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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________to __________
Commission file number1-7928
BIO-RAD LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Delaware94-1381833
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1000 Alfred Nobel Drive,Hercules,California94547
(Address of principal executive offices)(Zip Code)
(510)724-7000
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, Par Value $0.0001 per shareBIONew York Stock Exchange
Class B Common Stock, Par Value $0.0001 per shareBIObNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YesNo

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files).
YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YesNo
.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Shares Outstanding at October 22, 2020:Class A - 24,740,501Class B - 5,090,003




BIO-RAD LABORATORIES, INC.

FORM 10-Q SEPTEMBER 30, 2020

TABLE OF CONTENTS

2


INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

Other than statements of historical fact, statements made in this report include forward-looking statements, such as statements with respect to our future financial performance, operating results, plans and objectives that involve risk and uncertainties.  These forward-looking statements may also include statements regarding the impact of the COVID-19 pandemic on Bio-Rad’s results and operations and steps governments, universities, hospitals and private industry, including diagnostic laboratories, are taking or may take as a result of the pandemic. Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “believe,” “expect,” “anticipate,” “may,” “will,” “intend,” “estimate,” “continue,” or similar expressions or the negative of those terms or expressions.  Such statements involve risks and uncertainties, which could cause actual results to vary materially from those expressed in or indicated by the forward-looking statements.  We have based these forward-looking statements on our current expectations and projections about future events.  However, actual results may differ materially from those currently anticipated depending on a variety of risk factors including, but not limited to, those identified under “Part II, Item 1A, Risk Factors” of this Quarterly Report on Form 10-Q. We caution you not to place undue reliance on forward-looking statements, which reflect an analysis only and speak only as of the date hereof.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

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PART I – FINANCIAL INFORMATION
Item 1.          Financial Statements

BIO-RAD LABORATORIES, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
September 30, 2020December 31, 2019
ASSETS:(Unaudited)
Cash and cash equivalents$840,325 $660,672 
Short-term investments314,102 453,973 
Restricted investments5,560 5,560 
Accounts receivable, less allowance for doubtful accounts of $19,370 at 2020 and $20,205 at 2019
402,241 392,672 
Inventories:
Raw materials149,117 109,570 
Work in process158,577 146,131 
Finished goods332,534 298,306 
Total inventories640,228 554,007 
Prepaid expenses111,296 102,331 
Other current assets10,109 10,940 
Total current assets2,323,861 2,180,155 
Property, plant and equipment1,404,622 1,382,172 
Less: accumulated depreciation and amortization(923,673)(882,833)
Property, plant and equipment, net480,949 499,339 
Operating lease right-of-use assets196,652 201,868 
Goodwill, net291,916 264,131 
Purchased intangibles, net205,305 145,525 
Other investments8,439,897 4,638,205 
Other assets82,351 79,636 
Total assets$12,020,931 $8,008,859 

















The accompanying notes are an integral part of these condensed consolidated financial statements. 



4


BIO-RAD LABORATORIES, INC.
Condensed Consolidated Balance Sheets
(continued)
(In thousands, except share data)



September 30, 2020December 31, 2019
LIABILITIES AND STOCKHOLDERS’ EQUITY:(Unaudited) 
Accounts payable$132,994 $107,014 
Accrued payroll and employee benefits190,091 180,084 
Current maturities of long-term debt and notes payable426,636 426,172 
Income and other taxes payable41,646 36,285 
Current operating lease liabilities34,387 35,365 
Other current liabilities160,903 120,575 
Total current liabilities986,657 905,495 
Long-term debt, net of current maturities12,241 13,579 
Deferred income taxes1,842,659 997,787 
Operating lease liabilities172,144 176,018 
Other long-term liabilities182,085 160,923 
Total liabilities3,195,786 2,253,802 
Stockholders’ equity:  
Class A common stock, shares issued 25,044,738 and 24,966,035 at 2020 and 2019, respectively; shares outstanding 24,739,501 and 24,835,804 at 2020 and 2019, respectively
2 2 
Class B common stock, shares issued and outstanding, 5,091,003 at 2020 and 5,089,532 at 2019
1 1 
Additional paid-in capital412,313 410,020 
Class A treasury stock at cost, 305,237 at 2020 and 130,231 shares at 2019
(100,067)(38,397)
Retained earnings8,428,925 5,470,779 
Accumulated other comprehensive income (loss)83,971 (87,348)
Total stockholders’ equity8,825,145 5,755,057 
Total liabilities and stockholders’ equity$12,020,931 $8,008,859 


















The accompanying notes are an integral part of these condensed consolidated financial statements. 

