EX-13 5 a69813ex13.txt EXHIBIT 13 1 BECKMAN COULTER 2000 ANNUAL REPORT [DRAFT 3] EXHIBIT 13 WORDS ON NUMBERS Section of our Annual Report to Stockholders For the Year Ended December 31, 2000 TABLE OF CONTENTS Selected Financial Information Financial Review Management's Discussion and Analysis Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Quarterly Information Report by Management Independent Auditors' Report Other Information Board of Directors Bar Chart: Working Capital (millions)
Year 1996 1997 1998 1999 2000 Working Capital $300.1 $81.8 $237.3 $390.5 $426.7
Bar Chart: Income from Operations* (millions)
Year 1996 1997 1998 1999 2000 Income from Operations $122.5 $104.4 $133.9 $216.3 $230.2
Bar Chart: EBITDA* (millions)
Year 1996 1997 1998 1999 2000 EBITDA $217.4 $228.0 $305.9 $372.0 $387.5
Bar Chart: Dividends Paid Per Share of Common Stock
Year 1996 1997 1998 1999 2000 Dividends Paid ($ Per Share) $0.260 $0.300 $0.305 $0.320 $0.325
*Excludes pre-tax special items in 1997, 1998, 1999 and 2000 -1- 2 SELECTED FINANCIAL INFORMATION Dollars in millions, except amounts per share
Years Ended December 31, 2000 1999 1998 1997 1996 ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- Summary of Operations Sales $ 1,886.9 $ 1,808.7 $ 1,718.2 $ 1,198.0 $ 1,028.0 Operating income before special items(1) $ 230.2 $ 216.3 $ 133.9 $ 104.4 $ 122.5 Earnings before special items, after taxes $ 124.1 $ 105.9 $ 44.7 $ 54.0 $ 74.7 Special items: In-process research and development -- -- -- (282.0) -- Restructure credit (charge), net of tax 1.4 0.1 (11.2) (36.4) -- ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- Net earnings (loss) $ 125.5 $ 106.0 $ 33.5 $ (264.4) $ 74.7 ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- Diluted earnings per share before special items $ 2.01 $ 1.79 $ 0.76 $ 0.98 $ 1.29 Diluted earnings (loss) per share $ 2.03 $ 1.79 $ 0.57 $ (4.79) $ 1.29 Dividends paid per share of common stock $ 0.325 $ 0.320 $ 0.305 $ 0.300 $ 0.260 Shares outstanding (millions) 59.7 57.9 56.8 55.3 56.0 Weighted average common shares and dilutive common share equivalents (millions)(2) 61.8 59.3 58.7 55.2 57.8 Other Information: Total assets $ 2,018.2 $ 2,110.8 $ 2,133.3 $ 2,331.0 $ 960.1 Long-term debt, less current maturities $ 862.8 $ 980.7 $ 982.2 $ 1,181.3 $ 176.6 Working capital $ 426.7 $ 390.5 $ 237.3 $ 81.8 $ 300.1 EBIT before special items(1)(3) $ 251.4 $ 228.3 $ 153.5 $ 118.9 $ 129.6 Depreciation and amortization expense $ 136.1 $ 143.7 $ 152.4 $ 109.1 $ 87.8 EBITDA before special items(1)(3) $ 387.5 $ 372.0 $ 305.9 $ 228.0 $ 217.4 EBITDA(3) $ 389.9 $ 372.2 $ 286.8 $ (113.4) $ 217.4 Debt to EBITDA before special items(1)(3) 2.4 2.8 3.7 5.5 0.9 Capital expenditures $ 141.3 $ 134.9 $ 165.2 $ 100.9 $ 110.5 Number of employees at December 31, 9,695 9,520 10,064 11,171 6,079 ----------------------------------------------- ----------- ----------- ----------- ----------- -----------
(1) Excludes pre-tax special items. Special items include: 1) net restructure (credits) charges of $(2.4), $(0.2), $19.1, and $59.4, in 2000, 1999, 1998, and 1997, 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 items, we reported operating income (loss) of $232.6, $216.5, $114.8, and ($237.0), in 2000, 1999, 1998, and 1997, respectively. We did not incur any special items in 1996. (2) Under Generally Accepted Accounting Principles ("GAAP"), as we were in a net loss position in 1997, 2.1 million common share equivalents were not used to compute diluted loss per share, as the effect was antidilutive. (3) EBIT is earnings before interest expense and taxes; EBITDA is EBIT before depreciation and amortization expense. -2- 3 FINANCIAL REVIEW Dollars 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:
2000 1999 Years ended % of % of % of Compared Compared December 31, 2000 Sales 1999 Sales 1998 Sales to 1999(2) to 1998(2) --------- ----- --------- ----- --------- ----- ---------- ---------- Sales: Clinical diagnostics $ 1,472.2 78.0 $ 1,418.2 78.4 $ 1,342.5 78.1 $ 54.0 $ 75.7 Life science research 414.7 22.0 390.5 21.6 375.7 21.9 24.2 14.8 --------- ----- --------- ----- --------- ----- ------ ------ Total sales $ 1,886.9 100.0 $ 1,808.7 100.0 $ 1,718.2 100.0 $ 78.2 $ 90.5 Cost of sales 995.6 52.8 942.1 52.1 920.6 53.6 53.5 21.5 --------- ----- --------- ----- --------- ----- ------ ------ Gross profit 891.3 47.2 866.6 47.9 797.6 46.4 24.7 69.0 Selling, general & administrative 476.1 25.2 476.9 26.4 492.3 28.7 (0.8) (15.4) Research & development 185.0 9.8 173.4 9.5 171.4 10.0 11.6 2.0 --------- ----- --------- ----- --------- ----- ------ ------ Operating income(1) 230.2 12.2 216.3 12.0 133.9 7.8 13.9 82.4 Net nonoperating expense 50.7 2.7 61.8 3.4 68.2 4.0 (11.1) (6.4) --------- ----- --------- ----- --------- ----- ------ ------ Earnings before income taxes(1) 179.5 9.5 154.5 8.6 65.7 3.8 25.0 88.8 Income tax provision(1) 55.4 2.9 48.6 2.7 21.0 1.2 6.8 27.6 --------- ----- --------- ----- --------- ----- ------ ------ Earnings before special items, after taxes(1) $ 124.1 6.6 $ 105.9 5.9 $ 44.7 2.6 $ 18.2 $ 61.2 Net earnings $ 125.5 6.7 $ 106.0 5.9 $ 33.5 1.9 $ 19.5 $ 72.5 ========= ===== ========= ===== ========= ===== ====== ====== -------------------------------------------------------------------------------------------------------------- Diluted earnings per share before special items $ 2.01 $ 1.79 $ 0.76 $ 0.22 $ 1.03 Diluted earnings per share $ 2.03 $ 1.79 $ 0.57 $ 0.24 $ 1.22 Dividends paid per share of common stock $ 0.325 $ 0.320 $ 0.305 $0.005 $0.015 --------------------------------------------------------------------------------------------------------------
(1) Amounts exclude special items. Special items include net restructure (credits) charges of $(2.4), (0.1)% of sales in 2000; $(0.2), (0.01)% of sales in 1999; and $19.1, 1.1% of sales in 1998. Including these special items: 1) operating income was $232.6, 12.3% of sales in 2000; $216.5, 12.0% of sales in 1999; and $114.8, 6.7% of sales in 1998, and 2) earnings before income taxes was $181.9, 9.6% of sales in 2000; $154.7, 8.6% of sales in 1999; and $46.6, 2.7% of sales in 1998. (2) Parentheses indicate decreases from the comparative period. -3- 4 Bar Chart: Sales per employee (thousands)
Year 1996 1997 1998 1999 2000 Sales per employee $169 $107 $171 $190 $195
Bar Chart: SG&A as a % of Sales
Year 1996 1997 1998 1999 2000 SG&A (% of Sales) 31.1 30.1 28.7 26.4 25.2
Bar Chart: R&D Expenses (millions)
Year 1996 1997 1998 1999 2000 R&D Expenses $108.4 $123.6 $171.4 $173.4 $185.0
-4- 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 42 through 68. Historical results and percentage relationships are not necessarily indicative of operating results for any future periods. OVERVIEW Beckman Coulter simplifies and automates laboratory processes used in all phases of the battle against disease. We design, manufacture, and market systems which consist of instruments, chemistries, software, and supplies that meet a variety of laboratory needs. Our products are used in a range of applications, from instruments used for pioneering medical research, drug discovery and clinical trials to diagnostic tools found in hospitals and physicians' offices. Beckman Coulter competes in market segments that total approximately $31 billion in annual sales worldwide and currently has products which address approximately half of that market. Beckman Coulter's product lines include virtually all blood tests routinely performed in hospital laboratories and a range of systems for medical and pharmaceutical research. We have more than 125,000 systems operating in laboratories around the world, with approximately two-thirds of annual revenues coming from after-market customer purchases of operating supplies, chemistry kits, and service. Beckman Coulter markets its products in approximately 130 countries, generating approximately 45% of revenues outside the United States. Our strategy is to maintain our position as a leading provider of laboratory systems. To this end, we achieved the following significant milestones in 2000: - Realized record sales volume of $1.887 billion. - Launched several key products, including the Biomek(R) FX laboratory automation workstation, the CEQ(TM) 2000XL DNA analysis system and the Avanti(R) J-20XP high performance centrifuge. - Received FDA clearance and began shipping the Access(R) Hybritech(R) PSA and free PSA tests for automation on the Access(R) immunoassay system. - Entered into a distribution and collaboration agreement with Cellomics, Inc. to offer customers high-content cell screening technologies paired with Beckman Coulter's automated drug discovery systems. - Signed a distribution agreement with Promega Corporation to sell their plasmid DNA purification system for use on our Biomek(R) liquid handling workstations. - Established the Immunomics Operation based in San Diego, California to focus on developing MHC tetramers for cellular immune response testing and shipped the first ready-to-use iTAg(TM) MHC tetramer reagents for HIV and melanoma research. 1. Acquisition Activities The primary focus of our acquisition strategy is to broaden our product offerings. The following table lists some of our acquisitions:
COMPANY PRODUCT/TECHNOLOGY ACQUIRED ACQUISITION DATE ------- --------------------------- ---------------- Coulter Corporation ("Coulter") Hematology & flow cytometry October 1997 Sanofi Diagnostics Pasteur ("Sanofi")* Access(R) immunoassay product line April 1997 Sagian, Inc. ("Sagian")** High-throughput screening & December 1996 robotics technology Genomyx, Inc. DNA sequencing technology October 1996 Hybritech Incorporated ("Hybritech") Immunoassays & cancer January 1996 diagnostics
* Only the Access(R) immunoassay product line of Sanofi was acquired. ** Only the Laboratory Robotics Division of Sagian was acquired. On October 31, 1997, we acquired all of the outstanding capital stock of Coulter for $850.2 million, net of Coulter's cash on hand of $24.8 million at the acquisition date. Coulter is the leading manufacturer of in vitro diagnostic systems for blood cell analysis. This acquisition and the related financing caused a substantial increase in interest expense, amortization of intangible -5- 6 assets and goodwill and various other adjustments resulting from purchase accounting. In April 1998, our stockholders approved the change of our name to Beckman Coulter, Inc. 2. Events Impacting Comparability Operating Periods Reported: Our financial statements include the assets and liabilities and the operating results of subsidiaries operating outside the United States and Canada. Balance sheet amounts for these subsidiaries are as of November 30. The operating results for these subsidiaries are for twelve-month periods ending November 30. However, in order to be consistent with the way we have historically reported our international results, the reporting of the results of operations for Coulter's international subsidiaries were lagged by one month in 1998. Therefore, the results for the year 1998 include only January through November sales and expenses for Coulter subsidiaries outside the United States and Canada. The exclusion of one month's results for Coulter's international subsidiaries was not significant. Restructure Charges: In the fourth quarters of 1999, 1998 and 1997, we recorded restructuring charges of $4.3 million, $19.1 million and $59.4 million, respectively, related to certain reorganization activities. In the fourth quarters of 2000 and 1999, we reversed $2.4 million and $4.5 million, respectively, of excess restructure charges taken in prior years. These charges and reversals resulted in net restructuring credits of $(2.4) million and $(0.2) million in 2000 and 1999, respectively. On an after-tax basis, the net restructure (credits) charges were $(1.4) million or $(0.02) per share in 2000, $(0.1) million with no impact on earnings per share in 1999 and $11.2 million or $0.19 per share in 1998. A more detailed discussion of the restructure charges is provided in Note 4 "Provision for Restructuring Operations" of the Notes to Consolidated Financial Statements. Sale-leaseback of Real Estate: During the second quarter of 1998, we sold our interest in properties located in Brea, California; Palo Alto, California; Chaska, Minnesota; and Miami, Florida and leased them back from the buyers. The aggregate proceeds from the sale of the four properties totaled $242.8 million before closing costs and transaction expenses. We used the cash from this sale primarily to reduce the debt incurred in financing the acquisition of Coulter. Refer to the detailed discussion of these transactions under Note 6 "Sale-leaseback of Real Estate" of the Notes to Consolidated Financial Statements. Sale of Assets: During 2000, we sold certain sales-type lease receivables as part of our plan to reduce debt. The net book value of financial assets sold was $73.4 million for which we received approximately $74.1 million in cash proceeds. In 1999 and 1998, we sold similar assets with a net book value of $72.4 million and $67.7 million, respectively, for cash proceeds of $74.0 million and $68.9 million, respectively. In 2000, 1999 and 1998, as a result of our Coulter integration activities, we reduced excess facilities outside the United States, which added $3.2 million, $3.9 million and $3.0 million, respectively, to non-operating income. 3. Results of Operations 2000 Compared with 1999: Sales in 2000 were $1,886.9 million, an increase of 4.3% (6.6% excluding the effect of foreign currency rate changes) compared to $1,808.7 million reported in 1999. In 2000, clinical diagnostics sales were $1,472.2 million and life science research sales were $414.7 million, an increase of 3.8% and 6.2%, respectively, compared to $1,418.2 million and $390.5 million, respectively, in 1999. After adjusting for currency, clinical diagnostics and life science research sales increased 6.0% and 8.8% in 2000 as compared to 1999, respectively. -6- 7
Constant Reported Currency 2000 1999 Growth % Growth % -------- --------- -------- --------- Routine Chemistry $ 527.1 $ 471.3 11.8 13.1 Immunodiagnostics 346.1 338.1 2.4 5.6 -------- --------- -------- ------- Total Chemistry 873.2 809.4 7.9 10.0 Hematology 397.3 413.1 (3.8) (1.8) Cytometry 162.7 157.5 3.3 6.8 -------- --------- -------- ------- Total Cellular Analysis 560.0 570.6 (1.9) 0.6 Particle Characterization 39.0 38.2 2.1 3.4 -------- --------- -------- ------- Total Clinical Diagnostics 1,472.2 1,418.2 3.8 6.0 -------- --------- -------- ------- Robotic Automation/Genetic Analysis 126.0 90.8 38.8 42.3 Centrifuge/Analytical Systems 288.7 299.7 (3.7) (1.3) -------- --------- -------- ------- Total Life Science Research 414.7 390.5 6.2 8.8 -------- --------- -------- ------- Total Beckman Coulter $1,886.9 $ 1,808.7 4.3 6.6 ======== ========= ======== =======
In the first quarter of 2000, we realigned our geographic reporting structure. Our Latin America operations, which were formerly reported with the "Asia and Rest of World" geographic area, are now reported in the "Americas" geographic area along with our North America operations. Prior year amounts have been reclassified to conform to the current year presentation. Sales in the various geographical segments of our business were as follows (in millions):
Constant Reported Currency 2000 1999 Growth % Growth % -------- --------- --------- -------- Clinical Diagnostics Americas $ 924.7 $ 835.9 10.6 10.6 Europe 380.3 409.7 (7.2) 1.7 Asia 167.2 172.6 (3.1) (5.9) -------- --------- -------- ------- Total Clinical Diagnostics 1,472.2 1,418.2 3.8 6.0 Life Science Research Americas 243.0 221.8 9.6 9.5 Europe 101.4 106.9 (5.1) 6.4 Asia 70.3 61.8 13.8 10.4 -------- --------- -------- ------- Total Life Science Research 414.7 390.5 6.2 8.8 Total Beckman Coulter Americas 1,167.7 1,057.7 10.4 10.4 Europe 481.7 516.6 (6.8) 2.7 Asia 237.5 234.4 1.3 (1.6) -------- --------- -------- ------- Total Beckman Coulter $1,886.9 $ 1,808.7 4.3 6.6 ======== ========= ======== =======
