Bio-Rad Laboratories Annual Report 2016

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FY2016 Annual Report · Bio-Rad Laboratories

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Bio-Rad
Laboratories

ANNUUALL REPE OORRT 22016

AC CE LERATING SCIENTIFIC DI SCO VERY A ND IMP RO VI NG HE ALT H C ARE

Letter to our
Shareholders

We ended the year having accomplished

A number of years ago, we acquired

we are beginning to see from our earlier

many of the tasks we set out to do.

Droplet Digital™ PCR technology,

deployments as we prepare to go live in

Sales totaled nearly $2.1 billion

representing growth of 2.4% over the

prior year on a reported basis. The

underlying growth, without the effects

of currency, was a respectable 4.0%.

The growth is all organic and represents

a nice step up, relative to recent years.

These gains were driven by two factors:

ﬁrst, our markets, which were much

more predictable than recent years, and,

second, by new products, a number

of which contributed to our result for

the year. As many of you know, we

pioneered monitoring hemoglobin A1c

as a marker of diabetic control. Over

the years, we have routinely introduced

new platforms, enhancing the customer

experience and providing more value

for this very important area. Continuing

our leadership role, we have been

successful this past year introducing our

new D-100™ instrument for this market.

Its features have found good customer

acceptance as we gained regional

which we felt had potential to drive

the ﬁrst half of 2017. With this, we will have

the next generation of nucleic acid

all of our manufacturing around the world

analysis. Our instincts proved right as

on a single system and 60% of our sales.

we continue to develop a whole new

We can then ease back and take the rest

market. The technology is ﬁnding many

in bite sized pieces. The system helps us

new applications and has allowed

transition from an international company

researchers to advance the discovery

to a true global company, where we can caca

process in a number of areas. We,

harness the value of all our operateraterations

for our part, have continued to invest

around the world to drive bettettttter efﬁciency

in new products, the latest of which

and effectiveness. For us, thhhis is not only

is the QX200™ system. This platform

about internal improvementtts. We fully

represents the second generation of

expect to use this system tooo enhance our

this technology ... and continues to drive

customer experience.

growth for the company. During the

year, we were able to get this instrument

CE IVD marked in Europe, enabling its

use in an in-vitro diagnostic environment.

Some of the applications include those

in cancer, transplant rejection, and

viral infection, where the instrument’s

capability for highly accurate detection

and quantiﬁcation of nucleic acids can

aid in clinical decision making in the

treatment of disease.

The second element, which we talked dd

about in last year’s Annual Report, is

Organization. Recently we embarked on

a project to functionalize and globalize

many of our operations. The project has

gone well and today we are beginning

to see what we can do with this new

structure. We have initiated projects to

consolidate distribution centers, create

centers of excellence for manufacturing,

and form shared service centers for

regulatory approvals.

While we are gaining momentum

certain administrative functions. It will still

In late 2015, we introduced our mid-

volume blood typing system, the IH-500.

This is another system that has been well

received across the European and Asian

geographies, enhancing our position in

this very important market, last year.

on the top line, 2016 was still a year

take some time for these to be reﬂected

of investment for Bio-Rad. These

in an improved operating margin, but

investments are on three fronts:

there is no doubt we will see the beneﬁt.

Systems, Organization, and Technology.

On the Systems front, we are preparing

for our third and last major deployment

of a global ERP system. We are

encouraged by the resulting capabilities

The third area of investment for us has

been what we term, “New Technology.”

Some of these have near-term beneﬁt

and others have value for the future.

The two largest technology investments

we have made are in the area of droplet

leadership positions of each of the two

technology, the ﬁrst one being Droplet

companies to streamline a traditionally

Digital PCR for the research market. The

challenging and time-consuming

ability to encapsulate fragments of DNA

process. The development has been

has enhanced the study of genetics in

productive and we are now entering the

the science community. As I mentioned

market with what we hope will be a well-

earlier, the Droplet Digital PCR market

received approach.

has developed rapidly and we are at

the forefront of this very interesting area.

Not only have we seen a rapid rise in

its application in research, but clinical

applications are starting to take shape

and we foresee several promising areas

of adoption in a diagnostic setting.

Also helping to fuel growth in 2017 is

the recent FDA clearance of our ﬂagship

IH-1000 blood typing platform. This has

been a long-awaited event, allowing us

to bring to the U.S. a platform that is well

established as a standard of care around

the world. We believe that today we have

The second investment was a platform

the broadest array of technologies and

in development. A benchtop DNA

products to serve this customer base.

sequencer capable of sample-to-answer

in four hours, developed speciﬁcally for

diagnostic application. We have worked

to complete the development and are

encouraged by the pre-market feedback

we are receiving.

You have, no doubt, seen some of our

press releases in the past year which

signal some of the newer areas we are

exploring for the future. These range

from a food safety consortium in which

we have partnered with Mars and IBM

We also acquired a ﬂow cytometer

to see how we can improve the safety of

platform, enhancing the build out of a cell

the food supply, to a focus on Zika and

biology franchise. This platform is very

the potential to develop tests to further

complementary to our current portfolio of

enhance our portfolio of products used

products, and we are eager to establish

to protect the safety of the blood supply.

a base of enthusiastic customers.

The investments we are making and

At the beginning of 2016, we announced

restructuring are not without cost.

an alliance with Illumina to develop

You will see that we took several

a comprehensive next generation

non-cash charges during the year that

sequencing workflow for single-cell

are more over time in nature, relating

analysis. This partnership takes

to restructuring our organization in

advantage of the respective technology

Europe, as well as the impairment of our

BIO-RAD 2016 ANNUAL REPORT 1

investment in a benchtop sequencer.

can improve the efﬁciency and

In the case of our impairment, this

effectiveness of our operations and

allows us to put the cost of this

have set a clear course for the next

acquisition behind us. It does not,

several years of achievement.

however, change our enthusiasm for

the technology.

We will of course, continue to invest in

new products and technologies to fuel

No message would be complete

growth and keep us at the forefront

this year without some mention of

of the markets and customers we

the changing political landscape,

serve. Concurrently, we will continue

not only in the U.S. but also in other

to pursue opportunities to add

parts of the world. While it is too

product lines and operations through

early to tell exactly what the future

acquisition.

holds, we are optimistic that it may

bring a more business friendly

environment in which to operate.

Overall, we are encouraged by the

outlook for our markets and excited to

realize the value from those investments

As for us, our near term focus is

we have made these last few years,

to begin to extract value from the

which should translate well into

signiﬁcant investments we have

increased value to our shareholders.

made in technology, systems, and

organization over the past several

years. We are conﬁdent that we

Thank you for your continued interest

in Bio-Rad.

John Goetz

Norman Schwartz

CHIEF OPERATING OFFICER

PRESIDENT

2 BIO-RAD 2016 ANNUAL REPORT

2016 Financial Highlights
2016 Financial Highlights

In our seventh decade of operation, we have never lost sight of the principles
that have brought us success.

FIVE-YEAR RECORD

2012

2013

2014

2015

2016

(IN MILLIONS, EXCEPT FOR RETURN ON SALES
AND PER SHARE DATA)

Net Sales

Gross Proﬁt

R & D Expense

Net Income Attributable to Bio-Rad

Return On Sales

Book Value Per Share

Basic Earnings Per Share

Cash Flow From Operations

2,069.2

1,155.2

209.2

165.5

8.0%

70.75

5.85

266.5

2,132.7

2,175.0

1,178.5

211.0

77.8

3.6%

75.99

2.72

169.1

1,178.5

220.3

88.8

4.1%

75.17

3.08

273.3

2,019.4

1,121.7

193.0

113.1

5.6%

84.83

3.87

186.2

2,068.2

1,138.1

205.9

28.1

1.4%

87.46

0.96

216.4

Americas

Pacific Rim

Europe

43%

21%

36%

100%

2016 SALES BY REGION

2012

2013

2014

2015

2016

$ 2,069.2

$ 2,132.7

$ 2,175.0

$ 2,019.4

$ 2,068.2

2012

2013

2014

2015

2016

$ 266.5

$ 169.1

$ 273.3

$ 186.2

$ 216.4

2012

2013

2014

2015

2016

$ 5.85

$ 2.72

$ 3.08

$ 3.87

$ 0.96

NET SALES
(IN MILLIONS)

CASH FLOW FROM OPERATIONS
(IN MILLIONS)

BASIC EARNINGS PER SHARE

BIO-RAD 2016 ANNUAL REPORT 3

D ROPLET DIGITAL PCR

What’s in
a Droplet?

OFFERING UNRIVALED PRECISION AND ABSOLUTE QUANTIFICATION

OF TARGET DNA OR RNA MOLECULES, OUR UNIQUE DROPLET DIGITAL

PCR (DDPCR™) TECHNOLOGY IS LEADING TO BREAKTHROUGHS IN

SUCH FIELDS AS CANCER BIOMARKER DISCOVERY, INFECTIOUS

DISEASES, GENOMIC ALTERATIONS, AND GENE EXPRESSION.

Partitioning samples into thousands of microﬂuidic “droplet” test

tubes provides us the ability to develop technologies that offer highly

quantitative, digital answers in the areas of life science research and

clinical diagnostics in addition to environmental monitoring and food

testing. In early 2016, we received CE IVD marking for our QX200™

Droplet Digital™ PCR System, making it the ﬁrst digital PCR system

with the CE IVD mark for use as an in vitro diagnostic (IVD) in the

European Union.

Since introducing our digital PCR technology several years ago, there

have been over 700 peer-reviewed publications that describe a wide

variety of applications of this technology, particularly in the area of

cancer. Using ddPCR, researchers are able to observe ﬁner quantitative

distinction among mutations, better identifying their role in cancer.

In one example, researchers at the Olivia Newton-John Cancer

Research Institute in Australia are using ddPCR to perform “liquid

biopsies” of melanoma patients to detect and analyze cancer genes,

sparing patients from invasive surgical biopsies and saving precious

time between diagnosis and treatment. From the blood sample

researchers can identify whether a melanoma patient will respond to

a speciﬁc treatment or if it is no longer working.

This approach is already saving lives. In one recent case, a woman

was diagnosed with aggressive stage melanoma shortly after giving

birth. Doctors could not begin treatment until determining the kind of

melanoma she had. Using ddPCR technology, the liquid biopsy results

came back within six hours—instead of weeks—allowing doctors to

diagnose the type of melanoma as well as the right treatment.

4 BIO-RAD 2016 ANNUAL REPORT

PREPARE DDPCR REACTION MIX

Combine DNA sample with
primers and/or probes with
one of Bio-Rad’s ddPCR
Supermixes.

GENERATE DROPLETS

Droplets are generated from each
run on the QX200 Droplet Generator.
Target DNA and background DNA
are randomly distributed
in the droplets.

PERFORM PCR

Transfer the droplets to a
96-well plate and amplify.

READ AND ANALYZE RESULTS

Droplets in each sample are
read and analyzed on a
QX200 Droplet Reader with
QuantaSoftTM Software.

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Discovery at the
Single-Cell Level

SEVERAL YEARS AGO, BIO-RAD BEGAN BUILDING A FAMILY OF PRODUCTS TO

ADDRESS THE GROWING AREA OF CELLULAR ANALYSIS. WE ENTERED THE

MARKET WITH A CELL COUNTER THEN ACQUIRED A CELL SORTING TECHNOLOGY.

Not much later we introduced a digital microscope for cell visualization. Next in

line is the ZE5™ Cell Analyzer that will continue the workﬂow when we introduce

it in early 2017. These instruments along with antibodies and reporter molecules

provide our customers with platforms offering ease of use and affordability as

well as content.

But we didn’t stop there. Addressing one of the most rapidly growing techniques

in cell biology, “single cell gene expression,” we partnered with Illumina, Inc. in

January 2016 to develop the most comprehensive next-generation sequencing

(NGS) workﬂow for single-cell analysis. The Illumina® Bio-Rad® Single-Cell

Sequencing Solution, featuring the ddSEQ™ Single-Cell Isolator, was introduced

in the ﬁrst quarter of 2017.

Why single cells?

Single-cell analysis enables a deep view into the gene expression of individual

cells to better understand their functions in complex tissues.

Most scientific studies rely on analysis of bulk tissue samples. These

samples are usually composed of multiple cell types with varying functions.

Gene expression data is averaged across cells, making it difﬁcult to identify

differences between cells and understand the role of cell variation. In ﬁelds

such as hematology, stem cell biology, tissue engineering, and cancer biology,

the cells of interest may be in the minority and their true behavior or phenotype

masked by the majority of the population. In cases such as these, measuring

averages simply will not do. Accurate characterization of samples with high

cellular heterogeneity is only achieved through single-cell analysis.

Single-cell sequencing addresses those challenges and provides deeper insight

into cell function, disease progression, and therapeutic response. These data

can be important in studies of neurological tissues, for example, which are

known to have hundreds of specialized cell types.

Our solution delivers high-throughput sequencing of thousands of individual

cells, traditionally a challenging, costly, and time-consuming process.

BIO-RAD 2016 ANNUAL REPORT 7

BLO O D TYPING

A Full Spectrum of
Blood Testing Solutions

BIO-RAD IS A LEADER IN BLOOD TYPING IN MARKETS OUTSIDE THE U.S., LARGELY

DRIVEN BY OUR HIGH-VOLUME IH-1000 BLOOD TYPING INSTRUMENT, OUR

MID-VOLUME IH-500 SYSTEM, AND BY OUR IH-CENTRAL CONNECTIVITY SUITE.

AA
After receiving clearance in 2016 from the

U.S. Food and Drug Administration for

our IH-1000 platform and a wide range of associated gel cards and reagents, we

are prepared to extend our leadership position to the U.S. blood typing market.

Our IH-1000, based on gel card technology, offers automation and extended

walk-away autonomy, allowing laboratories to more efﬁciently manage their blood

testing workload.

With the release of the IH-1000 system, we now offer our U.S. customers a wide

variety of platforms, reagents, data management, and connectivity solutions to

address different volume blood testing needs. These products include the

TANGO inﬁnity® system that uses microplate technology, and a comprehensive

range of reagents for conventional tube testing for blood typing, cross-matching,

and antibody identiﬁcation.

Every detail matters when it comes to determining compatibility of a donor’s and

patient’s blood. We provide the tools clinicians need to do the detective work—

ensuring they have what they are looking for: a perfect match. In a three-step

process, an ABO typing test is performed and followed by a general antibody

screen in which antibodies in the patient’s plasma are combined with a red blood

cell reagent pool of the most clinically signiﬁcant antigens. Finally, if no incompatibility

is detected a “cross-match” is performed that combines the red blood cells in the

donor blood with plasma of the patient to ensure compatibility between the two.

Bio-Rad has access to multiple diverse blood sources so we can manufacture a

large number of reagent red blood cells with clinically relevant antigen proﬁles. In

addition, we have at our disposal a signiﬁcant arsenal of monoclonal and polyclonal

antibodies that further enlarge the pool of test cell possibilities, so clinicians can dig

deeper to discover possible interactions between antibodies and antigens.

These solutions combined with our connectivity suite, IH-Central, provides our

customers everything they need to deliver safe and accurate results.

8 BIO-RAD 2016 ANNUAL REPORT

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BIO-RAD 2016 ANNUAL REPORT 9

Who We Serve
Bio-Rad primarily serves the life
science research and medical
diagnostics markets. Our product
offering in these segments are
complementary, allowing us to
leverage technology and
products across the company.

N LABS 15 %

SIO
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N
A
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T

INDI
INDUSTRIAL 3%

USS

A BO U T BIO-RAD

Who We Are

FOR OVER SIX DECADES, BIO-RAD HAS PROVIDED THE

HEALTHCARE INDUSTRY WITH INNOVATIVE AND USEFUL

PRODUCTS THAT HELP LIFE SCIENCE RESEARCHERS

ACCELERATE THE DISCOVERY PROCESS AND MEDICAL

DIAGNOSTIC LABS OBTAIN FASTER, BETTER RESULTS.

Bio-Rad is among the top ﬁve life science companies in the world,

providing instruments, software, consumables, reagents, and content

for the areas of cell biology, gene expression, protein puriﬁcation, protein

quantitation, drug discovery and manufacture, food safety, and science

education. Our products and solutions are based on technologies to

separate, purify, identify, analyze, and amplify biological materials such as

antibodies, proteins, nucleic acids, cells, and bacteria.

AAs a leading global provider of in-vitro diagnostics supplies, our diagnostic

products and systems leverage a broad range of technologies and

deliver high-value clinical information in the blood transfusion, diabetes

monitoring, autoimmune, and infectious disease testing markets.

These

products are used to support the diagnosis, monitoring, and treatment of

diseases and other medical conditions.

Bio-Rad is the world leader in clinical quality control products, services,

and information systems—products that ensure the accuracy and validity

of clinical test results.

TThroughout our existence, we have built long-lasting customer

relationships that help advance our research and development efforts in

the introduction of new products and solutions. In 2017, embarking on our

65th year of operation, Bio-Rad’s global network of over 8,250 employees

and operations are helping people live longer, healthier lives.

10 BIO-RAD 2016 ANNUAL REPORT

ACADEMIC 23%

5 %

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Life
Science
Research
Leading
Positions

CELL BIO L O G Y

PROOOTEIN

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IMAGE

AANALYSISSIS

The fundamental areas

of biological research are cell

biology, genomics, and proteomics.

Bio-Rad has historically focused on

BIO

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the study of genes and proteins, but as

the interest in studying cells continues to

increase, so have our offerings in this area.

E S T I N G

E T

UTOIM

DIABETE

S M

These products consist of

instrument and reagents often

provided as an integrated package

to allow a lab to generate

reproducible test results.

Clinical
Diagnostics
Leading
Positions

MUNOHEMAT O L O G Y

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Applications
in Life Science
Research
and Clinical
Diagnostics

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GENE
EXPRESS I O N
ANALYS I S

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A LID ATIO
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Digital Biology
Leveraging our leadership position in DNA ampliﬁcation, several years

ago we established a presence in digital biology with the introduction

of Droplet Digital PCR (ddPCR). Using this technology researchers

can partition segments of DNA into thousands of microﬂuidic droplets

and then discretely amplify and analyze each reaction resulting in the

capture of highly quantitative digital answers not previously attainable.

ANNUAL REPORT 11

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2016
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________________ to _________________________________

Commission file number 1-7928

BIO-RAD LABORATORIES, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

1000 Alfred Nobel Drive, Hercules, California
(Address of principal executive offices)

94-1381833
(I.R.S. Employer Identification No.)

94547
(Zip Code)

Registrant's telephone number, including area code

(510) 724-7000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Class A Common Stock Par Value $0.0001 per share
Class B Common Stock Par Value $0.0001 per share

Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been

subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data

File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period

that the registrant was required to submit and post such files).

Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Non-accelerated file

(Do not check if a smaller reporting
company)

Smaller reporting company

Accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

As of June 30, 2016, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the Registrant's
Class A Common Stock held by non-affiliates was approximately $2,959,730,250 and the aggregate market value of the registrant's Class B Common Stock
held by non-affiliates was approximately $42,159,671.

As of February 14, 2017, there were 24,460,068 shares of Class A Common Stock and 5,116,824 shares of Class B Common Stock outstanding.

Documents Incorporated by Reference

(1)

Definitive Proxy Statement to be mailed to stockholders in connection with the

registrant's 2017 Annual Meeting of Stockholders (specified portions)

III

Document

Form 10-K Parts

BIO-RAD LABORATORIES, INC.

FORM 10-K DECEMBER 31, 2016

TABLE OF CONTENTS

Part I.

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosures

Part II.

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Item 6. Selected Financial Data

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

Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Part III.

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Part IV.

Item 15. Exhibits and Financial Statement Schedules

Signatures

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

Other than statements of historical fact, statements made in this Annual Report include forward-looking statements,
such as statements with respect to our future financial performance, operating results, plans and objectives that
involve risk and uncertainties. Forward-looking statements generally can be identified by the use of forward-
looking terminology, such as “believe,” “expect,” “may,” “will,” “intend,” “estimate,” “continue,” or similar
expressions or the negative of those terms or expressions. Such statements involve risks and uncertainties, which
could cause actual results to vary materially from those expressed in or indicated by the forward-looking
statements. We have based these forward-looking statements on our current expectations and projections about
future events. However, actual results may differ materially from those currently anticipated depending on a variety
of risk factors including but not limited to those identified under “Item 1A, Risk Factors” of this Annual Report.
We caution you not to place undue reliance on forward-looking statements, which reflect an analysis only and speak
only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise, except as required by law.

PART I.

ITEM 1. BUSINESS

General

Founded in 1952 and incorporated in 1957, Bio-Rad Laboratories, Inc. (referred to in this report as “Bio-Rad,”
“we,” “us,” and “our”) was initially engaged in the development and production of specialty chemicals used in
biochemical, pharmaceutical and other life science research applications. We entered the field of clinical
diagnostics with the development of our first test kit based on separation techniques and materials developed for life
science research. Through internal research and development efforts and acquisitions we have expanded into
various markets. Today, Bio-Rad manufactures and supplies the life science research, healthcare, analytical
chemistry and other markets with a broad range of products and systems used to separate complex chemical and
biological materials and to identify, analyze and purify their components.

As we broadened our product lines, we also expanded our geographical market. We have direct distribution
channels in over 35 countries outside the United States through subsidiaries whose focus is sales, customer service
and product distribution. In some locations outside and inside these 35 countries, sales efforts are supplemented by
distributors and agents.

Description of Business

Business Segments

Today, Bio-Rad operates in two industry segments designated as Life Science and Clinical Diagnostics. Both
segments operate worldwide. Our Life Science segment and our Clinical Diagnostics segment generated 35% and
64%, respectively, of our net sales for the year ended December 31, 2016. We generated approximately 37% of our
consolidated net sales for the year ended December 31, 2016 from U.S. sales and approximately 63% from sales in
our remaining worldwide markets.

For a description of business and financial information on industry and geographic segments, see Note 14 of Item 8
of Part II of this report.

Life Science Segment

Our Life Science segment is at the forefront of discovery, creating advanced tools to answer complex biological
questions. We are a leader in the life sciences market and develop, manufacture and market a range of more than
5,000 reagents, apparatus and laboratory instruments that serve a global customer base. Many of our products are

used in established research techniques, biopharmaceutical production processes and food testing regimes. These
techniques are typically used to separate, purify and identify biological materials such as proteins, nucleic acids and
bacteria within a laboratory or production setting. We focus on selected segments of the life sciences market in
proteomics (the study of proteins), genomics (the study of genes), biopharmaceutical production, cell biology and
food safety. We estimate that the worldwide market for products in these selected segments was approximately
$8 billion. Our principal life science customers include universities and medical schools, industrial research
organizations, government agencies, pharmaceutical manufacturers, biotechnology researchers, food producers and
food testing laboratories.

Clinical Diagnostics Segment

Our Clinical Diagnostics segment designs, manufactures, sells and supports test systems, informatics systems, test
kits and specialized quality controls that serve clinical laboratories in the global diagnostics market. Our products
currently address specific niches within the in vitro diagnostics (IVD) test market, and we seek to focus on the
higher margin, higher growth segments of this market.

We supply more than 3,000 different products that cover more than 300 clinical diagnostic tests to the IVD test
market. We estimate that the worldwide sales for products in the markets we serve were approximately $12 billion.
IVD tests are conducted outside the human body and are used to identify and measure substances in a patient’s
tissue, blood or urine. Our products consist of reagents, instruments and software, typically provided to our
customers as an integrated package to allow them to generate reproducible test results. Revenue in this business is
highly recurring, as laboratories typically standardize test methodologies, which are dependent on a particular
supplier’s equipment, reagents and consumable products. An installed base of diagnostic test systems therefore
typically creates an ongoing source of revenue through the sale of test kits for each sample analyzed on an installed
system. Our principal clinical diagnostic customers include hospital laboratories, reference laboratories, transfusion
laboratories and physician office laboratories.

