This discussion should be read in conjunction with the information contained in both our Consolidated Financial Statements for the year ended December 31, 2011 and this report for the three and six months ended June 30, 2012.

Other than statements of historical fact, statements made in this 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 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 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 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 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 becoming increasingly uncertain as the need to control government social spending by many governments limits opportunities for growth. Approximately 32% of our year-to-date 2012 consolidated net sales are derived from the United States and approximately 68% are derived from international locations, with Europe being our largest region.
The international sales are largely denominated in local currencies such as Euros, Swiss Franc, Japanese Yen, Singapore Dollar 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.

During the first quarter of 2012, we identified an error in the consolidated financial statements for the years 2007 through 2011, related to a foreign supplemental tax associated with social benefits. We incorrectly interpreted and applied the local statutes to our circumstances. During the second quarter of 2012, we paid an amount of $5.6 million that included these foreign supplemental taxes, penalties and interest. We had originally estimated and accrued $6.1 million during the first quarter of 2012. The foreign supplemental tax, and the related penalties and interest, are not deductible for income tax purposes, and as such this error does not have an impact on Bio-Rad's tax provision.

Additionally, we identified two other errors pertaining to prior periods, both related to income taxes, as follows:

• an overstatement of income tax expense in the first quarter of 2011 in the amount of $1.6 million, due to a delay in recognizing a reduction in a foreign tax rate; and

• an understatement of income tax expense over the years 2008 to 2011 in the amount of $0.9 million, due to claiming a tax deduction in excess of a statutory limit.

The effect of the errors on the 2007, 2008, 2009, 2010 and 2011 consolidated financial statements would have been charges of $1.1 million, $1.5 million, $1.3 million and $1.6 million, and a $0.1 million benefit, respectively.

Management evaluated the materiality of the errors from a qualitative and quantitative perspective. Based on such evaluation, we have concluded that while the accumulation of these errors was significant to the three-month period ended March 31, 2012, their correction would not be material to any individual prior period or for the year ending December 31, 2012, nor did it have an effect on the trend of financial results, taking into account the requirements of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). Accordingly, we have corrected these errors in the results of operations for the three-month period ended March 31, 2012 as follows: (i) $4.1 million charge to Cost of goods sold; (ii) $1.2 million charge to Interest expense; (iii) $0.8 million charge to Other (income) expense, net; and (iv) an income tax benefit of $0.7 million.

In January 2012, we purchased, for cash, certain assets from a current raw material supplier for approximately $12.5 million. The asset acquisition was accounted for as a business combination and is included in the Clinical Diagnostics segment's results of operations. The fair value of the assets acquired was determined to be $6.3 million of net tangible assets, $5.1 million of intangible assets and $1.1 million of goodwill. In addition, we paid $2.0 million for employment agreements as an incentive to certain employees of the acquired business to remain with Bio-Rad. Such amount will be expensed over the next two years and is recorded in Prepaid expenses, taxes and other current assets and Other assets in the accompanying Condensed Consolidated Balance Sheet. We believe this acquisition will allow us to secure the supply of critical raw materials and lower our overall costs in the Clinical Diagnostics segment.

In October 2011, we acquired all the issued and outstanding stock of QuantaLife, Inc. (QuantaLife). The fair value of the consideration as of the acquisition date was $179.4 million, which comprised of $150.3 million paid in cash at the closing date, a $5.0 million holdback of cash until the completion of certain post-closing matters, and $24.1 million in contingent consideration potentially payable to QuantaLife shareholders. As of June 30, 2012, the fair value of the contingent consideration was $16.6 million and could potentially reach $45 million upon the achievement of the remaining sales and development milestones. The operating results of this business are included in the results of operations of our Life Science segment from the acquisition date. This transaction was accounted for as the acquisition of a business. Integrating the acquired QuantaLife business into Bio-Rad is expected to expand our current portfolio of products for the amplification and study of DNA and we believe it will complement Bio-Rad's existing business.

