BIO RAD LABORATORIES INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended June 30, 2004.

OR

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

For the transition period from ___________to ______________.

Commission file number 1-7928

BIO-RAD LABORATORIES, INC.
(Exact name of registrant as specified in its charter)

Delaware 94-1381833

(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

1000 Alfred Nobel Drive, Hercules, California 94547
(Address of principal executive offices) (Zip Code)

(510) 724-7000
(Registrant's telephone number, including area code)

No Change
Former name, former address and former fiscal year, if changed since
last report.

Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days. Yes X No _____

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule12b-2 of the Exchange Act). Yes X No_____

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date--

Shares Outstanding
Title of each Class at July 30, 2004

Class A Common Stock,
Par Value $0.0001 per share 20,904,467

Class B Common Stock,
Par Value $0.0001 per share 4,844,440

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

BIO-RAD LABORATORIES, INC.

Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)

----------------------------------------

1

BIO-RAD LABORATORIES, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
-------------------------
June 30, December 31,
2004 2003
-------------------------
ASSETS:
Cash and cash equivalents $ 155,329 $ 148,642
Accounts receivable, net 234,003 234,085
Inventories, net 188,564 190,258
Prepaid expenses, taxes and other current assets 82,491 97,893
--------- ---------
Total current assets 660,387 670,878
Net property, plant and equipment 186,233 179,123
Goodwill, net 72,741 69,503
Purchased intangibles 33,149 12,251
Other assets 70,250 55,103
--------- ---------
Total assets $1,022,760 $ 986,858
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 67,340 $ 53,995
Accrued payroll and employee benefits 59,464 71,650
Notes payable and current maturities of long-term debt 9,987 10,423
Sales, income and other taxes payable 12,634 20,833
Other current liabilities 61,712 77,425
--------- ---------
Total current liabilities 211,137 234,326
Long-term debt, net of current maturities 226,098 225,835
Deferred tax liabilities 15,962 13,991
Other long-term liabilities 25,043 16,899
--------- ---------
Total liabilities 478,240 491,051

STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 par value, 7,500,000 shares
authorized; none outstanding -- --
lass A common stock, $0.0001 par value, 80,000,000
shares authorized; outstanding - 20,876,552
at June 30, 2004 and 50,000,000 shares authorized;
outstanding- 20,709,127 at December 31, 2003 2 2
Class B common stock, $0.0001 par value, 20,000,000
shares authorized; outstanding- 4,844,740 at
June 30, 2004 and 4,834,290 at December 31, 2003 1 1
Additional paid-in capital 45,677 42,164
Retained earnings 465,853 421,012
Accumulated other comprehensive income:
Currency translation and other 32,987 32,628
--------- ---------
Total stockholders' equity 544,520 495,807
--------- ---------
Total liabilities and stockholders' equity $1,022,760 $ 986,858
========= =========

The accompanying notes are an integral part of these statements.
2

BIO-RAD LABORATORIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
-------------------------
Six Months Ended
June 30,
2004 2003
------------------------
Cash flows from operating activities:
Cash received from customers $ 517,385 $ 499,425
Cash paid to suppliers and employees (440,664) (409,833)
Interest paid (9,866) (9,164)
Income tax payments (20,860) (31,632)
Miscellaneous receipts 3,568 (149)
Discontinued operations (2,019) (2,055)
--------- ---------
Net cash provided by operating activities 47,544 46,592

Cash flows from investing activities:
Capital expenditures, net (29,057) (25,368)
Payments for acquisitions and investments (27,540) --
Proceeds from divestitures 19,775 --
Payments on the purchase of intangible assets (6,000) --
Net purchases of marketable securities (1,811) (2,168)
Foreign currency economic hedges, net (802) (6,783)
--------- ---------
Net cash used in investing activities (45,435) (40,276)

Cash flows from financing activities:
Net borrowings (repayments) under
line-of-credit arrangements (48) 2,924
Long-term borrowings -- 10,835
Payments on long-term debt (212) (18,109)
Proceeds from issuance of common stock 3,513 3,078
--------- ---------
Net cash provided by (used in) financing activities 3,253 (1,272)

Effect of exchange rate changes on cash 1,325 (3,949)
--------- ---------
Net increase in cash and cash equivalents 6,687 1,095
Cash and cash equivalents at beginning of period 148,642 27,733
--------- ---------
Cash and cash equivalents at end of period $ 155,329 $ 28,828
========= =========

Reconciliation of net income to net cash provided by operating
activities:
Income from continuing operations $ 42,891 $ 48,632
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 22,881 20,495
Decrease in accounts receivable (5,008) 15,123
Increase in inventories (4,603) (11,065)
(Increase) decrease in other current assets 14,334 (6,743)
Decrease in accounts payable and
other current liabilities (24,499) (20,571)
Increase (decrease) in income taxes payable 236 (13,875)
Other 2,799 15,908
--------- ---------
Net cash provided by continuing operations 49,031 47,904
Discontinued operations (1,487) (1,312)
--------- ---------
Net cash provided by operating activities $ 47,544 $ 46,592
========= =========

The accompanying notes are an integral part of these statements.
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BIO-RAD LABORATORIES, INC.

