-----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, MZr2oGhDclZ9nzWhTLN27FsBUlo+ayXqkLUcanAEBuuFSH6CvyBcq6v3/MHzIkWh oOEbdhCG78/uRX9wGy29mg== 0000950150-98-001143.txt : 19980703 0000950150-98-001143.hdr.sgml : 19980703 ACCESSION NUMBER: 0000950150-98-001143 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980702 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BECKMAN COULTER 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/A SEC ACT: SEC FILE NUMBER: 001-10109 FILM NUMBER: 98660283 BUSINESS ADDRESS: STREET 1: 2500 HARBOR BLVD CITY: FULLERTON STATE: CA ZIP: 92634 BUSINESS PHONE: 7148714848 MAIL ADDRESS: STREET 1: 2500 HARBOR BLVD CITY: FULLERTON STATE: CA ZIP: 92834 FORMER COMPANY: FORMER CONFORMED NAME: BECKMAN INSTRUMENTS INC DATE OF NAME CHANGE: 19920703 10-K/A 1 AMENDMENT #2 TO FORM 10-K 1 FORM 10-K/A (Amendment No. 2) 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 COULTER, INC. 4300 N. Harbor Boulevard, Fullerton, California 92834-3100 (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 2 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 1 3 BECKMAN INSTRUMENTS, INC. PART I Item 1. Business Overview Beckman Coulter, Inc. (including its subsidiaries, 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. 2 4 On October 31, 1997, Beckman Instruments, Inc. (the predecessor to the Company, "Beckman") acquired Coulter Corporation ("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 3 5 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 4 6 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 5 7
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 6 8 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 7 9 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 8 10 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 9 11 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. 10 12 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 11 13 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 12 14 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) A[superscript]c-T hematology instrument - The recently introduced COULTER A[superscript]c-T 8 hematology analyzer is the first in a 13 15 series of very low cost automated hematology systems designed to address the low volume market. The COULTER A[superscript]c-T 8 is an eight parameter analyzer with an icon-driven user interface. The Company has also introduced the COULTER A[superscript]c-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 14 16 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. 15 17 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 16 18 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. 17 19 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 18 20 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 19 21 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. 20 22 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 21 23 ("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 7,600 employees located in the United States and approximately 3,500 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 22 24 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. During the remainder of 1998, the Company expects to consummate several sale leaseback transactions with respect to some of its real estate assets for cash proceeds of approximately $240 million. The Company also intends to consummate additional sale leaseback transactions in 1999 which the Company expects will generate proceeds of approximately $30 million. 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. 23 25 Item 3. Legal Proceedings 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, in April 1996, Hematronix filed a complaint against Coulter in the United States District Court of the Eastern District of California. The complaint sought a declaratory judgment to invalidate the patents. The complaint also included 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. The trial was scheduled for October 1998. In March 1998, the matter was resolved and the lawsuit was dismissed without material adverse effect on the Company's earnings 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"). In May 1998, the Board of Patent Appeals and Interferences ruled in Hybritech's favor. The Foundation has sixty days to appeal this decision. As previously reported, in 1991 Forest City Properties Corporation and F.C. Irvine, Inc. (collectively, "Forest City"), filed suit against Prudential Insurance Company in the California Superior Court for the County of Los Angeles alleging breach of contract and damages caused by pollution of property that Forest Cities had brought from Prudential. Although the Company was not a named defendant in the Forest City action, it was obligated to contribute to any resolution of that action pursuant to a 1990 settlement agreement with Prudential. The trial of the matter was conducted in 1995, resulting in a jury verdict in favor of Prudential. The Court 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 did not agree with Prudential's claims and negotiated a settlement for an amount not material to the Company's earnings or financial position. 24 26 As previously reported, since 1992 six toxic tort lawsuits(1) 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. In May 1998, the Company negotiated a settlement of these claims. A number of claims for property damages remain outstanding. 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. SmithKline has agreed to pay all costs of defense and settlement amounts. Thus the outcome of these litigations, even if unfavorable to the Company, should have no material adverse effect on the Company's earnings or financial position. As previously reported, 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 diagnostic equipment in Italy, including the Company's Italian subsidiary. The inquiry focuses on past leasing practices for placement of diagnostic 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 earnings 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 - -------- (1)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). 25 27 from any such lawsuits will have a material adverse effect on its earnings or financial position. However, no assurance can be given as to the ultimate outcome with respect to such lawsuits. The resolution of such lawsuits could be material to the Company's operating results for any particular period, depending upon the level of income for such period. See also "Environmental Matters" herein. 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 Exhibit 13 to this Form 10-K/A. 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 Exhibit 13 to this Form 10-K/A. 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 Exhibit 13 to this Form 10-K/A. 26 28 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 obtained 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). 27 29 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 28 30 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 29 31 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 30 32 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 31 33 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 32 34 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 33 35 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 (incorporated by reference to Exhibit 10.26 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). *10.27 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 34 36 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 35 37 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). 36 38 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 **21. Subsidiaries. 23. Consent of KPMG Peat Marwick LLP, June 9, 1998. 24. Power of Attorney (included herein on page 40). **27. Financial Data Schedule. - ------------- ** Previously Filed (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 37 39 forma financial statements for the year ended December 31, 1996 and for the six month period ended June 30, 1997. 38 40 Beckman Coulter, 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" filed as Exhibit 13 to this Form 10-K/A. 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. 39 41 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 COULTER, INC. Date: July 2, 1998 By LOUIS T. ROSSO Louis T. Rosso Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below appoints Louis T. Rosso, John P. Wareham, Dennis K. Wilson, William H. May, Paul Glyer and James T. Glover, and each of them, as his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K/A, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitutes, may lawfully do or cause to be done by virtue hereof. 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 July 2, 1998 President, Chief Operating Officer JOHN P. WAREHAM and Director John P. Wareham July 2, 1998 Vice President, Finance and Chief Financial Officer D. K. WILSON (Principal Financial Officer) Dennis K. Wilson July 2, 1998 Vice President and Controller (Principal JAMES T. GLOVER Accounting Officer) James T. Glover July 2, 1998 HUGH K. COBLE Director July 2, 1998
40 42
Signature Title Date --------- ----- ---- Hugh K. Coble CAROLYNE K. DAVIS Director July 2, 1998 Carolyne K. Davis, Ph.D.
