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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

For the fiscal year ended December 31, 2002

Beckman Coulter, Inc.

4300 N. Harbor Boulevard, Fullerton, California 92834-3100 (714) 871-4848

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

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

      Indicate by X mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.     o

      Aggregate market value of voting stock held by non-affiliates of the registrant as of January 21, 2003: $1,915,193,035.

      Common Stock, $0.10 par value, outstanding as of January 21, 2003: 61,305,795 shares.

      Documents incorporated by reference in this report:

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PART I

Overview

      Beckman Coulter simplifies and automates laboratory processes used in all phases of the battle against disease. The Company designs, manufactures, and markets systems which consist of instruments, chemistries, software, and supplies that meet a variety of biomedical laboratory needs. Its products are used in a range of applications, from instruments used for pioneering medical research, clinical research and drug discovery to diagnostic systems found in hospitals and physicians’ offices to aid in patient care. Beckman Coulter competes in market segments that it estimates totaled approximately $35 billion in annual sales worldwide in 2002. The Company currently has products which address approximately half of that market.

      Beckman Coulter’s product lines include virtually all of the blood tests routinely performed in hospital laboratories and a range of systems for biomedical and pharmaceutical research. The Company has more than 200,000 systems operating in laboratories around the world, with a substantial portion of its annual revenues coming from after-market customer purchases of operating supplies, chemistry kits, and service. Beckman Coulter markets its products in approximately 130 countries, with approximately 43% of revenues in 2002 coming from outside the United States.

      Beckman Coulter’s principal executive offices are located at 4300 N. Harbor Blvd., Fullerton, California 92835. Its mailing address is P.O. Box 3100, Fullerton, CA 92834-3100. The telephone number is (714) 871-4848.

Company History

      Beckman Coulter adopted its current name in April, 1998. The name change followed the October, 1997 acquisition of Coulter Corporation when the Company was known as Beckman Instruments, Inc.

      Beckman Instruments, Inc. was founded by Dr. Arnold O. Beckman in 1935, and entered the laboratory market with the world’s first pH meter. Beckman Instruments, Inc. became a publicly-traded corporation in 1952. In 1968, Beckman Instruments, Inc. expanded its laboratory instrument focus to include healthcare applications in clinical diagnostics. Beckman Instruments, Inc. was acquired by SmithKline Corporation to form SmithKline Beckman Corporation in 1982. It was operated as a subsidiary of SmithKline Beckman until 1989 when it became a standalone public company. Since that time, Beckman Instruments, Inc., now Beckman Coulter, Inc., has operated as a fully independent, publicly-owned company.

      Coulter Corporation was founded by Wallace and Joseph Coulter in 1958. Coulter was formed to market the “Coulter Counter”, an instrument used to determine the distribution of red and white cells in blood. This instrument was based on the “Coulter Principle”, which was developed by Wallace Coulter in 1948. The Coulter Principle provided an electronic, automatic way of counting and measuring the size of microscopic particles that proved to be the beginning of automated hematology. Coulter Corporation was a private company and remained under the control of the Coulter family until it was acquired by Beckman Instruments, Inc. in 1997.

Customers and Markets — The Biomedical Testing Continuum

      From complex DNA sequencing to simple single-use diagnostic screening kits, Beckman Coulter is one of the largest companies devoted solely to biomedical testing. Beckman Coulter’s customers are continuously searching for processes and systems that help them perform tests faster, more efficiently, and at lower cost. To meet these needs, the Company leverages its investment in research and development and uses its core competencies in technology, applications, distribution, and service to create a range of systems that integrate instruments, software, and chemistries for use across the spectrum of biomedical testing.

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      Once diagnostic technologies and tests are generally accepted and receive any necessary regulatory marketing clearances, they become part of routine patient care. Physicians order tests such as cholesterol, glucose, and complete blood cell counts on a daily basis. These tests are used to provide information for diagnosis and to help monitor the efficacy of therapy. Beckman Coulter has one of the broadest product lines available to the diagnostic laboratory. This product breadth allows the Company to provide a systems approach to improving total laboratory productivity. The Company’s systems can perform over virtually all of the blood tests routinely performed on patient samples in the hospital laboratory. Beckman Coulter has estimated that the patient care testing market was $21 billion in 2002, based on annual worldwide sales.

      Beckman Coulter has top market positions in hematology, hemostasis, immunodiagnostics and routine chemistry testing. It is also a leader in providing progressive automation solutions that help labs reduce testing turnaround time, lower labor expenses, ensure the quality of testing, and reduce overall healthcare costs. In addition, Beckman Coulter is active in point-of-care testing. These tests are used for rapid diagnosis or on-going patient monitoring. Some tests, such as CBCs (complete blood counts) are performed on analyzers designed for quick, single-sample results. Others are performed using disposable, single-use tests to screen for pregnancy, infectious disease, ulcer-causing bacteria, and indications of cancer.

      Life science research and clinical research are all evolving markets, thanks to advances in genomics and proteomics. With the rough map of the human genome complete, the work that will more directly affect patient care begins as researchers incorporate this information into specific studies to improve therapeutic efficacy. All of Beckman Coulter’s life science research products play a role in the biomedical research and development testing area, helping researchers to understand disease by simplifying and automating key testing processes.

      Universities and medical research laboratories represented about 46% of the market for life science research in 2002. These groups perform basic medical research to further understand the molecular basis of disease. Biotechnology firms and pharmaceutical companies represent the other 54% of the biomedical research market. They rely on Beckman Coulter’s instrument systems to speed the long and detailed drug discovery process.

      More than 125,000 Beckman Coulter systems operate in life science laboratories today. The Company is a technological leader in robotic automation/ liquid handling, centrifugation and capillary electrophoresis. Beckman Coulter has estimated that the market for life science research and development testing in 2002 was approximately $11 billion, based on annual worldwide sales.

      Once new therapeutics and vaccines emerge from the research phase, they move into clinical trials to evaluate their effectiveness. In this stage, standard blood chemistry tests are run on patients regularly. Specialty testing includes also clinical research, where human samples are used to characterize disease states.

      As new diagnostic technologies and tests move from research applications into more general patient use, they are often performed in private laboratories or university hospitals. Genetic testing, cancer monitoring and special immune system testing fall into this “specialty testing” category. The market for specialty testing was estimated to be $3 billion in 2002, based on annual worldwide sales.

Market Dynamics

      The size and growth of Beckman Coulter’s markets are influenced by a number of factors, such as technological innovation in bioanalytical practice, government funding for basic and disease-related research (for example, heart disease, AIDS and cancer), research and development spending by biotechnology and pharmaceutical companies, healthcare spending, and physician practice patterns. As a result of cost containment pressures and the factors described above, Beckman Coulter expects its markets to grow in the

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      Consolidation also is a key factor affecting the clinical diagnostics market. Attempts to lower costs and increase efficiencies have led to consolidation among healthcare providers in the United States. One result of this consolidation is the formation of powerful provider groups and integrated health care networks that leverage their purchasing power with suppliers to contain costs. In international markets, multiple hospital tenders have become a standard purchasing tool. Preferred supplier arrangements and combined purchases are becoming more commonplace. Consequently, it has become essential for manufacturers to provide cost-effective diagnostic systems to remain competitive.

      In the life science research market, funding for government and academic research is expected to be relatively healthy through the end of 2003. Pharmaceutical research and development spending was soft in 2002 but may begin to rebound in late 2003. Biotechnology spending has been unstable due to lack of investment funds and will not likely rebound until 2004, at the earliest. The competitive environment in the drug discovery sector drives growth in biopharma, as pharmaceutical companies seek tools that speed the process of drug discovery testing. Industrial genomics, the application of genomic sequencing, is increasing as an out growth of the human genome initiative. Proteomics, the analysis of protein mass, structure and function is emerging. In its infancy is the study of cellomics, cell function and activity. These three key focus areas, genomics, proteomics and cellomics require specific tools and applications to solve testing needs that may be specific to one therapeutic or apply to a broader range of processes used in the research, development and testing of new drugs.

Business Segments

      Prior to 2002, Beckman Coulter served the entire biomedical testing continuum from two business segments — Life Science Research and Clinical Diagnostics, and all of the Company’s reporting reflected these two segments. During 2002, the Company was organized into three divisions — Clinical Diagnostics, Life Science Research and Specialty Testing. The following table shows the breakdown of sales between the three market segments:

Product Sales as a Percent of Total Product Sales

      Beginning in 2003, the Company will return to a two segment structure. The existing Clinical Diagnostics Division will continue in its present form. The existing Life Science Research Division and the existing Specialty Testing Division will be consolidated into a new Biomedical Research Division. Reporting reflecting this new two division structure will begin in 2003.

Clinical Diagnostics Products

      The clinical diagnostics market encompasses the detection and monitoring of disease by means of laboratory evaluation and analysis of bodily fluids, cells, and other substances from patients. This type of testing is referred to as “in vitro diagnostic” or “IVD” testing. Due to its important role in the diagnosis and treatment of patients, IVD testing is an integral part of the overall management of patient care. Additionally, IVD testing is increasingly valued as an effective method of reducing healthcare costs by reducing the length

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      IVD systems are composed of instruments, reagents, consumables, service and data management systems. They automate repetitive manual tasks, improve test accuracy, and speed the reporting of results. Instruments typically have a five-to ten-year life. Reagents are substances that react with the patient sample to produce measurable, objective results. The consumables vary across application segments but are generally items such as sample containers, adapters, and pipette tips used during test procedures. Reagents, accessories, consumables, and services generate significant ongoing revenues for suppliers. Sample handling and preparation devices as well as data management systems are becoming increasingly important components of IVD systems. These system enhancements improve testing quality, enhance lab safety, and reduce customer costs through automation.

      Beckman Coulter believes that the most important criteria customers use to evaluate IVD systems are operating costs, reliability, reagent quality, and service. It also believes that by providing a fully integrated system that is cost effective, reliable and easy to use, it builds loyalty among customers who value consistency and accuracy in test results.

      The major diagnostic fields that comprise the IVD industry are clinical chemistry, immunochemistry, microbiology, hematology and blood banking. The IVD industry market was estimated to be approximately $22 billion in 2002, based on annual sales worldwide. Beckman Coulter primarily serves the hospital and reference laboratory customers of the IVD market, who tend to use more precise, higher volume, and more automated IVD systems. In 2002, hospital and reference laboratory customers constituted approximately $16 billion of the IVD market. Beckman Coulter divides this market into five major subcategories — clinical chemistry, hemostasis, immunodiagnostics, clinical hematology, and primary care.

      Clinical chemistry systems use electrochemical detection or chemical reactions with patient samples to detect and quantify substances of diagnostic interest (referred to as “analytes”) in blood, urine, and other body fluids. Commonly performed tests include glucose, cholesterol, triglycerides, electrolytes, proteins, and enzymes. Beckman Coulter offers a range of automated clinical chemistry systems to meet the testing requirements of varying size laboratories, together with software that allows these systems to communicate with central hospital computers. To save time and reduce the opportunity for errors, systems identify patient samples through barcodes. Automated clinical chemistry systems are designed to be available for testing on short notice, twenty-four hours a day. Beckman Coulter has generally configured its systems for the work flow in medium and large hospitals, but the systems also have application in regional reference laboratories. Over 100 tests for individual analytes are offered for use with Beckman Coulter’s clinical chemistry systems. These products range in price from $45,000 to over $500,000.

      Beckman Coulter’s line of SYNCHRON® clinical systems is a family of products which include modular automated diagnostic instruments and the reagents, standards and other consumable products required to perform commonly requested diagnostic tests. The SYNCHRON systems were developed in response to changes in reimbursement policies for hospital and clinical laboratories that required them to be more efficient. The SYNCHRON systems have been designed as compatible modules which may be used independently or in various combinations with each other to meet the specific needs of individual customers. The smallest of these modules is the SYNCHRON CX®3(Delta Symbol) analyzer. It is designed to perform a number of the tests routinely ordered by physicians and has up to nine on-board chemistries. The SYNCHRON CX®4 PRO, CX®5 PRO, CX®7 Super, CX®9 PRO, and LX®20 PRO analyzers are random-access systems designed to perform routine chemistry profiles as well as some special chemistry profiles. These systems can perform over 85% of the laboratory’s general chemistry testing requirements.

      Beckman Coulter has addressed the increasing focus on efficiency and cost savings in the clinical laboratory though its Power Processor System, which allows the laboratory to automate a number of pre-

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      Hemostasis systems rely on clotting, chromogenic, and immunologic technologies to provide the detailed information that the clinician requires to diagnose bleeding and clotting disorders and to monitor anticoagulant therapy. Beckman Coulter offers a complete line of hemostasis systems and reagents as the North American distributor of the Instrumentation Laboratory (“IL”) line of hemostasis products.

      Beckman Coulter’s hemostasis product line has suitable systems to meet the needs of a wide range of customers. These products include Instrumentation Laboratory’s ACL^TM Advance, ACL^TM 9000, and ACL^TM 7000, which provide a diverse menu of esoteric tests. Instrumentation Laboratory’s ACL^TM Advance and ELECTRA^TM 1800C Systems meet the challenges of the large reference laboratories with requirements for very high-volume analyzers. Instrumentation Laboratory’s ACL^TM 7000, ACL^TM 1000, and ELECTRA^TM 1400C accommodate the needs of the medium-to-small sized laboratory. To complement these analyzers, Beckman Coulter also offers Instrumentation Laboratory’s IL and Hemoliance brands of reagents. Utilizing these products, a laboratory may perform standard screening tests such as the activated partial thromboplastin time and prothrombin time in addition to a wide range of specialty tests.

