The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.

Overview

We are a leading developer, manufacturer and marketer of products that simplify, automate and innovate complex biomedical testing, so our customers can easily and efficiently produce accurate and precise information, improving the overall quality of patient test results. Biomedical testing provides valuable information, influencing most patient care decisions, whether from a clinical laboratory reporting critical findings on a patient blood sample or a research laboratory seeking to better understand the basis of a life-threatening disease. Our customers include hospitals, diagnostic reference laboratories, governmental agencies, physicians' offices, universities, medical schools, research institutions, and pharmaceutical and biotechnology companies.

We design, manufacture, and sell systems, services, reagents and supplies to clinical and life science laboratories around the world. We market our products in more than 130 countries, with approximately 50% of our revenue in the first nine months of 2008 coming from outside the United States ("U.S."). Our products combine sophisticated analytical instruments, user-friendly software and highly sensitive chemistries, integrated into complete and simple to use systems. Our product lines address nearly all blood tests routinely performed in hospital laboratories and a range of systems for life science and pharmaceutical research.

Our instruments are generally provided to customers under operating-type lease ("OTL") arrangements, sales-type lease ("STL") arrangements or cash sales. Essentially all lease contracts entered into with customers are done under OTL arrangements. Our lease arrangements primarily take the form of what are known as "reagent rentals" where an instrument is placed at a customer location and the customer commits to purchase a certain minimum volume of reagents annually. We also enter into "metered" contracts with customers where the instrument is placed at a customer location with a stock of reagents. The customer is then billed monthly based on actual usage of reagents. Over 78% of our total revenue in the first nine months of 2008 was generated by recurring revenue from supplies, test kits, service, royalty revenue and OTL payments.

Strategic Initiatives

Our strategy is to extend our leadership in simplifying, automating and innovating customers' processes, by continuing to rollout new products, enhancing our current product offerings, and entering into new and growing market segments. Our strategic initiatives focus on key growth drivers and operational improvements as follows:

• continuing to grow our immunoassay market share through our family of immunoassay instruments, test menu expansion, our growing family of chemistry and immunoassay workcells and leveraging our strong market position in chemistry and cellular analysis systems;

• launching our next generation cellular system, the DxH;

• pursuing opportunities through geographic expansion in emerging markets which continue to provide attractive opportunities for growth;

• staying on pace for the late 2010 launch of our automated "sample-to-result" fully integrated molecular diagnostics system for clinical laboratories. Costs for the project are anticipated to be between $20 and $25 million per year through 2010 excluding any licensing fees for the test menu. We have completed the development of fully functional breadboards. We are now working toward the next milestone of developing the first prototype; and

• focusing on achievement of operating excellence throughout our supply chain and business operations. We will drive additional improvements in manufacturing, distribution and all our business processes through company wide application of "Lean Six-Sigma" tools and the implementation of a comprehensive enterprise resource planning system over the course of the next few years. These tools should deliver continuous improvements to our overall productivity.

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, our accounting policies, assumptions, estimates and judgments are reviewed by management to ensure that our financial statements are presented fairly in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ materially from our assumptions and estimates.

Both our accounting policies and estimates are essential in understanding MD&A and results of operations. We describe our significant accounting policies in Note 1, "Nature of Business and Summary of Significant Accounting Policies," of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2007. In addition, we discuss our critical accounting estimates in MD&A in our Annual Report on Form 10-K for the year ended December 31, 2007. There were no significant changes in our accounting policies since the end of 2007. During the three months ended September 30, 2008 we developed an estimate for our environmental remediation obligation related to the planned closure of our Fullerton, California site. This estimate was developed using the information available to date and our historical experience at another site. Our estimate may change as additional facts are known and as detailed remediation plans are developed. There were no significant changes in other estimates since the end of 2007.

Results of Operations

Through December 31, 2007, we reported our business on the basis of a single reportable segment consisting of four product areas. Beginning in the first fiscal quarter of 2008, we began to measure our business on the basis of two reportable segments- Clinical Diagnostics and Life Sciences. The Clinical Diagnostics segment represents approximately 84% of our consolidated revenue and includes products used to evaluate and analyze bodily fluids, cells and other patient samples. The three product areas within Clinical Diagnostics are 1) Chemistry and Clinical Automation, 2) Cellular Analysis and 3) Immunoassay and Molecular Diagnostics. Our Life Sciences segment, on the other hand, includes systems used for disease research performed in academic centers and therapeutic research performed by biopharmaceutical companies.

