ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 and Clinical 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 12,000 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. As our customers require standardization for their experiments and test results, much of our revenues are recurring in nature.

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.

Approximately 41% of our 2022 consolidated net sales are derived from the United States and approximately 59% 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, which are expressed in U.S. dollars, are impacted by foreign currency fluctuations. The impact of foreign currency fluctuations on cost of sales and operating expenses from our international manufacturing sites and operations, which are mostly denominated in local currencies, is in the opposite direction from the foreign currency impact on sales. 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.

The consolidated financial statements as of December 31, 2021 and for the years ended December 31, 2021 and 2020 have been revised to correct prior period errors as discussed in Note 1, “Immaterial Correction to Previously Issued Financial Statements” to our consolidated financial statements included in this Annual Report on Form 10-K. Accordingly, Management’s Discussion and Analysis reflects the impact of those revisions.

COVID-19 and Supply Chain Impact

The full impact of the COVID-19 pandemic and related supply constraints continues to be inherently uncertain at the time of this report.The COVID-19 pandemic has impacted and, we expect to some extent, will continue to impact parts of our business, operations, financial condition and results of operations in a variety of ways.During the fourth quarter of 2022, we saw continued but moderating demand for products associated with COVID-19 testing and related research.In addition, supply chain constraints and lockdowns in China have negatively impacted sales, particularly instrument placements.While improving, we continue to experience delays and shortages in the supply of certain components and raw materials.These shortages have caused a backlog of sales orders, some of which we consider to be significant, and some delays in certain new product development activities.They have also led to increases in inventory as we continue to receive available materials while we source those in short supply. We made progress in reducing this backlog in the fourth quarter of 2022, and we anticipate normalizing the backlog during 2023. For more discussion relating to the impacts of the COVID-19 pandemic, please see "Item 1A, Risk Factors" to this Annual Report.

Acquisition

On August 3, 2022 (the "Acquisition Date"), we acquired all equity interests of Curiosity Diagnostics sp.z o.o. ("Curiosity") for a total consideration of $137.1 million, including the estimated fair value of contingent consideration. The contingent consideration of up to $70.0 million is payable upon achievement of certain technological development and sales-related milestones.

Curiosity Diagnostics, a late-stage, pre-commercial platform company, is in the process of developing a sample-to-answer, rapid diagnostics PCR system for the molecular diagnostics market. The strategic rationale for the transaction was to facilitate our entry into the molecular disease testing market with a differentiated platform. We believe this acquisition will complement our Clinical Diagnostics product offerings.The acquisition was included in our Clinical Diagnostics segment's results of operations from the Acquisition Date. The amount of acquisition-related costs was not material.

Senior Notes due 2027 and 2032

In March 2022, pursuant to an indenture we issued $400.0 million in principal amount of Senior Notes due March 2027 (the “2027 Notes”) and $800.0 million in principal amount of Senior Notes due March 2032 (the “2032 Notes” and, together with the 2027 Notes, the “Notes”). The issuance of the 2027 Notes yielded net cash proceeds of $395.7 million at an effective rate of 3.5346% and the issuance of the 2032 Notes yielded net cash proceeds of $790.5 at an effective rate of 3.8429%. The 2027 Notes and the 2032 Notes pay a fixed rate of interest of 3.3% and 3.7% per annum, respectively. Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each year until the principal is paid or made available for payment.

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 with U.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.

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.

The assets acquired and liabilities assumed in our business combinations consist of acquired working capital and finite-lived and indefinite-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 finite-lived and indefinite-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.

Impairment of Goodwill

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.We test goodwill at the reporting unit level.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 in U.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. There were no impairments for the years ended December 31, 2022, 2021 and 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. Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities.

We enter into contracts that can include various combinations of products and services, which are generally accounted for as distinct performance obligations. A product or service is considered distinct if it is separately identifiable from other deliverables in the arrangement and if a customer can benefit from such product or service on its own or with other resources that are readily available to the customer. The transaction consideration is allocated between separate performance obligations of an arrangement based on the stand-alone selling price (“SSP”) for each distinct product or service.

We recognize revenue from product sales at the point in time when we have satisfied our performance obligation by transferring control of the product to the customer. We use judgment to evaluate whether and when control has transferred and consider the right to payment, legal title, physical possession, risks and rewards of ownership, and customer acceptance if it is not a formality, as indicators to determine the transfer of control to the customer. For products that include installation, the product and installation are separate performance obligations. The product revenue is recognized when control has transferred to the customer, generally upon delivery, and installation service revenue is recognized when the product installation is completed.

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.

We recognize revenues for a functional license of intellectual property at a point in time when the control of the license and technology transfers to the customer.For license agreements that include sales or usage-based royalty payments to us, we recognize revenue at the later of (i) when the related sale of the product occurs, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied.

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.

Our reagent rental agreements provide our customers the ability to use an instrument and consumables (reagents) 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 then determine the lease classification as either an operating or sales-type lease. The lease term used in performing the lease classification test, includes the noncancellable period of the lease together with those periods covered by lease extension options if the customer is reasonably certain to exercise that option, the periods covered by lease termination options if the customer is reasonably certain to not exercise that option, and the periods covered by the option to extend (or to not terminate) the lease when exercise of such option is controlled by the Company. The assessment of the lease term for reagent rental agreements, including the impact from any associated contractual termination penalties, are subject to an estimation process. While most of our reagent rental arrangements contain either the option for a lessee to extend and/or cancel the agreement, the period in which the contract is enforceable is very short so 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.

Fair Value Measurements

U.S. GAAP establishes three levels of inputs that may be used to measure fair value. Each level of input has different levels of subjectivity and difficulty involved in determining fair value. Valuation of Level 1 and 2 instruments generally do not require significant management judgment and the estimation is not difficult. Level 3 instruments include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity.

We elected the fair value option under ASC 825, Financial Instruments for accounting of the Loan to Sartorius-Herbst Beteiligungen II GmbH to simplify the accounting. The Loan includes certain value appreciation rights that are due upon repayment of the Loan. The fair value of the Loan and value appreciation right is estimated under the income approach using a discounted cash flow, and option pricing model, respectively, which results in a fair value measurement categorized in Level 3. The significant assumptions used to estimate fair value of the Loan include an estimate of the discount rate and cash flows of the Loan and the significant assumptions used to estimate the fair value of the value appreciation right include volatility, the risk-free interest rate, expected life (in years) and expected dividend. The inputs are subject to estimation uncertainty and actual amounts realized may materially differ. An increase in the expected volatility may result in a significantly higher fair value, whereas a decrease in expected life may result in a significantly lower fair value. All subsequent changes in fair value of the Loan and value appreciation right, including accrued interest are recognized in (Gains) losses from change in fair market value of equity securities and loan receivable in our consolidated statements of income (loss).

Results of Operations - Sales, Gross Margins and Expenses

Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021

The following shows cost of goods sold, gross profit, expense items and net income as a percentage of net sales:

Selling, general and administrative expense 29.5 30.0

Research and development expense 9.2 8.9

Net sales

Percentage sales growth in currency neutral amounts are calculated by translating prior period sales in each local currency using the current period monthly average foreign exchange rates for that currency and comparing that to current period sales.

Net sales (sales) for the year ended December 31, 2022 were $2.80 billion, compared to $2.92 billion for the year ended December 31, 2021, a decrease of 4.1%. COVID-related sales were approximately $109.2 million for the year ended December 31, 2022 compared to approximately $265.7 million for the year ended December 31, 2021. On a currency neutral basis, for the year ended December 31, 2022 sales increased by approximately 0.3% compared to the same period in 2021. Currency neutral sales increased in the Americas, partially offset by decreases in both Asia Pacific and Europe. Sales for the year ended December 31, 2021 were elevated due to the approximately $31.6 million of royalty revenue related to an intellectual property settlement. Excluding COVID-related sales and the impact of royalty revenue related to an intellectual property litigation settlement in 2021, sales increased 7.2% on a currency neutral basis from the year ended December 31, 2021.

The Life Science segment sales for the year ended December 31, 2022 were $1.35 billion, a decrease of 3.8% compared to the year ended December 31, 2021. On a currency neutral basis, sales increased 0.3% compared to the year ended December 31, 2021. The currency neutral sales increase was primarily attributed to strong growth of Process Chromatography, Western Blotting, and Antibody products, partially offset by lower qPCR product sales due to the decline in COVID-19 related demand. Currency neutral sales increased in the Americas and Asia Pacific, while EMEA sales declined. Sales in 2021 also benefited from the $31.6 million royalty revenue related to an intellectual property litigation settlement. Excluding COVID-related sales and the impact of royalty revenue related to an intellectual property litigation settlement in 2021, sales increased 15.2% on a currency neutral basis from the year ended December 31, 2021.

