-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lDiyfNUqWjIKiJSi19jPw3TGuql6MWdNqtEA7vmCRsIxRcweKR3kDwm6pczjlwo9 qNDDQsDEvbsa5fMwvku2Rw== 0000840467-94-000005.txt : 19940727 0000840467-94-000005.hdr.sgml : 19940727 ACCESSION NUMBER: 0000840467-94-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940720 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BECKMAN INSTRUMENTS INC CENTRAL INDEX KEY: 0000840467 STANDARD INDUSTRIAL CLASSIFICATION: 3826 IRS NUMBER: 951040600 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10109 FILM NUMBER: 94539288 BUSINESS ADDRESS: STREET 1: 2500 HARBOR BLVD CITY: FULLERTON STATE: CA ZIP: 92634 BUSINESS PHONE: 7148714848 10-Q 1 10-Q REPORT TO SEC FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1994 OR ( ) 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 INSTRUMENTS, INC. (Exact name of registrant as specified in its charter) Delaware 95-104-0600 (State of Incorporation) (I.R.S. Employer Identification No.) 2500 Harbor Boulevard, Fullerton, California 92634 (Address of principal executive offices) (Zip Code) (714) 871-4848 (Registrant's telephone number including area code) 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 (X) No ( ). APPLICABLE ONLY TO CORPORATE ISSUERS: Outstanding shares of common stock, $0.10 par value, as of July 11, 1994: 29,078,435 shares. PART I FINANCIAL INFORMATION Item 1. Financial Statements Page Condensed Consolidated Statements of Earnings for the three and six month periods ended June 30, 1994 and 1993 3 Condensed Consolidated Balance Sheets as of June 30, 1994 and December 31, 1993 4 Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 1994 and 1993 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes In Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security-Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 12 BECKMAN INSTRUMENTS, INC. SECOND QUARTER REPORT CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in Millions, Except Amounts Per Share) Unaudited
Three Months Ended Six Months Ended June 30 June 30 1994 1993 1994 1993 Sales $222.2 $221.8 $420.8 $423.5 Operating costs and expenses: Cost of sales 105.2 106.7 200.3 203.8 Marketing, administrative and general 69.2 72.1 132.6 135.4 Research, development and engineering 22.9 22.9 44.5 45.3 Restructuring 1.1 - 2.3 - ------- ------- ------- ------- 198.4 201.7 379.7 384.5 ------- ------- ------- ------- Operating income 23.8 20.1 41.1 39.0 Nonoperating income (expense): Interest income 1.2 0.9 2.3 1.8 Interest expense (3.3) (2.9) (6.0) (6.0) Other, net (1.7) 0.1 (2.4) (0.6) (3.8) (1.9) (6.1) (4.8) Earnings before income taxes 20.0 18.2 35.0 34.2 Provision for income taxes 7.0 6.5 12.2 12.3 ------- ------- ------- ------- Net earnings before cumulative effect of changes in accounting principles 13.0 11.7 22.8 21.9 Cumulative effect of changes in accounting principles: Accounting for income taxes - - - 26.2 Accounting for postretirement benefits other than pensions (net of tax benefit of $17.0) - - - (30.2) Accounting for postemployment benefits (net of tax benefit of $3.0) - - (5.1) - ------- ------- ------- ------- Net earnings $13.0 $11.7 $17.7 $17.9 Average number of shares outstanding (thousands) 27,977 27,782 27,948 27,989 Net earnings per share before cumulative effect of changes in accounting principles $0.46 $0.42 $0.81 $0.78 Cumulative effect of changes in accounting principles: Accounting for income taxes - - - 0.93 Accounting for postretirement benefits other than pensions - - - (1.07) Accounting for postemployment benefits - - (0.18) - ------- ------- ------- ------- Net earnings per share $0.46 $0.42 $0.63 $0.64 ------- ------- ------- ------- See accompanying notes to condensed consolidated financial statements.
BECKMAN INSTRUMENTS,INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Millions) Unaudited
June 30 December 31 1994 1993 Assets Current assets: Cash and equivalents $31.5 $24.2 Short-term investments 0.3 21.9 Trade receivables 261.7 252.1 Inventories 165.5 163.9 Deferred income taxes 70.1 70.6 Other current assets 14.6 11.8 ------- ------- Total current assets 543.7 544.5 Property, plant and equipment, net 219.1 216.8 Deferred income taxes 32.9 30.3 Other assets 26.2 28.4 ------- ------- Total assets $821.9 $820.0 ------- ------- Liabilities and Stockholders' Equity Current liabilities: Notes payable $26.0 $31.7 Accounts payable and accrued expenses 217.6 242.7 Income taxes 55.2 48.9 ------- ------- Total current liabilities 298.8 323.3 Long-term debt 94.8 113.7 Other liabilities 128.7 107.5 ------- ------- Total liabilities 522.3 544.5 ------- ------- Stockholders' equity 299.6 275.5 ------- ------- Total liabilities and stockholders' equity $821.9 $820.0 ------- ------- See accompanying notes to condensed consolidated financial statements.
