Bio-Rad Annual Report 2009

Focused On:

the Details

Bio-Rad Laboratories | Annual Report 2009

David Schwartz

CHAIRMAN OF THE BOARD

Norman Schwartz

PRESIDENT

Bio-Rad Laboratories | Annual Report 2009

Most letters to shareholders this year will make some reference to the economic

environment of 2009 and its ultimate effects on the year’s results. Like others, we too

experienced the economic adjustments in spending patterns by our customers.

On a reported basis, our sales increased only 1%. However, when you focus in on

the details, currency ﬂuctuations had a major effect on the underlying growth, which

was actually 5.5% excluding the impact of currency changes. Another indicator of our

progress is net income which topped $145 million, an increase of 62% over last year.

FOCUSED ON: OUR SHAREHOLDERS

Apart from the economy and attention to

operational improvements, we continued

our usual focus of developing new prod-

ucts to meet the ever advancing needs

of our customers. To that end, there

are a number of exciting new products

introduced during the year and others

planned as 2010 progresses. Signiﬁcant

among those introduced in 2009 were

new real-time thermal cycler systems; a

new line of reagents for quantitative PCR;

precast electrophoresis gels, which offer

our customers faster run times; mag-

netic bead assays for the research

Bio-Plex

system to improve perfor-

mance of the assays; and new assays

for the BioPlex

2200.

The new product pipeline for 2010 is

strong. Our Life Science Group has an

exciting lineup of interesting new prod-

ucts to be introduced throughout the

year. Our Diagnostics Group is planning

for three new BioPlex 2200 panels to

clear FDA approval and is preparing to

launch our new automated IH-1000 plat-

form to serve the blood typing market.

In the ﬁrst few days of 2010, Diagnostics

completed the acquisition of some key

diagnostic product lines, further increas-

ing our offerings in the area of blood typ-

ing. This is an area where we have made

signiﬁcant investments over the past few

years and the addition of these products

gives us access to the very important

North American market.

As with most companies in our markets,

the economy and its effects on business

was a major focus during the year. It

caused many to rethink their operations

and to make changes, some dramatic.

What was billed as a “stimulus package” at

the beginning of the year turned out to be

an anti-stimulus package, as our research

customers spent time writing grant propos-

als and carefully managing their current

grants in anticipation of fresh government

investments into basic research. Mean-

while, our Diagnostics business remained

robust. This was somewhat counter-intui-

tive, given higher levels of unemployment.

In our case, we were ﬁnancially sound

and operationally streamlined, there-

fore we were somewhat insulated from

perturbations in our markets. Addition-

ally, our product line is not as tied to the

volatility of capital equipment markets in

contrast to some others. It was, never-

theless, a good time for us to re-evaluate

some of our day-to-day practices with

the purpose of improving cash ﬂow.

As you can see in our ﬁnancials, the

result was outstanding. Throughout the

Company, people looked at what was be-

ing done on a daily basis and discovered

hundreds of mostly small improvements

we could make which, when added up,

helped to increase our cash ﬂow from

$191 million to $325 million. Some of

these were one time in nature, but we

expect many of them will be sustaining.

David Schwartz

CHAIRMAN OF THE BOARD

Norman Schwartz

PRESIDENT

Another area of continued investment for

us is in the fast growing markets of Asia,

Eastern Europe, and Latin America. All of

these areas are experiencing higher than

average growth rates and we foresee these

as continuing fertile ground for growth.

Balancing our product and market focus

is the need to continually improve and

streamline our operations to accommo-

date our growth and to remain competi-

tive. To that end, we are making a number

of operational improvements around

the way we transact business with our

customers and deliver products to those

customers. In 2009, we installed a new

e-commerce system in the U.S. and we will

roll this out to the rest of the world over

the next 12 to 18 months. We have also

embarked on a project to upgrade and

standardize some of our business systems.

The New Year brings with it renewed

optimism. While we will still approach the

near term with caution, we have a lot to

look forward to as we round the corner to

$2 billion. Thank you for your continued

interest in Bio-Rad.

page 2

Bio-Rad Laboratories | Annual Report 2009

A decade into the 21st Century, advances in

healthcare continue to offer the promise of new

and better therapies for disease control and

prevention. In virtually every ﬁeld of biomedical

research and practice, signiﬁcant progress

is being made in bringing new treatments to

market and improving existing procedures.

At Bio-Rad, we build the industry leading instruments and products

that help enable these advances. Our success is based on our

uncompromising focus on the most important details in any given

area—from shortening the time it takes to ﬁnd high-value proteins to

making it easier to amplify DNA strands to accelerating the pace of

separations in gel electrophoresis.

Not all of these details are “small”. But they all make a huge difference

in the lives of the people who beneﬁt from them.

Focused On: 2010

page 4

Instead of removing the hay, attract the needle.

FOCUSED ON: PROTEIN SAMPLE PREPARATION

It wasn’t so long ago that the

sequencing of the human genome

signaled a historic milestone in bio-

medical science, with the promise of

new and as-yet untapped possibilities

for the diagnosis of disease. While

this effort exponentially expanded our

knowledge of genes and their func-

tion, it also raised new and important

questions about the true causes of

disease—questions that were not

answerable by studying only the

genome. Genes alone cannot explain

the complexity of how the human

body works and what goes wrong

when a disease occurs. Much can be

explained, however, by studying the

intricate interactions of proteins.

DIGGING DEEPER

IN THE PROTEOME,

PROTEOMINER

™

PROTEIN ENRICHMENT

TECHNOLOGY ENHANCES

THE POTENTIAL

FOR BIOMARKER

DISCOVERY BY HELPING

RESE ARCHERS DISCOVER

“LOW ABUNDANCE”

PROTEINS OF INTEREST

THAT CANNOT BE

DE TECTED THROUGH

TR ADITIONAL METHODS.

Bio-Rad Laboratories | Annual Report 2009

page 6

FOCUSED ON: PROTEIN SAMPLE PREPARATION

As research progresses today, it is the highly complex proteome—the

set of proteins expressed by the genetic material of an organism that

are coded by genes—that offers the key to both disease research and

the discovery of protein biomarkers speciﬁc to a variety of diseases.

A major obstacle to ﬁnding these proteins,

however, is that only about 20 percent

of them are of interest to researchers.

These low-abundance yet information-rich

proteins are typically “hidden” among the

other proteins in the cell, which compli-

cates scientists’ search for them. So the

question becomes how to locate these

potentially “interesting” proteins—quickly

and efﬁciently—amidst all the ﬁller.

Enter Bio-Rad. Until the introduction of

Bio-Rad’s ProteoMiner

™

protein enrich-

ment technology, the method of discovery

of proteins of interest has been an indirect

process of elimination referred to as a

“depletion” strategy: removing the high-

abundance, low value proteins to ﬁnd the

low-abundance, high value proteins. In

other words, to ﬁnd the “needle” remove

the “hay”. Unfortunately, during this

process, some of the high-abundance

proteins can adhere to the proteins of

interest. So as the hay is removed, some

of the needles get removed, too, making

this strategy highly inefﬁcient.

However, with Bio-Rad’s ProteoMiner

protein enrichment technology, the low-

abundance proteins are targeted and

captured directly, resulting in a higher

concentration of these proteins of interest

at the conclusion of the process. More

needles, less hay.

Further, where conventional depletion

strategies tend to be antibody-based and

require a sample to be a bodily ﬂuid such

as serum, ProteoMiner allows for non-

serum-based samples such as tissues

and saliva as well, resulting in far more

ﬂexibility with sample sources.

The capacity of Bio-Rad’s ProteoMiner

sample preparation tool to help unveil the

proteome has led to its worldwide use in

laboratories that are involved in the

discovery of protein biomarkers for

diseases. Capturing high-value proteins,

after all, captures attention.

page 8

The widest range of tests,

from the smallest drops of blood.

FOCUSED ON: IMMUNOHEMATOLOGY

Every year, millions of people receive

life-saving blood transfusions either to

replace blood lost during surgery or

as the result of a serious injury. Trans-

fusions may also be done on a regu-

lar basis for individuals whose bodies

cannot properly produce blood due

to an illness. For blood transfusions

to be safe and effective, donor blood

must be carefully screened and then

meticulously matched to a patient’s

blood type to ensure compatibility

between the two.

The human body’s biological defense

mechanism includes a sophisticated

system that recognizes “foreign”

substances—antigens, with names

like Duffy, Lewis, Kidd, and Kell—in

donor blood cells and in response

sends its own antibodies out to meet

them, and ﬁght, if necessary. If the two

combatants are incompatible, the battle

is engaged: the cells clump together,

or agglutinate, and clog the vessels

carrying them, releasing hemoglobin

into the blood stream. The hemoglobin

is eventually transported to the kidney,

resulting in blockage, failure, and even,

possibly, death.

The answer is extremely complex, and it

is what immunohematology is all about:

the study of antigen-antibody reactions

as they relate to blood compatibility.

Immunohematology tests for the

attraction between the antigens on the

surface of a donor’s red blood cells

and the antibodies that are in a recipi-

ent’s plasma. In a three-step process,

an ABO typing test is ﬁrst performed.

Next, after a basic match of blood

types has been made, a lab or hospital

performs a general antibody screen,

in which antibodies in the patient’s

plasma are combined with a red cell

reagent pool of the most clinically

signiﬁcant antigens. And ﬁnally, if no

incompatibility is detected a “cross-

match” is performed, in which the red

cells in the donor blood and the plasma

of the patient are mixed together to

ensure that there is no reaction.

The underlying principle behind this

work is that, whether for transfusion

or transplantation, the more reagents

there are available to test, the greater

the number of incompatibilities that may

be ruled out, thus the greater the conﬁ-

dence in the match.

As a global company, Bio-Rad has access

to multiple diverse blood sources,

allowing us to manufacture a large

number of reagent red cells that have

clinically relevant antigen proﬁles. In

addition, we have at our disposal a

signiﬁcant arsenal of monoclonal and

polyclonal antibodies, which further

enlarge the pool of test cell possibilities,

allowing customers to dig deeper to

discover possible interactions between

antibodies and antigens.

But materials are only half the story.

We also provide a complete range of

technologies—from traditional test tube

methods to gel cards and microplates

for high-volume settings—that offer

blood banks, donor centers, hospitals,

and transfusion centers a wide spec-

trum of choice and ﬂexibility in running

their tests. And ﬁnally, Bio-Rad offers

automated systems and comprehensive

software, as well as unparalleled tech-

nical support, so that customers get

the right products in the right conﬁgura-

tion at the right speciﬁcity.