The Clinical Diagnostics segment sales for the year ended December 31, 2022 were $1.45 billion, a decrease of 4.3% compared to the year ended December 31, 2021. On a currency neutral basis, sales increased 0.4% compared to the year ended December 31, 2021. The currency neutral sales increase was primarily driven by growth in Quality Controls and Blood Typing products, especially in Europe and the Americas, despite supply chain constraints having an impact on instrument placements. The increase in currency neutral sales was partially offset by the impact of COVID lockdowns in China during the second, third, and fourth quarters of 2022. Excluding COVID-related sales, sales increased 1.3% on a currency neutral basis from the year ended December 31, 2021.

Gross margin

Consolidated gross margins were 55.9% for the year ended December 31, 2022 compared to 56.1% for the year ended December 31, 2021. Life Science segment gross margins for the year ended December 31, 2022 decreased by approximately 1.6 percentage points from the year ended December 31, 2021. The decrease in gross margins was primarily driven by higher logistics costs and product mix. The 2021 Life Science margins also benefited from the $31.6 million royalty revenue related to an intellectual property litigation settlement. Clinical Diagnostics segment gross margins for the year ended December 31, 2022 increased by approximately 1.2 percentage points compared to the year ended December 31, 2021. The increase in gross margins was primarily driven by a one-time restructuring expense related to the 2021 restructuring plan that was announced and recorded in the first quarter of 2021 and the strong US dollar, partially offset by higher logistics costs and product mix.

Selling, general and administrative expense

Consolidated selling, general and administrative expenses (SG&A) decreased to $827.8 million or 29.5% of sales for the year ended December 31, 2022 compared to $877.1 million or 30.0% of sales for the year ended December 31, 2021. The decrease in SG&A was primarily driven by a one-time restructuring expense related to the 2021 restructuring plan that was announced and recorded in the first quarter of 2021, as well as by lower employee related expenses.

Research and development expense

Consolidated research and development (R&D) expenses decreased to $256.9 million or 9.2% of sales for the year ended December 31, 2022 compared to $260.6 million or 8.9% of sales for the year ended December 31, 2021. Life Science segment R&D expense increased for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily from increased personnel costs from the Dropworks, Inc. acquisition in October of 2021, and increased investment to complete strategic projects in key investment areas.Clinical Diagnostics segment R&D expense decreased for the year ended December 31, 2022 from the year ended December 31, 2021, primarily due to a one-time restructuring expense related to the 2021 restructuring plan that was announced and recorded in the first quarter of 2021, partially offset by continued investment in new strategic development projects and increased personnel costs from the Curiosity Diagnostics acquisition.

Results of Operations – Non-operating

Interest expense

Interest expense for the years ended December 31, 2022 and 2021 was $38.1 million and $1.6 million, respectively, an increase of $36.6 million compared to the prior year period. The increase was primarily due to the issuance of $1.2 billion Senior Notes in March 2022.

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. Foreign currency exchange net gains were $0.2 million for the year ended December 31, 2022 compared to net losses of $2.8 million for the year ended December 31, 2021. Gains and losses are primarily due to the estimating process inherent in the timing of product shipments and intercompany debt payments, market volatility, and the change in the fair value of our foreign exchange contracts.

Change in fair market value of equity securities and loan receivable

(Gains) losses from change in fair market value of equity securities and loan receivable was a loss of $5.19 billion and a gain of $4.93 billion for the years ended December 31, 2022 and 2021, respectively. The change in the fair market value primarily resulted from the recognition of holding losses of $5.07 billion compared to holding gains of $4.92 billion primarily for our investment in Sartorius AG, for the years ended December 31, 2022 and 2021, respectively. In addition, there were losses of $100.6 million and $10.8 million for the years ended December 31, 2022 and 2021, respectively, for the change in fair market value of the Loan entered into with SHB.

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 ended December 31, 2022 increased to $44.6 million compared to $26.8 million for the year ended December 31, 2021. The difference of income of $17.8 million was primarily due to $12.6 million increase in the Sartorius AG dividends declared during the year ended December 31, 2022, compared with the year ended December 31, 2021, and an increase in our investment income primarily attributable to an increase in our investments as a result of cash invested from the $1.2 billion Senior Notes issued in March 2022 and higher interest rates during 2022. This was partially offset by an increase in both, other than temporary impairment losses of $11.1 million and current expected credit losses on loans of $7.5 million in entities in which we have equity method investments.

Effective tax rate

Our effective tax rates were 22.9% and 21.9% for the years ended December 31, 2022 and 2021, respectively. The effective tax rates for the years ended December 31, 2022 and 2021 were primarily driven by the unrealized gain/loss in equity securities that was taxed at 22.5% and 22.4%, respectively, as well as the geographical mix of earnings.

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 of December 31, 2022, 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 $22.2 million.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes an Alternative Minimum Tax based on the Adjusted Financial Statement Income of Applicable Corporations.Based on our initial evaluation, we do not believe the Inflation Reduction Act will have a material impact on our income tax provision and cash taxes. We continue to monitor the changes in tax laws and regulations to evaluate their potential impact on our business.

Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020

The following shows cost of goods sold, gross profit, expense items and net income as a percentage of net sales:

Selling, general and administrative expense 30.0 31.4

Research and development expense 8.9 8.6

Net sales

Net sales (sales) for the year ended December 31, 2021 were $2.92 billion, compared to $2.55 billion for the year ended December 31, 2020, an increase of 14.8%. Excluding the impact of foreign currency, for the year ended December 31, 2021 sales increased by approximately 12.7% compared to the year ended December 31, 2020. Currency neutral sales increased in all regions, led by growth in Asia Pacific and Europe. Excluding the impact of COVID related sales, currency neutral sales increased by 17% compared to the year ended December 31, 2020.

The Life Science segment sales for the year ended December 31, 2021 were $1.40 billion, an increase of 13.7% compared to the year ended December 31, 2020. On a currency neutral basis, sales increased 12.0% compared to the year ended December 31, 2020. Currency neutral sales were up in nearly all product lines but were primarily driven by growth in our Western Blotting, Digital PCR, and Process Chromatography products. A significant portion of the Life Science segment growth came from products used to support COVID-19 research and testing. All regions experienced double digit currency neutral sales growth compared to the year ended December 31, 2020.

The Clinical Diagnostics segment sales for the year ended December 31, 2021 were $1.52 billion, an increase of 16.1% compared to the year ended December 31, 2020. On a currency neutral basis, sales increased 13.6% compared to the year ended December 31, 2020. Currency neutral sales increased across all product lines and regions as the overall diagnostics market continues to recover from the COVID-19 pandemic, including an increase in utilization in lab operations.

Gross margin

Consolidated gross margins were 56.1% for the year ended December 31, 2021 compared to 56.5% for the year ended December 31, 2020. Life Science segment gross margins for the year ended December 31, 2021 increased by approximately 0.5 percentage points compared to the year ended December 31, 2020, primarily related to increased sales volume, favorable product mix related to higher sales of Digital PCR and Process Chromatography products, and lower production costs. Clinical Diagnostics segment gross margins for the year ended December 31, 2021 decreased by approximately 1.1 percentage points compared to the year ended December 31, 2020. The decrease in the Clinical Diagnostics segment gross margins for the year ended December 31, 2021 was primarily related to the costs associated with the restructuring plan announced in February 2021, partially offset by increased sales for the year ended December 31, 2021.

Selling, general and administrative expense

Consolidated selling, general and administrative expenses (SG&A) increased to $877.1 million or 30.0% of sales for the year ended December 31, 2021 compared to $798.8 million or 31.4% of sales for the year ended December 31, 2020. The increase to SG&A was primarily related to the restructuring plan announced in February 2021, as well as increased employee related expenses.

Research and development expense

Research and development (R&D) expense increased to $260.6 million or 8.9% of sales for the year ended December 31, 2021 compared to $217.8 million or 8.6% of sales for the year ended December 31, 2020. R&D expense increased for the year ended December 31, 2021 compared to the year ended December 31, 2020, in both the Life Science and Clinical Diagnostics segment. The increase was primarily from increases in investment in strategic projects and research initiatives, costs related to the restructuring plan announced in February 2021, and higher employee related expenses.

