UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2003

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

For the transition period from to

Commission File Number 001-10109

BECKMAN COULTER, INC.

(Exact name of registrant as specified in its charter)

Delaware		95-104-0600
(State of Incorporation)		(I.R.S. Employer Identification No.)

4300 N. Harbor Boulevard, Fullerton, California		92834-3100
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (714) 871-4848

Indicate by check 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 ý No o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o.

The number of outstanding shares of the registrant’s common stock as of October 24, 2003 was 61,665,008 shares.

PART I

FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002

	Notes to Condensed Consolidated Financial Statements

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures

PART II

OTHER INFORMATION

Item 1.	Legal Proceedings

Item 2.	Changes In Securities

Item 3.	Defaults Upon Senior Securities

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

Item 5.	Other Information

Item 6.	Exhibits and Reports on Form 8-K

BECKMAN COULTER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except amounts per share)

	September 30, 2003			December 31, 2002
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	64.8		$	91.4
Trade and other receivables, net	523.0			544.4
Inventories	403.6			363.7
Other current assets	77.8			56.7
Total current assets	1,069.2			1,056.2

Property, plant and equipment, net	387.8			370.8
Goodwill	365.6			357.8
Other intangibles, net	343.0			346.2
Other assets	134.8			132.6
Total assets	$	2,300.4		$	2,263.6

Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable and current maturities of long-term debt	$	34.5		$	140.2
Accounts payable, accrued expenses and other liabilities	434.8			400.4
Income taxes payable	83.9			71.0
Total current liabilities	553.2			611.6

Long-term debt, less current maturities	629.0			626.6
Other liabilities	379.7			433.3
Total liabilities	1,561.9			1,671.5

Commitments and contingencies (Note 10)

Stockholders’ equity:
Preferred stock, $0.10 par value; authorized 10.0 shares; none issued	—			—
Common stock, $0.10 par value; authorized 150.0 shares; shares issued 64.1 and 62.6 at September 30, 2003 and December 31, 2002, respectively; shares outstanding 61.5 and 61.0 at September 30, 2003 and December 31, 2002, respectively	6.2			6.1
Additional paid-in capital	302.5			259.4
Treasury stock, at cost: 2.3 and 1.3 common shares at September 30, 2003 and December 31, 2002, respectively	(76.2		)	(38.3		)
Common stock held in grantor trust, at cost: 0.3 common shares at September 30, 2003 and December 31, 2002	(13.9		)	(14.1		)
Grantor trust liability	13.9			14.1
Retained earnings	576.3			457.4
Unearned compensation	(3.4		)	—
Accumulated other comprehensive income (loss):
Cumulative foreign currency translation adjustment	(0.8		)	(36.4		)
Derivatives qualifying as hedges	(17.0		)	(7.0		)
Minimum pension adjustment	(49.1		)	(49.1		)
Total stockholders’ equity	738.5			592.1
Total liabilities and stockholders’ equity	$	2,300.4		$	2,263.6

See accompanying notes to condensed consolidated financial statements.

BECKMAN COULTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in millions, except amounts per share and share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002

Sales	$	534.8		$	501.1		$	1,553.9		$	1,463.9
Cost of sales	272.0			276.5			810.6			798.4
Gross profit	262.8			224.6			743.3			665.5

Operating costs and expenses:
Selling, general and administrative	141.6			122.0			395.8			356.4
Research and development	47.4			47.8			141.4			137.5
Restructure charge	—			—			18.5			—
Litigation settlement and related expenses	—			—			(26.9		)	—
Total operating costs and expenses	189.0			169.8			528.8			493.9

Operating income	73.8			54.8			214.5			171.6

Non-operating (income) and expenses:
Interest income	(3.1		)	(1.7		)	(7.4		)	(5.9		)
Interest expense	10.6			11.3			31.6			34.2
Other, net	11.5			5.3			16.3			3.6
Total non-operating expenses	19.0			14.9			40.5			31.9

Earnings before income taxes	54.8			39.9			174.0			139.7
Income taxes	14.8			7.8			37.2			37.7
Net earnings	$	40.0		$	32.1		$	136.8		$	102.0

Basic earnings per share	$	0.65		$	0.52		$	2.24		$	1.65

Diluted earnings per share	$	0.62		$	0.49		$	2.14		$	1.56

Weighted average number of shares outstanding (in thousands):
Basic	61,218			62,149			60,992			61,805
Diluted	64,822			65,269			64,054			65,524

Dividends declared per share	$	0.11		$	0.09		$	0.29		$	0.26

See accompanying notes to condensed consolidated financial statements.

BECKMAN COULTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

	Nine Months Ended September 30,
	2003			2002

Net cash provided by operating activities	$	197.5		$	185.8

Cash Flows from Investing Activities:
Additions to property, plant and equipment	(95.4		)	(103.9		)
Proceeds from sale of property, plant and equipment	—			2.4
Payments for acquisitions	(8.0		)	(1.8		)
Net cash used in investing activities	(103.4		)	(103.3		)

Cash Flows from Financing Activities:
Dividends to stockholders	(17.9		)	(16.3		)
Proceeds from issuance of stock	35.9			26.3
Proceeds from stock purchase plan	2.4			2.6
Repurchase of common stock for treasury	(41.9		)	—
Proceeds from (repurchase of) common stock held in grantor trust	0.2			(14.0		)
Notes payable borrowings, net	24.8			6.1
Long-term debt reductions	(130.4		)	(59.7		)
Net cash used in financing activities	(126.9		)	(55.0		)

Effect of exchange rates on cash and cash equivalents	6.2			3.5

(Decrease) increase in cash and cash equivalents	(26.6		)	31.0
Cash and cash equivalents - beginning of period	91.4			36.0
Cash and cash equivalents - end of period	$	64.8		$	67.0

See accompanying notes to condensed consolidated financial statements.

BECKMAN COULTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

(Unaudited)

1. Report by Management

Beckman Coulter, Inc. and its wholly-owned subsidiaries (the “Company”) prepared the accompanying Condensed Consolidated Financial Statements following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes or other financial information normally required by accounting principles generally accepted in the United States have been condensed or omitted.

The financial statements include all normal and recurring adjustments that the Company considers necessary for the fair presentation of its financial position and operating results. To obtain a more detailed understanding of the Company’s results, these Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes in the Company’s annual report on Form 10-K for the year ended December 31, 2002.

