PART I

ITEM 1. FINANCIAL STATEMENTS.

Dade Behring Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

September 30, 2006

December 31, 2005

(unaudited)

(unaudited)

(Dollars in millions, except
per share data)

Assets

Current assets:

Cash and cash equivalents

$
24.8

$
34.6

Accounts receivable, net

346.6

315.7

Inventories

190.3

165.0

Prepaid expenses and other current assets

31.1

24.5

Deferred income taxes

64.1

54.2

Total current assets

656.9

594.0

Property, plant and equipment, net

457.9

429.5

Deferred income taxes

177.9

199.3

Identifiable intangible assets, net

343.1

356.9

Goodwill

176.2

187.8

Other assets

30.1

33.1

Total assets

$
1,842.1

$
1,800.6

Liabilities and Shareholders’ Equity

Current liabilities:

Short-term debt

$
22.6

$
5.5

Accounts payable

78.0

75.4

Accrued liabilities

254.7

248.8

Total current liabilities

355.3

329.7

Long-term debt

402.0

386.0

Deferred income taxes

23.1

16.6

Other liabilities

161.2

159.9

Total liabilities

941.6

892.2

Commitments and contingencies

Shareholders’ equity:

Common Stock: $0.01 par value; 150,000,000 shares authorized at September 30, 2006 and December 31, 2005, respectively; 85,748,507 and 88,029,061 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively

0.9

0.9

Additional paid-in capital

597.0

708.8

Unearned stock-based compensation

—

(3.6
)

Retained earnings

284.0

196.3

Accumulated other comprehensive income

18.6

6.0

Total shareholders’ equity

900.5

908.4

Total liabilities and shareholders’ equity

$
1,842.1

$
1,800.6

	March 31, 2007			December 31, 2006
	(Dollars in millions, except share-related data)
Assets
Current assets:
Cash and cash equivalents		$	37.7		$	24.4
Accounts receivable, net		361.2			359.5
Inventories		217.8			189.7
Prepaid expenses and other current assets		20.4			23.2
Deferred income taxes		101.8			115.9
Total current assets		738.9			712.7
Property, plant and equipment, net		487.9			488.5
Deferred income taxes		153.5			138.6
Identifiable intangible assets, net		332.8			339.0
Goodwill		169.3			169.6
Other assets		30.6			27.0
Total assets		$	1,913.0		$	1,875.4
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt		$	16.3		$	14.8
Accounts payable		81.7			78.9
Accrued liabilities		267.8			273.6
Total current liabilities		365.8			367.3
Long-term debt		510.3			495.0
Deferred income taxes		33.6			33.5
Other liabilities		187.6			170.4
Total liabilities		1,097.3			1,066.2
Commitments and contingencies
Shareholders’ equity:
Common Stock: $.01 par value; 150,000,000 shares authorized at March 31, 2007 and December 31, 2006, respectively; 82,102,452 and 82,860,364 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		0.8			0.8
Additional paid-in capital		441.2			475.0
Retained earnings		335.2			299.1
Accumulated other comprehensive income		38.5			34.3
Total shareholders’ equity		815.7			809.2
Total liabilities and shareholders’ equity		$	1,913.0		$	1,875.4

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

Dade Behring Holdings, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)

Quarter Ended
September 30, 2006

Quarter Ended
September 30, 2005

(unaudited)

(unaudited)

(Dollars in millions, except
per share data)

Net sales

$
423.6

$
400.9

Cost of goods sold

196.7

179.8

Gross profit

226.9

221.1

Operating costs and expenses:

Marketing and administrative expenses

140.3

136.6

Research and development expenses

40.0

35.5

Income from operations

46.6

49.0

Other income (expense):

Interest expense

(7.1
)

(5.4
)

Interest income

0.9

0.7

Foreign exchange gain (loss)

(0.1
)

1.4

Other

(0.8
)

0.1

Income before income tax expense

39.5

45.8

Income tax expense (benefit)

10.6

(2.5
)

Net income

28.9

48.3

Other comprehensive income (loss):

Foreign currency translation adjustments

(3.4
)

0.8

Net loss on derivative instruments and marketable securities, net of income tax

(0.8
)

(1.1
)

Other comprehensive income (loss)

(4.2
)

(0.3
)

Comprehensive income

$
24.7

$
48.0

Basic net income per common share:

$
0.34

$
0.54

Diluted net income per common share:

$
0.33

$
0.53

	Quarter Ended March 31, 2007				Quarter Ended March 31, 2006
	(Dollars in millions, except per share data)
Net sales		$	459.2			$	415.7
Cost of goods sold		207.8				183.1
Gross profit		251.4				232.6
Operating costs and expenses:
Marketing and administrative expenses		141.4				137.2
Research and development expenses		38.3				37.4
Restructuring expense (income)		(0.5		)		—
Income from operations		72.2				58.0
Other income (expense):
Interest expense		(9.3		)		(6.4		)
Interest income		1.2				1.1
Foreign exchange gain (loss)		(1.1		)		2.0
Other		(2.0		)		(0.3		)
Income before income tax expense		61.0				54.4
Income tax expense		20.8				20.2
Net income		40.2				34.2
Other comprehensive income, net of income tax:
Foreign currency translation adjustments		4.6				5.4
Net loss on derivative instruments		(0.4		)		—
Other comprehensive income, net of income tax		4.2				5.4
Comprehensive income		$	44.4			$	39.6
Basic net income per common share:		$	0.49			$	0.39
Diluted net income per common share:		$	0.48			$	0.38

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

Dade Behring Holdings, Inc.
Condensed Consolidated ~~Statements~~Statement of ~~Operations and Comprehensive Income~~Changes in Shareholders’ Equity
(Unaudited)
(Dollars in millions, except share-related data)

Nine-Months Ended
September 30, 2006

Nine-Months Ended
September 30, 2005

(unaudited)

(unaudited)

(Dollars in millions, except
per share data)

Net sales

$
1,283.8

$
1,237.3

Cost of goods sold

578.1

550.9

Gross profit

705.7

686.4

Operating costs and expenses:

Marketing and administrative expenses

418.7

412.6

Research and development expenses

118.5

103.5

Income from operations

168.5

170.3

Other income (expense):

Interest expense

(19.2
)

(35.9
)

Interest income

3.4

3.3

Foreign exchange gain (loss)

0.2

(0.9
)

Loss on redemption/purchase of senior subordinated notes

—

(24.0
)

Other

(1.2
)

(0.7
)

Income before income tax expense

151.7

112.1

Income tax expense

51.0

21.5

Net income

100.7

90.6

Other comprehensive income (loss):

Foreign currency translation adjustments

14.7

(26.5
)

Net gain (loss) on derivative instruments and marketable securities, net of income tax

(2.1
)

10.4

Other comprehensive income (loss)

12.6

(16.1
)

Comprehensive income

$
113.3

$
74.5

Basic net income per common share:

$
1.16

$
1.02

Diluted net income per common share:

$
1.14

$
0.99

	Common Stock					Additional Paid-in				Retained				Accumulated Other Comprehensive				Total Shareholders’
	Shares		Amount			Capital				Earnings				Income				Equity
Balance at December 31, 2006	82,860,364			$	0.8		$	475.0			$	299.1			$	34.3			$	809.2
Net income	—			—			—				40.2				—				40.2
Dividends paid ($.05 per common share)	—			—			—				(4.1		)		—				(4.1		)
Repurchase of common stock	(1,219,428	)		—			(50.7		)		—				—				(50.7		)
Nonemployee directors’ compensation plan	—			—			0.1				—				—				0.1
Exercise of stock options	461,516			—			7.6				—				—				7.6
Stock-based compensation expense	—			—			6.2				—				—				6.2
Excess tax benefits from stock-based compensation	—			—			3.0				—				—				3.0
Net loss on derivative instruments and marketable securities, net of income taxes	—			—			—				—				(0.4		)		(0.4		)
Cumulative translation adjustment	—			—			—				—				4.6				4.6
Balance at March 31, 2007	82,102,452			$	0.8		$	441.2			$	335.2			$	38.5			$	815.7

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

Dade Behring Holdings, Inc.

Condensed Consolidated ~~Statement~~Statements of ~~Changes in Shareholders’ Equity~~

Cash Flows
(Unaudited)

~~(Dollars in millions, except share-related data)~~

Common Stock

Additional
Paid-in

Unearned
Stock-Based

Retained

Accumulated
Other
Comprehensive

Total
Shareholders’

Shares

Amount

Capital

Compensation

Earnings

Income

Equity

Balance at December 31, 2005

88,029,061

$
0.9

$
708.8

$
(3.6
)

$
196.3

$
6.0

$
908.4

Net income

—

—

—

—

100.7

—

100.7

Dividends paid ($0.15 per common share)

—

—

—

—

(13.0
)

—

(13.0
)

Repurchase of common stock

(3,999,863
)

—

(152.5
)

—

—

—

(152.5
)

Issuance of stock - employee share purchase program

162,068

—

5.2

—

—

—

5.2

Impact of adopting SFAS 123R

—

—

(3.6
)

3.6

—

—

—

Exercise of stock options

1,557,241

—

13.7

—

—

—

13.7

Stock-based compensation expense

—

—

15.0

—

—

—

15.0

Excess tax benefits from stock-based compensation

—

—

10.4

—

—

—

10.4

Net loss on derivative instruments and marketable securities, net of income taxes

—

—

—

—

—

(2.1
)

(2.1
)

