This discussion should be read in conjunction with the information contained in both our Consolidated Financial Statements for the year ended December 31, 2007 and this report for the quarter and nine months ended September 30, 2008.

Other than statements of historical fact, statements made in this report include forward-looking statements, such as statements with respect to Bio-Rad's 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 among other things: our ability to successfully develop and market new products; our reliance on and access to necessary intellectual property; our ability to integrate acquisitions; our ability to service our debt; competition in and government regulation of the industries in which we operate; and the monetary policies of various countries. 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.

Overview. We are a multinational manufacturer and worldwide distributor of Life Science research and Clinical Diagnostics products. Our business is organized into two segments, Life Science and Clinical Diagnostics, with the mission to provide scientists with specialized tools needed for biological research and clinical diagnostics. We sell more than 8,000 products and services to a diverse client base comprised of research, healthcare, industrial, education and government customers worldwide. 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 replication of results in manufacturing processes, research experiments and diagnostic tests, much of our revenues are recurring.
Approximately 30% of our year-to-date 2008 consolidated net sales are from the United States and approximately 70% are international sales largely denominated in local currency with the majority of these sales in Euros, Swiss Franc, Yen and British Sterling. As a result, our consolidated sales expressed in dollars benefit when the US dollar weakens and suffer when the dollar strengthens in relation to other currencies. Currency fluctuations contributed to the increase in our consolidated sales expressed in US dollars in the current quarter and nine months ended September 30, 2008.

The market for reagents and apparatus remains good while growth rates have slowed due to both public and private grant funding being more measured. The market for large capital equipment has slowed, as many pharmaceutical and biotechnology customers delayed or reduced their capital spending. Bio-Rad is generally less impacted by trends in capital spending as lower priced reagents and apparatus comprise more than 70% of product sales.

Critical Accounting Policies and Estimates

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007, we have identified accounting for income taxes, valuation of long-lived and intangible assets and goodwill, valuation of inventories, allowance for doubtful accounts, warranty reserves and litigation reserves as the accounting policies and estimates critical to the operations of Bio-Rad.
For a full discussion of these policies, please refer to our Form 10-K for the period ended December 31, 2007.

Corporate Results


The following shows gross profit and expense items as a percentage of net sales:


                          Three Months Ended    Nine Months Ended   Year Ended
                            September 30,         September 30,     December 31,
                        2008        2007       2008        2007         2007

Net sales                 100.0  %    100.0  %   100.0  %  100.0  %       100.0  %
 Cost of goods sold        45.6        44.6       45.6      44.3           45.8
Gross profit               54.4        55.4       54.4      55.7           54.2
Selling, general and
administrative expense     34.1        34.6       33.2      34.5           34.8
Product research and
development expense,
excluding purchased
in-process research and
development                 8.8         9.8        9.0      10.1            9.6
Net income                  6.3  %      8.2  %     7.4  %    8.1  %         6.4  %

Corporate Results -- Sales, Margins and Expenses

Net sales (sales) in the third quarter of 2008 rose 30.1% to $441.8 million from $339.7 million in the third quarter of 2007. The positive impact to sales from a weakening US dollar represented $19.6 million of sales growth. On a currency neutral basis, third quarter 2008 sales grew 24.3% compared to the third quarter of 2007. For consolidated Bio-Rad, excluding the DiaMed acquisition, overall currency neutral growth was 5.6%. The Clinical Diagnostics segment sales grew by 45.6%, while the Life Science segment sales grew 9.7%. On a currency neutral basis, Clinical Diagnostics segment sales growth was 39.4%, while the Life Science segment sales grew 4.4%. The Clinical Diagnostics segment also benefited from the acquisition of DiaMed providing 32.9% of the segment's total currency neutral sales growth. Clinical Diagnostics segment product lines contributing to sales growth were the BioPlex 2200 ® system and reagents, our quality control product offerings and clinical microbiology products. Life Science segment currency neutral sales growth excluding the food science products (principally BSE) grew 5.7%. Product lines providing growth in the Life Science segment were process chromatography media, protein separation, protein interaction and multi analyte detection. Sales of our BSE test declined offsetting overall growth. Geographically, each segment contributed to sales growth without considering the DiaMed acquisition, with the greatest growth in the Asia Pacific area.

Consolidated gross margins were 54.4% for the third quarter of 2008 compared to 55.4% for the third quarter of 2007 and 54.2% for the year 2007. The Clinical Diagnostics segment gross margin declined from the prior year by approximately 2.4%, which includes the DiaMed acquisition and purchase accounting amortization. Excluding just the acquisition, Clinical Diagnostics segment margin increased approximately 0.9%. Life Science segment margins increased from the prior period by approximately 1.7%. The Life Science segment margin improvement resulted from higher sales and overall lower unit manufacturing costs.

