Bio-Rad Laboratories Annual Report 2003

FY2003 Annual Report · Bio-Rad Laboratories

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Innovation.

O pportunity.

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Bio-Rad Laboratories
2003 Annual Report

BIO-RAD Laboratories is a global leader in
providing INNOVATIVE tools and services to the
life science research and clinical diagnostics
industries. The Company serves more than
70,000 customers with a team of nearly 5,000
employees worldwide.

In 2003 the Company marked an important
milestone in its history, reaching more than
$1 BILLION in sales.

With a secure financial foundation and a wealth
of OPPORTUNITY to maximize growth, Bio-Rad
will work to expand its market reach by creating
NEW TECHNOLOGICAL SOLUTIONS to
accelerate scientific DISCOVERY and improve
human health care.

Financial
Highlights

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Bio-Rad’s financial PROGRESS is the result of
a combination of factors that add up to the best
reported results in the Company’s history.

Five-Year Record

1999

2000

2001

2002

2003

(in millions, except per share data)

Net Sales

Gross Profit

Research Expenditures

Net Income

Return On Sales

$ 555.4
$ 295.8

66.7(1)

$
$ 11.7
2.1%

$ 9.08
Book Value Per Share(2)
Basic Earnings Per Share(2) $ 0.48
$ 45.0

Cash Flow From Operations

$ 725.9
$ 377.4
68.1

31.1

4.3%

$ 10.00
1.27

24.2

$ 817.5
$ 455.4
$ 76.5
$ 44.2
5.4%

$ 11.43
$ 1.79
$ 99.5

$ 892.7
$ 509.5
$ 82.9
$ 67.9
7.6%

$ 15.17
$ 2.70
$ 105.8

$1,003.4
$ 565.4
94.3

76.2

7.6%

$ 19.41
3.00

$
$ 127.6

(1) Includes $15.5 of purchased R&D.
(2) Restated to give effect to a stock split in

the form of a 100% stock dividend in 2002.

4
3
0
0
1
$

7
2
9
8
$

5
7
1
8
$

9
5
2
7
$

4
5
5
5
$

6
7
2
1
$

8
5
0
1
$

5
9
9
$

0
0
3
$

0
7
2
$

0
5
4
$

2
4
2
$

9
7
1
$

7
2
1
$

8
4
0
$

99 00 01 02 03

Net Sales
(in millions)

Cash Flow
From Operations
(in millions)

Basic Earnings(2)
Per Share

Americas
39%

Pacific
Rim
17%

Europe
44%

2003 Sales By Region

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

To Our
To Our
Shareholders
Shareholders

WE MADE IT! We crossed the one billion dollar threshold in 2003. While this is a

historical milestone for us, it is by no means a culmination. 2003 was an active year

and there are a number of things to look forward to in 2004 and beyond.

The progress of 2003 is due to a combination of factors which all added up to the

best reported results in Bio-Rad’s history. Sales for the year reached $1.003 billion,

up more than 12 percent over the prior year and net income at $76 million

represented a return of nearly 8 percent of sales. The pure operating results reflect

an even better picture with net income rising to $86 million before one-time charges

associated with the refinancing of our debt.

These results are due, first and foremost, to the strength of our markets and our abil-

ity to introduce new products which meet the increasing demands of our customers.

On a currency neutral basis, sales grew around 4 percent, in line with the growth in

our markets. The balance of the increase is largely due to changes in exchange

rates. We saw a dramatic rise in the value of foreign currencies relative to the dollar

throughout 2003, which resulted in higher reported sales and expenses when trans-

lated into dollars. Given that almost 66 percent of our sales are outside the United

States, this had a significant effect on results.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Opportunity.

Apart from financial results, 2003 was another year of accomplishment. A myriad

of new products were introduced including the D-10™ Hemoglobin testing system

for monitoring diabetic control and new Bio-Plex™ cytokine assays, increasingly

used in the discovery process to understand the body’s response to candidate drugs

in development. We also received US-FDA approval of our Aspergillus test kit used

for the monitoring of infection in transplant patients.

Operationally, we invested in a number of areas to secure our future. Key among

these were investments in information systems and new buildings to accommodate

growth and increase the effectiveness of our operations. We also successfully refi-

nanced our debt, lowering interest costs and providing us with financial resources

to support our activities over the next several years.

Recently, we have benefited from an increased interest in food testing and attained

a leadership position with our BSE products for mad cow disease testing and relat-

ed tests for other animals. As testing consolidates into higher volume laboratories

and competitors gain a toehold in the market, our challenge will be to protect our

margins and market position.

As we look ahead to 2004 and beyond, we continue to be excited about the markets

and customers we serve. Both our Life Science research and Clinical Diagnostics

markets are brimming with new directions offering us countless opportunities to

participate in this golden age of biochemistry, providing useful and innovative prod-

ucts to help in the advancement of science. We welcome your continued interest in

Bio-Rad and its nearly 5,000 employees around the world.

David Schwartz

Norman Schwartz

Chairman of the Board

President

As we
look ahead
to 2004 and
beyond, we
continue to be
excited about
the markets
and customers
we serve.

Both our
Life Science
research
and Clinical
Diagnostics
markets are
brimming
with new
opportunities
for us to
participate
in this golden
age of
biochemistry
and help in the
advancement
of science.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Advancing
Scientific
Discovery

BIO-RAD LABORATORIES DEVELOPS AND MANUFACTURES an extensive

selection of laboratory products for the separation, purification and analysis of bio-

materials used in drug development and disease research, along with fully inte-

grated systems used for specialty diagnostics. The Company is distinguished world-

wide for its commitment to quality, customer service and for its leading role in the

advancement of scientific discovery and health care.

Bio-Rad’s total-solution-approach to product development and the Company’s focus

on building strong customer relationships place it in a unique position to capitalize

on opportunities in the growing fields of genomics, proteomics, biopharmaceutical

discovery, food safety, biotechnology education, diabetes monitoring, quality

control management, blood screening, autoimmune and infectious disease testing

and other specialized areas of clinical diagnostics.

The Company has a strong reputation among major research institutions, the

biotechnology and pharmaceutical industries, hospitals and clinical laboratories

around the world, and continues to seek new ways to strengthen its leading posi-

tions in both the life science and clinical diagnostics markets through new product

development, organic growth and strategic acquisitions.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

BIO-RAD. Advancing SCIENTIFIC DISCOVERY
and creating new innovations in human
health care.

s i o n P r o t e i n F u nction

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QualityControlManagement Blo o d S c r e e n i n g

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Bio-Rad’s TOTAL-SOLUTION
approach to product development
and its COMMITMENT to
providing unparalleled customer
service has secured its position
as one of the world’s PREMIER
life science companies.

Life
Science

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Discovery.

IN 2003, BIO-RAD capitalized on a
number of important opportunities to
enhance its leadership position in the
life science industry. The Company intro-
duced a variety of
innovative new
products, completed an acquisition and
forged partnerships with other industry
leaders to advance scientific discovery.
Throughout the year, the Company also
in supporting
continued
government and industry around the
world in their efforts to protect the safety
of the food supply by providing rapid
tests for TSE (Transmissible Spongiform
Encephalopathy) surveillance programs.

its work

Life Science Group sales increased by 12
percent in 2003, reaching $480 million,
primarily due to growth in the areas of
chromatography, genomics, proteomics
and food pathogen testing. The Group
continues to experience significant
demand for its consumable products and
expects to benefit from ongoing and
consistent growth in this area in the
future. Sales of systems-based tech-
nology used for drug discovery and
end-stage drug candidate validation are
also increasing and new enhancements
to TSE testing platforms have further
augmented sales of the Company’s
rapid tests.

Bio-Rad’s GelTec™
process chromatography
columns and complimen-
tary chemistries are used
to separate and purify
molecular compounds
in the production of

pharmaceutical drugs.
As new drugs are
brought to market

and gain in popu-
larity, products like
these will continue to
increase in demand.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

I n n ova t i o n s I n D r u g Re s e a r c h
O p e n i n g U p N e w O p p o r t u n i t i e s
Fo r B i o - Ra d

Bio-Rad manufactures a broad range of
instruments and reagents used in bio-
process separations, one of many proce-
dures employed in the understanding of
disease and the development of new
drugs. In 2003, the Company completed
a record year in its process chromatogra-
phy business. This growth was augmented
by the acquisition of Verdot Industrie,
which enabled Bio-Rad to round out its
product portfolio with the addition of com-
plimentary industrial-scale hardware.
This area of the business is growing at a
rapid rate and shows promise for the
future as new drugs continue to enter
the market. In 2004, Bio-Rad will launch
several new products that reinforce
the Company’s leadership role in the
process chromatography market and
help meet the changing needs of the
biopharmaceutical industry.

The promise of biotechnology is largely
reliant on protein based drug develop-
ment, which has increased demand
for Bio-Rad’s expression proteomics
consumable reagents and products
like the ChemiDoc™ XRS System, the
Molecular Imager FX™ System, the
ProteomeWorks™ Plus Spot Cutter and
PDQuest™ analysis software. These and
other innovative technologies are being
used to optimize the drug development
process by identifying targets used for

Biomarker research is a
burgeoning field in the
pharmaceutical industry.
Bio-Rad’s Bio-Plex™
multi-plex immunoassay
platform helps simplify and
speed up the drug discov-
ery process by allowing
scientists to rapidly screen
for multiple targets, or
biomarkers, ultimately
aiding in the diagnosis
and treatment of disease.

48%

Segment Sales

0
8
4
0 $
3
4
$

9
7
3
$

Sales
(dollars in millions)

3
7
$

5
7
$

2
7
$

02
Segment Profit
(dollars in millions)

Life Science

Bio-Rad is setting a new industry
standard in TSE testing. The

Company’s TeSeE™ tests run
on new automated robotics
platforms that can process up
to 1,000 samples in an 8-hour
time period.

Bio-Rad has supplied more
than 22 million BSE tests
worldwide and is the leading

provider of Chronic Wasting Disease
and Scrapie tests in Europe, Canada
and the U.S.

Bio-Rad's iCycler iQTM has given
the Company a leadership position
in Real-Time PCR, a technology
which enables researchers to
follow a faster path to rational
drug design.

Bio-Rad is a pioneer in
developing sophisticated
gene transfer technology.
The Company’s hand-
held Helios™ Gene Gun

employs a helium pulse to
inject, or ‘shoot’ nucleic acid-coated
particles directly into cells.

The Gene Pulser Xcell™
Electroporation System is
used to introduce DNA, RNA,
proteins, or other small
molecules into cells.

drug candidate analysis and to identify
biomarkers for specific disease. The scien-
tific community has also embarked on new
research programs to identify and analyze
human, animal and microbial proteomes,
which will further increase demand for the
Company’s proteomics products.

To further expand its proteomics business,
the Company has initiated partnerships
with other industry leaders like Caliper, a
Life Sciences pioneer in microfluidics,
which will work with Bio-Rad to advance
biomolecule separation technology in an
innovative and easy-to-use format.

In 2003, Bio-Rad’s Bio-Plex™ multi-plex
immunoassay platform continued to gain
in popularity, increasing sales in the areas
of both assay kits and instrumentation
platforms. The Bio-Plex System is used by
the pharmaceutical, biotechnology and
health care industries to analyze and
measure the performance of potential
drug
therapeutic
treatments for both humans and animals.
Future opportunities in this area will also
continue to open up in two segments of
drug development—clinical trials and
end-stage drug candidate validation.

candidates

and

S t e e r i n g TS E Te s t i n g I n
N e w D i re c t i o n s

Throughout the past three years, demand
for Bio-Rad’s rapid TSE
tests has
continued to grow. The Company’s BSE or
mad cow disease tests are currently used
throughout Europe, the United Kingdom
and Japan and will also be used by the
USDA (U.S. Department of Agriculture) in
its enhanced BSE surveillance program.
A similar program has also been initiated
by Canada’s
largest beef producing
province of Alberta. Demand for the
Company’s other food pathogen test kits
for Listeria, Salmonella and E. coli is also
gaining momentum.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

1 0

Pharmaceutical companies, academic institutions, government
agencies and the biotech industry rely on Bio-Rad to provide
the highest quality REAGENTS, precision TECHNOLOGY and
COMPLETE SYSTEMS for life science research.