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial
statements of Bio-Rad Laboratories, Inc. ("Bio-Rad" or the
"Company"), have been prepared in accordance with accounting
principles generally accepted in the United States of America and
reflect all adjustments which are, in the opinion of management,
necessary to fairly state the results of the interim periods
presented. All such adjustments are of a normal recurring nature.
Results for the interim period are not necessarily indicative of the
results for the entire year. The condensed consolidated financial
statements should be read in conjunction with the notes to the
consolidated financial statements contained in the Company's Annual
Report for the year ended December 31, 2003. Certain prior year
items have been reclassified to conform to the current year's
presentation.

2. INVENTORIES

The principal components of inventories are as follows (in
millions):

June 30, December 31,
2004 2003
-------- --------
Raw materials $ 45.8 $ 38.8
Work in process 36.1 38.8
Finished goods 106.7 112.7
-------- --------
$ 188.6 $ 190.3
======== ========

3. PROPERTY, PLANT AND EQUIPMENT

The principal components of property, plant and equipment are as
follows (in millions):
June 30, December 31,
2004 2003
-------- --------
Land and improvements $ 9.9 $ 9.9
Buildings and leasehold
improvements 108.0 106.0
Equipment 287.7 273.1
-------- --------
405.6 389.0
Accumulated depreciation (219.4) (209.9)
-------- --------
Net property, plant and equipment $ 186.2 $ 179.1
======== ========

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4. GOODWILL AND INTANGIBLES

The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets" as of
January 1, 2002, which provides that goodwill is no longer subject
to amortization over its useful life. Goodwill is subject to an
annual assessment for impairment applying a fair-value based test.

As part of the acquisition of the controls business of Hematronix
in March 2004, (see Note 5) the Company added $3.2 million of
Goodwill and $9.3 million of intangible assets including in-
process research and development. Other than in-process research
and development, these intangible assets will be amortized over 5-
7.5 years at an estimated annual amount of $1.3 million.

In June 2004, the Company purchased $14.0 million of intangible
assets related to licensing agreements. The Company paid $6.0
million upon acquisition and will pay the remaining $8.0 million
over the next two years. These intangible assets will be
amortized over 15.5 years at an estimated annual amount of $0.9
million.

5. ACQUISITIONS AND INVESTMENTS

In March 2004, the Company purchased for cash the controls
business of Hematronix, Inc. of Plano, Texas. Bio-Rad acquired
tangible and intangible assets and assumed certain liabilities for
approximately $17 million. Acquired in-process research and
development of $0.9 million was charged to expense in the first
quarter.

During the first six months of 2004, the Company invested an
additional $10.9 million in Sartorius AG ("Sartorius"), of
Goettingen, Germany, a process technology supplier to the
biotechnology, pharmaceutical, chemical and food and beverage
industries. At June 30, 2004, the Company owned approximately 21%
of the outstanding voting shares of Sartorius. The Sartorius
family trust and Sartorius family members hold approximately 60%
of the outstanding voting shares. Bio-Rad does not have any
representative or designee on Sartorius' board of directors,
nor does it have any other influence over the operating and
financial policies of Sartorius. Therefore, the Company accounts
for this investment using the cost method.

In June 2004, the Company signed a letter of intent to acquire MJ
GeneWorks, Inc. and its subsidiaries. MJ GeneWorks is the parent
company of MJ Research, Inc. of Waltham, Massachusetts, a
biotechnology company specializing in thermal cycling
instrumentation and reagents used to amplify DNA. Under the
proposed agreement, Bio-Rad will acquire tangible and intangible
assets for approximately $47 million in cash and assume certain
liabilities. The acquisition is subject to completion of a
definitive purchase agreement which has not been completed as of the
date of this filing.

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6. DISCONTINUED OPERATIONS

On May 31, 2004, the Company sold a group of assets and transferred
certain liabilities that comprise a substantial portion of the
Company's confocal microscopy product line to Carl Zeiss Jena GMBH.
Proceeds received were $19.8 million and costs included net assets
of $5.7 million, lease settlements of $6.7 million and severance,
legal and other costs of $1.7 million resulting in a pre-tax gain of
$5.7 million. Payments on the lease liability will continue until
2008. All other costs should be settled by December 31, 2004.