-7- 8 Sales growth during 2000 was affected by the following: - The clinical diagnostics segment, led by the Americas, experienced strong sales growth in routine chemistry, driven by record placements of SYNCHRON(R) LX20's and Power Processors. Immunodiagnostics sales growth was led by Access(R) immunoassay system unit placements and corresponding orders for consumables, including PSA and free PSA tests, offset by declines in protein testing in Europe due to government reimbursement changes. Hematology sales declined due to significant backlog shipments of GEN S(TM) slidemakers in 1999. Cytometry growth was driven by new system sales and strong reagent demand. - The life science research segment was led by our robotic automation/ genetic analysis products, including placements of our Biomek(R) 2000 and new Biomek(R) FX liquid handling systems, and our new CEQ(TM) 2000XL capillary electrophoresis-based DNA sequencer, partially offset by decreased sales of analytical systems. - Europe reported sales decreased 6.8% in 2000 versus 1999, as compared to a constant currency growth rate of 2.7% for the same period as a result of the weakening euro compared to the U.S. dollar. - Asia sales were dampened due to softness in the Japanese market. Gross profit as a percentage of sales in 2000 was 47.2%, 0.7 percentage points lower than the prior year. The decrease in gross profit percentage was due to three factors. First, the effects of foreign currency exchange rates resulted in a gross profit decrease of approximately $30 million or 0.6 percentage points. Second, we had a slightly higher mix of instruments to after-market sales of supplies, chemistry kits and services. Instruments typically have lower gross margins as compared to after-market sales. Third, we had a one-time $16.6 million sale of clinical chemistry assets in Spain in the first quarter of 2000 which contributed a lower gross margin than historical company levels. On a constant currency basis, and excluding the aforementioned one-time transaction, gross profit would have been 48.1% in 2000. Selling, general and administrative ("SG&A") expenses declined $0.8 million to $476.1 million or 25.2% of sales in 2000 from $476.9 million or 26.4% of sales in the prior year. The improvement in SG&A as a percentage of sales is due to further synergies from the Coulter integration. Research and development ("R&D") expenses increased $11.6 million to $185.0 million or 9.8% of sales in 2000 from $173.4 million or 9.6% of sales in the prior year. The increase in R&D is due to investments in new technologies, such as MHC tetramers. During 2000 and 1999, we reversed $2.4 million and $4.5 million, respectively, of excess restructuring charges that were taken in prior years. These reversals resulted in net restructuring credits of $2.4 million and $0.2 million in 2000 and 1999, respectively, which are included in "Restructure (credit) charge" on the Consolidated Statements of Operations. See Note 4 "Provision for Restructuring Operations" of the Notes to Consolidated Financial Statements for additional discussion. Interest expense declined $1.9 million to $71.9 million in 2000 compared to $73.8 million in 1999 primarily due to $115.8 million reduction in debt, partially offset by increased interest rates. Other non-operating income increased $10.7 million to $14.9 million in 2000 compared to $4.2 million in 1999. The increase in other non-operating income is primarily due to increased foreign currency hedging gains as a result of our hedging programs. Net earnings for 2000 were $125.5 million or $2.03 per diluted share compared to $106.0 million or $1.79 per diluted share in 1999. The increase in net earnings was primarily due to the various reasons discussed previously. -8- 9 1999 Compared with 1998: Sales in 1999 were $1,808.7 million, an increase of 5.3% (5.0% excluding the effect of foreign currency rate changes) compared to $1,718.2 million reported in 1998. In 1999, clinical diagnostics sales were $1,418.2 million and life science research sales were $390.5 million, an increase of 5.6% and 3.9%, respectively, compared to $1,342.5 million and $375.7 million, respectively, in 1998. Sales (in millions) in the various geographical segments of our market were as follows:
1999 % INCREASE 1998 -------- ----------- -------- Americas $1,057.7 6.1% $ 996.7 Europe 516.6 3.4% 499.8 Asia 234.4 5.7% 221.7 ------- ---- -------- Total $1,808.7 5.3% $1,718.2 ======== ==== ========
Sales growth during 1999 was driven by the following: - The clinical diagnostics segment was led by placements of the clinical chemistry, immunodiagnostics and cellular analysis instrument systems. - The life science research segment was led by our robotic automation/genetic analysis products, driven by biotechnology and pharmaceutical company purchases of SAGIAN(TM) Core Systems for high-throughput screening of candidate drug compounds and the newly introduced sequencing and fragment analysis on the CEQ(TM) 2000 DNA analysis systems. - European sales growth was dampened by continued softness in the German market. - Asia sales growth was the result of a stronger economy in the Asia Pacific region, led primarily by Japan during the second half of 1999, where placements of cellular analysis systems and life science research products increased compared to 1998. - Americas sales increased due to synergies from the integration of the Beckman and Coulter organizations, as a result of our global strategy. In addition to giving us scale for profitability, the Coulter acquisition has allowed Beckman Coulter to offer a broad spectrum of product offerings to clinical diagnostics laboratories, covering nearly all routine blood tests. Gross profit as a percentage of sales in 1999 was 47.9%, 1.5 percentage points higher than the prior year. The increase in gross profit percentage was due to synergies from the integration of the Beckman and Coulter organizations, partially offset by increased service costs related to Year 2000 issues during the second half of 1999. Selling, general and administrative ("SG&A") expenses declined $15.4 million to $476.9 million or 26.4% of sales in 1999 from $492.3 million or 28.7% of sales in the prior year. The decline in SG&A expenses both in absolute dollars and as a percentage of sales in 1999 compared to the prior year was due to continued progress with our integration activities. Interest expense decreased $14.0 million or 16.0% between 1998 and 1999 primarily due to a lower average debt balance. Interest income declined $5.6 million or 41.8% from 1998 to 1999 as a result of the sale of customer lease receivables (see "Sale of Assets" discussed previously). In accordance with our integration plans, we continue to move manufacturing of certain products from various Beckman Coulter facilities to Ireland. We expect the additional expenses associated with these moves to be offset by tax savings, which will result from manufacturing in a lower tax rate jurisdiction. Net earnings for 1999 were $106.0 million or $1.79 per diluted share compared to $33.5 million or $0.57 per diluted share ($44.7 million or $0.76 per diluted share before restructure charge) in 1998. The increase in net earnings was primarily due to the various reasons discussed previously. 4. Financial Condition Liquidity and Capital Resources: Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing and to convert those assets that are no longer required to meet existing strategic and financing objectives into cash flows. Therefore, liquidity cannot be considered separately from -9- 10 capital resources that consist of current and potentially available funds for use in achieving long-range business objectives and meeting debt service commitments. Currently, our liquidity needs arise primarily from: - debt service on the substantial indebtedness we incurred in connection with the Coulter acquisition; - working capital requirements; and - capital expenditures. In 2000, cash provided by operations was $209.1 million compared to $212.6 million provided by operations in 1999 and $1.8 million used by operations in 1998. The decrease between 2000 and 1999 of $3.5 million is primarily due to increased payments related to accounts payable and accrued expenses, offset by an increase in earnings before depreciation and amortization of $11.9 million and a $29.5 million improvement in converting accounts receivable into cash. The increase between 1999 and 1998 is primarily due to a $63.8 million increase in net earnings, after adding back the effects of depreciation and amortization. Also contributing to the increase in cash provided by operations were the relatively low 1999 payments related to accounts payable and accrued expenses as compared to 1998. In 1998, a major portion of the payments was related to purchased and assumed liabilities recorded as part of the Coulter acquisition. The improvements were partially offset by increases in receivables and inventories due to increased sales. Additionally, the 2000, 1999 and 1998 results included $74.1 million, $74.0 million and $68.9 million, respectively, in cash proceeds from the sale of lease receivables. Investing activities used $113.4 million of cash in 2000 compared to $118.6 million used in 1999 and $123.4 million provided in 1998. In 1998, we received cash proceeds of $242.8 million from the sale-leaseback of four real estate properties. Excluding this, 1998 cash used in investing activities was $119.4 million. In 2000, we sold certain clinical chemistry assets in Spain to a third party distributor for $16.6 million, of which we have received $15.4 million in cash proceeds through December 31, 2000. Financing activities used $97.1 million of cash flows in 2000 compared to $84.2 million in 1999 and $130.0 million in 1998. Net cash paid to reduce our debt amounted to $113.7 million, $90.4 million and $141.5 million in 2000, 1999 and 1998, respectively. Additionally, we paid $19.3 million, $18.4 million and $17.1 million in dividends to our stockholders in 2000, 1999 and 1998, respectively. These amounts were partially offset by proceeds received from the issuance of stock of $35.9 million, $24.6 million and $28.6 million, in 2000, 1999 and 1998, respectively. Based upon current levels of operations, anticipated cost savings and future growth, we believe our cash flow from operations, together with available borrowings under the credit facility ($255.0 million as of December 31, 2000; see further discussion at Note 7 "Debt Financing" of the Notes to Consolidated Financial Statements) and other sources of liquidity (including other credit facilities, leases and any other available financing sources) will be adequate to meet our 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. Given our history of debt reductions, we expect that we will have paid down a substantial amount of our credit facility by its maturity. As such, we expect that we will have the flexibility to look at various types of financing including, but not limited to, various forms of debt and/or commercial paper. There can be no assurance, however, that our business will continue to generate cash flow at or above current levels or that estimated cost savings or growth can be achieved. Future operating performance and our ability to service or refinance 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 our control. Financial Risk Management: Our risk management program, developed by senior management and approved by the board of directors, seeks to minimize the potentially negative effects of changes in foreign exchange rates and interest rates on the results of operations. Our primary exposures to fluctuations in the financial markets are to changes in foreign exchange risk and interest rates. Foreign exchange risk arises because our reporting currency is the U.S. dollar and we generate approximately 45% of our revenues in various foreign currencies. U.S. dollar-denominated costs and expenses as a percentage of total operating costs and expenses are much greater than U.S. dollar-denominated sales as a percentage of total net sales. As a result, appreciation of the U.S. dollar against our major trading currencies has a negative impact on our results of operations, and depreciation of the U.S. dollar against such currencies has a positive impact. -10- 11 We seek to minimize our exposure to changes in exchange rates by denominating costs and expenses in foreign currencies. When these opportunities are exhausted, we use derivative financial instruments to function as "hedges". We use forward contracts, purchased option contracts, and complex option contracts (consisting of purchased and sold options), to hedge transactions with our foreign customers. We do not use these instruments for speculative or trading purposes. On January 1, 2000, the countries of the European Union adopted a single currency, the "euro". The euro will, after January 1, 2002, be the only official currency in the European Union countries. Although the effect of this conversion on the results of our operations may be significant from a foreign currency or product pricing perspective, we are unable to measure such impact at this time. See details on the euro conversion under "Euro - the New European Currency". Our exposure to interest rate risk arises out of our long-term debt obligations. We do not use derivative instruments to hedge our investment portfolio, which consists of short-term investments (maturity of less than a year). Under the guidance of our risk management policies, we use derivative contracts on certain borrowing transactions. With the aid of these contracts, we seek to reduce the negative effects of changes in interest rates by changing the character of the interest rate on our long-term debt, converting a variable rate to a fixed rate and vice versa. The Securities and Exchange Commission requires that registrants include information about potential effects of changes in currency exchange and interest rates in their annual reports. Several alternatives, all with some limitations, have been offered. The following discussion is based on a sensitivity analysis, which models the effects of fluctuations in currency exchange rates and interest rates. This analysis is constrained by several factors, including the following: - it is based on a single point in time; and - it does not include the effects of other complex market reactions that would arise from the changes modeled. Although the results of the analysis may be useful as a benchmark, they should not be viewed as forecasts. We estimated the sensitivity of the fair value of all derivative foreign exchange contracts to a hypothetical 10% strengthening and 10% weakening of the spot exchange rates for the U.S. dollar against the foreign currencies at December 31, 2000. The analysis showed that a 10% strengthening of the U.S. dollar would result in a gain in fair value of $14.4 million and a 10% weakening of the U.S. dollar would result in a loss in fair value of $13.5 million in these instruments. Losses and gains on the underlying transactions being hedged would largely offset any gains and losses on the fair value of derivative contracts. These offsetting gains and losses are not reflected in the above analysis. Similarly, we performed a sensitivity analysis on our variable rate debt instruments and derivatives. A one percentage point increase or decrease in interest rates was estimated to decrease or increase next year's pre-tax earnings by $6.4 million based on the amount of debt outstanding at year-end. For further discussion of this topic, see Note 7 "Debt Financing" and Note 8 "Derivatives" of the Notes to Consolidated Financial Statements. Inflation: We continually monitor inflation and the effects of changing prices. Inflation increases the cost of goods and services used. Competitive and regulatory conditions in many markets restrict our ability to fully recover the higher costs of acquired goods and services through price increases. We attempt 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 our opinion, been managed appropriately and as a result have not had a material impact on our operations and the resulting financial position. Environmental Matters: We are subject to federal, state, local and foreign environmental laws and regulations. Although we continue to make expenditures for environmental protection, we do not anticipate any significant expenditures to comply with such laws and regulations that would have a material impact on our -11- 12 results of operations, financial position or liquidity. We believe our operations comply in all material respects with applicable federal, state, and local environmental laws and regulations. To address contingent environmental costs, we establish reserves when such costs are probable and can be reasonably estimated. Based on current information and regulatory compliance (taking third party indemnities into consideration), we believe we have established adequate reserves for environmental expenditures. We may incur additional costs that exceed the reserves. However, based on current knowledge, we do not expect such amounts to have a material impact on our results of operations, financial position or liquidity, although we do not give any assurance in this regard. See further discussion in Note 13 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements. Litigation: We are currently, and are from time to time, subject to claims and lawsuits arising in the ordinary course of our business. Some examples of the types of claims are: - intellectual property; - contractual