To d a y ’s
S t u d e n t s ,
To m o r row ’s
S c i e n t i s t s .

Bio-Rad is helping
high schools and
colleges revolutionize
biological education.
The Company
provides teachers
and students with
state-of-the-art
laboratory equipment,
curriculum and
popular kits to
illustrate real-world
laboratory procedures.
In 2003, Bio-Rad
expanded both its
domestic and
global initiatives
in biotechnology
education by
sponsoring teacher
training workshops
in the U.S., Great
Britain and Asia.

(Office

Bio-Rad remains the leader in TSE testing,
providing tests to more than 500 laborato-
ries in 25 countries around the world.
Moreover, demand for the Company’s
tests for Chronic Wasting Disease (CWD) in
deer and elk and Scrapie in sheep and
goats is also increasing. In 2003 Bio-Rad
introduced an automated
robotics
platform for TSE testing, significantly
expanding the capacity at which laborato-
ries can process samples. The Company’s
TSE tests are internationally recognized by
the OIE
International Des
Epizooties, or the world organization for
animal health) and the European Union.
Independent evaluations have shown that
the Company’s TSE tests are significantly
more sensitive in detecting TSEs than any
other rapid tests on the market. One
significant breakthrough
in the BSE
testing industry came in October 2003 in
Japan, where the Company’s BSE test was
the only rapid method able to detect the
disease in two cows under the age of 24
months, younger cases than previously
thought possible, further illustrating that
the Company’s TSE testing technology
continues to raise the standard
in
veterinary diagnostics.

To further boost growth in the BSE market,
Bio-Rad is developing new innovations in
BSE technology and will launch a new
confirmatory Western Blot test in 2004.
Preliminary research indicates that this
new test is as sensitive and easier to use
than the current “gold standard” immuno-
histochemistry (IHC) confirmatory tests.

P rov i d i n g C o m p l e t e Sy s t e m s
To A c c e l e ra t e D i s c ove r y
I n G e n o m i c s Re s e a r c h

Bio-Rad has a long tradition of providing
the life science research industry with
the highest quality reagents and instru-
mentation along with superior customer
service and technical support. The Life
Science Group manufactures complete

1 1 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

systems for genomics and proteomics
research—large and small-scale instru-
mentation,
software
packages and precision reagents.

sophisticated

Many of Bio-Rad’s gene-based products
are used in drug development and disease
research. They are used for gene character-
ization and identification, to spot changes
in gene activity, detect indicators for
possible drug targets, identify markers for
therapeutic treatment and to detect gene
mutations or disease states.

Bio-Rad is gaining market share in the
highly competitive area of real time ampli-
fication by providing superior products
and services to life science researchers.

In 2003, DNA amplification products like
the Company’s iCycler™ Thermal Cycler,
the iCycler iQ™ Real-Time PCR System
and others continued to gain in populari-
ty. Strong reagent sales also enhanced
growth and built on the Company’s ability
to provide total solutions for amplification
applications.

During the year the Life Science Group
launched the MyiQ™ Real-Time PCR
Detection System, a compact version of
the company’s iCycler™ Thermal Cycler,
featuring the most commonly used
functions from all of Bio-Rad’s PCR
platforms. The Company also launched a
variety of new gene transfer reagents and
consumable
are
products
distinguished for their sensitivity and
ease-of-use.

that

innovations

Throughout the coming years, Bio-Rad will
in
focus on pioneering
gene-based technology and chemistry
with the introduction of new reagents that
will complement and support its systems-
including
based product portfolio,
reagents used for ‘gene silencing,’ or the
study of cell network functions, and others
used to usher DNA or RNA into cells.

Bio-Rad is the WORLD
LEADER in specialty
diagnostics, developing
INNOVATIVE SOLUTIONS
to improve patient care
and laboratory efficiency.

Clinical
Diagnostics

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

1 2

Innovation.

the screening and confirmation of the
Hepatitis B virus. The HBsAg EIA 3.0 and
the HbsAg Confirmatory Assay 3.0 are
the most sensitive Hepatitis B tests
currently available in the U.S. and they
are the only tests approved for testing
samples from organ donors as well as
serum and plasma samples.

During the year the Company also
launched an important new test for HIV
(Human Immunodeficiency Virus). The
new HIV-1/HIV-2 PLUS O EIA test kit
received a license from the U.S. Food and
Drug Administration (FDA) in August. It
is the first combination test, simultane-
ously detecting both HIV-1 (Groups M
and O) and HIV-2 antibodies, used for
diagnostic testing and screening of
blood and blood products available in
the United States.

these assays

As with Bio-Rad’s entire selection of diag-
nostic products,
for
Hepatitis and HIV are distinguished by
their speed, accuracy, sensitivity, and
ease-of-use. Demand for similar tests
and complementary instrumentation is
likely to remain strong as public health
concerns over the safety of the blood
supply continue.
like
Bio-Rad’s EVOLIS™ System, an automat-
ed microplate processor used for blood
virus testing, is widely used by hospitals,
laboratories, public health
clinical

Instruments

Bio-Rad’s EVOLIS™ System
is widely used by hospi-
tals, public health laborato-
ries and transfusion centers
around the world for blood
virus testing. The automat-
ed testing platform can
simultaneously screen
blood and serum samples
for HIV and Hepatitis.

IN 2003, Bio-Rad’s Clinical Diagnostics
Group sales increased to $515 million, up
13 percent from the previous year.
Demand for the Company’s blood virus,
autoimmune, diabetes monitoring and
quality control products, coupled with a
modest decrease in operating expenses
resulted in a 43 percent increase in the
Group’s profitability. During the year, the
Company introduced several important
new technologies and expanded product
development efforts to open up future
opportunities in emerging markets. In the
coming year, Bio-Rad will continue to
focus on the development of complete
systems-based solutions and look to
strategic acquisitions and partnerships to
enhance product portfolios and increase
market presence.

P ro t e c t i n g t h e Wo r l d ’s
B l o o d S u p p l y Wi t h I n n ova t i ve
Te s t i n g S o l u t i o n s

Bio-Rad helps protect the world’s blood
supply by providing blood banks, hospi-
tals and clinical
laboratories with
diagnostic test kits and comprehensive
automated systems
for detecting
Hepatitis, HIV, autoimmune and other
infectious diseases.
the
Company launched new tests used for

In 2003,

Hepatitis B is the most common liver infection in the world.
It affects an estimated 400 million people, it is the primary
cause of liver cancer and leads to more than one million
deaths every year. Effective screening of donor blood and
plasma, using Bio-Rad’s HBsAg EIA 3.0 Hepatitis B test, can
aid in preventing the spread of the virus.

1 3 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

51%

Segment Sales

5
1
5
5 $
5
4
$

8
1
4
$

Sales
(dollars in millions)

0
6
$

2
4
$

7
2
$

Segment Profit
(dollars in millions)

Clinical Diagnostics

Bio-Rad’s automated D-10™
Hemoglobin A1c Testing System
is the new standard for small to
mid-volume laboratories and
clinics, and delivers superior
performance in a compact pack-
age. It is the smallest, most cost
effective, high-performance
Hemoglobin A1c testing platform
available today.

In 2003, Bio-Rad introduced two
new tests for use with the
Company’s hand-held TOX/See™
Rapid Urine Drug Screening Device.
The new tests for TCA (tricyclic
antidepressants) and MDMA
(Ecstacy) have been added
to a test menu of nine
other drugs. This compact,
point-of-care device is used
in hospitals, correctional
facilities and clinical laboratories.

laboratories and transfusion centers
throughout Europe, Latin America and
Asia. In 2003, the Company launched the
product in the U.S.

C a p t u r i n g N e w M a r k e t s
Wi t h I n n ova t i ve , Al t e r n a t i ve
Te c h n o l o g y

In 2003, the Clinical Diagnostics Group
launched several important products
and initiated development efforts with
industry partners that will open up new
markets in diabetes monitoring, autoim-
mune, blood virus and
infectious
disease testing.

technology offered

One innovative new product, the D-10™
Hemoglobin A1c Testing System, has
expanded Bio-Rad’s reach into the dia-
betes monitoring market by providing
small to mid-volume clinical laboratories
with access to the same level of preci-
sion
the
Company’s larger diabetes monitoring
platforms. This system was introduced in
Europe in the spring of 2003 and
received FDA clearance in the U.S. in
September. Since its launch, increasing
demand has made this one of the most
successful product introductions in the
Clinical Diagnostic Group’s history.

In 2003, the U.S. National
Institute of Health used
Bio-Rad’s Platelia™ Aspergillus
EIA test kit in a study of bone
marrow transplant recipients,
patients who are commonly
prone to Invasive Aspergillosis.
Use of the test enabled

researchers to
focus on the most

important task of
finding effective drug

treatments for the

often-fatal infection.

The Company is also expanding its lead-
ership position in the autoimmune test-
ing market with its PhD™ System. With
labor costs on the rise, coupled with a
shortage in skilled technical personnel,
clinical laboratories are seeking new
ways to automate their serology and
autoimmune testing methods. Bio-Rad
is assisting in these efforts by providing
innovative testing platforms that maxi-
mize testing capacity. The Company’s
PhD™ System, accompanied by a new
immunoflourescence assay (IFA) soft-
ware module, now provides laboratories
with a new automated platform that
eliminates manual processing, or

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

1 4

Bio-Rad supplies hospitals, clinical laboratories and health care
providers with a WIDE RANGE of customized products used for
diabetes monitoring, quality control management, blood virus,
autoimmune disorder testing and toxicology.

S e t t i n g N e w S t a n d a r d s I n
Q u a l i t y C o n t ro l M a n a g e m e n t

Bio-Rad provides clinical laboratories
with the world’s most comprehensive
product line for managing laboratory
quality control, offering more than 120
products used for internal and external
quality assurance, to reduce medical
errors and to improve the quality of labo-
ratory results. In 2003 the Clinical
Diagnostics Group expanded its quality
control product offering with the intro-
duction of two new controls, Liquichek™
D-dimer Control
risk
and
thrombosis assessment and
Amplichek™ CT/GC Controls used for
Chlamydia Trachomatis and Gonorrhea,
which will open up new opportunities in
two of the fastest growing segments of
the clinical diagnostics industry--the
hemostasis (coagulation) and molecular
testing segments.

for cardiac

Additionally, Bio-Rad continues
to
upgrade its quality control products.
QC OnCall™ System, Bio-Rad’s newest
quality control data management system
was introduced to the worldwide market
in 2003 and is now being used in
hundreds of clinical laboratories world-
wide. With this complete set of QC OnCall
features, laboratories can now have
greater confidence in the quality of every
patient test result.

In 2004, Bio-Rad will seek strategic
to
acquisitions and partnerships
increase market exposure and expand
its product portfolios in the area of qual-
ity control management. The Company
will also complete the implementation
of new manufacturing upgrades to
further enhance its leadership role in
the quality control management market.

processing on separate instruments. The
system also includes user-friendly soft-
ware that increases laboratory efficiency
and accomodates both low volume labo-
ratories as well as high test volume
workloads.

In 2003, the Clinical Diagnostics Group
also expanded its reach in the U.S.
infectious disease and blood virus test-
ing market through a partnership with
Beckman Coulter, Inc. Bio-Rad will pro-
vide its expertise in the development,
manufacture and distribution of infec-
tious disease and blood virus assays for
use on Beckman Coulter’s Access®
series of immunoassay analyzers.

M a k i n g U n i q u e C o n t r i b u t i o n s
To T h e Sp e c i a l t y D i a g n o s t i c s
I n d u s t r y

Bio-Rad provides a full range of tools for
the diagnosis of infectious disease--
some, including sexually transmitted
diseases which are often common, and
others, like Invasive Aspergillosis, that
are more obscure, but can also be deadly.

Invasive Aspergillosis is an infection that
is common among organ and bone mar-
row transplant patients and patients with
neutropenic leukemia. In 2003, Bio-Rad’s
new Platelia™ Aspergillus EIA test kit
received FDA clearance in the U.S. To date,
several million tests have been performed
worlwide and demand for these tests is
increasing.

The Aspergillus EIA test kit is the first
rapid test able to detect the infection in
blood. The test is revolutionary in its
ability to detect the infection in just three
hours, whereas standard culture testing
methods require a minimum of five to
seven days to produce results and must
be accompanied by additional diagnostic
procedures which can be invasive, painful
and inconclusive.