As required by SFAS 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," with the disposition of this asset group, the
sales and expenses related to this product line for current and
prior periods results have been reclassified as a separate line on
the income statement titled "Discontinued Operations."

The discontinued operations generated net sales of $2.4 million and
$4.2 million for the three months ended June 30, 2004, and 2003.
Net sales for the six months ended June 30, 2004 and 2003 were $6.3
million and $9.8 million, respectively. The pre-tax operating
losses attributable to the discontinued operations for the three
months ended for June 30, 2004 and 2003 were $1.2 million and $1.5
million, respectively. The pre-tax operating losses attributable to
the discontinued operations for the six months ended June 30, 2004
and 2003 were $2.0 million and $2.1 million, respectively.

7. PRODUCT WARRANTY LIABILITY

The Company warrants certain equipment against defects in design,
materials and workmanship, generally for one year. Upon shipment
of that equipment, the Company establishes, as part of cost of
goods sold, a provision for the expected cost of such warranty.

Components of the product warranty liability included in Other
current liabilities and Other long-term liabilities, were as
follows (in millions):

2004 2003
------ ------
January 1, $ 9.1 $ 7.1
Provision for warranty 5.5 5.8
Actual warranty costs (6.4) (4.6)
------ ------
June 30, $ 8.2 $ 8.3
====== ======

8. LONG-TERM DEBT

In August 2003, the Company sold $225.0 million principal amount
of Senior Subordinated Notes due 2013. The notes pay a fixed rate
of interest of 7.5% per year. During 2003, the Company also
negotiated a new five-year $150 million revolving credit facility.
Interest on the facility varies based upon a number of factors
including the duration of the specific borrowing and is based upon

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either the Eurodollar, the Federal Funds effective or the Company
corporate-based rate.

9. EARNINGS PER SHARE

The Company calculates basic earnings per share (EPS) and diluted
EPS in accordance with SFAS No. 128, "Earnings per Share." Basic
EPS is computed by dividing net income (loss) by the weighted
average number of common shares outstanding for that period.
Diluted EPS takes into account the effect of dilutive instruments,
such as stock options, and uses the average share price for the
period in determining the number of common stock equivalents that
are to be added to the weighted average number of shares
outstanding. Common stock equivalents are excluded from the
diluted earnings per share calculation if the effect would be anti-
dilutive.

Weighted average shares used for diluted earnings per share
include the dilutive effect of outstanding stock options to
purchase 805,000 and 955,000 shares for the three months ended
June 30, 2004 and 2003, respectively. Options to purchase 5,000
shares of common stock were outstanding during the three month
period ended June 30, 2004, but were excluded from the computation
of diluted earnings per share because the exercise price of the
options was greater than the average market price of the common
shares. There were no anti-dilutive options for the three months
ended June 30, 2003.

Weighted average shares used for diluted earnings per share
include the dilutive effect of outstanding stock options to
purchase 812,000 and 878,000 shares for the six months ended June
30, 2004 and 2003, respectively. There were 4,000 anti-dilutive
options for the six months ended June 30, 2004. There were no anti-
dilutive options for the six months ended June 30, 2003.

10. STOCK OPTIONS AND PURCHASE PLANS

Stock Option Plans
------------------

The Company maintains incentive and non-qualified stock option
plans for officers and certain other key employees. Under the
2003 Stock Option Plan, options to purchase 306,990 shares were
granted during the six months ended June 30, 2004. Under the 1994
Stock Option Plan, options to purchase 302,993 shares were granted
during the six months ended June 30, 2003. No options have been
issued to non-employees.

The Company applies the recognition and measurement principles of
APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for those plans. No
stock-based employee compensation expense is reflected in net
income as all options granted under those plans had an exercise
price equal to or greater than the market value of the underlying
common stock on the date of grant.

7

Had compensation cost for the Company's stock option and stock
purchase plans been accounted for under SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company's pro forma net income
and earnings per share would have been as follows (in millions,
except per share data):

Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
------ ------ ------ ------
Net income, as reported $ 22.9 $ 21.0 $ 44.8 $ 47.3
Deduct: Total stock based employee
compensation expense determined
under fair value methods for all
awards, net of related tax effects 0.6 0.7 1.2 1.2
------ ------ ------ ------
Pro forma net income 22.3 20.3 43.6 46.1

Earnings per share:
Basic - as reported $ 0.89 $ 0.83 $ 1.75 $ 1.87
====== ====== ====== ======
Basic - pro forma $ 0.87 $ 0.80 $ 1.70 $ 1.82
====== ====== ====== ======