The result is a comprehensive immu-

nohematology solution that enables the

widest range of tests from the smallest

drops of blood.

page 10

Bio-Rad Laboratories | Annual Report 2009

FOCUSED ON: IMMUNOHEMATOLOGY

So the question arises when a patient needs

blood: how can a hospital or clinic be sure

that—from vein-to-vein—a donor’s blood won’t

cause an adverse clinical reaction?

EVERY DETAIL MATTERS WHEN

IT COMES TO DETERMINING

COMPATIBILITY OF A DONOR’S AND

PATIENT’S BLOOD. BIO-RAD OFFERS

CLINICIANS THE TOOLS THEY NEED

TO DO THE DETECTIVE WORK—

ENSURING THEY FIND EXACTLY

WHAT THEY ARE LOOKING FOR:

A PERFECT MATCH.

page 12

Amplifying small fragments, for big results.

Use of Polymerase Chain Reaction,

known simply as PCR, has grown over

the last three decades to become

a common and often indispensable

technique used in a wide range of

medical and biological research areas,

from analysis and forensic investiga-

tion—where there may be only a few

drops of blood available—to the basic

study and identiﬁcation of genes. Much

like a photocopier, PCR ampliﬁes, or

replicates, a fragment of DNA—in this

case into thousands, millions, and even

billions of copies, allowing researchers

to have adequate samples with which

to make speciﬁc proteins, compare

gene sequences, and perform a variety

of other applications that lead to a

better understanding of the complex

biological systems around us.

FOCUSED ON: DNA RESEARCH

REFLECTING ON

ITS YEARS OF

EXPERIENCE WRITING

PCR PROTOCOLS,

BIO-RAD OFFERS

THE C1000 THERMAL

CYCLER’S PROTOCOL

AUTOWRITER TO HELP

RESEARCHERS GET

STARTED QUICKLY

ON THEIR PCR

EXPERIMENTS AND

OPTIMIZE THEIR RUN

TIMES FOR BEST

RESULTS.

Bio-Rad Laboratories | Annual Report 2009

page 14

FOCUSED ON: DNA RESEARCH

Bio-Rad has been an important contributor to the

success of PCR since 1989, supplying scientists

with thermal cyclers, reagents, and related products

designed to help make their tasks easier.

Thermal cyclers, as the name implies,

help in the PCR process by separating

DNA strands and re-annealing (or recom-

bining) them through a process of rapid

heating and cooling. Bio-Rad’s thermal

cycler products played an important role

in laboratories across the country and

around the world for the U.S. National

Institutes of Health’s massive Human

Genome Project, which was mapped in

2003. With this map in hand, a new, more

informed, journey began to discover new

pathways that may lead to a better under-

standing of gene function and therefore

the basis of disease.

In January 2008, Bio-Rad introduced

its next-generation PCR instrumentation,

the innovative 1000-series thermal cycling

platform, which for the ﬁrst time allowed

researchers to automate the writing of

protocols used to amplify DNA. Prior to

this, protocols, or instructions, had to be

created by the researcher, meticulously

detailing every step of the heating and

cooling cycle, taking into account experi-

ment parameters such as PCR product

length, enzyme type, and DNA binding

temperatures. But with the protocol

autowriter on Bio-Rad’s C1000

™

thermal

cycler, all a researcher has to do is enter

these experiment parameters, and the

instrument automatically generates the

“recipe” the thermal cycler will use, based

on Bio-Rad’s long experience in the ﬁeld.

As a result, researchers can obtain accurate

and reliable results with shorter run times

and optimized thermal performance.

What’s next? In today’s interconnected

world, researchers expect the ﬂexibility of

having information on demand—wherever

they are. And so in 2009, Bio-Rad intro-

duced a real-time PCR application guide

for Apple’s iPhone. The application guide

puts at the ﬁngertips of those conducting

PCR several helpful tools including tutorials,

troubleshooting tips, and assay-speciﬁc

information.

Think of it as another small step in large-

scale ampliﬁcation.

page 16

A lot of conﬁdence in a little vial.

FOCUSED ON: QUALITY CONTROLS

It’s the simple assurance of knowing

that a result is right. Of not having

to spend extra time or resources

determining whether an outcome is a

reliable result. Of having one less thing

to worry about.

And all thanks to a small bottle of

liquid. Call it liquid “gold”…

When a physician orders a test and a

sample of blood is drawn, the patient

sample is sent to a lab for testing to

determine, for example, what their

triglycerides, cholesterol, or glucose

levels are. The tests are run and the

results are produced, but before

they’re sent to the physician for review,

the laboritorian must ensure quality

results. That means verifying that all

of the variables that may have errone-

ously affected the results all worked

as they were supposed to.

To provide highly reliable controls, Bio-Rad

creates specially prepared samples. To

further enhance quality, Bio-Rad provides

powerful software for monitoring lab

performance, which offers labs a way to

track data points over time—through pa-

rameters such as mean, standard devia-

tion, and more—enabling them to keep

track of how their controls are performing

and to ensure that their instruments and

reagents are working properly. Then,

thanks to Bio-Rad’s QC data manage-

ment solutions that include large peer

groups of test systems and assay (test)

methods, labs are able to compare their

results with those from other labs around

the world. So they always know what to

expect from the systems they’re using.

No matter how you look at it, it’s a power-

ful guarantee of quality that produces gold

star results, coming from the smallest of

bottles.

Quality controls are known samples that

provide expected values and expected

results, ensuring that the most reli-

able data goes back to the physician or

healthcare worker—and, most impor-

tantly, to the patient. Controls are run the

same way and on the same instrument

as a patient sample. If the control delivers

expected results, then the laboritorian

can feel conﬁdent that the patient sample

run the same way will yield a reliable

result as well.

Physicians depend on the labs they use;

they assume that the sample they sent

was tested properly, so that they may in

turn make clinical decisions based on

those results. An incorrect diagnosis could

lead to over- or under-treatment, resulting

in potentially dire clinical consequences.

page 18

Bio-Rad Laboratories | Annual Report 2009

FOCUSED ON: QUALITY CONTROLS

In a continuum, that begins from the time a sample is drawn from

a patient, to how it was collected, handled, and stored, to the time it

is tested and the integrity of the instrument, reagents, and even the

individual conducting the test may come into question, the potential of

an error occurring exists. This is where quality controls come in.

BIO-RAD OFFERS

THE WORLD’S MOST

COMPREHENSIVE

MENU OF QUALITY

CONTROL PRODUCTS

COVERING ANALYTES

FOR IMMUNOASSAY,

THERAPEUTIC DRUG

MONITORING, CHEMISTRY,

CARDIAC ASSESSMENT,

IMMUNOLOGY, DIABETES,

INFECTIOUS DISEASE

TESTING AND MORE.

page 20

Getting the same performance,

in far less time.

Being one of the most basic tools and

commonly used techniques researchers

use in the lab, electrophoresis should

be as easy as making toast. It is the

technique of separating and identifying

DNA, RNA, or protein molecules by

applying an electric ﬁeld to them. The

position of these molecules in the gel

reveals their size and electric charge.

This common lab procedure is among

one of the most widely used in a variety

of biotechnology applications, from

diagnosing and monitoring a wide range

of diseases and conditions to studying

the genetic makeup of living organisms

to determining the paternity of a parent.

In spite of its presence in labs worldwide,

electrophoresis can be a time-consum-

ing process. With gel cycles potentially

taking hours to run, academic and

pharmaceutical researchers must

consider the tradeoffs in a typical

workday of conducting multiple elec-

trophoresis procedures or doing other,

more productive, tasks. The result is a

workﬂow that is often far less efﬁcient

than it could be.

As the industry leader in electrophoresis

for 35 years, Bio-Rad has been at the

forefront of making our customers’

workﬂows easier and more productive.

Over the years, we have focused

on three areas of improvement: the

reproducibility of results, ease of use,

and speed.

For years, scientists spent valuable

time and labor “hand casting” their

own gels. Even though hand-cast gels

are effective, they can be inconsistent

from batch to batch. This inconsistency

may be reﬂected in the gel’s reliability,

as well as in the reproducibility of its

results. Because researchers repeat

their experiments to ensure the accuracy

of their results, the last thing they want

to worry about is variable performance

of the gels.

FOCUSED ON: GEL ELECTROPHORESIS

BECAUSE GOOD IS NEVER

GOOD ENOUGH, BIO-RAD HAS

CONTINUED TO ENHANCE

THE PERFORMANCE OF ITS

GEL ELECTROPHORESIS

PRODUCTS, FOCUSING ON

EVERY DETAIL. AS A RESULT,

GEL ELECTROPHORESIS

CONTINUES TO GET EASIER—

AND NOW FASTER. IMAGINE

TOASTING A PIECE OF BREAD

IN JUST 20 SECONDS…

page 22

Bio-Rad Laboratories | Annual Report 2009

FOCUSED ON: GEL ELECTROPHORESIS

In the early 1990s, Bio-Rad gave researchers the option to

forego hand casting with the introduction of the ﬁrst in our line

of easy-to-use, ready-to-run precast gels, offering results in

less than an hour. But we didn’t stop there.

Our customers rely on us for continuous

improvement. Through the years we’ve

continued to improve our gels’ resolution,

performance, and shelf life. In 2004, we

added automation to the process using

a lab-on-a-chip technology to create

the Experion

™

automated electrophoresis

system, giving researchers the ability to get

results even more quickly and efﬁciently.

And at the end 2009, we introduced a new

series of the next generation of precast

gels that promise to cut run cycles by

a factor of as much as six, bringing run

times down to as little as 10 minutes

without compromising performance. Our

new Mini-PROTEAN

TGX

™

precast gels

are designed to be completely plug-

and-play, working seamlessly with the

industry’s gold standard Laemmli buffer

system. Because Laemmli is the system

of choice for most researchers, it was

important that our gels be completely

compatible—working with what our

customers were already using, including

buffers, power supplies, and instruments.

In addition to their short run times and

high performance, the gels also feature a

long shelf life, allowing researchers to have

gels at their disposal in their laboratories.

With the Mini-PROTEAN TGX gels, the

improvement of a single, simple compo-

nent in an otherwise complex process

requires no changes to the way our cus-

tomers work. Except, perhaps, for getting

used to being able to do their research

faster, and ending up with more time on

their hands.

Call it our small way of accelerating the

pace of discovery to ultimately provide

better healthcare for all.