Results of Operations – Non-operating

Interest expense

Interest expense for the years ended December 31, 2021 and 2020 was $1.6 million and $21.9 million, respectively, a decrease of $20.3 million primarily due to the repayment of the $425.0 million principal amount of Senior Notes in December 2020.

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. Foreign currency exchange net losses for the years ended December 31, 2021 and 2020 were $2.8 million and $1.8 million, respectively. Gains and losses are primarily due to the estimating process inherent in the timing of product shipments and intercompany debt payments, market volatility, and the change in the fair value of our foreign exchange contracts.

Change in fair market value of equity and debt securities

Change in fair market value of equity and debt securities were gains of $4.93 billion for the year ended December 31, 2021 compared to $4.50 billion for the year ended December 31, 2020, primarily resulting from the recognition of holding gains on our position in Sartorius AG of $4.92 billion in 2021 and $4.48 billion in 2020, partially offset by a decrease in fair value of a loan to Sartorius-Herbst Beteiligungen II GmbH of $10.8 million.

Other (income), net

Effective tax rate

Our effective tax rates were 21.9% and 22.4% for the years ended December 31, 2021 and 2020, respectively. The effective tax rates for the years ended December 31, 2021 and 2020 were primarily 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 by U.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 of December 31, 2021, 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 $20.8 million. Substantially all such amounts will impact our effective income tax rate.

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, as amended) that we entered into in April 2019, and to a lesser extent international lines of credit. Borrowings under the Credit Agreement, as amended, 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 2019 Credit Agreement, as amended, as of December 31, 2022, however, $0.2 million was utilized for domestic standby letters of credit that reduced our borrowing availability. In March 2022, we issued $400 million aggregate principal amount of 3.3% Senior Notes due 2027, and $800 million aggregate principal amount of 3.7% Senior Notes due 2032. Net cash proceeds from the bond issuance after deducting the underwriting discount and estimated offering expenses was $1.186 billion.Interest on the Notes is payable semiannually in arrears on March 15 and September 15 of each year until the principal is paid or made available for payment. 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.

At December 31, 2022, we had available $1.8 billion in cash, cash equivalents and short-term investments, of which approximately 13% was held in our foreign subsidiaries. The amount of funds held in the 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 and borrowings. 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.

Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021

Cash Flows from Operations

Net cash provided by operations was $194.4 million and $669.5 million for the years ended December 31, 2022 and 2021, respectively. The decrease of $475.1 million was primarily due to lower cash received from customers, higher cash paid to suppliers and to employees, higher income taxes paid, and interest paid on the Notes in 2022.These decreases were partially offset by higher proceeds from foreign exchange contracts and higher dividends in 2022 compared to 2021.

Cash flows from operations during the first quarter have historically had larger payments for royalties, fourth quarter sales commissions and annual employee bonuses, and we expect this pattern to recur in the first quarter of 2023.

Cash Flows from Investing Activities

Our investing activities have consisted primarily of cash used for purchases of marketable securities and investments, and acquisitions.

Net cash used in investing activities was $1,207.6 million and $797.4 million for the years ended December 31, 2022 and 2021, respectively. The increase of cash used for investing activities of $410.2 million was primarily attributable to the purchase of marketable securities and investments utilizing the cash proceeds from the sale of the senior notes as described below. The increase was partially offset by a $453.4 million funding for a collateralized loan to Sartorius-Herbst Beteiligungen II GmbH in 2021, lower capital expenditures, and lower net cash outflows for the acquisition of Curiosity in 2022 compared to the acquisition of Dropworks in 2021.

Cash Flows from Financing Activities

Our financing activities have consisted primarily of cash from the issuance of senior notes.

Net cash provided by financing activities was $973.6 million compared to cash used for financing activities of $55.4 million for the years ended December 31, 2022 and 2021, respectively. This increase was primarily attributable to the net cash proceeds from the Notes. The increase was partially offset by a higher repurchase of our common stock by $165.7 million in 2022 than in 2021 as described below.

Treasury Shares

During the year ended December 31, 2022, 135,744 shares of Class A treasury stock with an aggregate total cost of $58.4 million were reissued to fulfill grants to employees under our restricted stock program. Upon reissuing the Class A treasury stock, a gain of $0.4 million was incurred as they were reissued at a higher price than their average cost, which increased Retained earnings, while $51.8 million reduced Additional paid-in capital.

During the year ended December 31, 2021, 114,711 shares of Class A treasury stock with an aggregate total cost of $43.6 million were reissued to fulfill grants to employees under our restricted stock program. Upon reissuing the Class A treasury stock, a loss of $6.7 million was incurred as they were reissued at a lower price than their average cost, which reduced Retained earnings, while $37.0 million reduced Additional paid-in capital.

The re-issuance of the treasury stock for the years ended December 31, 2022 and 2021 did not require cash payments or receipts and therefore did not affect liquidity.

During the year ended December 31, 2022, we repurchased 496,692 shares of Class A common stock for $215.7 million under our Share Repurchase Program, compared to the repurchase of 86,506 shares of our common stock for $50.0 million during the year ended December 31, 2021. As of December 31, 2022, $207.4 million of stock remained available for repurchases under the Company's current Share Repurchase Program. We designated these repurchased shares as treasury stock.

Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020

At December 31, 2021, we had available $869.9 million in cash, cash equivalents and short-term investments, of which approximately 23% was held in our foreign subsidiaries. The amount of funds held in the 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).

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.

Cash Flows from Operations

Net cash provided by operations was $669.5 million and $584.9 million for the years ended December 31, 2021 and 2020, respectively. The net increase between the year ended December 31, 2021 and the year ended December 31, 2020 of $84.6 million was primarily due to higher cash received from customers as a result of the growth in sales, higher Sartorius AG dividends in 2021 compared to 2020, lower interest paid as a result of the repayment of the $425.0 million principal amount of Senior Notes in December 2020, proceeds from forward foreign exchange contracts in 2021 compared to payments for forward foreign exchange contracts in 2020, and higher investment income received in 2021 than in 2020. These increases were partially offset by higher cash paid to suppliers primarily for materials to support the increase in sales, cash paid for employee related expenses such as salaries, bonuses and benefits, and to a lesser extent for employee restructuring programs. The increases were also partially offset by higher income taxes paid.

Cash Flows from Investing Activities

Our investing activities consisted primarily of cash used for extending a collateralized loan, activity related to the purchases, sales and maturities of marketable securities, acquisitions and capital expenditures.

Net cash used in investing activities was $797.4 million and $69.9 million for the years ended December 31, 2021 and 2020, respectively. The increase of $727.5 million was primarily attributable to a $453.4 million funding for a collateralized loan to Sartorius-Herbst Beteiligungen II GmbH, an increase of $204.3 million for net cash outflows from purchases, sales and maturities of marketable securities and investments, higher net cash outflows of $28.9 million for the acquisition of Dropworks, Inc. in 2021 compared to the acquisition of Celsee, Inc. in 2020, net payments of $25.2 million for higher capital expenditures, and proceeds of $12.2 million from a divestiture of a division that was received in 2020 compared to none in 2021.

Cash Flows from Financing Activities

Our financing activities have consisted primarily of cash used for repayment of debt, purchases of treasury stock, payments for contingent consideration, and cash proceeds from the issuance of common stock for share-based compensation.

Net cash used in financing activities was $55.4 million compared to $523.0 million for the years ended December 31, 2021 and 2020, respectively. This decrease was primarily attributable to the repayment of the $425 million principal amount of Senior Notes in 2020, and lower purchases of treasury stock in 2021 compared to 2020 of $50.0 million.

Treasury Shares

During the year ended December 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.

The re-issuance of the treasury stock for the years ended December 31, 2021 and 2020 did not require cash payments or receipts and therefore did not affect liquidity.

During the year ended December 31, 2021, we repurchased 89,506 shares of Class A common stock for $50.0 million under our Share Repurchase Program, compared to the repurchase of 291,941 shares of our common stock for $100.0 million during the year ended December 31, 2020. As of December 31, 2021, $223.1 million remained under the Share Repurchase Program. We designated these repurchased shares as treasury stock.