obligations; - competition; and - employment matters. In certain such actions, the plaintiffs may request punitive or other damages or nonmonetary relief, which may not be covered by insurance. If granted, nonmonetary relief could materially affect the conduct of our business. We accrue for probable liabilities involved in these matters as they become known and can be reasonably estimated. In our opinion (taking third party indemnities into consideration), the various asserted claims and litigation in which we are currently involved are not reasonably likely to have a material adverse effect on our business, results of operations, financial position or liquidity. However, we do not give any assurance as to the ultimate outcome of such claims and litigation. The resolution of such claims and litigation could be material to our operating results for any particular period, depending on the level of income for such period. See further discussion of these matters in Note 13 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements. Euro - the New European Currency: The countries of the European Union have adopted a single currency, the "euro". The euro came into existence on January 1, 2000, and can be used for transactions within and between the countries of the Economic and Monetary Union (Austria, Belgium, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Portugal and Spain), with national currencies expressed as a denomination (national currency units) of the euro. During the three-year transition period following its introduction, countries will be allowed to transact business both in the euro and in their own currencies at fixed exchange rates. On January 1, 2002, the euro will be the only currency in Economic and Monetary Union countries. We conduct business in approximately 130 countries, generating nearly 45% of revenues outside the United States. A significant portion of our business is conducted in Europe. The introduction of the euro requires that we make modifications to our internal operations as well as to our external business arrangements. For example, product pricing and sales proposals are now available in the euro. Similarly, our billing and disbursement functions have been modified to reflect the use of the euro. We established a six-member task force that identified the issues related to the introduction of the euro and developed and implemented a plan to address those issues. Major initiatives resulting from the recommendations of the task force are to: - create a "Beckman Coulter Euro Information Center" to facilitate worldwide communication related to the euro; - accommodate our customers' preferences for their national currency or the euro during the transition period; - operate in a multi-currency environment (including the euro, national currency and the U.S. dollar), during the transition period, in all the European countries in which we do business; and - adopt the euro for internal systems and reporting as of December 1, 2001. -12- 13 We do not expect the cost of this effort to have a material effect on our business, results of operations, financial position or liquidity. However, we cannot guarantee that all problems will be foreseen and corrected, or that no material disruption of our business will occur. There is also likely to be competitive implications on our pricing and marketing strategies related to the conversion to the euro; however, we do not know the effects of any such impact at this time. Recent Accounting Developments: In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities"("SFAS 133"). The provisions of the statement require the recognition of all derivatives as either assets or liabilities in the consolidated balance sheet and the measurement of those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Pursuant to SFAS 133, we intend on designating our derivatives as either 1) hedges for exposures to changes in fair values of recognized assets or liabilities, or 2) as hedges for cash flow exposures of forecasted transactions. This statement, as amended, is effective in the first quarter of 2001. The adoption of SFAS 133 on January 1, 2001 resulted in a charge representing the cumulative effect of an accounting change of $3.1 million (net of tax). This charge will be included in our consolidated statements of operations during the quarter ended March 31, 2001. In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 140"). The statement replaces Statement of Financial Accounting Standards No. 125 and is effective for us in the second quarter of 2001. SFAS 140 revises the accounting for securitizations and other transfers of financial assets. The adoption of SFAS 140 is not expected to have a material effect on our financial position or results of operations. 5. Business Climate The clinical diagnostics and life science research markets are highly competitive with many manufacturers around the world. These markets continue to be unfavorably impacted by the economic weakness in parts of Europe and Asia and government and healthcare cost containment initiatives in general. The life science research market also continues to be affected by governmental constraints on research and development spending outside the United States. In the clinical diagnostics market, attempts to lower costs and to increase productivity have led to further consolidation among healthcare providers in the United States, resulting in more powerful provider groups that continue to leverage their purchasing power to contain costs. Preferred supplier arrangements and combined purchases are becoming more commonplace. Consequently, it has become essential for manufacturers to provide cost-effective diagnostic systems to remain competitive. Cost containment initiatives in the United States and in the European healthcare systems will continue to be factors which may affect our ability to maintain or increase sales. Future profitability may also be adversely affected if the relative value of the U.S. dollar strengthens against certain currencies. 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 at a lower cost. Our acquisition of Coulter was a clear indicator of our resolve to become a broad-based world leader in in vitro diagnostic testing by expanding our product offerings. Beckman Coulter is now the world's leading manufacturer of hematology systems for the clinical analysis of blood cells, where we have a market share twice the size of our next largest competitor. In addition, Beckman 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. With our leadership position in cellular analysis and our extensive capabilities in routine chemistry and immunodiagnostics, we are able to offer a broad range of automated systems that together can perform more than 75% of a hospital laboratory's test volume and essentially 100% of the blood tests that are considered routine. We believe we are able to provide significant value-added benefits, enhanced through our expertise in simplifying and automating laboratory processes, to our customers. Our new products originate from four sources: - internal research and development programs; -13- 14 - external collaborative efforts with individuals in academic institutions and technology companies; - devices and techniques that are generated in customers' laboratories; and - business and technology acquisitions. During 2000, we made a commitment to the commercialization of a new Tetramer technology, which operates on flow cytometry platforms. This new cellular immune response technology has the potential to establish an entirely new testing category for measuring and monitoring the immune response system. We have established an Immunomics operation to focus on this technology with shipments of our first ready-to-use iTAg MHC Tetramer reagents for HIV and melanoma occuring in the fourth quarter of 2000. We also provided custom Tetramer reagents to several bio-pharma companies for use in clinical trials. The size and growth of our 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; - healthcare spending; and - physician practice. We expect worldwide healthcare expenditures and diagnostic testing to increase over the long-term, primarily as a result of the following: - growing demand for services generated by the increasing size and aging of the world population; - increasing expenditures on diseases requiring costly treatment and monitoring (for example, AIDS and cancer); and - expanding demand for improved healthcare services in developing countries. In addition to the business climate factors discussed previously, the following economic factors may influence our business: - Currency fluctuations - as approximately 45% of our revenues are generated outside the United States and given the recent fluctuations in foreign currencies, we may experience volatility in sales and operating income; and - Interest rates - as approximately 70% of our debt is under variable interest rate terms. This percentage includes the effect of our reverse interest rate swap derivatives which change the character of the interest rate on our long-term debt by effectively converting a fixed rate to a variable rate. See Note 8 "Derivatives" of the Notes to Consolidated Financial Statements. -14- 15 6. Taxes We are subject to income taxation in many jurisdictions throughout the world. Our effective tax rate and income tax liabilities will be affected by a number of factors, such as: - the amount of taxable income in particular jurisdictions; - the tax rate in particular jurisdictions; - tax treaties between jurisdictions; - the extent to which income is repatriated; and - future changes in the law. Generally, our income tax liability in a particular jurisdiction is determined either on an entity-by-entity (non-consolidated) basis or on a consolidated basis including only those entities incorporated in the same jurisdiction. In those jurisdictions where consolidated tax reporting is not permitted, we may pay income taxes even though, on an overall basis, we may have incurred a net loss for the tax year. 7. Forward-Looking Statements This annual report contains forward-looking statements, including statements regarding, among other items: - our business strategy; - anticipated trends in our business and plans to reduce indebtedness; - our liquidity requirements and capital resources; - anticipated proceeds from sales of assets; - the effects of euro conversion and inflation on our operations; and - earnings and sales growth. These forward-looking statements are based on our expectations and are subject to a number of risks and uncertainties, some of which are beyond our control. These risks and uncertainties include, but are not limited to: - complexity and uncertainty regarding development of new high-technology products; - loss of market share through aggressive competition in the clinical diagnostics and life science research markets; - our dependence on capital spending policies and government funding; - the effects of potential healthcare reforms; - fluctuations in foreign exchange rates and interest rates; - reliance on patents and other intellectual property; - unanticipated reductions in cash flows and difficulty in sales of assets; - future effective tax rate; - unanticipated euro problems; and - other factors that cannot be identified at this time. Although we believe we have the product offerings and resources required to achieve our objectives, actual results could differ materially from those anticipated by these forward-looking statements. There can be no assurance that events anticipated by these forward-looking statements will in fact transpire as expected. -15- 16 CONSOLIDATED BALANCE SHEETS In millions, except amounts per share
December 31, ---------------------------------------------------------- ---------------------------------- 2000 1999 -------- -------- Assets Current assets Cash and equivalents $ 29.6 $ 34.4 Trade and other receivables 536.7 566.4 Inventories 332.1 313.1 Deferred income taxes -- 21.5 Other current assets 29.4 31.0 -------- -------- Total current assets 927.8 966.4 Property, plant and equipment, net 298.2 305.9 Goodwill, less accumulated amortization of $37.2 in 2000 and $26.3 in 1999 331.7 344.7 Other intangibles, less accumulated amortization of $66.1 in 2000 and $46.8 in 1999 382.7 399.9 Other assets 77.8 93.9 -------- -------- Total assets $2,018.2 $2,110.8 ======== ======== ---------------------------------------------------------- ----------------- ---------------- Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 95.2 $ 131.4 Notes payable 42.9 39.0 Current maturities of long-term debt 9.2 11.0 Accrued expenses 281.3 342.7 Income taxes 58.3 51.8 Deferred income taxes 14.2 - -------- -------- Total current liabilities 501.1 575.9 Long-term debt, less current maturities 862.8 980.7 Deferred income taxes 28.8 38.7 Other liabilities 281.6 287.6 -------- -------- Total liabilities 1,674.3 1,882.9 Commitments and contingencies (see Note 13) Stockholders' equity Preferred stock, $0.10 par value; authorized 10.0 shares; none issued -- -- Common stock, $0.10 par value; authorized 300.0 shares; shares issued 59.7 and 58.2 at 2000 and 1999, respectively; shares outstanding 59.7 and 57.9 at 2000 and 1999, respectively 6.0 5.8 Additional paid-in capital 170.0 134.5 Retained earnings 226.3 120.1 Accumulated other comprehensive loss: Cumulative foreign currency translation adjustments (58.4) (24.3) Treasury stock, at cost -- (8.2) -------- -------- Total stockholders' equity 343.9 227.9 -------- -------- Total liabilities and stockholders' equity $2,018.2 $2,110.8 ======== ======== ---------------------------------------------------------- ----------------- ----------------
See accompanying notes to consolidated financial statements. -16- 17 CONSOLIDATED STATEMENTS OF OPERATIONS In millions, except amounts per share
Years ended December 31, ------------------------------------------------------- -------------------------------------------- 2000 1999 1998 -------- -------- -------- Sales $1,886.9 $1,808.7 $1,718.2 Cost of sales 995.6 942.1 920.6 -------- -------- -------- Gross profit 891.3 866.6 797.6 -------- -------- -------- Operating costs and expenses Selling, general and administrative 476.1 476.9 492.3 Research and development 185.0 173.4 171.4 Restructure (credit) charge (2.4) (0.2) 19.1 -------- -------- -------- 658.7 650.1 682.8 -------- -------- -------- Operating income 232.6 216.5 114.8 -------- -------- -------- Nonoperating (income) expense Interest income (6.3) (7.8) (13.4) Interest expense 71.9 73.8 87.8 Other, net (14.9) (4.2) (6.2) -------- -------- -------- 50.7 61.8 68.2 -------- -------- -------- Earnings before income taxes 181.9 154.7 46.6 Income taxes 56.4 48.7 13.1 -------- -------- -------- Net earnings $ 125.5 $ 106.0 $ 33.5 ======== ======== ======== ------------------------------------------------------- -------------------------------------------- Basic earnings per share $ 2.13 $ 1.85 $ 0.60 ======== ======== ======== Weighted average number of shares outstanding 58.8 57.3 56.1 ======== ======== ======== ------------------------------------------------------- -------------------------------------------- Diluted earnings per share $ 2.03 $ 1.79 $ 0.57 ======== ======== ======== Weighted average number of shares and dilutive securities outstanding 61.8 59.3 58.7 ======== ======== ======== ------------------------------------------------------- --------------------------------------------
See accompanying notes to consolidated financial statements. -17- 18 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY In millions, except amounts per share