Diluted - as reported $ 0.86 $ 0.80 $ 1.69 $ 1.81
====== ====== ====== ======
Diluted - pro forma $ 0.84 $ 0.77 $ 1.65 $ 1.76
====== ====== ====== ======

For purposes of the pro forma disclosures, the estimated fair value
of the options granted is amortized to expense over the options'
vesting period. There were no options granted during the three month
periods ended June 30, 2004 and 2003. The fair value of options
granted was estimated using the Black-Scholes model with the
following weighted average assumptions:

Six Months
Ended June 30,
2004 2003
------ ------
Expected volatility 39% 37%
Risk-free interest rate 2.73% 2.65%
Expected life (in years) 4.3 4.2
Expected dividend -- --

The weighted average fair value of employee stock options granted
during the six months ended June 30, 2004 and 2003 was $18.74 and
$11.85, respectively.

Employee Stock Purchase Plan
----------------------------

The Company has an employee stock purchase plan that provides that
eligible employees may contribute up to 10% of their compensation up
to $25,000 annually toward the quarterly purchase of shares of the
Company's Class A common stock. The employees' purchase price is
85% of the lesser of the fair market value of the stock on the first
business day or the last business day of each calendar quarter. No

8

compensation expense is recorded in connection with the plan. The
Company has authorized the sale of 1,890,000 shares of common stock
under the plan.

The Company sold 14,729 shares for $0.7 million and 17,257 shares
for $0.5 million under the plan to employees for the three months
ended June 30, 2004 and 2003, respectively. The Company sold 32,002
shares for $1.5 million and 35,898 shares for $1.1 million under the
plan to employees for the six months ended June 30, 2004 and 2003,
respectively. At June 30, 2004, 237,237 shares remain authorized
under the plan.

The fair value of the employees' purchase rights was estimated using
the Black-Scholes model with the following assumptions:

Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
------ ------ ------ ------
Expected volatility 19.55% 51.91% 20.02% 45.22%
Risk free interest rate 0.93% 1.03% 0.90% 1.02%
Expected life (in years) 0.25 0.25 0.25 0.25
Expected dividend -- -- -- --

The weighted average fair value of those purchase rights granted
during the three months ended June 30, 2004 and 2003 was $10.69 and
$8.73, respectively. The weighted average fair value of those
purchase rights granted during the six months ended June 30, 2004
and 2003 was $10.89 and $8.39, respectively.

11. FOREIGN EXCHANGE LOSSES

Foreign exchange losses include premiums and discounts on forward
foreign exchange contracts and mark-to-market adjustments on foreign
exchange contracts.

12. OTHER INCOME AND EXPENSE

Other (income) and expense, net includes the following components
(in millions):

Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
------ ------ ------ ------

Write-down of investment $ -- $ -- $ 2.4 $ --
Interest income (0.4) (0.5) (1.0) (1.1)
Other (0.5) (0.4) (2.1) (0.4)
Total other (income) ------ ------ ------ ------
and expense, net $ (0.9) $ (0.9) $ (0.7) $ (1.5)
====== ====== ====== ======

The six months ended June 30, 2004 includes $2.4 million of expense
for an other-than-temporary impairment of equity interest in
Instrumentation Laboratory, S.p.A., which is accounted for using the
cost method.

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13. COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income" requires disclosure
of total non-stockholder changes in equity, which include unrealized
gains and losses on securities classified as available-for-sale
under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", foreign currency translation adjustments
accounted for under SFAS No. 52, "Foreign Currency Translation" and
minimum pension liability adjustments made pursuant to SFAS No. 87,
"Employers' Accounting for Pensions."

The components of the Company's total comprehensive income were
(in millions):

Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
------ ------ ------ ------
Net income, as reported $ 22.9 $ 21.0 $ 44.8 $ 47.3
Currency translation
adjustments 0.3 11.1 (3.3) 14.5
Net unrealized holding gains 2.3 0.7 4.4 0.6
------ ------ ------ ------
Total comprehensive income $ 25.5 $ 32.8 $ 45.9 $ 62.4
====== ====== ====== ======

14. SEGMENT INFORMATION

Information regarding industry segments for the three months ended
June 30, 2004 and 2003 is as follows (in millions):

Life Clinical Other
Science Diagnostics Operations
------- ----------- ----------
Segment net sales 2004 $ 113.9 $ 144.4 $ 2.3
2003 $ 110.1 $ 127.3 $ 1.9

Segment profit(loss) 2004 $ 11.9 $ 18.0 $ --
2003 $ 17.4 $ 15.7 $ (0.1)

Information regarding industry segments for the six months ended
June 30, 2004 and 2003 is as follows (in millions):

Life Clinical Other
Science Diagnostics Operations
------- ----------- ----------
Segment net sales 2004 $ 235.5 $ 283.3 $ 4.5
2003 $ 222.0 $ 253.4 $ 4.3

Segment profit 2004 $ 27.7 $ 34.4 $ --
2003 $ 39.6 $ 34.5 $ 0.1

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Segment results are presented in the same manner as the Company
presents its operations internally to make operating decisions and
assess performance. Net corporate operating income (expense) consists
of receipts and expenditures that are not the primary responsibility
of segment operating management.

