-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WKDEnyaSETacef5vEo4yk+3f7/eXhkqHLU03AGyvJWNloyYQJCjR001Absinixgw vpJGm5P03ch9Gm7C+6r6Iw== 0000840467-98-000007.txt : 19980212 0000840467-98-000007.hdr.sgml : 19980212 ACCESSION NUMBER: 0000840467-98-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980211 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BECKMAN INSTRUMENTS INC CENTRAL INDEX KEY: 0000840467 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 951040600 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10109 FILM NUMBER: 98532566 BUSINESS ADDRESS: STREET 1: 2500 HARBOR BLVD CITY: FULLERTON STATE: CA ZIP: 92634 BUSINESS PHONE: 7148714848 10-K 1 FORM 10-K TO THE SEC FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 Commission File Number 001-10109 BECKMAN INSTRUMENTS, INC. 2500 Harbor Boulevard, Fullerton, California 92834 (714) 871-4848 (Principal Executive Offices) State of Incorporation: Delaware I.R.S. Employer Identification No.: 95-104-0600 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Common Stock, $.10 par value Name of each exchange on which registered: New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by X mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ). Indicate by X mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. ( ) Aggregate market value of voting stock held by non-affiliates of the registrant as of January 26, 1998: $1,190,023,639. Common Stock, $.10 par value, outstanding as of January 26, 1998: 28,460,954 shares. Documents incorporated by reference in this report: Documents incorporated Form 10-K part number Annual Report to stockholders for the fiscal year ended December 31, 1997 Part I and Part II Proxy Statement for the 1998 Annual Meeting of Stockholders to be held on April 2, 1998 Part III BECKMAN INSTRUMENTS, INC. PART I Item 1. Business Overview Beckman Instruments, Inc. (including Coulter Corporation and its subsidiaries ("Coulter") and all other subsidiaries of Beckman Instruments, Inc., "the Company") is a world leader in providing systems that simplify and automate laboratory processes. The Company designs, manufactures and services a broad range of laboratory systems consisting of instruments, reagents and related products that customers use to conduct basic scientific research, drug discovery research and diagnostic analysis of patient samples. Approximately two-thirds of the Company's 1997 sales were for clinical diagnostics applications, principally in hospital laboratories, while the remaining sales were for life sciences and drug discovery applications in universities, medical schools, and pharmaceutical and biotechnology companies. The Company's diagnostic systems address over 75% of the hospital laboratory test volume, including virtually all routine laboratory tests. The Company believes that it is a worldwide market leader in its primary markets, with well-recognized systems and a reputation for high- quality, reliable service. The Company's systems improve efficiency by integrating customer laboratory operations. The design of these systems draws upon the Company's extensive expertise in the chemical, biological, engineering and software sciences. Products for the clinical diagnostics (In Vitro diagnostics ("IVD")) market consist of systems (analytical instruments, reagents, accessories and software) that are used to detect, quantify and classify various substances and cells of clinical interest in human blood and other body fluids. Products for the life sciences market include centrifuges, flow cytometers, high performance liquid chromatographs, spectrophotometers, laboratory robotic workstations, capillary electrophoresis systems, DNA sequencers and synthesizers, and the reagents and supplies for their operation. The Company has an installed base of approximately 75,000 systems in over 120 countries, which the Company believes will provide a recurring stream of revenue and cash flows from the sale of reagents, consumables and services after initial placement of the system ("After Sales"). Approximately 67% of the Company's 1997 sales were derived from After Sales, while the remaining 33% were derived from the direct placement of systems. On October 31, 1997, Beckman Instruments, Inc. (excluding Coulter, "Beckman") acquired Coulter which became a wholly owned subsidiary of Beckman. The acquisition of Coulter was a further extension of the Company's strategy to solidify its position as a leading provider of laboratory systems, adding Coulter's leading market position in hematology and number two position in flow cytometry. Coulter is the world's leading manufacturer of IVD systems for blood cell analysis (hematology), with a market share in hematology approximately twice that of its next largest competitor. Beckman and Coulter serve substantially the same customer base but have essentially no overlap in their product offerings. As a result, the Company expects to be able to enhance the operating efficiency of the combined entities through cross- selling and reduced operating costs. The Company intends to capitalize on cross-selling opportunities primarily by marketing Beckman's clinical chemistry products to existing Coulter customers and marketing Coulter's hematology and flow cytometry products to Beckman's existing customers. Background Beckman is one of the world's leading manufacturers of analytical instrument systems and test kits, competing in the clinical diagnostics and life sciences markets, with Company sales for 1997 of $1.2 billion, approximately one-half from outside the United States. Founded by Dr. Arnold O. Beckman in 1934, Beckman entered the laboratory market by introducing the world's first pH meter. In 1997, the Company generated approximately 67% of its sales through After Sales revenue from an installed base of over 75,000 systems. Beckman became a publicly-traded corporation in 1952. In 1968 Beckman expanded its laboratory instrument focus to include healthcare applications in clinical diagnostics. Beckman was acquired by SmithKline Corporation to form SmithKline Beckman Corporation in 1982, and Beckman was operated as a subsidiary of SmithKline Beckman until 1989 when it was divested. Since that time, Beckman has operated as a fully independent, publicly-owned company. Beckman's principal executive offices are located at 2500 Harbor Blvd., Fullerton, California 92834, and its telephone number is (714) 871-4848. Customers and Markets The two primary markets which the Company serves are the clinical diagnostics and life sciences markets. The Company's clinical diagnostics customers include hospital clinical laboratories, physicians' offices and group practices and commercial reference laboratories (large central laboratories to which hospitals and physicians refer tests); its life sciences customers include universities conducting academic research, medical research laboratories, pharmaceutical companies and biotechnology firms. The Company's customers are continually searching for processes and systems that can perform tests faster, more efficiently and at lower costs. The Company believes that its focus on automated and high throughput systems position it to capitalize on this need. Virtually all new analytical methods and tests originate in academic research in universities and medical schools. If the utility of a new method or test is demonstrated by fundamental research, it often will then be used by pharmaceutical investigators, biotechnology companies, teaching hospitals or specialized clinical laboratories in an investigatory mode. In some cases, these new techniques eventually emerge in routine, high volume clinical testing at hospitals and reference labs. Generally, instruments used at each stage from research to routine clinical applications employ the same fundamental processes but may differ in operating features such as number of tests performed per hour and degree of automation. By serving several customer groups with differing needs related through common science and technology, the Company has the opportunity to broadly apply and leverage its expertise. The clinical diagnostics and life sciences markets are each highly competitive and the Company encounters significant competition in each market from many manufacturers, both domestic and outside the United States. These markets continue to be unfavorably impacted by the economic weakness in Europe and Asia and cost containment initiatives in several European governmental and healthcare systems. The life sciences market also continues to be affected by consolidation of pharmaceutical companies and governmental constraints on research and development spending. Attempts to lower costs and increase efficiencies have led to consolidation among healthcare providers in the United States, resulting in more powerful provider groups that leverage their purchasing power with suppliers 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. In addition, consolidation has put pressure on diagnostic equipment manufacturers to broaden their product offerings to encompass a wider range of testing capability, greater automation and higher volume capacity. Manufacturers that have the ability to automate a wide variety of tests on integrated workstations have a distinct competitive advantage. Broad testing menus that include immunoassays and routine chemistry tests are highly attractive to laboratories seeking to reduce the number of vendors they utilize. Finally, consolidation has made it increasingly important for suppliers to deploy a highly focused salesforce that is able to execute innovative marketing approaches and to maintain a reliable after- sale service network. The size and growth of the Company's 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; and healthcare spending and physician practice. The Company expects worldwide healthcare expenditures and diagnostic testing to increase over the long-term, primarily as a result of the following three factors: (1) growing demand for services generated by the aging of the world population, (2) increasing expenditures on diseases requiring costly treatment (for example, AIDS and cancer) and (3) expanding demand for improved healthcare services in developing countries. Products Overview The Company offers a wide range of instrument systems and related products, including consumables, accessories, and support services, which can be grouped into categories by type of application: Clinical Diagnostics Life Sciences Research and Drug Discovery PRODUCT SALES AS A PERCENT OF TOTAL PRODUCT SALES FOR CATEGORIES REPRESENTING MORE THAN 10 PERCENT OF SALES 1997 1996 1995 ---- ---- ---- Clinical Diagnostics 67 63 60 Life Sciences Research and Drug Discovery 33 37 40 Clinical Diagnostics The clinical diagnostics industry encompasses the study and analysis of disease by means of laboratory evaluation and analysis of bodily fluids and other substances from patients. Due to its important role in the diagnosis and treatment of patients, IVD testing is an integral part of overall patient care. Additionally, IVD testing is increasingly valued as an effective method of reducing healthcare costs by providing accurate, early detection of health disorders and also reducing the length of hospital stays. The major diagnostic fields that comprise the IVD industry include clinical chemistry, immunochemistry, microbiology, hematology and blood banking. The IVD industry market was estimated to be $19 billion in 1996 and is estimated to grow at a 4% compound annual rate through the year 2001. The Company primarily serves the hospital and reference laboratory customers of the IVD market, which tend to use more precise, higher volume and more automated IVD systems. Hospital and reference laboratory customers constitute approximately $15.5 billion of the IVD market. IVD systems are composed of instruments, reagents, consumables, service and data management systems. Instruments typically have a five- to ten-year life and serve to automate repetitive manual tasks, improve test accuracy and speed the reporting of results. Reagents are substances that react with the patient sample to produce measurable, objective results. The consumables vary across application segments but are generally items such as sample containers, adapters, pipette tips, etc., used during test procedures. Reagents, accessories, consumables and services generate significant ongoing revenues for suppliers. Sample handling and preparation devices as well as data management systems are becoming increasingly important components of IVD systems. These system additions further improve safety and reduce costs through automation. The Company believes that the most important criteria customers use to evaluate IVD systems are operating costs, reliability, reagent quality and service, and that providing a fully integrated system that is cost effective, reliable and easy to use results in loyalty among customers who value consistency and accuracy in test results. Life Sciences Research and Drug Discovery Life sciences research is the study of the characteristics, behavior and structure of living organisms and their component systems. Life sciences researchers utilize a variety of instruments and related biochemicals and supplies in the study of life processes, drug discovery and biotechnology. The Company estimates that in 1996 annual sales to the global life sciences industry for instrumentation and related service and biochemicals totaled approximately $6.4 billion. The segments of this market on which the Company focuses are centrifugation and other separation systems, biorobotics for drug screening, electrophoresis for R&D and quality control uses, spectrophotometry, protein purification, DNA synthesis and sequencing, and liquid scintillation, for which the Company estimates 1996 industry wide sales totaled approximately $4.2 billion in the aggregate. Trends in the life sciences industry include the growth in funding for drug discovery by the pharmaceutical and biotechnology industries, driven principally by the desire to accelerate drug discovery and development, and the demand for increased automation and efficiency at pharmaceutical and biotechnology laboratories. An important application of the Company's systems is for use as a part of the drug discovery process. Pharmaceutical groups require the capability to screen millions of potential drug leads against many new disease targets in shorter time periods. Makers of bioanalytical instruments have addressed this need and helped to make the new approach to drug discovery possible by combining the detection capabilities of bioanalytical instruments with advances in high throughput screening. "High throughput screening" is a general term that refers to the automated systems and new instruments currently being used to accelerate drug discovery. Product Descriptions Clinical Diagnostics Products Clinical Chemistry Systems - Overview Clinical chemistry systems use electrochemical detection or chemical reactions with patient samples to detect and quantify substances of diagnostic interest or "analytes" in blood, urine or other body fluids. Commonly performed tests include protein, glucose, cholesterol, triglycerides and enzymes. The Company offers a range of automated clinical chemistry systems to meet the testing requirements of varying size laboratories, together with software that allows these systems to communicate with central hospital computers. To save time and reduce errors, systems identify patient samples through bar codes. Automated clinical chemistry systems are designed to be available for testing on short notice 24 hours a day. The Company has generally configured its systems for the work flow in medium and large hospitals, but the systems also have application in regional reference labs. Over 180 tests for individual analytes are offered for use with the Company's clinical chemistry systems, which range in price from $60,000 to over $300,000. Clinical Chemistry Systems for Automated General Chemistry SYNCHRON(R) Systems The Company's SYNCHRON(R) line of automated general chemistry systems is a family of modular automated diagnostic instruments and the reagents, standards and other consumable products required to perform commonly requested diagnostic tests. The SYNCHRON line was developed in response to changes in reimbursement policies for hospital and clinical laboratories that required them to be more efficient. The SYNCHRON systems have been designed as compatible modules which may be used independently or in various combinations with each other to meet the specific needs of individual customers. The smallest of these modules, the SYNCHRON CX(R)3 [DELTA], introduced in 1994, is an extension of the original CX(R)3 that adds computer enhanced software features, including positive sample identification and up to nine "on-board" chemistries. The SYNCHRON CX4, CX5, and CX7 analyzers are random access systems designed to perform routine chemistry profiles as well as some special chemistry profiles. These models are industry leading, innovative systems that are designed to enhance laboratory productivity. With an extensive menu of routine chemistry, proteins, therapeutic drugs and drugs of abuse, the SYNCHRON systems can perform over 85% of the laboratory's general chemistry testing requirements. In 1997 the CX series was enhanced with additional menu and software designed to simplify operator interface and throughput capabilities. These systems were featured at the American Association of Clinical Chemists (AACC) and Medical trade shows as the SYNCHRON ALX and the SYNCHRON CX7 RTS. SYNCHRON CX systems range in price from $49,000 to $185,000 and are sold principally based on their ability to improve laboratory efficiency. The launch in 1997 of the new SYNCRHON autochemistry analyzer, SYNCRHON LX(TM)20, extends the product line into high volume laboratories. A completely new system, the SYNCHRON LX20 has twice the throughput of the CX7 system as well as options for additional detection capabilities that will increase opportunity for test menu expansion. The SYNCHRON LX20 is also designed for improved sample handling to minimize required operator interface. The SYNCHRON LX20, together with the SYNCHRON CX product lines, provide product offerings for varying size hospitals worldwide. Depending upon configuration and accessories, SYNCHRON LX20 systems range in price from $250,000 to $300,000. Immunochemistry Systems - Overview Immunochemistry systems, like clinical chemistry systems, use chemical reactions to detect and quantify chemical substances of diagnostic interest in blood, urine or other body fluids. The key difference is that immunochemistry systems use antibodies harvested from living organisms as the central component in analytical reactions. These antibodies are created by the organism's immune system and when incorporated in test kits, provide the ability to detect and quantify very low analyte concentrations. Commonly performed tests assess thyroid function, screen and monitor for cancer and calibrate cardiac risk. Immunochemistry systems have been constructed to meet the special requirements of these reactions and to simplify lab processes. They are able to automatically identify individual patient sample tubes and communicate with central computers. The Company offers over 60 immunochemistry-based test kits for individual analytes and a range of systems priced from $60,000 to $90,000. Immunochemistry Systems and Tests For Automated Immunoassay The IMMAGE(R) immunochemistry system, released in 1997, represents an improved technology, high throughput analyzer for specific proteins, various immunologic markers and therapeutic drugs. This system provides automated random access testing which allows the operator to mix samples at random, eliminating the need to analyze in batches. The system is expected to sell for $70,000 to $90,000. The IMMAGE system builds on the extensive installed base of our current immunochemistry analyzer, the ARRAY(R) 360 protein and therapeutic drug monitoring system. The ARRAY 360 was the world's first computer enhanced, positive sample identification, bi-directional immunochemistry analyzer for determination of specific proteins and therapeutic drugs. In 1996 the Company acquired Hybritech Incorporated ("Hybritech"), a San Diego based life sciences and diagnostics company. The acquisition expanded the Company's capabilities for the development and manufacture of high sensitivity immunoassays, including cancer tests. Chief among these products is a test for prostate specific antigen (PSA), utilized as an aid in the detection (in conjunction with digital rectal examination) and monitoring of prostate cancer. Additionally, during 1996 the Company obtained clearance to use its OSTASE(R) assay for the management of postmenopausal osteoporosis, making it the first blood test cleared for such use. In May of 1997, the Company acquired the ACCESS(R) immunoassay product line from Sanofi Diagnostics Pasteur. This product line, manufactured in Chaska, Minnesota, significantly expands the Company's menu of immunochemistry diagnostic tests, particularly those that require high sensitivity. The ACCESS system serves as a disease state management platform used to assist medical professionals to detect and monitor critical parameters for thyroid function, anemia, blood viruses, infectious disease, cancer, allergy, fertility, proteins, therapeutic drugs, diabetes and cardiovascular and skeletal diseases. An ongoing relationship was established with Sanofi Diagnostics Pasteur to research and develop new tests, primarily in the area of infectious disease. The ACCESS system sells for approximately $125,000. Electrophoresis Systems For Clinical Diagnostics The APPRAISE(R) densitometer and the Paragon(R) Electrophoresis Systems allow the Company to offer a full range of electrophoresis products that provide specialized protein analysis for clinical laboratories. Paragon reagent kits are used in the diagnosis of diabetes, cardiac, liver and other diseases. The Appraise densitometer can be used in conjunction with Paragon kits. It ranges in price from $17,000 to $24,000. In 1995 the Company introduced the first capillary electrophoresis system specifically designed for the clinical laboratory, the Paragon CZE(R) 2000. This system is designed to fully automate the manual and somewhat tedious conventional electrophoresis analysis of serum protein electrophoresis (SPE) and immunofixation electrophoresis (IFE). Positioned to complement the Paragon gels and the APPRAISE, the Paragon CZE 2000 is targeted at high volume electrophoresis labs worldwide and sells for approximately $95,000. Point of Care - Rapid Test Products The Company also produces single use self-contained diagnostic test kits for use in physicians' offices, clinics, hospitals and other medical settings. The Hemoccult(R) product line is used as an aid in screening for gastrointestinal disease, most importantly colorectal cancer. In 1994 the Company introduced the FlexSure(R) HP test kit, a test used as an aid in the diagnosis of H pylori infection which is associated with several gastrointestinal diseases, including peptic ulcers and gastric cancer. A convenient whole blood version of the FlexSure(R) HP was launched in 1996. In 1997 the Company released the FlexSure(R) OBT immunochemical test that is specific for human blood and can detect lower gastrointestinal diseases like colorectal cancer more accurately than the Hemoccult(R) test. In addition, through its SKD subsidiary, the Company markets the ICON(R) test kits featuring a high sensitivity pregnancy test widely used by health care practitioners. In 1997, the Company acquired the rights to and introduced a user- friendly, next generation product, ICON(R) Fx Strep A test kit that will replace the current ICON Strep A test. Cell Counting and Characterization Systems - Overview The Company's blood cell systems use the principles of physics, optics, electronics and chemistry to separate cells of diagnostic interest and then quantify and characterize them. These systems fall into two categories: hematology and cytometry. Hematology systems allow clinicians to study formed elements in blood such as red and white cells and platelets. The most common diagnostic result is a "CBC" or complete blood count, which provides five to eight blood cell parameters. Flow cytometers can extend analysis beyond blood to include bone marrow, tumors and other cells. The rise of the AIDS epidemic and the need to monitor subclasses of white cells moved cytometry from largely a research technique into general clinical practice. These systems are automated, use bar codes to identify samples and can communicate with central computers. Cell Counting and Characterization Systems For Hematology The Company's hematology product line reflects the clinical diagnostic market's trend toward increasingly distinct high and low volume segments. The Company currently manufactures eight primary systems; the first three systems are designed for the high volume segment and the remaining five systems are designed for the lower volume segment. The systems in the higher volume segment utilize volume, conductivity and light scatter (VCS) technology in addition to conventional, electrical aperture-impedance (Coulter Principle) technology. Unlike other technologies, the Coulter VCS method counts and characterizes white blood cells while maintaining the native integrity of the white blood cells throughout the analysis. The systems in the lower volume segment rely exclusively upon electrical aperture-impedance technology. High Volume Hematology Systems COULTER (R) GEN.S(TM) hematology system - The COULTER GEN.S system, introduced in 1996, is the Company's state-of-the-art automated hematology system that provides walkaway, whole blood analysis for CBCs, five-part white blood cell differential, red cell morphology and reticulocyte analysis with automated slide- making from a single blood aspiration. COULTER (R) STKS(TM) hematology system - The COULTER STKS is a cost-effective system designed for high volume clinical laboratories. This system is particularly well suited for commercial reference laboratories which have minimal requirements for automated reticulocytes and slide-making capabilities, but need the ability to measure aged specimens accurately. The STKS hematology system provides a CBC and five-part white blood cell differential, red cell morphology, and semi-automated reticulocyte analysis. COULTER(R) MAXM(TM) hematology system - The COULTER MAXM hematology system combines the computing power and many of the technology features of the larger COULTER STKS hematology system within a compact, fully automated bench-top design for moderate throughput. The COULTER MAXM hematology system offers the same comprehensive white cell differential and reticulocyte results as the COULTER STKS hematology system and makes Coulter's advanced VCS technology affordable for moderate volume testing laboratories. The system is also an ideal back-up instrument in high volume testing facilities. High volume hematology systems sell in the $25,000 to $130,000 price range. Low Volume Hematology Systems COULTER(R) ONYX(TM) hematology instruments - The COULTER ONYX analyzer provides a cost-effective option for laboratories that require only a CBC and three-part screening differential. The COULTER ONYX analyzer is available in either a single-sample loading or autoloading configuration for walk-away automation. COULTER(R) MD(TM) hematology instruments - The COULTER MD instrument is designed to meet the needs of the low volume and "stat" test market. The COULTER MD analyzer is simple to operate and cost effective, making it ideal for the hospital laboratory second and third shift. The recently introduced COULTER MDII analyzer incorporates more fully-automated features to enhance productivity . In response to the rapidly emerging Point-of-Care market, the COULTER MDII analyzer integrates a unique software module (RALS, a Remote Access Laboratory System developed in conjunction with the University of Virginia) that enables remote operation of the instrument. These instruments are placed at multiple locations amidst the patient population. A standard user interface enables a central laboratory to communicate with the analyzer and control its operation on-line. As a result, samples can be analyzed by untrained operators under central laboratory supervision, thereby providing test result validation, QA, and centralized data management at reduced cost. COULTER(R) T Series (TM) hematology instruments - The COULTER T Series is an established series of hematology analyzers that provide basic 5 to 8 parameter CBC testing with a two-part screening differential. This simple-to-operate and fully automated system is ideal for a broad segment of laboratories as a primary or back-up system. The COULTER T Series analyzers meet the needs of many international customers who perform relatively high volumes of testing but have limited operating budgets. COULTER(R) Ac.T hematology instrument - The recently introduced COULTER Ac.T 8 hematology analyzer is the first in a series of very low cost automated hematology systems designed to address the low volume market. The COULTER Ac.T 8 is an eight parameter analyzer with an icon-driven user interface. The Company has also introduced the COULTER Ac.T 10, a platform extension that adds a two-part differential to the test menu. The low volume hematology systems typically sell in the price range of $7,500 to $30,000. Flow Cytometry Systems Flow cytometry systems include an instrument, consumables and related accessories to enable and enhance the performance of these instruments. COULTER EPICS(R) Elite ESP(TM) flow cytometer - The COULTER EPICS Elite ESP instrument is a state-of-the-art flow cytometer, for advanced diagnostics and research. It is designed to perform sophisticated cell analysis and sorting applications using the Company's extensive portfolio of reagents. The COULTER EPICS Elite ESP instrument simultaneously performs complex multi- parameter applications such as DNA analysis, physiologic measurements, chromosome enumeration and the study of the hematopoetic process. The cell sorting capability of the system allows for the rapid separation of very large numbers of specific cell populations from a heterogeneous mixture. Coulter's Elite(TM) systems typically sell for $150,000 to $400,000. COULTER EPICS(R) XL(TM) Flow Cytometer with System II(TM) Software -- The COULTER EPICS XL cytometer with System II software is a state-of-the-art benchtop flow cytometer used primarily to analyze white blood cells in clinical and clinical research settings. Because the system is flexible and upgradeable with varying sample preparation systems, it has proven successful in different environments, from research labs to high and low volume hospital and commercial labs. It features flexible networking options with other COULTER EPICS systems and PC networks and incorporates an advanced data management system. XL(TM) systems generally sell for $70,000 to $140,000. Life Sciences Research and Drug Discovery Products The Company offers a wide range of life sciences and drug discovery systems that are used to advance basic understanding of life processes and in the related activities of therapeutic development. Product categories include centrifuges, flow cytometers, life sciences laboratory automation, DNA synthesizers and sequencers, high performance liquid chromatography ("HPLC"), capillary electrophoresis, spectrophotometry and liquid scintillation. Centrifuges separate liquid samples based on the density of the components. Samples are rotated at up to 120,000 revolutions per minute to create forces that exceed 800,000 times the force of gravity. These forces result in a nondestructive separation that allows proteins, DNA and other cellular components to retain their biological activity. Centrifuges are offered in a wide range of models priced from $2,000 to $150,000. Flow cytometers rapidly count and categorize multiple types of cells in suspension. Common research applications include blood, bone marrow and tumor cells for the study of AIDS, leukemias and lymphomas. These systems are also useful in clinical applications and sell in the $150,000 to $400,000 range. Life sciences laboratory automation consists of integrated workstations and robotics that automatically perform exacting and repetitive processes in biotechnology and drug discovery laboratories. Operations include the dispensing, measuring, dilution and mixing of samples and analysis of reactions. A key application is for high throughput screening of candidate compounds in drug discovery research. These systems become functional through sophisticated scheduling and data handling software. Prices range from $50,000 to $500,000. DNA synthesizers and sequencers allow researchers to assemble strands of DNA molecules or to determine their component sequence through electrophoretic separation. These techniques are central to biotechnology science and the genetic understanding of life processes. Systems sell in the range of $12,000 to $45,000. HPLC uses high pressure (5,000 to 15,000 pounds per square inch) to force liquid samples through dense columns of separating agents. This technique is capable of separating very complex mixtures of both organic and inorganic molecules. The Company focuses on biologically related applications, including protein purification, with systems that range from $20,000 to $50,000. In addition, the Company also provides specialized software that is capable of recording, manipulating and archiving data from multiple HPLC systems. This type of software is essential to the pharmaceutical development process and installations can range from $20,000 to over $1,000,000. Capillary electrophoresis uses the electrical charge found on biological molecules to separate mixtures into their component parts. Its chief advantages are its ability to process very small sample volumes, separation speed and high resolution. The technique is considered a complement to HPLC. The Company has systems for basic research and pharmaceutical methods development and quality control that sell in the range of $30,000 to $60,000. Spectrophotometry is the optical measurement of compounds in liquid mixtures. Among its applications is the ability to measure changes during biological reactions. The Company's spectrophotometers are characterized by adaptive software that allows users to control the time, temperature and wavelength of light used for measurement while computing and recording experimental results. Spectrophotometers sell in the $5,000 to $30,000 range. Liquid scintillation techniques allow researchers to insert radioactive "labeled" atoms into compounds that then are introduced into biological systems. The compounds can be traced to a specific tissue or waste product by measuring the amount of radioactive label that is present with a liquid scintillation counter. Liquid scintillation systems sell in the $16,000 to $30,000 range. Competition The markets for the Company's products are highly competitive, with many companies participating in one or more segments of the market. Competitors in the clinical diagnostics market include Abbott Laboratories (Abbott Diagnostics Division), Bayer Diagnostics, Dade Behring, Inc., Becton Dickinson and Company, Johnson & Johnson (Ortho Diagnostics Division), Roche (Roche Boehringer Mannheim Diagnostics Division) and Sysmex Corporation of America (a subsidiary of TOA Medical Electronics Co. Ltd.). Competitors focused more directly in the life sciences market include Amersham Pharmacia Biotech plc, Bio-Rad Laboratories, Inc., Hewlett-Packard Company, Hitachi, Packard BioScience Company, The Perkin-Elmer Corporation, Sorvall Products LP. and Waters Corporation. Competitors include divisions or subsidiaries of corporations with substantial resources. In addition, the Company competes with several companies that offer reagents, consumables and service for laboratory instruments that are manufactured by the Company and others. The Company competes primarily on the basis of improved laboratory productivity, product quality, products combining to meet multiple instrument needs, technology, product reliability, service and price. Management believes that its extensive installed instrument base provides the Company with a competitive advantage in obtaining both follow-on instrument sales and After Sales business. Research and Development The Company's 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. Development programs focus on production of new generations of existing product lines as well as new product categories not currently offered. Areas of pursuit include innovative approaches to cell