Total Accumulated Total Compre- Additional Other Stock- hensive Common Paid-in Retained Comprehensive Treasury holders' (Loss) Stock Capital Earnings Loss Stock Equity Income ---------------------------------------------------------------------------------------------------------------- Stockholders' equity at December 31, 1997 $ 5.8 $126.6 $ 16.1 $ (13.8) $(52.9) $ 81.8 ---------------------------------------------------------------------------------------------------------------- Net earnings 33.5 33.5 $ 33.5 Foreign currency translation adjustments (0.1) (0.1) (0.1) ---------------------------------------------------------------------------------------------------------------- Comprehensive income for the year ended December 31, 1998 33.5 (0.1) $ 33.4 Dividends to stockholders, $0.305 per share (17.1) (17.1) Employee stock purchases 5.3 23.5 28.8 ---------------------------------------------------------------------------------------------------------------- Stockholders' equity at December 31, 1998 $ 5.8 $131.9 $ 32.5 $ (13.9) $(29.4) $126.9 ---------------------------------------------------------------------------------------------------------------- Net earnings 106.0 106.0 $106.0 Foreign currency translation adjustments (10.4) (10.4) (10.4) ---------------------------------------------------------------------------------------------------------------- Comprehensive income for the year ended December 31, 1999 106.0 (10.4) $ 95.6 Dividends to stockholders, $0.320 per share (18.4) (18.4) Employee stock purchases 2.6 21.2 23.8 ---------------------------------------------------------------------------------------------------------------- Stockholders' equity at December 31, 1999 $ 5.8 $134.5 $ 120.1 $ (24.3) $ (8.2) $227.9 ---------------------------------------------------------------------------------------------------------------- Net earnings 125.5 125.5 $125.5 Foreign currency translation adjustments (34.1) (34.1) (34.1) ---------------------------------------------------------------------------------------------------------------- Comprehensive income for the year ended December 31, 2000 125.5 (34.1) $ 91.4 Dividends to stockholders, $0.325 per share (19.3) (19.3) Employee stock purchases 0.2 27.5 8.2 35.9 Tax benefit from exercise of non- qualified stock options 8.0 8.0 ---------------------------------------------------------------------------------------------------------------- Stockholders' equity at December 31, 2000 $ 6.0 $170.0 $ 226.3 $ (58.4) $ $343.9 ----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -18- 19 CONSOLIDATED STATEMENTS OF CASH FLOWS In millions
Years ended December 31, --------------------------------------------------------- ------------------------------------------- 2000 1999 1998 ------- ------- ------- Cash Flows from Operating Activities Net earnings $ 125.5 $ 106.0 $ 33.5 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation and amortization 136.1 143.7 152.4 Gain on sale of property, plant and equipment (3.2) (3.9) (3.0) Net deferred income taxes 18.6 34.8 (5.0) Proceeds from sale of sales-type lease receivables 74.1 74.0 68.9 Changes in assets and liabilities: Trade and other receivables (53.7) (83.2) (58.3) Inventories (5.1) (11.2) 23.9 Accounts payable and accrued expenses (78.3) (30.0) (204.8) Other (4.9) (17.6) (9.4) ------- ------- ------- Net cash provided (used) by operating activities 209.1 212.6 (1.8) ------- ------- ------- Cash Flows from Investing Activities Additions to property, plant and equipment (141.3) (134.9) (165.2) Proceeds from disposal of property, plant and equipment 19.4 16.3 45.4 Proceeds from sale of certain clinical chemistry assets 15.4 - - Proceeds from sale-leaseback of real estate - - 242.8 Sales of short-term investments - - 0.4 Purchase of investments (6.9) - - ------- -------- -------- Net cash (used) provided by investing activities (113.4) (118.6) 123.4 ------- ------- ------- Cash Flows from Financing Activities Dividends to stockholders (19.3) (18.4) (17.1) Proceeds from issuance of stock 35.9 24.6 28.6 Net notes payable (reductions) borrowings 4.7 (72.1) 56.6 Long-term debt borrowings - 41.6 411.2 Long-term debt reductions (118.4) (59.9) (609.3) ------- ------- ------- Net cash used by financing activities (97.1) (84.2) (130.0) Effect of exchange rates on cash and equivalents (3.4) (0.1) - ------- ------- -------- Increase (decrease) in cash and equivalents (4.8) 9.7 (8.4) Cash and equivalents-beginning of year 34.4 24.7 33.1 ------- ------- ------- Cash and equivalents-end of year $ 29.6 $ 34.4 $ 24.7 ======= ======= ======= --------------------------------------------------------- ------------------------------------------- Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Cash payments for interest $ 69.8 $ 76.5 $ 88.4 Cash payments for income taxes $ 31.8 $ 23.0 $ 20.4 Non-cash investing and financing activities: Purchase of equipment under capital lease $ 3.4 $ 3.0 $ 9.7 Receivable from sale of certain clinical chemistry assets $ 1.2 $ - $ - Issuance of restricted stock as employee compensation $ - $ (0.8) $ 0.3 --------------------------------------------------------- -------------------------------------------
See accompanying notes to consolidated financial statements. -19- 20 BECKMAN COULTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Tabular dollar amounts in millions, except amounts per share 1. Nature of Business and Summary of Significant Accounting Policies Nature of Business Beckman Coulter simplifies and automates laboratory processes used in all phases of the battle against disease. The Company designs, manufactures, and markets systems which consist of instruments, chemistries, software, and supplies that meet a variety of laboratory needs. Its products are used in a range of applications, from instruments used for pioneering medical research, drug discovery and clinical trials to diagnostic tools found in hospitals and physicians' offices. Beckman Coulter competes in market segments that total approximately $31 billion in annual sales worldwide and currently has products which address approximately half of that market. Beckman Coulter's product lines include virtually all blood tests routinely performed in hospital laboratories and a range of systems for medical and pharmaceutical research. The Company has more than 125,000 systems operating in laboratories around the world, with approximately two-thirds of annual revenues coming from after-market customer purchases of operating supplies, chemistry kits, and service. Beckman Coulter markets its products in approximately 130 countries, generating approximately 45% of revenues outside the United States. Principles of Consolidation The consolidated financial statements include the accounts of Beckman Coulter, Inc., and its wholly owned subsidiaries (the "Company"). All significant intercompany transactions have been eliminated from the consolidated financial statements. Balance sheet amounts for subsidiaries operating outside the United States and Canada are as of November 30. The operating results for the Company's international subsidiaries (except Canada) are for the twelve-month periods ending on November 30, with one exception: Coulter Corporation ("Coulter") was acquired October 31, 1997 and the results of Coulter and its international subsidiaries are included subsequent to that date. However, in order to be consistent with the way the Company reports its international results, the reporting of Coulter's international subsidiaries' results of operations were lagged by one month in 1998. Therefore, the results of 1998 include only January through November sales and expenses for Coulter's subsidiaries outside the United States and Canada. The exclusion of one month's results for Coulter's international subsidiaries in 1998 was not significant. Use of Estimates The preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions, including accounts receivable and inventory valuations, warranty, value of long-lived assets, pension obligations, environmental and litigation obligations, income taxes, etc. These estimates and assumptions affect the amounts reported in the financial statements and accompanying notes. 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, 2000 and 1999, with the exception of certain derivative financial instruments discussed in Note 8. Management estimates are used to determine the market value of cash and equivalents, trade and other receivables, notes payable, accounts payable, and amounts included in other current assets, other assets and accrued expenses meeting the definition of a financial instrument. Quotes from financial institutions are used to determine market values of the Company's debt and derivative financial instruments. -FN1- 21 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 from translation remeasurements 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. 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. 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 term 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 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. Other intangibles are amortized on a straight-line basis over periods ranging from 15 to 30 years. Accounting for Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. Revenue Recognition Revenue is recognized when it is realizable and earned. For products, revenue is recognized when a product is shipped, except 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. For those equipment sales which include other obligations, such as providing after market supplies and/or service, we allocate revenue based on the relative fair values of the individual components. Credit is extended based upon the evaluation of the customer's financial condition and generally does not require collateral. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101, as amended, provides the SEC's views in applying Generally Accepted Accounting Principles to selected revenue recognition issues. The adoption of SAB 101 did not cause a material change to the Company's existing revenue recognition policies. -FN2- 22 Nonoperating Income and Expenses The Company's nonoperating income and expenses are generally comprised of four items: (i) interest income, (ii) interest expense, (iii) foreign exchange gains or losses, and (iv) income (loss) from investments that are non-core or are accounted for as a minority interest. 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 and are recorded net of any premiums paid. Other nonoperating gains and losses are most frequently the result of one-time items such as asset sales. Recent Accounting Developments In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities"("SFAS 133"). The provisions of the statement require the recognition of all derivatives as either assets or liabilities in the consolidated balance sheet and the measurement of those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Pursuant to SFAS 133, the Company intends on designating its derivatives as either 1) hedges for exposures to changes in fair values of recognized assets or liabilities, or 2) as hedges for cash flow exposures of forecasted transactions. This statement, as amended, is effective in the first quarter of 2001. The adoption of SFAS 133 on January 1, 2001 resulted in a charge representing the cumulative effect of an accounting change of $3.1 million (net of tax). This charge will be included in our consolidated statements of operations during the quarter ended March 31, 2001. In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 140"). The statement replaces Statement of Financial Accounting Standards No. 125 and is effective for the Company in the second quarter of 2001. SFAS 140 revises the accounting for securitizations and other transfers of financial assets. The adoption of SFAS 140 is not expected to have a material effect on the Company's financial position or results of operations. -FN3- 23 2. Composition of Certain Financial Statement Captions
2000 1999 -------- -------- Trade and other receivables Trade receivables $ 501.2 $ 540.9 Other receivables 40.5 35.7 Current portion of lease receivables 20.1 21.3 Less allowance for doubtful accounts (25.1) (31.5) ------- ------- $ 536.7 $ 566.4 ======= ======= Inventories Raw materials, parts and assemblies $ 95.7 $ 87.2 Work in process 22.4 15.0 Finished products 214.0 210.9 ------- ------- $ 332.1 $ 313.1 ======= ======= Property, plant and equipment, net Land $ 9.4 $ 18.5 Buildings 116.4 128.1 Machinery and equipment 375.0 372.3 Instruments subject to lease(a) 273.1 297.7 ------- ------- 773.9 816.6 Less accumulated depreciation Building, machinery and equipment (306.3) (326.7) Instruments subject to lease(a) (169.4) (184.0) ------- ------- $ 298.2 $ 305.9 ======= ======= Accrued expenses Purchase and assumed liabilities (see Note 3) $ 32.6 $ 52.5 Unrealized service income 69.1 65.0 Accrued compensation 86.0 79.2 Accrued restructure costs (see Note 4) 3.0 22.5 Other 90.6 123.5 ------- ------- $ 281.3 $ 342.7 ======= =======
(a) Includes instruments leased to customers generally under three- to five-year cancelable operating leases. 3. Acquisitions On October 31, 1997, the Company acquired all of the outstanding capital stock of Coulter for $850.2 million, net of Coulter's cash on hand of $24.8 million at the date of acquisition. The acquisition was accounted for using the purchase method of accounting. This acquisition resulted in $336.6 million of goodwill (including post-acquisition adjustments), which reflected the excess of the purchase price and purchase and assumed liabilities over the fair value of net identifiable assets and in-process research and development projects acquired. Other acquired intangibles amounted to $404.0 million including $170.0 million attributable to the installed customer base and $116.0 million of developed technology. At the time of the acquisition of Coulter, the Company assumed certain liabilities and estimated certain other liabilities associated with consolidating and restructuring certain functions of Coulter and the Company (collectively referred to as "purchase and assumed liabilities"). These purchase and assumed liabilities amounted to $286.0 million. -FN4- 24 Details of total purchase and assumed liabilities recorded and activity in these accounts through December 31, 2000 are as follows:
Purchase & Assumed Liability ------------------------------------------------ ------------- Balance at December 31, 1997 $ 285.9 ================================================ ============= 1998 ACTIVITY: Personnel $ (125.0) Other (50.9) ------------------------------------------------ ------------- Total 1998 activity $ (175.9) ================================================ ============= BALANCE AT DECEMBER 31, 1998 Personnel $ 70.4 Tax issues 16.6 Other 23.0 ------------------------------------------------ ------------- Balance at December 31, 1998 $ 110.0 ================================================ ============= 1999 ACTIVITY: Personnel $ (55.2) Tax issues (0.4) Other (1.9) ------------------------------------------------ ------------- Total 1999 activity $ (57.5) ================================================ ============= BALANCE AT DECEMBER 31, 1999: Personnel $ 15.2 Tax issues 16.2 Other 21.1 ------------------------------------------------ ------------- Balance at December 31, 1999 $ 52.5 ================================================ ============= 2000 ACTIVITY: Personnel $ (4.5) Tax issues (1.4) Other (5.5) Reversal of excess purchase liabilities (8.5) ------------------------------------------------ ------------- Total 2000 activity $ (19.9) ================================================ ============= BALANCE AT DECEMBER 31, 2000: Personnel $ 5.8 Tax issues 14.1 Other 12.7 ------------------------------------------------ ------------- Balance at December 31, 2000 $ 32.6 ================================================ =============
The reversal of excess purchase liabilities in 2000 of $8.5 million, partially offset by a related reversal of $2.8 million of deferred income tax assets, was recorded as a reduction to goodwill. Additionally, the reversal of certain deferred tax assets related to the acquisition of Coulter resulted in a $3.6 million increase in goodwill during 2000. Management estimates that the purchase and assumed liabilities for "personnel" and "other" in the amounts of $5.8 million and $12.7 million, respectively, will be utilized during 2001 and 2002. Management estimates that "tax issues" totaling $14.1 million will be utilized as various tax audits of Coulter are completed. -FN5- 25 4. Provision for Restructuring Operations In the fourth quarters of 1999, 1998 and 1997, the Company recorded restructuring charges of $4.3 million, $19.1 million and $59.4 million, respectively, related to certain reorganization activities. In the fourth quarters of 2000 and 1999, the Company reversed $2.4 million and $4.5 million, respectively, of excess restructure charges taken in prior years. These reversals resulted in net restructuring credits of $(2.4) million and $(0.2) million in 2000 and 1999, respectively, which are included in "Restructure (credit) charge" on the Consolidated Statements of Operations. The following provides additional details for the 1999, 1998 and 1997 restructure charges. 1999 Restructure: The Company recorded a restructure charge of $4.3 million, $2.6 million after taxes, in the fourth quarter of 1999 for consolidation of selling, general, administrative and technical functions. This charge included $2.7 million for personnel related costs and $1.0 million for dealer termination costs. The work force reductions under this plan totaled 55 positions in Europe and North America in selling, general, administrative ("SG&A") and technical functions and production related areas. At December 31, 2000, the remaining obligation related to the 1999 restructure charges was $0.2 million, which is included in "Accrued expenses."
