<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>5
<FILENAME>a69813ex13.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>
<PAGE> 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)
<TABLE>
<CAPTION>
Year 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
Working Capital $300.1 $81.8 $237.3 $390.5 $426.7
</TABLE>
Bar Chart: Income from Operations* (millions)
<TABLE>
<CAPTION>
Year 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
Income from Operations $122.5 $104.4 $133.9 $216.3 $230.2
</TABLE>
Bar Chart: EBITDA* (millions)
<TABLE>
<CAPTION>
Year 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
EBITDA $217.4 $228.0 $305.9 $372.0 $387.5
</TABLE>
Bar Chart: Dividends Paid Per Share of Common Stock
<TABLE>
<CAPTION>
Year 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
Dividends Paid
($ Per Share) $0.260 $0.300 $0.305 $0.320 $0.325
</TABLE>
*Excludes pre-tax special items in 1997, 1998, 1999 and 2000
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<PAGE> 2
SELECTED FINANCIAL INFORMATION
Dollars in millions, except amounts per share
<TABLE>
<CAPTION>
Years Ended December 31, 2000 1999 1998 1997 1996
----------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
----------------------------------------------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(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.
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<PAGE> 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:
<TABLE>
<CAPTION>
2000 1999
Years ended % of % of % of Compared Compared
December 31, 2000 Sales 1999 Sales 1998 Sales to 1999(2) to 1998(2)
--------- ----- --------- ----- --------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
--------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
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<PAGE> 4
Bar Chart: Sales per employee (thousands)
<TABLE>
<CAPTION>
Year 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
Sales per employee $169 $107 $171 $190 $195
</TABLE>
Bar Chart: SG&A as a % of Sales
<TABLE>
<CAPTION>
Year 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
SG&A (% of Sales) 31.1 30.1 28.7 26.4 25.2
</TABLE>
Bar Chart: R&D Expenses (millions)
<TABLE>
<CAPTION>
Year 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
R&D Expenses $108.4 $123.6 $171.4 $173.4 $185.0
</TABLE>
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<PAGE> 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:
<TABLE>
<CAPTION>
COMPANY PRODUCT/TECHNOLOGY ACQUIRED ACQUISITION DATE
------- --------------------------- ----------------
<S> <C> <C>
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
</TABLE>
* 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
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<PAGE> 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-
<PAGE> 7
<TABLE>
<CAPTION>
Constant
Reported Currency
2000 1999 Growth % Growth %
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
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
======== ========= ======== =======
</TABLE>
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):
<TABLE>
<CAPTION>
Constant
Reported Currency
2000 1999 Growth % Growth %
-------- --------- --------- --------
<S> <C> <C> <C> <C>
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
======== ========= ======== =======
</TABLE>
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<PAGE> 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-
<PAGE> 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:
<TABLE>
<CAPTION>
1999 % INCREASE 1998
-------- ----------- --------
<S> <C> <C> <C>
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
======== ==== ========
</TABLE>
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
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<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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;
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<PAGE> 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-
<PAGE> 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-
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
In millions, except amounts per share
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------- ----------------------------------
2000 1999
-------- --------
<S> <C> <C>
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
======== ========
---------------------------------------------------------- ----------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
-16-
<PAGE> 17
CONSOLIDATED STATEMENTS OF OPERATIONS
In millions, except amounts per share
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------- --------------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
------------------------------------------------------- --------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE> 18
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In millions, except amounts per share
<TABLE>
<CAPTION>
Total
Accumulated Total Compre-
Additional Other Stock- hensive
Common Paid-in Retained Comprehensive Treasury holders' (Loss)
Stock Capital Earnings Loss Stock Equity Income
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------- -------------------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
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
--------------------------------------------------------- -------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-19-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 23
2. Composition of Certain Financial Statement Captions
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
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
======= =======
</TABLE>
(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-
<PAGE> 24
Details of total purchase and assumed liabilities recorded and activity in these
accounts through December 31, 2000 are as follows:
<TABLE>
<CAPTION>
Purchase &
Assumed
Liability
------------------------------------------------ -------------
<S> <C>
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
================================================ =============
</TABLE>
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-
<PAGE> 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."
<TABLE>
<CAPTION>
Facility
Consolidation
Personnel and Asset
and Related
Other Write-offs Total
-------------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
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
================================================== ================ ================= ================
</TABLE>
-FN6-
<PAGE> 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."
<TABLE>
<CAPTION>
Facility
Consolidation
Personnel and Asset
and Related
Other Write-offs Total
-------------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
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
======================================================================================================
</TABLE>
-FN7-
<PAGE> 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."