Interest expense is charged to segments based on the carrying amount
of inventory and receivables employed by that segment. The following
reconciles total segment profit to consolidated income from continuing
operations before taxes (in millions):

Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
------ ------ ------ ------
Total segment profit $29.9 $33.0 $62.1 $74.2
Foreign exchange losses (0.5) (0.6) (0.7) (1.3)
Net corporate operating,
interest and other income and
expense not allocated to segments (1.0) (0.5) (1.3) (1.7)
Other income and (expense),net 0.9 0.9 0.7 1.5
Consolidated income before taxes ------ ------ ------ ------
from continuing operations $29.3 $32.8 $60.8 $72.7
====== ====== ====== ======

15. LEGAL PROCEEDINGS

The Company is party to various claims, legal actions and complaints
arising in the ordinary course of business. The Company does not
believe that any ultimate liability resulting from any of these
lawsuits will have a material adverse effect on its results of
operations, financial position or liquidity. However, the Company
cannot give any assurance regarding the ultimate outcome of these
lawsuits and their resolution could be material to the Company's
operating results for any particular period, depending upon the level
of income for the period.

Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition.

This discussion should be read in conjunction with the information
contained in both the Company's Consolidated Financial Statements
for the year ended December 31, 2003 and this report for the quarter
ended June 30, 2004.

Other than statements of historical fact, statements made in this
report include forward looking statements, such as statements with
respect to the Company's future financial performance, operating
results, plans and objectives that involve risk and uncertainties.
We have based these forward looking statements on our current
expectations and projections about future events. However, actual
results may differ materially from those currently anticipated
depending on a variety of risk factors including among other things:
our ability to successfully develop and market new products; our
reliance on and access to necessary intellectual property; our
ability to service our debt; competition in and government

11

regulation of the industries in which we operate; and the monetary
policies of various countries. We undertake no obligation to
publicly update or revise any forward looking statements, whether as
a result of new information, future events, or otherwise.

Overview. We are a multinational manufacturer and worldwide
distributor of Life Science research and Clinical Diagnostics
products. Our business is organized into two primary segments, Life
Science and Clinical Diagnostics, with the mission to provide
scientists with specialized tools needed for biological research and
clinical diagnostics. We sell more than 8,000 products and services
to a diverse client base comprised of scientific research,
healthcare, industry, education and government customers worldwide.
We manufacture and supply our customers with a range of reagents,
apparatus and equipment to separate complex chemical and biological
materials and to identify, analyze and purify components. Because
our customers require replication of results from experiments and
tests, we estimate that approximately 70% of our revenues are
recurring. Approximately 36% of our second quarter 2004
consolidated net sales are from the United States and approximately
64% are international sales largely denominated in local currency
with the majority of these sales in Euros, Yen and British Sterling.
As a result, our consolidated sales expressed in dollars benefit
when the US dollar weakens and suffers when the dollar strengthens
in relation to other currencies. Currency fluctuations benefited
our consolidated sales expressed in US dollars in the current
quarter ended June 30, 2004 as well as the prior period.

On a currency neutral basis, the diagnostic market is growing around
3% comprised of specialty areas experiencing significant growth
offset by flat to declining growth in the routine testing market.
Pricing for routine diagnostic tests is impacted by declining
reimbursement schedules particularly in the US, Japan and Germany.

The ambient growth of the life science market is currently about 5%
on a currency neutral basis. Some spending on government sponsored
research has slowed or is being deferred especially in the US and
Japan. Large capital instrumentation systems continue to lag the
ambient growth rate while reagents are rising faster than that
average. The market for BSE tests continues to be very dynamic as
established countries consolidate testing resulting in competitive
pricing pressures and lower selling prices. We anticipate that
growth in BSE testing will come from the opening of new testing
markets.
12

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

Three Months Six Months Year Ended
Ended June 30, Ended June 30, December 31,
2004 2003 2004 2003 2003
----- ----- ----- ----- -----
Net sales 100.0 100.0 100.0 100.0 100.0
Cost of goods sold 42.6 43.6 42.9 42.5 43.2
----- ----- ----- ----- -----
Gross profit 57.4 56.4 57.1 57.5 56.8
Selling, general and
administrative expense 34.6 32.2 33.9 31.7 32.4
Product research and
development expense 9.8 9.2 9.5 8.9 9.3
Income from continuing
operations 7.8 9.2 8.2 10.1 7.9
Discontinued operations 1.0 (0.4) 0.4 (0.2) (0.1)
Net income 8.8 8.8 8.6 9.9 7.8

Critical Accounting Policies

As previously disclosed in the Company's Annual Report on
Form 10-K for the year ended December 31, 2003, the Company has
identified accounting for income taxes, valuation of long-lived
and intangible assets and goodwill, and valuation of
inventories as the accounting policies critical to the
operations of the Company. For a full discussion of these
policies, please refer to the Form 10-K.

