10-Q 1 a72552e10-q.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2001 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (Mark One) (X)Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2001 OR ( )Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission File Number 001-10109 BECKMAN COULTER, INC. (Exact name of registrant as specified in its charter) Delaware 95-104-0600 (State of Incorporation) (I.R.S. Employer Identification No.) 4300 N. Harbor Boulevard, Fullerton, California 92834-3100 (Address of principal executive offices) (Zip Code) (714) 871-4848 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ). APPLICABLE ONLY TO CORPORATE ISSUERS: Outstanding shares of common stock, $0.10 par value, as of April 27, 2001: 60,265,343 shares. 1 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2001 and 2000 Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2001 and 2000 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk PART II OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes In Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security-Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K 2 3 BECKMAN COULTER, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in Millions, Except Amounts Per Share and Share Data) Unaudited
Three Months Ended March 31, --------- 2001 2000 ---- ---- Sales $ 432.7 $ 434.4 Cost of sales 230.9 231.5 ------- ------- Gross profit 201.8 202.9 ------- ------- Operating costs and expenses: Selling, general and administrative 110.3 115.2 Research and development 42.2 40.9 ------- ------- Total operating costs and expenses 152.5 156.1 ------- ------- Operating income 49.3 46.8 ------- ------- Nonoperating (income)and expense: Interest income (2.5) (1.4) Interest expense 16.4 18.6 Other, net 1.5 (0.8) ------- ------- Total nonoperating expenses 15.4 16.4 ------- ------- Earnings before income taxes and accounting change 33.9 30.4 Income taxes 10.5 9.4 ------- ------- Earnings before accounting change 23.4 21.0 Cumulative effect of accounting change, net of income taxes of $1.8 3.1 -- ------- ------- Net earnings $ 20.3 $ 21.0 ======= ======= Basic earnings per share: Before accounting change $ 0.39 $ 0.36 Cumulative effect of accounting change (0.05) -- ------- ------- $ 0.34 $ 0.36 ======= ======= Diluted earnings per share: Before accounting change $ 0.37 $ 0.35 Cumulative effect of accounting change (0.05) -- ------- ------- $ 0.32 $ 0.35 ======= ======= Weighted average number of shares outstanding (in thousands): Basic 59,998 58,191 Diluted 63,346 60,363 Dividends declared per share $ 0.085 $ 0.080
See accompanying notes to condensed consolidated financial statements. 3 4 BECKMAN COULTER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in Millions, Except Amounts per Share)
March 31, December 31, --------- ------------ 2001 2000 ---- ---- unaudited Assets Current assets: Cash and equivalents $ 22.5 $ 29.6 Trade and other receivables 508.8 536.7 Inventories 359.0 332.1 Other current assets 43.7 29.4 -------- -------- Total current assets 934.0 927.8 Property, plant and equipment, net 313.2 298.2 Goodwill, less accumulated amortization of $39.9 and $37.2 at March 31, 2001 and December 31, 2000, respectively 329.5 331.7 Other intangibles, less accumulated amortization of $70.9 and $66.1 at March 31, 2001 and December 31, 2000, respectively 377.8 382.7 Other assets 87.4 77.8 -------- -------- Total assets $2,041.9 $2,018.2 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Notes payable and current maturities of long-term debt $ 24.9 $ 52.1 Accounts payable, accrued expenses and other liabilities 369.6 390.7 Income taxes 62.8 58.3 -------- -------- Total current liabilities 457.3 501.1 Long-term debt, less current maturities 876.9 862.8 Other liabilities 324.6 310.4 -------- -------- Total liabilities 1,658.8 1,674.3 -------- -------- 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 and outstanding 60.2 and 59.7 at March 31, 2001 and December 31, 2000, respectively 6.0 6.0 Additional paid-in capital 179.2 170.0 Retained earnings 241.5 226.3 Accumulated other comprehensive income (loss): Cumulative foreign currency translation adjustment (53.7) (58.4) Derivatives qualifying as hedges 10.1 -- -------- -------- Total stockholders' equity 383.1 343.9 -------- -------- Total liabilities and stockholders' equity $2,041.9 $2,018.2 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 5 BECKMAN COULTER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Millions) Unaudited