Raw Materials and Components

We utilize a wide variety of chemicals, biological materials, electronic components, machined metal parts, optical
parts, computing and peripheral devices. Most of these materials and components are available from numerous
sources, and generally we have not experienced difficulty in securing adequate supplies. However, in certain
instances we acquire components and materials from a sole supplier. Due to the regulatory environment in which
we operate, we may be unable to quickly establish additional or replacement sources for some components or
materials.

Patents, Trademarks and Licenses

We own numerous U.S. and international patents and trademarks. We also pay royalties on the sales of certain
products under several patent license agreements. We view these patents, trademarks and license agreements as
valuable assets; however, we believe that our ability to develop and manufacture our products depends primarily on
our knowledge, technology and special skills rather than our patent, trademark and licensing positions.

Seasonal Operations and Backlog

Our business is not inherently seasonal. However, the European custom of concentrating vacation during the
summer months usually tempers third quarter sales volume and operating income.

For the most part, we operate in markets characterized by short lead times and the absence of significant backlogs.
Management has concluded that backlog information is not material to our business as a whole.

Sales and Marketing

We conduct our worldwide operations through an extensive direct sales force, employing approximately 990 direct
sales and sales management personnel around the world. Our sales force typically consists of experienced industry
practitioners with scientific training, and we maintain a separate specialist sales force for each of our segments. We
believe that this direct sales approach allows us to sell a broader range of our products and have more direct contact
with our customers.

We also use a range of sales and marketing intermediaries (SMIs) in our international markets. The types of SMIs
we utilize are distributors, agents, brokers and resellers. We have programs and policies in place with our SMIs that
require compliance with all applicable laws, including adhering to our anti-corruption standards to ensure a
transparent sale to our customers.

Our customer base is broad and diversified. Our worldwide customer base includes (1) prominent university and
research institutions, providing us access to more than 180,000 scientists in the United States alone; (2) hospital,
public health and commercial laboratories; (3) other leading diagnostic manufacturers; and (4) leading companies in
the biotechnology, pharmaceutical, chemical and food industries. In 2016, no single customer accounted for more
than three percent of our total net sales. Our sales are affected by a number of external factors. For example, a
number of our customers, particularly in the Life Science segment, are substantially dependent on government
grants and research contracts for their funding. A significant reduction of government funding has in the past and
could in the future have a detrimental effect on the results of this segment.

Most of our international sales are generated by our wholly-owned subsidiaries and their branch offices. Certain of
these subsidiaries also have manufacturing facilities. Bio-Rad’s international operations are subject to certain risks
common to foreign operations in general, such as changes in governmental regulations, import restrictions and
foreign exchange fluctuations.

Competition

The markets served by our product groups are highly competitive. Our competitors range in size from start-ups to
large multinational corporations with significant resources and reach. We seek to compete primarily in market
segments where our products and technology offer customers specific advantages over the competition.

Because of the breadth of its product lines, our Life Science segment does not face the same competitors for all of
its products. Competitors in this market include GE Biosciences, Merck Millipore and Thermo Fisher Scientific.
We compete primarily based on meeting performance specifications and offering complete solutions.

Major competitors of our Clinical Diagnostics segment include Roche, Abbott Laboratories, Siemens, Danaher,
Thermo Fisher, Becton Dickinson, bioMérieux, Ortho Clinical Diagnostics, Tosoh, Immucor and DiaSorin.

Research and Development

We conduct extensive research and development activities in all areas of our business, employing approximately
875 employees worldwide in these activities, including degreed scientists and technical support staff. Research and
development has played a major role in Bio-Rad’s growth and is expected to continue to do so in the future. Our
research teams are continuously developing new products and new applications for existing products. In our
development of new products and applications, we interact with scientific and medical professionals at universities,
hospitals and medical schools, and within our industry. We spent approximately $205.9 million, $193.0 million and
$220.3 million on research and development activities in 2016, 2015 and 2014, respectively.

Regulatory Matters

The development, testing, manufacturing, marketing, post-market surveillance, distribution, advertising and
labeling of certain of our products (primarily diagnostic products) are subject to regulation in the United States by
the Center for Devices and Radiological Health of the U.S. Food and Drug Administration (FDA) and in other
jurisdictions by state and foreign government authorities. FDA regulations require that some new products have
pre-marketing clearance or approval by the FDA and require certain products to be manufactured in accordance
with FDA’s “good manufacturing practice” regulations, to be extensively tested and to be properly labeled to
disclose test results and performance claims and limitations. After a product that is subject to FDA regulation is
placed on the market, numerous regulatory requirements apply, including, for example, the requirement that we
comply with recordkeeping and reporting requirements, such as the FDA’s medical device reporting regulations and
reporting of corrections and removals. The FDA enforces these requirements by inspection and market
surveillance. The FDA has authority to take various administrative and legal actions against us for our, or our
products’, failure to comply with relevant legal or regulatory requirements, including issuing warning letters,
initiating product seizures, requesting or requiring product recalls or withdrawals, and other civil or criminal
sanctions, among other things.

We are also subject to additional healthcare regulation and enforcement by the federal government and by
authorities in the states and foreign jurisdictions in which we conduct our business. Such laws include, without
limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security and physician
sunshine laws and regulations. If our operations are found to be in violation of any of such laws or any other
governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and
criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in
federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate
our business and our financial results.

Sales of our products will depend, in part, on the extent to which our products or diagnostic tests using our products
will be covered by third-party payors, such as government health care programs, commercial insurance and
managed healthcare organizations. These third-party payors are increasingly reducing reimbursements for certain
medical products and services. In addition, the U.S. government, state legislatures and foreign governments have
continued implementing cost containment programs, including price controls and restrictions on reimbursement.
Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions
with existing controls and measures, could further limit our net revenue and results. Decreases in third-party
reimbursement for our products or diagnostic tests using our products, or a decision by a third-party payor to not
cover our products could reduce or eliminate utilization of our products and have a material adverse effect on our
sales, results of operations and financial condition. In addition, healthcare reform measures have been and will be
adopted in the future, any of which could limit the amounts that governments will pay for healthcare products and
services, which could result in reduced demand for our products or additional pricing pressures.

As a multinational manufacturer and distributor of sophisticated instrumentation, we must meet a wide array of
electromagnetic compatibility and safety compliance requirements to satisfy regulations in the United States, the
European Union and other jurisdictions.

Our operations are subject to federal, state, local and foreign environmental laws and regulations that govern such
activities as transportation of goods, emissions to air and discharges to water, as well as handling and disposal
practices for solid, hazardous and medical wastes. In addition to environmental laws that regulate our operations,
we are also subject to environmental laws and regulations that create liabilities and clean-up responsibility for
spills, disposals or other releases of hazardous substances into the environment as a result of our operations or
otherwise impacting real property that we own or operate. The environmental laws and regulations could also
subject us to claims by third parties for damages resulting from any spills, disposals or releases resulting from our
operations or at any of our properties.

These regulatory requirements vary widely among countries.

Employees

At December 31, 2016, Bio-Rad had approximately 8,250 employees. Approximately seven percent of our
approximately 3,300 U.S. employees are covered by a collective bargaining agreement, which will expire on
November 7, 2019. Many of our non-U.S. full-time employees, especially in France, are covered by collective
bargaining agreements. We consider our employee relations in general to be good.

Available Information

Bio-Rad files annual, quarterly, and current reports, proxy statements, and other documents with the Securities and
Exchange Commission (SEC) under the Securities Exchange Act of 1934, as amended. The public may read and
copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington,
DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information
statements, and other information regarding issuers, including Bio-Rad, that file electronically with the SEC. The
public can obtain any documents that we file with the SEC at http://www.sec.gov.

Bio-Rad’s website address is www.bio-rad.com. We make available, free of charge through our website, our Form
10-Ks, 10-Qs and 8-Ks, and any amendments to these forms, as soon as reasonably practicable after filing with the
SEC. The information on our website is not part of this Annual Report on Form 10-K.

ITEM 1A. RISK FACTORS

In evaluating our business and whether to invest in any of our securities, you should carefully read the following
risk factors in addition to the other information contained in this Annual Report. We believe that any of the
following risks could have a material effect on our business, results of operations or financial condition, our
industry or the trading price of our common stock. We operate in a continually changing business environment,
and new risks and uncertainties emerge from time to time. We cannot predict these new risks and uncertainties, nor
can we assess the extent to which any such new risks and uncertainties or the extent to which the risks and
uncertainties set forth below may adversely affect our business, results of operations, financial condition, our
industry or the trading price of our common stock.

Our settlement with government agencies in connection with violations by us of the U.S. Foreign Corrupt
Practices Act could have a material adverse effect on our business, results of operations and financial condition.

As previously disclosed, we entered into a non-prosecution agreement (NPA) with the U.S. Department of Justice
(DOJ) and the Securities and Exchange Commission (SEC) and consented to the entry of an Order by the SEC
(SEC Order), effective November 3, 2014, which actions resolved both the DOJ and the SEC investigations into our
violations of the U.S. Foreign Corrupt Practices Act (FCPA). Under the terms of the NPA and the SEC Order, we
agreed to pay a financial penalty and certain amounts in disgorgement and interest as well as to compliance,
reporting and cooperation obligations to be performed for two years. On October 28, 2016, the DOJ and SEC
informed Bio-Rad that they did not intend to extend the NPA after it expired November 2, 2016.

Whether by virtue of disclosure of the NPA and the SEC Order or otherwise, we may be subject to investigations by
foreign governments or further claims by third parties arising from conduct subject to the investigation or our other
international operations. For additional information regarding further claims by third parties, see Note 13, “Legal
Proceedings” in the Notes to Condensed Consolidated Financial Statements of Part II, Item 8 of this Annual Report
on Form 10-K. Many of our customers in our significant international operations are government agencies or state-
owned or state-controlled universities, hospitals and laboratories. The disclosure of the NPA and the SEC Order
could harm our reputation with these customers, which could materially adversely affect our business, results of
operations and financial condition.

Our international operations expose us to additional costs and legal and regulatory risks, which could have a
material adverse effect on our business, results of operations and financial condition.

We have significant international operations. We have direct distribution channels in over 35 countries outside the
United States, and in 2016 our foreign subsidiaries generated 63% of our net sales. Compliance with complex
foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business.
These numerous and sometimes conflicting laws and regulations include, among others, data privacy requirements
(including with respect to the invalidation of the U.S.-European Union safe harbor by the European Court of
Justice, compliance with the EU-U.S. Privacy Shield recently adopted by the European Commission, and the
upcoming requirements for compliance with the EU General Data Protection Regulation), labor relations laws, tax
laws, anti-competition regulations, import and trade restrictions, export requirements, U.S. laws such as the FCPA
and other U.S. federal laws and regulations established by the office of Foreign Asset Control, local laws such as
the UK Bribery Act 2010 or other local laws which prohibit corrupt payments to governmental officials or certain
payments or remunerations to customers.

Given the high level of complexity of these laws, there is a risk that we may inadvertently breach some provisions,
for example, through fraudulent or negligent behavior of individual employees, our failure to comply with certain
formal documentation requirements, or otherwise. Our success depends, in part, on our ability to anticipate these
risks and manage these challenges through policies, procedures and internal controls. However, we have a
dispersed international sales organization, and we use distributors and agents in many of our international
operations. This structure makes it more difficult for us to ensure that our international selling operations comply
with our global policies and procedures.

Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our
employees, requirements to obtain export licenses, cessation of business activities in sanctioned countries,
implementation of compliance programs, and prohibitions on the conduct of our business. Violations of laws and
regulations also could result in prohibitions on our ability to offer our products in one or more countries and could
materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain
employees, or our business, results of operations and financial condition. See also our risk factor regarding
government regulations below.

The industries and market segments in which we operate are highly competitive, and we may not be able to
compete effectively.

The life science and clinical diagnostics markets are each highly competitive. Some of our competitors have
merged, and some of our competitors have greater financial resources than we do and are less leveraged than we
are, making them better equipped to license technologies and intellectual property from third parties or to fund
research and development, manufacturing and marketing efforts. For more information about our competitors, see
“Competition” in Part 1, Item 1 of this Annual Report. Moreover, competitive and regulatory conditions in many
markets in which we operate restrict our ability to fully recover, through price increases, higher costs of acquired
goods and services resulting from inflation and other drivers of cost increases. Many public tenders have become
more competitive due to governments lengthening the commitments of their public tenders to multiple years, which
reduce the number of tenders in which we can participate annually. Because the value of these multiple-year
tenders is so high, our competitors have been more aggressive with their pricing. Our failure to compete effectively
and/or pricing pressures resulting from competition could adversely affect our business, results of operations and
financial condition.

We may not be able to grow our business because of our failure to develop new or improved products.

Our future growth depends in part on our ability to continue to improve our product offerings and develop and
introduce new product lines and extensions that integrate technological advances. In particular, we may not be able
to keep up with changes in the clinical diagnostics industry, such as the trend toward molecular diagnostics or point-
of-care tests. If we are unable to integrate technological advances into our product offerings or to design, develop,

manufacture and market new product lines and extensions successfully and in a timely manner, our business, results
of operations and financial condition will be adversely affected. We have experienced product launch delays in the
past, and may do so in the future. We cannot assure you that our product and process development efforts will be
successful or that new products we introduce will achieve market acceptance. Failure to launch successful new
products or improvements to existing products may cause our products to become obsolete, which could harm our
business, results of operations and financial condition.

We are subject to foreign currency exchange fluctuations, which could have a material adverse effect on our
results of operations and financial condition.

As stated above, a significant portion of our operations and sales are outside of the United States. When we make
purchases and sales in currencies other than the U.S. dollars, we are exposed to fluctuations in foreign currencies
relative to the U.S. dollar that may adversely affect our results of operations and financial condition. Our
international sales are largely denominated in local currencies. As a result, the strengthening of the U.S. dollar
negatively impacts our consolidated net sales expressed in U.S. dollars. Conversely, when the U.S. dollar weakens,
our expenses at our international sites increase. In addition, the volatility of other currencies, such as the Swiss
Franc, Brazilian Real and Russian Ruble, may negatively impact our operations outside of the United States and
increase our costs to hedge against currency fluctuations. We cannot assure you that future shifts in currency
exchange rates will not have a material adverse effect on our results of operations and financial condition. For
further information regarding our foreign exchange risk, see “Foreign currency exchange gains and losses” in Part
II, Item 7, and “Foreign Exchange Risk” in Part II, Item 7A of this Annual Report.

We may experience difficulties implementing our new global enterprise resource planning system.

We are engaged in a multi-year implementation of a new global enterprise resource planning system (ERP). The
ERP is designed to efficiently maintain our books and records and provide information important to the operation of
our business to our management team. The ERP will continue to require significant investment of human and
financial resources. In implementing the ERP, we may experience significant delays, increased costs and other
difficulties. Any significant disruption or deficiency in the design and implementation of the ERP could adversely
affect our ability to process orders, ship product, send invoices and track payments, fulfill contractual obligations or
otherwise operate our business. For example, we experienced system implementation issues in our Clinical
Diagnostics segment during our first deployment that impacted invoicing and caused an increase in accounts
receivable. In our second deployment, which we launched in July 2015, we experienced delays in manufacturing
and logistics, which adversely impacted our sales. We may experience similar and other issues with our upcoming
third deployment in Western Europe, which we expect to launch in April 2017. We anticipate that the third
deployment will be more complex than our prior deployments due to its scope. While we have invested significant
resources in planning, project management and training, additional and significant implementation issues may arise.
In addition, our efforts to centralize various business processes and functions within our organization in connection
with our ERP implementation may disrupt our operations and negatively impact our business, results of operations
and financial condition.

Recent and planned changes to our organizational structure and executive management team could negatively
impact our business.

We made significant changes to our organizational structure in 2014, 2015 and 2016. In 2014 and 2015, we
functionalized our manufacturing and selling organizations globally and separated them from our marketing and
research and development organizations. Specifically, we combined our international selling organization with our
North American selling divisions into one global selling group and consolidated our manufacturing, procurement
and logistics operations into one global supply chain group. We also created new management positions to head
each of these groups. In addition, we appointed new executives to head each of our Life Science and Clinical
Diagnostics segments, and we appointed a Chief Operating Officer. We also restructured our Life Science segment
based on functional groups rather than product line divisions. In 2016, we began implementing the reorganization
of the structure of our European organization. These changes may have unintended consequences, such as

distraction of our management and employees, business disruption, attrition of our workforce, inability to attract or
retain key employees, and reduced employee morale or productivity.

Our failure to establish and maintain effective internal control over financial reporting could result in material
misstatements in our financial statements, our failure to meet our reporting obligations and cause investors to
lose confidence in our reported financial information, which in turn could cause the trading price of our
common stock to decline.

Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial
statements. As previously disclosed, in connection with our assessment of the effectiveness of internal control over
financial reporting and the preparation of our financial statements for the year ended December 31, 2013, we
identified a material weakness in the design of monitoring controls over operations at certain of our locations both
within the United States and overseas, as well as a lack of documentation required to operate these controls
appropriately. Although we remediated this material weakness as of December 31, 2014, we cannot assure you that
additional material weaknesses in our internal control over financial reporting will not be identified in the future.
For example, we previously identified different material weaknesses in internal controls at December 31, 2012 and
December 31, 2010, both of which have been remediated.

Such material weaknesses have adversely affected us in the past and could affect us in the future, and the results of
our periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our
internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002. Any failure to
maintain new and more precise monitoring controls and improved detection and communication of financial
misstatements across all levels of the organization could result in additional material weaknesses, result in material
misstatements in our financial statements and cause us to fail to meet our reporting obligations. This could cause us
to lose public confidence, and could cause the trading price of our common stock to decline. For further
information regarding our controls and procedures, see Part II, Item 9A of this Annual Report.

Breaches of our information systems could have material adverse effect on our business and results of
operations.

Through our sales and eCommerce channels, we collect and store confidential information that customers provide
to, among other things, purchase products or services, enroll in promotional programs and register on our Web site.
We also acquire and retain information about suppliers and employees in the normal course of business. We also
create and maintain proprietary information that is critical to our business, such as our product designs and
manufacturing processes. Despite recent initiatives to improve our technology systems, such as our enterprise
resource planning implementation and the centralization of our global information technology organization, we
could experience a significant data security breach. Computer hackers may attempt to penetrate our or our vendors’
information systems and, if successful, misappropriate confidential customer, supplier, employee or other business
information, such as our intellectual property. Third parties could also gain control of our systems and use them for
criminal purposes while appearing to be us. As a result, we could lose existing customers, have difficulty attracting
new customers, be exposed to claims from customers, financial institutions, payment card associations, employees
and other persons, have regulatory sanctions or penalties imposed, incur additional expenses or lose revenues as a
result of a data privacy breach, or suffer other adverse consequences. Our operations and ability to process sales
orders, particularly through our eCommerce channels, could also be disrupted. Any significant breakdown,
intrusion, interruption, corruption, or destruction of our systems, as well as any data breaches, could have a material
adverse effect on our business and results of operations. See also our risk factors regarding our ERP
implementation above and our information technology systems below.

Risks relating to intellectual property rights may negatively impact our business.

We rely on a combination of copyright, trade secret, patent and trademark laws and third-party nondisclosure
agreements to protect our intellectual property rights and products. However, we cannot assure you that our
intellectual property rights will not be challenged, invalidated, circumvented or rendered unenforceable, or that
meaningful protection or adequate remedies will be available to us. For instance, unauthorized third parties have

attempted to copy our intellectual property, reverse engineer or obtain and use information that we regard as
proprietary, or have developed equivalent technologies independently, and may do so in the future. Additionally,
third parties have asserted patent, copyright and other intellectual property rights to technologies that are important
to us, and may do so in the future. If we are unable to license or otherwise access protected technology used in our
products, or if we lose our rights under any existing licenses, we could be prohibited from manufacturing and
marketing such products. From time to time, we also must enforce our patents or other intellectual property rights
or defend ourselves against claimed infringement of the rights of others through litigation. As a result, we could
incur substantial costs, be forced to redesign our products, or be required to pay damages to an infringed party. Any
of the foregoing matters could adversely impact our business, results of operations and financial condition.

Global economic conditions could continue to adversely affect our operations.

In recent years, we have been faced with very challenging global economic conditions. Further deterioration in the
global economic environment may result in decreased demand for our products, increased competition, downward
pressure on the prices for our products and longer sales cycles. A weakening of macroeconomic conditions may
also adversely affect our suppliers, which could result in interruptions in supply in the future. We have also
experienced delays in collecting receivables in certain countries in Western Europe, and we may experience similar
delays in these and other countries or regions experiencing liquidity problems. As of December 31, 2016, we had
accounts receivable, net of allowance for doubtful accounts, in Spain, Italy, Greece and Portugal of $32.7 million.
In addition, a slowing of growth in the Chinese economy and in emerging markets, especially those oil-producing
countries that have been affected by the decline in oil prices, could adversely affect our business, results of
operations or financial condition. We also are monitoring developments following the recent referendum in the
United Kingdom to leave the European Union to determine if there will be any potential impact on our business.

Reductions in government funding and the capital spending programs of our customers could have a material
adverse effect on our business, results of operations or financial condition.

Our customers include universities, clinical diagnostics laboratories, government agencies, hospitals and
pharmaceutical, biotechnology and chemical companies. The capital spending programs of these institutions and
companies have a significant effect on the demand for our products. Such programs are based on a wide variety of
factors, including the resources available to make such purchases, the availability of funding from grants by
governments or government agencies, the spending priorities for various types of equipment and the policies
regarding capital expenditures during industry downturns or recessionary periods. If government funding to our
customers were to decrease, or if our customers were to decrease or reallocate their budgets in a manner adverse to
us, our business, results of operations or financial condition could be materially and adversely affected. For more
information on our customers, see "Sales and Marketing" in Part I, Item 1 of this Annual Report.

Changes in the healthcare industry could have an adverse effect on our business, results of operations and
financial condition.

There have been, and will continue to be, significant changes in the healthcare industry in an effort to reduce costs.
These changes include:

• The trend towards managed care, together with healthcare reform of the delivery system in the United

States and efforts to reform in Europe, has resulted in increased pressure on healthcare providers and other
participants in the healthcare industry to reduce selling prices. Consolidation among healthcare providers
has resulted in fewer, more powerful groups, whose purchasing power gives them cost containment
leverage. In particular, there has been a consolidation of blood transfusion centers, as well as an industry
decline in the number of blood transfusions. These industry trends and competitive forces place constraints
on the levels of overall pricing, and thus could have a material adverse effect on our gross margins for
products we sell in clinical diagnostic markets.

• Third party payors, such as Medicare and Medicaid in the United States, have reduced their reimbursements
for certain medical products and services. Our Clinical Diagnostics business is impacted by the level of
reimbursement available for clinical tests from third party payors. In the United States payment for many
diagnostic tests furnished to Medicare fee-for-service beneficiaries is made based on the Medicare Clinical
Laboratory Fee Schedule (CLFS), a fee schedule established and adjusted from time to time by the Centers
for Medicare and Medicaid Services (CMS). Some commercial payors are guided by the CLFS in
establishing their reimbursement rates. Clinicians may decide not to order clinical diagnostic tests if third
party payments are inadequate, and we cannot predict whether third party payors will offer adequate
reimbursement for tests utilizing our products to make them commercially attractive. Legislation, such as
the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act (PPACA) and the Middle Class Tax Relief and Job Creation Act of 2012, has reduced
the payments for clinical laboratory services paid under the CLFS. In addition, the Protecting Access to
Medicare Act of 2014 will make significant changes to the way Medicare will pay for clinical laboratory
services, which will further reduce reimbursement rates.

