Our theme for this year’s annual report is “Analyze It” — for two reasons. One, is to reinforce the fact that under the Beckman Coulter banner, we provide outstanding systems to conduct biomedical analysis. Two, is to invite you to analyze the progress we have made in realizing the potential of the new Beckman Coulter.

Just over two years ago, we acquired Coulter Corporation. It was a powerful strategic union, which advanced us to a top-tier position in the clinical diagnostics market. As you’ll see in this report, we have successfully completed the integration of these two great companies, strengthened our financial profile and are now focused on growth opportunities.

Before I elaborate on operations, let’s first review 1999 results. I am pleased to report that sales increased 5.3% over 1998 to $1.8 billion. On a geographic basis, sales grew 6.1% in North America, 3.4% in Europe, and 5.7% in Asia/Rest of World.

Earnings for the year rebounded from 1998 to a record high of $3.57 per diluted share, demonstrating that our acquisition is working. When we integrated the two companies, profitability was our central focus. Integration teams worked to optimize operating processes while finding ways to minimize expenses. Through this effort, we have met our objectives to improve gross profit and lower selling and administrative expenses. If you look at our earnings before interest and tax (EBIT) margin, it now stands at more than 12%, surpassing the past performance of either Beckman or Coulter.

Diagnostics — Proving that Scale Works

The Coulter acquisition gave us the product breadth we needed to be a primary competitor in the diagnostics market. It also gave us the scale for profitability. As you can see in the business segment information in the financial section, operating income for clinical diagnostics grew from 12.9% of sales in 1998 to 18.4% in 1999. For the year, our diagnostics sales grew 5.6%, in a market that grew about 2%. This is a testament to the strength of the combined companies, and to customer enthusiasm for our multi-faceted approach to laboratory automation...we call it “progressive automation.”

This year, our ability to provide a full spectrum of products helped us secure several key, five-year contracts in the United States.

• We signed four “Power of One” agreements —covering our entire diagnostics product line — with large group purchasing organizations. These will total about $85 million, an estimated increase of 8% in business with these accounts.

• We renewed contracts for the Veterans Administration and General Services Administration, with the potential to increase sales 10% to 15% with these customers.

• And, we finalized several significant agreements with regional integrated healthcare networks that will bring us as much as $25 million.

Over the last five years, three significant acquisitions helped transform our clinical diagnostics business. Coulter gave us a comprehensive line of hematology and flow cytometry systems. The Access® product line from Sanofi brought the company an automated immunodiagnostics system. And, Hybritech Incorporated expanded our capabilities in immunoassays and rapid-test kits. The original synergies we envisioned with these product lines are realities today. For example, our Hybritech® free PSA and PSA kits, which aid in prostate cancer detection, will be automated on the Access® Immunoassay System. They are on track for a first quarter 2000 launch in Europe and a second quarter launch in the United States.

Life Science Research — Pursuing Opportunities in Bio/Pharma

In our life science research business, sales grew 4%, led by placements of the new CEQ™ 2000 DNA Analysis System and SAGIAN™ Core Systems for drug candidate screening. But the equally exciting story in life science research is a significant improvement in profitability, made possible through focus on pricing and product sales mix. For 1999, this segment’s operating income grew to 16.5% of sales from 11.7% in 1998.

Although our traditional strength has been in the academic research market, our life science research business also has a significant presence in biotechnology and pharmaceutical (Bio/Pharma) R&D. Our robotic automation and genetic analysis system sales grew 21% and now represent 23% of total life sciences revenue.

Today, customers can choose from 35 individual components for the SAGIAN™ Core Systems for specific applications within the drug discovery area. Add this automation flexibility to our Laboratory Information Management software, full line of centrifuges and growing portfolio of genetic analysis systems, and you have one of the broadest offerings of systems to optimize life science research processes. The drug discovery and genetic analysis market segments are growing 15% to 20% annually — that is where we are focusing our R&D investments.

Improving Financial Profile

The sheer scale of the new Beckman Coulter, along with our enhanced sales synergies, is delivering top-line growth and bottom-line improvements. Year-to-year comparisons can best show our progress:

• Gross profit rate improved from 46.4% to 47.9%.