Revenues, expenses, assets and liabilities can vary between the quarters of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.

Certain prior year amounts have been reclassified to conform to the current year presentation.

2. Recent Accounting Developments

Revenue Recognition and Multiple Deliverables

Effective July 1, 2003, the Company prospectively adopted the provisions of Emerging Issues Task Force (“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. Under EITF 00-21, revenue is allocated to all deliverables based on the relative fair values of the individual components regardless of whether an individual element is incidental or perfunctory. This is consistent with the Company’s historical treatment, except for certain of the Company’s sales arrangements include undelivered elements that the Company had historically considered incidental and perfunctory, primarily installation and training. Consequently, the Company had not previously deferred the revenue related to these elements, and had instead recorded an accrual for the estimated cost of providing them. However, upon adoption of EITF 00-21, the Company is now allocating revenue to all components of its multiple-element arrangements, including installation and training. The impact of deferring revenues for undelivered installation and training on multi-element contracts entered into during the quarter ended September 30, 2003 resulted in a $4.0 million reduction of reported revenues. The estimated cost that would have been accrued to cost of sales for such undelivered elements in these specific contracts prior to the adoption of EITF 00-21 was approximately $3.0 million. Therefore, the impact of adopting EITF 00-21 related to installation and training was a reduction to earnings before income taxes of approximately $1.0 million ($0.7 million after taxes) for the quarter ended September 30, 2003.

Though management does not have access to all of the data that would be necessary to estimate the pro forma impact of adopting EITF 00-21 on all prior periods presented, based upon the data available, management believes the impacts of adopting EITF 00-21 in prior periods would not have been material. Accordingly, no pro forma presentation of the impact of adoption on prior periods has been presented.

Derivative Instruments and Hedging

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

Exit or Disposal Activities

SFAS No. 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 were effective for exit or disposal activities that are initiated after December 31, 2002. The Company’s adoption of SFAS No. 146 in the first quarter of 2003 did not have a material impact on its financial position or results of operations.

Stock-based Compensation

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of SFAS No. 123.” This amendment provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirement of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. Since the Company is continuing to account for stock-based compensation according to Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees” the adoption of SFAS No. 148 in the first quarter of 2003 required the Company to provide prominent disclosures about the effects of SFAS No. 123 on reported net income and required it to disclose these effects in the interim financial statements (see Note 12).

3. Restructure

In January 2003, the Company announced a strategic reorganization of its business to combine its Life Science Research and Specialty Testing divisions into a single Biomedical Research Division. The objective of the restructure was to enable the Company to better leverage its technologies and products across the entire life sciences and clinical research customer base. The reorganization plan also included a refocus of the Company’s international operations to improve profitability. The reorganization resulted in a 3% reduction in the Company’s workforce and a pre-tax charge of $18.5 million primarily related to employee termination costs. The charge taken against first quarter 2003 earnings represents the total amount expected to be incurred under the plan except for the potential impact of currency fluctuations relative to projected currency rates. The reorganization plan was substantially completed in the second quarter of 2003. However, certain employee termination costs from the restructure will be paid through the second quarter of 2004.

The following is a reconciliation of the restructure activity and accrual included in accounts payable, accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet as of September 30, 2003 (in millions):

	Initial Accrual		Cash Payments			Balance

Employee termination	17.5		(10.9		)	6.6
Other	1.0		(0.6		)	0.4

Total	$	18.5	$	(11.5	)	$	7.0

4. Derivatives

The Company uses derivative financial instruments to hedge foreign currency and interest rate exposures. The Company’s objectives for holding derivatives are to minimize currency and interest rate risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does not speculate in derivative instruments in order to profit from foreign currency exchange or interest rate fluctuations; nor does the Company enter into trades for which there are no planned underlying exposures. The following paragraphs discuss in more detail the Company’s foreign currency and interest rate exposures and related derivative instruments.

Foreign Currency

The Company manufactures its products principally in the United States, but generated approximately 43% of its revenues in 2002 from sales made outside the United States by its international subsidiaries. Sales generated by the international subsidiaries generally are denominated in the subsidiary’s local currency, thereby exposing the Company to the risk of foreign currency fluctuations. In order to mitigate the impact of changes in foreign currency exchange rates, the Company uses derivative financial instruments (or “foreign currency contracts”) to hedge the foreign currency exposure resulting from intercompany sales to the Company’s international subsidiaries through their anticipated cash settlement date. These foreign currency contracts include forward and option contracts and are designated as cash flow hedges.

The Company uses foreign currency swap contracts to hedge loans between subsidiaries. These foreign currency swap contracts are designated as fair value hedges.

Hedge ineffectiveness associated with the Company’s cash flow and fair value hedges was immaterial for the three and nine months ended September 30, 2003 and 2002. No fair value or cash flow hedges were discontinued for the three and nine months ended September 30, 2003 and 2002.

Derivative gains and losses included in accumulated other comprehensive income are reclassified into other non-operating (income)and expenses upon the recognition of the hedged transaction. The Company estimates that substantially all of the unrealized loss included in accumulated other comprehensive income (loss) of $28.2 million ($16.9 million after taxes) at September 30, 2003 will be reclassified to other non-operating (income) and expenses within the next twelve months. The actual amounts that will be reclassified to earnings over the next twelve months will vary from this amount as a result of changes in market rates. The Company has cash flow hedges at September 30, 2003 which settle as late as December 2004.

Interest Rate

The Company uses interest rate derivative contracts on certain borrowing transactions to hedge fluctuating interest rates. Interest differentials paid or received under these contracts are recognized as adjustments to the effective yield of the underlying financial instruments hedged.

Pursuant to the Company’s reverse interest rate swap agreements associated with the Senior Notes due 2011, the Company receives an average fixed interest rate of 5.7%, and pays a floating interest rate based on the LIBOR (1.2% at September 30, 2003). These reverse interest rate swaps are designated as fair value hedges and are deemed perfectly effective. At September 30, 2003, the fair value of the reverse interest rate swaps

associated with the Senior Notes due 2011 was $27.5 million and is included in other long-term assets. An offsetting $27.5 million credit is included in long-term debt as a fair value adjustment.