Three Months Ended March 31, --------- 2001 2000 ---- ---- Cash Flows from Operating Activities Net earnings $20.3 $21.0 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 33.3 33.0 Cumulative effect of accounting change, net of tax 3.1 -- Net deferred income taxes 0.5 0.3 Proceeds from sales of sales-type lease receivables 18.5 29.9 Changes in assets and liabilities: Trade and other receivables 10.1 28.1 Inventories (24.4) (37.6) Accounts payable, accrued expenses and other liabilities (33.6) (68.2) Income taxes payable 6.3 3.4 Other 14.2 6.2 ----- ----- Net cash provided by operating activities 48.3 16.1 ----- ----- Cash Flows from Investing Activities Additions to property, plant and equipment (39.8) (37.1) Proceeds from disposal of property, plant and equipment 0.5 0.9 Proceeds from sale of certain clinical chemistry assets 0.2 12.0 ----- ----- Net cash used by investing activities (39.1) (24.2) ----- ----- Cash Flows from Financing Activities Dividends to stockholders (5.1) (4.7) Proceeds from issuance of stock 9.2 8.6 Notes payable reductions (26.7) (1.2) Long-term debt borrowings 7.9 -- Long-term debt reductions (1.4) (18.5) ----- ----- Net cash used by financing activities (16.1) (15.8) ----- ----- Effect of exchange rates on cash and equivalents (0.2) (1.3) ----- ----- Decrease in cash and equivalents (7.1) (25.2) Cash and equivalents - beginning of period 29.6 34.4 ----- ----- Cash and equivalents - end of period $22.5 $ 9.2 ===== ===== Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest $16.9 $17.3 Income taxes $ 4.1 $ 6.3 Noncash investing and financing activities: Purchase of equipment under capital lease $ 1.3 $ 0.4
See accompanying notes to condensed consolidated financial statements. 5 6 BECKMAN COULTER, INC. Notes To Condensed Consolidated Financial Statements March 31, 2001 Unaudited 1. Report by Management The Company prepared the accompanying Condensed Consolidated Financial Statements following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes or other financial information normally required by accounting principles generally accepted in the United States of America have been condensed or omitted. The financial statements include all normal and recurring adjustments that the Company considers necessary for the fair presentation of its financial position and operating results. To obtain a more detailed understanding of the Company's results, these Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes in Beckman Coulter's annual report on Form 10-K for the year ended December 31, 2000. Revenues, expenses, assets and liabilities can vary between the quarters of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. 2. Accounting Change Effective January 1, 2001, the Company adopted 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. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in other nonoperating (income)/expense. If the derivative is designated as a cash flow hedge, the effective portion of the fair value of the derivative is recorded in other comprehensive income ("OCI") and is subsequently recognized in other nonoperating (income)/expense when the hedged future foreign currency cash flows are received. Ineffective portions of changes in the fair value of cash flow hedges are recognized in other nonoperating (income)/expense. The adoption of SFAS 133 resulted in a cumulative after-tax reduction to income of $3.1 million (net of income taxes of $1.8 million). 6 7 3. Derivatives The Company uses derivative financial instruments to hedge foreign currency and interest rate exposures. The Company's objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures. 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. 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, the Company uses derivative financial instruments (or "foreign currency contracts") to hedge the foreign currency exposure resulting from cash flows attributable to anticipated intercompany transactions. These foreign currency contracts include forward and option contracts and are designated as cash flow hedges. Prior to the date of adoption of SFAS 133, the Company's existing foreign currency contracts were characterized as fair value hedges. The effect of the re-characterization to cash flow hedges on January 1, 2001 was not material. The Company also uses foreign currency swap contracts to hedge loans between subsidiaries. These foreign currency swap contracts are designated as fair value hedges. For options designated as cash flow hedges, changes in time value are excluded from the assessment of hedge effectiveness. Hedge ineffectiveness associated with the Company's cash flow hedges was $0.5 million for the three months ended March 31, 2001. No hedge ineffectiveness was recognized on the Company's fair value hedges during the three months ended March 31, 2001. No fair value or cash flow hedges were discontinued for the three months ended March 31, 2001. Derivative gains and losses included in OCI are reclassified into other nonoperating (income)/expense at the time the hedged future foreign currency cash flows are received. The Company estimates that the $10.1 million unrealized gain included in OCI at March 31, 2001 will be reclassified to other nonoperating (income)/expense within the next twelve months. The actual amounts that will be reclassified to earnings over the next twelve months will vary from this amount as a result of changes in market conditions. Interest Rate The Company uses interest rate derivative contracts on certain borrowing transactions to hedge fluctuating interest rates. Interest differentials paid or received under these contracts are recognized as adjustments to the effective yield of the underlying financial instruments hedged. 7 8 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 (5.1% at March 31, 2001). These reverse interest rate swaps are designated as fair value hedges and are deemed perfectly effective pursuant to SFAS 133 as all significant terms of the Senior Notes and the reverse interest rate swap contracts match. At March 31, 2001, the fair value of the reverse interest rate swaps was $8.4 million and is included in other assets. The offsetting $8.4 million credit is included in long-term debt as a fair value adjustment to the Senior Notes. 4. Comprehensive Income The Company's components of comprehensive income include net earnings, foreign currency adjustments and derivatives qualifying as hedges, as follows (in millions):