characterization, immunochemistry, molecular biology, advanced electrophoresis technologies, automated sample processing and information technologies. The Company's research and development teams are skilled in optics, chemistry, electronics, software and mechanical and other engineering disciplines, in addition to a broad range of biological and chemical sciences. Both Beckman and Coulter historically have invested considerable capital on research and development efforts, contributing to their leadership in their respective markets and a consistent flow of new products. The Company's research and development expenditures for Fiscal 1997, 1996, and 1995 were $123.6 million, $108.4 million and $91.7 million, respectively. Sales and Service The Company has sales in over 120 countries and maintains its own marketing, service and sales forces throughout the world. Most of the Company's products are distributed by the Company's sales groups; however the Company employs independent distributors to serve those markets that are more efficiently reached through such channels. The Company's sales representatives are technically educated and trained in the operation and application of the Company's products. The sales force is supported by a staff of scientists and technical specialists in each product line and in each major scientific discipline served by the Company's products. In addition to direct sales of its instruments, the Company leases certain instruments to its customers, principally those used for clinical diagnostic applications in hospitals. This method of instrument placement is a significant competitive factor for the clinical diagnostics market. The Company's ability to provide immediate after sales service and technical support are critical to customer satisfaction. This includes capabilities to provide immediate technical support by phone and to deliver parts or have a service engineer on site within hours. To have such capabilities on a global basis requires a major investment in personnel, facilities, and other resources. The Company's large, existing installed base of instruments makes the required service and support infrastructure financially viable. The Company considers its reputation for service responsiveness and competence and its worldwide sales and service network to be important competitive assets. Patents and Trademarks To complement and protect the innovations created by the Company's R&D efforts, the Company has an active patent protection program which includes approximately 700 active U.S. patents and patent applications. The Company also files important corresponding applications in principal foreign countries. The Company has taken an aggressive posture in protecting its patent rights; however, no one patent is considered essential to the success of the business. The Company's primary trademarks are "Beckman" and "Coulter", with the trade name also being Beckman or Beckman Instruments, Inc. The Company vigorously protects its primary trademarks, which are used on the Company's products and are recognized throughout the worldwide scientific and diagnostic community. The Company owns and uses secondary trademarks on various products, but none of these secondary trademarks is considered of primary importance to the business. Year 2000 Compliance The Company is in the process of modifying, upgrading or replacing its internal computer software applications and information systems. The Company is also in the process of evaluating all currently marketed and leased products and will upgrade those products that are intended for continued marketing and leasing beyond the year 1999. The Company is currently evaluating possible strategies to accommodate its installed analytical instrument systems owned by its customers. These tasks have been assigned to a senior executive of the Company who has established three projects, each led by a project manager and staffed by software experts, to perform the evaluation process: 1) product related matters, 2) mainframe management information systems and software, and 3) all other systems (e.g. personal computers, office machines, and supplier systems). Analysis and evaluation activities were begun in 1996 and are in varying stages of completion at this time. The Company recently expended approximately $250,000 on new software that provides a suite of tools to assist in the year 2000 remediation process. Remediation activities have begun and are planned and expected to be completed by the end of 1998. Testing and validation of the remediated systems and any final revisions needed will be conducted in 1999. The Company does not expect that the cost of its year 2000 compliance program will be material to its business, financial condition or results of operations. The Company believes that it will be able to achieve compliance by the end of 1999 and does not currently anticipate any material disruption in its operations as the result of any failure by the Company to be in compliance. Although the impact on the Company caused by the failure of any of the Company's significant suppliers or customers to achieve year 2000 compliance in a timely or effective manner is uncertain, the Company's business and results of operations could be materially adversely affected by such failure. Government Regulations Certain of the Company's products are subject to regulations of the U.S. Food and Drug Administration (the "FDA") which require such products to be manufactured in accordance with "good manufacturing practices". Such laws and regulations also require that such products be safe and effective and that the labeling of those products conform with specific requirements. Testing is conducted to demonstrate performance claims and to provide other necessary assurances. Clinical systems and reagents must be reviewed by the FDA before sale and, in some instances, are subject to product standards, other special controls or a formal FDA premarket approval process. New federal regulations under the Clinical Laboratory Improvement Amendments of 1988 will, when fully implemented, require regulatory review and approval of quality assurance protocols for the Company's clinical reagent products. While adding to the overall regulatory review process, this is not expected to materially affect the sale of the Company's products. Certain of the Company's products are subject to comparable regulations in other countries as well. In 1993 the member states of the European Union (EU) began implementation of their plan for a new unified EU market with reduced trade barriers and harmonized regulations. The EU adopted a significant international quality standard, the International Organization for Standardization Series 9000 Quality Standards ("ISO 9000"). The Company's manufacturing operations in its Brea, Carlsbad, Fullerton, Palo Alto, Porterville and San Diego, California; Miami and Hialeah, Florida; Florence, Kentucky; Allendale, New Jersey; Sharon Hill, Pennsylvania; Chaska, Minnesota; Naguabo, Puerto Rico; Galway, Ireland, Australia, France, Germany, Hong Kong, South Africa and United Kingdom facilities have been certified as complying with the requirements of ISO 9000. Many of the Company's international sales and service subsidiaries have also been certified, including those located in Australia, Austria, Canada, China, France, Germany, Italy, The Netherlands, Poland, Singapore, South Africa, Spain, Sweden, Switzerland and the United Kingdom. The design of the Company's products and the potential market for their use may be directly or indirectly affected by U.S. and foreign regulations concerning reimbursement for clinical testing services. The configuration of new products, such as the SYNCHRON(R) series of clinical analyzers, reflects the Company's response to the changes in hospital capital spending patterns such as those engendered by the U.S. Medicare Diagnostic Related Groups ("DRGs"). Under the DRG system, a hospital is reimbursed a fixed sum for the services rendered in treating a patient, regardless of the actual cost of the services provided. Japan, France, Germany and Italy are among other countries that are in the process of adopting reimbursement policies designed to lower the cost of healthcare. Medicare reimbursement of inpatient capital costs incurred by a hospital (to the extent of Medicare utilization) is in a 10- year transition period begun in 1991 from the "capital cost pass- through" payment methodology to a "prospective capital" payment methodology based on DRGs. To date, the Company has not experienced, and does not expect to experience in the future, any material financial impact from the change in Medicare's payment for inpatient capital costs. The current health care reform efforts in the United States and in some foreign countries are expected to further alter the methods and financial aspects of doing business in the health care field. The Company is closely following these developments so that it may position itself to take advantage of them. However, the Company cannot predict the effect on its business of these reforms should they occur nor of any other future government regulation. Environmental Matters The Company is subject to federal, state, local and foreign environmental laws and regulations. Although the Company continues to make expenditures for environmental protection, it does not anticipate any significant expenditures in order to comply with such laws and regulations which would have a material impact on the Company's operations or financial position. The Company believes that its operations comply in all material respects with applicable federal, state, and local environmental laws and regulations. To address contingent environmental costs, the Company establishes reserves when such costs are probable and can be reasonably estimated. The Company believes that, based on current information and regulatory requirements (and taking third party indemnities into consideration), the reserves established by the Company for environmental expenditures are adequate. Based on current knowledge, to the extent that additional costs may be incurred that exceed the reserves, such amounts are not expected to have a material adverse effect on the Company's operations or financial condition, although no assurance can be given in this regard. In 1983 the Company discovered organic chemicals in the groundwater near a waste storage pond at its manufacturing facility in Porterville, California. SmithKline Beckman, the Company's former controlling stockholder, agreed to indemnify the Company with respect to this matter for any costs incurred in excess of applicable insurance, eliminating any impact on the Company's earnings or financial position. SmithKline Beecham p.l.c., the surviving entity of the 1989 merger between SmithKline Beckman and Beecham, assumed the obligations of SmithKline Beckman in this respect. In 1987 soil and groundwater contamination was discovered on property in Irvine, California (the "property") formerly owned by the Company. In 1988 The Prudential Insurance Company of America ("Prudential"), which purchased the property from the Company, filed suit against the Company in U.S. District Court in California for recovery of costs and other alleged damages with respect to the soil and groundwater contamination. In 1990 the Company entered into an agreement with Prudential for settlement of the lawsuit and for sharing current and future costs of investigation, remediation and other claims. Soil and groundwater remediation of the property have been in process since 1988. During 1994 the County agency overseeing the site soil remediation formally acknowledged completion of remediation of a major portion of the soil, although there remain other areas of soil contamination that may require further remediation. In July 1997 the California Regional Water Quality Control Board, the agency overseeing the site groundwater remediation, issued a closure letter for the upper water bearing unit. The Company and Prudential continued to operate a groundwater treatment system throughout 1997 and expect to continue its operation in 1998. Investigations on the property are continuing and there can be no assurance that further investigation will not reveal additional contamination or result in additional costs. The Company believes that additional remediation costs, if any, beyond those already provided for the contamination discovered by the current investigations will not have a material adverse effect on the Company's operations or financial position. Employee Relations As of December 31, 1997, the Company had approximately 7,900 employees located in the United States and approximately 3,200 in international operations. The Company believes its relations with its employees are good. Geographic Area Information Information with respect to the above-captioned item is incorporated by reference to Note 14 Business Segment Information of the Consolidated Financial Statements of the Company's Annual Report to Stockholders for the year ended December 31, 1997. Item 2. Properties The Company's primary instrument assembly and manufacturing facilities are located in Fullerton, Brea, and Palo Alto, California; Chaska, Minnesota; and Hialeah, Opa Locka and Miami Lakes, Florida. The Company recently announced the termination effective June, 1998 of manufacturing operations at a Coulter facility located in Luton, England. Component manufacturing support facilities for parts and electronic subassemblies are located in Fullerton and Porterville, California. An additional manufacturing facility is located in Galway, Ireland. Reagents are manufactured in Carlsbad, San Diego and Palo Alto, California; Chaska, Minnesota; Naguabo, Puerto Rico; Florence, Kentucky; Galway, Ireland; Germany; France; Japan; Brazil; Australia; Argentina and Hong Kong. The Company's computer software products business is located in Allendale, New Jersey and its facility for the production of Hemoccult(R) test kits and related products is located in Sharon Hill, Pennsylvania. A portion of the Company's laboratory robotics operations (Sagian) are conducted in leased facilities in Indianapolis, Indiana and some of its DNA sequencing activities are performed in leased facilities in Foster City, California. All of the Company's U.S. manufacturing facilities, including land and buildings, are owned, with the exception of Allendale, Foster City, Indianapolis, San Diego, Sharon Hill, Opa Locka, Miami Lakes, eight of the facilities in Hialeah and Florence which are leased facilities, and Palo Alto, where the Company has built and owns its buildings on a long-term land lease expiring in 2054. All manufacturing facilities outside the U.S. are leased with the exception of Germany, France, Japan, Brazil and Australia. The component production facilities for the Company also include plastics molding and machine shop capabilities in Fullerton. This facility, in conjunction with electronic subassembly work done in Porterville, supplies the primary parts and subassemblies to the various instrument assembly locations in California. The Company's principal distribution locations are in Brea and Fullerton, California; Chaska, Minnesota; Somerset, New Jersey; Frankfurt, Germany; and Paris, France. In 1994 the Company established a European Administration Center at a facility in Nyon, Switzerland. The Company intends to consummate several sale leaseback transactions with respect to some of its properties during 1998 and 1999 which the Company expects will generate proceeds to the Company of approximately $150 million in 1998 and approximately $40 million in 1999. The Company believes that its production facilities meet applicable government environmental, health and safety regulations, and industry standards for maintenance, and that its facilities in general are adequate for its current business. Item 3. Legal Proceedings The Company is currently, and is from time to time, subject to claims and suits arising in the ordinary course of its business, including those relating to intellectual property, contractual obligations, competition and employment matters. In certain such actions, plaintiffs request punitive or other damages or nonmonetary relief, which may not be covered by insurance, and in the case of nonmonetary relief, could, if granted, materially affect the conduct of the Company's business. The Company accrues for potential liabilities involved in these matters as they become known and can be reasonably estimated. In management's opinion (taking third party indemnities into consideration), the various asserted claims and litigation in which the Company is currently involved are not reasonably likely to have a material adverse effect on the Company's operations or financial position. However, no assurance can be given as to the ultimate outcome with respect to such claims and litigation. The resolution of such claims and litigation could be material to the Company's operating results for any particular period, depending upon the level of income for such period. In January 1996, Coulter, then unrelated to Beckman notified Hematronix, a competitive reagent manufacturer, that Hematronix was selling certain reagents and controls that infringed upon certain of Coulter's patents. In response, Hematronix filed a complaint in April 1996, in the United States District Court of the Eastern District of California against Coulter. The complaint seeks a declaratory judgment to invalidate the patents. The complaint also includes antitrust and related business tort claims directed at Coulter's business and leasing activities, and seeks actual, treble and punitive damages in an unspecified amount, as well as injunctive relief. Coulter answered the complaint by denying violations of the antitrust laws and business tort claims and counterclaimed that Hematronix willfully infringed the patents at issue. Discovery has been conducted by both sides and is continuing. The Company has filed a motion for summary judgment on the antitrust and other non-patent issues. The motion has been heard and a decision from the court is pending. Management of the Company believes that the patents at issue are valid and have been infringed upon by Hematronix and that the antitrust claims are without merit. If the matter does proceed to trial, the trial is scheduled for October, 1998. Although the plaintiff has claimed substantial damages, based on the Company's analysis of the present facts and the existence of certain indemnities by the former stockholders of Coulter, the Company believes that the ultimate outcome of this litigation is not reasonably likely to have a material adverse effect on the Company's operations or financial position. Through its Hybritech acquisition the Company obtained a patent, referred to as the Tandem Patent, that generates significant royalty income. The Tandem Patent is involved in an interference action in the U.S. Patent and Trademark Office with a patent application owned by La Jolla Cancer Research Foundation (the "Foundation"). If the Foundation wins the interference, the Company would lose the Tandem Patent and the royalty income, and a new patent would issue to the Foundation covering those products. The Company believes it has the stronger case and will prevail and does not expect this matter to have a material adverse effect on its operations or financial position. As previously reported, in 1991 Forest City Properties Corporation and F.C. Irvine, Inc. (collectively, "Forest City"), former owners and developers of a portion of the same real property in Irvine referred to under the caption "Environmental Matters" herein, filed suit against Prudential in the California Superior Court for the County of Los Angeles, alleging breach of contract and damages caused by the pollution of the property. Forest City originally sought damages of more than $20 million but subsequently increased its demand to $40 million. Forest City also sought additional remediation of the property. Although the Company is not a named defendant in the Forest City action, it is obligated to contribute to any resolution of that action pursuant to Beckman's 1990 settlement agreement with Prudential. See "Environmental Matters" herein. The trial of this matter was conducted in 1995, resulting in a jury verdict in favor of Prudential. The Court subsequently granted Forest City's motion for a new trial which Prudential appealed. Prior to the Court's consideration of the appeal, Prudential settled the lawsuit with Forest City and requested Beckman to pay a portion of the settlement pursuant to the 1990 settlement agreement. Beckman does not agree with Prudential's claims and believes it has significant defenses to them. Although the outcome of this dispute cannot be predicted with certainty, the Company believes that any additional liability beyond that provided for will not have a material adverse effect on the Company's operations or financial position. As previously reported, since 1992 six toxic tort lawsuits* have been filed in Maricopa County Superior Court, Arizona by a number of residents of the Phoenix/Scottsdale area against the Company (relating to a former Company manufacturing site) and a number of other defendants, including Motorola, Inc., Siemens Corporation, the cities of Phoenix and Scottsdale, and others. The Company is indemnified by SmithKline Beecham p.l.c., the successor of its former controlling stockholder, for any costs incurred in these matters in excess of applicable insurance, and thus the outcome of these litigations, even if unfavorable to the Company, should have no material effect on the Company's operations or financial position. These suits are currently in the discovery phase, with the first of several anticipated trials in the actions scheduled for June, 1998. * Baker v. Motorola, Inc. et al (filed February 1992), Lofgren v. Motorola, Inc. et al (filed April 1993), Betancourt v. Motorola, Inc. et al (filed July 1993), Ford v. Motorola, Inc. et al (filed June 1994), Wilkins v. Motorola, Inc., et. al. (filed July 1995), and Dawson v. Motorola, Inc., et. al. (filed August 1997). As previously reported, the public prosecutor in Palermo (Sicily), Italy is investigating the activities of officials at a local government hospital and laboratory as well as representatives of the principal worldwide companies marketing diagnostic equipment in Palermo, including the Company's Italian subsidiary (the "Subsidiary"). The inquiry focuses on past leasing practices for placement of diagnostic equipment which were common industry-wide practices throughout Italy, but now are alleged to be improper. The Company believes the prosecutor's evidence is weak and insufficient to support a criminal conviction against certain identified employees (the Subsidiary is not a defendant). The Court has appointed economic experts to evaluate and present a comprehensive economic report on the leasing practices of the industry. Although it is very difficult to evaluate the political climate in Italy and the activities of the Italian public prosecutors, the Company does not expect this matter to have a material adverse effect on its operations or financial position. In addition, the Company and its subsidiaries are 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 such lawsuits will have a material adverse effect on the operations or financial position of the Company. See also "Environmental Matters" herein. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report. Executive Officers of the Company The following is a list of the executive officers of the Company as of February 7, 1998, showing their ages, present positions and offices with the Company and their business experience during the past five or more years. Officers are elected by the Board of Directors and serve until the next annual Organization Meeting of the Board. Officers may be removed by the Board at will. There are no family relationships among any of the named individuals, and no individual was selected as an officer pursuant to any arrangement or understanding with any other person. Louis T. Rosso, 64, Chairman Mr. Rosso has been Chief of the Board and Chief Executive Officer of the Executive Officer Company since 1988 and Chairman of the Board since 1989. He served as the Company's President from 1982 until 1993. He also served as a Vice President of SmithKline Beckman from 1982 to 1989. Mr. Rosso first joined the Company in 1959 and was named Corporate Vice President in 1974. He is a director of Allergan, Inc. and American Health Properties, Inc. He is a member of the Board of Trustees of St. Jude Heritage Health Foundation in Fullerton, California and of Harvey Mudd College. Mr. Rosso has been a director of the Company since 1988. John P. Wareham, 56, Director, Mr. Wareham has been President President, and Chief Operating and Chief Operating Officer of Officer the Company since 1993. He served as the Company's Vice President, Diagnostic Systems Group from 1984 to 1993. Prior thereto, he had been President of Norden Laboratories, Inc., a wholly owned subsidiary of SmithKline Beckman engaged in developing, manufacturing and marketing veterinary pharmaceuticals and vaccines. Mr. Wareham first joined SmithKline Corporation, a predecessor of SmithKline Beckman, in 1968. He is a director of the Little Rapids Corporation and the Health Industry Manufacturers Association. Mr. Wareham has been a director of the Company since 1993. Dennis K. Wilson, 62, Vice Mr. Wilson has been Vice President, Finance and Chief President, Finance and Chief Financial Officer Financial Officer of the Company since 1993. He served as Vice President, Treasurer of the Company from 1989 until his current appointment. Prior thereto he had been Vice President, Corporate Accounting and Assistant Controller of SmithKline Beckman since 1984. Mr. Wilson first joined the Company in 1969. James T. Glover, 47, Vice Mr. Glover has been Vice President and Controller President and Controller of the Company since 1993. From 1989 until assuming his current position, he was Vice President, Controller - Diagnostic Systems Group. Mr. Glover joined the Company in 1983, serving in several management positions, including a two-year term at Allergan, Inc., then a Company affiliate. Prior to 1983, he held management positions with KPMG Peat Marwick and another Fortune 500 Company. Fidencio M. Mares, 51, Vice Mr. Mares was named Vice President, Human Resources President, Human Resources of the Company in 1995. Prior thereto he had been President of The Gas Company of Hawaii. Before that he was Senior Vice President of Administration and Human Resources for Pacific Resources, Inc., Corporate Wage and Salary Manager and Corporate Human Resources Services Manager for Getty Oil Company/Texaco, Inc., and held various human resources managerial positions at Southern California Edison. William H. May, 55, Vice Mr. May has been General President, General Counsel and Counsel and Secretary of the Secretary Company since 1984 and has been Vice President, General Counsel and Secretary of the Company since 1985. Mr. May first joined the Company in 1976. Bruce A. Tatarian, 49, Vice Mr. Tatarian was named Vice President, Beckman President, Beckman Distribution Markets Operation Distribution Markets Operation, of the Company in October 1997. He had been Vice President, Field Operations - Emerging Markets since 1995 and Vice President Bioresearch Commercial Operations International since 1994. Prior thereto, he had been Vice President, Marketing Operations for the Bioanalytical Systems Group since 1991. Mr. Tatarian originally joined the Company in 1973. Albert R. Ziegler, 59, Vice Mr. Ziegler was named Vice President, Clinical Chemistry President, Clinical Chemistry Division Division of the Company in October 1997. He had been Vice President, Diagnostics Development Center of the Company since 1994. He joined the Company in 1986 as Vice President, North America Operations for the Diagnostic Systems Group. Prior thereto he had been President of Branson Ultrasonics Corporation, a manufacturer of industrial ultrasound instruments and a subsidiary of SmithKline Beckman until the divestiture of SmithKline Beckman's industrial instruments businesses in 1984. Mr. Ziegler first joined SmithKline Beckman in 1971. Paul Glyer, 41, Treasurer Mr. Glyer has been Treasurer of the Company since 1993. In 1995 he additionally assumed the position of Director, Corporate Business Development and Licensing. He served as Assistant Treasurer since 1989 when he first joined the Company. Arthur A. Torrellas, 67, Vice Mr. Torrellas was Vice President, Field Operations - President, Field Operations - North America/Europe North America/Europe of the Company from 1995 until December, 1997 when he retired. He had been Vice President, Diagnostic Commercial Operations since 1994 and Vice President, International Operations for the Diagnostic Systems Group since 1985. Mr. Torrellas first joined the Company in 1977. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters Information with respect to the above-captioned Item is incorporated herein by reference to the section entitled "QUARTERLY INFORMATION (Unaudited)" of the Company's Annual Report to stockholders for the year ended December 31, 1997. During 1997 the Company paid four consecutive quarterly dividends of $.15 per share of common stock, for a total of $.60 per share for the year. During 1996 the Company paid four consecutive quarterly dividends of $.13 per share of common stock, for a total of $.52 per share for the year. Under the terms of the Company's principal credit agreement, which expires on October 31, 2002, dividend payments are limited but not prohibited. To date this limitation has not had an impact on the Company's dividends and is not expected to have an impact in the foreseeable future. In addition, as of January 26, 1998, there were approximately 8,154 holders of record of the Company's common stock. Item 6. Selected Financial Data Information with respect to the above-captioned Item is incorporated herein by reference to the section entitled "SELECTED FINANCIAL INFORMATION" of the Company's Annual Report to Stockholders for the year ended December 31, 1997. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information with respect to the above-captioned Item is incorporated herein by reference to the section entitled "FINANCIAL REVIEW" of the Company's Annual Report to Stockholders for the year ended December 31, 1997. Item 8. Financial Statements and Supplementary Data Information with respect to the above-captioned Item is incorporated herein by reference to the CONSOLIDATED FINANCIAL STATEMENTS, including all the notes thereto, and the sections entitled "REPORT BY MANAGEMENT", "INDEPENDENT AUDITORS' REPORT" and "QUARTERLY INFORMATION (Unaudited)" of the Company's Annual Report to Stockholders for the year ended December 31, 1997. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Directors - The information with respect to directors required by this Item is incorporated herein by reference to those parts of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held April 2, 1998 entitled "ELECTION OF DIRECTORS" and "BOARD OF DIRECTORS INFORMATION." Executive Officers - The information with respect to executive officers required by this Item is set forth in Part I of this report. Item 11. Executive Compensation The information with respect to executive compensation required by this Item is incorporated by reference to that part of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held April 2, 1998 entitled "EXECUTIVE COMPENSATION", excluding those sections entitled "Organization and Compensation Committee Report on Executive Compensation" and "Performance Graph". Item 12. Security Ownership of Certain Beneficial Owners and Management The information with respect to security ownership required by this Item is incorporated by reference to that part of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held April 2, 1998 entitled "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Item 13. Certain Relationships and Related Transactions The information with respect to certain relationships and related transactions required by this Item is incorporated by reference to that part of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held April 2, 1998 entitled "BOARD OF DIRECTORS INFORMATION, Compensation Committee Interlocks and Insider Participation." PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)(1), (a)(2) Financial Statements and Financial Statement Schedules The financial statements and financial statement schedules filed as part of the report are incorporated by reference in the "INDEX OF FINANCIAL STATEMENTS AND SCHEDULES" following this Part IV. (a)(3) Exhibits Management contracts and compensatory plans or arrangements are identified by *. 2.1 Stock Purchase Agreement among Coulter Corporation, The Stockholders of Coulter Corporation and the Company, dated as of August 29, 1997 (incorporated by reference to Exhibit 2.1 of the Company's Report on Form 8-K dated November 13, 1997, File No. 001-10109). [Note: Confidential treatment has been requested for portions of this document.] 3.1 Third Restated Certificate of Incorporation of the Company, June 5, 1992 (incorporated by reference to Exhibit 3.1 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1992, File No. 001-10109). 3.2 Amended and Restated By-Laws of the Company, as of November 30, 1994 (incorporated by reference to Exhibit 3.2 of the Company's Annual Report to the Securities and Exchange Commission on form 10-K for the fiscal year ended December 31, 1994, File No. 001-10109). 4.1 Specimen Certificate of Common Stock (incorporated by reference to Exhibit 4.1 of Amendment No. 1 to the Company's Form S-1 registration statement, File No. 33-24572). 4.2 Rights Agreement between the Company and Morgan Shareholder Services Trust Company, as Rights Agent, dated as of March 28, 1989 (incorporated by reference to Exhibit 4 of the Company's current report on Form 8-K filed with the Securities and Exchange Commission on April 25, 1989, File No. 1-10109). 4.3 First amendment to the Rights Agreement dated as of March 28, 1989 between the Company and First Chicago Trust Company of New York (formerly Morgan Shareholder Services Trust Company), as Rights Agent, dated as of June 24, 1992 (incorporated by reference to Exhibit 1 of the Company's current report on Form 8-K filed with the Securities and Exchange Commission on July 2, 1992, File No. 001-10109). 4.4 Amendment 1993-1 to the Company's Savings and Investment Plan, adopted November 3, 1993, filed in connection with the Form S-8 Registration Statement filed with the Securities and Exchange Commission on September 1, 1992, File No. 33-51506 (incorporated by reference to Exhibit 4 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended March 31, 1994, File No. 001-10109). 4.5 Amendment 1995-1 to the Company's Savings and Investment Plan, adopted December 20, 1995, filed in connection with the Form S-8 Registration Statement filed with the Securities and Exchange Commission on September 1, 1992 and Amendment No. 1 thereto filed December 17, 1992, File No. 33-51506 (incorporated by reference to Exhibit 4.5 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1995, File No. 001-10109). 4.6 Amendment 1996-1 to the Company's Savings and Investment Plan, adopted December 5, 1996, filed in connection with the Form S-8 Registration Statement filed with the Securities and Exchange Commission on September 1, 1992 and Amendment No. 1 thereto filed December 17, 1992, File No. 33-51506 (incorporated by reference to Exhibit 4.6 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1996, File No. 001-10109). 4.7 Amendment 1996-2 to the Company's Savings and Investment Plan, adopted effective December 3, 1996 (incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended June 30, 1997, File No. 001-10109). 4.8 Amendment 1997-1 to the Company's Savings and Investment Plan, adopted June 9, 1997 (incorporated by reference to Exhibit 4.2 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended June 30, 1997, File No. 001-10109). 4.9 Amendment 1997-2 to the Company's Savings and Investment Plan, adopted June 9, 1997 (incorporated by reference to Exhibit 4.3 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended June 30, 1997, File No. 001-10109). 4.10 Amendment 1997-3 to the Company's Savings and Investment Plan, adopted December 3, 1997, filed in connection with the Form S-8 Registration Statement filed with the Securities and Exchange Commission on September 1, 1992 and Amendment No. 1 thereto filed December 17, 1992, File No. 33-51506. 