XML 29 R10.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
3. Fair Value Measurements
 12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements
3. FAIR VALUE MEASUREMENTS

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

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


Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2019 are classified in the hierarchy as follows (in millions):

 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets carried at fair value:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Commercial paper
$
—

 
$
42.9

 
$
—

 
$
42.9

Time deposits
31.2

 
10.0

 
—

 
41.2

Asset-backed securities
—

 
0.1

 
—

 
0.1

Money market funds
69.9

 
—

 
—

 
69.9

Total cash equivalents (a)
101.1

 
53.0

 
—

 
154.1

Restricted investment
5.6

 
—

 
—

 
5.6

Equity Securities (b)
4,664.4

 
—

 
—

 
4,664.4

Available-for-sale investments:
 
 
 
 
 
 
 
Corporate debt securities
—

 
204.5

 
—

 
204.5

U.S. government sponsored agencies
—

 
106.1

 
—

 
106.1

Foreign government obligations
—

 
4.7

 
—

 
4.7

Other foreign obligations
—

 
3.1

 
—

 
3.1

Municipal obligations
—

 
11.6

 
—

 
11.6

Asset-backed securities
—

 
72.9

 
—

 
72.9

Total available-for-sale investments (c)
—

 
402.9

 
—

 
402.9

Forward foreign exchange contracts (d)
—

 
0.9

 
—

 
0.9

Total financial assets carried at fair value
$
4,771.1

 
$
456.8

 
$
—

 
$
5,227.9

 
 
 
 
 
 
 
 
Financial liabilities carried at fair value:
 
 
 
 
 
 
 
     Forward foreign exchange contracts (e)
$
—

 
$
1.0

 
$
—

 
$
1.0

     Contingent consideration (f)
—

 
—

 
4.9

 
4.9

Total financial liabilities carried at fair value
$
—

 
$
1.0

 
$
4.9

 
$
5.9


Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2018 are classified in the hierarchy as follows (in millions):

 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets carried at fair value:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Commercial paper
$
—

 
$
77.8

 
$
—

 
$
77.8

Time deposits
22.7

 
10.0

 
—

 
32.7

Asset-backed securities
—

 
0.3

 
—

 
0.3

Money market funds
36.9

 
—

 
—

 
36.9

Total cash equivalents (a)
59.6

 
88.1

 
—

 
147.7

Restricted investment:
5.6

 
—

 
—

 
5.6

Equity securities (b)
2,672.9

 
—

 
—

 
2,672.9

Available-for-sale investments:
 
 
 
 
 
 
 
Corporate debt securities
—

 
215.0

 
—

 
215.0

U.S. government sponsored agencies
—

 
80.3

 
—

 
80.3

Foreign government obligations
—

 
3.6

 
—

 
3.6

Municipal obligations
—

 
11.0

 
—

 
11.0

Asset-backed securities
—

 
63.3

 
—

 
63.3

Total available-for-sale investments (c)
—

 
373.2

 
—

 
373.2

Forward foreign exchange contracts (d)
—

 
0.6

 
—

 
0.6

Total financial assets carried at fair value
$
2,738.1

 
$
461.9

 
$
—

 
$
3,200.0

 
 
 
 
 
 
 
 
Financial liabilities carried at fair value:
 
 
 
 
 
 
 
Forward foreign exchange contracts (e)
$
—

 
$
0.7

 
$
—

 
$
0.7

 Contingent consideration (f)
—

 
—

 
8.4

 
8.4

Total financial liabilities carried at fair value
$
—

 
$
0.7

 
$
8.4

 
$
9.1


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

(b)
Equity securities are included in the following accounts in the Consolidated Balance Sheets (in millions):
 
December 31, 2019
 
December 31, 2018
Short-term investments
$
51.0

 
$
40.2

Other investments
4,613.4

 
2,632.7

        Total
$
4,664.4

 
$
2,672.9



The year-to-date unrealized gains on our equity securities still held as of December 31, 2019 were $2,031.1 million and were primarily due to our investment in Sartorius AG and are recorded in our Consolidated Statements of Income.

(c)
Available-for-sale investments are included in the following accounts in the Consolidated Balance Sheets (in millions):
 
December 31,
2019
 
December 31, 2018
 
 
 
 
Short-term investments
$
402.8

 
$
373.0

Other investments
0.1

 
0.2

Total
$
402.9

 
$
373.2




(d)
Forward foreign exchange contracts in an asset position are included in Other current assets in the Consolidated Balance Sheets.

