. The term between invoicing and when payment is due is not significant.
Reagent rental agreements are a diagnostic industry sales method that provides
use of an instrument and consumables (reagents) to a customer on a per test
basis. These agreements may also include maintenance of the instruments placed
at customer locations as well as initial training. We initially determine if a
reagent rental arrangement contains a lease at lease commencement. Where we have
determined that such an arrangement contains a lease, we next must ascertain its
lease classification for purposes of applying appropriate accounting treatment
as an operating, sales-type or direct financing lease. For purposes of
determining the lease term used in performing the lease classification test, we
include the noncancellable period of the lease together with those periods
covered by the option to extend the lease if the customer is reasonably certain
to exercise that option, the periods covered by an option to terminate the lease
if the customer is reasonably certain not to exercise that option, and the
periods covered by the option to extend (or not to terminate) the lease in which
exercise of the option is controlled by the Company. While most of our reagent
rental arrangements contain either the option for a lessee to extend and/or
cancel, the period in which the contract is enforceable is a very short period
and therefore the lease term has been limited to the noncancellable period.
Generally these arrangements do not contain an option for the lessee to purchase
the underlying asset.
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Valuation of Inventories
We value inventory at the lower of the actual cost to purchase and/or
manufacture the inventory, or the current estimated net realizable value of the
inventory. We review inventory quantities on hand and reduce the cost basis of
excess and obsolete inventory based primarily on an estimated forecast of
product demand, production requirements and the quality, efficacy and potency of
raw materials. This review is done at the end of each fiscal quarter. In
addition, our industry is characterized by technological change, frequent new
product development and product obsolescence that could result in an increase in
the amount of obsolete inventory quantities on hand. Our estimates of future
product demand may prove to be inaccurate, and if too high, we may have
overstated the carrying value of our inventory. In the future, if inventory is
determined to be overvalued, we would be required to write down the value of
inventory to market and recognize such costs in our cost of goods sold at the
time of such determination. Therefore, although we make efforts to ensure the
accuracy of our forecasts of future product demand and perform procedures to
safeguard overall inventory quality, any significant unanticipated changes in
demand, technological developments, regulations, storage conditions, or other
economic or environmental factors affecting biological materials, could have a
significant impact on the value of our inventory and reported results of
operations.
Results of Operations - Sales, Gross Margins and Expenses - Incorporating by
Reference the Results of Operations - Sales, Gross Margins and Expenses from our
Annual Report on Form 10-K for the fiscal year ended December 31, 2019 The following shows cost of goods sold, gross profit, expense items and net income as a percentage of net sales:
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 expense 31.4 35.7 Research and development expense
8.9 8.8
Net income 149.5 76.1
Net sales
Net sales (sales) for the year ended December 31, 2020 were $2.55 billion ,
compared to $2.31 billion for the year ended December 31, 2019 , an increase of
10.1%. Excluding the impact of foreign currency, for the year ended December 31,
2020 sales increased by approximately 10.3% compared to the year ended
December 31, 2019 . Currency neutral sales were led by growth in Asia Pacific and
Europe .
The Life Science segment sales for the year ended
On
a currency neutral basis, sales increased 38.6% compared to the year endedDecember 31, 2019 . The currency neutral sales increase was primarily driven by growth in our Gene Expression, Droplet Digital PCR, and Process Media product lines. All regions reported double digit increases in currency neutral sales. Sales for the year endedDecember 31, 2020 benefited from product lines used in the diagnosis of COVID-19, the carryover related to theDecember 2019 cyberattack and a$32 million damages award related to an intellectual property litigation that pertained to sales of infringing products that occurred during fiscal years 2015 to 2018. Sales were impacted negatively in other product lines due to lab closures and reduced capacity resulting from the COVID-19 pandemic. 32 --------------------------------------------------------------------------------The Clinical Diagnostics segment sales for the year endedDecember 31, 2020 were$1.31 billion , a decrease of 7.6% compared to the year endedDecember 31, 2019 . On a currency neutral basis, sales decreased 7.1% compared to the year endedDecember 31, 2019 . All regions reported a currency neutral sales decline. Sales decreased across all product lines, with the exception of quality controls. Sales for the year endedDecember 31, 2020 benefited from the carryover related to theDecember 2019 cyberattack but were impacted negatively due to the effect of COVID-19 on our customers' operations.