The determination of the fair value of net assets acquired of QuantaLife was based upon valuation information, estimates and assumptions available at October 4, 2011. During the second quarter of 2012, we finalized the determination of fair value for certain acquired tax attributes and adjusted the preliminary carrying values of goodwill and certain other assets and liabilities in order to reflect final information received, resulting in an overall reduction of goodwill of $0.6 million. These measurement period adjustments had no impact on our condensed consolidated results of operations for the three and six months ended June 30, 2012. The final fair values of the net assets acquired were determined to be $105.5 million of goodwill, $94.7 million of intangible assets and $20.8 million of net tangible liabilities.

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

                                              Three Months Ended        Six Months Ended
                                                   June 30,                 June 30,
                                               2012         2011         2012       2011
Net sales                                     100.0 %       100.0 %     100.0 %    100.0 %
Cost of goods sold                             43.6          43.8        43.2       43.3
Gross profit                                   56.4          56.2        56.8       56.7
Selling, general and administrative expense    31.8          33.9        33.5       34.2
Research and development expense               10.3           9.2        10.6        9.0
Net income attributable to Bio-Rad              9.5           7.7         8.0        7.3

Critical Accounting Policies and Estimates

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, we have identified accounting for income taxes, valuation of goodwill and long-lived assets, valuation of inventories, warranty reserves, valuation of investments, allowance for doubtful accounts and litigation accruals as the accounting policies and estimates critical to the operations of Bio-Rad.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Management believes that there have been no significant changes during the six months ended June 30, 2012 to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. For a full discussion of these policies and estimates, please refer to our Form 10-K for the period ended December 31, 2011.

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

Results of Operations -- Sales, Margins and Expenses

Net sales (sales) for the second quarter of 2012 decreased to $510.4 million from $521.7 million in the second quarter of 2011, a decrease of 2.2%.
Excluding the impact of foreign currency, second quarter 2012 sales increased by approximately 3.0% compared to the same period in 2011. Currency neutral sales growth was reflected in most regions, primarily in the Pacific Rim, and the emerging markets of eastern Europe and the Middle East, while the developed markets in western Europe decreased.

The Life Science segment sales for the second quarter of 2012 were $162.4 million, a decrease of 4.4% compared to the same period last year. On a currency neutral basis, sales decreased 0.9% compared to the second quarter in 2011. The sales decrease was primarily driven by lower sales in the process chromatography product lines as sales in these product lines are usually large and tend to be infrequent. The currency neutral sales decline in the Life Science segment was driven primarily by total Europe and North America, while sales in the Pacific Rim and Latin America increased.

The Clinical Diagnostics segment sales for the second quarter of 2012 were $344.0 million, a decrease of 1.2% compared to the same period last year. On a currency neutral basis, sales increased 4.9% compared to the second quarter in 2011. Clinical Diagnostics had growth across most product lines on a currency neutral basis, most notably from quality controls, diabetes and BioPlex® 2200 system. Currency neutral sales growth was primarily in eastern Europe and the Middle East, the Pacific Rim and the U.S., while the developed markets in western Europe decreased.

Consolidated gross margins were 56.4% for the second quarter of 2012 compared to 56.2% for the second quarter of 2011. Life Science segment gross margins for the second quarter of 2012 decreased by approximately 1.7% from the same period last year primarily due to amortization expense related to the QuantaLife acquisition. Clinical Diagnostics segment gross margins for the second quarter of 2012 increased by approximately 1.1% from the same period last year primarily due to a favorable product mix.

Selling, general and administrative expenses (SG&A) represented 31.8% of sales for the second quarter of 2012 compared to 33.9% of sales for the second quarter of 2011. Decreases in the expense relative to sales were primarily driven by an adjustment to the fair value of the QuantaLife contingent consideration of $8.1 million, a decrease in the bad debt provisions, primarily in Spain of $5.2 million in the second quarter of 2012 due to payments by public agencies that represented Spanish balances greater than 180 days old, a decline in third party commissions, and lower expenses due to currency as the dollar strengthened against our major currencies.