Selling, general and administrative expenses (SG&A) represented 34.1% of sales for the third quarter of 2008 compared to 34.6% of sales for the third quarter of 2007. SG&A grew by 27.9% without adjustment for the increase caused by currency which is estimated to have had a $5.6 million or 4.7% additional impact. Excluding the impact of DiaMed, the SG&A currency neutral growth is estimated at 5.9%. The increase in total SG&A is largely a result of the acquisition of DiaMed including compliance and integration costs in the current quarter. The currency neutral growth of Life Science and Clinical Diagnostics segments (excluding DiaMed), is the result of higher personnel costs and to a lesser extent, travel expenses and third party commissions.

Product research and development expense rose to $38.8 million or 8.8% of sales in the third quarter of 2008. Both Life Science and Clinical Diagnostics segments increased with the Clinical Diagnostics segment accounting for most of the increased spending. Research and development spending increased 17.2% including DiaMed, and 12.8% on a currency neutral basis. Areas of interest for the Life Science segment are genomics, proteomics, process chromatography and food safety. The Clinical Diagnostics segment areas of interest include additional assays for the BioPlex 2200 system and enhancements to existing quality controls, diabetes monitoring, blood typing and blood virus diagnostics.

Corporate Results - Other Items

Interest expense for the third quarter of 2008 increased by $0.3 million compared to the third quarter of 2007. Average indebtedness increased to $446.4 million in the third quarter of 2008. Debt increased from the prior period because of the DiaMed acquisition and capitalized obligations for the addition of facilities in Hercules, California. Our debt is mainly fixed rate borrowings at 7.5% and 6.125%. We should not be subjected to significant increased borrowing costs in an increased interest rate environment unless we add new debt.

Exchange gains and losses consist of foreign currency transaction gains and losses on intercompany net receivables and payables and the change in fair market value of our forward foreign exchange contracts used to manage our foreign exchange risk. The exchange loss recorded in the current quarter and in the prior year are both largely a result of the estimating process inherent in the timing of shipments and settling of intercompany debt. We do not currently hedge the net intercompany payable of our Brazilian subsidiaries denominated in US dollars, Euros and Swiss Francs.

Other income and expense, net for the third quarter of 2008 declined $5.2 million compared to the third quarter of 2007. The change represents both a decline in investment income on invested funds in 2007 which were approximately $400 million greater prior to the acquisition of DiaMed. Additionally in the third quarter of 2008, we impaired an investment in an "equity method" investee in the amount of $1.0 million.

Bio-Rad's effective tax rate was 29% and 20% for the third quarter of 2008 and 2007, respectively. The effective tax rates for the third quarter of 2008 and 2007 reflect tax benefits for nontaxable dividend income, research and development tax credits, and differences between U.S. and foreign rates. The lower effective tax rate for the third quarter of 2007 reflects benefits from tax audit settlements and adjustments necessary to reflect actual tax liabilities based on filing amended returns.

Our effective tax rate may be impacted in the future, either favorably or unfavorably, by many factors including but not limited to statutory tax rates, changes in existing laws or regulations, tax audits and settlements, and generation of tax credits.

Corporate Results -- Sales, Margins and Expenses

Net sales (sales) in the first nine months of 2008 rose 31.5% to $1.3 billion from $1.0 billion in the first nine months of 2007. The positive impact to sales from a weakening US dollar represented $69.4 million. For Bio-Rad in total, on a currency neutral basis, sales grew 24.5% compared to the prior year period. Excluding the impact of the DiaMed acquisition, consolidated sales increased 5.6% on a currency neutral basis. The Clinical Diagnostics segment sales grew by 48.4% to $832.4 million and the Life Science segment sales grew 9.9% to $473.1 million. On a currency neutral basis, Clinical Diagnostics segment sales increased 41.2%, or 7.3% excluding the DiaMed acquisition, and Life Science segment sales increased by 3.3%. The Clinical Diagnostics segment, excluding DiaMed, experienced sales growth in all product groups with the strongest growth in the BioPlex 2200 system, quality controls and clinical microbiology. On a currency neutral basis, Life Science segment sales grew 5.9% excluding the food science product line. Sales gains were largely attributable to protein function reagents and equipment as well as process chromatography media. The ongoing decline in BSE sales continues to offset the growth in the remaining Life Science segment product lines. Geographically, sales growth was strongest in Asia and the United States.

Consolidated gross margins were 54.4% for the first nine months of 2008 compared to 55.7% for the first nine months of 2007 and 54.2% for the year 2007.
Excluding the impact of the DiaMed acquisition, our consolidated gross margin for the first nine months of 2008 was 56.2%, which was relatively unchanged from the prior year period. The Clinical Diagnostics segment gross margin has declined 3.6% from the prior year period including the DiaMed acquisition with its purchased intangible amortization. Excluding this event, Clinical Diagnostics segment margins remained unchanged. Life Science segment margins increased by approximately 2.0%, resulting from higher sales and increased efforts to reduce manufacturing overhead costs.