BECKMAN INSTRUMENTS,INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Millions) Unaudited
Six Months Ended June 30 1994 1993 Cash Flows From Operating Activities Net earnings $17.7 $17.9 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation and amortization 33.9 31.3 Changes in assets and liabilities: Trade receivables (3.4) 11.4 Inventories 0.6 (15.3) Deferred income taxes (1.8) (36.9) Accounts payable and accrued expenses (4.7) (21.9) Restructure reserve (22.5) - Income taxes 6.3 2.3 Other 20.2 10.0 ------- ------- Net cash provided (used) by operating activities 46.3 (1.2) ------- ------- Cash Flows from Investing Activities Additions to property, plant and equipment (41.5) (42.7) Net disposals of property, plant and equipment 8.0 8.7 Net proceeds from investments 21.7 5.7 ------- ------- Net cash used by investing activities (11.8) (28.3) ------- ------- Cash Flows from Financing Activities Dividends to stockholders (5.6) (5.1) Proceeds from issuance of stock 5.9 6.8 Treasury stock repurchase - (23.8) Notes payable borrowing 3.1 3.7 Notes payable reductions (11.3) (11.0) Long-term debt borrowing 4.6 84.7 Long-term debt reductions (23.9) (27.3) Other (0.3) - ------- ------- Net cash provided (used) by financing activities (27.5) 28.0 ------- ------- Effect of exchange rates on cash and equivalents 0.3 (0.1) ------- ------- Increase (decrease) in cash and equivalents 7.3 (1.6) Cash and equivalents -- beginning of period 24.2 25.9 ------- ------- Cash and equivalents -- end of period $31.5 $24.3 ------- ------- Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest $5.9 $6.7 Income taxes $4.7 $3.2 See accompanying notes to condensed consolidated financial statements.
BECKMAN INSTRUMENTS, INC. Notes To Condensed Consolidated Financial Statements 1 Report by Management In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results for the periods. The statements are prepared in accordance with the requirements of Form 10-Q and do not include all disclosures required by generally accepted accounting principles or those made in the Annual Report on Form 10-K for 1993 which is on file with the Securities and Exchange Commission. The results of operations for the six months ended June 30, 1994 are not necessarily indicative of the results to be expected for the year ending December 31, 1994. 2 Inventories Inventories are comprised of the following:
June 30 December 31 1994 1993 ------- ------- Finished products $110.6 $ 110.2 Raw materials, parts and assemblies 47.9 42.0 Work in-process 7.0 11.7 ------- ------- $165.5 $163.9 ------- -------
3 Changes in Accounting Principles Postemployment benefits Effective January 1, 1994 the Company adopted Statement of Financial Accounting Standards No. 112 ("SFAS 112") "Employers' Accounting for Postemployment Benefits". This statement requires the Company to recognize an obligation for postemployment benefits provided to former or inactive employees, their beneficiaries and covered dependents after employment but before retirement. Accordingly, the Company recognized a transition obligation of $8.1 million and a net expense of $5.1 million (net of tax benefit of $3.0 million) as the cumulative effect of the accounting change. Adoption of SFAS 112 will not have a material impact on operating results of the Company for 1994. Income Taxes Effective January 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". Accordingly, the Company recognized deferred tax assets reflecting the benefit expected to be realized from net deductible temporary differences. The recognition resulted in the Company recording income and a tax deferred asset equal to the cumulative effect of the accounting change of $26.2 million (net of a valuation allowance of $10.1 million). Postretirement Benefits Other Than Pension Effective January 1, 1993 the Company adopted SFAS 106 "Employers Accounting for Postretirement Benefits Other Than Pensions" and immediately recognized its obligation for prior years' service cost. Accordingly, the Company recorded a transition obligation of $47.2 million and a net expense of $30.2 (net of tax benefits of $17.0 million) as the cumulative effect of the accounting change. 4 Contingencies The Company is involved in the investigation and remediation of soil and groundwater contamination for property it sold in 1984. In 1990 the Company entered into an agreement with the purchaser for settlement of a 1988 lawsuit and for sharing current and future costs of investigation, remediation and other claims. In 1991 a lawsuit was filed against the 1984 purchaser by a third party that had subsequently purchased a portion of the above property, alleging damages caused by the pollution of the property. Although the Company is not a named defendant in the action, the Company may be obligated to contribute to any resolution of that action pursuant to its 1990 settlement agreement with the original purchaser. In 1993 the Company increased its existing reserves for soil and groundwater remediation and for resolution of the 1991 lawsuit by $12.5 million. During 1993 the Company made substantial progress in soil remediation on the site, although there remain some areas of soil contamination that may require further remediation. The Company also operated a groundwater treatment system throughout most of 1993 and in the fourth quarter expanded the capacity of the system. The expanded system is believed to be adequate to remediate the groundwater based upon available information. A series of test wells were drilled on the property which provided additional information concerning the area of groundwater contamination. The Company believes it has established adequate reserves to complete the remediation of any remaining soil contamination, operation and maintenance of the expanded groundwater treatment system and any additional groundwater investigations. Investigations on the property are continuing and there can be no assurance that further investigations will not reveal additional contamination or result in additional costs. The Company believes additional remediation costs for the contamination discovered by the current investigations and liability for the resolution of the 1991 lawsuit, if any, beyond those already provided will not have a material adverse effect on the Company's operations or financial position. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Operations Sales for the second quarter and six months ended June 30, 1994 were $222.2 million and $420.8 million, respectively. The second quarter sales represent a slight increase over second quarter 1993 sales despite the continued adverse effects of foreign currency exchange rates. Second quarter sales would have increased by 1% had currency exchange rates remained constant. Sales for the six month period decreased by 1%, but would have increased by 1% without the effects of foreign currencies. Sales for the North American diagnostic business continue to outpace those for prior year, however sales of the Company's North American bioresearch business are down for both the quarter and year to date. The Company's international sales have been adversely impacted by currency exchange rates, the European recession, and cost containment initiatives in several European health care systems. The weaknesses in the European markets and the North American bioresearch market are expected to continue. Operating profit, excluding restructuring expenses, for the second quarter and six months ended June 30, 1994 were $24.9 million and $43.4 million, respectively. These results represent increases of 24% and 11% over comparable periods in the prior year as the Company begins to realize savings from the reorganization and restructuring begun at the end of 1993. These savings have helped to increase gross profit margins by .8% to 52.7% for the quarter and .5% to 52.4% year-to-date, and helped decrease Marketing, Administrative and General Expenses by $2.9 million and $2.8 million over the same periods in 1993. The Company continued its commitment to new product development, investing over 10% of sales revenue in research and development through the first six months. Including the cost of the restructuring, the Company generated operating profits of $23.8 million and $41.1 million in the second quarter and first six months, respectively. The Company continues to realize savings from its reorganization and restructuring efforts. For the six months ended June 30, 1994 the Company saved approximately $10.0 million. These savings are primarily attributable to personnel level reductions in excess of 600 individuals since the reorganization announcement. As the restructuring implementation continues, these savings are expected to increase to the anticipated savings of $25 million for 1994. Not all of these savings however, will be incremental to earnings during this time of transition, constrained markets and flat sales. Nonoperating expenses increased, compared to the same periods in the prior year, by $1.9 million for the quarter and $1.3 million year to date. These increases are primarily attributable to the cost of hedging activities undertaken to mitigate the effects of currency fluctuations on the Company's operations. Earnings before income taxes, excluding restructuring expenses, for the second quarter and first six months of 1994 were $2.9 million and $3.1 million higher than pretax earnings for the same periods in 1993. Pretax earnings improvements were reduced to $1.8 million and $0.8 million respectively by restructuring expenses. The Company has benefitted from a decrease in its effective income tax rate from 36% to 35% as a larger proportion of the Company's earnings have been generated in lower tax rate jurisdictions. In the second quarter of 1994, the Company's net earnings, excluding restructuring expenses, increased by $2.0 million over 1993 to $13.7 million or $0.49 per share. Net earnings for the first six months, before restructuring expenses and changes in accounting principle, were $24.3 million or $0.87 per share versus $21.9 million or $0.78 per share for the same period of 1993. In the first quarter of 1994, the Company adopted Statement of Financial Accounting Standard No. 112 ("SFAS 112") Employers' Accounting for Postemployment Benefits. This statement required the Company to recognize a prior service obligation for the Company's commitment to provide benefits to former or inactive employees, and their beneficiaries or covered dependents after employment but before retirement. Adoption of SFAS 112 resulted in the Company recording an after tax charge of $5.1 million in the first quarter. Net earnings for the second quarter of 1994 were $13.0 million, or $0.46 per share compared to $11.7 million or $0.42 in 1993. Net earnings for the six months ended June 30, 1994 were $17.7 million or $.63 per share compared to $17.9 million or $.64 per share in 1993. The following table summarizes the impact of restructuring charges and the cumulative effect of changes in accounting principles on net earnings per share for the quarter and six months ended June 30, 1994.
Three Months Ended Six Months Ended June 30 June 30 1994 1993 1994 1993 Per Per Per Per Amt Share Amt Share Amt Share Amt Share ----- ----- ----- ----- ----- ----- ----- ----- Net earnings before restructuring expenses and cumulative effect of changes in accounting principles $13.7 .49 11.7 .42 24.3 .87 21.9 .78 Restructuring expenses, net of taxes (.7) (.03) - - (1.5) (.06) - - Cumulative effect of changes in accounting principles - - - - (5.1) (.18) (4.0) (.14) ----- ----- ----- ----- ----- ----- ----- ----- Net Earnings $13.0 .46 11.7 .42 17.7 .63 17.9 .64
Financial Condition For the six months ended June 30, 1994, the Company had positive cash flow from operating and investing activities of $34.5 million. This represents an increase of $64.0 million over the same period in 1993. Contributing to this increase were lower pension plan contributions, lower incentive compensation payments and an increase in proceeds from short term investments in 1994. The Company continued to exhibit its strong financial condition as its ratio of debt to capitalization at June 30, 1994 of 28.7% improved from 34.5% at December 31, 1993. The ratio of current assets to current liabilities also improved to 1.82 at June 30, 1994 from 1.68 at December 31, 1993. The Company believes it has adequate financial resources to meet expected cash flow requirements for the foreseeable future, including the negative short-term impact associated with the Company's reorganization and restructuring activities. In 1995 and beyond, the reorganization and restructuring will have a positive impact on cash flow. On June 2, 1994, the Company paid a quarterly cash dividend of $2.8 million or $.10 per share of common stock. PART II OTHER INFORMATION Item 1. Legal Proceedings As previously reported, the Company is obligated to contribute to a resolution of a lawsuit filed by Forest City Properties Corporation and FC Irvine, Inc. (collectively, "Forest City") against The Prudential Insurance Company of America ("Prudential") in 1991 concerning property in Irvine, California formerly owned by the Company. The Company's obligation arises from its 1990 settlement of earlier litigation between the Company and Prudential concerning the same property. During the second quarter, the court scheduled the trial of the Forest City lawsuit to begin October 31, 1994. 