Cumulative translation adjustment

—

—

—

—

—

14.7

14.7

Balance at September 30, 2006

85,748,507

$
0.9

$
597.0

$
—

$
284.0

$
18.6

$
900.5

	Quarter Ended March 31, 2007				Quarter Ended March 31, 2006
	(Dollars in millions)
Operating Activities:
Net income		$	40.2			$	34.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		45.8				37.0
Net loss on disposal of fixed assets		0.3				0.4
Stock-based compensation expense		6.2				5.0
Deferred income taxes		13.7				8.3
Changes in balance sheet items:
Accounts receivable, net		0.6				12.8
Inventories		(25.8		)		(11.4		)
Prepaid expenses and other current assets		3.1				2.2
Accounts payable		2.5				(5.4		)
Accrued liabilities		(1.1		)		(11.1		)
Other, net		(3.1		)		3.0
Net cash flow provided by operating activities		82.4				75.0
Investing Activities:
Capital expenditures		(34.7		)		(36.0		)
Investment in licensing agreements		(1.1		)		(0.2		)
Net cash flow utilized for investing activities		(35.8		)		(36.2		)
Financing Activities:
Net proceeds related to short-term debt		1.5				1.5
Borrowings under revolving credit facility		52.2				163.2
Repayments of borrowings under revolving credit facility		(36.9		)		(164.2		)
Proceeds from exercise of stock options		7.6				5.8
Excess tax benefits from stock-based compensation		2.7				6.9
Repurchases of common stock		(56.5		)		(64.5		)
Dividends paid		(4.1		)		(4.4		)
Net cash flow utilized for financing activities		(33.5		)		(55.7		)
Effect of foreign exchange rates on cash		0.2				0.4
Net increase (decrease) in cash and cash equivalents		13.3				(16.5		)
Cash and Cash Equivalents:
Beginning of Period		24.4				34.6
End of Period		$	37.7			$	18.1

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

Dade Behring Holdings, Inc.
~~Condensed Consolidated Statements of Cash Flows~~

Nine-Months Ended
September 30, 2006

Nine-Months Ended
September 30, 2005

(Unaudited)

(Unaudited)

(Dollars in millions)

Operating Activities:

Net income

$
100.7

$
90.6

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense

117.3

126.5

Net loss on disposal of fixed assets

3.3

1.7

Stock-based compensation expense

15.0

3.6

Deferred income taxes

29.3

9.2

Changes in balance sheet items:

Accounts receivable, net

(20.4
)

(15.6
)

Inventories

(15.9
)

(13.6
)

Prepaid expenses and other current assets

(11.3
)

2.5

Accounts payable

0.7

(11.7
)

Accrued liabilities

1.5

(9.9
)

Other, net

(2.9
)

9.7

Net cash flow provided by operating activities

217.3

193.0

Investing Activities:

Capital expenditures

(117.6
)

(98.3
)

Investment in licensing agreements

(0.6
)

(3.7
)

Net cash flow utilized for investing activities

(118.2
)

(102.0
)

Financing Activities:

Net borrowings related to short-term debt

16.8

2.1

Repayments of borrowings under former bank credit agreement

—

(158.3
)

Redemption/purchase of senior subordinated notes

—

(275.0
)

Borrowings under new revolving credit facility

566.9

590.4

Repayments of borrowings under new revolving credit facility

(550.9
)

(220.1
)

Payment of debt issuance costs

—

(2.7
)

Proceeds from exercise of stock options

13.7

15.1

Proceeds from employee stock purchase plan

5.2

4.7

Excess tax benefits from stock-based compensation

9.8

—

Repurchases of common stock

(154.8
)

(48.5
)

Dividends paid

(13.0
)

(5.3
)

Net cash flow utilized for financing activities

(106.3
)

(97.6
)

Effect of foreign exchange rates on cash

(2.6
)

(0.7
)

Net decrease in cash and cash equivalents

(9.8
)

(7.3
)

Cash and Cash Equivalents:

Beginning of Period

34.6

30.0

End of Period

$
24.8

$
22.7

~~The accompanying notes are an integral part of the condensed consolidated financial statements.~~

~~Dade Behring Holdings, Inc.~~
Notes To Condensed Consolidated Financial Statements (unaudited)

1. Organization and Business

Dade Behring Holdings, Inc., was incorporated in the State of Delaware on September 23, 1994 and owns all the capital stock of its subsidiary, Dade Behring Inc. (“DBI”) (collectively, the “Company”). The Company develops, manufactures and markets clinical diagnostic equipment, reagents, consumable supplies and services worldwide.

2. Basis of Presentation

The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such regulations. The Company believes the disclosures included in the unaudited condensed consolidated financial statements, when read in conjunction with the December 31, ~~2005,~~2006 consolidated financial statements of the Company included in the Company’s ~~2005~~2006 Annual Report on Form 10-K and notes thereto, are adequate to make the information presented not misleading. The financial statements for the quarter and nine-months ended September 30, 2006, include the impact of adopting Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” effective January 1, 2006. In management’s opinion, the condensed consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary to summarize fairly the consolidated financial position, results of operations, and cash flows for such periods. The results of operations for the quarter ~~and nine-months~~ ended ~~September 30, 2006,~~March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2006.~~2007.

Earnings Per Share

The computation of basic and diluted income per share is set forth in the following table (dollars in millions, except for share data).

	Quarter Ended September 30, 2006			Quarter Ended September 30, 2005			Quarter Ended March 31, 2007			Quarter Ended March 31, 2006
Net income		$	28.9		$	48.3		$	40.2		$	34.2
Weighted average outstanding common shares
Basic		85,974,216			88,876,881			82,508,900			87,794,751
Effect of dilutive securities (primarily stock options)		1,355,485			3,051,645			1,184,136			2,704,747
Diluted		87,329,701			91,928,526			83,693,036			90,499,498
Basic net income per share		$	0.34		$	0.54		$	0.49		$	0.39
Diluted net income per share		$	0.33		$	0.53		$	0.48		$	0.38

~~Dade Behring Holdings, Inc.~~
~~Notes To Condensed Consolidated Financial Statements (unaudited)~~

In ~~September 2006,~~February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. ~~157, “Fair~~159, “The Fair Value ~~Measurements”~~Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115” (“SFAS ~~157”~~159”). SFAS ~~157 clarifies~~159 expands the ~~principle that~~use of fair value ~~should~~accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where

Dade Behring Holdings, Inc.
Notes To Condensed Consolidated Financial Statements (unaudited) (Continued)

a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. At the ~~assumptions market participants would use when pricing an asset or liability~~adoption date, unrealized gains and ~~establishes a~~losses on existing items for which fair value ~~hierarchy that prioritizes~~has been elected are reported as a cumulative adjustment to beginning retained earnings. Subsequent to the ~~information used to develop those assumptions.~~adoption of SFAS ~~157~~159, changes in fair value are recognized in earnings. SFAS 159 is effective for ~~the Company’s~~ fiscal ~~year~~years beginning ~~January 1,~~after November 15, 2007. The Company is currently evaluating the potential impact of the adoption of SFAS ~~157~~159 on its future consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires an employer that sponsors one or more single-employer defined benefit plans to (a) recognize the overfunded or underfunded status of a benefit plan in its statement of financial position, (b) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, “Employers’ Accounting for Pensions,” or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” (c) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end, and (d) disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The impact of the recognition and disclosure provisions of SFAS 158 ~~is effective for~~was reflected in the Company’s ~~fiscal year ending~~ December 31, ~~2006.~~2006 consolidated financial statements. The measurement provisions will be adopted during 2008 in accordance with the statement’s requirements. The Company is currently evaluating the impact of the adoption of the measurement provisions of SFAS 158 on its ~~year-end~~future consolidated financial statements.

In September 2006, the ~~Securities and Exchange Commission~~FASB issued SFAS No. 157, “Fair Value Measurements” (“~~SEC”) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”~~SFAS 157”). ~~SAB 108 provides interpretive guidance on how~~SFAS 157 clarifies the ~~effects of the carryover or reversal of prior year misstatements~~principle that fair value should be ~~considered in quantifying~~based on the assumptions market participants would use when pricing an asset or liability and establishes a ~~current year misstatement. The SEC staff believes~~fair value hierarchy that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108prioritizes the information used to develop those assumptions. SFAS 157 is effective for ~~the Company’s~~ fiscal ~~year ending December 31, 2006. The adoption of SAB 108 will only impact the Company’s consolidated financial statements if the Company has misstatements in the future.~~

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with this interpretation is a two-step process. The first step is recognition, requiring a company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step is measuring the amount of benefit to recognize in the financial statements. FIN 48 is effective for the Company’s fiscal yearyears beginning ~~January 1,~~after November 15, 2007. The Company is currently evaluating the potential impact of the adoption of ~~FIN 48~~SFAS 157 on its future consolidated financial statements.

Dade Behring Holdings, Inc.
Notes To Condensed Consolidated Financial Statements (unaudited) (Continued)

In June 2006, the FASB ratified Emerging Issues Task Force Issue No. 06-3 (“EITF 06-3”), “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” The scope of EITF 06-3 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer. This issue states that a company may adopt a policy of presenting taxes either gross within revenue or net. If these taxes are significant, a company is required to disclose its accounting policy and the amount of taxes that are recognized on a gross basis, if applicable. EITF 06-3 is effective for the Company’s fiscal year beginning January 1, 2007. The Company is currently evaluating the impact of the adoption of EITF 06-3 on its future consolidated financial statements.