1 5 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Bio-Rad’s QC
OnCall™ system
features tools that
allow laboratories
to instantly compare
their performance to
a worldwide database,
along with review
tools to help labs
meet regulatory
requirements.

Achievement.

$ 1.003 BILLION

$1 billion

$900 million

$800 million

$700 million

$600 million

$500 million

$400 million

$300 million

$200 million

$100 million

1958

1963

1968

1973

1978

1983

1988

1993

1998

2003

Summary of Operations and Selected Financial Data

(in thousands, except per share data)

2003

2002

2001

2000

1999

Year Ended December 31,

Net sales

Cost of goods sold

Gross profit
Selling, general and

administrative expense

Product research and

development expense

Goodwill amortization
Loss (gain) on divestitures
Interest expense
Foreign exchange losses
Other, net
Income before taxes and cumulative effect

of change in accounting principle
Provision for income taxes

Income before cumulative effect

of change in accounting principle
Cumulative effect of change in

accounting principle(1)

Net income
Basic earnings per share before cumulative
effect of change in accounting principle(2)

Cumulative effect of change in

accounting principle (1) (2)
Basic earnings per share (2)

Diluted earnings per share before cumulative
effect of change in accounting principle(2)

Cumulative effect of change in

accounting principle(1) (2)

Diluted earnings per share(2)

$1,003,382 $892,720 $817,509 $725,884 $555,399
259,573

348,450

362,140

437,990

383,235

565,392

509,485

455,369

377,434

295,826

325,360

289,175

264,745

245,866

195,944

94,270
—
—
31,006
4,080
(3,012)

82,935
—
—
28,207
5,441
(678)

76,543
7,746
5,150
24,088
2,097
10,031

68,140
8,109
(21,845)
30,612
420
689

66,710
3,813
—
12,741
886
(684)

113,688
(37,517)

104,405
(36,542)

64,969
(20,790)

45,443
(13,633)

16,416
(4,695)

76,171

67,863

44,179

31,810

11,721

—

(710)

—

76,171 $ 67,863 $ 44,179 $ 31,100 $ 11,721

3.00 $

2.70 $

1.79 $

1.30 $

0.48

—

(0.03)

3.00 $

2.70 $

1.79 $

1.27 $

—

0.48

2.90 $

2.61 $

1.74 $

1.30 $

0.48

—

(0.03)

—

2.90 $

2.61 $

1.74 $

1.27 $

0.48

Cash dividends paid per common share
Total assets
Long-term debt, net of current maturities

—

—
$ 986,858 $720,703 $684,028 $ 646,278 $ 668,862
$ 225,835 $105,768 $ 188,423 $ 203,360 $239,211

—

(1) Cumulative effect of accounting change per SEC Staff Accounting Bulletin 101, on Revenue Recognition.
(2) Restated to give effect to a stock split in the form of a 100% stock dividend in 2002.

1 7 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Consolidated Balance Sheets

(in thousands)

Assets
Current assets:

Cash and cash equivalents
Accounts receivable less allowance of
$12,978 in 2003 and $12,122 in 2002

Inventories, net:
Raw materials
Work in process
Finished goods

Total inventories

Deferred tax assets
Prepaid expenses and other current assets

Total current assets

Property, plant and equipment:

Land and improvements
Buildings and leasehold improvements
Equipment

Total property, plant and equipment

Accumulated depreciation

Property, plant and equipment, net

Goodwill, net of accumulated amortization of
$21,736 in 2003 and 2002
Other assets

December 31,

2003

2002

$ 148,642

27,733

234,085

209,282

38,783
38,798
112,677

190,258

46,536
51,357

40,559
30,790
95,023

166,372

37,052
26,175

670,878

466,614

9,882
105,963
273,121

9,572
80,531
239,404

388,966
(209,843)

329,507
(187,272)

179,123

142,235

69,503
67,354

69,519
42,335

Total Assets

$ 986,858

$ 720,703

The accompanying notes are an integral part of these statements.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

1 8

(in thousands, except per share data)

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued payroll and employee benefits
Notes payable
Current maturities of long-term debt
Sales, income and other taxes payable
Other current liabilities

Total current liabilities

Long-term debt, net of current maturities
Deferred tax liabilities
Other long-term liabilities

Total liabilities

Commitments and contingent liabilities

Stockholders’ equity:
Preferred stock, $0.0001 par value, 7,500,000
shares authorized; none outstanding
Class A common stock, $0.0001 par value,
50,000,000 shares authorized; outstanding 2003 – 20,709,127;
2002 — 20,402,462
Class B common stock, $0.0001 par value,
20,000,000 shares authorized; outstanding 2003 — 4,834,290;
2002 — 4,846,942
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income:

Currency translation and other

Total stockholders’ equity

Total Liabilities and Stockholders’ Equity

The accompanying notes are an integral part of these statements.

December 31,

2003

2002

53,995
71,650
10,215
208
20,833
77,425

50,233
62,800
6,726
760
17,019
71,392

234,326

208,930

225,835
13,991
16,899

491,051

105,768
9,839
13,079

337,616

—

1
42,164
421,012

1
36,141
344,841

32,628

2,102

495,807

383,087

$ 986,858

$ 720,703

1 9 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Consolidated Statements of Income

(in thousands, except per share data)

Net sales

Cost of good sold

Gross profit

Selling, general and administrative expense
Product research and development expense
Goodwill amortization
Loss on divestitures
Interest expense
Foreign exchange losses
Other, net

Income before taxes

Provision for income taxes

Net income

Basic earnings per share:

Net income

Weighted average common shares

Diluted earnings per share:

Net income

Weighted average common shares

Year Ended December 31,

2003

2002

2001

$ 1,003,382
437,990

$ 892,720
383,235

$ 817,509
362,140

565,392

509,485

325,360
94,270
—
—
31,006
4,080
(3,012)

113,688
(37,517)

76,171

3.00

289,175
82,935
—
—
28,207
5,441
(678)

104,405
(36,542)

67,863

2.70

455,369

264,745
76,543
7,746
5,150
24,088
2,097
10,031

64,969
(20,790)
44,179

1.79

25,416

25,104

24,648

2.90

2.61

1.74

26,310

26,021

25,442

The accompanying notes are an integral part of these statements.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

2 0

Year Ended December 31,

2003

2002

2001

$ 1,020,135
(826,055)
(17,088)
(51,280)
1,928

$ 885,835
(711,341)
(25,832)
(43,016)
112

$ 787,179
(665,572)
(22,064)
(5,253)
5,248

127,640

105,758

99,538

(69,003)
(16,375)
(8,228)
1,610
(14,998)

(106,994)

435
249,335
(132,012)
(9,467)
(5,431)
5,309
—
—

(42,224)
(8,568)
(1,887)
493
(2,270)

(54,456)

5,031
44,025
(133,517)
—
—
3,047
—
2,287

(7,906)

8,429

120,909

27,733

(19,396)

47,129

(43,228)
(4,650)
(567)
497
410

(47,538)

(1,884)
74,250
(97,209)
—
—
532
(261)
4,367

(20,205)

1,380

33,175

13,954

$ 148,642

27,733

47,129

Consolidated Statements of Cash Flows

(in thousands)

Cash flows from operating activities:

Cash received from customers
Cash paid to suppliers and employees
Interest paid
Income tax payments
Miscellaneous receipts

Net cash provided by operating activities

Cash flows from investing activities:

Capital expenditures, net
Payments for acquisitions and investments
Purchases of marketable securities and investments
Sales of marketable securities and investments
Foreign currency hedges, net

Net cash used in investing activities

Cash flows from financing activities:

Net borrowings (payments) on notes payable
Long-term borrowings
Payments on long-term debt
Debt retirement costs on 11 5⁄8% bonds
Debt issuance costs on 7.5% bonds
Proceeds from issuance of common stock
Purchase of treasury stock
Reissuance of treasury stock

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

The accompanying notes are an integral part of these statements.

2 1 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Net cash provided by (used in) financing activities

108,169

(79,127)

Consolidated Statements of Changes in Stockholders’ Equity

(in thousands)

Common Stock, $0.0001 par value:

Balance at beginning of year
Issuance of common stock

Balance at end of year

Additional Paid-In Capital:

Balance at beginning of year
Issuance of common stock
Tax benefit from exercise of stock options

Balance at end of year

Treasury Stock:

Balance at beginning of year
Purchase of treasury stock
Reissuance of treasury stock

Balance at end of year

Retained Earnings:

Balance at beginning of year
Net income
Reissuance of treasury stock at more than cost

Balance at end of year

Accumulated Other Comprehensive Income (Loss):

Balance at beginning of year
Other comprehensive income (loss)

Balance at end of year

Total Stockholders’ Equity

Comprehensive Income, net of tax:

Net income
Currency translation adjustments
Net unrealized holding gains (losses)
Reclassification adjustments for gains

included in net income

Total Comprehensive Income

The accompanying notes are an integral part of these statements.

Year Ended December 31,

2003

2002

2001

3
—

2
1

2
—

36,141
5,309
714

42,164

—
—
—

—

32,171
3,047
923

36,141

(1,863)
—
1,863

—

31,596
532
43

32,171

(5,415)
(261)
3,813

(1,863)

344,841
76,171
—

421,012

276,554
67,863
424

344,841

231,821
44,179
554

276,554

2,102
30,526

32,628

(22,987)
25,089

2,102

(13,386)
(9,601)

(22,987)

$ 495,807

$ 383,087

$ 283,877

76,171
28,620
2,137

67,863
25,241
(59)

44,179
(9,458)
(12)

(231)

(93)

(131)

$ 106,697

92,952

34,578

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

2 2

Notes to Consolidated Financial Statements

1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S

Basis of Presentation
The consolidated financial statements include the accounts of Bio-Rad Laboratories, Inc. and all subsidiaries
(Bio-Rad or the Company) after elimination of intercompany balances and transactions. The preparation of
financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Changes in Presentation
Certain prior year amounts have been reclassified to conform to current year presentation.

Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three
months or less which are readily convertible into cash. Cash equivalents are stated at cost, which
approximates fair market value.

Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily
of cash and cash equivalents and trade accounts receivable. Cash and cash equivalents are placed with
major financial institutions. The Company performs credit evaluation procedures and with the exception of
certain developing countries, generally does not require collateral. As a result of increased risk in these
countries, some Bio-Rad sales are subject to collateral letters of credit. Credit risk is limited due to the large
number of customers and their dispersion across many geographic areas. However, a significant amount of
trade receivables are with national healthcare systems in countries within the European Economic
Community. The Company does not currently anticipate a credit risk associated with these receivables.

Inventory Valuation
Inventories are valued at the lower of actual cost or market and include material, labor and overhead costs.
Management periodically reviews the need for an inventory obsolescence reserve. In evaluating this reserve,
technology changes, competition, customer demand and manufacturing quality are considered.

Property, Plant and Equipment
Property, plant and equipment are carried at historical cost. Included in property, plant and equipment is
reagent rental equipment. The Company provides these instruments to its customers for use with the
Company’s reagents.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Buildings
and leasehold improvements are amortized over 15-30 years or the lives of the leases or improvements,
whichever is shorter. With the exception of reagent rental equipment, which is amortized over a 1-5 year
period, equipment is depreciated over 3-12 years.

Goodwill
Goodwill, representing the excess of the cost over the net tangible and identifiable intangible assets of
acquired businesses, is stated at cost and through December 31, 2001 has been amortized on a straight-line
basis over the estimated future periods to be benefited, typically ten to fifteen years. Beginning January 1,
2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and

2 3 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Notes to Consolidated Financial Statements (continued)

Other Intangible Assets” which provides that goodwill is no longer subject to amortization over its useful life.
Goodwill is assessed annually for impairment applying a fair-value based test or whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable (see Note 5).

Income Taxes
The Company accounts for income taxes under the asset and liability method which recognizes deferred tax
assets and liabilities for the expected future tax consequences of temporary differences between carrying
amounts and tax bases of assets and liabilities (see Note 7).