Three Months Ended ------------------ March 31, --------- 2001 2000 ---- ---- Net earnings $20.3 $21.0 ----- ----- Foreign currency translation adjustment 4.7 (11.3) ----- ----- Derivatives qualifying as hedges: Net derivative gains 10.9 -- Reclassifications to income (0.8) -- ----- ----- 10.1 -- ----- ----- Comprehensive income $35.1 $ 9.7 ===== =====
5. Earnings Per Share The following is a reconciliation of the numerators and denominators used in computing basic and diluted earnings per share ("EPS") before accounting change (in millions, except amounts per share):
Three Months Ended March 31, ----------------------------------------------------------------------- 2001 2000 -------------------------------- -------------------------------- Earnings Before Per Per Accounting Share Net Share Change Shares Amount Earnings Shares Amount ---------- ------ ------ -------- ------ ------ Basic EPS: Net earnings $23.4 60.0 $0.39 $21.0 58.2 $0.36 Effect of dilutive stock options -- 3.3 (0.02) -- 2.2 (0.01) ----- ----- ----- ----- ----- ----- Diluted EPS: Net earnings $23.4 63.3 $0.37 $21.0 60.4 $0.35 ===== ===== ===== ===== ===== =====
8 9 At March 31, 2001 and 2000, there were 1.4 million and 1.3 million shares, respectively, relating to the possible exercise of outstanding stock options that were not included in the computation of diluted EPS as their effect would have been anti-dilutive. 6. Sale of Receivables During the three months ended March 31, 2001, the Company sold certain sales-type lease receivables as part of the Company's plan to reduce debt. The net book value of financial assets sold was $17.4 million for which the Company received $18.5 million in cash proceeds. During the three months ended March 31, 2000, the Company sold similar assets with a net book value of $29.8 million for cash proceeds of $29.9 million. The transactions were accounted for as asset sales and as a result the related receivables have been excluded from the accompanying Condensed 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. 7. Inventories Inventories consisted of the following (in millions):
March 31, 2001 December 31, 2000 -------------- ----------------- Finished products $235.3 $214.0 Raw materials, parts and assemblies 101.1 95.7 Work in process 22.6 22.4 ------ ------ $359.0 $332.1 ====== ======
8. Contingencies In December 1999, Streck Laboratories, Inc. ("Streck") sued Beckman Coulter and Coulter Corporation in the United States District Court for the District of Nebraska. Streck alleges that certain hematology control products sold by Beckman Coulter and/or Coulter Corporation infringe each of six patents owned by Streck, and seeks injunctive relief, damages, attorney fees and costs. The Company, on behalf of itself and Coulter Corporation, denied liability and filed a counterclaim against Streck for patent infringement. Beckman Coulter and Streck continue to conduct discovery and trial is currently scheduled for March 2002. The Company believes 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 consolidated operations or financial position. In addition to the above matter, the Company is involved in a number of other 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. 9 10 9. 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 table 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. During the quarter ended March 31, 2001, the Company announced the formation of three divisions aligned with the biomedical testing continuum: Life Science Research, Specialty Testing and Clinical Diagnostics. Implementation is expected by year-end, with revised segment reporting beginning in the first quarter of 2002.
(in millions) For the quarters ended ---------------------- March 31, --------- 2001 2000 ---- ---- Net sales Clinical diagnostics $348.0 $353.1 Life science research 84.7 81.3 Center -- -- ------ ------ Consolidated $432.7 $434.4 ====== ====== Operating income (loss) Clinical diagnostics $ 54.6 $ 57.1 Life science research 10.4 7.0 Center (15.7) (17.3) ------ ------ Consolidated $ 49.3 $ 46.8 ====== ====== Interest income Clinical diagnostics $ (1.0) $ (0.7) Life science research -- -- Center (1.5) (0.7) ------ ------ Consolidated $ (2.5) $ (1.4) ====== ====== Interest expense Clinical diagnostics $ -- $ -- Life science research -- -- Center 16.4 18.6 ------ ------ Consolidated $ 16.4 $ 18.6 ====== ====== Sales to external customers Americas $281.6 $262.5 Europe 103.0 122.4 Asia 48.1 49.5 ------ ------ Consolidated $432.7 $434.4 ====== ======