Gross margin
Consolidated gross margins were 56.5% for the year endedDecember 31, 2020 compared to 54.4% for the year endedDecember 31, 2019 . Life Science segment gross margins for the year endedDecember 31, 2020 increased by approximately 3.1 percentage points compared to the year endedDecember 31, 2019 , primarily due to higher sales, favorable product mix, and lower production costs, partially offset by the$7.4 million cost of sales benefit in the first quarter of 2019 from an escrow release related to an acquisition from 2011 and increased customs duty recognized during the year endedDecember 31, 2020 relating to products shipped primarily in prior years.Clinical Diagnostics segment gross margins for the year endedDecember 31, 2020 decreased slightly by approximately 0.1 percentage points compared to the year endedDecember 31, 2019 . The lower sales for the year endedDecember 31, 2020 were primarily offset by lower service and support activity as a result of COVID-19 and favorable product mix.
Selling, general and administrative expense
Consolidated selling, general and administrative expenses (SG&A) decreased to$800.3 million or 31.4% of sales for the year endedDecember 31, 2020 compared to$824.6 million or 35.7% of sales for the year endedDecember 31, 2019 . Decreases in SG&A were primarily related to lower travel costs, marketing and communication expenses of$35 million mostly due to the impact of COVID-19, partially offset by higher employee costs, and third-party professional services costs.
Research and development expense
Research and development (R&D) expense increased to$226.6 million or 8.9% of sales for the year endedDecember 31, 2020 compared to$202.7 million or 8.8% of sales for the year endedDecember 31, 2019 . Life Science segment R&D expense increased for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily driven by increased spending to accelerate innovation in key investment areas as well as expenses related to the newly acquired Celsee business.Clinical Diagnostics segment R&D decreased for the year endedDecember 31, 2020 from the year endedDecember 31, 2019 primarily due to lower spending as a result of COVID-19 restrictions and lower headcount related to restructuring programs.
Results of Operations - Non-operating
Interest expense
Interest expense for the years ended
Foreign currency exchange gains and losses
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. Net foreign currency exchange losses for the years endedDecember 31, 2020 and 2019 were$1.8 million and$2.2 million , respectively. The net foreign currency exchange losses were attributable to market volatility, the result of the estimating process inherent in the timing of shipments and payments of intercompany debt, and the cost of hedging. All years are affected by the economic hedging program we employ to hedge our intercompany receivables and payables denominated in foreign currencies. 33 --------------------------------------------------------------------------------
Change in fair market value of equity securities
Change in fair market value of equity securities were gains of$4.50 billion for the year endedDecember 31, 2020 compared to$2.03 billion for the year endedDecember 31, 2019 , primarily resulting from the recognition of holding gains on our position inSartorius AG . Other income, net Other income, net includes investment and dividend income, interest income on our cash and cash equivalents, short-term investments and long-term marketable securities. Other income, net for the year endedDecember 31, 2020 decreased to$24.5 million compared to$26.1 million for the year endedDecember 31, 2019 . Other income, net decreased primarily due to lower investment income of$6.0 million and lowerSartorius AG dividend income of$6.8 million , partially offset by the gain on the sale of the Informatics division of$11.7 million for the year endedDecember 31, 2020 .