5




BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
 Three Months EndedNine Months Ended
 September 30,September 30,
 2020201920202019
Net sales$647,263 $560,633 $1,755,787 $1,687,231 
Cost of goods sold279,952 253,607 778,120 760,674 
Gross profit367,311 307,026 977,667 926,557 
Selling, general and administrative expense198,165 201,622 581,119 610,460 
Research and development expense59,546 47,944 160,833 145,641 
Income from operations109,600 57,460 235,715 170,456 
Interest expense5,728 5,525 17,158 17,352 
Foreign currency exchange losses, net776 898 2,478 3,411 
Change in fair market value of equity securities(1,580,350)390,620 (3,591,509)(1,384,999)
Other income, net(1,015)(4,367)(21,517)(26,959)
Income (loss) before income taxes1,684,461 (335,216)3,829,105 1,561,651 
(Provision for) benefit from income taxes(369,637)76,400 (861,940)(356,462)
Net income (loss)$1,314,824 $(258,816)$2,967,165 $1,205,189 
Basic earnings (loss) per share:  
Net income (loss) per basic share$44.24 $(8.68)$99.75 $40.42 
Weighted average common shares - basic29,721 29,831 29,746 29,815 
Diluted earnings (loss) per share:  
Net income (loss) per diluted share$43.64 $(8.68)$98.46 $39.97 
Weighted average common shares - diluted30,128 29,831 30,137 30,149 


The accompanying notes are an integral part of these condensed consolidated financial statements. 



6


BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
 2020201920202019
Net income (loss)$1,314,824 $(258,816)$2,967,165 $1,205,189 
Other comprehensive income (loss):
Foreign currency translation adjustments, net of income taxes144,902 (103,332)167,366 (109,888)
Foreign other post-employment benefits adjustments, net of income taxes333 359 924 501 
Net unrealized holding (loss) gain on available-for-sale (AFS) debt investments, net of income taxes(122)433 3,029 4,232 
Other comprehensive income (loss), net of income taxes145,113 (102,540)171,319 (105,155)
Comprehensive income (loss)$1,459,937 $(361,356)$3,138,484 $1,100,034 



The accompanying notes are an integral part of these condensed consolidated financial statements.

7



BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
 Nine Months Ended
 September 30,
 20202019
Cash flows from operating activities:  
Cash received from customers$1,741,431 $1,716,486 
Cash paid to suppliers and employees(1,406,427)(1,392,653)
Interest paid, net(11,066)(11,381)
Income tax payments, net(51,539)(42,634)
Investment proceeds and miscellaneous receipts, net16,336 28,092 
Proceeds from forward foreign exchange contracts, net1,859 185 
Net cash provided by operating activities290,594 298,095 
Cash flows from investing activities:  
Capital expenditures(59,685)(76,934)
Proceeds from dispositions of property, plant and equipment51 85 
Proceeds from divestiture of a division12,240  
Payments for acquisitions, net of cash received(96,655)(75,811)
(Payments for) recovery of purchases of intangible assets(100)7,383 
Payments for purchases of marketable securities and investments(184,665)(266,839)
Proceeds from sales of marketable securities and investments75,997 83,315 
Proceeds from maturities of marketable securities and investments242,676 181,108 
Net cash used in investing activities(10,141)(147,693)
Cash flows from financing activities:  
Payments on long-term borrowings(1,780)(487)
Payments for credit agreement renewal fees (486)
Payments of contingent consideration(1,724)(2,477)
Proceeds from issuances of common stock for share-based compensation15,181 9,740 
Tax payments from net share settlement(12,830)(8,096)
Proceeds from reissuances of treasury stock for share-based compensation, net 3,831 
Payments for purchases of treasury stock(100,004)(20,000)
Net cash used in financing activities(101,157)(17,975)
Effect of foreign exchange rate changes on cash3,154 (3,239)
Net increase in cash, cash equivalents, and restricted cash182,450 129,188 
Cash, cash equivalents, and restricted cash at beginning of period662,651 434,164 
Cash, cash equivalents, and restricted cash at end of period$845,101 $563,352 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that agrees to the same amounts shown in the condensed consolidated statements of cash flows (in thousands):
September 30, 2020September 30, 2019
Cash and cash equivalents$840,325 $561,071 
Restricted cash included in Other current assets3,763 100 
Restricted cash included in Other assets1,013 2,181 
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows$845,101 $563,352 

These restricted cash items are primarily related to performance guarantees and other restricted deposits.