41 43
Signature Title Date --------- ----- ---- PETER B. DERVAN Director July 2, 1998 Peter B. Dervan, Ph.D. DENNIS C. FILL Director July 2, 1998 Dennis C. Fill CHARLES A. HAGGERTY Director July 2, 1998 Charles A. Haggerty GAVIN HERBERT Director July 2, 1998 Gavin S. Herbert VAN B. HONEYCUTT Director July 2, 1998 Van B. Honeycutt WILLIAM N. KELLEY Director July 2, 1998 William N. Kelley, M.D. C. RODERICK O'NEIL Director July 2, 1998 C. Roderick O'Neil BETTY WOODS Director July 2, 1998 Betty Woods
42 44 INDEX TO EXHIBITS
Exhibit Number Exhibit - ------- ------- 13. WORDS ON NUMBERS 21. Subsidiaries 23. Consent of KPMG Peat Marwick LLP.
43 EX-13 2 EXHIBIT 13 1 EXHIBIT 13 WORDS ON NUMBERS TABLE OF CONENTS 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
2 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(2)(3) $ 228.0 $ 217.4 $ 192.6 $ 161.4 $ 89.8 EBITDA(3) $ (113.4) $ 217.4 $ 164.9 $ 150.1 $ (24.9) Cash flows from operating activities 137.8 139.1 60.2 109.6 53.3 Cash flows from investing activities (929.1) (114.6) (113.0) (59.1) (72.5) Cash flows from financing activities 790.6 (16.2) 34.8 (30.8) 18.1 Debt to EBITDA before special charges(2)(3) 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 expense $ 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. (3) EBITDA represents earnings before income taxes plus interest expense, in-process research and development, restructuring charges, depreciation and amortization. While EBITDA should not be construed as a substitute for operating income or as a better indicator of liquidity than cash flows from operating activities (both of which are determined in accordance with generally accepted accounting principles) it is included herein to provide additional information with respect to the ability of the Company to meet its future debt service, capital expenditures and working capital requirements. Additionally, EBITDA as calculated by the Company may not be comparable to similarly titled measures reported by other companies. See "Consolidated Statement of Cash Flows" for historical cash flows from operating, investing and financing activities. 3 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
4 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 % of % of % of Compared Compared December 31, 1997 Sales 1996 Sales 1995 Sales to 1996(2) to 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
5 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, 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 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 ("Coulter") in October 1997 (the "Acquisition"), 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 As anticipated, the integration and consolidation of Coulter requires substantial management, financial and other resources. While the Company believes the early results of this effort are encouraging, the acquisition of Coulter necessarily involves a number of significant risks, including potential difficulties in assimilating the technologies, services and products of Coulter or in achieving the expected synergies and cost reductions, as well as other unanticipated risks and uncertainties. As a result, there can be no assurance as to the extent to which the anticipated benefits with respect to the Acquisition will be realized, or the timing of any such realization. Acquired Research and Development: As a direct result of the Acquisition, the Company recorded a $282.0 million charge for purchased in-process research and development projects, $220.0 million of which was allocated to projects in the hematology product line. The Company utilized an independent third-party appraiser to assess and allocate values to the in-process research and development. The values assigned to these projects were determined by identifying projects that have economic value but that had not yet reached technological feasibility and that had no alternative future uses. These projects include development of next generation versions of existing products as well as planned new products. Some of these projects are expected to be combined with existing technology to produce commercially viable products. These products had not been released to the market as of the date of the Acquisition, but the features and functionality of the products had been defined. The values of these projects were determined by estimating the costs to develop the technology into commercially viable products, estimating cash flows resulting from the expected sales of such products, and discounting the net cash flows back to their present value using a risk-adjusted discount rate. The resulting values were expensed as of the date of the Acquisition in accordance with generally accepted accounting principles. The estimates were based on the following assumptions: - - The estimated costs to be incurred to develop purchased in-process technology into commercially viable products are approximately $68 million in 1998, $60 million in 1999 and $31 million in 2000. - - The estimated revenues assume average compound annual revenue growth rates of 12% to 60% during 1998 - 2002 depending on the product line. Estimated total revenues from the purchased in-process product areas peak in the year 2002 and decline in 2002 - 2006 as other new products are expected to be introduced by the Company. These projections are based on management's estimates of market size and growth, expected trends in technology and the expected timing of new product introductions. - - The estimated cost of sales as a percentage of revenues is expected to be lower than Coulter's historical results primarily due to production efficiencies expected to be achieved through economies of scale of the combined operations. As a result of these savings, the estimated cost of sales as a percentage of revenues is expected to decrease by approximately 4 percentage points from Coulter's historical percentage of about 52 %, varying by product area. - - The business enterprise is comprised of various types of assets, each possessing different degrees of investment risk contributing to the Company's overall weighted average cost of capital ("WACC"). Intangible assets are assessed higher risk factors due to their lack of liquidity and poor versatility for redeployment elsewhere in the business. In the Coulter analysis, the implied WACC was 14% based on the purchase price paid, assumed liabilities, projected cash flows, and Coulter's asset mix. Reasonable returns on monetary and fixed assets were estimated based on prevailing interest rates. The process for quantifying intangible asset investment risk involved consideration of the uncertainty associated with realizing discernable cash flows over the life of the asset. A discount range of 14-15% was used for in-process research and development, as these assets exhibit market risks similar to the overall company, as adjusted for the uncertainty of completion. The uncertainty of completion is considered minimal due to the fact that the majority of the projects are product line extensions where the risk is not considered any greater than for the overall company. The Company believes that the foregoing assumptions used in determining the estimates of the costs to develop Coulter's in-process research and development into commercially viable products were reasonable at the time of the Acquisition. No assurance can be given, however, that the underlying assumptions used to estimate project costs, the ultimate costs to develop such projects, or the events associated with such projects, will transpire as estimated. Coulter's in-process research and development value is comprised of over 40 individual on-going projects, however, no one project accounts for more than 13% of the total value. Remaining development efforts for these projects include various phases of design, development and testing. Anticipated completion dates for each product line in-process range from three to 36 months at which dates the Company expects to begin selling the developed products. Funding for such projects is expected to be obtained from internally generated sources. If none of these projects is successfully developed, the sales and profitability of the combined company may be materially adversely affected in future periods. The failure of any particular individual project in-process would not materially impact the Company's financial condition, results of operations or the attractiveness of the overall Coulter investment. Commercial results will be subject to uncertain market events and risks, which are beyond the Company's control, such as trends in technology, market size and growth, and product introduction or other actions by competitors. 