Revenue Recognition
For products, revenue is recognized when shipped and risk of loss is inconsequential, when persuasive
evidence of an arrangement exists, the price to the buyer is fixed and determinable and collectibility is
reasonably assured. When a customer enters into a reagent rental agreement (operating-type lease),
revenue is recognized over the life of the agreement. Service revenues on extended warranty contracts are
recognized ratably over the life of the service agreement or as service is performed, if not under contract.
For those equipment sales that necessitate installation, we recognize revenue when installation is complete
and customer acceptance has occurred.

Shipping and Handling
The Company classifies all freight billed to customers as net sales. Related freight costs are included in cost
of goods sold.

Sales Returns and Warranty
At the time the related revenue is recognized, a provision is recognized for estimated product returns.

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 costs of such warranty.

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

January 1
Provision for warranty
Actual warranty costs
December 31

2003

2002

7.1
12.0
(10.0)

9.1

6.1
9.0
(8.0)

7.1

Research and Development
Internal research and development costs are expensed as incurred. Third-party research and development
costs are expensed when the contracted work has been performed or as milestone results have
been achieved.

Foreign Currency Translation
Balance sheet accounts of international subsidiaries are translated at the current exchange rate as of the
end of the accounting period. Income statement items are translated at average exchange rates.
The resulting translation adjustment is recorded as a separate component of stockholders’ equity.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

2 4

Forward Exchange Contracts
As part of distributing its products, the Company regularly enters into intercompany transactions. The
Company enters into forward foreign exchange contracts to hedge against future movements in foreign
exchange rates that affect foreign currency denominated intercompany receivables and payables. The
Company does not use derivative financial instruments for speculative or trading purposes. In accordance
with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” the Company does not
seek hedge accounting treatment for these contracts. As a result, these contracts, generally with maturity
dates of 90 days or less and related primarily to currencies of industrial countries, are marked to market at
each balance sheet date. Exchange gains and losses on these contracts are net of premiums and discounts.
The resulting gains or losses offset exchange losses or gains on the related receivables and payables. The
cash flows related to these contracts are classified as cash flows from investing activities in the Statement
of Cash Flows.

Employee Stock Compensation Plans
The Company maintains incentive and non-qualified stock option plans for officers and certain other key
employees. The Company also has an employee stock purchase plan that provides that eligible employees
may contribute toward the purchase of the Company’s Class A common stock. These plans are described
more fully in Note 9.

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.

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):

Year Ended December 31,

2003

2002

2001

76.2

67.9

44.2

(2.1)

(1.8)

74.1

66.1

(1.3)

42.9

3.00

2.91

2.90

2.82

2.70

2.63

2.61

2.55

1.79

1.74

1.69

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

Pro forma net income

Earnings per share:
Basic – as reported

Basic – pro forma

Diluted – as reported

Diluted – pro forma

2 5 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Notes to Consolidated Financial Statements (continued)

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. Treasury stock is not considered outstanding for purposes of calculating
weighted average shares.

Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined using available market information
or other appropriate valuation methodologies. Estimates are not necessarily indicative of the amounts that
could be realized in a current market exchange as considerable judgment is required in interpreting market
data used to develop estimates of fair value. The use of different market assumptions or estimation
techniques could have a material effect on the estimated fair value amounts.

The estimated fair value of Bio-Rad’s financial instruments were as follows (in millions):

Year Ended December 31,

2003

2002

Carrying
Amount

Fair
Value

Carrying
Amount

Notes receivable and other
Total long-term debt

$
$

52.9
226.0

$
$

58.3
256.2

$
$

36.0
106.5

$
$

Fair
Value

37.2
131.8

Financial instruments (e.g., notes receivable) that have fair values based on discounted cash flows, market
quotations, and other appropriate valuation techniques are included in Other assets. Long-term debt has an
estimated fair value based on quoted market prices for the same or similar issues.

For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable,
marketable securities, notes payable, and accounts payable, the carrying amounts approximate fair value.

New Financial Accounting Standards
In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, “Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” One of the
major changes of this statement is to change the accounting for the classification of gains and losses from
the extinguishment of debt. The Company adopted SFAS No. 145 as of January 1, 2002 and will follow APB
30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” in determining whether
such extinguishment of debt may be classified as extraordinary. As a result of adoption, the expenses
incurred in the 2003 repurchase of outstanding debt on the open market has been included in interest
expense. No other impact from adoption was recognized.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

2 6

SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” was issued in June 2002
and addresses accounting for restructuring and similar costs. SFAS No. 146 requires that the liability for
costs associated with an exit cost or disposal activity be recognized and measured initially at fair value only
when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that were initiated after
December 31, 2002. The adoption of SFAS No. 146 did not have a material impact on the consolidated
financial statements of the Company.

During April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments
and Hedging Activities.” SFAS No. 149 amends and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133.
SFAS No. 149 was effective for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003 and did not have a material impact on the Company’s financial
position or results of operations.

2 . A C Q U I S I T I O N S

See Note 17 regarding an acquisition which took place subsequent to year-end.

On March 31, 2003, the Company acquired the outstanding shares of Verdot Industrie of Riom, France for
approximately $6 million. The Company has included these operations in its Life Science segment. The
Company has completed its evaluation of purchased assets, including intangible assets, and liabilities and
has not assigned any value to goodwill.

On June 28, 2002, the Company purchased for cash the microarray and robotics technologies business
of Virtek Biotech Inc., a subsidiary of Virtek Vision International Inc. of Waterloo, Ontario, Canada.
Bio-Rad acquired the assets, including intangible assets, for approximately $7 million and has included
these operations in its Life Science segment. The Company did not assign any value to goodwill.

In July 2001, the Company acquired all the outstanding shares of Helix, Inc., a manufacturer of diagnostic
products for the autoimmune market. The business combination was recorded using the purchase method.
The acquisition cost was not material but did include a premium in excess of the net assets acquired.

3 . D I V E S T I T U R E

In October 2001, the Company sold the assets and certain liabilities of the Company’s spectroscopy
business to Digilab LLC. In 2001, the Company recorded a $4.5 million non-cash pre-tax charge reflecting
the estimated impact of its intent to sell the spectroscopy instrument business and the Company had a
write-down of $0.7 million on the value of a related production facility.

4 . I N V E S T M E N T S

The Company purchased shares of ordinary voting stock of Sartorius AG, of Goettingen, Germany, a process
technology supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries for
approximately $10.4 million in 2003. The Company accounts for this investment on the cost method.

2 7 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Notes to Consolidated Financial Statements (continued)

In December 1997, Bio-Rad began investing in Instrumentation Laboratory, S.p.A. (IL), an Italian based
clinical diagnostics company. At December 31, 2003, Bio-Rad held approximately 13% of the outstanding
stock of IL. A privately held company based in Spain controls approximately 84% of the outstanding stock of IL.
The most recently filed financial statements for IL are as of November 30, 2002.

Based on a combination of many factors, including the lack of current financial information and IL’s
continued losses, the Company has determined that its investment has been other than temporarily
impaired. The Company recorded a $9.4 million write-down of its investment in IL during 2001. As of
December 31, 2002, the Company valued its investment in IL at $6.4 million. This amount reflects a $3.0
million write-down from December 31, 2001, which has been recorded in Other, net. As of December 31,
2003 the value of $6.4 million remains the Company’s expected value of its investment. Although
management believes that this investment is realizable, there is a possibility that future events may cause
further impairment of this investment.

5 . G O O D W I L L A N D O T H E R P U R C H A S E D I N T A N G I B L E A S S E T S

In June 2001, the FASB issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and
Other Intangible Assets.” SFAS No. 141 requires that all business combinations initiated after June 30, 2001
be accounted for under the purchase method of accounting and addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142
addresses the initial recognition and measurement of goodwill and other intangible assets subsequent to
their acquisition, provides that intangible assets with finite useful lives will be amortized, and that goodwill
and intangible assets with indefinite lives will not be amortized. The provisions of the standard also require
goodwill to be tested at least annually for impairment.

The Company adopted SFAS No. 142 on January 1, 2002. At that date, the Company stopped the
amortization of goodwill, with a net carrying value of $77.7 million, and annual amortization of
approximately $8 million that had resulted from purchases of businesses completed prior to the adoption
of SFAS No. 141. The transition impairment test for goodwill was performed as of January 1, 2002. No
impairment loss was recorded in fiscal 2003 or 2002. Additionally, intangible assets that do not meet the
criteria for recognition apart from goodwill must be reclassified to goodwill. As a result of the Company’s
analysis, no reclassification of intangible assets to goodwill was required.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

2 8

Had the Company been accounting for its goodwill under SFAS No. 142 for all periods presented, the Company’s
net income and net income per share would have been as follows (in millions, except per share data):

Reported net income
Add back goodwill amortization, net of tax

Pro forma adjusted net income

Basic earnings per share:
Reported basic earnings per share
Goodwill amortization, net of tax

Pro forma adjusted basic earnings per share

Diluted earnings per share:
Reported diluted earnings per share
Goodwill amortization, net of tax

Pro forma adjusted diluted earnings per share

Year Ended December 31,

2003

2002

2001

(as reported)

(pro forma)

76.2
—

76.2

3.00
—

3.00

2.90
—

2.90

67.9
—

67.9

2.70
—

2.70

2.61
—

2.61

44.2
5.3

49.5

1.79
0.21

2.00

1.74
0.21

1.95

The changes in the carrying amount of goodwill for the years ended December 31, 2003 and 2002 are as
follows (in millions):

December 31, 2001
Tax adjustments
December 31, 2002

December 31, 2003

Life
Science

Clinical
Diagnostics

Other
Operations

29.7
(3.9)

25.8

46.6
(4.3)

42.3

1.4
—

1.4

Goodwill balances and goodwill amortization have been included in corporate for segment reporting
purposes in Note 15.

2 9 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Notes to Consolidated Financial Statements (continued)

The Company has no intangible assets with indefinite lives. Information regarding the Company’s identifiable
purchased intangible assets is as follows (in millions):

Patents
Other

Total

Patents
Other

Total

December 31, 2003

Average
Useful Life

Carrying
Amount

Accumulated
Amortization

16 years
6 years

Average
Useful Life

16 years
5 years

4.2
9.9

14.1

0.4
1.4

1.8

December 31, 2002

Carrying
Amount

Accumulated
Amortization

3.5
2.3

5.8

0.1
0.2

0.3

Net

3.8
8.5

12.3

Net

3.4
2.1

5.5

Recorded intangible asset amortization expense for the years ended December 31, 2003 and 2002 was $1.3
million and $0.3 million, respectively. Estimated intangible asset amortization expense (based on existing
intangible assets) for the years ended December 31, 2004, 2005, 2006, 2007, and 2008 is $1.6 million, $1.6
million, $1.6 million, $1.7 million and $1.3 million, respectively.

6 . N O T E S P A Y A B L E A N D L O N G - T E R M D E B T

Notes payable include local credit lines maintained by the Company’s subsidiaries aggregating approximately
$40.4 million, of which $30.2 million was unused at December 31, 2003. At December 31, 2002 these lines
aggregated approximately $30.9 million, of which $24.2 million was unused. The weighted average interest
rate on these lines was 8.1% and 9.1% at December 31, 2003 and 2002, respectively. Bio-Rad Laboratories,
Inc. guarantees most of these credit lines.

The principal components of Long-term debt are as follows (in millions):

Senior Subordinated Notes

Other debt
Capitalized leases

Less current maturities

Long-term debt

December 31,

2003

2002

225.0

105.3

—
1.0

226.0
(0.2)

1.1
0.2

106.6
(0.8)

225.8

105.8

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

3 0

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. The Company has the option to redeem any or all of
the notes at any time prior to August 15, 2008 at a redemption price equal to 100% of the principal amount
of the notes plus the “applicable premium” (as defined by the indenture) plus accrued and unpaid interest
and certain other charges. The notes may be redeemed in whole or in part after August 15, 2008 and before
August 15, 2009 at a redemption price of 103.75%; after August 15, 2009 and before August 15, 2010 at a
redemption price of 102.50%; for the interim period to August 15, 2011 at 101.25%; thereafter at 100%.
The Company’s obligations under the notes are not secured and rank junior to all the Company’s existing and
future senior debt.