      Immunodiagnostic systems, like clinical chemistry systems, use chemical reactions to detect and quantify chemical substances of diagnostic interest in blood, urine or other body fluids. The key difference is that immunodiagnostic systems use antibodies and antigens as the central component in analytical reactions. Antibodies are created by an organism’s immune system and, when incorporated in test kits, provide the ability to detect and quantify very low analyte concentrations. Commonly performed tests assess thyroid function, and screen and monitor for cancer and cardiac risk. Immunodiagnostic systems have been designed to meet the special requirements of these reactions and to simplify lab processes. They are able to automatically identify individual patient sample tubes and communicate with the laboratory’s central computer. Beckman Coulter offers over 90 immunodiagnostic test kits for individual analytes. These automated systems range in price from $60,000 to $90,000.

      Beckman Coulter’s two primary immunodiagnostic systems are the IMMAGE® immunochemistry system and the Access® immunoassay system. The IMMAGE system is a high-throughput immunochemistry analyzer for specific proteins, various immunologic markers, and therapeutic drugs. This system provides automated random-access testing which allows the operator to mix samples at random, eliminating the need to analyze in batches. The Access system serves as a disease state management platform used to help medical professionals monitor critical parameters for thyroid function, anemia, blood viruses, infectious disease, cancer, allergy, fertility, therapeutic drugs, diabetes, and cardiovascular and skeletal diseases.

      During 2001, Beckman Coulter introduced the Access® 2 immunoassay system. The new system utilizes all current Access system assays and provides enhanced user interface and sample handling capabilities. The Access® AccuTnI^TM cardiac test, which is used to aid in the diagnosis and treatment of heart attacks, also was introduced in 2001. This new test is a highly sensitive, twelve-minute test that measures levels of Troponin I, a protein that is released into the bloodstream after a heart attack.

      Beckman Coulter also offers a number of electrophoresis systems. These systems provide analytical information by using an electrical charge to separate a sample into its various components. The presence or absence of various components as well as the relative concentrations of each provide diagnostic information.

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      Primary care diagnostic products are used in physicians’ office laboratories, clinics, hospitals, and other medical settings. These products include a range of rapid diagnostic test kits and hematology instruments that give physicians immediate information to help them manage patient treatment. The Hemoccult® and Hemoccult® SENSA® tests are the accepted standard in fecal occult blood testing and are used as aids in screening for gastrointestinal disease and colorectal cancer. The Gastrocult® test is the only rapid test designed specifically for gastric occult blood and pH testing. The FlexSure® HP test is used to aid in the diagnosis of H. pylori infection, which is associated with peptic ulcers. The ICON® Fx Strep A test detects Strep A antigen from throat swabs, giving results in two to five minutes, so appropriate treatment can begin immediately. The ICON® II hCG is the “gold standard” in pregnancy testing, detecting the lowest levels of hCG. In 2002, Beckman Coulter acquired the assets of Avocet, providing it with the technology to develop a point-of-care coagulation device in the future.

      Beckman Coulter’s blood cell systems use the principles of physics, optics, electronics, and chemistry to separate cells of diagnostic interest and then quantify and characterize them. These systems allow clinicians to study formed elements in blood such as red and white blood cells and platelets. The most common diagnostic result is a “CBC” or complete blood count, which provides eight to twenty-three blood cell parameters. The results from hematology systems are used to aid diagnosis and to monitor disease progression and treatment.

      Beckman Coulter’s hematology product line is structured to address the differing requirements of the high, medium, and low volume portions of this market. The systems in the higher volume segment utilize volume, conductivity, and light scatter (VCS) technology in addition to conventional, electrical aperture-impedance (Coulter Principle) technology. Unlike other technologies, the Coulter VCS method counts and characterizes white blood cells while maintaining their near native integrity throughout the analysis. The systems in the lower volume segment rely exclusively upon electrical aperture-impedance technology.

      Systems designed for the high-volume segment include the COULTER® LH 700 series of hematology systems, the COULTER® GEN • S^TM hematology systems, and the COULTER® STKS^TM hematology systems. The COULTER® LH 750 hematology system was introduced in 2001. The system offers random-access capability to improve laboratory efficiency and productivity. It also provides walk-away, whole blood analysis for CBCs, five-part white blood cell differential plus enumeration of nucleated red blood cells, red cell morphology, and reticulocyte analysis with automated slide making and staining from a single aspiration of blood. The system automates manual interpretation and result verification through its data management workstation.

      The GEN • S system provides walk-away, whole blood analysis for CBCs, five-part white blood cell differential, red cell morphology, and reticulocyte analysis with automated slide making and staining. In addition, the system automates manual interpretation and result verification through its data management workstation. The STKS is a cost-effective system designed for the high-volume clinical laboratory, which provides a CBC and five-part white blood cell differential; red cell morphology, and semi-automated

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      Moderate volume hematology systems include the COULTER® HmX and the COULTER® MAXM^TM hematology systems. These systems offer the technology features of larger systems in a compact bench top system designed for the moderate volume market segment. The HmX is available in two configurations, a fully automated walk-away system and a single-sample loading system. Both systems come with a data management system. The COULTER HmX hematology system offers the same comprehensive CBC, five-part white blood cell differential, red cell morphology, and semi-automated reticulocyte analysis as the COULTER STKS. The system uses advanced VCS technology in an affordable instrument for the moderate volume workload laboratory. The MAXM hematology system is a cost effective, bench top system designed for the moderate volume laboratory. The system utilizes VCS technology to produce an accurate and reliable CBC, five-part white blood cell differential, and semi-automated reticulocyte analysis. These moderate volume hematology systems typically sell in the $40,000 to $75,000 price range.

      Low-volume hematology systems include the COULTER® Ac•T^TM family of hematology systems. The COULTER Ac•T hematology analyzer offers a complete blood count. The COULTER Ac•T diff adds three-part white blood differential analysis to the system. The COULTER Ac•T diff 2^TM added the safety of closed vial sampling to the CBC and three-part white blood cell differential analysis capabilities. Finally, the COULTER Ac•T 5 diff^TM system, introduced in 2001, offers the capability of CBC and five-part white cell differential using absorbance, cytochemistry and volume (ACV) technology. All of the Ac•T series hematology analyzers are designed to use a very small sample volume, making them ideal for analysis of pediatric samples. These low volume hematology systems typically sell in the range of $10,000 to $35,000.

Specialty Testing Products

      Specialty testing focuses on customers in medical centers, reference laboratories, and pharmaceutical research organizations who perform clinical trials, conduct immunodisease testing, conduct disease related research, and perform esoteric testing. The clinical trials portion of this customer base focuses on the development of new drugs and vaccines. As part of this process, they perform controlled clinical studies to evaluate drug safety and effectiveness. The Cytomics and Immunomics operations of Specialty Testing provide effective tools and chemistries to perform these functions. Disease-related research focuses on specific clinical diseases, such as diabetes, cardiac conditions, leukemia, lymphoma, and many others.

      Esoteric testing involves the evaluation of clinical applications prior to obtaining regulatory approvals. The types of tests currently under evaluation include blood tests for prions, minimal residual disease, HIV genotyping, neural tumor diagnosis, loss of heterozygosity, and others. Beckman Coulter currently offers products that address all areas of this market via its Immunomics, Cytomics, and Particle Characterization operations. In 2002, Beckman Coulter created a molecular diagnostics unit to address opportunities in this new and promising field. Beckman Coulter estimates that the market for specialty testing was $3 billion in 2002.

      In 2000, Beckman Coulter formed its Immunomics Operations to develop and introduce products based on a proprietary technology which allows direct ex vivo quantitation of antigen specific T cells. Current methods for detecting these antigen specific T cells, such as Cytotoxicity Assay, Limiting Dilution Assay (LDA), and ELISpot, are cumbersome, and convenient reagents for them have not been available. Beckman Coulter’s products, on the other hand, will be suitable for routine laboratory use, measure all antigen specific cells, and allow multiparametric flow analysis for functional determinations.

      This line of products — called iTAg^TM MHC Tetramers — include standard research products and custom products designed to meet the needs of researchers measuring the response to specific peptides. Performed on flow cytometers, these cellular immune response tests can be used in a variety of clinical

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      Flow cytometers rapidly count and categorize multiple types of cells in suspension. They extend analysis further by identifying a specific cell’s characteristics, thereby allowing researchers to analyze specific cell populations. This analysis can be performed beyond blood to include bone marrow, tumors, and other cells. The rise of the AIDS epidemic and the need to monitor subclasses of white cells have moved cytometry from a largely research technique into general clinical practice. Beckman Coulter has a menu of more than 1,300 flow cytometry tests currently used in researching, diagnosing, and monitoring diseases such as leukemia, HIV, and various cancers, as well as in the evaluation of bone marrow and other transplants.

      Beckman Coulter’s line of flow cytometry systems includes the COULTER® EPICS® ALTRA^TM HyPerSort Cell Sorting System, the COULTER® EPICS® XL^TM Flow Cytometer, and the new Cytomics FC 500 Series flow cytometry systems. The EPICS ALTRA system is used for advanced diagnostics and research. It is designed to perform sophisticated cell analysis and sorting applications using Beckman Coulter’s extensive portfolio of reagents. The EPICS ALTRA performs complex multi-parameter applications such as DNA analysis, physiologic measurements, chromosome enumeration, and the study of the hematopoetic process. The cell sorting capability of the system allows for the rapid separation of very large numbers of specific cell populations from a heterogeneous mixture. The EPICS XL flow cytometer is a bench top flow cytometer used primarily to analyze white blood cells in clinical and clinical research settings. Because the system is flexible and upgradeable with varying sample preparation systems, it has proven successful in different environments, from research labs to high- and low-volume hospital and commercial labs. In 2002, Beckman Coulter introduced the first in its Cytomics FC 500 Series of flow cytometer systems. This dual-laser, five-color cytometer is aimed at the clinical research and research markets. These products sell in the $70,000 to $400,000 range.

      Particle characterization products are used to identify specific characteristics (such as number, size, and relative mobility) of particles suspended in solution. They are also used to identify characteristics such as surface area and pore size distribution of powdered or solid materials. Beckman Coulter’s particle characterization product lines utilize seven different technologies to satisfy markets such as biological research and pharmaceutical development as well as a host of industrial processes. With their origins rooted in the Coulter Principle, these products have evolved a large menu of solutions to satisfy customer needs in analysis of countless materials.

      Two of the main product lines are the Multisizer 3 and the Z Series analyzers. These “Coulter Counter” based instruments are considered to be the highest resolution particle and cell size/count analyzers in the world. They have become standardized systems in areas such as platelet cell counting and research for body fluids. They also have uses in a number of industrial processes. Complementing these products are other high-resolution instruments such as the LS Series laser diffraction particle size analyzers. These systems are heavily used in the pharmaceutical arena as well as general industrial applications such as paints and cements. Other systems available offer users solutions utilizing image analysis, surface area analysis, Zeta Potential, and membrane porosity analysis. In 2002, Beckman Coulter introduced the Vi-CELL^TM cell viability analyzer. This small analyzer automates what is currently a labor intensive, manual process widely used in tissue culture

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      Molecular diagnostics is an emerging and promising field that includes genotyping, genetic disease testing, and infectious disease testing. As knowledge of the genome and its functioning continues to expand, new applications are being developed and, in some cases being used today, as diagnostic tools as well as in genetic disease susceptibility testing. Beckman Coulter began focusing on this market in 2002 with the formation of a group dedicated to the development of applications in molecular pathology. This group is currently working on products based on use of the CEQ^TM 8000 genetic analysis system.

Life Science Research Products

      Life science research is the study of the characteristics, behavior, and structure of living organisms and their component systems. Life science researchers utilize a variety of instruments and related biochemicals and supplies in the study of life processes. Beckman Coulter focuses on customers doing research in university and medical school laboratories, research institutes, government laboratories, and biotechnology and pharmaceutical companies. Beckman Coulter estimates that the market for life science research instruments and related biochemicals and supplies used by these customers was approximately $11 billion in 2002.

      The products which Beckman Coulter provides to serve these customers include centrifuges, liquid handling robotic workstations, capillary electrophoresis systems, DNA sequencers, DNA synthesis chemicals, spectrophotometers, high pressure liquid chromatography (HPLC) systems, pH meters, and liquid scintillation counters. Trends in the life science research market include growth in funding for proteomic, genomic, and functional analysis of cells for purposes of basic biomedical research and for genetic analysis and drug discovery research. Drug discovery research has further facilitated an increased demand for automation and efficiency in high-throughput processes. Beckman Coulter divides its life science research products into two broad categories — robotic automation and genetic analysis, and centrifugation and analytical systems.

      Beckman Coulter’s products are used in many parts of the drug discovery process. An important application for the robotic automation products is in primary screening. The primary screen is performed to test libraries of compounds for possible interaction with a target protein, which is associated with a disease state. High-throughput screening is a term that is often used to describe a testing process that involves the screening of 100,000 or more compounds. Other important drug discovery applications which can also require samples to be processed in an automated or high-throughput mode include target identification, secondary screening, and pre-clinical testing.

      The Human Genome Project, the SNP Consortium, and a host of “gene hunter” companies are currently providing valuable genetic information to pharmaceutical companies that allows the pharmaceutical companies to select relevant target proteins. The analysis of massive amounts of genetic information requires the automation of sample processing in order to meet the aggressive timetables which have been established for some of these projects.