Contractual Obligations

The following summarizes certain of our contractual obligations as of December 31, 2022 and the effect such obligations are expected to have on our cash flows in future periods (in millions):

Payments Due by Period

LessThan 1-3 3-5 Morethan

Contractual Obligations Total One Year Years Years 5 Years

Purchase obligations (3) $ 17.2 $ 17.1 $ 0.1 $ — $ —

Recent Accounting Pronouncements Adopted

See Note 1 to the consolidated financial statements for recent accounting pronouncements adopted and to be adopted.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial Risk Management

The main goal of Bio-Rad’s financial risk management program is to reduce the variance in expected cash flows arising from unexpected foreign exchange rate and interest rate changes. Financial exposures are managed through operational means and by using various financial instruments, including cash and investments, borrowings, and forward and spot foreign exchange contracts. No derivative financial instruments are entered into for the purpose of trading or speculation. Company policy requires that all derivative positions are undertaken to manage the risks arising from underlying business activities. We do not have derivative contracts that are designated for hedge accounting treatment. As a result, all derivative instruments are carried at fair value on the balance sheet and changes in fair value are included in reported earnings.

Foreign Exchange Risk.We operate and conduct business in many countries and are exposed to movements in foreign currency exchange rates. We face transactional currency exposures that arise when we enter into transactions denominated in currencies other than U.S. dollars. Additionally, our consolidated net equity is impacted by the conversion of the net assets of our international subsidiaries for which the functional currency is not the U.S. dollar.

Foreign currency exposures are managed and hedged on a centralized basis. This allows for natural offsets and netting of foreign exchange exposures across entities. Where possible, we seek to manage our foreign exchange risk in part through operational means, including matching same-currency revenues to same-currency costs, and same-currency assets to same-currency liabilities. We enter into foreign currency forward contracts to hedge the gains and losses arising from remeasurement of non-US dollar denominated monetary assets and liabilities, primarily cash, accounts receivables and accounts payables. The majority of forward contracts expire within 90 days or less. We record the change in value of our foreign currency denominated cash, receivables and payables as a Foreign exchange (gain) loss on our consolidated statements of income along with the change in fair market value of the forward exchange contract used as an economic hedge of those assets or liabilities.

Our forward contract holdings at year-end were analyzed to determine their sensitivity to fluctuations in foreign currency exchange rates. All other variables were held constant. Market risk associated with derivative holdings is the potential change in fair value of derivative positions arising from an adverse movement in foreign exchange rates. A hypothetical 10% depreciation / appreciation of foreign currencies relative to the U.S. dollar would result in an unrealized gain / loss of $43.5 million on our derivative position as of December 31, 2022. The gains or losses on foreign currency forward contracts resulting from changes in currency exchange rates are expected to approximately offset losses or gains on the exposures being hedged. This impact of a change in exchange rates excludes the offset derived from the change in value of the underlying assets and liabilities, which could reduce the adverse effect significantly.

Interest Rate Risk of Debt Instruments. Bio-Rad centrally manages the short-term cash surpluses and shortfalls of its subsidiaries. Our holdings of variable rate debt instruments at year-end were analyzed to determine their sensitivity to movements in interest rates. Due to the relatively small amount of short-term variable rate debt instruments we have outstanding, there would not be a material impact to earnings or cash flows if interest rates moved adversely by 10%. Our holdings of long-term debt instruments consist primarily of fixed-rate instruments and are thus insulated from interest rate changes. As of December 31, 2022, the overall interest rate risk associated with our debt instruments was not significant.

Share price movement risk associated with our investment in Sartorius. We face financial statement exposure resulting from changes in the market value of our position in Sartorius. A 10% depreciation / appreciation on the quoted stock prices for ordinary and preference shares of Sartorius at December 31, 2022, would result in an approximate loss / gain of $0.85 billion reported in the financial statement line (Gains) losses from change in fair market value of equity securities and loan receivable in our consolidated statements of income (loss) for the year ended December 31, 2022.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Page

Reports of Independent Registered Public Accounting Firm 43

Notes to Consolidated Financial Statements 52

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Bio-Rad Laboratories, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Bio-Rad Laboratories, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three‐year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 17, 2023 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of Lease Term for Reagent Rental Arrangements

As discussed in Note 1 to the consolidated financial statements, the Company earns revenue from reagent rental agreements with its customers. Each agreement generally includes lease elements subject to the lease accounting standards and non-lease elements subject to the revenue accounting standards. The classification of the lease component as an operating or sales-type lease can impact the timing of revenue recognition and cost attributable to the underlying lease elements. While most reagent rental arrangements contain an option

for a lessee to extend or cancel the agreement, or both, the period in which the contract is enforceable is short, and the lease term has been determined to be the noncancelable period. The revenue allocated to the reagent rental lease elements was approximately 3% of total revenue for the year ended December 31, 2022 and it is included as part of Net Sales in the consolidated statements of income (loss).

We identified the assessment of the lease term for reagent rental agreements, including the impact from any associated contractual termination penalties, as a critical audit matter. The Company’s determination of lease classification as operating or sales-type lease is primarily dependent on the initial determination of the lease term. The Company’s process is based on the manual examination of a high volume of agreements that are negotiated individually across the world with diverse terms. Testing the determination of the lease term, including consideration of contractual termination penalties, required a high degree of auditor judgment to design and execute the audit procedures.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s lease classification process. This included controls related to the Company’s process for determining the lease term including consideration of contractual termination penalties. We assessed the Company’s policy for determining that the lease term of its reagent rental arrangements was in accordance with U.S generally accepted accounting principles. Additionally, for a selection of reagent rental agreements, we read the underlying contract, and compared relevant terms within the contract to the Company’s determination of lease term analysis and evaluated management’s judgment on the determination of the length of the lease term. We evaluated the sufficiency of the evidence obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of such evidence.

/s/ KPMG LLP

We have served as the Company's auditor since 2013.

Santa Clara, California

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Bio‐Rad Laboratories, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Bio-Rad Laboratories, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 17, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Santa Clara, California

BIO-RAD LABORATORIES, INC.

Consolidated Balance Sheets

(In thousands, except share data)

December 31,

ASSETS

Current assets:

Property, plant and equipment:

Less: accumulated depreciation and amortization (1,009,408) (1,001,840)

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

BIO-RAD LABORATORIES, INC.

Consolidated Balance Sheets

(continued)

(In thousands, except share data)

December 31,

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities of long-term debt 465 489

Commitments and contingent liabilities

Stockholders’ equity:

Accumulated other comprehensive income (loss) (466,822) (175,553)

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

BIO-RAD LABORATORIES, INC.

Consolidated Statements of Income (Loss)

(In thousands, except per share data)

Year Ended December 31,

Foreign currency exchange (gains) losses, net (205) 2,753 1,771

Basic earnings (loss) per share:

Diluted earnings (loss) per share:

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

BIO-RAD LABORATORIES, INC.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

Year Ended December 31,

Other comprehensive income (loss), net of tax:

Foreign other post-employment benefits adjustments 20,859 15,099 (3,806)

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

BIO-RAD LABORATORIES, INC.

Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

Cash flows from operating activities:

Cash flows from investing activities:

Proceeds from dispositions of property, plant and equipment 161 52 70

Proceeds from divestiture of a division 1,360 — 12,240

Recovery of (payments for) purchases of intangible assets (1,375) — 3,414

Payments for investment in loan receivable — (453,440) —

Cash flows from financing activities:

Proceeds from issuance of Notes, net of debt financing costs 1,186,220 — —

Payments of contingent consideration (48) (561) (3,367)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that agrees to the same amounts shown in the consolidated statements of cash flows (in thousands):

Year Ended December 31,

Restricted cash included in Other current assets 13 14 3,994

Restricted cash included in Other assets 316 336 916

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

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

BIO-RAD LABORATORIES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

(In thousands)

Other comprehensive income, net of tax — — — — 369,804 369,804

Issuance of common stock — 7,268 — — — 7,268

Other comprehensive loss, net of tax — — — — (458,009) (458,009)

Issuance of common stock — (1,850) — — — (1,850)

Purchase of treasury stock — — (49,998) — — (49,998)

Other comprehensive loss, net of tax — — — — (291,269) (291,269)

Issuance of common stock — (3,373) — (3,373)

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

BIO-RAD LABORATORIES, INC.

Notes to Consolidated Financial Statements

1.SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of Bio-Rad Laboratories, Inc. and all of our wholly and majority owned subsidiaries (referred to in this report as “Bio-Rad,” “we,” “us” and “our”) after elimination of intercompany balances and transactions. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Immaterial Correction to Previously Issued Consolidated Financial Statements

During the fourth quarter of 2022, we determined that an error existed in our previously issued consolidated financial statements. Specifically, we identified certain software development costs that were expensed prior to and during 2020, 2021 and 2022 which should have been capitalized in accordance with Accounting Standards Codification 350, Intangibles – Goodwill and Other (“ASC 350”). The error was evaluated under the U.S. Securities and Exchange Commission's ("SEC's") authoritative guidance on evaluating the materiality of prior period misstatements to the Company’s financial statements. We evaluated the error and concluded that it was not quantitatively or qualitatively material to the previously issued annual or interim consolidated financial statements. Although the error was not material to any period, we revised the accompanying historical consolidated financial statements for the years ended December 31, 2021 and 2020 to reflect the internal-use software capitalization and related amortization for comparative purposes.