The accompanying notes are an integral part of these condensed consolidated financial statements.

8


BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
(Unaudited)

Common StockAdditional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Balance at December 31, 2019$3 $410,020 $(38,397)$5,470,779 $(87,348)$5,755,057 
Net income— — — 685,912 — 685,912 
Other comprehensive loss, net of tax— — — — (61,607)(61,607)
Issuance of common stock— 4,068 — — — 4,068 
Stock compensation expense— 9,654 — — — 9,654 
Purchase of treasury stock— — (100,005)— — (100,005)
Balance at March 31, 2020$3 $423,742 $(138,402)$6,156,691 $(148,955)$6,293,079 
Net income— — — 966,429 — 966,429 
Other comprehensive income, net of tax— — — — 87,813 87,813 
Issuance of common stock— (2,797)— — — (2,797)
Stock compensation expense— 8,878 — — — 8,878 
Reissuance of treasury stock— (338)365 (27)—  
Balance at June 30, 2020$3 $429,485 $(138,037)$7,123,093 $(61,142)$7,353,402 
Net income— — — 1,314,824 — 1,314,824 
Other comprehensive income, net of tax— — — — 145,113 145,113 
Issuance of common stock— 1,080 — — — 1,080 
Stock compensation expense— 10,732 — — — 10,732 
Reissuance of treasury stock— (28,984)37,970 (8,992)— (6)
Balance at September 30, 2020$3 $412,313 $(100,067)$8,428,925 $83,971 $8,825,145 



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BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(continued)
(In thousands)
(Unaudited)

Common StockAdditional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Balance at December 31, 2018$3 $394,342 $(49,129)$3,722,073 $(46,958)$4,020,331 
Net income— — — 865,195 — 865,195 
Other comprehensive loss, net of tax— — — — (34,007)(34,007)
Stock compensation expense— 8,505 — — — 8,505 
Reissuance of treasury stock— — 5,398 (1,567)— 3,831 
Balance at March 31, 2019$3 $402,847 $(43,731)$4,585,701 $(80,965)$4,863,855 
Net income— — — 598,810 — 598,810 
Other comprehensive income, net of tax— — — — 31,392 31,392 
Issuance of common stock— (64)— — — (64)
Stock compensation expense— 7,818 — — — 7,818 
Purchase of treasury stock— — (15,001)— — (15,001)
Balance at June 30, 2019$3 $410,601 $(58,732)$5,184,511 $(49,573)$5,486,810 
Net loss— — — (258,816)— (258,816)
Other comprehensive loss, net of tax— — — — (102,540)(102,540)
Issuance of common stock— 1,708 — — — 1,708 
Stock compensation expense— 9,029 — — — 9,029 
Purchase of treasury stock— — (4,999)— — (4,999)
Reissuance of treasury stock— (24,906)33,288 (8,382)—  
Balance at September 30, 2019$3 $396,432 $(30,443)$4,917,313 $(152,113)$5,131,192 


The accompanying notes are an integral part of these condensed consolidated financial statements. 

10


BIO-RAD LABORATORIES, INC

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.BASIS OF PRESENTATION AND USE OF ESTIMATES

Basis of Presentation

In this report, “Bio-Rad,” “we,” “us,” “the Company” and “our” refer to Bio-Rad Laboratories, Inc. and its subsidiaries.  The accompanying unaudited condensed consolidated financial statements of Bio-Rad have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and reflect all adjustments which are, in the opinion of management, necessary to fairly state the results of the interim periods presented.  All such adjustments are of a normal recurring nature. Results for the interim period are not necessarily indicative of the results for the entire year.  The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.