• The PPACA has also imposed a 2.3% excise tax on the sales of certain medical devices in the U.S., which
we are required to pay on most of our United States Clinical Diagnostic sales. However, the Consolidated
Appropriations Act, 2016 (Pub. L. 114-113), signed into law on December 18, 2015, includes a two year
moratorium on the medical device excise tax during the period beginning on January 1, 2016, and ending
on December 31, 2017.

To the extent that the healthcare industry seeks to address the need to contain costs stemming from reform measures
such as those contained in the PPACA and the Protecting Access to Medicare Act of 2014, or in future legislation,
by limiting the number of clinical tests being performed or the amount of reimbursement available for such tests,
our business, results of operations and financial condition could be adversely affected. If these changes in the
healthcare markets in the United States and Europe continue, we could be forced to alter our approach in selling,
marketing, distributing and servicing our products.

We are subject to substantial government regulation, and any changes in regulation or violations of regulations
by us could adversely affect our business, prospects, results of operations or financial condition.

Some of our products (primarily our Clinical Diagnostic products), production processes and marketing are subject
to U.S. federal, state and local, and foreign regulation, including by the FDA in the United States and its foreign
counterparts. The FDA regulates our Clinical Diagnostic products as medical devices, and we are subject to
significant regulatory clearances or approvals to market our Clinical Diagnostic products and other requirements
including, for example, recordkeeping and reporting requirements, such as the FDA’s medical device reporting
regulations and reporting of corrections and removals. The FDA has broad regulatory and enforcement powers. If
the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety
of enforcement actions ranging from public warning letters, fines, injunctions, consent decrees and civil penalties to
suspension or delayed issuance of approvals, seizure or recall of our products, total or partial shutdown of
production, withdrawal of approvals or clearances already granted, and criminal prosecution.

The FDA can also require us to repair, replace or refund the cost of devices that we manufactured or distributed.
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing
regulations, or take other actions, which may prevent or delay approval or clearance of our products or impact our
ability to modify our currently approved or cleared products on a timely basis. Changes in the FDA’s review of
certain clinical diagnostic products referred to as laboratory developed tests, which are tests developed by a single
laboratory for use only in that laboratory, could affect some of our customers who use our Life Science instruments
for laboratory developed tests. In the past, the FDA has chosen to not enforce applicable regulations and has not
reviewed such tests for approval. However, the FDA has issued draft guidance that it may begin enforcing its
medical device requirements, including premarket submission requirements, to such tests. Any delay in, or failure
to receive or maintain, clearance or approval for our products could prevent us from generating revenue from these
products and adversely affect our business operations and financial results. Additionally, the FDA and other
regulatory authorities have broad enforcement powers. Regulatory enforcement or inquiries, or other increased

scrutiny on us, could affect the perceived safety and efficacy of our products and dissuade our customers from using
our products.

Many foreign governments have similar rules and regulations regarding the importation, registration, labeling, sale
and use of our products. Such agencies may also impose new requirements that may require us to modify or re-
register products already on the market or otherwise impact our ability to market our products in those countries.
For example, Europe published draft regulations in June 2016 that include broad changes to its regulations
regarding in vitro diagnostic devices and medical devices, including stricter product labeling requirements, Russia
has recently enacted more stringent medical product registration and labeling regulations, China has enacted stricter
labeling requirements, and we expect other countries, such as Brazil and India, to impose more regulations that
impact our product registrations. Due to these evolving and diverse requirements, we face uncertain product
approval timelines, additional time and effort to comply, reduced sales and potential fines for noncompliance.
Increasing protectionism in such countries also impedes our ability to compete with local companies. For example,
we may not be able to participate in certain public tenders in Russia because of increasing measures to restrict
access to such tenders for companies without local manufacturing capabilities. Specifically, a resolution passed by
Russia in February 2015 prohibited the procurement of certain types of medical devices by Russian state entities
from foreign companies provided there are a sufficient number of Russian manufacturers submitting tenders. In
December 2016, Russia continued its focus on import substitution by passing a resolution that added to the list of
certain medical devices which participate in state procurement on a restricted basis. Such regulations could
adversely affect our business, results of operations and financial condition.

We are also subject to government regulation of the use and handling of a number of materials and controlled
substances. The U.S. Drug Enforcement Administration establishes registration, security, recordkeeping, reporting,
storage, distribution and other requirements for controlled substances pursuant to the Controlled Substances Act of
1970. Failure to comply with present or future laws and regulations could result in substantial liability to us,
suspension or cessation of our operations, restrictions on our ability to expand at our present locations or require us
to make significant capital expenditures or incur other significant expenses.

We cannot assure you that we will be able to integrate acquired companies, products or technologies into our
company successfully, or we may not be able to realize the anticipated benefits from the acquisitions.

As part of our overall business strategy, we pursue acquisitions of and investments in complementary companies,
products and technologies. In order to be successful in these activities, we must, among other things:

assimilate the operations and personnel of acquired companies;
retain acquired business customers;

•
•
• minimize potential disruption to our ongoing business;
retain key technical and management personnel;
•
integrate acquired companies into our strategic and financial plans;
•
accurately assess the value of target companies, products and technologies;
•
comply with new regulatory requirements;
•
harmonize standards, controls, procedures and policies;
•
• minimize the impact to our relationships with our employees and customers; and
•

assess, document and remediate any deficiencies in disclosure controls and procedures and internal control
over financial reporting.

The benefits of any acquisition may prove to be less than anticipated and may not outweigh the costs reported in our
financial statements. Completing any potential future acquisitions could cause significant diversion of our
management’s time and resources. If we acquire new companies, products or technologies, we may be required to
assume contingent liabilities or record impairment charges for goodwill and other intangible assets over time. We
cannot assure you that we will successfully overcome these risks or any other problems we encounter in connection
with any acquisitions, and any such acquisitions could adversely affect our business, results of operations and
financial condition.

Product quality and liability issues could harm our reputation and negatively impact our business, results of
operations and financial condition.

We must adequately address quality issues associated with our products, including defects in our engineering,
design and manufacturing processes, as well as defects in third-party components included in our products. Our
instruments, reagents and consumables are complex, and identifying the root cause of quality issues, especially
those affecting reagents or third-party components, is difficult. We may incur significant costs and expend
substantial time in researching and remediating such issues. Quality issues could also delay our launching or
manufacturing of new products. In addition, quality issues, unapproved uses of our products, or inadequate
disclosure of risks related to our products, could result in product recalls or product liability or other claims being
brought against us. These issues could harm our reputation, impair our relationship with existing customers and
harm our ability to attract new customers, which could negatively impact our business, results of operations and
financial condition.

Lack of key personnel could hurt our business.

Our products are very technical in nature. In general, only highly qualified and well-trained scientists have the
necessary skills to develop, market and sell our products, and many of our manufacturing positions require very
specialized knowledge and skills. In addition, the global nature of our business also requires that we have
sophisticated and experienced staff to comply with increasingly complex international laws and regulations. We
face intense competition for these professionals from our competitors, customers, marketing partners and other
companies throughout our industry. In particular, the job market in Northern California, where many of our
employees are located, is very competitive. If we do not offer competitive compensation and benefits, we may fail
to retain or attract a sufficient number of qualified personnel, which could impair our ability to properly run our
business.

In some cases we rely on temporary personnel or consultants, and we may do so in the future. Such temporary
personnel or consultants may lack the knowledge and/or specific skills necessary for our business, require time to
train without benefiting us through extended employment and increase our costs. In addition, as noted above, our
strategic initiatives, such as our internal restructuring and ERP implementation, may be burdensome and disruptive
and lead to employee dissatisfaction and attrition.

A reduction or interruption in the supply of components and raw materials could adversely affect our
manufacturing operations and related product sales.

The manufacture of many of our products requires the timely delivery of sufficient amounts of quality components
and materials. We manufacture our products in numerous manufacturing facilities around the world. We acquire
our components and materials from many suppliers in various countries. We work closely with our suppliers to
ensure the continuity of supply but we cannot guarantee these efforts will always be successful. Further, while we
seek to diversify our sources of components and materials, in certain instances we acquire components and
materials from a sole supplier. In addition, due to the regulatory environment in which we operate, we may be
unable to quickly establish additional or replacement sources for some components or materials. If our supply is
reduced or interrupted or of poor quality, and we are unable to develop alternative sources for such supply, our
ability to manufacture our products in a timely or cost-effective manner could be adversely affected, which would
adversely affect our ability to sell our products.

If our information technology systems are disrupted, or if we fail to successfully implement, manage and
integrate our information technology and reporting systems, our business, results of operations and financial
condition could be harmed.

Our information technology (IT) systems are an integral part of our business, and a serious disruption of our IT
systems could have a material adverse effect on our business, results of operations and financial condition. We
depend on our IT systems to process orders, manage inventory and collect accounts receivable. Our IT systems also
allow us to efficiently purchase products from our suppliers and ship products to our customers on a timely basis,
14

maintain cost-effective operations and provide customer service. We may experience disruption of our IT systems
due to redundancy issues with our network servers. We cannot assure you that our contingency plans will allow us
to operate at our current level of efficiency.

Our ability to implement our business plan in a rapidly evolving market requires effective planning, reporting and
analytical processes. We expect that we will need to continue to improve and further integrate our IT systems,
reporting systems and operating procedures by training and educating our employees with respect to these
improvements and integrations on an ongoing basis in order to effectively run our business. We may suffer
interruptions in service, loss of data or reduced functionality when we upgrade or change systems. If we fail to
successfully manage and integrate our IT systems, reporting systems and operating procedures, it could adversely
affect our business, results of operations and financial condition. See also our risk factors regarding our ERP
implementation and data security above and events beyond our control below.

Natural disasters, terrorist attacks, acts of war or other events beyond our control may cause damage or
disruption to us and our employees, facilities, information systems, security systems, vendors and customers,
which could significantly impact our business, results of operations and financial condition.

We have significant manufacturing and distribution facilities, including in the western United States, France,
Switzerland, Germany and Singapore. In particular, the western United States has experienced a number of
earthquakes, wildfires, floods, landslides and other natural disasters in recent years. These occurrences could
damage or destroy our facilities which may result in interruptions to our business and losses that exceed our
insurance coverage. In addition, strikes or other labor unrest at any of our sites or surrounding areas could cause
disruption to our business.

Acts of terrorism, bioterrorism, violence or war could also affect the markets in which we operate, our business
operations and strategic plans. Political unrest may affect our sales in certain regions, such as in Southeast Asia, the
Middle East and Eastern Europe. In particular, the political turmoil in Ukraine, along with the response of the
Russian and U.S. governments to this situation, has the potential to impact our operations in Russia. Any of these
events could adversely affect our business, results of operations and financial condition.

Environmental, health and safety regulations and enforcement proceedings may negatively impact our business,
results of operations and financial condition.

Our operations are subject to federal, state, local and foreign environmental laws and regulations that govern such
activities as transportation of goods, emissions to air and discharges to water, as well as handling and disposal
practices for solid, hazardous and medical wastes. In addition to environmental laws that regulate our operations,
we are also subject to environmental laws and regulations that create liability and clean-up responsibility for spills,
disposals or other releases of hazardous substances into the environment as a result of our operations or otherwise
impacting real property that we own or operate. The environmental laws and regulations also subject us to claims
by third parties for damages resulting from any spills, disposals or releases resulting from our operations or at any
of our properties. We must also comply with various health and safety regulations in the United States and abroad
in connection with our operations.

We may in the future incur capital and operating costs to comply with currently existing laws and regulations, and
possible new statutory enactments, and these expenditures may be significant. We have incurred, and may in the
future incur, fines related to environmental matters and/or liability for costs or damages related to spills or other
releases of hazardous substances into the environment at sites where we have operated, or at off-site locations
where we have sent hazardous substances for disposal. We cannot assure you, however, that such matters or any
future obligations to comply with environmental or health and safety laws and regulations will not adversely affect
our business, results of operations or financial condition.

We may be subject to additional tax liabilities.

We are subject to income taxes in the United States and many foreign jurisdictions. We calculate our provision for
income taxes in each jurisdiction in which we operate. Significant judgment is required in determining our
worldwide provision for income taxes and in the ordinary course of business, there are many tax positions taken
where the ultimate resolution is uncertain. We are subject to the examination of our tax positions in the United
States and foreign jurisdictions. Taxing authorities have disagreed with our judgment in the past and may disagree
with positions we take in the future resulting in assessments of additional taxes. Economic and political pressures
to increase tax revenues in various jurisdictions may make resolving tax disputes more difficult. For example, in
recent years, the tax authorities in Europe have disagreed with our tax positions related to hybrid debt, research and
development credits, transfer pricing and indirect taxes, among others. We regularly assess the likelihood of the
outcome resulting from these examinations to determine the adequacy of our provision for income taxes. Although
we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be
materially different from our historical income tax provisions and accruals. The results of an audit or litigation
could have a material effect on our consolidated financial statements in the period or periods for which that
determination is made. Changes in factors outside of our control, such as changes in tax laws or rates, changes in
the interpretation of tax laws or changes in the jurisdictional mix of our earnings could adversely affect our
financial position and results of operations.

Our debt may restrict our future operations.

We have substantial debt and have the ability to incur additional debt. As of December 31, 2016, we had
approximately $434.5 million of outstanding indebtedness. In addition, we have a revolving credit facility that
provides for up to $200.0 million, $0.8 million of which has been utilized for domestic standby letters of credit.
Our incurrence of substantial amounts of debt may have important consequences. For instance, it could:

• make it more difficult for us to satisfy our financial obligations, including those relating to our outstanding

•

•
•

debt;
require us to dedicate a substantial portion of our cash flow from operations to the payment of interest and
principal due under our debt, which will reduce funds available for other business purposes;
increase our vulnerability to general adverse economic and industry conditions;
limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we
operate;
place us at a competitive disadvantage compared with some of our competitors that have less debt; and
limit our ability to obtain additional financing required to fund working capital and capital expenditures and
for other general corporate purposes.

Our existing credit facility and the terms of our other debt instruments, including agreements we may enter in the
future, contain or will contain covenants imposing significant restrictions on our business. These restrictions may
affect our ability to operate our business and may limit our ability to take advantage of potential business
opportunities as they arise. These covenants place restrictions on our ability to, among other things: incur
additional debt; acquire other businesses or assets through merger or purchase; create liens; make investments; enter
into transactions with affiliates; sell assets; in the case of some of our subsidiaries, guarantee debt; and declare or
pay dividends, redeem stock or make other distributions to stockholders. Our existing credit facility also requires
that we comply with certain financial ratios, including a maximum consolidated leverage ratio test and a minimum
consolidated interest coverage ratio test.

Our ability to comply with these covenants may be affected by events beyond our control, including prevailing
economic, financial and industry conditions. The breach of any of these restrictions could result in a default. An
event of default under our debt agreements would permit some of our lenders to declare all amounts borrowed from
them to be due and payable, together with accrued and unpaid interest. In addition, acceleration of our other
indebtedness may cause us to be unable to make interest payments on our outstanding notes and repay the principal

amount of our outstanding notes or may cause the future subsidiary guarantors, if any, to be unable to make
payments under the guarantees.

We are subject to healthcare fraud and abuse laws and regulations and could face substantial penalties if we are
unable to fully comply with such laws.

We are subject to healthcare fraud and abuse regulation and enforcement by both the U.S. federal government and
the U.S. states and foreign governments in which we conduct our business. These healthcare laws and regulations
include, for example:

•

the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from
soliciting, receiving, offering or providing remuneration, directly or indirectly, in return for or to induce
either the referral of an individual for, or the purchase order or recommendation of, any item or services for
which payment may be made under a federal healthcare program such as the Medicare and Medicaid
programs;

• U.S. federal false claims laws, which prohibit, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party
payors that are false or fraudulent. In addition, the U.S. federal government may assert that a claim
including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the false claims statutes;

•

the U.S. Physician Payment Sunshine Act, which requires certain manufacturers of drugs, biologics, devices
and medical supplies to record any transfers of value to U.S. physicians and U.S. teaching hospitals;

the Health Insurance Portability and Accountability Act ("HIPAA"), as amended by the Health Information
Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic
healthcare transactions and protects the security and privacy of protected health information; and

state or foreign law equivalents of each of the U.S. federal laws above, such as anti-kickback and false
claims laws, which may apply to items or services reimbursed by any third-party payor, including
commercial insurers.

These laws will continue to impose administrative, cost and compliance burdens on us. The shifting compliance
environment and the need to build and maintain robust systems to comply with multiple jurisdictions with different
compliance and/or reporting requirements increases the possibility that a healthcare company may violate one or
more of these requirements. In addition, any action against us for violation of these laws, even if we successfully
defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the
operation of our business. If our operations are found to be in violation of any of the laws described above or any
other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal
penalties, damages, fines, exclusion from the Medicare and Medicaid programs, and the curtailment or restructuring
of our operations, any of which could adversely affect our ability to operate our business, results of operations and
financial condition.

We may incur losses in future periods due to write-downs in the value of financial instruments.

We have positions in a variety of financial instruments including asset backed securities and other similar
instruments. Financial markets are quite volatile and the markets for these securities can be illiquid. The value of
these securities will continue to be impacted by external market factors including default rates, changes in the value
of the underlying property, such as residential or commercial real estate, rating agency actions, the prices at which
observable market transactions occur and the financial strength of various entities, such as financial guarantors who
provide insurance for the securities. Should we need to convert these positions to cash, we may not be able to sell
these instruments without significant losses due to current debtor financial conditions or other market
considerations.

Regulations related to “conflict minerals” could adversely impact our business.

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted disclosure
requirements regarding the use of certain minerals, known as conflict minerals, which are mined from the
Democratic Republic of Congo (DRC) and adjoining countries, as well as procedures regarding a manufacturer's
efforts to identify the sourcing of such minerals and metals produced from those minerals. In November 2016, the
EU institutions agreed on the text of a conflict minerals regulation. After formal approval by the European
Parliament and European Council, the regulation will be published and enter into force 20 days later. We have
incurred, and will continue to incur, additional costs in order to comply with the SEC’s disclosure requirements. In
addition, we might incur further costs due to possible changes to our products, processes, or sources of supply as a
consequence of our due diligence activities. As our supply chain is complex, we may not be able to sufficiently
verify the origins of the specified minerals used in our products through our due diligence procedures, which may
harm our reputation. In addition, we may encounter challenges to satisfy those customers who require that all of the
components of our products be certified as “DRC conflict free”, which could place us at a competitive disadvantage
if we do not do so. We filed our report for the calendar year 2015 with the SEC on May 27, 2016.

Risks related to our common stock

A significant majority of our voting stock is held by the Schwartz family, which could lead to conflicts of interest.

We have two classes of voting stock: Class A Common Stock and Class B Common Stock. With a few exceptions,
holders of Class A and Class B Common Stock vote as a single class. When voting as a single class, each share of
Class A Common Stock is entitled to one-tenth of a vote, while each share of Class B Common Stock has one vote.
In the election or removal of directors, the classes vote separately and the holders of Class A Common Stock are
entitled to elect 25% of the Board of Directors, with holders of Class B Common Stock electing the remaining
directors.

As a result of the Schwartz family's ownership of our Class A and Class B Common Stock, they are able to elect a
majority of our directors, effect fundamental changes in our direction and control matters affecting us, including the
determination of business opportunities that may be suitable for our company. The Schwartz family may exercise
its control over us according to interests that are different from other investors’ or debtors’ interests. In particular,
this concentration of ownership and voting power may have the effect of delaying or preventing a change in control
of our company.

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

ITEM 2. PROPERTIES

We own our corporate headquarters located in Hercules, California. The principal manufacturing and research
locations for each segment are as follows:

Segment

Location

Life Science

Clinical
Diagnostics

Greater San Francisco Bay Area, California
Greater Boston Area, Massachusetts
Singapore, Singapore
Oxford, England

Owned/Leased

Owned/Leased
Leased
Leased
Leased

Greater San Francisco Bay Area, California

Owned/Leased

Irvine, California
Greater Seattle Area, Washington
Greater Boston Area, Massachusetts
Lille, France
Greater Paris Area, France
Nazareth-Eke, Belgium
Cressier, Switzerland
Dreieich, Germany

Leased
Leased
Leased
Owned
Leased
Leased
Owned/Leased
Owned/Leased

Most manufacturing and research facilities also house administration, sales and distribution activities. In addition,
we lease office and warehouse facilities in a variety of locations around the world. The facilities are used
principally for sales, service, distribution and administration for both segments.

ITEM 3. LEGAL PROCEEDINGS

On January 23, 2015, the City of Riviera Beach General Employees’ Retirement System filed a shareholder
derivative lawsuit in the Superior Court of California, Contra Costa County, against three of our current directors
and one former director. We are also named as a nominal defendant. In the complaint, the plaintiff alleges that our
directors breached their fiduciary duty of loyalty by failing to ensure that we had sufficient internal controls and
systems for compliance with the Foreign Corrupt Practices Act ("FCPA"); that we failed to provide adequate
training on the FCPA; and that based on these actions, the directors have been unjustly enriched. Purportedly
seeking relief on our behalf, the plaintiff seeks an award of restitution and unspecified damages, costs and expenses
(including attorneys’ fees). On April 23, 2015, we and the individual defendants filed a demurrer requesting
dismissal of the complaint in this case. The demurrer was heard on August 6, 2015, and the Court granted the
demurrer for failure to make a demand on our Board of Directors on August 17, 2015, but provided leave to amend.
On September 4, 2015, the plaintiff filed an amended complaint and simultaneously served a litigation demand
letter on our Board of Directors ("Board") via its counsel in this action. The letter demanded that we investigate
and bring appropriate legal action against certain individuals, including the defendants in the City of Riviera Beach
case and six current and former employees. The plaintiff also moved for a temporary stay in the proceedings,
purportedly to enable the Board to respond to the demand. The Board formed a Demand Review Committee to
respond to the demand. On February 24, 2016, the Demand Review Committee reported to the Board that it had

concluded its investigation and unanimously determined that it is not in the best interests of the Company and its
stockholders to pursue litigation against any individuals named in the City of Riviera Beach’s litigation demand
letter. On October 6, 2015, we and the individual defendants filed a second demurrer, seeking to dismiss the case
for failure to make a timely pre-suit demand. The case was stayed pending mediation. The caption is City of
Riviera Beach General Employees’ Retirement System v. Schwartz et al., Case No. C-15-00140. The lawsuit and
demand letter are referred to collectively as the “California Action”.

On August 13, 2015 and August 18, 2015, respectively, each of International Brotherhood of Electrical Workers
Local 38 Pension Fund and Wayne County Employees’ Retirement System filed a stockholder derivative complaint
in the Delaware Court of Chancery against four of our current directors and one former director. We are named as a
nominal defendant in the complaints. The complaints allege that the defendants failed to cause us to develop
internal controls sufficient to ensure our compliance with the FCPA. The plaintiffs assert claims for breach of
fiduciary duty and unjust enrichment and request an award of the damages we sustained as a result of the alleged
violations, among other relief. The two lawsuits were consolidated on August 27, 2015. The case was stayed
pending mediation. The caption of the consolidated case is In re Bio-Rad Laboratories, Inc. Stockholder Litigation,
Consol. C.A. No. 11387-VCN (Del. Ch.). The cases filed in the Delaware Court of Chancery, together with the
California Action, are referred to collectively as the “Derivative Actions”.

The parties filed a Stipulation dated November 4, 2016 with the Superior Court of California for Contra Costa
County that sets forth the terms of a proposed settlement of the Derivative Actions. The proposed settlement
includes the dismissal with prejudice of all claims asserted in the Derivative Actions, an agreed-upon set of revised
corporate procedures, and no monetary payment other than an award of attorneys’ fees and costs to the plaintiffs’
counsel. We and the other defendants do not admit any liability or fault in connection with the proposed settlement.
On December 22, 2016 the Superior Court of California for Contra Costa County issued an order granting
preliminary approval of this proposed settlement. Pursuant to the order, the Court will hold a hearing for final
approval of the settlement on March 2, 2017, and any objections to the settlement were required to be filed in
writing with the Court on or before February 15, 2017.

