This discussion should be read in conjunction with the information contained in both our Consolidated Financial Statements for the year ended December 31, 2008 and this report for the quarter ended March 31, 2009.

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:
changes in general domestic and worldwide economic conditions; our ability to successfully develop and market new products; our reliance on and access to necessary intellectual property; our ability to successfully integrate any acquired business; our substantial leverage and 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 except as required by Federal Securities law.

Overview. We are a multinational manufacturer and worldwide distributor of 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 tools 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 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 34% of our year-to-date 2009 consolidated net sales are from the United States and approximately 66% 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 U.S. dollar weakens and suffer when the dollar strengthens in relation to other currencies. Currency fluctuations contributed to the decrease in our consolidated sales expressed in U.S. dollars in the current quarter ended March 31, 2009.

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.

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

                                              Three Months Ended     Year Ended
                                                  March 31,           December
                                              2009        2008          2008

Net sales                                      100.0  %    100.0 %      100.0  %
Cost of goods sold                              42.9       46.3          45.4
Gross profit                                    57.1       53.7          54.6
Selling, general and administrative expense     35.0       33.1          33.5
Product research and development expense,
excluding purchased in-process research
and development                                  9.3        8.9           9.0
Net income attributable to Bio-Rad               7.5        6.3           5.1

Critical Accounting Policies and Estimates

As previously disclosed in our Annual Report on Form 10-K for year ended December 31, 2008, we have identified accounting for income taxes, valuation of long-lived and intangible assets and goodwill, valuation of inventories, valuation of investments, warranty reserves, allowance for doubtful accounts 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 year ended December 31, 2008. We have expanded our disclosure regarding our critical accounting policies and estimates relating to goodwill and long-lived assets.

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 the reporting units based upon the amounts allocated at the time of their respective acquisition, adjusted for 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. There was no indication of impairment in the first quarter of 2009. We perform the impairment tests of goodwill at our reporting unit level, which is one level below our reporting 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 implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination is determined. 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 projected discounted cash flow models to determine the fair value of a reporting unit. The discounted cash value projected for 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 long-term high level strategic 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. In order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test, we apply a 10% decrease to the fair value of each reporting unit.

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 including an implied control premium. 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. We compare the implied control premium to premiums paid in observable recent transactions of comparable companies to determine if the fair values of the reporting units are reasonable.

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 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 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.

Corporate Results -- Sales, Margins and Expenses

Net sales (sales) in the first quarter of 2009 declined 5.0% to $400.9 million from $422.2 million in the first quarter of 2008. The negative impact to sales from a strengthening U.S. dollar represented a decline of 8.2%. For consolidated Bio-Rad, on a currency neutral basis, first quarter 2009 sales grew 3.2% compared to the first quarter of 2008. Sales growth was generated by the Pacific Rim and United States markets.

The Life Science segment sales for the quarter were $140.3 million, down 9.2% or 3.0% on a currency neutral basis, compared to the same period last year.
Performance of the Life Science segment was negatively impacted by a general slowness in the research market in the U.S. and Europe. In addition, the timing of the delivery of certain process chromatography products had an adverse impact on the first quarter when compared to the same period last year. Sales across a number of product lines in the Life Science segment performed well during the quarter, in particular the Bio-Plex® suspension array system assays and our real-time polymerase chain reaction (PCR) instruments and reagents.

The Clinical Diagnostics segment reported sales of $257.5 million for the quarter, down 2.3% compared to the first quarter in 2008. On a currency neutral basis, the Clinical Diagnostics segment increased 7.2%. These results reflect continued growth across all product lines, most notable quality control, diabetes, microbiology and blood virus testing products. Performance in this segment also benefited from placements of the BioPlex®2200 system, which employs multiplexing technology to analyze multiple disease markers from a single patient sample.

Consolidated gross margins were 57.1% for the first quarter of 2009 compared to 53.7% for the first quarter of 2008 and 54.6% for the year 2008. While a strengthening dollar is detrimental to foreign currency denominated sales, cost of sales for our international manufacturing sites declined as well, offsetting a portion of the negative sales impact.

Life Science segment gross margins improved from the first quarter of 2008 by approximately 2%. The improvement was the result of better factory overhead absorption, reduction in costs and improved efficiency in our Singapore manufacturing plant. Clinical Diagnostics segment gross margins increased by approximately 4% driven by the cessation of royalties for blood typing and blood virus products, the inclusion of a DiaMed Holding AG (DiaMed) distributors acquired at year-end, and an improvement in BioPlex 2200 margins as volumes increase and efficiencies improve.

Selling, general and administrative expenses (SG&A) represented 35.0% of sales for the first quarter of 2009 compared to 33.1% of sales for the first quarter of 2008. After adjustment for the effect of foreign currency, SG&A rose 7.7% driven by higher personnel costs, agent commissions, software costs, bad debts and professional fees. Both the Life Science and Clinical Diagnostics segments experienced similar impacts to SG&A as did the company in total.

Product research and development expense declined slightly to $37.2 million or 9.3% of sales in the first quarter of 2009 compared to $37.5 million or 8.9% of sales in the first quarter of 2008. Life Science segment research and development expense declined from the prior year. Life Science segment development efforts are directed toward amplification, proteomics and process chromatography. Clinical Diagnostics segment research and development expense increased at a rate faster than currency neutral sales growth. Clinical Diagnostics segment research and development efforts are concentrating on additional assays for the BioPlex 2200 testing platform and improvements to existing diabetes monitoring, autoimmune, blood virus, blood typing and quality control products.