10 11
March 31, 2001 December 31, 2000 -------------- ----------------- Total assets Clinical diagnostics $1,381.0 $1,356.8 Life science research 186.9 201.7 Center 474.0 459.7 -------- -------- Consolidated $2,041.9 $2,018.2 ======== ======== Long-lived assets Americas $1,013.7 $ 997.7 Europe 75.5 72.8 Asia 18.7 19.9 -------- -------- Consolidated $1,107.9 $1,090.4 ======== ========
10. Debt Financing and Guarantor Subsidiaries In March 1998, the Company issued $160.0 million of 7.10% Senior Notes due 2003 and $240.0 million of 7.45% Senior Notes due 2008 (the "Offering"). In connection with the Offering, certain of the Company's subsidiaries (the "Guarantor Subsidiaries") jointly, fully, severally and unconditionally guaranteed such notes. Pursuant to Securities and Exchange Commission regulations, certain condensed financial information about the Parent, Guarantor Subsidiaries 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. 11 12
Non- Guarantor Guarantor Subsi- Subsi- Elimina- Consoli- Parent diaries diaries tions dated ------ ------- ------- ----- ----- Condensed Consolidated Statement of Operations Quarter ended March 31, 2001 Sales $ 349.5 $ 69.3 $ 202.2 $(188.3) $ 432.7 Operating costs and expenses: Cost of sales 216.1 53.9 148.2 (187.3) 230.9 Selling, general and administrative 61.0 9.8 39.5 -- 110.3 Research and development 24.3 16.8 1.1 -- 42.2 ------- ------- ------- ------- ------- Operating income (loss) 48.1 (11.2) 13.4 (1.0) 49.3 Nonoperating (income) expenses 13.3 3.4 (0.7) (0.6) 15.4 ------- ------- ------- ------- ------- Earnings (loss) before income taxes and accounting change 34.8 (14.6) 14.1 (0.4) 33.9 Income tax expense (benefit) 10.8 (4.5) 4.4 (0.2) 10.5 ------- ------- ------- ------- ------- Earnings (loss) before accounting change 24.0 (10.1) 9.7 (0.2) 23.4 Cumulative effect of accounting change 3.1 -- -- -- 3.1 ------- ------- ------- ------- ------- Net earnings (loss) $ 20.9 $ (10.1) $ 9.7 $ (0.2) $ 20.3 ======= ======= ======= ======= =======
12 13
Non- Guarantor Guarantor Subsi- Subsi- Elimina- Consoli- Parent diaries diaries tions dated ------ ------- ------- ----- ----- Condensed Consolidated Statement of Operations Quarter ended March 31, 2000 Sales $ 330.3 $ 75.7 $ 222.7 $(194.3) $ 434.4 Operating costs and expenses: Cost of sales 202.6 55.9 169.5 (196.5) 231.5 Selling, general and administrative 61.3 12.6 41.3 -- 115.2 Research and development 24.2 15.4 1.3 -- 40.9 ------- ------- ------- ------- ------- Operating income (loss) 42.2 (8.2) 10.6 2.2 46.8 Nonoperating (income) expense 13.8 3.4 (0.7) (0.1) 16.4 ------- ------- ------- ------- ------- Earnings (loss) before income taxes 28.4 (11.6) 11.3 2.3 30.4 Income taxes expense (benefit) 8.8 (3.1) 3.0 0.7 9.4 ------- ------- ------- ------- ------- Net earnings (loss) $ 19.6 $ (8.5) $ 8.3 $ 1.6 $ 21.0 ======= ======= ======= ======= =======
13 14
Non- Guarantor Guarantor Subsi- Subsi- Elimina- Consoli- Parent diaries diaries tions dated ------ ------- ------- ----- ----- Condensed Consolidated Balance Sheet March 31, 2001 Assets: Cash and equivalents $ (39.8) $ (9.1) $ 71.4 $ -- $ 22.5 Trade and other receivables 240.7 3.6 264.5 -- 508.8 Inventories 237.3 40.7 117.4 (36.4) 359.0 Other current assets 912.2 1,104.4 58.0 (2,030.9) 43.7 --------- --------- --------- --------- --------- Total current assets 1,350.4 1,139.6 511.3 (2,067.3) 934.0 Property, plant and equipment, net 184.3 88.6 108.5 (68.2) 313.2 Goodwill, net 9.6 319.9 -- -- 329.5 Other intangibles, net 27.9 346.2 3.7 -- 377.8 Other assets 1,093.7 23.7 281.8 (1,311.8) 87.4 --------- --------- --------- --------- --------- Total assets $ 2,665.9 $ 1,918.0 $ 905.3 $(3,447.3) $ 2,041.9 ========= ========= ========= ========= ========= Liabilities: Notes payable and current maturities of long-term debt $ 3.9 $ 0.1 $ 20.9 $ -- $ 24.9 Accounts payable and accrued expenses 250.7 25.0 93.9 -- 369.6 Other current liabilities 876.4 612.4 96.9 (1,522.9) 62.8 --------- --------- --------- --------- --------- Total current liabilities 1,131.0 637.5 211.7 (1,522.9) 457.3 Long-term debt, less current maturities 823.6 -- 53.3 -- 876.9 Other liabilities 333.9 589.8 40.4 (639.5) 324.6 --------- --------- --------- --------- --------- Total liabilities 2,288.5 1,227.3 305.4 (2,162.4) 1,658.8 Total stockholders' equity 377.4 690.7 599.9 (1,284.9) 383.1 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 2,665.9 $ 1,918.0 $ 905.3 $(3,447.3) $ 2,041.9 ========= ========= ========= ========= =========
14 15
