BIO-RAD LABORATORIES, INC. (BIO) FY 2022 MD&A

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.

26

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.

27

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.

28

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.

29

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.

30

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:

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.

31

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.

32

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.

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 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.

33

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:

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, 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.

34

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.

35

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, 2021 increased to $26.8 million compared to $24.5 million for the year ended December 31, 2020. Other (income), net increased primarily due to a $10.1 million increase in the Sartorius AG dividends declared in 2021, and an increase in investment and other income of $3.9 million, partially offset by a gain of $11.7 million on the sale of our Informatics division in 2020.

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.

36

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.

37

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).

It is generally our intention to repatriate certain foreign earnings to the extent that such repatriations are not restricted by local laws or accounting rules, and there are no substantial incremental costs.

Demand for our products and services could change more dramatically in the short-term than in previous years due to the impacts of the COVID-19 pandemic, as well as due to funding, reimbursement constraints and support levels from government, universities, hospitals and private industry, including diagnostic laboratories. The need for certain sovereign nations with large annual deficits to curtail spending, international trade disputes and increased regulation, could lead to slower growth of, or even a decline in, our business. Sovereign nations either delaying payment for goods and services or renegotiating their debts could impact our liquidity.

38

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 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 2022.

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, 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.

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.

39

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):

Recent Accounting Pronouncements Adopted

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

40