4.11 Amendment 1997-4 to the Company's Savings and Investment Plan, adopted December 17, 1997, filed in connection with the Form S-8 Registration Statement filed with the Securities and Exchange Commission on September 1, 1992 and Amendment No. 1 thereto filed December 17, 1992, File No. 33-51506. 4.12 Senior Indenture between the Company and The First National Bank of Chicago as Trustee, dated as of May 15, 1996, filed in connection with the Form S-3 Registration Statement filed with the Securities and Exchange Commission on April 5, 1996, File No. 333-02317 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended June 30, 1996, File No. 001-10109). 4.13 7.05% Debentures Due June 1, 2026, filed in connection with the Form S-3 Registration Statement filed with the Securities and Exchange Commission on April 5, 1996, File No. 333-02317 (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended June 30, 1996, File No. 001-10109). 10.1 Credit Agreement dated as of October 31, 1997 among the Company as Borrower, the Initial Lenders and the Initial Issuing Banks named therein, and Citicorp USA, Inc. as Agent (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 1997, File No. 001- 10109). 10.2 Guaranty dated as of October 31, 1997 made by each Guarantor Subsidiary (as defined in the Credit Agreement, Exhibit 10.1 herein) of the Company, in favor of the Lender Parties (as defined in the Credit Agreement) (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 1997, File No. 001-10109). 10.3 Line of Credit Promissory Note in favor of Mellon Bank, N.A., dated as of October 6, 1993 (incorporated by reference to Exhibit 10.21 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1992, File No. 001-10109). 10.4 Loan Agreement (Multiple Advance), dated September 30, 1993, between Beckman Instruments (Japan) Limited and the Industrial Bank of Japan, Limited (English translation, including certification as to accuracy; original document executed in Japanese) (incorporated by reference to Exhibit 10.21 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1993, File No. 001-10109). 10.5 Term Loan Agreement, dated as of September 30, 1993, between Beckman Instruments (Japan) Limited and Citibank, N.A., Tokyo Branch (incorporated by reference to Exhibit 10.22 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1993, File No. 001-10109). 10.6 Term Loan Agreement, dated as of December 9, 1993, between Beckman Instruments (Japan) Limited and The Dai-Ichi Kangyo Bank Limited (English translation, including certification as to accuracy; original document executed in Japanese) (incorporated by reference to Exhibit 10.23 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1993, File No. 001-10109). 10.7 Benefit Equity Amended and Restated Trust Agreement between the Company and Mellon Bank, N.A., as Trustee, for assistance in meeting stock-based obligations of the Company, dated as of February 10, 1997. * 10.8 The Company's Executive Incentive Plan, adopted by the Company in 1996 (incorporated by reference to Exhibit 10 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended March 31, 1996, File No. 001-10109). * 10.9 Amendment No. 1 to the Company's Executive Incentive Plan, adopted in 1996 (incorporated by reference to Exhibit 10.9 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1996, File No. 001-10109). * 10.10 The Company's Annual Incentive Plan for 1997, adopted by the Company in 1997 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended June 30, 1997, File No. 001-10109. * 10.11 The Company's Incentive Compensation Plan of 1990, amended and restated April 4, 1997, with amendments approved by stockholders April 3, 1997 and effective January 1, 1997 (incorporated by reference to Exhibit 10 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended March 31, 1997, File No. 001-10109). * 10.12 Amendment to the Company's Incentive Compensation Plan of 1990 adopted December 5, 1997 (incorporated by reference to Exhibit 4.1 to Post-Effective Amendment No. 1 to the Form S-8 Registration Statement filed January 13, 1998, Registration No. 333-24851. * 10.13 The Company's Incentive Compensation Plan, as amended by the Company's Board of Directors on October 26, 1988 and as amended and restated by the Company's Board of Directors on March 28, 1989 (incorporated by reference to Exhibit 10.16 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December, 31 1989, File No. 001-10109). * 10.14 Amendment to the Company's Incentive Compensation Plan, adopted December 5, 1997 (incorporated by reference to Exhibit 4.2 to Post Effective Amendment No. 1 to the Form S-8 Registration statement, filed January 13, 1998, Registration No. 33-31573). * 10.15 Restricted Stock Agreement and Election (Cycle Two - Economic Value Added Incentive Plan), adopted by the Company in 1995 (incorporated by reference to Exhibit 10 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 1995, File No. 001-10109). * 10.16 Restricted Stock Agreement and Election (Cycle Three - Economic Value Added Incentive Plan), adopted by the Company in 1996 (incorporated by reference to Exhibit 10.15 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year period ended December 31, 1996, File No. 001- 10109). * 10.17 Form of Restricted Stock Agreement, dated as of January 3, 1997, between the Company and certain of its Executive Officers and certain other key employees (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended June 30, 1997, File No. 001-10109). * 10.18 Beckman Instruments, Inc. Supplemental Pension Plan, adopted by the Company October 24, 1990 (incorporated by reference to Exhibit 10.4 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December, 31 1990, File No. 001-10109). * 10.19 Amendment 1995-1 to the Company's Supplemental Pension Plan, adopted by the Company in 1995, effective as of October 1, 1993 (incorporated by reference to Exhibit 10.17 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1996, File No. 001-10109). * 10.20 Amendment 1996-1 to the Company's Supplemental Pension Plan, dated as of December 9, 1996 (incorporated by reference to Exhibit 10.18 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1996, File No. 001- 10109). * 10.21 Stock Option Plan for Non-Employee Directors (Amended and Restated effective as of August 7, 1997), incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on October 8, 1997, Registration No. 333-37429. * 10.22 Form of Change in Control Agreement, dated as of May 1, 1989, between the Company, certain of its Executive Officers and certain other key employees (incorporated by reference to Exhibit 10.34 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1989, File No. 001-10109). * 10.23 Agreement Regarding Retirement Benefits of Arthur A. Torrellas, adopted December 1, 1993 and dated December 20, 1993, between the Company and Arthur A. Torrellas (incorporated by reference to Exhibit 10.24 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1993, File No. 001-10109). * 10.24 Amendment to the December 1, 1993 Agreement Regarding Retirement Benefits of Arthur A. Torrellas, dated as of May 30, 1995, between the Company and Arthur A. Torrellas (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended June 30, 1995, File No. 001-10109). * 10.25 Second Amendment to the December 1, 1993 Agreement Regarding Retirement Benefits of Arthur A. Torrellas, dated as of December 16, 1996, between the Company and Arthur A. Torrellas (incorporated by reference to Exhibit 10.24 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1996, File No. 001- 10109). * 10.26 Third Amendment to the December 1, 1993 Agreement Regarding Retirement Benefits of Arthur A. Torrellas, dated as of July 18, 1997, between the Company and Arthur A. Torrellas. * 10.27 Agreement Regarding Retirement Benefits of Albert Ziegler, dated June 16, 1995, between the Company and Albert Ziegler (incorporated by reference to exhibit 10.22 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K/A for the fiscal year ended December 31, 1995, File No. 001-10109). * 10.28 Agreement Regarding Retirement Benefits of Fidencio M. Mares, adopted and dated April 30, 1996, between the Company and Fidencio M. Mares (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended June 30, 1996, File No. 001-10109). 10.29 Amendment 1997-1 to the Company's Employees' Stock Purchase Plan, adopted effective January 1, 1998 and dated October 20, 1997 (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 1997, File No. 001- 10109). * 10.30 The Company's Executive Deferred Compensation Plan, effective January 1, 1998, dated November 5, 1997 (incorporated by reference to Exhibit 10.4 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 1997, File No. 001-10109). * 10.31 The Company's Executive Restoration Plan, effective January 1, 1998, dated November 5, 1997 (incorporated by reference to Exhibit 10.5 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 1997, File No. 001-10109). * 10.32 The Company's Amended and Restated Deferred Directors' Fee Program, amended as of June 5, 1997 (incorporated by reference to Exhibit 10.6 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 1997, File No. 001-10109). * 10.33 Amendment 1997-2 to the Company's Supplemental Pension Plan, adopted as of October 31, 1997 (incorporated by reference to Exhibit 10.7 of the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 1997, File No. 001-10109). * 10.34 Form of Restricted Stock Award Agreement between the Company and its non-employee Directors, effective as of October 3, 1997 (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on October 8, 1997, Registration No. 333-37429). * 10.35 Form of Stock Option Grant for non-employee Directors (incorporated by reference to Exhibit 4.3 of the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on October 8, 1997, Registration No. 333-37429). 10.36 The Company's Employees' Stock Purchase Plan, amended and restated as of November 1, 1996, filed in connection with the Form S-8 Registration Statement filed with the Securities and Exchange Commission on December 19, 1995, File No. 33-65155 (incorporated by reference to Exhibit 10.29 of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1997, File No. 001-10109). * 10.37 The Company's Option Gain Deferral Program, dated January 14, 1998 (incorporated by reference to Exhibit 4.2 of Post-Effective Amendment No. 1 to the Form S-8 Registration Statement filed with the Securities and Exchange Commission on January 13, 1998, Registration No. 333-24851). * 10.38 Form of Coulter's Special Incentive Plan and Sharing Bonus Plan, assumed by the Company October 31, 1997. 10.39 Distribution Agreement, dated as of April 11, 1989, among SmithKline Beckman Corporation the Company and Allergan, Inc. (incorporated by reference to Exhibit 3 to SmithKline Beckman Corporation's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 14, 1989, File No. 1-4077). 10.40 Amendment to the Distribution Agreement effective as of June 1, 1989 between SmithKline Beckman Corporation, the Company and Allergan, Inc. (incorporated by reference to Exhibit 10.26 of Amendment No. 2 to the Company's Form S-1 registration statement, File No. 33-28853). 10.41 Cross-Indemnification Agreement between the Company and SmithKline Beckman Corporation (incorporated by reference to Exhibit 10.1 of Amendment No. 1 to the Company's Form S-1 registration statement, File No. 33-24572). 11. Statement regarding computation of per share earnings: This information is incorporated by reference to Note 1 Summary of Significant Accounting Policies and Note 13 Earnings Per Share of the Consolidated Financial Statements of the Company's Annual Report to Stockholders for the year ended December 31, 1997. 13. WORDS ON NUMBERS Section of the Company's Annual Report to Stockholders for the year ended December 31, 1997. 21. Subsidiaries. 23. Consent of KPMG Peat Marwick LLP, February 9, 1998. 27. Financial Data Schedule. (b) Reports on Form 8-K During Fourth Quarter ended December 31, 1997. The following reports on Form 8-K were filed during the quarter ended December 31, 1997: 1. Item 5. Other Events. Beckman Instruments, Inc. Announces Plans for Debt Offering, September 23, 1997. 2. Item 5. Other Events. Summary of the acquisition of Coulter Corporation by Beckman Instruments, Inc. and the related financing transactions, October 15, 1997. Includes financial statements for Coulter Corporation for its last three fiscal years and pro forma financial statements for the most recent fiscal year. 3. Item 2. Acquisition of Assets. Beckman Consummates its Acquisition of Coulter Corporation, November 13, 1997. Includes pro forma financial statements for the year ended December 31, 1996 and for the six month period ended June 30, 1997. Beckman Instruments, Inc. INDEX TO FINANCIAL STATEMENTS AND SCHEDULES The consolidated financial statements of the Company and the related report of KPMG Peat Marwick LLP, dated January 23, 1998 are incorporated by reference to the section entitled "WORDS ON NUMBERS" of the Company's Annual Report to Stockholders for the year ended December 31, 1997. The information required to be reported in the Supplementary Financial Schedule entitled, VIII Allowance for Doubtful Accounts, for the three year period ended December 31, 1997 is set forth in Note 15 Supplementary Information of the "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" of the Company's Annual Report to Stockholders for the year ended December 31, 1997. Schedules not included herein have been omitted because they are not applicable, are no longer required or the required information is presented in the consolidated financial statements or in the notes to the consolidated financial statements. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: February 5, 1998 By LOUIS T. ROSSO Louis T. Rosso Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Chairman of the Board and Chief Executive Officer (Principal LOUIS T. ROSSO Executive Officer) Louis T. Rosso February 5, 1998 President, Chief Operating Officer JOHN P. WAREHAM and Director John P. Wareham February 4, 1998 Vice President, Finance and Chief Financial Officer D. K. WILSON (Principal Financial Officer) Dennis K. Wilson February 4, 1998 Vice President and Controller (Principal JAMES T. GLOVER Accounting Officer) James T. Glover February 5, 1998 HUGH K. COBLE Director February 4, 1998 Hugh K. Coble CAROLYNE K. DAVIS Director February 4, 1998 Carolyne K. Davis, Ph.D. Signature Title Date --------- ----- ---- PETER B. DERVAN Director February 4, 1998 Peter B. Dervan, Ph.D. DENNIS C. FILL Director February 4, 1998 Dennis C. Fill CHARLES A. HAGGERTY Director February 4, 1998 Charles A. Haggerty GAVIN HERBERT Director February 4, 1998 Gavin S. Herbert WILLIAM N. KELLEY Director February 4, 1998 William N. Kelley, M.D. FRANCIS P. LUCIER Director February 4, 1998 Francis P. Lucier C. RODERICK O'NEIL Director February 4, 1998 C. Roderick O'Neil BETTY WOODS Director February 4, 1998 Betty Woods INDEX TO EXHIBITS Exhibit Number Exhibit - ------- ------- 4.10 Amendment 1997-3 to the Company's Savings and Investment Plan, adopted December 3, 1997, filed in connection with the Form S-8 Registration Statement filed with the Securities and Exchange Commission on September 1, 1992 and Amendment No. 1 thereto filed December 17, 1992, File No. 33-51506. 4.11 Amendment 1997-4 to the Company's Savings and Investment Plan, adopted December 17, 1997, filed in connection with the Form S-8 Registration Statement filed with the Securities and Exchange Commission on September 1, 1992 and Amendment No. 1 thereto filed December 17, 1992, File No. 33-51506. 10.7 Benefit Equity Amended and Restated Trust Agreement between the Company and Mellon Bank, N.A., as Trustee, for assistance in meeting stock-based obligations of the Company, dated as of February 10, 1997. 10.25 Third Amendment to the December 1, 1993 Agreement Regarding Retirement Benefits of Arthur A. Torrellas, dated as of July 18, 1997, between the Company and Arthur A. Torrellas. 10.38 Form of Coulter's Special Incentive Plan and Sharing Bonus Plan, assumed by the Company October 31, 1997. 13. WORDS ON NUMBERS Section of the Company's Annual Report to Stockholders forthe year ended December 31, 1997. 21. Subsidiaries. 23. Consent of KPMG Peat Marwick LLP, February 9, 1998. 27. Financial Data Schedule. EX-4.10 2 AMENDMENT TO COMPANY'S SAVINGS & INVESTMENT PLAN EXHIBIT 4.10 AMENDMENT 1997-3 BECKMAN INSTRUMENTS, INC. SAVINGS AND INVESTMENT PLAN WHEREAS, Beckman Instruments, Inc. (the "Company") maintains the Beckman Instruments, Inc. Savings and Investment Plan (the "Plan"); and WHEREAS, the Company is establishing the Beckman Instruments, Inc. Executive Restoration Plan (the "Restoration Plan") effective January 1, 1998, and now wishes to clarify certain provisions with respect to employees who are eligible to participate under the Plan and the Restoration Plan; and WHEREAS, the Company has the right to amend the Plan; NOW, THEREFORE, the Plan is hereby amended, effective for contributions made and benefits earned in the Plan Year commencing January 1, 1998, as set forth below: 1. Section 1.2 of the Plan is amended by inserting the following definition of "Annual Bonus" after the definition of "Anniversary Date" therein: "'Annual Bonus' or 'Annual Bonuses' shall mean the portion of Plan Compensation paid by Company as variable compensation on an annual basis under a formal program maintained by the Company. Annual Bonus includes payments under the Company's executive and management incentive and performance sharing programs." 2. The first sentence of Section 3.1(a) of the Plan is amended to read as follows: "Subject to the limitations in this Section and Section 4.1, each Participant may elect to make Before-Tax Savings Contributions, in accordance with procedures prescribed by the Committee, in whole percentages from 1% to 15% of the portion of said Participant's Plan Compensation other than Annual Bonus for each pay period and/or from 1% to 80% of said Participant's Annual Bonus." 3. Section 3.1(a) of the Plan is further amended by adding the following paragraph at the end thereof: "Notwithstanding the foregoing, a Participant is not eligible to elect to make Before-Tax Savings Contributions of a percentage greater than 15% of the portion of his or her Plan Compensation consisting of an Annual Bonus in any year that he or she is also eligible to be a participant in the Beckman Instruments, Inc. Executive Restoration Plan." 4. Section 3.2(a) of the Plan is amended to read as follows: "Subject to the limitations of Sections 3.4 and 4.1, each Participant may elect to make After-Tax Savings Contributions on his own behalf in accordance with procedures prescribed by the Committee in whole percentages from 1% to 15% of the portion of said Participant's Plan Compensation other than Annual Bonus for each payroll period and/or from 1% to 80% of said Participant's Annual Bonus. Notwithstanding the foregoing, the sum of the After-Tax Savings Contributions and the Before-Tax Savings Contributions by a Participant in a Plan Year shall not exceed 15% of said Participant's Plan Compensation other than Annual Bonus and 80% of said Participant's Annual Bonus. Notwithstanding the foregoing paragraph, a Participant is not eligible to elect to make After-Tax Savings Contributions of a percentage greater than 15% of the portion of his or her Plan Compensation consisting of Annual Bonus in any year that he or she is also eligible to be a participant in the Beckman Instruments, Inc. Executive Restoration Plan." 5. Section 3.5 of the Plan is amended by adding the following two paragraphs at the end thereof: "A Participant who is also a participant in the Beckman Instruments, Inc. Executive Restoration Plan or the Beckman Instruments, Inc. Executive Deferred Compensation Plan for a Plan Year shall be permitted to change his or her election of Before-Tax Savings Contributions effective as of the first day of a Plan Year, and shall be entitled to change his or her election of After-Tax Savings Contributions during a Plan Year, in each case according to the manner prescribed by the Committee. However, such a Participant shall only be permitted to change his or her election of Before-Tax Savings Contributions during a Plan Year by completely discontinuing all Before- Tax Savings Contributions and After-Tax Savings Contributions under this Plan and all contributions under the Beckman Instruments, Inc. Executive Restoration Plan and the Beckman Instruments, Inc. Executive Deferred Compensation Plan. Such a Participant may not resume contributions to this Plan or such other plans for the remainder of the Plan Year and the following Plan Year. In addition, a Participant who is also a participant in the Beckman Instruments, Inc. Executive Deferred Compensation Plan who discontinues his or her salary and/or bonus deferrals during the year under the Executive Deferred Compensation Plan must at the same time discontinue all Before-Tax Savings Contributions and After-Tax Savings Contributions under this Plan and the Beckman Instruments, Inc. Executive Restoration Plan. Such a Participant may not resume contributions to this Plan or such other plans for the remainder of the Plan Year and the following Plan Year. If a Participant who is a participant under the Beckman Instruments, Inc. Executive Restoration Plan does not, during the period prior to a Plan Year prescribed by the procedures established by the Committee, submit a new election concerning his or her Before-Tax Savings Contributions for the following Plan Year, he or she shall be deemed to have initially elected no Before-Tax Savings Contribution for such Plan Year, but shall be entitled to change his or her election concerning Before-Tax Savings Contributions under the generally- applicable procedures of this Plan." IN WITNESS WHEREOF, this Amendment 1997-3 is hereby adopted this 3 day of December, 1997. BECKMAN INSTRUMENTS, INC. By: FIDENCIO M. MARES Name: Fidencio M. Mares Title: Vice President, Human Resources EX-4.11 3 AMENDMENT TO COMPANY'S SAVINGS & INVESTMENT PLAN EXHIBIT 4.11 AMENDMENT 1997-4 BECKMAN INSTRUMENTS, INC. SAVINGS AND INVESTMENT PLAN WHEREAS, Beckman Instruments, Inc. ("Beckman") maintains the Beckman Instruments, Inc. Savings and Investment Plan (the "Plan"); and WHEREAS, as of October 31, 1997 Beckman acquired Coulter Corporation, a Delaware corporation ("Coulter") and now wishes to amend the Plan to clarify certain provisions with respect to Coulter employees; and WHEREAS, it is expected that Beckman will seek shareholder approval to change its name to include reference to Coulter; and WHEREAS, Beckman has the right to amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows, effective as of October 31, 1997: 1. Contingent upon approval of the change of the name of Beckman Instruments, Inc., any reference to Beckman Instruments, Inc. herein shall be changed to a reference to the name approved by the shareholders of Beckman Instruments, Inc. at their 1998 annual meeting. 2. The first sentence of the definition of "Covered Employee" under Section 1.2 of the Plan is amended to read as follows: "'Covered Employee' shall mean any Employee of the Company who is 'Beckman Employee,' as described in the definition of `Employee' in this Section 1.2, and who is paid through a payroll system of the Company or a Participating Affiliate with its principal place of business in the United States or Puerto Rico; except that there shall be excluded all leased employees described in Section 414(n) of the Code, those Employees covered by a collective bargaining agreement between the Company and any collective bargaining representative if retirement benefits were the subject of good faith bargaining between such representative and the Company, unless the Employee is a member of a group of employees to whom this Plan has been extended by a collective bargaining agreement between the Company and its collective bargaining representative, and those Employees who are non-resident aliens with no United States source income. 'Coulter Employees,' as described in the definition of 'Employee' in this Section 1.2 shall not be Covered Employees." 3. The definition of "Employee" under Section 1.2 is amended to read as follows: "(a) 'Employee' shall mean any person employed by the Company, or a Related Company, including any leased employee described in Section 414(n) of the Code. For purposes of this Plan, Employees shall be classified by the Company as 'Beckman Employees' and 'Coulter Employees'. A 'Beckman Employee' shall be any Employee who, as of October 31, 1997, is classified by the Company as an employee rendering services to Beckman Instruments, Inc. A 'Coulter Employee' shall be any Employee who, as of October 31, 1997 is classified by the Company as an employee rendering services to Coulter Corporation. With respect to persons not employed by the Company as of October 31, 1997, if the person's first Hour of Service after October 31, 1997 is performed at a facility, location or operation determined by the Company to be primarily related to the portion of the Company's business other than that acquired through the acquisition of Coulter Corporation, that person shall be a 'Beckman Employee' under this Plan. If the person's first Hour of Service after October 31, 1997 is performed at a facility, location or operation determined by the Company to be primarily related to the portion of the Company's business acquired through the acquisition of Coulter Corporation, that person shall be a 'Coulter Employee' under this Plan. The initial classification of an Employee as a 'Beckman Employee' or a 'Coulter Employee' shall continue notwithstanding any change to the Employee's facility, location or operation." IN WITNESS WHEREOF, this Amendment 1997-4 is hereby adopted this 17th day of December, 1997. BECKMAN INSTRUMENTS, INC. By: FIDENCIO M. MARES Name: Fidencio M. Mares Title: Vice President, Human Resources EX-10.7 4 BENEFIT EQUITY AMENDED & RESTATED TRUST AGT EXHIBIT 10.7 BECKMAN INSTRUMENTS, INC. BENEFIT EQUITY AMENDED AND RESTATED TRUST AGREEMENT BETWEEN BECKMAN INSTRUMENTS, INC. AND MELLON BANK, N.A. AS TRUSTEE BECKMAN INSTRUMENTS, INC. BENEFIT EQUITY AMENDED AND RESTATED TRUST AGREEMENT Dated as of February 10, 1997 between Beckman Instruments, Inc. and Mellon Bank, N.A. TABLE OF CONTENTS ----------------- SECTION 1 Definitions 1 SECTION 2 Establishment of the Trust 4 2.1 Trust Fund 4 2.2 Irrevocability 4 2.3 Claims of Creditors 5 SECTION 3 Acceptance by the Trustee 5 SECTION 4 Investment of the Trust 5 4.1 General Duty of Trustee 5 4.2 Additional Powers of Trustee 5 SECTION 5 Establishment and Maintenance of Participant Schedule 7 5.1 Form of Participant Schedule 7 5.2 Maintaining the Participant Schedule 7 SECTION 6 Maintenance of Trust 8 6.1 Trust Assets and Allocation to Plans 8 6.2 Valuation of Trust and Accounts 8 SECTION 7 Voting and Tender of Company Stock Held in Trust 8 7.1 Voting Rights 8 7.2 Tender Rights 8 7.3 Notices and Information Statements 9 SECTION 8 Distributions from the Trust 9 8.1 Distributions from the Trust 9 8.2 Significant Event 10 8.3 Protection of Trustee 10 8.4 Company Obligations 10 8.5 Trustee as Holder of Legal Title to Trust Assets 10 8.6 Federal Income Tax Consequences of the Trust 10 i SECTION 9 Expenses, Compensation and Indemnification 11 9.1 Expenses 11 9.2 Compensation 11 9.3 Charge on Trust Fund 11 9.4 Indemnification 11 9.5 Force Majeure 12 9.6 Payment from Trust Fund 12 SECTION 10 Administration and Records 12 10.1 Records 12 10.2 Settlement of Accounts 12 10.3 Audit 12 10.4 Judicial Settlement 13 10.5 Delivery of Records to Successor 13 10.6 Tax Filings 13 SECTION 11 Removal or Resignation of the Trustee and Designation of Successor Trustee 13 11.1 Removal 13 11.2 Resignation 13 11.3 Successor Trustee 13 SECTION 12 Enforcement of Trust Agreement 14 12.1 Rights of Parties to Enforce the Trust Agreement 14 12.2 Limitation on Rights of Participant and Beneficiaries 14 SECTION 13 Termination 14 13.1 Termination upon Specific Events 14 13.2 Termination in Other Events 14 13.3 Limitation on Trustee Liability upon Total Distribution; Continuation of Trustee Powers 15 13.4 Nonapplicability of ERISA 15 SECTION 14 Amendment 15 14.1 Amendments in General 15 14.2 Nonapplicability of ERISA; Preventing Current Taxation 15 SECTION 15 Nonalienation 15 15.1 Prohibition Against Certain Transfers, Pledges, Etc. 15 ii SECTION 16 Communications 16 16.1 To the Company, Board of Directors and Committee 16 16.2 To the Trustee 16 16.3 To a Participant 17 16.4 Binding upon Receipt 17 16.5 Authority to Act 17 16.6 Authenticity of Instruments l7 SECTION 17 Claims of Companies' Bankruptcy Creditors 17 17.1 Bankruptcy Creditors 17 17.2 Resumption of Benefits; Restoration of Accounts 18 SECTION 18 Consolidation, Merger or Sale of the Company 18 18.1 Consolidation, Merger or Sale of the Company 18 SECTION 19 Miscellaneous Provisions 18 19.1 Binding Effect 18 19.2 Inquiry as to Authority 18 19.3 Responsibility for Company Action 18 19.4 Successor to Trust 18 19.5 Intercompany Agreements 19 19.6 Titles Not to Control 19 19.7 Laws of the Commonwealth of Pennsylvania 19 19.8 Fractional Shares 19 Schedule A LIST OF PLANS 20 Schedule B MINIMUM DISTRIBUTION SCHEDULE(S) 21 Schedule C TRUSTEE'S COMPENSATION SCHEDULE 22 iii THE BECKMAN INSTRUMENTS, INC. BENEFIT EQUITY AMENDED AND RESTATED TRUST AGREEMENT ("Trust Agreement") made and entered into as of February 10, 1997 by and between Beckman Instruments, Inc., a corporation organized under the laws of the State of Delaware (the "Company"), and Mellon Bank, N.A., a national banking association, organized under the law of the United States of America (the "Trustee"). WITNESSETH: WHEREAS, the Company has in place various qualified and non- qualified employee benefit plans and arrangements for the benefit of some or all of the employees of the Company and certain of its subsidiaries and affiliates and may from time to time adopt one or more additional plans or arrangements; WHEREAS, the Company and its subsidiaries or affiliates have and will have certain legal obligations under these employee benefit plans or arrangements; WHEREAS, the Company established The Beckman Instruments, Inc. Benefit Equity Trust Agreement as of January 31, 1993 (the "Original Trust") to assist it in meeting certain of these obligations and intends to make contributions to such trust at such time or times and in such amount or amounts as it may determine; WHEREAS, the Company intends that such contributions shall be held by the Trustee and invested and reinvested primarily in common stock of the Company, all in accordance with the provisions of this Trust Agreement; WHEREAS, inasmuch as the income and corpus of such trust may and will be applied in discharge of the Company's legal obligations, such trust is intended to be a "grantor trust" within the meaning of Section 671 of the Internal Revenue Code of 1986; WHEREAS, the Company intends that the assets of such trust at all times shall be subject to the claims of bankruptcy and other general creditors of the Company and its subsidiaries and affiliates that maintain the employee benefit plans and arrangements as provided in Section 17 of this Trust Agreement; WHEREAS the Company desires to appoint the Trustee to serve as Trustee of the Original Trust and the Trustee accepts such appointment; and WHEREAS the Company and the Trustee desire to restate the terms of the Original Trust as provided herein and to have the terms of this Trust Agreement supersede such agreement; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and the Trustee declare and agree as follows: SECTION 1 Definitions. As used in this Trust Agreement, the following definitions apply to the terms indicated below: 1.1 "Administrator" or "Administrators" shall refer to the committee, person or persons charged with responsibility for overseeing and administering the Plans. 1.2 "Affiliate" shall refer to any subsidiary or other firm related by direct or indirect stock ownership that has adopted a Plan while each such entity remains a subsidiary or related firm of the Company. 1.3 "Beneficiary" shall mean any person entitled to receive benefits under any Plan on the death of a Participant. 1.4 "Benefits" shall mean amounts that the Company or an Affiliate has an obligation pursuant to any Plan to (i) pay from its general assets, (ii) provide for the payment of by making contributions from its general assets, or (iii) deliver in shares of Company Stock. 1.5 "Board of Directors" shall mean the Board of Directors of the Company. 1.6 "Change in Control" shall be deemed to occur if the Secretary of the Company certifies to the Trustee that any of the following events has occurred: 1.6.1 Any "person", as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than an employee benefit plan of the Company, or a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding voting securities. Notwithstanding the preceding sentence, a Change of Control shall not be deemed to have occurred if the "person" described in the preceding sentence is an underwriting syndicate which has acquired the ownership of 20% or more of the combined voting power of the Company's then outstanding voting securities solely in connection with a public offering of the Company's securities. 1.6.2 Individuals who, as of the date hereof, constitute the Board of the Company (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be considered as though such person were a member of the Incumbent Board of the Company. 1.6.3 The stockholders of the Company approve a merger or consolidation with any corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of another entity) more than 80% of the combined voting power of the voting securities of the Company or such other entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires 20% or more of the combined voting power of the Company's then outstanding voting securities. 1.6.4 The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 1.7 "Code" shall mean the Internal Revenue Code of 1986 as it may be amended from time to time. 1.8 "Committee" shall mean such committee as the Board of Directors shall appoint from time to time to administer the Trust. The Committee shall consist of three or more persons. The members of the Committee will be certified to the Trustee by the Secretary or Assistant Secretary of the Board of Directors. 1.9 "Company Stock" shall mean the common stock of the Company, par value $.10 per share. 1.10 "Daily Value" shall mean, with respect to a share of Company Stock, the closing reported sales price per share of Company Stock on the New York Stock Exchange Composite Tape, or if Company Stock is not traded on such stock exchange, the principal national securities exchange on which Company Stock is traded, or if not so traded, the mean between the highest bid and lowest asked quotation on the over-the-counter market as reported by the National Quotations Bureau, or any similar organization, on any relevant date, or if not so reported, as determined by the Committee in a manner consistently applied. 1.11 "Eligible Participant" shall mean a Participant who is an Employee and who, during the 6-month period preceding the date as of which Eligible Participants are to be determined for purposes of this Trust Agreement, purchased Common Stock pursuant to the Beckman Instruments Employee Stock Purchase Plan. 1.12 "Employee" shall mean any individual who is actively employed by the Company or an Affiliate. 1.13 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.14 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. 1.15 "Minimum Distribution Schedule" shall mean the schedule (or schedules) set forth in Schedule B. 1.16 "Other Assets" shall mean any asset or investment aside from cash held by the Trust that is not Company Stock. 1.17 "Participant Schedule" shall mean the schedule prepared by the Company pursuant to Section 5.2. 1.18 "Participants" shall mean those individuals who participate in one or more of the Plans described in Appendix A. 1.19 "Plans" shall mean the plans or arrangements referred to in Schedule A, as amended from time to time. 1.20 "Trust" shall mean the trust amended and restated pursuant to this Trust Agreement. 1.21 "Trust Fund" shall mean all Company Stock, money and other property from time to time contributed to the Trust and all investments and reinvestments made therewith or proceeds thereof and all earnings and profits thereon, less all payments and charges as authorized herein. SECTION 2 Establishment of the Trust. 