      DNA sequencers allow researchers to determine a nucleic acid sequence through an electrophoretic separation. DNA synthesizers use specialized chemicals as building blocks to create primers and probes, which are required for many molecular biology reactions. These techniques are central to molecular biology and the understanding of the genetic component of life processes. Beckman Coulter’s primary entry in the DNA sequencing field is its CEQ^TM 2000XL DNA analysis system, which was introduced in 2000. An updated, automated genetic analyzer, the CEQ^TM 8000 DNA analysis system was introduced in 2002. These systems use capillary electrophoresis technology, along with Beckman Coulter’s proprietary linear polyacry-

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      SNPs (single nucleotide polymorphisms) are variations in genetic code that can predispose people to certain illnesses and cause unique responses to treatment. Scientists hope to understand how and when these genetic variations are manifested differently in chronic conditions like asthma, diabetes, heart disease, and cancer. Beckman Coulter’s CEQ DNA analysis systems may be utilized by its customers to analyze SNPs and their underlying sequences. Beckman Coulter has further collaborated with companies such as Third Wave Technologies, Orchid BioSciences, and Sequenom to develop new methods for faster SNP analysis using products such as Beckman Coulter’s Biomek® automated laboratory workstations and SAGIAN^TM Core systems to streamline the task. These products provide customers with the means to perform low-cost, automated assay development as well as accurate analysis of tens of thousands of human genetic variations. In late 2002, Beckman Coulter signed several agreements with Orchid Bio-Sciences to obtain rights to use their SNP-IT and SNP analysis technology on various platforms and to acquire their SNP genotyping instrument system.

      Liquid handling robotic workstations and integrated systems automatically perform exacting and repetitive processes in biotechnology and drug discovery laboratories. Operations include the dispensing, measuring, dilution, and mixing of samples and analysis of reactions as well as robotic manipulation of samples. Key products in this area are Beckman Coulter’s SAGIAN^TM Core systems and its Biomek® FX automated laboratory workstation, which was introduced in 2000. These products use sophisticated scheduling and data handling software to help biotechnology and pharmaceutical firms substantially reduce the time to market for new drugs by allowing them to process assays 24 hours a day. In 2001, Beckman Coulter introduced tube-to-plate, 384-well, and 1536-well pipetting options for use on these systems. In 2002, an upgraded Biomek FX workstation was introduced. This system is capable of completely automating ELISA and homogenous biological assays. During 2002, Beckman Coulter also introduced additional software products for use with its liquid handling systems that optimize high throughput assay development and facilitate tracking of samples through the automation process. Prices for these systems range from $50,000 to $500,000.

      In 2000, Beckman Coulter signed distribution agreements with Cellomics, Inc. and Promega Corporation to sell their specialized products in concert with its automation systems. Cellomics’ array scan products are used in drug discovery applications to measure multiple cellular responses to experimental drugs in an automated, high-throughput fashion. In 2002, Beckman Coulter further expanded its relationship with Promega to include distribution of additional nucleic acid purification products, giving researchers a fast, automated approach to obtain DNA. In addition, Beckman Coulter automated Promega’s DNA IQ^TM purification chemistry on the Biomek 2000 workstation. This combination will enable forensic scientists to compress the time it takes to extract DNA from a sample. In 2001, Beckman Coulter acquired Anthos Labtec Instruments GmbH, obtaining microplate reader detection capability. Microplate readers allow highly parallel analysis of biomolecules and are standard tools used in life science research and drug discovery operations.

      Beckman Coulter offers a wide range of life science research systems that are used to advance basic understanding of life processes. Much of this basic research is performed in university and medical school labs, research institutes and government labs. The same research systems are also used for applied research in pharmaceutical and biotechnology companies. Product categories include centrifuges, high performance liquid chromatography (“HPLC”), capillary electrophoresis, spectrophotometers, pH meters, and liquid scintillation counters.

      Centrifuges separate liquid samples based on the density of the components. Samples are rotated at up to 130,000 revolutions per minute to create forces that exceed 1,000,000 times the force of gravity. These forces result in a nondestructive separation that allows proteins, DNA, viruses, and other cellular components to retain their biological activity. Beckman Coulter’s centrifuges also are finding uses in genomic and proteomic research, where the instruments increase productivity in sample preparation. Centrifuge models range from

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      HPLC uses pressurized solvents to mobilize sample mixtures through columns packed with solid or gel phase separating agents. This technique is capable of separating very complex mixtures of both organic and inorganic molecules. Beckman Coulter focuses on biologically related applications and sells a variety of products under the System Gold® name. These systems range in price from $20,000 to $50,000.

      Beckman Coulter also provides Lab Manager, specialized laboratory information management system software that is capable of recording, manipulating and archiving data from multiple chromatographic systems, and other instruments. This type of software is essential to the pharmaceutical production process and installations can range from $20,000 to over $1,000,000.

      Capillary electrophoresis uses the electrical charge found on biological molecules to separate mixtures into their component parts. Its chief advantages are its ability to process very small sample volumes, separation speed, and high resolution. The technique is considered a complement to HPLC and is highly effective in rapid separation and analysis of proteins and modified proteins, such as glycoproteins. Beckman Coulter has systems for basic research, pharmaceutical methods development, and quality control. These systems are based on the P/ACE^TM series platform. Capillary electrophoresis systems sell in the range of $30,000 to $90,000.

      Spectrophotometry is the optical measurement of compounds in liquid mixtures. Monitoring biological reactions is a typical application for this technology. Beckman Coulter’s DU® series of spectrophotometers are characterized by adaptive software that allows users to control the time, temperature and wavelength of light used for measurement, while computing and recording experimental results. Spectrophotometers sell in the $2,000 to $30,000 range.

      Researchers often insert radioactive atoms into compounds that are then introduced into biological systems. The compounds can be traced to a specific tissue or waste product by measuring the amount and type of radioactive label that is present with a liquid scintillation counter. Beckman Coulter’s LS^TM series liquid scintillation systems sell in the $16,000 to $30,000 range.

Competition

      All of Beckman Coulter’s markets have significant barriers to entry. One major barrier is the research and development investment and technical infrastructure needed to develop complex systems which require the integration of engineering, life science (biological and chemical), and computer science disciplines. In addition, it is necessary to have an extensive worldwide distribution infrastructure with highly qualified personnel to provide sales, service, customer training, and technical product support. Also, in some cases, authorization to market clinical diagnostics products must be obtained from regulatory authorities in the United States and other countries.

      Nevertheless, Beckman Coulter encounters significant competition from many domestic and international manufacturers, with many companies participating in one or more parts of each market segment. Some of these competitors are divisions or subsidiaries of corporations with substantial resources. In addition, Beckman Coulter competes with several companies that offer reagents, consumables and service for laboratory instruments that are manufactured by Beckman Coulter and others.

      Competitors in the clinical diagnostics market include Abbott Laboratories (Diagnostics Division), Bayer AG (Diagnostics Business Group), Dade Behring, Johnson & Johnson (Ortho-Clinical Diagnostics, Inc.), Roche Group (Diagnostics Division), Diagnostic Products Corporation, Diagnostica Stago, and Sysmex Corporation. Competitors focused more directly in the life science research market include Agilent Technologies (Chemical Analysis Group), Amersham Biosciences, Bio-Rad Laboratories, Inc., Hitachi High-Technologies Corporation (Life Sciences), PerkinElmer, Inc., Applera Corporation (Applied Biosystems), Shimadzu Corporation, Tecan Group, Ltd., Waters Corporation, SPX Corporation (Kendo Laboratory

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Research and Development

      Beckman Coulter’s new products originate from four sources: (1) internal research and development programs; (2) external collaborative efforts with individuals in academic institutions and technology companies; (3) devices or techniques that are generated in customers’ laboratories; and (4) business and technology acquisitions. Development programs focus on production of new generations of existing product lines as well as new product categories not currently offered. Areas of pursuit include innovative approaches to cell characterization, immunochemistry, molecular biology, advanced electrophoresis technologies, and automated sample processing and information technologies. Beckman Coulter’s research and development teams are skilled in a variety of scientific, engineering, and computer science disciplines, in addition to a broad range of biological and chemical sciences. Beckman Coulter’s research and development expenditures were $183.9 million in 2002, $189.6 million in 2001, and $185.0 million in 2000.

Sales and Service

      Beckman Coulter has sales in more than 130 countries and maintains its own marketing, service and sales forces in major markets throughout the world. Most of Beckman Coulter’s products are distributed by Beckman Coulter’s sales groups; however, Beckman Coulter employs independent distributors to serve those markets that are more efficiently reached through such channels. In addition to direct sales of its instruments, Beckman Coulter leases certain instruments to its customers, principally those used for clinical diagnostic applications in hospitals.

      Beckman Coulter’s sales representatives are technically educated and trained in the operation and application of Beckman Coulter’s products. The sales force is supported by a staff of scientists and technical specialists in each product line and in each major scientific discipline served by Beckman Coulter’s products. These individuals give Beckman Coulter the ability to provide immediate after sales service and technical support, elements which are critical to customer satisfaction. This includes capabilities to provide immediate technical support by phone and to deliver parts or have a service engineer on site within hours. To have such capabilities on a global basis requires a major investment in personnel, facilities, and other resources. Beckman Coulter’s large, existing installed base of instruments makes the required service and support infrastructure financially viable. Beckman Coulter considers its reputation for service responsiveness and its worldwide sales and service network to be important competitive assets.

Patents and Trademarks

      Beckman Coulter’s primary trademark and trade name is “Beckman Coulter” alone or in association with its logo. The company vigorously protects its primary trademark, which is used on or in association with Beckman Coulter’s worldwide products offerings. The Company believes that the name “Beckman Coulter” is recognized throughout the worldwide scientific and diagnostic community as a premier source of biomedical instrumentation and products. Beckman Coulter also owns and uses secondary trademarks on or in association with various products for product differentiation purposes. “Coulter” is used as a secondary mark and source identifier with some products of the company.

      Beckman Coulter actively seeks and maintains exclusive patent rights in areas of technology important to its business. Beckman Coulter currently maintains a worldwide portfolio of approximately 1,100 active patents and pending applications for patents. These are assigned to several subsidiaries of the company, one of which is a patent holding company, Coulter International Company. In addition, whenever appropriate, Beckman Coulter obtains licenses under patents held by third parties.

      Beckman Coulter’s patents include approximately 500 active U.S. patents and approximately 150 applications for U.S. patents, with the balance being patents and pending applications on selected products or technologies in markets outside the U.S. The entire portfolio of patents and applications is distributed approximately equally between the life science research segment and the clinical diagnostics segment. Some

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Government Regulations

      Beckman Coulter’s products and operations are subject to a number of federal, state, local and foreign laws and regulations. It believes that its products and operations comply in all material respects with these laws and regulations. Although Beckman Coulter continues to make expenditures to comply with these requirements, it does not anticipate any expenditures which would have a material impact on Beckman Coulter’s operations or financial position.

      Virtually all of the Company’s clinical diagnostics products and some of its life science research and specialty testing products are classified as “medical devices” under the United States Food, Drug and Cosmetic Act. The Food, Drug and Cosmetic Act requires these products, when sold in the United States, to be safe and effective for their intended use and to comply with regulations administered by the United States Food & Drug Administration (“FDA”). These regulatory requirements include the following:

	•	Establishment Registration — The Company must register with the FDA each facility where regulated products are developed or manufactured. These facilities are periodically inspected by the FDA.
	•	Marketing Authorization — The Company must obtain FDA authorization to begin marketing a regulated product in the United States. For most of the Company’s products, this authorization is obtained by submitting a pre-market notification which simply provides data on the performance of the product. This data is reviewed by FDA’s staff and, in most cases, authorization to begin marketing is received within ninety days from submission of the notification. A small number of products must go through a formal pre-market approval process which includes the performance of clinical studies and review of the product by a formal scientific review panel.
	•	Quality Systems — The Company is required to establish a quality system which includes procedures for ensuring that regulated products are developed, manufactured, and distributed in accordance with specified standards. The Company also must establish procedures for investigating and responding to customer complaints regarding the performance of regulated products.
	•	Labeling — The labeling for the products must contain specified information and, in some cases, the FDA must review and approve any quality assurance protocols specified in the labeling.
	•	Imports and Exports — The Food, Drug and Cosmetic Act establishes requirements for importing products into the United States and exporting them from the United States. In general, any limitations on importing and exporting products apply only to products that have not received marketing authorization. These requirements have minimal impact on the Company since it routinely obtains marketing authorization for its products.
	•	Post-market Reporting — After regulated products have been distributed to customers, the Company must investigate and report to the FDA certain events involving the products and also must notify the FDA when it conducts recalls or certain types of field corrective actions involving the products.

      The Food, Drug and Cosmetic Act gives the FDA the authority to bring legal action to enforce the act and address violations. Legal remedies available to the FDA for violations of the act include seizure of violative products, injunctions against the distribution of the products, and the assessment of civil penalties. The FDA normally provides companies with an opportunity to correct alleged violations before taking legal action.

      The Company has received a Warning Letter from the FDA relating to the Company’s retrovirology operations located in Hialeah, FL, and has responded to the FDA describing in detail the actions it is taking to address the FDA’s concerns. This is a small operation and sales of its products are not material to the Company’s results of operations.