To facilitate an understanding of our financial results, we review revenue on both a reported and constant currency basis (constant currency growth is not a U.S. GAAP defined measure of revenue growth). We define constant currency revenue as current period revenue in local currency translated to U.S. dollars at the prior year's foreign currency exchange rate for that period, computed monthly. Constant currency growth as presented herein represents:

Current period constant currency revenue less prior year reported revenue

Prior year reported revenue

This measure provides information on revenue growth assuming that foreign currency exchange rates have not changed between the prior year and the current period. We believe the use of this measure aids in the understanding of our operations without the impact of foreign currency fluctuations. Constant currency revenue and constant currency growth as defined or presented by us may not be comparable to similarly titled measures reported by other companies. Additionally, constant currency revenue is not an alternative measure of revenue on a U.S. GAAP basis.

Current Quarter Financial Highlights

Total revenue increased to $758.8 million, an increase of 13.4% (10.2% in constant currency) compared to the third quarter 2007. The increase in revenue was primarily due to a 26.0% increase in cash instrument sales, coupled with a 10.4% increase in recurring revenue.

Revenue from Clinical Diagnostics increased 13.7% (10.5% in constant currency) as compared to the prior year quarter. Clinical Diagnostics' recurring revenue growth, the best indicator of the overall strength of our business, was 10.8%, or 7.6% in constant currency. Recurring revenue growth largely reflects the combined effect of expanding our installed base and increasing test kit utilization, which led to strong growth across all major product areas. We continued to make progress in extending our diagnostics installed base, as reflected in cash instrument sales growth of more than 35%, as compared to the prior year quarter. While we anticipate that a strengthening dollar may negatively impact our future cash instrument sales, steady growth of recurring revenue is expected to continue. Recurring revenue represents nearly 80% of our total revenue, affording a predictable source of future earnings.

Life Sciences revenue increased 11.9% worldwide, or 8.5% in constant currency, led primarily by growth in hardware cash instrument sales of our Centrifugation and Life Science automation products. The automation orders are typically large and the associated timing of revenue is hard to predict. We expect a strengthening dollar and potential weakness in publicly-funded research to moderate Life Science growth going forward.

Gross profit margin decreased 20 basis points to 46.4%. The slightly lower margin reflects higher transportation costs, and a mix favoring lower margin instruments and expansion in international markets which have lower margins. The shift towards cash instrument sales and the continued expansion of our international installed base put downward pressure on margins, but support our long-term objective to increase our penetration into international and particularly emerging markets to drive future recurring revenue growth.

Selling, general and administrative ("SG&A") grew 15.3% during the current quarter due in part to incremental expenses from our flow cytometry acquisition and additional infrastructure expenses to support our international growth.

Research and development ("R&D") expense increased primarily due to a $11.7 million charge in connection with buying out our future U.S. royalty for preeclampsia tests from Nephromics LLC. The license is for tests related to the detection, monitoring, and risk assessment of preeclampsia, a leading cause of maternal death. These tests are in development and are subject to regulatory approval.

We also recorded a $19.0 million environmental remediation charge during the quarter, related to our Orange County consolidation project. In connection with this consolidation, we began conducting environmental studies at our Fullerton, California site. The data generated by these studies suggests that soil and groundwater at the site contain chemicals previously used in operations at the facility. The $19.0 million represents our best estimate at this time of future expenditures for investigation and remediation at the site. We believe that the ultimate costs may range from $10 million to $30 million.

Other non-operating expense increased by $20.7 million over the prior year quarter. In the prior year quarter non-operating income was due to a $26.2 million gain from a Miami land sale, which was partially offset by a $9.0 million contribution to establish the Beckman Coulter Foundation to fund research and educational institutions and programs. The prior year quarter also benefited from gains on foreign exchange transactions, compared to a loss in the current year.

Revenue

The following table compares revenue by reportable segment and geography for the
three and nine months ended September 30, 2008 and 2007 (dollar amounts in
millions):




                                              *Three months                    Constant
                                           ended September 30,     Reported    Currency
                                            2008         2007      Growth %   Growth % **
 Segment revenues:
 Clinical Diagnostics:
 Chemistry and Clinical Automation        $   220.4     $ 196.5      12.2%          9.0%
 Cellular Analysis                            233.1       203.0      14.8%         11.9%
 Immunoassay and Molecular Diagnostics        182.4       159.6      14.3%         10.7%

 Total Clinical Diagnostics                   635.9       559.1      13.7%         10.5%
 Life Sciences                                122.9       109.9      11.9%          8.5%

 Total revenues                           $   758.8     $ 669.0      13.4%         10.2%


 Revenues by geography:
 United States                            $   376.5     $ 352.4       6.8%          6.8%
 Europe                                       165.4       138.6      19.3%         10.1%
 Emerging Markets***                           68.8        56.9      21.0%         17.0%
 Asia Pacific                                  94.5        76.7      23.3%         17.4%
 Other****                                     53.6        44.3      20.9%         15.9%

 Total revenues                           $   758.8     $ 669.0      13.4%         10.2%