2.1 Trust Fund. The Company hereby amends and restates the Trust. The Trust Fund shall consist of such sums of Company Stock, money and other property acceptable to the Trustee as are from time to time paid or delivered to the Trustee. The Company shall have no duty or obligation to make any contribution to the Trust and the Trustee shall have no duty or obligation to require the Company to make any contribution to the Trust. The Trust Fund shall be held by the Trustee in trust and shall be dealt with in accordance with the provisions of this Trust Agreement. The Trustee, and any successor Trustee appointed pursuant to Section 11 hereof or resulting under Section 19.4 hereof shall at all times be a bank and trust company or other national banking association that is neither a subsidiary of nor other firm related by direct or indirect stock ownership to the Company. 2.2 Irrevocability. Except as provided in Section 17 hereof, the Trust shall be for the exclusive purpose of assisting the Company in providing Benefits and defraying expenses of the Trust in accordance with the provisions of this Trust Agreement. No part of the income or corpus of the Trust Fund shall be recoverable by the Company; provided, however, that the Trust Fund shall be applied in discharge of the Company's legal obligations as provided in this Trust Agreement. 2.3 Claims of Creditors. Notwithstanding anything in this Trust Agreement or the Plans to the contrary, the Trust Fund shall at all times be subject to the claims of bankruptcy and other general creditors of the Company and its affiliates, as provided in Section 17 hereof. No Participant or Plan shall have any claim against the Trust Fund other than as a general unsecured creditor of the Company. SECTION 3 Acceptance by the Trustee. The Trustee accepts the Trust established under this Trust Agreement on the terms and subject to the provisions set forth herein. The Trustee agrees to discharge and perform fully and faithfully all of the duties and obligations imposed upon it under this Trust Agreement. SECTION 4 Investment of the Trust. 4.1 General Duty of Trustee. Except as otherwise directed by the Committee pursuant to this Section 4.1, and except as otherwise expressly provided in this Trust Agreement, all assets received by the Trustee other than Company Stock shall be invested as soon as practicable in, and remain invested in, Company Stock. The Trustee shall acquire shares of Company Stock in the open market or through the method of purchase and sales which is used by the Trustee in the normal course of its security transactions, including transactions with the Company. The Committee may direct that cash or Other Assets received by the Trustee may be retained and invested in Other Assets provided that, after payment of the costs of the Trust, including, without limitation, Trustee fees and expenses, through the end of the calendar year during which such cash or other Assets are received by the Trustee, any such cash or Other Assets remaining shall be distributed by the Trustee at the end of such calendar year to such Plans, Participants or Employees as determined by the Committee in good faith taking into account the best interests of a broad cross-section of Employees. 4.1.1 Upon any purchase by or contribution to the Trust of Company Stock pursuant to this Section 4, the Trustee shall promptly take such steps as are necessary to register such Company Stock in accordance with Section 4.2.13 hereof. 4.2 Additional Powers of Trustee. Subject to the provisions of Section 4.1, the Trustee shall have the following additional powers and authority with respect to all property constituting a part of the Trust Fund: 4.2.1 To purchase securities or any other kind of property and to retain such securities or other property, regardless of diversification and without being limited to investments authorized by law for the investment of trust funds; provided, however, "property" shall not include any direct or indirect interest in real estate. For this purpose, "real estate" includes, but is not limited to real property, mortgages, leaseholds, mineral interests, and any form of asset which is secured by any of the foregoing. 4.2.2 Subject to Section 7 hereof, to sell, exchange or transfer any such property at public or private sale for cash or on credit and grant options for the purchase or exchange thereof. 4.2.3 Subject to Section 7 hereof, to participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to any such property, and to consent to or oppose any such plan or any action thereunder, or any contract, lease, mortgage, purchase, sale or other action by any corporation or other entity any of the securities of which may at any time be held in the Trust Fund, and to do any act with reference thereto. 4.2.4 To deposit cash or any Other Assets with any protective, reorganization or similar committee; to delegate discretionary power to any such committee; and to pay part of the expenses and compensation of any such committee and any assessments levied with respect to any property so deposited. 4.2.5 To exercise any conversion privilege or subscription right available in connection with any such property, and to do any act with reference thereto, including the exercise of options, the making of agreements or subscriptions and the payment of expenses, assessments or subscriptions, which may be deemed necessary or advisable in connection therewith, and to hold and retain any securities or other property which it may so acquire. 4.2.6 To commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings; to settle, compromise or submit to arbitration any claims, debts or damages, due or owing to or from the Trust. 4.2.7 Subject to Section 7 hereof, to exercise, personally or by general or limited power of attorney, any right, including the right to vote, appurtenant to any securities or other such property. 4.2.8 To hold cash awaiting investment uninvested, and to maintain such additional cash balances as it shall deem reasonable or necessary to meet anticipated cash distributions from or administrative costs of the Trust. 4.2.9 To invest cash or Other Assets at Mellon Bank, N.A., or another bank and trust company or national banking association in any type of interest-bearing investment, including, without limitation, deposit accounts, certificates of deposit and repurchase agreements. 4.2.10 To invest and reinvest all or any specified portion of cash or Other Assets (i) through the medium of any common trust fund which has been or may hereafter be established and maintained by the Trustee, or (ii) in shares of open end or closed end investment companies provided that, prior to investing any portion of the Trust Fund for the first time in any such common trust fund or investment company, the Trustee shall advise the Company of its intent to make such an investment and furnish to the Company any information it may reasonably request with respect to such investment. 4.2.11 To form corporations or partnerships and to create trusts to hold title to any cash or Other Assets constituting the Trust Fund, upon such terms and conditions as may be deemed advisable. 4.2.12 To engage legal counsel, including (except following the occurrence of a Change in Control) counsel to the Company, or any other suitable agents, to consult with such counsel or agents with respect to the implementation or construction of this Trust Agreement, the duties of the Trustee hereunder, the transactions contemplated by this Trust Agreement or any act which the Trustee proposes to take or omit, to rely upon the advice of such counsel or agents, and to pay any such counsel's or agent's reasonable fees, expenses and compensation. 4.2.13 To register or hold any securities or other property held by it in its own name or of its nominee or in the name of any affiliate or of its nominee or in the name of any custodian of such property or of its nominee, including the nominee of any system for the central handling of securities, with or without the addition of words indicating that such securities are held in a fiduciary capacity, to deposit or arrange for the deposit of any such securities with such a system and to hold any securities in bearer form. 4.2.14 To make, execute and deliver, as Trustee, any and all deeds, leases, notes, bonds, guarantees, mortgages, conveyances, contracts, waivers, releases or other instruments in writing that are necessary or proper for the accomplishment of any of the foregoing powers. 4.2.15 Pursuant to the direction of the Committee as to all aspects of the transaction, including without limitation interest rate, term and identity of lender, to undertake a borrowing sufficient to enable the Trust to acquire newly issued Company Stock. 4.2.16 To take all action necessary to settle authorized transactions, including exercising the power to borrow or raise moneys from any lender, which may be the Trustee in its corporate capacity or any affiliate or agent of the Trustee, upon such terms and conditions as are necessary to settle security purchases and/or foreign exchange or contracts for foreign exchange and to secure the repayments thereof by pledging all or any part of the Trust Fund. 4.2.17 Subject to Section 7 hereof, generally, to exercise any of the powers of an owner with respect to property held in the Trust Fund. SECTION 5 Establishment and Maintenance of Participant Schedule. 5.1 Form of Participant Schedule. The Company shall prepare, and shall deliver to the Trustee in accordance with Section 5.2 hereof, a schedule that sets forth the name of each Participant entitled to receive a Benefit under a Plan. Such Schedule shall also include a list of Eligible Participants. 5.2 Maintaining the Participant Schedule. As soon as practicable after execution of this Trust Agreement, the Company shall deliver to the Trustee the Participant Schedule. The Company shall from time to time update the Participant Schedule. Each Participant Schedule shall state the date as of which it applies, and the Trustee shall be entitled to rely upon such Participant Schedule, without a duty of further inquiry, until it receives an updated Participant Schedule bearing a later date. Each Participant Schedule shall contain all information concerning a Participant which the Trustee will need to complete its responsibilities under this Agreement. SECTION 6 Maintenance of Trust. 6.1 Trust Assets and Allocation to Plans. The Trustee shall hold all assets contributed or otherwise obtained by the Trust and shall distribute such contributions and any earnings thereon to such Administrators, Employees or Participants as the Committee may from time to time direct pursuant to Section 8 hereof or as may be required pursuant to Section 8 hereof. 6.2 Valuation of Trust and Accounts. The Trustee shall revalue the Trust Fund as of the last business day of each calendar quarter. Shares of Company Stock shall be valued at the Daily Value of Company Stock as of such date. SECTION 7 Voting and Tender of Company Stock Held in Trust. 7.1 Voting Rights. The Trustee shall vote the shares of Company Stock held by the Trust in accordance with directions received from Eligible Participants determined as of the record date. As soon as practicable following the record date in question, the Company shall deliver to the Trustee a Participant Schedule listing Eligible Participants determined as of such record date. Each Eligible Participant listed on such Participant Schedule shall have the right to direct the vote with respect to that number of shares of Company Stock held by the Trust as is equal to the total number of shares of Company Stock held by the Trust as of such record date divided by the number of Eligible Participants listed on the Participant Schedule who submit such voting directions. The Trustee shall devise and implement a procedure to assure confidentiality of any directions given by Eligible Participants in respect of votes. All actions taken by Eligible Participants pursuant to this Section 7.1 shall be held confidential by the Trustee and shall not be divulged or released to any person, other than (i) agents of the Trustee who are not affiliated with the Company or its Affiliates, (ii) by virtue of the execution by the Trustee of any proxy, consent or letter of transmittal for the shares of Company Stock held in the Trust, or (iii) as may be required by court order. 7.2 Tender Rights. If any person shall commence a tender or exchange offer or any similar transaction with respect to the Company Stock, the Trustee shall pass through tender or exchange rights to Eligible Participants determined as of the commencement of such tender or exchange offer. As soon as practicable following the commencement of such tender or exchange offer, the Company shall deliver to the Trustee a Participant Schedule listing the Eligible Participants determined as of the commencement of such tender or exchange offer. Each Eligible Participant listed on such Participant Schedule shall have the right to direct the tender or exchange of that number of shares of Company Stock held by the Trust as is equal to the total number of shares of Company Stock held by the Trust divided by the number of Eligible Participants listed on the Participant Schedule who submit such directions. The Trustee shall devise and implement a procedure to assure the confidentiality of any directions given by Eligible Participants in response to such offers. All actions taken by Eligible Participants pursuant to this Section 7.2 shall be held confidential by the Trustee and shall not be divulged or released to any person, other than (i) agents of the Trustee who are not affiliated with the Company or its Affiliates, (ii) by virtue of the execution by the Trustee of any proxy, consent or letter of transmittal for the shares of Company Stock held in the Trust, or (iii) as may be required by court order. 7.3 Notices and Information Statements. The Company shall provide the Trustee in a timely manner with notices and information statements (including proxy statements) when voting rights are to be exercised, and with respect to tender, exchange or similar offers, at the same time and in the same manner (except to the extent the Exchange Act requires otherwise) as such notices and information statements (including proxy statements) are provided to shareholders of the Company generally. The Trustee shall, in turn, at no expense to itself, provide all material received by the Company pursuant to this Section 7.3 to Eligible Participants described in Sections 7.1 and 7.2. SECTION 8 Distributions from the Trust. 8.1 Distributions form the Trust. Except as otherwise provided in Section 8.2, the Trustee shall distribute Company Stock held in the Trust in accordance with the Minimum Distribution Schedule applicable to such transfer of stock. The particular Plan with respect to which any distribution from the Trust is made will be determined by the Committee in accordance with the following directions: (a) to the extent available, shares of Company Stock sufficient to meet the obligations of the Beckman Instruments Inc. Employee Share Purchase Program shall first be allocated to the Administrator of such Plan, and (b) remaining shares of Company Stock (if any) shall be allocated to the Administrators of other Plans or directly to Participants in such other Plans or Employees, as determined by the Committee in good faith taking into account the best interests of a broad cross-section of Participants. 8.1.1 Reliance Upon Committee Instruction. The Committee shall inform the Trustee in writing of how many shares are required to fund 8.1(a). The Trustee may rely upon written instructions received by the Committee to carry out the instructions contained in this Section 8.1 and shall have no responsibility to verify or monitor the determinations made by the Committee. If no direction regarding allocation of shares of Company Stock pursuant to clause (b) of Section 8.1 is received by the Trustee from the Committee by the date specified in the Minimum Distribution Schedule, the shares of Company stock subject to such allocation under said clause (b) shall be distributed to all Participants in an equal amount per Participant as determined by reference to the most recent Participant Schedule received by the Trustee. 8.1.2 Acceleration. Notwithstanding anything herein to the contrary, the Committee can direct that the number of shares distributed in any year exceed the number of shares required to be distributed under the Minimum Distribution Schedule and/or that shares be distributed prior to the date specified in such schedule. If, in any year, the Committee directs that the number of shares distributed exceeds the number required to be distributed pursuant to the Minimum Distribution Schedule, such Schedule shall be revised by the Committee, so that all remaining minimum distribution amounts will be reduced proportionately. 8.2 Significant Event. If an event occurs that causes 30 percent or more of the Participants to cease to be Employees within a 12-month period, as certified by the Committee, then all remaining distribution amounts under the Minimum Distribution Schedule will be reduced in direct proportion to such reduction and the Minimum Distribution Schedule will be correspondingly extended. 8.3 Protection of Trustee. The Trustee shall, to the maximum extent permitted by applicable law, be fully protected in acting upon the Participant Schedule and any written statement, affidavit or certification referred to in this Trust Agreement. The Trustee shall at all times, to the maximum extent permitted by applicable law, be fully protected in making distributions pursuant to Sections 4.1, 8, 13 and 17 hereof. 8.4 Company Obligations. Notwithstanding the provisions of this Trust Agreement, the Company and its Affiliates shall remain obligated with respect to the Benefits attributable to their respective employees. Nothing in this Trust Agreement shall relieve the Company or any of its Affiliates of their respective liabilities with respect to the Benefits except to the extent such amounts are paid to a Plan or a Participant from the Trust, it nevertheless being the Company's intent that the Trust Fund shall be applied in discharge of the Company's legal obligations as provided in this Trust Agreement. 8.5 Trustee as Holder of Legal Title to Trust Assets. Subject to Section 17 hereof, the Trustee shall hold legal title to all assets in the Trust for benefit of the Participants and Employees. 8.6 Federal Income Tax Consequences of the Trust. The Trust Fund maybe applied in the discharge of legal obligations of the Company as provided herein. Accordingly, the Company shall take into account in computing its tax liability, those items of income, deductions and credits against tax attributable to assets held in the Trust to which the Company would have been entitled had the Trust not been in existence. The Trustee shall notify the Company promptly after it becomes aware of any tax liability assessed against, or imposed upon, the Trust or the Trustee in its capacity as Trustee of the Trust. The Company shall be responsible for all matters in respect of such assessment or imposition, and shall have sole responsibility for any defense in connection therewith. Payments in respect of any tax liability of the Company arising in connection with earnings, gains or activities relating to the Trust, including, without limitation, interest and penalties, shall be made from the Trust Fund after a final determination of such liability, unless the Company promptly pays such liability. In the event the assets of the Trust are insufficient to pay such liability, any deficit shall be paid promptly by the Company. SECTION 9 Expenses, Compensation and Indemnification. 9.1 Expenses. The Trustee shall be reimbursed by the Company for its reasonable expenses of implementation, management and administration of the Trust, including brokerage commissions and the reasonable compensation of attorneys or other agents engaged by the Trustee or by the Company to assist in such implementation, management and administration. 9.2 Compensation. The Company shall pay the Trustee compensation in accordance with the compensation schedule attached hereto as Schedule C, unless the Company and the Trustee otherwise agree in writing. The Company acknowledges that, as part of the Trustee's compensation, the Trustee will earn interest on balances, including disbursement balances and balances arising from purchase and sale transactions. To the extent the Trustee advances funds to the Trust Fund for disbursements or to effect the settlement of purchase transactions, the Trustee shall be entitled to collect from the Trust Fund an amount equal to what would have been earned on the sums advanced (an amount approximating the "federal funds" interest rate). 9.3 Charge on Trust Fund. All expenses and compensation referred to in Sections 9.1 and 9.2 hereof shall be a charge on the Trust Fund and shall constitute a lien on the Trust Fund in favor of the Trustee and shall be payable from the Trust Fund unless paid when due by the Company. 9.4 Indemnification. The Company hereby agrees to indemnify and hold harmless the Trustee from and against any losses, costs, damages, claims or expenses, including without limitation reasonable attorneys' fees, which the Trustee may incur or pay out in connection with, or otherwise arising out of: 9.4.1 the performance by the Trustee of its duties hereunder, unless any such loss, cost, damage, claim or expense is a result of negligence or willful misconduct by the Trustee or the breach by the Trustee of its fiduciary duties hereunder; or 9.4.2 any action taken by the Trustee in good faith pursuant to the written direction of the Company. In the event that any action or regulatory proceeding shall be commenced or claim asserted which may entitle the Trustee to be indemnified hereunder, the Trustee shall give the Company written notice of such action or claim promptly after becoming aware of such commencement or assertion unless the Company has otherwise received notice of such action or claim. The Company shall be entitled to participate in and, upon notice to the Trustee, assume the defense of any such action or claim using counsel reasonably acceptable to the Trustee. The Trustee shall cooperate with the Company in connection with the defense of any such action or claim. Subject to Section 17, the Trustee shall have no claim on the assets of the Trust Fund in respect of amounts payable to the Trustee under this Section 9.4. 9.5 Force Majeure. The Trustee shall not be responsible or liable for any losses to the Trust Fund resulting from nationalization, expropriation, devaluation, seizure, or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, levies or other charges affecting the property; or acts of war, terrorism, insurrection or revolution; or acts of God; or any other similar event beyond the control of the Trustee or its agents. This Section shall survive the termination of this Trust Agreement. 9.6 Payment from Trust Fund. All payments of expenses and compensation referred to in Sections 9.1 and 9.2 hereof may be made without approval or direction of the Company. SECTION 10 Administration and Records. 10.1 Records. Subject to Sections 7.1 and 7.2, the Trustee shall keep or cause to be kept accurate and detailed accounts of any investments, receipts, disbursements and other transactions hereunder and all accounts, book and records relating thereto shall be open to inspection and audit at all reasonable times by any person designated by the Company. The Trustee shall preserve all such accounts, books and records, in original form or on microfilm, magnetic tape or any other similar process, for such period as the Trustee may determine, but the Trustee may destroy such accounts, books and records only after first notifying the Company in writing of its intention to do so and transferring to the Company, subject to Sections 7.1 and 7.2 hereof, any of such accounts, books and records that the Company shall request. 10.2 Settlement of Accounts. Subject to Sections 7.1 and 7.2 hereof, within 60 days after the close of each calendar year, and within 60 days after the removal or resignation of the Trustee or the termination of the Trust (or any portion thereof), the Trustee shall file with the Company a written account setting forth all investments, receipts, disbursements and other transactions effected by it with respect to the Trust during the preceding calendar year or during the period from the close of the preceding calendar year to the date of such removal, resignation or termination, including a description of all investments and securities purchased and sold, with the cost or net proceeds of such purchases or sales, and showing all cash, securities and other property held at the end of such calendar year or other period. It shall be the duty of the Company to review such written account promptly within 90 days from the date of filing any such account and if, within such 90-day period, the Company does not file with the Trustee a written notice of objection to any of the Trustee's acts or transactions, the initial account shall become an account stated between the Trustee and the Company. If the Company files a written notice of objection with the Trustee, the Trustee may file with the Company an adjusted account, in which case it shall be the duty of the Company to review such adjusted account promptly within 30 days from the date of its filing. If, within such 30-day period, the Company fails to file a written notice of objection to any of the Trustee's acts or transactions as so adjusted with the Trustee, the adjusted account shall become an account stated between the Trustee and the Company. Unless an account is fraudulent, when it becomes an account stated it shall be finally settled, and the Trustee shall, to the maximum extent permitted by applicable law, be forever released and discharged from all liability and accountability with respect to the propriety of its acts and transactions shown in such account. 10.3 Audit. The Trustee shall from time to time permit an independent public accountant selected by the Company to have access during ordinary business hours to such records as may be necessary to audit the Trustee's accounts. 10.4 Judicial Settlement. Nothing contained in this Trust Agreement shall be construed as depriving the Trustee or the Company of the right to have a judicial settlement of the Trustee's accounts. Upon any proceeding for a judicial settlement of the Trustee's accounts or for instructions the only necessary party thereto in addition to the Trustee shall be the Company. 10.5 Delivery of Records to Successor. In the event of the removal or resignation of the Trustee, the Trustee shall deliver to the successor Trustee all records which shall be required by the successor Trustee to enable it to carry out the provisions of this Trust Agreement. 10.6 Tax Filings. In addition to any returns required of the Trustee by law (e.g., any information return required to be filed on IRS Form 1041), the Trustee shall prepare and file such tax reports and other returns as the Company and the Trustee may from time to time agree. SECTION 11 Removal or Resignation of the Trustee and Designation of Successor Trustee. 11.1 Removal. At any time prior to the occurrence of a Change in Control, the Company may remove the Trustee with or without cause upon at least 60 days' notice in writing to the Trustee. At any time after the occurrence of a Change in Control, the Trustee may not be removed except by order of a court of competent jurisdiction. No removal of the Trustee shall be effective until the Company has appointed in writing a successor Trustee, and such successor has accepted the appointment in writing. 11.2 Resignation. Trustee may resign at any time upon at least 60 days' notice in writing to the Company, except that any such resignation shall not be effective until the Company has appointed in writing a successor Trustee, and such successor has accepted the appointment in writing. At any time after 30 days following the sending of such notice of resignation, if the Company is unable to appoint a successor Trustee or if a successor Trustee has not accepted an appointment, the Trustee shall be entitled, at the expense of the Company, to petition a United States District Court or any of the courts of the Commonwealth of Pennsylvania or other court having jurisdiction to appoint its successor. 11.3 Successor Trustee. Subject to Section 2.1 hereof, each successor Trustee, during such period as it shall act as such, shall have the powers and duties herein conferred upon the Trustee, and the word "Trustee" wherever used herein, except where the context otherwise requires, shall be deemed to include any successor Trustee. Upon designation of a successor Trustee and delivery to the resigned or removed Trustee of written acceptance by the successor Trustee of such designation, such resigned or removed Trustee shall promptly assign, transfer, deliver and pay over to such Trustee, in conformity with the requirements of applicable law, the funds and properties in its control or possession then constituting the Trust Fund. SECTION 12 Enforcement of Trust Agreement. 12.1 Rights of Parties to Enforce the Trust Agreement. The Company and the Trustee shall have the right to enforce any provision of this Trust Agreement. In any action or proceeding affecting the Trust, the only necessary parties shall be the Company and the Trustee and, except as otherwise required by applicable law, no other person shall be entitled to any notice or service of process. Any judgment entered in such an action or proceeding shall, to the maximum extent permitted by applicable law, be binding and conclusive on all persons having or claiming to have any interest in the Trust or any Plan. 12.2 Limitation on Rights of Participants and Beneficiaries. Neither the Plans nor any Participant or Beneficiary shall have any rights with respect to the Trust Fund, no Plan shall be deemed to have any beneficial interest in the Trust Fund and no Employee shall be deemed to have any beneficial interest in the Trust Fund arising from his participation in any particular Plan. SECTION 13 Termination. 13.1 Termination upon Specific Events. The Trust shall be terminated as soon as practicable after the Trustee has received written notice from the Committee that one or more of the following events has occurred: 13.1.1 in the Committee's sole discretion, the Department of Labor or a court of competent jurisdiction has determined or would be likely to determine that the assets of the Trust are subject to Part 4 of Subtitle B of Title I of ERISA, 13.1.2 in the Committee's sole discretion, the Internal Revenue Service or a court of competent jurisdiction has determined or would be likely to determine that any portion of the Trust Fund is presently taxable to any Participant or Beneficiary, or 13.1.3 a Change in Control has occurred. In the event of a termination pursuant to this Section 13.1, the Trustee shall distribute all assets then constituting the Trust Fund to all Participants listed on the Participant Schedule in an equal amount per Participant. 13.2 Termination in Other Events. Notwithstanding anything herein to the contrary, the Trust shall terminate on the earliest of (a) 21 years following the death of the youngest Participant included on the Participant Schedules received by the Trustee in 1993, (b) the date on which the Committee informs the Trustee in writing that the Company and its Affiliates have no obligations under any Plans (or the date on which there are no Plans) or (c) the date on which the Trust contains no assets and retains no claims to recover assets from the Company and its Affiliates pursuant to any provision hereof, whichever shall first occur. In the event of a termination described in clauses (a) or (b) of this Section, the Trustee shall distribute the assets remaining in the Trust Fund to all Participants listed on the Participant Schedule in an equal amount per Participant. 13.3 Limitation on Trustee Liability upon Total Distribution; Continuation of Trustee Powers. Upon a total distribution of the Trust assets pursuant to Sections 8 or 13, the Trustee shall be relieved from all further liability. The powers of the Trustee hereunder shall continue so long as any assets of the Trust remain in its hands. 13.4 Nonapplicability of ERISA. Notwithstanding anything herein to the contrary, no amount shall be distributed to any Participant pursuant to this Section 13 if such distribution could, in the opinion of independent counsel, cause the Trust to be subject to ERISA (other than as an unfunded plan described in ERISA section 201(2)). Prior to a distribution pursuant to this Section, the Committee shall provide the Trustee with a Schedule of Participants eligible for a distribution (taking into account this subsection 13.4). SECTION 14 Amendment. 14.1 Amendments in General. The Company may, in its sole discretion, from time to time amend, in whole or in part, any or all of the provisions of this Trust Agreement, including, without limitation, by adding to, or subtracting from, Schedule A hereto one or more employee benefit plans (within the meaning of Section 3(3) of ERISA) or plans or arrangements that are not employee benefit plans (within the meaning of such Section); provided, that (a) in making any modification to Schedule A hereto, the Company shall act in good faith taking into account the best interests of a broad cross-section of employees, and (b) the Company shall ensure that at all times Schedule A shall include at least one employee benefit plan that is not an employee benefit plan within the meaning of Section 3(3) of ERISA. No amendment to this Trust Agreement or the Plans shall be made that would (a) purport to alter the irrevocable character of the Trust, (b) without the Trustee's prior written consent, adversely affect the Trustee's rights, increase the Trustee's duties or responsibilities or decrease the Trustee's compensation hereunder, or (c) alter Sections 1.6, 2, 4, 6, 7, 8, 13, or subsection 14.1 14.2 Nonapplicability of ERISA; Preventing Current Taxation. Notwithstanding subsection 14.1, the Company may amend this Trust Agreement from time to time in such a manner as may be necessary, in the opinion of independent counsel, to prevent this Trust Agreement or the Trust from becoming subject to ERISA and to prevent the current taxation of the Trust Fund to Participants. SECTION 15 Nonalienation. 15.1 Prohibition Against Certain Transfers, Pledges, Etc. Except as otherwise provided by this Trust Agreement and except as otherwise may be required by applicable law, (a) no amount payable to or in respect of any Plan, Participant or Employee at any time under the Trust shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge, or encumbrance of any kind, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge, or otherwise encumber any such amount, whether presently or thereafter payable, shall be void and (b) the Trust Fund shall in no manner be liable for or subject to the debts or liabilities of any Participant. SECTION 16 Communications. 16.1 To the Company, Board of Directors and Committee. Communications to the Company, the Board of Directors and the Committee shall be addressed to: Beckman Instruments, Inc. 2500 Harbor Boulevard Fullerton, CA 92634 Attention: Dennis K. Wilson with a copy to: Beckman Instruments, Inc. 2500 Harbor Boulevard Fullerton, CA 92634 Attention: William H. May, Esq. provided, however, that upon the Company's written request, such communications shall be sent to such other address as the Company may specify. 16.2 To the Trustee. Communications to the Trustee shall be addressed to: Mellon Bank, N.A. Institutional Trust Services Group Suite 955 One Mellon Bank Center Pittsburgh, PA 15258 Attention: O. Bruce Anderson with a copy to: Mellon Bank, N.A. One Embarcadero Center Suite 2340 San Francisco, CA 94111-9123 Attention: Lucinda M.S. Smith provided, however, that upon the Trustee's written request, such communications shall be sent to such other address as the Trustee may specify. 16.3 To a Participant. Communications to a Participant or to his Beneficiaries shall be addressed to the Participant or his Beneficiaries, respectively, at the address indicated on the Participant Schedule as in effect at the time of the communication. 16.4 Binding upon Receipt. No communication shall be binding on the Trustee until it is received by the Trustee, and no communication shall be binding on the Company, the Board of Directors or the Committee until it is received by the Company, the Board of Directors or the Committee, respectively and no communication shall be binding on a Participant or the Participant's Beneficiaries until it is received by the Participant or the Participant's Beneficiaries, respectively. 16.5 Authority to Act. The Secretary of the Company shall from time to time certify to the Trustee the person or persons authorized to act for the Company, the Committee and the Board of Directors, and shall provide the Trustee with such information regarding the Company as the Trustee may reasonably request. The Trustee may continue to rely on any such certification until notified to the contrary. 