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. 6 Restructuring Charges: The Company recorded a restructuring charge of $59.4 million, $36.4 million after taxes, in the fourth quarter of 1997 under a restructuring plan which was approved by management and for which the benefit arrangements were communicated to employees prior to December 31, 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 million for severance related costs. The $22.1 million for facility consolidation and asset related write-offs included $2.5 million for lease termination payments, $12.2 million for the write-off of machinery, equipment and tooling associated with those functions to be consolidated, and $7.4 million 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 million, which is included in "Other Accrued Expenses." Of the original charge of $59.4 million, approximately $39.8 million requires cash payments and approximately $19.6 million represents non-cash charges. Cash payments of $12.8 million were made in 1997. Management estimates that the remaining liability of $46.6 million will require payments of $25.0 million in 1998 and $2.0 million in 1999. 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: Although the Company's outstanding indebtedness increased in the first quarter of 1998 (primarily as a result of $77.7 million of bonus, severance and related payments associated with the Acquisition which were made during the first quarter of 1998 and which were financed through increased borrowings under the Revolving Credit Facility), the Company expects to reduce its indebtedness by approximately $200 million during the second quarter of 1998 and by at least $50 million in each of 1999 and 2000. As a part of its plan to reduce debt and provide funds for integration purposes, subsequent to the consummation of the Acquisition, the Company has pursued sales of certain financial assets (primarily consisting of lease receivables and equipment subject to customer leases) and real estate assets. During December 1997, the Company sold financial assets having a net book value of approximately $71 million and received approximately $75 million in cash proceeds. During March 1998, the Company sold financial assets having a net book value of approximately $31.9 million and received approximately $31.5 million in cash proceeds. During the remainder of 1998, the Company expects to consummate several sale leaseback transactions with respect to some of its real estate assets for cash proceeds of approximately $240 million. The Company also intends to consummate additional sale leaseback transactions in 1999 which the Company expects will generate proceeds of approximately $30 million. 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. The Company will continue to evaluate opportunities to provide additional cash flow by monetizing other assets during 1998 and beyond. 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. Foreign Currency Exposure: During the Company's fiscal year ended 1997 ("Fiscal 1997"), approximately 50% of the Company's sales were generated outside the United States. Revenues from non-U.S. sales fluctuate with 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. The functional currencies used to measure significant foreign operations include the German Deutchmark, French Franc, British Pound Sterling, Swiss Franc, Italian Lira, Spanish Peseta, Japanese Yen and Belgian Franc. Changes in exchange rates for the French Franc, Italian Lira, Spanish Peseta, Japanese Yen and Belgian Franc all contributed significantly to the change in the cumulative translation adjustment during Fiscal 1997. 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 short-term effect on the Company's business decisions. Long-term appreciation of the U.S. dollar could have a material adverse effect on the Company's business, financial condition or results of operations. The Company may adjust certain aspects of its operations in the event of a sustained material change in such exchange rates. Appreciation of the U.S. dollar over the last year has had a negative impact on the Company's sales in comparison to its costs, which has adversely affected gross profit. The Company monitors sales changes in terms of "constant currency," a measure that eliminates the effects of foreign currency exchange rate fluctuations from the comparable period and states what the change in sales would have been in U.S. dollars (this measure does not adjust for inflation). See further discussion of this topic in Note 7 "Derivatives" to the Consolidated Financial Statements. 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) nonoperating gains or losses. Interest income typically includes income from 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 income, net as reported by Coulter includes the results of operations of two investments, Coulter Pharmaceutical and Coulter Cellular. Other nonoperating gains and losses are most frequently the result of one-time items such as asset sales or other items. 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. 7 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. 8 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 Liquidity and Capital Resources: General. 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. Cash Flows. 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 9 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. Debt Service. During the fourth quarter of 1997 the Company secured a new $1.3 billion credit facility (the "Credit Agreement") to finance the acquisition of Coulter. The $1.3 billion credit facility consists of a $500.0 million senior unsecured term loan facility (the "Term Loan") and an $800.0 million senior unsecured revolving credit facility (the "Credit Facility"). 