Three Months Ended June 30, 2004 Compared to
Three Months Ended June 30, 2003
--------------------------------

Corporate Results -- Sales, Margins and Expenses

Net sales (sales) in the second quarter of 2004 rose 8.9% to $260.5
million from $239.3 million in the second quarter of 2003. The
positive impact to sales from a weakening US dollar represented
$11.2 million. For the Company in total, on a currency neutral
basis, sales grew 4.2% compared to the prior year's quarter. The
Clinical Diagnostics segment sales grew by 13.4% to $144.4 million,
before adjustment to a currency neutral basis, while the Life
Science segment sales grew 3.4%. On a currency neutral basis,
Clinical Diagnostics sales growth was 8.8%, while Life Science sales
declined 1.3%. Clinical Diagnostics sales were driven by its
quality control product line and to a lesser extent its diabetes and
blood virus products. While quality control products did benefit
from the recent Hematronix acquisition, greater than half of its
growth came from existing products. Life Science sales experienced
growth in its multiplex protein array technology, amplification
reagents, and electrophoresis product lines. Sales declined for the
food science products as average selling prices declined in the very

13

competitive BSE market, but at a slower rate. The Company was
recently awarded contracts to provide tests to the US market for
enhanced surveillance testing.

Consolidated gross margins were 57.4% for the second quarter of 2004
compared to 56.4% for the second quarter of 2003 and 56.8% for all
of 2003. Both Life Science and Clinical Diagnostics gross margins
increased when compared to the second quarter of 2003. Life Science
margin improvements are attributable to product sales mix and lower
customer support costs on the segment's BSE product line. Clinical
Diagnostics margins improvements are attributable to product sales
mix and, to a lesser extent, lower compliance costs and the
selective termination of some older products.

Selling, general and administrative expenses (SG&A) represented
34.6% of sales for the second quarter of 2004 compared to 32.2% of
sales for the second quarter of 2003. The Company experienced
significant growth in the rate of spending for advertising,
facilities and professional services for information technology,
legal and financial services associated with intellectual property
rights and government compliance.

Product research and development expense increased 16.1% to $25.5
million in the second quarter of 2004 compared to the prior quarter.
Both Life Science and Clinical Diagnostics increased their research
and development expenditures in absolute dollars. Areas of
development for the Life Science segment are proteomics, process
chromatography, and food safety. Diagnostic development efforts are
focused on expanded tests for its recently announced Bioplex 2200
testing platform, molecular diagnostic tests and expanded software
data management product offerings for its quality control product
line.

Corporate Results - Other Items

Interest expense increased from the prior year by 33%. The increase
is the net effect of the Company increasing its average indebtedness
from $112.1 million at June 30, 2003 to $236.0 million at June 30,
2004. The Company refinanced all of its debt in the second half of
2003, increasing the amount borrowed with more favorable terms,
which included a longer term to maturity and a lower interest rate.

Exchange gains and losses consist of foreign currency transaction
gains and losses and the premiums and discounts on forward foreign
exchange contracts used to manage our foreign exchange risk where
the cost of economic hedging is prohibitive or a cost effective
market does not exist.

Other income and expense for the second quarter of 2004 and 2003
consists of investment and interest income. Also included in other
income and expense are gains or losses associated with the sale of
any surplus manufacturing equipment or other productive assets.

14

The Company's effective tax rate was 31% and 33% for the second
quarter of 2004 and 2003 respectively. The current period benefits
from a rate decline from tax planning opportunities resulting from
increased foreign profitability.

In May, the Company sold its U.K. based confocal microscopy
product line to Carl Zeiss Jena GMBH. As required by SFAS 144, the
sales and expenses related to this product line for current and
prior periods have been reclassified to a separate line on the
income statement titled "Discontinued Operations." The gain on
divestiture was $3.4 million, net of tax. Proceeds received were
$19.8 million and costs included assets transferred less related
liabilities, legal costs, a provision for leased facilities through
August 2008 and minor severance and other costs. See Note 6.

