Connected
Bio-Rad Laboratories
Annual Report 2005
Bio-Rad Laboratories plays a leading role in the
advancement of scientific discovery by providing a
broad range of innovative tools and services to the life
science research and clinical diagnostics markets.
The company is world renowned among hospitals, universities, major research
institutions, biotechnology companies and pharmaceutical firms for its commitment
to quality and customer service. With a global team of more than 5,000 employees,
Bio-Rad has built strong customer relationships that advance scientific research
and development efforts and support the introduction of new technology used in
the growing fields of genomics, proteomics, drug discovery, food safety, medical
diagnostics and more.
How do you test for a rare
chromosomic disease? How do
you help researchers hasten the
cure for serious blood disorders?
How do you find a needle in an
information haystack? How do
you help in finding a cure?
The answer is that you
make connections.
At Bio-Rad, we connect the
problems to the solutions.
And the solutions to the
people who need them.
2 : Bio-Rad 2005 Annual Report
To our Shareholders: 2005 was another year of growth. Sales increased by $91 million to achieve total sales of $1.181 billion for the year. Both of our Groups contributed to the growth as Life Science grew by 9% and Diagnostics 7%. We were also able to expand net income which reached about 7% of sales.Behind the numbers for 2005 are many accomplishments. A myriad of new products and a number of new systems were introduced; notable among them is the BioPlex® 2200 System, a revolutionary new system for the clinical lab, which has the advantage of being able to perform multiplex diagnostic testing. This was officially released for sale in the 4th quarter and we made our first placement just before year end. We also continued to make infra-structure improvements, giving us the scale needed to support our ever growing and diverse operations.The year was not without its challenges. Our thermal cycler litigation was more protracted than expected but is now resolved, giving us full access to U.S. and export markets with the products we acquired as part of MJ Research. In the BSE testing market, average selling prices have come down, however, we have maintained good margins for this product and have retained our dominant market position and the loyalty of our customers. That loyalty also extends to our European customers who were inconvenienced by integration problems when we instituted new software as part of a larger project to restructure our European distribution, giving us scale and efficiency for the future. Although we were not successful with our targeted antibody acquisition, we had accumulated more than 5% of the Company’s stock and realized a several million dollar gain on the investment. Finally, in the last few days of the year, one of our UK offices was heavily damaged by an oil depot explosion. Remarkably, no one was injured and we have been able to keep customer impact to a minimum. As we turn our focus to 2006, we are mindful of the fact that the growth in government funding for research in some areas has been moderated in the short term as funds have been redirected to other efforts and that there David Schwartz
Chairman of the Board
Norman Schwartz
President
is continuing concern about the rising cost of healthcare. For us, this sharpens our focus to develop and introduce new “tools” to help researchers be more successful in the discovery process and to deliver more effective solutions to the clinical laboratory, aiding in the early diagnosis and better treatment of human disorders.We see a number of opportunities on the horizon. With the thermal cycler litigation resolved, we can now fully serve our markets with one of the broadest line of products available, realizing the full value of the MJ acquisition, completed just over a year ago. With the introduction of the BioPlex® 2200 System, we are now looking forward to introducing further test panels to expand market potential for this exciting prod-uct. Externally, there are a number of interesting product line acquisitions under evaluation and we have ample resources to conclude one or more of these in the new year. For 2006, we have also undertaken a major project in Europe to stream-line our management structure and better align our product management across Europe in line with the vast changes in communication and transportation of goods that have come about as a result of the European Union. The project will be implemented throughout 2006 and we should start to see the benefits toward the end of 2007.The theme of this year’s annual report is “connections”. It is, in the end, the primary task of every employee at Bio-Rad to stay connected to our markets and our customers. Staying connected means understanding the trends in research and healthcare and developing useful products that improve our customers’ work. Our direct sales force around the world, coupled with our interest in helping to advance science and healthcare, keeps us connected to an ever changing environment.We have a lot to look forward to in the coming year and appreciate your interest in Bio-Rad. Identifying Connections
Before you can
connect to a solution,
you have to see it.
Which is exactly what Bio-Rad’s Clinical Diagnostics Group
does. Clinical Diagnostics develops, manufactures, sells
and supports a large portfolio of products for medical
screening and diagnostics. Bio-Rad is the number one
specialty diagnostic company in the world and is rec-
ognized as the gold standard in diabetes monitoring,
broad-spectrum screening and hospital epidemiology.
The company is also well known for its quality control
(QC) systems, blood virus testing and detection, toxi-
cology, genetic disorders testing, specialty chemistry,
molecular pathology and internet-based software products.
Bio-Rad’s clinical diagnostics products encompass a broad
range of technologies incorporated into tests used to
detect, identify and quantify substances in blood or other
bodily fluids and tissues. The test results are used as aids
for medical diagnosis, detection, evaluation, monitoring
and treatment of diseases and other medical conditions.
So the solutions can ultimately be connected, to a cure.
Bio-Rad is a global leader in
diabetes monitoring, providing
a wide range of specialized
products including devices used
in physicians’ offices as well as
large scale testing systems used
in hospitals and clinical labora-
tories for high volume testing.
The D-10™ Hemoglobin Testing
System is a flexible mid-sized
instrument that is used in both
physician office laboratories and
clinical laboratories.
6 : Bio-Rad 2005 Annual Report
Bio-Rad is a global leader in diabetes monitoring, providing a wide range of laboratory solutions from large-scale testing systems to small-scale hand-held devices.Childhood diabetes, or Type I insulin-dependent diabetes affects millions worldwide.With early diagnosis and treatment, patients can avoid organ damage and long-term complications. Today, proper monitoring and management along with diet and exer-cise can reduce the risk of complications from diabetes and enable children to lead healthy and active lives.Bio-Rad’s Variant™ II, D-10™ and Micromat™ II Testing Systems that employ “Gold Standard” HPLC technology are used in doctors’ offices, hospitals and clinical laborato-ries to measure hemoglobin A1c levels in diabetic patients. Close monitoring and control of a patient’s A1c level is critical in reducing the risk of complications from diabetes.Because small differences in A1c values make a big difference over a lifetime, Bio-Rad provides precision tools that monitor A1c levels with pinpoint accuracy. While daily in-home glucose monitoring is necessary for children with diabetes, periodic testing in the doctor’s office will ensure that parents and children can maintain the tightest level of control over their glucose levels. C O N N E C T E D T O :
Disease Management
Childhood diabetes can be a painful, frightening and highly disruptive illness that demands a great deal of courage from children, along with significant lifestyle changes and ongoing medical attention. Bio-Rad’s sophisticated diabetes systems and support enable doctors to monitor a patient’s status and, ultimately, to help parents and children in their fight to effectively manage and control this disease. C O N N E C T E D T O :
Infectious Disease Prevention
Hospitals around the world battle an invisible enemy that eludes even the most stringent hygienic controls. Patient exposure to infectious material can result in the immediate spread of the infection commonly known as the “Superbug,” or MRSA (Methicillin Resistant Staphylococcus Aureus). As hospitals implement improved diagnostic testing methods such as Bio-Rad’s MRSASelect™ test, they can signifi-cantly reduce the potential for additional infection. Compared to current products,
Bio-Rad’s MRSASelect™ test
is a faster, more sensitive and
effective method of detecting
MRSA. By incorporating this
test into their comprehensive
prevention programs, hospitals
can readily identify and prevent
the spread of this silent and
dangerous infection.
Bio-Rad 2005 Annual Report : 9
MRSA is an infectious bacterial strain that is resistant to penicillin and methicillin antibiotic treatment. Early identification and treatment can help slow the spread of antibiotic resistant bacteria and prevent the unnecessary use of costly antibiotic treatments.Rapid and effective diagnostic testing methods such as Bio-Rad’s MRSASelect™ test are now readily available for medical practitioners and patients around the world who have been affected by the often fatal consequences of the Superbug. Worldwide, an estimated 50 million MRSA screening tests are performed each year.While patients in Intensive Care Units and others with weak immune systems are at the highest risk for MRSA, it is also transmissible among low-risk patients and hospital staff. That’s why many health care institutions are implementing comprehensive screening programs to both minimize the health risks for all of those who enter hospitals and lower the costs associated with the spread of the infection. The BioPlex® 2200 platform
is the first fully-automated
system to generate multiple
results from a single patient
sample. Used with the ANA
Screen and accompanying
interpretive software, doctors
receive valuable data to assist
with accurate diagnosis.
10 : Bio-Rad 2005 Annual Report
Autoimmune disease, the fourth-largest disability among women in the United States, remains one of the most difficult for which to find a cure. Today, however, improved diagnostics is no longer a dream, but a reality.Through the development of revolutionary new technology designed by Bio-Rad—which greatly simplifies and streamlines the diagnostic process—there is hope for these women as well as for the millions worldwide who suffer from illnesses the disease causes.While autoimmune illnesses appear to be hereditary, they are not directly transmitted from one generation to the next. A woman, for example, may have lupus and her daughter Crohn’s disease, while her mother may suffer from rheumatoid arthritis. Because these diseases affect multiple body systems and produce highly divergent and often misleading symptoms, accurate diagnosis is a challenge at best, an impossibility at worst. Bio-Rad’s ANA Screen and system is the most comprehensive autoimmune product available, allowing clinical laboratories and doctors to provide patients with more accurate diagnoses and faster, more effective treatment solutions enabling patients to live longer, healthier lives. Women’s Health
An estimated 75 percent of people who suffer from autoimmune disease are women. Their symptoms are often mysterious and misleading, making accurate diagnosis a challenge and proper treatment an uncertainty. With the help of Bio-Rad’s pioneering technology in autoimmune diagnostics, doctors now have access to tools and software that help demystify diagnostic test results and bring the promise of effective treatment closer to reality.CONNECTED TO: Connected for Life
What’s the connection
between genomics and life?
In a word, everything.
Bio-Rad’s Life Science Group develops, manufactures and markets a wide range of laboratory instruments, apparatus and consumables used for research in func-tional genomics and proteomics. The group ranks among the top five life science companies worldwide, and maintains a solid reputation for quality and innovation.Bio-Rad’s life science products are based on technologies used to identify, separate, purify and analyze biological materials such as proteins and DNA. Some of these technologies include electrophoresis, imaging, immu-noassay, chromatography, microbiology, bioinformatics, transfection, amplification, real-time PCR, microarray analysis and DNA hybridization.These products are used in laboratories throughout the world, connecting researchers to solutions that help people lead longer, healthier lives. Genetic Research
Bio-Rad products are connected to today’s most advanced Alzheimer’s research, providing hope that a new generation of elderly people may one day avoid the irreversible cognitive defects of this disease. As lifespans increase, so do the chances that more and more aging adults will suffer the debilitating effects of this degenerative neurological disorder. Alzheimer’s disease today affects an estimated 20 to 30 million elderly people worldwide.CONNECTED TO: Bio-Rad’s iQ™5 Multicolor Real-
Time Detection System and
compatible reagents enable
highly sensitive detection
of subtle changes in gene
expression—often the most
essential hallmarks of disease
states such as Alzheimer’s.
Bio-Rad 2005 Annual Report : 15
Alzheimer’s disease and its causes are somewhat of a mystery to us today, but may one day be fully under-stood as advancements in genetic research continue.As scientists learn to better understand the interrelationships between individuals’ genetic characteristics and their propensity for cognitive and neurological decline, a new generation of elderly people and their loved ones has hope of greater longevity and a better quality of life.Bio-Rad provides genetic researchers with an entire line of genomics products, enabling them to study the fundamental building blocks of human biology. By observing genetic variations that may predispose certain people to Alzheimer’s disease, scientists are now finding new clues as to how the disease develops and progresses. Using Bio-Rad products, genetic researchers can develop precise testing methods, along with new therapeutic treatments designed to “switch off” these rogue genes. This research is already yielding a vast amount of data about how genes function and interrelate—information that will lead to a revolution in diagnostic testing and the treatment of Alzheimer’s and other diseases. Bio-Rad’s Bio-Plex® Suspension
Array System is a multiplex
analysis platform used by
researchers to rapidly and
simultaneously analyze mul-
tiple biomolecules (proteins,
peptides or nucleic acids), to
identify more effective drug
candidates for the disease.