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 At its May 25, 1994 meeting, the Company's Board of Directors elected Betty Woods, President and Chief Executive Officer of Blue Cross of Washington and Alaska, a member of the Board. Ms. Woods' knowledge and experience with the healthcare delivery system dynamics and economics is expected to help guide the Company through the challenging period of healthcare reform occurring in this country and abroad. The addition of Ms. Woods expands the Company's Board from eleven to twelve members, ten of whom are outside directors. Ms. Woods' term will expire at the Company's 1996 annual meeting. Item 6. Exhibits and Reports on Form 8-K a) Exhibits 10. The Company's Executive Incentive Plan, adopted by the Company in 1994. 15. Independent Accountants' Report, July 15, 1994 b) Reports on Form 8-K None. 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 INSTRUMENTS, INC. (Registrant) Date: July 19, 1994 by /s/ William H. May ------------------------ William H. May Vice President, General Counsel and Secretary Date: July 19, 1994 by /s/ Dennis K. Wilson ------------------------ Dennis K. Wilson Vice President, Finance and Chief Financial Officer EXHIBIT INDEX Exhibit Number Description - - ------- ----------- 10. The Company's Executive Incentive Plan, adopted by the Company in 1994. 15. Independent Accountants' Report, July 15, 1994 EX-10 2 EXECUTIVE INCENTIVE PLANS - 1994 EXHIBIT 10 BECKMAN INSTRUMENTS INC. EXECUTIVE INCENTIVE PLANS, 1994 FY 94 MANAGEMENT INCENTIVE PLAN CLASSES 9 AND 10 Background: Class 9 and 10 managers, directors and upper level technical contributors. Bonus Eligibility: The key elements in determining incentive awards are: 1) Company Earnings per Share 2) Sales Revenue, and 3) Individual overall EXCEL rating Earnings per Share: Earnings per share continues to be a critical factor in the company's performance and valuation by the financial community. Because of its importance, company EPS is the fundamental measurement for the annual incentive opportunity. The basic award guidelines for the degree of achievement are as follows: Award Percentage EPS Achieved of Base Earnings $2.15 30.0% $2.10 22.0% $2.05 14.0% $2.00 9.0% $1.95 3.5% below $1.95 0% A pro-rata incentive award percentage is calculated for gradations between achievement levels. Sales Revenue Modifier: The award percentage for EPS achievement will be increased by 10% if EPS is $2.05 or higher for FY 94 and the company's sales goal is met or exceeded. Individual Incentive Award Determination: The final step in the calculation of individual incentive awards is the application of an individual performance multiplier to the award percentage for EPS achievement after any adjustment for sales revenue. This multiplier is derived from the "overall rating" for Performance Expectations in the EXCEL process and is expressed as a percentage to be applied to the EPS award guideline. Base earnings for the period of incentive eligibility (eligible earnings) are then multiplied by the final award percentage to determine the amount of incentive award. Overall Performance Rating Performance Multiplier to be for Performance Expectations Applied to Award Guideline Exceptional 130% - 150% High 100% - 120% Good 50% - 90% Improved Performance Required 0% Example of How the Annual Incentive Award is Calculated: Assume that EPS achievement is $2.05 and the company sales revenue goal is met or exceeded. In this example, the total annual award percentage before applying the individual performance multiplier is 15.4% (14.0% + 10% x 14.0%). The 15.4% award will be increased to a 18.5% individual incentive award with an individual performance multiplier of 120%. Conversely, an individual performance modifier of 80% would reduce the 15.4% award to a 12.3% final EPS incentive award. Administration: 1) All financial results will be measured on an "as reported" basis with no adjustment for any effect of currency fluctuations. 2) Any issues regarding plan interpretation will be referred for resolution to a "Management Incentive Committee" appointed by the Chief Executive Officer. 3) To be eligible for a management incentive award, a participant must be in active pay status at the end of the measurement period. Exceptions may be approved on a pro rata basis for participants who retire in midyear or other special circumstances. FY 94 EXECUTIVE INCENTIVE PLAN CLASSES 12 AND 13 Background: Beginning with FY 94, key executives will have two separate incentive opportunities with different time horizons and different performance measures. For the annual incentive opportunity, the focus will be on annual results in terms of company "Earnings Per Share" (EPS) with sales revenue and the individual overall rating for Performance Expectations in the EXCEL process affecting the final incentive award. The second time horizon of incentive opportunity will be based on company "Economic Value Added" (EVA) for a two-year cycle under a long-term incentive plan. Annual (EPS) Incentive: Earnings per share continues to be a critical factor in the company's performance and valuation by the financial community. Because of its importance, company EPS is the fundamental measurement for the annual incentive opportunity. The basic award guidelines for the degree of achievement are as follows: Award Percentage EPS Achieved of Base Earnings $2.15 27.2% $2.10 25.4% $2.05 23.1% $2.00 14.6% $1.95 5.8% below $1.95 0% A pro-rata percentage is calculated for achievement between the above award levels. Sales Revenue Modifier: The award percentage for EPS achievement will be increased by 10% if EPS is $2.05 or higher for FY 94 and the company's sales goal is met or exceeded. Individual Incentive Award Determination: The final step in the calculation of individual incentive awards is the application of an individual performance multiplier to the award percentage for EPS achievement after any adjustment for sales revenue. This multiplier is derived from the "overall rating" for Performance Expectations in the EXCEL process and is expressed as a percentage to be applied to the EPS award guideline. Base earnings for the period of incentive eligibility (eligible earnings) are then multiplied by the final award percentage to determine the amount of incentive award. Overall Performance Rating Performance Multiplier to be for Performance Expectations Applied to Award Guideline Exceptional 130% - 150% High 100% - 120% Good 50% - 90% Improved Performance Required 0% Example of How the Annual Incentive Award is Calculated: Assume that EPS achievement is $2.10 and the company sales revenue goal is met or exceeded. In this example, the total annual award percentage before applying the individual performance multiplier is 27.9% (25.4% + 10% x 25.4% rounded). The 27.9% award will be increased to a 33.5% individual incentive award with an individual performance multiplier of 120%. Conversely, an individual performance modifier of 80% would reduce the 27.9% award to a 22.3% final EPS annual incentive award. Administration: 1) All financial results will be measured on an "as reported" basis with no adjustment for any effect of currency fluctuations. 