Research and development expense increased to $52.3 million or 10.3% of sales in the second quarter of 2012 compared to $48.2 million or 9.2% of sales in the second quarter of 2011. Life Science segment research and development expense increased in the second quarter of 2012 from the prior year quarter primarily due to research and development expense associated with QuantaLife, and efforts concentrated in chromatography and genomics. Clinical Diagnostics segment research and development expense decreased in the second quarter of 2012 from the prior year period, and was relatively flat on a currency neutral basis.

Results of Operations - Non-operating

Interest expense for the second quarter of 2012 increased by $0.4 million to $12.4 million compared to $12.0 million for the second quarter of 2011, which was relatively unchanged as our interest rates on our current borrowings are fixed for our $300.0 million of 8.0% Senior Subordinated Notes through 2016 at 8.0% and for our $425.0 million of 4.875% Senior Notes through 2020 at 4.875%.

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. Decreased foreign currency exchange losses, net for the quarter ended June 30, 2012 was primarily attributable to a concentrated effort to lower exposures by paying down intercompany balances, lower costs to hedge, and less volatility in the estimation process of shipments and payments of intercompany payables.

Other (income) expense, net for the second quarter of 2012 increased to $6.7 million income compared to $4.4 million income for the second quarter of 2011 primarily due to higher dividend income for holdings in Sartorius AG and realized gains on the sale of equity investments.

Our effective tax rate was 26% and 31% for the second quarter of 2012 and 2011, respectively. The second quarter of 2012 reflected a significant tax benefit related to an adjustment to the fair value of the QuantaLife contingent consideration. The effective tax rates for both periods were lower than the U.S. statutory rate primarily due to tax benefits from differences between U.S. and foreign statutory tax rates and research and development tax credits. The effective tax rate for the second quarter of 2011 also reflected a tax benefit from nontaxable dividend income in Luxembourg. The second quarter of 2012 effective tax rate does not include tax benefits from U.S. federal research credits that expired in 2011 and nontaxable dividend income that terminated in 2011. For the three months ended June 30, 2012 and 2011, our foreign taxes resulted primarily from taxable income earned in France and Switzerland. Switzerland has a statutory tax rate of approximately 19%, which is significantly lower than our U.S. statutory tax rate of 36.8%, including state taxes. Our effective tax rates for the second quarter of 2012 and 2011 are significantly reduced by French tax incentives related to our research and development activities.

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 the generation of tax credits.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Results of Operations -- Sales, Margins and Expenses

Net sales (sales) for the first half of 2012 decreased to $996.7 million from $1.0 billion in the first half of 2011, a sales decrease of 1.0%. Excluding the impact of foreign currency, the first half of 2012 sales increased by approximately 2.3% compared to the same period in 2011. Currency neutral sales growth was achieved in most regions, while sales declined in the developed markets of western Europe.

The Life Science segment sales for the first half of 2012 were $317.2 million, a decrease of 2.2% compared to the same period last year. On a currency neutral basis, sales decreased 0.1% compared to the first half in 2011. Most product lines had sales decreases, except for sales growth in laboratory separation that was driven by newer products, and genetic systems products were relatively unchanged. The currency neutral sales decline in the Life Science segment were in all regions, except that sales increased in the Pacific Rim.

The Clinical Diagnostics segment sales for the first half of 2012 were $671.2 million, a decrease of 0.6% compared to the same period last year. On a currency neutral basis, sales increased 3.3% compared to the first half in 2011. Clinical Diagnostics product lines generating growth were quality controls, diabetes, microbiology, blood virus and BioPlex® 2200 system. In 2011, sales were impacted by a one-time blood typing sale of approximately $8 million. Currency neutral sales growth was achieved in most regions, primarily in the U.S., and the emerging markets of eastern Europe and the Middle East, while sales declined in the developed markets of western Europe.

Consolidated gross margins were 56.8% for the first half of 2012 compared to 56.7% for the first half of 2011. Life Science segment gross margins for the first half of 2012 decreased from the same period last year by approximately 0.5%, hindered by amortization expense related to the QuantaLife acquisition.
Clinical Diagnostics segment gross margins for the first half of 2012 increased by approximately 0.3% from the same period last year. The increase was primarily due to favorable product mix, partially offset by a foreign supplemental tax associated with social benefits of $4.1 million in the first quarter of 2012.