On May 27, 2015, our former general counsel, Sanford S. Wadler, filed a lawsuit in the U.S. District Court,
Northern District of California, against us and four of our current directors and one former director. The plaintiff’s
suit alleged whistleblower retaliation in violation of the Sarbanes-Oxley Act and the Dodd-Frank Act for raising
FCPA-related concerns. Mr. Wadler also alleged wrongful termination in violation of public policy, non-payment of
wages and waiting time penalties in violation of the California Labor Code. The plaintiff sought back pay,
compensatory damages for lost wages, earnings, retirement benefits and other employee benefits, compensation for
mental pain and anguish and emotional distress, waiting time penalties, punitive damages, litigation costs (including
attorneys’ fees) and reinstatement of employment. On July 28, 2015 we filed a motion to dismiss the plaintiff's
complaint and specifically requested dismissal of the claims alleged against us under the Dodd-Frank Act and
California Labor Code 1102.5 and the claims against the directors under the Sarbanes-Oxley Act and the Dodd-
Frank Act. On October 23, 2015, the District Court granted our motion with respect to the alleged violations of the
Sarbanes-Oxley Act against all the director defendants except Norman Schwartz with prejudice. The Court denied
our motion to dismiss the claims under the Dodd-Frank Act as against both us and the director defendants. The
parties engaged in mediation of the case on April 19, 2016 and on September 14, 2016. The mediations did not
result in a settlement. The trial commenced on January 17, 2017 and concluded on February 6, 2017. Mr. Wadler
was awarded $10.92 million, plus prejudgment interest of $141,608, post-judgment interest, and Mr. Wadler’s
litigation costs, expert witness fees, and reasonable attorneys’ fees as approved by the Court. We have provided for
the judgment, interest and Mr. Wadler's litigation costs. We are considering an appeal of the judgment.

Bio-Rad received three notices of violations from the Bay Area Air Quality Management District (“District”). The
District alleges that we operated three (3) power generation units without appropriate monitoring and recordkeeping
and exceeded permissible levels of emissions during those operations. We are cooperating with the District and are
investigating the allegations. No formal proceeding has been initiated by the District.

We are also party to various other claims, legal actions and complaints arising in the ordinary course of business.
We cannot at this time reasonably estimate a range of exposure, if any, of the potential liability with respect to these
matters. While we do not believe, at this time, that any ultimate liability resulting from any of these other matters
will have a material adverse effect on our results of operations, financial position or liquidity, we cannot give any
assurance regarding the ultimate outcome of these other matters and their resolution could be material to our
operating results for any particular period, depending on the level of income for the period.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Information Concerning Common Stock

Bio-Rad’s Class A and Class B Common Stock are listed on the New York Stock Exchange with the symbols BIO
and BIO.B, respectively. The following sets forth, for the periods indicated, the high and low intraday sales prices
for our Class A and Class B Common Stock.

2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter

Class A

Class B

High

Low

High

Low

184.89
164.45
150.00
139.63

142.48
152.38
151.97
137.23

154.89
140.53
135.02
122.03

132.49
131.25
133.38
112.51

194.15
171.12
150.04
146.41

141.77
152.57
151.93
137.23

154.05
140.69
134.86
123.43

134.08
131.83
123.31
113.32

On February 14, 2017, we had 275 holders of record of Class A Common Stock and 126 holders of record of Class
B Common Stock. Bio-Rad has never paid a cash dividend and has no present plans to pay cash dividends.

See Item 12 of Part III of this report for the security ownership of certain beneficial owners and management and
for securities authorized for issuance under equity compensation plans.

Stock Performance Graph

The following graph compares the cumulative stockholder returns over the past five years for our Class A Common
Stock, the S&P 400 MidCap Index and a selected peer group, assuming $100 invested on December 31, 2011, and
reinvestment of dividends if paid:

(1) The Peer Group consists of the following public companies: Danaher, Becton Dickinson, Thermo Fisher
Scientific, Meridian Bioscience and PerkinElmer. Companies in our peer group reflect our participation in two
different markets: life science research products and clinical diagnostics. No single public or private company has a
comparable mix of products which serve the same markets. In many cases, only one division of a peer-group
company competes in the same market as we do. Collectively, however, our peer group reflects products and
markets similar to those of Bio-Rad.

This stock performance graph shall not be deemed incorporated by reference by any general statement
incorporating by reference into any filing under the Securities Act or the Exchange Act, and shall not otherwise be
deemed filed under these Acts.

ITEM 6. SELECTED FINANCIAL DATA

BIO-RAD LABORATORIES, INC.
Selected Financial Data
(in thousands, except per share data)

Net sales

Cost of goods sold

Gross profit

Selling, general and administrative expense
Research and development expense

Impairment losses on goodwill and long-
lived assets
Interest expense
Foreign exchange losses, net

Other (income) expense, net

Income before income taxes
Provision for income taxes
Net income attributable to noncontrolling
interests

Net income attributable to Bio-Rad

Basic earnings per share
Diluted earnings per share
Cash dividends paid per common share
Total assets
Long-term debt, net of current maturities

$
$
$
$
$

2016

2015

Year Ended December 31,
2014

2013

2012

2,068,172
930,085
1,138,087
816,724
205,864

2,019,441
897,771
1,121,670
761,990
192,972

2,175,044
996,527
1,178,517
808,200
220,333

2,132,694
954,216
1,178,478
798,070
210,952

2,069,235
914,077
1,155,158
681,778
209,204

62,305
21,942
4,542
(14,850)

41,560
(13,435)

—
21,692
10,249
(11,080)

145,847
(32,754)

—
22,131
9,305
(13,009)

131,557
(42,712)

—
61,271
8,566
(12,766)

112,385
(34,574)

—
28,125

—
113,093

—
88,845

(21)
77,790

0.96
0.95

$
$
— $
$
$

3,850,504
434,186

3.87
3.85

$
$
— $
$
$

3,709,718
433,883

3.08
3.05

$
$
— $
$
$

3,341,278
435,710

2.72
2.69

$
$
— $
$
$

3,388,790
435,615

—
51,112
5,040
(21,883)

229,907
(64,361)

(69)
165,477

5.85
5.78
—
3,443,503
732,414

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 primary segments, Life Science and Clinical
Diagnostics, with the mission to provide scientists with specialized products needed for biological research and
clinical diagnostics.

We sell more than 8,000 products and services to a diverse client base comprised of scientific research, healthcare,
education and government customers worldwide. We do not disclose quantitative information about our different
products and services as it is impractical to do so based primarily on the numerous products and services that we
sell and the global markets that we serve.

We manufacture and supply our customers with a range of reagents, apparatus and equipment to separate complex
chemical and biological materials and to identify, analyze and purify components. Because our customers require
standardization for their experiments and test results, much of our revenues are recurring.

We are impacted by the support of many governments for both research and healthcare. The current global
economic outlook is still uncertain as the need to control government social spending by many governments limits

opportunities for growth. Adding to this uncertainty was the recent referendum in the United Kingdom to withdraw
from the European Union, and a change in the U.S. executive branch of government. Approximately 37% of our
2016 consolidated net sales are derived from the United States and approximately 63% are derived from
international locations, with Europe being our largest international region. The international sales are largely
denominated in local currencies such as the Euro, Swiss Franc, Japanese Yen, Chinese Yuan and British Sterling.
As a result, our consolidated net sales expressed in dollars benefit when the U.S. dollar weakens and suffer when
the dollar strengthens. When the U.S. dollar strengthens, we benefit from lower cost of sales from our own
international manufacturing sites as well as non-U.S. suppliers, and from lower international operating expenses.
We regularly discuss our changes in revenue and expense categories in terms of both changing foreign exchange
rates and in terms of a currency neutral basis, if notable, to explain the impact currency has on our results.

On February 15, 2017, we acquired all the issued and outstanding stock of RainDance Technologies, Inc.
(RainDance) for approximately $87 million including certain assumed net liabilities. Cash payments at closing
were $82.9 million. The acquisition will be included in our Life Science segment’s results of operations from the
acquisition date and will be accounted for as a business combination. RainDance's foundational intellectual
property portfolio and product lines encompass a wide range of biological reactions in droplets, with potential
applications in life science research and clinical research. These genomic tools provide ultra-sensitive detection of
genetic variations in cancer as well as inherited and infectious diseases, enabling research in areas such as non-
invasive liquid biopsy. We believe that RainDance's droplet-based solutions will extend our reach into next-
generation sequencing applications and strengthen our position in the area of Droplet Digital™ PCR, offering
customers with solutions for a wide range of nucleic acid detection applications. See Note 17 to the consolidated
financial statements.

During the fourth quarter of 2016, we fully impaired goodwill and in-process research and development in the
amounts of $13.5 million and $46.4 million, respectively, associated with our 2014 acquisition of GnuBIO, Inc.

In May 2016, we announced the elimination or relocation of various positions as part of restructuring plans
approved by management. In connection with this announcement, for the year ended December 31, 2016, we
recorded $12.5 million in restructuring charges related to severance and other employee benefits, of which
$9.0 million is anticipated to be paid through 2019. These restructuring actions are primarily intended to reduce,
eliminate or relocate our global workforce in order to better align expenses to our revenue and gross margin profile
and position us for improved operating performance. These actions are aligned with the creation and evolution of
our organization structure and coordinated with the implementation of our single instance ERP platform. In the
future, we may take additional restructuring actions to gain operating efficiencies or reduce our operating expenses,
while simultaneously implementing additional cost containment measures and expense control programs. Such
restructuring actions are subject to significant risks, including delays in implementing expense control programs or
workforce reductions and the failure to meet operational targets due to the loss of employees or a decrease in
employee morale, any of which would impair our ability to achieve anticipated cost reductions. If we do not
achieve the anticipated cost reductions, our business could be harmed. See Note 15 to the consolidated financial
statements.

In January 2016, we acquired a high performance analytical flow cytometer platform from Propel Labs (Propel) that
will enable advanced and novice users to perform basic and multi-parameter cytometry for a wide range of
applications and chemistries. This asset acquisition was accounted for as a business combination and is included in
our Life Science segment's results of operations from the acquisition date. The fair values of the net assets acquired
from Propel as of the acquisition date were determined to be $32.7 million of definite-lived intangible assets and
$0.1 million of goodwill, after the effects of a calculation revision that were reflected in the fourth quarter of 2016.
This revision reduced goodwill/intangibles and contingent consideration by the same amount and had no significant
impact on our Consolidated Income Statement.

The fair value of the consideration as of the acquisition date was $32.8 million as revised, which included $9.5
million paid in cash at the closing date and $23.3 million in contingent consideration potentially payable to Propel.
The contingent consideration was based on a probability-weighted income approach related to the achievement of

sales milestones, ranging from 39% to 20% for the calendar years 2017 through 2020. The sales milestones could
potentially range from $0 to an unlimited amount through December 31, 2020. The contingent consideration was
recognized at its estimated fair value of $25.4 million as of December 31, 2016.

As previously disclosed, in May 2010 we voluntarily disclosed to the U.S. Department of Justice (DOJ) and the
Securities and Exchange Commission (SEC) certain likely or potential violations of the U.S. Foreign Corrupt
Practices Act (FCPA). Effective November 3, 2014, we entered into a non-prosecution agreement (NPA) with the
DOJ and consented to the entry of an Order by the SEC (SEC Order), which actions resolve both the DOJ and SEC
investigations. As a result of the settlements with the DOJ and the SEC, during the fourth quarter of 2014 we paid a
total of $55.1 million that included a penalty of $14.4 million, $35.1 million in disgorgement, and $5.6 million in
interest. On October 28, 2016, the DOJ and SEC informed Bio-Rad that they did not intend to extend the NPA after
it expired on November 2, 2016.

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. Management is required to make estimates related to our income tax provision in
each of the jurisdictions in which we operate. This process involves estimating our current tax exposures, as well as
making judgments regarding the recoverability of deferred tax assets in each jurisdiction. Deferred tax assets and
liabilities reflect the tax effects of losses, credits, and temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. Management
assesses the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent
management believes that recovery is not likely, a valuation allowance must be established. To the extent
management establishes a valuation allowance or increases this allowance in a period, an increase to expense within
the Provision for income taxes in the Consolidated Statements of Income may result.

We have recorded a valuation allowance of $66.4 million and $58.3 million as of December 31, 2016 and 2015,
respectively, due to uncertainties related to our ability to utilize some of the deferred tax assets, primarily consisting
of certain foreign net operating losses carried forward. The valuation allowance is based on management’s current
estimates of taxable income for the jurisdictions in which we operate and the period over which the deferred tax
assets will be recoverable. In the event that actual results differ from these estimates, or these estimates are
adjusted in future periods, an additional valuation allowance may need to be established, which would increase the
tax provision, lowering income and impacting our financial position. Should realization of these deferred tax assets
for which a valuation allowance has been provided occur, the provision for income taxes may decrease, raising
income and positively impacting Bio-Rad’s financial position.

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 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 income tax expense. Our overall effective tax rate is subject to fluctuations
because of changes in the geographic mix of earnings, changes to statutory tax rates and tax laws, and because of
the impact of various tax audits and assessments, as well as generation of tax credits.

Valuation of Goodwill and Long-lived Assets. Goodwill represents the excess of the cost over the fair value of net
tangible and identifiable intangible assets of acquired businesses. Goodwill amounts are assigned to reporting units
at the time of acquisition and are adjusted for any subsequent significant transfers of business between reporting
units. We assess the impairment of goodwill annually in the fourth quarter or whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. We perform the impairment tests of
goodwill at our reporting unit level, which is one level below our operating segments. The goodwill impairment
test consists of a two-step process. The first step of the goodwill impairment test, used to identify potential
impairment, compares the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of
the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the
second step of the impairment test is not required. The second step, if required, compares the implied fair value of
the reporting unit goodwill with the carrying amount of that goodwill. The fair value of a reporting unit is allocated
to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit
had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire
the reporting unit. If the carrying amount of the reporting unit's goodwill exceeds its implied fair value, an
impairment charge is recognized in an amount equal to that excess.

We use a projected discounted cash flow model to determine the fair value of a reporting unit. This discounted cash
flow method for determining goodwill may be different from the fair value that would result from an actual
transaction between a willing buyer and a willing seller. Projections such as discounted cash flow models are
inherently uncertain and accordingly, actual future cash flows may differ materially from projected cash flows.
Management judgment is required in developing the assumptions for the discounted cash flow model. These
assumptions include revenue growth rates, profit margins, future capital expenditures, working capital needs,
expected foreign currency rates, discount rates and terminal values. We estimate future cash flows using current
and longer-term financial forecasts. These forecasts take into account the current economic environment. The
discount rates used are compiled using independent sources, current trends in similar businesses and other
observable market data. Changes to these rates might result in material changes in the valuation and determination
of the recoverability of goodwill. For example, an increase in the discount rate used to discount cash flows will
decrease the computed fair value.

Impairment tests are highly sensitive to changes in assumptions and minor changes to assumptions that could result
in impairment losses. Our forecasts utilized in our 2016 impairment test assumed, among other things, sales growth
from executing our sales and marketing programs, new product introductions, successful product development and
timely registration of our products when required, while controlling costs. In addition, external factors, such as
currency, inflation rates and cost of capital, could affect the determination of fair value of our reporting units. Aside
from our GnuBIO, Inc. reporting unit, which reflected a carrying value that exceeded its fair value, our impairment
tests resulted in excessive fair value over book value ranging from 22% to more than 400% for our various
reporting units. If the initiatives mentioned above do not achieve the desired results, or external factors change
detrimentally, future impairment losses may occur.

To validate the reasonableness of the reporting unit fair values, we reconcile the aggregate fair values of the
reporting units to the enterprise market capitalization. In performing the reconciliation we may, depending on the
volatility of the market value of our stock price, use either the stock price on the valuation date or the average stock
price over a range of dates around the valuation date.

intangibles) whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Factors that we consider important that could trigger an impairment review include:

•

significant reporting unit under-performance relative to expected, historical or projected future operating
results;
significant changes in the manner of use of the long-lived assets, intangible assets or the strategy for our
overall business;
a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of
before the end of its previously estimated useful life; and
significant negative industry, legal, regulatory or economic trends.

When management determines that the carrying value of long-lived assets may not be recoverable based upon the
existence of one or more of the above indicators of impairment, we test for any impairment based on a projected
undiscounted cash flow method. Projected future operating results and cash flows of the asset or asset group are
used to establish the fair value used in evaluating the carrying value of long-lived and intangible assets. We
estimate the future cash flows of the long-lived assets using current and long-term financial forecasts. The carrying
amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset. If this is the case, an impairment loss would be
recognized. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. In
2016, we fully impaired goodwill and in-process research and development in the amounts of $13.5 million and
$46.4 million, respectively, associated with our 2014 acquisition of GnuBIO, Inc. The impairments were based
upon a revision of our Level 3 valuation inputs, i.e., expected future cash flows. Also in 2016, we impaired
intellectual property in the amount of $2.4 million associated with the termination of a research and development
project. There were no impairment losses recorded in 2015. In 2014, we impaired licenses of a discontinued
product line in the amount of $6.4 million. This impairment charge included $5.8 million in Cost of goods sold and
$0.6 million in Research and development expense in the accompanying Consolidated Statements of Income.

We early adopted ASU 2017-04, "Simplifying the Test for Goodwill Impairment," on January 1, 2017, which
removes Step 2 of the goodwill impairment test for any impairments after January 1, 2017. See Note 1 to the
consolidated financial statements.

Valuation of Inventories. We value inventory at the lower of the actual cost to purchase and/or manufacture the
inventory, or the current estimated net realizable value of the inventory. We review inventory quantities on hand
and reduce the cost basis of excess and obsolete inventory based primarily on an estimated forecast of product
demand, production requirements and the quality, efficacy and potency of raw materials. This review is done on a
quarterly basis or, if warranted by the circumstances, more frequently. In addition, our industry is characterized by
technological change, frequent new product development and product obsolescence that could result in an increase
in the amount of obsolete inventory quantities on hand. Our estimates of future product demand may prove to be
inaccurate, and if too high, we may have overstated the carrying value of our inventory. In the future, if inventory is
determined to be overvalued, we would be required to write down the value of inventory to market and recognize
such costs in our cost of goods sold at the time of such determination. Therefore, although we make efforts to
ensure the accuracy of our forecasts of future product demand and perform procedures to safeguard overall
inventory quality, any significant unanticipated changes in demand, technological developments, regulations,
storage conditions, or other economic or environmental factors affecting biological materials, could have a
significant impact on the value of our inventory and reported results of operations.

We adopted ASU 2015-11, "Simplifying the Measurement of Inventory," on January 1, 2017, which requires
inventory measurement at the lower of cost and net realizable value. See Note 1 to the consolidated financial
statements.

Valuation of Investments. We regularly review our investments for factors that may indicate that a decline in the
fair value of an investment below its carrying value is other-than-temporary. Some factors considered in evaluating
whether or not a decline in fair value is other-than-temporary include our ability and intent to retain the investment

for a period of time sufficient to allow for a recovery in value, the duration and extent to which the fair value has
been less than cost and the financial condition and prospects of the issuer. Such reviews are inherently uncertain in
that the value of the investment may not fully recover or may decline further in future periods resulting in realized
losses.

Warranty Reserves. We warrant certain equipment against defects in design, materials and workmanship,
generally for a period of one year. Upon delivery and on acceptance of that equipment, we establish, as part of cost
of goods sold, a provision for the expected costs of such warranty repairs based on historical experience, specific
warranty terms and customer feedback. A review is performed on a quarterly basis to assess the adequacy of our
warranty reserve and it is adjusted if necessary. The warranty reserve is based on actual experience and expected
future costs to be incurred. Should realized costs be higher than expected costs, cost of goods sold would be lower
in the period of estimation and higher when realized.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting
from the collectability of our customer accounts. The amount of the allowance is determined by analyzing known
uncollectible accounts, the age of our receivables, economic conditions in the customers’ country or industry,
historical losses and our customers’ general credit-worthiness. Amounts later determined and specifically identified
to be uncollectible are charged or written off against this allowance. Uncertainty in the current economic
environment, if prolonged, could result in greater amounts becoming uncollectible in the future. Should the
estimates of losses be higher than the actual uncollectible accounts, we would report lower profitability when the
estimates are made and higher profitability when the receivable is collected.

Litigation Accruals. We record as liabilities in our Consolidated Balance Sheets estimated amounts for claims that
are probable and can be reasonably estimated. The likelihood of a material change in these estimated liabilities is
dependent on the possible outcome of settlement negotiations, regulatory or judicial review and the development of
facts and circumstances in extended litigation which could change claims or assessments when both the amount and
range of loss on some outstanding litigation is uncertain. We disclose in the footnotes of the financial statements
when we are unable to make a reasonable estimate of a material liability that could result from unfavorable
outcomes in litigation. As events occur, we will assess the potential liability related to our pending litigation and
revise our estimates. Such revisions could materially impact our results of operations.

Results of Operations - Sales, Gross Margins and Expenses

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

Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expense
Research and development expense
Net income attributable to Bio-Rad

Net sales

2016

Year Ended December 31,
2015

2014

100.0%
45.0
55.0
39.5
10.0
1.4

100.0%
44.5
55.5
37.7
9.6
5.6

100.0%
45.8
54.2
37.2
10.1
4.1

Net sales (sales) in 2016 were $2.07 billion, an increase of 2.4% compared to $2.02 billion in 2015. Excluding the
impact of foreign currency, 2016 sales increased by approximately 4.0% compared to 2015. Currency neutral sales
growth was primarily reflected in all regions except Europe.

The Life Science segment sales in 2016 were $730.7 million, an increase of 5.1% compared to 2015. On a currency
neutral basis, sales increased 6.5% compared to 2015. The currency neutral sales increase was primarily in our
Droplet Digital™ PCR and process media products. The currency neutral sales increase was in all regions.

The Clinical Diagnostics segment sales in 2016 were $1.32 billion, an increase of 1.0% compared to 2015. On a
currency neutral basis, sales increased 2.6% compared to 2015. The currency neutral sales increase was primarily
attributable to growth in quality control, immunology, blood typing and diabetes product lines. On a geographic
view, currency neutral sales in 2016 increased most notably in the Americas and Asia, while sales declined in
Europe.

Sales in 2015 were $2.02 billion, a decrease of 7.2% compared to $2.18 billion in 2014. Excluding the impact of
foreign currency, 2015 sales increased by approximately 1.6% compared to 2014. Currency neutral sales growth
was primarily reflected in the United States and China.

The Life Science segment sales in 2015 were $695.0 million, a decrease of 4.6% compared to 2014. On a currency
neutral basis, sales increased 2.5% compared to 2014. The currency neutral sales increase was primarily in our
Droplet Digital™ PCR, western blotting, process chromatography media and cell biology products. The currency
neutral sales increase was primarily in the United States and Europe, partially offset by lower sales in Asia,
excluding China.

The Clinical Diagnostics segment sales in 2015 were $1.31 billion, a decrease of 8.5% compared to 2014. On a
currency neutral basis, sales increased 1.1% compared to 2014. The Clinical Diagnostics segment had currency
neutral sales growth from quality controls and immunology products, partially offset by declines in blood typing
and infectious disease products. Currency neutral sales growth was primarily in North America, China and Latin
America, while European markets were still experiencing consolidation and pricing pressures.

Gross margin

Consolidated gross margins were 55.0% in 2016 compared to 55.5% in 2015. Life Science segment gross margins
in 2016 decreased from 2015 by approximately 0.7 percentage points, primarily due to lower margins in protein
quantification and cell biology, higher service costs, higher acquisition intangible amortization, and $0.7 million of
restructuring costs, partially offset by higher margins in Droplet Digital™ PCR, process media products and
antibody products. Clinical Diagnostics segment gross margins in 2016 decreased from 2015 by approximately
0.5 percentage points. The decrease compared to 2015 was primarily driven by sales mix and pricing pressures,
along with higher period expenses, and $1.4 million of restructuring costs, partially offset by the suspension of the
medical device tax.