Inventories are stated at the lower of cost (first-in, first-out method) or market. Cost includes materials, labor and manufacturing overhead costs. Market for raw materials is based on replacement costs and, for other inventory classifications, on net realizable value. Appropriate consideration is given to deterioration, obsolescence and other factors in evaluating net realizable value. Inventories consist of the following (in millions):

Identifiable intangible assets are being amortized over their legal or estimated useful lives, whichever is shorter, except for ~~tradenames and trademarks,~~the Company’s tradename, which ~~are~~is not subject to amortization since ~~they have~~it has an indefinite ~~lives.~~useful life. Identifiable intangible assets include the following (in millions):

		September 30, 2006										December 31, 2005											March 31, 2007										December 31, 2006
	Lives (years)	Gross Amount			Accumulated Amortization				Net Amount			Gross Amount			Accumulated Amortization				Net Amount			Lives (years)	Gross Amount			Accumulated Amortization				Net Amount			Gross Amount			Accumulated Amortization				Net Amount
Tradename	Indefinite		$	135.0		N/A				$	135.0		$	135.0		N/A				$	135.0	Indefinite		$	135.0		N/A				$	135.0		$	135.0		N/A				$	135.0
Customer relationships	8 to 17		130.4			$	(53.7	)		76.7			127.2			$	(42.7	)		84.5		8 to 17		133.4			$	(61.5	)		71.9			133.0			$	(58.0	)		75.0
Developed technology	6 to 10		135.6			(77.8		)		57.8			136.0			(61.0		)		75.0		6 to 10		137.6			(89.8		)		47.8			136.8			(84.4		)		52.4
Internally developed software	5 to 10		87.7			(27.4		)		60.3			69.5			(21.2		)		48.3		5 to 10		98.8			(34.3		)		64.5			93.8			(30.4		)		63.4
Patents	9 to 11		22.4			(9.1		)		13.3			20.8			(6.7		)		14.1
Patents/Licenses																						9 to 11		24.5			(10.9		)		13.6			23.2			(10.0		)		13.2
			$	511.1		$	(168.0	)		$	343.1		$	488.5		$	(131.6	)		$	356.9			$	529.3		$	(196.5	)		$	332.8		$	521.8		$	(182.8	)		$	339.0

Amortization expense totaled ~~$11.4~~$13.2 million and ~~$10.9~~$10.8 million for the quarters ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005, respectively, and $33.2 million and $33.0 million for the nine-months ended September 30, 2006 and 2005,~~ respectively. The estimated amount of annual amortization expense for the identifiable intangible assets for each full year from ~~2007~~2008 through ~~2011~~2012 is as follows: ~~$44.6~~$48.8 million, ~~$40.3~~$37.5 million, ~~$29.5~~$27.6 million, ~~$19.9~~$16.3 million and ~~$9.7~~$6.6 million, respectively.

~~Dade Behring Holdings, Inc.~~
~~Notes To Condensed Consolidated Financial Statements (unaudited)~~ The estimated amount of amortization expense for the portion of customer relationships and developed technology intangible assets which were created from the application of fresh-start reporting in 2002, for each full year from 2008 to 2012 is as follows: $31.3 million, $22.7 million, $14.6 million, $6.8 million and $4.4 million, respectively.

When selling instruments to customers, the Company may enter into sales-type lease transactions. The Company sells certain lease receivables to a financial institution, and collects these receivables on their behalf for a nominal fee. During the quarters ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005, $11.1~~$16.4 million and ~~$14.2~~$10.0 million of lease receivables were sold to ~~the financial institution, respectively. During the nine-months ended September 30, 2006 and 2005, $33.8 million and $47.2 million of lease receivables were sold to the~~a financial institution, respectively. These sales resulted in losses of ~~$1.4~~$2.0 million and ~~gains of $0.1~~$0.3 million, ~~for the quarters ended September 30, 2006 and 2005, respectively, and losses of $1.1 million and $1.2 million for the nine-months ended September 30, 2006 and 2005,~~ respectively. The ~~gains and~~ losses are included in other ~~income/~~expense on the accompanying statement of operations. At ~~September 30,~~March 31, 2007, the short- and long-term portions of lease receivables which were not sold and are included in accounts receivable and other assets total $11.5 million

Dade Behring Holdings, Inc.
Notes To Condensed Consolidated Financial Statements (unaudited) (Continued)

and $13.5 million, respectively. At December 31, 2006, the short- and long-term portions of lease receivables which were not sold and are included in accounts receivable and other assets total ~~$9.9~~$13.6 million and $13.0 million, respectively. At December 31, 2005, the short- and long-term portions of lease receivables which were not sold and are included in accounts receivable and other assets total $11.6 million and $14.1$11.8 million, respectively.

~~Prior to January 1,~~On December 28, 2006, the ~~Company accounted for~~Company’s Board of Directors approved a plan (“The Plan”) to consolidate its ~~stock-based compensation plans under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). As permitted under this standard, compensation~~Cupertino, California reagent production operations into its Glasgow, Delaware manufacturing facility in order to realize cost ~~was recognized using~~savings and efficiency benefits. In addition, The Plan is intended to streamline the ~~intrinsic value method~~Company’s customer management organizational structure in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” On January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”) using the modified prospective transition method. Ascertain geographic areas which have experienced downward pressure on revenue as a result of government healthcare cost reimbursement issues. The goal of these actions is to improve the ~~adoption, stock-based compensation expense recognized during~~Company’s profitability and return on invested capital. The Company anticipates closing the quarter and nine-months ended September 30, 2006, includes compensation expense for all share-based payments granted on or prior to, but not yet vested as of December 31, 2005, based on the grant date fair value determined in accordanceCupertino facility by mid 2008. In connection with the ~~original provisions of SFAS 123,~~plant closing and compensation cost for all share-based payments granted on or subsequent to January 1, 2006, based on the grant date fair value determined in accordance with the provisions of SFAS 123R. Prior periods were not restated to reflect the impact of adopting the standard.

The Company’s 2002 plan of reorganization included equity compensation plans which provided for the issuance of a fixed number of stock options with predetermined strike prices. The equity compensation plans and the option strike prices were approved by all voting classes of creditors and by the bankruptcy court, effective October 3, 2002. A portion of the stock options authorized in 2002 were granted to participants in 2003 and 2004 when the market value of the Company’s common stock was higher than the predetermined strike prices. As a result, during the quarter and nine-months ended September 30, 2005,organizational changes, the Company ~~recognized $0.6~~expects to eliminate 130 positions and pay total severance, lease termination, relocation and other pre-tax cash costs of approximately $17.7 million, ~~and $2.2~~$3.6 million, ~~of total stock-based compensation expense, respectively, net of income tax benefits of~~ $0.4 million and ~~$1.4~~$4.9 million, respectively, ~~in accordance with APB 25. During the quarter~~ and ~~nine-months ended September 30, 2006, the Company recognized $3.2 million and $9.7~~incur approximately $1.5 million of ~~total stock-based compensation expense, respectively, net of income tax benefits of $1.8~~non-cash depreciation costs over the next two years. Total costs expected to be incurred by segment are $16.0 million for Global Operations, $0.4 million for GCM-Americas and ~~$5.3~~$10.2 million respectively, in accordance with SFAS 123R. The incremental SFAS 123R expense of $2.6 million and $7.9 million, respectively, net of tax benefits of $1.4 million and $4.1 million, respectively, reduced basic and diluted net income per share by $0.03 and $0.09, respectively, during the quarter and nine-months ended September 30, 2006.for GCM-International.

During the quarter ended ~~September 30, 2006,~~March 31, 2007, the ~~components~~Company reversed $0.5 million of ~~pre-tax stock-based compensation~~severance costs against the reserve in the Global Operations segment for employees that voluntarily left the Company before completion of the exit plan. The Company also recognized $1.3 million of expense ~~consisted~~during the quarter ended March 31, 2007, in the Global Operations segment primarily related to relocation costs and non-cash depreciation. The cumulative amount of ~~$4.3~~costs incurred since the Plan inception, net of expense reversals, include $17.2 million ~~for stock options, $0.6~~in severance costs pursuant to ongoing benefit arrangements, $3.6 million ~~for~~of lease termination costs to exit the ~~employee stock purchase plan~~Cupertino facility, and

~~Dade Behring Holdings, Inc.~~
~~Notes To Condensed Consolidated Financial Statements (unaudited)~~

~~$0.1~~ $1.3 million ~~for restricted stock units. During the nine-months ended September 30, 2006, the components~~ of ~~pre-tax stock-based compensation expense consisted~~relocation and depreciation costs, of ~~$12.8~~which $11.5 million, for stock options, $2.0 million for the employee stock purchase plan and $0.2 million for restricted stock units. In 2005, all stock-based compensation expense resulted from stock options. Total unrecognized stock-based compensation expense as of September 30, 2006, was $21.3$0.4 million and ~~will be recognized over a weighted average of 1.8 years.~~

~~Total tax benefits recorded in additional paid-in capital during~~$10.2 million were allocated to the ~~nine-months ended September 30, 2006, were $10.4 million.~~Global Operations, GCM-Americas and GCM-International segments, respectively. During the quarter ended ~~September 30, 2006,~~March 31, 2007, $4.0 million of costs related to the ~~Company recorded a $3.3 million decrease~~Cupertino facility closure were reclassified from other long-term liabilities to ~~additional paid-in capital as~~accrued liabilities since these costs are expected to be paid by the first quarter of 2008. As a result, the entire restructuring liability of ~~a reduction of excess tax benefits that were recognized from stock option deductions.~~

~~Prior to the adoption of SFAS 123R, all tax benefits from the exercise of stock options were reported as operating cash flows~~$20.4 million at March 31, 2007, is recorded in the Company’s consolidated statements of cash flows. In accordance with SFAS 123R, the Company will prospectively report excess tax benefits from the exercise of stock options as cash flows from financing activities. For the nine-months ended September 30, 2006, excess tax benefits reported as cash flows from financing activities were $9.8 million.

The Company’s stock option and restricted stock unit plans are described in Note 9 of the Company’s 2005 Annual Report on Form 10-K. For grants made in 2006 and 2005, the fair value of stock options was estimatedaccrued liabilities on the ~~grant date using a lattice-based option pricing model. The following assumptions used in the model were derived from company-specific historical information:~~

~~Following is a summary of the activity for the Company’s stock option plans for the nine-months ended September 30, 2006:~~

~~Dade Behring Holdings, Inc.~~
~~Notes To Condensed Consolidated Financial Statements (unaudited)~~

~~Stock options outstanding at September 30, 2006, and the related weighted-average price and life information is as follows:~~

The weighted-average grant-date fair value of stock options granted during the quarters ended September 30, 2006 and 2005, was $12.14 and $10.96, respectively. The weighted-average grant-date fair value of stock options granted during the nine-months ended September 30, 2006 and 2005, was $11.36 and $9.22, respectively. The aggregate intrinsic value of stock options outstanding and exercisable at September 30, 2006, was $118.6 million and $75.1 million, respectively. The aggregate intrinsic value of stock options outstanding and exercisable at September 30, 2005, was $177.3 million and $65.7 million, respectively. The total intrinsic value of options exercised during the quarters ended September 30, 2006 and 2005, was $7.4 million and $13.5 million, respectively. The total intrinsic value of options exercised during the nine-months ended September 30, 2006 and 2005, was $46.2 million and $44.7 million, respectively. Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the average of the intraday high and low market prices of the Company’s common stock during the quarters and nine-months ended September 30, 2006 and 2005, respectively.