5. Comprehensive Income

The Company’s components of comprehensive income include net earnings, foreign currency translation adjustments and derivatives qualifying as hedges, as follows (in millions):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003			2002		2003			2002

Net earnings	$	40.0		$	32.1	$	136.8		$	102.0
Foreign currency translation adjustment	(31.9		)	12.1		35.6			19.4
Derivatives qualifying as hedges:
Net derivative gains (losses), net of income taxes of $(4.7) and $(2.1) for the three and nine months ended September 30, 2003, respectively, and zero for 2002.	7.2			6.8		3.3			(14.4		)
Reclassifications to non-operating income, net of income taxes of $4.2 and $8.8 for the three and nine months ended September 30, 2003, respectively, and zero for 2002.	(6.4		)	1.8		(13.3		)	(0.9		)
	0.8			8.6		(10.0		)	(15.3		)
Comprehensive income	$	8.9		$	52.8	$	162.4		$	106.1

6. Earnings Per Share

The following is a reconciliation of the numerators and denominators used in computing basic and diluted earnings per share (“EPS”) (in millions, except amounts per share):

	Three Months Ended September 30,
	2003						2002
	Net Earnings		Shares	Per Share Amount			Net Earnings		Shares	Per Share Amount
Basic EPS:
Net earnings	$	40.0	61.218	$	0.65		$	32.1	62.149	$	0.52
Effect of dilutive stock options	—		3.604	(0.03		)	—		3.120	(0.03		)
Diluted EPS:
Net earnings	$	40.0	64.822	$	0.62		$	32.1	65.269	$	0.49

	Nine Months Ended September 30,
	2003						2002
	Net Earnings		Shares	Per Share Amount			Net Earnings		Shares	Per Share Amount
Basic EPS:
Net earnings	$	136.8	60.992	$	2.24		$	102.0	61.805	$	1.65
Effect of dilutive stock options	—		3.062	(0.10		)	—		3.719	(0.09		)
Diluted EPS:
Net earnings	$	136.8	64.054	$	2.14		$	102.0	65.524	$	1.56

For the three and nine months ended September 30, 2003, there were 0.1 million and 2.6 million shares, respectively, relating to the possible exercise of outstanding stock options excluded from the computation of diluted EPS as their effect would have been anti-dilutive. For the three and nine months ended September 30, 2002, there were 1.4 million and 0.1 million shares, respectively, relating to the possible exercise of

outstanding stock options that were not included in the computation of diluted EPS.

7. Sale of Assets

During the nine months ended September 30, 2003, the Company sold certain receivables (“Receivables”) as part of its plan to reduce debt. The net book value of financial assets sold was $90.7 million for which the Company received approximately $93.6 million in cash proceeds. During the nine months ended September 30, 2002, the Company sold similar assets with a net book value of $102.3 million for cash proceeds of $105.0 million. These transactions were accounted for as sales and as a result the related receivables have been excluded from the accompanying Condensed Consolidated Balance Sheets. The agreements underlying the Receivable sales (“Agreements”) contain provisions that indicate the Company is responsible for up to 15% of end-user customer payment defaults on sold Receivables. Accordingly, the Company accrues a reserve for the probable and reasonably estimable portion of these liabilities. Additionally, the Company typically services the sold Receivables whereby it continues collecting payments from the end user customer on the behalf of the purchaser of the Receivables. The Company estimates the fair value of this service arrangement as a percentage of the sold Receivables and amortizes this amount to income over the remaining life of the service period. At September 30, 2003 and December 31, 2002, there was $1.1 million and $1.2 million, respectively of deferred service fees included in accrued liabilities on the Condensed Consolidated Balance Sheets. For the three months ended September 30, 2003 and 2002, there was $0.1 million of deferred service fees amortized to income. For the nine months ended September 30, 2003 and 2002, there was $0.2 million of deferred service fees amortized to income.

8. Composition of Certain Financial Statement Items

Inventories consisted of the following (in millions):

	September 30, 2003		December 31, 2002

Finished products	$	279.1	$	250.0
Raw materials, parts and assemblies	103.2		94.6
Work in process	21.3		19.1
	$	403.6	$	363.7

Changes in the product warranty obligation for the nine months ended September 30, 2003 are as follows (in millions):

Balance as of December 31, 2002	$	12.9
New warranties	51.5
Payments and adjustments	(50.9		)
Balance as of September 30, 2003	$	13.5

9. Goodwill and Other Intangible Assets

The Company accounts for goodwill and other intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 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 changes in circumstances indicate that the assets might be impaired by comparing the carrying value to the fair value of the reporting unit to which they are assigned. The Company considers its SFAS No. 131 operating segments - Clinical Diagnostics, Life Science Research and Specialty Testing in 2002 and Clinical Diagnostics and Biomedical Research in 2003 - to be its reporting units for purposes of testing for impairment as the components within each operating segments have similar economic characteristics and thus do not represent separate reporting units.

For goodwill, a two-step test is used to identify the potential impairment and to measure the amount of goodwill 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.

To determine the fair value of the Company’s reporting units as of January 1, 2003, the Company used a comparable industry revenue multiple approach for each of the two reportable units. Under this approach, the Company determined the average number of years’ sales for certain companies in its reporting unit’s industry that are required to equal that company’s Enterprise Value, as defined (“comparable industry revenue multiple”). The Company then took the product of the revenues for each reporting unit and the comparable industry revenue multiple, which represented that reporting unit’s fair value. In all cases, the fair value of the reporting unit was in excess of the reporting unit’s book value, which resulted in no goodwill impairment (and thus step two of the goodwill impairment test was not required to be performed).

The following presents activity for goodwill (in millions):

	Clinical Diagnostics		Biomedical Research		Total

Goodwill, December 31, 2002	$	316.3	$	41.5	$	357.8
Minority interest acquisition	2.8		—		2.8
Settlements of pre-acquisition tax contingencies	4.2		—		4.2
Currency translation adjustment	—		0.8		0.8
Goodwill, September 30, 2003	$	323.3	$	42.3	$	365.6

The following provides information about the Company’s intangible assets (in millions):

	September 30, 2003							December 31, 2002
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net

Amortized intangible assets:
Technology	$	56.2	$	(18.4	)	$	37.8	$	56.2	$	(16.1	)	$	40.1
Customer contracts	167.1		(38.8		)	128.3		167.1		(33.7		)	133.4
Other	46.0		(14.2		)	31.8		45.5		(12.9		)	32.6
	269.3		(71.4		)	197.9		268.8		(62.7		)	206.1
Unamortized intangible assets:
Tradename	73.5		—			73.5		73.5		—			73.5
Core technology	71.6		—			71.6		66.6		—			66.6
	$	414.4	$	(71.4	)	$	343.0	$	408.9	$	(62.7	)	$	346.2

Core technology at September 30, 2003 includes a preliminary purchase price allocation of approximately $5.0 million related to a business acquisition during the second quarter of 2003. The Company will evaluate the net assets acquired and will finalize the purchase price allocation within the next quarter at which time amounts may be allocated to tangible or other intangible assets, goodwill and/or in-process research and development.