16 : Bio-Rad 2005 Annual Report
As researchers study cancer at the cellular level, important discoveries are being made that will take therapeutic intervention to new levels of sophistication and effectiveness.Advances in cancer research will increase the survival rate and improve the quality of life for patients suffering from this complex and highly variable disease. Bio-Rad is helping scientists unlock the biological mysteries of cancer and other diseases by providing a wide range of tools for genomics and proteomics research. These products, designed to simplify and accelerate the complex tasks associated with biomolecular research, enable scientists to identify genes and proteins responsible for the develop-ment and progression of disease. This process of discovery is leading to new, more effective drug candidates, along with simpler, more effective diagnostic testing methods.Continued scientific research offers hope that biological discovery will lead to the introduction of more effective, personalized treatment solutions that can be tailored to address patients’ unique disease profiles. With Bio-Rad’s help, developments in the discovery process are facilitating cancer detection at the cellular level to prevent the onset and progression of the disease. Biomarker Discovery
Advancements in genomics and proteomics technology are facilitating important discoveries in the area of cancer research. Using Bio-Rad devices, researchers are working toward the identification of specific disease biomarkers which will lead to improved diagnostic testing methods, earlier detection and more personalized, effective treatment solutions for cancer patients.CONNECTED TO: Seeding the Future
As the pace of scientific discovery accelerates, the creation of new technologies with unprecedented applications calls for a scientifically literate population and a new approach to educating our youth. Bio-Rad’s Biotechnology Explorer™ program enables students to experience scientific discovery firsthand, using modern research tools and curricula based on real world applications.CONNECTED TO: DNA technology is changing
the way law enforcement
solves crime. Using Bio-Rad’s
Crime Scene Investigation PCR
Basics™, students get hands-on
experience with actual DNA
identification, collection and
analysis methods used in crime
scene investigation.
Bio-Rad 2005 Annual Report : 19
Science education has never been so exciting! Today, students are learning real world laboratory methods and applications that capture their imaginations and deepen their understanding of core biological concepts.Through their participation in educational initiatives coupled with Bio-Rad’s Biotechnology Explorer™ products, students use modern research tools and gain hands-on, practical experience with real world applications and procedures. Such training prepares them for higher education and inspires their pursuit of careers in the biotechnology, medical research and biopharmaceutical fields. Designed by scientists and educators working together, Bio-Rad’s hands-on class-room kits and curricula integrate modern science and traditional core biology curricula, supported by a complete line of research-quality laboratory equipment and supplies. Program materials and lessons align with current science content standards and perfor-mance indicators, meeting the most rigorous of college preparatory requirements. Bio-Rad is committed to promoting scientific literacy by partnering with teachers, schools and local organizations to inspire a new generation of biological scientists. In addition to the Biotechnology Explorer program, the Company sponsors a number of educational outreach activities in the local community including mentoring programs, science fairs and an annual scholarship program that helps support students pursuing degrees in the sciences. Connected to
What’s Next
Bio-Rad products are found in virtually every laboratory and clinical setting in the world where diagnostics and biomedical research takes place. As we race to find the cures to today’s most critical diseases, Bio-Rad is there providing needed advanced tools to make not just progress, but the ultimate connection:Better health for all. Financial Highlights
Five-Year Record
2001
2002
2003
2004
2005
($ in millions, except per share data)
Net Sales
Gross Profit
$ 789.6
$ 865.0
$ 979.6
$ 1090.0
$ 1181.0
$ 443.7
$ 499.6
$ 556.2
$ 610.1
$ 646.5
Research Expenditures
$ 73.9
$ 79.8
$ 91.3
$ 108.3
(1)
$ 115.1
Net Income
Return On Sales
$ 44.2
$ 67.9
$ 76.2
$ 68.2
$ 81.6
5.6%
7.8%
7.8%
6.3%
6.9%
Book Value Per Share
$ 11.43
$ 15.17
$ 19.41
$ 23.10
$ 25.09
Basic Earnings Per Share
$ 1.79
$ 2.70
$ 3.00
$ 2.65
$ 3.13
Cash Flow from Operations
$ 99.5
$ 105.8
$ 127.6
$ 123.1
$ 108.3
(1) Excludes $14.6 of purchased in-process R&D
2005 Sales By Region
Net Sales
(in millions)
0
.
1
8
1
1
$
0
.
0
9
0
1
$
6
.
9
7
9
$
0
.
5
6
8
$
6
.
9
8
7
$
41%
Americas
43%
Europe
16%
Pacific
Rim
Cash Flow From
Operations
(in millions)
6
.
7
2
1
$
1
.
3
2
1
$
3
.
8
0
1
$
8
.
5
0
1
$
5
.
9
9
$
Basic Earnings
Per Share
3
1
.
3
$
0
0
.
3
$
0
7
.
2
$
5
6
.
2
$
9
7
.
1
$
01 02 03 04 05
01 02 03 04 05
01 02 03 04 05
Bio-Rad 2005 Annual Report : 21
$1.1 billion
$1 billion
$900 million
$800 million
$700 million
$600 million
$500 million
$400 million
$300 million
$200 million
$100 million
Sales History
1959
1965
1970
1975
1980
1985
1990
1995
2000
2005
22 : Bio-Rad 2005 Annual Report
Bio-Rad 2005 Annual Report : 23
Summary of Operations and Selected Financial Data Year Ended December 31, (in thousands, except per share data) 2005 2004 2003 2002 2001Net sales $ 1,180,985 $ 1,090,012 $ 979,631 $ 865,006 $ 789,639 Cost of goods sold 534,499 479,939 423,401 365,451 345,964Gross profit 646,486 610,073 556,230 499,555 443,675Selling, general and administrative expense 416,084 378,264 317,524 281,579 257,684Product research and development expense 115,104 108,344 91,273 79,788 73,922Purchased in-process research and development expense — 14,620 — — —Impairment losses on long-lived assets 19,770 — — — —Goodwill amortization — — — — 7,746Loss on divestitures — — — — 5,150Interest expense 32,643 20,219 31,006 28,207 24,088Foreign exchange (gains) losses (1,528) 2,394 4,080 5,441 2,097Other (income) expense, net(1) (28,958) (11,095) (3,012) (678) 10,031Income from continuing operations before taxes 93,371 97,327 115,359 105,218 62,957 Provision for income taxes (15,792) (31,035) (38,055) (36,692) (20,132)Income from continuing operations 77,579 66,292 77,304 68,526 42,825Discontinued operations Gain (loss) from discontinued operations (net of tax) — (1,487) (1,133) (663) 1,354 Gain on divestiture (net of tax) 3,974 3,437 — — —Total income (loss) from discontinued operations 3,974 1,950 (1,133) (663) 1,354Net income $ 81,553 $ 68,242 $ 76,171 $ 67,863 $ 44,179Basic earnings per share: Continuing operations $ 2.98 $ 2.58 $ 3.04 $ 2.73 $ 1.74 Discontinued operations 0.15 0.07 (0.04) (0.03) 0.05 Basic earnings per share $ 3.13 $ 2.65 $ 3.00 $ 2.70 $ 1.79Diluted earnings per share: Continuing operations $ 2.91 $ 2.51 $ 2.94 $ 2.63 $ 1.68 Discontinued operations 0.15 0.07 (0.04) (0.02) 0.06 Diluted earnings per share $ 3.06 $ 2.58 $ 2.90 $ 2.61 $ 1.74Cash dividends paid per common share — — — — —Total assets $ 1,426,582 $ 1,371,618 $ 992,596 $ 720,703 $ 684,028Long-term debt, net of current maturities $ 425,687 $ 425,979 $ 225,835 $ 105,768 $ 188,423(1) See Note 11 to the consolidated financial statements for components of Other (income) expense, net. Included in 2001 is a $9.4 million write-down of an investment. Included in 2004 is interest and investment income of $6.6 million, income from equity investee of $3.1 million and a litigation settlement of $1.9 million offset by a $2.4 million write-down of an investment. Included in 2005 is interest and investment income of $16.7 million, gains on sales of investments of $11.2 million, and litigation expense of $1.2 million. Consolidated Balance Sheets
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
December 31,
2005
2004
$ 296,716
$ 195,734
36,138
—
116,343
165,899
Accounts receivable less allowance of $13,301 in 2005 and $13,406 in 2004
247,192
261,243
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
Purchased intangibles, net
Long-term deferred tax assets
Other assets
48,271
51,601
44,950
48,206
112,470
112,356
212,342
205,512
30,984
68,496
25,727
54,345
1,008,211
908,460
9,837
9,959
120,015
119,433
322,354
321,215
452,206
450,607
(271,948)
(248,283)
180,258
202,324
113,276
113,276
28,449
14,003
82,385
58,638
6,160
82,760
TOTAL ASSETS
$ 1,426,582 $ 1,371,618
The accompanying notes are an integral part of these consolidated financial statements.
24 : Bio-Rad 2005 Annual Report
(in thousands, except 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
Litigation accrual
Accrued royalties
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, 80,000,000 shares
authorized; outstanding—21,316,556 at 2005; 50,000,000 shares
authorized; outstanding—20,997,568 at 2004
Class B common stock, $0.0001 par value,
20,000,000 shares authorized; outstanding
2005—4,909,908; 2004—4,836,540
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 consolidated financial statements.
December 31,
2005
2004
$
72,950 $
71,194
81,076
79,061
2,950
391
15,841
55,701
34,386
55,948
9,055
402
15,835
50,000
39,317
50,511
319,243
315,375
425,687
425,979
2,281
21,397
4,388
28,988
768,608
774,730
—
—
2
1
—
—
2
1
60,112
49,628
570,807
489,254
27,052
58,003
657,974
596,888
$ 1,426,582 $ 1,371,618
Bio-Rad 2005 Annual Report : 25
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
Year Ended December 31,
2005
2004
2003
$ 1,180,985 $ 1,090,012 $ 979,631
534,499
479,939
423,401
646,486
610,073
556,230
416,084
378,264
317,524
115,104
108,344
91,273
Purchased in-process research and development expense
—
14,620
Impairment losses on long-lived assets
Interest expense
Foreign exchange losses
Other income, net
Income from continuing operations before taxes
Provision for income taxes
Income from continuing operations
Discontinued operations
19,770
32,643
(1,528)
(28,958)
93,371
(15,792)
77,579
—
20,219
2,394
(11,095)
—
—
31,006
4,080
(3,012)
97,327
115,359
(31,035)
66,292
(38,055)
77,304
Loss from discontinued operations net of tax benefits
of $532 in 2004 and $538 in 2003
—
(1,487)
(1,133)
Gain on divestiture net of tax expense of $0 in 2005
and $2,295 in 2004
Total income (loss) from discontinued operations
Net income
Basic earnings per share:
Continuing operations
Discontinued operations
Net income
Weighted average common shares
Diluted earnings per share:
Continuing operations
Discontinued operations
Net income
3,974
3,974
3,437
1,950
—
(1,133)
$
81,553 $
68,242 $
76,171
$
$
$
$
2.98
0.15
3.13
26,063
2.91
0.15
3.06
$
$
$
$
2.58
0.07
2.65
25,724
2.51
0.07
2.58
$
$
$
$
3.04
(0.04)
3.00
25,416
2.94
(0.04)
2.90
Weighted average common shares
26,662
26,489
26,310
The accompanying notes are an integral part of these consolidated financial statements.
26 : Bio-Rad 2005 Annual Report
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
Year Ended December 31,
2005
2004
2003
$ 1,166,711 $ 1,087,946 $ 1,020,135
(1,003,264)
(920,606)
(826,055)
(31,334)
(39,597)
15,768
(19,543)
(33,637)
8,933
(17,088)
(51,280)
1,928
Net cash provided by operating activities
108,284
123,093
127,640
Cash flows from investing activities:
Capital expenditures, net
Payments for acquisitions and investments
Proceeds from divestiture
Payments for purchase of intangible assets
(36,055)
(4,344)
—
(5,000)
(60,493)
(58,983)
19,775
(10,000)
(69,003)
(16,375)
—
—
Purchases of marketable securities and investments
(873,822)
(2,257,694)
(600,000)
Sales of marketable securities and investments
942,790
2,174,538
510,135
Foreign currency economic hedges, net
Restricted cash
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
Debt issuance costs on 6.125% bonds
Proceeds from issuance of common stock
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
6,397
(36,138)
6,539
(14,998)
—
—
(6,172)
(186,318)
(190,241)
(6,847)
(9,580)
435
—
200,000
249,335
(447)
(1,781)
(132,012)
—
—
(331)
8,915
—
—
(2,876)
7,464
(9,467)
(5,431)
—
5,309
1,290
193,227
108,169
(2,420)
337
100,982
130,339
195,734
65,395
(7,906)
37,662
27,733
$ 296,716 $ 195,734 $
65,395
The accompanying notes are an integral part of these consolidated financial statements.
Bio-Rad 2005 Annual Report : 27
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
Retained Earnings:
Balance at beginning of year
Net income
Balance at end of year
Accumulated Other Comprehensive Income (Loss):
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Year Ended December 31,
2005
2004
2003
$
3 $
3 $
—
3
—
3
3
—
3
49,628
42,164
36,141
8,916
1,568
6,250
1,214
5,309
714
60,112
49,628
42,164
489,254
421,012
344,841
81,553
68,242
76,171
570,807
489,254
421,012
58,003
(30,951)
27,052
32,628
25,375
58,003
2,102
30,526
32,628
Total Stockholders’ Equity
$ 657,974 $ 596,888 $ 495,807
Comprehensive Income, net of tax:
Net income
Currency translation adjustments
Net unrealized holding gains net of tax of $999
$
81,553 $
68,242 $
76,171
(30,535)
18,573
28,620
in 2005, $3,870 in 2004 and $1,053 in 2003
41
8,096
2,137
Reclassification adjustments for gains included in net income
net of tax of $271 in 2005, $623 in 2004 and $108 in 2003
(457)
(1,294)
(231)
Total Comprehensive Income
$
50,602 $
93,617 $ 106,697
The accompanying notes are an integral part of these consolidated financial statements.