Effective tax rate
Our effective tax rates were 22.4% and 22.2% for the years endedDecember 31, 2020 and 2019, respectively. The effective tax rates for the years endedDecember 31, 2020 and 2019 were driven by the unrealized gain in equity securities that is taxed at approximately 22% as well as the geographic mix of earnings and the taxation of our foreign earnings. Our effective tax rate may be impacted in the future, either favorably or unfavorably, by many factors including, but not limited to, changes in the geographic mix of earnings, changes to statutory tax rates, changes in tax laws or regulations, tax audits and settlements, and generation of tax credits. Our income tax returns are routinely audited byU.S. federal, state and foreign tax authorities. We are currently under examination by many of these tax authorities. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. We do not believe any currently pending uncertain tax positions will have a material adverse effect on our consolidated financial statements, although an adverse resolution of one or more of these uncertain tax positions in any period may have a material impact on the results of operations for that period. We record liabilities for unrecognized tax benefits related to uncertain tax positions. We do not believe the resolution of our uncertain tax positions will have a material adverse effect on our consolidated financial statements, although an adverse resolution of one or more of these uncertain tax positions in any period may have a material impact on the results of operations for that period. As ofDecember 31, 2020 , based on the expected outcome of certain examinations or as a result of the expiration of statutes of limitation for certain jurisdictions, we believe that within the next twelve months it is reasonably possible that our previously unrecognized tax benefits could decrease by approximately$17.2 million . Substantially all such amounts will impact our effective income tax rate. Comparison of the Year EndedDecember 31, 2019 to the Year EndedDecember 31, 2018 Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , filed onMarch 2, 2020 , for the discussion of the comparison of the fiscal year endedDecember 31, 2019 to the fiscal year endedDecember 31, 2018 , the earliest of the three fiscal years presented in the Consolidated Statements of Operations. 34 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Bio-Rad operates and conducts business globally, primarily through subsidiary companies established in the markets in which we trade. Goods are manufactured in a small number of locations, and are then shipped to local distribution facilities around the world. Our product mix is diversified, and certain products compete largely on product efficacy, while others compete on price. Gross margins are generally sufficient to exceed normal operating costs, and funding for research and development of new products, as well as routine outflows for capital expenditures, interest and taxes. In addition to the annual positive cash flow from operating activities, additional liquidity is readily available via the sale of short-term investments and access to our$200.0 million unsecured revolving credit facility (Credit Agreement) that we entered into inApril 2019 , and to a lesser extent international lines of credit. Borrowings under the Credit Agreement are available on a revolving basis and can be used to make permitted acquisitions, for working capital and for other general corporate purposes. We had no outstanding borrowings under the Credit Agreement as ofDecember 31, 2020 ; however,$0.2 million was utilized for domestic standby letters of credit that reduced our borrowing availability. Management believes that this availability, together with cash flow from operations, will be adequate to meet our current objectives for operations, research and development, capital additions for manufacturing and distribution, plant and equipment, information technology systems and acquisitions of reasonable proportion to our existing total available capital. InDecember 2020 , we paid in full the$425.0 million principal amount of Senior Notes, including accrued interest. Because the Company might be deemed an investment company under the Investment Company Act based on the market value of our position inSartorius AG , the Company may not be able to access the capital markets or otherwise obtain additional financing until it is determined that the Company is not an investment company. The inability to obtain additional financing may have a negative impact on the Company's ability to make acquisitions or other non-routine investments. AtDecember 31, 2020 , we had available$991.1 million in cash, cash equivalents and short-term investments, of which approximately 37% was held in our foreign subsidiaries. We believe that our holdings of cash, cash equivalents and short-term investments in theU.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 inthe United States can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as acquisitions. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and foreign cash flows (both inflows and outflows).
It is generally our intention to repatriate certain foreign earnings to the extent that such repatriations are not restricted by local laws or accounting rules, and there are no substantial incremental costs.
Demand for our products and services could change more dramatically in the
short-term than in previous years due to the impacts of the COVID-19 pandemic,
as well as due to funding, reimbursement constraints and support levels from
government, universities, hospitals and private industry, including diagnostic
laboratories. The need for certain sovereign nations with large annual deficits
to curtail spending, international trade disputes and increased regulation,
could lead to slower growth of, or even a decline in, our business. Sovereign
nations either delaying payment for goods and services or renegotiating their
debts could impact our liquidity.
35
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Net cash provided by operations was$575.3 million and$457.9 million for the years endedDecember 31, 2020 and 2019, respectively. The net increase between the year endedDecember 31, 2020 and the year endedDecember 31, 2019 of$117.4 million was primarily due to higher cash received from customers as a result of the growth in sales for product lines used for COVID-19. These increases were partially offset by higher cash paid to suppliers primarily for supplies associated with COVID-19 products, and cash paid for employee related expenses such as salaries and benefits, and to a lesser extent for employee restructuring programs. The decrease also consisted of higher income taxes paid and lower investment income. Cash flows from operations during the first quarter have historically had larger payments for royalties, fourth quarter sales commissions to third parties and annual employee bonuses, and we expect this pattern to recur in the first quarter of 2021.
Cash Flows from Investing Activities
Our investing activities have consisted primarily of cash used for acquisitions, capital expenditures and activity related to the purchases, sales and maturities of marketable securities. Net cash used in investing activities was$60.3 million and$208.9 million for the years endedDecember 31, 2020 and 2019, respectively. The decrease of$148.6 million was primarily attributable to a$159.5 million increase in net proceeds from maturities, sales and purchases of marketable securities and proceeds from a divestiture of$12.2 million , partially offset by a$17.3 million increase in payments for acquisitions.