We evaluate subsequent events and the evidence they provide about conditions existing at the date of the balance sheet as well as conditions that arose after the balance sheet date but through the date the financial statements are issued.  The effects of conditions that existed at the balance sheet date are recognized in the financial statements. Events and conditions arising after the balance sheet date but before the financial statements are issued are evaluated to determine if disclosure is required to keep the financial statements from being misleading.  To the extent such events and conditions exist, disclosures are made regarding the nature of events and the estimated financial effects of those events and conditions.

Use of Estimates

The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods. Bio-Rad bases its estimates on historical experience and on various other market-specific and other relevant 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. Actual results could differ materially from those estimates.

Revenue Recognition

We recognize revenue from operations through the sale of products, services, 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.
11



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 recorded 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

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 contract 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.

12


We concluded that the use of the instrument (referred to as “lease elements”) is not within the guidance of ASC 606 but rather ASC 842. Accordingly, we first allocate the transaction price between the lease elements and the non-lease elements based on relative standalone selling prices. The determination of the transaction price requires judgment and consideration of any fixed/minimum payments as well as estimates of variable consideration. After allocation, the amount of variable payments allocated to lease components will be recognized as income under ASC 842, while the amount of variable payments allocated to non-lease components will be recognized as income in accordance with ASC 606.

Upon our adoption of ASC 842 in 2019, the maintenance services, along with the reagents, are now allocated to the non-lease elements and will be recognized as income in accordance with ASC 606. This change is in accordance with the requirements of ASC 842, and has resulted in a decrease in the amount of rental income and a corresponding increase in the amount of maintenance service revenue that is included in Net sales in our condensed consolidated statements of income. Generally, the terms of the arrangements result in the transfer of control for reagents upon either (i) when the consumables are delivered or (ii) when the consumables are consumed by the customer.

Our reagent rental arrangements are predominantly comprised of variable lease payments that fluctuate depending on the volume of reagents purchased, as very few of such arrangements contain any fixed/minimum lease payments.  Further, our reagent rental arrangements are predominantly classified as operating leases, and any sales-type leases represent in aggregate an immaterial amount of lease income. Our reported lease income is primarily variable in nature and is recognized upon delivery or as the reagents are consumed by the customer.
Revenue allocated to the lease elements of these reagent rental arrangements represents approximately 3% of total revenue for both the three and nine months ended September 30, 2020, and September 30, 2019, and is included as part of Net sales in our condensed consolidated statements of income.

Contract costs:

As a practical expedient, we expense as incurred costs to obtain contracts as the amortization period would have been one year or less. These costs include our internal sales force and certain partner sales incentive programs and are recorded within Selling, general and administrative expense in our condensed consolidated statements of income.

Disaggregation of Revenue:

The following table presents our revenues disaggregated by geographic region based primarily on the location of the use of the product or service (in millions):
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Europe$220.9 $181.9 $590.6 $556.1 
Asia142.0 120.7 382.3 354.3 
United States250.4 225.8 685.4 674.0 
Other (primarily Canada and Latin America)34.0 32.2 97.5 102.8 
Total net sales$647.3 $560.6 $1,755.8 $1,687.2 

The disaggregation of our revenue by industry segment sources is presented in our Segment Information footnote (see Note 11).

13



Deferred revenues primarily represents unrecognized fees billed or collected for extended service arrangements. The deferred revenue balance at September 30, 2020 and December 31, 2019 was $55.8 million and $45.8 million, respectively. The short-term deferred revenue balance at September 30, 2020 and December 31, 2019 was $40.9 million and $33.7 million, respectively.

We warrant certain equipment against defects in design, materials and workmanship, generally for a period of one year. We estimate the cost of warranties at the time the related revenue is recognized based on historical experience, specific warranty terms and customer feedback. These costs are recorded within Cost of goods sold in our condensed consolidated statements of income.  

Warranty liabilities are included in Other current liabilities and Other long-term liabilities in the condensed consolidated balance sheets. Change in our warranty liability for the nine month period ended September 30, 2020 and 2019 were as follows (in millions):
Nine Months Ended
September 30,
20202019
Balance at beginning of period$9.0 $10.1 
Provision for warranty5.4 7.3 
Actual warranty costs(6.1)(8.4)
Balance at end of period$8.3 $9.0 

Allowance for Doubtful Accounts

We record trade accounts receivable at the net invoice value and such receivables are non-interest bearing. We consider receivables past due based on the contractual payment terms. We review our exposure to accounts receivable and reserve for amounts if collectability is no longer reasonably assured based on an assessment of various factors including historical loss rates and expectations of forward-looking loss estimates.

