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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

10-Q

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Bio-Rad Laboratories, Inc.

Consolidated Statements of Income

(in thousands, except per share data)

1

BIO-RAD LABORATORIES, INC

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)

2

BIO-RAD LABORATORIES, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

3

BIO-RAD LABORATORIES, INC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

BASIS OF PRESENTATION

In this report, “Bio-Rad,” “we,” “us,” and “our” refer to Bio-Rad Laboratories, Inc. and its subsidiaries.  The accompanying unaudited condensed consolidated financial statements of Bio-Rad have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments which are, in the opinion of management, necessary to fairly state the results of the interim periods presented.  All such adjustments are of a normal recurring nature.  Results for the interim period are not necessarily indicative of the results for the entire year.  The condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in our Annual Report for the year ended December 31, 2004.  Certain prior year items have been reclassified to conform to the current year
46;s presentation.

2.

INVENTORIES

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

3.

PROPERTY, PLANT AND EQUIPMENT

The principal components of property, plant and equipment are as follows (in millions):

Net capital expenditures include proceeds from the sale of property, plant and equipment of $0.1 million and $2.2 million for the three months ended March 31, 2005 and 2004, respectively.

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4.

SHORT-TERM INVESTMENTS

Short-term investments consist of the following (in millions):

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.  As of March 31, 2005, the short-term investments will mature within one year.

5.

GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

In March 2005, we purchased the rights to certain patents for $1.0 million.  These intangible assets are included in the Clinical Diagnostics segment.

Other than goodwill, we have no intangible assets with indefinite lives.  Information regarding our identifiable purchased intangible assets is as follows (in millions):

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Recorded intangible asset amortization expense for the three months ended March 31, 2005 and 2004 was $2.8 million and $1.4 million, respectively. Estimated intangible asset amortization expense (based on existing intangible assets) for the years ended December 31, 2006, 2007, 2008, 2009, and 2010 is $10.1 million, $9.8 million, $8.6 million, $5.6 million and $2.2 million, respectively.

6.

ACQUISITIONS AND INVESTMENTS

On April 6, 2005, we submitted a proposal to the Board of Directors of BioSource International, Inc., a broad-based life sciences company, to acquire all of Bio-Source’s outstanding shares for $8.50 per share in cash.  We currently own approximately 6.8% of the outstanding shares of BioSource.  On April 11, 2005, BioSource announced in a press release that its Board of Directors rejected our acquisition proposal and that it has retained financial and legal advisors to assist Bio-Source in evaluating strategic alternatives, including a possible sale of BioSource.  Although we have not made any further attempts to acquire BioSource, we may do so in the future.

At March 31, 2005, we owned approximately 23% of the outstanding voting shares of Sartorius AG (“Sartorius”), of Goettingen, Germany, a process technology supplier to the biotechnology, pharmaceutical, chemical and food and beverage industries.  The Sartorius family trust and Sartorius family members hold approximately 60% of the outstanding voting shares.  Bio-Rad does not have any representative or designee on Sartorius’ board of directors, nor does it have any other influence over the operating and financial policies of Sartorius.  Therefore, we account for this investment using the cost method.

7.

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.  As required by Statement of Financial Accounting Standard (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.”

Since the discontinued operations were sold in the second quarter of 2004, there have been no sales or operating losses in the three months ended March 31, 2005.  However, during the current quarter, we reached an agreement to settle the $6.7 million estimated lease commitment that comprised the most significant portion of the original shut-down provision.  We have revised our estimate based on the settlement agreement, and now require only $1.6 million to exit the facility during 2005.  Consequently, we recognized a $4.0 million gain on the revised disposition of the confocal microscopy product line, net of cash payments and reserve requirements.

The discontinued operations generated net sales of $3.9 million for the three months ended March 31, 2004.  The pre-tax operating losses attributable to the discontinued operations for the three months ended March 31, 2004 were $0.8 million.

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8.

PRODUCT WARRANTY LIABILITY

Bio-Rad warrants certain equipment against defects in design, materials and workmanship, generally for one year.  Upon shipment of that equipment, we establish, as part of cost of goods sold, a provision for the expected cost of such warranty.

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

9.

LONG-TERM DEBT

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.  Bio-Rad has the right to repurchase up to 35% of the 6.125% Notes any time prior to December 15, 2007 upon any sale of Bio-Rad’s common stock at a specified redemption price plus accrued and unpaid interest and certain other charges.  Furthermore, Bio-Rad has 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 d ebt.

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.  Bio-Rad has the right to repurchase up to 35% of the 7.5% Notes any time prior to August 15, 2006 upon any sale of Bio-Rad’s common stock at a specified redemption price plus accrued and unpaid interest and certain other charges.  Furthermore, Bio-Rad has 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 and rank equal to other senior subordinated notes and rank junior to all our existing and future senior debt.

10.

EARNINGS PER SHARE

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

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Weighted average shares used for diluted earnings per share include the dilutive effect of outstanding options to purchase 646,000 and 820,000 shares of stock for the three months ended March 31, 2005 and 2004, respectively.  Options to purchase 477,000 and 7,000 shares of common stock were outstanding during the three month periods ended March 31, 2005 and March 31, 2004, but were excluded from the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common shares

11.

STOCK OPTIONS AND PURCHASE PLANS

Stock Option Plans

Bio-Rad maintains incentive and non-qualified stock option plans for officers and certain other key employees.  Under the 2003 Stock Option Plan, options to purchase 307,822 shares and 306,990 shares were granted during the three months ended March 31, 2005 and March 31, 2004, respectively.  No options have been issued to non-employees.

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

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

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 shares of Bio-Rad’s Class A common stock.  The employees’ purchase price is 85% of the lesser of the fair market value of the stock on the first business day or the last business day of each calendar quarter.  No compensation expense is recorded in connection with the plan.  At March 31, 2005, Bio-Rad has authorized the sale of 1,890,000 shares of common stock under the plan.

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Bio-Rad sold 22,062 shares for $1.0 million and 17,273 shares for $0.7 million under the plan to employees for the three months ended March 31, 2005 and 2004, respectively.  At March 31, 2005, 178,245 shares remain authorized under the plan.

In December 2004, the Financial Standards Board issued SFAS 123 (revised 2004), “Share-Based Payment.”  This statement requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.  Currently, companies are required to calculate the estimated fair value of these share-based payments and can elect to either include the estimated cost in earnings or disclose the pro forma effect in the footnotes to their financial statements.  SFAS 123 (R) replaces SFAS 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”  Upon adoption, the pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition.  We are required to adopt SFAS 123 (R) in its first quarter of fiscal 2006, beginning January 1, 2006.  We are currently evaluating the impact of adoption of this statement.

12.

FOREIGN EXCHANGE GAINS AND LOSSES

Exchange gains and losses cons