L I F E S C I E N C E S

Bio-Rad’s Life Science Group develops,

manufactures, and markets a wide range

of laboratory instruments, apparatus, and

consumables used for research in func-

tional genomics, proteomics, and food

safety. The group ranks among the top

ﬁve life science companies world-wide,

and maintains a solid reputation for quality,

innovation, and commitment to its cus-

tomers. Bio-Rad’s life science products

are based on technologies used to sepa-

rate, purify, identify, analyze, and amplify

biological materials such as proteins and

nucleic acids. These technologies include

electrophoresis, imaging, multiplex immu-

noassay, chromatography, microbiology,

bioinformatics, protein function analysis,

transfection, ampliﬁcation, and real-time

PCR. Bio-Rad products support researchers

in laboratories throughout the world.

C L I N I C A L D I A G N O S T I C S

Clinical Diagnostics develops, manufac-

tures, sells, and supports a large portfolio

of products for medical screening and

diagnostics. Bio-Rad is a leading specialty

diagnostics company and its products are

recognized as the gold standard for

diabetes monitoring and quality control

(QC) systems. The company is also well

known for its blood virus testing and

detection, blood typing, autoimmune and

genetic disorders testing, and internet-

based software products. Bio-Rad’s

clinical diagnostics products incorporate

a broad range of technologies used to

detect, identify, and quantify substances

in bodily ﬂuids and tissues. The results are

used as aids to support medical diagnosis,

detection, evaluation, and the monitoring

and treatment of diseases and other

medical conditions.

page 24

Bio-Rad Laboratories | Annual Report 2009

FOCUSED ON: THE BUSINESS OF BIO-RAD

Bio-Rad Laboratories has played a leading role in the

advancement of scientiﬁc discovery for nearly 60 years

by providing a broad range of innovative tools and services

to the life science research and clinical diagnostics markets.

Founded in 1952, Bio-Rad has a global team of more than 6,800 employees and

serves more than 85,000 research and industry customers worldwide through its global

network of operations. Throughout its existence, Bio-Rad has built strong customer

relationships that advance scientiﬁc research and development efforts and support the

introduction of new technology used in the growing ﬁelds of genomics, proteomics,

drug discovery, food safety, medical diagnostics, and more.

NET SALES

( I N M IL LI O N S )

05 06 07 08 09

CASH FLOW

FROM OPERATIONS

( I N M IL LI O N S )

05 06 07 08 09

BA SI C EARNINGS

PE R SHARE

05 06 07 08 09

2009 SALES BY REGION

2009 FINANCIAL HIGHLIGHTS

2005 2006 2007 2008 2009

( I N MI LL IO N S , E XC EPT P ER S HA RE D ATA )

Net Sales $ 1,181.0 $ 1,273.9 $ 1,461.1 $ 1,764.4 $ 1,784.2

Gross Proﬁt $ 646.5 $ 712.5 $ 791.4 $ 962.5 $ 999.8

Research Expenditures $ 115.1 $ 123.4

(1)

$ 140.5

(1)

$ 159.5 $ 163.6

Net Income $ 81.6 $ 103.3 $ 93.0 $ 89.5 $ 144.6

Return On Sales 6.9% 8.1% 6.4% 5.1% 8.1%

Book Value Per Share $ 25.09 $ 30.92 $ 36.12 $ 38.11 $ 45.76

Basic Earnings Per Share $ 3.13 $ 3.92 $ 3.48 $ 3.30 $ 5.28

Cash Flow From Operations $ 108.3 $ 118.2 $ 191.6 $ 191.4 $ 325.1

FI VE -YEAR RECORD

1. EXCLUD ES $7.7 MILLION AND $4.1 MILLION OF PURCHAS ED R&D I N 2007 A ND 2006, RESPECTIVELY

38%

Americas

46%

Europe

16%

Paciﬁc

Rim

$3.13

$3.92

$3.48

$3.30

$108.3

$118.2

$191.6

$191.4

$325.1

$1,181.0

$1,273.9

$1,461.1

$1,764.4

$1,784.2

$5.28

1959 1965 1970 1975 1980 1985 1990 1995 2000 2009

$1.2 billion

$1.1 billion

$1.3 billion

$1.5 billion

$1.6 billion

$1.7 billion

$1.4 billion

$1 billion

$900 million

$800 million

$700 million

$600 million

$500 million

$400 million

$300 million

$200 million

$100 million

FOCUSED ON: BIO-RAD SALES HISTORY

page 26

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the year ended December 31, 2009

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

For the transition period from

Commission file number 1-7928

BIO-RAD LABORATORIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

94-1381833

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1000 Alfred Nobel Drive, Hercules, California

94547

(Address of principal executive offices)

(Zip Code)

Registrant's telephone number, including area code

(510) 724-7000

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

Name of Each Exchange

Title of Each Class

on Which Registered

Class A Common Stock Par Value $0.0001 per share

New York Stock Exchange

Class B Common Stock Par Value $0.0001 per share

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.

[ X ] Yes

[ ] No

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

[ X ] No

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.

[ X ] Yes

[ ] No

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

[ ] No

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. [ X ]

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

[ X ]

Accelerated filer

[ ]

Non-accelerated file

[ ]

(Do not check if a smaller reporting company)

Smaller reporting company

[ ]

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

[ ] Yes

[ X ] No

As of June 30, 2009, 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 $1,403,335,633 and the aggregate market value of the registrant’s

Class B Common Stock held by non-affiliates was approximately $36,812,367.

As of February 16, 2010, there were 22,429,100 shares of Class A Common Stock and 5,118,352 shares of Class B Common Stock outstanding.

Documents Incorporated by Reference

Document

Form 10-K Parts

(1)

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

III

registrant's 2010 Annual Meeting of Stockholders (specified portions)

Bio-Rad Laboratories, Inc.

Form 10-K December 31, 2009

TABLE OF CONTENTS

Part I. 3

Item 1. Business 3

Item 1a. Risk Factors 6

Item 1b. Unresolved Staff Comments 12

Item 2. Properties 12

Item 3. Legal Proceedings 13

Item 4. Submission Of Matters To A Vote Of Security Holders 13

Part II. 13

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities 13

Item 6. Selected Financial Data 15

Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations 16

Item 7a. Quantitative And Qualitative Disclosures About Market Risk 28

Item 8. Financial Statements And Supplementary Data 29

Item 9. Changes And Disagreements With Accountants On Accounting And Financial Disclosure 66

Item 9a. Controls And Procedures 66

Item 9b. Other Information 68

Part III. 68

Item 10. Directors, Executive Officers And Corporate Governance 68

Item 11. Executive Compensation 68

Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters 69

Item 13. Certain Relationships And Related Transactions, And Director Independence 69

Item 14. Principal Accountant Fees And Services 69

Part IV. 70

Item 15. Exhibits And Financial Statement Schedules 70

Signatures 71

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. In 1967, 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. We

expanded into the field of analytical and measuring instrument systems through internal research and development efforts

and acquisitions in the late 1970's and 1980's. In 1999, we acquired the stock of Pasteur Sanofi Diagnostics and the rights

to certain ancillary assets. This strengthened our position in the HIV and infectious disease testing market. In 2000 and

2004, we divested our semiconductor, optoelectronic metrology and confocal microscopy product lines. During 2007, we

acquired DiaMed Holding AG, enhancing our position in the immunohematology market.

As we broadened our product lines, we also expanded our geographical market. We have distribution channels in over

thirty countries outside the United States through subsidiaries whose focus is customer service and product distribution.

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.

Description of Business

Business Segments

Today, Bio-Rad operates in two industry segments designated as Life Science and Clinical Diagnostics. Both segments

operate worldwide. For a description of business and financial information on industry and geographic segments, see Note

13 on pages 62 through 65 of Item 8.

Life Science Segment

Life science is the study of the characteristics, behavior, and structure of living organisms and their component systems.

Life science researchers use a variety of products and systems including reagents, instruments, software and apparatus, to

advance the study of life processes, drug discovery, biotechnology and food pathogen testing, primarily within a laboratory

setting.

We focus on selected segments of the life science market which we estimate to be approximately $5 billion. The primary

technological applications that we supply to these segments consist of electrophoresis, image analysis, molecular detection,

chromatography, gene transfer, sample preparation and amplification. The primary end-users in our sectors of the market

are universities and medical schools, industrial research organizations, government agencies, pharmaceutical

manufacturers, biotechnology researchers and food testing laboratories.

Clinical Diagnostics Segment

We estimate the worldwide clinical diagnostics segment in which we participate to be approximately $10 billion. The

market encompasses a broad array of technologies incorporated into a variety of products used to detect, identify, monitor

and quantify substances in patient and donor blood or other bodily fluids and tissues. The vast majority of these tests are

performed "in vitro" (outside the body). The information generated by these tests helps physicians diagnose disease and

guide patient therapy and treatment, all of which helps improve patient care. It is estimated that diagnostic testing

influences 70% or more of patient care decisions made by doctors while comprising less than two percent of total

healthcare costs.

The market is split into several sub segments consisting of clinical chemistry, immunoassay, microbiology, hematology,

molecular, coagulation, blood banking and blood typing. Bio-Rad has significant positions in blood virus testing (blood

banking and immunoassay); immunohematology (blood typing); hemoglobin A1c testing for diabetes monitoring (clinical

chemistry and immunoassay); autoimmune disease testing (immunoassay); and quality control (crossing all sub segments).

Consumers of clinical diagnostic products are hospital laboratories, reference laboratories, physician office laboratories,

government agencies, and diagnostic manufacturers. Purchasing decisions are normally based on improving the healthcare

of patients, improving laboratory efficiency, and reducing overall costs. Bio-Rad's products and services generally meet or

exceed these criteria leading to strong customer loyalty and recurring revenue exceeding 70% of our total clinical

diagnostics sales.

Raw Materials and Components

We utilize a wide variety of chemicals, biological materials, electronic components, machined metal parts, optical parts,

minicomputers and peripheral devices. Most of these materials and components are available from numerous sources and

we have not experienced difficulty in securing adequate supplies.

Patents and Trademarks

We own numerous U.S. and international patents and patent licenses. We believe, however, that our ability to develop and

manufacture our products depends primarily on our knowledge, technology and special skills. We pay royalties on the

sales of certain products under several patent license agreements. We view these patents and license agreements as

valuable assets.

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

Each of Bio-Rad's segments maintains a sales force to sell its products on a direct basis. Each sales force is technically

trained in the disciplines associated with its products. Sales are also generated through direct mail advertising, exhibits at

trade shows and technical meetings, telemarketing, e-commerce and by extensive advertising in technical and trade

publications. Sales and marketing efforts are augmented by technical service departments that assist customers in effective

product utilization and in new product applications. We also produce and distribute technical literature and hold seminars

for customers on the use of our products.