Beginning in 2013, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act (PPACA), among other initiatives, provided for a 2.3% annual excise tax on the sales of certain
medical devices in the U.S. Bio-Rad has been paying this excise tax on most of our U.S. Clinical Diagnostic sales,
which we accounted for as a period cost in Cost of goods sold. However, the Consolidated Appropriations Act,
2016 (Pub. L. 114-113), signed into law on December 18, 2015, includes a two year moratorium on the medical
device excise tax during the period beginning on January 1, 2016, and ending on December 31, 2017.

Consolidated gross margins were 55.5% in 2015 compared to 54.2% in 2014. Life Science segment gross margins
in 2015 increased from 2014 by approximately 0.9 percentage points, primarily due to sales of higher gross margin
products including Droplet Digital™ PCR, gene expression and cell biology products. In addition, lower service
costs in Europe and costs associated with the closing of a manufacturing plant in 2014 contributed to higher
margins. Clinical Diagnostics segment gross margins in 2015 increased from 2014 by approximately
1.8 percentage points. The increase compared to 2014 was primarily due to the 2014 consolidation and closure of
certain facilities and the discontinuation of an underperforming product line. Sales mix also contributed to the
higher gross margins in 2015.

Selling, general and administrative expense

Consolidated selling, general and administrative expenses (SG&A) increased to $816.7 million or 39.5% of sales in
2016 compared to $762.0 million or 37.7% of sales in 2015. Increases to SG&A primarily included employee-
related expenses, our largest cost, which also included $10.4 million of restructuring costs, $21.0 million for various
legal matters, including the Wadler judgment as discussed further in Note 13 to the consolidated financial
statements, professional fees, software, the revaluation of contingent consideration primarily associated with the
cell sorting system and to a lesser extent the analytical flow cytometer platform, travel, facilities and recruitment/
relocation. Decreases to SG&A primarily included bad debt expense and a one-time distributor cost in 2015.

Consolidated SG&A decreased to $762.0 million or 37.7% of sales in 2015 compared to $808.2 million or 37.2% of
sales in 2014. Underlying the overall decrease in SG&A was the impact of foreign currency, an accrual of $19.5
million in 2014 associated with the SEC and DOJ investigations relating to the FCPA investigation for which a final
settlement was reached in the fourth quarter of 2014, and a reduction of $4.2 million from the revaluations of
contingent consideration. Currency neutral increases in SG&A were primarily employee-related expenses, our
largest cost, facilities and professional fees, partially offset by travel. Other increases in SG&A included $2.3
million of bad debt expense and a one-time distributor termination cost of $1.9 million.

Research and development expense

Research and development expense increased to $205.9 million or 10.0% of sales in 2016 compared to
$193.0 million or 9.6% of sales in 2015. Life Science segment research and development expense increased in
2016 from 2015 primarily due to increased project activities in Droplet Digital™ PCR, protein quantification and
cell biology. Clinical Diagnostics segment research and development expense increased in 2016 from 2015
primarily from increased spending associated with the GnuBIO business.

Research and development expense decreased to $193.0 million or 9.6% of sales in 2015 compared to
$220.3 million or 10.1% of sales in 2014. Life Science segment research and development expense decreased in
2015 from 2014 primarily due to headcount reductions, lower supplies and lower external product development
spend. Clinical Diagnostics segment research and development expense decreased in 2015 from 2014 primarily due
to the wind down of spending on projects as they approach launch and the discontinuation of an underperforming
product line in 2014.

Results of Operations – Non-operating

Interest expense

Interest expense in 2016 increased 1.2% to $21.9 million, relatively flat compared to $21.7 million in 2015.

Interest expense in 2015 decreased 2.0% to $21.7 million compared to 2014 primarily due to $0.6 million in 2014
associated with our offer to settle the SEC and DOJ investigations relating to the FCPA investigation for which a
final settlement was reached in the fourth quarter of 2014.

Foreign currency exchange gains and losses

Foreign currency exchange gains and losses consist of foreign currency transaction gains and losses on
intercompany net receivables and payables and the change in fair value of our forward foreign exchange contracts
used to manage our foreign currency exchange risk. Net foreign currency exchange losses for 2016, 2015 and 2014
were $4.5 million, $10.2 million and $9.3 million, respectively. The 2016, 2015 and 2014 net foreign currency
exchange losses were attributable to market volatility, increasing costs to hedge and the result of the estimating
process inherent in the timing of shipments and payments of intercompany debt, and our decision to reclassify a
large percentage of our intercompany receivable from Brazil to long-term towards the end of 2015. All years are
affected by the economic hedging program we employ to hedge our intercompany receivables and payables.

Other income and expense, net

Other income and expense, net includes investment and dividend income, generally interest income on our cash and
cash equivalents, short-term investments and long term marketable securities. Other (income) expense, net in 2016
increased to $14.9 million income compared to $11.1 million income in 2015. The increase was primarily due to
higher dividend income in 2016 on the ordinary and preferred shares of our investment in Sartorius AG, and higher
investment income.

Other (income) expense, net in 2015 decreased to $11.1 million income compared to $13.0 million income in 2014.
The decrease was primarily due to lower interest and investment income primarily related to a weaker 2015 foreign
currency exchange rate for ordinary and preferred dividends from our investment in Sartorius AG, and realized
losses in 2015 compared to no realized losses in 2014.

Effective tax rate

Our effective tax rate was 32%, 22% and 32% in 2016, 2015 and 2014, respectively. The effective tax rates for
2016 and 2015 included tax benefits from the repatriation of foreign earnings. The effective tax rate for 2016
included additional tax liabilities for unrecognized tax benefits related to the non-deductibility of interest expense in
our foreign jurisdictions. The effective tax rate for 2014 included nondeductible penalties and losses that were
nonrecurring. Our foreign taxes result primarily from income earned in France and Switzerland. Many
jurisdictions in which we operate, including Switzerland, Russia, the U.K. and Singapore, have statutory tax rates
that are significantly lower than the U.S. statutory tax rate of 35%. Our effective tax rate may be impacted in the
future, either favorably or unfavorably, by many factors including, but not limited to, 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 audited by U.S. federal, state and foreign tax authorities. We are currently under
examination by many of these tax authorities. The tax years open to examination include the years 2013 and
forward for the U.S., and the years 2010 and forward for certain foreign jurisdictions, including France, Switzerland
and Germany. 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 evaluate our exposures associated with our tax filing positions on a
quarterly basis.

We record liabilities for unrecognized tax benefits related to uncertain tax positions. 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.

As of December 31, 2016, 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 $3.5 million. Substantially
all such amounts will impact our effective income tax rate.

During 2017 we expect to proceed with the implementation of our European Headquarters and related restructuring
plans that could have a significant effect on our effective tax rate. Many of these plans are operational changes that
may impact our jurisdictional mix of earnings in the future.

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 of 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
Credit Agreement that we entered into in June 2014. Borrowings under the Credit Agreement are on a revolving
basis and can be used to make permitted acquisitions, for working capital and for other general corporate purposes.
We had no outstanding borrowings under the Credit Agreement as of December 31, 2016, however, $0.8 million
was utilized for domestic standby letters of credit that reduced our borrowing availability. The Credit Agreement
matures in June 2019.

At December 31, 2016, we had available $839.4 million in cash, cash equivalents and short-term investments, of
which approximately 28% was held in our foreign subsidiaries. We believe that our holdings of cash, cash
equivalents and short-term investments in the U.S. and in our foreign subsidiaries are sufficient to meet both the
current and long-term needs of our global operations. The amount of funds held 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
business-development activities. As part of our ongoing liquidity assessments, we regularly monitor the mix of
domestic and foreign cash flows (both inflows and outflows). Repatriation of overseas funds will result in
additional U.S. federal and state income tax payments. In general, it is our practice and intention to indefinitely
reinvest the cash generated by our foreign subsidiaries in our foreign subsidiaries' operations.

Under domestic and international lines of credit, standby letters of credit and guarantee arrangements, we had
$205.7 million available for borrowing and usage as of December 31, 2016, which was reduced by $5.4 million that
was utilized for standby letters of credit and guarantee arrangements issued by our banks to support our obligations.
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 an acquisition of reasonable proportion to our existing
total available capital.

While economic growth is somewhat improving, instability still exists in developed nations and in the U.S., such as
the slowing rate of growth in the Chinese economy and in emerging markets, especially those oil-producing
countries that have been affected by a decline in oil prices, which may adversely affect our future results of cash
flows. Demand for our products and services could change more dramatically than in previous years based on
activity, 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 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. The situation in
these sovereign nations is continuously evolving and we have no greater knowledge of the situation other than what
is publicly reported. As of December 31, 2016 and December 31, 2015, we had accounts receivable, net of an
allowance for doubtful accounts, in Spain, Italy, Greece and Portugal of $32.7 million and $40.7 million,
respectively.

Cash Flows from Operations

Net cash provided by operations was $216.4 million, $186.2 million and $273.3 million in 2016, 2015, and 2014,
respectively. The net increase between 2016 and 2015 of $30.2 million primarily resulted from:

•

higher cash received from customers in 2016 primarily due to lower U.S. collections in the second half of
2015 from delays associated with the second phase of an ERP implementation, and
higher investment income received, partially offset by

•
• more cash paid to suppliers and employees primarily related to higher payments to inventory suppliers as

payments were delayed in the latter part of 2015 mostly associated with the second deployment of the ERP
system, higher annual performance-based compensation payments in 2016, and higher legal and other
professional fees,
higher net income tax payments than in 2015, and
net payments in 2016 compared to net cash received in 2015 for forward foreign exchange contracts.

•
•

The net decrease between 2015 and 2014 of $87.1 million primarily resulted from:

•

lower cash received from customers primarily due to the value of foreign currency denominated sales and
subsequent collections that were affected by a strengthening in the U.S. dollar, disproportionately larger
collections in 2014 from the Spanish government, lower U.S. collections in the second half of 2015 from
delays associated with the second phase of an ERP implementation, and higher U.S. collections in 2014
resulting from delays caused by the first deployment of a new ERP system, partially offset by
less cash paid to suppliers and employees primarily related to a decrease in foreign exchange rates, and
reductions in force, partially offset by higher performance-based compensation payments, and
a payment of $55.1 million for the settlement with the SEC and DOJ associated with the FCPA in the fourth
quarter of 2014.

We regularly review past due receivables to assess the allowance for doubtful accounts and believe net accounts
receivable are fully realizable. We also routinely review inventory for the impact of obsolescence and changes in
market prices caused by the introduction of new products, technologies and in government reimbursement policies.
Cash flows from operations during the first quarter have historically had larger payments for royalties, fourth quarter
sales commissions to third parties and annual employee bonuses, and we expect this pattern to recur in the first
quarter of 2017.

Cash Flows from Investing Activities

Net cash used in investing activities was $213.9 million, $166.9 million and $190.5 million for 2016, 2015 and 2014,
respectively. Purchases, net of sales and maturities of marketable securities and investments had an overall decrease
of $13.2 million in 2016 compared to 2015 primarily due to a decrease in maturities and securities sales, partially
offset by a decrease in purchases. Purchases, net of sales and maturities of marketable securities and investments had
an overall decrease of $35.4 million in 2015 compared to 2014 primarily due to an increase in purchases, partially
offset by an increase in maturities and securities sales.

Short-term restricted investments of $4.56 million and $4.21 million in 2016 and 2015, respectively, represent a
money market fund for collateral that secures worker's compensation and general liability insurance. Investment
income accrues to us and is recorded in Investment proceeds and miscellaneous receipts, net in the Consolidated
Statements of Cash Flows.

Our investment objective is to maintain liquidity to meet anticipated operational and other corporate requirements in
which capital is preserved and increased through investing in low risk, high quality securities with commensurate
returns, consistent with our risk tolerance level.

Purchases of intangible assets were higher in 2014 than in 2016 and 2015 primarily due to higher purchases of
licenses. Payments for acquisitions, net of cash received, and long-term investments in 2016 and 2014 were primarily
due to the following:

•

in January 2016, we acquired a high performance analytical flow cytometer platform from Propel for total
consideration of $32.8 million, which included $9.5 million paid in cash at the closing date and $23.3 million
in contingent consideration potentially payable to Propel, after the effects of a calculation revision that were
reflected in the fourth quarter of 2016 , and
in April 2014, we acquired 100% of the issued and outstanding stock of GnuBIO for a total consideration of
$50.4 million, which included $39.7 million paid in cash at the closing date and $10.7 million in contingent
consideration potentially payable to GnuBIO's shareholders. The Level 3 contingent consideration was
revalued to a fair value of $10.0 million as of December 31, 2016 and 2015.

We continue to review possible acquisitions to expand both our Life Science and Clinical Diagnostics segments, such
as our acquisition of RainDance in February 2017. We routinely meet with the principals or brokers of the subject
companies. We are currently in discussion and assessing a few possible acquisitions in which we expect our current
reported cash and cash equivalents to be sufficient for any cash consideration for these possible acquisitions.
However, it is not certain at this time that any of these discussions involving material or significant acquisitions will
advance to completion.

Capital expenditures in 2016 totaled $141.4 million, compared to $112.0 million and $121.0 million in 2015 and
2014, respectively. Capital expenditures represent the addition and replacement of production machinery and
research equipment, ongoing manufacturing and facility additions for expansion, regulatory, environmental and
compliance. Also included in capital expenditures are investments in business systems and data communication
upgrades and enhancements. All periods include equipment placed with Clinical Diagnostics segment customers who
then contract to purchase our reagents for use. As we continue to implement the remaining phases of the ERP
platform, we expect capital expenditures to moderate in 2017 and then decline over the next couple of years. Capital
expenditures were lower in 2015 compared to 2016 as the second phase was implemented in July 2015 and the third
phase of the ERP system ramped up in 2016. Capital expenditures were higher in 2014 than in 2015 as we were in
the development stages (in which appropriate costs are capitalized) of implementing the second phase of a global
single instance ERP platform. The current estimated future project cost for global implementation for the single
instance ERP platform is projected to be $90 million to $130 million, and is estimated to take approximately the next
two to three years to fully implement.

Cash Flows from Financing Activities

Net cash provided by financing activities was $9.0 million, $8.6 million and $11.7 million in 2016, 2015 and 2014,
respectively. Net cash provided by financing activities in 2016, 2015 and 2014 was primarily from proceeds from
issuance of our common stock. Additionally in 2016, 2015 and 2014, there were payments of $3.5 million,
$3.0 million and $2.4 million, respectively, to Propel Labs' shareholders in contingent consideration for sales
milestones that were associated with the valuation as of the 2012 acquisition date. In 2014, there was also the
payment of a short-term borrowing.

We have outstanding Senior Notes of $425.0 million, which are not due until 2020. We believe the current cash is
sufficient to meet normal operating costs, and funding for research and development of new products, as well as
routine outflows of capital expenditures, interest and taxes.

The Board of Directors has authorized the repurchase of up to $18.0 million of Bio-Rad's common stock, of which
$3.3 million has yet to be repurchased as of December 31, 2016. The Credit Agreement may limit our ability to
repurchase our stock. In accordance with the terms of awards under the 2007 Incentive Award Plan, in June 2012, we
withheld 122 shares of our Class A common stock and 917 shares of our Class B common stock to satisfy tax
obligations due upon the vesting of restricted stock of certain of our employees, which is considered a repurchase of

our stock. All of the restricted stock vested as of December 31, 2013 and therefore we do not anticipate any
repurchasing of shares for this purpose. We had no other repurchases of our stock during 2016, 2015 or 2014.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have had or are reasonably likely to have a current or future
material effect on our financial condition, results of operations or liquidity.

Contractual Obligations

The following summarizes certain of our contractual obligations as of December 31, 2016 and the effect such
obligations are expected to have on our cash flows in future periods (in millions):

Contractual Obligations
Long-term debt, including
current portion (1)
Interest payments (1)
Operating lease obligations (2)
Purchase obligations (3)
Long-term liabilities (4)

Payments Due by Period

Less
Than
One Year

Total

1-3
Years

3-5
Years

More
than
5 Years

437.0
81.6
158.0
35.0
142.9

0.3
20.7
42.1
17.5
34.3

0.5
41.4
56.7
8.5
10.5

425.6 $
19.5
33.5
9.0
4.0

10.6
—
25.7
—
94.1

(1) These amounts represent expected cash payments, including capital lease obligations, which are included in our December 31, 2016
Consolidated Balance Sheet. Our debt is fixed and primarily consists of the 4.875% Notes. See Note 5 of the Consolidated Financial Statements
for additional information about our debt.

(2) Operating lease obligations are described in Note 12 of the Consolidated Financial Statements.

(3) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding to Bio-Rad and that specify
all significant terms. Purchase obligations exclude agreements that are cancelable without penalty.

(4) Excluded from this table are tax liabilities for uncertain tax positions and contingencies in the amount of $16.4 million. We are not able to
reasonably estimate the timing of future cash flows of these tax liabilities, therefore, our income tax obligations are excluded from the table
above. See Note 6 of the Consolidated Financial Statements for additional information about our income taxes.

Recent Accounting Standards Updates

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.
(“ASU”) 2017-04, "Simplifying the Test for Goodwill Impairment." ASU 2017-04 removes Step 2 of the goodwill
impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will be the amount
by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU
2017-04 is effective prospectively for annual and interim periods beginning after December 15, 2019. Early adoption
is permitted for any impairment tests performed after January 1, 2017. ASU 2017-04 will provide a more stream-
lined approach to evaluating future goodwill impairment and we early adopted on January 1, 2017. We have not
assessed the impact that ASU 2017-04 will have on our consolidated financial statements because a goodwill
impairment has not occurred after January 1, 2017.

set is not a business. If this is not met, the entity then evaluates whether the set meets the requirement that a business
include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create
outputs. Determining whether a set constitutes a business is critical because the accounting for a business
combination differs significantly from that of an asset acquisition. ASU 2017-01 is effective for fiscal years
beginning after December 15, 2017, and interim periods within those years. ASU 2017-01 will be applied
prospectively to any transactions occurring within the period of adoption. Early adoption is permitted, including for
interim or annual periods in which the financial statements have not been issued or made available for issuance. We
early adopted ASU 2017-01 on January 1, 2017. For our acquisition of RainDance Technologies, Inc., ASU 2017-01
did not affect the conclusion of it being a business combination (see Note 17 to the consolidated financial statements).

In November 2016, the FASB issued ASU 2016-18, "Restricted Cash." ASU 2016-18 requires entities to show the
changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash
flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and
restricted cash equivalents in the statement of cash flows. ASU 2016-18 will be applied retrospectively and is
effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption
is permitted. We have had a limited amount of restricted cash of $2.0 million and $1.4 million as of December 31,
2016 and 2015, respectively, which was reclassified from cash to either Prepaid expenses, Other current assets or
Other assets in the Consolidated Balance Sheets. At the time of adoption, we cannot assure whether these same
restricted cash amounts will be held or what other restricted cash we may have, or that historically reported amounts
will be similar.

In October 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory." ASU
2016-16 requires immediate recognition of income tax consequences of intercompany asset transfers, other than
inventory transfers. Existing GAAP prohibits recognition of income tax consequences of intercompany asset
transfers whereby the seller defers any net tax effect and the buyer is prohibited from recognizing a deferred tax asset
on the difference between the newly created tax basis of the asset in its tax jurisdiction and its financial statement
carrying amount as reported in the consolidated financial statements. ASU 2016-16 specifically excludes from its
scope intercompany inventory transfers whereby the recognition of tax consequences will take place when the
inventory is sold to third parties. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual reporting
period for which financial statements have not been issued or made available for issuance. We do not plan to early
adopt ASU 2016-16. We are currently evaluating the effect ASU 2016-16 will have on our consolidated financial
statements.

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments." ASU
2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash
flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years, with early adoption permitted. We are currently evaluating the effect ASU 2016-15 will have on our
consolidated statements of cash flows, if any.

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." ASU
2016-13 will replace the current incurred loss approach with an expected loss model for trade and other receivables,
and instruments measured at amortized cost and require entities to record allowances for available-for-sale debt
securities rather than reduce the carrying amount under the current other-than-temporary impairment model. ASU
2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods
therein. We are currently evaluating the effect ASU 2016-13 will have on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting."
ASU 2016-09 will require all income tax effects of awards to be recognized in the income statement when the awards
vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax
withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures
as they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods

within those fiscal years. We adopted ASU 2016-09 on January 1, 2017 and made a policy election to account for
forfeitures as they occur. We do not expect ASU 2016-09 to have a material impact on our consolidated financial
statements.

In March 2016, the FASB issued ASU 2016-07, "Simplifying the Transition to the Equity Method of Accounting,"
which eliminates the requirement to retrospectively apply the equity method in previous periods when an investor
initially obtains significant influence over an investee. Under current guidance, an investor that does not consolidate
an investment and initially accounts for it under a method other than the equity method is required to retrospectively
apply the equity method in prior periods in which it held the investment when it subsequently obtained significant
influence. ASU 2016-07 will be applied on a prospective basis and is effective for all entities for fiscal years
beginning after December 15, 2016, and interim periods within those years. We adopted ASU 2016-07 on January 1,
2017 and do not expect it to materially affect our consolidated financial statements, unless our situation changes
regarding our ability to influence the investee in the future as a result of our cost method investment in Sartorius AG
(see Note 3 to the consolidated financial statements).

In February 2016, the FASB issued ASU 2016-02, "Leases," which will require, among other items, lease accounting
to recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative disclosures will be
enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is
effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early
adoption permitted. We do not plan to early adopt. ASU 2016-02 will be adopted on a modified retrospective basis,
with elective reliefs, which requires application of ASU 2016-02 for all periods presented. We are currently
gathering, documenting and analyzing lease agreements related to this ASU and anticipate material additions to the
balance sheet for right-of-use assets, offset by the associated liabilities.

In January 2016, the FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial
Liabilities." Amendments under ASU 2016-01, among other items, require that all equity investments in
unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be
measured at fair value through earnings. There will no longer be an available-for-sale classification, for which
changes in fair value are reported in other comprehensive income, for equity securities with readily determinable fair
values. For equity investments without readily determinable fair values, the cost method is also eliminated.
However, entities will be able to elect to record equity investments without readily determinable fair values at cost,
less impairment, and plus or minus subsequent adjustments for observable price changes. Changes in the basis of
these equity investments will be reported in current earnings. ASU 2016-01 is effective for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. For equity securities that would be affected
by ASU 2016-01, see the available-for-sale investments table in Note 3 to the consolidated financial statements. At
the time of adoption, we cannot assure whether these same equity securities will be held or what other equity
securities we may have, or that historically reported changes will be similar.

