3. Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measures And Disclosures

Fair Value Measurements

3. FAIR VALUE MEASUREMENTS

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

• Level 1: Quoted prices in active markets for identical instruments

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

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

Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2011 are classified in the hierarchy as follows (in millions):

	Level 1		Level 2		Level 3		Total
Financial Assets Carried at Fair Value:
Cash equivalents (a):
Commercial paper	$	—	$	106.0	$	—	$	106.0
Bonds	—		8.6		—		8.6
Time deposits	21.6		—		—		21.6
Money market funds	58.3		—		—		58.3
Total cash equivalents	79.9		114.6		—		194.5
Available-for-sale investments (b):
Corporate debt securities	—		170.6		—		170.6
Brokered certificates of deposit	—		1.8		—		1.8
U.S. government sponsored agencies	—		36.9		—		36.9
Foreign government obligations	—		5.7		—		5.7
Municipal obligations	—		5.0		—		5.0
Marketable equity securities	134.8		—		—		134.8
Asset-backed securities	—		11.2		—		11.2
Total available-for-sale investments	134.8		231.2		—		366.0
Forward foreign exchange contracts (c)	—		0.8		—		0.8
Total financial assets carried at fair value	$	214.7	$	346.6	$	—	$	561.3
Financial Liabilities Carried at Fair Value:
Forward foreign exchange contracts (d)	$	—	$	1.2	$	—	$	1.2
Contingent consideration (e)	—		—		24.1		24.1
Total financial liabilities carried at fair value	$	—	$	1.2	$	24.1	$	25.3

In addition to the assets and liabilities measured at fair value on a recurring basis, as included in the tables above, during the fourth quarter of 2011 we recognized a contingent consideration liability upon our acquisition of QuantaLife in October 2011 related to potential future payments due upon the achievement of certain sales and development milestones. The contingent consideration was determined based on a probability-weighted income approach. There was no significant change in the valuation of this liability from the acquisition date through December 31, 2011.

Financial assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2010 are classified in the hierarchy as follows (in millions):

	Level 1		Level 2		Total
Financial Assets Carried at Fair Value:
Cash equivalents (a):
Commercial paper	$	—	$	179.6	$	179.6
Time deposits	16.7		25.0		41.7
Money market funds	266.3		—		266.3
Total cash equivalents	283.0		204.6		487.6
Available-for-sale investments (b):
Corporate debt securities	—		39.8		39.8
U.S. government sponsored agencies	—		54.7		54.7
Foreign government obligations	—		4.5		4.5
Municipal obligations	—		7.7		7.7
Marketable equity securities	102.2		—		102.2
Asset-backed securities:
Collateralized mortgage obligations	—		0.1		0.1
Other mortgage-backed securities	—		2.5		2.5
Other	—		0.3		0.3
Total available-for-sale investments	102.2		109.6		211.8
Forward foreign exchange contracts (c)	—		0.5		0.5
Total financial assets carried at fair value	$	385.2	$	314.7	$	699.9
Financial Liabilities Carried at Fair Value:
Forward foreign exchange contracts (d)	$	—	$	3.3	$	3.3

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

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

	December 31, 2011		December 31, 2010
Short-term investments	$	238.8	$	118.6
Other assets	127.2		93.2
Total	$	366.0	$	211.8

(c) Forward foreign exchange contracts in an asset position are included in Prepaid expenses, taxes and other current assets in the Consolidated Balance Sheets.

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

(e) Contingent consideration liability is included in the following accounts in the Consolidated Balance Sheet (in millions):

	December 31, 2011
Other current liabilities	$	8.5
Other long-term liabilities	15.6
Total	$	24.1

To estimate the fair value of Level 2 debt securities as of December 31, 2011, our primary pricing service relies on inputs from multiple industry-recognized pricing sources to determine the price for each investment. In addition, they performed reasonableness testing of their prices on a daily basis by comparing them to the prices reported by our custodians as well as prior day prices. If the price difference fell outside of tolerable levels, they investigated the cause and resolved the pricing issue. Based on a review of the results of this analysis, we utilized our primary pricing service for all Level 2 debt securities as none of these securities tested outside of the tolerable levels.