Any adjustments made to our historical loss experience reflect current differences in asset-specific risk characteristics, including, for example, accounts receivable by customer type (public or government entity versus private entity) and by geographic location of customer.

Changes in our allowance for doubtful accounts were as follows (in millions):
December 31, 2019$20.2 
Provision for expected credit losses1.2 
Write-offs charged against the allowance(2.1)
Recoveries collected0.1 
September 30, 2020$19.4 

14


Implementation Costs for Cloud Computing Arrangements

The balance of capitalized implementation costs for cloud computing arrangements, net of accumulated amortization, was $7.0 million and $3.1 million at September 30, 2020 and December 31, 2019, respectively. These costs were primarily for implementing business analytics software and were recorded in Other current assets and Other assets in the condensed consolidated balance sheets.

Recent Accounting Pronouncements Adopted

In May 2020, the SEC issued Final Rule Release No. 33-10786, "Amendments to Financial Disclosures About Acquired and Disposed Businesses" that amends financial statement requirements for acquisitions and dispositions of businesses, and related pro forma financial information. Among other changes, the final rule modifies the significance tests and improves disclosure requirements. We early adopted this final rule as of April 1, 2020, which did not have a material effect on our condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)"  The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.  The ASU is effective as of March 12, 2020 through December 31, 2022.  We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis.  The ASU is currently not expected to have a material impact on our condensed consolidated financial statements. 
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements," which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. We adopted this standard effective January 1, 2020, which did not have a material impact on our condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." ASU 2016-13 replaces the incurred loss approach with an expected loss model for instruments measured at amortized cost and requires entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount as done under the former other-than-temporary impairment model. We adopted ASU 2016-13 as of January 1, 2020 using the cumulative effect transition method. We have evaluated our impacted instruments for credit quality indicators, and have determined that there is no cumulative effect transition adjustment to retained earnings as of our adoption date. ASU 2016-13 had an insignificant impact to our condensed consolidated financial statements for the nine months ended September 30, 2020. See also Note 3, Fair Value Measurements, and the section above under the caption “Allowance for Doubtful Accounts.”

Recent Accounting Pronouncements to be Adopted

In January 2020, the FASB issued ASU 2020-01, "Clarifying the Interactions between Topic 321 Investments—Equity Securities, Topic 323 Investments—Equity Method and Joint Ventures, and Topic 815 Derivatives and Hedging." ASU 2020-01 clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323 for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. ASU 2020-01 also clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted, including interim periods for which financial statements have not been issued. We are currently evaluating the effect of ASU 2020-01.

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In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes," which eliminates certain exceptions within ASC 740, Income Taxes, and clarifies other aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We are currently evaluating the effect of adopting this pronouncement on our financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 eliminates and adds certain disclosures for defined benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020 using a retrospective approach. Early adoption is permitted. We are currently evaluating the disclosures but do not expect ASU 2018-14 to have a material impact to our disclosures for defined benefit plans.


2.ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

Celsee Acquisition:

On April 1, 2020 (the "Acquisition Date"), we acquired all equity interests of Celsee, Inc. ("Celsee") for total consideration of $99.3 million (as described in the table below), 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 on January 1, 2021 and ending on December 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.

Celsee met the definition of a business, and therefore is accounted for as a business combination.

The fair value of consideration transferred for the Celsee acquisition consists of the following (in millions):

Purchase price (cash)$99.2 
Fair value of contingent consideration (earn-out)0.1 
Fair value of total consideration transferred$99.3 

The following table summarizes the final fair values of the assets acquired and liabilities assumed at the Acquisition Date (in millions):

Fair Value
Cash and cash equivalents$0.6 
Intangible assets79.9 
Deferred tax assets8.4 
Deferred tax liabilities(19.7)
Other identifiable assets acquired, net0.3 
Net identifiable assets acquired69.5 
Goodwill29.8 
Net assets acquired$99.3 
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Goodwill related to the acquisition is primarily attributable to opportunities and economies of scale from combining the operations and technologies of Bio-Rad and Celsee, and is not deductible for tax purposes.