The effect of the revision to our consolidated balance sheet as of December 31, 2021 was as follows (in millions):

As reported Adjustment As revised

Consolidated Balance Sheet:

The effect of the revision to our consolidated statements of income (loss) and consolidated statements of cash flows for the years ended December 31, 2021 and 2020 were as follows (in millions, except per share data):

As reported Adjustment As revised

Consolidated Statements of Income (Loss):

Selling, general and administrative expense 879.6 (2.5) 877.1

Benefit from (provision for) income taxes (1,192.2) (2.6) (1,194.8)

As reported Adjustment As revised

Consolidated Statement of Cash Flows:

Net cash provided by operating activities $ 656.5 $ 13.0 $ 669.5

Net cash used in investing activities (784.4) (13.0) (797.4)

As reported Adjustment As revised

Consolidated Statements of Income (Loss):

Selling, general and administrative expense 800.3 (1.5) 798.8

Benefit from (provision for) income taxes (1,101.4) (2.4) (1,103.8)

As reported Adjustment As revised

Consolidated Statement of Cash Flows:

Net cash provided by operating activities $ 575.3 $ 9.6 $ 585.0

Net cash used in investing activities (60.3) (9.6) (69.9)

In addition, the revision effected prior year amounts disclosed in Note 7, Income Taxes; Note 12, Supplemental Cash Flow Information; Note 15, Segment Information and Note 18 Quarterly Financial Data (Unaudited).

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less which are readily convertible into cash.

Short-term Restricted Investments

Short-term restricted investments of $5.6 million at both December 31, 2022 and 2021 represent a money market fund that is provided as collateral to secure worker's compensation and general liability insurance.

Available-for-Sale Investments

Available-for-sale investments consist of corporate obligations, municipal securities, asset backed securities and U.S. government sponsored agencies. Management classifies investments at the time of purchase and reevaluates such classification at each balance sheet date. Investments with maturities beyond one year may be classified as short-term based on their liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Available-for-sale investments are reported at fair value based on quoted market prices and other observable market data. Unrealized gains and losses are reported as a component of other comprehensive income (loss), net of any related tax effect. Realized gains and losses and other-than-temporary impairments on investments are included in Other (income), net (see Note 11).

Concentration of Credit Risk

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents, investments, foreign exchange contracts, trade accounts receivable and loans receivable. Cash and cash equivalents and investments are placed with various highly rated major financial institutions located in different geographic regions.

The forward contracts used in managing our foreign currency exposures have an element of risk in that the counterparties may be unable to meet the terms of the agreements. We attempt to minimize this risk by limiting the counterparties to a diverse group of highly-rated domestic and international financial institutions. In the event of non-performance by these counterparties, the carrying values of our financial instruments represent the maximum amount of loss we would have incurred as of our fiscal year-end.

Credit risk for trade accounts receivable is generally limited due to the large number of customers and their dispersion across many geographic areas. We manage our accounts receivable credit risk through ongoing credit evaluation of our customers' financial conditions. We generally do not require collateral from our customers.

Loans receivable represent the Loan extended to SHB and is collateralized by the pledge of certain trust interests under the Sartorius family trust ("Trust"), which upon termination of the Trust represent the right to receive Sartorius ordinary shares. The collateral is subject to market volatility based on fluctuation in value of the Sartorius ordinary shares.

Accounts Receivable and Allowance for Credit Losses

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. Amounts later determined and specifically identified to be uncollectible are charged or written off against the allowance for credit losses.

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 the customer.

Changes in our allowance for credit losses were as follows (in millions):

Provision for expected credit losses 1.7 1.4 1.2

Write-offs charged against the allowance (1.9) (6.4) (1.6)

Recoveries collected 0.1 0.3 —

Inventory

Inventories are valued at the lower of cost and net realizable value and include material, labor and overhead costs. Cost is determined using standard costs, which approximate actual costs, and are relieved from inventory on a first-in, first-out or average cost basis. We classify our inventories based on our historical and anticipated levels of sales; any inventory in excess of its normal operating cycle (1 – 3 years depending on our product line) is classified as long-term on our consolidated balance sheets. The long-term inventory was immaterial as of December 31, 2022 and 2021.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Additions and improvements are capitalized, and maintenance and repairs are expensed as incurred. Included in property, plant and equipment are buildings and equipment acquired under capital lease arrangements, reagent rental equipment and capitalized software, including costs for software developed or obtained for internal use.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives of property, plant and equipment are generally as follows: buildings, 10-50 years; leasehold improvements, the life of the improvements or the term of the lease, whichever is shorter; reagent rental equipment, 1-5 years; equipment, 3-12 years; and computer software, 3-5 years.

When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are relieved from the accounts and the net gain or loss is included in operating expenses.

Internal-Use Software Development Costs

Costs incurred in the development of internal use software during the application development stage are capitalized and included in Property, plant and equipment, net on the consolidated balance sheets. Such capitalized costs include costs directly associated with the development of the applications. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point the project is substantially complete and is ready for its intended purpose. Internal-use software is amortized on a straight-line basis over the estimated useful life of between 3-5 years. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use (“ROU”) assets, Current operating lease liabilities, and Operating lease liabilities in our consolidated balance sheets. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt, and Long-term debt, net of current maturities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Operating lease ROU assets also include any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease. For purposes of determining the lease term used in the measurement of operating lease ROU assets and operating lease liabilities, we include the noncancellable period of the lease together with those periods covered by the option to extend the lease if we are reasonably certain to exercise that option, the periods covered by an option to terminate the lease if we are reasonably certain not to exercise that option, and the periods covered by the option to extend (or to not terminate) the lease in which exercise of the option is controlled by the lessor. Lease expense is recognized on a straight-line basis over the lease term. Where we act as lessee, we elected not to separate lease and non-lease components.

For our reagent rental contracts, which are classified as operating leases and we act as a lessor, are more fully described below under the caption "Reagent Rental Agreements."

Intangible Assets

Our intangible assets principally include goodwill, acquired technology / know how, license, tradenames, customer relationships, and in-process research and development. Intangible assets with finite lives, which include acquired technology / know how, tradenames, licenses and customer relationships, are carried at cost and amortized using the straight-line method over their estimated useful lives.

The estimated useful lives used in computing amortization of intangible assets are as follows:

Customer relationships/lists4 –16 years

Know how14 years

Developed product technology2 – 20 years

Licenses12 – 13 years

Tradenames6 – 10 years

Covenants not to compete3 – 10 years

Intangible assets with indefinite lives, which include only goodwill and in-process research and development assets, are recorded at cost and evaluated at least annually for impairment.

Impairment of Long-Lived Assets

We review long-lived assets, such as property, plant and equipment and finite-lived intangible assets, for impairment whenever events indicate that the carrying amounts might not be recoverable. Recoverability of property, plant and equipment, and other finite-lived intangible assets are measured by comparing the projected undiscounted net cash flows associated with those assets to their carrying values. If an asset is considered impaired, it is written down to its fair value, which is determined based on the asset's projected discounted cash flows or appraised value, depending on the nature of the asset. For purposes of recognition of impairment for assets held for use, we group assets and liabilities at the lowest level for which cash flows are separately identifiable.

There were no impairments of finite-lived intangible assets for the years ended December 31, 2022, 2021 and 2020.

Impairment of Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. We conduct an impairment analysis for goodwill 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, or a trend of negative or declining cash flows over multiple periods, among others. 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 in U.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.

We have two reporting units, which are the operating segments, Life Science and Clinical Diagnostics. We elected to perform a qualitative assessment of goodwill and determined that it is not more likely than not that the fair values of our reporting units are less than their carrying amounts and that goodwill is not impaired for any of our reporting units.