16.6 Authenticity of Instruments. The Trustee shall be fully protected in acting upon any instrument, certificate, or paper reasonably believed by it to be genuine and to be signed or presented by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained. SECTION 17 Claims of Companies' Bankruptcy Creditors 17.1 Bankruptcy Creditors. In the event of the Company's "insolvency," the assets of the Trust shall be available to pay the claims of any creditor of the Company to whom a distribution may be made in accordance with state and federal bankruptcy laws. The Company shall be deemed to be "insolvent" if it is either (a) unable to pay its debt and liabilities as they become due or (b) subject to a pending proceeding as a debtor under the federal Bankruptcy Code (or any successor federal statute) or any state bankruptcy code. In the event the Company becomes insolvent, the Board of Directors and the Chief Executive Officer of the Company shall notify the Trustee of the event as soon as practicable. Upon receipt of such notice, or if the Trustee receives other written allegations of the Company's insolvency from a third party considered by the Trustee to be reliable and responsible, the Trustee shall cease making any distributions from the assets of the Trust, shall hold the assets in the Trust for the benefit of the Company's creditors and shall take such steps as are necessary to determine within a reasonable period of time whether the Company is insolvent. In making such determination, the Trustee may rely upon a certificate of the Board of Directors and the Chief Executive Officer of the Company or a determination by a court of competent jurisdiction that the Company is or is not insolvent. In the case of the Trustee's determination of the Company's insolvency, the Trustee will deliver assets of the Trust to satisfy claims of the Company's creditors as directed pursuant to a final order of a court of competent jurisdiction. 17.2 Resumption of Benefits; Restoration of Accounts. In the event the Trustee ceases making distributions by reason of Section 17.1, the Trustee shall resume making distributions pursuant to Sections 4, 8, or 13 of this Agreement only after the Trustee has determined that the Company is no longer insolvent or upon receipt of an order of a court of competent jurisdiction requiring such distributions. In making any determination under this Section, the Trustee may rely upon a certificate of the Board of Directors and the Chief Executive Officer of the Company. SECTION 18 Consolidation, Merger or Sale of the Company 18.1 Consolidation, Merger or Sale of the Company. Effective upon consolidation of the Company with, or merger of the Company into, any corporation or corporations, or any sale or conveyance of all or substantially all of the assets of the Company, the Trustee shall deal with the corporation formed by such consolidation, or with or into which the Company is merged, or the person that acquires the assets of the Company on the same basis as it dealt with the Company prior to such transactions and, in such event, the term "Company" within this Agreement shall mean such corporation or person. SECTION 19 Miscellaneous Provisions. 19.1 Binding Effect. This Trust Agreement shall be binding on the Company and the Trustee and their respective successors and assigns. 19.2 Inquiry as to Authority. A third party dealing with the Trustee shall not be required to make inquiry as to the authority of the Trustee to take any action nor be under any obligation to follow the proper application by the Trustee of the proceeds of sale of any property sold by the Trustee or to inquire into the validity or propriety of any act of the Trustee. 19.3 Responsibility for Company Action. The Trustee assumes no obligation or responsibility with respect to any action required by this Trust Agreement on the part of the Company, the Board of Directors, the Committee, any Affiliate, the Participants or any Beneficiaries. The Trustee shall be under no duties except such duties as are specifically set forth as such in this Trust Agreement or under applicable law, and no implied covenant or obligation shall be read into this Trust Agreement against the Trustee. 19.4 Successor to Trustee. Subject to Section 2.1, any corporation into which the Trustee may be merged or with which it may be consolidated, or any corporation resulting from any merger, reorganization or consolidation to which the Trustee may be a party, or any corporation to which all or substantially all the trust business of the Trustee may be transferred shall be the successor of the Trustee hereunder without the execution or filing of any instrument or the performance of any act. 19.5 Intercompany Agreements. The Company may require any Affiliate to enter into such other agreement or agreements as it shall deem necessary to obligate such Affiliate to reimburse the Company for any other amounts paid by the Company hereunder, directly or indirectly, in respect of such Affiliate's employees. 19.6 Titles Not to Control. Titles to the Sections of this Trust Agreement are included for convenience only and shall not control the meaning or interpretation of any provision of this Trust Agreement. 19.7 Laws of the Commonwealth of Pennsylvania to Govern. This Trust Agreement and the Trust established hereunder shall be governed by and construed, enforced, and administered in accordance with the laws of the Commonwealth of Pennsylvania, without reference to the principles of conflicts of law thereof. 19.8 Fractional Shares. Notwithstanding anything herein to the contrary, the Trustee may distribute any fractional share otherwise required to be distributed to Administrators or Participants pursuant to Sections 8 or 13, in cash in an amount equal to the Daily Value, multiplied by such fraction. IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the parties hereto as of the day and year first above written. BECKMAN INSTRUMENTS, INC. By: D. K. WILSON Attest: WILLIAM W. DAVIS MELLON BANK, N.A., as Trustee By: H. JOHN GEIS Vice President Attest: F---- CELL 1/24/97:ljd:backfax.doc SCHEDULE A BECKMAN INSTRUMENTS, INC. BENEFIT EQUITY FUND MELLON BANK, N.A. TRUSTEE LIST OF PLANS Beckman Instruments, Inc. Employees' Stock Purchase Plan Beckman Instruments, Inc. Incentive Compensation Plan of 1990 Beckman Instruments, Inc. Savings and Investment Plan Beckman Instruments, Inc. Pension Plan Other non-discretionary base compensation SCHEDULE B BECKMAN INSTRUMENTS, INC. BENEFIT EQUITY FUND MELLON BANK, N.A. TRUSTEE MINIMUM DISTRIBUTION SCHEDULE AS OF FEBRUARY 1, 1993 REVISED January 27, 1997 SHARES REMAINING SHARES SHARES SHARES REMAINING YEAR BEGINNING OF YEAR DEPOSITED DISTRIBUTED END OF YEAR - ----------------------------------------------------------------------------- 1993 0 1,400,000 (411,893) 988,107 1994 988,107 614,480 (568,739) 1,033,848 1995 1,033,848 400,000 (649,898) 783,950 1996 783,950 812,372 (200,000) 1,396,322 1997 1,396,322 0 (200,000) 1,196,322 1998 1,196,322 0 (200,000) 996,322 1999 996,322 0 (200,000) 796,322 2000 796,322 0 (200,000) 596,322 2001 596,322 0 (200,000) 396,322 2002 396,322 0 (200,000) 196,322 2003 196,322 0 (196,322) 0 SCHEDULE C TRUSTEE'S COMPENSATION SCHEDULE Trustee Compensation to be in accordance with separate Schedule of Fees mutually agreed upon from time to time between Beckman Instruments, Inc. and Mellon Bank, N. A., Trustee. BECKMAN INSTRUMENTS, INC. BENEFIT EQUITY TRUST SCHEDULE OF FEES EFFECTIVE: FEBRUARY 1, 1997 When Mellon Bank acts as Trustee for the Beckman Instruments, Inc. Benefit Equity Trust, the annual compensation shall be a flat fee of $12,000. This fee shall be charged to the account monthly on or about the first of each month. Included in the Trust/Custody flat fee are the following components: * Account Fee - accounts in excess of one(1) charged at $3,500/annum * Asset Fee * Issue Fee * Security Transaction Fee * Stock Share Issuances to Participants Ancillary services available at additional charge: * Tax Return Preparation Expenses - charges based on time and materials * Disbursement Payments - Non-periodic Disbursements $8.00/payee plus postage (Federal tax withholding included) - Expense Disbursement $8.00/payee plus postage (other than to Mellon) - Wire transfers $15.00/wire transfer (domestic) $25.00/wire transfer (international) Note: Disbursement expenses invoiced quarterly; postage charged at prevailing rate. Mellon Trust will pass through to the Beckman Instruments any out- of-pocket expenses including, but no limited to, postage, courier, registration fees, stamp duties, telex, custom reporting or custom programming, international/external tax, legal or consulting costs, proxy voting expenses, etc. Beckman Instruments, Inc. Benefit Equity Trust Effective: February 1, 1997 Page 2 Mellon Trust reserves the right to amend its fees if the service requirements change in any way that materially affect our responsibilities or costs. Support of global securities processing, derivative investment strategies or special processing requirements (e.g. external cash sweep, third party securities lending, etc.) may result in additional fees. Mellon Trust guarantees its fee schedule for two (2) years from the effective date specified above, i.e. from February 1, 1997 through January 31, 1999, unless modified by Beckman Instruments and/or Mellon Bank with concurrence of both parties. Subsequent to January 31, 1999, this Schedule shall remain in effect unless either party gives 90 days advance written notice to renegotiate. Approved: BECKMAN INSTRUMENTS, INC. By RICHARD COONAN Date 1/23/97 MELLON BANK By L---SMITH Date 1/21/97 EX-10.25 5 3RD AMENDMENT TO AGT RE RETIREMENT BENEFITS EXHIBIT 10.25 THIRD AMENDMENT TO THE DECEMBER 1, 1993 AGREEMENT REGARDING RETIREMENT BENEFITS OF ARTHUR A. TORRELLAS WHEREAS, Arthur A. Torrellas (Executive") has been employed by Beckman Instruments, Inc. ("Company") for approximately 20 years; and WHEREAS, the Executive and the Company entered into the Agreement Regarding Retirement Benefits of Arthur A. Torrellas as of December 1, 1993 and executed on December 20, 1993 ("the Agreement") and subsequently entered into a First Amendment to the Agreement as of May 30, 1995 and a Second Amendment to the Agreement as of December 16, 1996, respectively, so that the Executive will continue to remain employed by and provide unique worldwide field operations experience to the Company. WHEREAS, the Executive and the Company wish to amend the Agreement, the First Amendment, and Second Amendment so that the Executive will continue to remain employed by and provide unique worldwide field operations experience to the Company beyond July 31, 1997. NOW, THEREFORE, this Third Amendment to the Agreement between the Executive and the Company is hereby adopted as of July 18, 1997 and amends the Agreement as follows: 1. All reference to October 31, 1995 in the Agreement is changed to December 31, 1997 except for paragraph 2 entitled Voluntary Termination Before or After October 31, 1995 which is deleted and the following inserted. 2. Voluntary Termination. The increase referred to in paragraph 1 does not apply if Executive, before July 31, 1997 or after December 31, 1997, voluntarily terminates employment (retires). The benefit payable under such circumstances would be the benefit normally payable from the Pension Plan and the Supplemental Plan. If the Executive voluntarily terminates employment (retires) after July 31, 1997, but on or before December 31, 1997, the Executive would receive the increase referred to in paragraph 1. 2. All other terms and provisions of the Agreement shall remain the same. This Amendment to the Agreement is entered into as of July 18, 1997. EXECUTIVE By: ARTHUR A. TORRELLAS Arthur A. Torrellas COMPANY BECKMAN INSTRUMENTS, INC. By: JOHN P. WAREHAM John P. Wareham Its: President and Chief Operating Officer EX-10.38 6 SPECIAL INCENTIVE PLAN & SHARING BONUS PLAN EXHIBIT 10.38 COMPANY PRIVATE COULTER CORPORATION SPECIAL INCENTIVE PLAN SHARING BONUS PLAN ARTICLE I. PURPOSE 1.1 Purpose. a. Special Incentive Plan. The purpose of this Special Incentive Plan (the "S.I. Plan") is to inspire and reinforce outstanding performance in selected key employees who have direct impact on and whose efforts contribute substantially to the creation of Company value. The S.I. Plan is designed to strengthen the alignment of managements objectives with those of the owners of the Company. It is intended to promote and motivate the best efforts of Participants to focus on Company objectives. (Subsidiaries and affiliates of Coulter Corporation are intended to be included as part of the Company in determining the book value of the Company's assets for purposes of Section 2.6 for determining the valuation of the Company for the first paragraph of Section 5.2, and for purposes of Sections 2.4 and 2.8 if, and to the extent that they are part of the transaction(s) with the Alliance Partner(s), as determined by the OTP.) The S.I. Plan (and the SB Plan) recognizes that Alliance Partners could become greater than 50% owners, resulting in a Change of Control. Participation is limited to Groups A, B, and C. Participation and reward levels are established based on level of responsibility, competitive practice, past contributions, tenure and position. It is of significant importance to the owner's of the Company to maximize the performance of the management team and the value of the Company. The goals of the S.I. Plan is to - (i) strengthen and foster a team orientation among the top management of the Company, and (ii) retain the services and commitment of a superior, high quality management staff. b. Sharing Bonus Plan. The Sharing Bonus Plan (the "S.B. Plan") recognizes that management and employees throughout the Company (but who are not members of Group A, B, or C) have made contributions to the long term growth of the Company and its present dominant position in the marketplace. It also recognizes the ongoing performance mandate in an increasingly competitive environment, and that it is in the owners' best interest to reward management and all Employees for future and for past performance resulting in the building of value. Participation will be by Groups D and E. The goals of the S.B. Plan are to - (i) retain the continuation of services and commitment of a superior, high quality management staff, and (ii) to provide special bonuses to middle management and nonmanagement employees. 1.2 Establishment. The S.I. Plan and the S.B. Plan (collectively, the "Plans") are effective as of April 1, 1997. 1.3 Plan Period. The S.I. and the S.B. Plans are expected to remain in effect for FY 97/98 and will continue until formally terminated by the Advisory Board. ARTICLE II. DEFINITIONS 2.1 Award means an S.I. Plan or S.B. Plan payment. 2.2 OTP means the Office of The President. Following a Change In Control, the functions of the OTP under the S.I. Plan and the S.B. Plan shall be performed by a committee named by the Board of Directors of the acquiring company. 2.3 Disability means that the Participant suffers from a physical or a mental condition which, based on appropriate medical reports and examinations, is expected to result in death or be of long and of indefinite duration and which renders the Participant incapable of performing the customary duties of the Company. 2.4 Participant means an Employee of the Company who has been designated as a Participant in the S.I. Plan or who meets the definition of Participant in the S.B. Plan. 2.5 Retirement means termination at or after age 65, or at age 55 with 5 or more years of service with the Company for all United States - based Employees. Similar rules will apply for non-United States-based Employees, but modified as appropriate by OTP for local country practices (taking into account the definition of retirement in local country retirement plans). 2.6 Change In Control shall occur when the "Coulter Family", defined to be Wallace H. Coulter, the children of Joseph R. Coulter, Jr., the Coulter Family Limited Partnership, the Wallace H. Coulter trust, and the Joseph R. Coulter, Jr. trust in combination, cease to own directly or indirectly more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Company, or there occurs any sale, exchange or other disposition of all or more than fifty percent (50%) of the book value of the Company's assets in a single transaction, or series of related transactions other than to an entity more than fifty percent (50%) of the voting power of the then outstanding securities (or other interests) which are owned, directly or indirectly, by the Coulter Family. 2.7 Group A, B, C, D, E, respectively, is the group of Employees (including retired and disabled former Employees, as defined by OTP) defined as follows: Group A: Top tier management with key responsibility in leading and directing the Company and in representing the owners to a potential Alliance Partner(s). Group B: Member's of the Coulter Alliance Team (as the Alliance Team is determined by the OTP) and others who are key members of management and are critical to the process of representing the owners to a potential Alliance Partner(s). Group C: Executives and senior managers defined as all executives in grades 21 - 25, key country management and other key contributors and management. Group D: Senior managers generally defined as grade 19 and 20 or senior managers in equivalent grades or positions in local country locations. Group E: All Employees worldwide; provided that an individual may not participate in Group E and in Group A-D. 2.8 Employee will mean any full-time employee of the Company. 2.9 Cause shall mean (i) a material breach by the Employee of the Employee's obligations of his or her regularly assigned position (other than as a result of incapacity due to physical or mental illness) which is demonstrably willful and deliberate on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, (ii) a material breach by the Employee in the confidentiality requirements of the S.I. Plan contained in Section 7.1, (iii) the conviction of the Employee of a felony involving moral turpitude, or (iv) acts of fraud which cause material harm to the Company, embezzlement, or any other material and deliberate act of dishonesty which causes material harm to the Company. ARTICLE III. ADMINISTRATION 3.1 Administration. The S.I. and S.B. Plans will be administered by the OTP, with consultation with the Compensation and Personnel Committee of the Advisory Board. Following a Change In Control, the S.I. and S.B. Plans will be administered by a committee appointed by the Board of Directors of the acquiring company. The OTP has exclusive power to: a. Establish the measures on which Awards are based including minimum objectives below which no Awards will be paid. b. Select the Employees (either individually or by category) to participate in the S.I. and S.B. Plans and modify individual participation as circumstances warrant. Generally it is intended that Employees in Groups A through C will participate in the S.I. Plan and Employees in Groups D and E will participate in the S.B. Plan. c. Determine the amount (or method of determining the amount) of Award to be made to each Employee selected. d. Determine the time or times under the S.I. and S.B. Plans when Awards will be made; provided, however that following a Change in Control, Awards will be distributed as soon as administratively practicable, which normally shall be within 6 months of the Change in Control, except as otherwise provided herein. e. Determine the conditions for receipt of the Awards. f. Change the performance measures previously established for the S.I. Plan if the OTP determines that significant unforeseen changes in the business operations, structure, or other conditions make the measures no longer suitable. 3.2 Rules and Plan Interpretation. The OTP shall have the authority, subject to the provisions of the S.I. or S.B. Plan, as applicable, to establish or revise such rules and regulations and to make all such determinations relating to the applicable plan as it may deem necessary or advisable for the administration of that plan. The Compensation Committee of the Board shall have the right to review and make recommendations as to any such Award or determination by the OTP and to advise on changes in the Plans. Any disagreement between the OTP and the Compensation Committee shall be resolved by a committee consisting of all the members of the OTP and the Compensation Committee (the "Review Committee"). The Review Committee will meet within 30 days of the request by any of the members of the OTP or the Compensation Committee, and at such other times as it determines, to resolve disputes, if any, between the OTP and the Compensation Committee regarding the S.I. and S.B. Plans, and to hear appeals, if any, by individual Participants in the S.I. Plan regarding the interpretation and application of the S.I. Plan, and to consider such other matters as it deems appropriate. Any such decisions by the Review Committee shall be made in its sole discretion. Following a Change In Control, the committee which assumes the functions of the OTP shall also perform the functions of the Compensation Committee, and therefor a Review Committee shall not be necessary. The Review Committee shall establish such additional committee or committees as it determines to hear appeals, if any, by individual Participants in the S.B. Plan regarding the interpretation and application of the S.B. Plan. Notwithstanding any other provisions in the S.I. Plan to the contrary, following a Change In Control, neither the OTP, the Compensation Committee, the Review Committee, Coulter nor an Alliance Partner/buyer shall have the power to amend, modify, or interpret the S.I. Plan, or exercise any other powers under the S.I. Plan in a way which would materially adversely affect the Participants in the S.I. Plan. However, this shall not preclude the OTP, the Compensation Committee, the Review Committee or Coulter from exercising the powers in Section 6.3, or applying the provisions of the S.I. Plan to Groups A, B, or C or to Employees or Participants within any such Group using rules and procedures which were established prior to the date of the Change In Control; nor shall it prevent Coulter from performing its normal prerogatives as an employer such as hiring, firing, promoting, and disciplining its employees. Notwithstanding any other provisions in the S.B. Plan to the contrary, following a Change In Control, neither the OTP, the Compensation Committee, nor the Review Committee, Coulter nor an Alliance Partner/buyer shall have the power to amend the S.B. Plan in a way which would materially adversely affect the Participants in the S.B. Plan as a group. This shall not prevent the OTP from establishing the exact criteria for participation in and Awards from the S.B. Plan and from varying the participation and Awards criteria among different groups of participants (e.g., from country to country). 3.3 Limitations on OTP. No member of the OTP shall be permitted to vote in any aspect of making an Award to himself under the S.I. Plan. However, this shall not preclude the owner members of the OTP (i.e., members of the Coulter Family) from making an Award to a member of the OTP who is otherwise qualified to receive an Award, provided that the Compensation Committee of the Board shall have the right to review any such Award or determination by the OTP. ARTICLE IV. ELIGIBILITY 4.1 Participation. The OTP is responsible for selecting Employees individually for participation in the S.I. Plan. Employees shall be grouped at Group A, B, or C levels (and at levels within such Groups, if appropriate) as determined by the OTP and changes may occur at any time prior to the Change in Control at the discretion of the OTP. However, once an individual has been selected for and notified (by the OTP) of, participation in the S.I. Plan, he or she cannot be removed from participation without Cause, as long as he or she remains an Employee. There will be a written notification to any previously notified participant in Group A, B, C as to reclassification among Group A, B, or C, or removal from participation, of that individual and as to any change in manner of determining his or her Award. ARTICLE V. AWARDS 5.1 Cash or Stock. Any Award under the S.I. or S.B. Plan shall be paid in cash or publicly traded stock of the Alliance Partner and (i) in the case of the S.I. Plan shall be based on performance against the measurement criteria established by the OTP, and (ii) in the case of the S.B. Plan shall be based on satisfaction of the criteria established by the OTP. 5.2 Special Incentive/Sharing Bonus Pool (the SI/SB Pool). Should an alliance or merger result in a Change In Control, an SI/SB Pool will be established at approximately 12% of the valuation of the Company as determined by any final sale documents, after reductions for transaction fees including, but not limited to, financial, legal and broker. The determination of the exact amount of the SI/SB Pool will be made by the OTP. In no event will the SI/SB Pool exceed $100 million. The SI/SB Pool will be allocated in two parts, Part One to be used for Awards under the S.I. Plan, and Part Two (which shall consist of the amount which remains in the SI/SB Pool after Part One has been subtracted) for Awards under the S.B. Plan. Provided, however, if the funds allocated to Part Two exceed the amount of the Awards under the S.B. Plan, the OTP, with the advice of the Compensation Committee, will determine the disposition of the remaining amount of Part Two funds, such as a purpose designed to benefit individuals who are employees of the Company (including paying the costs of administering the Plans). S. I. Plan Funds in Part One will be distributed to Participants in Groups A B, and C. The incentive to each of the Participants in Groups A, B, and C will be calculated as reflected in the table attached hereto as Schedule "A". In determining the Award level and participation for any individual within Group A, B, or C under the S. I. Plan, the OTP will take into account a Participants responsibility level, performance, potential, and cash compensation level, as well as other considerations it deems appropriate. An individual shall not receive an Award under the S.I. Plan under more than one Group. S. B. Plan After the amounts of the SVSB Pool allocated to the S.I. Plan have been determined, the remaining portion of the SI/SB Pool will be allocated to the S.B. Plan. Awards under the S.B. Plan will be allocated to Groups D and E. The OTP will determine what percentage of the remaining SVSB Pool will be allocated to Group D and to Group E. After the allocation between Groups D and E has been determined, the amount to be allocated to individual Employees in Groups D and E respectively will be based largely on seniority and the amount determined by the OTP. The decision to allocate Awards under the S.B. Plan to certain individuals and not to others based on seniority or other criteria will be determined by the OTP, or by a committee or committees appointed by the OTP. 5.3 Separation from Coulter. In the event of a Participant's death, disability, or retirement during the establishment of the S.I. or the S.B. Plan and before a Change in Control, payment of any Award will be at the discretion of the OTP (or by a committee or committees appointed by the OTP in the case of the S.B. Plan). After a Change in Control, the entitlement to an Award will vest (except as set forth in this Section 5.3 or Section 6.3), although the amount of the Award must be determined by the OTP. If so determined by the OTP (or by a committee or committees appointed by the OTP in the case of Awards under the S.B. Plan), an Award will be paid to the Participant, the Participants estate, or the Participants beneficiary, as appropriate. A Participant who voluntarily terminates employment or who is terminated for Cause, with the Company prior to a Change In Control, during the performance period, or prior to payment of a portion of the Award, will forfeit any right to the Award or to subsequent Award payments, as the case may be. The OTP (or a committee or committees appointed by the OTP in the case of Awards under the S.B. Plan) may vary this policy in its discretion. 5.4 Form and Timing of Payment. All Awards under the S.I. Plan shall be paid in a lump sum as soon as practicable which normally will not exceed six months following a Change In Control and reconciliation of the transaction costs or, at the discretion of the OTP, in staged payments not exceeding one year in duration. All Awards under the S.B. Plan shall be paid in a lump sum as soon as practicable which normally will not exceed six months following a Change In Control and reconciliation of the transaction costs. ARTICLE VI. GENERAL 6.1 Tax Withholding. The employer or a subsidiary, as appropriate, shall have the right to deduct from all Awards paid in cash any federal (or foreign), state, or local taxes as required by law to be withheld for the cash payments. 6.2 Beneficiaries. Any payment of Awards due under this plan to a deceased Participant, subject to Section 5.3, shall be paid to the beneficiary designated by the Participant. If no such beneficiary has been designated or survives the Participant payment shall be made to the Participants estate. 6.3 Termination For Cause. In the event a Participant is terminated for Cause (whether before or after a Change in Control), as defined in Section 2.9, the Company shall have no further liability or obligation whatsoever to pay to the Participant an Award under the S. 1. or the S.B. Plan. Termination for Cause for purposes of the S.I. Plan must be determined by a consensus vote of the OTP after having given the Participant the opportunity to address the OTP on this matter, and the opportunity to be represented by legal counsel at the meeting. Termination for Cause for purposes of the S.B. Plan must be determined by a majority vote of a committee (or applicable committee if more than one) appointed by the OTP after having given the Participant the opportunity to address that committee on this matter, and the opportunity to be represented by legal counsel at the meeting. The Participant is responsible for the fees and expenses of his or her counsel. 6.4 Relationship to Other Benefits. No payment under the S.I. Plan or the S.B. Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance, or other benefit plan of the Company or subsidiary, except as otherwise specifically required by applicable law. 6.5 Invalidity or unenforceability. The invalidity or unenforceability of any provision of these Plans shall not affect the validity or enforceability of any other provision of these Plans. 6.6 Florida Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 6.7 Binding Arbitration. Any dispute arising under the Plans, whether involving a Participants claim for an Award, or otherwise, shall be settled by binding arbitration, to be held in Miami, Florida, unless the parties to the dispute agree to a different location for binding arbitration. Each party shall select an arbitrator and the arbitrator selected by each party shall jointly select a third arbitrator. If there are more than two parties to the dispute each class of parties (e.g., all Participants shall be a single class) shall select one arbitrator. The cost of arbitration shall be paid by the applicable Plan or by the Company, if it so chooses; provided that each party shall pay the fees and expenses of his or her legal counsel. If there are more than two classes of parties to the dispute, each will select an arbitrator, if this results in an even number of arbitrators, the arbitrators shall select an additional arbitrator. 6.8 Release. The payment of Awards may, in the discretion of the OTP (but in a manner which is consistent for similarly situated Participants and Beneficiaries in the S.I. Plan or the S.B. Plan, as applicable), be conditioned upon receiving a release from the Participant, or Beneficiary, if applicable, to the effect that he or she has no further claims under, or with respect to, the S.I. or S.B. Plan, as applicable. ARTICLE VII. CONFIDENTIALITY 7.1 Confidentiality. Except as otherwise required by applicable law, in the administration of the S.I. Plan, or by other practices of the Company, the fact that an individual is participating in the S.I. Plan, his or her classification in Group A, B, or C, and the amount of any Award to which the Participant is or may be entitled shall be kept confidential by the OTP, the Compensation Committee, the Review Committee and the Participant. 7.2 Breach by Participant. The material breach of the confidentiality requirement in Section 7.1 by a Participant in the S.I. Plan (or by a beneficiary of the Participant if the Participant is deceased) shall be sufficient cause for lowering the Group A or B classification of the Participant, changing the level within a Group (if applicable), reducing the amount of an Award, or removing the Participant from the S.I. Plan. However, it shall not be a breach of the confidentiality requirement for a Participant to discuss his or her Award under the S.I. Plan with his or her attorney or certified public accountant, provided that any information regarding the S.I. Plan revealed by such attorney or certified public accountant to third parties will be treated as an action by the Participant for purposes of determining whether a breach of the confidentiality requirement has occurred. Schedule "A" Valuation $ 1,000 (in millions) Estimated Fees $ 25 SI/SB Pool $ 100 Net Proceeds $ 875 12% Pool $ 105 ($100 million cap) $ 100 Incentive Group Award A 3.00% $3.0 million B 1.80% $1.8 million Ci 0.60% $ .6 million ii 0.40% $ .4 million EX-13 7 WORDS ON NUMBERS EXHIBIT 13 WORDS ON NUMBERS Section of the Company's Annual Report to Stockholders For the Year Ended December 31, 1997 TABLE OF CONTENTS Selected Financial Information Financial Review Management's Discussion and Analysis Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Quarterly Information Report by Management Independent Auditors' Report Corporate Directory Other Information Bar Chart: Cash Provided by Operations (millions) Year 1993 1994 1995 1996 1997 Cash provided $ 53.3 $111.1 $ 60.2 $139.1 $137.8 Bar Chart: Shares Outstanding (millions) Year 1993 1994 1995 1996 1997 Shares Outstanding 27.8 28.0 28.3 28.0 27.6 SELECTED FINANCIAL INFORMATION Dollars in millions, except amounts per share
Years Ended December 31, 1997 1996 1995 1994 1993 Summary of Operations Sales $1,198.0 $1,028.0 $ 930.1 $ 888.6 $ 875.7 Operating income (1) $ 104.4 $ 122.5 $ 110.8 $ 98.9 $ 85.6 Earnings before special and non recurring charges, after taxes $ 54.0 $ 74.7 $ 66.1 $ 56.9 $ 46.9 Special charges: In-process research and development (282.0) - - - - Restructuring charge, net of tax benefit (36.4) - (17.2) (9.6) (73.0) Non-recurring charges: Environmental charge, net of tax benefit - - - - (7.5) Changes in accounting principles - - - (5.1) (4.0) --------- -------- ------- ------- -------- Net (loss) earnings $ (264.4) $ 74.7 $ 48.9 $ 42.2 $ (37.6) --------- -------- ------- ------- -------- Diluted earnings per share before special charges $ 1.88 $ 2.58 $ 2.29 $ 2.03 $ 1.69 Diluted (loss) earnings per share $ (9.58) $ 2.58 $ 1.70 $ 1.50 $ (1.35) Dividends paid per share of common stock $ 0.60 $ 0.52 $ 0.44 $ 0.40 $ 0.36 Shares outstanding (millions) 27.6 28.0 28.3 28.0 27.8 Weighted average common shares and dilutive common share equivalents (millions)(2) 27.6 28.9 28.8 28.1 27.8 Other Information Total assets $2,331.0 $ 960.1 $ 907.8 $ 829.1 $ 820.0 Long-term debt, less current maturities $1,181.3 $ 176.6 $ 162.7 $ 117.3 $ 113.7 Working capital $ 81.8 $ 300.1 $ 282.1 $ 243.2 $ 221.2 EBITDA before special charges (1) $ 228.0 $ 217.4 $ 192.6 $ 161.4 $ 89.8 EBITDA $ (113.4) $ 217.4 $ 164.9 $ 150.1 $ (24.9) Debt to EBITDA before special charges(1) 5.5 0.9 0.9 0.8 1.62 Capital expenditures $ 110.7 $ 117.4 $ 110.0 $ 98.7 $ 92.8 Depreciation and amortization expenses $ 109.1 $ 87.8 $ 79.1 $ 70.1 $ 63.5 Number of employees at December 31, 11,171 6,079 5,702 5,963 6,689