Our customer base is broad and diversified. In 2009, no single customer accounted for more than two percent of our total

net sales. Our sales are affected by certain 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 would 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. However, our international operations are principally in developed nations, which we regard as presenting no

significantly greater risks to our operations than are present in the United States.

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. Reliable independent information on sales and market

share of products produced by our competitors is not generally available. We believe, however, based on our own

estimates, no one company is so dominant that it prevents other companies, including Bio-Rad, from competing effectively.

We compete mainly in market segments where our products and technology offer customers specific advantages over the

competition. We tend to avoid head to head competition against entrenched competitors with me-too products.

Because of the breadth of its product lines, the Life Science segment does not face the same competitors for all of its

products. Competitors in this market include GE Biosciences, Life Technologies, Millipore and Thermo Fisher Scientific.

We compete primarily based on meeting performance specifications.

Major competitors in clinical diagnostics include Roche, Abbott Laboratories (Diagnostic Division), Siemens Medical

Diagnostics Solutions (formerly Dade-Behring, Diagnostics Products Corporation, and Bayer Diagnostics), Beckman

Coulter, Becton-Dickinson, bioMérieux, Johnson & Johnson (Ortho Clinical Diagnostics), Tosoh, Immucor, Cepheid, and

DiaSorin.

Product Research and Development

We conduct extensive product research and development activities in all areas of our business, employing approximately

780 people worldwide in these activities. Research and development have played a major role in Bio-Rad's growth and are

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 and testing of new products and applications, we consult with

scientific and medical professionals at universities, hospitals and medical schools, and in the industry. Excluding

purchased in-process research and development expense, we spent approximately $163.6 million, $159.5 million, and

$140.5 million on research and development activities during the years ended December 31, 2009, 2008 and 2007,

respectively.

Regulatory Matters

The manufacturing, marketing 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 United States 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 approval by the FDA and require certain products to be manufactured in accordance

with “good manufacturing practices,” to be extensively tested and to be properly labeled to disclose test results and

performance claims and limitations.

As a multinational manufacturer and distributor of sophisticated instrumentation equipment, we must meet a wide array of

electromagnetic compatibility and safety compliance requirements to satisfy regulations in the United States, the European

Community and other jurisdictions. These requirements relating to testing and trials, product licensing, pricing and

reimbursement vary widely among countries.

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.

Employees

At December 31, 2009, Bio-Rad had approximately 6,600 full-time employees. Fewer than eight percent of Bio-Rad's

approximately 2,675 U.S. employees are covered by a collective bargaining agreement which will expire on November 7,

2012. Many of Bio-Rad's 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. The public may read and copy any materials that

we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, 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.

ITEM 1A. RISK FACTORS

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking

information contained in this Annual Report on Form 10-K. We believe that any of the following risks could have a

material affect on our business, operations, industry, financial position or our future financial performance. While we

believe that we have identified and discussed below the key risk factors affecting our business, there may be additional

risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely

affect our business, operations, industry, financial position and financial performance in the future.

Adverse changes in general domestic and worldwide economic conditions and instability and disruption of

credit markets could adversely affect our operating results, financial condition or liquidity.

Recent global market and economic conditions have been unprecedented and challenging with tighter credit conditions,

slower growth and recession in most major economies during 2009. Although signs of recovery may exist, there are

continued concerns about the systemic impact of inflation, the availability and cost of credit, a declining real estate market

and geopolitical issues that contribute to increased market volatility and uncertain expectations for the global economy.

These conditions, combined with declining business activity levels and consumer confidence, increased unemployment and

volatile oil prices, contributed to unprecedented levels of volatility in the capital markets during 2009. Any additional,

continued or recurring disruptions in the capital and credit markets may adversely affect our business, results of operations,

cash flows and financial condition.

As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected

by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of

counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide

credit to businesses and consumers. These factors have led to a decrease in spending by businesses and consumers alike.

Our customers and vendors may experience cash flow concerns and, as a result, customers may modify, delay or cancel

plans to purchase our products and vendors may increase their prices, reduce their output or change terms of sales.

Additionally, if customers’ or vendors’ operating and financial performance deteriorates, or if they are unable to make

scheduled payments or obtain credit, customers may not be able to pay, or may delay payment of, amounts owed to us.

Vendors may restrict credit or impose less favorable payment terms. Any inability of current and/or potential customers to

pay us for our products or any demands by vendors for accelerated payment terms may adversely affect our earnings and

cash flow. Additionally, strengthening of the U.S. dollar associated with the global financial crisis may adversely affect the

results of our international operations when those results are translated into U.S. dollars. Furthermore, the disruption in the

credit markets could impede our access to capital, especially if we are unable to maintain our current credit ratings. Should

we have limited access to additional financing sources when needed, we may decide to defer capital expenditures or seek

other higher cost sources of liquidity, which may or may not be available to us on acceptable terms. Continued turbulence

in the U.S. and international markets and economies, and prolonged declines in business and consumer spending may

adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including

our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs.

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 controls 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 acquisition 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, financial position or operating results.

The industries and market segments in which we operate are highly competitive, and we

may not be able to

compete effectively with larger companies with greater financial resources than we have.

The life science and clinical diagnostics markets are each highly competitive. 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.

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. Our competitors can be expected to continue to improve the design and performance of their products and to

introduce new products with competitive price and performance characteristics. Maintaining these advantages will require

us to continue to invest in research and development, sales and marketing and customer service and support. We cannot

assure you that we will have sufficient resources to continue to make such investments or that we will be successful in

maintaining such advantages.

We have significant international operations which subject us to various risks such as

general economic and

market conditions in the countries in which we operate.

A significant portion of our sales are made outside of the United States. Our foreign subsidiaries generated 68% of our net

sales in the year ended December 31, 2009. Our international operations are subject to risks common to foreign operations,

such as general economic and market conditions in the countries in which we operate, changes in governmental regulations,

political instability, import restrictions and currency exchange rate risks. We cannot assure you that shifts in currency

exchange rates, especially significant strengthening of the U.S. dollar compared to the Euro, will not have a material

adverse effect on our operating results and financial condition.

We are dependent on government funding and the capital spending programs of our

customers, and the

effect of potential healthcare reform on government funding and our customers’ ability to

purchase our

products is uncertain.

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 policies 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 among 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, financial condition or results of

operations could be materially adversely affected.

Healthcare reform and the growth of managed care organizations have been and continue to be significant factors in the

clinical diagnostics market. The trend towards managed care, together with efforts to reform the healthcare delivery system

in the United States and Europe, has resulted in increased pressure on healthcare providers and other participants in the

healthcare industry to reduce costs. Consolidation among healthcare providers has resulted in fewer, more powerful

groups, whose purchasing power gives them cost containment leverage. These competitive forces place constraints on the

levels of overall pricing, and thus could have a material adverse effect on our profit margins for products we sell in clinical

diagnostics markets. To the extent that the healthcare industry seeks to address the need to contain costs by limiting the

number of clinical tests being performed, our results of operations could be materially and 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.

Our failure to improve our product offerings and develop and introduce new products may negatively

impact our business.

Our future success depends on our ability to continue to improve our product offerings and develop and introduce new

product lines and extensions that integrate new technological advances. 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 operating results will be adversely affected. We cannot assure you that our

product and process development efforts will be successful or that new products we introduce will achieve market

acceptance.

If we experience a disruption of our information technology systems, or if we fail to

successfully implement,

manage and integrate our information technology and reporting systems, it could harm our

business.

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 and results of operations. 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, maintain cost-effective operations and provide

customer service. 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. If we fail to successfully manage and integrate our IT systems,

reporting systems and operating procedures, it could adversely affect our business or operating results.

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, it may be possible for unauthorized third parties to copy our intellectual

property, to reverse engineer or obtain and use information that we regard as proprietary, or to develop equivalent

technologies independently. Additionally, third parties may assert patent, copyright and other intellectual property rights to

technologies that are important to us. 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. We may find it necessary to enforce our patents or other intellectual property rights or to defend ourselves

against claimed infringement of the rights of others through litigation, which could result in substantial costs to us and

divert our resources. We also could incur substantial costs to redesign our products, to defend any legal action taken

against us or to pay damages to an infringed party. The foregoing matters could adversely impact our business.

We are subject to substantial government regulation.

Some of our products (primarily diagnostic products), production processes and marketing are subject to federal, state, local

and foreign regulation, including the FDA and its foreign counterparts. We are also subject to government regulation of the

use and handling of a number of materials and controlled substances. Failure to comply with present or future 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 are currently subject to environmental regulations and enforcement proceedings.

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 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 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 can provide no assurance, however, that such matters or any future obligations to comply with environmental

laws and regulations will not have a material impact on our operations or financial condition.

Loss of key personnel could hurt our business.

Our products and services are highly technical in nature. In general, only highly qualified and trained scientists have the

necessary skills to develop and market our products and provide our services. In addition, some of our manufacturing

positions are highly technical. We face intense competition for these professionals from our competitors, customers,

marketing partners and other companies throughout our industry. We generally do not enter into employment agreements

requiring these employees to continue in our employment for any period of time. Any failure on our part to hire, train and

retain a sufficient number of qualified personnel could substantially damage our business. Additionally, if we were to lose

a sufficient number of our research and development scientists and were unable to replace them or satisfy our needs for

research and development through outsourcing, it could adversely affect our business.

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 of February 16, 2010, the Schwartz family collectively held approximately 16% of our Class A Common Stock and

90% of our Class B Common Stock. As a result, the Schwartz family is able to elect a majority of the directors, effect

fundamental changes in our direction and control matters affecting us, including the allocation of business opportunities

that may be suitable for our company. In addition, this concentration of ownership and voting power may have the effect of

delaying or preventing a change in control of our company.

The Schwartz family may exercise its control over us according to interests that are different from other investors’ or

debtors’ interests.

Our business could be adversely impacted if we have deficiencies in our disclosure controls

and procedures

or internal control over financial reporting.

The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not

prevent all errors, misstatements or misrepresentations. We cannot assure you that our disclosure controls and procedures

over internal control of financial reporting will be effective in accomplishing all control objectives all of the time.

Deficiencies, particularly a material weakness in internal control over financial reporting, which may occur in the future

could result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock

price, or otherwise materially adversely affect our business, reputation, results of operation, financial condition or liquidity.

Natural disasters, terrorist attacks or acts of war may cause damage or disruption to us and

our employees,

facilities, information systems, security systems, vendors and customers, which could

significantly impact

our net sales, costs and expenses, and financial condition.