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. As of December 31, 1997, the outstanding indebtedness of the Company was $1,250.2 million, primarily consisting of $400.0 million in Term Loan borrowings under the $500.0 million Term Loan and $600.0 million of revolving credit borrowings under the $800.0 million Credit Facility. In December 1997, the Company sold certain financial assets (primarily consisting of equipment subject to customer leases and lease receivables) for proceeds of approximately $75.0 million. These proceeds and approximately $25.0 million of cash provided by operations were used to pay down $100.0 million of then outstanding Term Loan borrowings. In January 1998, the Company prepaid an additional $100.0 million of Term Loan borrowings by borrowing an additional $100.0 million under the Credit Facility. Net proceeds from the offering (the "Offering") of $160.0 million principal amount of 7.10% Senior Notes due 2003 and $240.0 million principal amount of 7.45% Senior Notes due 2008 (together, the "Initial Notes") of $300.0 million were used to prepay all Term Loan borrowings, net proceeds of $80.0 million were used to repay a portion of the Credit Facility and the remaining net proceeds of $14.3 million were used for operating purposes. During the first quarter of 1998, the Company paid approximately $77.7 million in bonus, severance and related costs which were accrued as part of the purchase liability at year end. These payments were financed through borrowings under the Revolving Credit Facility and were the principal cause of the increase in outstanding indebtedness for such quarter. Payment of balances accrued as part of the purchase liability are expected to continue through 1998, 1999 and 2000. Although the Company's outstanding indebtedness increased in the first quarter of 1998, the Company expects to reduce its indebtedness by approximately $200 million during the second quarter of 1998 and by at least $50 million in each of the years 1999 and 2000. As of May 31, 1998, the outstanding indebtedness of the Company was $1,343.9 million, which includes $680.0 million outstanding under the Revolving Credit Facility and $400.0 million of Initial Notes. The aggregate maturities of total debt subsequent to May 31, 1998 are $70.8 million for the seven months ended December 31, 1998, $26.9 million in 1999, $11.4 million in 2000, $9.0 million in 2001, $699.3 million in 2002 and $526.5 million thereafter. The estimated interest payments subsequent to May 31, 1998 associated with such total debt are $51.2 million for the seven months ended December 31, 1998, $84.3 million in 1999, $83.1 million in 2000, $82.4 million in 2001, $74.7 million in 2002 and $261.5 million thereafter. The estimated interest payments were calculated with the assumption that the debt balances outstanding at May 31, 1998 will be paid at maturity, not earlier, and that the interest rates associated with such debt balances will remain at current levels. The amount of interest payments will fluctuate if interest rates change or if debt balances are paid prior to maturity. Principal and interest payments under the Credit Agreement and interest payments on the Notes represent significant liquidity requirements for the Company. The Credit Agreement provides for mandatory prepayment of revolving credit borrowings (and, to the extent provided, reductions in commitments) thereunder from excess cash flow (as defined therein), 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 and has a five year term, maturing in October 2002, with all amounts then outstanding becoming due. The loans under the Credit Agreement bear interest at floating rates based upon the interest rate option elected by the Company (except in the case of competitive bid advances (as defined therein) which may bear interest at a fixed rate of interest), and the Company is accordingly subject to fluctuations in such interest rates, which could cause its interest expense to increase or decrease in the future. The average floating rate of interest on the Credit Agreement at March 31, 1998 was 6.22%. As a result of the substantial indebtedness incurred in connection with the 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. Each holder of 7.05% Debentures due June 1, 2026 (the "Old Debentures") has the right to require the Company to redeem such holder's Old Debentures in June 2006. Certain Post-Acquisition Costs. The Company estimates, based upon current exchange rates, that its cash funding requirements for the costs associated with the Acquisition will amount to approximately $180.0 million from the consummation of the Acquisition through the end of 1998, and approximately $50.0 million to $65.0 million in each of the following two years. This includes up to $103.0 million of sharing bonus plan payments which will be made to Coulter's employees. Stock Repurchases and Dividends. 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 Acquisition. The Credit Agreement generally prohibits market repurchases of the Company's stock. Under the Company's dividend policy, the Company pays a regular quarterly dividend to its stockholders which amounted to approximately $16.6 million in 1997 and approximately $14.7 million in 1996. In February of 1998, the Board of Directors declared a quarterly dividend of $0.15 per share, which approximates $4.1 million in total. This dividend was paid on April 2, 1998 to stockholders of record on February 3, 1998. On April 2, 1998, the Board of Directors declared a $0.15 per share dividend payable on June 4, 1998 to stockholders of record on May 15, 1998. The Company anticipates that it will continue to pay dividends at similar levels for the foreseeable future. The Credit Agreement and the Indenture restrict (but, in each case, do not prohibit) the Company's ability to pay dividends. Future Financing Sources and Cash Flows. As of March 31, 1998, the Company's remaining borrowing availability under the Credit Facility was $130.0 million. Undrawn amounts under the Credit Facility will be available to meet future working capital and other business needs of the Company. At March 31, 1998, no events of default existed under any of the then existing debt agreements of the Company. The Company maintains working capital facilities for its operations outside the United States. In June 1996, the Company issued $100.0 million of Old Debentures ($100.0 million of which were outstanding as of March 31, 1998). The net proceeds received of $98.5 million were used to repay amounts then outstanding under the Company's commercial paper program. The Company also has the ability to issue up to $100.0 million of additional debt under a Form S-3 Registration Statement filed with the Securities and Exchange Commission, which was declared effective on April 16, 1996. 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. Although the Company's outstanding indebtedness increased in the first quarter of 1998 (primarily as a result of $77.7 million of bonus, severance and related payments associated with the Acquisition which were made during the first quarter of 1998 and which were financed through increased borrowings under the Revolving Credit Facility), the Company expects to reduce its indebtedness by approximately $200 million during the second quarter of 1998 and by at least $50 million in each of 1999 and 2000. As a part of its plan to reduce debt and provide funds for integration purposes, subsequent to the consummation of the Acquisition, the Company has pursued sales of certain financial assets (primarily consisting of lease receivables and equipment subject to customer leases) and real estate assets. During December 1997, the Company sold financial assets having a net book value of approximately $71 million and received approximately $75 million in cash proceeds. During March 1998, the Company sold financial assets having a net book value of approximately $32 million and received approximately $32 million in cash proceeds. During the remainder of 1998, the Company expects to consummate several sale leaseback transactions with respect to some of its real estate assets for cash proceeds of approximately $240 million. The Company also intends to consummate additional sale leaseback transactions in 1999 which the Company expects will generate proceeds of approximately $30 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. Financing Covenant Restrictions. The Credit Agreement imposes restrictions on the Company's ability to make capital expenditures and both the Credit Agreement and the indenture dated March 4, 1998 (the "Indenture") governing the Initial Notes limit the Company's ability to incur additional indebtedness. In addition, the Company is required to comply with specified financial ratios and tests under the Credit Agreement, including minimum net worth, a minimum interest coverage ratio and a maximum leverage ratio. Such restrictions, together with the highly leveraged nature of the Company, could limit the Company's ability to respond to market conditions, to provide for capital investments or to take advantage of business opportunities. The covenants contained in the Credit Agreement and the Indenture also impose restrictions on the operation of the Company's businesses. 