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      In 1993 the member states of the European Union (“EU”) began implementation of their plan for a new unified EU market with reduced trade barriers and harmonized regulations. The EU adopted a significant international quality standard, the International Organization for Standardization Series 9000 Quality Standards (“ISO 9000”). Beckman Coulter’s major manufacturing operations and development centers have been certified as complying with the requirements of the appropriate ISO 9000 standard. Many of Beckman Coulter’s international sales and service subsidiaries also have been certified as complying.

      The EU also has adopted a number of “directives” that specify requirements for medical devices and other products. Beckman Coulter’s products that are covered by these directives must comply with their requirements in order to be sold in the EU. The key directives that have been applicable to Beckman Coulter’s products include those establishing requirements for electromechanical safety, electromagnetic compatibility, packaging and packaging waste, and non-implantable medical devices. In order to comply with these requirements, the company has taken steps such as modifying certain of its designs, obtaining specialized test equipment, generating information about its packaging materials, and modifying its product labeling. In 1999, the EU adopted a new directive establishing requirements for in vitro diagnostic products. This directive is being phased in, beginning in 2000, and will become mandatory in December 2003. The Company has taken action to address the requirements of the directive and believes that it will be in substantial compliance with those requirements by the implementation date.

      The design of Beckman Coulter’s products and the potential market for their use may be directly or indirectly affected by U.S. and foreign regulations governing reimbursement for clinical testing services. Health care reform efforts in the United States and in some foreign countries also may further alter the methods and financial aspects of doing business in the health care field. Beckman Coulter closely follows these developments so that it may position itself to respond to them. However, Beckman Coulter cannot predict the effect on its business of these reforms should they occur nor of any other future government regulation.

Environmental Matters

      The Company is subject to federal, state, local and foreign environmental laws and regulations. Although the Company continues to make expenditures for environmental protection, it does not anticipate any expenditures to comply with such laws and regulations which would have a material impact on the Company’s operations or financial position. The Company believes that its operations comply in all material respects with applicable federal, state and local environmental laws and regulations.

      To address contingent environmental costs, the Company establishes reserves when the costs are probable and can be reasonably estimated. The Company believes that, based on current information and regulatory requirements, the reserves established by the Company for environmental expenditures are adequate. Based on current knowledge, to the extent that additional costs may be incurred that exceed the reserves, the amounts are not expected to have a material adverse effect on the Company’s operations, financial condition or liquidity, although no assurance can be given in this regard.

      In 1983, the Company discovered organic chemicals in the groundwater near a waste storage pond at its manufacturing facility in Porterville, California. Soil and groundwater remediation have been underway at the site since 1983. In 1989, the U.S. Environmental Protection Agency (“EPA”) issued a final Record of Decision specifying the soil and groundwater remediation activities to be conducted at the site. The EPA has agreed that the Company has completed remediation of a substantial portion of the site and has agreed that the Company can discontinue its pump and treat activities and implement monitored natural attenuation as the remedial action for the small portion of the site where remedial action is still needed. SmithKline Beckman, the Company’s former controlling stockholder, agreed to indemnify the Company with respect to this matter for any costs incurred in excess of applicable insurance, eliminating any impact on the Company’s earnings or financial position. SmithKline Beecham p.l.c., the surviving entity of the 1989 merger between SmithKline Beckman and Beecham and GlaxoSmithKline p.l.c., the surviving entity of the 2000 merger between SmithKline Beecham and Glaxo Wellcome, assumed the obligations of SmithKline Beckman in this respect.

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      In 1987, soil and groundwater contamination was discovered on property in Irvine, California formerly owned by the Company. In 1988, The Prudential Insurance Company of America (“Prudential”), which had purchased the property from the Company, filed suit against the Company in U.S. District Court in California for recovery of costs and other alleged damages with respect to the soil and groundwater contamination. In 1990, the Company entered into an agreement with Prudential for settlement of the lawsuit and for sharing current and future costs of investigation, remediation and other claims. Soil and groundwater remediation of the Irvine property have been in process since 1988. In July 1997, the California Regional Water Quality Control Board, the agency overseeing the site groundwater remediation, issued a closure letter for the upper water bearing unit. In October 1999, the Regional Water Quality Control Board agreed that the groundwater treatment system could be shut down. Continued monitoring will be necessary for a period of time to verify that groundwater conditions remain acceptable. The Company believes that additional remediation costs, if any, beyond those already provided for the contamination discovered by the current investigations, will not have a material adverse effect on the Company’s operations, financial position or liquidity. However, there can be no assurance that further investigation will not reveal additional soil or groundwater contamination or result in additional costs.

Employee Relations

      As of December 31, 2002, Beckman Coulter had approximately 7,100 employees located in the United States and approximately 2,900 employees in international operations. Beckman Coulter believes its relations with its employees are good.

Geographic Area Information

      Information with respect to the above-captioned item is incorporated by reference to Note 14, “Business Segment Information” of the Consolidated Financial Statements included in Item 8 of this report.

Risk Factors and Forward Looking Statements

      This report on Form 10-K, the Company’s quarterly reports on Form 10-Q, its other SEC filings, its press releases, and its other written and oral statements throughout the year may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be recognized by the use of terms such as “should”, “may”, “outlook”, “anticipates”, “expects”, and “foresees”. All forward-looking statements are based on information available and the Company’s expectations at the time they are made, and are subject to a number of risks and uncertainties, some of which are beyond the Company’s control.

      The Company’s ability to achieve its anticipated level of sales is affected by factors such as capital spending policies, capital markets, and the availability of government funding. In particular, many life science research customers are reliant on government funding and a number of clinical diagnostics customers rely on prompt and full reimbursement by Medicare and equivalent programs in other countries. Life science research sales also are affected by pharmaceutical company spending policies and access to capital by biotechnology start ups. Clinical diagnostics sales are affected by the Company’s ability to enter into contracts with group purchasing organizations and integrated health networks. Sales, in general, also are affected by factors such as the effect of potential health care reforms, loss of market share through aggressive competition, the rate at which new products are introduced by the Company and its competitors, the extent to which new products displace existing technologies, comparative pricing, especially in areas where currency has an effect, and general economic conditions in significant foreign countries in which the Company does business, such as Japan and Germany.

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      Actual earnings may differ from those estimated due to a variety of factors. Since the Company does a substantial part of its business outside of the United States, earnings can be significantly impacted by changes in foreign currency exchange rates. Earnings also may be impacted by unanticipated increases in interest rates on the portion of the Company’s debt that is not fixed, thereby increasing the Company’s interest expense. Earnings per share (EPS) may be affected by the number of shares outstanding and, with respect to diluted EPS, the number and value of options outstanding. The effect of taxes and changes in tax policy also may have an effect, as may unanticipated increases in labor and other costs. In recent years, consolidation among health care providers and the formation of buying groups has put pressure on pricing. Similarly, increases in the number of instrument systems leased rather than purchased and changes in allocation between the hardware and consumables portion of contracts could change the timing of earnings. These pressures challenge the Company’s ability to maintain historical profit margins, unless it can also obtain equivalent decreases in operating costs.

      Expected introductions of new products may be impacted by complexity and uncertainty regarding development of new high-technology products. In addition, the Company’s ability to introduce new products and to continue marketing existing products may be affected by patents and other intellectual property and by the viability of supply partners for those products where Beckman Coulter is a distributor. Introduction of new products may be affected by delays in obtaining any government approvals necessary to market the products, particularly in clinical diagnostics. Introduction of new products also may be delayed due to shortages in qualified engineers, programmers, and other key labor categories. The ability to obtain raw materials and components, especially in the rapidly evolving electronic components market, usually does not affect the introduction of new products, but may affect the Company’s ability to achieve anticipated production levels.

Available Information

      Beckman Coulter routinely files reports and other information with the SEC, including Forms 8-K, 10-K, 10-Q, and 11-K, Form S-8, and Form DEF 14A. The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth St., NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is “http://www.sec.gov”.

      The Company maintains an Internet website which includes a link to a site where copies of the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act may be obtained free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. These materials may be accessed by accessing the website at “http://www.beckmancoulter.com” and selecting “Investor Relations”. Paper copies of these documents also may be obtained free of charge by writing to the Company at “Beckman Coulter, Inc., Office of Investor Relations (M/S A-38-C), 4300 N. Harbor Blvd., P. O. Box 3100, Fullerton, CA 92834-3100”.

Item 2.     Properties

      Beckman Coulter’s primary instrument assembly and manufacturing facilities are located in Fullerton, Brea, and Palo Alto, California; Chaska, Minnesota; and Miami, Florida. Components, parts, and electronic subassemblies are manufactured in facilities located in Fullerton and Porterville, California and Hialeah, Florida. An additional manufacturing facility is located in Galway, Ireland. Reagents are manufactured in Fullerton, Carlsbad, and Palo Alto, California; Chaska, Minnesota; Miami, Florida; Florence, Kentucky; Galway, Ireland; Germany; France; Japan; Australia; and China.

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      Part of Beckman Coulter’s computer software products business is located in Allendale, New Jersey, its facility for the production of Hemoccult test kits and related products is located in Sharon Hill, Pennsylvania, and its facility for production of microplate readers is in Salzburg, Austria. A portion of Beckman Coulter’s laboratory robotics operations are conducted in facilities located in Indianapolis, Indiana. Beckman Coulter’s European administration center is located in Nyon, Switzerland.

      In early 2002, the Company entered into agreements with a third party to provide distribution services in the United States. As a result, Beckman Coulter’s products are now distributed from that company’s warehouses located in Ontario and Hayward, California; Memphis, Tennessee; and Jersey City, New Jersey. The third party provider also has taken over Beckman operation of Coulter’s former distribution center in Somerset, New Jersey. Beckman Coulter continues to operate distribution locations in Brea and Fullerton, California; Chaska, Minnesota; Dusseldorf, Germany; and Paris, France.

      Beckman Coulter owns the facilities located in Carlsbad, Fullerton, and Porterville, California; some of the facilities in Hialeah, Florida; and a facility in Krefeld, Germany. All of the other facilities are leased. The Brea and Palo Alto, California; Miami, Florida; and Chaska, Minnesota facilities, which were previously owned by Beckman Coulter and sold in 1998, are leased for initial terms of twenty years with options to renew for up to an additional thirty years.

      Beckman Coulter believes that its production facilities meet applicable government environmental, health and safety regulations, and industry standards for maintenance, and that its facilities in general are adequate for its current business.

Item 3.     Legal Proceedings

      The Company is involved in a number of lawsuits, which the Company considers ordinary and routine in view of its size and the nature of its business. The Company does not believe that any ultimate liability resulting from any of these lawsuits will have a material adverse effect on its results of operations, financial position or liquidity. However, the Company can not give any assurances regarding the ultimate outcome of these lawsuits and their resolution could be material to the Company’s operating results for any particular period, depending upon the level of income for the period. In December 1999, Streck Laboratories, Inc. (“Streck”) sued Beckman Coulter, Inc. and Coulter Corporation in the United States District Court for the District of Nebraska. Streck alleged that certain hematology control products sold by Beckman Coulter, Inc. and/or Coulter Corporation infringed each of six patents owned by Streck, and sought injunctive relief, damages, attorney fees and costs. Beckman Coulter, Inc., on behalf of itself and Coulter Corporation, denied liability. Trial of the action commenced in late October, 2002. On November 12, 2002, while the trial was underway, the parties reached a settlement of the litigation. Under the terms of the settlement, a judgment was entered that the six Streck patents are valid and were infringed by Beckman Coulter. Beckman Coulter also agreed to pay Streck a confidential, fixed amount for past infringement and a royalty going forward for a non-exclusive license under the six patents for hematology controls.

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

      No matters were submitted to a vote of stockholders during the fourth quarter of 2002.

      The following is a list of the executive officers of Beckman Coulter as of February 6, 2003, showing their ages, present positions and offices with Beckman Coulter and their business experience during the past five or more years. Officers are elected by the Board of Directors and serve until the next annual Organization Meeting of the Board. Officers may be removed by the Board at will. There are no family relationships among any of the named individuals, and no individual was selected as an officer pursuant to any arrangement or understanding with any other person.

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     John P. Wareham, 61, Chairman of the Board, President and Chief Executive Officer

      Mr. Wareham became Chairman in February 1999, Chief Executive Officer in September 1998 and President in October 1993. He also served as the Company’s Chief Operating Officer from October 1993 to September 1998 and as Vice President, Diagnostic Systems Group from 1984 to 1993. Prior to 1984, he had served as President of Norden Laboratories, Inc., a wholly owned subsidiary of SmithKline Beckman Corporation engaged in developing, manufacturing and marketing veterinary pharmaceuticals and vaccines, having first joined SmithKline Corporation, a predecessor of SmithKline Beckman Corporation, in 1968. He is a director and past Chairman of AdvaMed, the Advanced Medical Technology Association (formerly the Health Industry Manufacturers Association), a member of the Board of Trustees of the Manufacturers Alliance/ MAPI, a member of the Center for Corporate Innovation, a member of the Chief Executive Roundtable of the University of California — Irvine, a member of the Advisory Council of the Keck Graduate Institute of Applied Life Sciences, and a director of Steris Corporation. He has been a director of Beckman Coulter since 1993.