Non- Guarantor Guarantor Subsi- Subsi- Elimina- Consoli- Parent diaries diaries tions dated ------ ------- ------- ----- ----- Condensed Consolidated Balance Sheet December 31, 2000 Assets: Cash and equivalents $ (28.3) $ (4.3) $ 62.2 $ -- $ 29.6 Trade and other receivables 258.6 3.7 274.4 -- 536.7 Inventories 221.7 38.2 103.3 (31.1) 332.1 Other current assets 814.1 1,028.4 51.7 (1,864.8) 29.4 --------- --------- --------- --------- --------- Total current assets 1,266.1 1,066.0 491.6 (1,895.9) 927.8 Property, plant and equipment, net 172.1 86.3 109.9 (70.1) 298.2 Goodwill, net 10.7 321.0 -- -- 331.7 Other intangibles, net 26.9 350.2 5.6 -- 382.7 Other assets 1,308.2 22.3 300.8 (1,553.5) 77.8 --------- --------- --------- --------- --------- Total assets $ 2,784.0 $ 1,845.8 $ 907.9 $(3,519.5) $ 2,018.2 ========= ========= ========= ========= ========= Liabilities: Notes payable and current maturities of long-term debt $ 32.8 $ 0.1 $ 19.2 $ -- $ 52.1 Accounts payable and accrued expenses 301.1 24.6 76.7 (11.7) 390.7 Other current liabilities 832.1 539.3 99.4 (1,412.5) 58.3 --------- --------- --------- --------- --------- 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 ========= ========= ========= ========= =========
15 16
Non- Guarantor Guarantor Subsi- Subsi- Consoli- Parent diaries diaries dated ------ ------- ------- ----- Condensed Consolidated Statement of Cash Flows Quarter Ended March 31, 2001 Net cash provided (used) by operating activities $ 6.5 $ (4.2) $ 46.0 $ 48.3 ------ ------ ------ ------ Cash flows from investing activities: Additions to property, plant and equipment (26.1) (3.0) (10.7) (39.8) Proceeds from sale of instruments leased to customers under operating lease arrangements -- -- 0.2 0.2 Proceeds from disposal of property, plant and equipment -- 0.5 -- 0.5 ------ ------ ------ ------ Net cash used by investing activities (26.1) (2.5) (10.5) (39.1) ------ ------ ------ ------ Cash flows from financing activities: Dividends to stockholders (5.1) -- -- (5.1) Proceeds from issuance of stock 9.2 -- -- 9.2 Notes payable (reductions) borrowings (29.0) -- 2.3 (26.7) Net intercompany (reductions) borrowings 24.1 1.9 (26.0) -- Long-term debt (reductions) borrowings 8.9 -- (2.4) 6.5 ------ ------ ------ ------ Net cash (used) provided by financing activities 8.1 1.9 (26.1) (16.1) ------ ------ ------ ------ Effect of exchange rates on cash and equivalents -- -- (0.2) (0.2) ------ ------ ------ ------ (Decrease) increase in cash and equivalents (11.5) (4.8) 9.2 (7.1) Cash and equivalents - beginning of period (28.3) (4.3) 62.2 29.6 ------ ------ ------ ------ Cash and equivalents - end of period $(39.8) $ (9.1) $ 71.4 $ 22.5 ====== ====== ====== ======
16 17
Non- Guarantor Guarantor Subsi- Subsi- Consoli- Parent diaries diaries dated ------ ------- ------- ----- Condensed Consolidated Statement of Cash Flows Quarter Ended March 31, 2000 Net cash provided (used) by operating activities $(43.0) $ (6.1) $ 65.2 $ 16.1 ------ ------ ------ ------ Cash flows from investing activities: Additions to property, plant and equipment (19.6) (1.5) (16.0) (37.1) Proceeds from sale of instruments leased to customers under operating lease arrangements -- -- 12.0 12.0 Proceeds from disposal of property, plant and equipment -- -- 0.9 0.9 ------ ------ ------ ------ Net cash used by investing activities (19.6) (1.5) (3.1) (24.2) ------ ------ ------ ------ Cash flows from financing activities: Dividends to stockholders (4.7) -- -- (4.7) Proceeds from issuance of stock 8.6 -- -- 8.6 Notes payable (reductions) borrowings 5.7 (0.3) (6.6) (1.2) Net intercompany (reductions) borrowings 35.4 -- (35.4) -- Long-term debt reductions (17.3) -- (1.2) (18.5) ------ ------ ------ ------ Net cash (used) provided by financing activities 27.7 (0.3) (43.2) (15.8) ------ ------ ------ ------ Effect of exchange rates on cash and equivalents -- -- (1.3) (1.3) ------ ------ ------ ------ (Decrease) increase in cash and equivalents (34.9) (7.9) 17.6 (25.2) Cash and equivalents - beginning of period (5.3) 3.7 36.0 34.4 ------ ------ ------ ------ Cash and equivalents - end of period $(40.2) $ (4.2) $ 53.6 $ 9.2 ====== ====== ====== ======
17 18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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, clinical trials and drug discovery to diagnostic tools found in hospitals and physicians' offices. We compete in market segments that totaled approximately $31 billion in annual sales worldwide in 1999, and we currently have products which address approximately half of that market. Our product lines cover virtually all blood tests routinely performed in hospital laboratories and include a range of systems for medical and pharmaceutical research. We offer a wide range of instrument systems and related products, including reagents, consumables, accessories and support services in both the clinical diagnostics and life science research segments. We have more than 175,000 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. We market our 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 during the quarter ended March 31, 2001: - Announced the formation of three divisions aligned with the biomedical testing continuum: Life Science Research, Specialty Testing and Clinical Diagnostics. Implementation is expected by year-end, with revised segment reporting beginning in the first quarter of 2002. - Extended the original three-year chemistry contract with Novation for an additional two years, which is expected to generate $144 million in revenue through December 31, 2002. - Shipped both the new Span-8 and 384-well pipetting options for the Biomek(R) FX laboratory automation workstation, dramatically expanding the utility of the robotic automation system in specialty and discovery testing. - Signed an agreement with Biopool International dba XTRANA, Inc. to distribute its DNA extraction kits for use on Beckman Coulter's laboratory automation systems. Results of Operations On a constant currency basis, and excluding a one-time asset sale during the quarter ended March 31, 2000 (see below for discussion), sales increased 6.5% in the first quarter of 2001. Reported sales were $432.7 million during the quarter ended March 31, 2001, a decrease of 0.4% compared to reported sales of $434.4 million in the same period in the prior year. The following provides key product and geographical sales information (amounts in millions): 18 19