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. Financial Instruments: The Company pursues a currency hedging program which utilizes derivatives in order to limit the impact of foreign currency exchange fluctuations on its financial results. Under this program, the Company enters into forward exchange and option contracts in the normal course of business to hedge certain foreign currency denominated transactions. Realized and unrealized gains and losses on these contracts are included in nonoperating (income) expense or other (income) expense in the Company's consolidated statements of earnings. The discount or premium on a forward exchange contract is included in the measurement of the basis of the related foreign currency transaction when recorded. The premium on an option contract is accounted for separately and amortized to nonoperating (income) expense or other (income) expense over the term of the contract. These instruments involve, to varying degrees, elements of market and credit risk in excess of the amounts recognized in the consolidated balance sheets. The Company does not hold or issue financial instruments for trading purposes. See Note 7 to the Consolidated Financial Statements. In addition, the Company also selectively enters into certain financial instruments to manage its exposure to interest rate changes on its floating rate debt. These instruments are held for hedging purposes only and include interest rate swap agreements. Environmental Matters: 10 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: 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 earnings or financial position. However, no assurance can be given as to the ultimate outcome with respect to such lawsuits. The resolution of such lawsuits could be material to the Company's operating results for any particular period, depending upon 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. 11 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. Competitive and regulatory conditions in many markets restrict the Company's ability to fully recover through price increases any increase in higher costs of acquired goods and services resulting from inflation. The Company historically has been able to partially offset the adverse impact of these competitive factors by improving productivity. 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 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. 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 12 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; (v) future cost reductions; (vi) in-process research and development; (vii) costs, estimates and assumptions associated with the in-process research and development; and (viii) the Company's debt reduction plan. 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. 13 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. 14 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. 15 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. 16 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 -------- -------- -------- 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
17 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. 18 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 Coulter, Inc. (the "Company"), 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 19 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 20 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 As a direct result of the Acquisition, the Company recorded a $282.0 million charge for purchased in-process research and development projects, $220.0 million of which was allocated to projects in the hematology product line. The Company utilized an independent third-party appraiser to assess and allocate values to the in-process research and development. The values assigned to these projects were determined by identifying projects that have economic value but that had not yet reached technological feasibility and that had no alternative future uses. These projects include development of next generation versions of existing products as well as planned new products. Some of these projects are expected to be combined with existing technology to produce commercially viable products. These products had not been released to the market as of the date of the Acquisition, but the features and functionality of the products had been defined. The values of these projects were determined by estimating the costs to develop the technology into commercially viable products, estimating cash flows resulting from the expected sales of such products, and discounting the net cash flows back to their present value using a risk-adjusted discount rate. The resulting values were expensed as of the date of the Acquisition in accordance with generally accepted accounting principles. The estimates were based on the following assumptions: - - The estimated costs to be incurred to develop purchased in-process technology into commercially viable products are approximately $68 million in 1998, $60 million in 1999 and $31 million in 2000. - - The estimated revenues assume average compound annual revenue growth rates of 12% to 60% during 1998 - 2002 depending on the product line. Estimated total revenues from the purchased in-process product areas peak in the year 2002 and decline in 2002 - 2006 as other new products are expected to be introduced by the Company. These projections are based on management's estimates of market size and growth, expected trends in technology and the expected timing of new product introductions. - - The estimated cost of sales as a percentage of revenues is expected to be lower than Coulter's historical results primarily due to production efficiencies expected to be achieved through economies of scale of the combined operations. As a result of these savings, the estimated cost of sales as a percentage of revenues is expected to decrease by approximately 4 percentage points from Coulter's historical percentage of about 52 %, varying by product area. - - The business enterprise is comprised of various types of assets, each possessing different degrees of investment risk contributing to the Company's overall weighted average cost of capital ("WACC"). Intangible assets are assessed higher risk factors due to their lack of liquidity and poor versatility for redeployment elsewhere in the business. In the Coulter analysis, the implied WACC was 14% based on the purchase price paid, assumed liabilities, projected cash flows, and Coulter's asset mix. Reasonable returns on monetary and fixed assets were estimated based on prevailing interest rates. The process for quantifying intangible