In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period
Adjustments," which eliminates the requirement for an acquirer in a business combination to account for
measurement-period adjustments retrospectively. Under ASU 2015-16, acquirers must recognize measurement-
period adjustments during the period in which they determine the amounts, including the effect on earnings of any
amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date.
The measurement period cannot exceed one year from the date of the acquisition. ASU 2015-16 was effective on
January 1, 2016, and we adopted it at the same time as a change in accounting policy, which had no impact on our
consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” Under current guidance,
an entity subsequently measures inventory at the lower of cost or market, with market defined as replacement cost,
net realizable value (NRV), or NRV less a normal profit margin. An entity uses current replacement cost provided
that it is not above NRV (i.e., the ceiling) or below NRV less an “approximately normal profit margin” (i.e., the floor).
ASU 2015-11 eliminates this analysis and requires entities to measure most inventory “at the lower of cost and NRV.”
ASU 2015-11 is effective prospectively for annual periods beginning after December 15, 2016, and interim periods

therein. We adopted ASU 2015-11 on January 1, 2017 and do not expect it to have a material impact to our
consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03
was issued to simplify the presentation of debt issuance costs by requiring debt issuance costs to be presented as a
deduction from the corresponding debt liability. This makes the presentation of debt issuance costs consistent with
the presentation of debt discounts or premiums. Under prior U.S. GAAP, debt issuance costs were reported on the
balance sheet as assets and amortized as interest expense. Under ASU 2015-03, debt issuance costs will continue to
be amortized to interest expense using the effective interest method. In August 2015, the FASB issued ASU 2015-15,
"Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" to
clarify the SEC staff’s position that it would not object to an entity deferring and presenting debt issuance costs as an
asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit
arrangement, which is our current practice. We adopted ASU 2015-03 on January 1, 2016 on a retrospective basis as
a change in accounting policy. The Condensed Consolidated Balance Sheet as of December 31, 2015 was
retrospectively adjusted by decreasing Other assets and Long-term debt, net of current maturities, by $1.8 million,
respectively.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to
customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes
effective. In August 2015, the FASB issued ASU 2015-14 to defer the effective date for annual reporting periods
beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is
permitted as of the original effective date in ASU 2014-09, which is annual reporting periods beginning after
December 15, 2016, however, we will not early adopt. In December 2016, the FASB issued ASU 2016-20, "Technical
Corrections and Improvements to Topic 606, Revenue from Contracts with Customers" which affect narrow aspects
of the guidance issued in ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, "Narrow-Scope Improvements
and Practical Expedients," which amends and clarifies certain aspects in ASU 2014-09 that include collectiblity,
presentation of sales and other taxes collected from customers, noncash consideration, contract modifications and
completed contracts at transition. In April 2016, the FASB issued ASU 2016-10, "Identifying Performance
Obligations and Licensing," which amends the guidance in ASU 2014-09 on accounting for licenses of intellectual
property and identifying performance obligations. In March 2016, the FASB issued ASU 2016-08, "Principal versus
Agent Considerations (Reporting Revenue Gross versus Net)," which amends the principal versus agent guidance in
ASU 2014-09. The standards are to be applied retrospectively and permit the use of either the retrospective or
cumulative effect transition method. We will use the cumulative effect transition method once we adopt ASUs
2014-09, 2016-20, 2016-12, 2016-10 and 2016-08 on January 1, 2018. We have completed revenue recognition
diagnostic surveys across all regions in our decentralized sales contracting process, which is based on local country
commercial regulations and practices. We have begun assessing individual contracts to identify performance
obligations under these ASU’s, as compared with the deliverables and separate units of accounting previously
identified under current U.S. GAAP, to determine the effect that these ASU’s will have on our consolidated financial
statements and related disclosures.

ITEM 7A. QUANTITIVE 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 liquid resources, 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. These derivative transactions do not qualify for hedge accounting
treatment. Derivative instruments used in these transactions are valued at fair value 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 on a centralized basis. This allows for the netting of natural offsets and
lowers transaction costs and net exposures. 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. Moreover, weakening in one currency can often be offset by strengthening in
another currency. Foreign exchange risk is also managed through the use of forward foreign exchange contracts.
Positions are primarily in Euro, Swiss Franc, British Sterling, Singapore Dollar, Brazilian Real and Japanese Yen.
The majority of forward contracts are for periods of 90 days or less. We record the change in value of our foreign
currency 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 decline of 10% on quoted foreign exchange rates would result in an approximate net-present-value loss of
$30 million on our derivative position as of December 31, 2016. 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 we
have outstanding, there would not be a material impact to earnings or cash flows if interest rates moved adversely
by 10%. Our long-term debt consists primarily of fixed-rate instruments, and is thus insulated from interest rate
changes. As of December 31, 2016, the overall interest rate risk associated with our debt was not significant.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2016 and 2015
Consolidated Statements of Income for each of the three years in the period ended

December 31, 2016

Consolidated Statements of Comprehensive Income for each of the three years in the period

December 31, 2016

Consolidated Statements of Cash Flows for each of the three years in the period ended

December 31, 2016

Consolidated Statements of Changes in Stockholders’ Equity for each of the three years

in the period ended December 31, 2016
Notes to Consolidated Financial Statements

Page

41-42

43-44

48
49-85

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Bio-Rad Laboratories, Inc.:

We have audited the accompanying consolidated balance sheets of Bio-Rad Laboratories, Inc. and subsidiaries (the
Company) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive
period ended December 31, 2016.
income, stockholders’ equity, and cash flows for each of the years in the
In connection with our audits of the consolidated financial statements, we also have audited the financial statement
schedule. These consolidated financial statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Bio-Rad Laboratories, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results
period ended December 31, 2016, in
of their operations and their cash flows for each of the years in the
conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Bio-Rad Laboratories, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated February 28, 2017 expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

San Francisco, California
February 28, 2017

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Laboratories, Inc.:

We have audited Bio-Rad Laboratories, Inc.’s (the Company) internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Bio-Rad Laboratories Inc.’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 (Item 9A(b)). Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). 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 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.

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.

In our opinion, Bio-Rad Laboratories, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Bio-Rad Laboratories, Inc. and subsidiaries as of December 31, 2016 and
2015, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash
flows for each of the years in the three-year period ended December 31, 2016, and our report dated February 28, 2017
expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

/s/ KPMG LLP

San Francisco, California
February 28, 2017

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

ASSETS
Current assets:

Cash and cash equivalents
Short-term investments
Restricted investments
Accounts receivable, less allowance for doubtful accounts of $23,367 at 2016 and

$24,418 at 2015

Inventories:

Raw materials
Work in process
Finished goods

Total inventories

Prepaid expenses
Other current assets
Total current assets

Property, plant and equipment:
Land and improvements
Buildings and leasehold improvements
Equipment
Total property, plant and equipment
Less: accumulated depreciation and amortization

Property, plant and equipment, net

Goodwill, net
Purchased intangibles, net
Other investments
Other assets

Total assets

December 31,

2016

2015

456,264
383,176
4,560

457,549
328,718
4,210

372,348

391,485

116,540
125,982
282,439
524,961

109,928
114,438
265,858
490,224

91,014
12,201
1,844,524

94,369
11,041
1,777,596

17,895
290,367
919,126
1,227,388
(738,774)
488,614

17,823
276,070
823,193
1,117,086
(679,396)
437,690

477,115
161,609
830,790
47,852
3,850,504

495,948
214,026
719,840
64,618
3,709,718

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)

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued payroll and employee benefits
Notes payable and current maturities of long-term debt
Income and other taxes payable
Deferred revenue
Other current liabilities

Total current liabilities

Long-term debt, net of current maturities
Deferred income taxes
Other long-term liabilities
Total liabilities

Commitments and contingent liabilities

Stockholders’ equity:

Preferred stock, $0.0001 par value, 7,500,000 shares authorized; issued and

outstanding - none

Class A common stock, $0.0001 par value; 80,000,000 shares authorized; shares

issued - 24,454,048 and 24,230,448 at 2016 and 2015, respectively; shares
outstanding - 24,453,926 and 24,230,326 at 2016 and 2015, respectively

Class B common stock, $0.0001 par value; 20,000,000 shares authorized; shares

issued - 5,123,883 and 5,130,558 at 2016 and 2015, respectively; shares
outstanding - 5,122,966 and 5,129,641 at 2016 and 2015, respectively

Additional paid-in capital

Class A treasury stock at cost, 122 shares at 2016 and 2015
Class B treasury stock at cost, 917 shares at 2016 and 2015

Retained earnings
Accumulated other comprehensive income

Total stockholders’ equity
Total liabilities and stockholders’ equity

December 31,

2016

2015

133,109
163,364
334
28,124
31,003
115,388
471,322

122,391
157,857
298
29,339
29,683
101,783
441,351

434,186
222,919
135,318
1,263,745

433,883
233,475
110,506
1,219,215

—

1
332,911
(12)
(89)
1,836,180
417,766
2,586,759
3,850,504

1
300,408
(12)
(89)
1,808,055
382,138
2,490,503
3,709,718

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

BIO-RAD LABORATORIES, INC.
Consolidated Statements of Income
(In thousands, except per share data)

Net sales

Cost of goods sold

Gross profit

Selling, general and administrative expense
Research and development expense
Impairment losses on goodwill and long-lived assets

Income from operations
Interest expense
Foreign exchange losses, net
Other (income) expense, net

Income before income taxes

Provision for income taxes

Net income

Basic earnings per share:

Net income per basic share
Weighted average common shares - basic

Diluted earnings per share:

Net income per diluted share
Weighted average common shares - diluted

Year Ended December 31,

2016

2015

2014

2,068,172 $
930,085
1,138,087
816,724
205,864
62,305
53,194
21,942
4,542
(14,850)
41,560
(13,435)
28,125 $

2,019,441 $
897,771
1,121,670
761,990
192,972
—
166,708
21,692
10,249
(11,080)
145,847
(32,754)
113,093 $

2,175,044
996,527
1,178,517
808,200
220,333
—
149,984
22,131
9,305
(13,009)
131,557
(42,712)
88,845

0.96 $

3.87 $

29,440

29,186

3.08
28,876

0.95 $

3.85 $

29,646

29,409

3.05
29,133

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

BIO-RAD LABORATORIES, INC.
Consolidated Statements of Comprehensive Income
(In thousands)

Net income
Other comprehensive income (loss):

Foreign currency translation adjustments

Foreign other post-employment benefits adjustments, net of
income taxes
Net unrealized holding gains on available-for-sale (AFS)
investments, net of income taxes

Other comprehensive income (loss), net of income taxes
Comprehensive income (loss)

2016

Year Ended December 31,
2015
113,093 $

28,125

2014

88,845

(32,394)

(37,536)

(118,142)

2,086

(4,403)

(8,186)

65,936
35,628
63,753

205,132
163,193
276,286 $

4,556
(121,772)
(32,927)

Reclassification adjustments are calculated using the specific identification method.
The accompanying notes are an integral part of these consolidated financial statements.

BIO-RAD LABORATORIES, INC.
Consolidated Statements of Cash Flows
(In thousands)

Cash flows from operating activities:
Cash received from customers
Cash paid to suppliers and employees
Interest paid, net
Income tax payments, net
Settlement with the SEC and DOJ relating to the FCPA, including
interest
Investment proceeds and miscellaneous receipts, net
Excess tax benefits from share-based compensation
(Payments for) proceeds from forward foreign exchange contracts, net
Net cash provided by operating activities

Cash flows from investing activities:

Capital expenditures
Proceeds from dispositions of property, plant and equipment
Payments for acquisition and long-term investment
Payments for purchases of intangible assets
Payments for purchases of restricted investment
Payments for purchases of marketable securities and investments
Proceeds from sales of marketable securities and investments
Proceeds from maturities of marketable securities and investments
Net cash used in investing activities

Cash flows from financing activities:

Net borrowings (payments) on line-of-credit arrangements and notes
payable
Payments on long-term borrowings
Proceeds from issuances of common stock for share-based
compensation
Payments of contingent consideration
Debt issuance costs on long-term borrowings
Excess tax benefits from share-based compensation
Net cash provided by financing activities
Effect of foreign exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Year Ended December 31,

2016

2015

2014

$ 2,074,024
(1,810,844)
(21,318)
(38,442)

$ 1,956,084
(1,730,062)
(20,793)
(31,715)

$ 2,162,520
(1,806,526)
(20,793)
(28,939)

—
15,683
(1,506)
(1,164)
216,433

(141,436)
398
(14,165)
(135)
(350)
(278,071)
76,859
143,020
(213,880)

—
11,953
(3,610)
4,353
186,210

(112,000)
79
(4,356)
(1,372)
(4,210)
(294,497)
78,664
170,823
(166,869)

(55,050)
15,671
(1,349)
7,778
273,312

(120,999)
225
(44,627)
(15,479)
—
(205,746)
75,725
120,390
(190,511)

37
(303)

—
(282)

(1,560)
(253)

11,280
(3,500)
—
1,506
9,020
(12,858)
(1,285)
457,549
$ 456,264

8,236
(2,983)
—
3,610
8,581
16,376
44,298
413,251
457,549

15,051
(2,374)
(524)
1,349
11,689
(12,790)
81,700
331,551
$ 413,251

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)

Common
Stock

Additional Paid-
in Capital

Treasury Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Total
Stockholders'
Equity

Balance at December 31, 2013
Net income
Other comprehensive loss, net of tax
Issuance of common stock
Stock compensation expense
Tax benefit-exercise stock options
Balance at December 31, 2014
Net income
Other comprehensive income, net of
tax
Issuance of common stock
Stock compensation expense
Tax benefit-exercise stock options
Balance at December 31, 2015
Net income
Other comprehensive income, net of
tax
Issuance of common stock
Stock compensation expense
Tax benefit-exercise stock options

3
—
—
—
—
—
3
—

—
—
—
—
3
—

—
—
—
—

239,986
—
—
15,051
14,888
1,421
271,346
—

—
8,236
16,983
3,843
300,408
—

—
11,280
19,730
1,493

(101) $ 1,606,117
88,845
—
—
—
—
1,694,962
113,093

—
—
—
—
—
(101)
—

340,717
—
(121,772)
—
—
—
218,945
—

$ 2,186,722
88,845
(121,772)
15,051
14,888
1,421
2,185,155
113,093

—
—
—
—
(101)
—

—
—
—
—

—
—
—
—
1,808,055
28,125

—
—
—
—

163,193
—
—
—
382,138
—

35,628
—
—
—

163,193
8,236
16,983
3,843
2,490,503
28,125

35,628
11,280
19,730
1,493

Balance at December 31, 2016

332,911

(101) $ 1,836,180

417,766

$ 2,586,759

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

BIO-RAD LABORATORIES, INC.
Notes to Consolidated Financial Statements

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.

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

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. Cash equivalents are stated at cost, which approximates fair value.

Short-term Restricted Investments

Short-term restricted investments of $4.56 million and $4.21 million at December 31, 2016 and 2015, respectively,
represent a money market fund for collateral that secures worker's compensation and general liability insurance.
Investment income accrues to Bio-Rad and is recorded in Cash and cash equivalents in the Consolidated Balance
Sheets.

Available-for-Sale Investments

Available-for-sale investments consist of corporate obligations, municipal securities, asset backed securities, U.S.
government sponsored agencies and marketable equity securities. 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, net of any related tax effect. Unrealized losses are charged against
income when a decline in the fair value of an individual security is determined to be other-than-temporary. We
review our available-for-sale investments for other-than-temporary losses on a quarterly basis. Realized gains and
losses and other-than-temporary impairments on investments are included in Other (income) expense, net (see Note
10).

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 and trade accounts receivable. Cash and cash equivalents and

investments are placed with various highly rated major financial institutions located in different geographic regions.
Bio-Rad has not sustained significant losses from instruments held at financial institutions.

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. However, we do not expect to record any losses
as a result of counterparty default.

We perform credit evaluation procedures related to our trade receivables and with the exception of certain
developing countries, generally do not require collateral. As a result of increased risk in certain developing
countries, some Bio-Rad sales are subject to collateral letters of credit from our customers. Credit risk for trade
accounts receivable is generally limited due to the large number of customers and their dispersion across many
geographic areas. However, a significant amount of trade receivables are with national healthcare systems in
countries within the European Union.

Accounts Receivable

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to
make required payments. The amount of the allowance is determined by analyzing known uncollectible accounts,
aged receivables, economic conditions in the customers’ country or industry, historical losses and our customers’
credit-worthiness. Amounts later determined and specifically identified to be uncollectible are charged or written
off against this allowance.

Inventory

Inventories are valued at the lower of actual cost or market (net realizable value) and include material, labor and
overhead costs. The first-in, first-out method is used to relieve inventory for products sold.

Property, Plant and Equipment

Property, plant and equipment are carried at cost, less accumulated depreciation and amortization. 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.
Property, plant and equipment are assessed for impairment quarterly or whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Buildings and
leasehold improvements are amortized over 15-30 years or the term of the leases or life of the improvements,
whichever is shorter. With the exception of reagent rental equipment, which is amortized over a 1-5 year period,
equipment and capitalized software is depreciated over 3-12 years.

Goodwill

Goodwill represents the excess of the cost over the fair value of net tangible and identifiable intangible assets of
acquired businesses. Goodwill is assessed for impairment by applying fair value based tests annually in the fourth
quarter or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
We perform impairment tests of goodwill at our reporting unit level, which is one level below our operating
segments. Our reporting units are identified as components for which discrete financial information is available and
is regularly reviewed by management. Goodwill amounts are assigned to reporting units at the time of acquisition.

The goodwill impairment test consists of a two-step process. The first step of the goodwill impairment test, used to
identify potential impairment, compares the fair value of a reporting unit to its carrying value, including goodwill.

We use a projected discounted cash flow model to determine the fair value of a reporting unit. If the fair value of
the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the
second step of the impairment test is not required. The second step, if required, compares the implied fair value of
the reporting unit goodwill with the carrying amount of that goodwill. The fair value of a reporting unit is allocated
to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit
had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire
the reporting unit. If the carrying amount of the reporting unit’s goodwill exceeds its implied fair value, an
impairment charge is recognized in an amount equal to that excess.

Long-Lived Assets

For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped with
other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities. We assess the impairment of long-lived assets (including identifiable intangible
assets) quarterly or whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors that we consider important that could trigger an impairment review include:

•
•

•

significant under-performance relative to expected, historical or projected future operating results;
significant changes in the manner of use of the long-lived assets, intangible assets or the strategy for our
overall business;
a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of at a
loss before the end of its previously estimated useful life; and
significant negative industry, legal, regulatory or economic trends.

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 losses, 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
the 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. To
the extent we determine that we are able to realize our deferred income tax assets in the future in excess of their net
recorded amount, we make an adjustment to the valuation allowance which may reduce the provision for income
taxes. 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.

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

Revenue is recognized when pervasive evidence of an arrangement exists, the price to the buyer is fixed or
determinable, collectability is reasonably assured and title has passed to the customer or product has been delivered
absent specific contractual specifications. Revenue associated with equipment that requires factory installation is
not recorded until installation is complete and customer acceptance, if required contractually, has occurred. At the
time revenue is recognized, a provision is recognized for estimated product returns. Service revenues on extended
warranty contracts are recognized ratably over the life of the service agreement, or as services are performed if not
under contract. Net sales are the actual selling price of products to customers. Any taxes billed to the customer
(sales tax, value added tax, etc.) shall be credited to the tax liability accounts and excluded from net sales.

Reagent agreements are a diagnostic industry sales method that provides use of an instrument and consumables
(reagents) to a customer on a per test basis. We evaluate our reagent agreements and account for these contracts
under the guidance pertaining to accounting for revenue arrangements with multiple deliverables. Our reagent
agreements represent one unit of accounting as the instrument and consumables are interdependent in producing a
diagnostic result that neither has a stand-alone value with respect to these agreements. All revenues that we earn
under our reagent agreements are recognized pursuant to the terms of each agreement and are based and entirely
contingent upon either (i) when the consumables to conduct a fixed number of tests are delivered or (ii) as reported
by the customer on a per test basis.

Shipping and Handling

We classify all freight costs billed to customers as Net sales. Related freight costs are included in Cost of goods
sold.

Warranty

We warrant certain equipment against defects in design, materials and workmanship, mostly for a period of one
year. Upon delivery of that equipment, we establish, as part of Cost of goods sold, a provision for the expected
costs of such warranty based on historical experience, specific warranty terms and customer feedback. A review is
performed on a quarterly basis to assess the adequacy of our warranty accrual.

Changes in the warranty accrual, included in Other current liabilities and Other long-term liabilities, were as
follows (in millions):

January 1

Provision for warranty
Actual warranty costs

December 31

Research and Development

2016

2015

17.4 $
33.4
(33.2)
17.6 $

17.8
30.6
(31.0)
17.4

Internal research and development costs are expensed as incurred. Third-party research and development costs are
expensed when the contracted work has been performed.

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.

Share-Based Compensation Plans

Stock-based compensation expense for all share-based payment awards granted is determined based on the grant-
date fair value. We recognize these compensation costs net of estimated forfeitures over the requisite service period
of the award, which is generally the vesting term of the share-based payment awards. We estimated the forfeiture
rate based on our historical experience. These plans are described more fully in Note 9.

Earnings Per Share

Basic earnings per share is computed by dividing net income 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 and restricted 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 per share calculation if the effect
would be anti-dilutive.

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

Basic weighted average shares outstanding
Effect of potentially dilutive stock options
and restricted stock awards
Diluted weighted average common shares

Anti-dilutive stock options and restricted stock awards
excluded from the computation of diluted EPS

Year Ended December 31,
2015

2014

2016

29,440

29,186

28,876

206
29,646

223
29,409

257
29,133

113

109

122

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).

Recent Accounting Standards Updates

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.
(“ASU”) 2017-04, "Simplifying the Test for Goodwill Impairment." ASU 2017-04 removes Step 2 of the goodwill
impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will be the amount
by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
ASU 2017-04 is effective prospectively for annual and interim periods beginning after December 15, 2019. Early
adoption is permitted for any impairment tests performed after January 1, 2017. ASU 2017-04 will provide a more
stream-lined approach to evaluating future goodwill impairment and we early adopted on January 1, 2017. We have
not assessed the impact that ASU 2017-04 will have on our consolidated financial statements because a goodwill
impairment has not occurred after January 1, 2017.

In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a Business." ASU 2017-01 changes
the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a
business. If substantially all of the fair value is concentrated in a single asset or a group of similar assets, the
acquired set is not a business. If this is not met, the entity then evaluates whether the set meets the requirement that
a business include, at a minimum, an input and a substantive process that together significantly contribute to the
ability to create outputs. Determining whether a set constitutes a business is critical because the accounting for a
business combination differs significantly from that of an asset acquisition. ASU 2017-01 is effective for fiscal
years beginning after December 15, 2017, and interim periods within those years. ASU 2017-01 will be applied
prospectively to any transactions occurring within the period of adoption. Early adoption is permitted, including for
interim or annual periods in which the financial statements have not been issued or made available for issuance. We
early adopted ASU 2017-01 on January 1, 2017. For our acquisition of RainDance Technologies, Inc., ASU
2017-01 did not affect the conclusion of it being a business combination (see Note 17 to the consolidated financial
statements).

In November 2016, the FASB issued ASU 2016-18, "Restricted Cash." ASU 2016-18 requires entities to show the
changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash
flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash
and restricted cash equivalents in the statement of cash flows. ASU 2016-18 will be applied retrospectively and is
effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early
adoption is permitted. We have had a limited amount of restricted cash of $2.0 million and $1.4 million as of
December 31, 2016 and 2015, respectively, which was reclassified from cash to either Prepaid expenses, Other
current assets or Other assets in the Consolidated Balance Sheets. At the time of adoption, we cannot assure
whether these same restricted cash amounts will be held or what other restricted cash we may have, or that
historically reported amounts will be similar.

inventory transfers. Existing GAAP prohibits recognition of income tax consequences of intercompany asset
transfers whereby the seller defers any net tax effect and the buyer is prohibited from recognizing a deferred tax
asset on the difference between the newly created tax basis of the asset in its tax jurisdiction and its financial
statement carrying amount as reported in the consolidated financial statements. ASU 2016-16 specifically excludes
from its scope intercompany inventory transfers whereby the recognition of tax consequences will take place when
the inventory is sold to third parties. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017,
and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual reporting
period for which financial statements have not been issued or made available for issuance. We do not plan to early
adopt ASU 2016-16. We are currently evaluating the effect ASU 2016-16 will have on our consolidated financial
statements.

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments."
ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of
cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years, with early adoption permitted. We are currently evaluating the effect ASU 2016-15 will
have on our consolidated statements of cash flows, if any.