28 : Bio-Rad 2005 Annual Report
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Bio-Rad Laboratories, Inc. and all subsidiaries
(referred to in this report as “Bio-Rad,” “we,” “us” and “our”) after elimination of intercompany balances and
transactions. The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America 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.
Reclassifications
Certain amounts included in the balance sheet as of December 31, 2004, as well as in the Statement of Cash
Flows for the years ended December 31, 2004 and 2003, have been reclassified to conform to the current year
presentation. Amounts related to deferred taxes are discussed in Note 8.
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.
Restricted Cash
Restricted cash of $36.1 million represents deposits in a money market account that have been used as
collateral to protect the surety company in connection with its execution of a surety bond in the amount of
$37.2 million to stay the enforcement of the judgment in the legal matter described in Note 14.
Short-Term Investments
Short-term investments consist of corporate, state and municipal securities with readily determinable fair market
values and original maturities in excess of three months. Investments with maturities beyond one year may be
classified as short-term based on their highly liquid nature and because such marketable securities represent
the investment of cash that is available for current operations. Our investments are classified as “Available-
for-sale” and accordingly are reported at fair value, with unrealized gains and losses, if material, reported as a
component of stockholder’s equity, net of any related tax effect. Unrealized losses are charged against income
when a decline in the fair market value of an individual security is determined to be other than temporary. Real-
ized gains and losses on investments are included in interest income.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash
equivalents, short-term investments and trade accounts receivable. Cash and cash equivalents and short-term
investments are placed with highly rated major financial institutions. We perform credit evaluation procedures
related to our trade receivables and with the exception of certain developing countries, generally do not require
collateral. As a result of increased risk in these developing countries, some Bio-Rad sales are subject to col-
lateral letters of credit. Credit risk is limited generally 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
Bio-Rad 2005 Annual Report : 29
Notes to Consolidated Financial Statements (continued)
systems in countries within the European Economic Community. We do not currently anticipate a credit risk
associated with these receivables.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our custom-
ers to make required payments. The amount of the allowance is determined by analyzing known uncollectible
accounts, aged receivables, economic conditions in the customers’ country or industry, historical losses and
our customers’ credit-worthiness. Amounts later determined and specifically identified to be uncollectible are
charged or written off against this reserve. This valuation allowance is reviewed quarterly to determine whether
a change is warranted.
Inventory Valuation
Inventories are valued at the lower of actual cost or market and include material, labor and overhead costs.
Management reviews the need for an inventory obsolescence reserve on a quarterly basis or, if warranted by
circumstances, more frequently. 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. We provide these instruments to our customers for use with our reagents. Property, plant and
equipment are assessed for impairment annually or whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Buildings and
leasehold improvements are amortized over 15-30 years or the lives of the leases or improvements, whichever is
shorter. With the exception of reagent rental equipment, which is amortized over a 1-3 year period, equipment is
depreciated over 3-12 years.
Net capital expenditures include proceeds from the sale of property, plant and equipment of $3.2 million,
$0.8 million and $1.1 million for the years ended December 31, 2005, 2004 and 2003, respectively.
Goodwill
Goodwill, representing the excess of the cost over the net tangible and identifiable intangible assets of acquired
businesses, is stated at cost. Goodwill is assessed for impairment by applying a fair-value based test annually or
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable (see Note 6).
Income Taxes
We account 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
basis of assets and liabilities (see Note 8).
30 : Bio-Rad 2005 Annual Report
Revenue Recognition
Revenue is recognized when pervasive evidence of an arrangement exists, the price to the buyer is fixed and
determinable, collectibility is reasonably assured and title has passed to the customer or product has been
delivered absent specific contractual specifications. Equipment that requires factory installation is not recorded
until installation is complete and customer acceptance, if required contractually, has occurred. Reagent agree-
ments are a diagnostic industry sales method that provides use of an instrument if the customer exclusively
purchases the company’s reagents to use on that instrument. We have evaluated the reagent agreements and
account for the contracts under the terms of the guidance set forth in EITF 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. All revenues that we earn under our reagent agreements are recog-
nized when the reagent has been delivered to the customer. Service revenues on extended warranty contracts
are recognized ratably over the life of the service agreement or as services are performed, if not under contract.
Shipping and Handling
We classify 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.
We warrant certain equipment against defects in design, materials and workmanship, generally for a period
of one year. Upon shipment of that equipment, we establish, as part of cost of goods sold, a provision for the
expected costs of such warranty based on historical experience, specific warranty terms and customer feed-
back. A review is performed on a quarterly basis to assess the adequacy of our warranty reserve.
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
Research and Development
2005
2004
$
10.1
$
13.3
(11.4)
$
12.0
$
9.1
10.4
(9.4)
10.1
Internal research and development costs are expensed as incurred. Third-party research and development costs
are expensed when the contracted work has been performed. Purchased in-process research and development
costs are expensed at the time of purchase.
Foreign Currency
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 transla-
tion adjustment is recorded as a separate component of stockholders’ equity.
Bio-Rad 2005 Annual Report : 31
Notes to Consolidated Financial Statements (continued)
Foreign currency transaction gains and losses are included in foreign exchange (gains) losses in the consolidated
statement of income. Transaction gains and losses result primarily from fluctuations in exchange rates when
intercompany receivables and payables are denominated in currencies other than the functional currency of our
subsidiary that recorded the transaction.
Forward Exchange Contracts
As part of distributing our products, we regularly enter into intercompany transactions. We enter into forward
foreign currency exchange contracts to manage foreign exchange risk of future movements in foreign exchange
rates that affect foreign currency denominated intercompany receivables and payables. We do not use deriva-
tive financial instruments for speculative or trading purposes. In accordance with Statement of Financial
Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging Activities, we do not
seek hedge accounting treatment for these contracts. As a result, these contracts, generally with maturity dates
of 90 days or less and related primarily to currencies of industrial countries, are recorded at their fair value at
each balance sheet date. The resulting gains or losses offset exchange gains or losses on the related receiv-
ables and payables, both of which are recorded as foreign exchange (gains) losses in the consolidated state-
ment of income. 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
We maintain incentive and non-qualified stock option plans for officers and certain other key employees. We
also have an employee stock purchase plan that provides that eligible employees may contribute toward the
purchase of our Class A common stock. These plans are described more fully in Note 10.
Had compensation cost for our stock option and stock purchase plans been accounted for under SFAS 123,
Accounting for Stock-Based Compensation, based on the assumptions and methods outlined in Note 10, our
pro forma net income and earnings per share would have been as follows (in millions, except per share data):
Year Ended December 31,
2005
2004
2003
Net income, as reported
$
81.6
$
68.2
$
76.2
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
32 : Bio-Rad 2005 Annual Report
(3.4)
(3.0)
$
78.2
$
65.2
$
$
$
$
$
3.13
3.00
3.06
2.93
$
$
$
$
2.65
2.54
2.58
2.47
$
$
$
$
(2.1)
74.1
3.00
2.91
2.90
2.82
Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) by the weighted average number of
common shares outstanding for that period. Diluted earnings per share takes into account the effect of dilutive
instruments, such as stock options, and uses the average share price for the period in determining the number
of common stock equivalents that are to be added to the weighted average number of shares outstanding.
Common stock equivalents are excluded from the diluted earnings per share calculation if the effect would be
anti-dilutive.
Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding stock
options to purchase 599,000, 765,000 and 894,000 shares for the years ended December 31, 2005, 2004 and
2003, respectively. Options to purchase 281,000 and 10,000 shares of common stock were outstanding for the
years ended December 31, 2005 and 2004, respectively, but were excluded from the computation of diluted
earnings per share because the price of the options was greater than the average market price of the common
shares. There were no anti-dilutive options for the year ended December 31, 2003.
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.
The estimated fair value of our financial instruments is as follows (in millions):
Year Ended December 31,
2005
2004
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Notes receivable and other
Total long-term debt
$
$
82.4
$ 113.4
$
80.0
$ 104.2
426.1
$ 430.6
$ 426.4
$ 450.5
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 financial instruments, including cash and cash equivalents, short-term investments, accounts receivable,
marketable securities, notes payable, and accounts payable, the carrying amounts approximate fair value.
Bio-Rad 2005 Annual Report : 33
Notes to Consolidated Financial Statements (continued)
New Financial Accounting Standards
In June 2005, the Financial Accounting Standards Board (FASB) issued Staff Position (“FSP”) No. 143-1,
“Accounting for Electronic Equipment Waste Obligations,” which provides guidance on accrual accounting for
historical waste obligations associated with the European Union Waste, Electrical and Electronic Equipment
Directive (“WEEE Directive”). FSP No. 143-1 is effective for the first reporting period ending after June 8, 2005
or the date of the adoption of the WEEE Directive into law by the applicable European Union member country.
Because European Union member countries have not yet, among other steps, (i) fully enacted their national laws
relating to WEEE, (ii) completed implementation of their administrative measures and programs, (iii) clarified the
scope of products considered WEEE, and/or (iv) established pricing for recycling of WEEE, we cannot at this
time reasonably estimate the effect of applying this guidance in future periods. However, we continue to monitor
WEEE developments in the respective EU countries in an effort to determine the financial statement impact, if
any, of this directive.
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections—A Replacement of
APB Opinion No. 20 and FASB Statement No. 3. SFAS 154 replaces APB Opinion No. 20, Accounting Changes
and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the
requirement for the accounting for and reporting of a change in accounting principle. APB No. 20 previously
required that most voluntary changes in accounting principle be recognized by including in net income of the
period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 requires
retrospective application to prior periods’ financial statements for voluntary changes in accounting principle.
SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005.
In December 2004, the FASB issued SFAS 123(R), Share-Based Payment, which is a revision of SFAS 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees. SFAS 123(R) requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments, based on the grant date fair value of those awards in their financial
statements. Pro forma disclosure is no longer an alternative under the new standard. SFAS 123(R) will also
require the benefits associated with tax deductions in excess of recognized compensation cost to be reported
as a financing cash flow rather than as an operating cash flow as currently required.
Bio-Rad has adopted the provisions of SFAS 123(R) beginning January 1, 2006 and will continue to evaluate the
impact of SFAS 123(R) on the consolidated financial statements as it begins recognizing compensation expense
for the unvested portion of awards granted prior to adoption and for new awards granted subsequent to adoption.
Bio-Rad has elected to use the “modified prospective” transition method under SFAS 123(R) in the first quarter of
2006. Under the “modified prospective” method, compensation cost for the unvested portion of previously granted
awards and all new awards will be recognized on or after the date of adoption. The compensation cost related to
unvested awards at the date of adoption is based on the grant-date fair value of those awards as calculated for
pro forma disclosures under the original SFAS 123 as adjusted for the effect of estimated forfeiture rates. We will
recognize compensation cost for stock-based awards issued after December 31, 2005 on a straight-line basis over
the requisite service period for the entire award. The new standard will result in increased compensation expense.
34 : Bio-Rad 2005 Annual Report
2. Acquisitions
In August 2004, we acquired the outstanding shares of MJ GeneWorks, Inc. and its subsidiaries, a life science
company specializing in instruments and consumables used in modern biological research. The total purchase
price of $90.0 million included $7.0 million of net tangible assets, $40.5 million of goodwill and $42.5 million of
intangible assets. We paid $31.0 million in cash and assumed liabilities including $9.0 million in notes payable and
capital leases and a $50.0 million litigation accrual (see Note 14). Acquired in-process research and development
of $13.7 million was charged to expense in the third quarter of 2004. The allocation of the total purchase price to
net tangible assets, goodwill and other intangible assets has been recorded at their fair market value based upon
management estimates and third-party valuations. We included these operations in our Life Science segment.
In March 2004, we purchased for cash the controls business of Hematronix, Inc. of Plano, Texas. Bio-Rad
acquired tangible and intangible assets and assumed certain liabilities for approximately $17 million. Acquired
in-process research and development of $0.9 million was charged to expense in the first quarter of 2004. We
included these operations in our Clinical Diagnostics segment.