Recorded intangible asset amortization expense for the three months ended September 30, 2003 and 2002 was $3.0 million and $2.9 million, respectively. For the nine months ended September 30, 2003 and 2002 recorded intangible amortization expense was $9.4 million and $8.7 million, respectively. Estimated intangible asset amortization expense (based on existing intangible assets) for the years ended December 31, 2003, 2004, 2005, 2006 and 2007 is $12.4 million, $12.1 million, $12.0 million, $11.6 million and $11.2 million, respectively.

10. Commitments and Contingencies

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 cannot 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 September 2003, an Orange County, California Superior Court jury awarded the Company approximately $934 million in compensatory and punitive damages as the result of a lawsuit filed against Flextronics International, Ltd. and its U.S. subsidiary Flextronics USA, Inc., formerly known as Dovatron. The lawsuit was filed in the second quarter of 2001 seeking damages for breach of contract and other claims. Since the amount of damages which the Company may ultimately receive cannot be quantified until the legal review process is complete, no gain has been recorded in the financial statements for this award.

In March 2003, the Company settled a dispute associated with an escrow account created as part of the 1997 acquisition of Coulter Corporation to cover pre-acquisition liabilities. As a result of the settlement, the Company recorded a $28.9 million non-taxable credit to operating income. The Company also recorded a tax deductible charge of approximately $2.0 million for legal fees related to its escrow claim and settlement. The credit settles all of Beckman Coulter’s claims against the escrow account, including the patent litigation settlement charge taken in the fourth quarter of 2002.

11. Business Segment Information

The Company is engaged primarily in the design, manufacture and sale of laboratory instrument systems and related products. In 2002 the Company’s organization had three reportable segments: (1) Clinical Diagnostics, (2) Life Science Research and (3) Specialty Testing. In the first quarter of 2003, the Company consolidated the Life Science Research and Specialty Testing segments under a new Biomedical Research segment. The Clinical Diagnostics segment encompasses diagnostic applications, principally in

hospital laboratories. The Biomedical Research segment includes life sciences and drug discovery applications in universities, medical schools, medical centers, reference laboratories and pharmaceutical and biotechnology companies. It also focuses on customers in medical centers, reference laboratories and pharmaceutical research organizations who perform clinical trials, conduct disease related research and perform esoteric testing. All corporate and centralized activities, including financing transactions, are captured in a central shared services “Center”, which is reflected in the tables below. The Company evaluates performance based on profit or loss from operations. Reportable segments are managed separately, since each business requires different technologies or products.

	Three Months Ended September 30,						Nine Months Ended September 30,
	(unaudited)						(unaudited)
(in millions)	2003			2002			2003			2002
Net sales:
Clinical Diagnostics	$	381.1		$	349.1		$	1,103.1		$	1,019.1
Biomedical Research	153.7			152.0			450.8			444.8
Center	—			—			—			—
Consolidated	$	534.8		$	501.1		$	1,553.9		$	1,463.9

Operating income:
Clinical Diagnostics	$	82.5		$	65.7		$	221.6		$	194.1
Biomedical Research	22.3			15.5			61.3			46.6
Center	(31.0		)	(26.4		)	(68.4		)	(69.1		)
Consolidated	$	73.8		$	54.8		$	214.5		$	171.6

Interest income:
Clinical Diagnostics	$	(1.5	)	$	(1.4	)	$	(4.7	)	$	(5.0	)
Biomedical Research	—			—			—			—
Center	(1.6		)	(0.3		)	(2.7		)	(0.9		)
Consolidated	$	(3.1	)	$	(1.7	)	$	(7.4	)	$	(5.9	)

Interest expense:
Clinical Diagnostics	$	—		$	—		$	—		$	—
Biomedical Research	—			—			—			—
Center	10.6			11.3			31.6			34.2
Consolidated	$	10.6		$	11.3		$	31.6		$	34.2

Sales to external customers:
Americas United States	$	307.7		$	292.2		$	889.6		$	854.1
Canada and Latin America	29.9			28.3			86.6			93.2
	337.6			320.5			976.2			947.3

Europe	131.0			122.5			394.9			352.0
Asia	66.2			58.1			182.8			164.6
Consolidated	$	534.8		$	501.1		$	1,553.9		$	1,463.9

	September 30, 2003		December 31, 2002
	(unaudited)

Long-lived assets:
Americas United States	$	1,047.7	$	1,035.2
Canada and Latin America	28.1		32.1
	1,075.8		1,067.3

Europe	128.7		118.0
Asia	26.7		22.1
Consolidated	$	1,231.2	$	1,207.4

Total assets:
Clinical Diagnostics	$	1,468.3	$	1,488.8
Biomedical Research	507.7		497.6
Center	324.4		277.2
Consolidated	$	2,300.4	$	2,263.6

12. Stockholders’ Equity

Tax Benefit on Stock Options Exercised

During the three and nine months ended September 30, 2003, the Company recorded a $5.4 million and $7.4 million, respectively, increase to additional paid-in capital with an offsetting decrease to income taxes payable as a result of the tax benefit received from employees exercising non-qualified stock options.

Stock Options

The Company follows the guidance of APB No. 25, whereby compensation related to stock options is the difference between the grant price and the fair market value of the underlying common shares at the grant date. Generally, the Company issues options to employees with a grant price equal to the market value of its common stock on the grant date. Accordingly, the Company has recognized no compensation expense on its stock option plans. The following represents pro forma information as if the Company recorded compensation cost using the fair value of the issued compensation instrument under SFAS No. 123, “Accounting for Stock Based Compensation” (in millions, except amounts per share):

	Three months ended September 30,						Nine months ended September 30,
	2003			2002			2003			2002
Net earnings as reported	$	40.0		$	32.1		$	136.8		$	102.0
Assumed stock compensation cost, net of tax	(2.9		)	(2.9		)	(8.9		)	(8.2		)
Pro forma net earnings	$	37.1		$	29.2		$	127.9		$	93.8

Earnings per share:
Basic-as reported	$	0.65		$	0.52		$	2.24		$	1.65
Basic-pro forma	$	0.61		$	0.47		$	2.10		$	1.52
Diluted-as reported	$	0.62		$	0.49		$	2.14		$	1.56
Diluted-pro forma	$	0.57		$	0.45		$	2.00		$	1.43

Unearned Compensation on Restricted Stock

During the nine months ended September 30, 2003, the Company issued 133,866 shares of restricted stock which vest based on the passage of time (3 to 5 years). The Company has accounted for the issuance of the restricted stock by crediting the fair value of the restricted shares on the date of grant of $4.0 million to treasury stock. An offsetting amount was recorded to unearned compensation, and is included in stockholders’ equity. Unearned compensation is being amortized to income over the respective 3 to 5 year vesting periods and amounted to $0.3 million and $0.6 million in the three and nine months ended September 30, 2003, respectively.