Facility Consolidation Personnel and Asset and Related Other Write-offs Total -------------------------------------------------- ---------------- ----------------- ---------------- PROVISION $ 3.7 $ 0.6 $ 4.3 1999 utilization (0.7) -- (0.7) -------------------------------------------------- ---------------- ----------------- ---------------- BALANCE AT DECEMBER 31, 1999 $ 3.0 $ 0.6 $ 3.6 -------------------------------------------------- ---------------- ----------------- ---------------- 2000 utilization (2.7) (0.6) (3.3) Reversal of excess reserves (0.1) -- (0.1) -------------------------------------------------- ---------------- ----------------- ---------------- Total 2000 activity $(2.8) $(0.6) $(3.4) -------------------------------------------------- ---------------- ----------------- ---------------- BALANCE AT DECEMBER 31, 2000 $ 0.2 $ -- $ 0.2 ================================================== ================ ================= ================
-FN6- 26 1998 Restructure: The Company recorded a restructure charge of $19.1 million, $11.2 million after taxes, in the fourth quarter of 1998. This charge included $4.1 million for personnel related and $9.2 million for dealer termination costs. The work force reductions under this plan totaled 75 positions in Europe, Asia and North America in SG&A and technical functions and production related areas. The $5.8 million provided for facility consolidation and asset related write-offs included $2.4 million for lease termination payments, and $3.4 million for the write-off of machinery, equipment and tooling associated with those functions to be consolidated. At December 31, 2000, the remaining obligation related to the 1998 restructure charges was $1.8 million, which is included in "Accrued expenses."
Facility Consolidation Personnel and Asset and Related Other Write-offs Total -------------------------------------------------- ---------------- ----------------- ---------------- PROVISION Consolidation of SG&A and technical functions $ 10.1 $ -- $ 10.1 Changes in manufacturing operations 3.2 5.8 9.0 ------------------------------------------------------------------------------------------------------ Balance at December 31, 1998 $ 13.3 $ 5.8 $ 19.1 ====================================================================================================== 1999 ACTIVITY Consolidation of SG&A and technical functions $ (1.4) $ -- $ (1.4) Changes in manufacturing operations (1.1) (0.5) (1.6) Reversal of excess reserves (1.4) (0.8) (2.2) ------------------------------------------------------------------------------------------------------ Total 1999 activity $ (3.9) $ (1.3) $ (5.2) ====================================================================================================== BALANCE AT DECEMBER 31, 1999 Consolidation of SG&A and technical functions $ 8.3 $ -- $ 8.3 Changes in manufacturing operations 1.1 4.5 5.6 ------------------------------------------------------------------------------------------------------ Balance at December 31, 1999 $ 9.4 $ 4.5 $ 13.9 ====================================================================================================== 2000 ACTIVITY Consolidation of SG&A and technical functions $ (4.7) $ -- $ (4.7) Changes in manufacturing operations (0.8) (4.3) (5.1) Reversal of excess reserves (2.3) -- (2.3) ------------------------------------------------------------------------------------------------------ Total 2000 activity $ (7.8) $ (4.3) $(12.1) ====================================================================================================== BALANCE AT DECEMBER 31, 2000 Consolidation of SG&A and technical functions $ 1.5 $ -- $ 1.5 Changes in manufacturing operations 0.1 0.2 0.3 ------------------------------------------------------------------------------------------------------ Balance at December 31, 2000 $ 1.6 $ 0.2 $ 1.8 ======================================================================================================
-FN7- 27 1997 Restructure: In the fourth quarter of 1997, the Company recorded a restructure charge of $59.4 million, $36.4 million after taxes. This charge included $37.3 million for personnel related costs. The work force reductions under this plan, some of which occurred prior to the 1997 year-end totaled approximately 500 positions in Europe, Asia and North America in selling, general, administrative and technical functions and approximately 100 positions in production related areas. The $22.1 million provided 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. At December 31, 2000, the Company's remaining obligation related to the prior restructuring charges was $1.0 million, which is included in "Accrued expenses."
Facility Consolidation Personnel and Asset and Related Other Write-offs Total ---------------------------------------------------- ---------------- ----------------- ---------------- BALANCE AT DECEMBER 31, 1997 Consolidation of SG&A 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 ==================================================== ================ ================= ================ 1998 ACTIVITY Consolidation of SG&A and technical functions $(13.7) $ (9.3) $(23.0) Changes in manufacturing operations (1.1) -- (1.1) ---------------------------------------------------- ---------------- ----------------- ---------------- Total 1998 activity $(14.8) $ (9.3) $(24.1) ==================================================== ================ ================= ================ BALANCE AT DECEMBER 31, 1998 Consolidation of SG&A and technical functions $ 12.8 $ 3.9 $ 16.7 Changes in manufacturing operations 1.9 3.9 5.8 ---------------------------------------------------- ---------------- ----------------- ---------------- Balance at December 31, 1998 $ 14.7 $ 7.8 $ 22.5 ==================================================== ================ ================= ================ 1999 ACTIVITY Consolidation of SG&A and technical functions $(11.1) $ (2.2) $(13.3) Changes in manufacturing operations (0.3) (1.6) (1.9) Reversal of excess reserves -- (2.3) (2.3) ---------------------------------------------------- ---------------- ----------------- ---------------- Total 1999 activity $(11.4) $ (6.1) $(17.5) ==================================================== ================ ================= ================ BALANCE AT DECEMBER 31, 1999 Consolidation of SG&A and technical functions $ 1.7 $ 1.7 $ 3.4 Changes in manufacturing operations 1.6 -- 1.6 ---------------------------------------------------- ---------------- ----------------- ---------------- Balance at December 31, 1999 $ 3.3 $ 1.7 $ 5.0 ==================================================== ================ ================= ================ 2000 ACTIVITY Consolidation of SG&A and technical functions $ (1.6) $ (0.8) $ (2.4) Changes in manufacturing operations (1.6) -- (1.6) ---------------------------------------------------- ---------------- ----------------- ---------------- Total 2000 activity $ (3.2) $ (0.8) $ (4.0) ==================================================== ================ ================= ================ BALANCE AT DECEMBER 31, 2000 Consolidation of SG&A and technical functions $ 0.1 $ 0.9 $ 1.0 Changes in manufacturing operations -- -- -- ---------------------------------------------------- ---------------- ----------------- ---------------- Balance at December 31, 2000 $ 0.1 $ 0.9 $ 1.0 ==================================================== ================ ================= ================
-FN8- 28 5. Sale of Assets During 2000, the Company sold certain sales-type lease receivables as part of its plan to reduce debt. The net book value of financial assets sold was $73.4 million for which the Company received approximately $74.1 million in cash proceeds. In 1999 and 1998, the Company sold similar assets with a net book value of $72.4 million and $67.7 million, respectively, for cash proceeds of $74.0 million and $68.9 million, respectively. These transactions were accounted for as sales and as a result the related receivables have been excluded from the accompanying Consolidated Balance Sheets. The sales are subject to certain recourse and servicing provisions, and as such the Company has established reserves for these probable liabilities. In 2000, 1999 and 1998, as a result of Coulter integration activities, the Company reduced excess facilities outside the United States, which added $3.2 million, $3.9 million and $3.0 million, respectively, to non-operating income. 6. Sale-leaseback of Real Estate On June 25, 1998, the Company sold its interest in four of its properties located in Brea, California; Palo Alto, California; Chaska, Minnesota; and Miami, Florida. At the same time, the Company entered into long-term leases for each of these properties. The initial term of each of the leases is twenty years, with options to renew for up to an additional thirty years. As provided by the leases, the Company pays the rents in Japanese yen. Annual rentals are approximately $19.2 million at 2000 year-end rates. At the closing of the sale-leaseback transaction, the Company became guarantor of a currency swap agreement between its landlord and its banks to convert the yen payments to U.S. dollars. As long as this swap agreement is in place, the Company's obligation is to pay the rents in yen. If this agreement ceases to exist, the Company's obligation reverts to U.S. dollar payments. The Company expects to pay the rents as they come due out of cash generated by its Japanese operation. Obligations under the operating lease agreements are included in Note 13 "Commitments and Contingencies". The aggregate proceeds from the sale of the four properties totaled $242.8 million (received in cash at closing) before closing costs and transaction expenses. In accordance with the accounting rules for transactions in which a property is sold and immediately leased back from the buyer (sale-leaseback), the Company has postponed recognizing the gain from this transaction in its earnings and included it in "Other liabilities". The gain is being amortized over the initial lease term of twenty years. The remaining unrecognized gain was $123.1 and $130.1 million at December 31, 2000 and 1999, respectively. 7. Debt Financing Notes payable consists primarily of short-term bank borrowings by the Company's subsidiaries outside the United States under local lines of credit. At December 31, 2000 approximately $73.9 million of unused uncommitted short-term lines of credit were available to the Company's subsidiaries outside the United States at various interest rates. Within the United States, $1.0 million in unused uncommitted short-term lines of credit at market rates were available. Long-term debt consisted of the following at December 31:
Average Rate of Interest 2000 1999 --------------- ------- ------- Revolving credit facility 7.02% $ 295.0 $ 397.0 Senior Notes, unsecured, due 2003 7.10% 160.0 160.0 Senior Notes, unsecured, due 2008 7.45% 240.0 240.0 Debentures 7.05% 100.0 100.0 Other long-term debt 3.47% 77.0 94.7 ------- ------- 872.0 991.7 Less current maturities 9.2 11.0 ------- ------- Long-term debt, less current maturities $ 862.8 $ 980.7 ======= =======
The aggregate maturities of long-term debt for the five years subsequent to December 31, 2000 are $9.2 million in 2001, $343.5 million in 2002, $174.2 million in 2003, $4.5 million in 2004, $0.1 million in 2005 and $340.5 million thereafter. -FN9- 29 Revolving Credit Facility In October 1997, the Company entered into a credit agreement (the "Credit Agreement") with a group of financial institutions. The Company can borrow up to $550.0 million through an unsecured revolving credit facility (the "Credit Facility"). Borrowings under the Credit Facility 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. Additionally, the Company pays a quarterly facility fee on the average Credit Facility commitment (0.125% per annum at December 31, 2000). The Credit Agreement requires mandatory prepayment of the 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, which matures in October 2002, is not subject to any scheduled principal amortization. Approximately $6.8 million of fees paid to enter the Credit Agreement are being amortized to interest expense over the term of the Credit Agreement. As of December 31, 2000, the Company's remaining borrowing availability under the Credit Facility is $255.0 million. Amounts may be drawn under the Credit Facility to meet future working capital and other business needs of the Company. Senior Notes In March 1998, the Company issued $160.0 million of 7.10% and $240.0 million of 7.45% unsecured Senior Notes due March 4, 2003 and 2008 (the "Senior Notes"), respectively. Interest is payable semi-annually in March and September. Discount and issuance costs approximated $6.7 million and are being amortized to interest expense over the term of the Senior Notes. The Senior Notes may be redeemed in whole or in part, at the Company's option at any time at a redemption price equal to the greater of: - the principal amount of the Senior Notes; or - the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at a comparable treasury issue rate plus a margin of 0.25% for Senior Notes due 2003 and 0.375% for Senior Notes due 2008. In connection with the issuance of the Senior Notes, certain of the Company's subsidiaries guaranteed such notes. See Note 16 "Guarantor Subsidiaries". Debentures In June 1996, the Company issued $100.0 million of debentures bearing an interest rate of 7.05% per annum due June 1, 2026. Interest is payable semi-annually in June and December. Discount and issuance costs of approximately $1.5 million 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. In March 1998, the debenture agreement was amended to increase the June 1, 2006 redemption price to 103.9% of the principal amount, together with accrued interest to June 1, 2006. The debentures may be redeemed, in whole or in part, at the Company's option 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 semi-annual basis at a comparable treasury issue rate plus a margin of 0.1%. -FN10- 30 Other Long-term Debt Other long-term debt at December 31, 2000 consists principally of $70.8 million of notes used to fund the operations of the Company's international subsidiaries. Some of the notes issued by the Company's international subsidiaries are secured by their assets. Notes used to fund its international subsidiaries amounted to $86.4 million at December 31, 1999. Capitalized lease obligations of $6.2 million in 2000 and $8.3 million in 1999 are also included in other long-term debt. Covenants Certain of the Company's borrowing agreements contain covenants that the Company must comply with, for example: minimum net worth, maximum capital expenditures, a debt to earnings ratio, a minimum interest coverage ratio and a maximum amount of debt incurrence. At December 31, 2000, the Company was in compliance with all such covenants. 8. Derivatives The Company uses derivative financial instruments to hedge foreign currency and interest rate exposures of underlying assets, liabilities and other obligations. The Company does not speculate in derivative instruments in order to profit from foreign currency exchange or interest rate fluctuations; nor does the Company enter into trades for which there are no underlying exposures. 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. The counterparties to the Company's derivative instruments are major financial institutions. The Company is exposed to credit risk in the event of non-performance of these counterparties, an event which the Company believes is remote. Nevertheless, the Company monitors its counterparty credit risk and utilizes internal policies to mitigate this risk. The market value of all derivative instruments amounted to an unrecognized gain of $2.3 million and an unrecognized loss of $11.3 million at December 31, 2000, and 1999, respectively. The following discusses in more detail the Company's foreign currency and interest rate exposures and related derivative instruments. Foreign Currency The Company manufactures its products principally in the United States, but generates approximately 45% of its revenues from sales made outside the United States by its international subsidiaries. Sales generated by the international subsidiaries generally are denominated in the subsidiary's local currency, thereby exposing the Company to the risk of foreign currency fluctuations. In order to mitigate the impact of changes in foreign currency exchange rates on operations, the Company uses derivative financial instruments (or "foreign currency contracts") to hedge its foreign currency exposures. -FN11- 31 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. Foreign currency contracts used include forward contracts, purchased option contracts, and complex option contracts, consisting of purchased and sold options. The hedge instruments mature at various dates approximating the transaction dates. The table below summarizes the notional amounts of contracts afforded hedge accounting treatment at December 31:
Notional Amounts* --------------------- 2000 1999 ----- ------ Forward Contracts $56.5 $166.1 Purchased Option Contracts $ - $ 54.9 Complex Option Contracts $73.8 $ 49.6
* Notional amounts represent the amounts of the items on which the foreign currency contracts are based and not the actual amounts exchanged by the parties. 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 (net of any premiums paid to acquire options) 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: - the recognition of any net premiums paid to acquire option contracts; - the recognition of any loss in the value of the forward contracts designated as hedges of the transactions; and - the recognition of any loss on sold options. Market value gains and losses and premiums on these foreign currency 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 also uses foreign currency swap contracts to hedge loans between subsidiaries. At December 31, 2000, the Company had foreign currency swap contracts totaling $53.5 million expiring at various dates through January 2001. At December 31, 1999, the Company had foreign currency swap contracts totaling $125.8 million. 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 foreign currency contracts to hedge the market risk of a subsidiary's net asset position. At December 31, 1999, the Company had $22.5 million in foreign currency contracts related to net asset positions and none at December 31, 2000. Market value gains and losses on foreign currency contracts used to hedge the market risk of a subsidiary's net asset position are recognized in "Cumulative foreign currency translation adjustments" and are only recognized in "Other, net nonoperating expense" upon liquidation of the subsidiary. At December 31, 2000 and 1999, the cumulative market value gains for net asset positions included in "Cumulative foreign currency translation adjustment" amounted to $0.9 million and $3.9 million at December 31, 2000 and 1999, respectively. Interest Rate The Company uses interest rate derivative contracts on certain borrowing transactions to hedge fluctuating interest rates. Interest rate derivative 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 derivative contracts would only be recognized at fair value if the hedged relationship were terminated. Gains or losses accumulated prior to termination of the hedged relationship are 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 -FN12- 32 relationship, subsequent changes in market value of the contract would be recognized in interest expense. In March 1998, the Company entered into reverse interest rate swap contracts totaling $300.0 million associated with the issuance of the $400.0 million Senior Notes. Pursuant to the reverse interest rate swap agreements, as amended, the Company receives an average fixed interest rate of 6.2% and pays a floating interest rate (6.7% at December 31, 2000). At December 31, 1999, the Company had $350.0 million in interest rate swap contracts associated with its Senior Notes. Pursuant to the interest rate swap agreements, the Company received an average floating rate (6.2% at December 31, 1999) and paid an average fixed rate of 6.2%. In October 2000, the Company terminated these interest rate swap contracts, resulting in a gain of $1.4 million, which is being amortized to interest expense over the original term of the swap agreements. As discussed in Note 1, the Company is required to adopt the provisions of SFAS 133 on January 1, 2001. The disclosures herein regarding the Company's foreign currency and interest rate exposures and related derivative instruments comply with pre-SFAS 133 disclosure requirements. During the quarter ended March 31, 2001, the Company's disclosures will be modified to conform with SFAS 133 requirements. 9. 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. The components of earnings before income taxes were:
2000 1999 1998 ------ ------ ----- U.S. $121.6 $ 62.9 $10.2 Non-U.S. 60.3 91.8 36.4 ------ ------ ----- $181.9 $154.7 $46.6 ====== ====== =====
The provision for income taxes consisted of the following:
2000 1999 1998 ----- ----- ----- Current U.S. federal $21.1 $ -- $ 4.0 Non-U.S. 14.5 10.1 9.1 U.S. state 2.7 1.7 0.3 Puerto Rico - 1.8 (1.4) ----- ----- ----- Total current 38.3 13.6 12.0 ----- ----- ----- Deferred U.S. federal 19.0 25.8 8.2 Non-U.S. (0.9) 9.3 (7.1) ----- ----- ----- Total deferred, net 18.1 35.1 1.1 ----- ----- ----- Total $56.4 $48.7 $13.1 ===== ===== =====
-FN13- 33 The reconciliation of the U.S. federal statutory tax rate to the consolidated effective tax rate is as follows:
2000 1999 1998 ----- ----- ------ Statutory tax rate 35.0% 35.0% 35.0% State taxes, net of U.S. tax benefit 1.1 0.7 0.4 Ireland income (3.2) (2.5) (10.3) Puerto Rico income - (1.0) (10.8) Goodwill 1.9 2.3 14.1 Non-U.S. taxes (0.9) 0.9 (0.2) Foreign income taxed in the U.S., net of credits 3.0 3.5 9.0 Other (5.9) (7.4) (9.1) ---- ---- ---- Effective tax rate 31.0% 31.5% 28.1% ==== ==== ====
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 tax rate reduced expected taxes by approximately $5.8 million in 2000, $5.5 million in 1999 and $6.9 million in 1998. Although the lower Puerto Rico income tax rate was not scheduled to expire until July 2003, the closure of the Puerto Rico manufacturing operations in October 1999 (as part of the Company's restructuring plan) shortened the period of benefit. The components of the provision for deferred income taxes are:
2000 1999 1998 ------ ------ ------ Accelerated depreciation $(14.5) $ (0.4) $ - Accrued expenses 23.9 (10.0) 16.6 Compensation (2.5) (1.4) 22.1 Deferred service contracts 0.8 4.1 (1.4) Intangibles (6.2) - (5.7) International (0.8) 9.2 (7.1) Inventories 4.8 3.0 (2.0) Leases (10.9) 4.4 (1.3) Net operating loss carryforwards 6.2 31.6 (16.6) Postemployment/retirement benefits (7.5) (11.8) (0.7) Purchase and assumed liabilities 4.2 20.1 - Restructuring costs 8.4 6.2 2.6 Tax credits (primarily research and development) 9.4 (6.8) 9.0 Other 2.8 (13.1) (14.4) ------ ------ ------ Total $ 18.1 $ 35.1 $ 1.1 ====== ====== ======
-FN14- 34 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:
2000 1999 ------- ------- Deferred tax assets Accrued expenses $ 36.4 $ 60.3 Compensation 5.2 2.7 International 22.8 27.9 Inventories 4.7 9.5 Net operating loss carryforwards - 6.2 Postemployment/retirement benefits 51.9 44.4 Purchase and assumed liabilities 12.2 45.2 Restructuring costs 1.2 9.6 Tax credits 26.8 36.2 Other 41.4 17.9 ------- ------- 202.6 259.9 Less: Valuation allowance (59.2) (59.2) ------- ------- Total deferred tax assets 143.4 200.7 ------- ------- Deferred tax liabilities Accelerated depreciation (4.3) (18.8) Deferred service contracts (6.7) (5.9) Intangibles (123.4) (129.6) International (7.3) (13.2) Leases (2.1) (13.0) Other (42.6) (37.4) ------- ------- Total deferred tax liabilities (186.4) (217.9) ------- ------- Net deferred tax liability $ (43.0) $ (17.2) ======= =======
The intangible asset component in deferred income tax liabilities of $123.4 million and $129.6 million at December 31, 2000 and 1999, respectively, will continue to be reduced as the intangible assets are amortized, since such amortization is not deductible for income tax purposes. At December 31, 2000 and 1999, the Company has a valuation allowance of $59.2 million associated with certain deferred tax assets due to uncertainties regarding their realizability. The Company believes that the remaining deferred income tax assets will be realized based upon its historical pre-tax earnings, adjusted for significant items such as non-recurring charges. Certain tax planning or other strategies will be implemented, if necessary, to supplement income from operations to fully realize these deferred tax assets. Non-U.S. withholding taxes and U.S. taxes have not been provided on approximately $236.6 million 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. 10. Stockholders' Equity On October 5, 2000, the Board of Directors declared a two-for-one stock split in the form of a 100% stock dividend. The split entitled each stockholder of record on November 15, 2000 to receive an additional share of common stock for every share held on that date. All share and per share amounts have been retroactively restated to reflect this two-for-one stock split. On April 6, 2000, the Company's stockholders approved an amendment to the Certificate of Incorporation to increase the authorized shares of common stock from 150,000,000 to 300,000,000. 11. Employee Benefits Incentive Compensation Plan In 1998, the Company adopted the 1998 Incentive Compensation Plan ("1998 Plan"), which replaced a 1990 Plan. An initial 4.0 million shares were reserved under the 1998 Plan. Granted options typically vest over three or four year periods and expire ten years from the date of grant. Each year, commencing January 1, 1999, the number of shares available under the 1998 Plan will increase by 1.5% of the number for voting purposes of common stock issued and outstanding as of the prior December 31. As of January 1, 2001, 3.8 million shares remain available for grant under this plan. -FN15- 35 The following is a summary of the option activity, including weighted average option information (in thousands, except per option information):
2000 1999 1998 ----------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Price Per Price Per Price Per Options Option Options Option Options Option ----------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 7,514 $18.33 6,484 $16.20 5,790 $14.30 Granted 1,603 $26.29 1,514 $26.38 1,406 $21.28 Exercised (1,423) $14.79 (410) $12.96 (644) $12.10 Canceled (53) $25.41 (74) $24.16 (68) $19.47 ----------------------------------------------------------------------------------------------------------- Outstanding at end of year 7,641 $20.61 7,514 $18.33 6,484 $16.20 -----------------------------------------------------------------------------------------------------------
Weighted Weighted Options Average Weighted Average Options Average Range of Exercise Outstanding at Exercise Remaining Exercisable at Exercise Price December 31, Price Per Contractual Life December 31, Price Per 2000 Option (Years) 2000 (a) Option ---------------------------------------------------------------------------------------------------------- $ 0.00 to $11.48 849 $10.25 1.1 849 $10.25 $11.49 to $14.34 741 $13.22 2.5 741 $13.22 $14.35 to $17.21 472 $14.63 3.3 472 $14.63 $17.22 to $20.08 723 $19.78 4.6 723 $19.78 $20.09 to $22.95 1,912 $20.74 5.2 1,583 $20.69 $22.96 to $25.82 1,427 $25.30 8.4 51 $25.10 $25.83 to $28.69 1,302 $26.90 7.3 479 $26.99 $28.70 to $40.16 215 $32.57 9.1 48 $31.92 ---------------------------------------------------------------------------------------------------------- 7,641 4,946 ----------------------------------------------------------------------------------------------------------
(a) Options exercisable at December 31, 1999 and 1998 (in thousands) were 5,256 and 4,626, respectively. The Company continues to follow the guidance of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). Additionally, the Company adopted Financial Accounting Standards Board Interpretation No. 44 "Accounting for Certain Transactions Involving Stock Compensation" ("FIN 44") on July 1, 2000. The adoption of FIN 44 did not have a material effect on the Company's financial position or results of operations. -FN16- 36 Pursuant to APB 25, compensation related to stock options is the difference between the grant price and the fair market value of the underlying common shares at the grant date. Generally, the Company issues options to employees with a grant price equal to the market value of its common stock on the grant date. Accordingly, the Company has recognized no compensation expense on its stock option plans. The Company also does not recognize compensation expense on stock issued to employees under its stock purchase plan (see page 59 for discussion), where the discount from the market value is not material. The following represents pro forma information as if the Company recorded compensation cost using the fair value of the issued compensation instrument under Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation":
2000 1999 1998 ------- ------- ------- Net earnings as reported $ 125.5 $ 106.0 $ 33.5 Assumed stock compensation cost, net of tax (8.0) (7.7) (6.2) ------- ------- ------- Pro forma net earnings $ 117.5 $ 98.3 $ 27.3 ======= ======= ======= Diluted earnings per share as reported $ 2.03 $ 1.79 $ 0.57 Pro forma diluted earnings per share $ 1.90 $ 1.66 $ 0.47
The Company uses the Black-Scholes valuation model for estimating the fair value of the options. The following represents the estimated fair value of options granted and the assumptions used for calculation:
2000 1999 1998 ------- ------- ------- Weighted average estimated fair value per option granted $ 11.26 $ 11.96 $ 8.33 Average exercise price per option granted $ 26.29 $ 26.38 $ 21.28 Stock volatility 30.9% 26.9% 33.0% Risk-free interest rate 5.2% 6.7% 4.7% Option term - years 9.6 9.6 7.8 Stock dividend yield 1.3% 1.4% 1.4%