     Scott Garrett, 53, President, Clinical Diagnostics Division

      Mr. Garrett was named President, Clinical Diagnostics in June 2002. He previously served as chief executive officer of Garrett Capital Advisors and as chief executive officer for Kendro Laboratory Products, L.P. Mr. Garrett’s other experience includes almost 20 years with Baxter International/ American Hospital Supply Corporation. He began his career with Baxter in product development. Through a series of promotions over the course of his tenure, Mr. Garrett became Group Vice President of Baxter and President of the Diagnostics subsidiary. Baxter’s Diagnostics subsidiary subsequently became Dade International and then Dade Behring, Inc., where Mr. Garrett served as Chairman and Chief Executive Officer.

     Elias Caro, 51, President, Biomedical Research Division

      Mr. Caro was named President, Biomedical Research in January 2003. He previously served as Group Vice President of the Diagnostics Development Centers and Strategic Marketing since September 2001, Vice President for the Cellular Analysis Development Center from February 1999 through August 2001, and Vice President-Director, Program Management and Quality Assurance for the CADC from 1998 to 1999. Mr. Caro held senior management positions since 1985 with Coulter Corporation, which was acquired in October 1997.

     Amin I. Khalifa, 49, Vice President and Chief Financial Officer

      Mr. Khalifa has been Vice President and Chief Financial Officer since December 1999. He first joined Beckman Coulter in June 1999 as Vice President, Chief Financial Officer and Treasurer. Prior to joining Beckman Coulter he had been Chief Financial Officer of the Agricultural Sector of Monsanto Company, head of Investor Relations and Strategy for Aetna, Inc., Vice President and Chief Financial Officer of Aetna Health Plans, and held various positions of increasing responsibility at PepsiCo.

     George E. Bers, 52, Vice President, Systems Biology

      Mr. Bers was named Vice President, Systems Biology in January 2003. Prior to that, he was President, Life Science Research since March 2001. He had been Vice President of Business Development at Nanogen, Inc. since June 2000 and prior to that had a twenty-four year career with Bio-Rad Laboratories, Inc., serving in many key management positions including, Vice President, Group Manager Clinical Diagnostics and Vice President, Group Manager Molecular Biosystems. Mr. Bers joined Beckman Coulter in 2001.

     James T. Glover, 53, Vice President and Controller and Chief Accounting Officer

      Mr. Glover was named Vice President and Controller and Chief Accounting Officer in February, 2003. He had been Vice President and Treasurer since 1999. Previously, he had been Vice President and Controller of Beckman Coulter since 1993, and Vice President, Controller — Diagnostic Systems Group from 1989. Mr. Glover joined Beckman Coulter in 1983, serving in several management positions, including a two-year

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     Paul Glyer, 46, Vice President — Director and Treasurer

      Mr. Glyer was named Vice President-Director and Treasurer in February, 2003. He had been Vice President-Director, Financial Planning since November, 1999 and Vice President-Director, Finance for Diagnostics Development and Corporate Manufacturing since February 1999 and Assistant Treasurer and then Treasurer from 1989 to 1999. Mr. Glyer joined the Company in 1989.

     Fidencio M. Mares, 56, Vice President, Human Resources and Corporate Communications

      Mr. Mares was named Vice President, Human Resources and Corporate Communications of Beckman Coulter in 1995. Prior thereto he had been President of The Gas Company of Hawaii. Before that he was Senior Vice President of Administration and Human Resources for Pacific Resources, Inc., Corporate Wage and Salary Manager and Corporate Human Resources Services Manager for Getty Oil Company/ Texaco, Inc., and held various human resources managerial positions at Southern California Edison.

     William H. May, 60, Vice President, General Counsel and Secretary

      Mr. May has been Vice President, General Counsel, and Secretary of Beckman Coulter since 1985 and has been General Counsel and Secretary of Beckman Coulter since 1984. Mr. May first joined Beckman Coulter in 1976. Mr. May is a member of the Board of Directors of the Arnold and Mabel Beckman Foundation.

     Edgar E. Vivanco, 59, Vice President, Operations

      Mr. Vivanco was named Vice President, Operations in January, 2003. Prior to that he was President of the Specialty Testing Division since March 2001. He had been Senior Vice President, Diagnostics Development and Corporate Manufacturing since January 1999. Mr. Vivanco had also been President of Coulter Corporation and Vice President of the Cellular Analysis Division since November 1997, and previously was Vice President of the Biotechnology Development Center. Mr. Vivanco joined Beckman Coulter in 1971 as a microbiologist at the Microbics Operations in La Habra, California. In 1973, he moved to Carlsbad as a Development Microbiologist and became Production Manager in 1975, Manufacturing Manager in 1978, and Site Manager in 1986. In 1987, he became Technical Operations Manager for the Diagnostics Operations and in 1990, became Director of Worldwide Reagents and Chemical Processing.

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PART II

Holders and Dividends

      As of January 21, 2003 there were approximately 5,988 holders of record of Beckman Coulter’s common stock. During 2000, Beckman Coulter conducted a stock split in the form of a two-for-one stock dividend distributed on December 7, 2000 to stockholders of record on November 15, 2000. All share and per share amounts included in this Form 10-K have been retroactively restated to reflect this two-for-one split. During 2002, Beckman Coulter paid two quarterly dividends of eight and one-half cents per share and two quarterly dividends of nine cents per share, for a total of thirty-five cents per share of common stock for the year. During 2001, Beckman Coulter paid four quarterly dividends of eight and one-half cents per share, for a total of thirty-four cents per share of common stock for the year. During 2000, Beckman Coulter paid three quarterly dividends of eight cents per share and one quarterly dividend of eight and one-half cents per share, for a total of thirty-two and one-half cents per share of common stock for the year.

Securities Authorized for Issuance Under Equity Compensation Plans

      Equity Compensation Plans Approved by Stockholders. Beckman Coulter currently maintains four equity-based compensation plans that have been approved by stockholders — the 1998 Incentive Compensation Plan, which was approved by stockholders in 1998 and is referred to as the “1998 Plan,” the Employees’ Stock Purchase Plan, which was most recently approved by stockholders in 2001 and is referred to as the “ESPP,” the Incentive Compensation Plan of 1990, which was most recently approved by stockholders in 1992 and is referred to as the “1990 Plan,” and the Stock Option Plan for Non-Employee Directors, which was most recently approved by stockholders in 1992 and is referred to as the “Directors Plan.”

	•	1998 Plan. Stock options, stock appreciation rights, restricted stock, stock bonuses, performance shares, dividend equivalents and other forms of awards may be granted under the 1998 Plan. The 1998 Plan is administered by, and each award grant must be approved by, the Board or a committee of the Board. Persons eligible to receive awards under the 1998 Plan include our officers and employees. Beckman Coulter’s non-employee directors are also eligible for certain automatic stock option grants under the 1998 Plan. The Board or a committee of the Board will determine the purchase price for any shares of our common stock subject to an award under the 1998 Plan, the vesting schedule (if any) applicable to each award, the term of each award, and the other terms and conditions of each award, in each case subject to the limitations of the 1998 Plan.
	•	ESPP. Subject to limits, all of our officers and employees are eligible to participate in the ESPP. The ESPP generally operates in successive 6-month purchase periods. Participants in the ESPP may purchase common stock at the end of each purchase period at a purchase price equal to 85% or 90%, as determined by the Board in advance of each purchase period, of the lower of the fair market value of the stock at the beginning or the end of the period. The administrator of the ESPP may allow participants to contribute up to 15% of their eligible compensation to purchase stock under the plan. The current contribution limit is 10% of each participant’s eligible compensation. The ESPP plan is administered by the Board or a committee of the Board.
	•	1990 Plan and Directors Plan. Certain stock option grants remain outstanding to our officers, employees and directors under these plans. However, the authority to grant new awards under each of these plans terminated in 1998. The Board or a committee of the Board continues to administer these plans as to the options that remain outstanding.

      Equity Compensation Plan Not Approved by Stockholders. Beckman Coulter currently maintains four equity-based compensation plans that have not been approved by stockholders — the Deferred Directors’ Fee Program, which is referred to as the “Deferred Fee Program,” the Executive Deferred Compensation Plan, which is referred to as the “Deferred Compensation Plan,” the Executive Restoration Plan, which is referred

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	•	Deferred Fee Program, Deferred Compensation Plan, and Restoration Plan. Under the Deferred Fee Program, a non-employee member of the Board may elect to defer a percentage of the fees that would otherwise become payable to the director for his or her services on the Board. Under the Deferred Compensation Plan and the Restoration Plan, a select group of officers and certain other employees may elect to defer compensation that would otherwise become payable to them. Each participant in the Deferred Fee Program or the Deferred Compensation Plan may elect that his or her deferrals be credited in the form of stock units. Beckman Coulter provides company contributions under the Restoration Plan, in the form of additional credits of stock units, generally based on the company contributions that a participant would have been entitled to under the Company’s qualified retirement plans had certain limits of those plans not applied to the participant. Stock units are bookkeeping entries that, when payable, will be paid in the form of an equivalent number of shares of Beckman Coulter common stock. A director may earn up to a 30% premium for deferring his or her fees in the form of stock units under the Deferred Fee Program. A participant in the Deferred Compensation Plan may earn up to a 30% premium for deferring his or her bonus in the form of stock units. Any premium stock units credited under the Deferred Compensation Plan are subject to a vesting schedule. Stock units accrue dividend equivalents, credited in the form of additional stock units, as dividends are paid by Beckman Coulter on its issued and outstanding common stock. Each participant elects the time and manner of payment (lump sum or installments) of his or her stock units credited under the Deferred Fee Program or the Deferred Compensation Plan. The portion of the deferral that the participant elects to be credited in the form of stock units is converted based on the fair market value of a share of stock at the time the deferral is credited following each pay period. Stock units credited under the Restoration Plan are paid at termination of employment. The Beckman Coulter shares used to satisfy Beckman Coulter’s stock obligations under these programs are shares that have been purchased on the open market.
	•	Ireland Program. The Ireland Program provides a means for employees of Beckman Coulter’s Ireland subsidiary to purchase Beckman Coulter stock. Participants in the Ireland Program are not otherwise eligible to participate in the ESPP. Subject to limits, participants in the Ireland Program decide how much of their bonus and salary they wish to forego to use for the purchase of shares under the program. The purchase price for the shares under the program generally equals the fair market value of the shares at the time of purchase – no discounted purchase price is offered under the program. The program offers certain tax advantages under Ireland tax rules to participants in the program. Shares purchased under the program generally cannot be sold for two years following the purchase of the shares under the program and additional tax benefits may be obtained if the shares are not sold until three years after their acquisition. The Ireland Share Purchase Program is administered by the Board of Directors of Beckman Coulter’s Ireland subsidiary. The Beckman Coulter shares used to satisfy Beckman Coulter’s stock obligations under the Ireland Program are shares that have been purchased on the open market.

      Summary Table. The following table sets forth, for each of Beckman Coulter’s equity-based compensation plans, the number of shares of Beckman Coulter common stock subject to outstanding options and rights,

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Equity Compensation Plan Table

(1)	Of these shares, 5,262,364 were subject to options then outstanding under the 1998 Plan, 2,557,422 were subject to options then outstanding under the 1990 Plan, and 58,000 were subject to options then outstanding under the Director Plan.
(2)	This number includes 710,252 shares that will be issued upon the payment of stock units credited under the Beckman Coulter Option Gain Deferral Program adopted under the 1990 Plan and the 1998 Plan.
(3)	This number does not reflect the 710,252 shares that will be issued upon the payment of stock units credited under the Option Gain Deferral Program.
(4)	This number of shares is presented after giving effect to purchases under the ESPP for the purchase period that ended December 31, 2002. Of the aggregate number of shares that remained available for future issuance, 1,981,328 were available under the 1998 Plan and 3,391,113 were available under the ESPP. The shares available under the 1998 Plan are, subject to certain other limits of the 1998 Plan, generally available for any type of award authorized under the 1998 Plan including options, stock appreciation rights, restricted stock, stock bonuses, performance shares and dividend equivalents.
(5)	On January 1 of each year during the term of the 1998 Plan, the total number of shares available for award purposes under the 1998 Plan will increase by 1.5% of the total number of shares of Beckman Coulter common stock issued and outstanding as of the immediately preceding December 31. The aggregate number of shares available for issuance under the 1998 Plan increased by 938,676 shares on January 1, 2003. The data presented in this table was calculated as of December 31, 2002 and does not reflect the January 1, 2003 increase. No additional increases in the share limit will occur after the January 1, 2003 increase and the authority to make new award grants under the 1998 Plan terminates December 31, 2003.
(6)	Reflects an aggregate of 318,571 stock units then credited under the Deferred Fee Program, the Deferred Compensation Plan, and the Restoration Plan, and an additional 1,928 shares previously purchased under the Ireland Program and held in trust for delivery to the participants who purchased such shares following the satisfaction of the required two-year holding period under the program.
(7)	There is no explicit share limit under the Deferred Fee Program, the Deferred Compensation Plan, the Restoration Plan, or the Ireland Program. The number of shares to be delivered with respect to these programs in the future depends on the levels of fees and compensation that participants elect to defer under the Deferred Fee Program, the Deferred Compensation Plan, and the Restoration Plan and the amounts of compensation that participants in the Ireland Program elect to contribute to that program. The Beckman Coulter shares used to satisfy Beckman Coulter’s stock obligations under these programs are shares that have been purchased on the open market.