As of December 31, 2005, there were 9,045 restricted stock units outstanding with a weighted-average grant date fair value of $35.94. During the nine-months ended September 30, 2006, 20,000 restricted stock units were granted with a grant date fair value of $38.06. As of September 30, 2006, there were 29,045 restricted stock units outstanding with a weighted-average grant date fair value of $37.40. No restricted stock units were vested as of September 30, 2006.

~~Pro Forma Information Under SFAS 123 for the Prior Period~~consolidated balance sheet.

The following table ~~illustrates~~summarizes the ~~effect on net income and income per share as if~~activity in the ~~Company had applied~~Company’s restructuring reserve for the ~~fair value recognition provisions of SFAS 123 to all outstanding and unvested awards during~~Plan for the quarter ~~and nine-months~~ ended ~~September 30, 2005~~March 31, 2007 (in ~~millions, except per share data)~~millions):

~~Dade Behring Holdings, Inc.~~
~~Notes To Condensed Consolidated Financial Statements (unaudited)~~

Quarter Ended
September 30, 2005

Nine-Months Ended
September 30, 2005

Net income available for common stock as reported

$
48.3

$
90.6

Add: Total stock-based employee compensation expense included in reported net income, net of related tax effects

0.7

2.9

Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects

(2.9
)

(9.0
)

Pro forma net income

$
46.1

$
84.5

Basic as reported

$
0.54

$
1.02

Basic pro forma

$
0.52

$
0.95

Diluted as reported

$
0.53

$
0.99

Diluted pro forma

$
0.49

$
0.91

	Severance Costs				Lease Termination Costs			Total
Reserve balance, December 31, 2006		$	17.7			$	3.6	$	21.3
Cash payments		(0.4		)		—		(0.4		)
Credits to income		(0.5		)		—		(0.5		)
Reserve balance, March 31, 2007		$	16.8			$	3.6	$	20.4

The Company has a stock purchase plan that operates in accordance with Internal Revenue Code Section 423 whereby all employees can purchase the Company’s common stock at favorable prices. Under the plan, eligible employees are permitted to apply salary withholdings to purchase shares of common stock at a price equal to 85% of the lower of the market value of the stock at the beginning or end of each six-month option period ending May 28 and November 28. Prior to January 1, 2006, the Company was not required to recognize compensation expense for the discount feature of the plan. In accordance with the adoption of SFAS 123R on January 1, 2006, the Company recognized $0.6 million and $2.0 million of pretax and after tax stock-based compensation expense related to this plan during the quarter and nine-months ended September 30, 2006, respectively.

Dade Behring Holdings, Inc.
Notes To Condensed Consolidated Financial Statements (unaudited) (Continued)

7. Retirement Programs

The components of net periodic benefit cost recognized were as follows (in millions):

Quarter Ended
September 30, 2006

Quarter Ended
September 30, 2005

Service cost

$
4.4

$
4.0

Interest cost

4.4

4.0

Expected return on plan assets

(4.1
)

(3.5
)

Recognized net actuarial loss

0.6

0.2

Net periodic benefit cost

$
5.3

$
4.7

	Nine-Months Ended September 30, 2006				Nine-Months Ended September 30, 2005				Quarter Ended March 31, 2007				Quarter Ended March 31, 2006
Service cost		$	13.3			$	12.1			$	4.8			$	4.4
Interest cost		13.1				12.2				5.0				4.3
Expected return on plan assets		(12.2		)		(10.7		)		(4.8		)		(4.0		)
Recognized net actuarial loss		1.6				0.6				0.2				0.5
Net periodic benefit cost		$	15.8			$	14.2			$	5.2			$	5.2

The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. The Company did not have any adjustment to its liability for uncertain tax positions as a result of the implementation of FIN 48. At the adoption date, the Company had approximately $20.4 million of total unrecognized tax benefits. Of this total, $5.6 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The remainder would result in a reduction of goodwill.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of January 1, 2007, the Company had $1.6 million accrued for interest and/or penalties.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and multiple state and foreign jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for 2003 and 2004. Years prior to 2003 are no longer subject to U.S. federal income tax examination. The Company is no longer subject to state income tax examinations by tax authorities in its major state jurisdictions for years before 2002. The Company is no longer subject to non-US income tax examinations by tax authorities in its major non-U.S. tax jurisdictions for years before 2000.

As of March 31, 2007, it is reasonably possible that the Company’s liability for uncertain tax positions will be reduced by as much as $6.0 million by March 31, 2008. Approximately $3.5 million of this amount would favorably impact the Company’s effective tax rate. Such reductions would result from either the effective settlement of tax positions with various tax authorities or by virtue of the statute of limitations expiring for years with uncertain tax positions.

The Company derives substantially all its revenues from manufacturing and marketing clinical diagnostic products and services. The Company is organized functionally and is comprised of three reporting segments: Global Customer Management (“GCM”)-Americas, GCM-International, and Global Operations. GCM-Americas and GCM-International are the Company’s sales and service organizations. For the Company’s reporting purposes, Americas includes North and South America. The United States comprises approximately ninety percent of the Americas segment’s results. ~~International~~GCM-International includes sales and service results from all other continents. Global Operations primarily includes all manufacturing, distribution and research and development activities, which occur primarily in the United States and Germany, and accordingly does not recognize significant revenues.

Dade Behring Holdings, Inc.
Notes To Condensed Consolidated Financial Statements (unaudited) (Continued)

Revenue by segment for the quarters ended March 31, 2007 and ~~nine-months ended September 30,~~ 2006 ~~and 2005,~~ is summarized as follows (in millions):

GCM-
Americas

GCM-
International

Global
Operations

Total

Quarter Ended September 30, 2006

Revenue from external customers:

Core Chemistry

$
154.4

$
115.8

$
4.0

$
274.2

Hemostasis

34.8

41.9

—

76.7

Microbiology

27.1

16.7

—

43.8

Infectious Disease

2.0

20.5

—

22.5

Non-Core Products

1.5

2.5

2.4

6.4

Total

$
219.8

$
197.4

$
6.4

$
423.6

Nine-Months Ended September 30, 2006

Revenue from external customers:

Core Chemistry

$
473.8

$
360.1

$
10.4

$
844.3

Hemostasis

104.9

128.6

—

233.5

Microbiology

74.5

46.6

—

121.1

Infectious Disease

5.8

59.8

—

65.6

Non-Core Products

4.6

7.2

7.5

19.3

Total

$
663.6

$
602.3

$
17.9

$
1,283.8

	GCM- Americas			GCM- International			Global Operations			Total		GCM- Americas			GCM- International			Global Operations			Total
Quarter Ended September 30, 2005
Quarter ended March 31, 2007
Revenue from external customers:
Core Chemistry		$	147.7		$	108.8		$	3.5	$	260.0		$	166.1		$	130.1		$	4.1	$	300.3
Hemostasis		31.2			38.8			—		70.0			38.3			49.4			—		87.7
Microbiology		25.6			16.4			—		42.0			25.7			15.8			—		41.5
Infectious Disease		2.2			18.8			—		21.0			1.6			20.8			—		22.4
Non-Core Products		2.7			2.8			2.4		7.9			2.5			2.7			2.1		7.3
Total		$	209.4		185.6			$	5.9	$	400.9		$	234.2		$	218.8		$	6.2	$	459.2
Nine-Months Ended September 30, 2005
Quarter ended March 31, 2006
Revenue from external customers:
Core Chemistry		$	442.0		$	354.1		$	8.1	$	804.2		$	154.3		$	117.1		$	3.6	$	275.0
Hemostasis		97.3			124.4			—		221.7			35.3			41.6			—		76.9
Microbiology		72.5			48.5			—		121.0			22.4			13.7			—		36.1
Infectious Disease		5.4			59.9			—		65.3			1.6			19.7			—		21.3
Non-Core Products		8.3			8.8			8.0		25.1			1.9			2.4			2.1		6.4
Total		$	625.5		$	595.7		$	16.1	$	1,237.3		$	215.5		$	194.5		$	5.7	$	415.7

Dade Behring Holdings, Inc.
Notes To Condensed Consolidated Financial Statements (unaudited) (Continued)

Earnings before interest and income tax expense (“EBIT”) is a primary profitability measure used to evaluate the segments, and is thus reconciled to income before income tax expense. Financial information by segment for the quarters ended March 31, 2007 and ~~nine-months ended September 30,~~ 2006 ~~and 2005,~~ is summarized as follows (in millions):

Quarter Ended
September 30, 2006

Quarter Ended
September 30, 2005

Depreciation and amortization

GCM-Americas

$
7.8

$
6.3

GCM-International

17.6

14.7

Global Operations

13.6

14.2

Total Segment depreciation and amortization

39.0

35.2

All Other(1) depreciation and amortization

1.3

2.6

Total

$
40.3

$
37.8

Segment EBIT

GCM-Americas

$
87.9

$
88.6

GCM-International

60.5

60.1

Global Operations

(78.8
)

(71.2
)

Total Segment EBIT

69.6

77.5

All Other(1) EBIT

(23.9
)

(27.0
)

Less: interest expense, net

(6.2
)

(4.7
)

Income before income tax expense

$
39.5

$
45.8

	Nine-Months Ended September 30, 2006				Nine-Months Ended September 30, 2005				Quarter Ended March 31, 2007				Quarter Ended March 31, 2006
Depreciation and amortization
GCM-Americas		$	22.6			$	19.5			$	8.8			$	7.4
GCM-International		50.2				46.4				18.8				15.4
Global Operations		39.3				43.2				16.5				12.4
Total Segment depreciation and amortization		112.1				109.1				44.1				35.2
All Other(1) depreciation and amortization		5.2				17.4
All Other depreciation and amortization										1.7				1.8
Total		$	117.3			$	126.5			$	45.8			$	37.0

Segment EBIT
GCM-Americas		$	270.1			$	261.0			$	96.7			$	88.4
GCM-International		194.8				205.7				76.6				64.0
Global Operations		(223.5		)		(217.0		)		(78.8		)		(71.7		)
Total Segment EBIT		241.4				249.7				94.5				80.7
All Other(1) EBIT		(73.9		)		(105.0		)		(25.4		)		(21.0		)
Less: interest expense, net		(15.8		)		(32.6		)		(8.1		)		(5.3		)
Income before income tax expense		$	151.7			$	112.1			$	61.0			$	54.4

(1) Includes corporate headquarters, shared services centers, certain other expenses such as general corporate expenses, certain intercompany transactions and eliminations.