The following table summarizes the final fair values and estimated useful lives of the components of identifiable intangible assets acquired as of the Acquisition Date (in millions):

Fair ValueEstimated Useful Life (years)
Developed product technology$70.3 18.9
Customer relationships3.6 4.0
Covenants not to compete1.4 3.0
In-process research and development4.6 
Total identifiable intangible assets acquired$79.9 

Intangible assets acquired as a result of the Celsee acquisition are being amortized over their estimated useful lives using the straight-line method of amortization, which materially approximates the distribution of the economic value of the identified intangible assets. Amortization of acquired developed technology of $0.9 million and $1.8 million for the three and nine months ended September 30, 2020, respectively, are included in Cost of goods sold in the condensed consolidated statements of income. Amortization of the acquired customer relationships of $0.2 million and $0.4 million and covenants not to compete of $0.1 million and $0.2 million for the three and nine months ended September 30, 2020, respectively, are included in Selling, general and administrative expense in the condensed consolidated statements of income.

In-process research and development (IPR&D) is accounted for as an indefinite-lived asset. Once the project is completed, the carrying value of the IPR&D will be amortized over the estimated useful life of the asset. IPR&D is assessed for impairment on an annual basis until the project is completed.

We believe the values of acquired intangible assets reported above represent their fair values and approximate the amounts a market participant would pay for these intangible assets as of the Acquisition Date.

The final allocation of the payments reflects the effects of working capital and deferred tax adjustments made during the measurement period. These adjustments resulted in a $0.3 million decrease in deferred tax assets, a $0.4 million increase in goodwill and a $0.3 million increase in deferred tax liabilities compared to the preliminary balances reported at June 30, 2020 and had no impact on our condensed consolidated statements of income, for the three and nine months ended September 30, 2020.

We included Celsee's fair value of assets acquired and liabilities assumed in our condensed consolidated balance sheets beginning on the Acquisition Date. The results of operations for Celsee subsequent to the Acquisition Date have been included in, but are immaterial to, our condensed consolidated statements of income for the three and nine months ended September 30, 2020. Pro forma results of operations for the Celsee acquisition have not been presented because they are not material to the condensed consolidated statements of income.

Distributor Acquisition:

In October 2019, we acquired all the issued and outstanding shares of a foreign distributor for approximately $4.2 million, which included cash payments at closing, net of closing cash, of $3.6 million, and $0.6 million in contingent consideration potentially payable to the sellers. In addition, we recorded a net gain of $0.4 million for the settlement of preexisting conditions concurrent with the acquisition that was recorded in Selling, general and administrative expense. The acquisition was included in our Clinical Diagnostics segment's results of operations from the acquisition date and was accounted for as a business combination. The amount of acquisition-related costs was minimal as Bio-Rad primarily represented itself during the acquisition process. Pro forma financial statements are not provided as the acquisition is immaterial to Bio-Rad taken as a whole for the periods presented.
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The final allocation of the payments was $3.4 million to customer relationships, a definite-lived intangible, $0.2 million to deferred tax asset, $0.8 million to deferred tax liability related to the purchased intangible and $1.4 million to acquired net assets. The final allocation of payments was unchanged from our preliminary allocation for the period ended December 31, 2019.

DIVESTITURE

Informatics Divestiture:

In April 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 condensed consolidated statements of income for the nine months ended September 30, 2020.


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)

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Financial assets and liabilities carried at fair value and measured on a recurring basis as of September 30, 2020 are classified in the hierarchy as follows (in millions):
Level 1Level 2Level 3Total
Financial assets carried at fair value:
Cash equivalents:
Commercial paper$ $108.8 $ $108.8 
Asset-backed securities 0.1  0.1 
U.S. government sponsored agencies 71.6  71.6 
Time deposits14.6 10.0  24.6 
Money market funds127.1   127.1 
Total cash equivalents (a)141.7 190.5  332.2 
Restricted investments (b)6.6   6.6 
Equity securities (c)8,459.3   8,459.3 
Available-for-sale investments:
Corporate debt securities 114.4  114.4 
U.S. government sponsored agencies 78.2  78.2 
Foreign government obligations 5.0  5.0 
Other foreign obligations 2.1  2.1 
Municipal obligations 13.4  13.4 
Asset-backed securities 48.2