Six Months Ended June 30, 2004 Compared to
Six Months Ended June 30, 2003
------------------------------

Corporate Results -- Sales, Margins and Expenses

Net sales (sales) in the first half of 2004 rose 9.1% to $523.3
million from $479.7 million in the first half of 2003. The positive
impact to sales from a weakening US dollar represented $33.3
million. For the Company in total, on a currency neutral basis,
sales grew 2.1% compared to the prior year period. Before
adjustment to a currency neutral basis, the Clinical Diagnostics
segment sales grew by 11.8% to $283.3 million and the Life Science
segment sales grew 6.1% to $235.5 million. On a currency neutral
basis, the Clinical Diagnostics segment's sales increased 4.9% and
the Life Science segment's sales declined 1.0%. The Clinical
Diagnostic sales increase is principally due to its quality control,
autoimmune testing and diabetes monitoring products. Life Science
sales growth is attributable to multiplex protein array technology,
amplification reagents, and electrophoresis product lines. Life
Science sales declined for food science products as the Company's
BSE test faces competitive pricing pressure. Each segment benefited
by approximately 6.9% as a result of a weakening US dollar improving
their international sales.

Consolidated gross margins were 57.1% for the first half of 2004
compared to 57.5% for the first half of 2003 and 56.8% for all of
2003. Life Science gross margins excluding the BSE product line
remained unchanged from the prior year. The gross margin for the
BSE product line has declined, affecting the Life Science segment
due to lower overall average prices in a consolidating and
competitive market. Diagnostic margins improved on sales mix as
higher margin product lines represented a large percentage of the
total sales mix.

Selling, general and administrative expenses (SG&A) represented
33.9% of sales for the first half of 2004 compared to 31.7% of sales
in the prior year period. The Company had planned growth in the

15

rate of spending for advertising, personnel, facilities and
professional services for information technology improvements, legal
and financial services in connection with intellectual property
rights and compliance.

Product research and development expense increased 17.1% to $49.9
million in the first half of 2004 compared to the same period in
2003 excluding $0.9 million of expense for acquired in-process
research and development in the first quarter of 2004 associated
with the Company's acquisition of Hematronix. Both Life Science and
Clinical Diagnostics increased their research and development
expenditures in absolute dollars. Areas of development for Life
Science are proteomics, process chromatography and food safety.
Clinical Diagnostics development efforts were focused on completion
and regulatory approval of the recently announced BioplexTM 2200
platform and diagnostic test panels for it and expanded data
management software products for the quality control product line.

Corporate Results - Other Items

Interest expense for the first half of 2004 increased from the same
period in the prior year by 19.4%. This increase is the net effect
of the Company increasing its average indebtedness from $112.1
million in the first half of 2003 to $236.0 million for the first
half of 2004. During the second half of 2003, the Company refinanced
all of its debt and increased the amount borrowed, represented
largely by its 11-5/8% bonds, and replaced it with new 7.5% bonds.

Exchange gains and losses consist of foreign currency transaction
gains and losses and the premiums and discounts on forward foreign
exchange contracts used to manage our foreign exchange risk where
the cost of economic hedging is prohibitive or a cost effective
market does not exist.

Other income and expense for the first half of 2004 includes
investment and interest income on its cash balances, marketable
securities and notes receivable. The Company also includes in this
category any gains or losses associated with the sale of any surplus
manufacturing equipment or other productive assets. During the
first half of 2004, the Company recorded a $2.4 million write-down
in an investee in which has no influence.

The Company's effective tax rate on continuing operations was 30%
and 33% for the first half of 2004 and 2003, respectively. The rate
decline is principally the result of tax planning opportunities
resulting from increased foreign profitability. Should legislation
which the Company relied on to effect the lower rate remain
unchanged, this benefit is expected to last approximately 5 years.

Financial Condition

As of June 30, 2004, the Company had available $155.3 million in
cash and cash equivalents, $26.0 million under international lines

16

of credit and $145.5 million under the restated and amended
Revolving Credit Facility. Management believes that this
availability, together with cash flow from operations, will be
adequate to meet the Company's current objectives for operations,
research and development, capital additions for plant, equipment and
systems and potential acquisitions.

Net cash provided by operations was $47.5 million and $46.6 million
for the six month period ending June 30, 2004 and 2003,
respectively. The Company's continued profitability, an increase in
operating asset requirements in line with sales growth, and lower
tax rates have all contributed to the improvement in cash flow from
operating activities on a comparative basis.

At June 30, 2004, consolidated accounts receivable were $234.0
million, a decrease of $0.1 million from December 31, 2003. The
decline represents both an impact from foreign currency, as the
June 30, 2004 rate of the Euro and several other currencies declined
when compared to year-end. Excluding foreign currency effects,
receivables increased approximately $5.0 million. This is
attributable to local payment patterns and sales mix by country with
no discernable change to practices, market, or customer risk
profiles.