We have significant manufacturing and distribution facilities, particularly in the western United States, France and

Switzerland. In particular, the western United States has experienced a number of earthquakes, wildfires, flooding,

landslides and other natural disasters in recent years. The occurrences could damage or destroy our facilities which may

result in interruptions to our business and losses that exceed our insurance coverage. Terrorist attacks, such as those that

occurred on September 11, 2001, have contributed to economic instability in the United States, and further acts of

terrorism, bioterrorism, violence or war could affect the markets in which we operate, our business operations, our

expectations and other forward-looking statements contained or incorporated in this document. Any of these events could

cause a decrease in our revenue, earnings and cash flows.

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.

We have substantial debt and have the ability to incur additional debt. The principal and

interest payment

obligations of such debt may restrict our future operations and impair our ability to meet

our obligations

under our notes.

As of December 31, 2009 we and our subsidiaries have approximately $742.6 million of outstanding indebtedness. In

addition, the indenture governing our notes permits us to incur additional debt provided we comply with the limitation on

the incurrence of additional indebtedness and disqualified capital stock covenants contained in the indenture.

The following chart shows certain important credit statistics.

At December 31, 2009

(in millions)

Total debt

742.6

Stockholders’ equity

1,279.2

Debt to equity ratio

0.6

The 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 the notes;

•

require us to dedicate a substantial portion of our cash flow from operations to the payment of interest and

principal due under our debt, including the notes, 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 ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on

economic, financial, competitive and other factors, many of which are beyond our control. Our business may not generate

sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet these obligations

or to successfully execute our business strategy.

The indenture governing our notes and the terms of other debt instruments, including without limitation our credit facilities

and other 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 shareholders.

Our existing credit facility also requires that we meet certain financial tests and maintain certain financial ratios, including a

maximum consolidated leverage ratio test, minimum consolidated interest coverage ratio test and a minimum net worth 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. If we were unable to repay debt to our senior secured lenders, these

lenders could proceed against the collateral securing that debt. The collateral is substantially all of our personal property

assets, the assets of our domestic subsidiaries and 65% of the capital stock of certain foreign subsidiaries. In addition,

acceleration of our other indebtedness may cause us to be unable to make interest payments on our notes and repay the

principal amount of the notes or may cause the future subsidiary guarantors, if any, to be unable to make payments under

the guarantees.

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

Owned/Leased

Life Science

Richmond, California

Owned/Leased

Hercules, California

Owned/Leased

Riom, France

Owned/Leased

Singapore

Leased

Clinical

Diagnostics

Hercules, California

Owned/Leased

Benicia, California

Leased

Irvine, California

Leased

Greater Seattle area, Washington

Owned/Leased

Plano, Texas

Leased

Lille, France

Owned

Greater Paris area, France

Leased

Nazareth-Eke, Belgium

Leased

Cressier, Switzerland

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

We are party to various claims, legal actions and complaints arising in the ordinary course of business, including

intellectual property matters. We do not believe, at this time, that any ultimate liability resulting from any of these matters

will have a material adverse effect on our results of operations, financial position or liquidity. However, we cannot give

any assurance regarding the ultimate outcome of these lawsuits and their resolution could be material to our operating

results for any particular period, depending upon the level of income for the period.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of Bio-Rad’s security holders during the fourth quarter of the fiscal year covered

by this report.

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 closing prices for our Class A and

Class B Common Stock.

Class A

Class B

High

Low

High

Low

2009

Fourth Quarter

$ 100.46

$ 88.88

$ 100.00

$ 88.69

Third Quarter

95.24

69.40

94.98

69.34

Second Quarter

79.76

65.99

80.20

66.25

First Quarter

74.47

53.10

74.25

53.89

2008

Fourth Quarter

$ 99.26

$ 61.52

$ 97.00

$ 62.14

Third Quarter

108.10

78.12

108.09

78.05

Second Quarter

92.27

78.08

92.00

78.75

First Quarter

100.65

84.81

100.78

85.49

On February 16, 2010, we had 375 holders of record of Class A Common Stock and 166 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 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, 2004, and reinvestment of

dividends if paid:

100

150

200

2004 2005 2006 2007 2008 2009

DOLLARS

Bio-Rad Peer Group(1) S&P MidCap 400

(1)

The Peer Group consists of the following public companies: Beckman Coulter, Becton Dickinson, Thermo Fisher

Scientific, Meridian Bioscience, Millipore, PerkinElmer and Life Technologies. 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)

Year Ended December 31,

2009

2008

2007

(2)

2006

2005

Net sales

$ 1,784,244

$ 1,764,365

$ 1,461,052

$ 1,273,930

$1,180,985

Cost of goods sold

784,401

801,843

669,690

561,394

534,499

Gross profit

999,843

962,522

791,362

712,536

646,486

Selling, general and administrative expense

601,468

591,304

507,978

438,949

416,084

Product research and development expense

163,585

159,518

140,535

123,376

115,104

Purchased in-process research and development expense

7,656

4,100

Impairment losses on goodwill and long-lived assets

3,802

28,757

19,770

Interest expense

47,024

32,113

31,606

32,022

32,643

Foreign exchange (gains) losses

5,003

7,634

2,576

1,053

(1,528)

Other (income) expense, net

(1)

(6,871)

353

(19,832)

(28,991)

(28,958)

Income from continuing operations before taxes and

noncontrolling interests

185,832

142,843

120,843

142,027

93,371

Provision for income taxes

(36,667)

(44,579)

(26,548)

(38,764)

(15,792)

Net income attributable to noncontrolling interests

(4,545)

(8,754)

(1,301)

Income from continuing operations

144,620

89,510

92,994

103,263

77,579

Discontinued operations:

Gain on divestiture (net of tax)

3,974

Total income from discontinued operations

3,974

Net income attributable to Bio-Rad

$ 144,620

$ 89,510

$ 92,994

$ 103,263

$81,553

Basic earnings per share:

Continuing operations

$ 5.28

$ 3.30

$ 3.48

$ 3.92

$2.98

Discontinued operations

0.15

Basic earnings per share

$ 5.28

$ 3.30

$ 3.48

$ 3.92

$3.13

Diluted earnings per share:

Continuing operations

$ 5.20

$ 3.24

$ 3.41

$ 3.83

$2.91

Discontinued operations

0.15

Diluted earnings per share

$ 5.20

$ 3.24

$ 3.41

$ 3.83

$3.06

Cash dividends paid per common share

Total assets

$ 2,535,853

$ 2,037,264

$ 1,971,594

$ 1,596,168

$1,426,582

Long-term debt, net of current maturities

$ 737,919

$ 445,979

$ 441,805

$ 425,625

$425,687

(1)

See Note 9 to the consolidated financial statements for components of Other (income) expense, net. Included in 2005 is interest and investment income of $16.7 million,

gains on sales of investments of $11.2 million and litigation expense of $1.2 million. Included in 2006 is interest and investment income of $22.2 million, and gains on sales

of investments of $4.7 million.

(2)

Included in 2007 are the fourth quarter operating results of an acquisition. See Note 2 to the consolidated financial statements.

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.

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 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. Approximately 32% of our 2009

consolidated net sales are from the United States and approximately 68% are from international locations. The

international sales are largely denominated in local currencies such as Euros, Swiss Franc, Japanese Yen and

British Sterling. As a result, our consolidated net sales expressed in dollars benefit when the U.S. dollar

weakens and suffer when the U.S. 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.

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:

Year Ended December 31,

2009

2008

2007

Net sales

100.0

Cost of goods sold

44.0

45.4

45.8

Gross profit

56.0

54.6

54.2

Selling, general and administrative expense

33.7

33.5

34.8

Product research and development expense, excluding

purchased in-process research and development

9.2

9.0

9.6

Net income attributable to Bio-Rad

8.1

5.1

6.4

We intend that the discussions of critical accounting policies and estimates and recent accounting

pronouncements that follow will assist you in understanding how such principles, estimates and accounting

pronouncements affect our financial condition and results of operations as well as significant factors that caused

changes in our financial condition and results of operations for the years ended December 31, 2009 and 2008.

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. As part of the process of preparing consolidated financial statements,

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 exposure together with assessing temporary

differences resulting from differing treatment of items for tax and accounting purposes. These differences result

in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. Management

then 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 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 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 income tax expense.

Significant management judgment is required in determining the provision for income taxes, deferred tax assets

and liabilities, and any valuation allowance recorded in connection with the deferred tax assets. We have

recorded a valuation allowance of $37.9 million and $40.7 million as of December 31, 2009 and 2008,

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 previously reserved deferred tax assets occur, the provision for income taxes may decrease,

raising income and positively impacting Bio-Rad’s financial position.

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 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 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 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.

In 2009 and 2008, our reviews indicated impairment charges of $3.8 million and $1.6 million, respectively,

related to the developed technology intangible assets of certain product lines that were acquired in 2006. Also

in 2008, our review indicated an impairment charge of $27.2 million related to goodwill from a 1999

acquisition. The goodwill impairment was caused primarily by the continuing decline in the BSE (bovine

spongiform encephalopathy) product line. There were no impairment losses recorded in 2007.

Valuation of Inventories. We value inventory at the lower of the actual cost to purchase and/or manufacture the

inventory, or the current estimated 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 environment factors affecting

biological materials, could have a significant impact on the value of our inventory and reported results of

operations.

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 collectibility 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

reserves 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.

Corporate Results -- Sales, Gross Margins and Expenses

Our net sales increased by 1.1% in 2009 to $1,784.2 million as compared to 2008. Excluding the impact of

foreign currency, 2009 sales increased by approximately 5.5% compared to 2008. Currency neutral sales

growth was generated primarily in the regions of Asia Pacific, the United States and developing or emerging

markets of Eastern Europe and Latin America. Also contributing to sales growth are DiaMed Holding AG

(DiaMed) distributors acquired in late 2008 and early 2009.

The Life Science segment sales decreased 1.9% in 2009 as compared to 2008 or a 0.8% increase on a currency

neutral basis. The decline in sales of BSE (bovine spongiform encephalopathy) products continued in 2009, as

both product prices eroded and government-mandated tests declined. Excluding the impact of the BSE product

line, the Life Science segment grew by 1.3% in 2009 as compared to 2008. Product groups showing growth

include real-time PCR instruments and reagents, the ProteOn

protein interaction analysis system and the

Biotechnology Explorer

program. Sales growth in the Life Science segment was primarily in Asia Pacific,

Latin America and the U.S., while European sales represented the majority of declining sales.