Through July 2003, the Company repurchased in the open market $17.3 million (par value) of its Senior
Subordinated Notes due in 2007 at an expense, including interest, unamortized issue costs and unamortized
original issue discount of $2.5 million. The remaining $88.7 million (par value) of Senior Subordinated Notes
due in 2007 were tendered and repurchased with a portion of the proceeds from the sale of the 7.5% Senior
Subordinated Notes at an expense, including interest, unamortized issue costs and unamortized original
discount of $11.6 million. This expense is included in interest expense.

During 2003, the Company also negotiated a new five-year $150.0 million revolving credit facility to replace
its $100.0 million revolving credit facility. The new credit facility is secured by substantially all of the
Company’s personal property assets and the assets of its domestic subsidiaries and 65% of the capital
stock of certain foreign subsidiaries. It is guaranteed by all of its existing and future domestic subsidiaries
(other than immaterial domestic subsidiaries as defined for purposes of the new credit facility). The
Company terminated its existing credit facility simultaneously with the closing of its new facility. Interest
varies upon a number of factors including the duration of the specific borrowing and is based upon either
the Eurodollar, the Federal Funds effective or the Company corporate based rate.

The new credit facility and the Senior Subordinated Notes require the Company, among other things, to
comply with certain financial ratios and covenants. These covenants include a leverage ratio test, an interest
coverage test and a consolidated net worth test. There are also restrictions on the Company’s ability to
declare or pay dividends, incur debt, guarantee debt, enter into transactions with affiliates, merge or
consolidate, sell assets, make investments, create liens and prepay subordinated debt. The Company was
in compliance with all financial ratios as of December 31, 2003.

Maturities of long-term debt at December 31, 2003, are as follows: 2004 – $0.2 million; 2005 – $0.3 million;
2006 – $0.2 million; 2007 – $0.2 million; 2008 – $0.1 million; thereafter – $225.0 million.

7 . I N C O M E T A X E S

The U.S. and international components of income (loss) before taxes are as follows (in millions):

U.S.
International

Income before taxes

3 1 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Year Ended December 31,

2003

42.8
70.9

113.7

2002

2001

37.6
66.8

104.4

(4.8)
69.8

65.0

Notes to Consolidated Financial Statements (continued)

The provision (benefit) for income taxes consists of (in millions):

Current:

U.S. Federal
International
U.S. State

Deferred:

U.S. Federal
International
U.S. State

Provision for income taxes

Year Ended December 31,

2003

2002

2001

8.3
33.5
1.1

42.9

(3.0) $
(1.8)
(0.6)

(5.4)

11.8
30.8
1.0

43.6

(2.3) $
(4.2)
(0.6)

(7.1)

2.8
23.7
0.4

26.9

0.2
(5.3)
(1.0)

(6.1)

37.5

36.5

20.8

The Company’s income tax provision differs from the amount computed by applying the U.S. federal statutory
rate to income before taxes as follows:

U. S. statutory tax rate
State taxes, net of federal income tax benefit
Foreign Sales Corporation/EIE tax benefit
Difference between U.S. and foreign tax rates

(net of foreign tax credits)

Loss carryforwards utilized
Amortization of goodwill
Foreign losses not benefited
Capital loss not benefited
Increase (decrease) in tax reserves
Other

Provision for income taxes

Year Ended December 31,

2003

2002

2001

35%
—
(2)

(1)
—
—
1
—
(1)
1

35%
—
(2)

2
(1)
—
2
1
(1)
(1)

35%
(1)
(4)

(10)
(1)
4
1
5
3
—

33%

35%

32%

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

3 2

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of deferred tax assets and liabilities are as follows (in millions):

Deferred tax assets:

Reserves for obsolete inventory, warranty, royalty and bad debts
Elimination of intercompany profit
Retirement reserve and vacation pay
Tax benefit of loss carryforwards
Basis difference in investment
State tax credit carryforward
Other

Valuation allowance

Deferred tax assets

Deferred tax liabilities:

Deferred gain on condemnation
Foreign exchange unrealized gain
Development cost of Hercules facility
Other

Deferred tax liabilities

Year Ended December 31,

2003

2002

17.7
9.4
7.8
8.4
4.1
5.2
8.3

60.9
(14.4)

46.5

6.1
3.4
1.3
3.2

14.0

11.5
7.8
5.5
8.5
4.1
4.5
8.1

50.0
(12.9)

37.1

2.9
—
1.5
5.4

9.8

At December 31, 2003, Bio-Rad’s international subsidiaries had combined net operating loss carryforwards
of $12.1 million. A portion of these loss carryforwards will expire in the following years: 2007 – $0.1 million;
and 2008 – $0.1 million. The remainder of these loss carryforwards have no expiration date. The utilization
of these carryforwards is limited to the separate taxable income of each individual subsidiary.

At December 31, 2003, Bio-Rad had an unutilized domestic net operating loss carryforward of $14.7 million.
The loss carryforward will expire in the year 2018. The utilization of the loss carryforward is limited to
Bio-Rad’s domestic taxable income. At December 31, 2003, Bio-Rad had a California tax credit carryforward
of $5.2 million. The credit carryforward has no expiration date. The utilization of the tax credit carryforward
is limited to the extent Bio-Rad has California taxable income.

The valuation allowance is needed to reduce the deferred tax assets to an amount that is more likely than
not to be realized. The net change in the valuation allowance in 2003 was an increase of $1.5 million,
primarily resulting from an increase in foreign loss carryforwards whose utilization is uncertain. The net
change in 2002 was a decrease of $4.4 million primarily resulting from the utilization of tax loss
carryforwards.

3 3 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Notes to Consolidated Financial Statements (continued)

Bio-Rad does not provide for taxes which would be payable if the cumulative undistributed earnings of its
international subsidiaries, approximately $163 million at December 31, 2003, were remitted to the U.S.
parent company. Unless it becomes advantageous for tax or foreign exchange reasons to remit a subsidiary’s
earnings, such earnings are indefinitely reinvested in subsidiary operations. The withholding tax and U.S.
federal income taxes on these earnings, if remitted, would in large part be offset by tax credits.

8 . S T O C K H O L D E R S ’ E Q U I T Y

The Company’s outstanding stock consists of Class A Common Stock (Class A) and Class B Common Stock
(Class B). Each share of Class A and Class B participates equally in the earnings of Bio-Rad, and is identical in
most respects except that Class A has limited voting rights. Each share of Class A is entitled to one-tenth of a
vote on most matters, and each share of Class B is entitled to one vote. Additionally, Class A stockholders are
entitled to elect 25% of the Board of Directors and Class B stockholders are entitled to elect the balance of
the directors. Cash dividends may be paid on Class A shares without paying a cash dividend on Class B
shares but no cash dividend may be paid on Class B shares unless at least an equal cash dividend is paid on
Class A shares. Class B shares are convertible at any time into Class A shares on a one-for-one basis at the
option of the stockholder.

9 . S T O C K O P T I O N A N D P U R C H A S E P L A N S

Stock Option Plans
The Company maintains stockholder approved incentive and non-qualified stock option plans for officers and
certain other key employees. No options have been issued to non-employees.

Under the Amended 1994 Stock Option Plan, the Company may grant options to its employees for up to
3,550,000 shares of common stock provided that no option shall be granted after March 1, 2004. Under the
plans, Class A and Class B options are granted at prices not less than fair market value on the date of grant.
Generally, options granted have a term of 10 years and vest in increments of 25% per year over a four-year
period on the yearly anniversary date of the grant. For options granted after January 1, 2001, options vest in
increments of 20% over a five-year period on the yearly anniversary date of the grant. At December 31, 2003,
918,545 shares remain available to be granted.

In April of 2003, stockholders approved the 2003 Stock Option Plan of Bio-Rad Laboratories, Inc. (the Plan).
The Plan authorizes the grant to employees of incentive stock options and non-qualified stock options. A
total of 1,675,000 shares have been reserved for issuance and may be of either Class A or Class B Common
Stock. No options have been granted from this plan during 2003.

Pro forma compensation costs are calculated for the fair value of the employees’ purchase rights, which was
estimated using the Black-Scholes method. 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 in 2001.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

3 4

The fair value of options granted was estimated using the Black-Scholes model with the following weighted
average assumptions:

Expected volatility
Risk-free interest rate
Expected life (in years)
Expected dividend

Year Ended
December 31,

2003

2002

37%
2.65%
4.2
—

35%
3.99%
4.2
—

See Note 1 for a description of the effect of the pro forma compensation expense derived using the fair value
method on the Company’s results.

Activity under the 1994 Plan is summarized below (amounts reported in the Price columns represent the
weighted average exercise price):

Year Ended December 31,

2003

2002

2001

Price

1,591,832 $
302,993
(222,699)
(89,211)
—

15.84
35.71
12.58
16.57
—

1,572,701
379,500
(350,549)
(9,820)
—

$ 11.80
28.85
11.67
10.90
—

1,921,778
—
(287,622)
(36,385)
(25,070)

$ 11.90
—
12.81
10.61
13.06

1,582,915 $

20.04

1,591,832

$ 15.84

1,572,701

$ 11.72

780,415 $

13.22

677,149

$ 12.39

672,266

12.60

11.85

9.75

—

Outstanding at

beginning of year

Granted
Exercised
Forfeited
Expired
Outstanding at
end of year

Options exercisable

at year-end

Weighted average

fair value of
options granted
during the year

3 5 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Notes to Consolidated Financial Statements (continued)

The following summarizes information about stock options outstanding at December 31, 2003:

Range of
Exercise Prices

$ 9.50 – $ 11.31
$ 11.57 – $ 15.82
$ 16.32 – $ 35.50
$ 36.00 – $ 39.60

Options Outstanding

Options Exercisable

Number

Weighted
Outstanding Average Remaining
at 12/31/03
Contractual Life

Weighted
Average
Exercise Price

Number
Exercisable
at 12/31/03

Weighted
Average
Exercise Price

453,561
459,691
585,530
84,133

5.87 years
4.33
8.08
8.74

1,582,915

6.39

10.72
12.71
30.67
36.30

20.04

319,192
378,540
82,283
400

780,415

10.69
12.85
24.65
37.23

13.22

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 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 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 71,314 shares for $2.4 million, 66,992 shares for $1.8 million and 88,982 shares for
$1.2 million under the plan to employees in 2003, 2002 and 2001, respectively. The weighted average fair
value of purchase rights granted in 2003, 2002 and 2001 was $9.76, $8.41 and $4.48, respectively. At
December 31, 2003, 269,239 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:

Expected volatility
Risk-free interest rate
Expected life (in years)
Expected dividend

Year Ended December 31,

2003

2002

2001

41.86%
.93%
.25
—

44.19%
1.58%
.25
—

44.44%
3.99%
.25
—

See Note 1 for a description of the effect of the pro forma compensation expense derived using the fair value
method on the Company’s results.

1 0 . E A R N I N G S P E R S H A R E

Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock options
of 894,000, 917,000 and 794,000 shares for the years ended December 31, 2003, 2002 and 2001, respectively.

There were no anti-dilutive shares for 2003 and 2002 and 2001.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

3 6

1 1 . O T H E R I N C O M E A N D E X P E N S E

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

Write-down of investments
Interest income
Miscellaneous other items

Other, net

Year Ended December 31,

2003

2002

2001

— $
2.1
0.9

3.0

(5.0) $
4.0
1.7

0.7

(10.9)
1.3
(0.4)

(10.0)

1 2 . S U P P L E M E N T A L C A S H F L O W I N F O R M A T I O N

The reconciliation of net income to net cash provided by operating activities is as follows (in millions):

Net income
Adjustments to reconcile net income to

net cash provided by operating activities:

Depreciation
Amortization
Foreign currency hedge transactions, net
Gains on dispositions of marketable securities
Decrease (increase) in accounts receivable, net
Increase in inventories, net
Increase in other current assets
Increase (decrease) in accounts payable

and other current liabilities

Increase (decrease) in income taxes payable
Increase (decrease) in deferred taxes
Loss on sale of spectroscopy business and

write-down of investments
Debt retirement costs on 11 5⁄8% bonds
Other

Year Ended December 31,

2003

2002

2001

76.2

67.9

44.2

40.0
2.0
15.0
(0.3)
10.0
(8.2)
(14.2)

(1.6)
(5.6)
(8.0)

—
9.5
12.8

36.9
1.1
2.3
(0.1)
(0.7)
(16.2)
(12.1)

13.0
(6.9)
13.7

5.0
—
1.9

32.6
8.7
(0.4)
(0.2)
(22.6)
(14.0)
(3.6)

11.9
17.6
(1.7)

15.4
—
11.6

99.5

Net cash provided by operating activities

127.6

105.8

3 7 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Notes to Consolidated Financial Statements (continued)

1 3 . C O M M I T M E N T S A N D C O N T I N G E N T L I A B I L I T I E S

Rents and Leases
Net rental expense under operating leases was $23.0 million in 2003, $19.5 million in 2002 and $15.8
million in 2001. Leases are principally for facilities and automobiles.