3. Short-Term Investments
Short-term investments consist of the following (in millions):
Available-for-sale securities:
Auction rate securities
Certificate of deposit
Variable rate notes
U.S. Agencies
Asset backed securities
Corporate obligations
Other
Total short-term investments
December 31,
2005
2004
$
3.9
$
146.5
—
8.7
25.5
36.6
31.4
10.2
4.0
8.4
7.0
—
—
—
$
116.3
$
165.9
Management classifies investments in marketable securities at the time of purchase and reevaluates such
classification at each balance sheet date. Securities classified as Available-for-sale are stated at fair value which
approximates cost. As of December 31, 2005, the short-term investments will mature within one year.
4. Investments
We own 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. We purchased shares in 2005
and 2004 for approximately $4 and $11 million, respectively, bringing our total investment to approximately 26%
of the outstanding voting shares of Sartorius at December 31, 2005. The Sartorius family trust and Sartorius
Bio-Rad 2005 Annual Report : 35
Notes to Consolidated Financial Statements (continued)
family members hold a controlling interest of the outstanding voting shares. We do not have any representative
or designee on Sartorius’ board of directors, nor do we have any other influence over the operating and financial
policies of Sartorius. Therefore, we account for this investment using the cost method.
In December 1997, we began investing in Instrumentation Laboratory, S.p.A. (IL), an Italian based clinical diag-
nostics company. A privately held company based in Spain controls the majority of the outstanding stock of IL.
As of December 31, 2004, we valued our investment in IL at $4.0 million which reflects a $2.4 million write-down
recorded in Other income, net. In October 2005, Bio-Rad entered into an agreement to sell all its shares back to IL.
We received cash of $12.0 million and recorded in Other income, net, a pre-tax gain of $7.9 million (see Note 11).
On July 26, 2005, BioSource International, Inc. (BioSource) announced in a press release that it had entered into a
definitive merger agreement under which Invitrogen Corporation will acquire BioSource for $12.50 per share in cash.
In October 2005, we tendered our shares of BioSource to Invitrogen Corporation for $12.50 per share in cash and
received cash of $8.3 million. We recorded in Other income, net, a pre-tax gain of $3.3 million (see Note 11).
5. Discontinued Operations
On May 31, 2004, we sold a group of assets and transferred certain liabilities that comprise a substantial portion of
our confocal microscopy product line to Carl Zeiss Jena GmbH. Proceeds of $19.8 million were offset by net assets
of $5.7 million, lease settlements of $6.7 million and severance, legal and other costs of $1.7 million resulting in a
pre-tax gain of $5.7 million. As required by SFAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, with the disposition of this asset group, the sales and expenses related to this product line for current and
prior periods have been reclassified as a separate line on the income statement titled “Discontinued Operations.”
During 2005, Bio-Rad reached an agreement to settle the $6.7 million lease commitment and revised our lease
settlement estimate to $2.7 million to exit the facility in 2005. Consequently, we recognized a $4.0 million gain
on the revised disposition.
There were no sales or pre-tax operating losses attributable to the discontinued operations for the year ended
December 31, 2005. The discontinued operations generated net sales of $6.3 million and $23.8 million for the years
ended December 31, 2004 and 2003, respectively. The pre-tax operating losses attributable to the discontinued
operations for the years ended December 31, 2004 and 2003 were $2.0 million, and $1.7 million, respectively.
6. Goodwill and Other Purchased Intangible Assets
In March 2005, we purchased the rights to certain patents for $1.0 million. In June 2004, we purchased
$14.0 million of intangible assets related to licensing agreements. We paid $6.0 million upon acquisition and
$4.0 million in the third quarter of 2004. The remaining $4.0 million was paid in 2005. These intangibles are
part of our Clinical Diagnostics segment.
36 : Bio-Rad 2005 Annual Report
As part of the acquisition of MJ GeneWorks, Inc. and its subsidiaries in August 2004 (see Note 2), we added
$40.5 million of goodwill and $42.5 million of intangible assets including $13.7 million of in-process research
and development and $22.5 million of developed technology. During the fourth quarter of 2005, $19.8 million
of impairment losses related to intangible and long-lived assets were recorded in the Life Science segment.
Of these losses, $15.8 million related to intangible and tangible assets acquired from MJ GeneWorks (MJ). The
circumstance leading to the impairment was the November 10, 2005 recommended ruling of the Connecticut
Federal District Court that it would not enforce the August 30, 2005 settlement between Bio-Rad, Applera and
Roche (see Note 14). As a result of this decision Bio-Rad continued to be barred from selling, servicing or mar-
keting MJ thermal cyclers and real time polymerase chain reaction (PCR) equipment in the United States. The
asset group impaired included fixed assets at the Massachusetts manufacturing location making the MJ cyclers
along with intangible assets related to developed technology, U.S. customer mailing lists, trade names and non-
compete agreements. The determination of fair value was calculated converting estimated future cash flows to
their present value, using the rate of return expected by an investor for an investment with similar perceived risk.
Additionally, $4.0 million of intangible and tangible assets related to our microarray product line manufactured in
Waterloo, Canada, were impaired. In the fourth quarter, we decided to close the plant and no longer manufacture
the products that related to the specific patents purchased from Virtek in 2002. Bio-Rad has developed new
microarray products that do not use the technology covered in the patents. The discontinued products covered
by the patents will have negligible sales and cash flow in 2006 and beyond.
As part of the acquisition of the controls business of Hematronix, Inc. in March 2004 (see Note 2) we added $3.2
million of goodwill and $9.3 million of intangible assets including in-process research and development.
Goodwill balances have been included in corporate for segment reporting purposes in Note 15.
Other than goodwill, we have no intangible assets with indefinite lives. Information regarding our identifiable
purchased intangible assets is as follows (in millions):
Developed Product Technology
Licenses
Know How
Covenants Not to Compete
Patents
Customer Lists
Other
December 31, 2005
Average
Useful Life
Carrying
Amount
Accumulated
Amortization
2
8
6
2
4
1
3
$
9.2
$
14.0
8.7
2.0
1.0
0.6
2.2
$
37.7
$
1.4
1.3
3.7
0.7
—
0.2
2.0
9.3
$
Net
7.8
12.7
5.0
1.3
1.0
0.4
0.2
$
28.4
Bio-Rad 2005 Annual Report : 37
Notes to Consolidated Financial Statements (continued)
Developed Product Technology
Licenses
Know How
Covenants Not to Compete
Patents
Customer Lists
Other
December 31, 2004
Average
Useful Life
Carrying Accumulated
Amortization
Amount
11
16
8
10
16
6
2
$ 28.3
$
14.1
9.9
6.1
4.6
1.7
2.9
$ 67.6
$
2.5
0.4
2.8
0.6
0.7
0.3
1.7
9.0
$
Net
25.8
13.7
7.1
5.5
3.9
1.4
1.2
$
58.6
Recorded purchased intangible asset amortization expense for the years ended December 31, 2005, 2004 and
2003 was $11.0 million, $6.9 million and $1.3 million, respectively. Estimated purchased intangible asset
amortization expense (based on existing intangible assets) for the years ended December 31, 2006, 2007, 2008,
2009 and 2010 is $5.3 million, $5.2 million, $4.4 million, $3.2 million and $1.9 million, respectively.
7. Notes Payable and Long-term Debt
Notes payable include local credit lines maintained by our subsidiaries aggregating approximately $34.1 million,
of which $30.8 million was unused at December 31, 2005. At December 31, 2004 these lines aggregated
approximately $62.3 million, of which $53.1 million was unused. The weighted average interest rate on these
lines was 8.3% and 6.8% at December 31, 2005 and 2004, respectively. Bio-Rad Laboratories, Inc. guarantees
most of these credit lines.
In June 2005, Bio-Rad entered into a new Credit Agreement, which amends and restates the Credit Agreement
dated September 9, 2003, as amended December 8, 2004. Borrowings are permitted up to a maximum of
$150.0 million on a revolving basis and can be used to make acquisitions, for working capital and other general
corporate purposes. Borrowings under this line of credit carry a floating rate of interest based on a reference
rate dictated by the type of borrowing plus the applicable margin. Under certain conditions, the Credit Agree-
ment may be increased up to an additional $50 million and will mature on June 21, 2010.
The Credit Agreement is secured by substantially all of our personal property assets, the assets of our domestic
subsidiaries and 65% of the capital stock of certain foreign subsidiaries. It is guaranteed by all of our existing
and future domestic subsidiaries (other than immaterial domestic subsidiaries as defined for purposes of the
Credit Agreement).
38 : Bio-Rad 2005 Annual Report
The principal components of Long-term debt are as follows (in millions):
7.5% Senior Subordinated Notes
6.125% Senior Subordinated Notes
Capitalized leases
Less current maturities
Long-term debt
December 31,
2005
2004
$
225.0
$
200.0
1.1
426.1
(0.4)
225.0
200.0
1.4
426.4
(0.4)
$
425.7
$
426.0
In December 2004, Bio-Rad sold $200.0 million principal amount of Senior Subordinated Notes due 2014
(6.125% Notes). The notes pay a fixed rate of interest of 6.125% per year. Upon any sale of our common stock,
we have the right to repurchase up to 35% of the 6.125% Notes any time prior to December 15, 2007 at a
specified redemption price plus accrued and unpaid interest and certain other charges. Furthermore, we have
the option to redeem any or all of the 6.125% Notes at various declining redemption prices or at 100% of the
principal amount plus the “applicable premium” (as defined by the indenture) along with accrued and unpaid
interest and certain other charges depending on the date redeemed. Bio-Rad’s obligations under the 6.125%
Notes are not secured, rank equal to other senior subordinated notes and rank junior to all Bio-Rad’s existing
and future senior debt.
In August 2003, Bio-Rad sold $225.0 million principal amount of Senior Subordinated Notes due 2013 (7.5%
Notes). The notes pay a fixed rate of interest of 7.5% per year. Upon any sale of our common stock, we have
the right to repurchase up to 35% of the 7.5% Notes any time prior to August 15, 2006 at a specified redemp-
tion price plus accrued and unpaid interest and certain other charges. Furthermore, we have the option to
redeem any or all of the 7.5% Notes at various declining redemption prices or at 100% of the principal amount
plus the “applicable premium” (as defined by the indenture) along with accrued and unpaid interest and certain
other charges depending on the date redeemed. Bio-Rad’s obligations under the 7.5% Notes are not secured,
rank equal to other senior subordinated notes and rank junior to all Bio-Rad’s existing and future senior debt.
In 2002 and through July of 2003, Bio-Rad repurchased in the open market $17.3 million (par value) of its Senior
Subordinated Notes due in 2007 (11.675% Notes) 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 11.675%
Notes were tendered and repurchased with a portion of the proceeds from the sale of the 7.5% Notes at an
expense, including interest, unamortized issue costs and unamortized original discount, of $11.6 million. This
expense was included in interest expense.
The Credit Agreement, the 6.125% Notes, and the 7.5% Notes require Bio-Rad to comply with certain financial
ratios and covenants, among other things. The covenants include a leverage ratio test, an interest coverage test
and a consolidated net worth test. There are also restrictions on our ability to declare or pay dividends, incur
Bio-Rad 2005 Annual Report : 39
Notes to Consolidated Financial Statements (continued)
debt, guarantee debt, enter into transactions with affiliates, merge or consolidate, sell assets, make investments,
create liens and prepay subordinated debt. We were in compliance with all financial ratios as of December 31,
2005 and 2004.
Maturities of long-term debt at December 31, 2005 are as follows: 2006—$0.4 million; 2007—$0.4 million;
2008—$0.2 million; 2009—$0.1 million; 2010—$0.0 million; thereafter—$425.0 million.
8. Income Taxes
The U.S. and international components of income before taxes are as follows (in millions):
U.S.