(1)Excludes pretax special charges. Special charges include: 1) restructuring charges of $59.4, $27.7, $11.3 and $114.7 in 1997, 1995, 1994 and 1993, respectively, and 2) a one time write-off of $282.0 of acquired in-process research and development relating to the Coulter acquisition in 1997. Including these special charges, the Company reported operating (loss) income of ($237.0), $83.1, $87.6 and ($29.1) in 1997, 1995, 1994 and 1993 respectively. The Company did not incur any special charges in 1996. (2)Under generally accepted accounting principles, as the Company was in a net loss position in the current year, 1.0 million common share equivalents were not used to compute diluted loss per share, as the effect was antidilutive. Bar Chart: EBITDA Before Special Charges (millions) Year 1993 1994 1995 1996 1997 EBITDA $ 89.8 $161.4 $192.6 $217.4 $228.0 Bar Chart: Dividends paid per Common Stock Year 1993 1994 1995 1996 1997 Dividends Paid ($ per share) 0.36 0.40 0.44 0.52 0.60 FINANCIAL REVIEW In millions, except amounts per share Results Of Operations The following table sets forth, for the periods indicated, the results of operations as a percentage of sales and on a comparative basis:
% % % 1997 1996 Years ended 1997 of 1996 of 1995 of Compared Compared December 31, Sales Sales Sales to to 1996(2) 1995(2) Sales Diagnostics $ 802.4 67.0 $ 652.0 63.4 $558.5 60.0 $150.4 $ 93.5 Life sciences 395.6 33.0 376.0 36.6 371.6 40.0 19.6 4.4 ------ ---- ------ ---- ------ ---- ------ ------ Total Sales $1,198.0 100.0 $1,028.0 100.0 $930.1 100.0 $170.0 $ 97.9 ======== ===== ======== ===== ====== ===== ====== ====== Gross profit $ 588.3 49.1 $ 550.2 53.5 $502.9 54.1 $ 38.1 $ 47.3 Marketing, general and administrative 360.3 30.1 319.3 31.1 300.4 32.3 41.0 18.9 Research and development(1) 123.6 10.3 108.4 10.5 91.7 9.9 15.2 16.7 ----- ---- ----- ---- ---- --- ---- ---- Operating income (1) 104.4 8.7 122.5 11.9 110.8 11.9 (18.1) 11.7 Net nonoperating expense 14.9 1.2 11.0 1.0 10.7 1.1 3.9 0.3 ----- ---- ----- ---- ----- ---- ----- ---- Earnings before income taxes 89.5 7.5 111.5 10.9 100.1 10.8 (22.0) 11.4 Income tax provision 35.5 3.0 36.8 3.6 34.0 3.7 ( 1.3) 2.8 ----- ---- ----- ---- ----- ---- ----- ---- Earnings before special charges, after taxes $ 54.0 4.5 $ 74.7 7.3 $ 66.1 7.1 $(20.7) $ 8.6 Net (loss) earnings $(264.4) $ 74.7 $ 48.9 $(339.1) $ 25.8 Diluted earnings per share before special charges $ 1.88 $ 2.58 $ 2.29 $ (0.70) $ 0.29 Diluted (loss) earnings per share $ (9.58) $ 2.58 $ 1.70 $(12.16) $ 0.88 Dividends paid per share of common stock $ 0.60 $ 0.52 $ 0.44 $ 0.08 $ 0.08
(1) Amounts exclude special charges. Special charges include: l) restructuring charges of $59.4, 5.0% of sales, and $27.7, 3.0% of sales, in 1997 and 1995, respectively, and 2) a one time write-off of $282.0, 23.5% of sales, of acquired in-process research and development relating to the Coulter acquisition in 1997. Including these special charges: 1) operating (loss) income was $(237.0), (19.8%) of sales, and $83.1, 8.9% of sales, in 1997 and 1995, respectively, and 2) (loss) earnings before income taxes was $(251.9), (21.0%) of sales, and $72.4, 7.8% of sales, in 1997 and 1995, respectively. The Company did not incur any special charges in 1996. (2) Decreases from the comparative period are designated by parentheses. Bar Chart: MGA as a % of Sales Year 1995 1996 1997 MGA (% of Sales) 32.3 31.1 30.1 Bar Chart: R&D Expenses Before Write-off of In-Process R&D (millions) Year 1995 1996 1997 R&D Expenses $ 91.7 $108.4 $123.6 MANAGEMENT'S DISCUSSION AND ANALYSIS The following review should be read in conjunction with the consolidated financial statements and related notes included on pages 16 through 37. Historical results and percentage relationships are not necessarily indicative of operating results for any future periods. Overview Beckman Coulter ("the Company") is a world leader in providing systems that simplify and automate laboratory processes. The Company designs, manufactures and services a broad range of laboratory systems consisting of instruments, reagents and related products that customers use to conduct basic scientific research, drug discovery research and diagnostic analysis of patient samples. Approximately two-thirds of the Company's 1997 sales were for clinical diagnostics applications, principally in hospital laboratories, while the remaining sales were for life sciences and drug discovery applications in universities, medical schools, and pharmaceutical and biotechnology companies. The Company's diagnostics systems address over 75% of the hospital laboratory test volume, including virtually all routine laboratory tests. The Company believes that it is a worldwide market leader in its primary markets, with well-recognized systems and a reputation for high-quality, reliable service. 1. Acquisition Activities The primary focus of the acquisition strategy of Beckman Instruments, Inc. (excluding Coulter, "Beckman") has been to broaden its product offerings. Beckman significantly strengthened its diagnostic immunochemistry offerings, including products for cancer diagnostics, through the acquisition of Hybritech Incorporated in January 1996 and the Access immunoassay product line of Sanofi Diagnostics Pasteur in April 1997. Beckman also acquired high throughput screening and robotics technology for drug discovery from Sagian, Inc. in December 1996 and DNA sequencing technology through the acquisition of Genomyx Inc. in October 1996. The acquisition of Coulter Corporation in October 1997, further extended Beckman's strategy to solidify its position as a leading provider of laboratory systems, adding Coulter's leading market position in hematology and number two position in flow cytometry. The purchase price of the acquisition totaled $1,178.0 million, consisting of $875.0 million in cash, assumed liabilities of $170.0 million and purchase liabilities of $133.0 million. This acquisition and the related financing is expected to lower the net earnings of the Company through 1998 as a result of a substantial increase in interest expense, amortization of intangible assets and goodwill and various other adjustments resulting from purchase accounting. A complete discussion of the Company's acquisition activities is provided in Note 3 "Acquisitions" to the Consolidated Financial Statements. 2.Events Impacting Comparability Acquired Research and Development: As a direct result of the acquisition of Coulter Corporation in October 1997, the Company recorded a $282.0 million charge for purchased in-process research and development. This charge relates to projects that have economic value but that cannot be capitalized for purposes of generally accepted accounting principles. Goodwill and Intangible Assets: As a result of the acquisition of Coulter, $404.0 million was recorded as the fair value of patents, trademarks and other intangibles ("Intangible Assets") and $374.4 million was recorded as the excess of purchase price, purchase liabilities and liabilities assumed over the fair value of identifiable net assets and in-process research and development projects acquired ("Goodwill"). Intangible Assets are amortized using the straight-line method over their expected useful lives, ranging from 15 to 30 years. Goodwill is amortized on a straight-line basis over 40 years. See further discussion at Note 3 "Acquisitions" to the Consolidated Financial Statements. Restructuring Charges: The Company recorded a $59.4 million restructuring charge in the fourth quarter 1997. This charge, is the result of a restructuring plan focused on asset redeployment, reduction of duplicate overhead and improved operating efficiency, on a worldwide basis. On an after- tax basis, the restructuring charge was $36.4 million or $1.32 per share. The restructuring charges recorded in 1995 and 1994 were for facility moves and transition costs that were anticipated and directly associated with the Company's 1993 restructuring plan, but which could not be recognized in the establishment of the original restructuring reserve under generally accepted accounting principles. A more detailed discussion of the restructuring charges taken by the Company, is provided in Note 4 "Provision for Restructuring Operations" to the Consolidated Financial Statements. Sale of Assets: The Company has sold certain financial assets (primarily consisting of equipment subject to customer leases and lease receivables) as part of its plan to reduce debt and provide funds for integration purposes. The net book value of financial assets sold was $71.2 million for which the Company received approximately $75.0 million in cash proceeds. The Company will continue to evaluate opportunities to provide additional cash flow by monetizing other assets during 1998 and beyond. The Company intends to consummate several sale-leaseback transactions with respect to some of its real estate assets which the Company expects will generate proceeds to the Company of approximately $150.0 million in 1998 and approximately $40.0 million in 1999. These sales are expected to marginally reduce operating income while decreasing nonoperating expenses, resulting in a slightly negative impact on the Company's pretax results. See further discussion in Note 5 "Sale of Assets" to the Consolidated Financial Statements. Tax Aspects: As a result of expenses related to the acquisition of Coulter including the Coulter bonus sharing plan payments, deductions for interest on indebtedness and certain other expenses incurred in connection with the Coulter acquisition, the Company does not expect that it will have to pay federal income taxes for the next several years. The deferred income tax liability of $153.5 million, which is related to the intangible assets acquired, will be reduced by the tax effect of the amortization of the intangible assets, which is not deductible for income tax purposes. The amortization of goodwill of $1.6 million is not deductible for income tax purposes, which has the impact of increasing the effective tax rate by approximately 0.2 percentage points for 1997. 3.Results of Operations 1997 Compared with 1996: Sales for 1997 were $1,198.0 million, an increase of 16.5% over the $1,028.0 million reported in 1996. The sales growth in constant currency over the prior year was 20.2%. More than half of the growth resulted from the previously mentioned acquisition of Coulter Corporation. Despite continuing market-driven pricing pressures and adverse currency fluctuations, core businesses grew in all geographic areas. As an example, the Company was able to leverage its product offerings that reduce total laboratory cost, provide workstation consolidation and progressive automation, into a $100.0 million, five- year contract signed with AmeriNet, Inc., one of the largest healthcare purchasing organizations in the United States. In addition, a new contract was signed with University Healthsystem Consortium ("UHC"). The UHC agreement will complement the existing agreement with Voluntary Hospitals of America ("VHA"), which has recently acquired UHC. In 1997 as in 1996, international sales accounted for approximately 50% of total sales. Gross profit at 49.1% of sales was 4.4 percentage points lower than the 1996 level of 53.5%. Cost of sales resulting from the inventory written-up to market value in connection with the acquisition of Coulter accounted for $11.3 million or one percentage point of the reduction. Unfavorable foreign currency fluctuations contributed another one percentage point. Lower margins for Coulter products and competitive pricing pressures made up the balance of the percentage reduction. Marketing, general and administrative expenses at 30.1% of sales were one percentage point lower than the 1996 level of 31.1%, despite the costs of acquisition activities incurred during the year. Research and development expenses remained at last year's levels, at just over 10% of sales. As a result, operating income before pretax special charges was $104.4 million or 8.7% of sales in 1997, compared with operating income of $122.5 million and 11.9% in 1996. However, the 1997 operating income before pretax special charges, unlike 1996 operating income, includes charges for inventory recorded at fair value (mentioned previously) and on-going goodwill and intangible amortization expenses arising out of the Coulter acquisition. Without these items, the 1997 operating income margin would have been 10.0%. One-time charges of $282.0 million for in-process research and development expenses and restructure charges of $59.4 million (discussed previously in item 2 ) resulted in the reported operating loss of $237.0 million. Incremental interest expense associated with the debt incurred by the Company to fund the Coulter acquisition increased nonoperating expenses, but was partially offset by gains due to hedging activities. The net loss for the year was $264.4 million compared with net earnings of $74.7 million in 1996. The current year net loss excludes any tax benefit for the $282.0 million charge for in-process research and development as a result of its ineligibility for income tax purposes. 1996 Compared with 1995: Sales growth of 11%, 13% in constant currency, over the prior year was attributable to increased market share in diagnostics products, primarily in the North American and European markets; increased market share in life sciences products, primarily in non-European international markets; continued success from the Company's SKD subsidiary's HEMOCCULT product; and, sales from Hybritech products (Hybritech was acquired effective January 2, 1996). International sales represented approximately 50% of total sales. The gross profit percentage decrease resulted from changes in product mix, unfavorable foreign currency fluctuations and competitive pricing pressures. The increase in operating costs was due to a higher rate of investment in research and development costs related to Hybritech products. Earnings before income taxes for the year ended December 31, 1996 compared to the same period of the prior year increased to $111.5 million from $72.4 million (1995 included a restructuring charge of $27.7 million). Net earnings for the year ended December 31, 1996 were $74.7 million or $2.58 per share, representing an increase of 53% and 52%, respectively, over the prior year. Net earnings in 1995 included a $17.2 million after tax restructuring charge which decreased net earnings per share by $0.59. 4. Financial Condition Foreign Currency and Interest Rate Risk Management: The Company derives approximately 50% of its sales from sources outside of the United States. The Company's international operations are subject to foreign currency fluctuations. Consequently, the reported and the anticipated cash flows resulting from the sale of products and services in foreign countries may be adversely affected by changes in foreign currency exchange rates. U.S. dollar denominated costs and expenses represent a much greater percentage of the Company's operating costs and expenses than U.S. dollar- denominated sales represent of total net sales. As a result, appreciation of the U.S. dollar against the Company's major trading currencies has a negative impact on the Company's results of operations, and depreciation of the U.S. dollar against such currencies has a positive impact. Since the Company actively hedges its foreign currency exposure, the relative strength or weakness of the U.S. dollar is not likely to have a material effect on the Company's business decisions. The Company may adjust certain aspects of its operations in the event of a sustained material change in exchange rates. See further discussion of this topic in Note 7 "Derivatives" to the Consolidated Financial Statements. Liquidity and Capital Resources: The Company broadly defines liquidity as its ability to generate sufficient cash flows from operating activities to meet its obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing and to convert into cash flows those assets that are no longer required to meet existing strategic and financing objectives. Therefore, liquidity cannot be considered separately from capital resources that consist of current and potentially available funds for use in achieving long-range business objectives and meeting debt service commitments. Currently, the Company's liquidity needs arise primarily from debt service on the substantial indebtedness incurred in connection with the Coulter acquisition, and the funding of costs of integrating the operations of Beckman and Coulter, as well as its working capital requirements and capital expenditures. Operating activities generated $137.8 million of cash flows compared with $139.1 million in 1996 and $60.2 million in 1995. The 1997 results were primarily achieved through net results from operations, after adding back the effects of depreciation, amortization and special charges, including the write-off of acquired in-process research and development in connection with the acquisition of Coulter. Additionally, the Company received $35.7 million in cash proceeds from the sale of sales-type lease receivables (see Note 5 "Sale of Assets" to the Consolidated Financial Statements). Investing activities used $929.1 million of cash. Investments and acquisitions used $893.9 million primarily relating to the Coulter acquisition. Capital expenditures used $100.9 million of cash which is consistent with historical levels. An additional $39.6 million of cash proceeds was provided through the sale and leaseback of instruments (see Note 5 "Sale of Assets" to the Consolidated Financial Statements.) Financing activities provided $790.6 million of cash. This was achieved primarily through borrowing of $827.8 million, net of repayments, under short term notes payable, long term debt and credit facilities. These proceeds were primarily used to fund the acquisition of Coulter. Purchases of treasury stock used $20.6 million, net of proceeds from sales of treasury stock, and dividends to stockholders used $16.6 million. During the fourth quarter of 1997 the Company secured a new $1.3 billion credit facility to finance the acquisition of Coulter. See a further discussion of the credit facility and borrowing availability thereunder and under the Company's other borrowing facilities in Note 6 "Debt" to the Consolidated Financial Statements. The interest expense associated with the debt outstanding under the credit facility creates an increased demand on future operating cash flows. Although the Company believes that its consolidated operations will provide sufficient cash flow in excess of anticipated operating requirements in order to service the debt, a plan has been implemented to decrease the level of outstanding borrowings more rapidly. This ultimately will provide savings on the associated interest cost, which will be partially offset by increased rental expense as a result of any sale leaseback transactions. Subsequent to consummation of the Coulter acquisition, the Company has pursued sales of certain financial assets (primarily consisting of equipment subject to customer leases and sales-type lease receivables) and real estate assets, as part of its plan to reduce debt and provide funds for integration purposes. The Company has sold $71.2 million of financial assets for cash proceeds of approximately $75.0 million and intends to consummate several sale leaseback transactions with respect to some of its real estate assets during 1998 and 1999, which the Company expects will generate proceeds to the Company of approximately $190 million. In addition to these asset sales, the Company's capital expenditures include expenditures for customer leased equipment. Such expenditures in the future may be reduced by increased reliance on third party leasing arrangements, which would accordingly reduce the Company's liquidity needs. Based upon current levels of operations and anticipated cost savings and future growth, the Company believes that its cash flow from operations, together with available borrowings under the credit facility and its other sources of liquidity (including leases, any other available financing sources, and the proceeds of the planned asset sales discussed above), will be adequate to meet its anticipated requirements for interest payments and other debt service obligations, working capital, capital expenditures, lease payments and other operating needs, until the maturity of the credit facility in 2002. There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels or that estimated cost savings or growth can be achieved. The Company's future operating performance and ability to service or refinance its existing indebtedness, including the credit facility, will be subject to future economic conditions and to financial business and other factors, many of which are beyond the Company's control. Inflation: Inflation and the effects of changing prices are monitored continually by the Company. Inflation increases the cost of goods and services used by the Company. Competitive and regulatory conditions in many markets restrict the Company's ability to fully recover the higher costs of acquired goods and services through price increases. The Company attempts to mitigate the impact of inflation by implementing continuous process improvement solutions to enhance productivity and efficiency and, as a result, lower costs and operating expenses. The effects of inflation have, in the Company's opinion, been managed appropriately and as a result have not had a material impact on its operations and resulting financial position. Environmental Matters: The Company is subject to federal, state, local and foreign environmental laws and regulations. Although the Company continues to make expenditures for environmental protection, it does not anticipate any significant expenditures in order to comply with such laws and regulations that would have a material impact on the Company's operations or financial position. The Company believes that its operations comply in all material respects with applicable federal, state, and local environmental laws and regulations. To address contingent environmental costs, the Company establishes reserves when such costs are probable and can be reasonably estimated. The Company believes that, based on current information and regulatory compliance (and taking third party indemnities into consideration), the reserves established by the Company for environmental expenditures are adequate. Based on current knowledge, to the extent that additional costs may be incurred that exceed the reserves, such amounts are not expected to have a material impact on the Company's operations or financial condition, although no assurance can be given in this regard. See further discussion in Note 12 "Commitments and Contingencies" to the Consolidated Financial Statements. Litigation: The Company is currently, and is from time to time, subject to claims and lawsuits arising in the ordinary course of its business, including those relating to intellectual property, contractural obligations, competition and employment matters. In certain such actions, plaintiffs request punitive or other damages or nonmonetary relief, which may not be covered by insurance, and in the case of nonmonetary relief, could if granted materially affect the conduct of the Company's business. The Company accrues for potential liabilities involved in these matters as they become known and can be reasonably estimated. In the Company's opinion (taking third party indemnities into consideration), the various asserted claims and litigation in which the Company is currently involved are not reasonably likely to have a material adverse effect on the Company's business, results of operations or financial condition. However, no assurance can be given as to the ultimate outcome with respect to such claims and litigation. The resolution of such claims and litigation could be material to the Company's operating results for any particular period, depending on the level of income for such period. See further discussion of these matters in Note 12 "Commitments and Contingencies" to the Consolidated Financial Statements. Year 2000: The Company is in the process of modifying, upgrading or replacing its internal computer software applications and information systems. The Company is also in the process of evaluating all currently marketed and leased products and will upgrade those products that are intended for continued marketing and leasing beyond the year 1999. The Company is currently evaluating possible strategies to accommodate its installed analytical instrument systems owned by its customers. These tasks have been assigned to a senior executive of the Company who has established three projects, each led by a project manager and staffed by software experts, to perform the evaluation process: 1) product related matters, 2) mainframe management information systems and software, and 3) all other systems (e.g. personal computers, office machines, and supplier systems). Analysis and evaluation activities were begun in 1996 and are in varying stages of completion as of the date of this report. The Company recently expended approximately $250,000 on new software that provides a suite of tools to assist in the year 2000 remediation process. Remediation activities have begun and are planned and expected to be completed by the end of 1998. Testing and validation of the remediated systems and any final revisions needed will be conducted in 1999. The Company does not expect that the cost of its year 2000 compliance program will be material to its business, results of operations or financial condition. The Company believes that it will be able to achieve compliance by the end of 1999 and does not currently anticipate any material disruption of its operations as the result of any failure by the Company to be in compliance. Although the impact on the Company caused by the failure of the Company's significant suppliers or customers to achieve year 2000 compliance in a timely or effective manner is uncertain, the Company's business and results of operations could be materially adversely affected by such failure. Recent Accounting Developments: The Company intends to adopt Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information"(SFAS 131), in fiscal 1998. Both standards will require additional disclosure, but will not have a material effect on the Company's financial position or results of operations. SFAS 130 establishes standards for the reporting and display of comprehensive income and is expected to first be reflected in the Company's first quarter of 1998 interim financial statements. Components of comprehensive income include items such as net earnings, foreign currency translation adjustments and changes in value of available-for-sale securities. SFAS 131 changes the way companies report segment information and requires segments to be determined and reported based on how management measures performance and makes decisions about allocating resources. SFAS 131 will first be reflected in the Company's 1998 Annual Report. 5. Business Climate The clinical diagnostics and life sciences markets are each highly competitive and the Company encounters significant competition in each market from many manufacturers, both domestic and outside the United States. These markets continue to be unfavorably impacted by the economic weakness in Europe and Asia and cost containment initiatives in several European governmental and healthcare systems. The life sciences market also continues to be affected by consolidations of pharmaceutical companies and governmental constraints on research and development spending. In the United States, attempts to lower costs and to increase productivity have led to further consolidation among healthcare providers. This has resulted in more powerful provider groups that continue to leverage their purchasing power with suppliers to contain costs. Cost containment initiatives in the United States and in the European healthcare systems will continue to be factors, which may affect the Company's ability to maintain or increase sales. Future profitability may also be adversely affected if the relationship of the U.S. dollar to certain currencies is maintained or strengthened. The Company intends to grow its business through increased internal development efforts, and in part through collaborations that will help to expand its technology base. The continuing consolidation trend among United States healthcare providers, mentioned previously, 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. The Company's October 1997 acquisition of Coulter Corporation was a clear indicator of the Company's resolve to complete a key initiative to become a broad-based world leader in in-vitro diagnostic testing, by expanding its product offering. Coulter is the world's leading manufacturer of hematology systems for the clinical analysis of blood cells, where it has a market share twice the size of its next largest competitor. In addition, Coulter is considered a technology leader in cell counting and characterization and has a number two position in flow cytometry, which is used for both research and clinical applications. The size and growth of the Company's 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; and healthcare spending and physician practices. The Company expects worldwide healthcare expenditures and diagnostic testing to increase over the long-term, primarily as a result of the following three factors: (1) growing demand for services generated by the aging of the world population; (2) increasing expenditures on diseases requiring costly treatment (for example, AIDS and cancer) and (3) expanding demand for improved healthcare services in developing countries. With Coulter and the two earlier acquisitions in immunochemistry- based diagnostics, Hybritech Incorporated and the Access immunoassay product business of Sanofi Diagnostics Pasteur, the Company completed a major strategic initiative intended to build on its leadership position in automated clinical chemistry and create a broad based capability in routine clinical chemistry. The Company will be able to offer hospital laboratories worldwide, a broad range of automated systems that together can perform more than 75% of their test volume and essentially all of the tests that are considered routine. This positions the Company to be able to provide significant value added benefits to its customers, which the Company expects to further enhance through the Company's expertise in simplifying and automating laboratory processes. 6. Taxes The Company is subject to taxation in many jurisdictions throughout the world. The Company's effective tax rate and tax liability will be affected by a number of factors, such as the amount of taxable income in a particular jurisdiction, the tax rate in such jurisdictions, tax treaties between jurisdictions, the extent to which the Company transfers funds between jurisdictions and income is repatriated, and future changes in the law. Generally, the tax liability for each legal entity is determined either (i) on a non-consolidated basis or (ii)on a consolidated basis only with other entities incorporated in the same jurisdiction, in either case without regard to the taxable losses of nonconsolidated affiliated entities. As a result, the Company may pay income taxes in certain jurisdictions even though the Company on an overall basis incurs a net loss for the period. 7.Forward Looking Statements This annual report contains forward-looking statements, including statements regarding, among other items, (i) the Company's business strategy; (ii) anticipated trends in the Company's business; (iii) the Company's liquidity requirements and capital resources; (iv) anticipated synergies; and (v) future cost reductions. These forward- looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. These risks and uncertainties include, but are not limited to, (i) the complexity and uncertainty regarding development of new high-technology products; (ii) the loss of market share through aggressive competition in the clinical diagnostics and life sciences markets; (iii) the Company's dependence on capital spending policies and government funding; (iv) the effect of potential health-care reforms; (v) fluctuations in foreign exchange rates and interest rates; (vi) reliance on patents and other intellectual property; (vii) difficulties, delays or failures in effectively integrating worldwide operations; (viii) achievement of year 2000 compliance; and (ix) other factors that cannot be identified at this time. Although Beckman believes that it has the product offerings and resources required to achieve its objectives, actual results could differ materially from those anticipated by these forward-looking statements as there can be no assurance that events anticipated by these forward-looking statements will in fact transpire as anticipated. CONSOLIDATED BALANCE SHEETS In millions, except amounts per share December 31, 1997 1996
Assets Current assets Cash and equivalents $ 33.1 $ 34.6 Short-term investments 0.4 8.1 Trade receivables and other 524.6 309.5 Inventories 332.3 190.4 Deferred income taxes 53.0 21.4 Other current assets 33.3 15.4 ------ ------ Total current assets 976.7 579.4 Property, plant and equipment, net 410.9 263.5 Intangibles, less accumulated amortization of $10.6 in 1997 and $4.2 in 1996 444.9 34.1 Goodwill, less accumulated amortization of $6.0 in 1997 and $3.1 in 1996 402.8 13.7 Deferred income taxes - 50.8 Other assets 95.7 18.6 -------- ------ Total assets $2,331.0 $960.1 ======== ====== Liabilities and Stockholders' Equity Current liabilities Notes payable $ 49.0 $ 15.1 Current maturities of long-term debt 19.9 4.3 Accounts payable 96.3 45.6 Accrued compensation 84.6 47.4 Other accrued expenses 575.5 115.2 Income taxes 69.6 51.7 ----- ----- Total current liabilities 894.9 279.3 Long-term debt, less current maturities 1,181.3 176.6 Deferred income taxes 40.3 - Other liabilities 132.7 105.3 ------- ----- Total liabilities 2,249.2 561.2 Commitments and contingencies (Note 12) Stockholders' equity Preferred stock, $0.10 par value; authorized 10.0 shares; none issued - - Common stock, $0.10 par value; authorized 75.0 shares; shares issued 29.1 at 1997 and 1996; shares outstanding 27.6 at 1997 and 28.0 at 1996 2.9 2.9 Additional paid-in capital 126.6 128.9 Foreign currency translation adjustment (13.8) 3.9 Retained earnings 19.0 300.0 Treasury stock, at cost (52.9) (36.8) ------ ------ Total stockholders' equity 81.8 398.9 ------ ------ Total liabilities and stockholders' equity $2,331.0 $ 960.1 ======== =======
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS In millions, except amounts per share
Years ended December 31, 1997 1996 1995 Sales $1,198.0 $1,028.0 $ 930.1 Operating costs and expenses Cost of sales 609.7 477.8 427.2 Marketing, general and administrative 360.3 319.3 300.4 Research and development 123.6 108.4 91.7 In-process research and development 282.0 - - Restructuring charge 59.4 - 27.7 -------- ------ ----- 1,435.0 905.5 847.0 -------- ------ ----- Operating (loss) income (237.0) 122.5 83.1 Nonoperating expense Interest income (6.1) (5.8) (5.3) Interest expense 29.4 18.1 13.4 Other, net (8.4) (1.3) 2.6 ------ ------ ----- 14.9 11.0 10.7 ------ ------ ----- (Loss) earnings before income taxes (251.9) 111.5 72.4 Income taxes 12.5 36.8 23.5 Net (loss) earnings $(264.4) $ 74.7 $ 48.9 Basic (loss) earnings per share $ (9.58) $ 2.66 $ 1.74 Weighted average number of shares outstanding 27.6 28.0 28.1 Diluted (loss) earnings per share $ (9.58) $ 2.58 $ 1.70 Weighted average number of shares outstanding 27.6 28.9 28.8
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY In millions, except amounts per share
Foreign Additional Currency Minimum Common Paid-in Translation Retained Pension Treasury Stock Capital Adjustment Earnings Liability Stock Total Balances, December 31, 1994 $2.9 $130.0 $8.6 $203.4 - $(27.9) $317.0 Net earnings 48.9 48.9 Foreign currency translation adjustments (0.2) (0.2) Dividends to stockholders, $0.44 per share (12.3) (12.3) Purchases of treasury stock (13.3) (13.3) Vesting of restricted stock 0.1 0.1 Employee stock purchases (1.1) 18.7 17.6 Minimum pension liability (9.9) (9.9) -------------------------------------------------------------- Balances, December 31, 1995 $2.9 $129.0 $8.4 $240.0 $(9.9) $(22.5) $347.9 Net earnings 74.7 74.7 Foreign currency translation adjustments (4.5) (4.5) Dividends to stockholders, $0.52 per share (14.7) (14.7) Purchases of treasury stock (35.9) (35.9) Employee stock purchases (0.1) 21.6 21.5 Minimum pension liability 9.9 9.9 --------------------------------------------------------------- Balances, December 31, 1996 $2.9 $128.9 $3.9 $300.0 - $(36.8) $398.9 Net (loss) (264.4) (264.4) Foreign currency translation adjustments (17.7) (17.7) Dividends to stockholders, $0.60 per share (16.6) (16.6) Purchases of treasury stock (43.7) (43.7) Employee stock purchases (2.3) 27.6 25.3 ---------------------------------------------------------------- Balances, December 31, 1997 $2.9 $126.6 $(13.8) $19.0 - $(52.9) $81.8 =================================================================
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS In millions