Corporate Results - Other Items

Interest expense for the first quarter of 2009 declined by $0.2 million compared to the first quarter of 2008. Average indebtedness declined slightly to $452.5 million in the first quarter of 2009. Debt decreased due to slightly lower borrowings and the impact of currency translation on interest expense incurred on other than U.S. dollars. Our debt is mainly fixed rate borrowings at 7.5% and 6.125%, which will require renewal or payment in 2013 and 2014, respectively. 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. During the first quarter of 2008, the DiaMed locations did not fully participate in our hedge program and generated losses during that period. Their inclusion in the program after April 2008 is the main reason for the favorable comparison to the prior year. Additional current quarter gains are the result of the estimating process inherent in the timing of shipments and payments of intercompany debt.

We do not currently hedge the net intercompany payable of our Brazilian and Russian subsidiaries denominated in U.S. dollars, Euros, Swiss Francs and Rubles.

Other income and expense, net for the first quarter of 2009 declined $1.4 million compared to the first quarter of 2008. The current quarter includes $2.5 million of other-than-temporary impairment on short and long-term marketable equity and debt securities owned by us. Offsetting these impairments are interest income and dividends on our portfolio of investments and miscellaneous non-operating gains and losses from the sale of property, plant and equipment.

Bio-Rad's effective tax rate was 26% and 27% for the first quarter of 2009 and 2008, respectively. The effective tax rates for the first quarter of 2009 and 2008 both reflect tax benefits for nontaxable dividend income, research and development tax credits, and differences between U.S. and foreign rates. The effective tax rate for the first quarter of 2008 also reflects a discrete item due to an increase in the FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, liability.

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 and changes in tax laws or regulations, which could cause our estimate of taxes to change.

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 expenditure 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 sufficient relative to our current level of debt. 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 revolving credit facility.

At March 31, 2009, we had available $222.8 million in cash, cash equivalents and short-term investments, and $24.1 million under international lines of credit.
Under the $200.0 million restated and amended Revolving Credit Facility, we have $192.3 million available with $7.7 million reserved for standby letters of credit issued by our banks to guarantee our obligations to certain insurance companies. 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 as outlined in the DiaMed purchase and sale agreement.

Cash Flows from Operations

Net cash provided by operations was $6.4 million in the current quarter compared to a use of $2.2 million for the three months ended March 31, 2008. The net improvement of $8.6 million represents a $5.2 million improvement in the net change in cash received from customers and cash paid to suppliers. The improvement is mostly attributable to lower payments to suppliers and employees.
Additionally, we experienced a reduction in taxes paid.

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 government reimbursement policies.

Cash Flows for Investing Activities

Net capital expenditures totaled $18.7 million for the three months ended March 31, 2009 compared to $19.0 million for the same period of 2008. 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. Also included in capital expenditures are investments in business systems and data communication upgrades and enhancements. All periods include reagent rental equipment placed with Clinical Diagnostics customers who then contract to purchase our reagents for use.

On April 30, 2009, we acquired 955 of the remaining 1,000 shares of DiaMed Holding AG, held by multiple noncontrolling shareholders. Their interests have been recorded as noncontrolling interests on the consolidated balance sheet as of March 31, 2009. Based on April 30, 2009 foreign exchange rates, approximately $30 million was paid to these shareholders under the terms of the original purchase agreement dated October 1, 2007. The acquisition of the noncontrolling shares will be accounted for as an equity transaction.

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 three months of 2009 or for the year 2008.

Recent Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (FASB) issued the following FASB Staff Positions (FSPs) intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. These FSPs become effective for our interim period ending June 30, 2009.

FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides additional guidance for estimating fair value in accordance with Statement of Financial Accounting Standards (SFAS) No. 157 when the volume and level of activity for the asset or liability have significantly decreased. This FSP also provides guidance on identifying circumstances that indicate a transaction is not orderly. We are currently evaluating the effect that this FSP will have on our consolidated financial statements.

FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, amends SFAS 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. This FSP also amends APB Opinion 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. As FSP FAS 107-1 and APB 28-1 amends only the disclosure requirements about fair value of financial instruments in interim periods, the adoption of this FSP will not affect our financial condition, results of operations or cash flows.

FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, amends current other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. We do not believe the adoption of FSP FAS 115-2 and FAS 124-2 will have a material impact on our consolidated financial statements.

On January 1, 2009 we adopted 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. This statement also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. These disclosure requirements have been applied retrospectively to all periods present. There were no changes to the ownership percentages of the noncontrolling interests in the first quarter of 2009. The adoption of this standard did not have a material impact on our condensed consolidated financial statements; however, the adoption impacted certain captions previously used on the consolidated income statement, largely identifying net income including noncontrolling interests and net income attributable to Bio-Rad. Certain captions on the consolidated balance sheet and statement of cash flows have also changed.

In June 2008, the FASB issued 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 earnings per share (EPS) pursuant to the two-class method. This FSP became effective for us on January 1, 2009, at which time we adopted the FSP. This FSP did not have a material impact on our EPS data in the first quarter of 2009 or on EPS for any prior periods. See Note 9.

As amended in February 2008 by FSP No. 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. This FSP became effective for us beginning January 1, 2009. The adoption of this FSP did not have a material impact on our consolidated financial statements.