International
Income from continuing operations before taxes
The provision (benefit) for income taxes consists of (in millions):
Current:
U.S. Federal
U.S. State
International
Deferred:
U.S. Federal
U.S. State
International
Year Ended December 31,
2005
2004
2003
$
$
35.0
$
3.5
$
58.4
93.8
43.6
71.8
93.4
$
97.3
$
115 .4
Year Ended December 31,
2005
2004
2003
$
10.8
$
(3.8)
$
0.8
22.6
34.2
1.4
36.4
34.0
$
(12.4)
$
(6.2)
$
(1.2)
(4.8)
(18.4)
1.1
2.1
(3.0)
8.6
1.1
33.8
43.5
(3.0)
(0.6)
(1.8)
(5.4)
Provision for income taxes
$
15.8
$
31.0
$
38.1
40 : Bio-Rad 2005 Annual Report
Bio-Rad’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
Export sales benefit
Reduction in state tax benefits
Difference between U.S. and foreign tax rates (net of foreign tax credits)
Loss carryforwards utilized
Foreign losses not benefited
Capital losses not benefited/(benefited)
Nontaxable dividend income
Increase (decrease) in tax reserves
Other
Provision for income taxes
Year Ended December 31,
2005
2004
2003
35%
(3)
—
(8)
—
3
(5)
(6)
3
(2)
17%
35%
(2)
2
(2)
(1)
3
1
(2)
(1)
(1)
32%
35%
(2)
—
(1)
—
1
—
—
(1)
1
33%
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
Bad debt reserve
Inventory reserve
Warranty reserve
Vacation pay reserve
Net operating loss
Royalty reserve
Retirement reserve
Depreciation/Amortization
Amortization of intangibles
Impairment of assets
Write-off of investment in subs
State tax credit carryforward
Miscellaneous—other items
Valuation allowance
Deferred tax liabilities
Deferred gain
Development cost of Hercules facility
Foreign exchange gain/loss
Depreciation/Amortization
Miscellaneous—other items
Year Ended December 31,
2005
2004
$
$
$
$
3.2
12.2
5.5
6.0
10.1
4.4
3.6
6.4
8.3
6.1
2.4
6.4
9.6
(17.7)
66.5
5.2
1.2
2.3
7.6
7.6
23.9
$
$
$
$
1.0
9.8
3.9
5.4
8.4
2.9
4.2
6.0
6.4
—
6.4
5.9
9.9
(18.0)
52.2
5.7
1.2
3.3
7.1
7.5
24.8
Bio-Rad 2005 Annual Report : 41
Notes to Consolidated Financial Statements (continued)
The balance sheet as of December 31, 2004 reflects the reclassification of $8.8 million in deferred taxes related
to income taxes paid on intercompany profits, resulting in a decrease of $8.8 million in current deferred taxes
and an increase of the same amount in prepaid expenses and other current assets. We have also reclassified
$20.4 million to net within a particular tax jurisdiction (a) all current deferred tax liabilities and assets and (b) all
non-current deferred tax liabilities and assets, resulting in a decrease in both long-term deferred tax assets and
long-term deferred tax liabilities of $20.4 million.
At December 31, 2005, Bio-Rad’s international subsidiaries had combined net operating loss carryforwards of
$21.6 million. 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, 2005, Bio-Rad had an unutilized domestic net operating loss carryforward of $12.3 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, 2005, Bio-Rad had a California tax credit carryforward of $6.4 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.
A 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 2005 was a decrease of $0.3 million, primarily resulting
from an increase in expected future earnings.
Bio-Rad does not provide for taxes which would be payable if the cumulative undistributed earnings of its
international subsidiaries, approximately $373 million at December 31, 2005, 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.
9. Stockholders’ Equity
Bio-Rad’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.
42 : Bio-Rad 2005 Annual Report
10. Stock Option and Purchase Plans
Stock Option Plans
Bio-Rad 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.
The 2003 Stock Option Plan of Bio-Rad Laboratories, Inc. (the Plan) authorizes the grant to employees of incen-
tive 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. At December 31, 2005, 1,092,798 shares remain avail-
able to be granted.
Under the Amended 1994 Stock Option Plan, Bio-Rad 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 20% per year over a five-
year period on the yearly anniversary date of the grant. For options granted before January 1, 2001, options vest
in increments of 25% over a four-year period on the yearly anniversary date of the grant.
Pro forma compensation costs are calculated for the fair value of the employees’ purchase rights, which was
estimated using the Black-Scholes model. For purposes of the pro forma disclosures, the estimated fair value
of the options granted is amortized to expense over the options’ vesting period.
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,
2005
2004
2003
37%
3.45%
4.7
—
39%
2.73%
4.3
—
37%
2.65%
4.2
—
See Note 1 for a description of the effect of the pro forma compensation expense derived using the fair value
method on our results.
Bio-Rad 2005 Annual Report : 43
Notes to Consolidated Financial Statements (continued)
Activity under the 1994 and 2003 Plan’s are summarized below (amounts reported in the Price columns represent
the weighted average exercise price):
Year Ended December 31,
2005
2004
2003
Shares
Price
Shares
Price
Shares
Price
Outstanding at beginning of year
1,630,717
$ 27.14
1,582,915
$ 20.04
1,591,832
$ 15.84
Granted
Exercised
Forfeited
Expired
307,822
57.25
306,990
53.82
302,993
(299,485)
16.26
(221,759)
(49,848)
46.05
—
—
(33,629)
(3,800)
14.02
25.13
9.85
(222,699)
(89,211)
—
35.71
12.58
16.57
—
Outstanding at end of year
1,589,206
$ 34.43
1,630,717
$ 27.14
1,582,915
$ 20.04
Options exercisable at year-end
746,765
$ 20.50
849,633
$ 15.22
780,415
$ 13.22
Weighted average fair value of
options granted during the year
$ 20.76
$ 18.74
$ 11.85
The following summarizes information about stock options outstanding at December 31, 2005:
Range of Exercise Prices
$10.75-$11.97
$13.34-$35.50
$36.00-$56.40
$57.49-$62.04
Options Outstanding
Options Exercisable
Weighted
Number Average Remaining
Contractual Life
(in years)
Outstanding
at 12/31/05
Weighted
Average
Exercise Price
Number
Exercisable
at 12/31/05
Weighted
Average
Exercise Price
421,947
505,048
443,577
218,634
4.02
5.48
8.03
8.88
$ 11.41
$ 29.07
$ 50.99
$ 57.60
409,307
253,842
83,616
—
$ 11.42
$ 26.35
$ 47.15
—
Employee Stock Purchase Plan
Bio-Rad 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 our 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. Bio-Rad has authorized the sale of 2,390,000 shares of common stock under the Plan.
We sold 92,869 shares for $4.0 million, 68,932 shares for $3.1 million and 71,314 shares for $2.4 million under
the Plan to employees in 2005, 2004 and 2003, respectively. The weighted average fair value of purchase rights
granted in 2005, 2004 and 2003 was $11.38, $10.81 and $9.76, respectively. At December 31, 2005, 607,438
shares remain authorized under the Plan.
44 : Bio-Rad 2005 Annual Report
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,
2005
2004
2003
28.53%
2.95%
0.25
—
20.91%
41.86%
1.22%
0.93%
0.25
—
0.25
—
See Note 1 for a description of the effect of the pro forma compensation expense derived using the
fair value method on our results.
11. Other Income and Expense
Other income, net includes the following income (expense) components (in millions):
Year Ended December 31,
2005
2004
2003
Interest and investment income
Income from equity investee (Note 17)
Write-down of investments (Note 4)
Litigation settlement (Note 14)
Gains on sales of investments (Note 4)
Miscellaneous other items
Other income, net
$
3.2
$
16.7
$
0.1
—
(1.2)
11.2
2.2
6.6
3.1
(2.4)
1.9
—
1.9
$
29.0
$
11.1
$
—
—
—
—
(0.2)
3.0
Bio-Rad 2005 Annual Report : 45
Notes to Consolidated Financial Statements (continued)
12. Supplemental Cash Flow Information
The reconciliation of net income to net cash provided by operating activities is as follows (in millions):
Year Ended December 31,
2005
2004
2003
Net Income
$
81.6
$
68.2
$
76.2
Adjustments to reconcile income to net cash provided by
operating activities (net of effects of acquisitions):
Depreciation
Amortization
Foreign currency economic hedge transactions, net
Gains on dispositions of securities
(Increase) decrease in accounts receivable, net
Increase in inventories, net
Decrease (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
Write-down of investments
Debt retirement costs on 11-5/8% bonds
Impairment losses on long-lived assets
Other
49.1
11.9
(6.4)
(13.3)
(7.7)
(18.7)
(12.1)
20.5
1.6
(15.0)
—
—
19.8
(3.0)
46.2
9.3
(6.5)
(1.9)
(4.4)
(5.5)
3.5
1.1
(2.8)
2.5
2.4
—
—
40.0
2.0
15.0
(0.3)
10.0
(8.2)
(14.2)
(1.6)
(5.6)
(8.0)
—
9.5
—
11.0
12.8
Net cash provided by operating activities
$
108.3
$
123.1
$
127.6
13. Commitments and Contingent Liabilities
Rents and Leases
Net rental expense under operating leases was $23.7 million in 2005, $23.0 million in 2004 and $23.0 million in
2003. Leases are principally for facilities and automobiles.
Annual future minimum lease payments at December 31, 2005 under operating leases are as follows: 2006—
$20.9 million; 2007—$13.9 million; 2008—$8.4 million; 2009—$5.3 million; 2010—$3.6 million; subsequent to
2010—$8.0 million.
Deferred Profit Sharing Retirement Plan
We have 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 $7.5 million, $7.0 million and $6.5 million in 2005, 2004 and 2003, respectively.
46 : Bio-Rad 2005 Annual Report
Other Post-Employment Benefits
In several foreign locations we are statutorily required to provide a lump sum severance or termination indemnity
to our employees. Under these plans, the vested benefit obligation at December 31, 2005 and 2004 was $15.4
million and $17.3 million, respectively and has been included in Other long-term liabilities in the consolidated
balance sheets. These plans are not required to be funded, and as such, there is no trust or other device used
to accumulate assets to settle these obligations.
Foreign Exchange Contracts
We enter into forward foreign exchange contracts as an economic hedge against foreign currency denominated
intercompany receivables and payables. At December 31, 2005, we had contracts maturing in January through
March 2005 to sell foreign currency with a nominal value of $61.1 million and an unrealized loss of $0.2 million.
Contracts to purchase foreign currency had a nominal value of $15.5 million with an unrealized gain of $0.1 million.
Insurance
We carry a deductible for workers’ compensation and a portion of our group health insurance cost. Accruals for
losses are based on our claims experience and actuarial assumptions followed in the insurance industry. Should
a greater amount of claims occur compared to our 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, we are at times required to post letters of credit. The letters of credit are
issued by our banks to guarantee our obligations to insurance companies. We were contingently liable for $4.8
million of standby letters of credit with banks as of December 31, 2005.
Taxes
Settlement of open tax years, as well as tax issues in other countries where we conduct our business, are not
expected to have a material effect on the consolidated financial position or liquidity of Bio-Rad 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.
14. Legal Proceedings
Applera Corporation (Applera) and Roche Molecular Systems (Roche) filed a patent infringement case against
MJ Research, Inc. and John and Michael Finney in the U.S. District Court for the District of Connecticut in June
1998. On August 18, 2004, Bio-Rad acquired MJ Research through the acquisition of 100% of the stock of its
parent company, MJ GeneWorks, Incorporated, from John and Michael Finney. The complaint alleged that MJ
Research infringed certain patents relating to PCR and instruments for performing PCR. In response to their
claims, MJ Research filed counterclaims including, among others, allegations that Applera had licensed and
enforced these patents through anticompetitive conduct in violation of federal and state antitrust laws. A trial on
these matters commenced in March 2004. The Court elected to hold the trial in two phases: a patent phase and
an antitrust phase.
Bio-Rad 2005 Annual Report : 47
Notes to Consolidated Financial Statements (continued)
In the patent phase, which has concluded, the jury found that MJ Research infringed three U.S. patents related
to PCR process technology and three U.S. patents related to thermal cycler instrument technology. The jury
found the infringement of four of the six patents to be willful. MJ Research filed for Chapter 11 bankruptcy
protection in the U.S. Bankruptcy Court for the District of Nevada on March 29, 2004, and later, the Bankruptcy
Court granted MJ Research’s motion to dismiss the bankruptcy case, which became final in September 2004.
In April 2004, the jury awarded damages to Applera and Roche in the amount of $19.8 million. Applera and
Roche sought an enhancement of damages, including legal fees, since several infringements were found to
be willful. On March 30, 2005, the Court granted Applera’s and Roche’s motion for enhancement of damages
and increased the damages awarded to $35.4 million in addition to awarding reasonable attorneys’ fees and
costs in an amount yet to be determined by the Court. On March 31, 2005 the Court entered judgment in favor
of Applera and Roche in that amount, subject to later amendment after it awards attorneys’ fees and costs. In
connection with this ruling, in April we posted a surety bond in the amount of $37.2 million collateralized by the
restricted cash of $36.1 million to stay the enforcement of the judgment pending appeal.
Regarding the antitrust phase of the trial, the Court ruled against MJ Research on all of its patent misuse
defenses and federal antitrust counterclaims and dismissed all of its counterclaims, including the state antitrust
and unfair competition claims, based on those rulings. The Court denied MJ Research’s motion for reconsidera-
tion of the Court’s ruling on patent misuse. On April 1, 2005, Applera moved the Court for entry of a permanent
injunction on the asserted claims of the three U.S. patents related to thermal cycler instrument technology. On
April 14, 2005, MJ Research and John and Michael Finney filed a notice of appeal to the United States Court of
Appeals for the Federal Circuit. In addition, they filed several post-judgment motions, including a motion for a
new trial and a motion for judgment as a matter of law. Applera filed a motion to amend the judgment to include
prejudgment interest in the amount of approximately $1.0 million. On May 13, 2005, Applera also moved the
Court for joinder of Bio-Rad as an additional defendant in the case. We opposed the motion for joinder and the
motion for entry of a permanent injunction. In connection with these matters, Bio-Rad established a
$50.0 million litigation accrual as part of the purchase accounting of the acquisition of MJ GeneWorks.