Selling, general and administrative expenses (SG&A) represented 33.2% of sales for the first nine months of 2008 compared to 34.5% of sales in the prior year period. Our SG&A increased 26.6% in absolute dollars before adjustment for any change in currency translation. The weakening dollar increased international spending such that on a currency neutral basis, SG&A growth was 20.9%. The increase in SG&A on a currency neutral basis is largely the result of the DiaMed acquisition including incremental compliance and integration costs. The currency neutral growth of Life Science and Clinical Diagnostics segments (excluding DiaMed) is the result of higher personnel costs, information technology operating costs and travel expenses.

Product research and development expense increased to $118.4 million, a 17.6% increase in the first nine months of 2008 compared to the same period in 2007.
On a currency neutral basis, research and development spending increased 13.0% including DiaMed. Most all of the currency neutral research and development spending growth is attributable to the Clinical Diagnostics segment including DiaMed. Life Science segment development efforts are directed toward genomics, proteomics and process chromatography application. Clinical Diagnostics segment efforts include development efforts at DiaMed along with expanded tests for the BioPlex 2200 system and improvements on additions to existing autoimmune, blood virus and quality control products.

Corporate Results ? Other Items

Interest expense for the first nine months of 2008 increased by $0.5 million from the prior year to $24.1 million. With the DiaMed acquisition, we have added capitalized lease obligations which increase overall interest expense. We also added a lease obligation for additional facilities at our campus in Hercules, California. Our debt is still largely represented by our subordinated notes with fixed borrowing rates of 7.5% and 6.125%.

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 exchange risk. The net losses for the first nine months of 2008 generally arose from the first quarter of 2008 when DiaMed foreign currency exposures were not integrated into our hedging program. We have not experienced similar losses in the subsequent quarters of 2008 since we began the DiaMed integration. We continue to exclude the intercompany debt of our Brazilian subsidiary from our hedging program.

Other income and expense, net for the first nine months of 2008 includes investment income, generally consisting of interest income on our cash and cash equivalents, short-term investments, marketable securities and any notes receivable. We also include in this category any gains or losses associated with the sale or disposal of any surplus manufacturing equipment or other productive assets. The decline in other income and expense is the result of less investment income after employing approximately $400 million to acquire DiaMed.

Bio-Rad's effective tax rate was 25% for the first nine months of 2008 and 26% for the first nine months of 2007. The effective tax rates for both nine month periods are lower than the statutory rate due to tax benefits for nontaxable dividend income, research and development tax credits, and differences between U.S. and foreign rates. The lower effective tax rate for the first nine months of 2008 reflects discrete events that reduced tax expense by decreasing tax liabilities for uncertain tax positions as a result of the expiration of statutes of limitations and settlements of claims for refunds.

Our effective tax rate may be impacted in the future, either favorably or unfavorably, by many factors including but not limited to statutory tax rates, changes in existing laws or regulations, tax audits and settlements, and generation of tax credits.

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 intermediate or finished products are then shipped for completion and/or distribution to facilities around the globe. 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. Funding for research and development of new products as well as routine outflows of capital expenditures and tax expense are covered by cash flow from operations. We currently operate with an adequate level of interest coverage and our current market capitalization is high relative to our current level of debt. In addition to the strong positive cash flow from operating activities, additional liquidity is readily available via the sale of short-term investments and our revolving credit facility.

As of September 30, 2008, we had available $234.3 million in cash and cash equivalents and short-term investments, and $19.6 million available under international lines of credit. Under the $200.0 million Amended and Restated Credit Agreement we have $192.2 million available with $7.8 million reserved for standby letters of credit issued by our banks to guarantee our obligations to certain insurance companies related to the deductible on the co-insurance provision of policies issued for us as the beneficiary. 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 plant, equipment and systems and to make the offer to the minority shareholders of DiaMed Holding as outlined in the DiaMed purchase and sale agreement.

Cash Flows from Operations

Net cash provided by operations was $113.0 million and $88.4 million for the nine months ended September 30, 2008 and 2007, respectively. The net improvement of $24.6 million reflects the inclusion of the DiaMed acquisition in the current year. Both cash received from customers and cash paid to suppliers have increased due to the inclusion of the DiaMed operations with Bio-Rad in the nine months of 2008. The decline in miscellaneous receipts from the prior year largely represents less investment income as cash investments held at September 30, 2007 were used to acquire an 86% interest in DiaMed Holding in October 1, 2007.