The Clinical Diagnostics segment achieved sales growth of 3.0% in 2009 as compared to 2008. Excluding the

impact of foreign currency, sales increased 8.5% compared to 2008. Most Clinical Diagnostics major products

showed sales growth, such as in BioPlex 2200 systems, quality controls and blood virus products. There was a

decline in sales of contract manufacturing as some of these contracts were not renewed. On a regional basis,

currency neutral sales growth was primarily provided by Asia Pacific, the United States and emerging markets

including Latin America, partially offset by sales declines in Europe.

Our net sales increased by 20.8% in 2008 to $1,764.4 million as compared to 2007. This included sales related

to the fourth quarter 2007 acquisition of DiaMed. The 2008 impact of foreign exchange translation contributed

to sales growth by approximately three percent. The incremental sales from the additional nine months in 2008

attributable to DiaMed accounted for approximately 13% of the annual growth.

The Life Science segment achieved sales growth of 4.6% in 2008 as compared to 2007 aided by the impact of

foreign exchange translation of 3.2%. Excluding the decline of the BSE product line, this segment grew by

6.6%. Increased sales were the result of growth in PCR chemicals and instruments, the Bio-Plex suspension

array system and protean instruments. Sales in the United States, emerging markets and Asia Pacific were the

drivers of sales growth.

The Clinical Diagnostics segment achieved sales growth of 33.0% in 2008 as compared to 2007, which includes

sales growth from our acquisition of DiaMed. The incremental sales from the additional nine months of

DiaMed operations provided 22.8% of our Clinical Diagnostics sales growth. The impact of foreign exchange

on Clinical Diagnostics segment sales growth added approximately 2.9% to total segment sales. The Clinical

Diagnostics segment experienced growth across a wide range of its product offerings with the BioPlex 2200

system, quality controls and clinical microbiology having the strongest growth. Geographically, the drivers of

sales growth, excluding the DiaMed acquisition, were in the United States, Europe and Asia Pacific.

Consolidated gross margins were 56.0% for 2009 compared to 54.6% for 2008. Life Science segment gross

margins improved in 2009 compared to 2008 by 0.1%. The improvement was the result of better manufacturing

overhead absorption from a reduction in costs, the move of new products to more cost efficient off-shore

manufacturing, and sales mix favoring higher margin reagents rather than instruments with typically lower

margin. Clinical Diagnostics segment gross margins improved by approximately 2.2% in 2009 compared to

2008. Improvements included lower royalty payments paid to licensors as a result of the expiration of patents in

blood virus and immunohematology products, increased margin from the acquisition of DiaMed distributors and

the reduction of the impact of DiaMed pre-acquisition inventory subject to purchase accounting rules.

Additionally the BioPlex 2200 margins have improved from greater placements and higher test volume.

The 2008 consolidated gross margin of 54.6% represented an increase of 0.4% from 2007. Life Science

segment gross margins increased by 2.0% to 54.1% as a result of decreasing factory costs in some overhead

areas, improved production planning, reduced quality defects and improved sales mix. The Clinical Diagnostics

segment gross margins decreased by 0.8% in 2008 as compared to 2007 as a result of including an additional

nine months of DiaMed operations. The DiaMed gross margins included the amortization of manufacturing

related purchased intangibles and the effect of higher inventory values on work-in-process inventory in

compliance with purchase accounting requirements.

Consolidated selling, general and administrative expense (SG&A) represented 33.7% of net sales for 2009

compared to 33.5% of net sales in 2008. Growth in absolute SG&A spending was proportional to sales. The

Clinical Diagnostics segment grew SG&A at a slightly lower rate than the growth in its sales, while the Life

Science segment’s reduced rate of spending in SG&A was larger than the decline in its sales. Absolute dollar

increases in SG&A were primarily in employee-related expenses and purchased intangibles amortization,

partially offset by lower travel costs and professional services.

Consolidated SG&A for 2008 was 33.5% of net sales compared to 34.8% in 2007. The decline from 2007 was

mainly attributable to the inclusion of DiaMed, which had an overall lower percentage of SG&A relative to its

net sales. Growth in absolute SG&A spending was proportional to sales with Life Science segment’s SG&A

growing faster than sales growth, while the Clinical Diagnostics segment grew at a slightly lower rate, excluding

the impact of DiaMed. Approximately half of the increase in SG&A was related to personnel costs including

compensation and travel. The remaining increases were attributable to agent commissions, technology

infrastructure cost, professional services and provision for bad debts.

Product research and development expense was $163.6 million in 2009, or 9.2% of sales, compared to 9.0% of

sales in 2008. Life Science segment development efforts are directed towards genomics, proteomics and

process chromatography applications. Clinical Diagnostics segment development efforts are focused on

expanded tests for the BioPlex 2200 testing platform, as well as other enhancements to existing automation and

reagents used for immunohematology, clinical microbiology and blood virus diagnostic tests and additional

quality control products. In absolute dollars, the increase was in the Clinical Diagnostic segment, partially

offset by a decrease in the Life Science segment.

Product research and development expense in 2008 declined to 9.0% of net sales as compared to 9.6% of net

sales in 2007. Areas of development for the Life Science segment were amplification, proteomics, protein

function, food safety and process chromatography. Clinical Diagnostics segment research and development

were focused on additional assays for the BioPlex 2200 testing platform as well as investments in automation

for the DiaMed line of blood typing instruments and reagents, product line extensions in diabetes, infectious

disease, quality control and software offerings. In absolute dollars, the increase in R&D was almost exclusively

in the Clinical Diagnostics segment.

Corporate Results – Non-operating

Interest expense in 2009 increased 46.4% to $47.0 million when compared to 2008. An additional $300 million

of 8.0% Senior Subordinated Notes were issued in May 2009, increasing our indebtedness to $742.6 million at

December 31, 2009 and increasing our interest expense. Our additional principal debt obligations are the 2003

and 2004 Senior Subordinated Notes totaling $425.0 million, which carry fixed rates of interest of 7.5% and

6.125%, and are not due until August 2013 and December 2014, respectively.

Interest expense increased by $0.5 million in 2008 as compared to 2007. The increase reflected higher average

borrowings on local lines of credit and increased interest on capital leases.

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. Foreign currency exchange losses for 2009, 2008

and 2007 were $5.0 million, $7.6 million and $2.6 million, respectively. The 2009 exchange loss was

attributable to greater market volatility, higher costs to hedge, and the result of the estimating process inherent in

the timing of shipments and payments of intercompany debt. The 2008 loss reflected a number of unhedged

European based intercompany loans denominated in Euros, British Sterling and Swiss Francs, which arose as

part of our acquisitions in December 2008. The significant volatility in December 2008 resulted in an

approximate $3 million non-cash loss on these accounts. Additionally, we recorded a 2008 loss of $1.6 million

on unhedged intercompany payables for our Brazilian subsidiaries, which we have not historically hedged due to

the high cost. All years are affected by the economic hedging program we employ to hedge our intercompany

receivables and payables.

Other income and expense, net for 2009 includes investment and dividend income; generally interest income on

our cash and cash equivalents, short-term investments and long term marketable securities. Other income, net in

2009 was $6.9 million compared to other expense, net of $0.4 million in 2008. The 2009 other income, net

included a relief of $4.6 million for a foreign non-income based tax obligation, higher interest and dividend

income, and lower charges for impairment on investments compared to 2008. We would also include in this

category any gains or losses associated with the sale or disposal of surplus manufacturing equipment or other

productive assets.

Other expense, net of $0.4 million for 2008 was comprised of interest and investment income of $10.6 million

on cash and short-term investments. During 2008 we impaired $9.6 million of marketable equity securities,

marketable fixed income securities and long-term investments. In each case, the market value of these securities

had declined so significantly at December 31, 2008 that their recovery in the foreseeable future could not be

anticipated. Other income, net of $19.8 million for 2007 was principally comprised of $21.5 million of

investment income for interest on cash, cash equivalents and short-term investments, only partially offset by

impairment on investments.

Bio-Rad’s consolidated effective tax rate was 20%, 31% and 22% in 2009, 2008 and 2007, respectively. Our

effective tax rate decreased by approximately 11 percentage points during 2009 as compared to 2008. The

decrease was primarily related to the completion in the fourth quarter of 2009 of a U.S. income tax examination

covering the years 2001 through 2005, favorable tax rates associated with higher earnings from operations in

lower-tax jurisdictions throughout the world and a reduction in our balance of unrecognized tax benefits due to

lapses of statutes.

The 2009, 2008 and 2007 effective tax rates reflected tax rate benefits of 4%, 4% and 5%, respectively, for non-

taxable dividend income, and 7%, 9% and 8%, respectively, for tax credits. The 2009, 2008 and 2007 effective

tax rates also reflected benefits in the difference between U.S. and foreign taxes of 7%, 4% and 2%,

respectively. The 2008 tax rate reflected a rate detriment of 7% with respect to goodwill impairments. The 2007

tax rate reflected a rate benefit of 3% for the removal of a valuation allowance related to Canadian deferred tax

assets.

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 tax 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 are then shipped to

local distribution 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. Our cash flow from operations is

also sufficient to make interest payments. In addition to the annual positive cash flow from operating activities,

additional liquidity is readily available via the sale of short-term investments.

The continuing financial and economic developments 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

and support levels from government, universities, hospitals and private industry including diagnostic

laboratories. A slowdown in the global economy including the United States has caused many governments to

announce stimulus packages that often promote support for healthcare and research. These efforts, should they

materialize, could offset other declines to our business. To date we are unable to conclude how dramatically the

global economic recession or stimulus activity will impact us.

At December 31, 2009, we had available $744.8 million in cash, cash equivalents and short-term investments.

Under domestic and international lines of credit, we had $257.0 million available for borrowing as of December

31, 2009, of which $8.2 million is reserved for standby letters of credit issued by our banks to guarantee our

obligations to various companies. Included in the lines of credit is the $200.0 million Revolving Credit Facility,

which terminates on June 21, 2010, unless it is renewed. 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 future acquisitions.

The deteriorated condition in credit markets along with the financial service industry experiencing upheavals

characterized by bankruptcy, foreclosures, collapse and government intervention could impact both our ability

and our customer’s ability to access the necessary capital for acquisition, equipment and technology

modernization, and the financing of inventory and receivables. Without this crucial intermediary function,

manufacturers and end users may have to renegotiate existing arrangements for sharing additional costs,

reducing activity levels or seeking other business partners.