On August 25, 2005, the Court denied MJ Research’s and Michael and John Finney’s motion for a new trial and
their motion for judgment as a matter of law. On August 29, 2005, the Court granted Applera’s motion to amend
the judgment to include prejudgment interest in the amount of approximately $0.9 million. On August 30, 2005,
the Court granted Applera’s motion for entry of a permanent injunction but denied Applera’s motion for join-
der of Bio-Rad as an additional defendant in the case. The injunction ruling, among other things, enjoined MJ
Research, Michael and John Finney and, among others, MJ Research’s successors (which includes Bio-Rad)
from making, using, offering to sell, or selling in the U.S. any products that were found at trial to directly infringe
certain claims of two of the three U.S. patents held by Applera relating to thermal cycler instrument technology.
The injunction further enjoined them from contributing to the infringement of these claims by selling, offering to
sell, or importing into the U.S. any products found at trial to infringe and from inducing others to infringe certain
claims of all three of the U.S. patents relating to thermal cycler instrument technology.
On August 30, 2005, Bio-Rad entered into what it believed was an enforceable settlement agreement with
Applera and Roche to settle this and all other pending litigation among the parties. On Friday, September 2, 2005,
48 : Bio-Rad 2005 Annual Report
Bio-Rad issued a press release in response to Applera’s September 1, 2005 press release regarding the injunction,
in which Bio-Rad stated its belief that the parties had reached a settlement.
On September 8, 2005, Bio-Rad filed a motion with the Court to enforce the settlement agreement and for an
award of attorneys’ fees and costs. In addition, on September 30, 2005, Bio-Rad filed a motion to stay the
injunction pending a favorable ruling on its motion to enforce the settlement agreement or, if that motion was not
granted, a decision by the Court of Appeals for the Federal Circuit on the appeal of the judgment. Applera and
Roche opposed these motions. On September 12, 2005, Applera filed motion to hold MJ Research and Bio-Rad
in contempt for allegedly violating the injunction. MJ Research and Bio-Rad opposed this motion. On November
10, 2005, the Court issued a recommended ruling to deny the motion to enforce the settlement agreement and
for an award of attorney’s fees and costs.
On February 9, 2006, Bio-Rad entered into a settlement agreement with Applera and Roche, which resolves
the above described patent infringement lawsuit pending in the U.S. District Court of Connecticut. In connec-
tion with the settlement of this lawsuit, Bio-Rad’s 1998 thermal cycler supplier license relating to Applera’s core
thermal cycler patents and Roche’s PCR patents has been amended to include the MJ Research thermal cyclers
that were subject to this litigation.
Bio-Rad and MJ Research were also defendants in another action in the U.S. District Court for the District of
Connecticut. Applera commenced the action against us on November 9, 2004. The complaint alleged that
Bio-Rad was infringing a U.S. patent which is a counterpart to the revoked European real-time PCR patent
described below. The complaint sought damages and injunctive relief. On February 9, 2006, Bio-Rad entered
into a settlement agreement (with an effective date of April 1, 2005) with Applera, which resolves this lawsuit as
well as any issues surrounding back royalties.
The total net settlement amount with respect to all of the above referenced settlement agreements, including
amounts related to previously accrued back royalties, was approximately $62 million. Bio-Rad recognized $1.2
million of additional expense in the fourth quarter of 2005 to adjust its estimated liability as a result of the settle-
ments (see Note 16). In connection with the settlements, Bio-Rad entered into a royalty-bearing license agree-
ment with Applera relating to Bio-Rad’s real-time instrument business in the United States and a term limited
license in the rest of the world.
Applera also filed four actions in the Regional Court of Düsseldorf, Germany during the period from August 2002
through September 2003 against MJ Research and others alleging infringement of four European patents relat-
ing to thermal cyclers. Bio-Rad is also a defendant in one of the actions. The suit seeks actual damages, costs
and expenses and injunctive relief. Three of the actions had a trial before the Düsseldorf court in April 2004. One
of these actions has since been dismissed, and two of these actions have been resolved in the settlement with
Applera described above. In May 2004, the Düsseldorf court issued an adverse ruling against MJ Research and us,
which included an injunction against us and MJ Research from selling any real-time PCR instruments and reagents
in Germany. In December 2004, the European Patent Office revoked the patent and the injunctions against
MJ Research and Bio-Rad were lifted, allowing MJ Research and us to resume sales of real-time PCR thermal cyclers
and reagents. Applera appealed revocation of the patent, and the appeal hearing will be held in July 2006.
Bio-Rad 2005 Annual Report : 49
Notes to Consolidated Financial Statements (continued)
Bio-Rad is also a defendant in an action in Japan which is similar to the action concerning the revoked European
patent relating to real-time PCR. Applera commenced this action against us on May 7, 2002. The complaint
alleges that Bio-Rad is infringing a Japanese patent which is a counterpart to the revoked European patent
and seeks injunctive relief but not damages. In November 2003, the Japanese court issued an adverse ruling
against us which enjoined us from selling real-time PCR instruments and reagents in Japan. Bio-Rad appealed
the decision and also filed a separate action in the Japanese Patent Office seeking revocation of the Japanese
patent. In March 2005, the Japanese Patent Office revoked the Japanese patent. Applera’s appeal was denied
by the Japanese Intellectual Property High Court in January 2006, which Applera may appeal to the Japanese
Supreme Court.
Bio-Rad is also party to various claims, legal actions and complaints arising in the ordinary course of business.
We do not believe that any ultimate liability resulting from any of these lawsuits will have a material adverse
effect on our results of operations, financial position or liquidity. However, Bio-Rad cannot give any assurance
regarding the ultimate outcome of these lawsuits and their resolution could be material to our operating results
for any particular period, depending upon the level of income for the period.
15. Segment Information
Bio-Rad is a multinational manufacturer and worldwide distributor of its own life science research products and
clinical diagnostics products. We have 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, infor-
matics 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 our former Analytical Instruments segment is included in Other Operations. The material prod-
uct lines of this segment were sold in 2001 and 2000.
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 invento-
ries. 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 have
been included in corporate for segment reporting purposes.
50 : Bio-Rad 2005 Annual Report
Information regarding industry segments at December 31, 2005, 2004 and 2003 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
549.9
504.7
456.2
$
Clinical
Diagnostics
618.4
576.4
514.8
$
Other
Operations
12.6
8.9
8.6
$
$
$
$
$
13.8
8.0
6.7
24.6
18.8
10.3
(0.5)
31.4
73.2
276.3
277.5
252.7
11.9
24.1
36.2
$
$
$
$
$
18.7
12.1
9.6
33.0
32.6
29.2
64.4
60.1
59.8
392.9
401.2
379.5
25.1
34.6
30.7
0.1
0.1
0.1
0.1
0.2
0.3
(0.6)
(0.1)
(0.2)
5.4
6.0
5.0
0.1
0.1
0.1
$
$
$
$
$
$
2005
2004
2003
2005
2004
2003
2005
2004
2003
2005
2004
2003
2005
2004
2003
2005
2004
2003
The Life Science segment profit (loss) for 2005 includes $19.8 million of impairment losses on long-lived assets
(see Note 6). The Life Science segment profit (loss) for 2004 includes $13.7 million of in-process research and
development expense purchased as part of the MJ GeneWorks, Inc. acquisition.
The difference between total segment allocated interest expense, depreciation and amortization, and capital
expenditures and the corresponding consolidated amounts is attributable to our corporate headquarters. The
following reconciles total segment profit to consolidated income before taxes (in millions):
Total segment profit
Other income, net
Foreign exchange gains (losses)
Costs related to bond redemption
Net corporate operating, interest and other
Year Ended December 31,
2005
2004
2003
$
$
63.3
29.0
1.5
—
$
91.4
11.1
(2.4)
—
132.8
3.0
(4.1)
(14.1)
income and expense not allocated to segments
(0.4)
(2.8)
(2.2)
Consolidated income before taxes
from continuing operations
$
93.4
$
97.3
$
115.4
Bio-Rad 2005 Annual Report : 51
Notes to Consolidated Financial Statements (continued)
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,
2005
2004
$
674.6
$
563.1
(35.3)
113.3
110.9
684.7
469.0
(16.4)
113.3
121.0
$ 1,426.6
$
1,371.6
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
Year Ended December 31,
2005
2004
2003
$
508.3
$
502.2
$
193.6
421.3
57.8
168.2
370.2
49.4
434.5
159.8
335.2
50.1
$ 1,181.0
$ 1,090.0
$
979.6
The following presents long-lived assets by geographic area based upon the location of the asset (in millions):
Europe
Pacific Rim
United States
Other (primarily Canada and Latin America)
Total long-lived assets
16. Subsequent Events
Year Ended December 31,
2005
2004
2003
$
75.0
$
57.7
$
8.5
332.1
2.8
8.0
394.4
3.1
48.4
7.5
254.4
5.7
$
418.4
$
463.2
$
316.0
On February 9, 2006, Bio-Rad completed negotiations with Applera Corporation and Roche Molecular Systems,
Inc. to settle the patent infringement litigation against MJ Research, a wholly owned subsidiary of Bio-Rad. The
December 31, 2005 financial statements reflect the impact of this settlement (see Note 14).
52 : Bio-Rad 2005 Annual Report
17. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 2005 and 2004 are as follows (in millions, except per share data):
2005
Net sales
Gross profit
Net income
Basic earnings per share
Diluted earnings per share
2004
Net sales
Gross profit
Net income
Basic earnings per share
Diluted earnings per share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
299.2
$
291.3
$
283.2
$
166.4
33.5
1.29
1.26
$
$
160.6
18.4
0.71
0.69
$
$
156.8
16.2
0.62
0.61
$
$
$
$
$
262.7
$
260.5
$
258.9
$
149.3
22.0
0.86
0.83
$
$
149.7
22.9
0.89
0.86
$
$
142.8
6.3
0.24
0.24
$
$
$
$
307.3
162.7
13.5
0.51
0.50
307.9
168.3
17.0
0.66
0.65
In the fourth quarter of 2005, Bio-Rad recorded $19.8 million of impairment losses related to intangible and
long-lived assets (see Note 6).
In the fourth quarter of 2004, Bio-Rad refined its procedures to more accurately reflect the application of its
revenue recognition policy, resulting in a decrease in net sales and net income of approximately $5.0 million and
$1.7 million, respectively. Also, in the fourth quarter of 2004, we adopted the equity method of accounting for
one of our investments previously accounted for on the cost method. The result was an increase in net income
of $2.1 million. None of these items had a significant effect on any prior quarter or fiscal year.
Bio-Rad 2005 Annual Report : 53
Report Of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Bio-Rad Laboratories, Inc., Hercules, California
We have audited the accompanying consolidated balance sheets of Bio-Rad Laboratories, Inc. and subsidiar-
ies (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluat-
ing 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 posi-
tion of Bio-Rad Laboratories, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2005, in confor-
mity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005,
based on the criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2006 expressed an
unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over
financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
San Francisco, California
March 2, 2006
54 : Bio-Rad 2005 Annual Report
Management’s Discussion and Analysis
Management’s Discussion and Analysis of Results of Operations and Financial Condition
This discussion should be read in conjunction with the information contained in Bio-Rad’s Consolidated Finan-
cial 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 state-
ments, such as statements with respect to our 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 cur-
rently 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
Bio-Rad is a multinational manufacturer and worldwide distributor of our own Life Science research and
Clinical Diagnostics products. Our business is organized into two primary segments, Life Science and Clinical
Diagnostics, with the mission to provide scientists with specialized tools needed for biological research and
clinical diagnostics. We sell more than 8,000 products and services to a diverse client base comprised of
scientific research, healthcare, industry, education and government customers worldwide. We manufacture
and supply our customers with a range of reagents, apparatus and equipment to separate complex chemi-
cal and biological materials and to identify, analyze and purify components. Because our customers require
replication of results in manufacturing processes and their experiments and tests, we estimate that approxi-
mately 70% of our revenues are recurring. Approximately 36% of our 2005 consolidated net sales are from
the United States, and approximately 64% are international sales, largely denominated in local currency with
the majority of these sales in Euros, Yen and British Sterling. As a result, our consolidated sales expressed
in dollars benefit when the U.S. 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 2005 and
2004. The market for reagents and apparatus remains good while growth rates have slowed due to both
public and private grant funding being more measured. The market for large capital equipment in 2004 and
2005 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.