Annual future minimum lease payments at December 31, 2003, under operating leases are as follows:
2004 – $18.7 million; 2005 – $13.5 million; 2006 – $8.4 million; 2007 – $6.1 million; 2008 – $3.2 million;
subsequent to 2008 – $2.9 million.

Deferred Profit Sharing Retirement Plan
The Company has a profit sharing plan covering substantially all U.S. employees. Contributions are made at
the discretion of the Board of Directors. Bio-Rad has no liability other than for the current year’s contribution.
Contributions charged to income were $6.5 million, $4.8 million and $4.7 million in 2003, 2002 and 2001,
respectively.

Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts as an economic hedge against foreign currency
denominated intercompany receivables and payables. At December 31, 2003, the Company had contracts
maturing in January through March 2004 to sell foreign currency with a nominal value of $96.7 million and
an unrealized loss of $0.1 million. Contracts to purchase foreign currency had a nominal value of $26.9
million with an unrealized loss of $0.1 million.

Insurance
The Company carries a deductible for workers’ compensation and a portion of its group health insurance
cost. Accruals for losses are based on the Company’s claims experience and actuarial assumptions followed
in the insurance industry. Should a greater amount of claims occur compared to the Company’s estimates or
cost of medical care increase beyond what has been anticipated, reserves recorded may not be sufficient and
additional charges to income may be required.

Letters of Credit
In the ordinary course of business, the Company is at times required to post letters of credit. These letters
of credit are required by certain insurance companies to ensure payments of certain charges. The Company
was contingently liable for approximately $4.6 million of standby letters of credit with banks as of
December 31, 2003.

Taxes
Settlement of open tax years, as well as tax issues in other countries where the Company conducts its
business, are not expected to have a material effect on the consolidated financial position or liquidity of the
Company and, in the opinion of management, adequate provision has been made for income and franchise
taxes for all years under examination or subject to future examination.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

3 8

1 4 . L E G A L P R O C E E D I N G S

The Company is a 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.

1 5 . S E G M E N T I N F O R M A T I O N

Bio-Rad is a multinational manufacturer and worldwide distributor of life science research products and
clinical diagnostics products. Bio-Rad has two reportable segments: Life Science and Clinical Diagnostics.
These reportable segments are strategic business lines that offer different products and services and require
different marketing strategies.

The Life Science segment develops, manufactures, sells and services reagents, apparatus and instruments
used for biological research. These products are sold to university and medical school laboratories,
pharmaceutical and biotechnology companies, food testing laboratories and government and industrial
research facilities.

The Clinical Diagnostics segment develops, manufactures, sells and services automated test systems,
informatics systems, test kits and specialized quality controls for the healthcare market. These products are
sold to reference laboratories, hospital laboratories, state newborn screening facilities, physicians office
laboratories, transfusion laboratories, and insurance and forensic testing laboratories.

The remainder of the Company’s former Analytical Instruments segment is included in Other Operations.
The material product lines of this segment have been sold.

The accounting policies of the segments are the same as those described in Significant Accounting
Policies (see Note 1). Segment profit or loss used for corporate management purposes includes an
allocation of corporate expense based upon sales and an allocation of interest expense based upon
accounts receivable and inventories. Segments are expected to manage only assets completely under
their control. Accordingly, segment assets include primarily accounts receivable, inventories and gross
machinery and equipment. Goodwill balances and goodwill amortization have been included in corporate
for segment reporting purposes.

3 9 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Notes to Consolidated Financial Statements (continued)

Information regarding industry segments at December 31, 2003, 2002 and 2001 and for the years then
ended is as follows (in millions):

Segment net sales

Allocated interest expense

Depreciation and amortization

Segment profit (loss)

Segment assets

Capital expenditures

Life
Science

Clinical
Diagnostics

Other
Operations

2003
2002
2001

$ 480.0
429.5
379.2

$ 514.8
455.4
417.9

6.7
8.8
9.3

10.3
8.3
7.2

71.5
75.2
72.8

9.6
12.4
14.3

29.2
27.4
26.2

59.8
41.9
27.3

$ 252.7
225.1
194.2

36.2
10.9
10.0

$ 379.5
336.4
302.2

30.7
29.7
23.9

8.6
7.8
20.4

0.1
0.1
0.5

0.3
0.2
0.4

(0.2)
(1.6)
(5.3)

5.0
4.7
3.4

0.1
0.1
0.1

The difference between total segment allocated interest expense, depreciation and amortization, and
capital expenditures and the corresponding consolidated amounts is attributable to the Company’s corporate
headquarters. The following reconciles total segment profit to consolidated income before taxes (in millions):

Total segment profit
Other, net
Loss on divestitures
Goodwill amortization
Foreign exchange losses
Costs related to bond redemption
Net corporate operating, interest and other income

and expense not allocated to segments

Consolidated income before taxes

Year Ended December 31,

2003

2002

2001

131.1
3.0
—
—
(4.1)
(14.6)

115.5
0.7
—
—
(5.4)
(6.9)

(1.7)
113.7

0.5
104.4

94.8
(10.0)
(5.2)
(7.7)
(2.1)
—

(4.8)
65.0

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

4 0

The following reconciles total segment assets to consolidated total assets (in millions):

Total segment assets
Cash and other current assets
Net property, plant and equipment excluding

segment specific gross machinery and equipment

Goodwill
Other long-term assets

Total assets

December 31,

2003

2002

637.2
247.1

566.2
87.6

(34.3)
69.5
67.4

(45.8)
69.5
43.2

986.9

720.7

The following presents sales to external customers by geographic area based primarily on the location of the
use of the product or service (in millions):

Europe
Pacific Rim
United States
Other (primarily Canada and Latin America)

Total sales

368.6
151.9
320.4
51.8

341.7
127.5
296.9
51.4

817.5

1,003.4

892.7

The following presents long-lived assets by geographic area based upon the location of the asset
(in millions):

Year Ended December 31,

2002

2001

2003

441.4
167.0
344.6
50.4

2003

48.4
7.5
254.4
5.7

Year Ended December 31,

2002

2001

31.8
7.2
216.2
5.2

25.3
6.4
217.0
4.5

253.2

316.0

260.4

Europe
Pacific Rim
United States
Other (primarily Canada and Latin America)

Total long-lived assets

4 1 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Notes to Consolidated Financial Statements (continued)

1 6 . Q U A R T E R LY F I N A N C I A L D A T A — ( U N A U D I T E D )

Summarized quarterly financial data for 2003 and 2002 are as follows (in millions, except per share data):

2003

Net sales
Gross profit
Net income
Basic earnings per share
Diluted earnings per share

2002

Net sales
Gross profit
Net income
Basic earnings per share
Diluted earnings per share

1 7 . S U B S E Q U E N T E V E N T

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$
$

246.0
142.7
26.4
1.04
1.01

210.2
121.3
18.8
0.75
0.73

$
$

243.5
136.4
21.0
0.83
0.80

214.6
122.3
16.2
0.65
0.62

$
$

247.7
137.4
9.7
0.38
0.37

224.9
129.0
16.6
0.66
0.64

$
$

266.2
148.9
19.1
0.75
0.73

243.0
136.9
16.3
0.64
0.62

On March 4, 2004, the Company purchased for cash the controls business of Hematronix, Inc. of Plano, Texas.
Bio-Rad acquired tangible and intangible assets of approximately $17 million and assumed certain liabilities.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

4 2

Independent Auditors’ Report

T O T H E B O A R D O F D I R E C T O R S A N D S T O C K H O L D E R S O F
B I O - R A D L A B O R A T O R I E S , I N C .

We have audited the accompanying consolidated balance sheets of Bio-Rad Laboratories, Inc. and
subsidiaries (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements
of income, stockholders’ equity, and cash flows for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements of the Company for the year ended
December 31, 2001 were audited by other auditors who have ceased operations. Those auditors expressed
an unqualified opinion on those financial statements in their report dated February 4, 2002, (February 6,
2002, as to a subsequent event).

We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Bio-Rad Laboratories, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results
of their operations and their cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 5 to the consolidated financial statements, in 2002 the Company changed its method of
accounting for goodwill and intangible assets to conform to Statement of Financial Accounting Standards
(SFAS) No. 142, “Goodwill and Other Intangible Assets.”

As discussed above, the consolidated financial statements of the Company for the year ended December 31,
2001 were audited by other auditors who have ceased operations. As described in Note 5, these consolidated
financial statements have been revised to include the transitional disclosures required by SFAS No. 142,
“Goodwill and Other Intangible Assets”, which was adopted by the Company as of January 1, 2002. Our audit
procedures with respect to the disclosures in Note 5 with respect to 2001 included (i) agreeing the previously
reported net income to the previously issued financial statements and the adjustments to reported net
income representing amortization expense (including any related tax effects) recognized in those periods
related to goodwill to the Company’s underlying records obtained from management, and (ii) testing the
mathematical accuracy of the reconciliation of adjusted net income to reported net income, and the related
earnings-per share amounts. However, we were not engaged to audit, review, or apply any procedures to the
2001 consolidated financial statements of the Company other than with respect to such disclosures and,
accordingly, we do not express an opinion or any other form of assurance on the 2001 consolidated financial
statements taken as a whole.

San Francisco, California
March 10, 2004

4 3 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

This report is a copy of the previously issued report covering 2001, 2000 and 1999.
The predecessor auditors have not reissued their report.

Report of Independent Public Accountants

T O T H E S T O C K H O L D E R S A N D B O A R D O F D I R E C T O R S O F
B I O - R A D L A B O R A T O R I E S , I N C . :

We have audited the accompanying consolidated balance sheets of Bio-Rad Laboratories, Inc. (a Delaware
Corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements
of income, cash flows and changes in stockholders’ equity for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Bio-Rad Laboratories, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years in the period ended December
31, 2001 in conformity with accounting principles generally accepted in the United States.

San Francisco, California
February 4, 2002, except for Note 7,
as to which the date is February 6, 2002

A R T H U R A N D E R S E N L L P

2 0 0 3 B i o - R a d l a b o r a t o r i e s a n n u a l r e p o r t

4 4

Management’s Discussion and Analysis

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S O F R E S U LT S
O F O P E R A T I O N S A N D F I N A N C I A L C O N D I T I O N

This discussion should be read in conjunction with the information contained in the Company’s Consolidated
Financial Statements and the accompanying notes which are an integral part of the statements. References
are to the Notes to Consolidated Financial Statements.

Other than statements of historical fact, statements made in this Annual 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 substantial leverage and ability to service our debt; competition in and
government regulation of the industries in which we operate; and the monetary policies of various countries.
We 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 34% of our 2003 consolidated net sales are from the United States and
approximately 66% 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 U.S. dollars in 2003 and, to a lesser extent, 2002
sales as well. The market for reagents and apparatus remains good as growth rates have slowed in the
global economic downturn but have not turned negative. The market for large capital equipment in 2002 and
2003 declined from prior periods, as many pharmaceutical and biotechnology customers delayed or reduced
their capital spending. Bio-Rad is generally less impacted by capital spending as lower cost reagents and
apparatus comprise more than 70% of product sales.

4 5 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Management’s Discussion and Analysis (continued)

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

Net sales

Cost of goods sold

Gross profit
Selling, general and administrative expense
Product research and development expense
Net income

Year Ended December 31,

2002

2001

100.0
42.9

57.1
32.4
9.3
7.6

100.0
44.3

55.7
32.4
9.4
5.4

2003

100.0
43.7

56.3
32.4
9.4
7.6

We intend that the discussion of our financial condition and results of operations that follow will assist you in
understanding how accounting principles, policies and estimates effect our results, and the significant
factors that caused changes in our operations and financial position for the years ended December 31, 2003
and 2002.