KEY PRODUCT SALES Q1 2001 Q1 2001 ------- ------- Excluding One-time Asset Sale* ------------------------------ Constant Constant Reported Currency Reported Currency $ Growth % Growth % Growth % Growth % -------- -------- -------- -------- -------- Routine Chemistry $123.5 (8.1) (5.9) 4.8 7.4 Immunodiagnostics 85.3 9.9 12.5 9.9 12.5 ------ ------ ------ ------ ------ Total Chemistry 208.8 (1.5) 0.8 6.9 9.4 Hematology 91.0 (5.1) (2.5) (5.1) (2.5) Cytometry 39.8 6.7 11.0 6.7 11.0 ------ ------ ------ ------ ------ Total Cellular Analysis 130.8 (1.8) 1.3 (1.8) 1.3 Particle Characterization 8.4 6.3 10.1 6.3 10.1 ------ ------ ------ ------ ------ Total Clinical Diagnostics 348.0 (1.4) 1.2 3.4 6.2 ------ ------ ------ ------ ------ Robotic Auto./Genetic Analysis 25.9 22.7 27.5 22.7 27.5 Centrifuge/Analytical Systems 58.8 (2.3) 1.0 (2.3) 1.0 ------ ------ ------ ------ ------ Total Life Science Research 84.7 4.2 7.9 4.2 7.9 ------ ------ ------ ------ ------ Total Beckman Coulter $432.7 (0.4) 2.5 3.6 6.5 ====== ====== ====== ====== ======
GEOGRAPHICAL SALES Q1 2001 Q1 2001 ------- ------- Excluding One-time Asset Sale* ------------------------------ Constant Constant Reported Currency Reported Currency $ Growth % Growth % Growth % Growth % -------- -------- -------- -------- -------- Clinical Diagnostics Americas $230.9 7.5 7.8 7.5 7.8 Europe 82.2 (18.7) (12.4) (2.7) 4.9 Asia 34.9 (6.4) -- (6.4) -- ------ ------ ------ ------ ------ Total Clinical Diagnostics 348.0 (1.4) 1.2 3.4 6.2 ------ ------ ------ ------ ------ Life Science Research Americas 50.7 6.1 6.5 6.1 6.5 Europe 20.8 (2.3) 5.6 (2.3) 5.6 Asia 13.2 8.2 17.2 8.2 17.2 ------ ------ ------ ------ ------ Total Life Science Research 84.7 4.2 7.9 4.2 7.9 ------ ------ ------ ------ ------ Total Beckman Coulter Americas 281.6 7.3 7.6 7.3 7.6 Europe 103.0 (15.8) (9.2) (2.6) 5.0 Asia 48.1 (2.8) 4.2 (2.8) 4.2 ------ ------ ------ ------ ------ Total Beckman Coulter $432.7 (0.4) 2.5 3.6 6.5 ====== ====== ====== ====== ======
* Percentages have been adjusted to exclude the one-time $16.6 million sale of clinical chemistry assets in Spain to a third party distributor in Q1 2000. 19 20 Sales during the quarter ended March 31, 2001 were affected by the following: - Robotic automation & genetic analysis sales grew 27.5% in constant currency, driven by placements of the Biomek(R) FX laboratory automation workstation. - Immunodiagnostics sales grew 12.5% in constant currency, led by a more than 40% increase in Access(R) immunoassay product sales. - Routine chemistry sales grew 7.4% in constant currency excluding the one-time sale of clinical chemistry assets in Spain in the first quarter of 2000. Sales were driven by a 33% increase in placements of SYNCHRON(R) family clinical systems. Gross profit as a percentage of sales in the first quarter of 2001 was 46.6%, 0.1 percentage points lower than the same period in the prior year. The reported decrease in gross profit is mainly due to the effects of currency fluctuations relative to the U.S. dollar. On a constant currency basis, gross profit in the first quarter of 2001 was 47.4%, 0.7 percentage points higher than in the same period in the prior year. Selling, general and administrative expenses ("SG&A") decreased $4.9 million to $110.3 million or 25.5% of sales in the first quarter of 2001 from $115.2 million or 26.5% of sales in the first quarter of 2000. The decrease in SG&A is primarily due to a $3.8 million reversal of an accrual associated with a cross-licensing agreement. Excluding this accrual reversal, SG&A would have been $114.1 million, or 26.4% of sales. Research and Development ("R&D") expenses increased $1.3 million to $42.2 million in the first quarter of 2001 from $40.9 million in the first quarter of 2000. The increase is primarily due to increased R&D expenses associated with our Immunomics operation. Interest expense decreased $2.2 million to $16.4 million in the first quarter of 2001 from $18.6 million in the first quarter of 2000. The decrease from the prior year quarter was due to debt reduction and lower interest rates. Other nonoperating (income) expense was $1.5 million for the quarter ended March 31, 2001 and primarily consisted of the following: - a write-down of $4.7 million for an equity investment in point-of-care testing; - foreign currency related activity of $(2.0) million; and - a gain on the sale of certain sales-type lease receivables of $(0.9) million (see Note 6 "Sale of Receivables"). Earnings before the accounting change were $23.4 million for the first quarter of 2001 or $0.37 per diluted share compared to $21.0 million or $0.35 per diluted share in 2000. The increase in earnings before the accounting change is due to the various reasons discussed previously. Effective January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". The adoption of this standard resulted in an after-tax reduction to income of $3.1 million (net of income taxes of $1.8 million). Including this accounting change, net earnings were $20.3 million or $0.32 per diluted share. See Note 2 "Accounting Change" for further discussion. 