Stock Purchase Plan The Company has a stock purchase plan that operates in accordance with section 423 of the Internal Revenue Code whereby all United States employees and employees of certain subsidiaries outside the Unites States can purchase the Company's common stock at favorable prices. Under the plan, eligible employees are permitted to apply salary withholdings to purchase shares of common stock at a price equal to 90% of the lower of the market value of the stock at the beginning or end of each six-month option period ending June 30 and December 31. Employees purchased 0.4 million shares during 2000 and 3.3 million shares remain available for use in the plan at December 31, 2000. Stock Appreciation Rights The Company periodically awards stock appreciation rights to certain employees of its international subsidiaries. These rights vest over three or four years. Compensation expense for these rights is based on changes between the grant price and the fair market value of the rights. Postemployment Benefits Pursuant to Statement of Financial Accounting Standards No. 112 "Employers Accounting for Postemployment Benefits," the Company recognizes an obligation for certain benefits awarded to individuals after employment but before retirement. During 2000, 1999 and 1998, the Company recorded charges of $0.6 million, $2.0 million and $1.7 million, respectively, associated with its postemployment obligations. 12. Retirement Benefits -FN17- 37 Defined Benefit Pension Plans The Company provides pension benefits covering the majority of its employees. Pension benefits for Beckman Coulter's domestic employees are based on age, years of service and compensation rates. The Company'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. Certain of the Company's international subsidiaries 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. Consolidated pension expense was $11.8 million in 2000, $22.0 million in 1999, and $16.3 million in 1998. Pension expense for international plans was $4.6 million in 2000, $4.7 million in 1999, and $6.6 million in 1998. Postretirement Plan The Company's Postretirement Plan provides certain healthcare and life insurance benefits for retired United States employees and their dependents. Eligibility under the Postretirement Plan and participant cost sharing is dependent upon the participant's age at retirement, years of service and retirement date. The following represents required disclosures regarding benefit obligations and plan assets of the Pension and Postretirement Plans determined by independent actuarial valuations:
Postretirement Pension Plans Plan --------------------- ---------------------- 2000 1999 2000 1999 --------- ---------- ---------- ---------- Change in benefit obligation: Benefit obligation at beginning of year $422.9 $480.7 $ 91.0 $ 91.2 Service cost 13.1 17.3 2.5 3.5 Interest cost 32.8 30.5 6.4 6.4 Actuarial (gain) loss 21.7 (82.8) (3.6) (6.2) Benefits paid (25.1) (22.8) (5.8) (5.2) Amendments 10.6 -- -- -- Plan participant contribution -- -- 1.6 1.3 ----------------------- ------------------------ Benefits obligation at end of year $476.0 $422.9 $ 92.1 $ 91.0 ----------------------- ------------------------ Change in plan assets: Fair value of plan assets at beginning of year $495.5 $462.6 $ -- $ -- Employer contribution 1.5 1.4 4.2 3.9 Plan participant contribution -- -- 1.6 1.3 Actual return on plan assets (3.0) 54.3 -- -- Benefits paid (25.1) (22.8) (5.8) (5.2) ----------------------- ------------------------ Fair value of plan assets at end of year $468.9 $495.5 $ -- $ -- ----------------------- ------------------------ Funded status $ (7.1) $ 72.6 $ (92.1) $ (91.0) Unrecognized net actuarial gain (16.9) (82.0) (13.8) (10.7) Unrecognized net obligation at transition -- 0.4 -- -- Unrecognized prior service cost 14.5 5.2 (0.9) (1.0) ----------------------- ------------------------ Accrued benefit cost $ (9.5) $ (3.8) $(106.8) $(102.7) ----------------------- ------------------------ Amounts recognized in the balance sheets consist of: Prepaid benefit cost $ 7.0 $ 11.3 $ -- $ -- Accrued benefit liability (16.5) (15.1) (106.8) (102.7) ----------------------- ------------------------ Net amount recognized $ (9.5) $ (3.8) $(106.8) $(102.7) ----------------------- ------------------------
The following table lists the components of the net periodic benefit cost of the plans and the weighted-average assumptions as of December 31 for the periods indicated: -FN18- 38
Pension Plans Postretirement Plans ----------------------- ----------------------- 2000 1999 1998 2000 1999 1998 ----- ----- ----- ----- ----- ----- Service cost $13.1 $17.3 $12.1 $ 2.5 $ 3.5 $ 2.5 Interest cost 32.8 30.5 28.3 6.4 6.4 5.3 Expected return on plan assets (40.8) (37.2) (34.3) - - - Amortization of transition obligation 0.4 0.5 0.5 - - - Amortization of prior service costs 1.2 1.0 1.0 (0.1) (0.1) (0.1) Amortization of actuarial gain (loss) 0.5 5.2 2.1 (0.6) - (0.6) ----- ----- ----- ----- ----- ----- Net periodic benefit cost $ 7.2 $17.3 $ 9.7 $ 8.2 $ 9.8 $ 7.1 ===== ===== ===== ===== ===== ===== Discount rate 7.5% 7.8% 6.3% 7.5% 7.8% 6.3% Expected return on plan assets 9.8% 9.8% 9.8% - - - Rate of compensation increase 4.3% 4.3% 4.3% - - -
The projected benefit obligation and the accumulated benefit obligation for the pension plans with accumulated benefit obligations in excess of plan assets were $23.6 million and $18.7 million, respectively, as of December 31, 2000 and $20.9 million and $17.7 million, respectively, as of December 31, 1999. These pension plans have no plan assets. The assumed healthcare trend rate used in measuring the postretirement cost for 2000 is 10.5%, gradually declining to 5.0% by the year 2006 and remaining at that level thereafter. Assumed healthcare cost trend rates have a significant effect on the amounts reported for postretirement benefits. A 1.0% increase in assumed healthcare cost trend rates would increase the totals of the service and interest cost components for 2000 and the postretirement benefit obligation as of December 31, 2000 by $1.4 million and $11.7 million, respectively. A 1.0% decrease in assumed healthcare cost trend rates would decrease the total of the service and interest cost components for 2000 and the postretirement benefit obligation as of December 31, 2000 by $1.1 million and $11.7 million, respectively. Defined Contribution Benefit Plan The Company has a defined contribution plan available to its domestic employees. Under the plan, eligible employees may contribute a portion of their compensation. Employer contributions are primarily based on a percentage of employee contributions and vest immediately. However, certain former Coulter employees are eligible for additional employer contributions based on the age and salary levels, which become fully vested after five years of service. The Company contributed $13.6 million in 2000, $13.2 million in 1999, and $14.9 million in 1998 to the plan. 13. 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, the Company does not anticipate any significant expenditure in order to comply with such laws and regulations, which would have a material impact on its operations, financial position or liquidity. The Company believes that its operations comply in all material respects with applicable federal, state, local and foreign environmental laws and regulations. To address contingent environmental costs, the Company establishes reserves when the costs are probable and can be reasonably estimated. The Company believes, based on current information and regulatory requirements (and taking third party indemnities into consideration), the reserves established for environmental expenditures are adequate. Based on current knowledge, to the extent that additional costs may be incurred that exceed the reserves, the amounts are not expected to have a material adverse effect on the Company's operations, financial position or liquidity, although no assurance can be given in this regard. 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 the 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 -FN19- 39 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 has 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. During 1998, two additional areas of soil requiring remediation were identified. Work on one area was completed in 1998. Work on the second area was completed in 2000. 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 most of 1999. In October 1999, the Regional Water Quality Control Board agreed that the system could be shut down. Continued monitoring will be necessary for a period of time to verify that groundwater conditions remain acceptable. The Company believes that additional remediation costs, if any, beyond those already provided for the contamination discovered by the current investigation will not have a material adverse effect on its results of operations, financial position or liquidity. However, the Company gives no assurance that further investigation will not reveal additional soil or groundwater contamination or result in additional costs. Litigation The Company is 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 results of operations, financial position or liquidity. However, the Company does not give any assurance 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. In December 1999, Streck Laboratories, Inc. ("Streck") served Beckman Coulter and Coulter with a complaint filed in the United States District Court for the District of Nebraska. The complaint alleges that control products sold by Beckman Coulter and/or Coulter infringe each of five patents owned by Streck, and seeks injunctive relief, damages, attorneys' fees and costs. The Company, on behalf of itself and on behalf of Coulter has answered the complaint and has filed a counterclaim against Streck for patent infringement. The Company continues to believe that there is no reasonable basis to conclude that this litigation could lead to an outcome that would have a material adverse effect on its operations or financial position. Lease Commitments The Company leases certain facilities, equipment and automobiles under operating lease arrangements. Certain of the leases provide for payment of taxes, insurance and other charges by the lessee. Rent expense was $81.3 million in 2000, $78.1 million in 1999, and $59.8 million in 1998. As of December 31, 2000, minimum annual rentals payable under non-cancelable operating leases aggregate $495.8 million, which is payable $61.8 million in 2001, $52.0 million in 2002, $47.3 million in 2003, $41.0 million in 2004, $41.0 million in 2005, and $252.7 million thereafter. -FN20- 40 14. Earnings Per Share Basic EPS is calculated by dividing net earnings 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. The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations. Year Ended December 31, 2000
Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS Net earnings $ 125.5 58.8 $ 2.13 Effect of dilutive stock options -- 3.0 (0.10) ------- ---- ------ Diluted EPS Net earnings $ 125.5 61.8 $ 2.03 ======= ==== ======
Year Ended December 31, 1999 Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS Net earnings $ 106.0 57.3 $ 1.85 Effect of dilutive stock options -- 2.0 (0.06) ------- ---- ------ Diluted EPS Net earnings $ 106.0 59.3 $ 1.79 ======= ==== ======
Year Ended December 31, 1998 Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS Net earnings $ 33.5 56.1 $ 0.60 Effect of dilutive stock options -- 2.6 (0.03) ------- ---- ------ Diluted EPS Net earnings $ 33.5 58.7 $ 0.57 ======= ==== ======
In 2000, 1999 and 1998, 0.1 million, 1.4 million and 0.1 million shares, respectively, relating to the possible exercise of outstanding stock options were not included in the computation of diluted earnings per share as their effect would have been anti-dilutive. 15. Business Segment Information The Company is engaged primarily in the design, manufacture and sale of laboratory instrument systems and related products. The Company's organization has two reportable segments: (1) clinical diagnostics and (2) life science research. The clinical diagnostics segment encompasses diagnostic applications, principally in hospital laboratories. The life science research segment includes life sciences and drug discovery applications in universities, medical schools, and pharmaceutical and biotechnology companies. All corporate activities including financing transactions are captured in a central services "Center", which is reflected in the tables below. The Company evaluates performance based on profit or loss from operations. Although primarily operating in the same industry, reportable segments are managed separately, since each business requires different marketing strategies and has different customers. In the first quarter of 2000, the Company realigned its geographic reporting structure. The Company's Latin America operations, which were formerly reported with the "Asia and Rest of World" geographic area, are now reported in the "Americas" geographic area along with its North America operations. Prior year amounts have been reclassified to conform to the current year presentation. -FN21- 41
For the year ended December 31, ------------------------------------------- 2000 1999 1998 --------- --------- --------- Net sales Clinical diagnostics $ 1,472.2 $ 1,418.2 $ 1,342.5 Life science research 414.7 390.5 375.7 Center -- -- -- --------- --------- --------- Consolidated $ 1,886.9 $ 1,808.7 $ 1,718.2 ========= ========= ========= Operating income (loss) Clinical diagnostics $ 253.4 $ 255.1 $ 172.6 Life science research 75.1 60.4 44.0 Center(a) (95.9) (99.0) (101.8) --------- --------- --------- Consolidated(a) $ 232.6 $ 216.5 $ 114.8 ========= ========= ========= Interest income Clinical diagnostics $ (1.4) $ (3.6) $ (9.8) Life science research -- -- -- Center (4.9) (4.2) (3.6) --------- --------- --------- Consolidated $ (6.3) $ (7.8) $ (13.4) ========= ========= ========= Interest expense Clinical diagnostics $ -- $ -- $ -- Life science research -- -- -- Center 71.9 73.8 87.8 --------- --------- --------- Consolidated $ 71.9 $ 73.8 $ 87.8 ========= ========= ========= Sales to external customers Americas $ 1,167.7 $ 1,057.7 $ 996.7 Europe 481.7 516.6 499.8 Asia 237.5 234.4 221.7 --------- --------- --------- Consolidated $ 1,886.9 $ 1,808.7 $ 1,718.2 ========= ========= =========
December 31, 2000 December 31, 1999 ----------------- ----------------- Long-lived assets Americas $ 997.7 $ 1,010.7 Europe 72.8 97.8 Asia 19.9 35.9 --------- --------- Consolidated $ 1,090.4 $ 1,144.4 ========= ========= Total assets Clinical diagnostics $ 1,356.8 $ 1,460.8 Life science research 201.7 178.4 Center 459.7 471.6 --------- --------- Consolidated $ 2,018.2 $ 2,110.8 ========= =========
(a) Includes restructure (credits) charges of $(2.4) million in 2000, $(0.2) million in 1999 and $19.1 million in 1998. -FN22- 42 16. Guarantor Subsidiaries As discussed in Note 7, certain of the Company's subsidiaries ("Guarantor Subsidiaries") guaranteed the Company's outstanding Senior Notes. Pursuant to Securities and Exchange Commission ("SEC") regulations, certain condensed financial information about the Parent, Guarantor, and Non-Guarantor Subsidiaries is required to be disclosed. The following provides this required financial information. Note that the Company used the equity method of accounting for its investments in subsidiaries and the Guarantor Subsidiaries' investments in Non-Guarantor Subsidiaries.