Impairment of Indefinite-Lived Intangible Assets

For indefinite-lived intangible assets such as in-process research and development, we conduct an impairment analysis annually in the fourth quarter or more frequently if indicators of impairment exist. We first perform a qualitative assessment to determine if it is more likely than not that the carrying amount of each of the in-process research and development assets exceeds its fair value. The qualitative assessment requires the consideration of factors such as adverse macroeconomic conditions, declining market and industry trends in which the company operates, rising cost factors including inflation, and changes in projected future cash flows. If we determine it is more likely than not that the fair value is less than its carrying amount of the in-process research and development assets, a quantitative assessment is performed. The quantitative assessment compares the fair value of the in-process research and development assets to its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized for the excess. We elected to perform a qualitative assessment of indefinite-lived intangible assets and determined that it is not more likely than not that the fair value is less than its carrying amount and that in-process research and development are not impaired.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities reflect the tax effects of net operating losses, tax credits, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. They are determined using enacted tax rates in effect for the year in which such temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. When we establish or reduce the valuation allowance against our deferred tax assets, our provision for income taxes will increase or decrease, respectively, in the period that determination to change the valuation allowance is made.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements on a particular tax position are measured based on the largest benefit that has a greater than a 50% likelihood of being realized upon settlement. The amount of unrecognized tax benefits is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. We recognize both accrued interest and penalties, where appropriate, related to unrecognized tax benefits in the provision for income taxes.

Revenue Recognition

Prior to the fourth quarter of 2022, revenue associated with equipment that required installation service was not recognized until customer acceptance was obtained which was after installation was completed. During the fourth quarter of 2022, we reassessed our customer acceptance criteria and determined that revenue associated with equipment that required installation should have been recognized upon delivery, prior to installation and customer acceptance. We evaluated the error and concluded that it was not material to the previously issued annual or interim consolidated financial statements.

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.

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

customer is reasonably certain to not exercise that option, and the periods covered by the option to extend (or to not terminate) the lease when exercise of such option is controlled by the Company.The assessment of the lease term for reagent rental agreements, including the impact from any associated contractual termination penalties, are subject to an estimation process. While most of our reagent rental arrangements contain either the option for a lessee to extend and/or cancel the agreement, the period in which the contract is enforceable is very short so 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.

We concluded that the use of the instrument (referred to as “lease elements”) in our reagent rental agreements is not governed by the revenue recognition guidance of ASC 606 but instead is addressed by the lease guidance in 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 we have allocated the transaction price to the lease and non-lease elements, the amount of variable payments allocated to such elements are recognized as income in accordance with ASC 842 or ASC 606, as applicable.

Maintenance services, along with the reagents, are allocated to the non-lease elements and recognized as income over time as control is transferred. Maintenance services are recognized ratably over the period whereas reagents revenue is recognized upon transfer of control when either (i) the consumables are delivered or (ii) 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 such arrangements generally do not contain any fixed or minimum lease payments. Our reagent rental arrangements are predominantly classified as operating leases and any sales-type leases have historically been immaterial and we do not enter into direct finance leases. Our reported lease income is primarily variable in nature and is recognized upon delivery or as the reagents are consumed by the customer.

Revenue attributed to the lease elements of our reagent rental arrangements represented approximately 3% of total revenue in 2022, 2% of total revenue in 2021 and 3% of total revenue in 2020. Such revenue forms part of the Net sales in our consolidated statements of income (loss).

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 consolidated statements of income.

Disaggregation of Revenue:

The disaggregation of our revenue by geographic region is based primarily on the location of the use of the product or service, and by industry segment sources. The disaggregation of our revenues by industry segment sources are presented in our Segment Information footnote (see Note 15).

Deferred revenues primarily represent unrecognized fees billed or collected for extended service arrangements including installation services. The deferred revenue balance at December 31, 2022 and December 31, 2021 was $71.9 million and $71.0 million, respectively. The short-term deferred revenue balance at December 31, 2022 and December 31, 2021 was $52.2 million and $50.9 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 consolidated statements of income.

Warranty liabilities are included in Other current liabilities and Other long-term liabilities in the consolidated balance sheets. Change in our warranty liability were as follows (in millions):

Actual warranty costs (10.9) (11.9) (8.6)

Shipping and Handling

We classify all freight costs billed to customers as Net sales. Related freight costs are recognized upon transfer of control of the promised products to customers as a fulfillment cost and included in Cost of goods sold.

Research and Development

All research and development costs are expensed as incurred. Types of expense incurred in research and development include materials and supplies, employee compensation, consulting and third-party services, depreciation, facility costs and information technology.

Foreign Currency

Balance sheet accounts of international subsidiaries are translated at the current exchange rates as of the end of each accounting period. Income statement items are translated at average exchange rates for the period. The resulting translation adjustments are recorded as a separate component of stockholders’ equity.

Foreign currency transaction gains and losses are included in Foreign exchange losses, net in the consolidated statements of income. Transaction gains and losses result primarily from fluctuations in exchange rates when intercompany receivables and payables are denominated in currencies other than the functional currency of our subsidiary that recorded the transaction.

Forward Foreign Exchange Contracts

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 exchange rates that affect foreign currency denominated intercompany receivables and payables. We do not use derivative financial instruments for speculative or trading purposes, nor do we seek hedge accounting treatment for any of our 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 as an asset or liability measured at their fair value at each balance sheet date. The resulting gains or losses offset exchange gains or losses, on the related receivables and payables, all of which are recorded in Foreign exchange losses, net in the consolidated statements of income. We classify the proceeds from (payments for) forward foreign exchange contracts as cash flows from operating activities in our consolidated statements of cash flows.

Share-Based Compensation Plans

Share-based compensation expense for all share-based payment awards granted is determined based on the grant-date fair value. We recognize these compensation costs over the requisite service period of the award, which is generally the vesting term of the share-based payment awards. Forfeitures are recognized as they occur. These plans are described more fully in Note 10.

Earnings (Loss) Per Share

We compute net income (loss) per share of Class A Common Stock (Class A) and Class B Common Stock (Class B) using the two-class method required for participating securities. Our participating securities include Class A and Class B. Each share of Class A and Class B participates equally in earnings and losses, but may not participate equally in dividend distributions. No dividends were distributed or declared during any of the periods presented. Earnings (loss) is attributable equally to each share of Class A and Class B common stock and is determined based on the weighted average number of the respective class of common stock outstanding for the year.

Accordingly, basic earnings (loss) per share is computed by dividing net income (loss) attributable to Bio-Rad by the weighted average number of common shares outstanding for that period. Diluted earnings per share takes into account the effect of dilutive instruments, such as stock options, restricted stock and performance stock, and uses the average share price for the period in determining the number of potential common shares that are to be added to the weighted average number of shares outstanding. Potential common shares are excluded from the diluted earnings (loss) per share calculation if the effect of including such securities would be anti-dilutive.

The weighted average number of common shares outstanding used to calculate basic and diluted earnings (loss) per share, and the anti-dilutive shares that are excluded from the diluted earnings (loss) per share calculation are as follows (in thousands):

Year Ended December 31,

Effect of potentially dilutive stock options, restricted

stock and performance stock awards — 377 392

Fair Value of Financial Instruments

For certain financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, marketable securities, notes payable, accounts payable and foreign exchange contracts, the carrying amounts approximate fair value.

The estimated fair value of financial instruments is based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) using available market information or other appropriate valuation methodologies in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Estimates are not necessarily indicative of the amounts that could be realized in a current market exchange as considerable judgment is required in interpreting market data used to develop estimates of fair value. The use of different market assumptions or estimation techniques could have a material effect on the estimated fair value (see Note 3).

Variable Interest Entities

We enter into relationships with or make investments in other entities that may be variable interest entities ("VIE"). A VIE is consolidated in the financial statements if we are the primary beneficiary. The primary beneficiary has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

In 2021, we extended a loan to a VIE, Sartorius-Herbst Beteiligungen II GmbH ("SHB"), a private limited company incorporated under the laws of Germany (See Note 3). We have not consolidated this entity because we do not have the power to direct the activities that most significantly impact the VIE’s economic performance related to repayment of the loan or cash management of the SHB and, thus, we are not considered the primary beneficiary of the VIE. We believe that our maximum exposure to loss as a result of our involvement with the VIE is limited to the receivable due to us from the VIE under the terms of the loan.

Equity Investments

Investments in publicly traded companies in which we do not have the ability to exercise significant influence are reported at fair value, with unrealized gains and losses reported as a component of change in (gains) losses from change in fair market value of equity securities and loan receivable in our consolidated statements of income. Companies in which we do not have a controlling financial interest, but over which we have significant influence, are accounted for using the equity method. Our share of the after-tax earnings of equity method investees is included in Other (income), net in our consolidated statements of income. Investments in privately held companies in which we do not have the ability to exercise significant influence are accounted for using the cost method with adjustments for observable changes in price or impairments (see Note 3). We monitor our relationships with investees when changes occur that could affect whether we have the ability to exercise significant influence.