2) To be eligible for an annual EPS incentive award, a participant must be in active pay status at the end of the measurement period. Partial payments will be made for retirees, as defined by the company's pension plan, who leave before the end of the fiscal year. TWO-YEAR ECONOMIC VALUE ADDED (EVA) INCENTIVE PLAN CYCLE ONE BEGINNING FY 93 CLASSES 12 AND 13 Background: The two year (long-term plan) incentive is based upon maintaining and improving the base amount of total company EVA through a two-year measurement cycle. EVA benchmarks for incentive eligibility will be established for each two-year cycle at its beginning and successive cycles overlap by one year. For example, the second year of cycle one becomes the first year of cycle two. For the start-up of the EVA incentive, FY 93 is the first year of the first two-year cycle. EVA Definition: EVA is defined as the net operating profit after-tax (excluding restructuring charges), less a cost of capital charge on a thirteen-month average capital base (excluding restructuring reserves). This performance measurement reflects the relationship between profits generated by the company and the cost of the balance sheet investment. Certain events may trigger a reassessment of the EVA targets for incentive eligibility. EVA Award Eligibility: The EVA target for the first cycle, ending December 31, 1994, is $12.0 million. This represents an increase of $10.6 million over the $1.4 million EVA at the beginning of the cycle. For Class 12 and 13 executives, this will generate a 10.0% of base earnings award. Gradations in performance above and below the targeted EVA are depicted below. EVA CYCLE ONE (1993 & 1994) Absolute EVA Final EVA ($million) Award less than $1.4 0% $1.4 5.0% $12.0 10.0% $20.3 20.0% greater than $20.3 20.0% A pro rata incentive award percentage is calculated for gradations between EVA improvement levels. Individual Eligible Earnings for EVA Award: Although the EVA measurement period is two years, the actual award calculation will be based upon an individual participant's total base earnings for the second year of the two-year cycle. One year of eligible earnings is applied because of the overlapping nature of the two-year cycles. Deferred Stock Award Alternative: Payment of the earned incentive will be made in cash, subject to standard withholding taxes and deductions, or a participant may elect to be paid in restricted stock. Details of the restricted stock alternative are described in the insert to this document. Administration: 1) All financial results will be measured on an "as reported" basis with no adjustment for any effect of currency fluctuations. 2) Qualifying events that may cause adjustments to original approved EVA targets must be: 1) unanticipated; 2) non-recurring; 3) material in nature; and 4) not part of normal business operations. 3) To be eligible for a full EVA incentive award, a participant must be in active pay status at the end of the two-year measurement period. Partial payments will be made in cash for retirees, as defined by the company's pension plan, who do not elect payment in restricted stock and leave before completion of the EVA cycle. TWO-YEAR ECONOMIC VALUE ADDED (EVA) INCENTIVE PLAN CYCLE TWO BEGINNING FY 94 CLASSES 12 AND 13 Background: The two year (long-term plan) incentive is based upon maintaining and improving the base amount of total company EVA through a two-year measurement cycle. EVA benchmarks for incentive eligibility will be established for each two-year cycle at its beginning and successive cycles overlap by one year. For example, the second year of cycle one, fiscal year 1994, will be the first year of cycle two. EVA Definition: EVA is defined as the net operating profit after-tax (excluding restructuring charges), less a cost of capital charge on a thirteen-month average capital base (excluding restructuring reserves). This performance measurement reflects the relationship between profits generated by the company and the cost of the balance sheet investment. Certain events may trigger a reassessment of the EVA targets for incentive eligibility. EVA Award Eligibility: The EVA target for cycle two, ending December 31, 1995, is $20.6 million. This represents an increase of $20.0 million over the $0.6 million EVA at the beginning of the cycle. For Class 12 and 13 executives, this will generate a 10.0% of base earnings award. Gradations in performance above and below the targeted EVA are depicted below. EVA CYCLE TWO (1994 & 1995) Absolute EVA Final EVA ($million) Award less than $0.6 0% $0.6 5.0% $20.6 10.0% $30.0 20.0% greater than $30.0 20.0% A pro rata incentive award percentage is calculated for gradations between EVA improvement levels. Individual Eligible Earnings for EVA Award: Although the EVA measurement period is two years, the actual award calculation will be based upon an individual participant's total base earnings for the second year of the two-year cycle. One year of eligible earnings is applied because of the overlapping nature of the two-year cycles. Deferred Stock Award Alternative: Payment of the earned incentive will be made in cash, subject to standard withholding taxes and deductions, or a participant may elect to be paid in restricted stock. Details of the restricted stock payment alternative are described in the insert to this document. Administration: 1) All financial results will be measured on an "as reported" basis with no adjustment for any effect of currency fluctuations. 2) Qualifying events that may cause adjustments to original approved EVA targets must be: 1) unanticipated; 2) non-recurring; 3 material in nature; and 4) not part of normal business operations. 