Years ended December 31, 1997 1996 1995 Cash Flows from Operating Activities Net (loss) earnings $(264.4) $ 74.7 $ 48.9 Adjustments to reconcile net (loss) earnings to net cash provided by operating activities Depreciation and amortization 109.1 87.8 79.1 Net deferred income taxes (5.1) 11.3 10.2 Write-off of acquired in- process research and development 282.0 - - Proceeds from sale of sales-type lease receivables 35.7 - - Changes in assets and liabilities, net of acquisitions Trade receivables and other (53.1) (26.1) (23.7) Inventories 18.2 (26.4) (15.7) Accounts payable and accrued expenses (3.4) 30.7 0.7 Accrued restructuring costs 44.4 (10.6) (12.9) Accrued income taxes 1.0 7.0 (8.8) Other (26.6) (9.3) (17.6) ------------------------ Net cash provided by operating activities 137.8 139.1 60.2 activities ------------------------ Cash Flows from Investing Activities Additions to property, plant and equipment (100.9) (110.5) (103.2) Net disposals of property, plant and equipment 18.4 18.7 13.2 Sales (purchases) of short-term investments 7.7 0.2 (7.5) Proceeds from sale-leaseback transaction 39.6 - - Investments and acquisitions (893.9) (23.0) (15.5) ------------------------- Net cash used by investing activities (929.1) (114.6) (113.0) ------------------------- Cash Flows from Financing Activities Dividends to stockholders (16.6) (14.7) (12.3) Proceeds from issuance of stock 23.1 21.5 17.6 Purchases of treasury stock (43.7) (35.9) (13.3) Notes payable borrowings (reductions) 11.7 (2.4) 2.9 Long-term debt borrowings 1,164.2 128.3 43.4 Long-term debt reductions (348.1) (113.0) (3.5) -------------------------- Net cash provided (used) by financing activities 790.6 (16.2) 34.8 -------------------------- Effect of exchange rates on cash and equivalents (0.8) 0.1 - -------------------------- (Decrease) increase in cash and equivalents (1.5) 8.4 (18.0) Cash and equivalents-beginning of year 34.6 26.2 44.2 -------------------------- Cash and equivalents-end of year $ 33.1 $ 34.6 $ 26.2 ========================== Supplemental Disclosures of Cash Flow Information Cash payments for income taxes $ 12.9 $ 19.2 $ 22.0 Cash payments for interest 18.7 18.3 12.0 Noncash Investing and Financing Activities Conversion of notes receivable - 8.1 - Minimum pension liability - (9.9) 9.9 Purchase of equipment under capital lease obligation 9.8 6.9 6.8 Issuance of Restricted Stock as employee compensation 2.2 - -
See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In millions, except amounts per share 1. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Beckman Instruments, Inc., and its wholly owned subsidiaries. The consolidated entity is referred to as the Company in the accompanying consolidated financial statements. All significant transactions among the consolidated entities have been eliminated from the consolidated financial statements. The accounts of many of the Company's non-U.S. subsidiaries are included on the basis of their fiscal years ended November 30. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Financial Instruments The carrying values of the Company's financial instruments approximate their fair value at December 31, 1997 and 1996. Market value of cash and cash equivalents, trade and other receivables, other current assets, investments, notes payable, accounts payable, and amounts included in other accrued expenses meeting the definition of a financial instrument are based upon management estimates. Market values of the Company's debt and derivative instruments are determined by quotes from financial institutions. Foreign Currency Translation Non-U.S. assets and liabilities are translated into U.S. dollars using year-end exchange rates. Operating results are translated at exchange rates prevailing during the year. The resulting translation adjustments are accumulated as a separate component of stockholders' equity. Gains and losses resulting from foreign currency hedging transactions and translation adjustments relating to foreign entities deemed to be operating in U.S. dollar functional currency or in highly inflationary economies are included in the Consolidated Statements of Operations. Derivatives The Company utilizes derivative financial instruments to hedge foreign currency and interest rate market exposures of underlying assets, liabilities and other obligations and not for speculative or trading purposes. Gains and losses on currency forward contracts, options and swaps that are designated as hedges of existing transactions are recognized in income in the same period as losses and gains on the underlying transactions are recognized and generally offset. Gains and losses on currency forward contracts and options that are designated as hedges of anticipated transactions for which a firm commitment has been attained are deferred and recognized in income in the same period that the underlying transactions are settled. Gains and losses on any instruments not meeting the above criteria would be recognized in income in the current period. Income or expense on interest rate swaps is accrued as an adjustment to the yield of the related debt that they hedge. Stock-Based Compensation The Company implemented Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) in 1996. As permitted by SFAS 123, the Company continues to follow the guidance of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Consequently, 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 fair value of the Company's common stock. Accordingly, no compensation expense has been recognized on the Company's stock option or stock purchase plans. The Company discloses in Note 10 "Employee Benefits" the effect on earnings if compensation costs were recorded at the estimated fair value of the stock options granted, as prescribed by SFAS 123. Cash and Equivalents Cash and equivalents include cash in banks, time deposits and investments having maturities of three months or less from the date of acquisition. Short-Term Investments Short-term investments are principally comprised of investments with final maturities in excess of three months but less than one year from the date of acquisition. Investments The Company periodically makes investments in unaffiliated companies through debt and equity securities. The Company's investments are considered available-for-sale and carried at current fair value with unrealized gains or losses reported as a separate component of stockholders' equity, if necessary. Inventories Inventories are valued at the lower of cost or market using the first-in, first-out method. Property, Plant and Equipment and Depreciation Land, buildings and machinery and equipment are carried at cost. The cost of additions and improvements are capitalized, while maintenance and repairs are expensed as incurred. Depreciation is computed generally on the straight-line basis over the estimated useful lives of the related assets. Buildings are depreciated over 20 to 40 years, machinery and equipment over 3 to 10 years and instruments subject to lease over the lease terms but not in excess of 7 years. Leasehold improvements are amortized over the lesser of the life of the asset or the term of the lease but not in excess of 20 years. Goodwill and Other Intangibles Goodwill represents the excess of the purchase price of acquired companies over the estimated fair value of the tangible and intangible net assets acquired. Goodwill is amortized on a straight line basis over 40 years. Other intangibles consist primarily of patents, trademarks and customer base arising from business combinations. Intangibles are amortized on a straight line basis over periods ranging from 15 to 30 years. Accounting for Long-Lived Assets The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of" (SFAS 121) in 1996. SFAS 121 establishes accounting standards for the impairment of long-lived assets to be reviewed whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In addition, SFAS 121 requires that certain long-lived assets be reported at the lower of carrying value or the fair value less costs to sell. Adopting SFAS 121 had no material impact on the Company's results of operations and financial position for 1997 and 1996. Environmental Expenditures The Company accrues for environmental expenses resulting from existing conditions that relate to operations when the costs are probable and reasonable to estimate. Revenue Recognition In general, revenue is recognized when a product is shipped. When a customer enters into an operating-type lease agreement, 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 are recognized ratably over the life of the service agreement or as service is performed, if not under contract. Research and Development Research and development costs are charged to operations as incurred. In-process research and development is charged to operations in the period acquired. Other Nonoperating Income and Expenses Other nonoperating income and expenses for the Company are generally comprised of five primary items: (i) interest expense, (ii) interest income, (iii) foreign exchange gains or losses, (iv) investments that are non-core or are accounted for as a minority interest and (v) other nonoperating gains or losses. Interest income typically includes income form sales-type leases and interest on cash equivalents and other investments. Foreign exchange gains or losses are primarily the result of the Company's hedging activities (net of revaluation) and are recorded net of premiums paid. Other nonoperating gains and losses are most frequently the result of one-time items such as asset sales or other items. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Earnings (Loss) Per Share The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) in 1997. SFAS 128 simplifies the computation of earnings per share ("EPS") previously required in Accounting Principles Board (APB) Opinion No. 15, "Earnings Per Share," by replacing primary and fully diluted EPS with basic and diluted EPS. Under SFAS 128, basic EPS is calculated by dividing net earnings (loss) by the weighted-average common shares outstanding during the period. Diluted EPS reflects the potential dilution to basic EPS that could occur upon conversion or exercise of securities, options, or other such items, to common shares using the treasury stock method based upon the weighted-average fair value of the Company's common shares during the period. SFAS 128 was required to be adopted by the Company in its year-end 1997 Annual Report, and earnings per share for prior periods have been restated in accordance with SFAS 128. See Note 13 "Earnings Per Share" for computation of EPS. Recent Accounting Developments The Company intends to adopt Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information"(SFAS 131), in 1998. Both standards will require additional disclosure, but will not have a material effect on the Company's financial position or results of operations. SFAS 130 establishes standards for the reporting and display of comprehensive income and is expected to first be reflected in the Company's first quarter of 1998 interim financial statements. Components of comprehensive income include items such as net earnings, foreign currency translation adjustments and changes in value of available-for-sale securities. SFAS 131 changes the way companies report segment information and requires segments to be determined and reported based on how management measures performance and makes decisions about allocating resources. SFAS 131 will first be reflected in the Company's 1998 Annual Report. Reclassifications Certain reclassifications have been made to prior year amounts to conform with the current year presentation. 2. Composition of Certain Financial Statement Captions
1997 1996 Trade receivables and other Trade receivables $ 488.5 $ 295.3 Other receivables 30.0 20.7 Current portion of lease receivables 23.5 3.1 Less allowance for doubtful (17.4) (9.6) receivables $ 524.6 $ 309.5 Inventories Finished products $ 206.5 $ 123.8 Raw materials, parts and assemblies 99.1 53.0 Work in process 26.7 13.6 $ 332.3 $ 190.4 Property, plant and equipment, net Land $ 74.1 $ 9.1 Buildings 240.2 144.1 Machinery and equipment 382.9 239.1 Instruments subject to lease(a) 205.6 281.6 $ 902.8 $ 673.9 Less accumulated depreciation Building, machinery and equipment (365.4) (236.4) Instruments subject to lease(a) (126.5) (174.0) $ 410.9 $ 263.5 Other accrued expenses Accrued restructuring costs 47.2 2.6 Unrealized service income 63.8 36.9 Insurance 27.2 23.1 Accrued warranty and installation costs 18.6 4.5 Severance and related costs 109.6 - Closure of offices and manufacturing facilities 23.0 - Change in control payments 36.0 - Contractual obligations of Coulter to its employees 103.0 - employees Other 147.1 48.1 $ 575.5 $ 115.2
(a) Includes instruments leased to customers under three to five year cancelable operating leases. 3. Acquisitions During 1997, 1996 and 1995, the Company made the following acquisitions, all of which were accounted for using the purchase method of accounting. The operating results of these acquired businesses have been included in the Consolidated Statements of Operations from the dates of acquisition. On October 31, 1997, the Company acquired all of the outstanding capital stock of Coulter Corporation for $850.2, net of Coulter's cash on hand of $24.8 at the date of acquisition. Coulter is the leading manufacturer of in-vitro diagnostics systems for blood cell analysis. The purchase of Coulter was financed with the net proceeds from a new $1,300.0 credit facility (see Note 6 "Debt"). As a result of the acquisition, $374.4 in goodwill was recorded by the Company. Goodwill reflects the excess of the purchase price, purchase liabilities and liabilities assumed over the fair value of net identifiable assets and in-process research and development projects acquired. Acquired in-process research and development of $282.0 was charged to expense in the fourth quarter in accordance with generally accepted accounting principles. Purchase liabilities recorded included approximately $110.0 for severance and related costs and $23.0 for costs associated with the closure of certain offices and manufacturing facilities. The Company expects to complete its termination of certain employees and closure of certain facilities in fiscal 1998. Assumed liabilities recorded included approximately $103.0 of contractual obligations of Coulter to its employees, $36.0 of change in control payments and $31.0 of other assumed liabilities. The Company expects to pay for the above obligations throughout fiscal 1998. At December 31, 1997 substantially all of the purchase liabilities and $150.4 of the assumed liabilities remained on the balance sheet. The Company does not believe that the final purchase price allocation will differ significantly from the preliminary purchase price allocation recorded in the current fiscal year. The Company estimates, based upon current exchange rates, that its cash funding requirements for the previously mentioned costs associated with the Coulter acquisition will amount to approximately $180.0 from the consummation of the Coulter acquisition through the end of 1998, and approximately $50.0 to $65.0 in each of the following two years. This includes up to $103.0 of sharing bonus plan payments which will be made to Coulter's employees. As the Company's 1997 financial statements only include two months of operations of Coulter, the following selected unaudited pro forma information is being provided to present a summary of the combined results of Beckman and Coulter as if the acquisition had occurred as of January 1, 1997 and 1996, giving effect to purchase accounting adjustments. The pro forma data is for informational purposes only and may not necessarily reflect the results of operations of Beckman had Coulter operated as part of the Company for the years ended December 31, 1997 and 1996.
Pro Forma Years Ended December 31, 1997 December 31, 1996 Sales $1,790.1 $1,722.6 Net earnings $ 9.0 $ 28.9 Basic earnings per share $ 0.33 $ 1.03 Diluted earnings per share $ 0.31 $ 1.00
The pro forma amounts reflect the results of operations for Beckman, Coulter and the following purchase accounting adjustments for the periods presented: * Amortization of intangible assets and goodwill based on the purchase price allocation for each period presented. * Amortization of debt financing fees and expenses over the term of the new credit facility. * The addition of interest expense on debt incurred to finance the acquisition offset by a reduction of historical interest expense as a result of the elimination of Coulter's debt. * Additional cost of sales expense as a result of a step-up in the basis of inventory. * Estimated income tax effect on the pro forma adjustments. The pro forma statements do not include the $282.0 write-off of in- process research and development and the $59.4 accrued restructuring costs, as they are non-recurring charges. These charges are included in the Consolidated Statements of Operations of the Company for 1997. The pro forma diluted net earnings per share is based on the weighted average number of common shares and dilutive common share equivalents of Beckman during 1997 and 1996. In April 1997 the Company acquired the Access immunoassay product line and related manufacturing facility from Sanofi Diagnostics Pasteur, Inc. ("Sanofi"). The acquisition also established an ongoing alliance in immunochemistry between the Company and Sanofi. The Access product line, together with the earlier acquisition of Hybritech Incorporated ("Hybritech") and the Company's own immunochemistry/protein products, create a major presence for the Company in the field of immunochemistry. In December 1996 the Company acquired the assets and assumed the liabilities of the laboratory robotics division of Sagian Inc. of Indianapolis, Indiana. By combining Sagian's scheduling software and robotics with its own biorobotics systems, the Company enhanced its ability to serve the pharmaceutical industry's need for high- throughout screening (HTS) of candidate compounds for new drugs. In January 1996, the Company acquired the assets and assumed the liabilities of Hybritech, a San Diego-based life sciences and diagnostic company. The acquisition expanded the Company's ability to develop and manufacture high sensitivity immunoassays, including cancer tests. In May 1995, the Company agreed to acquire Genomyx Corporation of Foster City, California. Genomyx is a developer and manufacturer of advanced DNA sequencing products and complements the Company's biotechnology business. The acquisition was completed on October 21, 1996. With the exception of Coulter, the purchase prices of the acquisitions and the effects on consolidated results of operations were not material to the Company individually or in the aggregate. 4. Provision for Restructuring Operations 1997 Restructuring: The Company recorded a restructuring charge of $59.4, $36.4 after taxes or $1.32 per share, in the fourth quarter of 1997. The work force reductions anticipated under this plan, some of which occurred prior to year-end total approximately 500 employees in Europe, Asia and North America in sales, general, administrative and technical functions and approximately 100 employees in production related areas. The charge included $37.3 for severance related costs. The $22.1 provided for facility consolidation and asset related write-offs included $2.5 for lease termination payments, $12.2 for the write-off of machinery, equipment and tooling associated with those functions to be consolidated, and $7.4 for exiting non-core investment activities. These changes are scheduled to be substantially completed by December 1998. At December 31, 1997, the Company's remaining obligation related to the restructuring charges was $46.6, which is included in "Other Accrued Expenses." The following table details the major components of the 1997 restructuring provision:
Facility consolidation and asset Provision Personnel related Total write-offs Consolidation of sales, general, administrative and technical functions $ 34.3 $ 18.2 $ 52.5 Changes in manufacturing operations 3.0 3.9 6.9 ------------------------------ Total provision 37.3 22.1 59.4 Fiscal 1997 Activity Consolidation of sales, general, administrative and technical functions 7.8 5.0 12.8 Changes in manufacturing operations - - - ------------------------------ Total 1997 activity 7.8 5.0 12.8 Balance at December 31, 1997 Consolidation of sales, general, administrative and technical functions 26.5 13.2 39.7 Changes in manufacturing operations 3.0 3.9 6.9 ------------------------------- Balance at December 31, 1997 $ 29.5 $ 17.1 $ 46.6 ===============================
Prior Years Restructuring: The Company also recorded a restructuring charge of approximately $27.7 in 1995. This restructuring charge included costs for facility moves and transition costs which were anticipated and directly associated with the 1993 restructuring plan but could not be recognized in establishment of the original restructuring reserve under generally accepted accounting principles. At December 31, 1997 and 1996, the Company's remaining obligation relating to this restructuring charge was $0.4 and $2.6, respectively, and is included in "Other Accrued Expenses". 5. Sale of Assets In December 1997, the Company sold $34.2 of Coulter's sales-type lease receivables, net of $2.6 of allowances, for cash proceeds of $35.7. Under the provisions of Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" (SFAS 125), the transaction was accounted for as a sale and as a result the related receivables have been excluded from the accompanying Consolidated Balance Sheet. The sale is subject to certain recourse provisions and as such the Company established a $1.5 reserve for potential losses. Also in December 1997, the Company entered into an agreement for the sale and leaseback of certain instruments which are subject to various three to five year cancelable operating-type leases to customers. These instruments had a net book value of $37.0 and were sold for cash proceeds of $39.6. The gain is being deferred and credited to income, as a rent expense adjustment over the lease term. Obligations under the operating lease agreement are included in the lease commitments disclosure in Note 12 "Commitments and Contingencies". Proceeds from the above transactions were used to reduce outstanding borrowings under the new $1,300 credit facility (see Note 6 "Debt"). 6. Debt Notes payable consist primarily of short-term bank borrowings by the Company's subsidiaries outside the U.S. under local lines of credit. The bank borrowings are at rates which approximate current market rates; therefore, the carrying value of the notes approximates the market value. At December 31, 1997 approximately $139.9 of unused short-term lines of credit were available to the Company's subsidiaries outside the U.S. at various interest rates. Within the U.S., the Company had available $18.0 in unused committed short-term lines of credit at market rates. Compensating balances and commitment fees on these lines of credit are not material and there are no withdrawal restrictions. Long-term debt consisted of the following at December 31:
Average Rate of Interest 1997 1996 Credit Agreement - Term loan facility 6.75% $ 400.0 $ - Credit Agreement - Revolving credit facility 6.47% 600.0 - Debentures 7.05% 100.0 100.0 Senior notes, unsecured - - 50.0 Other long-term debt 6.39% 101.2 30.9 ------- ----- 1,201.2 180.9 Less current maturities 19.9 4.3 ------- ----- Long-term debt, less current maturities $1,181.3 $176.6 ======== ======
In October 1997, in conjunction with the acquisition of Coulter, the Company cancelled its $150.0 credit agreement and entered into a new credit agreement (the "Credit Agreement") with a group of financial institutions. The Credit Agreement provides up to a maximum aggregate amount of $1,300.0 through a $500.0 senior unsecured term loan facility (the "Term Loan") and an $800.0 senior unsecured revolving credit facility (the "Credit Facility"). Borrowings under the Credit Agreement generally bear interest at current market rates plus a margin based upon the Company's senior unsecured debt rating or debt to earnings ratio, whichever is more favorable to the Company, except in the case of competitive bid advances (as defined in the Credit Agreement) which may bear interest at a fixed rate. The Company is accordingly subject to fluctuations in such interest rates, which could cause its interest expense to increase or decrease in the future. As a result of the substantial indebtedness incurred in connection with the Coulter acquisition, the Company's interest expense will be higher and will have a much greater proportionate impact on net earnings in comparison to pre-acquisition periods. The Company must also pay a quarterly facility fee on the average Credit Facility commitment. In addition, approximately $6.8 of fees paid to enter the Credit Agreement are being amortized to interest expense over the term of the Credit Agreement. The Credit Agreement provides for mandatory prepayment of the Term Loan and Credit Facility borrowings (and, to the extent provided, reductions in commitments) thereunder from excess cash flow (as defined in the Credit Agreement), and from proceeds of certain equity or debt offerings, asset sales and extraordinary receipts. The Credit Facility is not subject to any scheduled principal amortization. Beginning in March 2000, the Company will be required to make scheduled quarterly principal payments of $25.0 on the Term Loan borrowings with a final maturity in October 2002. The Credit Facility matures on the same date as the Term Loan. As of the date of this report, the Company's remaining borrowing availability under the Credit Facility is $200.00 . Undrawn amounts under the Credit Facility will be available to meet future working capital and other business needs of the Company. In June 1996, the Company issued $100.0 of debentures bearing an interest rate of 7.05% per annum due June 1, 2026. Interest is payable semi-annually in June and December. The debentures were recorded net of discount and issuance costs of approximately $1.5 which are being amortized to interest expense over the term of the debentures. The debentures may be repaid on June 1, 2006 at the option of the holders of the debentures, at 100% of their principal amount, together with accrued interest to June 1, 2006, in accordance with the terms of the debenture agreement. The debentures may be redeemed, in whole or in part, at the option of the Company at any time after June 1, 2006 at a redemption price equal to the greater of the principal amount of the debentures or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semiannual basis at a comparable treasury issue rate plus a margin. The Company had $50.0 senior notes, comprised of Series A $20.0 and Series B $30.0 notes, that were repaid with borrowings under the Credit Agreement in October 1997. In addition, the Company paid a premium of approximately $2.0 to redeem the notes. Other long-term debt at December 31, 1997 consists principally of $76.6 of notes used to fund the operations of the Company's international subsidiaries and notes given as partial consideration for an acquisition. Some of the notes issued by the Company's international subsidiaries are secured by their assets. Notes used to fund the Company's international subsidiaries amounted to $22.1 in 1996. Capitalized leases of $24.6 in 1997 and $8.8 in 1996 are also included in other long-term debt. Certain of the Company's borrowing agreements contain covenants that the Company must comply with, for example: minimum net worth, maximum capital expenditures, a debt to earnings ratio, a minimum interest coverage ratio and a maximum amount of debt incurrence. At December 31, 1997, the Company was in compliance with all such covenants. The aggregate maturities of long-term debt for the five years subsequent to December 31, 1997 are $19.9 in 1998, $24.6 in 1999, $110.7 in 2000, $107.4 in 2001, $814.6 in 2002 and $124.0 thereafter. 7. Derivatives The Company manufactures its products principally in the United States, but generates approximately half of its revenues from sales made outside the U.S. by its international subsidiaries. Sales generated by the international subsidiaries generally utilize the subsidiary's local currency, thereby exposing the Company to the risk of foreign currency fluctuations. Also, as the Company is a net borrower, it is exposed to the risk of fluctuating interest rates. The Company utilizes derivative instruments in an effort to mitigate these risks. The Company's policy is not to speculate in derivative instruments to profit on the foreign currency exchange or interest rate price fluctuation, nor to enter trades for which there are no underlying exposures, nor enter into trades to intentionally increase the underlying exposure. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and are designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments are highly correlated with changes in market values of underlying hedged items both at the inception of the hedge and over the life of the hedge contract. Various foreign currency contracts are used to hedge firm commitments denominated in foreign currencies and to mitigate the impact of changes in foreign currency exchange rates on the Company's operations. The Company uses forward contracts, purchased option contracts, and complex option contracts, consisting of purchased and sold options, to hedge transactions with its foreign customers. The hedge instruments mature at various dates with premiums and resulting gains or losses recognized at the maturity date, which approximates to the transaction date. The notional values of contracts afforded hedge accounting treatment are summarized as follows at December 31:
1997 1996 Forward Contracts $66.9 $63.6 Purchased Option Contracts 45.0 28.5 Complex Option Contracts 28.5 -
When the Company uses foreign currency contracts and the dollar strengthens against foreign currencies, the decline in the value of future foreign currency cash flows is partially offset by the recognition of gains in the value of the foreign currency contracts designated as hedges of the transactions. Conversely, when the dollar weakens, the increase in the value of future foreign currency cash flows is reduced by (i) the recognition of the net premium paid to acquire option contracts; (ii) the recognition of any loss in the value of the forward contracts designated as hedges of the transactions and (iii) the recognition of any loss on sold options. Market value gains and losses and premiums on these contracts are recognized in "Other, net nonoperating expense" when the hedged transaction is recognized. The net premiums paid for purchased and complex options are reported in current assets. The Company held purchased foreign currency call option contracts totaling $20.4 and $45.9 at December 31, 1997 and 1996, respectively, which did not qualify for hedge accounting treatment. The call options were purchased to create synthetic puts when combined with forward and complex option contracts, thereby cost effectively reducing the Company's risk. The purchased call options mature at various dates throughout 1998 with resulting gains recognized at maturity. Premiums paid for these contracts are recognized immediately in "Other, net nonoperating expense". The Company also uses foreign currency swap contracts to hedge loans between subsidiaries. At December 31, 1997, the Company had foreign currency swap contracts totaling $103.7 expiring at various dates through February 1998. At December 31, 1996, the Company had foreign currency swap contracts totaling $89.8. As monetary assets and liabilities are marked to market and recorded in earnings, foreign currency swap contracts designated as hedges of the monetary assets and liabilities are also marked to market with the resulting gains and losses similarly recognized in earnings. Gains and losses on foreign currency swap contracts are, included in "Other, net nonoperating expense" and offset losses and gains on the hedged monetary assets and liabilities. The carrying value of foreign currency swap contracts is reported in current assets and current liabilities. The Company occasionally uses purchased foreign currency option contracts to hedge the market risk of a subsidiary's net asset position. At December 31, 1997, the Company had no purchased foreign currency option contracts related to net asset positions. At December 31, 1996 the Company had $3.5 purchased foreign currency option contracts related to net asset positions. Purchased foreign currency option contracts resulted in favorable foreign currency translation adjustments of $1.5 and $1.2 at December 31, 1997 and 1996, respectively. Purchased foreign currency option contracts to hedge the market risk of a subsidiary's net asset position are recognized in "Foreign currency translation adjustments" when the hedged transaction is recognized. The foreign currency translation adjustments are only recognized in "Other, net nonoperating expense" upon liquidation of the subsidiary. The Company uses interest rate contracts on certain borrowing transactions to hedge fluctuating interest rates. Interest rate contracts are intended to be an integral part of borrowing transactions and, therefore, are not recognized at fair value. Interest differentials paid or received under these contracts are recognized as adjustments to the effective yield of the underlying financial instruments hedged. Interest rate contracts would only be recognized at fair value if the hedged relationship is terminated. Gains or losses accumulated prior to termination of the hedged relationship would be amortized as a yield adjustment over the shorter of the remaining life of the contract or the remaining period to maturity of the underlying instrument hedged. If the contract remained outstanding after termination of the hedged relationship, subsequent changes in market value of the contract would be recognized in "Interest expense". In October 1997, the Company entered into interest rate contracts associated with its $1,100.0 in borrowing arising from the acquisition of Coulter. Specifically, the Company entered into $500.0 in interest rate swap agreements in which the Company receives an average floating interest rate equal to the three-month LIBOR (5.8% at December 31, 1997) and pays an average fixed interest rate of 6.2%. The Company also entered into $400.0 in treasury rate lock agreements to hedge the U.S. Treasury Note rate underlying an expected refinancing. The interest rate swaps and the U.S. Treasury rate locks are accounted for as hedges. The Company is exposed to credit risk in the event of non- performance of the counterparties to its foreign currency and interest rate contracts, which the Company believes is remote. Nevertheless, the Company monitors its counterparty credit risk and utilizes netting agreements and internal policies to mitigate its risk. The disclosed derivatives are indicative of the volume and types of instruments used throughout the year after giving consideration to the increase in volume arising from the acquisition of Coulter. The market value of all derivative instruments amounted to an unrecognized loss of $8.0 at December 31, 1997. 8. Income Taxes The components of (loss) earnings before income taxes were:
1997 1996 1995 U.S. $(304.5) $ 42.5 $ 21.2 Non-U.S. 52.6 69.0 51.2 ------ ------ ------ $(251.9) $ 111.5 $ 72.4
The provision (benefit) for income taxes consisted of the following: 1997 1996 1995 Current U.S. federal $ 5.2 $ 9.6 $ 5.1 Non-U.S. 5.3 12.4 7.7 U.S. state and Puerto Rico 3.5 4.0 (0.6) ------ ----- ----- Total current 14.0 26.0 12.2 Deferred U.S. federal 0.7 9.0 4.3 Non-U.S. (2.2) 1.8 7.0 Total deferred, net (1.5) 10.8 11.3 ------ ------ ------ Total $ 12.5 $ 36.8 $ 23.5
The reconciliation of the U.S. federal statutory tax rate to the consolidated effective tax rate is as follows: 1997 1996 1995 Statutory tax rate (35.0)% 35.0% 35.0% In-process research and development 39.2 - - State taxes, net of U.S. tax 0.1 0.4 0.8 benefit Ireland and Puerto Rico income (2.0) (6.8) (13.6) Non-U.S. taxes 0.9 5.0 10.9 Foreign income taxed in the U.S., net of credits 1.4 (2.8) 0.4 Other 0.4 2.2 (1.0) ---- ---- ---- Effective tax rate 5.0% 33.0% 32.5% ==== ==== ====
Certain income of subsidiaries operating in Puerto Rico and Ireland is taxed at substantially lower income tax rates than the U.S. federal statutory tax rate. The lower rates reduced expected income taxes by approximately $5.1 in 1997, $7.6 in 1996, and $9.8 in 1995. Since April 1990, earnings from manufacturing operations in Ireland are subject to a 10% tax. The lower Puerto Rico income tax rate expires in July 2003.