13. Income Taxes

Income taxes as a percentage of earnings before income taxes (“effective tax rate”) were 27.0% and 19.5% for the three months ended September 30, 2003 and 2002, respectively. The lower effective tax rate in the third quarter of 2002 was primarily due to the impact of a cumulative tax credit resulting from a reduction in the 2002 expected annual effective tax rate on income from continuing operations of three percentage points due to a number of factors, including the utilization of various tax deductions related to export sales and R&D tax credits. The effective tax rate was 21.4% and 27% for the nine months ended September 30, 2003 and 2002, respectively. The decrease in the effective tax rate for the nine months ended September 30, 2003 was due to the impact of certain unusual separately reported items in the first quarter of 2003, including the non-taxable credit to earnings related to the escrow account settlement and the incremental tax rate benefit of the restructure charge.

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

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.

Our product lines include over 90% of 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 grow the core business, leverage the biomedical testing continuum and invest in high potential areas. To this end, we achieved the following significant milestones during the quarter ended September 30, 2003:

• Acquired the technologies and assets of Peoples Genetics, Inc. for comprehensive genetic analysis of large pooled populations of DNA for disease association research.

• Signed a development and supply agreement with Hycor Biomedical Inc. for autoimmune disease tests used on the entire immunoassay family of products including the new UniCel DxIÔ and SYNCHRON LXâi systems.

• Awarded $934 million in compensatory and punitive damages as a result of a lawsuit against Flextronics International, Ltd. The award is pending further judicial review. Since the amount of the award that the Company may ultimately receive cannot be quantified until the legal review process is complete, no gain has been recorded in the financial statements. The Company may incur additional costs defending this award in the future which are not quantifiable at this time.

• Signed a three-year renewal agreement with AmeriNet, Inc. to provide a line of immunoassay systems, test kits, supplies and service.

• Paid a quarterly dividend of eleven cents ($0.11) per share on September 4, 2003 to all stockholders of record on August 15, 2003, the company’s 58th consecutive quarterly cash dividend and a 22% increase over prior year quarter.

• Shipped the CEQä 8800 genetic analysis system, doubling the throughput and adding sample tracking capabilities to the product line.

• Launched LH1500 series hematology automation system designed to boost lab productivity, maximize labor efficiency, reduce errors, improve operator safety and lower overall costs.

Results of Operations

Sales were $534.8 million during the quarter ended September 30, 2003, an increase of 6.7% compared to $501.1 million during the same period in the prior year. On a constant currency basis*, sales increased 3.4% in the third quarter of 2003. Sales were $1,553.9 million during the nine months ended September 30, 2003, an increase of 6.1% compared to $1,463.9 million in the same period in the prior year. Sales on a constant currency basis* increased 2.4% during the nine months ended September 30, 2003. The following provides key product and geographical sales information (dollar amounts in millions):

KEY PRODUCT SALES (unaudited)

	Three months ended September 30,				Reported		Constant Currency
	2003		2002		Growth %		Growth % *

Routine Chemistry	$	150.3	$	143.0	5.1		2.5
Immunodiagnostics	104.5		94.0		11.2		7.3
Total Chemistry	254.8		237.0		7.5		4.4

Hematology	126.3		112.1		12.7		9.6
Total Clinical Diagnostics	381.1		349.1		9.2		6.1

Robotic Auto./Genetic Analysis	35.5		41.2		(13.8	)	(17.0	)
Centrifuge/Analytical Systems	65.4		65.7		(0.5	)	(4.3	)
Specialty Testing	52.8		45.1		17.1		11.8
Total Biomedical Research	153.7		152.0		1.1		(3.0	)

Consolidated	$	534.8	$	501.1	6.7		3.4

	Nine months ended September 30,				Reported		Constant Currency
	2003		2002		Growth %		Growth % *

Routine Chemistry	$	445.9	$	414.3	7.6		4.8
Immunodiagnostics	303.6		273.0		11.2		7.1
Total Chemistry	749.5		687.3		9.0		5.7

Hematology	353.6		331.8		6.6		3.2
Total Clinical Diagnostics	1,103.1		1,019.1		8.2		4.9

Robotic Auto./Genetic Analysis	105.6		115.0		(8.2	)	(12.5	)
Centrifuge/Analytical Systems	190.6		194.7		(2.1	)	(6.3	)
Specialty Testing	154.6		135.1		14.4		8.2
Total Biomedical Research	450.8		444.8		1.3		(3.5	)

Consolidated	$	1,553.9	$	1,463.9	6.1		2.4

GEOGRAPHICAL SALES (unaudited)

	Three months ended September 30,				Reported	Constant Currency
	2003		2002		Growth %	Growth % *

Americas
United States	$	307.7	$	292.2	5.3	5.3
Canada and Latin America	29.9		28.3		5.7	(1.1	)
	337.6		320.5		5.3	4.7

Europe	131.0		122.5		6.9	(4.2	)
Asia	66.2		58.1		13.9	11.7

Total Beckman Coulter	$	534.8	$	501.1	6.7	3.4

	Nine months ended September 30,				Reported		Constant Currency
	2003		2002		Growth %		Growth % *

Americas
United States	$	889.6	$	854.1	4.2		4.2
Canada and Latin America	86.6		93.2		(7.1	)	(10.2	)
	976.2		947.3		3.1		2.7

Europe	394.9		352.0		12.2		(0.7	)
Asia	182.8		164.6		11.1		6.7

Total Beckman Coulter	$	1,553.9	$	1,463.9	6.1		2.4

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

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

Prior year reported sales

We define constant currency sales as current period 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 period. Constant currency sales and constant currency growth as defined or presented by the Company 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 U.S. GAAP basis.