                                                  *Nine months                         Constant
                                              ended September 30,         Reported     Currency
                                              2008            2007        Growth %    Growth % **
Segment revenues:
Clinical Diagnostics:
Chemistry and Clinical Automation          $    669.0      $    585.4      14.3%         10.3%
Cellular Analysis                               709.1           605.7      17.1%         13.2%
Immunoassay and Molecular Diagnostics           548.7           461.2      19.0%         14.7%

Total Clinical Diagnostics                    1,926.7         1,652.3      16.6%         12.6%
Life Sciences                                   361.0           320.0      12.8%          8.2%

Total revenues                             $  2,287.6      $  1,972.3      16.0%         11.9%


Revenues by geography:
United States                              $  1,133.4      $  1,044.4       8.5%          8.5%
Europe                                          511.8           427.9      19.6%          8.9%
Emerging Markets***                             205.1           156.2      31.3%         26.6%
Asia Pacific                                    279.2           213.3      30.9%         23.5%
Other****                                       158.1           130.5      21.1%         12.0%

Total revenues                             $  2,287.6      $  1,972.3      16.0%         11.9%

* Amounts in table above may not foot or recalculate due to rounding.

** Constant currency growth is not a U.S. GAAP defined measure of revenue growth.

*** Emerging Markets includes Eastern Europe, Russia, Middle East, Africa and India.

**** Other includes Canada and Latin America.

Clinical Diagnostics

Clinical Diagnostics grew by 13.7% and 16.6% in the three and nine months ended September 30, 2008, respectively. This segment experienced double digit growth in all three product areas during both the quarter and nine months ended September 30, 2008 as compared to 2007, primarily due to robust cash instrument sales and strong recurring revenue. We continued to make progress in extending our diagnostics installed base, as reflected in cash instrument sales growth. As compared to the prior year quarter, current quarter cash instrument sales increased by 35% while for the nine months ended September 30, 2008, cash instrument sales increased by 46% over that of the prior year period. In comparison to prior year, recurring revenue, the best indicator of the overall strength of our business, increased by 10.8% and 12.8%, for the three and nine month periods. Recurring revenue growth largely reflects the combined effect of expanding our installed base and increasing test kit utilization.

Revenue by Product Area - Clinical Diagnostics

Chemistry and Clinical Automation

Revenue from Chemistry and Clinical Automation increased by 12.2% and 14.3% for the three and nine months ended September 30, 2008, respectively versus the same periods in 2007. The increase in both periods was due in large part to cash instrument revenue plus an increase in recurring revenue due to strong placements of our DxC family of Autochemistry systems. Autochemistry grew by more than 13% during the quarter, in comparison to the same period a year ago due to accelerated work cell placements and double-digit international growth. We continue to grow our installed base in mid to large sized hospitals and experience strong demand internationally as our customers focus on the efficiency and cost savings that can be provided by increased automation.

Cellular Analysis

Revenue from Cellular Analysis increased 14.8% and 17.1% for the three and nine months ended September 30, 2008, respectively as compared to the same period in 2007. The growth in both periods was due primarily to increased cash instrument sales, which increased by 43% and 48% during the three and nine months of 2008, respectively as compared to the same period in the prior year. The increase was also attributed to growth in recurring revenue, added sales from our recently acquired flow cytometry products and the elimination of the instrument backlog in the first half of the year.

Immunoassay and Molecular Diagnostics

Revenue in Immunoassay and Molecular Diagnostics increased by 14.3% and 19.0% for the three and nine months ended September 30, 2008, respectively, when compared to the same periods in the prior year. This increase is due, in part, to recurring revenue during the first nine months of 2008 which increased by 16.7% as compared to the first nine months of 2007. In addition, we had higher levels of instrument shipments including our new workcells as we continue to grow our installed base. The increase in recurring revenue for the nine months was led by a 20.7% growth from our Access immunoassay products. Overall, for the three and nine month periods, revenue growth was particularly strong internationally.

Life Sciences

Revenue in this segment experienced an increase of 11.9% and 12.8% for the three and nine month periods ended September 30, 2008, respectively as compared to the same period in 2007. The increase was led primarily by growth in hardware cash instrument sales of our Centrifugation and Life Science automation products. We expect a strengthening dollar and potential weakness in publicly funded research to moderate Life Science growth going forward.

Revenue by Major Geography

Overall, revenue in the U.S. was up 6.8% and 8.5% for the three and nine months ended September 30, 2008, respectively, versus the prior year periods. This increase was primarily due to growth in Clinical Diagnostics. Momentum in Clinical Diagnostics was broad based, up 7.1% and 8.6% for the three and nine month period, with growth in Access-family immunoassay, Auto Chemistry and Cellular Analysis Systems. Growth in these product lines was primarily due to increased instrument placements, our flow cytometry acquisition and the elimination of the instrument backlog in Cellular in the first half of the year.