Recent Accounting Pronouncements Adopted

In November 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-10, "Government Assistance."The ASU includes tax credits but not within Topic 740, "Income Taxes," cash grants, grants of other assets and project grants.The ASU excludes transactions in which a government is a customer within Topic 606, "Revenue from Contracts with Customers."The ASU was effective for fiscal years beginning after December 15, 2021.The adoption of ASU 2021-10 did not have a material impact on our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers."ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606.Under this approach, the acquirer applies the revenue model as if it had originated the contracts.This is a departure from the current requirement to measure contract assets and contract liabilities at fair value.ASU 2021-08 is applied to business combinations occurring on or after January 1, 2023.We early adopted ASU 2021-08 on January 1, 2022, which did not have a material impact on our consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.”ASU 2022-03 clarifies the guidance in Topic 820, "Fair Value Measurement," and uses two examples to differentiate between (1) a restriction that is a characteristic of the security (for which the effect of the restriction is included in the equity security’s fair value because it is a security-specific characteristic) and (2) a contractual sale restriction (for which the effect of the restriction is not included in the equity security’s fair value because it is an entity-specific characteristic).In addition, the amendments clarify that an entity cannot recognize a contractual sale restriction as a separate unit of account (i.e. as a contra-asset or separate liability); and require new disclosures for all entities with equity securities subject to contractual sale restrictions.ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and early adoption is permitted for both interim and annual financial statements.We early adopted ASU 2022-03 during the third quarter of 2022, which did not have a material impact on our consolidated financial statements.

2. ACQUISITIONS

Curiosity Diagnostics Acquisition:

On August 3, 2022 (the "Acquisition Date"), we acquired all equity interests of Curiosity Diagnostics, sp.z o.o. ("Curiosity") for a total consideration of $137.1 million, including the estimated fair value of contingent consideration. The contingent consideration of up to $70.0 million is payable upon achievement of certain technological development and sales-related milestones.

The acquisition of Curiosity was accounted for as a business combination.

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

Purchase price (cash) $ 101.0

Fair value of contingent consideration (earn-out) 36.1

Fair value of total consideration transferred $ 137.1

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

Preliminary Fair Value

In-process research and development $ 99.0

Deferred tax liabilities (18.8)

Other identifiable assets acquired, net 1.0

Net identifiable assets acquired 81.2

Net assets acquired $ 137.1

Goodwill related to the acquisition is primarily attributable to opportunities to further develop and enhance the rapid diagnostics PCR systems and combining the operations and technologies of Bio-Rad and Curiosity, and is not deductible for tax purposes. 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.

As additional information becomes available, such as finalization of the estimated fair value of the assets acquired and liabilities assumed that may affect the total consideration transferred, we may revise the preliminary estimates of fair values of the tangible and intangible assets acquired and liabilities assumed during the remainder of the measurement period (which will not exceed 12 months from the Acquisition Date). Any such revisions or changes may be material as we finalize the fair values of the assets acquired and liabilities assumed, including the related tax effects.

We included Curiosity's estimated fair value of assets acquired and liabilities assumed in our consolidated balance sheets beginning on the Acquisition Date. The results of operations for Curiosity subsequent to the Acquisition Date have been included in, but are immaterial to, our consolidated statements of income (loss) for the year ended December 31, 2022. Pro forma results of operations for the Curiosity acquisition have not been presented because they are not material to the consolidated statements of income (loss).

Dropworks Acquisition:

On October 15, 2021 (the "Acquisition Date"), we acquired all equity interests of Dropworks, Inc. ("Dropworks") for a total consideration of $125.5 million.

Dropworks is a development stage company focused on developing a digital PCR product. The strategic rationale for the transaction was to address additionalopportunities in the PCR market. 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. The amount of acquisition-related costs was not material.

The acquisition of Dropworks was accounted for as a business combination.

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

Fair Value

Intangible assets $ 83.6

Deferred tax assets 5.6

Deferred tax liabilities (19.5)

Other identifiable assets acquired, net 0.4

Net identifiable assets acquired 70.1

Net assets acquired $ 125.5

Goodwill related to the acquisition is primarily attributable to the opportunities in the digital PCR market from combining the know-how and technologies of Bio-Rad and Dropworks, and is not deductible for tax purposes.

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

Fair Value Estimated Useful Life (years)

In-process research and development $ 81.7

Covenants not to compete 1.9 4.7

Total identifiable intangible assets acquired $ 83.6

The acquired covenants not to compete are being amortized over its estimated useful life using the straight-line method of amortization, which is the term based on the legal rights associated with the covenants not to compete asset. Amortization of the acquired covenants not to compete of $0.4 million and $0.1 million for the years ended December 31, 2022 and December 31, 2021, respectively, are included in Selling, general and administrative expense in the consolidated statements of income (loss).

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 included Dropworks' estimated fair value of assets acquired and liabilities assumed in our consolidated balance sheets beginning on the Acquisition Date. The results of operations for Dropworks subsequent to the Acquisition Date have been included in, but are immaterial to, our consolidated statements of income (loss) for the years ended December 31, 2022 and December 31, 2021. Pro forma results of operations for the Dropworks acquisition have not been presented because they are not material to the consolidated statements of income (loss).

3. FAIR VALUE MEASUREMENTS AND INVESTMENTS

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, 2022 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 $ — $ 21.1 $ — $ 21.1

Time deposits 5.7 — — 5.7

Asset-backed securities — 1.4 — 1.4

U.S. government sponsored agencies — 6.0 — 6.0

Money market funds 31.5 — — 31.5

Restricted investments (b) 6.8 — — 6.8

Loan under the fair value option (d) — — 322.6 322.6

Available-for-sale investments:

Corporate debt securities — 699.3 — 699.3

U.S. government sponsored agencies — 230.7 — 230.7

Foreign government obligations — 13.5 — 13.5

Municipal obligations — 23.1 — 23.1

Total available-for-sale investments (e) — 1,300.0 — 1,300.0

Forward foreign exchange contracts (f) — 1.5 — 1.5

Financial liabilities carried at fair value:

Forward foreign exchange contracts (g) $ — $ 6.2 $ — $ 6.2

Contingent consideration (h) — — 35.6 35.6

Total financial liabilities carried at fair value $ — $ 6.2 $ 35.6 $ 41.8

Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2021 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 $ — $ 39.8 $ — $ 39.8

Asset-backed securities — 0.1 — 0.1

Foreign government obligations — 0.8 — 0.8

Municipals obligations — 0.3 — 0.3

U.S. government sponsored agencies — $ 33.6 — 33.6

Money market funds 50.7 — — 50.7

Restricted investments (b) 6.9 — — 6.9

Loan under the fair value option (d) — — 443.1 443.1

Available-for-sale investments:

Corporate debt securities — 182.3 — 182.3

U.S. government sponsored agencies — 44.3 — 44.3

Foreign government obligations — 1.0 — 1.0

Other foreign obligations — 3.8 — 3.8

Municipal obligations — 9.0 — 9.0

Asset-backed securities — 87.3 — 87.3

Total available-for-sale investments (e) — 327.7 — 327.7

Forward foreign exchange contracts (f) — 1.7 — 1.7

Financial liabilities carried at fair value:

Forward foreign exchange contracts (g) $ — $ 2.8 $ — $ 2.8

Total financial liabilities carried at fair value $ — $ 2.8 $ — $ 2.8

(a) Cash equivalents are included in Cash and cash equivalents in the consolidated balance sheets.

(b) Restricted investments are included in the following accounts in the consolidated balance sheets (in millions):

Restricted investments $ 5.6 $ 5.6

Other investments 1.2 1.3

Short-term investments $ 56.5 $ 71.4

(d) The Loan under the fair value option is included in Other investments in the consolidated balance sheets.

(e) Available-for-sale investments are included in Short-term investments in the consolidated balance sheets.

(f) Forward foreign exchange contracts in an asset position are included in Other current assets in the consolidated balance sheets.

(g) Forward foreign exchange contracts in a liability position are included in Other current liabilities in the consolidated balance sheets.

(h) Contingent considerations in a liability position are included in Other long-term liabilities in the consolidated balance sheets.