Selling, general and administrative expenses (SG&A) represented 33.5% of sales for the first half of 2012 compared to 34.2% of sales for the first half of 2011. Decreases in the expense relative to sales were primarily driven by an adjustment to the fair value of the QuantaLife contingent consideration of $7.5 million, a decrease in the bad debt provisions, primarily in Spain of $4.0 million in 2012 due to payments by public agencies that represented Spanish balances greater than 180 days old, a decline in third party commissions and lower expenses due to currency as the dollar strengthened against our major currencies.

Research and development expense increased to $105.3 million or 10.6% of sales in the first half of 2012 compared to $90.9 million or 9.0% of sales in the first half of 2011. Life Science segment research and development expense increased in the first half of 2012 from the same period last year primarily due to research and development expense associated with QuantaLife, and efforts concentrated in chromatography and genomics. Clinical Diagnostics segment research and development expense increased in the first half of 2012 from the prior year period primarily due to increased and broad investment in enhanced product offerings in blood typing, quality controls, diabetes and blood virus product lines.

Results of Operations - Non-operating

Interest expense for the first half of 2012 decreased by $3.2 million to $25.6 million compared to $28.8 million for the first half of 2011 primarily due to the refinancing of a portion of our debt that was completed in January 2011, lowering our overall borrowing costs. The interest rates on our current borrowings are fixed for our $300.0 million

of 8.0% Senior Subordinated Notes through 2016 at 8.0% and for our $425.0 million of 4.875% Senior Notes through 2020 at 4.875%.

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. Decreased foreign currency exchange losses, net for the first half of 2012 was primarily attributable to a concentrated effort to lower exposures by paying down intercompany balances, lower costs to hedge, and less volatility in the estimation process of shipments and payments of intercompany payables.

Other (income) expense, net for the first half of 2012 increased to $13.2 million income compared to $5.4 million income for the first half of 2011 primarily due to realized gains on the sale of equity investments and higher dividend income for holdings in Sartorius AG.

Our effective tax rate was 29% and 31% for the first half of 2012 and 2011, respectively. The first half of 2012 reflected a significant tax benefit related to an adjustment to the fair value of the QuantaLife contingent consideration. The effective tax rates for both periods were lower than the U.S. statutory rate primarily due to tax benefits from differences between U.S. and foreign statutory tax rates and research and development tax credits. The effective tax rate for the first half of 2011 also reflected a tax benefit from nontaxable dividend income in Luxembourg. The effective tax rate for the first half of 2012 does not include tax benefits from U.S. federal research credits that expired in 2011 and nontaxable dividend income that terminated in 2011. For the first half of 2012 and 2011, our foreign taxes resulted primarily from taxable income earned in France and Switzerland. Switzerland has a statutory tax rate of approximately 19%, which is significantly lower than our U.S. statutory tax rate of 36.8%, including state taxes. Our effective tax rates for the first half of 2012 and 2011 are significantly reduced by French tax incentives related to our research and development activities.

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 the 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 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 expenditure, 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 Amended and Restated Credit Agreement (Credit Agreement) that we entered into in June 2010. Borrowings under the Credit Agreement are on a revolving basis and can be used to make acquisitions, for working capital and for other general corporate purposes. We had no outstanding borrowings under the Credit Agreement as of June 30, 2012. The Credit Agreement expires on June 21, 2014.

At June 30, 2012, we had $835.3 million in cash, cash equivalents and short-term investments, of which approximately 25% was 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. It is primarily our intention and practice to reinvest the cash generated by our foreign subsidiaries in our foreign subsidiaries' operations.

Under domestic and international lines of credit, we had $219.8 million available for borrowing as of June 30, 2012, of which $11.3 million is reserved for standby letters of credit issued by our banks to guarantee our obligations, mostly to meet the deductible amount under insurance policies for our benefit. 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.

The continuing slow economic growth in developed nations may adversely affect our future results of operations. 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 June 30, 2012 and December 31, 2011, we had accounts receivable, net of allowance for doubtful accounts, in Spain, Italy, Greece and Portugal of $66.2 million and $82.1 million, respectively. The . . .