asset investment risk involved consideration of the uncertainty associated with realizing discernable cash flows over the life of the asset. A discount range of 14-15% was used for in-process research and development, as these assets exhibit market risks similar to the overall company, as adjusted for the uncertainty of completion. The uncertainty of completion is considered minimal due to the fact that the majority of the projects are product line extensions where the risk is not considered any greater than for the overall company. The Company believes that the foregoing assumptions used in determining the estimates of the costs to develop Coulter's in-process research and development into commercially viable products were reasonable at the time of the Acquisition. No assurance can be given, however, that the underlying assumptions used to estimate project costs, the ultimate costs to develop such projects, or the events associated with such projects, will transpire as estimated. Coulter's in-process research and development value is comprised of over 40 individual on-going projects, however, no one project accounts for more than 13% of the total value. Remaining development efforts for these projects include various phases of design, development and testing. Anticipated completion dates for each product line in-process range from three to 36 months at which dates the Company expects to begin selling the developed products. Funding for such projects is expected to be obtained from internally generated sources. If none of these projects is successfully developed, the sales and profitability of the combined company may be materially adversely affected in future periods. The failure of any particular individual project in-process would not materially impact the Company's financial condition, results of operations or the attractiveness of the overall Coulter investment. Commercial results will be subject to uncertain market events and risks, which are beyond the Company's control, such as trends in technology, market size and growth, and product introduction or other actions by competitors. 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 from 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 21 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 receivables (17.4) (9.6) -------- -------- $ 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 -- 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 22 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. 23 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, in the fourth quarter of 1997 under a restructuring plan which was approved by management and for which the benefit arrangements were communicated to employees prior to December 31, 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." Of the original charge of $59.4, approximately $39.8 requires cash payments and approximately $19.6 represents non-cash charges. Cash payments of $12.8 were made in 1997. Management estimates that the remaining liability of $46.6 will require payments of $25.0 in 1998 and $2.0 in 1999. The following table details the major components of the 1997 restructuring provision:
Facility consolidation and asset related Provision Personnel write-offs Total - --------- --------- ------------- ------ 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 ------ ------ ------
24 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. 25 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 26 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 27 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 ======== ======== ========
28 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 benefit 0.1 0.4 0.8 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
29 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 Agreement 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. 30 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 shares 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): 31
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 at Exercise Remaining Exercisable at Exercise Range of December 31, Price Contractual Life December 31, Price Exercise Prices 1997 Per Option (Years) 1997(a) Per Option - ---------------- -------------- ----------- ---------------- -------------- ---------- $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
32 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
33 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 return 9.8% 9.8% 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 ======== ========
1997 1996 1995 ------ ------ ------ Assumptions used in 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 and local 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 34 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 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, in April 1996, Hematronix filed a complaint against Coulter in the United States District Court of the Eastern District of California. The complaint sought a declaratory judgment to invalidate the patents. The complaint also included 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. The trial was scheduled for October 1998. In March 1998, the matter was resolved and the lawsuit was dismissed without material adverse effect on the Company's earnings 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"). In May 1998, the Board of Patent Appeals and Interferences ruled in Hybritech's favor. The Foundation has sixty days to appeal this decision. As previously reported, in 1991 Forest City Properties Corporation and F.C. Irvine, Inc. (collectively, "Forest City"), filed suit against Prudential Insurance Company in the California Superior Court for the County of Los Angeles alleging breach of contract and damages caused by pollution of property that Forest Cities had brought from Prudential. Although the Company was not a named defendant in the Forest City action, it was obligated to contribute to any resolution of that action pursuant to a 1990 settlement agreement with Prudential. The trial of the matter was conducted in 1995, resulting in a jury verdict in favor of Prudential. The Court 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 did not agree with Prudential's claims and negotiated a settlement for an amount not material to the Company's earnings or financial position. 35 As previously reported, since 1992 six toxic tort lawsuits(1) 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. In May 1998, the Company negotiated a settlement of these claims. A number of claims for property damages remain outstanding. 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. SmithKline has agreed to pay all costs of defense and settlement amounts. Thus the outcome of these litigations, even if unfavorable to the Company, should have no material adverse effect on the Company's earnings or financial position. As previously reported, 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 diagnostic equipment in Italy, including the Company's Italian subsidiary. The inquiry focuses on past leasing practices for placement of diagnostic 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 earnings 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 - -------- (1) 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). 36 from any such lawsuits will have a material adverse effect on its earnings or financial position. However, no assurance can be given as to the ultimate outcome with respect to such lawsuits. The resolution of such lawsuits could be material to the Company's operating results for any particular period, depending upon the level of income for such period. See also "Environmental Matters" herein. 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. 37 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 ======== ======== ========