To estimate the fair value of Level 2 debt securities as of December 31, 2010, excluding commercial paper and U.S. Treasury bills and notes, we examined quarterly the pricing provided by two pricing services and we obtained indicative market prices when there was insufficient correlation between the pricing services.  To estimate the fair value of Level 2 commercial paper and U.S. Treasury bills and notes we examined quarterly the pricing from our primary pricing service to ensure consistency with other similar securities.  As a result of our analysis as of December 31, 2010, we utilized our primary pricing service for all Level 2 debt securities for consistency since the results did not require the use of alternative pricing.

As of December 31, 2011, our primary pricing service inputs for Level 2 cash equivalents (bonds), U.S. government sponsored agencies, municipal obligations, corporate debt securities (bonds) and asset-backed securities consisted of market prices from a variety of industry standard data providers, security master files from large financial institutions and other third-party sources.  These multiple market prices were used by our primary pricing service as inputs into a distribution–curve based algorithm to determine the daily market value.

As of December 31, 2011, our primary pricing service inputs for Level 2 cash equivalents (commercial paper), corporate debt securities (commercial paper), foreign government obligations (commercial paper) and time deposits consisted of dynamic and static security characteristics information obtained from several independent security characteristic sources.  The dynamic inputs such as credit rating, factor and variable-rate, were updated daily.  The static characteristics included inputs such as day count and first coupon upon initial security creation. These securities were typically priced via mathematical calculations reliant on these observable inputs. Other available-for-sale foreign government obligations were based on indicative bids from market participants.

As of December 31, 2010, the inputs used by our primary pricing service for Level 2 cash equivalents, corporate debt securities, foreign government obligations, U.S. government sponsored agencies and municipal obligations, varied depending on the type of security being valued, but generally included benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, corporate actions or Nationally Recognized Municipal Securities Information Repository (NRMSIR) material event notices, plus new issue money market rates.

As of December 31, 2010, the inputs used by our primary pricing service in estimating the fair value of Level 2 collateralized mortgage obligations and other mortgage-backed securities included many of the inputs mentioned above in addition to monthly payment information.  These issues were priced by our primary pricing service against issues with similar vintage and credit quality with adjustments for tranche, average life and extension risk.

Forward foreign exchange contracts: As part of distributing our products, we regularly enter into intercompany transactions.  We enter into forward foreign currency exchange contracts to manage foreign exchange risk of future movements in foreign exchange rates that affect foreign currency denominated intercompany receivables and payables.  We do not use derivative financial instruments for speculative or trading purposes.  We do not seek hedge accounting treatment for these contracts.  As a result, these contracts, generally with maturity dates of 90 days or less and related primarily to currencies of industrial countries, are recorded at their fair value at each balance sheet date.  The fair value of these contracts was derived using the spot rates published in the Wall Street Journal on the last business day of the quarter and the points provided by counterparties.  The resulting gains or losses offset exchange gains or losses on the related receivables and payables, both of which are recorded as Foreign exchange losses (gains), net in the Consolidated Statements of Income. The cash flows related to these contracts are classified as Cash flows from investing activities in the Consolidated Statements of Cash Flows.