International revenue was up 20.8% and 24.4% for the three and nine months ended September 30, 2008, respectively, or 13.9% and 15.7% in constant currency in comparison to the prior year periods. The increase in international revenue was due to growth in all product areas, particularly Immunoassay and Molecular Diagnostics, which grew 28.7% and 37.2% (20.1% and 27.0% in constant currency) in comparison to same three and nine month periods in the previous year.

Revenue in Europe rose by 19.3% and 19.6% (10.1% and 8.9% in constant currency) for the three and nine months ended September 30, 2008, respectively. Clinical Diagnostics led the way, up over 20.6% or 11.3% in constant currency for the quarter. Within Clinical Diagnostics, Cellular Analysis and Immunoassay and Molecular Diagnostics remained the greatest contributors to growth. The increase in Cellular Analysis was due to added sales from our recently acquired flow cytometry products at the end of 2007, while the increase in Immunoassay and Molecular Diagnostics was due to increased recurring revenue from our Access immunoassay products, generated from our expanding installed base. Automation and workcells are also becoming a key factor in expanding our growth in Europe.

Revenue from Emerging Markets increased by 21.0% and 31.3% (17.0% and 26.6% in constant currency) for the three and nine months ended September 30, 2008, respectively, was primarily driven by an increase in cash instrument sales of 48.3% or 46.4% in constant currency during the first nine months of 2008 as compared to the same period in the prior year. The increased installed base has also resulted in recurring revenue growth of 24.5% or 18.7% in constant currency.

Sales in Asia Pacific increased by 23.3% and 30.9% (17.4% and 23.5% in constant currency) for the three and nine months ended September 30, 2008, respectively. Within the region, Immunoassay was the key driver of the 24.7% and 33.3 % growth in Clinical Diagnostics, while Centrifugation was the main contributor of the 18.0% and 22.7% growth in Life Sciences for the three and nine months ended September 30, 2008, respectively.

Service Revenue

Service revenue, which is derived from contracts for service and from maintenance calls on our installed base of instruments, increased 7.9% to $117.1 million in the third quarter of 2008 from $108.5 million in the third quarter of 2007. Service revenue increased 10.2% to $346.9 million in the first nine months of 2008 from $314.7 million in the same period in 2007. The increase is due primarily to our growing installed base of instruments under service contracts.

Gross Profit



                                         Three Months Ended                                Nine Months Ended
                             September 30,      September 30,     Percent     September 30,      September 30,     Percent
                                 2008               2007          Change          2008               2007          Change
(dollar amounts in
millions)
Gross profit                 $      352.0       $      311.9       12.9%      $    1,056.4       $      925.7       14.1%
As a percentage of total
sales                                 46.4%              46.6%     (0.2)%              46.2%              46.9%     (0.7)%

The decline in gross margin for the quarter and nine months ended September 30, 2008 is primarily due to a mix favoring lower margin cash instrument sales, expansion in international markets, as well as higher transportation costs. While heavy sales of instrumentation, particularly outside the U.S, is unfavorable in the short term from a margin perspective, it supports our long term objective to increase our penetration in emerging markets and positions us to provide reliable and sustainable recurring revenue growth in future periods.

Operating Expenses



                                            Three Months Ended                                   Nine Months Ended
                               September 30,       September 30,      Percent      September 30,       September 30,      Percent
                                   2008                2007           Change           2008                2007           Change
(dollar amounts in
millions)
Selling, general and
administrative                 $      209.2        $      181.5         15.3%      $      625.5        $      537.9         16.3%
As a percentage of total

The increase in selling, general and administrative expense for both the three and nine months ended September 30, 2008 was primarily attributed to:

• increased spending on selling and marketing activities to support our revenue growth;

• increased costs as a result of the translation of international costs due to comparative weakness of the U.S. dollar;

• higher amortization;

• higher bad debt expense;

• incremental operating expenses from our flow cytometry acquisition;

• increased stock compensation expense primarily in the first quarter 2008 as a result of changes in the retirement vesting terms of newly issued share-based grants in 2008, and

                                         Three Months Ended                                   Nine Months Ended
                            September 30,       September 30,      Percent      September 30,       September 30,      Percent
                                2008                2007           Change           2008                2007           Change
(dollar amounts in
millions)
Research and
Development                  $      74.8         $      59.9         24.9%       $     215.2         $     176.5         21.9%
As a percentage of

The increase in research and development of $14.9 million and $38.7 million in the three and nine months ended September 30, 2008, respectively, compared to the same periods last year is mainly due to an $11.7 million charge in the third quarter of 2008 related to buying out our future U.S. royalty for preeclampsia tests currently in development from Nephromics, LLC ("Nephromics"). This fully paid up license relates to future U.S. sales of a number of markers including a preeclampsia panel covered by patents licensed exclusively to Nephromics. The products under the licensing agreements have not received regulatory clearance, are still in the development stage and do not have alternative future use; . . .