38 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. 39 15. Supplementary Information Allowance for Doubtful Accounts
Balance at Additions Balance Beginning Charged to at End of Period Cost and Expenses Deductions Other of 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. 40 16. Subsequent Event On March 4, 1998, the Company issued $400 of Initial Notes. The Company used the proceeds from the Offering to pay down $300 of the Term Loan and $80 of the Credit Facility under the Credit Agreement. In connection with the Offering, the Guarantor Subsidiaries jointly, fully, severally, and unconditionally guaranteed such notes. Supplemental condensed financial information of the Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries, each on a combined basis is presented below. This financial information is prepared using the equity method of accounting for the Company's investments in subsidiaries and the Guarantor Subsidiaries' investments in Non-Guarantor Subsidiaries. This supplemental financial information should be read in conjunction with the Consolidated Financial Statements.
GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------- ------------ ------------ CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1997 Assets: Cash and equivalents................ $ 13.9 $ 7.2 $ 12.4 $ 33.5 Trade receivables and other......... 131.7 95.4 297.5 524.6 Inventories......................... 127.8 98.7 136.5 $ (30.7) 332.3 Other current assets................ 163.9 165.1 94.4 (337.1) 86.3 -------- -------- -------- --------- -------- Total current assets........ 437.3 366.4 540.8 (367.8) 976.7 Property, plant and equipment, net.............................. 133.8 125.1 152.0 410.9 Intangibles, net.................... 28.5 401.5 14.9 444.9 Goodwill, net....................... 5.7 397.0 0.1 402.8 Other long-term assets.............. 1,108.6 208.1 196.5 (1,417.5) 95.7 -------- -------- -------- --------- -------- Total assets................ $1,713.9 $1,498.1 $ 904.3 $(1,785.3) $2,331.0 ======== ======== ======== ========= ======== Liabilities: Notes payable and current maturities of long-term debt................ $ 7.7 $ 7.3 $ 53.9 $ 68.9 Accounts payable and accrued expenses......................... 207.8 408.1 140.5 756.4 Other current liabilities........... 114.0 2.7 81.4 $ (128.5) 69.6 -------- -------- -------- --------- -------- Total current liabilities... 329.5 418.1 275.8 (128.5) 894.9 Long-term debt, less current maturities....................... 1,122.9 4.6 53.8 1,181.3 Other long-term liabilities......... 179.7 346.0 155.4 (508.1) 173.0 -------- -------- -------- --------- -------- Total liabilities........... 1,632.1 768.7 485.0 (636.6) 2,249.2 Stockholders' equity.................. 81.8 729.4 419.3 (1,148.7) 81.8 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity...... $1,713.9 $1,498.1 $ 904.3 $(1,785.3) $2,331.0 ======== ======== ======== ========= ========
41
GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------- ------------ ------------ CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1996 Assets: Cash and equivalents................ $ 27.9 $ 10.3 $ 4.5 $ 42.7 Trade receivables and other......... 103.8 16.6 189.1 309.5 Inventories......................... 112.7 16.2 75.9 $ (14.4) 190.4 Other current assets................ 83.2 17.6 35.9 (99.9) 36.8 -------- -------- -------- --------- -------- Total current assets........ 327.6 60.7 305.4 (114.3) 579.4 Property, plant and equipment, net.............................. 165.0 13.3 85.2 263.5 Intangibles, net.................... 33.5 0.4 0.2 34.1 Goodwill, net....................... 1.9 11.8 13.7 Other long-term assets.............. 378.2 39.5 131.8 (480.1) 69.4 -------- -------- -------- --------- -------- Total assets................ $ 906.2 $ 125.7 $ 522.6 $ (594.4) $ 960.1 ======== ======== ======== ========= ======== Liabilities: Notes payable and current maturities of long-term debt................ $ 2.6 $ 0.2 $ 16.6 $ 19.4 Accounts payable and accrued expenses......................... 114.9 17.6 75.7 208.2 Other current liabilities........... 74.0 9.8 60.0 $ (92.1) 51.7 -------- -------- -------- --------- -------- Total current liabilities... 191.5 27.6 152.3 (92.1) 279.3 Long-term debt, less current maturities....................... 152.6 0.4 23.6 176.6 Other long-term liabilities......... 163.2 8.6 98.9 (165.4) 105.3 -------- -------- -------- --------- -------- Total liabilities........... 507.3 36.6 274.8 (257.5) 561.2 Stockholders' equity.................. 388.9 89.1 247.8 (336.9) 398.9 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity...... $ 906.2 $ 125.7 $ 522.6 $ (594.4) $ 960.1 ======== ======== ======== ========= ======== CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 Sales................................. $ 513.9 $ 150.9 $1,069.5 $ (536.3) $1,198.0 Operating costs and expenses Cost of sales....................... 214.2 106.3 798.5 (509.3) 609.7 Marketing, general, and administrative................... 154.5 39.0 166.8 360.3 Research and development............ 87.6 33.8 2.2 123.6 In-process research and development...................... 282.0 282.0 Restructuring charge................ 55.7 3.7 59.4 -------- -------- -------- --------- -------- Operating income (loss)............... 1.9 (310.2) 98.3 27.0 (237.0) Nonoperating expense (income)......... 233.2 (8.8) (0.7) (208.8) 14.9 -------- -------- -------- --------- -------- Earnings (loss) before income taxes... (231.3) (301.4) 99.0 181.8 (251.9) Income taxes.......................... 8.6 2.0 8.1 (6.2) 12.5 -------- -------- -------- --------- -------- Net (loss) earnings................... $ (239.9) $ (303.4) $ 90.9 $ 188.0 $ (264.4) ======== ======== ======== ========= ========
42
GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------- ------------ ------------ CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 Sales................................. $ 457.4 $ 112.8 $ 772.7 $ (314.9) $1,028.0 Operating costs and expenses Cost of sales....................... 184.9 33.7 569.3 (310.1) 477.8 Marketing, general, and administrative................... 147.1 21.4 150.8 319.3 Research and development............ 91.1 17.1 0.2 108.4 Restructuring charge................ (1.7) (4.0) 5.7 -------- -------- -------- --------- -------- Operating income...................... 36.0 44.6 46.7 (4.8) 122.5 Nonoperating (income) expense......... (64.9) (1.8) 0.2 77.5 11.0 -------- -------- -------- --------- -------- Earnings before income taxes.......... 100.9 46.4 46.5 (82.3) 111.5 Income taxes.......................... 18.1 5.3 10.2 3.2 36.8 -------- -------- -------- --------- -------- Net earnings.......................... $ 82.8 $ 41.1 $ 36.3 $ (85.5) $ 74.7 ======== ======== ======== ========= ======== CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 Sales................................. $ 581.1 $ 64.4 $ 533.7 $ (249.1) $ 930.1 Operating costs and expenses Cost of sales....................... 316.8 18.3 339.0 (246.9) 427.2 Marketing, general, and administrative................... 149.2 8.2 143.0 300.4 Research and development............ 83.4 8.3 91.7 Restructuring charge................ 1.5 26.2 27.7 -------- -------- -------- --------- -------- Operating income...................... 30.2 29.6 25.5 (2.2) 83.1 Nonoperating (income) expense......... (26.1) (0.7) (9.9) 47.4 10.7 -------- -------- -------- --------- -------- Earnings before income taxes.......... 56.3 30.3 35.4 (49.6) 72.4 Income taxes.......................... 3.1 4.1 14.0 2.3 23.5 -------- -------- -------- --------- -------- Net earnings.......................... $ 53.2 $ 26.2 $ 21.4 $ (51.9) $ 48.9 ======== ======== ======== ========= ========