We regularly review the allowance for uncollectible receivables 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 for Investing Activities

Net capital expenditures totaled $62.7 million for the nine months ended September 30, 2008 compared to $45.9 million for the same period of 2007.
Capital expenditures represent the addition and replacement of production machinery and research equipment, ongoing manufacturing and facility additions for expansions, regulatory and environmental compliance, and leasehold improvements. All periods include reagent rental equipment placed with Clinical Diagnostics segment customers who then contract to purchase our reagents for use. An increase in the investment in reagent rental equipment has occurred in connection with the introduction of the BioPlex 2200 system into the diagnostic testing market and improved placements of blood virus testing equipment. Also included in capital expenditures are investments in business systems and data communication upgrades and enhancements.

We intend to offer to buy the remaining outstanding shares of the minority shareholders of DiaMed Holding, AG. During the first quarter of 2008, we purchased 556 shares from certain minority shareholders as described in Note 2.
The persons holding these shares received a first payment of approximately $14 million toward the total price. Due to the weakening of the Swiss Franc versus the U.S. dollar, we now estimate the cash required to purchase the remaining shares of DiaMed, based on rates at September 30, 2008, at approximately $55 million.

During the current quarter, we acquired additional land and buildings in the business park in Hercules, California that serves as the Corporate, Life Science and Clinical Diagnostics headquarters of Bio-Rad. The facility was financed through a capitalized lease obligation that transfers title to us as the end of the lease term. The net present value of the lease payments is $9.7 million.
The above transaction is not included as a cash transaction in the condensed consolidated statement of cash flows for the current period since the seller provided 100% of the financing.

We continue to review possible acquisitions to expand both our Life Science and Clinical Diagnostics segments. We routinely meet with the principals or brokers of the subject companies. We are evaluating some acquisitions on a preliminary basis. It is not certain that any of these transactions will advance beyond the preliminary stages or be completed. Should we decide to make an acquisition of any material size, we would need to raise capital, most probably in the public debt market.

The Board of Directors has authorized the repurchase of up to $18.0 million of Bio-Rad's common stock over an indefinite period of time of which $3.3 million is remaining. Our credit agreements restrict our ability to repurchase our stock. There were no share repurchases made in the first nine months of 2008 or for the year 2007.

Recent Accounting Pronouncements

In June 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. Emerging Issues Task Force (EITF) 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP No. EITF 03-6-1 concluded that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of basic earnings per share (EPS) pursuant to the two-class method. This FSP becomes effective for us on January 1, 2009. Early adoption of the FSP is not permitted; however, it will apply retrospectively to EPS data for all periods presented in the financial statements or in financial data. We do not currently expect that this FSP will have a material impact on our EPS data in fiscal year 2009 or on EPS for any prior periods presented in the financial data upon adoption.

In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation and presentation of financial statements in accordance with generally accepted accounting principles. This statement will be effective 60 days after the Securities and Exchange Commission approves the Public Company Accounting Oversight Board's amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We do not anticipate that the adoption of SFAS 162 will have an effect on our consolidated financial statements.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities -an amendment of SFAS 133. SFAS 161 seeks to improve financial reporting for derivative instruments and hedging activities by requiring enhanced disclosures regarding the impact on financial position, financial performance, and cash flows. To achieve this increased transparency, SFAS 161 requires: (1) the disclosure of the fair value of derivative instruments and gains and losses in a tabular format; (2) the disclosure of derivative features that are credit risk-related; and (3) cross-referencing within the footnotes. SFAS 161 is effective for us on January 1, 2009. We do not believe the adoption of SFAS 161 will have a material impact on our consolidated financial statements.

As amended in February 2008 by FSP FAS 157-2, Effective Date of FASB Statement No. 157, SFAS 157, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FSP FAS 157-2 defers the effective date of SFAS 157 for all nonfinancial assets and liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. As such, we partially adopted the provisions of SFAS 157 effective January 1, 2008. See Note 16. We expect to adopt the remaining provisions of SFAS 157 beginning in 2009. We expect the adoption of SFAS 157 to impact the way in which we calculate fair value for our annual impairment review of goodwill and non-amortizable intangible assets, and when conditions exist that require us to calculate the fair value of long-lived assets; however, we do not expect this adoption to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS 141R, Business Combinations. SFAS 141R continues to require the purchase method of accounting to be applied to all business combinations, but it significantly changes the accounting for certain aspects of business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific acquisition related items including: (1) expensing acquisition related costs as incurred;
(2) valuing noncontrolling interests at fair value at the acquisition date; and
(3) expensing restructuring costs associated with an acquired business. SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. We expect SFAS 141R will have an impact on our accounting for future business combinations once adopted but the effect is dependent upon the acquisitions that are made in the future.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and separate from the parent company's equity. Among other requirements, this statement requires consolidated net income to be reported at . . .