Sales during the three and nine months ended September 30, 2003 were affected by the following:

• In the Clinical Diagnostics Division, immunodiagnostics sales grew in double digits, bolstered by placements of the new SYNCHRON LXâi combination routine chemistry and immunoassay system and UniCel DxIä immunoassay system,

• Hematology product sales were up 12.7% and 6.6% for the quarter and year to date, respectively, due to a renewed contract with a large commercial laboratory network in the U.S. and growth in product placements in Asia,

• In the Biomedical Research Division, the specialty testing product area continues to grow, up more than 17.1% and 14.4% for the quarter and year to date, respectively. These increases were led by sales of Cytomics FC 500 Series flow cytometers,

• A strengthening of foreign currencies versus the US dollar, which is reflected in the percentages noted above,

• Continued softness in the pharmaceutical and biotechnology capital equipment markets which negatively impacted the Biomedical Research Division,

• A decline in sales in Europe, excluding the benefits of currency, that was due primarily to the timing and mix of instrument sales and the discontinuation of a product line in the current year and

• The negative $4.0 million impact of the prospective adoption of EITF 00-21 in the third quarter of 2003. See Note 2 to the Condensed Consolidated Financial Statements for more information.

Gross profit as a percent of sales (“gross margin”) was 49.1% and 44.8% for the three months ended September 30, 2003 and 2002, respectively, a 4.3 percentage point increase. The increase in reported gross margin was primarily due to the following:

• Favorable mix positively impacted the gross margin rate by 1.4 percentage points,

• Non-recurring items favorably impacted gross margin by 1.0 percentage points, including the impact of a charge in the third quarter of 2002 attributable to certain inventory adjustments during a system conversion and the impact of adopting EITF 00-21 prospectively in the third quarter of 2003,

• Foreign currency exchange rates favorably impacted the gross margin rate by 0.8 percentage points and

• Improved efficiencies in manufacturing and service organizations impacted the gross margin rate by 0.8 percentage points.

Gross profit as a percent of sales was 47.8% and 45.5% for the nine months ending September 30, 2003 and 2002, respectively, a 2.3 percentage point increase. The increase in reported gross margin was primarily due to the following:

• Foreign currency exchange rates favorably impacted the gross margin rate by 0.9 percentage points,

• Favorable mix positively impacted the gross margin rate by 0.4 percentage points,

• Non-recurring items favorably impacted gross margin by 0.4 percentage points, including the impact of a charge in the third quarter of 2002 attributable to certain inventory adjustments during a system conversion and the impact of adopting EITF 00-21 prospectively in the third quarter of 2003 and

• Improved efficiencies in manufacturing and service organizations impacted the gross margin rate by 0.3 percentage points.

Selling, general and administrative (“SG&A”) expenses increased $19.6 million to $141.6 million or 26.5% of sales in the third quarter of 2003 from $122.0 million or 24.3% of sales in the third quarter of 2002. The dollar increase was primarily due to currency, investments in marketing

activities for new products and increased accruals under certain stock based incentive compensation programs.

SG&A expenses increased $39.4 million to $395.8 million or 25.5% of sales in the nine months ended September 30, 2003 from $356.4 million or 24.3% of sales in the nine months ended September 30, 2002. The dollar increase was primarily due to currency and marketing related expenses associated with new products.

Research and development (“R&D”) expenses decreased $0.4 million to $47.4 million in the third quarter of 2003 from $47.8 million in the third quarter of 2002. R&D increased $3.9 million to $141.4 million for the nine months ended September 30, 2003 from $137.5 million in the nine months ended September 30, 2002. R&D as a percentage of sales was 8.9% and 9.5% for the three months ended September 30, 2003 and 2002, respectively, and was 9.1% and 9.4% for the nine months ended September 30, 2003 and 2002, respectively. The strengthening of certain foreign currencies did not impact R&D, as substantially all R&D efforts are in the U.S., resulting in a decrease in R&D as a percentage of sales.

The restructure charge of $18.5 million recorded in the first quarter of 2003 represents the anticipated total cost associated with a reorganization to form the Biomedical Research Division, a refocus of international operations and a workforce reduction of nearly 300 positions worldwide. Certain employee termination costs from the reduction will be paid through the second quarter of 2004. See Note 3 “Restructure” of the Condensed Consolidated Financial Statements for more information.

The litigation settlement credit recorded in the first quarter of 2003 represents a non-recurring credit of $26.9 million (net of certain related legal costs of $2.0 million) associated with the settlement of an escrow account created as part of the 1997 acquisition of Coulter Corporation to cover pre-acquisition liabilities. The credit settled all of Beckman Coulter’s claims against the escrow account, including the charge taken in the fourth quarter of 2002.

Interest expense decreased $0.7 million to $10.6 million in the third quarter of 2003 from $11.3 million in the third quarter of 2002. Interest expense decreased $2.6 million to $31.6 for the nine months ended September 30, 2003 from $34.2 million for the nine months ended September 30, 2002. The decreases from the prior year periods are primarily due to lower interest rates on the variable rate portion of our borrowings and lower debt balances.

Other non-operating (income)/expense was $11.5 million for the quarter ended September 30, 2003, and primarily consisted of a loss on foreign currency related activities of $11.6 million, partially offset by a gain on sales of certain receivables of $(0.5) million (see Note 7 “Sale of Assets” of the Condensed Consolidated Financial Statements). Other non-operating (income)/expense was $5.3 million for the quarter ended September 30, 2002 and primarily consisted of a gain on the sales of certain receivables of $(1.3) million, a gain of $(1.0) million on the sale of certain intellectual property rights, a write-down of $4.0 million from a reduction in the fair value of a biotechnology equity investment and a loss on foreign currency related activities of $3.0 million.

Other non-operating (income)/expense was $16.3 million for the nine months ended September 30, 2003, and primarily consisted of a loss on foreign currency related activities of $19.4 million and write-downs of an investment in a marketable equity security and an unconsolidated investee of $2.8 million, partially offset by the gain of $(3.6) million on the sale of the assets of Laboratory Automation Operations (“LAO”) and a gain on sales of certain sales-type lease receivables of $(2.9) million (see Note 7 “Sale of Assets” of the Condensed Consolidated Financial Statements). Other non-operating (income)/expense was $3.6 million for the nine months ended September 30, 2002 and primarily consisted of a write-down of $4.0 million from a reduction in the fair value of a biotechnology equity investment and a loss on foreign currency related activities of $2.6 million, offset by a gain on the sale of certain receivables of $(2.7) million and a gain of $(1.0) million on the sale of certain intellectual property rights.