43
GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED ------- ------------ ------------- ------------ CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 Net cash provided (used) by operating activities..................................... $ (32.2) $ 42.4 $127.6 $ 137.8 Cash flows from investing activities Additions to property, plant and equipment..... (65.9) (11.6) (23.4) (100.9) Net disposals of property, plant and equipment................................... 12.0 5.4 1.0 18.4 Sales of short term investments................ 7.7 7.7 Proceeds from sale-leaseback transactions...... 39.6 39.6 Investments and acquisitions................... (897.3) 3.4 (893.9) ------- ------ ------ ------- Net cash (used) provided by investing activities..................................... (911.6) 1.5 (19.0) (929.1) Cash flows from financing activities Dividends to stockholders...................... (16.6) (16.6) Proceeds from issuance of stock................ 23.1 23.1 Purchases of treasury stock.................... (43.7) (43.7) Notes payable borrowings (reductions).......... (3.5) 15.2 11.7 Long-term debt borrowings (reductions)......... 970.5 (39.1) (115.3) 816.1 ------- ------ ------ ------- Net cash provided (used) by financing activities..................................... 929.8 (39.1) (100.1) 790.6 Effect of exchange rates on cash and equivalents.................................... (0.8) (0.8) (Decrease) increase in cash and equivalents...... (14.0) 4.8 7.7 (1.5) Cash and equivalents -- beginning of year........ 27.9 2.6 4.1 34.6 ------- ------ ------ ------- Cash and equivalents -- end of year.............. $ 13.9 $ 7.4 $ 11.8 $ 33.1 ======= ====== ====== =======
44
Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Consolidated ------ ------------ ------------ ------------ CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 Net cash provided (used) by operating activities $124.7 $ (7.3) $ 21.7 $139.1 Cash flows from investing activities Additions to property, plant and equipment (44.1) (9.7) (56.7) (110.5) Net disposals of property, plant and equipment 11.8 0.4 6.5 18.7 Sales of short term investments 0.1 0.1 0.2 Investments and acquisitions (38.0) 15.0 (23.0) ------ ------ ------ ------ Net cash used by investing activities (70.2) (9.3) (35.1) (114.6) Cash flows from financing activities Dividends to stockholders (14.7) -- -- (14.7) Proceeds from issuance of stock 21.5 -- -- 21.5 Purchases of treasury stock (35.9) (35.9) Notes payable borrowings (reductions) (5.9) -- 3.5 (2.4) Long-term debt borrowings (reductions) 8.0 0.3 7.0 15.3 ------ ------ ------ ------ Net cash (used) provided by financing activities (27.0) 0.3 10.5 (16.2) Effect of exchange rates on cash and equivalents 0.1 0.1 (Decrease) increase in cash and equivalents 27.5 (16.3) (2.8) 8.4 Cash and equivalents - beginning of year 0.4 18.9 6.9 26.2 ------ ------ ------ ------ Cash and equivalents - end of year $ 27.9 $ 2.6 $ 4.1 $ 34.6 ====== ====== ====== ======
Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Consolidated ------ ------------ ------------ ------------ CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995 Net cash provided (used) by operating activities $ 66.8 $ 22.9 $(29.5) $ 60.2 Cash flows from investing activities Additions to property, plant and equipment (65.5) (0.5) (37.2) (103.2) Net disposals of property, plant and equipment 7.3 5.9 13.2 Sales (purchases)of short term investments (0.1) (7.9) 0.5 (7.5) Investments and acquisitions (38.1) 22.6 (15.5) ------ ------ ------ ------- Net cash (used) by investing activities (96.4) (8.4) (8.2) (113.0) Cash flows from financing activities Dividends to stockholders (12.3) -- -- (12.3) Proceeds from issuance of stock 17.6 -- -- 17.6 Purchases of treasury stock (13.3) (13.3) Notes payable borrowings (reductions) (4.2) -- 7.1 2.9 Long-term debt borrowings (reductions) 42.0 (2.1) 39.9 ------ ------ ------ ------- Net cash provided by financing activities 29.8 5.0 34.8 Effect of exchange rates on cash and equivalents 0.2 (0.2) (Decrease) increase in cash and equivalents 0.4 14.5 (32.9) (18.0) Cash and equivalents - beginning of year 4.4 39.8 44.2 ------ ------ ------ ------- Cash and equivalents - end of year $ 0.4 $ 18.9 $ 6.9 $ 26.2 ====== ====== ====== =======
45 0UARTERLY INFORMATION (Unaudited) In millions, except amounts per share
First Quarter Second Quarter Third Quarter -------------------- -------------------- -------------------- 1997 1996 1997 1996 1997 1996 -------- -------- -------- -------- -------- -------- Sales $ 231.9 $ 224.8 $ 270.6 $ 265.2 $ 271.6 $ 252.8 Cost of sales 109.6 104.9 130.7 123.6 132.1 117.8 Marketing,general and administrative 74.8 73.7 79.7 83.3 82.9 77.7 Research and development 24.0 24.7 28.6 27.3 27.7 26.1 In-process research and development -- -- -- -- -- -- Restructuring Charge -- -- -- -- -- -- Operating income (loss) 23.5 21.5 31.6 31.0 28.9 31.2 Earnings (loss) before income taxes 22.3 20.5 29.7 28.3 27.7 27.9 Net earnings (loss) $ 15.6 $ 13.7 $ 20.8 $ 19.0 $ 19.4 $ 18.7 Basic earnings (loss) per share $ 0.56 $ 0.48 $ 0.75 $ 0.68 $ 0.71 $ 0.67 Diluted earnings (loss) per share $ 0.54 $ 0.47 $ 0.72 $ 0.65 $ 0.68 $ 0.65 Dividends per share $ 0.15 $ 0.13 $ 0.15 $ 0.13 $ 0.15 $ 0.13 Stock price - High $ 44 3/8 $ 39 1/8 $49 3/16 $ 41 1/8 $52 5/16 $ 39 7/8 Stock price - Low $ 37 7/8 $ 33 1/2 $ 40 3/8 $ 35 1/8 $ 39 3/4 $ 32
Fourth Quarter For the Year --------------------- ------------------------- 1997 1996 1997 1996 -------- -------- ---------- ---------- Sales $ 423.9 $ 285.2 $ 1,198.0 $ 1,028.0 Cost of sales 237.3 131.5 609.7 477.8 Marketing,general and administrative 122.9 84.6 360.3 319.3 Research and development 43.3 30.3 123.6 108.4 In-process research and development 282.0 -- 282.0 -- Restructuring Charge 59.4 -- 59.4 -- Operating income (loss) (321.0) 38.8 (237.0) 122.5 Earnings (loss) before income taxes (331.6) 34.8 (251.9) 111.5 Net earnings (loss) $ (320.2) $ 23.3 $ (264.4) $ 74.7 Basic earnings (loss) per share $ (11.63) $ 0.83 $ (9.58) $ 2.66 Diluted earnings (loss) per share $ (11.63) $ 0.81 $ (9.58) $ 2.58 Dividends per share $ 0.15 $ 0.13 $ 0.60 $ 0.52 Stock price - High $ 44 1/2 $ 39 1/4 $ 52 5/16 $ 41 1/8 Stock price - Low $ 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 - ------- ------ ------- ------- ------ 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
46 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 EX-21 3 EXHIBIT 21 1 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. Germany 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 Comercia LTDA Brazil Coulter Electronics Ltd. United Kingdom Coulter Electronics of Canada, Ltd. Canada Coultronics France S.A. France Coulter K.K. Japan Coulter de Mexico, S.A. de C.V. Mexico Coulter Scientific, Inc. Illinois Hybritech Incorporated California SKD, Inc. Delaware
EX-23 4 EXHIBIT 23 1 EXHIBIT 23 The Board of Directors Beckman Coulter, 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 Coulter, Inc. of our report dated January 23, 1998, except as to Note 16, which is as of March 4, 1998, relating to the consolidated balance sheets of Beckman Coulter, 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 Coulter, Inc. KPMG PEAT MARWICK LLP Orange County, California July 2, 1998 -----END PRIVACY-ENHANCED MESSAGE-----