~~Dade Behring Holdings, Inc.~~
~~Notes To Condensed Consolidated Financial Statements (unaudited) (Continued)~~

Goodwill at December 31, ~~2005,~~2006 aggregated ~~$187.8~~$169.6 million, and was allocated as follows: ~~$141.1~~$127.4 million to Global Operations and ~~$46.7~~$42.2 million to Global Customer Management-Americas. Goodwill at ~~September 30, 2006,~~March 31, 2007 aggregated ~~$176.2~~$169.3 million, and was allocated as follows: ~~$132.4~~$127.2 million to Global Operations and ~~$43.8~~$42.1 million to Global Customer Management-Americas. The change in goodwill balance during the first nine months of 2006 is primarily due to reductions in deferred tax asset valuation allowances that existed at the date fresh-start reporting was applied. Per the American Institute of Certified Public Accountants Statement of Position 90-7: “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”, the reductions in valuation allowances were credited first to goodwill.

The Company’s $600 million, multi-currency five-year revolving credit facility was amended in October 2006 (the “First Amendment”). The First Amendment reduced applicable margins and fees under the Revolving Credit Facility as determined by debt ratings issued by third-party rating agencies. Based upon current third party debt ratings, the interest rate on U.S. dollar denominated borrowings was reduced by 0.23% from the then current rate of LIBOR plus 0.63%. In addition, the commitment fee on the unused portion of the revolving credit facility was reduced from 0.13% to 0.10%. No other changes were made to the revolving credit facility during 2006.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

Dade Behring Holdings’, Inc. ~~2005~~2006 Annual Report on Form 10-K contains management’s discussion and analysis of the Company’s financial condition and results of operation as of and for the year ended December 31, ~~2005.~~2006. The following management’s discussion and analysis focuses on material changes since that time and should be read in conjunction with the ~~2005~~2006 Annual Report on Form 10-K. Relevant trends that are reasonably likely to be of a material nature are discussed to the extent known. Dade Behring Holdings, Inc. is also referred to as “we”, “us”, and “our” throughout this Form 10-Q.

Disclosure Regarding Forward-Looking Statements

To the extent that statements made by us relate to our future economic performance or business outlook, projections or expectations of financial or operational results, or refer to matters that are not historical facts, such statements are “forward-looking” statements within the meaning of the federal securities laws. Such forward-looking statements include, but are not limited to, statements that relate to our future revenue, product development, investments, demand forecasts, competitiveness, gross margins, operating expense and benefits expected as a result of the projected growth rates in our industry, the successful execution of our business plan, and the projected continuing demand for our products. In addition, we are in the process of a new product launch which involves risks and uncertainties regarding product performance, costs of introduction and support, and customer acceptance. Generally words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “predict,” “plan,” “potential,” “continue,” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking statements.

Forward-looking statements are based on current expectations and involve risks and uncertainties and our future results could differ significantly from those expressed or implied by our forward-looking statements. We caution against placing undue reliance on forward-looking statements, which reflect our current beliefs and are based on information currently available to us as of the date a forward-looking statement is made. We do not intend to revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs. In the event we do update any forward-looking statement, no inference should be made that we will make additional updates with respect to that statement, related matters, or any other forward-looking statements. Any corrections or revisions may appear in our public filings with the Securities and Exchange Commission, which are accessible at www.sec.gov and on our website at www.dadebehring.com, and which investors are advised to consult.

Factors That Could Affect Future Results

Factors that could affect future results include, without limitation, competition, the effect of potential healthcare reform, changes in our business strategy or plans, our success in bringing new products to market and effectively managing the costs of doing so, changes in foreign currency exchange rates, increases in the floating interest rate under our revolving credit facility, changes in our policy regarding interest rate and currency movements and the availability of capital and trade credit to fund our business.

Additional risk factors are described in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2005,~~2006 and in Part II Item 1A. of this document.

Results of Operation

We derive substantially all our revenue from manufacturing and marketing clinical diagnostic products and services. We are organized functionally and have three reporting segments: Global Customer Management (“GCM”)-Americas, GCM-International and Global Operations. GCM-Americas and

GCM-International are our sales, marketing, customer training, technical support and field service

organizations. For our reporting purposes, Americas includes North and South America. ~~International~~GCM-International includes sales and service results from all other continents. The gross profit ~~margin~~margins for the two GCM segments isare not materially different. Global Operations primarily includes all manufacturing, distribution and research and development activities, and accordingly does not recognize significant revenues. Global Operations functions as a cost center; consequently, a discussion of gross profit for each individual operating segment would not be meaningful. Generally, Global Operations does not incur a material amount of our marketing and administrative expense, but is responsible for virtually all research and development expense. Certain other expenses, such as income taxes, general corporate expenses and financing costs, are not allocated to the operating segments.

~~We adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”), on January 1, 2006. The Company’s financial statements as of and for~~In December 2006, we launched the ~~quarter and nine-months ended September 30, 2006, reflect the impact of adopting SFAS 123R. Prior periods were not restated to reflect the impact of adopting the new standard.~~

~~Over the next six months, we intend to place a limited number of~~ Dimension Vista® ~~analyzers at customer facilities. The Dimension Vista~~® 1500 Intelligent Lab System, which is a compact, ultra integrated chemistry analyzer using advanced LOCI™ detection technology designed for the high-volume clinical laboratory. Given that Dimension Vista® embodies a new and more complex instrument design ~~as well as new~~and reagent technology, the transfer of technical knowledge from research and development to our ~~support~~commercial organization is ~~more complex than our typical new product introduction. In order to assure that all aspects~~complex. Therefore, we placed a limited number of product performance are satisfactory to our customers, we will proceed with this limited release with broader commercialization taking place only when we are completely satisfied in that regard. We currentlyDimension Vista® System instrumentsduring the first quarter, 2007, and anticipatea broader ~~but measured commercialization~~number of ~~the system beginning~~placements occurring throughout 2007. We will initially target U.S. customers, then begin targeting key European customers in the second ~~quarter~~half of ~~2007.~~2007 and anticipate global commercialization in 2008. Accordingly, we expect ~~little to no revenue impact in 2006 and we expect market penetration and~~ revenue to increase at a measured pace over the course of 2007.

In conjunction with the ~~fourth quarter,~~December 2006 launch of the Dimension Vista® ~~1500 Intelligent Lab~~ System, we ~~will begin~~began recording non-cash amortization and depreciation ~~of approximately $9 million to $10 million per year~~expense related to previously capitalized system development costs and manufacturing assets. In addition, we anticipate we will incur incremental costs associated with ~~marketing,~~ service support and early stage manufacturing inefficiencies ahead of the related product revenue. Such incremental costs are expected to increase to a level of approximately $15 million to $20 million per year and are not expected to be incurred evenly, but will ramp up gradually with the rollout of the system. The ~~Dimension Vista~~® ~~System development cost amortization, manufacturing asset depreciation, and the~~ majority of ~~the incremental spending described above~~these costs will be recorded in cost of goods sold, placing downward pressure on gross profit margins ~~for the next 18 to 24 months.~~through 2008.

Quarter Ended ~~September 30, 2006~~March 31, 2007 Compared to Quarter Ended ~~September 30, 2005~~March 31, 2006

In the discussion below, we make comparisons on a “constant currency” basis, which is not a U.S. GAAP defined measure. We believe this measure provides for a meaningful analysis of the underlying activity, since it eliminates the effect of changes in foreign currency exchange rates. When making comparisons on a constant currency basis, we have calculated the change by comparing the applicable reported current year amount to the corresponding amount from the prior year in local currency translated at the foreign currency exchange rates for the current year. “Constant currency” as defined or presented by us may not be comparable to similarly titled measures reported by other companies.

Net Sales. Net sales for the quarter ended ~~September 30, 2006,~~March 31, 2007, totaled ~~$423.6~~$459.2 million as compared to ~~$400.9~~$415.7 million in the corresponding prior year quarter.

Sales for each segment were as follows (in millions):

	Quarter Ended									Quarter Ended
	September 30, 2006			September 30, 2005			% Change			March 31, 2007			March 31, 2006			% Change
GCM-Americas		$	219.8		$	209.4		5.0	%		$	234.2		$	215.5		8.7	%
GCM-International		197.4			185.6			6.4	%		218.8			194.5			12.5	%
Global Operations		6.4			5.9			8.5	%		6.2			5.7			8.8	%
Total		$	423.6		$	400.9		5.7	%		$	459.2		$	415.7		10.5	%

Adjusting for the favorable impact of foreign currency rate changes of ~~$4.5~~$13.1 million, ~~2006~~2007 sales increased ~~$18.2~~$30.4 million or ~~4.5%~~7.1% for the quarter. On a constant currency basis, sales increased ~~$10.5~~$18.9 million or ~~5.0%~~8.8% in GCM-Americas and increased ~~$7.8~~$11.2 million or ~~4.1%~~5.4% across GCM-International locations. On a

geographic basis, constant currency sales growth was ~~4.4%~~7.9% in the U.S. and ~~4.6% on a constant currency basis~~6.4% across all non-U.S. locations.