Earnings were $40.0 million for the third quarter of 2003 or $0.62 per diluted share compared to earnings of $32.1 million or $0.49 per diluted share in the third quarter of 2002. Earnings for the nine months ended September 30, 2003 were $136.8 million or $2.14 per diluted share compared to $102.0 million or $1.56 per diluted share for the nine months ended September 30, 2002.

Financial Condition

The debt-to-equity ratio has improved from 56.4% at December 31, 2002 to 47.3% at September 30, 2003. Among other things, our debt level:

• increases our vulnerability to general adverse economic and industry conditions;

• could limit our ability to obtain additional financing on favorable terms; and

• requires the dedication of a portion of our cash flow from operations to interest on indebtedness and the future payments of principal.

Our agreements with our lenders contain a number of covenants, which, among other things, require us to comply with specified financial ratios and covenants. At September 30, 2003, we were in compliance with all such financial ratios and covenants.

Cash provided by operating activities was $197.5 million in the first nine months of 2003 compared to $185.8 million in the first nine months of the prior year, an increase of $11.7 million. The increase was primarily due to a $34.8 million increase in earnings to $136.8 million in 2003 from $102.0 million in 2002, due in part from the credit associated with the litigation settlement in the first quarter of 2003. Also contributing to the increase in cash provided by operating activities were net changes to working capital accounts of $36.0 million for the nine months ended September 30, 2003 as compared to the same period in 2002. Partially offsetting these increases were $62.0 million in contributions to the U.S. qualified pension plan during the first nine months of 2003, as compared to $10.0 million in contributions made during the same period in 2002, and a $6.7 million net decrease attributable to the Company’s deferred tax assets in 2003 as compared to 2002.

Investing activities used cash of $103.4 million in 2003 comparable to the prior year amount of $103.3 million.

Net cash used by financing activities was $126.9 million in 2003 compared to $55.0 million in 2002. The increase in cash used by financing activities was primarily due to long-term debt reductions of $130.4 million in 2003 as compared to $59.7 million in 2002 primarily due to the repayment of $119.2 million in Senior Notes that matured in March 2003. Cash used by financing activities also increased due to the repurchase of stock for $41.9 million in 2003 with no stock repurchases in the first nine months of 2002. We paid $17.9 million and $16.3 million in dividends to our stockholders during the first nine months of 2003 and 2002, respectively. Proceeds received from the issuance of stock were $35.9 million and $26.3 million in the first nine months of 2003 and 2002, respectively.

In addition to the $62.0 million of year to date contributions to the Company’s U.S. pension plan noted above, the Company intends to make an additional contribution of approximately $38.0 million during the quarter ended December 31, 2003.

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 September 30, 2003, we have capitalized $105.3 million of costs associated with this ERP system (which includes $30.9 million of capitalized internal labor costs). Based on our geographic rollout strategy, as of September 30, 2003, we have essentially implemented functionality for Finance, Human Resources and certain purchasing systems for our global operations. 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 credit facility which we entered into in July 2002 (see Note 7 “Debt Financing” of the December 31, 2002 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 March 1998, we issued $160.0 million of 7.10% unsecured Senior Notes due March 2003 (see further discussion in our 2002 annual report). During the first quarter of 2003, we repaid the outstanding $119.2 million Senior Notes through our credit facility.

As of September 30, 2003 and December 31, 2002, there were no amounts outstanding on the $400.0 million credit facility.

In September 2003, we paid a quarterly cash dividend of $0.11 per share of common stock, for a total of $6.8 million.

In October 2003, the Company’s Board of Directors declared a quarterly cash dividend of $0.11 per share. This dividend is payable on November 6, 2003 to stockholders of record on October 16, 2003. This dividend represents the 59^th consecutive quarterly dividend payout.

At September 30, 2003, there have been no material changes in the Company’s significant contractual obligations and commercial commitments as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2002.

Incentive Compensation Plans

In the fourth quarter of 2003, the Company plans to issue options and/or restricted stock to certain officers and employees under the 1998 Incentive Compensation Plan (the “1998 Plan”). We are anticipating that these incentive awards will utilize the majority of the remaining shares available for issuance under the 1998 Plan (approximately 1.4 million shares). Accordingly, in early 2004, the Company intends to request shareholder approval to reserve up to an additional 8.0 million shares for issuance under a new incentive compensation plan. The Company then intends to begin issuing awards under this new plan in late 2004 or early 2005.

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 that would have a material effect on our results of operations or financial position. We believe our most critical accounting policies relate to:

Revenue recognition, including customer leased equipment

For products, revenue is recognized when risk of loss transfers, when persuasive evidence of an arrangement exists, 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 that include multiple deliverables, such as installation, training, after-market supplies or service, we allocate revenue based on the relative fair values of the individual components as determined in accordance with EITF 00-21. See Note 2 “Recent Accounting Developments” of the Condensed Consolidated Financial Statements for a discussion of the adoption impact of EITF 00-21. 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 reserves 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.

Determination of useful lives and assessments of impairment for identifiable intangibles, including goodwill

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.

The Company accounts for goodwill and other intangible assets in accordance with SFAS No. 142 which 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 9 “Goodwill and Other Intangible Assets” of the Condensed Consolidated Financial Statements for further discussion.