C R I T I C A L A C C O U N T I N G P O L I C I E S A N D E S T I M A T E S

The accompanying discussion and analysis of the Company’s financial condition and results of operations are
based upon the consolidated financial statements, which have been prepared in accordance with generally
accepted accounting principles in the United States (GAAP). The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and contingencies as of the date of the financial statements and reported
amounts of revenues and expenses during the reporting periods. The Company evaluates its estimates on an
on-going basis. The Company bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. However, future events are subject to change and the best current estimates and assumptions
routinely require adjustment. Actual results could differ from these estimates.

Accounting for Income Taxes. As part of the process of preparing Bio-Rad’s consolidated financial
statements management is required to estimate the Company’s income taxes in each of the jurisdictions in
which the Company operates. This process involves estimating Bio-Rad’s actual current tax exposure
together with assessing temporary differences resulting from differing treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and liabilities, which are included within
the consolidated balance sheet. Management must then assess the likelihood that the deferred tax assets
will be recovered from future taxable income and to the extent management believes that recovery is not
likely, a valuation allowance must be established. To the extent management establishes a valuation
allowance or increases this allowance in a period, an expense within the tax provision in the statement of
operations must be included.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

4 6

Significant management judgment is required in determining the provision for income taxes, deferred tax
assets and liabilities and any valuation allowance recorded against the net deferred tax assets. The Company
has recorded a valuation allowance of $14.4 million and $12.9 million as of December 31, 2003, and 2002
respectively due to uncertainties related to the Company’s ability to utilize some of the deferred tax assets,
primarily consisting of certain net operating losses carried forward, before they expire. The valuation
allowance is based on management’s current estimates of taxable income by jurisdiction in which Bio-Rad
operates and the period over which the deferred tax assets will be recoverable. In the event that actual
results differ from these estimates or these estimates are adjusted in future periods an additional valuation
allowance may need to be established which would increase the tax provision, lowering income and
impacting Bio-Rad’s financial position. Should realization of these deferred assets previously reserved occur,
the tax provision would decrease, raising income and positively impacting Bio-Rad’s financial position.

Valuation of Long-lived and Intangible Assets and Goodwill. The Company assesses the impairment of
identifiable intangibles, long-lived assets and related goodwill and enterprise level goodwill whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. Projected future
operating results and cash flows of the reporting units were used to establish the fair value used in
evaluating the carrying value of the associated goodwill. Factors the Company considers important which
could trigger an impairment review include the following:

• significant under-performance relative to expected historical or projected future operating results;
• significant changes in the manner of use of the acquired assets or the strategy for the Company’s

overall business;

• significant negative industry or economic trends.

When the Company determines that the carrying value of intangibles, long-lived assets and related goodwill
and enterprise level goodwill may not be recoverable based upon the existence of one or more of the above
indicators of impairment, the Company measures any impairment based on a projected discounted cash flow
method using a discount rate determined by management to be commensurate with the risk inherent in
Bio-Rad’s current business model.

In 2002, Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”
(SFAS No. 142) became effective. The Company adopted SFAS No. 142 and ceased to amortize approximately
$77.7 million of goodwill. The Company had recorded approximately $7.7 million of amortization on these
amounts during 2001. In lieu of amortization, the Company is required to perform an annual impairment
review of goodwill. For the years 2002 and 2003 that review indicated no impairment had taken place.
However, there can be no assurance that a material impairment charge will not be recorded in future periods.

Valuation of Inventories. The Company values inventory at the lower of the actual cost to purchase and/or
manufacture the inventory or the current estimated market value of the inventory. The Company regularly
reviews inventory quantities on hand and records a provision for excess and obsolete inventory based
primarily on an estimated forecast of product demand and production requirements for the next twelve
months. In addition, our industry is characterized by technological change, frequent new product
development and product obsolescence that could result in an increase in the amount of obsolete inventory
quantities on hand. Additionally, the Company’s estimates of future product demand may prove to be
inaccurate, in which case the Company may have understated or overstated the provision required for excess
and obsolete inventory. In the future, if inventory is determined to be overvalued, the Company would be
required to recognize such costs in our cost of goods sold at the time of such determination. Likewise, if

4 7 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Management’s Discussion and Analysis (continued)

inventory is determined to be undervalued, the Company may have over-reported cost of goods sold in
previous periods and would be required to recognize such additional operating income at the time of sale.
Therefore, although the Company makes efforts to ensure the accuracy of its forecasts of future product
demand, any significant unanticipated changes in demand or technological developments could have a
significant impact on the value of its inventory and reported operating results.

C O R P O R A T E R E S U LT S — S A L E S , M A R G I N S A N D E X P E N S E S

Bio-Rad net sales for the year 2003 were $1,003.4 million, an increase of 12.4% over the prior year.
The impact of a weakening US dollar throughout the year provided growth from net foreign currency
denominated sales of approximately 8.7% for the full year.

The Life Science segment had sales growth of 11.8% in 2003, benefiting from an approximate 8.8%
increase due to foreign exchange. Sales declined on a currency neutral basis for food safety as our
competitors significantly lowered their average per test sales asking price necessitating Bio-Rad to also
lower its average per test sales price. The microscopy product line sales declined as Bio-Rad entered into
an agreement to sell its product line to a competitor. The sale is currently being reviewed by the United
Kingdom’s Competition Commission and their ruling is presently not expected for several months.

The Clinical Diagnostics segment had sales growth of 13.0% in 2003, benefiting from an approximate 8.6%
increase due to foreign exchange. Product lines providing the 4.4% of currency neutral sales growth were
quality control products and blood virus products. Quality control products grew particularly well in North
America and Europe. Blood virus products grew in Europe.

Bio-Rad net sales for the year 2002 were $892.7 million, an increase of 9% over the prior year. The impact of
a weakening US dollar provided growth from foreign currency denominated sales of less than 1% for the full
year. Overall growth for Bio-Rad exceeded 11% on a currency neutral basis when adjusted for the
spectroscopy product line divestiture.

The Life Science segment had sales growth of 13% in 2002, benefiting 1% due to foreign exchange.
The majority of growth was provided by consumables. Modest growth was achieved by apparatus, and
instrument sales declined year over year.

The Clinical Diagnostics segment achieved sales growth of 9% in 2002, again benefiting 1% due to foreign
exchange. Contributing product lines included diabetes, autoimmune, quality control products, and blood
virus products.

The 2003 consolidated gross margins declined to 56.3% from 57.1% in the prior year. The decline in gross
margin for the Life Science segment accounted for the entire decline for the Company as a whole. The food
safety product line accounted for the majority of the decline as average selling price declined and costs to
automate customer testing procedures were not recovered in an attempt to protect the Company’s existing
market share. Life Science manufacturing overhead costs also increased as planned spending levels exceeded
the planned activity levels resulting in less efficient overhead absorption. Life Science management plans to
limit the growth in overhead costs in the near term, but during early 2004 may incur some additional costs
involved in both the relocation of facilities and installation of new manufacturing systems. Clinical Diagnostic
gross margins improved by approximately one-half of one percent. Spending increases below the rate of
sales growth have generally aided the small improvement in Clinical Diagnostic margins.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

4 8

The 2002 consolidated gross margins improved to 57.1% from 55.7% in the prior year. Life Science gross
margins improved over 2001 approximately 0.3% based largely on sales mix as consumables and apparatus
with higher margins than instruments comprised a greater portion of the total sales volume. Clinical
Diagnostics gross margins improved over 2001 from lower manufacturing overhead spending and a decrease
in provisions for obsolete inventory. The divestiture of the spectroscopy product line also helped contribute
as it historically operated at a much lower gross margin than the Company as a whole.

Consolidated selling, general and administrative (SG&A) expense increased in line with the rate of sales
growth, to end the year at 32.4% of sales, the same percentage as for the years ended 2002 and 2001.
The Life Science segment added expenses at a rate of growth higher than sales. Areas of emphasis were
selling and marketing efforts in the segment’s protein function, protein separation and gene expression
product lines. SG&A expenses were not reduced in food safety as a means to respond in the short term to
competitive pressures maintaining Bio-Rad’s market leading position. The Clinical Diagnostics segment grew
SG&A at a lower rate than sales growth and accounts in large part for their improved segment profitability.
The Company also made investments in financial and tax compliance to improve future profitability.
The Company anticipates some additional expenses related to Financial Reporting and its annual audits as
2004 will be the first year of mandatory external auditor certification for compliance with Section 404 of
the Sarbanes-Oxley Act.

In 2002, consolidated selling, general and administrative expense remained unchanged from the prior year
at 32.4% of sales. Spending increased in absolute dollars in both Life Science and Clinical Diagnostics. The
areas where increases were the largest were in Europe to support the growth that began in 2001 through the
current year. The Company also increased its involvement in Eastern Europe. Asia, excluding Japan, was a
second area of emphasis in 2002 for Bio-Rad. The Company sees an opportunity to increase sales through
greater penetration and increasing its direct involvement with the customer.

Product research and development expense (R&D) in 2003 rose to 9.4% of sales. In absolute dollars each
segment had growth with Life Science increasing slightly more than Clinical Diagnostics. Increased efforts in
Life Science concentrated on proteomics, process chromatography, food testing and microarray technology.
Clinical Diagnostics efforts are concentrating on automation for the serology, autoimmune and blood virus
product lines as well as the expansion and enhancement of the segment’s quality control products and blood
virus diagnostic tests. Bio-Rad plans to reinvest between 9% and 10% of sales in research and development
annually to support continued sales growth.

Product research and development expense in 2002 increased by 8.4% just below the rate of sales (9.2%).
The majority of the increase in absolute dollar spending was in the Life Science segment to support
development activities in the areas of proteomics, amplification, food testing, microarray technology and
process chromatography.

In 2002, Clinical Diagnostics R&D remained unchanged. Areas of emphasis for Clinical Diagnostics included
blood screening, autoimmune testing, genetic disorders and expanded offerings for the quality control
product line.

4 9 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Management’s Discussion and Analysis (continued)

C O R P O R A T E R E S U LT S — N O N - O P E R A T I N G I T E M S

Interest expense increased to $31.0 million in the year 2003. Included in the current year’s interest cost
is $14.6 million for the open market repurchase and tendering of $106.0 million of Bio-Rad’s 11 5⁄8% Senior
Subordinated Notes due 2007 and the refinancing of the Company’s primary credit facility. These costs
include a premium to repurchase the notes, and the expensing of unamortized debt issue costs and original
issue discount.

When compared to 2001, interest expense increased to $28.2 million in 2002 and included $6.9 million of costs
associated with the open market repurchase of $43.9 million of the Company’s Senior Subordinated Notes.

Over the two year period Bio-Rad has seen a decline in borrowing rates on its variable rate debt. During the
period January 2002 through August 2003, Bio-Rad had a consistent general decline in borrowed funds as it
repaid debt that originated from its acquisition of Pasteur Sanofi Diagnostics in October 1999.

Foreign exchange losses for 2003 decreased by $1.4 million when compared to the year 2002. During 2002
Bio-Rad had atypical currency losses on unhedged intercompany receivables from Brazil and Russia. For
the full year 2003 Bio-Rad hedged a substantial portion of its Brazilian intercompany receivable which
successfully avoided exposure to currency changes. As a result, the additional cost of hedging was greater
than 2002, offsetting a significant portion of the improvement. All years include the net cost of Bio-Rad’s
hedging program for the established European, Asian and North America currencies.

Bio-Rad’s consolidated effective tax rate was 33%, 35% and 32% in 2003, 2002 and 2001, respectively.
The tax rate for all years reflects the utilization of loss carryforwards, foreign sales corporation benefits,
and foreign tax credits. The effective tax rate declined in 2003, primarily as a result of the utilization of
unbenefited tax loss carryforwards, most notably in Brazil.

F I N A N C I A L C O N D I T I O N

Historically, the Company’s principal capital requirement was for working capital to fund its internal growth. As
a result of the obligations undertaken in relation to the acquisition of Pasteur Sanofi Diagnostics, the Company
became highly leveraged with a debt to equity ratio at year-end 1999 of 119%. Since that time and up to
Bio-Rad’s decision in August 2003 to secure $225 million in long-term capital in the form of 7.5% debentures,
the Company had improved its overall liquidity reducing its debt to equity ratio at July 31, 2003 to 22%.