3) To be eligible for an EVA incentive award, a participant must be in active pay status at the end of the two-year measurement period. Partial payments will be made in cash for retirees, as defined by the company's pension plan, who do not elect payment in restricted stock, and leave before completion of the EVA cycle. FY 94 EXECUTIVE INCENTIVE PLAN CLASSES 14 THROUGH 17 Background: Beginning with FY 94, key executives will have two separate incentive opportunities with different time horizons and different performance measures. For the annual incentive opportunity, the focus will be on annual results in terms of company "Earnings Per Share" (EPS) with sales revenue and the individual overall rating for Performance Expectations in the EXCEL process affecting the final incentive award. The second time horizon of incentive opportunity will be based on company "Economic Value Added" (EVA) for a two-year cycle under a long-term incentive plan. Annual (EPS) Incentive: Earnings per share continues to be a critical factor in the company's performance and valuation by the financial community. Because of its importance, company EPS is the fundamental measurement for the annual incentive opportunity. The basic award guidelines for the degree of achievement are as follows: Award Percentage EPS Achieved of Base Earnings $2.15 35.3% $2.10 32.3% $2.05 29.4% $2.00 18.5% $1.95 7.4% below $1.95 0% A pro-rata percentage is calculated for achievement between the above award levels. Sales Revenue Modifier: The award percentage for EPS achievement will be increased by 10% if EPS is $2.05 or higher for FY 94 and the company's sales goal is met or exceeded. Individual Incentive Award Determination: The final step in the calculation of individual incentive awards is the application of an individual performance multiplier to the award percentage for EPS achievement after any adjustment for sales revenue. This multiplier is derived from the "overall rating" for Performance Expectations in the EXCEL process and is expressed as a percentage to be applied to the EPS award guideline. Base earnings for the period of incentive eligibility (eligible earnings) are then multiplied by the final award percentage to determine the amount of incentive award. Overall Performance Rating Performance Multiplier to be for Performance Expectations Applied to Award Guideline Exceptional 130% - 150% High 100% - 120% Good 50% - 90% Improved Performance Required 0% Example of How the Annual Incentive Award is Calculated: Assume that EPS achievement is $2.10 and the company sales revenue goal is met or exceeded. In this example, the total annual award percentage before applying the individual performance multiplier is 35.5% (32.3% + 10% x 32.3% rounded). The 35.5% award will be increased to a 42.6% individual incentive award with an individual performance multiplier of 120%. Conversely, an individual performance modifier of 80% would reduce the 35.5% award to a 28.4% final EPS annual incentive award. Administration: 1) All financial results will be measured on an "as reported" basis with no adjustment for any effect of currency fluctuations. 2) To be eligible for an annual EPS incentive award, a participant must be in active pay status at the end of the measurement period. Partial payments will be made for retirees, as defined by the company's pension plan, who leave before the end of the fiscal year. TWO-YEAR ECONOMIC VALUE ADDED (EVA) INCENTIVE PLAN CYCLE ONE BEGINNING FY 93 CLASSES 14 THROUGH 17 Background: The two year (long-term plan) incentive is based upon maintaining and improving the base amount of total company EVA through a two-year measurement cycle. EVA benchmarks for incentive eligibility will be established for each two-year cycle at its beginning and successive cycles overlap by one year. For example, the second year of cycle one becomes the first year of cycle two. For the start-up of the EVA incentive, FY 93 is the first year of the first two-year cycle. EVA Definition: EVA is defined as the net operating profit after-tax (excluding restructuring charges), less a cost of capital charge on a thirteen-month average capital base (excluding restructuring reserves). This performance measurement reflects the relationship between profits generated by the company and the cost of the balance sheet investment. Certain events may trigger a reassessment of the EVA targets for incentive eligibility. EVA Award Eligibility: The EVA target for the first cycle, ending December 31, 1994, is $12.0 million. This represents an increase of $10.6 million over the $1.4 million EVA at the beginning of the cycle. For Class 14 - 17 executives, this will generate a 12.6% of base earnings award. Gradations in performance above and below the targeted EVA are depicted below. EVA CYCLE ONE (1993 & 1994) Absolute EVA Final EVA ($million) Award less than $1.4 0% $1.4 6.3% $12.0 12.6% $20.3 25.2% greater than $20.3 25.2% A pro rata incentive award percentage is calculated for gradations between EVA improvement levels. Individual Eligible Earnings for EVA Award: Although the EVA measurement period is two years, the actual award calculation will be based upon an individual participant's total base earnings for the second year of the two-year cycle. One year of eligible earnings is applied because of the overlapping nature of the two-year cycles. Deferred Stock Award Alternative: Payment of the earned incentive will be made in cash, subject to standard withholding taxes and deductions, or a participant may elect to be paid in restricted stock. Details of the restricted stock alternative are described in the insert to this document. Administration: 1) All financial results will be measured on an "as reported" basis with no adjustment for any effect of currency fluctuations. 2) Qualifying events that may cause adjustments to original approved EVA targets must be: 1) unanticipated; 2) non-recurring; 3) material in nature; and 4) not part of normal business operations. 3) To be eligible for a full EVA incentive award, a participant must be in active pay status at the end of the two-year measurement period. Partial payments will be made in cash for retirees, as defined by the company's pension plan, who do not elect payment in restricted stock and leave before completion of the EVA cycle. TWO-YEAR ECONOMIC VALUE ADDED (EVA) INCENTIVE PLAN CYCLE TWO BEGINNING FY 94 CLASSES 14 THROUGH 17 Background: The two year (long-term plan) incentive is based upon maintaining and improving the base amount of total company EVA through a two-year measurement cycle. EVA benchmarks for incentive eligibility will be established for each two-year cycle at its beginning and successive cycles overlap by one year. For example, the second year of cycle one, fiscal year 1994, will be the first year of cycle two. EVA Definition: EVA is defined as the net operating profit after-tax (excluding restructuring charges), less a cost of capital charge on a thirteen-month average capital base (excluding restructuring reserves). This performance measurement