20 21 Financial Condition As discussed in greater detail in our 2000 annual report, we are a leveraged company. Although the debt-to-capital ratio has improved from 72.7% at December 31, 2000 to 70.2% at March 31, 2001, among other things, our high level of debt: - increases our vulnerability to general adverse economic and industry conditions; - could limit our ability to obtain additional financing on favorable terms; and - requires the dedication of a substantial portion of our cash flow from operations to the payment of principal and interest on indebtedness. In addition, our agreements with our lenders contain a number of covenants, which, among other things, require us to comply with specified financial ratios and tests. At March 31, 2001, we are in compliance with such financial ratios and tests. Operating activities provided cash of $48.3 million in the first three months of 2001 compared to $16.1 million in the first three months of the prior year. The primary contributors were: - cash paid to settle accounts payable, accrued expenses and other liabilities were $33.6 million in 2001 as compared to $68.2 million in 2000; and - increases in inventories used $24.4 million in 2001 as compared to $37.6 million in 2000; These contributors were partially offset by the following: - proceeds from sales of sales-type lease receivables of $18.5 million in 2001 versus $29.9 million in 2000; and - reductions in trade and other receivables of $10.1 million in 2001 versus $28.1 million in 2000. In 2001, investing activities used $39.1 million of net cash primarily consisting of $39.8 million of additions to property, plant and equipment. In 2000, investing activities used $24.2 million of net cash, primarily consisting of $37.1 million of net capital purchases, partially offset by $12.0 million in proceeds from the sale of clinical chemistry assets in Spain. Net cash used by financing activities was $16.1 million for the three-month period in 2001 compared to $15.8 million in 2000. Net cash paid to reduce our debt was $20.2 million and $19.7 million during 2001 and 2000, respectively. Additionally, we paid $5.1 million and $4.7 million in dividends to our stockholders in 2001 and 2000, respectively. These amounts were partially offset by proceeds received from the issuance of stock of $9.2 million and $8.6 million in 2001 and 2000, respectively. 21 22 Our strategies for growth require a flexible infrastructure. As a result of an aggressive acquisition schedule in 1996 and 1997, there are multiple systems and processes currently in use throughout the Company. We have chosen to implement an Oracle enterprise resource planning system ("ERP") to achieve a single, globally integrated infrastructure. This includes functionality for Finance, Human Resources, Supply Chain, Order Management, Sales and Service to replace or complement existing legacy systems and business processes. We expect the majority of the work to implement these new systems will take place in 2001 and 2002 with completion expected in 2003. If we are unable to implement and effectively manage the transition to this new integrated system, our future consolidated operating results could be adversely affected. In addition to the decline in our debt-to-capital ratio mentioned previously, the ratio of current assets to current liabilities ("current ratio") improved to 2.0 at March 31, 2001 from 1.9 at December 31, 2000. The improvement is primarily due to a decrease in current liabilities associated with lower levels of notes payable and current maturities of long-term debt and accounts payable, accrued expenses and other liabilities. Based upon current levels of operations, anticipated cost savings and future growth, we believe that our cash flow from operations, together with available borrowings under the credit facility and other sources of liquidity (including other credit facilities, leases and any other available financing sources) will be adequate to meet our anticipated requirements until the maturity of the credit facility in October 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 evaluate 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 flows at or above current levels or that estimated cost savings or growth can be achieved. Future operating performance and ability to service or refinance our 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. In March 2001, we paid a quarterly cash dividend of $0.085 per share of common stock, for a total of $5.1 million. 