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." ASU
2016-13 will replace the current incurred loss approach with an expected loss model for trade and other receivables,
and instruments measured at amortized cost and require entities to record allowances for available-for-sale debt
securities rather than reduce the carrying amount under the current other-than-temporary impairment model. ASU
2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal
years. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and
interim periods therein. We are currently evaluating the effect ASU 2016-13 will have on our consolidated financial
statements.

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting."
ASU 2016-09 will require all income tax effects of awards to be recognized in the income statement when the
awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can
today for tax withholding purposes without triggering liability accounting and to make a policy election to account
for forfeitures as they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and
interim periods within those fiscal years. We adopted ASU 2016-09 on January 1, 2017 and made a policy election
to account for forfeitures as they occur. We do not expect ASU 2016-09 to have a material impact on our
consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, "Simplifying the Transition to the Equity Method of Accounting,"
which eliminates the requirement to retrospectively apply the equity method in previous periods when an investor
initially obtains significant influence over an investee. Under current guidance, an investor that does not
consolidate an investment and initially accounts for it under a method other than the equity method is required to
retrospectively apply the equity method in prior periods in which it held the investment when it subsequently
obtained significant influence. ASU 2016-07 will be applied on a prospective basis and is effective for all entities
for fiscal years beginning after December 15, 2016, and interim periods within those years. We adopted ASU
2016-07 on January 1, 2017 and do not expect it to materially affect our consolidated financial statements, unless
our situation changes regarding our ability to influence the investee in the future as a result of our cost method
investment in Sartorius AG (see Note 3 to the consolidated financial statements).

In February 2016, the FASB issued ASU 2016-02, "Leases," which will require, among other items, lease
accounting to recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative
disclosures will be enhanced to better understand the amount, timing and uncertainty of cash flows arising from
leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years, with early adoption permitted. We do not plan to early adopt. ASU 2016-02 will be adopted on a
modified retrospective basis, with elective reliefs, which requires application of ASU 2016-02 for all periods

presented. We are currently gathering, documenting and analyzing lease agreements related to this ASU and
anticipate material additions to the balance sheet for right-of-use assets, offset by the associated liabilities.

In January 2016, the FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial
Liabilities." Amendments under ASU 2016-01, among other items, require that all equity investments in
unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be
measured at fair value through earnings. There will no longer be an available-for-sale classification, for which
changes in fair value are reported in other comprehensive income, for equity securities with readily determinable
fair values. For equity investments without readily determinable fair values, the cost method is also eliminated.
However, entities will be able to elect to record equity investments without readily determinable fair values at cost,
less impairment, and plus or minus subsequent adjustments for observable price changes. Changes in the basis of
these equity investments will be reported in current earnings. ASU 2016-01 is effective for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. For equity securities that would be affected
by ASU 2016-01, see the available-for-sale investments table in Note 3 to the consolidated financial statements. At
the time of adoption, we cannot assure whether these same equity securities will be held or what other equity
securities we may have, or that historically reported changes will be similar.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” Under current
guidance, an entity subsequently measures inventory at the lower of cost or market, with market defined as
replacement cost, net realizable value (NRV), or NRV less a normal profit margin. An entity uses current
replacement cost provided that it is not above NRV (i.e., the ceiling) or below NRV less an “approximately normal
profit margin” (i.e., the floor). ASU 2015-11 eliminates this analysis and requires entities to measure most
inventory “at the lower of cost and NRV.” ASU 2015-11 is effective prospectively for annual periods beginning
after December 15, 2016, and interim periods therein. We adopted ASU 2015-11 on January 1, 2017 and do not
expect it to have a material impact to our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs." ASU
2015-03 was issued to simplify the presentation of debt issuance costs by requiring debt issuance costs to be
presented as a deduction from the corresponding debt liability. This makes the presentation of debt issuance costs
consistent with the presentation of debt discounts or premiums. Under prior U.S. GAAP, debt issuance costs were
reported on the balance sheet as assets and amortized as interest expense. Under ASU 2015-03, debt issuance costs
will continue to be amortized to interest expense using the effective interest method. In August 2015, the FASB
issued ASU 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-
Credit Arrangements" to clarify the SEC staff’s position that it would not object to an entity deferring and
presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over
the term of the line-of-credit arrangement, which is our current practice. We adopted ASU 2015-03 on January 1,
2016 on a retrospective basis as a change in accounting policy. The Condensed Consolidated Balance Sheet as of
December 31, 2015 was retrospectively adjusted by decreasing Other assets and Long-term debt, net of current
maturities, by $1.8 million, respectively.

beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is
permitted as of the original effective date in ASU 2014-09, which is annual reporting periods beginning after
December 15, 2016, however, we will not early adopt. In December 2016, the FASB issued ASU 2016-20,
"Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers" which affect
narrow aspects of the guidance issued in ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, "Narrow-
Scope Improvements and Practical Expedients," which amends and clarifies certain aspects in ASU 2014-09 that
include collectiblity, presentation of sales and other taxes collected from customers, noncash consideration, contract
modifications and completed contracts at transition. In April 2016, the FASB issued ASU 2016-10, "Identifying
Performance Obligations and Licensing," which amends the guidance in ASU 2014-09 on accounting for licenses of
intellectual property and identifying performance obligations. In March 2016, the FASB issued ASU 2016-08,
"Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," which amends the principal versus
agent guidance in ASU 2014-09. The standards are to be applied retrospectively and permit the use of either the
retrospective or cumulative effect transition method. We will use the cumulative effect transition method once we
adopt ASUs 2014-09, 2016-20, 2016-12, 2016-10 and 2016-08 on January 1, 2018. We have completed revenue
recognition diagnostic surveys across all regions in our decentralized sales contracting process, which is based on
local country commercial regulations and practices. We have begun assessing individual contracts to identify
performance obligations under these ASU’s, as compared with the deliverables and separate units of accounting
previously identified under current U.S. GAAP, to determine the effect that these ASU’s will have on our
consolidated financial statements and related disclosures.

ACQUISITIONS

Propel Labs, Inc.

In January 2016, we acquired a high performance analytical flow cytometer platform from Propel Labs (Propel) that
will enable advanced and novice users to perform basic and multi-parameter cytometry for a wide range of
applications and chemistries. This asset acquisition was accounted for as a business combination, as the new
analytical flow cytometer platform represented an integrated set of activities and assets that is capable of being
conducted and managed for the purpose of providing a return and therefore constitutes a business in accordance
with GAAP. The amount of the acquisition-related cost was minimal as Bio-Rad primarily represented itself during
the acquisition process. This business acquisition is included in our Life Science segment’s results of operations
from the acquisition date.

The fair value of the consideration as of the acquisition date was $32.8 million, which included $9.5 million paid in
cash at the closing date and $23.3 million in contingent consideration potentially payable to Propel, after the effects
of a calculation revision that were reflected in the fourth quarter of 2016. This revision reduced goodwill/
intangibles and contingent consideration by the same amount and had no significant impact on our Consolidated
Income Statement. The contingent consideration was based on a probability-weighted income approach related to
the achievement of certain sales milestones, and was recognized at its estimated fair value of $25.4 million as of
December 31, 2016 (see Note 3, "Fair Value Measurements").

The fair values of the net assets acquired from Propel as of the acquisition date were determined to be $32.7 million
of definite-lived intangible assets and $0.1 million of goodwill. We expect the goodwill recorded to be deductible
for income tax purposes. The acquired analytical flow cytometer platform fits well into Bio-Rad’s existing Life
Science segment product offerings and may offer researchers greater access to this technology.

In addition, Bio-Rad contracted with Propel to provide development services concurrent with and included in the
purchase agreement. Bio-Rad is receiving future manufacturing, engineering and marketing support from Propel on
which payments will be made upon the successful completion of all contracted services. As a result, these services
are not included in the total purchase consideration and a majority will be expensed in future periods.

3. FAIR VALUE MEASUREMENTS

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

• Level 1: Quoted prices in active markets for identical instruments
• Level 2: Other significant observable inputs (including quoted prices in active markets for similar

instruments)

• Level 3: Significant unobservable inputs (including assumptions in determining the fair value of certain

investments)

Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2016 are
classified in the hierarchy as follows (in millions):

Level 1

Level 2

Level 3

Total

Financial Assets Carried at Fair Value:
Cash equivalents (a):
Commercial paper
Foreign time deposits
Domestic time deposits
U.S. government sponsored agencies
Money market funds

Total cash equivalents

Restricted investment:
Available-for-sale investments (b):

Corporate debt securities
U.S. government sponsored agencies
Foreign government obligations
Brokered certificates of deposit
Municipal obligations
Marketable equity securities
Asset-backed securities

Total available-for-sale investments

Forward foreign exchange contracts (c)

Total financial assets carried at fair value

Financial Liabilities Carried at Fair Value:
Forward foreign exchange contracts (d)
Contingent consideration (e)

Total financial liabilities carried at fair value

— $

11.8
—
—
5.9
17.7
4.6

—
—
—
—
—
767.8
—
767.8
—
790.1 $

14.1 $
—
20.0
1.1
—
35.2
—

179.4
82.5
4.4
3.6
15.4
—
62.5
347.8
0.6
383.6 $

— $
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—
— $

14.1
11.8
20.0
1.1
5.9
52.9
4.6

179.4
82.5
4.4
3.6
15.4
767.8
62.5
1,115.6
0.6
1,173.7

— $
—
— $

1.3 $
—
1.3 $

— $

38.5
38.5 $

1.3
38.5
39.8

Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2015 are
classified in the hierarchy as follows (in millions):

Financial Assets Carried at Fair Value:
Cash equivalents (a):
Commercial paper
Foreign government obligations
Foreign time deposits
U.S. government sponsored agencies
Money market funds

Total cash equivalents

Restricted investment:
Available-for-sale investments (b):

Corporate debt securities
U.S. government sponsored agencies
Foreign government obligations
Municipal obligations
Marketable equity securities
Asset-backed securities

Total available-for-sale investments

Forward foreign exchange contracts (c)

Total financial assets carried at fair value

Financial Liabilities Carried at Fair Value:
Forward foreign exchange contracts (d)
Contingent consideration (e)

Total financial liabilities carried at fair value

Level 1

Level 2

Level 3

Total

— $
—
11.9
—
11.3
23.2
4.2

—
—
—
—
660.1
—
660.1
—
687.5 $

33.2
0.6
—
14.6
—
48.4
—

156.9
74.8
4.6
6.4
—
54.8
297.5
0.9
346.8

— $
—
—
—
—
—
—

—
—
—
—
—
—
—
—
— $

33.2
0.6
11.9
14.6
11.3
71.6
4.2

156.9
74.8
4.6
6.4
660.1
54.8
957.6
0.9
1,034.3

— $
—
— $

1.1
—
1.1 $

— $

19.1
19.1 $

1.1
19.1
20.2

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

(b) Available-for-sale investments are included in the following accounts in the Consolidated Balance Sheets

(in millions):

Short-term investments
Other investments

Total

December 31,
2016

December 31,
2015

383.2
732.4
1,115.6

328.7
628.9
957.6

Consolidated Balance Sheets.

(d) Forward foreign exchange contracts in a liability position are included in Other current liabilities in the

Consolidated Balance Sheets.

(e) Contingent consideration liabilities are included in the following accounts in the Consolidated Balance

Sheets (in millions):

Other current liabilities
Other long-term liabilities
Total

December 31,
2016

December 31,
2015

14.5
24.0
38.5

13.5
5.6
19.1

In 2012, we recognized a contingent consideration liability for certain milestones of $44.6 million upon our
acquisition of a new cell sorting system from Propel. Since 2012, we have paid $28.9 million upon reaching the
milestones and have reduced the valuation of the milestones by $12.6 million to its estimated fair value of $3.1
million as of December 31, 2016. The remaining liability was paid in February 2017.

During the first quarter of 2016, we recognized a contingent consideration liability upon our acquisition of a new
high performance analytical flow cytometer platform from Propel. At the acquisition date, the contingent
consideration was based on a probability-weighted income approach related to the achievement of sales milestones,
ranging from 39% to 20% for the calendar years 2017 through 2020. The sales milestones could potentially range
from $0 to an unlimited amount through December 31, 2020. The fair value of the contingent consideration as of
the acquisition date was $23.3 million, after the effects of a calculation revision that were reflected in the fourth
quarter of 2016. The contingent consideration was recognized at its estimated fair value of $25.4 million as of
December 31, 2016.

The following table provides a reconciliation of the Level 3 cell sorting system and analytical flow cytometer
platform contingent consideration liabilities measured at estimated fair value based on original valuations and
updated quarterly for the year ended December 31, 2016 (in millions):

January 1
Cell sorting system:
Payment of sales milestone
Net decrease in estimated fair value of contingent
consideration included in Selling, general and
administrative expense

Analytical flow cytometer platform:

Acquisition of high performance analytical flow
cytometer platform
Increase in estimated fair value of contingent
consideration included in Selling, general and
administrative expense
December 31

2016

9.1

(3.5)

(2.5)

23.3

2.1
28.5

The following table provides quantitative information about Level 3 inputs for fair value measurement of analytical
flow cytometer platform contingent consideration liability as of December 31, 2016. Significant increases or
decreases in these inputs in isolation could result in a significantly lower or higher fair value measurement.

Valuation Technique

Unobservable Input

Analytical
flow cytometer
platform

Probability-weighted
income approach

Sales milestones:
Discount rate
Cost of debt

Range

From

10%

4.7%

In 2014, we recognized a contingent consideration liability upon our acquisition of GnuBIO, Inc.. The contingent
consideration for the milestones was valued at $10.7 million at the acquisition date based on assumptions regarding
the probability of achieving the milestones, with such amounts discounted to present value. The Level 3 contingent
consideration was revalued to a fair value of $10.0 million as of December 31, 2016 and 2015.

To estimate the fair value of Level 2 debt securities as of December 31, 2016 and 2015, our primary pricing
provider uses S&P Capital IQ as the primary pricing source. Our pricing process allows us to select a hierarchy of
pricing sources for securities held. The chosen pricing hierarchy for our Level 2 securities, other than certificates of
deposit and commercial paper, is S&P Capital IQ as the primary pricing source and then our custodian as the
secondary pricing source. If S&P Capital IQ does not price a Level 2 security that we hold, then the pricing
provider will utilize our custodian supplied pricing.

For commercial paper as of December 31, 2016 and 2015, pricing is determined by a straight-line calculation,
starting with the purchase price on the date of purchase and increasing to par at maturity. Interest bearing
certificates of deposit and commercial paper are priced at par.

Our primary pricing provider performs daily reasonableness testing of S&P Capital IQ prices. Price changes of 5%
or greater are investigated and resolved. In addition, we perform a quarterly testing of the S&P Capital IQ prices to
custodian reported prices. Prices outside a tolerable variance of approximately 1% are investigated and resolved.

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

Short-term investments:

Corporate debt securities
Brokered certificates of deposit
Municipal obligations
Asset-backed securities
U.S. government sponsored agencies
Foreign government obligations
Marketable equity securities

Long-term investments:

Marketable equity securities
Asset-backed securities

Total

December 31, 2016

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair
Value

179.7 $
3.6
15.5
62.2
83.1
4.4
32.4
380.9

54.5
0.3
54.8
435.7 $

0.2 $
—
—
0.1
0.1
—
3.7
4.1

677.6
—
677.6
681.7 $

(0.5) $
—
(0.1)
(0.1)
(0.7)
—
(0.4)
(1.8)

—
—
—
(1.8) $

179.4
3.6
15.4
62.2
82.5
4.4
35.7
383.2

732.1
0.3
732.4
1,115.6

December 31, 2015

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair
Value

Short-term investments:

Corporate debt securities
Municipal obligations
Asset-backed securities
U.S. government sponsored agencies
Foreign government obligations
Marketable equity securities

Long-term investments:

Marketable equity securities
Asset-backed securities

157.2 $
6.4
54.8
74.9
4.6
29.4
327.3

54.5
0.3
54.8

0.1 $
—
—
0.1
—
2.7
2.9

574.2
—
574.2

(0.4) $
—
(0.2)
(0.2)
—
(0.7)
(1.5)

—
(0.1)
(0.1)

Total

382.1 $

577.1 $

(1.6) $

156.9
6.4
54.6
74.8
4.6
31.4
328.7

628.7
0.2
628.9

957.6

The unrealized gains of our long-term marketable equity securities are primarily due to our investment in Sartorius
AG preferred shares.

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

December 31,
2016

December 31,
2015

Fair value of investments in a loss position 12 months or more
Fair value of investments in a loss position less than 12 months
Gross unrealized losses for investments in a loss position 12 months or more
Gross unrealized losses for investments in a loss position less than 12 months

$
$
$
$

11.8 $
160.5

0.3 $
1.5 $

10.4
204.0
0.4
1.2

The unrealized losses on these securities are due to a number of factors, including changes in interest rates, changes
in economic conditions and changes in market outlook for various industries, among others. Because Bio-Rad has
the ability and intent to hold these investments with unrealized losses until a recovery of fair value, or for a
reasonable period of time sufficient for a forecasted recovery of fair value, which may be maturity, we do not
consider these investments to be other-than-temporarily impaired at December 31, 2016 or at December 31, 2015.

As part of distributing our products, we regularly enter into intercompany transactions. We enter into forward
foreign exchange contracts to manage foreign exchange risk of future movements in foreign exchange rates that
affect foreign currency denominated intercompany receivables and payables. We do not use derivative financial
instruments for speculative or trading purposes. We do not seek hedge accounting treatment for these contracts. As
a result, these contracts, generally with maturity dates of 90 days or less and denominated primarily in currencies of
industrial countries, are recorded at their fair value at each balance sheet date. The notional principal amounts
provide one measure of the transaction volume outstanding as of December 31, 2016 and do not represent the
amount of Bio-Rad's exposure to loss. The estimated fair value of these contracts was derived using the spot rates
from Reuters on the last business day of the quarter and the points provided by counterparties. The resulting gains

or losses offset exchange gains or losses on the related receivables and payables, both of which are included in
Foreign exchange losses, net in the Consolidated Statements of Income.

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

Contracts maturing in January through March 2017 to sell foreign currency:

Notional value
Unrealized loss

Contracts maturing in January through March 2017 to purchase foreign currency:

Notional value
Unrealized loss

December 31,
2016

$
$

16.9
0.1

328.3
0.6

The following is a summary of the amortized cost and estimated fair value of our debt securities at December 31,
2016 by contractual maturity date (in millions):

Mature in less than one year
Mature in one to five years
Mature in more than five years

Total

Amortized
Cost

Estimated Fair
Value

156.1 $
141.0
51.7

348.8 $

156.1
140.7
51.0

347.8

The estimated fair value of financial instruments that are not recognized at fair value in the Consolidated Balance
Sheets and are included in Other investments, are presented in the table below. Fair value has been determined
using significant observable inputs, including quoted prices in active markets for similar instruments. 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. Other investments
include financial instruments, the majority of which has fair value based on similar, actively traded stock adjusted
for various discounts, including a discount for marketability. Long-term debt, excluding leases and current
maturities, has an estimated fair value based on quoted market prices for the same or similar issues.

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

December 31, 2016

December 31, 2015

Other investments
Total long-term debt, excluding leases

and current maturities

Carrying
Amount
$

92.8 $

Estimated
Fair
Value

984.2

Fair Value
Hierarchy
Level
2

Carrying
Amount
86.5
$

Estimated
Fair
Value
$

843.2

Fair Value
Hierarchy
Level
2

$ 422.5 $

454.2

421.9 $

454.3

We own shares of ordinary voting stock of Sartorius AG (Sartorius), of Goettingen, Germany, a process technology
supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries. We own over 35% of the
outstanding voting shares (excluding treasury shares) of Sartorius as of December 31, 2016. The Sartorius family
trust and Sartorius family members hold a controlling interest of the outstanding voting shares. We do not have any
representative or designee on Sartorius’ board of directors, nor do we have the ability to exercise significant
influence over the operating and financial policies of Sartorius. We account for this investment using the cost
method. The carrying value of this investment is included in Other investments in our Consolidated Balance
Sheets. As the stock is thinly traded and in conjunction with the valuation method discussed above, we have
classified the estimated fair value as Level 2. The Level 2 classification is appropriate given the valuation method
employed, which incorporates an observable input of the fair value of the Sartorius’ actively traded preferred stock.

GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

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

Balances as of January 1:

Goodwill

Accumulated impairment losses and write-offs

Goodwill, net

Acquisitions

Impairment

Currency fluctuations

Balances as of December 31:

Goodwill

Accumulated impairment losses and write-offs

2016

2015

Life
Science

Clinical
Diagnostics

Total

Life
Science

Clinical
Diagnostics

Total

207.2

316.9

$ 524.1

207.7

320.9

$ 528.6

(27.2)

180.0

0.1
—

(0.2)

207.1

(27.2)

(1.0)

315.9

—
(13.5)

(5.2)

311.7

(14.5)

(28.2)

495.9

0.1
(13.5)

(5.4)

518.8

(41.7)

(27.2)

180.5

—
—

(0.5)

207.2

(27.2)

(1.0)

319.9

—
—

(28.2)

500.4

—
—

(4.0)

(4.5)

316.9

(1.0)

524.1

(28.2)

Goodwill, net

179.9

297.2

$ 477.1

180.0

315.9

$ 495.9

In conjunction with the purchase of certain assets from Propel in January 2016 (see Note 2, "Acquisitions"), we
recorded $0.1 million of goodwill and $32.7 million of definite-lived intangible assets: $29.7 million of developed
product technology and $3.0 million of covenants not to compete, after the effects of a calculation revision that
were reflected in the fourth quarter of 2016.

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

Customer relationships/lists
Know how
Developed product technology
Licenses
Tradenames
Covenants not to compete
Total definite-lived intangible assets
In-process research and development
Total purchased intangible assets

Average
Remaining
Life (years)
1-8
1-9
3-12
1-9
4-8
2-9

Average
Remaining
Life (years)
2-10
1-10
4-12
3-10
5-9
3-7

December 31, 2016

Purchase
Price

Accumulated
Amortization

Net
Carrying
Amount

84.4 $

182.6
125.9
39.0
3.5
7.8
443.2
—
443.2 $

(52.8) $

(136.9)
(56.3)
(30.6)
(2.5)
(2.5)
(281.6)
—
(281.6) $

31.6
45.7
69.6
8.4
1.0
5.3
161.6
—
161.6

December 31, 2015

Purchase
Price

Accumulated
Amortization

Net
Carrying
Amount

84.7 $

184.0
101.3
39.2
3.5
4.8
417.5
46.4
463.9 $

(46.8) $

(121.6)
(48.9)
(28.5)
(2.4)
(1.7)
(249.9)
—
(249.9) $

37.9
62.4
52.4
10.7
1.1
3.1
167.6
46.4
214.0

In 2016, we fully impaired goodwill and in-process research and development in the amounts of $13.5 million and
$46.4 million, respectively, associated with our 2014 acquisition of GnuBIO, Inc. The impairments were based
upon a revision of our Level 3 valuation inputs, i.e., expected future cash flows. There were no impairment losses
recorded in 2015.

Amortization expense related to purchased intangible assets for the years ended December 31, 2016, 2015 and 2014
was $35.2 million, $36.5 million and $47.8 million, respectively. Estimated future amortization expense (based on
existing purchased intangible assets) for the years ending December 31, 2017, 2018, 2019, 2020, 2021 and
thereafter is $27.2 million, $24.2 million, $21.4 million, $19.4 million, $18.4 million, and $51.0 million,
respectively.