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

(f)
Contingent consideration liabilities are included in the following accounts in the Consolidated Balance Sheets (in millions):
 
December 31, 2019
 
December 31, 2018
 
 
 
 
Other current liabilities
$
3.3

 
$
3.2

Other long-term liabilities
1.6

 
5.2

   Total
$
4.9

 
$
8.4



During the first quarter of 2016, we recognized a contingent consideration liability upon our acquisition of a high performance analytical flow cytometer platform from Propel Labs. At the acquisition date, the amount of contingent consideration was determined based on a probability-weighted income approach related to the achievement of sales milestones, ranging from 39% to 20% for the calendar years 2017 through 2020. The sales milestones could potentially range from $0 to an unlimited amount. In the first and third quarters of 2019, we paid $1.4 million and $1.1 million, respectively, per the purchase agreement. Since 2016 we have had a net decrease in the cumulative valuation of the sales milestones of $13.9 million. The contingent consideration was accrued at its estimated fair value of $4.3 million as of December 31, 2019.

During the fourth quarter of 2019, we recognized a contingent consideration liability for earn-out targets related to our acquisition of a foreign distributor. The first earn-out payment of $0.7 million was paid by the acquisition date and the remaining payment is due in the second quarter of 2020. The maximum earn-out payment due is $1.4 million. The contingent consideration was accrued at its estimated fair value of $0.6 million as of December 31, 2019.

The following table provides a reconciliation of the Level 3 contingent consideration liabilities measured at estimated fair value (in millions):

December 31, 2018
$
8.4

Analytical flow cytometer platform:
 
Payment of sales milestone
(2.5
)
Net decrease in estimated fair value of contingent consideration included in Selling, general and administrative expense
(1.6
)
 
 
Foreign distributor earn-outs:
 
Acquisition of foreign distributor
$
0.6

December 31, 2019
$
4.9



The following table provides quantitative information about Level 3 inputs for fair value measurement of our analytical flow cytometer platform contingent consideration liability as of December 31, 2019. Significant increases or decreases in these inputs in isolation could result in a significantly lower or higher fair value measurement.
 
Valuation Technique
Unobservable Input
Percentage
Analytical flow cytometer platform
Probability-weighted income approach
Sales milestones:
 
 
 
      Discount rate
11.1
%
 
 
      Cost of debt
3.9
%


To estimate the fair value of Level 2 debt securities, our primary pricing provider used Reuters as of December 31, 2019 and Securities Evaluations as of December 31, 2018 as the primary pricing sources. Our pricing process allowed us to select a hierarchy of pricing sources for securities held. If Reuters or Securities Evaluations did not price a Level 2 security that we held, then the pricing provider utilized our custodian supplied pricing as the secondary pricing source.

For all commercial paper as of December 31, 2019, our primary pricing provider used its leading pricing source in the hierarchy to determine pricing.

Our primary pricing provider performed daily reasonableness testing of the Reuters and Securities Evaluations prices. Price changes of 5% or greater were investigated and resolved. In addition, we performed a quarterly testing of the Reuters and Securities Evaluations prices to custodian reported prices. Price differences outside a tolerable variance of approximately 1% were investigated and resolved.

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

 
December 31, 2019
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair
Value
Short-term investments:
 
 
 
 
 
 
 
Corporate debt securities
$
203.2

 
$
1.4

 
$
(0.1
)
 
$
204.5

Municipal obligations
11.5

 
0.1

 
—

 
11.6

Asset-backed securities
72.7

 
0.2

 
(0.1
)
 
72.8

U.S. government sponsored agencies
105.6

 
0.7

 
(0.2
)
 
106.1

Foreign government obligations
4.7

 
—

 
—

 
4.7

  Other foreign obligations
3.1

 
—

 
—

 
3.1

 
400.8

 
2.4

 
(0.4
)
 
402.8

Long-term investments:
 
 
 
 
 
 
 
Asset-backed securities
0.1

 
—

 
—

 
0.1

 
0.1

 
—

 
—

 
0.1

Total
$
400.9

 
$
2.4

 
$
(0.4
)
 
$
402.9



The following is a summary of the amortized cost and estimated fair value of our debt securities at December 31, 2019 by contractual maturity date (in millions):

 
Amortized
Cost
 
Estimated Fair
Value
Mature in less than one year
$
174.5

 
$
174.6

Mature in one to five years
164.2

 
165.2

Mature in more than five years
62.2

 
63.1

Total
$
400.9

 
$
402.9



Available-for-sale investments consist of the following (in millions):
 
December 31, 2018
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair
Value
Short-term investments:
 
 
 
 
 
 
 
Corporate debt securities
$
216.2

 
$
0.1

 
$
(1.3
)
 