reflects the relationship between profits generated by the company and the cost of the balance sheet investment. Certain events may trigger a reassessment of the EVA targets for incentive eligibility. EVA Award Eligibility: The EVA target for the cycle two, ending December 31, 1995, is $20.6 million. This represents an increase of $20.0 million over the $0.6 million EVA at the beginning of the cycle. For Class 14-17 executives, this will generate a 12.6% of base earnings award. Gradations in performance above and below the targeted EVA are depicted below. EVA CYCLE TWO (1994 & 1995) Absolute EVA Final EVA ($million) Award less than $0.6 0% $0.6 6.3% $20.6 12.6% $30.0 25.2% greater than $30.0 25.2% A pro rata incentive award percentage is calculated for gradations between EVA improvement levels. Individual Eligible Earnings for EVA Award: Although the EVA measurement period is two years, the actual award calculation will be based upon an individual participant's total base earnings for the second year of the two-year cycle. One year of eligible earnings is applied because of the overlapping nature of the two-year cycles. Deferred Stock Award Alternative: Payment of the earned incentive will be made in cash, subject to standard withholding taxes and deductions, or a participant may elect to be paid in restricted stock. Details of the restricted stock payment alternative are described in the insert to this document. Administration: 1) All financial results will be measured on an "as reported" basis with no adjustment for any effect of currency fluctuations. 2) Qualifying events that may cause adjustments to original approved EVA targets must be: 1) unanticipated; 2) non-recurring; 3) material in nature; and 4) not part of normal business operations. 3) To be eligible for a full EVA incentive award, a participant must be in active pay status at the end of the two-year measurement period. Partial payments will be made in cash for retirees, as defined by the company's pension plan, who do not elect payment in restricted stock and leave before completion of the EVA cycle. EXECUTIVE INCENTIVE PLAN AWARD GUIDELINES VICE PRESIDENT - BIORESEARCH COMMERCIAL OPERATIONS, INTERNATIONAL FY 94 ANNUAL FY 94 ANNUAL (EPS) INCENTIVE WW OPERATING PROFIT EPS Award % Budget Award Achieved Percentage Achievement Guideline $2.15 16.8% 110% 21.0% $2.10 15.4% 105% 17.5% $2.05 14.0% 100% 14.0% $2.00 8.8% 95% 8.8% $1.95 3.5% 90% 3.5% below $1.95 0% below 90% 0% A pro rata incentive award percentage is calculated for gradations between achievement levels. EVA CYCLE ONE (1993 & 1994) EVA CYCLE TWO (1994 & 1995) Absolute EVA Final EVA Absolute EVA Final EVA ($million) Award ($million) Award less than $1.4 0% less than $0.6 0% $1.4 7.0% $0.6 7.0% $12.0 14.0% $20.6 14.0% $20.3 28.0% $30.0 28.0% greater than $20.3 28.0% greater than $30.0 28.0% A pro rata incentive award percentage is calculated for gradations between EVA improvement levels. EXECUTIVE INCENTIVE PLAN AWARD GUIDELINES VICE PRESIDENT - DIAGNOSTIC COMMERCIAL OPERATIONS FY 94 ANNUAL FY 94 ANNUAL (EPS) INCENTIVE WW OPERATING PROFIT EPS Award % Budget Award Achieved Percentage Achievement Guideline $2.15 16.8% 110% 21.0% $2.10 15.4% 105% 17.5% $2.05 14.0% 100% 14.0% $2.00 8.8% 95% 8.8% $1.95 3.5% 90% 3.5% below $1.95 0% below 90% 0% A pro rata incentive award percentage is calculated for gradations between achievement levels. EVA CYCLE ONE (1993 & 1994) EVA CYCLE TWO (1994 & 1995) Absolute EVA Final EVA Absolute EVA Final EVA ($million) Award ($million) Award less than $1.4 0% less than $0.6 0% $1.4 7.0% $0.6 7.0% $12.0 14.0% $20.6 14.0% $20.3 28.0% $30.0 28.0% greater than $20.3 28.0% greater than $30.0 28.0% A pro rata incentive award percentage is calculated for gradations between EVA improvement levels. EXECUTIVE INCENTIVE AWARD GUIDELINES SENIOR VICE PRESIDENT FY 94 ANNUAL(EPS) INCENTIVE EPS Award Achieved Percentage $2.15 42.0% $2.10 38.5% $2.05 35.0% $2.00 22.1% $1.95 8.8% below $1.95 0% A pro rata incentive award percentage is calculated for gradations between achievement levels. EVA CYCLE ONE (1993 & 1994) EVA CYCLE TWO (1994 & 1995) Absolute EVA Final EVA Absolute EVA Final EVA ($million) Award ($million) Award less than $1.4 0% less than $0.6 0% $1.4 7.5% $0.6 7.5% $12.0 15.0% $20.6 15.0% $20.3 30.0% $30.0 30.0% greater than $20.3 30.0% greater than $30.0 30.0% A pro rata incentive award percentage is calculated for gradations between EVA improvement levels. EXECUTIVE INCENTIVE AWARD GUIDELINES PRESIDENT AND CHIEF OPERATING OFFICER FY 94 ANNUAL (EPS) INCENTIVE EPS Award Achieved Percentage $2.15 46.2% $2.10 42.4% $2.05 38.5% $2.00 24.3% $1.95 9.6% below $1.95 0% A pro rata incentive award percentage is calculated for gradations between achievement levels. EVA CYCLE ONE (1993 & 1994) EVA CYCLE TWO (1994 & 1995) Absolute EVA Final EVA Absolute EVA Final EVA ($million) Award ($million) Award less than $1.4 0% less than $0.6 0% $1.4 8.25% $0.6 8.25% $12.0 16.5% $20.6 16.5% $20.3 33.0% $30.0 33.0% greater than $20.3 33.0% greater than $30.0 33.0% A pro rata incentive award percentage is calculated for gradations between EVA improvement levels. EXECUTIVE INCENTIVE AWARD GUIDELINES CHIEF EXECUTIVE OFFICER FY 94 ANNUAL (EPS) INCENTIVE EPS Award Achieved Percentage $2.15 50.4% $2.10 46.2% $2.05 42.0% $2.00 26.5% $1.95 10.5% below $1.95 0% A pro rata incentive award percentage is calculated for gradations between achievement levels. EVA CYCLE ONE (1993 & 1994) EVA CYCLE TWO (1994 & 1995) Absolute EVA Final EVA Absolute EVA Final EVA ($million) Award ($million) Award less than $1.4 0% less than $0.6 0% $1.4 9.0% $0.6 9.0% $12.0 18.0% $20.6 18.0% $20.3 36.0% $30.0 36.0% greater than $20.3 36.0% greater than $30.0 36.0% A pro rata incentive award percentage is calculated for gradations between EVA improvement levels. TWO-YEAR ECONOMIC VALUE ADDED (EVA) INCENTIVE PLAN - CYCLE ONE RESTRICTED STOCK AWARD ALTERNATIVE The Organization and Compensation Committee of the Company's Board of Directors intends to accept requests to receive restricted stock in lieu of a cash payment of any award made under the Cycle One EVA Incentive Plan. Restricted stock awards are made under the Incentive Compensation Plan of 1990, as amended, and the following terms: 1) Elections to receive restricted stock in lieu of cash must be made for the full amount of the award under this EVA Incentive Plan. The election must be made no later than August 1, 1994. 