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

	December 31,
	2011
Contracts maturing in January through March 2012 to sell foreign currency:
Notional value	$	41.0
Unrealized loss	$	0.2
Contracts maturing in January through March 2012 to purchase foreign currency:
Notional value	$	323.0
Unrealized loss	$	0.3

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

	December 31, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Short-term investments:
Corporate debt securities	$	170.9	$	0.1	$	(0.4	)	$	170.6
Brokered certificates of deposit	1.8		—		—			1.8
Municipal obligations	5.0		—		—			5.0
Asset-backed securities	10.8		—		—			10.8
U.S. government sponsored agencies	36.8		0.1		—			36.9
Foreign government obligations	5.4		—		—			5.4
Marketable equity securities	7.7		0.6		—			8.3
	238.4		0.8		(0.4		)	238.8
Long-term investments:
Marketable equity securities	57.2		70.0		(0.7		)	126.5
Asset-backed securities	0.5		—		(0.1		)	0.4
Foreign government obligations	0.3		—		—			0.3
	58.0		70.0		(0.8		)	127.2
Total	$	296.4	$	70.8	$	(1.2	)	$	366.0

	December 31, 2010
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Short-term investments:
Corporate debt securities	$	39.8	$	—	$	—		$	39.8
Municipal obligations	7.7		—		—			7.7
Asset-backed securities	1.9		—		—			1.9
U.S. government sponsored agencies	54.7		—		—			54.7
Foreign government obligations	4.5		—		—			4.5
Marketable equity securities	8.8		1.3		(0.1		)	10.0
	117.4		1.3		(0.1		)	118.6
Long-term investments:
Marketable equity securities	45.5		47.9		(0.9		)	92.5
Asset-backed securities	0.7		0.1		(0.1		)	0.7
	46.2		48.0		(1.0		)	93.2
Total	$	163.6	$	49.3	$	(1.1	)	$	211.8

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

	December 31, 2011		December 31, 2010
Fair value	$	77.8	$	51.1
Gross unrealized losses for investments in a loss position 12 months or more	$	0.3	$	0.6
Gross unrealized losses for investments in a loss position less than 12 months	$	0.8	$	0.5

The unrealized losses on these securities are due to a number of factors, including changes in interest rates, changes in economic conditions and changes in market outlook for various industries, among others.  Because Bio-Rad has the ability and intent to hold these investments with unrealized losses until a recovery of fair value, or for a reasonable period of time sufficient for a forecasted recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at December 31, 2011.

The following is a summary of the amortized cost and estimated fair value of our debt securities at December 31, 2011 by contractual maturity date (in millions):

	Amortized Cost		Estimated Fair Value
Mature in less than one year	$	152.1	$	152.1
Mature in one to five years	57.8		57.6
Mature in more than five years	21.6		21.5
Total	$	231.5	$	231.2

The estimated fair value of financial instruments in the table below has been determined using available market information or other appropriate valuation methodologies.  Estimates are not necessarily indicative of the amounts that could be realized in a current market exchange as considerable judgment is required in interpreting market data used to develop estimates of fair value.  The use of different market assumptions or estimation techniques could have a material effect on the estimated fair value.  Other assets include some financial instruments that have fair values based on market quotations.  Long-term debt has an estimated fair value based on quoted market prices for the same or similar issues.

The estimated fair value of our financial instruments is as follows (in millions):

	December 31, 2011				December 31, 2010
	Carrying  Amount		Estimated  Fair  Value		Carrying  Amount		Estimated  Fair  Value
Other assets	$	186.6	$	252.4	$	145.6	$	205.6
Current maturities of long-term debt, excluding leases	$	—	$	—	$	225.0	$	228.1
Total long-term debt, excluding leases and current maturities	$	719.1	$	759.1	$	718.2	$	734.8

We own shares of ordinary voting stock of Sartorius AG (Sartorius), of Goettingen, Germany, a process technology supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries.  We own over 30% of the outstanding voting shares (excluding treasury shares) of Sartorius as of December 31, 2011.  The Sartorius family trust and Sartorius family members hold a controlling interest of the outstanding voting shares. We do not have any representative or designee on Sartorius’ board of directors, nor do we have the ability to exercise significant influence over the operating and financial policies of Sartorius.  In addition, the ordinary voting stock of Sartorius is thinly traded. Therefore, we account for this investment using the cost method.  The carrying value of this investment is included in Other assets in our Consolidated Balance Sheets.