• Selling, general and administrative expense was reduced from 28.7% to 26.4% of sales.

• Operating income before special credits and charges rose from 7.8% to 12.0%, a company record.

• Through transfer and consolidations of manufacturing processes, along with other efforts, the effective tax rate for 1999 was reduced to 31.5% from 32% in 1998.

We also generated significant cash flow and reduced our debt by $86.6 million.

Our team is proud of our 1999 performance. These results reflect our success in combining the Beckman and Coulter operations, solidifying our position in the diagnostics marketplace and enhancing profitability in both of our business segments. With this chapter closed, our sights are set on accelerating sales growth.

Driving Top-line Growth

Beckman Coulter operates from a position of strength. We have an excellent portfolio of technologies and products, along with large established market shares. With such a foundation, we believe trends in the marketplace will play to our strengths.

As we go forward, people around the globe will demand additional health care services — driven by both improving economic conditions in third world countries and by an aging population. This demand will increase the volume of clinical testing. Advancements in genetics and cellular analysis will fuel research and pharmaceutical R&D funding. They will also generate exciting new fields of diagnostic testing. Our strategic plan is a three-tier approach that takes advantage of these unfolding trends, leveraging our strengths, and allowing us to invest in emerging, faster growing segments of the biomedical field.

I. Grow the Core Business

Clinical and Immune-based Chemistry. Hematology. Flow Cytometry. Centrifugation. Robotic Automation and Genetic Analysis. These product lines are the “core” of our business. We are either the leader, or among the top three players in each of these areas. Today, this portfolio of products, supported by a dynamic, worldwide sales and service organization, is providing a competitive edge.

To grow the core business, we plan to increase market share, particularly in diagnostics chemistry and the life science research areas of robotic automation and DNA analysis. By offering the most comprehensive portfolio of automation solutions, we will continue to position ourselves as the leader in optimizing laboratory processes.

In the near term, our served markets are expected to grow about 3%, but with our momentum, our core growth should be up to two times the market rate. The following two initiatives will augment this growth:

II. Leverage Infrastructure and Market Position

Through distribution agreements, alliances and acquisitions, we can dramatically expand a smaller company’s reach while efficiently delivering a larger product offering to our customers. In July 1999, we expanded a bilateral distribution agreement with Instrumentation Laboratory S.p.A., which gave us additional hemostasis products to market in North America. We are looking for similar distribution agree-ments with small or regional companies that can benefit from more than 3,700 highly experienced sales, service and marketing representatives spanning the globe. Through alliances and collaborations, we are also pursuing opportunities to have others promote our systems. In the genomics area, Orchid Biocomputer, Inc. and Sequenom, Inc. are including Beckman Coulter’s high-throughput automation as part of their single nucleotide polymorphism (SNP) genotyping system.

In some instances, the acquisition of a complementary product line is the best path. For example, we acquired Sagian, Inc. to leverage our liquid handling capabilities, establishing leadership in high-throughput screening for drug discovery. We now have resources fully dedicated to the pursuit of distribution agreements, alliances, and “bolt-on” acquisitions.

III. Invest in High Potential Segments

Many new testing methodologies complement our current offerings and provide opportunities for growth. We are expanding our investment in several of these areas. For example, we are using flow cytometry and cell chemistry for applications in oncology and the study of immune function. We are also pursuing DNA analysis by developing new instrumentation, automation and chemistries to enable genetic sequencing. In addition, we are investigating new business models, particularly utilizing information technology, to build on our core strengths.

Leveraging our infrastructure and investing in high potential segments should result in incremental sales growth. This will help us continue to achieve our earnings per share growth objectives of 12% to 14% for the next several years.

The Final Analysis

Beckman Coulter has emerged as a powerful player in the worldwide biomedical marketplace. Internally, we have an incredible team of 9,500 people dedicated to company success. Externally, we have a solid customer base, strengthening world economies, an explosion in genetic understanding and demographic shifts that will boost medical research and diagnostic testing. Overall, Beckman Coulter is a company that has scale, momentum, profitability, cash flow and tangible strategies to drive growth.