At June 30, 2004, consolidated net inventories decreased $1.7
million from December 31, 2003. Included in the reported amount is
approximately $2.6 million attributable to the acquisition of the
controls business of Hematronix. Inventories, net of divestitures,
acquisitions and currency, increased by $4.6 million. This increase
represents builds for cyclical process chromatography orders and the
launch of new products including instrumentation.

Net capital expenditures totaled $29.1 million for the first six
months of 2004 compared to $25.4 million for the same period of
2003. Capital expenditures represent the Company's investment in
business systems, data communication, the addition and replacement
of production machinery equipment and facility additions and
leasehold improvements. All periods include reagent rental equipment
placed with Clinical Diagnostics customers who then commit to
purchase reagents for use.

The Company continues to review possible acquisitions to expand both
its Life Science and Clinical Diagnostics segments. The Company
routinely meets with the principals or brokers of the subject
companies. We are evaluating a number of acquisitions on a preliminary
basis, but it is not certain that any of these transactions will advance
beyond the preliminary stages or be completed. Should the Company
make a material acquisition, it would most likely require an increase
in borrowed funds. In June 2004, the Company signed a letter of intent
to acquire MJ GeneWorks, Inc. and its subsidiaries. The acquisition
has not been completed as of the date of this filing. See Note 5.

17

The Board of Directors has authorized the Company to repurchase up
to $18.0 million of the Company's common stock over an indefinite
period of time. Through June 30, 2004, the Company has cumulatively
repurchased 1,179,272 shares of Class A Common Stock and 60,000
shares of Class B Common Stock for a total of $14.7 million. The
Company's credit agreements restrict the Company's ability to
repurchase its own stock. There were no share repurchases made
during 2003 or 2004. The repurchase is designed to both satisfy the
Company's obligations under the employee stock purchase and stock
option plans and to improve shareholder value.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

During the six months ended June 30, 2004, there have been no material
changes from the disclosures about market risk provided in the
Company's Annual Report on Form 10-K for the year ended December 31,
2003.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the
Company's Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission's rules and forms and that such information is
accumulated and communicated to the Company's management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow for timely decisions regarding required disclosure. In designing
and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to
apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

As required by SEC Rule 13a-15(b), the Company carried out an
evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer
and the Company's Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and
procedures as of the end of the quarter covered by this report. Based
on the foregoing, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective at the reasonable assurance level.

There has been no change in the Company's internal controls over
financial reporting during the Company's most recent fiscal quarter
that has materially affected, or is reasonably likely to materially
affect, the Company's internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders.

At the Company's annual meeting of stockholders on April 27, 2004,
the following individuals were reelected to the Board of Directors:

Class of
Common Stock Votes Votes
Elected From For Withheld
------------ ---------- ----------
James J. Bennett Class B 4,728,670 2,042
Albert J. Hillman Class A 11,739,259 5,151,547
Ruediger Naumann-Etienne Class B 4,728,710 2,002
Philip L. Padou Class A 15,441,433 1,449,373
Alice N. Schwartz Class B 4,729,726 986
David Schwartz Class B 4,729,726 986
Norman Schwartz Class B 4,729,766 946

The following proposals were approved at the Company's annual meeting:

Votes Votes
For Against Abstentions
--------- --------- ---------

Ratification of Deloitte & Touche LLP
as the Company's independent auditors 6,380,376 39,040 376

Amendment of the Company's Certificate of Incorporation to increase the
authorized number of shares of the Company's capital stock from
77,500,000 to 107,500,000 shares by increasing the authorized number of
shares of the Company's Class A Common Stock from 50,000,000 to
80,000,000 shares

A Shares 15,780,321 1,080,823 29,662
Total Shares 6,305,968 110,808 3,016

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

The following documents are filed as part of this report:

Exhibit No.
----------

31.1 Chief Executive Officer Section 302 Certification
31.2 Chief Financial Officer Section 302 Certification
32.1 Chief Executive Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Chief Financial Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

Bio-Rad furnished a current report on Form 8-K with the SEC on
May 6, 2004, announcing its results of operations and financial
condition as of and for the first quarter ended March 31, 2004.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereto duly authorized.

BIO-RAD LABORATORIES, INC.
(Registrant)

Date: 08/06/04___ /s/ Norman Schwartz
---------------------------
Norman Schwartz, President,
Chief Executive Officer

Date: _08/06/04__ /s/ Christine A. Tsingos
-------------------------------------
Christine A. Tsingos, Vice President,
Chief Financial Officer

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