Cash Flow from Operations

Net cash provided by operations was $325.1 million, $191.4 million and $191.6 million in 2009, 2008 and 2007,

respectively. The net change between 2009 and 2008 of $133.7 million represented a $121.9 million

improvement in the net change in cash received from customers and cash paid to suppliers. The largest item that

contributed to the increase in cash flows was primarily due to a decrease in inventory levels, which provided

approximately $36 million of cash inflows in 2009. The expiration of some patents and slower payment patterns

reduced royalty payments. Moderation in the growth of headcount and the reduction in other SG&A costs all

contributed to an improved cash flow. Additionally, we experienced a reduction in taxes paid of $11.4 million.

The small net change between 2008 and 2007 was the result of an increase in net cash collections reduced by

supplier and employee payments, offset by income tax payments and lower investment income and other

miscellaneous operating receipts. During 2008, the increase in inventory compared to 2007 was concentrated in

the Life Science segment and the quality control product line of the Clinical Diagnostics segment. Quality

control products are characterized by long lead times. Life Science segment inventories grew to meet

anticipated sales that were delayed or cancelled as economic activities declined in the fourth quarter of 2008.

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. We

expect the first quarter of 2010 cash flows from operations to be lower as Bio-Rad historically makes larger

payments for royalties, fourth quarter sales commissions to third parties and employee annual bonuses during

this period.

Cash Flow from Investing Activities

Net cash used in investing activities, including capital expenditures was $176.0 million, $146.1 million and

$254.4 million in 2009, 2008 and 2007, respectively. In 2007, we acquired 85.96% of the outstanding shares of

DiaMed Holding AG (“DiaMed”) and in 2008 and 2009 we paid cash for the acquisition of additional DiaMed

noncontrolling shares and two distributors that brought our ownership of DiaMed to 99.7%. The acquisition of

the noncontrolling shares was accounted for as an equity transaction. Although we own 99.7% of DiaMed, there

are still outstanding noncontrolling interests in certain subsidiaries acquired as part of the DiaMed acquisition.

Capital expenditures in 2009 totaled $66.8 million, compared to $84.8 million and $60.6 million in 2008 and

2007, respectively. 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 were investments in business

systems and data communication upgrades and enhancements. All periods included equipment placed with

Clinical Diagnostics segment customers who then contract to purchase our reagents for use.

Subsequent to year-end, on January 6, 2010, Bio-Rad acquired certain diagnostic businesses of Biotest AG for

45 million Euros (approximately $65.4 million) in cash. Integrating the acquired portion of Biotest's diagnostic

businesses into Bio-Rad's product portfolio is expected to broaden its offering in the area of immunohematology

and provide Bio-Rad access to the U.S. markets with a range of products.

We continue to review other 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

additional acquisitions on a preliminary basis. It is not certain that any of these transactions will advance

beyond the preliminary stages or be completed.

Cash Flow from Financing Activities

Net cash provided by financing activities was $293.9 million and $6.3 million in 2009 and 2008, and net cash

used in financing activities was $7.5 million in 2007. Net cash provided by financing activities in 2009 was

primarily due to Bio-Rad issuing $300.0 million principal amount of Senior Subordinated 8% Notes in May

2009, which yielded net proceeds of $294.8 million at an effective rate of 8.3%. The net proceeds have been

and will be used for working capital and general corporate purposes, which may include acquisitions.

Net cash provided by financing activities in 2008 principally reflected cash flow for the exercise of stock

options and receipts from the Employee Stock Purchase Plan transactions, partially offset by payments on long-

term debt that represented the reduction of acquired DiaMed debt. Net cash used in financing activities in 2007

principally reflected payments on long-term debt that represented the reduction of acquired DiaMed debt,

partially offset by the cash flow for the exercise of stock options and receipts from the Employee Stock Purchase

Plan transactions.

Our $200.0 million revolving credit facility is secured by substantially all of our personal property assets, the

assets of our domestic subsidiaries and 65% of the capital stock of certain foreign subsidiaries. It is guaranteed

by all of our existing and future material domestic subsidiaries and expires in June 2010.

The Board of Directors has authorized the repurchase of up to $18 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 during 2009, 2008 or 2007.

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, 2009 and the effect such

obligations are expected to have on our cash flows in future periods (in millions):

Payments Due by Period

Less

Than

1-3

3-5

than

Contractual Obligations

Total

One Year

Years

5 Years

Long-term debt, including current portion

(1)

$ 742.6

$ 4.7

$ 7.9

$ 425.1

$ 304.9

Interest payments

286.1

53.1

106.3

83.8

42.9

Operating lease obligations

(2)

106.3

31.6

42.8

15.1

16.8

Purchase obligations

(3)

40.7

39.2

1.5

Long-term liabilities

(4)

35.8

11.7

2.3

21.8

(1)

These amounts represent expected cash payments, include capital lease obligations and are included in our

Consolidated Balance Sheets. See Note 5 of the Consolidated Financial Statements for additional information

about our debt.

(2)

Operating lease obligations are described in Note 11 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 is our liability for income tax payable, including uncertain tax positions,

in the amount of $20.0 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.

Recent Financial Accounting Standards

In January 2010, the Financial Accounting Standards Board (FASB) issued a standard to improve disclosures

about fair value measurements. Specifically, the standard requires entities to disclose the amounts of significant

transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers; the reasons

for any transfers in or out of Level 3; and information in the reconciliation of recurring Level 3 measurements

about purchases, sales, issuances and settlements on a gross basis. The standard will be effective for our interim

period ending March 31, 2010, except for the requirement to disclose information about purchases, sales,

issuances, and settlements in the reconciliation of recurring Level 3 measurements on a gross basis. Those

disclosures will be effective for our interim period ending March 31, 2011. This standard will not effect our

consolidated financial statements as it is for disclosure purposes only.

In October 2009, the FASB issued guidance in regard to multiple-deliverable revenue arrangements, and

guidance in regard to certain arrangements that include software elements. The guidance in regard to multiple-

deliverable revenue arrangements requires entities to allocate revenue in an arrangement using estimated selling

prices of the delivered goods and services based on a selling price hierarchy. The guidance eliminates the

residual method of revenue allocation and requires revenue to be allocated using the relative selling price

method. The guidance in regard to certain arrangements that include software elements removes tangible

products from the scope of software revenue guidance and provides guidance on determining whether software

deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue

guidance. The two new issuances should be applied on a prospective basis for revenue arrangements entered

into or materially modified and will be effective for our interim period ending March 31, 2011, with early

adoption permitted. We do not expect to adopt early and the effect of adopting these two new issuances is under

review by management.

In June 2009, the FASB established the FASB Accounting Standards Codification (FASB Codification) as the

source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The

FASB Codification explicitly recognizes rules and interpretive releases of the Securities and Exchange

Commission (SEC) under authority of federal securities laws as sources of authoritative GAAP for SEC

registrants. The FASB Codification became effective for our interim period ended September 30, 2009 and the

adoption of the FASB Codification did not have an impact on our consolidated financial statements.

In May 2009, we adopted general standards of accounting for and disclosure of subsequent events that occur

after the balance sheet date but before financial statements are issued or are available to be issued. The adoption

of this standard did not have a material impact on our consolidated financial statements.

On January 1, 2009, we adopted enhanced disclosures regarding fair value measurements for nonfinancial assets

and liabilities that are measured or recognized at fair value on a non-recurring basis. In addition in April 2009,

we adopted the following new general standards intended to provide additional application guidance and

enhance disclosures regarding fair value measurements and impairments of securities.

A new general standard in regard to 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 when the volume and level of

activity for the asset or liability have significantly decreased. The general standard also provides

guidance on identifying circumstances that indicate a transaction is not orderly. The effect of this

new general standard did not have a material impact on our consolidated financial statements.

A new general standard in regard to interim disclosures about fair value of financial instruments,

requires 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. As this general standard amends only the disclosure requirements about fair value of

financial instruments in interim periods, the adoption of this general standard did not affect our

financial condition, results of operations or cash flows.

A new general standard in regard to recognition and presentation of other-than-temporary

impairments, amends current other-than-temporary impairment guidance 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 general

standard does not amend existing recognition and measurement guidance related to other-than-

temporary impairments of equity securities. The adoption of this general standard did not have a

material impact on our consolidated financial statements.

On January 1, 2009 we adopted a new standard in regard to noncontrolling interests in consolidated financial

statements. This standard 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 Statements 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 presented. The adoption of this standard impacted certain captions previously used

on the Consolidated Statements of Income, largely identifying net income including noncontrolling interests and

net income attributable to Bio-Rad. Certain captions on the Consolidated Balance Sheets and Consolidated

Statements of Cash flows have also changed.

On January 1, 2009, we adopted new guidance in regard to determining whether instruments granted in share-

based payment transactions are participating securities. This guidance 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. The adoption of this guidance did not have a material impact on our EPS data in 2009 or on

EPS for any prior periods.

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 per general standards for derivatives and hedging. 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 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 $33 million on our derivative position. 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, 2009, the overall interest rate risk associated with our debt was not

significant.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Page

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2009 and 2008

32-33

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

December 31, 2009

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

December 31, 2009

Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income

for each of the three years in the period ended December 31, 2009

Notes to Consolidated Financial Statements

37-65

REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

Bio-Rad Laboratories, Inc.

We have audited the accompanying consolidated balance sheet of Bio-Rad Laboratories, Inc. as of

December 31, 2009, and the related consolidated statements of income, stockholders' equity and comprehensive

income, and cash flows for the year then ended. Our audit also included the financial statement schedules listed

in the Index at Item 15(a)(2). These financial statements and schedules are the responsibility of the Company's

management. Our responsibility is to express an opinion on these financial statements and schedules 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 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 audit provides a reasonable basis for our

opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated

financial position of Bio-Rad Laboratories at December 31, 2009, and the consolidated results of its operations

and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial

statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the Consolidated Financial Statements, the accompanying consolidated financial

statements have been retrospectively adjusted for the adoption of new accounting standards for Noncontrolling

Interests and Interests Granted in Share-Based Payment Transactions.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States), the effectiveness of Bio-Rad Laboratories, Inc.’s internal control over financial reporting as of

December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the

Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2010,

expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Palo Alto, California

February 26, 2010

REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Bio-Rad Laboratories, Inc.

Hercules, California

We have audited the accompanying consolidated balance sheets of Bio-Rad Laboratories, Inc. and subsidiaries

(the “Company”) as of December 31, 2008, and the related consolidated statements of income, stockholders'

equity, and cash flows for each of the two years in the period ended December 31, 2008. Our audits also

included the financial statement schedule listed in Item 15(a)2. These financial statements and financial

statement schedule are the responsibility of the Company's management. Our responsibility is to express an

opinion on these 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, such consolidated financial statements present fairly, in all material respects, the financial

position of Bio-Rad Laboratories, Inc. and subsidiaries as of December 31, 2008, and the results of their

operations and their cash flows for each of the two years in the period ended December 31, 2008, in conformity

with accounting principles generally accepted in the United States of America. Also, in our opinion, such

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.