Environmental obligations

We establish provisions for exposure related to environmental 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 that we consider to be normal for our type of business operations. As a global company active in a wide range of life sciences 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 No. 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 No. 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 tax expenses 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 No. 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 funds invested or to be invested to provide for the benefits included in the projected benefit obligation. We view this assumption as a long-term return assumption. This assumption is reviewed at least annually in conjunction with the review of our pension plan investment advisors and actuaries. We also review the plan’s historical cumulative returns. The rate of return is dependent upon an investment strategy and the asset allocation of plan assets. We then review the selected prospective return rate against benchmark information that we gather on other pension plans adjusting for relative size, investment strategies and funding levels. Since this is a long-term return assumption, it is likely to change when there are long protracted trends in equity, bond and real estate markets. While our plan’s historical return performance is no absolute predictor of future performance, it is indicative of what our plan’s rate of return could be in the future. We believe this historical performance is a fair approximation of what our pension plan’s rate of return can achieve over a variety of market conditions. Over the long run, given our U.S. pension plan’s current funded condition, a 0.25% decrease in the annual rate of return assumption would generate approximately $1.0 million in additional annual pension expense. This additional expense would be allocated to all operating line items based upon the relative salaries included in each line. Similarly, a 0.25% increase in the rate of return assumption would decrease our annual pension expense by approximately $1.0 million with similar effects to the statement of operations. Until 2002, there had been no changes to this assumption in the previous three years because our historical cumulative U.S. pension plan rate of return had exceeded our 9.75% return rate assumption through 2001. However, in 2002, we lowered our prospective return rate assumption to 9.00% from 9.75%. This action was taken after our annual review of our 1) cumulative pension plan returns and 2) consultation and discussions with our pension plan investment and actuary advisors. We believe our new rate of return assumption is reasonable based on our long term investment strategy and allocation of our plan assets, which at December 31, 2002 had an allocation as follows: 74% equities, 18% corporate bonds and 8% real estate. We will consider reducing or increasing the rate of return in the future if sustained U.S. pension plan returns change significantly and if the market and peer pension plan information indicate a different rate is more indicative of expected long-term returns. Pension benefits for domestic employees are based on age, years of service and compensation rate. Assets of the plan consist principally of corporate stocks and bonds, real estate and government fixed income securities. Non-U.S. subsidiaries have separate pension plan arrangements, which include both funded and unfunded plans. Unfunded non-U.S. plans are accrued for, but generally not fully funded, and benefits are paid from operating funds.

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.

Business Climate

The clinical diagnostics and biomedical 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.

Clinical Diagnostics

The clinical diagnostics market can be unfavorably impacted by economic weakness and government and healthcare cost containment initiatives in general. The weakness in these markets as well as general economic conditions have affected the availability of funds for capital expenditures. In the area of healthcare cost containment initiatives, the U.S. Congress is currently considering bills that contain proposed increases in the co-payments for diagnostic laboratory tests and other changes to the way these tests are reimbursed.

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 United States 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 more than 90% 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.

Biomedical Research

The biomedical 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 constraints on research and development spending, especially outside the United States, and pharmaceutical/biotechnology capital investment.

While United States supported research has been positive in recent years, it is subject to yearly approval by Congress and continued increases in funding are 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 or early 2004, with the pharmaceutical market recovering before the biotechnology market.

Longer term, we continue to see tight pharmaceutical and biotechnology discovery spending. In 2002, spending moved 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.

Other Factors

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.

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 other 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 42% of our debt at September 30, 2003 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;

• 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; and

• social, health and political events - social, health and political events, such as major political unrest or worldwide health issues such as a Severe Acute Respiratory Syndrome (SARS) epidemic, could have the potential to disrupt our business. For example, a SARS epidemic, by impacting travel and the delivery of health care, could delay completing sales presentations and the sale and installation of new systems.

Forward-Looking Statements

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

• the schedule for completion of our ERP program;

• anticipated benefits from restructuring activities including the consolidation of our Life Science Research and Specialty Testing Divisions into a single, Biomedical Research Division;

• anticipated effective tax rates, 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;

• earnings and sales growth; and

• our plans related to our incentive compensation plans.

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;

• 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;

• future effects of current world pandemic health issues including, but not limited to SARS; 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Securities and Exchange Commission requires that registrants include information about potential effects of changes in currency exchange and interest rates in their periodic 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 September 30, 2003 and December 31, 2002, the net fair value of all derivative foreign exchange contracts was a net liability of $(26.0) million and $(9.0) 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 September 30, 2003. The analysis showed that a 10% strengthening of the U.S. dollar would result in a gain from a fair value change of $36.7 million and a 10% weakening of the U.S. dollar would result in a loss from a fair value change of $38.6 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 September 30, 2003 were not substantially different than those at December 31, 2002.

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 the remainder of the year’s pre-tax earnings by $0.7 million based on the amount of variable rate debt outstanding at September 30, 2003.

Additional information with respect to our foreign currency and interest rate exposures are discussed in Note 4 “Derivatives” of the Condensed Consolidated Financial Statements.

Item 4. Controls and Procedures

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

As of September 30, 2003, the end of the fiscal quarter covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

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

PART II

OTHER INFORMATION

Item 1. 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 cannot 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.

Item 2. Changes In Securities

None.

Item 3. Defaults Upon Senior Securities

None.

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

None

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

a) Exhibits

3. Amended and Restated Bylaws Dated July 10, 2003.

11. Statement re Computation of Per Share Earnings: This information is set forth in Note 6, “Earnings Per Share” of the Condensed Consolidated Financial Statements included in Part I herein.

15. Independent Accountants’ Review Report, October 30, 2003.

15.1 Letter of Acknowledgement of Use of Report on Unaudited Interim Financial Information

31. Rule 13a-14(a)/15d-14(a) Certifications

32. Section 1350 Certifications

b) Reports on Form 8-K

The following reports on Form 8-K were filed during the period July 1, 2003 through September 30, 2003:

Press Release “Beckman Coulter Announces Record Second Quarter 2003 Results, 22% Dividend Increase”, filed July 31, 2003.

Press Release “Beckman Coulter Announces Management Change”, filed August 6, 2003.

Press Release “Beckman Coulter Wins Jury Verdict in Breach of Contract Lawsuit”, filed September 24, 2003.

Signatures

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

BECKMAN COULTER, INC.

(Registrant)

Date: October 30, 2003	By	/s/ John P. Wareham
	John P. Wareham
	Chairman of the Board, President, and Chief Executive Officer

Date: October 30, 2003	By	/s/ James T. Glover
	James T. Glover
	Vice President, Controller and Interim Chief Financial Officer

EXHIBIT INDEX

FORM 10-Q, THIRD QUARTER, 2003

Exhibit Number		Description

3.		Amended and Restated Bylaws Dated July 10, 2003.

11.		Statement re Computation of Per Share Earnings: This information is set forth in Note 6, “Earnings Per Share”, of the Condensed Consolidated Financial Statements included in Part I herein.

15.		Independent Accountants’ Review Report, October 30, 2003.

15.1		Letter of Acknowledgement of Use of Report on Unaudited Interim Financial Information

31.		Rule 13a-14(a)/15d-14(a) Certifications

32.		Section 1350 Certifications