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Item 6.     Selected Financial Data

(1)	2001 includes a one-time cumulative effect charge associated with a change in accounting principle of $3.1 million ($4.9 million pretax) related to the adoption of Statement of Financial Accounting Standards (“SFAS”) 133, “Accounting for Derivative Instruments and Hedging Activities.” The 2001 impact on diluted earnings per share was $0.05.
(2)	2001, 2000, 1999 and 1998 include $15.6 million ($18.8 million pretax) of amortization of goodwill and certain other intangible assets that was not recorded during 2002, pursuant to the Company’s adoption of SFAS 142, “Goodwill and Other Intangible Assets.” The 2001, 2000, 1999 and 1998 impact on diluted earnings per share was $0.24, $0.25, $0.26 and $0.27, respectively.
(3)	2002 includes a $23.8 million ($39.3 million pretax) charge associated with a patent infringement settlement and related expenses. The 2002 impact on diluted earnings per share was $0.37.

Note:	On October 5, 2000, the Board of Directors declared a two-for-one stock split in the form of a 100% stock dividend. The split entitled each stockholder of record on November 15, 2000 to receive an additional share of common stock for every share held on that date. All share and per share amounts included in this Form 10-K have been retroactively restated to reflect this two-for-one split.

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

      The following discussion should be read in conjunction with the consolidated financial statements and related notes included within Item 8 of this Form 10-K. Historical results and percentage relationships are not necessarily indicative of operating results for any future periods.

Overview

      Beckman Coulter simplifies and automates laboratory processes used in all phases of the battle against disease. We design, manufacture and market systems that consist of instruments, chemistries, software and supplies that meet a variety of biomedical laboratory needs. Our products are used in a range of applications, from instruments used for pioneering medical research, clinical trials and drug discovery to diagnostic systems found in hospitals and physicians’ offices to aid in patient care. We compete in market segments that we estimate totaled approximately $35 billion in annual sales worldwide in 2002. We currently have products that address approximately half of that market.

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      Our product lines include virtually all blood tests routinely performed in hospital laboratories and a range of systems for medical and pharmaceutical research. We have more than 200,000 systems operating in laboratories around the world, with approximately 62% of 2002 revenues coming from after-market customer purchases of operating supplies, chemistry kits and service. We market our products in more than 130 countries, with approximately 43% of revenues in 2002 coming from sales outside the United States.

      Our strategy is to expand our position as a leading provider of laboratory systems. To this end, we achieved the following significant milestones in 2002:

	•	Announced an alliance with Ciphergen Biosystems, Inc. to automate clinical proteomics research.
	•	Shipped the Cytomics FC 500 system, a dual-laser, five-color flow cytometer for the cell-based research market.
	•	Introduced and shipped the CEQ™ 8000 genetic analysis system, which performs a wide variety of DNA-related tests.
	•	Signed four supply agreements worth a total of $173 million over 21 months with Premier, Inc., one of the largest group purchasing organizations in the United States.
	•	Shipped the SYNCHRON LX®20 PRO clinical system with closed-tube sampling, improving safety in the laboratory.
	•	Shipped the Avanti® J-E centrifuge, a compact, general purpose system for bioseparations.
	•	Shipped the Vi-Cell™ cell viability analyzer, which automates monitoring of viable cells during the manufacturing stage of the recombinant DNA process.
	•	Signed licensing and supply agreement with Eprogen, Inc. to become the exclusive distributor of the ProteoSep (trademark of Eprogen, Inc.) consumables and software platform, an important technology for automating protein research.
	•	Shipped the Optima™ L-XP ultracentrifuge system, used for the preparation and separation applications in cytomics, genomics and proteomics.
	•	Unveiled plans for a nanoliter liquid transfer platform for low-volume liquid handling.
	•	Signed a $125 million, five-year clinical chemistry product agreement with the MAGNET group purchasing organization.
	•	Announced commercialization of Class II MHC Tetramer reagents used to detect diseases such as type I diabetes, rheumatoid arthritis and multiple sclerosis.
	•	Shipped the SYNCHRON LX®i 725 clinical system, a closed tube sampling workstation offering more than 140 immunodiagnostic and routine chemistry tests.
	•	Acquired SNP genotyping system from Orchid Biosciences, Inc.

      In 2002, we realigned the company into three divisions — Clinical Diagnostics, Life Science Research and Specialty Testing. Accordingly, certain prior period segment information has been reclassified to conform to the new three divisional structure.

      During 2002, we continued to evaluate opportunities to leverage our competencies in flow cytometry, immune testing, robotic automation and DNA analysis in faster growing market niches, such as clinical research. In the process, we determined that there were potential synergies between the Life Science Research and Specialty Testing Divisions. This conclusion lead us to consolidate the Life Science Research and Specialty Testing Divisions into a single Biomedical Research Division, which was formed in early 2003. Revised segment reporting will begin in the first quarter of 2003 when the two division organization takes effect.

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1.     Results of Operations

      Sales were $2,059.4 million in 2002, an increase of 3.8% compared to $1,984.0 million in 2001. On a constant currency basis sales increased 3.5% in 2002. The following provides key product and geographical sales information for 2002 (dollar amounts in millions):

*	Constant currency growth is not a GAAP defined measure of revenue growth. Constant currency growth as presented herein represents:

Current year constant currency sales (see below) less prior year reported sales

      We define constant currency sales as current year sales in local currency translated to U.S. dollars at the prior year’s foreign currency exchange rate. This measure provides information on sales growth assuming that foreign currency exchange rates have not changed between the prior year and the current year. Constant currency sales and constant currency growth as defined or presented by us may not be comparable to similarly titled measures reported by other companies. Additionally, constant currency sales is not an alternative measure of revenues on a GAAP basis.

Sales growth during 2002 was affected by the following:

	•	Clinical diagnostics sales increases during 2002 were led by immunodiagnostics sales growth in Access® immunoassay products, including such tests as the new AccuTnI™ cardiac assay. Routine

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		chemistry sales improved primarily due to higher SYNCHRON® clinical system placements. Hematology sales improved due to sales of the COULTER® LH 750 hematology instrument.
	•	Life science research and specialty testing sales were negatively impacted by a slow-down in pharmaceutical and biotechnology investment and modest academic research spending. However, the CEQ™ series of genetic analysis systems for DNA sequencing continues to enjoy market acceptance, particularly in the mid-market segment.
	•	Specialty testing sales were impacted by the market conditions discussed above. Nevertheless, our new Cytomics FC 500 flow cytometer for the cell-based research market released in 2002, has been well received.

      Gross profit as a percentage of sales (“gross margin”) in 2002 was 45.4%, 1.3 percentage points lower than in 2001. On a constant currency basis, gross margin was 45.3%, 1.4 percentage points lower than the prior year. The decrease in margin is mainly due to the following:

	•	An unfavorable product mix, whereby more of our lower margin generating products were sold during the year, especially in the Life Science Research division. This resulted in about a 0.4 percentage point impact.
	•	Competitive pricing in certain European markets resulted in about a 0.3 percentage point impact.
	•	Certain inventory adjustments resulting from a reconciliation of our intercompany accounts during a system conversion. This reconciliation impacted gross margin by about 0.3 percentage points.
	•	Negative economic conditions in Latin America, which impacted gross margin by about 0.2 percentage points.

      Selling, general and administrative (“SG&A”) expenses decreased $9.1 million to $487.8 million or 23.7% of sales in 2002 from $496.9 million or 25.0% of sales in the prior year. The following factors impacted SG&A during the year ended December 31, 2001:

	•	A reversal of a $3.8 million accrual associated with a cross licensing; and
	•	$18.8 million of amortization of goodwill and certain other intangible assets that was not recorded during the year ended December 31, 2002, pursuant to the adoption of SFAS 142.

      Excluding the above items, SG&A in 2001 would have been $481.9 million, or 24.3% of sales, 0.6 percentage points higher than in 2002. The improvement in SG&A as a percentage of sales between 2002 and 2001 is due to cost reduction initiatives and only partial employee bonus targets being achieved relative to 2001.

      Research and development (“R&D”) expenses decreased $5.7 million to $183.9 million in 2002 from $189.6 million in 2001. R&D as a percentage of sales was 8.9% in 2002, compared to 9.6% in 2001, a 0.7 percentage point decrease. The decrease is due to several development projects moving into the commercialization phase and, similar to above, only partial employee bonus targets being achieved relative to 2001.

      During the fourth quarter of 2002, we recorded a gain of $4.2 million as a result of a curtailment of a postretirement plan, whereby employees who had not met certain age and service requirements as of December 31, 2002 are no longer eligible to receive medical coverage upon retirement. Also during 2002, there was a $3.8 million increase in our 2002 pension expense which is due, in part, to a lower discount rate and a lower market value on Plan assets (see Note 11 “Retirement Benefits”). These items impact cost of sales, SG&A and R&D.

      During 2002, we recorded a $39.3 million litigation charge for a patent infringement settlement with Streck Laboratories, Inc. and related expenses. See Note 12 “Commitments and Contingencies” for further discussion.

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      Interest expense declined $8.8 million to $45.7 million in 2002 compared to $54.5 million in 2001 primarily due to lower average debt balances and lower interest rates on the variable portion of our borrowings.

      Other non-operating (income)/expense was $6.7 million in 2002 and primarily consisted of foreign currency related activities of $3.8 million, a write-down of $4.0 million resulting from a reduction in the fair value of a biotechnology equity investment and gains on the sales of certain receivables of $(3.1) million. Other non-operating (income)/expense was $(12.3) million in 2001 and primarily consisted of foreign currency related activities of $(11.6) million, a write-down of $4.7 million for an equity investment in a company that performs point-of-care testing and gains on the sales of certain sales-type lease receivables of $(3.5) million.

      Interest income increased $0.2 million to $7.8 million in 2002 from $7.6 million in 2001.

      Income tax expense decreased $20.1 million to $43.4 million for the year ended December 31, 2002 from $63.5 million for the year ended December 31, 2001. Income tax as a percentage of pretax income was 24.3% for the year 2002 compared to 31.0% for the year 2001, a decrease of 6.7 percentage points. The decrease was primarily due to 1) deductions related to export sales and R&D tax credits and 2) the tax effects resulting from the Streck Laboratories, Inc. litigation settlement.

      Net earnings were $135.5 million in 2002 or $2.08 per diluted share compared to $138.4 million or $2.16 per diluted share for 2001. Net earnings for the year 2001 were $141.5 million or $2.21 per diluted share before the accounting change (see Note 1 “Nature of Business and Summary of Significant Accounting Policies” for further discussion).

      As indicated in Note 14 “Business Segment Information”, we had three reportable segments during 2002 and two reportable segments during 2001 and 2000. All corporate activities are captured in a central service “Center”, including costs incurred at the corporate level which significantly benefit the operations of each segment. Because these segment related costs remain in the “Center”, a discussion of our operating profit by segment is not meaningful.

      Sales were $1,984.0 million in 2001, an increase of 5.1% compared to $1,886.9 million in 2000. The following provides key product and geographical sales information for 2001 (dollar amounts in millions):

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      Sales growth during 2001 was affected by the following:

	•	Routine chemistry sales increases were primarily due to placements of our new SYNCHRON LX®20 PRO clinical systems.
	•	Immunodiagnostics sales increases were primarily due to the combination of: 1) shipments of our new Access® 2 immunoassay system, 2) shipments of our newly FDA-cleared Access® AccuTnITM Troponin I cardiac test and 3) other Access immunoassay product sales.
	•	Hematology sales increases were primarily due, in part, to shipments of the new COULTER® LH 750 instrument.
	•	Life science research sales increases were primarily due to sales of the Biomek® FX laboratory automation workstation.
	•	Improved sales in the Americas were led by robotic automation/genetic analysis, routine chemistry and immunodiagnostics products, while improved sales in Europe and Asia were due to strong sales of robotic automation/genetic analysis and immunodiagnostics products.

      Gross profit as a percentage of sales (“gross margin”) in 2001 was 46.7%, 0.5 percentage points lower than the prior year. The decrease in gross margin was due to the effects of foreign currency exchange rates, which resulted in a gross profit decrease of approximately $31 million, or 0.5 percentage points.

      Selling, general and administrative (“SG&A”) expenses increased $20.8 million to $496.9 million or 25.0% of sales in 2001 from $476.1 million or 25.2% of sales in the prior year. The improvement in SG&A as a percentage of sales is primarily due to a $3.8 million reversal of an accrual associated with a cross-licensing agreement during 2001. Excluding this accrual reversal, SG&A as a percentage of sales would have been 25.2% in 2001, consistent with the prior year.

      Research and development (“R&D”) expenses increased $4.6 million to $189.6 million in 2001 from $185.0 million in 2000. The increase is primarily due to increased R&D expenses associated with our Immunomics operation. R&D as a percentage of sales was 9.6% in 2001, compared to 9.8% in 2000.

      In the fourth quarter of 2001, we recorded a restructuring charge of $0.9 million related to certain reorganization activities in Europe. In the fourth quarters of 2001 and 2000, we reversed $1.4 million and $2.4 million, respectively, of excess restructure charges taken in prior years. These charges and reversals resulted in net restructuring credits of $0.5 million and $2.4 million in 2001 and 2000, respectively.

      Interest income increased $1.3 million to $7.6 million in 2001 from $6.3 million in 2000.

      Interest expense declined $17.4 million to $54.5 million in 2001 compared to $71.9 million in 2000 primarily due to lower average debt balances and lower interest rates on the variable portion of our borrowings.

      Other non-operating (income)/expense was $(12.3) million in 2001 and primarily consisted of foreign currency related activities of $(11.6) million, a write-down of $4.7 million for an equity investment in a company that performs point-of-care testing and gains on the sales of certain sales-type lease receivables of

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      Earnings before the accounting change associated with the adoption of SFAS 133 (see Note 1 “Nature of Business and Summary of Significant Accounting Policies” of the Consolidated Financial Statements) in 2001 were $141.5 million or $2.21 per diluted share as compared to $125.5 million or $2.03 per diluted share in 2000.