NOTES PAYABLE AND LONG-TERM DEBT

The principal components of long-term debt are as follows (in millions):

4.875% Senior Notes due 2020, net of discount
Less unamortized discount and debt issuance costs
Long-term debt less unamortized discount and debt issuance costs
Capital leases and other debt

Less current maturities
Long-term debt

Senior Notes due 2020

December 31,
2016

December 31,
2015

425.0 $
(2.5)
422.5
12.0
434.5
(0.3)

434.2 $

425.0
(3.1)
421.9
12.3
434.2
(0.3)

433.9

In December 2010, Bio-Rad sold $425.0 million principal amount of Senior Notes due 2020 (4.875% Notes). The
sale yielded net cash proceeds of $422.6 million at an effective rate of 4.946%. The 4.875% Notes pay a fixed rate
of interest of 4.875% per year. We have the option to redeem any or all of the 4.875% Notes at any time at a
redemption price of 100% of the principal amount (plus a specified make-whole premium as defined in the
indenture governing the 4.875% Notes) and accrued and unpaid interest thereon to the redemption date. Our
obligations under the 4.875% Notes are not secured and rank equal in right of payment with all of our existing and
future unsubordinated indebtedness. Certain covenants apply at each year end to the 4.875% Notes including
limitations on the following: liens, sale and leaseback transactions, mergers, consolidations or sales of assets and
other covenants. We were in compliance with these covenants as of December 31, 2016. There are no restrictive
covenants relating to total indebtedness, interest coverage, stock repurchases, recapitalizations, dividends and
distributions to shareholders or current ratios.

Credit Agreement

In June 2014, Bio-Rad entered into a $200.0 million unsecured Credit Agreement. Borrowings under the Credit
Agreement are on a revolving basis and can be used to make permitted acquisitions, for working capital and for
other general corporate purposes. We had no outstanding borrowings under the Credit Agreement as of
December 31, 2016 or 2015, however, $0.8 million was utilized for domestic standby letters of credit that reduced
our borrowing availability. The Credit Agreement matures in June 2019. If we had borrowed against our Credit
Agreement, the borrowing rate would have been 2.25% at December 31, 2016.

The Credit Agreement requires Bio-Rad to comply with certain financial ratios and covenants, among other things.
These ratios and covenants include a leverage ratio test and an interest coverage test, as well as restrictions on our
ability to declare or pay dividends, incur debt, guarantee debt, enter into transactions with affiliates, merge or
consolidate, sell assets, make investments and create liens. We were in compliance with all of these ratios and
covenants as of December 31, 2016.

Maturities of long-term debt at December 31, 2016 are as follows: 2017 - $0.3 million; 2018 - $0.3 million; 2019 -
$0.2 million; 2020 - $425.3 million; 2021 - $0.3 million; thereafter - $10.6 million.

6. INCOME TAXES

The U.S. and international components of income before taxes are as follows (in millions):

U.S.
International
Income before taxes

Year Ended December 31,

2016

2015

2014

(38.5) $
80.1
41.6 $

48.4 $
97.4
145.8 $

30.6
101.0
131.6

The provision for income taxes consists of the following (in millions):

Current tax expense:
U.S. Federal
State
International
Current tax expense
Deferred tax (benefit) expense:
U.S. Federal
State
International
Deferred tax benefit
Non-current tax expense (benefit)
Provision for income taxes

Year Ended December 31,
2015

2014

2016

16.1 $
3.1
30.3
49.5

(42.4)
(2.8)
(6.0)
(51.2)
15.1
13.4 $

8.7 $
1.7
34.1
44.5

(0.2)
1.2
(7.1)
(6.1)
(5.6)
32.8 $

9.6
3.8
35.6
49.0

1.5
(0.2)
(7.3)
(6.0)
(0.3)
42.7

The reconciliation between our effective tax rate on income before taxes and the statutory tax rate is as follows:

U.S. statutory tax rate
Impact of foreign operations
Foreign dividends, net
Research tax credits
Nontaxable subsidies
Tax settlements and changes to unrecognized tax benefits
Goodwill impairment
Domestic manufacturing deduction
Stock-based compensation
Nondeductible executive compensation
Fines and penalties
Prior period adjustments
U.S. taxation on foreign income
Other
Provision for income taxes

Year Ended December 31,
2015

2014

2016

35%
(15)
(40)
(9)
(4)
42
11
(4)
3
3
2
4
2
2
32%

35%
(4)
(4)
(2)
(1)
(4)
—
(2)
1
1
—
1
—
1
22%

35%
(4)
—
(3)
(2)
(1)
—
—
1
1
3
2
—
—
32%

Our effective income tax rate was 32%, 22% and 32% in 2016, 2015 and 2014, respectively. The effective tax rates
for 2016 and 2015 included tax benefits from the repatriation of foreign earnings. The effective tax rate for 2016
included additional tax liabilities for unrecognized tax benefits related to the non-deductibility of interest expense
in our foreign jurisdictions. The effective tax rate for 2014 included nondeductible penalties and losses that were
nonrecurring.

Our foreign taxes result primarily from income earned in France and Switzerland. Many jurisdictions in which we
operate, including Switzerland, Russia, the U.K. and Singapore, have statutory tax rates that are significantly lower
than the U.S. statutory tax rate of 35%. Our effective tax rate may be impacted in the future, either favorably or
unfavorably, by many factors including, but not limited to, changes to statutory tax rates, changes in tax laws or
regulations, tax audits and settlements, and generation of tax credits.

Deferred tax assets and liabilities reflect the tax effects of losses, credits, and temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of deferred tax assets and liabilities are as follows (in millions):

Deferred tax assets:

Bad debt, inventory and warranty accruals
Other post-employment benefits, vacation and other reserves
Tax credit and net operating loss carryforwards
Other
Total gross deferred tax assets
Valuation allowance

Total deferred tax assets
Deferred tax liabilities:

Property and equipment
Investments and intangible assets

Total deferred tax liabilities

Net deferred tax liabilities

December 31,

2016

2015

28.4 $
26.3
96.4
35.7
186.8
(66.4)
120.4

22.5
287.8
310.3
(189.9) $

26.3
28.1
80.2
23.2
157.8
(58.3)
99.5

30.2
271.8
302.0
(202.5)

At December 31, 2016, Bio-Rad’s international subsidiaries had combined net operating loss carryforwards of
$141.3 million. Of these loss carryforwards, $140.8 million have no expiration date. We believe that it is more
likely than not that the benefit from most of these net operating loss carryforwards will not be realized. We have
provided a valuation allowance of $29.6 million relating to these net operating loss carryforwards.

At December 31, 2016, Bio-Rad had U.S. Federal net operating loss carryforwards of approximately $1.9 million as
a result of acquisitions. These carryforwards are subject to limitation on their utilization and will expire between
2028 and 2033. At December 31, 2016, Bio-Rad had U.S. Federal foreign tax credit carryforwards of $27.6 million
and U.S. Federal research tax credit carryforwards of $3.6 million, $0.4 million of which are subject to limitations
on their utilization.

At December 31, 2016, Bio-Rad had approximately $53 million of California net operating loss carryforwards
related to the acquisition of QuantaLife. We believe that it is more likely than not that the benefit from these net
operating loss carryforwards will not be realized and have recorded a full valuation allowance against these losses.
At December 31, 2016, Bio-Rad had a deferred tax asset of $25.9 million relating to California research tax credit
carryforwards, including $2.0 million from the acquisition of QuantaLife, which may be carried forward
indefinitely. Based on our judgment and consistent with prior years, we have recorded a full valuation allowance
against the deferred tax asset.

We believe that it is more likely than not that certain of these deferred tax assets described above will not be
realized in the foreseeable future. If or when recognized, the tax benefits relating to any reversal of the valuation
allowance on deferred tax assets at December 31, 2016 will be recognized as a reduction of income tax expense.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in millions):

Unrecognized tax benefits – January 1

Additions to tax positions related to prior years
Reductions to tax positions related to prior years
Additions to tax positions related to the current year
Settlements
Lapse of statute of limitations
Currency translation
Unrecognized tax benefits – December 31

2016

2015

2014

8.9 $

14.2 $

10.4
—
1.4
(2.4)
(2.3)
0.1

0.7
(0.2)
1.5
(0.5)
(6.3)
(0.5)

16.1 $

8.9 $

16.2

1.7
(1.5)
1.6
(0.4)
(2.6)
(0.8)

14.2

Bio-Rad recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.
Related to the unrecognized tax benefits noted above, Bio-Rad has accrued interest and penalties of $11.5 million,
$3.0 million and $3.8 million as of December 31, 2016, 2015 and 2014, respectively. The total unrecognized tax
benefits and interest and penalties of $27.6 million in 2016 was partially offset by prepaid taxes of $12.7 million,
for a net amount of $14.9 million.

In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in their operations.
As of December 31, 2016, Bio-Rad had not made a provision for U.S. or additional foreign withholding taxes on
approximately $447 million of the excess of the amount for financial reporting over the tax basis of investments in
foreign subsidiaries that are essentially permanent in duration. Generally, such amounts become subject to U.S.
taxation upon remittance of dividends and under certain other circumstances. If these earnings were repatriated to
the U.S., the deferred tax liability associated with these temporary differences would be approximately $47 million.

STOCKHOLDERS' EQUITY

Bio-Rad’s issued and outstanding stock consists of Class A Common Stock (Class A) and Class B Common Stock
(Class B). Each share of Class A and Class B participates equally in the earnings of Bio-Rad, and is identical in all
respects except as follows. Class A has limited voting rights. Each share of Class A is entitled to one tenth of a
vote on most matters, and each share of Class B is entitled to one vote. Additionally, Class A stockholders are
entitled to elect 25% of the Board of Directors and Class B stockholders are entitled to elect 75% of the directors.
Cash dividends may be paid on Class A shares without paying a cash dividend on Class B shares but no cash
dividend may be paid on Class B shares unless at least an equal cash dividend is paid on Class A shares. Class B
shares are convertible at any time into Class A shares on a one-for-one basis at the option of the stockholder. The
founders of Bio-Rad, the Schwartz family, collectively hold a majority of Bio-Rad’s voting stock. As a result, the
Schwartz family is able to exercise significant influence over Bio-Rad.

Changes to Bio-Rad's issued common stock shares are as follows (in thousands):

Balance at January 1, 2014

23,681

5,097

Class A Shares

Class B Shares

B to A conversions

Issuance of common stock

286

Balance at December 31, 2014

23,972

B to A conversions

Issuance of common stock

240

Balance at December 31, 2015

24,230

B to A conversions

Issuance of common stock

211

Balance at December 31, 2016

24,454

(5)

5,099

(18)

5,131

(13)

5,124

Treasury Shares

The Board of Directors has authorized the repurchase of up to $18.0 million of Bio-Rad's common stock, of which
$3.3 million has yet to be repurchased in the open market as of December 31, 2016. The Amended and Restated
Credit Agreement (Credit Agreement) limits our ability to repurchase our stock. In accordance with the terms of
awards under the 2007 Incentive Award Plan, in June 2012, we withheld 122 shares of our Class A common stock
and 917 shares of our Class B common stock to satisfy the minimum statutory tax obligations due upon the vesting
of restricted stock of certain of our employees, which is considered a repurchase of our stock. All of the restricted
stock vested as of December 31, 2013, and therefore we do not anticipate any repurchasing of shares for this
purpose. We had no other repurchases of our stock during 2016 or 2015.

ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income included in our Consolidated Balance Sheets and Consolidated
Statements of Changes in Stockholders' Equity consists of the following components (in millions):

Foreign currency
translation
adjustments

Foreign other
post-employment
benefits
adjustments

Net unrealized
holding gains on
available-for-sale
investments

Total
Accumulated
other
comprehensive
income

Balances as of January 1, 2015

71.2 $

(16.3) $

164.0 $

Other comprehensive (loss) income, before

reclassifications

Amounts reclassified from Accumulated

other comprehensive income

Income tax effects

Other comprehensive (loss) income, net of

income taxes

Balances as of December 31, 2015
Other comprehensive (loss) income, before

reclassifications

Amounts reclassified from Accumulated

other comprehensive income

Income tax effects

Other comprehensive (loss) income, net of

income taxes

Balances as of December 31, 2016

(37.5)

—

(37.5)
33.7 $

(32.4)

—

(32.4)

1.3 $

(6.8)

1.1

1.3

(4.4)
(20.7) $

0.5

2.5
(0.9)

2.1
(18.6) $

325.4

(0.9)

(119.4)

205.1

369.1 $

105.1

(0.8)
(38.4)

65.9

435.0 $

218.9

281.1

0.2

(118.1)

163.2

382.1

73.2

1.7
(39.3)

35.6

417.7

The increases in 2016 and 2015 for net unrealized holding gains on available-for-sale investments were primarily
from our ownership in the preferred shares of Sartorius.

The amounts reclassified out of Accumulated other comprehensive income into the Consolidated Statements of
Income, with presentation location, were as follows:

Income before taxes impact (in millions):

Components of Comprehensive income
Amortization of foreign other post-employment
benefit items
Net holding gains on available for sale investments

December 31,

2016

2015

(2.5) $
0.8 $

(1.1)
0.9

Location
Selling, general and administrative
expense
Other (income) expense, net

Reclassification adjustments are calculated using the specific identification method.

9. SHARE-BASED COMPENSATION/STOCK OPTION AND PURCHASE PLANS

Description of Share-Based Compensation Plans

We believe our share-based compensation plans align the interests of our employees with those of our shareholders.

Stock Option and Award Plans
We have two stock option plans for officers and certain other employees: the 2003 Stock Option Plan (2003 Plan)
and the 2007 Incentive Award Plan (2007 Plan). The 2003 Plan authorized the grant of incentive stock options and
non-qualified stock options to employees. The 2007 Plan authorizes the grant of stock options, restricted stock,
restricted stock units, stock appreciation rights and other types of equity awards to employees. We no longer grant
stock option grants under the 2003 Plan. Since 2007, all share-based compensation grants have been from the 2007
Plan. A total of 2,250,360 shares have been reserved for issuance of equity awards under the 2007 Plan and may be
of either Class A or Class B common stock as specified within the plan. At December 31, 2016, there were 587,509
shares available to be granted in the future.

Under the above plans, Class A and Class B options are granted at prices not less than fair market value of the
underlying common stock on the date of grant. Generally, options granted have a term of 10 years and vest in
increments of 20% per year over a five-year period on the yearly anniversary date of the grant. Stock awards issued
under the 2007 Plan generally vest in increments of 20% per year over a five-year period on the yearly anniversary
date of the grant.

Employee Stock Purchase Plans
Our 2011 Employee Stock Purchase Plan (2011 ESPP) provides that eligible employees may contribute up to 10%
of their compensation up to $25,000 annually toward the quarterly purchase of our Class A common stock. The
employees’ purchase price is 85% of the lesser of the fair market value of the stock on the first business day or the
last business day of each calendar quarter.

The 2011 ESPP includes two components: a Code Section 423 Component that we intend to qualify as an
“employee stock purchase plan” under Section 423 of the U.S. Internal Revenue Code of 1986, as amended (the
“Code”) and a Non-423 Component, which authorizes the grant of purchase rights that does not qualify as an
“employee stock purchase plan” under Section 423 of the Code. We have authorized the sale of 600,000 shares of
Class A common stock under the 2011 ESPP.

Share-Based Compensation Expense

Included in our share-based compensation expense is the cost related to stock option grants, ESPP stock purchases
and restricted stock unit awards. Share-based compensation expense is allocated to Cost of goods sold, Research
and development expense, and Selling, general and administrative expense in the Consolidated Statements of
Income.

For 2016, 2015 and 2014, we recognized share-based compensation expense of $19.7 million, $17.0 million and
$14.9 million, respectively. We did not capitalize any share-based compensation expense in inventory.

For options and awards, we amortize the fair value on a straight-line basis. All stock compensation awards are
amortized over the requisite service periods of the awards, which are generally the vesting periods.

Stock Options
The following table summarizes stock option activity:

Outstanding, January 1, 2014

Granted
Exercised
Forfeited/expired

Outstanding, December 31, 2014

Granted
Exercised
Forfeited/expired

Outstanding, December 31, 2015

Granted
Exercised
Forfeited/expired

Outstanding, December 31, 2016
Vested and expected to vest,

December 31, 2016

Exercisable, December 31, 2016

Weighted-
Average
Exercise Price
78.72
119.71
63.66
100.29
84.50
139.56
61.29
62.47
100.36
159.37
80.70
127.65
106.52

$
$
$
$
$
$
$
$
$
$
$
$
$

629,643
54,000
(91,387)
(10,450)
581,806
40,500
(195,221)
(380)
426,705
45,000
(15,285)
(6,850)
449,570

437,350
314,330

$
$

105.39
93.78

Weighted-
Average
Remaining
Contractual
Term (in
years)

Aggregate
Intrinsic
Value
(in millions)

5.15

5.04
3.80

$
$

34.1

33.6
27.8

Intrinsic value for stock options is defined as the difference between the current market value and the exercise price.
The total intrinsic value on the date of exercise of stock options exercised during 2016, 2015 and 2014 was
approximately $1 million, $13 million and $5 million, respectively. The total grant date fair value of options vested
during 2016, 2015 and 2014 was $2.1 million, $2.2 million and $2.1 million, respectively.

Cash received from stock options exercised during 2016, 2015 and 2014 was $1.2 million, $2.9 million and
$5.8 million, respectively. The actual tax benefit realized for the tax deductions from stock options exercised
totaled $6.0 million, $9.3 million and $5.3 million in 2016, 2015 and 2014, respectively.

As of December 31, 2016, there was $4.9 million of total unrecognized compensation cost from stock options. This
amount is expected to be recognized in the future over a weighted-average period of approximately 3 years.

The weighted-average fair value of stock options granted was estimated using a Black-Scholes option-pricing
model with the following weighted-average assumptions:

Expected volatility
Risk-free interest rate
Expected life (in years)
Expected dividend
Weighted-average fair value of options granted

Year Ended December 31,
2015

2014

2016

21%
1.35%
7.4
—
42.40

23%
1.90%
7.7
—
42.74

25%
2.35%
8.7
—
43.96

Volatility is based on the historical volatilities of our common stock for a period equal to the stock option’s
expected life. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant.
The expected life represents the number of years that we estimate, based primarily on historical experience, that the
options will be outstanding prior to exercise. We do not anticipate paying any cash dividends in the future and
therefore use an expected dividend yield of zero.

Restricted Stock Units
Restricted stock units, which are rights to receive shares of company stock, were granted from 2009 through 2016
under the 2007 Plan. The fair value of a restricted stock unit is the market value as determined by the closing price
of the stock on the day of grant.

The following table summarizes restricted stock unit activity:

Restricted Stock
Units

Weighted-
Average
Grant-Date
Fair Value

Weighted-Average
Remaining
Contractual Term
(in years)

Aggregate
Intrinsic Value
(in millions)

Outstanding, January 1, 2014

Granted
Vested
Forfeited

Outstanding, December 31, 2014

Granted
Vested
Forfeited

Outstanding, December 31, 2015

Granted
Vested
Forfeited

Outstanding, December 31, 2016

375,430
145,695
(107,557)
(36,203)
377,365
177,110
(113,347)
(28,706)
412,422
193,025
(117,203)
(39,422)
448,822

$
$
$
$
$
$
$
$
$
$
$
$
$

105.44
119.56
98.52
108.17
112.60
139.56
107.62
116.19
125.30
159.32
119.33
129.80
141.09

2.16

81.8

The total grant date fair value of restricted stock units vested in 2016, 2015 and 2014 was $14.0 million,
$12.2 million and $10.6 million, respectively. As of December 31, 2016, there was approximately $46.8 million of
total unrecognized compensation cost related to restricted stock units. This amount is expected to be recognized
over a remaining weighted-average period of approximately 4 years.

Employee Stock Purchase Plans
The fair value of the employees’ purchase rights under the 2011 ESPP was estimated using a Black-Scholes model
with the following weighted-average assumptions:

Expected volatility
Risk-free interest rate
Expected life (in years)
Expected dividend
Weighted-average fair value

of purchase rights

Year Ended December 31,
2015

2014

2016

20%

0.26%
0.25
—

18%
0.02%
0.25
—

15%
0.04%
0.25
—

$27.36

$25.08

$21.88

The major assumptions are primarily based on historical data. Volatility is based on the historical volatilities of our
common stock for a period equal to the expected life of the purchase rights. The risk-free interest rate is based on
75

the U.S. Treasury yield curve in effect at the time of the grant. We do not anticipate paying any cash dividends in
the future and therefore use an expected dividend yield of zero.

We sold 93,605 shares for $11.5 million, 96,634 shares for $10.8 million and 102,222 shares for $10.2 million
under the 2011 ESPP to employees in 2016, 2015 and 2014, respectively. At December 31, 2016, 96,121 shares
remain authorized and available for issuance under the 2011 ESPP.

We currently issue new shares to satisfy stock option exercises, restricted stock issuances and ESPP stock
purchases.

10. OTHER INCOME AND EXPENSE, NET

Other (income) expense, net includes the following components (in millions):

Year Ended December 31,
2015

2016

2014

Interest and investment income
Net realized gains on investments
Other-than-temporary impairment losses on investments
Miscellaneous other (income) expense items, net
Other (income) expense, net

(14.7) $
(0.8)
0.6
—
(14.9) $

(10.1) $
(1.6)
0.6
—
(11.1) $

(13.5)
—
0.4
0.1
(13.0)

Other-than-temporary impairment losses on investments were recorded in 2016, 2015 and 2014 on certain of our
available-for-sale investments and a certain equity investment in light of the continuing declines in their market
prices at that time.

11. SUPPLEMENTAL CASH FLOW INFORMATION

The reconciliation of net income to net cash provided by operating activities is as follows (in millions):

Net income
Adjustments to reconcile net income

to net cash provided by operating activities

Depreciation and amortization
Share-based compensation
(Gains) losses on dispositions of securities
Losses on dispositions of fixed assets
Excess tax benefits from share-based
compensation
Changes in fair value of contingent
consideration
Decrease (increase) in accounts receivable, net
(Increase) decrease in inventories, net
(Increase) decrease in other current assets
Increase (decrease) in accounts payable

and other current liabilities

Increase in income taxes payable
Decrease in deferred income taxes
Decrease in other long term assets
Increase (decrease) in other long term liabilities
Impairment losses on goodwill and long-lived
assets
Other

Net cash provided by operating activities

Non-cash investing activities:
Purchased intangible assets
Purchased marketable securities and
investments

Year Ended December 31,
2015

2014

2016

28.1 $

113.1 $

88.8

142.9
19.7
(0.2)
0.6

(1.5)

(0.4)
12.5
(57.1)
(6.6)

30.1
10.7
(51.4)
12.7
8.3

62.3
5.7

131.8
17.0
(1.0)
0.3

(3.6)

(5.6)
(39.0)
(54.2)
0.1

28.6
12.7
(6.4)
0.3
(12.2)

—
4.3

149.9
14.9
0.3
0.4

(1.3)

(1.4)
11.1
5.8
(5.7)

(9.9)
20.4
(6.3)
3.6
(1.3)

—
4.0

216.4 $

186.2 $

273.3

— $

0.6 $

2.2 $

0.2

—

12. COMMITMENTS AND CONTINGENT LIABILITIES

Rents and Leases

Rental expense under operating leases was $44.4 million, $45.0 million and $46.9 million in 2016, 2015 and 2014,
respectively. Leases are principally for facilities and automobiles. We had no sublease income.

Annual future minimum lease payments at December 31, 2016 under operating leases are as follows: 2017 -
$42.1 million; 2018 - $32.1 million; 2019 - $24.7 million; 2020 - $20.4 million; and 2021 and beyond -
$38.8 million.

Deferred Profit Sharing Retirement Plan

We have a profit sharing plan covering substantially all U.S. employees. Contributions are made at the discretion of
the Board of Directors. Bio-Rad has no liability other than for the current year’s contribution. Contribution
expense was $15.1 million, $14.7 million and $13.7 million in 2016, 2015 and 2014, respectively.