Level 1 Fair Value Measurements

As of December 31, 2022, we own 12,987,900 ordinary voting shares and 9,588,908 preference shares of Sartorius AG (Sartorius), of Goettingen, Germany, a process technology supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries. We did not purchase any incremental shares for the years ended December 31, 2022 and 2021. We own approximately 37% of the outstanding ordinary shares (excluding treasury shares) and 28% of the preference shares of Sartorius as of December 31, 2022. The Sartorius family trust (Sartorius family members are beneficiaries of the trust) holds a majority interest of the outstanding ordinary shares of Sartorius. We do not have the ability to exercise significant influence over the operating and financial policies of Sartorius primarily because we do not have any representative or designee on Sartorius' board of directors and have tried and failed to obtain access to operating or financial information necessary to apply the equity method of accounting.

The change in fair market value on our investment in Sartorius for the twelve months ended December 31, 2022 was $5.07 billion loss and is recorded in our consolidated statements of income (loss).

Level 2 Fair Value Measurements

To estimate the fair value of Level 2 debt securities as of December 31, 2022 and 2021, our primary pricing provider uses Refinitiv as the primary pricing source. Our pricing process allows us to select a hierarchy of pricing sources for securities held. If Refinitiv does not price a Level 2 security that we hold, then the pricing provider will utilize our custodian supplied pricing as the secondary pricing source.

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

Short-term investments:

Municipal obligations 23.4 — (0.3) — 23.1

U.S. government sponsored agencies 233.9 — (3.2) — 230.7

Foreign government obligations 13.8 — (0.3) — 13.5

The following is a summary of the amortized cost and estimated fair value of our debt securities at December 31, 2022 by contractual maturity date (in millions):

AmortizedCost Estimated FairValue

Mature in less than one year $ 323.9 $ 321.4

Mature in more than five years 161.8 157.8

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

AmortizedCost UnrealizedGains UnrealizedLosses EstimatedFairValue

Short-term investments:

Municipal obligations 9.0 — — 9.0

U.S. government sponsored agencies 44.3 — — 44.3

Foreign government obligations 1.0 — — 1.0

Other foreign obligations 3.8 — — 3.8

As of December 31, 2022 there were no significant continuous unrealized losses greater than 12 months.

Our evaluation of credit losses for available-for-sale debt securities included the extent to which the fair value is less than the amortized cost basis, adverse conditions specifically related to the debt security, an industry or geographic area, and any changes in the rating of a security by a rating agency. Credit loss impairments are limited to the amount that the fair value of an instrument is less than its amortized cost basis.

At December 31, 2022, we have concluded that all payments related to our available-for-sale investments are expected to be made in full and on time at par value. The diminution of value in the intervening period is due to market conditions such as illiquidity and interest rate movements and not due to significant, inherent credit concerns surrounding the issuer. As a result, we have no allowances for credit losses on our available-for-sale investments portfolio as of December 31, 2022.

Included in Other current assets are $11.6 million and $2.2 million of interest receivable as of December 31, 2022 and December 31, 2021, respectively, primarily associated with securities in our available-for-sale investments portfolio. Associated interest on these securities is typically payable semi-annually. Due to the short-term nature of our interest receivable asset, we have made an accounting policy election not to measure an allowance for credit losses for accrued interest receivable. We consider any uncollected interest receivable that is overdue greater than one year to be impaired for purposes of write-off. For the year ended December 31, 2022, write-offs of uncollected interest receivable were not material.

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, are recorded at their fair value at each balance sheet date. The notional amounts provide one measure of foreign exchange exposures as of December 31, 2022 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 and forward points from Refinitiv on the last business day of the quarter. The resulting gains or losses from foreign exchange contracts offset gains or losses from foreign currency remeasurement of the related receivables and payables, both of which are included in Foreign currency exchange (gains) losses, net in the consolidated statements of income (loss).

The following is a summary of our forward foreign currency exchange contracts (in millions):

December 31,

Contracts maturing in January through March 2023 to sell foreign currency:

Notional value $ 723.4

Unrealized gain/(loss) $ (3.7)

Contracts maturing in January through March 2023 to purchase foreign currency:

Notional value $ 128.9

Unrealized gain/(loss) $ (1.0)

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 or impairments. The carrying value of these investments was $6.5 million as of December 31, 2022 and 2021.

Also included in Other investments in the consolidated balance sheet are our equity method investments, for which our share of the equity method investees earnings is included in Other (income), net in our consolidated statements of income (loss). The carrying value of these investments, net of impairments, was $26.7 million and $29.9 million as of December 31, 2022 and December 31, 2021, respectively.

Level 3 Fair Value Investments

During the fourth quarter of 2021, we extended a collateralized loan to Sartorius-Herbst Beteiligungen II Gmbh ("SHB"), a private limited company incorporated under the laws of Germany, with a principal amount of €400 million due on January 31, 2029, subject to certain events which could trigger payment prior to maturity (“Loan”). SHB used the Loan proceeds to partially finance the acquisition of interests under the Sartorius family trust (“Trust”) from a beneficiary of the Trust. The Loan is collateralized by the pledge of certain of the Trust interests, which upon termination of the Trust in mid-2028 represent the right to receive Sartorius ordinary shares. Interest on the loan is payable annually in arrears at 1.5% per annum, and the entire principal amount is due at maturity. In addition to contractual interest, we are entitled to certain value appreciation rights associated with the acquired Trust interests, which upon termination of the Trust represent the right to receive Sartorius ordinary shares, that is due upon repayment of the Loan. We elected the fair value option under ASC 825, Financial Instruments for accounting of the Loan to SHB to simplify the accounting. The fair value of the Loan and value appreciation right is estimated under the income approach using a discounted cash flow, and option pricing model, respectively, which results in a fair value measurement categorized in Level 3. The significant assumptions used to estimate fair value of the Loan include an estimate of the discount rate and cash flows of the Loan and the significant assumptions used to estimate the fair value of the value appreciation right include volatility, the risk-free interest rate, expected life (in years) and expected dividend. The inputs are subject to estimation uncertainty and actual amounts realized may materially differ. An increase in the expected volatility may result in a significantly higher fair value, whereas a decrease in expected life may result in a significantly lower fair value. All subsequent changes in fair value of the Loan and value appreciation right, including accrued interest are recognized in (gains) losses from change in fair

value of equity securities and loan receivable in our consolidated statements of income (loss). The overall change in fair market value reflected in (Gains) losses from change in fair market value of equity securities and loan receivable during the twelve months ended December 31, 2022 was $100.6 million, which includes $25.6 million for the change in fair market value for the Loan and $75.0 million for the change in fair market value of the value appreciation right. The decrease in the fair market value of the value appreciation right was due to a decline in the value of the Sartorius ordinary shares. As of December 31, 2022, the €400.0 million principal amount of the loan is still due on January 31, 2029.

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

Foreign currency adjustments gains (losses), net (19.9)

During the third quarter of 2022, we recognized a contingent consideration liability upon our acquisition of Curiosity which represents future potential payments of up to $70.0 million payable in cash upon the achievement of certain technological development and revenue milestones, commencing on the Acquisition Date through June 30, 2027. At the Acquisition Date, the fair value of the contingent consideration of $36.1 million was determined by using a probability-weighted income approach related to the achievement of the technological development and revenue milestones. The significant assumptions used to estimate the fair value of the contingent consideration include an estimate of the probability of achievement and the discount rate. The probability of achievement is subject to estimation uncertainty and actual amounts realized may materially differ. An increase in the expected probability of achievement may result in a higher fair value, whereas a decrease in expected probability of achievement may result in a lower fair value. The fair value of the contingent consideration is remeasured at each reporting period based on the assumptions and inputs on the date of remeasurement. The contingent consideration was recorded at its estimated fair value of $35.6 million as of December 31, 2022.

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

Acquisitions with contingent consideration 36.1

The following table provides quantitative information about Level 3 inputs for fair value measurement of our Curiosity contingent consideration liability as of December 31, 2022. 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

Curiosity Diagnostic Probability-weighted income approach Discount rate 5.4 %

4. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

Changes to goodwill by segment were as follows (in millions):

LifeScience ClinicalDiagnostics Total LifeScience ClinicalDiagnostics Total

Balances as of January 1:

Foreign currency adjustments — 3.3 3.3 — — —

Balances as of December 31:

Information regarding our identifiable purchased intangible assets with finite and indefinite lives is as follows (in millions):

In-process research and development 191.0 — 191.0

BIO US Equity

BIO · 10-K · period ended 2022-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BIO US Equity☆

BIO · 10-K · period ended 2022-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BIO US Equity