Bio-Rad 2005 Annual Report : 55
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,
excluding in-process research and development
Income from continuing operations
Discontinued operations
Net income
Year Ended December 31,
2005
2004
2003
100.0
45.3
54.7
35.2
9.7
6.6
0.3
6.9
100.0
44.0
56.0
34.7
9.9
6.1
0.2
6.3
100.0
43.2
56.8
32.4
9.3
7.9
(0.1)
7.8
We intend for the discussion of our financial condition and results of operations that follow to assist you in
understanding how accounting principles, policies and estimates affect our results, and the significant factors
that caused changes in our operations and financial position for the years ended December 31, 2005 and 2004.
Critical Accounting Policies and Estimates
The accompanying discussion and analysis of Bio-Rad’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. We evaluate our estimates on an on-going basis. Bio-Rad 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. We have determined that for the periods reported in our 2005 Annual Report, the following account-
ing policies and estimates are critical in understanding the financial condition and results of our operations.
Accounting for Income Taxes
As part of the process of preparing consolidated financial statements, management is required to estimate our
income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual cur-
rent 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
56 : Bio-Rad 2005 Annual Report
increases this allowance in a period, an expense within the tax provision in the statement of operations must
be included.
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. We have recorded a
valuation allowance of $17.7 million and $18.0 million as of December 31, 2005, and 2004, respectively, due
to uncertainties related to our ability to utilize some of the deferred tax assets, primarily consisting of certain
foreign net operating losses carried forward, before they expire. The valuation allowance is based on manage-
ment’s current estimates of taxable income for the jurisdictions 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
We assess 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’ asset or asset group are used to estab-
lish the fair value used in evaluating the carrying value of long-lived, intangible assets and goodwill. Factors that
we consider 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 long-lived assets, intangible assets or the strategy
for our overall business;
- significant negative industry or economic trends.
When Bio-Rad determines that the carrying value of intangibles, long-lived assets or enterprise level goodwill
may not be recoverable based upon the existence of one or more of the above indicators of impairment, we
measure 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 our current business model.
For the year 2005, that review indicated an impairment had taken place in purchased intangible assets related to
existing thermal cycler and microarray technology. There were no impairments taken in the year 2004 and 2003.
Valuation of Inventories
Bio-Rad 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. We review inventory quantities on hand and record a provision
for excess and obsolete inventory based primarily on an estimated forecast of product demand and production
requirements for the next twelve months on a quarterly basis or, if warranted by the circumstances, more fre-
quently. 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
Bio-Rad 2005 Annual Report : 57
Management’s Discussion and Analysis (continued)
hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case we may
have understated or overstated the provision required for excess and obsolete inventory. In the future, if inven-
tory is determined to be overvalued, we would be required to recognize such costs in our cost of goods sold
at the time of such determination. Likewise, if inventory is determined to be undervalued, we 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 we make efforts to ensure the accuracy of our forecasts of future
product demand, any significant unanticipated changes in demand, technological developments or regulations
could have a significant impact on the value of our inventory and reported operating results.
Allowance for Doubtful Accounts
Bio-Rad maintains an allowance for doubtful accounts for estimated losses resulting from the inability of
our customers to make required payments. The amount of the allowance is determined by analyzing known
uncollectible accounts, the age of our receivables, economic conditions in the customers’ country or industry,
historical losses and our customers’ general credit-worthiness. Amounts later determined and specifically identi-
fied to be uncollectible are charged or written off against this reserve. This valuation allowance is reviewed on a
quarterly basis to determine whether an increase or decrease is warranted. Should the estimates be higher than
the actual uncollectible accounts, we would report lower profitability when the estimates are made and higher
profitability when the receivable is collected through negotiation or litigation.
Warranty Reserves
Bio-Rad warrants certain equipment against defects in design, materials and workmanship, generally for a
period of one year. Upon shipment of that equipment, we establish, as part of cost of goods sold, a provision
for the expected costs of such warranty based on historical experience, specific warranty terms and customer
feedback. A review is performed on a quarterly basis to assess the adequacy of our warranty reserve, and
adjusted, if necessary. The warranty percentage and accrual are based on actual experience and expected
future costs to be incurred. Should realized costs be higher than expected costs, cost of goods sold would be
lower in the period of estimation and higher when realized.
Litigation Reserves
Estimated amounts for claims that are probable and can be reasonably estimated are recorded as liabilities in
the consolidated balance sheets. The likelihood of a material change in these estimated reserves is dependent
on the possible outcome of settlement negotiations, regulatory or judicial review and the development of facts
and circumstances in extended litigation which could change claims or assessments when both the amount
and range of loss on some outstanding litigation is uncertain. We are obligated to disclose in the footnotes of
the financial statements when we are unable to make a reasonable estimate of the liability that could result from
unfavorable outcomes in litigation. As events occur, we will assess the potential liability related to our pending
litigation and revise our estimates. Such revisions in our estimates of the potential liability could materially
impact our results of operations and financial position.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS 123(R), Share-Based Payment, which is a revision of SFAS 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock
58 : Bio-Rad 2005 Annual Report
Issued to Employees. SFAS 123(R) requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments, based on the grant date fair value of those awards in their financial
statements. Pro forma disclosure is no longer an alternative under the new Standard. SFAS 123(R) will also
require the benefits associated with tax deductions in excess of recognized compensation cost to be reported
as a financing cash flow rather than as an operating cash flow as currently required.
Bio-Rad has adopted the provisions of SFAS 123(R) beginning January 1, 2006 under the “modified prospec-
tive” transition method. Under this method, compensation cost for the unvested portion of previously granted
awards and all new awards will be recognized on or after the date of adoption. The compensation cost related
to unvested awards at the date of adoption is based on the grant-date fair value of those awards as calculated
for pro forma disclosures under the original SFAS 123 as adjusted for the effect of estimated forfeiture rates.
Our 2006 results are expected to include approximately $5 million of additional compensation expense as a
result of the adoption of SFAS 123(R). Because this estimate is based on assumptions including anticipated
levels of new awards to be granted, changes in stock price, forfeitures of awards and employee exercise pat-
terns, the actual impact on earnings may differ from this estimate. Bio-Rad will recognize compensation cost for
stock-based awards issued after December 31, 2005 on a straight-line basis over the requisite service period for
the entire award.
Corporate Results—Sales, Margins and Expenses
Bio-Rad net sales for the year 2005 were $1,181.0 million, an increase of 8.3% over the prior year. The impact
of foreign exchange translation throughout the year provided growth from foreign denominated net sales of
approximately 1.1% for the full year.
The Life Science segment had sales growth of 9.0% in 2005, benefiting from an approximate 0.8% increase due
to foreign exchange. Currency neutral sales growth of 8.2% was provided by the acquisition of MJ Research,
process media sales, multi-analyte detection, and protein separation apparatus and reagents. Offsetting these
specific growth areas was a decline in Food Science products as the average pricing for our BSE test declined
year over year in a very competitive market. During the fourth quarter, we were enjoined by court order not to
sell or service MJ products in the United States, which negatively impacted sales.
The Clinical Diagnostics segment had sales growth of 7.3% in 2005, benefiting from an approximate 1.4%
increase due to foreign exchange. Currency neutral sales growth was 5.9% in the Clinical Diagnostics segment.
Our quality control products had growth across several product lines. Diagnostic tests provided for diabetes
monitoring, genetic disorder identification, and improved demand for blood virus products in the U.S. and Asia
also contributed to overall growth.
Bio-Rad net sales for the year 2004 were $1,090.0 million, an increase of 11.3% over the prior year after
presenting our confocal microscopy operations, sold in May 2004, as discontinued operations. The impact of
a weakening U.S. dollar throughout the year provided growth from net foreign currency denominated sales of
approximately 5.8% for the full year.
Bio-Rad 2005 Annual Report : 59
Management’s Discussion and Analysis (continued)
The Life Science segment had sales growth of 10.6% in 2004, benefiting from an approximate 5.8% increase
due to foreign exchange. Currency neutral sales growth of 4.8% was provided by the acquisition of MJ Research
and our protein expression product lines, amplification and electrophoresis reagents. Offsetting the sales growth
of this segment is continued aggressive competitor pricing for the BSE test, continued general weakness related
to some government grant spending (most notably Japan), and diminished capital equipment purchases by
large pharmaceutical companies.
The Clinical Diagnostics segment had sales growth of 12.0% in 2004, benefiting from an approximate 5.7%
increase due to foreign exchange. Currency neutral sales growth of 6.3% was provided in several broad product
lines of the Clinical Diagnostics segment. Quality control products grew due to the Hematronix acquisition and
the growth of existing product offerings. Also contributing to growth were diagnostic products for autoimmune,
diabetes and blood virus testing.
The 2005 consolidated gross margins declined to 54.7% in the current year from 56.0%. The decline in the Life
Science segment’s gross margin accounts for the decline for Bio-Rad as a whole. Several factors contributed to
the Life Science decline. Lower average pricing on the BSE product lines and the court-ordered halt to MJ
product sales and service relating to the patent litigation with ABI resulted in the immediate expensing of all
production costs leading to higher service and warranty expense as customer accommodations were made.
The Clinical Diagnostics segment’s margin improved by less than one percent. Moderation in the increase of
plant overhead costs and lower reagent rental depreciation were contributing factors to this improvement.
The 2004 consolidated gross margins declined to 56.0% from 56.8% in the prior year. The majority of the
decline in the Life Science segment is attributable to the BSE product line, as average selling price declined.
Additionally, there were increased intangible asset amortizations from the MJ acquisition, MJ integration
costs and unabsorbed factory overhead costs from lower than anticipated volumes. The Clinical Diagnostics
segment’s gross margin improved by about one percent. Efficiency gains in factory performance resulted in a
general trend of improving the Clinical Diagnostic segment’s margin.
Consolidated selling, general and administrative expense was 35.2% of net sales for the year 2005 compared
to 34.7% for the year 2004. The Life Science segment and Corporate shared services added expenses at a
rate that exceeded sales growth. Life Science increases are attributable to higher personnel and facilities costs
related to the acquisition of MJ, legal expenses related to patent litigation, the amortization of intangibles and
an increase in the experience of uncollectible receivables. Corporate shared services had increased spending
in information technology, acquisition related expenses and legal fees.
Overall for 2005, Bio-Rad increased costs associated with regulatory requirements for global tax and audit
compliance and security and disaster recovery for our information technology infrastructure. Additionally, we
incurred professional services in association with the attempted acquisition of BioSource International, Inc. and
settling the Instrumentation Laboratories (IL) litigation.
The Clinical Diagnostic segment’s selling, general and administrative (SG&A) expense grew at a rate slower than sales. The
largest element of absolute cost is personnel which also was responsible for generating the most growth in expenses.
60 : Bio-Rad 2005 Annual Report
Consolidated selling, general and administrative expense for 2004 was 34.7% of sales, compared to 32.4%
for the year ended 2003. Both the Life Science and Clinical Diagnostics segments added expenses at a rate of
growth higher than sales. The Life Science segment had increased facility costs after relocating to new facilities
and consulting costs associated with implementation of new distribution, manufacturing and financial software
systems. Costs also increased related to the MJ acquisition and legal matters associated with the gene expres-
sion product line. We have seen significant cost increases associated with regulatory compliance including
Section 404 of Sarbanes-Oxley, global tax compliance and security and disaster recovery for our information
technology infrastructure.
Product research and development expense in 2005 declined to 9.7% of sales after adjusting for the $14.6 million of
purchased in-process R&D from 2004 acquisitions. In absolute dollars, each segment had growth with Life Science
increasing more than Clinical Diagnostics. The Life Science segment concentrated on research and development in
amplification and protein interaction technologies. The Clinical Diagnostics segment concentrated on automation
for the serology, autoimmune and blood virus products as well as the segment’s quality control products.
Excluding $14.6 million of purchased in-process R&D from both the Hematronix and MJ Research acquisitions,
product research and development expense in 2004 rose to 9.9% of sales from 9.3% in 2003. The significant
increase in spending levels occurred in Life Science in the areas of protein separation, protein function and food
safety. Increased spending levels in Clinical Diagnostics are attributable to the BioPlex® 2200, an immunoassay
platform that employs multiplexing technology. Clinical Diagnostics continues to invest in expanding its quality
control products and blood virus diagnostic tests.
Corporate Results
Interest expense increased in 2005 to $32.6 million, from $20.2 million in the prior year. The year 2005 had
approximately $434.7 million of average borrowings. The increase reflects that in late December 2004, we
borrowed an additional $200.0 million in a private placement of Senior Subordinated Notes at 6.125%. This
additional borrowing has substantially caused all of the 2005 increase in interest expense which includes the
amortization of bond origination fees. We now have two principal borrowings: the $225 million 7.5% 10-year
bonds due 2013, and the $200 million 6.125% bonds due 2014.
Interest expense declined in 2004 to $20.2 million, a decrease of $10.8 million. The year 2004 is representative
of approximately $251.6 million of average borrowings, consisting largely of the September 2003, 7.5%, 10-year
bonds plus the amortization of bond origination fees and interest on local foreign lines of credit. During 2003, we
refinanced all of our long-term debt incurring additional interest costs of $14.6 million for open market purchas-
es and the tendering of $106.0 million of our 11-5/8% senior subordinated notes due in 2007.