$
215.0

Municipal obligations
11.1

 
—

 
(0.1
)
 
11.0

Asset-backed securities
63.5

 
—

 
(0.4
)
 
63.1

U.S. government sponsored agencies
80.9

 
0.2

 
(0.8
)
 
80.3

Foreign government obligations
3.6

 
—

 
—

 
3.6

 
375.3

 
0.3

 
(2.6
)
 
373.0

Long-term investments:
 
 
 
 
 
 
 
Asset-backed securities
0.2

 
—

 
—

 
0.2

 
0.2

 
—

 
—

 
0.2

Total
$
375.5

 
$
0.3

 
$
(2.6
)
 
$
373.2



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

 
December 31,
2019
 
December 31, 2018
 
 
 
 
Fair value of investments in a loss position 12 months or more
$
19.9

 
$
117.9

Fair value of investments in a loss position less than 12 months
$
97.8

 
$
193.0

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

 
$
1.8

Gross unrealized losses for investments in a loss position less than 12 months
$
0.3

 
$
0.8



The unrealized losses on these securities are due to a number of factors, including changes in interest rates, changes in economic conditions and changes in market outlook for various industries, among others.  Because Bio-Rad has the ability and intent to hold these investments with unrealized losses until a recovery of fair value, or for a reasonable period of time sufficient for a forecasted recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at December 31, 2019 or at December 31, 2018.

As part of distributing our products, we regularly enter into intercompany transactions.  We enter into forward foreign exchange contracts to manage foreign exchange risk of future movements in foreign exchange rates that affect foreign currency denominated intercompany receivables and payables.  We do not use derivative financial instruments for speculative or trading purposes.  We do not seek hedge accounting treatment for these contracts.  As a result, these contracts, generally with maturity dates of 90 days or less and denominated primarily in currencies of industrial countries, are recorded at their fair value at each balance sheet date.  The notional principal amounts provide one measure of the transaction volume outstanding as of December 31, 2019 and do not represent the amount of Bio-Rad's exposure to loss. The estimated fair value of these contracts was derived using the spot rates from Reuters on the last business day of the quarter and the points provided by counterparties.  The resulting gains or losses offset exchange gains or losses on the related receivables and payables, both of which are included in Foreign exchange losses, net in the Consolidated Statements of Income.

The following is a summary of our forward foreign currency exchange contracts (in millions):
 
December 31,
 
2019
Contracts maturing in January through March 2020 to sell foreign currency:
 
Notional value
$
52.0

Unrealized gain
$
0.3

Contracts maturing in January through March 2020 to purchase foreign currency:
 
Notional value
$
269.1

Unrealized loss
$
(0.3
)


The estimated fair value of our current maturities of long-term debt, excluding leases, as of December 31, 2019 and long-term-debt, excluding all lease and current maturities, as of December 31, 2018 that is not recognized at fair value in the Consolidated Balance Sheets has an estimated fair value based on quoted market prices for the same or similar issues.

The estimated fair value of our debt discussed above and the level of the fair value hierarchy within which the fair value measurement is categorized are as follows (in millions):

 
December 31, 2019
 
December 31, 2018
 
Carrying 
Amount 
 
Estimated 
Fair 
Value 
 
Fair Value Hierarchy Level
 
Carrying 
Amount 
 
Estimated 
Fair 
Value 
 
Fair Value Hierarchy Level
Total current maturities long-term debt, excluding leases
$
424.4

 
$
435.5

 
2
 
$
—

 
$
—

 
2
Total long-term debt, excluding leases
and current maturities
$
—

 
$
—

 
2
 
$
423.7

 
$
435.8

 
2


Included in Other Investments in the Consolidated Balance Sheet are investments without readily determinable fair value measured at cost with adjustments for observable price changes in price or impairments. The carrying value of these investments was $0.3 million and $0.6 million as of December 31, 2019 and December 31, 2018, respectively.

We own shares of ordinary voting stock of Sartorius AG (Sartorius), of Goettingen, Germany, a process technology supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries. We own over 37% of the outstanding voting shares (excluding treasury shares) of Sartorius as of December 31, 2019. The Sartorius family trust and Sartorius family members hold a controlling interest of the outstanding voting shares. We do not have any representative or designee on Sartorius' board of directors, nor do we have the ability to exercise significant influence over the operating and financial policies of Sartorius. As of December 31, 2019, due to the adoption of ASU 2016-01 and ASU 2018-03 as of January 1, 2018, we account for this investment at fair market value as determined at period end by a quoted price on an organized exchange.