Non- Guarantor Guarantor Subsi- Subsi- Elimina- Consoli- Parent diaries diaries tions dated --------- --------- --------- ---------- -------- Condensed Consolidated Balance Sheet December 31, 2000 Assets: Cash and equivalents $ (28.3) $ (4.3) $ 62.2 $ -- $ 29.6 Trade and other receivables 258.6 3.7 274.4 -- 536.7 Inventories 221.7 38.2 103.3 (31.1) 332.1 Other current assets 814.1 1,028.4 51.7 (1,864.8) 29.4 --------- --------- ------- ---------- -------- Total current assets 1,266.1 1,066.0 491.6 (1,895.9) 927.8 Property, plant and equipment, net 172.1 86.3 109.9 (70.1) 298.2 Goodwill, net 10.7 321.0 -- -- 331.7 Other intangibles, net 26.9 350.2 5.6 -- 382.7 Other assets 1,308.2 22.3 300.8 (1,553.5) 77.8 --------- --------- ------- ---------- -------- Total assets $ 2,784.0 $ 1,845.8 $ 907.9 $ (3,519.5) $2,018.2 ========= ========= ======= ========== ======== Liabilities: Notes payable and current maturities of long-term debt $ 32.8 $ 0.1 $ 19.2 $ -- $ 52.1 Accounts payable and accrued expenses 280.7 24.5 71.3 -- 376.5 Other current liabilities 852.5 539.4 104.8 (1,424.2) 72.5 --------- --------- ------- ---------- -------- Total current liabilities 1,166.0 564.0 195.3 (1,424.2) 501.1 Long-term debt, less current maturities 806.9 -- 55.9 -- 862.8 Other liabilities 473.5 581.0 41.7 (785.8) 310.4 --------- --------- ------- ---------- -------- Total liabilities 2,446.4 1,145.0 292.9 (2,210.0) 1,674.3 Total stockholders' equity 337.6 700.8 615.0 (1,309.5) 343.9 --------- --------- ------- ---------- -------- Total liabilities and stockholders' equity $ 2,784.0 $ 1,845.8 $ 907.9 $ (3,519.5) $2,018.2 ========= ========= ======= ========== ========
-FN23- 43
Non- Guarantor Guarantor Subsi- Subsi- Elimina- Consoli- Parent diaries diaries tions dated ---------- ---------- --------- ----------- --------- Condensed Consolidated Balance Sheet December 31, 1999 Assets: Cash and equivalents $ (5.3) $ 3.7 $ 36.0 $ -- $ 34.4 Trade and other receivables 255.8 6.0 304.6 -- 566.4 Inventories 201.0 32.1 122.7 (42.7) 313.1 Other current assets 455.4 725.7 95.4 (1,224.0) 52.5 ---------- ---------- -------- ----------- --------- Total current assets 906.9 767.5 558.7 (1,266.7) 966.4 Property, plant and equipment, net 152.4 84.6 142.3 (73.4) 305.9 Goodwill, net 10.3 325.6 8.8 -- 344.7 Other intangibles, net 30.2 366.2 3.5 -- 399.9 Other assets 1,457.9 35.8 279.2 (1,679.0) 93.9 ---------- ---------- -------- ----------- --------- Total assets $ 2,557.7 $ 1,579.7 $ 992.5 $ (3,019.1) $2,110.8 ========= ========= ======= ========== ======== Liabilities: Notes payable and current maturities of long-term debt $ 4.4 $ 1.1 $ 44.5 $ -- $ 50.0 Accounts payable and accrued expenses 368.3 32.7 95.6 (22.5) 474.1 Other current liabilities 530.9 213.1 131.0 (823.2) 51.8 ---------- ---------- -------- ----------- --------- Total current liabilities 903.6 246.9 271.1 (845.7) 575.9 Long-term debt, less current maturities 913.0 0.1 67.6 -- 980.7 Other liabilities 513.2 647.9 213.0 (1,047.8) 326.3 ---------- ---------- -------- ----------- --------- Total liabilities 2,329.8 894.9 551.7 (1,893.5) 1,882.9 Total stockholders' equity 227.9 684.8 440.8 (1,125.6) 227.9 ---------- ---------- -------- ----------- --------- Total liabilities and stockholders' equity $ 2,557.7 $ 1,579.7 $ 992.5 $ (3,019.1) $2,110.8 ========= ========= ======= ========== ========
-FN24- 44
Non- Guarantor Guarantor Subsi- Subsi- Elimina- Consoli- Parent diaries diaries tions dated -------- --------- --------- -------- -------- Condensed Consolidated Statement of Operations Year ended December 31, 2000 Sales $1,414.8 $ 360.0 $ 998.9 $ (886.8) $1,886.9 Operating costs and expenses: Cost of sales 953.7 210.3 727.3 (895.7) 995.6 Selling, general and administrative 258.5 45.7 171.7 0.2 476.1 Research and development 113.3 67.7 4.0 -- 185.0 Restructure credit (2.4) -- -- -- (2.4) -------- ------- ------- -------- -------- Operating income 91.7 36.3 95.9 8.7 232.6 Nonoperating (income) expense (42.4) 13.1 (7.0) 87.0 50.7 -------- ------- ------- -------- -------- Earnings before income taxes 134.1 23.2 102.9 (78.3) 181.9 Income taxes 14.6 7.2 31.9 2.7 56.4 -------- ------- ------- -------- -------- Net earnings $ 119.5 $ 16.0 $ 71.0 $ (81.0) $ 125.5 ======== ======= ======= ======== ========
Non- Guarantor Guarantor Subsi- Subsi- Elimina- Consoli- Parent diaries diaries tions dated -------- --------- --------- -------- -------- Condensed Consolidated Statement of Operations Year Ended December 31, 1999 Sales $1,179.9 $ 443.4 $ 991.0 $ (805.6) $1,808.7 Operating costs and expenses: Cost of sales 823.9 228.9 692.3 (803.0) 942.1 Selling, general and administrative 231.6 54.2 196.5 (5.4) 476.9 Research and development 96.3 73.1 4.0 -- 173.4 Restructure credit (0.2) -- -- -- (0.2) -------- ------- ------- -------- -------- Operating income 28.3 87.2 98.2 2.8 216.5 Nonoperating (income) expense (99.1) 3.5 (3.0) 160.4 61.8 -------- ------- ------- -------- -------- Earnings before income taxes 127.4 83.7 101.2 (157.6) 154.7 Income taxes 24.3 5.4 19.0 -- 48.7 -------- ------- ------- -------- -------- Net earnings $ 103.1 $ 78.3 $ 82.2 $ (157.6) $ 106.0 ======== ======= ======= ======== ========
-FN25- 45
Non- Guarantor Guarantor Subsi- Subsi- Elimina- Consoli- Parent diaries diaries tions dated -------- --------- --------- -------- -------- Condensed Consolidated Statement of Operations Year ended December 31, 1998 Sales $ 845.8 $ 508.7 $ 857.0 $ (493.3) $1,718.2 Operating costs and expenses: Cost of sales 531.9 289.1 590.9 (491.3) 920.6 Selling, general and administrative 181.4 114.5 196.4 -- 492.3 Research and development 96.2 71.2 4.0 -- 171.4 Restructure charge 19.1 -- -- -- 19.1 -------- ------- ------- -------- -------- Operating income 17.2 33.9 65.7 (2.0) 114.8 Nonoperating (income) expense (36.1) (19.1) 13.7 109.7 68.2 -------- ------- ------- -------- -------- Earnings before income taxes 53.3 53.0 52.0 (111.7) 46.6 Income taxes 4.6 6.6 1.9 -- 13.1 -------- ------- ------- -------- -------- Net earnings $ 48.7 $ 46.4 $ 50.1 $ (111.7) $ 33.5 ======== ======= ======= ======== ========
-FN26- 46
Non- Guarantor Guarantor Subsi- Subsi- Consoli- Parent diaries diaries dated ------- --------- --------- -------- Condensed Consolidated Statement of Cash Flows Year ended December 31, 2000 Net cash provided (used) by operating activities $ 126.7 $ (7.6) $ 90.0 $ 209.1 ------- ------- ------- ------- Cash flows from investing activities: Additions to property, plant and equipment (78.1) (8.7) (54.5) (141.3) Proceeds from disposal of property, plant and equipment -- 2.3 17.1 19.4 Proceeds from sale of certain clinical chemistry assets -- -- 15.4 15.4 Purchase of investments (6.2) -- (0.7) (6.9) ------- ------- ------- ------- Net cash used by investing activities (84.3) (6.4) (22.7) (113.4) ------- ------- ------- ------- Cash flows from financing activities: Dividends to stockholders (19.3) -- -- (19.3) Proceeds from issuance of stock 35.9 -- -- 35.9 Net notes payable borrowings (reductions) 29.0 (0.8) (23.5) 4.7 Net intercompany borrowings (reductions) (6.2) 6.9 (0.7) -- Long-term debt reductions (104.8) (0.1) (13.5) (118.4) ------- ------- ------- ------- Net cash (used) provided by financing activities (65.4) 6.0 (37.7) (97.1) Effect of exchange rates on cash and equivalents -- -- (3.4) (3.4) ------- ------- ------- ------- (Decrease) increase in cash and equivalents (23.0) (8.0) 26.2 (4.8) Cash and equivalents - beginning of year (5.3) 3.7 36.0 34.4 ------- ------- ------- ------- Cash and equivalents - end of year $ (28.3) $ (4.3) $ 62.2 $ 29.6 ======= ======= ======= =======
-FN27- 47
Non- Guarantor Guarantor Subsi- Subsi- Consoli- Parent diaries diaries dated ------- --------- --------- -------- Condensed Consolidated Statement of Cash Flows Year ended December 31, 1999 Net cash provided (used) by operating activities $ 227.8 $(104.7) $ 89.5 $ 212.6 ------- ------- ------- ------- Cash flows from investing activities: Additions to property, plant and equipment (58.4) (5.0) (71.5) (134.9) Proceeds from disposal of property, plant and equipment -- -- 16.3 16.3 ------- ------- ------- ------- Net cash used by investing activities (58.4) (5.0) (55.2) (118.6) ------- ------- ------- ------- Cash flows from financing activities: Dividends to stockholders (18.4) -- -- (18.4) Proceeds from issuance of stock 24.6 -- -- 24.6 Net notes payable reductions (13.4) -- (58.7) (72.1) Net intercompany (reductions) borrowings (133.1) 115.3 17.8 -- Long-term debt (reductions) borrowings (38.6) (1.8) 22.1 (18.3) ------- ------- ------- ------- Net cash (used)provided by financing activities (178.9) 113.5 (18.8) (84.2) Effect of exchange rates on cash and equivalents -- -- (0.1) (0.1) ------- ------- ------- ------- (Decrease) increase in cash and equivalents (9.5) 3.8 15.4 9.7 Cash and equivalents - beginning of year 4.2 (0.1) 20.6 24.7 ------- ------- ------- ------- Cash and equivalents - end of year $ (5.3) $ 3.7 $ 36.0 $ 34.4 ======= ======= ======= =======
-FN28- 48
Non- Guarantor Guarantor Subsi- Subsi- Elimina- Consoli- Parent diaries diaries tions dated ------- --------- --------- -------- -------- Condensed Consolidated Statement of Cash Flows Year ended December 31, 1998 Net cash provided (used) by operating activities $ (23.2) $ (85.3) $ 106.7 $ -- $ (1.8) ------- -------- -------- ------ -------- Cash flows from investing activities: Additions to property, plant and equipment (84.5) (11.0) (69.7) -- (165.2) Proceeds from disposal of property, plant and equipment 2.0 -- 43.4 -- 45.4 Sale of short-term investments -- -- 0.4 -- 0.4 Proceeds from sale-leaseback transactions 186.1 -- -- 56.7 242.8 ------- -------- -------- ------ -------- Net cash (used) provided by investing activities 103.6 (11.0) (25.9) 56.7 123.4 ------- -------- -------- ------ -------- Cash flows from financing activities: Dividends to stockholders (17.1) -- -- -- (17.1) Proceeds from issuance of stock 28.6 -- -- -- 28.6 Net notes payable borrowings 11.4 -- 45.2 -- 56.6 Net intercompany borrowings (reductions) 59.2 93.8 (96.3) (56.7) -- Long-term debt borrowings (reductions) (172.2) (4.9) (21.0) -- (198.1) ------- -------- -------- ------ -------- Net cash provided (used) by financing activities (90.1) 88.9 (72.1) (56.7) (130.0) ------- -------- -------- ------ -------- (Decrease) increase in cash and equivalents (9.7) (7.4) 8.7 -- (8.4) Cash and equivalents - beginning of year 13.9 7.3 11.9 -- 33.1 ------- -------- -------- ------ -------- Cash and equivalents - end of year $ 4.2 $ (0.1) $ 20.6 $ -- $ 24.7 ======= ======== ======== ====== ========
-FN29- 49 Quarterly INFORMATION (Unaudited) Tabular dollar amounts in millions, except amounts per share
First Quarter Second Quarter Third Quarter Fourth Quarter Full Year --------------- --------------- ---------------- ---------------- ------------------- 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 ------ ------ ------ ------ ------ ------ ------ ------ -------- -------- Sales $434.4 $405.1 $469.4 $446.2 $457.8 $440.1 $525.3 $517.3 $1,886.9 $1,808.7 Cost of sales 231.5 211.2 245.8 234.1 243.2 231.2 275.1 265.6 995.6 942.1 Gross profit 202.9 193.9 223.6 212.1 214.6 208.9 250.2 251.7 891.3 866.6 Selling, general and administrative 115.2 111.8 117.4 115.5 116.4 117.4 127.1 132.2 476.1 476.9 Research and development 40.9 38.8 45.8 42.5 43.3 42.0 55.0 50.1 185.0 173.4 Restructure credit -- -- -- -- (2.4) (0.2) (2.4) (0.2) Operating income 46.8 43.3 60.4 54.1 54.9 49.5 70.5 69.6 232.6 216.5 Earnings before income taxes 30.4 25.1 47.0 38.1 42.2 35.2 62.3 56.3 181.9 154.7 Net earnings $21.0 $17.1 $32.4 $25.9 $29.1 $24.4 $43.0 $38.6 $125.5 $106.0 Basic earnings per share $0.36 $0.30 $0.55 $0.45 $0.49 $0.42 $0.72 $0.67 $2.13 $1.85 Diluted earnings per share $0.35 $0.29 $0.53 $0.44 $0.46 $0.41 $0.69 $0.65 $2.03 $1.79 Dividends per share $0.080 $0.080 $0.080 $0.080 $0.080 $0.080 $0.085 $0.080 $0.325 $0.320 Stock price -- High $32.10 $27.56 $32.44 $26.63 $40.84 $24.63 $41.94 $25.69 $41.94 $27.56 Stock price -- Low $23.66 $20.00 $28.81 $21.72 $28.94 $20.56 $33.91 $20.47 $23.66 $20.00
-FN30- 50 Bar Chart: Stock Price By Quarter 2000
Quarter 1st 2nd 3rd 4th ------ ------ ------ ------ High $32.10 $32.44 $40.84 $41.94 Low $23.66 $28.81 $28.94 $33.91
Bar Chart: Stock Price By Quarter 1999
Quarter 1st 2nd 3rd 4th ------ ------ ------ ------ High $27.56 $26.63 $24.63 $25.69 Low $20.00 $21.72 $20.56 $20.47
Bar Chart: Sales By Quarter 2000 (millions)
Quarter 1st 2nd 3rd 4th ------ ------ ------ ------ Sales $434.4 $469.4 $457.8 $525.3
Bar Chart: Sales By Quarter 1999 (millions)
Quarter 1st 2nd 3rd 4th ------ ------ ------ ------ Sales $405.1 $446.2 $440.1 $517.3
-FN31- 51 REPORT BY MANAGEMENT The consolidated financial statements and related information for the years ended December 31, 2000, 1999, and 1998 were prepared by management in accordance with accounting principles generally accepted in the United States of America. 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. Our independent auditors examine our consolidated financial statements in accordance with auditing standards generally accepted in the United States of America. Their report expresses an independent opinion on the fairness of our reported operating results and financial position. In performing this audit, the auditors consider the 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. JOHN P. WAREHAM AMIN I. KHALIFA John P. Wareham Amin I. Khalifa Chairman, President and Vice President, Finance Chief Executive Officer and Chief Financial Officer -FN32- 52 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Beckman Coulter, Inc.: We have audited the accompanying consolidated balance sheets of Beckman Coulter, Inc. and subsidiaries as of December 31, 2000 and 1999, 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, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Beckman Coulter, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Orange County, California January 25, 2001