Foreign exchange gains (losses) for 2005 and 2004 were $1.5 million and ($2.4) million, respectively. The sig-
nificant difference between 2005 and 2004 was the result of discontinuing our hedging program of the Brazilian
Real due to the high cost during a period of extended weakness in 2004. During 2005 the Real has strengthened
against the U.S. dollar generating gains as we have continued not to hedge our current intercompany receivable
balance. All years include the net cost of Bio-Rad’s economic hedging program valuing open option contracts
Bio-Rad 2005 Annual Report : 61
Management’s Discussion and Analysis (continued)
to fair market value at period end and the revaluation of intercompany receivables and payables represented by
the established European, Asian and North American currencies.
Other income and expense for the year 2005 includes two atypical events. First is the sale of our investment in
Instrumentation Laboratories for $12 million resulting in a $7.9 million gain. Second is a gain of $3.3 million on
the tendering of our shares in BioSource International, Inc., a potential acquisition that later accepted a buy-out
from another company. The years 2005 and 2004 both include $16.7 million and $6.6 million, respectively, of
interest and investment income generated by our net cash position and notes receivable. Dividend and inter-
est income increased in 2005 as we invested an incremental $200 million, the proceeds of the December 2004
borrowing, and short-term interest rates rose throughout 2005. In 2004, we settled by negotiation and received
cash payments of $3.3 million in two matters that originated prior to 2002. First was a $1.9 million settlement
with an outside legal firm which represented us in the mid 1990’s. The second settlement was with Digilab
LLC for contested transition services settled in connection with the sale of our spectroscopy product line in
October 2001. Also in 2004, we recorded a write-down of $2.4 million for an other than temporary impairment
of our investment in Instrumentation Laboratories, an Italian diagnostic company in which we hold a 3% stake,
and recorded $3.1 million of other income associated with an equity method investee, a Japanese equipment
manufacturer in which we hold a 40% stake.
Bio-Rad’s consolidated effective tax rate was 17%, 32% and 33% in 2005, 2004 and 2003, respectively.
The 2005 effective tax rate reflects a one time benefit of 5% related to a capital loss for tax purposes. The
2005 and 2004 effective tax rates reflect tax rate benefits of 6% and 2% respectively for nontaxable divi-
dend income. The tax rate for 2005 reflects a benefit in the difference between U.S. and foreign taxes net
of foreign tax credit related to certain one time events in France and the United Kingdom. The tax rate for all
years reflects a tax benefit related to export sales.
Our effective tax rate may be impacted in the future, either favorably or unfavorably, by many factors including
but not limited to statutory tax rates, changes in existing laws or regulations, tax audits and settlements, and
generation of tax credits.
Financial Condition
Historically, our principal capital requirement was for working capital to fund our internal growth. Management
assesses Bio-Rad’s liquidity in terms of our ability to generate cash to fund our operations and make acquisi-
tions. The relevant factors that effect liquidity are cash flows from operations, capital expenditures, acquisition
opportunities, common stock repurchases, the adequacy of available bank lines of credit and the ability to raise
long-term capital by borrowing in the debt markets with satisfactory terms and conditions.
At December 31, 2005, we had available $413.1 million in cash, cash equivalents and short-term invest-
ments, and $30.8 million under international lines of credit. Under the $150.0 million restated and amended
Revolving Credit Facility, we have $145.6 million available with $4.4 million reserved for standby letters
of credit issued by our banks to guarantee our obligations to certain insurance companies. Management
believes that this availability, together with cash flow from operations, will be adequate to meet our current
62 : Bio-Rad 2005 Annual Report
objectives for operations, research and development, capital additions for plant, equipment and systems
and an acquisition consistent with opportunities presently available.
Cash Flow from Operations
Net cash provided by operations was $108.3 million, $123.1 million and $127.6 million in 2005, 2004 and 2003,
respectively. The decrease is primarily attributable to higher cash outlays for inventory and selling, general and
administrative spending at a rate of growth greater than sales growth. The selling, general and administrative
spending increases are attributable to higher spending for information technology, legal fees and personnel
costs. While interest payments increased $11.8 million due to the December 2004 borrowing for $200 million,
this is partially offset by increased investment income generated by those funds in an environment of rising
short-term interest rates. Finally, an increase in income taxes paid of $6.0 million further lowered net cash flows
provided by operating activities.
Bio-Rad’s management regularly reviews the allowance for uncollectible receivables and believes net accounts
receivable are fully realizable. Management routinely reviews inventory for the impact of obsolesence and
changes in market prices caused by the introduction of new products, technologies and in government reim-
bursement policies.
Cash Flow from Investing Activities
Net capital expenditures in 2005 totaled $36.1 million, compared to $60.5 million and $69.0 million in 2004
and 2003, respectively. Net capital expenditures for 2005 reflects less investment in facility, equipment and
new information technology systems. Also, spending on reagent rental equipment declined. The years 2004
and 2003 contained much higher spending as a new 160,000 square foot building on our Hercules campus
was completed and equipped. Additionally, a leased manufacturing facility was improved and equipped in this
period. A principal expenditure in all years is clinical diagnostics equipment placed with customers to be used
with our clinical diagnostics reagents. For 2005, this amount represents $13.9 million of capital additions. We
continue to invest in business systems to modernize and standardize distribution capabilities and enhance data
communication. Other ongoing expenditures are 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 to meet the requirements of other regulatory bodies as well as
many customers in the Life Science market.
Net cash used in investing activities was $6.2 million for the year 2005. The decline in payments for acquisi-
tions and intangible assets is due to the decrease in acquisition activity as compared to 2004. During 2004, we
acquired MJ GeneWorks, Hematronix and increased our investment in Sartorius. Proceeds from divestitures in
2004 are from the divestiture of the confocal microscopy product line. The $69.0 million of net sales of market-
able securities and investments represents an increased investment in cash equivalents in a rising short-term
interest rate environment. Cash and short-term investments, in part, represent our resources available to do
an acquisition before drawing on our available credit facilities and incurring additional debt. Actual acquisition
spending, however, may vary depending upon the availability and timing of a suitable candidate.
Bio-Rad 2005 Annual Report : 63
Management’s Discussion and Analysis (continued)
Cash Flow from Financing Activities
Net cash flow provided from financing was $1.3 million for 2005 and reflects the reduction in activities during
2005, as no borrowings occurred and early payments on existing international debt were repaid. During the fourth
quarter of 2004, we borrowed $200 million at 6.125% due 2014 in a private placement. This borrowing, along
with the $225 million at 7.5% due 2013, provides us with capital at a fixed rate for the next nine and eight years,
respectively. Our focus for the company is to make an acquisition to supplement our internal growth. We routinely
meet and discuss potential acquisitions with specific companies, principals or their agents. A specific acquisition
of a material nature has not, as of this date, been identified but we continue to attempt to locate opportunities.
Bio-Rad completed three significant financing transactions during 2003. These transactions were the comple-
tion of a $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 our out-
standing 11-5/8% Senior Subordinated Notes due in 2007.
The $225.0 million private placement was exchanged for the new 7.5% Exchange Notes that have been regis-
tered 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% private placement.
The $150.0 million revolving credit facility is secured by substantially all of our personal property assets and the
assets of our domestic subsidiaries and 65% of the capital stock of certain foreign subsidiaries, and is guar-
anteed by all of our existing and future domestic subsidiaries (other than immaterial domestic subsidiaries as
defined for purposes of the new credit facility).
The Board of Directors has authorized us to repurchase up to $18 million of Bio-Rad’s common stock over an
indefinite period of time. Through December 31, 2005, we have 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. Our credit agreements
restrict our ability to repurchase our own stock. There were no share repurchases made during 2005 or 2004.
Contractual Obligations
The following summarizes certain of our contractual obligations as of December 31, 2005 and the effect such
obligations are expected to have on our cash flows in future periods (in millions):
Contractual Obligations
Total
Less Than
One Year
1-3 Years
3-5 Years
More than
5 Years
Long-term debt, including current portion (1)
$
426.1
$
0.4
$
0.6
$
0.1
$ 425.0
Interest payments
Operating lease obligations (2)
Purchase obligations (3)
Long-term liabilities
239.6
60.1
13.2
21.4
29.1
20.9
9.4
—
87.4
87.4
22.3
2.1
4.6
8.9
1.0
1.2
35.7
8.0
0.7
15.6
(1) These amounts represent expected cash payments, include capital lease obligations and are included in our Consolidated Balance Sheets. See Note 7 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 Bio-Rad and that specify all signifi-
cant terms. Purchase obligations exclude agreements that are cancelable without penalty.
64 : Bio-Rad 2005 Annual Report
Financial Risk Management
Bio-Rad uses derivative financial instruments to reduce our exposure to fluctuations in foreign exchange rates
and, on occasion, interest rates. No derivative financial instruments are entered into for the purpose of speculat-
ing or trading. Company policy limits all derivative positions exclusively to reducing risk by hedging an underly-
ing economic exposure. These derivative investments do not qualify for hedge accounting treatment under
SFAS 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 our 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 currency.
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. Bio-Rad records the
change in the value of its foreign currency intercompany receivables and payables as a foreign exchange gain
or loss on its statements of income along with the change in the fair market value of the forward exchange
contract used as an economic hedge of that asset or liability.
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. At year-end, a 10% adverse loss on quoted foreign currency exchange rates would result in an
approximate $8 million loss on our derivative position. This impact of a change in exchange rates excludes the
offset derived from the change in our underlying assets and liabilities, which could reduce the effect to zero.
Our long-term debt consists primarily of fixed rate instruments. Bio-Rad uses sensitivity analysis to assess the
market risk associated with its interest rate risk. As of December 31, 2005 our interest rate risk was not significant.
Bio-Rad 2005 Annual Report : 65
Corporate Information
Directors
David Schwartz
Chairman of the Board
James J. Bennett
Director
Albert J. Hillman
Director
Ruediger Naumann-Etienne
Director
Philip L. Padou
Director
Alice N. Schwartz
Director
Norman 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
Ronald W. Hutton
Treasurer
Robyn Hawkins
Manager, Quality Systems
James R. Stark
Corporate Controller
Other Executives
Patrick Bugeon
Group Operations Manager,
France Clinical Diagnostics
John Hertia
Group Operations Manager,
U.S. Clinical Diagnostics
Nicholas Roelofs
Group Operations Manager,
U.S. Life Science
Bruce Bartholomew
Manager,
North America Sales,
Clinical Diagnostics
Steve Binder
Director,
Technology Development,
Clinical Diagnostics
John Bussell
Manager, Clinical Systems
Francois Capit
Regional Manager,
Asia Pacific
Patrick Carroll
Manager,
North America Sales,
Life Science
Annual Meeting
The Annual Meeting of
Stockholders will be held
on Tuesday, April 25, 2006
at 4:00 p.m., Pacific Time,
at the Corporate Offices of
the Company in Hercules,
California.
Bio-Rad will provide without
charge to each stockholder,
upon written request to the
Secretary, a copy of its 2005
Annual Report filed with the
Securities and Exchange
Commission on Form 10-K.
Transfer Agent
Computershare Investor
Services LLC
2 North LaSalle Street
Chicago, Illinois 60602
Tel: (312) 360-5132
Fax: (312) 601-4332
www.computershare.com
Scott Jenest
Manager, Manufacturing,
Life Sciences
Bill Kuhlman
Manager,
Process Chromatography
Ann Madden
Manager,
Clinical Microbiology
Paul Menter
Manager,
Laboratory Separations
Daniel Merle
Manager,
Business Development,
Clinical Diagnostics
Todd Morrill
Manager,
Business Development,
Life Science
Leonard Pulig
Manager, Marketing,
Life Science
Auditors
Deloitte & Touche LLP
San Francisco, California
Sanjiv Suri
Regional Manager,
Eastern Europe,
Latin America
Common Stock
Traded on the American
Stock Exchange
Sadashi Suzuki
Regional Manager, Japan
Class A Common Stock
Symbol BIO
Annette Tumolo
Manager, Gene Expression
Class B Common Stock
Symbol BIOb
Giovanni Magni
Vice President and
International Sales Manager
Diane Dahowski
Manager, BioPlex
Christine A. Tsingos
Vice President and
Chief Financial Officer
Sanford S. Wadler
Vice President,
General Counsel
and Secretary
Patrice Deletoille
Manager, Blood Virus
David Forrester
Regional Manager, Europe
66 : Bio-Rad 2005 Annual Report
Bio-Rad Laboratories
1000 Alfred Nobel Drive
Hercules, CA 94547
Tel: (510) 724-7000
Fax: (510) 741-5817
www.bio-rad.com