As discussed in Note 1 to the Consolidated Financial Statements, the accompanying consolidated financial

statements have been retrospectively adjusted for the adoption of new accounting standards for Noncontrolling

Interests and Interests Granted in Share-Based Payment Transactions.

/s/ Deloitte & Touche LLP

San Francisco, California

February 25, 2009 (May 18, 2009 as to the effects of the retrospective adoption of new accounting standards as

described in Note 1 to the financial statements)

Bio-Rad Laboratories, Inc.

Consolidated Balance Sheets

(in thousands)

December 31,

2009

2008

ASSETS

Current assets:

Cash and cash equivalents

$ 649,938

$ 204,524

Short-term investments

94,876

38,950

Accounts receivable, less allowance for doubtful accounts of

$23,100 in 2009 and $19,567 in 2008

345,734

339,653

Inventories:

Raw materials

68,155

69,549

Work in process

97,513

105,007

Finished goods

185,538

201,060

Total inventories

351,206

375,616

Deferred tax assets

43,102

41,408

Prepaid expenses, taxes and other current assets

77,818

93,790

Total current assets

1,562,674

1,093,941

Property, plant and equipment:

Land and improvements

16,853

16,567

Buildings and leasehold improvements

204,612

193,318

Equipment

506,686

466,024

Total property, plant and equipment

728,151

675,909

Accumulated depreciation

(425,734)

(375,177)

Property, plant and equipment, net

302,417

300,732

Goodwill, net

327,626

321,820

Purchased intangibles, net

204,779

228,590

Long-term deferred tax assets

13,272

12,361

Other assets

125,085

79,820

TOTAL ASSETS

$ 2,535,853

$ 2,037,264

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

Bio-Rad Laboratories, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

December 31,

2009

2008

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$ 92,988

$ 117,982

Accrued payroll and employee benefits

126,702

119,420

Notes payable and current maturities of long-term debt

5,132

9,578

Income and other taxes payable

42,322

33,731

Accrued royalties

46,692

30,874

Current deferred taxes

5,467

8,159

Other current liabilities

100,669

98,290

Total current liabilities

419,972

418,034

Long-term debt, net of current maturities

737,919

445,979

Deferred income taxes

42,894

42,570

Other long-term liabilities

55,855

60,041

Total liabilities

1,256,640

966,624

Commitments and contingent liabilities

STOCKHOLDERS’ EQUITY

Bio-Rad 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;

issued and outstanding – 22,406,669 at 2009 and 22,182,451 at 2008

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

issued and outstanding – 5,119,402 at 2009 and 5,137,357 at 2008

Additional paid-in capital

130,444

124,401

Retained earnings

996,197

851,577

Accumulated other comprehensive income:

Currency translation and other

133,082

65,158

Total Bio-Rad stockholders’ equity

1,259,726

1,041,139

Noncontrolling interests

19,487

29,501

Total stockholders’ equity

1,279,213

1,070,640

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 2,535,853

$ 2,037,264

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)

Year Ended December 31,

2009

2008

2007

Net sales

$ 1,784,244

$ 1,764,365

$ 1,461,052

Cost of goods sold

784,401

801,843

669,690

Gross profit

999,843

962,522

791,362

Selling, general and administrative expense

601,468

591,304

507,978

Product research and development expense

163,585

159,518

140,535

Purchased in-process research and development expense

7,656

Impairment losses on goodwill and long-lived assets

3,802

28,757

Income from operations

230,988

182,943

135,193

Interest expense

47,024

32,113

31,606

Foreign exchange losses

5,003

7,634

2,576

Other (income) expense, net

(6,871)

353

(19,832)

Income before taxes

185,832

142,843

120,843

Provision for income taxes

(36,667)

(44,579)

(26,548)

Net income including noncontrolling interests

149,165

98,264

94,295

Less: Net income attributable to noncontrolling interests

(4,545)

(8,754)

(1,301)

Net income attributable to Bio-Rad

$ 144,620

$ 89,510

$ 92,994

Basic earnings per share:

Net income attributable to Bio-Rad

$ 5.28

$ 3.30

$ 3.48

Weighted average common shares

27,404

27,112

26,716

Diluted earnings per share:

Net income attributable to Bio-Rad

$ 5.20

$ 3.24

$ 3.41

Weighted average common shares

27,828

27,638

27,292

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

Bio-Rad Laboratories, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

2009

2008

2007

Cash flows from operating activities:

Cash received from customers

$ 1,778,316

$ 1,765,667

$ 1,467,626

Cash paid to suppliers and employees

(1,386,382)

(1,495,669)

(1,225,968)

Interest paid

(38,471)

(30,792)

(30,588)

Income tax payments

(37,749)

(49,159)

(38,253)

Miscellaneous receipts (payments), net

10,024

6,374

21,755

Excess tax benefits from share-based compensation

(664)

(5,050)

(2,992)

Net cash provided by operating activities

325,074

191,371

191,580

Cash flows from investing activities:

Capital expenditures, net

(66,795)

(84,809)

(60,595)

Payments for acquisitions, net of cash received,

and long-term investments

(35,990)

(53,014)

(387,673)

Payments on purchases of intangible assets

(9,566)

(4,000)

(2,075)

Purchases of marketable securities and investments

(147,554)

(77,800)

(270,174)

Sales and maturities of marketable securities

and investments

86,473

78,906

470,200

Foreign currency economic hedges, net

(2,520)

(5,390)

(4,112)

Net cash used in investing activities

(175,952)

(146,107)

(254,429)

Cash flows from financing activities:

Net payments on notes payable

(2,303)

(1,642)

(4,326)

Long-term borrowings

294,750

1,600

Payments on long-term borrowings

(6,823)

(11,589)

(17,720)

Proceeds from issuance of common stock

10,286

12,912

11,580

Debt issuance costs on 8% Notes

(2,641)

Excess tax benefits from share-based compensation

664

5,050

2,992

Net cash provided by (used in) financing activities

293,933

6,331

(7,450)

Effect of foreign exchange rate changes on cash

2,359

(8,835)

8,456

Net increase (decrease) in cash and cash equivalents

445,414

42,760

(61,843)

Cash and cash equivalents at beginning of year

204,524

161,764

223,607

Cash and cash equivalents at end of year

$ 649,938

$ 204,524

$ 161,764

Non-cash investing activities:

Capital lease obligation for facilities

$ --

$ 9,768

$ --

Purchased intangible assets

$ --

$ 11,357

$ --

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

Bio-Rad Laboratories, Inc

Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income

(in thousands)

Year Ended December 31,

2009

2008

2007

Common stock, $0.0001 par value:

Balance at beginning of year

$ 3

Issuance of common stock

Balance at end of year

Additional paid-in capital:

Balance at beginning of year

124,401

98,629

78,230

Purchase of additional controlling interests

(14,023)

Issuance of common stock

10,286

12,912

11,580

Stock compensation expense

9,084

7,328

5,506

Tax benefit from exercise of stock options

696

5,532

3,313

Balance at end of year

130,444

124,401

98,629

Retained earnings:

Balance at beginning of year

851,577

762,067

674,070

Net income attributable to Bio-Rad

144,620

89,510

92,994

Adjustment upon adoption of change in

accounting for income taxes

(4,997)

Balance at end of year

996,197

851,577

762,067

Accumulated other comprehensive income attributable to Bio-Rad:

Balance at beginning of year

65,158

110,224

67,235

Other comprehensive income (loss)

67,924

(45,066)

42,989

Balance at end of year

133,082

65,158

110,224

Noncontrolling interests:

Balance at beginning of year

29,501

35,201

Initial acquisition

33,133

Purchase of additional controlling interests

(14,588)

(13,279)

Net income attributable to noncontrolling interests

4,545

8,754

1,301

Other comprehensive income (loss)

(1,175)

767

Balance at end of year

19,487

29,501

35,201

Total stockholders’ equity

$ 1,279,213

$ 1,070,640

$ 1,006,124

Comprehensive income, net of tax:

Net income including noncontrolling interests

$ 149,165

$ 98,264

$ 94,295

Currency translation adjustments

34,112

(18,671)

45,856

Other post-employment benefits adjustments net of tax

of $432 in 2009 and ($357) in 2008

(848)

1,848

Net unrealized holding gains (losses) net of tax of $2,768

in 2009, ($9,381) in 2008 and ($1,396) in 2007

32,492

(19,162)

(2,433)

*Reclassification adjustments for gains (losses) included in

net income, net of tax of ($1,279) in 2009, $0 in 2008

and ($193) in 2007

2,197

(10,256)

333

Total comprehensive income

217,118

52,023

138,051

Comprehensive income attributable to noncontrolling interests

4,574

7,579

2,068

Total comprehensive income attributable to Bio-Rad, net of tax

$ 212,544

$ 44,444

$ 135,983

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

*Calculated using the specific identification method

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 before 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. For purposes of preparing the accompanying consolidated

financial statements and the following notes to these financial statements, we evaluated subsequent events

through the date the financial statements were issued.

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.

Available-for-Sale Investments

Available-for-sale investments consist of corporate obligations, municipal securities, asset backed securities,

U.S. 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 9).

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 these 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 Economic Community. We

do not currently anticipate a credit risk associated with these receivables.

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 reserve.

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 (FIFO) method is used to remove inventory.

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 and

reagent rental equipment. Property, plant and equipment are assessed for impairment annually 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 is depreciated over 3-12 years.

Proceeds from the sale of property, plant and equipment of $1.2 million, $0.9 million and $0.2 million for 2009,

2008 and 2007, respectively, are included in Capital expenditures, net in the Consolidated Statements of Cash

Flows.

Goodwill and Other Purchased Intangible Assets

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 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 reporting

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 discounted cash flow models 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.

Intangible assets are assessed for impairment by applying fair value based tests annually or whenever events or

changes in circumstances indicate that the carrying amount may not be recoverable. Impairment expense is

calculated as the excess of the carrying value of the asset over its fair value. The fair value is estimated based

on its discounted future cash flows.

Impairment charges related to goodwill and intangible assets of $3.8 million and $28.8 million were recorded in

2009 and 2008, respectively (see Note 4). No impairment losses were recorded in 2007.

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) annually 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.