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. 22 23 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. 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; - 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. 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 (for example, AIDS and cancer); and - expanding demand for improved healthcare services in developing countries. 23 24 In addition to the business climate factors discussed previously, certain 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. Forward Looking Statements This Form 10-Q contains forward-looking statements, including statements regarding, among other items: - the schedule for completion of our ERP program; - anticipated debt reduction; - our business strategy; - anticipated trends in our business; and - our liquidity requirements and capital resources. 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: - unanticipated delays in completing our ERP program; - anticipated debt reduction; - 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 effect 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. 24 25 Item 3. Quantitative and Qualitative Disclosures About Market Risk Our cash flow and earnings are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. We attempt to limit our exposure to these market risks through the use of various financial instruments. Assuming a hypothetical 10% strengthening and 10% weakening of the spot exchange rates for the U.S. dollar against the foreign currencies at March 31, 2001, a 10% strengthening of the U.S. dollar would result in a gain in fair value of $8.8 million and a 10% weakening of the U.S. dollar would result in a loss in fair value of $8.4 million in these instruments. With respect to interest rates, a one percentage point increase or decrease in interest rates would decrease or increase current year's pre-tax earnings by $6.2 million. For further discussion of the Company's market risk exposures, refer to the section entitled "Financial Risk Management" included in "Management's Discussion and Analysis" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 25 26 PART II OTHER INFORMATION Item 1. Legal Proceedings In December 1999, Streck Laboratories, Inc. sued Beckman Coulter and Coulter Corporation in the United States District Court for the District of Nebraska. Streck alleges that certain hematology control products sold by Beckman Coulter and/or Coulter Corporation infringe each of six patents owned by Streck, and seeks injunctive relief, damages, attorney fees and costs. We, on behalf of ourselves and Coulter Corporation, denied liability and filed a counterclaim against Streck for patent infringement. Beckman Coulter and Streck continue to conduct discovery, and trial is currently scheduled for March 2002. We believe that there is no reasonable basis for us to conclude that this litigation could lead to an outcome that would have a material adverse effect on our consolidated operations or financial position. Item 2. Changes In Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security-Holders The annual meeting of the Stockholders of the Company (the "Annual Meeting") was held on April 5, 2001. Four members of the Board of Directors whose terms expired at the 2001 Annual Meeting were elected to new terms expiring at the 2004 Annual Meeting. The number of shares voting were as follows:
Votes For Votes Withheld --------- -------------- Ronald W. Dollens 47,121,923 2,390,268 Charles A. Haggerty 49,317,045 195,146 William N. Kelley, M.D. 49,323,665 188,526 Risa J. Lavizzo-Mourey, M.D. 49,245,734 266,457
The remaining members of the Board of Directors who will continue in office and the year in which their terms expire are: Term Expiring in 2002: Hugh K. Coble, Van B. Honeycutt, John P. Wareham, and Betty Woods. Term Expiring in 2003: Peter B. Dervan, Ph.D., Gavin S. Herbert, and C. Roderick O'Neil. The proposal for the extension and restatement of the Company's Employees' Stock Purchase Plan ("ESPP")was approved. The vote was 38,645,087 for, 3,468,238 against, and 98,963 abstained. 26 27 Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K a) Exhibits 11. Statement re Computation of Per Share Earnings: This information is set forth in Note 5, Net Earnings Per Share of the Condensed Consolidated Financial Statements included in Part I herein. 15. Independent Accountants' Review Report, April 27, 2001 b) Reports on Form 8-K None. 27 28 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BECKMAN COULTER, INC. (Registrant) Date: May 11, 2001 by /s/ JACK E. SOROKIN --------------------------------- Jack E. Sorokin Assistant General Counsel Date: May 11, 2001 by /s/ AMIN I. KHALIFA --------------------------------- Amin I. Khalifa Vice President, Finance and Chief Financial Officer 28 29 EXHIBIT INDEX FORM 10-Q, FIRST QUARTER, 2001 Exhibit Number Description ------- ----------- 11. Statement re Computation of Per Share Earnings: This information is set forth in Note 5, Earnings Per Share, of the Condensed Consolidated Financial Statements included in Part I herein. 15. Independent Accountants' Review Report, April 27, 2001