<TABLE>
<CAPTION>
Facility
Consolidation
Personnel and Asset
and Related
Other Write-offs Total
---------------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
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
==================================================== ================ ================= ================
</TABLE>
-FN8-
<PAGE> 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:
<TABLE>
<CAPTION>
Average Rate of
Interest 2000 1999
--------------- ------- -------
<S> <C> <C> <C>
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
======= =======
</TABLE>
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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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:
<TABLE>
<CAPTION>
Notional Amounts*
---------------------
2000 1999
----- ------
<S> <C> <C>
Forward Contracts $56.5 $166.1
Purchased Option Contracts $ - $ 54.9
Complex Option Contracts $73.8 $ 49.6
</TABLE>
* 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-
<PAGE> 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:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ -----
<S> <C> <C> <C>
U.S. $121.6 $ 62.9 $10.2
Non-U.S. 60.3 91.8 36.4
------ ------ -----
$181.9 $154.7 $46.6
====== ====== =====
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
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
===== ===== =====
</TABLE>
-FN13-
<PAGE> 33
The reconciliation of the U.S. federal statutory tax rate to the consolidated
effective tax rate is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----- ----- ------
<S> <C> <C> <C>
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%
==== ==== ====
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
-FN14-
<PAGE> 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:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
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)
======= =======
</TABLE>
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-
<PAGE> 35
The following is a summary of the option activity, including weighted average
option information (in thousands, except per option information):
<TABLE>
<CAPTION>
2000 1999 1998
-----------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Per Price Per Price Per
Options Option Options Option Options Option
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
-----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 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
----------------------------------------------------------------------------------------------------------
</TABLE>
(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-
<PAGE> 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":
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
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%
</TABLE>
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-
<PAGE> 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:
<TABLE>
<CAPTION>
Postretirement
Pension Plans Plan
--------------------- ----------------------
2000 1999 2000 1999
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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)
----------------------- ------------------------
</TABLE>
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-
<PAGE> 38
<TABLE>
<CAPTION>
Pension Plans Postretirement Plans
----------------------- -----------------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
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% - - -
</TABLE>
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-
<PAGE> 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-
<PAGE> 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
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
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
======= ==== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
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
======= ==== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
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
======= ==== ======
</TABLE>
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-
<PAGE> 41
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 2000 December 31, 1999
----------------- -----------------
<S> <C> <C>
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
========= =========
</TABLE>
(a) Includes restructure (credits) charges of $(2.4) million in 2000, $(0.2)
million in 1999 and $19.1 million in 1998.
-FN22-
<PAGE> 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.
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
--------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
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
========= ========= ======= ========== ========
</TABLE>
-FN23-
<PAGE> 43
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
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
========= ========= ======= ========== ========
</TABLE>
-FN24-
<PAGE> 44
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
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
======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
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
======== ======= ======= ======== ========
</TABLE>
-FN25-
<PAGE> 45
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
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
======== ======= ======= ======== ========
</TABLE>
-FN26-
<PAGE> 46
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Consoli-
Parent diaries diaries dated
------- --------- --------- --------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
-FN27-
<PAGE> 47
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Consoli-
Parent diaries diaries dated
------- --------- --------- --------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
-FN28-
<PAGE> 48
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
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
======= ======== ======== ====== ========
</TABLE>
-FN29-
<PAGE> 49
Quarterly INFORMATION (Unaudited)
Tabular dollar amounts in millions, except amounts per share
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter Full Year
--------------- --------------- ---------------- ---------------- -------------------
2000 1999 2000 1999 2000 1999 2000 1999 2000 1999
------ ------ ------ ------ ------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
-FN30-
<PAGE> 50
Bar Chart: Stock Price By Quarter 2000
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
------ ------ ------ ------
<S> <C> <C> <C> <C>
High $32.10 $32.44 $40.84 $41.94
Low $23.66 $28.81 $28.94 $33.91
</TABLE>
Bar Chart: Stock Price By Quarter 1999
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
------ ------ ------ ------
<S> <C> <C> <C> <C>
High $27.56 $26.63 $24.63 $25.69
Low $20.00 $21.72 $20.56 $20.47
</TABLE>
Bar Chart: Sales By Quarter 2000 (millions)
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales $434.4 $469.4 $457.8 $525.3
</TABLE>
Bar Chart: Sales By Quarter 1999 (millions)
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales $405.1 $446.2 $440.1 $517.3
</TABLE>
-FN31-
<PAGE> 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-
<PAGE> 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
</TEXT>
</DOCUMENT>