At December 31, 2003, the Company had available $148.6 million in cash and cash equivalents, $30.2
million under the international lines of credit and $150.0 million under the restated and amended Revolving
Credit Facility signed September 5, 2003. 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 an acquisition or acquisitions with an
accumulated value of approximately $200 million.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

5 0

C A S H F L O W F R O M O P E R A T I O N S

Net cash provided by operations was $127.6 million, $105.8 million and $99.5 million in 2003, 2002 and
2001 respectively. The integration of the Pasteur Sanofi Diagnostics acquisition, the introduction of new
products (most notable the BSE test) and improved profitability in the Clinical Diagnostics segment have all
contributed to the improved cash flow from operations for the Company.

Consolidated net accounts receivable increased by $24.8 million or 11.9% over 2002. The impact of
strengthening foreign currencies, in particular, the Euro versus the U.S. dollar, accounts for the majority of
the increase. From December 31, 2002 to December 31, 2003 the Euro strengthened approximately 20%.
European accounts receivable approximated 59% of the Company’s year-end 2003 balance of total
receivables. Overall, the Company experienced better collections as the number of days sales outstanding
dropped slightly. Bio-Rad’s management regularly reviews the allowance for uncollectable accounts
receivable and believes net accounts receivable are fully realizable.

Consolidated net inventory increased $23.9 million or 14.4% over 2002. Again, strengthening foreign
currencies accounted for a majority ($15.2 million) of the increase in inventory value. Inventory growth in
2003 over 2002, unrelated to the foreign currency increase, was principally the result of inventory builds
associated with a product distribution agreement starting more slowly than anticipated, a facility relocation
completed in January 2004 and a purchase commitment for certain automated equipment which should
begin shipping to customers in the second quarter of 2004. Inventory in the quality controls and process
chromatography area are characterized by large batch sizes to meet customer specifications and pose an
increased risk should either manufacturing processes or customer commitments change. Management
routinely reviews the impact of obsolescence and market prices on current inventory caused by the
introduction of new products, technologies and various pricing regulations.

C A S H F L O W F R O M I N V E S T I N G A C T I V I T I E S

Net capital expenditures in 2003 totaled $69.0 million compared to $42.2 million and $43.2 million in
2002 and 2001, respectively. The Company completed construction in January 2004 of the new facilities
for manufacturing, laboratory, and general office use on Company owned land in the business park where
Corporate headquarters, Life Science and Clinical Diagnostics group operations are now located. The
estimated current cost of the facility is $25 million and complete occupancy will occur by the end of the first
quarter of 2004. To December 31, 2003, approximately $24.8 million has been capitalized on this project of
which $23.1 million was capitalized in the current year. A principal expenditure in all years was clinical
diagnostic equipment placed with customers to be used with the Company’s diagnostic reagents. For 2003
the amount represents $14.5 million of capital additions. The Company continues to invest in business
systems to standardize distribution software and enhance data communication. Other expenditures were
made for the replacement and improvement of production equipment and facilities to meet the necessary
Good Manufacturing Practices, (GMP) mandated by the Food and Drug Administration (FDA) for Clinical
Diagnostics and other regulatory bodies as well as many customers of the Life Science group. It is
anticipated that the European In Vitro Diagnostic Directive will increase the burden of compliance for the
Company in Europe and will necessitate continued compliance expenditures of a capital nature.

5 1 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Management’s Discussion and Analysis (continued)

C A S H F L O W F R O M F I N A N C I N G A C T I V I T I E S

The Company completed three significant financing transactions during 2003. These transactions were the
completion of a new $150.0 million revolving credit facility, the placement of $225.0 million aggregate
principal amount of Senior Subordinated Notes in a private offering and completion of a cash tender offer to
retire all of its outstanding 11 5⁄8% Senior Subordinated Notes due in 2007.

The new $150.0 million revolving credit facility is secured by substantially all of the Company’s personal
property assets and the assets of its domestic subsidiaries and 65% of the capital stock of certain foreign
subsidiaries, and is guaranteed by all of its existing and future domestic subsidiaries (other than immaterial
domestic subsidiaries as defined for purposes of the new credit facility). The Company terminated its existing
$100.0 million revolving credit facility prior to the closing of the new revolving credit facility. The interest rate
varies due to a number of factors including the duration of the specific borrowing and is based upon either
the Eurodollar, the Federal Funds effective or the Company corporate based rate. The Company will pay a
commitment fee annually on the daily unused portion of the revolving credit facility.

On August 11, 2003 the Company completed the sale of $225 million aggregate principal amount of its 7.5%
Senior Subordinated Notes due 2013 in a private offering. The Company used $98.2 million of the net
proceeds from this offering to fund the purchase of the outstanding 11 5⁄8% Senior Subordinated Notes due
2007 pursuant to a tender offer completed on September 30, 2003 with the remainder available for general
corporate purposes, which may include acquisitions.

The new Senior Subordinated Notes have been exchanged for the new 7.5% Exchange Notes that have
been registered under the Securities Act of 1933, as amended, or applicable state securities laws. This
transaction was completed on October 30, 2003, with the new Exchange Notes being virtually identical in all
material respects to the 7.5% Senior Subordinated Notes originally issued only to qualified institutional
buyers in reliance of Rule 144A and in offshore transactions pursuant to Regulation S under the Securities
Act as amended.

The Company completed a cash tender and consent solicitation for all of its outstanding 11 5⁄8% Senior
Subordinated Notes due 2007. Holders received consideration of 110.625% of the principal amount of notes,
which included a consent payment of 1.5% of the principal amount of the notes. In accordance with the
terms of the indenture governing the notes, any notes not tendered were called for redemption, redeemed
and the notes retired. This closes the last of the financings originally used to primarily fund the 1999
acquisition by Bio-Rad of Pasteur Sanofi Diagnostics from Sanofi Synthelabo and the Institut Pasteur.

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.
Currently no discussions involving a material acquisition have progressed beyond the most initial phases.
Should the Company make a material acquisition it would most likely require an increase in borrowed funds.

The Board of Directors has authorized the Company to repurchase up to $18 million of the Company’s
common stock over an indefinite period of time. Through December 31, 2003, 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 2002 or 2003. The repurchase is designed to improve
shareholder value and to satisfy the Company’s obligations under the employee stock purchase and stock
option plans.

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

5 2

C O N T R A C T U A L O B L I G A T I O N S

The following summarizes certain of our contractual obligations as of December 31, 2003 and the effect such
obligations are expected to have on our cash flows in future periods (in millions):

Contractual Obligations

Long-term debt, including current portion (1)
Operating lease obligations (2)
Purchase obligations (3)
Long-term liabilities

Total

226.0
52.8
10.9
16.9

Less than
One Year

1-3 Years

3-5 Years

More than
5 Years

0.2
18.7
7.3
—

0.5
21.9
1.3
2.7

0.3
9.3
0.8
0.9

225.0
2.9
1.5
13.3

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

Balance Sheets. See Note 6 of the Consolidated Financial Statements for additional information about our debt.

(2) Operating lease obligations are described in Note 13 of the Consolidated Financial Statements.
(3) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on the Company

and that specify all significant terms. Purchase obligations exclude agreements that are cancelable without penalty.

F I N A N C I A L R I S K M A N A G E M E N T

Bio-Rad uses derivative financial instruments to reduce the Company’s exposure to fluctuations in foreign
exchange rates and, on occasion, interest rates. No derivative financial instruments are entered into for the
purpose of speculating or trading. Company policy limits all derivative positions exclusively to reducing risk
by hedging an underlying economic exposure. These derivative investments do not qualify for hedge
accounting treatment under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative
Instruments and Hedging Activities.” Derivative instruments used in these transactions will be valued at fair
value and changes in fair value will be included in reported earnings.

Bio-Rad operates and conducts business in many countries and is exposed to movements in foreign currency
exchange rates. Additionally, Bio-Rad’s consolidated net equity is impacted by the conversion of the net
assets of international subsidiaries for which the functional currency is not the U.S. Dollar. Foreign currency
exposures are managed on a centralized basis by the Company’s Treasury Department. This allows for the
netting of natural offsets and lowers transaction costs and exposures. Bio-Rad currently makes more than
60% of its sales outside the United States and weakening in one currency can often be offset by
strengthening in another.

Bio-Rad typically enters into forward exchange contracts to sell its foreign currency. Contracts primarily in
British Sterling, Japanese Yen and the Euro, are entered into typically for 30 to 60 days. The costs are
recognized in income monthly and generally are the reciprocal of the change in underlying assets. Bio-Rad
does not hold any derivative contracts that hedge its foreign currency denominated net asset exposures.

Bio-Rad uses sensitivity analysis to assess the market risk associated with its foreign currency exchange risk.
Market risk is the potential change in fair value of derivative positions from an adverse movement in currency
exchange rates. As of December 31, 2003, the Company’s market risk was not significant.

The Company’s long-term debt consists mostly of fixed rate instruments. While the Company has used
derivative instruments in the past, it did not hold any interest rate derivative contracts at December 31, 2003.

5 3 2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

Notes

2 0 0 3 b i o - r a d l a b o r a t o r i e s a n n u a l r e p o r t

5 4

ANNUAL MEETING

The Annual Meeting of
stockholders will be held on
Tuesday, April 27, 2004
at 4:00 p.m. Pacific Time at
Bio-Rad Laboratories Corporate
Offices in Hercules, California.

Bio-Rad will provide without
charge to each stockholder, upon
written request to the Secretary,
a copy of its 2003 Annual Report
filed with the Securities and
Exchange Commission on
Form 10-K.

TRANSFER AGENT

La Salle National Bank
135 South LaSalle Street
Chicago, Illinois 60603

Mailing Address:
P.O. Box LL
Chicago, Illinois 60690

Telephone (800) 246-5761
Fax (312) 904-2236

AUDITORS

Deloitte & Touche LLP
San Francisco, California

COMMON STOCK

Traded on the American Stock
Exchange

Class A Common Stock
Symbol BIO

Class B Common Stock
Symbol BIOb

Corporate Information

DIRECTORS

David Schwartz
Chairman of the Board

Norman Schwartz
Director

James J. Bennett
Director

Albert J. Hillman
Director

Ruediger Naumann-Etienne
Director

Philip L. Padou
Director

Alice N. Schwartz
Director

OFFICERS

David Schwartz
Chairman of the Board

Norman Schwartz
President and
Chief Executive Officer

Brad Crutchfield
Vice President and Group Manager
Life Science

John Goetz
Vice President and Group Manager
Clinical Diagnostics

Christine A. Tsingos
Vice President and
Chief Financial Officer

Sanford S. Wadler
Vice President, General Counsel
and Secretary

Ronald W. Hutton
Treasurer

James R. Stark
Corporate Controller

OTHER EXECUTIVES

John Hertia
Group Operations Manager, U.S.
Clinical Diagnostics

Patrick Bugeon
Group Operations Manager, France
Clinical Diagnostics

Giovanni Magni
International Sales Manager

Gregory Banik
Manager, Informatics

Bruce Bartholomew
Manager, U.S. Sales and Service
Clinical Diagnostics

Steve Binder
Director, Technology Development
Clinical Diagnostics

François Capit
Manager, Food Science

Diane Dahowski
Manager, Clinical Systems

Patrice Deletoille
Manager, Blood Virus

David Forrester
Regional Manager, Northern Europe

Robyn Hawkins
Manager, Quality Systems

Ann Madden
Manager, Clinical Microbiology

Kuniaki Masuoka
Regional Manager, Japan

Paul Menter
Manager, North America Sales

Brendan Parker
Manager, Cell Science

Leonard Pulig
Manager, Protein Function

Yves Quinchard
Regional Manager, France

Wolfram Rodatz
Regional Manager, Central Europe

Angelo Scandroglio
Regional Manager, Southern Europe

Edward Stauber
Regional Manager, Asia Pacific

Annette Tumolo
Manager, Gene Expression

Gus Salem
Manager, Protein Separation

Sanjiv Suri
Regional Manager, Eastern Europe

Bio-Rad Laboratories
1000 Alfred Nobel Drive
Hercules, CA 94547
tel: (510) 724-7000
fax: (510) 724-5817