The overall sales increase on a constant currency basis ~~is primarily due~~can be attributed in part to a ~~$11.9~~$17.5 million or ~~4.5%~~6.2% increase in core chemistry sales primarily driven by strong Dimension® product sales ~~in GCM-Americas locations.~~globally. The growth can also be attributed in part to a ~~$5.5~~$7.5 million or ~~7.7%~~9.3% increase in hemostasis product sales and a ~~$1.9~~$5.1 million or ~~4.4%~~14.1% increase in microbiology product ~~sales and~~sales. On a ~~$0.8 million or 3.7% increase in~~constant currency basis, infectious disease ~~diagnostics. This growth was partially offset by a $1.9 million or 23.3% decrease in~~diagnostics and sales of non-core products ~~across all segments.~~were relatively flat as compared to the quarter ended March 31, 2006. Non-core products include royalties ~~third-party products~~ and ~~end-of-life~~third-party products that we do not consider to be part of our core strategy and, as a result, are expected to have flat or declining sales over time.

Our worldwide installed base of instruments ~~grew to 39,800~~was 41,300 as of ~~September 30,~~March 31, 2007, a 1.8% increase since December 31, 2006 ~~representing growth of 1.4% for the quarter~~ and ~~7.4%~~a 6.6% increase since ~~September 30, 2005.~~March 31, 2006. Growth in the instrument installed base of a product line contributes to the sales growth of the corresponding reagents, consumables and service.

Growth in the installed base of Dimension® RxL Max and Dimension® Xpand® Plus instruments, ~~and~~ our Stratus® CS Acute Care™ Diagnostic System for cardiac testing and the BN ProSpec® plasma protein instrument continue to drive much of the reagents, consumables and service sales growth seen in our core chemistry products. Gains in the hemostasis installed base have been driven by strong momentum in placing our CA-line of coagulation instruments and our ~~Platelet Function Analyzer.~~PFA-100®, an instrument that tests platelet function. For microbiology, new installations of our MicroScan® autoSCAN® and WalkAway® series of instruments continue to provide growth.

Beyond the installed base impact, reagents and consumables sales growth has benefited from improved method penetration, which results from utilizing our existing instrument base for additional tests.

Gross Profit. Gross profit for the quarter ended ~~September 30, 2006,~~March 31, 2007, increased ~~$5.8~~$18.8 million to ~~$226.9~~$251.4 million as compared to ~~$221.1~~$232.6 million in the corresponding prior year period. On a constant currency basis, gross profit increased ~~$3.4~~$11.6 million. Gross profit margin for the quarter ended ~~September 30, 2006,~~March 31, 2007 was ~~53.6%~~54.7% as compared to ~~55.2%~~56.0% in the corresponding prior year period, representing a decrease of ~~1.6~~1.3 percentage points. Approximately ~~0.3~~0.9 percentage points is due to freight costs which were reported in marketing and administrative expenses in prior years. We also saw a negative impact of 0.1 percentage points relating to increased stock-based compensation expense and another 0.2 percentage points relating to incremental Dimension Vista®costs ~~as we begin~~and expenses associated with the manufacturing transition of our Cupertino facility. The remaining 0.4 percentage points related to ~~ramp up the organization for the launch. The higher instrument versus reagent~~pricing, product mix and ~~our strong StreamLab automation equipment placements, which have a lower margin than other instruments, contributed another 0.7 percentage points of decline. The remaining 0.3 percentage points is due~~cost reductions. We anticipate continuing to ~~the challenging pricing environment as well as a~~

~~Marketing and Administrative Expenses.~~ Marketing and administrative expenses for the nine-months ended September 30, 2006, increased $6.1 million to $418.7 million, or 32.6% of sales, compared to $412.6 million, or 33.3% of sales, in the prior year period. On a constant currency basis, marketing and administrative expenses increased $9.8 million or 2.4% over the corresponding prior year period. Of the total increase, $8.0 million resulted from incremental stock-based compensation expense. The remaining $1.8 million increase was primarily due to investments in current resources and processes to support the higher level of revenues being achieved, costs to build our sales and marketing infrastructure for the Dimension Vista™ System, and increased distribution expenses.

~~Research and Development Expenses.~~ Research and development expenses for the nine-months ended September 30, 2006, totaled $118.5 million (9.2% of sales) and were $15.0 million or 14.5% higher than the prior year period. On a constant currency basis, research and development expenses increased $15.4 million or 14.9% over the corresponding prior year period. Of the total increase, $2.0 million is due to incremental stock-based compensation expense. The remaining $13.4 million increase is attributable to investments in new product development, such as the Dimension Vista™ System for the high-volume testing segment, and new assays for all product lines.

~~Income from Operations.~~ Income from operations for the nine-months ended September 30, 2006, decreased $1.8 million to $168.5 million compared to $170.3 million in the prior year period. The decrease in income from operations is primarily due to higher marketing and administrative expenses and research and development spending, offset by increased gross profit.

~~Interest Expense.~~ Interest expense for the nine-months ended September 30, 2006, totaled $19.2 million, a $16.7 million reduction over the corresponding prior year period. During the quarter ended June 30, 2005, we entered into a new $600 million, five-year revolving credit facility which replaced our previously existing term loan and revolving credit facility. In conjunction with the repayment of the amounts outstanding under the old facility in April 2005, the balance of unamortized debt issuance costs were written-off and recorded as interest expense. During the nine-months ended September 30, 2006 and 2005, debt issuance cost amortization expenses of $0.4 million and $10.0 million were recorded related to the new and former credit facilities, respectively. These debt refinancing activities reduced our borrowing costs in 2006 compared to 2005.

~~Loss on Redemption/Purchase of Senior Subordinated Notes.~~ During the nine-months ended September 30, 2005, we redeemed the $275.0 million outstanding balance of our senior subordinated notes and paid a premium to bondholders of $24.0 million, as required by certain provisions of the bond indenture. The premium was recorded as a loss in the statement of operations.

~~Income Taxes.~~ Income tax expense of $51.0 million, representing an effective rate of 33.6%, was recorded in the nine-months ended September 30, 2006, as compared to $21.5 million, representing an effective tax rate of 19.2%, in the nine-months ended September 30, 2005. The increase in the effective tax rate is primarily due to an income tax benefit of $15.1 million recorded in the quarter ended September 30, 2005. The 2005 benefit is mostly attributable to two items which were originally recognized as part of comprehensive income subsequent to the application of fresh-start reporting in 2002. Valuation allowances related to pension and net losses on derivative instruments were reversed. Also, for certain non-U.S. jurisdictions, a change in judgment regarding permanently reinvested earnings and our ability to utilize foreign tax credits required us to reverse a deferred tax liability related to tax provided on cumulative translation adjustment on the undistributed earnings accumulated in these non-U.S. jurisdictions through 2002. A further income tax benefit was also recorded as we reversed a $6.2 million post-fresh-start deferred tax liability related to taxes provided on undistributed earnings accumulated during 2002 in certain non-U.S. jurisdictions. The initial impact of recording this deferred tax liability was recognized as part of income tax expense. During the quarter ended September 30, 2006, we recognized benefits from foreign tax credits of $4.0 million, which reduced the effective tax rate.

~~Net Income.~~ ~~Net income for the nine-months ended September 30, 2006, was $100.7 million compared to $90.6 million in the prior year period,~~ an increase of ~~$10.1~~$6.0 million, or ~~11.1%~~17.5%. The increase in net income is primarily attributable to improved gross profit and lower interest expense in 2006, as well as the losses on the redemption of our senior subordinated notes and higher debt issuance cost amortization in 2005. Partially offsetting the increase is higher income ~~taxes and research and development spending in 2006 compared to 2005.~~from operations partially offset by higher interest expense.

Liquidity and Capital Resources

For the ~~nine-months~~quarters ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ operating activities provided cash of ~~$217.3~~$82.4 million and ~~$193.0~~$75.0 million, respectively. An increase in net income adjusted for non-cash items was partially offset by the impacts of changes in working capital in ~~2006~~2007 compared to ~~2005.~~2006. During the ~~nine-months~~quarters ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ changes in accounts receivable ~~negatively~~positively impacted cash flows by ~~$20.4~~$0.6 million and ~~$15.6~~$12.8 million, respectively. ~~Slower collections~~The decrease in cash inflows from accounts receivable during 2007 compared to 2006 ~~predominately in non-U.S. locations, was partially offset by increased factoring activity.~~is primarily due to less incremental accounts receivable factoring. In certain countries where the collection process is lengthy, we utilize factoring facilities under which certain trade accounts receivables are sold on a non-recourse basis to financial institutions at face value. On a constant currency basis, our utilization of factoring facilities increased by ~~$4.6~~$6.4 million and ~~decreased by $12.4~~$12.2 million during the ~~nine-months~~quarters ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ respectively. As of ~~September 30, 2006,~~March 31, 2007, the total amount of factored receivables was ~~$112.9~~$113.6 million. During ~~2005,~~the quarter ended March 31, 2007, changes in ~~prepaid expenses and other current assets positively impacted cash flows by $2.5 million. However, as a result of activity associated with the anticipated commercialization of the Dimension Vista™~~ ~~System in the fourth quarter, changes in prepaid expenses and other current assets~~inventory negatively impacted cash flows by ~~$11.3~~$25.8 million ~~during 2006. A majority~~compared to outflows of the 2006 change was driven by prepaid expenses. During the nine-months ended September 30, 2006, we purchased approximately $11 million of parts and materials related to the Dimension Vista™ System, of which approximately $10 million will be reclassified from prepaid expenses into inventory once the product is launched. Changes in accounts payable and accrued liabilities yielded positive cash flows of $2.1$11.4 million during the ~~nine-months ended September 30,~~same period in 2006 ~~compared~~as a result of building inventory in 2007 to ~~negative cash flows of $21.6 during~~support the nine-months ended September 30, 2005. The improvement in cash flows from accounts payable is primarily due to timing of cash disbursements. Lower interest expense accruals from our debt refinancing activities and favorable changes in the fair values of our derivative instruments drove the improvement in cash flows from accrued liabilities.Dimension Vista® launch.