2) To encourage stock ownership, the amount of the award will be increased by a 33-1/3% premium and then converted into whole shares of Beckman common stock based on the closing price of Beckman common stock on the last trading day of the two-year EVA cycle. No fractional shares will be granted and any remainder which would have resulted in a fractional share will instead be paid in cash on the regular incentive payment date. 3) Restricted Stock will be issued pursuant to an agreement, which will provide that such stock cannot be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of for a twenty-four month period beginning on the date of issuance (which will be the EVA incentive payment date established by the Company). All shares awarded will be forfeited in the event of a voluntary termination within the twenty-four month period. However, restrictions will lapse earlier in the event of termination due to death, total disability, or Normal or Late Retirement (but not Early Retirement) under the Beckman Pension Plan. In the event of an involuntary termination, for cause or otherwise, no shares will be forfeited but the restrictions will remain in effect for the full twenty-four month period from the date of issuance. 4) Under current tax law, income is not recognized until the earliest to occur of (i) the last day of the full twenty-four month period, (ii) the date of occurrence of death, total disability, or Normal or Late Retirement (but not Early Retirement) under the Company's Pension Plan, or (iii) the date of severance from Beckman as a result of any involuntary termination. The amount of income to be recognized by you will be equal to the closing price of Beckman common stock on the date of the applicable event described above, times the number of Beckman common shares awarded to you under this alternative. All applicable payroll taxes are due at that time also. IMPORTANT The Restricted Stock Agreement and Election Form will be distributed for your consideration closer to the election deadline. The materials distributed will include information on the effect on certain of Beckman's other benefit plans and additional tax information. Certain reporting requirements under Section 16(a) of the Securities Exchange Act of 1934 apply. Also, participants are advised to consult with counsel in advance of making any election to determine potential Section 16(b) issues regarding the purchase and sale of the Company's common stock. TWO-YEAR ECONOMIC VALUE ADDED (EVA) INCENTIVE PLAN - CYCLE TWO RESTRICTED STOCK AWARD ALTERNATIVE The Organization and Compensation Committee of the Company's Board of Directors intends to accept requests to receive restricted stock in lieu of a cash payment of any award made under the Cycle Two EVA Incentive Plan. Restricted stock awards are made under the Incentive Compensation Plan of 1990, as amended, and the following terms: 1) Elections to receive restricted stock in lieu of cash must be made for the full amount of the award under this EVA Incentive Plan. The election must be made no later than August 1, 1995. 2) To encourage stock ownership, the amount of the award will be increased by a 33-1/3% premium and then converted into whole shares of Beckman common stock based on the closing price of Beckman common stock on the last trading day of the two-year EVA cycle. No fractional shares will be granted and any remainder which would have resulted in a fractional share will instead be paid in cash on the regular incentive payment date. 3) Restricted Stock will be issued pursuant to an agreement, which will provide that such stock cannot be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of for a twenty-four month period beginning on the date of issuance (which will be the EVA incentive payment date established by the Company). All shares awarded will be forfeited in the event of a voluntary termination within the twenty-four month period. However, restrictions will lapse earlier in the event of termination due to death, total disability, or Normal or Late Retirement (but not Early Retirement) under the Beckman Pension Plan. In the event of an involuntary termination, for cause or otherwise, no shares will be forfeited but the restrictions will remain in effect for the full twenty-four month period from the date of issuance. 4) Under current tax law, income is not recognized until the earliest to occur of (i) the last day of the full twenty-four month period, (ii) the date of occurrence of death, total disability, or Normal or Late Retirement (but not Early Retirement) under the Company's Pension Plan, or (iii) the date of severance from Beckman as a result of any involuntary termination. The amount of income to be recognized by you will be equal to the closing price of Beckman common stock on the date of the applicable event described above, times the number of Beckman common shares awarded to you under this alternative. All applicable payroll taxes are due at that time also. IMPORTANT The Restricted Stock Agreement and Election Form will be distributed for your consideration closer to the election deadline. The materials distributed will include information on the effect on certain of Beckman's other benefit plans and additional tax information. Certain reporting requirements under Section 16(a) of the Securities Exchange Act of 1934 apply. Also, participants are advised to consult with counsel in advance of making any election to determine potential Section 16(b) issues regarding the purchase and sale of the Company's common stock. EX-15 3 INDEPENDENT ACCOUNTANTS' REPORT KPMG Peat Marwick Exhibit 15 Certified Public Accountants Orange County Office Center Tower 650 Town Center Drive Costa Mesa, CA 92626 Independent Accountants' Report The Stockholders and Board of Directors Beckman Instruments, Inc: We have reviewed the condensed consolidated balance sheet of Beckman Instruments, Inc. and subsidiaries as of June 30, 1994, and the related condensed consolidated statements of earnings for the three month and six month periods ended June 30, 1994 and 1993 and the condensed consolidated statements of cash flows for the six month periods ended June 30, 1994 and 1993 in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Beckman Instruments, Inc. and subsidiaries as of December 31, 1993, and the related consolidated statements of earnings and cash flows for the year then ended (not presented herein); and in our report dated January 20, 1994, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1993, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. As discussed in Note 3 to the condensed consolidated financial statements, the Company changed its method of accounting for postemployment benefits in 1994 and income taxes and postretirement benefits other than pensions in 1993. (KPMG Peat Marwick) Orange County, California July 15, 1994 -----END PRIVACY-ENHANCED MESSAGE-----