Cash Flows from Financing Activities
Our financing activities have consisted primarily of cash used for purchases of treasury stock, taxes paid on the vesting of restricted stock units and proceeds from the issuance of common stock for share-based compensation.
Net cash used in financing activities was
Treasury Shares
During the year endedDecember 31, 2020 , 117,423 shares of Class A treasury stock with an aggregate total cost of$38.5 million were reissued to fulfill grants to employees under our restricted stock program. Upon reissuing the Class A treasury stock, a loss of$9.0 million was incurred as they were reissued at a lower price than their average cost, which reduced Retained earnings, while$29.5 million reduced Additional paid-in capital. During the year endedDecember 31, 2019 , 117,993 shares of Class A treasury stock with an aggregate total cost of$33.2 million were reissued to fulfill grants to employees under our restricted stock program. Upon reissuing the Class A treasury stock, a loss of$8.4 million was incurred as they were reissued at a lower price than their average cost, which reduced Retained earnings, while$24.9 million reduced Additional paid-in capital.
The re-issuance of the treasury stock for the years ended
During the year endedDecember 31, 2020 , we repurchased 291,941 shares of Class A common stock for$100.0 million under our repurchase program, compared to the repurchase of 88,486 shares of our common stock for$28.0 million during the year endedDecember 31, 2019 . We designated these repurchased shares as treasury stock. 36 -------------------------------------------------------------------------------- During the year endedDecember 31, 2019 , 19,755 shares of Class A treasury stock with an aggregate total cost of$5.4 million were reissued to fulfill our Employee Stock Purchase Plan purchases. A loss of$1.6 million was incurred upon reissuing the Class A treasury stock as they were reissued at a lower price than their average cost, which reduced Retained earnings and resulted in net proceeds of$3.8 million . InNovember 2017 , the Board of Directors authorized a new share repurchase program, granting Bio-Rad authority to repurchase, on a discretionary basis, up to$250.0 million of outstanding shares of our common stock ("Share Repurchase Program"). InJuly 2020 , the Board of Directors authorized increasing the Share Repurchase Program to allow the Company to repurchase up to an additional$200.0 million of stock. As ofDecember 31, 2020 ,$273.1 million remained under the Share Repurchase Program. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations or liquidity. Contractual Obligations The following summarizes certain of our contractual obligations as ofDecember 31, 2020 and the effect such obligations are expected to have on our cash flows in future periods (in millions): Payments Due by Period Less More Than 1-3 3-5 than Contractual Obligations Total One Year Years Years 5 Years Long-term debt, including current portion (1)$ 14.1 $ 1.8 $ 2.2 $ 0.8 $ 9.3 Interest payments (1)$ 8.6 $ 0.9 $ 1.5 $ 1.4 $ 4.8 Operating lease obligations (2)$ 252.9 $ 43.6 $ 68.3 $ 50.4 $ 90.6 Purchase obligations (3)$ 16.6 $ 14.1 $ 2.3 $ 0.2 $ - Long-term liabilities (4)$ 134.0 $ 2.7 $ 19.3 $ 9.4 $ 102.6 (1) These amounts represent expected cash payments, primarily from finance lease obligations, which are included in ourDecember 31, 2020 consolidated balance sheet. See Note 5 of the consolidated financial statements for additional information about our debt. (2) Operating lease obligations are described in Note 16 of the consolidated financial statements.
(3) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding to Bio-Rad and that specify all significant terms. Purchase obligations exclude agreements that are cancelable without penalty. Recognition of purchase obligations occurs when products or services are delivered to Bio-Rad.
(4) These amounts primarily represent recognized long-term obligations for other post-employment benefits mostly due in more than 5 years, and long-term deferred revenue. Excluded from this table are tax liabilities for uncertain tax positions and contingencies in the amount of$65.5 million . We are not able to reasonably estimate the timing of future cash flows of these tax liabilities, therefore, our income tax obligations are excluded from the table above. See Note 6 of the consolidated financial statements for additional information about our income taxes.
Recent Accounting Pronouncements Adopted and to be Adopted
See Note 1 to the consolidated financial statements for recent accounting pronouncements adopted and to be adopted.
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