The components of the (benefit) provision for deferred income taxes are: 1997 1996 1995 Restructuring costs $ (15.7) $ 3.0 $ 13.2 Compensation 18.7 - - Inventory (4.0) - - Net operating loss (2.6) - - International transactions 2.2 1.3 (4.7) Accelerated depreciation (0.4) (0.5) 0.4 Accrued expenses (4.2) 3.3 (0.6) Pension costs 8.9 6.9 1.7 Postretirement medical costs (1.7) (1.7) (0.5) Other (2.7) (1.5) 1.8 -------- ------- ------- Total $ (1.5) $ 10.8 $ 11.3 ======== ======= =======
The tax effect of temporary differences which give rise to significant portions of deferred tax assets and liabilities consists of the following at December 31: 1997 1996 Deferred tax assets Inventories $ 9.8 $ 2.9 Capitalized expenses 0.7 1.0 International 22.7 - Tax credits 23.8 - Purchase and assumed liabilities (see Note 3) 87.4 - Pension costs - 2.4 Accrued expenses 43.9 19.9 Restructuring costs 16.3 0.6 Environmental costs 4.8 5.0 Postretirement benefits 38.6 26.5 Other 28.3 32.0 ------ ------ 276.3 90.3 Less: Valuation allowance (42.4) (14.5) ------ ------ Total deferred tax assets 233.9 75.8 Deferred tax liabilities Depreciation 1.8 2.3 Pension costs 9.9 - Intangible assets 140.4 - Fixed assets 17.5 - Leases 9.9 - Deferred service contracts 3.2 - International transactions 6.4 - Other 32.1 1.3 ------- ------- Total deferred tax liabilities 221.2 3.6 ------- ------- Net deferred tax asset $ 12.7 $ 72.2 ======= =======
Based upon the Company's historical pretax earnings, adjusted for significant items such as non-recurring charges, management believes it is more likely than not that the Company will realize the benefit of the existing net deferred tax asset at December 31, 1997. Management believes the existing net deductible temporary differences will reverse during periods in which the Company generates net taxable income. Certain tax planning or other strategies will be implemented, if necessary, to supplement income from operations to fully realize recorded tax benefits. At December 31, 1997 and 1996 the Company recorded a valuation allowance of $42.4 and $14.5 respectively, for certain deductible temporary differences for which it is more likely than not that the Company will not receive future benefits. The change in the valuation allowance was $27.9 and $0 for 1997 and 1996, respectively. The change in the valuation allowance was primarily due to the acquisition of Coulter. Non-U.S. withholding taxes and U.S. taxes have not been provided on approximately $111.4 of unremitted earnings of certain non-U.S. subsidiaries because such earnings are or will be reinvested in operations or will be offset by credits for foreign income taxes paid. All income tax liability issues between the Company and its former parent SmithKline Beckman have been resolved in accordance with a tax agreement between the two companies. Such resolution did not have a material effect on the Company's consolidated financial position or operating results. 9. Stockholders' Equity The Company had been authorized, through 1998, to acquire its common stock to meet the needs of its existing stock-related employee benefit plans. Under this program, the Company repurchased 1.0 shares of its common stock during 1997 and 1.0 shares during 1996. The Company elected to discontinue this stock repurchase program in connection with the Coulter acquisition. The credit facility generaly prohibits market repurchase of the Company's stock. Treasury shares have been, and are expected to continue to be, reissued to satisfy the Company's obligations under existing stock-related employee benefit plans. In January 1993 the Company created the Benefit Equity Fund ("BEF"), a trust for prefunding future stock-related obligations of employee benefit plans. The BEF does not change these plans or the amounts of stock expected to be issued for these plans. The BEF is funded by existing shares in treasury as well as from additional shares the Company purchases on the open market over time. While shares in the BEF are not considered outstanding for the calculation of earnings per share, the shares within the BEF are voted by the participants of the Employee Stock Purchase Plan. At December 31, 1997, 1.4 shares remain in treasury of which 0.7 are held by the BEF. 10. Employee Benefits Incentive Compensation Plans In 1988, the Company adopted an Incentive Compensation Plan for its officers and key employees, which provided for stock-based incentive awards based upon several factors including Company performance. This plan expired on December 31, 1990, but options outstanding on that date were not affected by such termination. Pursuant to this plan, the Company granted options to purchase approximately 0.8 shares, with an expiration date of ten years from the date of grant. The Company has also adopted the Incentive Compensation Plan of 1990. This 1990 plan reserves shares of the Company's common stock for grants of options and restricted stock. Granted options typically vest over three years and expire ten years from the date of grant. Subsequent to stockholder approval in 1992, amendments were adopted to extend the expiration of the plan to 2001 and to increase each year, commencing January 1, 1993, the number of shares available under the plan by 1.5% of the number of common stock issued and outstanding as of the prior December 31. As of January 1, 1998, 0.6 shares remain available for grant under this plan. The following is a summary of the Company's option activity, including weighted average option information (in thousands, except per option information):
1997 1996 1995 Exercise Exercise Exercise Price Per Price Per Price Per Options Option Options Option Options Option Outstanding at beginning of year 2,672 $26.03 2,634 $ 22.83 2,689 $ 21.39 Granted 536 $40.49 447 $ 40.72 418 $ 29.33 Exercised (302) $26.77 (372) $ 19.97 (424) $ 19.57 Canceled (11) $33.38 (37) $ 37.12 (49) $ 27.20 Outstanding at end of year 2,895 $28.60 2,672 $ 26.03 2,634 $ 22.83
Outstanding Exercise Remaining Exercisable Exercise Range of at December Price Contractual at December Price Per Exercise 31, 1997 Per Life 31, 1997 Option Prices Option (Years) (a) $16.50 to $22.50 1,049 $19.72 3.5 1,049 $19.72 $26.38 to $28.88 585 $26.43 6.2 585 $26.43 $29.25 to $35.13 369 $29.34 7.3 249 $29.34 $39.56 to $41.19 892 $40.16 8.7 151 $40.88 $16.50 to $41.19 2,895 $28.60 6.1 2,034 $24.40
(a) Options exercisable at December 31, 1996 and 1995 (in thousands) were 1,911 and 1,705, respectively. The following represents pro forma information as if the Company recorded compensation cost using the fair value of the issued compensation instrument (the results may not be indicative of the actual effect on net income in future years):
1997 1996 Net (loss) earnings as reported $(264.4) $ 74.7 Assumed stock compensation cost 5.7 2.6 ------- ------ Pro forma net (loss) earnings $(270.1) $ 72.1 ======= ====== Diluted (loss) earnings per share as reported $ (9.58) $ 2.58 Pro forma diluted (loss) earnings per share $ (9.79) $ 2.49
The Company uses the Black-Scholes valuation model for estimating the fair value of its compensation instruments. The following represents the estimated fair value of options granted and the assumptions used for calculation:
1997 1996 Weighted average estimated fair value per option granted $ 15.73 $ 14.56 Average exercise price per option granted $ 40.49 $ 40.72 Stock volatility 22.0% 18.0% Risk-free interest rate 5.9% 6.7% Option term - years 10.0 10.0 Stock dividend yield 1.4% 1.5%
Stock Purchase Plan The Company's stock purchase plan allows all U.S. employees and employees of certain subsidiaries outside of the U.S. to purchase the Company's common stock at favorable prices and upon favorable terms. Employee purchases are settled at six month intervals as of June 30 and December 31. The difference between the purchase price and fair value is not material. Employees purchased 0.2 shares during 1997 and 1.1 shares remain available for use in the plan at December 31, 1997. Postemployment Benefits Effective January 1, 1994 the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS 112). This statement required 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. Additional accruals for postemployment benefits, subsequent to adopting SFAS 112, were approximately $0.9 in 1997 and $0.8 in 1996 and 1995. 11.Retirement Benefits Pension Plans Beckman provides pension benefits covering substantially all of its employees. Coulter provides similar benefits covering foreign employees. Consolidated pension expense was $8.6 in 1997, $18.3 in 1996, and $13.3 in 1995. Pension benefits for Beckman's domestic employees are based on age, years of service and compensation rates. Components of combined pension expense related to these plans were:
1997 1996 1995 Service cost $ 10.0 $ 10.8 $ 7.1 Interest cost 26.6 25.7 24.0 Actual return on plan assets (66.2) (23.2) (23.8) Net amortization and deferral 35.9 1.0 1.2 ------- ------ ------ Total $ 6.3 $ 14.3 $ 8.5 ======= ====== ======
Beckman's funding policy is to provide currently for accumulated benefits, subject to federal regulations. Assets of the plans consist principally of government fixed income securities and corporate stocks and bonds. The funded status of the pension liabilities and assets and amounts recognized in the consolidated financial statements with respect to Beckman's domestic plan were:
1997 1996 Vested benefit obligation $ 353.6 $ 312.2 Accumulated benefit obligation 356.2 314.2 Projected compensation increases 51.7 45.0 Projected benefit obligation 407.9 359.2 Plan assets at fair market value (408.9) (314.1) Projected benefit obligation (less than) in excess of plan assets (1.0) 45.1 Unrecognized net obligations at transition (1.4) (1.9) Unrecognized net (loss) (15.2) (35.6) Unrecognized prior service cost (6.4) (7.3) (Prepaid) accrued pension cost (24.0) 0.3 Assumptions used in calculations Expected long-term rate of 9.8% 9.8% return Discount rate 7.0% 7.8% Average rate of increase in compensation 4.3% 4.3%
Certain subsidiaries of Beckman and Coulter outside the U.S. have separate pension plan arrangements which include both funded and unfunded plans. Unfunded foreign pension obligations are recorded as a liability on the Company's consolidated balance sheets. Pension expense for Beckman plans outside of the U.S. was $4.5 in 1997, $4.0 in 1996, and $4.8 in 1995. Pension expenses for Coulter plans were $0.5 for the two month period ended December 31, 1997. Beckman and Coulter have separate defined contribution plans for their respective domestic employees. Under each plan, eligible employees may contribute a portion of their compensation. Employer contributions are primarily based on a percentage of employee contributions. Additional Coulter contributions to its plan are based on the age and salary levels of employees. Beckman contributed $4.8 in 1997, $4.5 in 1996 and $3.6 in 1995. Coulter contributed $2.0 for the two months ended December 31, 1997. Employees under both plans generally become fully vested with respect to employer contributions after three to five years of qualifying service as defined by each plan. Health Care and Life Insurance Benefits The Company and its subsidiaries presently provide certain health care and life insurance benefits for retired U.S. employees and their dependents. Eligibility for the plan and participant cost sharing is dependent upon the participant's age at retirement, years of service and retirement date. The postretirement benefits for both active and retired employees of Coulter were continued after the acquisition. The amounts below reflect the assumption of these additional liabilities and costs from November 1, 1997. The net periodic cost for postretirement health care and life insurance benefits includes the following:
1997 1996 1995 Service cost $ 1.2 $ 1.4 $ 1.0 Interest cost 3.3 3.3 3.7 Net amortization (1.2) (0.5) (0.7) ------ ------ ------ Total $ 3.3 $ 4.2 $ 4.0 ====== ====== ======
The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheet in "Other liabilities" at December 31:
1997 1996 Accumulated postretirement benefit obligations Retirees $ 38.9 $ 27.2 Fully eligible active plan participants 7.1 2.2 Other active plan participants 27.1 17.3 ---- ---- Total obligation 73.1 46.7 Plan assets - - Accumulated postretirement benefit obligation in excess of plan assets 73.1 46.7 Unrecognized prior service cost 1.1 - Unrecognized net gain 20.8 17.8 ---- ---- Accrued postretirement benefit liability $ 95.0 $ 64.5 ==== ====
Assumptions used in 1997 1996 1995 calculations Weighted average discount rate 7.2% 7.8% 7.0% Calculation of obligation, excluding Coulter: Healthcare cost trend rate 8.0% 8.0% 8.0% Decreasing to ultimate rate by the year 2004 5.5% 5.5% 5.5% Calculation of Coulter obligation: Healthcare cost trend rate 7.0% - - Decreasing to ultimate rate by year 2002 5.0% - -
An assumed 1% increase in the healthcare cost trend rate for each year would have resulted in an increase in the net periodic pension cost by $0.7 in 1997, $0.9 in 1996 and $0.7 in 1995 and in the accumulated post retirement benefit obligation by $10.9 in 1997 and by $7.0 in 1996. Employees outside the U.S. generally receive similar benefits from government-sponsored plans. 12. Commitments and Contingencies Environmental Matters The Company is subject to federal, state, local and foreign environmental laws and regulations. Although the Company continues to make expenditures for environmental protection, it does not anticipate any significant expenditures in order to comply with such laws and regulations which would have a material impact on the Company's operations or financial position. The Company believes that its operations comply in all material respects with applicable federal, state, local and foreign environmental laws and regulations. In 1983, the Company discovered organic chemicals in the groundwater near a waste storage pond at its manufacturing facility in Porterville, California. SmithKline Beckman, the Company's former controlling stockholder, agreed to indemnify the Company with respect to this matter for any costs incurred in excess of applicable insurance, eliminating any impact on the Company's earnings or financial position. SmithKline Beecham p.l.c., the surviving entity of the 1989 merger between SmithKline Beckman and Beecham, assumed the obligation of SmithKline Beckman in this respect. In 1987 soil and groundwater contamination was discovered on property in Irvine, California (the "property") formerly owned by the Company. In 1988 The Prudential Insurance Company of America ("Prudential"), which purchased the property from the Company, filed suit against the Company in U.S. District Court in California for recovery of costs and other alleged damages with respect to the soil and groundwater contamination. In 1990 the Company entered into an agreement with Prudential for settlement of the lawsuit and for sharing current and future costs of investigation, remediation and other claims. Soil and groundwater remediation of the property have been in process since 1988. During 1994 the County agency overseeing the site soil remediation formally acknowledged completion of remediation of a major portion of the soil, although there remain other areas of soil contamination that may require further remediation. In July 1997 the California Regional Water Quality Control Board, the agency overseeing the site groundwater remediation, issued a closure letter for the upper water bearing unit. The Company and Prudential continued to operate a groundwater treatment system throughout 1997 and expect to continue its operation in 1998. Investigations on the property are continuing and there can be no assurance that further investigation will not reveal additional contamination or result in additional costs. The Company believes that additional remediation costs, if any, beyond those already provided for the contamination discovered by the current investigation will not have a material adverse effect on the Company's operations or financial position. Litigation The Company is currently, and is from time to time, subject to claims and suits arising in the ordinary course of its business, including those relating to intellectual property, contractual obligations, competition and employment matters. In certain such actions, plaintiffs request punitive or other damages or nonmonetary relief, which may not be covered by insurance, and in the case of nonmonetary relief, could, if granted, materially affect the conduct of the Company's business. The Company accrues for potential liabilities involved in these matters as they become known and can be reasonably estimated. In the Company's opinion (taking third party indemnities into consideration), the various asserted claims and litigation in which the Company is currently involved are not reasonably likely to have a material adverse effect on the Company's operations or financial position. However, no assurance can be given as to the ultimate outcome with respect to such claims and litigation. The resolution of such claims and litigation could be material to the Company's operating results for any particular period, depending upon the level of income for such period. In January 1996, Coulter, then unrelated to Beckman, notified Hematronix, a competitive reagent manufacturer, that Hematronix was selling certain reagents and controls that infringed upon certain of Coulter's patents. In response, Hematronix filed a complaint against Coulter in April 1996, in the United States District Court of the Eastern District of California. The complaint seeks a declaratory judgment to invalidate the patents. The complaint also includes antitrust and related business tort claims directed at Coulter's business and leasing activities, and seeks actual, treble and punitive damages in an unspecified amount, as well as injunctive relief. Coulter answered the complaint by denying violations of the antitrust laws and business tort claims and counterclaimed that Hematronix willfully infringed the patents at issue. Discovery has been conducted by both sides and is continuing. The Company has filed a motion for summary judgment on the antitrust and other non-patent issues. The motion has been heard and a decision from the court is pending. The Company believes that the patents at issue are valid and have been infringed upon by Hematronix and that the antitrust claims are without merit. If the matter does proceed to trial, the trial is scheduled for October, 1998. Although the plaintiff has claimed substantial damages, based on the Company's analysis of the present facts and the existence of certain indemnities by the former stockholders of Coulter, the Company believes that the ultimate outcome of this litigation is not reasonably likely to have a material adverse effect on the Company's operations or financial position. Local authorities in Palermo (Sicily), Italy are investigating the activities of officials at a local government hospital and laboratory as well as representatives of the principal worldwide companies marketing diagnostics equipment in Italy, including the Company's Italian subsidiary. The inquiry focuses on past leasing practices for placement of diagnostics equipment which were common industrywide practices throughout Italy, but now are alleged to be improper. The Company believes the evidence in the case is weak and insufficient to support a criminal conviction against certain identified employees (the subsidiary is not a defendant). The Court has appointed economic experts to evaluate and present a comprehensive economic report on the leasing practices of the industry. Although it is very difficult to evaluate the political climate in Italy and the activities of the Italian public prosecutors, the Company does not expect this matter to have a material adverse effect on its operations or financial position. Through its Hybritech acquisition (see Note 3 "Acquisitions"), the Company obtained a patent, referred to as the Tandem Patent, that generates royalty income. The Tandem Patent is involved in an interference action in the U.S. Patent and Trademark Office with a patent application owned by La Jolla Cancer Research Foundation (the "Foundation"). If the Foundation wins the interference, the Company would lose the Tandem Patent and the royalty income, and a new patent would be issued to the Foundation covering those products. The Company believes it has the stronger case and expects to prevail and does not expect this matter to have a material adverse effect on its operations or financial position. As previously reported, in 1991 Forest City properties Corporation and F.C. Irvine, Inc. (collectively, "Forest City"), former owners and developers of a portion of the same real property in Irvine referred to under the caption "Environmental Matters" herein, filed suit against Prudential in the California Superior Court for the County of Los Angeles, alleging breach of contract and damages caused by the pollution of the property. Forest City originally sought damages of more than $20 but subsequently increased its demand to $40 . Forest City also sought additional remediation of the property. Although the Company is not a named defendant in the Forest City action, it is obligated to contribute to any resolution of that action pursuant to the Company's 1990 settlement agreement with Prudential. See discussion of "Environmental Matters" above. The trial of this matter was conducted in 1995, resulting in a jury verdict in favor of Prudential. The Court subsequently granted Forest City's motion for a new trial which Prudential appealed. Prior to the Court's consideration of the appeal, Prudential settled the lawsuit with Forest City and requested the Company to pay a portion of the settlement pursuant to the 1990 settlement agreement. The Company does not agree with Prudential's claims and believes it has significant defenses to them. Although the outcome of this dispute cannot be predicted with certainty, the Company believes that any additional liability beyond that provided for will not have a material adverse effect on the Company's operations or financial position. As previously reported, since 1992 six toxic tort lawsuits have been filed in Maricopa County Superior Court, Arizona by a number of residents of the Phoenix/Scottsdale area against the Company (relating to a former Company manufacturing site) and a number of other defendants, including Motorola, Inc., Siemens Corporation, the cities of Phoenix and Scottsdale, and others. The Company is indemnified by SmithKline Beecham p.l.c., the successor of its former controlling stockholder, for any costs incurred in these matters in excess of applicable insurance, and thus the outcome of these litigations, even if unfavorable to the Company, should have no material effect on the Company's operations or financial position. These suits are currently in the discovery phase, with the first of several anticipated trials in the actions scheduled for June 1998. In addition, the Company and its subsidiaries are 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 such lawsuits will have a material adverse effect on its operations or financial position. See environmental discussion above. Lease Commitments The Company leases certain facilities, equipment and automobiles. Certain of the leases provide for payment of taxes, insurance and other charges by the lessee. Rent expense was $35.4 in 1997, $32.9 in 1996, and $32.4 in 1995. As of December 31, 1997, minimum annual rentals payable under non-cancelable operating leases aggregate $94.5, which is payable $30.1 in 1998, $22.0 in 1999, $17.6 in 2000, $13.7 in 2001, $3.0 in 2002 and $8.1 thereafter. Other Under the Company's dividend policy, the Company pays a regular quarterly dividend to its stockholders which amounted to $16.6 in 1997 and $14.7 in 1996. In February of 1998, the Board of Directors declared a quarterly dividend of $0.15 per share, which approximates $4.1 in total. This dividend is payable April 2, 1998 to stockholders of record on February 3, 1998. The Credit Facility restricts (but does not prohibit) the Company's ability to pay dividends. 13. Earnings (loss) Per Share In accordance with SFAS 128, the following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations.
1997 Income Shares Per-Share (Numerator) (Denominator) Amount Basic EPS Net (loss) $ (264.4) 27.6 $ (9.58) Effect of dilutive stock options - - - -------- ---- ------- Diluted EPS (1) Net (loss) $ (264.4) 27.6 $ (9.58) ======== ==== =======
(1)Under generally accepted accounting principles, as the Company was in a net loss position in the current year, 1.0 million common share equivalents were not used to compute diluted loss per share, as the effect was antidilutive.
1996 Income Shares Per-Share (Numerator) (Denominator) Amount Basic EPS Net earnings $ 74.7 28.0 $ 2.66 Effect of dilutive stock options - 0.9 (0.08) ------ ---- ----- Diluted EPS Net earnings $ 74.7 28.9 $ 2.58 ====== ==== =====
1995 Income Shares Per-Share (Numerator) (Denominator) Amount Basic EPS Net earnings $ 48.9 28.1 $ 1.74 Effect of dilutive stock options - 0.7 (0.04) ------ ---- ------ Diluted EPS Net earnings $ 48.9 28.8 $ 1.70 ====== ==== ======
14. Business Segment Information Industry Segment
The Company is engaged primarily in the design, manufacture and sale of laboratory instrument systems and related products. 1997 1996 1995 Geographic areas Sales United States-domestic $ 889.2 $ 738.5 $ 606.1 United States-export 60.8 36.0 28.9 Europe 342.4 318.6 312.9 Asia and other areas 191.5 163.1 160.2 Transfers between areas (285.9) (228.2) (178.0) ------ ------- ------ Total sales $1,198.0 $ 1,028.0 $ 930.1 ======= ======= ====== Operating (loss) income United States before research and development $ 162.9 $ 180.1 $ 137.2 Research and development (a) (123.6) (108.4) (91.7) In-process research and development (282.0) - - ------ ------ ------ United States (242.7) 71.7 45.5 Europe 3.6 45.4 28.2 Asia and other areas 2.1 5.4 9.4 ------ ------ ------ Total operating (loss) income(b) $ (237.0) $ 122.5 $ 83.1 ====== ====== ====== Identifiable assets (c) United States $ 857.4 $ 503.3 $ 446.3 Europe 444.3 243.1 228.8 Asia and other areas 218.5 94.0 89.4 Corporate 810.8 119.7 143.3 ------ ------ ------ Total assets $2,331.0 $ 960.1 $ 907.8 ====== ====== ======
(a) The Company's principal research and development efforts are performed in the United States. (b) Includes restructuring charges of $59.4 and $27.7 in 1997 and 1995 respectively. The Company did not incur restructuring charges in 1996. (c) Identifiable assets are those assets used by the operations in each geographic location. Corporate assets consist primarily of cash and equivalents, short-term investments, deferred tax assets, lease receivables, fixed assets of a corporate nature, intangible assets and goodwill. Asia and other areas include, primarily, operations in Japan, Canada and Latin America. Inter-area sales are made at terms that allow for a reasonable profit to the seller. At December 31, 1997 trade receivables and other by geographic area were United States $226.4, Europe $188.0 and Asia and other areas $110.2. At December 31, 1996 trade receivables and other by geographic area were United States $120.9, Europe $135.8 and Asia and other areas $52.8. 15. Supplementary Information Allowance for Doubtful Accounts
Balance Additions at Charged to Balance at Beginning Cost and End of of Period Expenses Deductions Other Period December 31, 1997 $ 9.6 $ 2.4(a) $ 3.5(b) $ 9.4(d) $ 17.4 0.5(c) December 31, 1996 9.1 2.2(a) 1.1(b) - 9.6 0.6(c) December 31, 1995 10.4 0.7(a) 2.8(b) - 9.1 0.8(c)
(a) Provision charged to earnings. (b) Accounts written-off. (c) Adjustments from translating at current exchange rates. (d) Allowance acquired as part of the Coulter acquisition.
QUARTERLY INFORMATION (Unaudited) In millions, except amounts per share First Second Third Fourth For Quarter Quarter Quarter Quarter the Year 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996 Sales $231.9 $224.8 $270.6 $265.2 $271.6 $252.8 $423.9 $285.2 $1,198.0 $1,028.0 Cost of sales 109.6 104.9 130.7 123.6 132.1 117.8 237.3 131.5 609.7 477.8 Marketing, general and adminis- trative 74.8 73.7 79.7 83.3 82.9 77.7 122.9 84.6 360.3 319.3 Research and develop- ment 24.0 24.7 28.6 27.3 27.7 26.1 43.3 30.3 123.6 108.4 In-process research and develop- ment - - - - - - 282.0 - 282.0 - Restructu- ring Charge - - - - - - 59.4 - 59.4 - Operating income (loss) 23.5 21.5 31.6 31.0 28.9 31.2 (321.0) 38.8 (237.0) 122.5 Earnings (loss) before income taxes 22.3 20.5 29.7 28.3 27.7 27.9 (331.6) 34.8 (251.9) 111.5 Net earnings (loss) $15.6 $13.7 $20.8 $19.0 $19.4 $18.7$(320.2) $23. 3 $(264.4) $74.7 Basic earnings (loss) per share $0.56 $0.48 $0.75 $0.68 $0.71 $0.67$(11.60) $ 0.83 $ (9.58) $2.66 Diluted earnings (loss) per share $0.54 $ 0.47 $0.72 $0.65 $0.68 $0.65$(11.63) $ 0.81 $(9.58) $2.58 Dividends per share $0.15 $ 0.13 $0.15 $0.13 $0.15 $0.13$ 0.15 $0.13 $ 0.60 $0.52 Stock price - High 44 3/8 39 1/8 49 3/16 41 1/8 52 5/16 39 7/8 44 1/2 39 1/4 52 5/16 41 1/8 Stock price - - Low 37 7/8 33 1/2 40 3/8 35 1/8 39 3/4 32 37 3/8 35 37 3/8 32
Bar Chart: Stock Price By Quarter 1997 Quarter 1st 2nd 3rd 4th $ Per Share High 44 3/8 49 3/16 52 5/16 44 1/2 Low 37 7/8 40 3/8 39 3/4 37 3/8 Bar Chart: Stock Price By Quarter 1996 Quarter 1st 2nd 3rd 4th $ Per Share High 39 1/8 41 1/8 39 7/8 39 1/4 Low 33 1/2 35 1/8 32 35 Bar Chart: Sales By Quarter 1997 (millions) Quarter 1st 2nd 3rd 4th Sales $231.9 270.6 271.6 423.9 Bar Chart: Sales By Quarter 1996 (millions) Quarter 1st 2nd 3rd 4th Sales $224.8 265.2 252.8 285.2 REPORT BY MANAGEMENT The consolidated financial statements and related information for the years ended December 31, 1997, 1996 and 1995 were prepared by management in accordance with generally accepted accounting principles. Financial data included in other sections of this Annual Report are consistent with that in the consolidated financial statements. Management maintains a system of internal accounting controls which is designed to provide reasonable assurance, at appropriate costs, that its financial and related records fairly reflect transactions, that proper accountability for assets exists, and that established policies and procedures are followed. A professional staff of internal auditors reviews compliance with corporate policies. Among these policies is an ethics policy, which requires employees to maintain high standards in conducting the Company's affairs, and requires management level employees to submit certificates of compliance annually. Management continually monitors the system of internal accounting controls for compliance and believes the system is appropriate to accomplish its objectives. The Company's independent auditors examine the Company's consolidated financial statements in accordance with generally accepted auditing standards. Their report expresses an independent opinion on the fairness of the Company's reported operating results and financial position. In performing this audit, the auditors consider the Company's internal control structure and perform such other tests and auditing procedures as they deem necessary. The Board of Directors, through its Audit Committee, reviews both internal and external audit results and internal controls. The Audit Committee consists of four outside Directors and meets periodically with management, internal auditors and the independent auditors to review the scope and results of their examinations. Both the independent auditors and the internal auditors have free access to this Committee, with and without management being present, to discuss the results of their audits. LOUIS T. ROSSO D.K. WILSON Louis T. Rosso Dennis K. Wilson Chairman and Vice President, Finance Chief Executive Officer and Chief Financial Officer INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Beckman Instruments, Inc.: We have audited the accompanying consolidated balance sheets of Beckman Instruments, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Beckman Instruments, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles. As described in Note 1 to the Consolidated Financial Statements, in 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share," and has restated prior year earnings per share in accordance with that statement. KPMG PEAT MARWICK LLP Orange County, California January 23, 1998 Annual Meeting The annual meeting of stockholders will be held on April 2, 1998 at the Company's headquarters in Fullerton, California. Formal notice of the meeting together with the proxy statement and form of proxy will be mailed to each stockholder of record on February 3, 1998. Form 10-K Annual Report Available to Stockholders A copy of Beckman Instruments' Form 10-K annual report filed with the Securities and Exchange Commission may be obtained without charge by writing to the Company as follows: Beckman Instruments, Inc. Michael J. Whelan, Director Office of Investor Relations, M/S A-37-C 2500 Harbor Boulevard Fullerton, California, 92834-3100 Telephone: 714-773-7620 FAX: 714-773-8111 There are no accounting differences between the financial statements presented in this Annual Report and the Form 10-K report, but the Form 10-K report does provide certain supplemental information as required by Securities and Exchange Commission regulations. Transfer Agent, Registrar and Dividend Disbursing Agent First Chicago Trust Company of New York P.O. Box 2500 Jersey City, New Jersey 07303-2500 Telephone: 212-324-1644 Select Subsidiaries Beckman Analytical S.p.A. Beckman Eurocenter S.A. Beckman Instruments (Australia) Pty. Ltd. Beckman Instruments (Canada), Inc. Beckman Instruments (Naguabo), Inc. Beckman Instruments Espana S.A. Beckman Instruments France S.A. Beckman Instruments G.m.b.H. Beckman Instruments (Hong Kong), Ltd. Beckman Instruments (Ireland), Inc. Beckman Instruments (Japan), Ltd. Beckman Instruments (United Kingdom), Ltd. Beckman Instruments International S.A. Coulter Corporation Coulter Electronics G.m.b.H Coulter Electronics (Hong Kong) Ltd. Coulter Electronics Industria E Comercia LTDA Coulter Electronics of Canada, Ltd. Coultronics France, S.A. Coulter K.K. Coulter Leasing Corporation Coulter de Mexico S.A. De C.V. Coulter Scientific, Inc. Hybritech Incorporated Immunotech S.A. SKD, Inc. EX-21 8 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES ------------ The following table lists current subsidiaries of the Company whose results are included in the Company's combined financial statements. The list of subsidiaries does not include certain subsidiaries which, when considered in the aggregate, do not constitute a significant subsidiary of the Company. Jurisdiction Name of Company of Incorporation - --------------- ---------------- Beckman Analytical S.p.A. Italy Beckman Eurocenter S.A. Switzerland Beckman Instruments (Australia) Pty. Ltd. Australia Beckman Instruments (Canada) Inc. Canada Beckman Instruments (Naguabo) Inc. California Beckman Instruments Espana S.A. Spain Beckman Instruments France S.A. France Beckman Instruments G.m.b.H. German Beckman Instruments (Hong Kong) Ltd. Hong Kong Beckman Instruments (Ireland) Inc. Panama Beckman Instruments (Japan) Ltd. Japan Beckman Instruments (United Kingdom) Ltd. England Beckman Instruments International S.A. Switzerland Coulter Corporation Delaware Coulter Electronics G.m.b.H. Germany Coulter Electronics (H. K.) Ltd. Hong Kong Coulter Electronics Industria E Comercio LTDA Brazil Coulter Electronics Ltd. United Kingdom Coulter Electronics of Canada, Ltd. Canada Coultronics France S.A. France Coulter K.K. Japan Coulter Leasing Corporation Illinois Coulter de Mexico, S.A. de C.V. Mexico Coulter Scientific, Inc. Illinois Hybritech Incorporated California SKD, Inc. Delaware EX-23 9 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23 The Board of Directors Beckman Instruments, Inc.: We consent to incorporation by reference in the registration statements (No. 333-02317) on Form S-3 and (Nos. 333-24851, 333- 37429, 33-31573, 33-31862, 33-41519, 33-51506, 33-66990, 33- 66988, and 33-65155) on Form S-8 of Beckman Instruments, Inc. of our report dated January 23, 1998, relating to the consolidated balance sheets of Beckman Instruments, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997, which report appears in the December 31, 1997 annual report on Form 10-K of Beckman Instruments, Inc. Our report refers to the adoption of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 128, "Earnings Per Share", in 1997. KPMG PEAT MARWICK LLP Orange County, California February 9, 1998 EX-27 10 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet and the Consolidated Statement of Operations and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1997 DEC-31-1997 31 0 542 17 332 977 903 492 2331 895 1181 0 0 3 79 2331 1198 1198 610 610 0 2 29 (252) 13 (264) 0 0 0 (264) (9.58) (9.58)
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