When selling instruments to customers, we may enter into sales-type lease transactions. We sell certain lease receivables to a financial institution, and collect these receivables on their behalf for a nominal fee. During the ~~nine-months~~quarters ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005, $33.8~~$16.4 million and ~~$47.2~~$10.0 million of lease receivables were sold to the financial institution, respectively. These sales resulted in losses of ~~$1.1~~$2.0 million and ~~$1.2~~$0.3 million, ~~for the nine-months ended September 30, 2006 and 2005,~~ respectively. The losses are included in other expense on the accompanying statement of operations. At ~~September 30,~~March 31, 2007, the short- and long-term portions of lease receivables which were not sold and are included in accounts receivable and other assets total $11.5 million and $13.5 million, respectively. At December 31, 2006, the short- and long-term portions of lease receivables which were not sold and are included in accounts receivable and other assets total ~~$9.9~~$13.6 million and ~~$13.0~~$11.8 million, respectively. At December 31, 2005, the short- and long-term portions of lease receivables which were not sold and are included in accounts receivable and other assets total $11.6 million and $14.1 million, respectively. We expect the amount of lease receivables we sell in 2006 to be lower than 2005 asThe changes in customer contract terms are causing a shift away from sales-type leases to operating leases. This shift to operating leases may result in both lower instrument revenue and decreased cash flow in the short term as revenue will be recognized ~~and cash received~~ over the term of the lease instead of at the inception of the ~~lease.~~lease, and there are no lease receivables to sell to financial institutions if we enter into operating leases.

Net cash flow used for investing activities total ~~$118.2~~$35.8 million and ~~$102.0~~$36.2 million for the ~~nine-months~~quarters ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ respectively, and iswas primarily for capital expenditures. ~~The increase in capital expenditures is due primarily to the higher placement of instruments at customers in exchange for~~

~~contractual commitments for ongoing reagent revenues, and for investments in new product development, such as the Dimension Vista™~~ ~~System. We expect these trends to continue throughout 2006.~~

Financing activities for the ~~nine-months~~quarter ended ~~September 30, 2006,~~March 31, 2007, used net cash of ~~$106.3~~$33.5 million, versus ~~$97.6~~$55.7 million for the ~~nine-months~~quarter ended ~~September 30, 2005.~~March 31, 2006. The ~~increase~~decrease in cash used is primarily due to lower repurchases of common stock and ~~dividend payments, partially offset by~~ higher ~~debt~~net revolver borrowings ~~net of repayments~~ in ~~2006~~2007 compared to ~~2005 and excess tax benefits from stock-based compensation.~~2006. We used ~~$154.8~~$56.5 million of cash to purchase our common stock ~~and paid $13.0~~during the quarter ended March 31, 2007, compared to $64.5 million in ~~dividends during~~ the ~~nine-months ended September 30, 2006. In 2006, total debt activity resulted in~~corresponding prior year period. Borrowings under our revolving credit facility net ~~borrowings~~ of ~~$32.8 million compared to net~~ repayments ~~of $60.9~~increased by $16.3 million during the first ~~nine months~~quarter of ~~2005. We also reclassified $9.8 million~~2007 compared to the same period in 2006.

Recent Accounting Developments

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of ~~excess tax benefits from stock-based compensation from operating activities~~FASB Statement No. 115 (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to ~~financing activities during 2006~~be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any upfront costs and fees related to the item must be recognized in ~~accordance with~~earnings and cannot be deferred. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption of SFAS ~~123R.~~

In February 2006, the Board of Directors increased our quarterly dividend from $0.03 to $0.05 per common share and authorized us to purchase an incremental 5 million shares of common stock under our stock repurchase program which was initiated during 2005.

In July 2006, certain terms of our revolving credit facility with Dresdner Bank AG were amended as follows. The facility expires on April 27, 2010. It was previously renewed annually. The borrowing capacity was increased from €~~10 million to~~ €~~15 million, which can be utilized~~159, changes in the form of cash, guarantees, or as credit lines for derivatives trading and settlement risks. Borrowings are subject to a variable interest rate of the European Overnight Indexed Average plus 1.0%. The commitment fee on the unused portion related to cash or guarantees was reduced from 0.5% to 0.38%.

In October 2006, our $600 million, multi-currency five-year revolving credit facility was amended (the “First Amendment”). The First Amendment reduced applicable margins and fees under the revolving credit facility as determined by debt ratings issued by third party rating agencies. Based upon current third-party debt ratings, the interest rate on U.S. dollar denominated borrowings was reduced by 0.23% from the then current rate of LIBOR plus 0.63%. In addition, the commitment fee on the unused portion of the revolving credit facility was reduced from 0.13% to 0.10%. No other changes were made to the revolving credit facility during 2006. We expect the interest rate deduction will decrease interest expense by approximately $1 million going forward.~~Assuming current debt levels and interest rates, we expect annual interest expense to be approximately $24 million to $26 million.~~

~~Stock-Based Compensation~~

Prior to January 1, 2006, we accounted for our stock-based compensation plans under SFAS 123. As permitted under this standard, compensation cost was recognized using the intrinsic value method in accordance with APB 25 and related interpretations. During the quarter and nine-months ended September 30, 2005, we recognized $1.0 million and $3.6 million of stock-based compensation expense in accordance with APB 25 accounting, respectively. On January 1, 2006, we adopted SFAS 123R using the modified prospective transition method. Prior periods were not restated to reflect the impact of adopting the new standard. After adoption of SFAS 123R, we recognized a total of $5.0 million and $15.0 million of stock-based compensation expense for the quarter and nine-months ended September 30, 2006, respectively, which includes compensation expense for all share-based payments granted on or prior to, but not yet vested as of December 31, 2005, based on the grant date fair value ~~determined~~are recognized in ~~accordance with the original provisions of~~earnings. SFAS 123, and compensation cost for all share-based payments granted on or subsequent to January 1, 2006, based on the grant date fair value determined in accordance with the provisions of SFAS 123R. During 2006 and 2005, the Company used a lattice-based model to measure fair value. We currently estimate that we will recognize approximately $21 to $22 million of total stock-based compensation expense during 2006 as a result of the adoption of SFAS 123R. The weighting of the expense will be heavier in the fourth quarter of 2006 versus the first three quarters given our stock option grants

have historically occurred in the fourth quarter of each year. The total unrecognized stock-based compensation cost as of September 30, 2006 was $21.3 million, and will be recognized over a weighted average of 1.8 years.

~~Recent Accounting Developments~~

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS 157159 is effective for ~~our~~ fiscal ~~year~~years beginning ~~January 1,~~after November 15, 2007. We are currently evaluating the potential impact of the adoption of SFAS ~~157~~159 on our future consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires an employer that sponsors one or more single-employer defined benefit plans to (a) recognize the overfunded or underfunded status of a benefit plan in its statement of financial position, (b) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, “Employers’ Accounting for Pensions,” or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” (c) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end, and (d) disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The impact of the recognition and disclosure provisions of SFAS 158 ~~is effective for~~was reflected in our ~~fiscal year ending~~ December 31, ~~2006.~~2006 consolidated financial statements. The measurement provisions will be adopted during 2008 in accordance with the statement’s requirements. We are currently evaluating the impact of the adoption of the measurement provisions of SFAS 158 on our ~~year-end~~future consolidated financial statements.

In September 2006, the ~~Securities and Exchange Commission~~FASB issued SFAS No. 157, “Fair Value Measurements” (“~~SEC”) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”~~SFAS 157”). ~~SAB 108 provides interpretive guidance on how~~SFAS 157 clarifies the ~~effects of the carryover or reversal of prior year misstatements~~principle that fair value should be ~~considered in quantifying~~based on the assumptions market participants would use when pricing an asset or liability and establishes a ~~current year misstatement. The SEC staff believes~~fair value hierarchy that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108prioritizes the information used to develop those assumptions. SFAS 157 is effective for ~~our~~ fiscal ~~year ending December 31, 2006. The adoption of SAB 108 will only impact our consolidated financial statements if we have misstatements in the future.~~

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with this Interpretation is a two-step process. The first step is recognition, requiring a company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step is measuring the amount of benefit to recognize in the financial statements. FIN 48 is effective for our fiscal yearyears beginning ~~January 1,~~after November 15, 2007. We are currently evaluating the potential impact of the adoption of ~~FIN 48~~SFAS 157 on our future consolidated financial statements.

~~In June 2006, the FASB ratified Emerging Issues Task Force Issue No. 06-3 (“EITF 06-3”), “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the~~

Income Statement (That Is, Gross versus Net Presentation).” The scope of EITF 06-3 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer. This issue states that a company may adopt a policy of presenting taxes either gross within revenue or net. If these taxes are significant, a company is required to disclose its accounting policy and the amount of taxes that are recognized on a gross basis, if applicable. EITF 06-3 is effective for our fiscal year beginning January 1, 2007. We are currently evaluating the impact of the adoption of EITF 06-3 on our future consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company’s ~~2005~~2006 Annual Report on Form 10-K contains quantitative and qualitative disclosures about market risk as of and for the year ended December 31, 2006. No material changes in the Company’s market risk have occurred since December 31, ~~2005.~~2006.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. Our management, including our Chief Executive Officer, ~~and our~~ Chief Financial Officer and Chief Accounting Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer, Chief Financial Officer and Chief ~~Financial~~Accounting Officer concluded that as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective to ensure that information we are required to disclose in our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and to ensure that information we are required to disclose in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting~~Reporting~~. ~~There were no significant~~ In January we completed implementation of a new financial reporting and consolidation system. Except for the described system implementation, there have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended ~~September 30, 2006.~~March 31, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2819

PART II

ITEM 1A. RISK FACTORS.

The Risk Factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2005,~~2006, have not materially changed other than as set forth below.

~~Changes~~Certain of our contracts contain audit provisions.