      Net earnings were $138.4 million or $2.16 per diluted share as compared to $125.5 million or $2.03 per diluted share in 2000.

2.     Financial Condition

      Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing and to convert those assets that are no longer required to meet existing strategic and financing objectives into cash. Therefore, liquidity cannot be considered separately from capital resources that consist of current and potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.

      Currently, our liquidity needs arise primarily from:

	•	debt service on indebtedness;
	•	working capital requirements; and
	•	capital expenditures.

      Cash flows provided by operating activities was $316.6 million, $276.6 million and $209.1 million in 2002, 2001 and 2000, respectively.

      Cash flows provided by operating activities increased by $40.0 million between 2002 and 2001 primarily due to changes in working capital of $81.8 million, which includes trade and other receivables, inventories and accounts payable and accrued expenses. The net improvement is primarily due to:

	•	lower days sales outstanding of approximately 82 days during 2002 versus 84 days during 2001 as a result of improved focus and efforts to collect outstanding accounts. Days sales outstanding is calculated using average accounts receivables for the quarter and the quarterly sales amount times four; and
	•	an improvement in inventory turns to 3.1 times in 2002 versus 2.9 times in 2001 due to management’s efforts to control inventory levels. Inventory turns is calculated using net ending inventory and a rolling four quarter cost of sales.

      The working capital change was offset by cash payments of $18.5 million due to the Streck patent infringement settlement and related expenses and cash contributions of $24.8 million to our U.S. defined benefit pension plans in 2002.

      Cash flows provided by operating activities increased by $67.5 million between 2001 and 2000 primarily due to changes in working capital of $49.7 million, which includes trade and other receivables, inventories and accounts payable and accrued expenses. The improvement is primarily due to:

	•	changes in accounts payable and accrued expenses of $107.0 million, which is primarily due to an increased accounts payable balance at December 31, 2001 associated with higher inventory levels;
	•	offset by changes in trade and other receivables of $57.5 million due to increased sales activity during the fourth quarter of 2001 versus the fourth quarter of 2000.

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      Changes in other operating assets and liabilities also contributed an additional $11.7 million to the increase in cash flows provided by operating activities between 2001 and 2000.

      Investing activities used $146.6 million, $178.0 million and $113.4 million in 2002, 2001 and 2000, respectively. The decrease between 2002 and 2001 is primarily due to decreases in capital expenditures associated with our implementation of an Oracle enterprise resource planning system (“ERP”) (see below for discussion). The increase between 2001 and 2000 is primarily due to increases in capital expenditures associated with our implementation of the ERP system and lower proceeds received from the sale of certain clinical chemistry assets in Spain.

      Financing activities used $118.9 million, $91.5 million and $97.1 million of cash flows in 2002, 2001 and 2000, respectively. Net cash paid to reduce our bank and other debt amounted to $80.0 million, $107.9 million and $113.7 million in 2002, 2001 and 2000, respectively. Additionally, we paid $22.1 million, $20.7 million and $19.3 million in dividends to our stockholders in 2002, 2001 and 2000, respectively. These amounts were partially offset by proceeds received from the issuance of stock of $36.7 million, $39.0 million and $35.9 million in 2002, 2001 and 2000, respectively. In 2002 we used $14.1 million to purchase shares in the company’s stock to be held in the grantor trust to support our executive deferred compensation plans and used an additional $38.3 million to purchase shares to be held in treasury (see below).

      We have chosen to implement an ERP system to achieve a single, globally integrated infrastructure. This includes functionality for Finance, Human Resources, Supply Chain, Order Management, Sales and Service to replace or complement existing legacy systems and business processes. Through December 31, 2002, we have capitalized $97.4 million of costs associated with this ERP system (which includes $23.7 million of capitalized internal labor costs). Based on our geographic rollout strategy, as of December 31, 2002, we have essentially implemented functionality for Finance, Human Resources and certain purchasing systems for our global operations (except Japan). Sales functionality has been implemented on a limited integration basis for our U.S. and Canadian operations. We expect that the majority of the work required to implement the remaining new systems will take place through 2004. If we are unable to implement and effectively manage the transition to these new systems, our future consolidated operating results could be adversely affected.

      Based upon current levels of operations and expected future growth, we believe our cash flows from operations together with available borrowings under our new credit facility which we entered into in July 2002 (see Note 7 “Debt Financing” of the Consolidated Financial Statements) and other sources of liquidity (including leases and any other available financing sources) will be adequate to meet our anticipated requirements for interest payments and other debt service obligations, working capital, capital expenditures, lease payments, pension contributions and other operating needs. There can be no assurance, however, that our business will continue to generate cash flow at or above current levels or that estimated cost savings or growth can be achieved. Future operating performance and our ability to service or refinance existing indebtedness, will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

      In July 2002, we terminated our $317.0 million Credit Facility and (as noted above) entered into a new credit facility (the “$400 million Credit Facility”). The $400 million Credit Facility, which is unsecured, enables us to borrow up to $400 million (and can be increased up to $600 million upon the satisfaction of certain conditions), matures in July 2005 and is not subject to any scheduled principal payments. Borrowings under the $400 million Credit Facility generally bear interest at current market rates plus a margin based upon our senior unsecured debt rating. We must also pay a quarterly facility fee of 0.15% per annum on the undrawn $400 million Credit Facility commitment.

      No amounts were drawn on the $400.0 million Credit Facility or the terminated Credit Facility at December 31, 2002 and 2001.

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      Our long-term debt consists of the following at December 31, 2002 and 2001 (dollar amounts in millions):

      The $119.2 million of 7.10% unsecured Senior Notes are due March 4, 2003. We will repay these notes entirely upon maturity through operating cash flows and/or our $400 million Credit Facility (see Note 7 “Debt Financing” of the Consolidated Financial Statements).

      In October 2002, our Company’s Board of Directors authorized the repurchase of up to 5.0 million shares of our common stock to pre-fund our stock-based employee benefit programs. The stock repurchase program is authorized to continue for the next three years. During the quarter ended December 31, 2002, we repurchased 1.3 million shares.

      In October 2002, we filed a “universal shelf” registration statement with the U.S. Securities and Exchange Commission. Once effective, the shelf registration statement gives us the ability to offer and sell up to $500.0 million of securities, which may include debt securities, preferred stock, common stock and warrants to purchase debt securities, common stock, preferred stock or depository shares. The issuance of any such securities could represent new financing or could be used to pay down existing debt. We have no immediate plans to offer or sell any securities.

      The following represents a summary of our contractual obligations and commitments (in millions):

*	The $100.0 million debentures due 2026 include a feature that could require repayment in 2006 (see Note 7 “Debt Financing”). Accordingly, the $100.0 million has been included within the $100.2 million amount above.

Subsequent Event:

      During the quarter ending March 31, 2003, we intend on recording a restructuring charge of approximately $16 million associated with the elimination of about 300 positions worldwide, or approximately 3% of our workforce. About two-thirds of these eliminations will be in the United States and one-third in other locations.

Critical Accounting Policies:

      The U.S. Securities and Exchange Commission defines critical accounting policies as those that are, in management’s view, most important to the portrayal of the company’s financial condition and results of operations and most demanding in their calls on judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. We are not aware of any reasonably possible events or circumstances that would result in different amounts being reported

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     Revenue recognition, including customer leased equipment

      For products, revenue is recognized when title and risk of loss transfers, when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is determinable and collectibility is reasonably assured, except when a customer enters into an operating-type lease agreement, in which case revenue is recognized over the life of the lease. Under a sales-type lease agreement, revenue is recognized at the time of shipment with interest income recognized over the life of the lease. Service revenues on maintenance contracts are recognized ratably over the life of the service agreement or as service is performed, if not under contract. For those equipment sales which include other obligations, such as providing after market supplies or service, we allocate revenue based on the relative fair values of the individual components as determined by cash sales prices, unless the deliverable is incidental or perfunctory in which case we accrue an estimate of the related cost. Credit is extended based upon the evaluation of the customer’s financial condition and we generally do not require collateral.

     Reserves for doubtful accounts

      We maintain reserves for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. These reserves are determined by 1) analyzing specific customer accounts that have known or potential collection issues and 2) applying historical loss rates to the aging of the remaining accounts receivable balances. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance may be required.

     Inventory adjustments for write-down of inventories to fair value

      Inventories, which include material, labor and manufacturing overhead, are valued at the lower of cost or market using the first-in, first-out (FIFO) method of determining inventory costs. Inventory schedules are regularly analyzed by finance and logistics personnel, and where necessary, provisions for excess and obsolete inventory are recorded based primarily on our estimated forecast of product demand and production requirements. A significant increase in the forecasted demand for our products could result in a short-term increase in the cost of inventory purchases while a significant decrease in forecasted demand could result in an increase in the amount of excess inventory quantities on hand requiring additional inventory write-downs.

      Intangible assets with definite lives are amortized over their estimated useful lives. Useful lives are based on the expected number of years the asset will generate revenue.

      On January 1, 2002, we adopted SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires that goodwill and other intangible assets that have indefinite lives not be amortized but instead be tested at least annually for impairment, or more frequently when events or change in circumstances indicate that the asset might be impaired. For indefinite lived intangible assets, impairment is tested by comparing the carrying value of the asset to the fair value of the reporting unit to which they are assigned. For goodwill, a two-step test is used to identify the potential impairment and to measure the amount of impairment, if any. The first step is to compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill is considered not impaired, otherwise goodwill is impaired and the loss is measured by performing step two. Under step two, the impairment loss is measured by comparing the implied fair value of the reporting unit with the carrying amount of goodwill. See Note 2 “Nature of Business and Summary of Significant Accounting Policies” for further discussion.

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     Environmental obligations

      We establish provisions for exposure related to environmental and legal matters. Our compliance with federal, state and foreign environmental laws and regulations may require us to remove or mitigate the effects of the disposal or release of chemical substances in jurisdictions where we do business or maintain properties. We establish reserves when such costs are probable and can be reasonably estimated. Provision amounts are estimated based on currently available information, regulatory requirements, remediation strategies, our relative share of the total remediation costs and a relevant discount rate. Changes in these assumptions could impact our future reported results.

     Legal obligations

      We are involved in a number of legal proceedings which we consider to be normal for our type of business operations. As a global company active in a wide range of life sciences and chemical activities, we may, in the normal course of our business become involved in proceedings relating to matters such as:

	•	patent validity and infringement disputes related to intellectual property;
	•	contractual obligations; and
	•	employment matters.

      We cannot predict with certainty the outcome of any proceedings in which we are or may become involved. An adverse decision in a lawsuit seeking damages from us could result in a monetary award to the plaintiff and, to the extent not covered by our insurance policies or third party indemnities, could significantly harm the results of our operations. An adverse decision in a lawsuit seeking an injunction or other similar relief could significantly harm our business operations. If we lose a case in which we seek to enforce our patent rights, we could sustain a loss of future revenue as other manufacturers begin to market products we developed. Litigation cases and claims raise difficult and complex legal issues and are subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case and claim, the jurisdiction in which each suit is brought, and differences in applicable law. Upon resolution of any pending legal matters, we may incur charges in excess of presently established provisions and related insurance or third party coverage. It is possible that our results of operations and cash flows could be materially affected by an ultimate unfavorable outcome of certain pending litigation. Although we believe that our provisions are appropriate, and in accordance with SFAS 5, “Accounting for Contingencies,” changes in events or circumstances could have a material adverse effect on our financial position, profitability or liquidity.

     Tax valuation allowances and obligations

      We account for income taxes in accordance with SFAS 109, “Accounting for Income Taxes,” which prescribes an asset and liability approach. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to the difference between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. We establish a valuation allowance to reduce deferred tax assets to an amount whose realization is more likely than not. Uncertainties exist in respect to our future tax rates due to uncertainties as to the amount and timing of future taxable income and changes in enacted statutory tax rates. Differences between actual results and our assumptions, or changes in our assumptions in future periods, could result in adjustments to tax expense in future periods.

     Pension Plans

      Our funding policy provides that payments to our domestic pension trusts shall at least be equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974. In accordance with SFAS 87, “Employers’ Accounting for Pensions,” the expected long-term rate of return on plan assets is an assumption as to the rate of return on plan assets reflecting the average rate of earnings expected on the

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      We use a combination of historical results and anticipated future events to estimate and make assumptions relating to our critical accounting policies. Actual results could differ from our estimates.

Financial Risk Management:

      Our risk management program, developed by senior management and approved by the board of directors, seeks to minimize the potentially negative effects of changes in foreign exchange rates and interest rates on the results of operations. Our primary exposures to fluctuations in the financial markets are to changes in foreign exchange risk and interest rates.

      Foreign exchange risk arises because our reporting currency is the U.S. dollar and we generate approximately 43% of our revenues in various foreign currencies. U.S. dollar-denominated costs and expenses as a percentage of total operating costs and expenses are much greater than U.S. dollar-denominated sales as a percentage of total net sales. As a result, appreciation of the U.S. dollar against our major trading currencies has a negative impact on our results of operations, and depreciation of the U.S. dollar against such currencies has a positive impact.