Certain of our contracts, including those with various group purchasing organizations, provide for periodic audits of our performance to ensure adherence with certain provisions in the agreements with these organizations. While the Company believes it uses customary efforts and systems to assure compliance with its contractual obligations, it is reasonably possible that liabilities could result from these audits. However, to date such audits have not had a material adverse effect on our business ~~strategy or plans may adversely affect our operating results~~ and ~~financial condition.~~

In early March the Company replaced the warehouse management system at its Delaware Distribution Center (“DDC”) with the ultimate goal of providing enhanced capabilities and services to its customers. Initially the implementation fell short of expectations and shipments to a significant number of U.S. and Puerto Rico customers were delayed. The Company has applied additional resources to restore normal product delivery schedules while process changes at the DDC were implemented. Customer service is a key competitive factor in the diagnostics industry. If customer confidencewe do not expect that the ~~Company can reliably deliver products becomes diminished, establishing new customer relationships and securing contract renewals~~resolution of such audits will ~~become more difficult.~~have a material impact on our results of operations, cash flows, or statement of financial position.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF ~~PROCEEDS.~~PROCEEDS

The following table provides information about purchases made by or on behalf of the Company or our affiliated purchasers during the quarter ended ~~September 30, 2006~~March 31, 2007, of shares of equity that are registered by the Company pursuant to Section 12 of the Exchange Act.

Maximum

Total Number

Number of

of Shares

Shares that

Purchased as

May Yet Be

Total

Average

Part of Publicly

Purchased

Number of

Price

Announced

Under the

Shares

Paid per

Plans or

Plans or

Period

Purchased(a)

Share

Programs(a)

Programs(a)

July 1 – 31, 2006

469,434

$
39.96

469,434

August 1 – 31, 2006

161,055

$
39.56

161,055

September 1 – 30, 2006

130,644

$
40.91

130,644

Total

761,133

$
40.04

761,133

2,974,343

Period	Total Number of Shares Purchased(a)		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(a)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(a)
January 1 - 31, 2007		461,500		$	41.00		461,500		—
February 1 - 28, 2007		505,351		$	41.71		505,351		—
March 1 - 31, 2007		252,577		$	42.24		252,577		—
Total		1,219,428		$	41.55		1,219,428		2,975,538

(a) In ~~2005, the Company announced that the Board of Directors approved a stock repurchase program of up to 5 million shares. In February~~December 2006, ~~the~~our Board of Directors authorized ~~the Company~~us to purchase an incremental 5five million shares of common stock under ~~this~~our stock repurchase program. ~~The remaining~~This action follows two prior authorizations of five million shares ~~available for purchase reflects~~each, the ~~2006 increase~~first in ~~authorized shares.~~April 2005 and the second in February 2006.

2920

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2007 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934		~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
		~~For the quarterly period ended September 30, 2006~~
		OR
o		~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
		For the transition period from to

Delaware		36-3989270
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)
1717 Deerfield Road,		60015
Deerfield Illinois		(Zip Code)
(Address of Principal Executive Offices)

	Options		Weighted Average Exercise Price
Options outstanding at December 31, 2005	8,173,980			$	19.57
Options granted	128,550			$	38.18
Options exercised	(1,557,241	)		$	8.77
Options forfeited	(78,837	)		$	26.95
Options outstanding at September 30, 2006	6,666,452			$	22.37

	Options Outstanding
Range of Exercise Price	Number of Options		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$7.36 – $9.20		2,739,085		6.5		$	8.25
$9.21 – $27.86		1,752,283		8.0		$	27.61
$27.87 – $41.34		2,175,084		9.0		$	35.93
$7.36 – $41.34		6,666,452		7.7		$	22.37

	Exercisable Options
Range of Exercise Price	Number of Options		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$7.36 – $9.20		2,103,179		6.4		$	7.96
$9.21 – $27.86		544,001		8.0		$	27.07
$27.87 – $41.34		29,078		8.6		$	31.88
$7.36 – $41.34		2,676,258		6.7		$	12.10

		PAGE
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets (unaudited) as of ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005~~2006		3
	Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited) for the quarters ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~		4
	~~Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited) for the nine-months ended September 30, 2006 and 2005~~	5
	Condensed Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the ~~nine-months~~quarter ended ~~September 30, 2006~~March 31, 2007	6	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~nine-months~~quarters ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~	7	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	8	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	19	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28	19
Item 4.	Controls and Procedures	28	19
PART II	OTHER INFORMATION
Item 1A.	Risk Factors	29	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29	20
Item 6.	Exhibits	30	21
	Signature	31	22

	September 30, 2006			December 31, 2005
	(unaudited)			(unaudited)
	(Dollars in millions, except per share data)
Assets
Current assets:
Cash and cash equivalents		$	24.8		$	34.6
Accounts receivable, net		346.6			315.7
Inventories		190.3			165.0
Prepaid expenses and other current assets		31.1			24.5
Deferred income taxes		64.1			54.2
Total current assets		656.9			594.0
Property, plant and equipment, net		457.9			429.5
Deferred income taxes		177.9			199.3
Identifiable intangible assets, net		343.1			356.9
Goodwill		176.2			187.8
Other assets		30.1			33.1
Total assets		$	1,842.1		$	1,800.6
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt		$	22.6		$	5.5
Accounts payable		78.0			75.4
Accrued liabilities		254.7			248.8
Total current liabilities		355.3			329.7
Long-term debt		402.0			386.0
Deferred income taxes		23.1			16.6
Other liabilities		161.2			159.9
Total liabilities		941.6			892.2
Commitments and contingencies
Shareholders’ equity:
Common Stock: $0.01 par value; 150,000,000 shares authorized at September 30, 2006 and December 31, 2005, respectively; 85,748,507 and 88,029,061 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively		0.9			0.9
Additional paid-in capital		597.0			708.8
Unearned stock-based compensation		—			(3.6		)
Retained earnings		284.0			196.3
Accumulated other comprehensive income		18.6			6.0
Total shareholders’ equity		900.5			908.4
Total liabilities and shareholders’ equity		$	1,842.1		$	1,800.6

	Common Stock					Additional Paid-in				Unearned Stock-Based				Retained				Accumulated Other Comprehensive				Total Shareholders’
	Shares		Amount			Capital				Compensation				Earnings				Income				Equity
Balance at December 31, 2005	88,029,061			$	0.9		$	708.8			$	(3.6	)		$	196.3			$	6.0			$	908.4
Net income	—			—			—				—				100.7				—				100.7
Dividends paid ($0.15 per common share)	—			—			—				—				(13.0		)		—				(13.0		)
Repurchase of common stock	(3,999,863	)		—			(152.5		)		—				—				—				(152.5		)
Issuance of stock - employee share purchase program	162,068			—			5.2				—				—				—				5.2
Impact of adopting SFAS 123R	—			—			(3.6		)		3.6				—				—				—
Exercise of stock options	1,557,241			—			13.7				—				—				—				13.7
Stock-based compensation expense	—			—			15.0				—				—				—				15.0
Excess tax benefits from stock-based compensation	—			—			10.4				—				—				—				10.4
Net loss on derivative instruments and marketable securities, net of income taxes	—			—			—				—				—				(2.1		)		(2.1		)
Cumulative translation adjustment	—			—			—				—				—				14.7				14.7
Balance at September 30, 2006	85,748,507			$	0.9		$	597.0			$	—			$	284.0			$	18.6			$	900.5

	September 30, 2006			December 31, 2005			March 31, 2007			December 31, 2006
Raw materials		$	30.7		$	27.3		$	39.4		$	33.4
Work-in-process		34.8			33.0			43.1			37.2
Finished products		124.8			104.7			135.3			119.1
Total inventories		$	190.3		$	165.0		$	217.8		$	189.7

	2006			2005
Expected life (years)		5			5
Risk-free interest rate		4.3	%		4.2	%
Dividend yield		0.3	%		0.3	%
Volatility		30	%		30	%

	Quarter Ended September 30, 2005				Nine-Months Ended September 30, 2005
Net income available for common stock as reported		$	48.3			$	90.6
Add: Total stock-based employee compensation expense included in reported net income, net of related tax effects		0.7				2.9
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(2.9		)		(9.0		)
Pro forma net income		$	46.1			$	84.5
Basic as reported		$	0.54			$	1.02
Basic pro forma		$	0.52			$	0.95
Diluted as reported		$	0.53			$	0.99
Diluted pro forma		$	0.49			$	0.91

	Nine-months Ended
	September 30, 2006			September 30, 2005			% Change
GCM-Americas		$	663.6		$	625.4		6.1	%
GCM-International		602.3			595.8			1.1	%
Global Operations		17.9			16.1			11.2	%
Total		$	1,283.8		$	1,237.3		3.8	%

~~(a)~~	~~Exhibits~~
	~~10.1~~		First Amendment to Credit Agreement effective October 16, 2006, by and among DadeBehring holdings, Inc. Dade Behring Inc., the Guarantors, the Lenders, Citicorp N.A., as Syndication Agent and Bank of America, N.A., as Administrative Agent for the Lenders
	31.1		Certification of James W.P. Reid-Anderson, Chairman, President and Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.

31.2		Certification of John M. Duffey, Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.

32.1		Certification of James W.P. Reid-Anderson, Chairman, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~200~~2002.

32.2		Certification of John MM. Duffey, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	DADE BEHRING HOLDINGS, INC.
	By:	/s/ JOHN M. DUFFEY
		John M. Duffey
		Chief Financial Officer
~~October 30, 2006~~May 1, 2007

EXHIBIT NUMBER			EXHIBIT TITLE
~~10.1~~		First Amendment to Credit Agreement effective October 16, 2006, by and among Dade Behring holdings, Inc. Dade Behring Inc., the Guarantors, the Lenders, Citicorp N.A., as Syndication Agent and Bank of America, N.A., as Administrative Agent for the Lenders31.1
~~31.1~~		Certification of James W.P. Reid-Anderson, Chairman, President and Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.
	31.2		Certification of John M. Duffey, Senior Vice President and Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.
	32.1		Certification of James W.P. Reid-Anderson, Chairman, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2		Certification of John M. Duffey, Senior Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.