      We seek to minimize our exposure to changes in exchange rates by denominating costs and expenses in foreign currencies. When these opportunities are exhausted, we use derivative financial instruments to function as “hedges”. We use forward contracts, purchased option contracts and complex option contracts (consisting of purchased and sold options), to hedge certain foreign currency denominated transactions. We do not use these instruments for speculative or trading purposes.

      Our exposure to interest rate risk arises out of our long-term debt obligations. Under the guidance of our risk management policies, we use derivative contracts on certain borrowing transactions. With the aid of these

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      We continually monitor inflation and the effects of changing prices. Inflation increases the cost of goods and services used. Competitive and regulatory conditions in many markets restrict our ability to fully recover the higher costs of acquired goods and services through price increases. We attempt to mitigate the impact of inflation by implementing continuous process improvement solutions to enhance productivity and efficiency and, as a result, lower costs and operating expenses. The effects of inflation have, in our opinion, been managed appropriately and as a result have not had a material impact on our operations and the resulting financial position or liquidity.

      The countries of the European Union have adopted a single currency, the “euro”. The euro came into existence on January 1, 2000, and on January 1, 2002, became the only currency in Economic and Monetary Union countries. A significant portion of our business is conducted in Europe. The introduction of the euro required that we make modifications to our internal operations as well as to our external business arrangements. These changes were completed and we adopted the euro for internal systems and reporting as of December 1, 2001. The adoption of the euro did not have a material effect on our business, results of operations, financial position or liquidity.

      In November 2002, the Emerging Issues Task Force (“EITF”) finalized its consensus on EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” which provides guidance on the timing and method of revenue recognition for sales arrangements that include the delivery of more than one product or service. EITF 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. Under EITF 00-21, revenue must be allocated to all deliverables regardless of whether an individual element is incidental or perfunctory. Certain of our sales arrangements include undelivered elements that we have historically considered incidental and perfunctory. Consequently, we have not deferred revenue related to these elements and have instead recorded an accrual for the estimated cost of providing them. We are currently analyzing the impact of the adoption of EITF 00-21 on our financial statements.

      SFAS 143 “Accounting for Asset Retirement Obligations” addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We are required to adopt SFAS 143 on January 1, 2003. The adoption of SFAS 143 did not materially impact our consolidated financial statements or results of operations.

      SFAS 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” eliminates SFAS 4 (and SFAS 64, as it amends SFAS 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, and thus, also the exception to applying Opinion 30 is eliminated as well. This statement is effective for years beginning after May 2002 for the provisions related to the rescission of SFAS 4 and 64, and for all transactions entered into beginning May 2002 for the provision related to the amendment of Statement 13. We do not expect that the adoption of SFAS 145 will have a material effect on our consolidated financial statements or results of operations.

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      SFAS 146 “Accounting for Costs Associated with Exit or Disposal Activities” addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring).” The principal difference between this Statement and EITF 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for exit costs as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. There is no significant impact of this statement on our financial statements.

3.     Business Climate

      The clinical diagnostics, specialty testing and life science research markets are highly competitive with many manufacturers around the world and are subject to certain business risks. In addition, these markets are impacted by global economic and political conditions. In particular, government policies regarding (1) reimbursement for health care costs and (2) the approval of and reimbursement for new therapeutics have a significant impact on investment by pharmaceutical and biotechnology companies and hospitals. Future profitability may also be adversely affected if the relative value of the U.S. dollar strengthens against certain currencies.

      The clinical diagnostics market can be unfavorably impacted by economic weakness and government and healthcare cost containment initiatives in general. In particular, the weakness in these markets as well as general economic conditions have affected the availability of funds for capital expenditures.

      In addition, attempts to lower costs and to increase productivity have led to further consolidation among healthcare providers in the United States, resulting in more powerful provider groups that continue to leverage their purchasing power to contain costs. Preferred supplier arrangements and combined purchases are becoming more commonplace. Consequently, it has become essential for manufacturers to provide cost-effective diagnostic systems to remain competitive. Cost containment initiatives in the United States and in the European healthcare systems will continue to be factors which may affect our ability to maintain or increase sales.

      The continuing consolidation trend among United States healthcare providers has increased pressure on diagnostic equipment manufacturers to broaden their product offerings to encompass a wider range of testing capability, greater automation and higher volume capacity at a lower cost. In the U.S. hospital market, the primary focus of Beckman Coulter’s diagnostic business, funding is better than it has been in several years but could be impacted by current economic conditions. In addition, as labor shortages continue to be an issue in clinical laboratories, our automated systems are helping to fill the void.

      With our leadership position in cellular analysis and our extensive capabilities in routine chemistry and immunodiagnostics, we are able to offer a broad range of automated systems that together can perform more than 75% of a hospital laboratory’s testing needs and essentially 100% of the blood tests that are considered routine. We believe we are able to provide significant value-added benefits, enhanced through our expertise in simplifying and automating laboratory processes, to our customers.

      The life science research market has been growing in recent years as an increasing understanding of genomics, cytomics, and proteomics has begun to move from scientific research toward having a real impact on clinical therapy. However, spending in this market also continues to be affected by governmental

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      While U.S. supported research has been positive in recent years, it is subject to yearly approval by Congress and continued increases in funding is not guaranteed. Spending also may be negatively impacted by a prolonged recession, attempts to contain government spending in order to balance the budget and reduce deficit spending, or the need to make funds available for other programs. Even when funds are available, they may be used for other purposes. For example, while the National Institutes of Health funding was increased by 15% in 2002, funding went into infrastructure at the expense of capital equipment purchases.

      Spending on research by biotechnology and pharmaceutical companies is also dependent on global economic health. An ongoing recession can affect the number of biotechnology start-ups building laboratories and conducting research as well as the rate of research investment by biopharmaceutical companies. Pharmaceutical company research investment may also be negatively impacted by governmental intervention and regulations, including prescription drug costs, new drug approvals, switching of prescription drugs to generics, as well as industry consolidation. We believe that a recovery in capital spending in these markets may not occur until the end of 2003, with the pharmaceutical market recovering before the biotechnology market.

      Longer term, we continue to see tight pharmaceutical and biotechnology discovery spending. Spending now appears to be moving from drug discovery into drug development, as pharmaceutical companies focus on bringing new products to market, faster. However, we believe this move opens new opportunities for robotic automation systems and in clinical research and clinical trial applications.

      In the specialty testing market, the long term outlook is positive with an increasing need for applications in the areas of clinical research and clinical trials. However, this market is tied in many ways to developments in the pharmaceutical and biotechnology markets and slowdowns in spending in these markets will ultimately affect the specialty testing market as well. Many of the same dynamics of the life science research market affect specialty testing.

      Our new products originate from four sources:

	•	internal research and development programs;
	•	external collaborative efforts with individuals in academic institutions and technology companies;
	•	devices or techniques that are generated in customers’ laboratories; and
	•	business and technology acquisitions.

      The size and growth of our markets are influenced by a number of factors, including:

	•	technological innovation in bioanalytical practice;
	•	government funding for basic and disease-related research (for example, heart disease, AIDS and cancer);
	•	research and development spending by biotechnology and pharmaceutical companies;
	•	healthcare spending; and
	•	physician practice patterns.

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      We expect worldwide healthcare expenditures and diagnostic testing to increase over the long-term, primarily as a result of the following:

	•	growing demand for services generated by the increasing size and aging of the world population;
	•	increasing expenditures on diseases requiring costly or extended treatment (for example, AIDS and cancer); and
	•	expanding demand for improved healthcare services in developing countries.

      In addition to the business climate factors discussed previously, certain economic factors may influence our business:

	•	currency fluctuations — as approximately 43% of our revenues in 2002 were generated outside the United States, and given the recent fluctuations in foreign currencies, we may experience volatility in sales, operating income and other non-operating income and expense;
	•	interest rates — as approximately 46% of our debt at December 31, 2002 is under variable interest rate terms. This percentage includes the effect of our reverse interest rate swap derivatives which change the character of the interest rate on certain of our long-term debt by effectively converting a fixed rate to a variable rate; and
	•	general economic conditions — as the weakened global economy has pressured our customers, vendors and partners, the carrying value of various assets could be negatively impacted in future periods. This would include, but is not limited to, the various pension plan and post-employment benefit assets and liabilities. Assumptions are used in determining the annual expense of these costs. Items such as the market value of plan assets, discount rates and other assumptions are based on current economic conditions. Certain other assumptions are based upon a longer term economic view. We review and discuss these assumptions annually as to their reasonableness with our independent actuary and investment consultants. We believe that the assumptions we have used are reasonable. However, these assumptions are subject to change with future economic conditions and as such our annual benefits expense may vary.

4.     Income Taxes

      We are subject to income taxation in many jurisdictions throughout the world. Our effective tax rate and income tax liabilities will be affected by a number of factors, such as:

	•	the amount of taxable income in particular jurisdictions;
	•	the tax rates in particular jurisdictions;
	•	tax treaties between jurisdictions;
	•	the extent to which income is repatriated; and
	•	future changes in the law.

      Generally, our income tax liability in a particular jurisdiction is determined either on an entity-by-entity (non-consolidated) basis or on a consolidated basis including only those entities incorporated in the same jurisdiction. In those jurisdictions where consolidated tax reporting is not permitted, we may pay income taxes even though, on an overall basis, we may have incurred a net loss for the tax year.

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5.     Forward-Looking Statements

      This annual report contains forward-looking statements, including statements regarding, among other items:

	•	the schedule for completion of our ERP program;
	•	anticipated benefits from consolidation of our Life Science Research and Specialty Testing Divisions into a single, Biomedical Research Division;
	•	anticipated debt reduction, cash flow available to be applied to debt reduction and the availability of additional financing;
	•	our business strategy and anticipated developments in our markets;
	•	our liquidity requirements and capital resources, adequacy of our reserves and the effects of litigation;
	•	anticipated proceeds from sales of assets;
	•	the effects of inflation and other economic conditions on our operations; and
	•	earnings and sales growth.

      These forward-looking statements are based on our expectations and are subject to a number of risks and uncertainties, some of which are beyond our control. These risks and uncertainties include, but are not limited to:

	•	unanticipated delays in completing our ERP program;
	•	complexity and uncertainty regarding development of new high-technology products;
	•	loss of market share through aggressive competition in the clinical diagnostic, life science research and specialty testing markets;
	•	our dependence on capital spending policies and government funding;
	•	the effects of potential healthcare reforms;
	•	changes in estimates associated with the adoption of SFAS 142;
	•	fluctuations in foreign exchange rates and interest rates;
	•	reliance on patents and other intellectual property;
	•	global economic and political conditions;
	•	unanticipated reductions in cash flows and difficulty in sales of assets;
	•	future effective tax rates; and
	•	other factors that cannot be identified at this time.

      Although we believe we have the product offerings and resources required to achieve our objectives, actual results could differ materially from those anticipated by these forward-looking statements. There can be no assurance that events anticipated by these forward-looking statements will in fact transpire as expected.

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      The Securities and Exchange Commission requires that registrants include information about potential effects of changes in currency exchange and interest rates in their Form 10-K filings. Several alternatives, all with some limitations, have been offered. The following discussion is based on a sensitivity analysis, which models the effects of fluctuations in currency exchange rates and interest rates. This analysis is constrained by several factors, including the following:

	•	it is based on a single point in time; and
	•	it does not include the effects of other complex market reactions that would arise from the changes modeled.

      Although the results of the analysis may be useful as a benchmark, they should not be viewed as forecasts.

      Our most significant foreign currency exposures relate to the Euro, Japanese Yen, British Pound Sterling, Canadian Dollar, Mexican Peso and the Australian Dollar. As of December 31, 2002 and 2001, the net fair value of all derivative foreign exchange contracts was a net (liability) asset of $(11.4) million and 11.6 million, respectively. We estimated the sensitivity of the fair value of all derivative foreign exchange contracts to a hypothetical 10% strengthening and 10% weakening of the spot exchange rates for the U.S. dollar against the foreign currencies at December 31, 2002. The analysis showed that a 10% strengthening of the U.S. dollar would result in a gain from a fair value change of $22.3 million and a 10% weakening of the U.S. dollar would result in a loss from a fair value change of $25.0 million in these instruments. Losses and gains on the underlying transactions being hedged would largely offset any gains and losses on the fair value of derivative contracts. These offsetting gains and losses are not reflected in the above analysis. Significant foreign currency exposures at December 31, 2002 were not significantly different than those at December 31, 2001.

      Similarly, we performed a sensitivity analysis on our variable rate debt instruments and derivatives. A one percentage point increase or decrease in interest rates was estimated to decrease or increase next year’s pre-tax earnings by $3.4 million based on the amount of variable rate debt outstanding at December 31, 2002. A comparable analysis at December 31, 2001 indicated that a one percentage point increase or decrease in interest rates was estimated to decrease or increase 2002 pretax earnings by $2.5 million based on the amount of variable rate debt outstanding at December 31, 2001. The increase in the sensitivity analysis of $0.9 million between 2002 and 2001 is due to the increases in our debt under variable interest rate terms (including the effect of our reverse interest rate swap derivatives which change the character of the interest rate on our long-term debt by effectively converting a fixed rate to a variable rate).

      Additional information with respect to our foreign currency and interest rate exposures are discussed in Note 8 “Derivatives” of the Consolidated Financial Statements.

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REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors of Beckman Coulter, Inc.:

      We have audited the accompanying consolidated balance sheets of Beckman Coulter, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Beckman Coulter, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

	/s/ KPMG LLP
	KPMG LLP

Orange County, California

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CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS