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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 15, 1997
BECKMAN INSTRUMENTS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or other Jurisdiction of Incorporation)
001-10109 95-104-0600
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(Commission File Number) (IRS Employer Identification No.)
2500 Harbor Boulevard, Fullerton, CA 92834-3100
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(Address of Principal Executive Offices) (Zip Code)
(714) 871-4848
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Registrant's Telephone Number
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INDEX
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Page
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Item 5. Other Events .............................................. 1
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits......................... 10
Signature .............................................................. S-1
Exhibit Index .......................................................... E-1
Exhibit 23.1 ........................................................... E-2
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Item 5. Other Events.
On August 29, 1997, Beckman Instruments, Inc. entered into a definitive
stock purchase agreement (the "Stock Purchase Agreement") with Coulter
Corporation and its stockholders. Pursuant to the Stock Purchase Agreement,
Beckman Instruments, Inc. will acquire 100% of the outstanding capital stock of
Coulter Corporation (the "Acquisition"). This Report provides a summary of (i)
the Acquisition (see "The Acquisition"), (ii) certain terms relating to the
financing of the Acquisition (see "The Acquisition - The Transactions"), (iii)
certain of the effects of the Acquisition from a financial point of view (see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations"), and (iv) certain historical results of the operations of Coulter
Corporation (see "Management's Discussion and Analysis of Financial Conditions
and Results of Operations - Results of Operations - Coulter"). This Report also
provides pro forma financial statements of Beckman Instruments, Inc. and
Coulter Corporation that give effect to the Acquisition (see "Pro Forma
Financial Statements" on pages F-1 through F-7) and certain historical
financial statements of Coulter Corporation (see pages F-8 through F-36). The
consummation of the Acquisition is subject to certain conditions, and there can
be no assurance that the Acquisition will be consummated, or if consummated,
that it will be consummated on the terms described herein or that the financial
condition or results of operations of the combined companies will be as
described herein.
The terms "Beckman" and "Coulter," as used herein, refer to Beckman
Instruments, Inc. and Coulter Corporation, respectively, prior to the
consummation of the Acquisition and each includes, unless the context otherwise
requires, all of their respective consolidated subsidiaries. The term "Company"
or "Beckman Coulter" refers to Beckman Instruments, Inc. (which is expected to
be renamed, subject to stockholder approval, Beckman Coulter, Inc.) after giving
effect to the Acquisition and includes, unless the context otherwise requires,
all of its consolidated subsidiaries, including Coulter. The term "Pro Forma
1996" refers to the fiscal year ended December 31, 1996 for Beckman and the
fiscal year ended March 31, 1997 for Coulter, on a pro forma combined basis
giving effect to the Transactions (as defined herein). "Fiscal 1996," "Fiscal
1995" and "Fiscal 1994" refer to Beckman's fiscal years ended December 31, 1996,
1995 and 1994, respectively, or Coulter's fiscal years ended March 31, 1997,
1996 and 1995, respectively, as the context requires.
THE ACQUISITION
GENERAL
On August 29, 1997, Beckman entered into the Stock Purchase Agreement with
Coulter and its stockholders. Pursuant to the Stock Purchase Agreement, Beckman
will acquire 100% of the outstanding stock of Coulter and, thereafter, Coulter
will become a wholly owned subsidiary of Beckman. The purchase price for the
Acquisition is approximately $875.0 million in cash (subject to possible
post-closing adjustment), plus the assumption of approximately $180 million of
indebtedness (net of cash on hand). In connection with the Acquisition, certain
employees of Coulter are entitled to receive a sharing bonus, resulting in up to
an additional $100.0 million of obligations of Coulter that will be assumed by
Beckman, $57.0 million of which is due at the consummation of the Acquisition
and the balance of which will be paid out over the succeeding 12 months. Beckman
will also assume certain contingent obligations associated with possible change
of control severance payments to Coulter employees.
The Stock Purchase Agreement contains customary representations,
warranties, covenants and agreements for the transactions contemplated therein.
Subject to certain restrictions and limitations, the parties have agreed to
indemnify a non-breaching party against certain liabilities associated
therewith. Generally, a non-breaching party is entitled to indemnification of up
to $50.0 million in respect of aggregate damages and claims that exceed $10.0
million. In addition, at the consummation of the Acquisition, Beckman, the
stockholders of Coulter and an escrow agent will enter into an escrow agreement
with customary terms and conditions whereby $50.0 million of the $875.0 million
purchase price will be deposited into an escrow account to secure the
obligations of the stockholders of Coulter to Beckman under the Stock Purchase
Agreement. The $50.0 million of funds in the escrow are available to Beckman,
subject to certain conditions, for aggregate damages and claims that exceed
$10.0 million. One-half of the proceeds in the escrow will be distributed to the
stockholders of Coulter two years following the consummation of the Acquisition,
less any reserves subject to indemnification, and the remaining proceeds will be
distributed to the stockholders of Coulter three years following the
consummation of the Acquisition, less any reserves subject to indemnification.
Prior to the Acquisition, Coulter intends to spin-off to its stockholders
its remaining minority interest (16%) in Coulter Pharmaceutical, Inc. ("Coulter
Pharmaceutical") (which had total net assets of $1.5 million at June 30, 1997)
and to spin-off to its stockholders two-thirds of its interest in the
outstanding capital stock of Coulter Cellular Therapies, Inc. ("Coulter
Cellular") (68% of the outstanding capital stock of which was held at June 30,
1997 by Coulter, representing net assets of $1.6 million at June 30, 1997).
THE TRANSACTIONS
Concurrently with and as part of the financing for the Acquisition, the
Company expects to borrow approximately $635.8 million under a revolving credit
facility (the "Revolving Credit Facility") and
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approximately $300.0 million under a term loan (the "Term Loan") pursuant to a
new $1.1 billion credit facility (the "New Credit Facility"). In addition,
Beckman expects to obtain approximately $400.0 million from other financing
sources. In connection with the closing of the Acquisition, Beckman expects to
repay approximately $287.7 million of Beckman and Coulter indebtedness and
approximately $57.0 million of contractual obligations of Coulter to its
employees, as well as to pay Acquisition and financing-related fees and
expenses.
Outstanding borrowings under the Term Loan will be reduced if less than
100% of the Old Debentures (as defined herein) are tendered to the Company in
the Tender Offer (as defined herein).
If Beckman obtains approximately $400.0 million from other financing
sources, Beckman will commence a tender offer (the "Tender Offer") to purchase
for cash any and all of Beckman's 7.05% Debentures due June 1, 2026 (the "Old
Debentures"). As of the date of this Report, $100.0 million aggregate principal
amount of Old Debentures are outstanding. Prior to the commencement of the
Tender Offer, Beckman will amend the indenture governing the Old Debentures to
increase the price at which holders of Old Debentures may elect to have the
Company purchase such Old Debentures in June 2006. Beckman intends that the Old
Debentures will rank pari passu with the borrowings under the New Credit
Facility. Beckman currently intends to permit the untendered Old Debentures to
remain outstanding. Changes in the assumptions regarding the aggregate amount of
the Old Debentures purchased pursuant to the Tender Offer are not expected to
have a significant impact on Beckman's pro forma interest expense or
consolidated indebtedness following the Acquisition.
The consummation of the Acquisition, the closing and initial borrowings
under the New Credit Facility and of any other financing sources, the Tender
Offer, certain repayments of indebtedness and discharge of other obligations of
both Beckman and Coulter and the payment of such fees and expenses are
collectively referred to herein as the "Transactions." See "Pro Forma Financial
Statements."
ABILITY TO SUCCESSFULLY INTEGRATE COULTER
Since 1995, Beckman has acquired four businesses or product lines. However,
management does not have experience in acquiring and integrating a business the
size of Coulter. The integration and consolidation of Coulter following the
Acquisition will require substantial management, financial and other resources.
While the Company believes that it has sufficient resources to manage the
Acquisition, the Acquisition involves a number of significant risks, including
diversion of management's attention, the inability to integrate successfully
Coulter's operations with those of Beckman, difficulties in assimilating the
technologies, services and products of Coulter, the inability to retain key
management employees of Coulter and unanticipated events or circumstances, some
or all of which could have a material adverse effect on the Company's business,
financial condition or results of operations. Moreover, there can be no
assurance as to the extent to which the anticipated benefits with respect to the
Acquisition will be realized, or the timing of any such realization. The
inability of the Company to integrate and manage Coulter successfully, or to
achieve a substantial portion of the anticipated benefits within the time frame
anticipated by management, could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements of Coulter included elsewhere in this Report
and the Consolidated Financial Statements of Beckman included in its Annual
Report on Form 10-K for the year ended December 31, 1996 and its Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997. The following
discussion and analysis covers periods before completion of the Transactions,
and unless otherwise indicated, the following discussion does not give effect
to the Transactions or include pro forma financial information or adjustments.
Accordingly, the discussion and analysis of such periods does not reflect the
significant impact that the Transactions will have on the Company. See "The
Acquisition -- Ability to Successfully Integrate Coulter," "Pro Forma Financial
Statements" and the discussion below under "-- Summary of Effects of the
Acquisition" and "-- Financial Condition."
OVERVIEW
Beckman Coulter is a world leader in providing systems that simplify and
automate laboratory processes. The Company designs, manufactures and services a
broad range of laboratory systems consisting of instruments, reagents and
related products that customers use to conduct basic scientific research, drug
discovery research and diagnostic analysis of patient samples. Approximately
two-thirds of the Company's Pro Forma 1996 sales were for clinical diagnostics
applications, principally in hospital laboratories, while the remaining sales
were for life sciences and drug discovery applications in universities, medical
schools, and pharmaceutical and biotechnology companies. The Company's systems
address over 75% of the hospital laboratory test volume, including virtually all
routine laboratory tests. The Company believes that it is a worldwide market
leader in its primary markets, with well-recognized systems and a reputation for
high-quality, reliable service.
SUMMARY OF EFFECTS OF THE ACQUISITION
The Acquisition and the related financings are expected to lower the net
earnings of the Company through 1998 as a result of a substantial increase in
interest expense, amortization of intangible assets and goodwill and various
other adjustments resulting from purchase accounting. Pro Forma 1996 net
earnings would have been approximately $20.0 million, which is 73.2% less than
Beckman's actual historical results. See "Pro Forma Financial Statements" and
"-- Financial Condition." In connection with the Acquisition, management
believes synergies of at least $60 million can be achieved by 1999, stemming
from a combination of increased revenues related to cross-selling opportunities
as well as reduced operating costs. The Company believes that earnings beyond
1998 should improve as a result of these synergies as well as contemplated
initiatives to reduce indebtedness and continued growth in its operations. No
assurances can be given as to the amount or timing of any synergies or debt
reduction, if any, that may actually be realized or that any such growth may
occur. See "The Acquisition -- Ability to Successfully Integrate Coulter."
Subsequent to the consummation of the Transactions, the Company expects to
pursue sales of certain financial assets (primarily consisting of equipment
subject to customer leases) and real estate assets as part of its plan to reduce
debt and to provide funds for integration programs. The Company is currently in
the process of conducting a thorough evaluation and review of the majority of
its contemplated asset sales, which are expected to include sale-leaseback
arrangements with respect to certain real estate assets. These asset sales (if
consummated) are expected to result in significant proceeds to the Company.
However, these sales are also expected to marginally reduce operating income
while decreasing nonoperating expenses, resulting in a slightly negative net
impact on the Company's pretax margins.
Sources and Uses of Funds. To consummate the Acquisition, Beckman expects
to borrow approximately $635.8 million under the Revolving Credit Facility and
approximately $300.0 million under the Term Loan, and to obtain approximately
$400.0 million from other financing sources. These funds, together with cash on
hand ($18.9 million as of June 30, 1997), will be used to purchase the common
stock of Coulter for $875.0 million (subject to possible post-closing
adjustment), repay approximately $287.7 million of Beckman and Coulter
indebtedness, repurchase all tendered Old Debentures, pay approximately $35.0
million of
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Acquisition and financing-related fees and expenses, and pay a portion of
certain assumed contractual obligations of Coulter to its employees under the
sharing bonus plan, estimated to be $57.0 million at the closing of the
Acquisition. Subsequent to the closing of the Acquisition, the Company will pay
out within 12 months up to approximately $43.0 million to satisfy the remainder
of the assumed obligations. See "The Acquisition."
Purchase Accounting. The Acquisition will be accounted for as a purchase.
Under purchase accounting, the total purchase cost and fair value of liabilities
assumed will be allocated to the tangible and intangible assets of the Company
based upon their respective fair values as of the closing of the Acquisition.
The excess of purchase cost over the fair value of assets acquired and
liabilities assumed, if any, will be recorded as goodwill. The Company will
allocate a portion of the purchase price to in-process R&D (as defined on page
F-5) projects that have economic value and to inventories. The Company currently
estimates that approximately $265.0 million will be allocated to in-process R&D
and will be charged to expense in the quarter in which the Acquisition occurs.
An estimated $17.0 million will be allocated to the revaluation of inventories
and will be charged to cost of sales over the period in which the inventories
are sold, which is expected to be one to two quarters following the consummation
of the Transactions. These charges are not reflected in the Pro Forma Statements
of Earnings due to their unusual, non-recurring nature. See "Pro Forma Financial
Statements." Future cost of sales and operating expenses may temporarily be
substantially higher and income from operations may be substantially lower as a
result of the effects of purchase accounting, as compared with the Company's
historical results.
Pro forma stockholders' equity will be reduced by approximately $265.0
million due to the write-off of estimated in-process R&D and by approximately
$28.0 million related to the after-tax effect of an estimated $44.0 million
restructuring charge. It is expected that approximately $610.6 million and
approximately $232.0 million of the Acquisition purchase price will be allocated
to identifiable intangible assets and goodwill, respectively, and amortized over
40 years.
Tax Aspects. As a result of expenses related to the Transactions, including
the Coulter bonus sharing plan payments, deductions for interest on indebtedness
and certain other expenses expected to be incurred in connection with the
Transactions, the Company does not expect that it will have to pay federal
income taxes for the next several years. The deferred income tax liability of
$232.0 million, which is related to the intangible assets acquired, will be
reduced by the tax effect of the amortization of the intangible assets, which is
not deductible for income tax purposes. The amortization of goodwill of $232.0
million is not deductible for income tax purposes, which has the impact of
increasing the effective tax rate by approximately three percentage points for
Pro Forma 1996.
FOREIGN CURRENCY EXPOSURE
During Fiscal 1996, approximately 50% of Beckman's sales and approximately
49% of Coulter's sales were generated outside the United States. Revenues from
non-U.S. sales fluctuate with changes in foreign currency exchange rates. U.S.
dollar-denominated expenses represent a much greater percentage of the Company's
operating expenses than U.S. dollar-denominated sales represent of total net
sales. As a result, appreciation of the U.S. dollar against the Company's major
trading currencies has a negative impact on the Company's results of operations,
and depreciation of the U.S. dollar against such currencies has a positive
impact. Since the Company actively hedges its foreign currency exposure, the
relative strength or weakness of the U.S. dollar is not likely to have a
material short-term effect on the Company's business decisions. Long-term
appreciation of the U.S. dollar could have a material adverse effect on the
Company's business, financial condition or results of operations. The Company
may adjust certain aspects of its operations in the event of a sustained
material change in such exchange rates. Appreciation of the U.S. dollar over the
last year has had a negative impact on the Company's sales in comparison to its
costs, which has adversely affected gross profit. See "-- Results of Operations
- -- Coulter."
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OTHER NONOPERATING INCOME AND EXPENSES
Other nonoperating income and expenses for Beckman and Coulter are
generally comprised of five primary items: (i) interest expense, (ii) interest
income, (iii) foreign exchange gains or losses, (iv) investments that are
non-core or are accounted for as a minority interest and (v) other nonoperating
gains or losses. Interest income typically includes income from sales-type
leases and interest on cash equivalents and other investments. Foreign exchange
gains or losses are primarily the result of the Company's hedging activities
(net of revaluation) and are recorded net of premiums paid. Other income, net as
reported by Coulter includes the results of operations of two investments,
Coulter Pharmaceutical and Coulter Cellular, which (except for a minority
interest in Coulter Cellular) have been eliminated in the Pro Forma Financial
Statements. See "The Acquisition -- General" and "Pro Forma Financial
Statements." Other nonoperating gains and losses are most frequently the result
of one-time items such as asset sales or other items.
RESULTS OF OPERATIONS--COULTER
The following table sets forth, for the period indicated, the results of
operations as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, YEAR ENDED MARCH 31,
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1997 1996 1997 1996 1995
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(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................................. 100% 100% 100% 100% 100%
Operating Costs and Expenses
Cost of sales....................................... 52.4 50.5 53.3 51.0 52.0
Selling, general and administrative expenses........ 33.8 34.3 31.1 31.7 31.3
Operating income before research and development
expense(a).......................................... 13.8 15.2 15.6 17.3 16.7
Research and development expense...................... 11.3 13.7 12.2 12.7 11.3
Operating income(a)................................... 2.5 1.5 3.4 4.6 5.4
Other (income) expense................................ 2.1 (1.5) (0.3) (0.8) 1.6
Income before income taxes(a)......................... 0.4 3.0 3.7 5.4 3.8
Net income(a)......................................... 0.3 2.2 2.6 4.8 2.6
</TABLE>
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(a) Amounts exclude restructuring charges of $5.9 million, 0.8% of sales for the
year ended March 31, 1997. Including the restructuring charges, operating
income was $17.8 million, 2.5% of sales for the year ended March 31, 1997.
Income before income taxes was $20.1 million, 2.9% of sales for the year
ended March 31, 1997.
Three Months Ended June 30, 1997 as Compared to Three Months Ended June 30,
1996
Coulter experienced sales growth of 3.5% over the same three-month period
of the prior year. The sales growth, which resulted from the introduction of the
GEN-S hematology system, was offset by pricing pressures from market competition
and unfavorable foreign currency fluctuations.
Gross profit as a percentage of sales decreased in the three months ended
June 30, 1997 by 1.9 percentage points. This decrease was due to product mix
shift toward instrument sales, pricing pressures, unfavorable foreign currency
fluctuations and new product start-up costs.
Selling, general and administrative expenses as a percentage of sales
improved by 0.5%, primarily from productivity improvements resulting from
Coulter's March 1997 restructuring. Research and development expenses declined
as a percentage of sales and in absolute dollars due to the completion of the
product launch of the GEN-S hematology system and restructuring.
The net change in other (income) expense is primarily due to an increase in
interest expense in 1997 and the recognition of a gain related to the investment
in Coulter Pharmaceutical in the prior period ended June 30, 1996.
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As a result of the foregoing, income before provision for income taxes
decreased by $4.0 million for the three months ended June 30, 1997 over the same
three-month period in 1996. Net income for the three months ended June 30, 1997
was $0.5 million, representing a decrease of 86% from the comparable period in
1996.
Year Ended March 31, 1997 as Compared to Year Ended March 31, 1996
Sales grew 2% over the prior year driven primarily by the full year's
impact of Coulter's June 1995 acquisition of Immunotech S.A. and increases in
sales of P-24 Reagents, offset by unfavorable foreign currency fluctuations and
continued pricing pressures.
Gross profit as a percentage of sales decreased as a result of unfavorable
foreign currency fluctuations and continued pricing pressures.
Operating costs, excluding the $5.9 million restructuring charge described
below, were essentially flat compared to the prior year. Currency fluctuations
and lower variable compensation expense had a positive impact on operating
costs.
Operating income for Fiscal 1996 was also affected by a restructuring
charge of $5.9 million to cover the costs associated with a reduction in its
workforce across all functional areas.
As a result of the foregoing, income before provision for income taxes for
Fiscal 1996 decreased $17.6 million from the $37.7 million achieved in Fiscal
1995 to $20.1 million in Fiscal 1996. The effective tax rate increased to 27.5%
from 12.3% in the prior year as a result of a change in the geographic mix of
income, and to a lesser extent, the recognition of fewer deferred tax items than
in the prior year. Net income for Fiscal 1996 was $14.6 million, representing a
decrease of 55.8% from Fiscal 1995.
Year Ended March 31, 1996 as Compared to Year Ended March 31, 1995
Sales grew nearly 5% over the prior year. Sales growth was positively
affected by the acquisition of Immunotech S.A., partially offset by competitive
pricing pressures.
Gross profit as a percentage of sales increased during the period due to a
favorable shift in product mix reflecting relatively more sales of reagents.
Selling, general and administrative expenses increased as a percentage of
sales due to inflationary pressures and increased operating costs resulting from
the acquisition of Immunotech. The investment in research and development was
higher due to the acquisition of Immunotech and the development of a new
generation hematology analyzer.
Other (income) expense increased over the prior year as a result of
favorable currency gains on hedging contracts and the recognition of a gain on
the termination of Coulter's domestic defined benefit plan of $3.8 million.
As a result of the foregoing, income before provision for income taxes for
Fiscal 1995 increased by $12.9 million or 52% from the prior year. The effective
tax rate decreased to 12.3% from 30.2% in the prior year as a result of a change
in geographic mix of income and recognition of certain deferred tax items. Net
income for Fiscal 1995 was $33.0 million, representing an increase of 90.7% from
Fiscal 1994.
FINANCIAL CONDITION
CASH FLOWS--COULTER
For the three months ended June 30, 1997, net cash provided by operating
activities was $9.2 million compared with $24.9 million of cash used in
operating activities for the comparable period in the prior year. A reduction in
net income of $3.0 million for the three months ended June 30, 1997 compared
with the three months ended June 30, 1996 and fluctuations in inventory and
accrued liabilities contributed to the change. Net cash used in investing
activities was $6.3 million, a decrease of $15.5 million from the comparable
period
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in the prior year, due primarily to a reduction in capital expenditures. Cash
flow from financing activities was affected by higher principal payments of
long-term debt and lower proceeds from long-term debt financing.
For Fiscal 1996, net cash used in operating activities was $8.4 million
compared with $48.2 million of cash provided by operating activities in the
comparable prior year. Fluctuations in certain working capital items,
specifically accounts receivables, inventories and accrued liabilities,
accounted for the change. Increased sales in the United States and United
Kingdom, coupled with an increase in domestic U.S. collection days and changed
payment terms to certain Latin American dealers, affected accounts receivables.
Inventory also increased due to the introduction of the new GEN-S product. A
$3.8 million gain resulting from the termination of Coulter's domestic defined
benefit plan led to a decrease in accrued liabilities. Increased capital
expenditures were the primary cause of the increase in cash used in investing
activities from $36.8 million in Fiscal 1995 to $48.9 million for Fiscal 1996.
Increases in inventory due to the introduction of new products such as the
lab automation system were offset by currency changes in the Japanese yen
affecting accounts receivables, resulting in only a slight decrease in net cash
provided by operating activities in Fiscal 1995 as compared to the prior year
period. While capital expenditures remained flat from year to year, only the
payment for the acquisition of Immunotech, S.A. led to an increase in cash used
in investing activities for Fiscal 1995 when compared to Fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
General. The Company broadly defines liquidity as its ability to generate
sufficient cash flow from operating activities to meet its obligations and
commitments. In addition, liquidity includes the ability to obtain appropriate
financing and to convert into cash those assets that are no longer required to
meet existing strategic and financial objectives. Therefore, liquidity cannot be
considered separately from capital resources that consist of current or
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments.
Following the Acquisition, the Company's liquidity needs will arise
primarily from debt service on the substantial indebtedness to be incurred in
connection with the Acquisition, and the funding of costs of integrating the
operations of Beckman and Coulter, as well as its working capital requirements
and capital expenditures.
Debt Service. Following the consummation of the Transactions, the Company
will be highly leveraged. As of June 30, 1997, on a pro forma basis after giving
effect to the Transactions, the outstanding indebtedness of the Company would
have been $1,423.6 million, primarily consisting of $300.0 million in Term Loan
borrowings, $635.8 million of revolving credit borrowings under the $800.0
million Revolving Credit Facility and $400.0 million of borrowings from other
financing sources. Principal and interest payments under the New Credit Facility
and interest payments on approximately $400.0 million of borrowings from other
financing sources will represent significant liquidity requirements for the
Company. Beginning in March 2000, the Company will be required to make scheduled
quarterly principal payments of $25.0 million on the $300.0 million Term Loan
with a final maturity in September 2002. In the event that less than all of the
Old Debentures are tendered in the Tender Offer, an amount equal to the
untendered principal amount thereof will be applied to prepay the Term Loan and
the scheduled principal payments thereon will be reduced on a pro rata basis.
The New Credit Facility will also provide for mandatory prepayment of term and
revolving credit borrowings (and, to the extent provided, reductions in
commitments) thereunder from excess cash flow (as defined therein), and from
proceeds of certain equity or debt offerings, asset sales and extraordinary
receipts. The Revolving Credit Facility will not be subject to any scheduled
principal amortization and will have a five year term, maturing in September
2002, with all amounts then outstanding becoming due.
The loans under the New Credit Facility will bear interest at floating
rates based upon the interest rate option elected by the Company (except in the
case of competitive bid advances (as defined therein) which may bear interest at
a fixed rate of interest), and the Company accordingly will be subject to
fluctuations in such interest rates, which could cause its interest expense to
increase or decrease in the future. Following the Acquisition, as a result of
the substantial indebtedness to be incurred in connection with the Acquisition,
it is
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expected that the Company's interest expense will be higher and will have a much
greater proportionate impact on net earnings in comparison to pre-Acquisition
periods.
Each holder of Old Debentures has the right to require the Company to
redeem such holder's Old Debentures in June 2006. The Company intends to amend
the indenture governing the Old Debentures to, among other things, increase the
price at which such Old Debentures may be redeemed in June 2006. See "The
Acquisition -- The Transactions."
Certain Post-Acquisition Costs. The Company estimates, based upon current
exchange rates, that its cash funding requirements for the costs of integrating
the operations of Beckman and Coulter, including satisfying certain assumed
contractual obligations of Coulter to its employees, will amount to
approximately $90 million (which amount includes up to $43 million of sharing
bonus plan payments which will be made to Coulter's employees) from the
consummation of the Acquisition through the end of 1998, and approximately $50
to $65 million in each of the following two years. See "The Acquisition."
Stock Repurchases and Dividends. Beckman had been authorized, through 1998,
to acquire its common stock to meet the needs of its existing stock-related
employee benefit plans. Under this program, Beckman repurchased 937,252 shares
of its common stock during the six months ended June 30, 1997 and 991,543 shares
during 1996. Beckman elected to discontinue this stock repurchase program in
connection with the Acquisition. The New Credit Facility will generally prohibit
market repurchases of Beckman's stock.
Under Beckman's dividend policy, Beckman pays a regular quarterly dividend
to its stockholders which amounted to approximately $14.7 million in the year
ended December 31, 1996. Beckman anticipates that it will pay dividends of
approximately $17.0 million in 1997 and will continue to pay dividends at
similar levels for the foreseeable future. The New Credit Facility will restrict
(but not prohibit) the Company's ability to pay dividends.
Future Financing Sources and Cash Flows. At June 30, 1997, on a pro forma
basis giving effect to the Transactions, the Company's remaining borrowing
availability under the Revolving Credit Facility would have been an estimated
$164.2 million. Undrawn amounts under the Revolving Credit Facility will be
available to meet future working capital and other business needs of the
Company.
The Company expects to repay certain of its currently existing indebtedness
in connection with the Acquisition. At June 30, 1997, no events of default
existed under any of the then existing debt agreements of the Company. The
Company maintains working capital facilities for its operations outside the
United States. In June 1996, Beckman issued $100.0 million of Old Debentures
bearing an interest rate of 7.05% due June 1, 2026. The net proceeds received of
$98.5 million were used to repay amounts then outstanding under Beckman's
commercial paper program. Following the Acquisition, the Company intends to
tender for the Old Debentures pursuant to the Tender Offer. See "The
Acquisition -- The Transactions." Beckman also has the ability to issue up to
$100.0 million of additional debt under a Form S-3 Registration Statement filed
with the Securities and Exchange Commission, which was declared effective on
April 16, 1996.
Subsequent to consummation of the Transactions, the Company expects to
pursue sales of certain financial assets (primarily consisting of equipment
subject to customer leases) and real estate assets as part of its plan to reduce
debt and provide funds for integration programs. See "-- Summary of Effects of
the Acquisition." In addition to these asset sales, the Company's capital
expenditures include expenditures for customer leased equipment. Such
expenditures in the future may be reduced by increased reliance on third party
leasing arrangements, which would accordingly reduce the Company's liquidity
needs.
Based upon current levels of operations and anticipated cost savings and
future growth, the Company believes that its cash flow from operations, together
with available borrowings under the Revolving Credit Facility and its other
sources of liquidity (including leases, any other available financing sources,
and the proceeds of the planned asset sales discussed above), will be adequate
to meet its anticipated requirements for interest payments and other debt
service obligations, working capital, capital expenditures, lease payments and
other operating needs, until the maturity of the Revolving Credit Facility in
2002. There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that estimated cost
savings or growth can be achieved. The Company's future operating performance
and ability to
8
<PAGE> 11
repay, extend or refinance the New Credit Facility will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control.
Financing Covenant Restrictions. The New Credit Facility will impose
restrictions on the Company's ability to make capital expenditures and to incur
additional indebtedness. In addition, the Company will be required to comply
with specified financial ratios and tests under the New Credit Facility,
including minimum net worth, a minimum interest coverage ratio and a maximum
leverage ratio. Such restrictions, together with the highly leveraged nature of
the Company, could limit the Company's ability to respond to market conditions,
to provide for capital investments or to take advantage of business
opportunities. The covenants expected to be contained in the New Credit Facility
will also impose restrictions on the operation of the Company's businesses.
BUSINESS CLIMATE
The clinical diagnostics and life sciences markets are each highly
competitive and the Company encounters significant competition in each market
from many manufacturers, both domestic and outside the United States.
Competitive and regulatory conditions in many markets restrict the Company's
ability to fully recover through price increases any increase in higher costs of
acquired goods and services resulting from inflation. The Company historically
has been able to partially offset the adverse impact of these competitive
factors by improving productivity.
The diagnostics and life sciences markets continue to be unfavorably
impacted by the economic weakness in Europe and cost containment initiatives in
several European governmental and healthcare systems. The life sciences market
also continues to be affected by consolidation of pharmaceutical companies and
governmental constraints on research and development spending. Attempts to lower
costs and increase efficiencies have led to consolidation among healthcare
providers in the United States, resulting in more powerful provider groups that
leverage their purchasing power with suppliers to contain costs. Cost
containment initiatives in U.S. and European healthcare systems are expected to
be continuing factors which may affect the Company's ability to maintain or
increase sales.
The consolidation trend among U.S. healthcare providers has put pressure on
diagnostic equipment manufacturers to broaden their product offerings to
encompass a wider range of testing capability, greater automation and higher
volume capacity. Historically, Coulter has offered a relatively limited range of
products (hematology and flow cytometry) and as a result has experienced
competitive pressure. After the Acquisition, Beckman Coulter will offer a
broader range of products that Coulter customers can utilize to meet a wide
range of testing needs.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Report contains forward-looking statements, including statements
regarding, among other items, (i) the Company's business strategy; (ii)
anticipated trends in the Company's business; (iii) the Company's future
liquidity requirements and capital resources; (iv) possible synergies; and (v)
the impact of the Transactions on the Company's future performance. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, certain of which are beyond
the Company's control. Actual results could differ materially from those
anticipated by these forward-looking statements, as a result of the factors
described in "The Acquisition -- The Ability to Successfully Integrate Coulter"
or other factors, including difficulties, delays or failures in effectively
integrating worldwide operations and/or completing the development phase of
certain products, the amount and timing of any synergies, the impact of currency
and interest rates, delays in receiving regulatory approvals for new products,
changes in governmental medical reimbursement policies or programs, or changes
in economic and business conditions. In light of these risks and uncertainties,
there can be no assurance that events anticipated by the forward-looking
statements contained in this Report will in fact transpire as anticipated.
9
<PAGE> 12
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Financial Statements........................................................ F-1
Pro Forma Balance Sheet............................................................... F-2
Pro Forma Statement of Earnings....................................................... F-3
Notes to Pro Forma Financial Information.............................................. F-5
COULTER CORPORATION AND SUBSIDIARIES:
Report of Independent Certified Public Accountants (Arthur Andersen LLP).............. F-8
Consolidated Balance Sheets as of March 31, 1997 and 1996............................. F-9
Consolidated Statements of Income for the years ended March 31, 1997, 1996 and 1995... F-10
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1997,
1996 and 1995....................................................................... F-11
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996 and
1995................................................................................ F-12
Notes to Consolidated Financial Statements............................................ F-13
Unaudited Condensed Consolidated Balance Sheets as of June 30, 1997 and March 31,
1997................................................................................ F-31
Unaudited Condensed Consolidated Statements of Income for the three months ended June
30, 1997 and 1996................................................................... F-32
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended
June 30, 1997 and 1996.............................................................. F-33
Notes to Unaudited Condensed Consolidated Financial Statements........................ F-34
</TABLE>
10
<PAGE> 13
SIGNATURE
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 hereunto duly authorized.
BECKMAN INSTRUMENTS, INC.
By /s/ JAMES T. GLOVER
-----------------------------
James T. Glover
Vice President and Controller
Dated: October 15, 1997
S-1
<PAGE> 14
PRO FORMA FINANCIAL STATEMENTS
The following pro forma balance sheet as of June 30, 1997 and the pro forma
statements of earnings of Beckman and Coulter for the year ended December 31,
1996 and the six months ended June 30, 1997 have been prepared to illustrate the
effect of the Transactions. The Acquisition is being accounted for as a purchase
and the Transactions (including the Acquisition) are treated as if they had
occurred on June 30, 1997 in the pro forma balance sheet and as of January 1,
1996 for the pro forma statements of earnings. Coulter's historical financial
statements are for fiscal years ended March 31, and accordingly, the pro forma
statement of earnings for the year ended December 31, 1996 includes the results
of Coulter for its fiscal year ended March 31, 1997. The pro forma adjustments
also give effect to the spin-off of Coulter Pharmaceutical and partial spin-off
of Coulter Cellular. See "The Acquisition -- General." The pro forma
adjustments, and the assumptions on which they are based, are described in the
accompanying notes to the Pro Forma Financial Statements.
The pro forma financial statements are presented for illustrative purposes
only and are not necessarily indicative of the consolidated financial position
or consolidated results of operations of the Company that would have been
reported had the Transactions occurred on the dates indicated, nor do they
represent a forecast of the consolidated financial position of the Company at
any future date or the consolidated results of operations of the Company for any
future period. Furthermore, no effect has been given in the pro forma statements
of earnings for synergies or costs, if any, that may be realized through the
combination of Beckman and Coulter. Amounts allocated to the Company's assets
and liabilities will be based upon the estimated fair values at the completion
of the Transactions. A preliminary allocation of the acquisition cost has been
made to Coulter's major categories of assets and liabilities in the Pro Forma
Financial Statements based on estimates. The final allocations may be different
from the amounts reflected herein. The pro forma financial statements, including
the notes thereto, should be read in conjunction with the Consolidated Financial
Statements of Coulter included elsewhere in this Report and the Consolidated
Financial Statements of Beckman included in its Annual Report on Form 10-K for
the year ended December 31, 1996 and its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
F-1
<PAGE> 15
PRO FORMA BALANCE SHEET
(DOLLARS IN MILLIONS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
BECKMAN COULTER PRO FORMA PRO FORMA
JUNE 30, 1997 JUNE 30, 1997 ADJUSTMENTS COMBINED
-------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents...................... $ 17.3 $ 18.9 $1,335.8(a) $ 13.5
(875.0)(b)
(387.7)(c)
(78.4)(b)
(13.6)(a)
(3.8)(d)
Short-term investments.................... 0.4 0.4
Trade receivables and other............... 330.7 191.1 0.3(d) 522.1
Inventories............................... 211.7 121.7 17.0(b) 350.4
Deferred income taxes..................... 22.0 6.5(e) 28.5
Other current assets...................... 18.0 26.9 44.9
-------- ------ -------- --------
Total current assets................... 600.1 358.6 1.1 959.8
Property, plant and equipment, net.......... 295.0 131.0 50.0(b) 476.0
Deferred income taxes....................... 50.6 -- 115.5(b) 175.6
9.5(e)
Other assets................................ 69.9 51.0 13.6(a) 133.8
(0.7)(d)
Long-term portion of finance receivable..... 34.1 34.1
Intangible assets........................... 610.6(b) 610.6
Goodwill.................................... 232.0(b) 232.0
-------- ------ -------- --------
Total assets...................... $1,015.6 $574.7 $1,031.6 $2,621.9
======== ====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................. $ 28.1 $ 24.4 $ (42.1)(c) $ 10.4
Long-term debt current maturities......... 39.5 (39.5)(c)
Unearned service contract revenue......... 35.9 35.9
Accounts payable and accrued expenses..... 196.2 132.1 131.6(b) 503.9
44.0(e)
Income taxes.............................. 67.9 8.7 76.6
-------- ------ -------- --------
Total current liabilities.............. 292.2 240.6 94.0 626.8
Long-term debt, less current maturities..... 252.4 131.1 1,335.8(a) 1,413.2
(306.1)(c)
Unearned service contract revenue -- long
term...................................... 11.3 11.3
Deferred income taxes....................... 4.0 232.0(f) 261.5
25.5(b)
Other liabilities........................... 84.5 35.9 94.0(b) 214.4
-------- ------ -------- --------
Total liabilities...................... 629.1 422.9 1,475.2 2,527.2
Minority interest........................... 2.3 (1.1)(d) 1.2
Stockholders' equity........................ 386.5 149.5 (146.4)(b) 93.5
(265.0)(g)
(28.0)(e)
(3.1)(d)
-------- ------ -------- --------
Total liabilities and
stockholders' equity............ $1,015.6 $574.7 $1,031.6 $2,621.9
======== ====== ======== ========
</TABLE>
See Notes to Pro Forma Financial Statements.
F-2
<PAGE> 16
PRO FORMA STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS, EXCEPT AMOUNTS PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
BECKMAN COULTER(H)
SIX MONTHS ENDED SIX MONTHS ENDED PRO FORMA PRO FORMA
JUNE 30, 1997 JUNE 30, 1997 ADJUSTMENTS COMBINED
---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Sales................................... $502.5 $362.1 $864.6
Operating costs and expenses:
Cost of sales......................... 240.3 196.5 436.8
Selling, general and administrative... 154.5 108.0 $ 10.6(i) 273.1
Research and development.............. 52.6 40.0 (0.2)(d) 92.4
Restructuring charge.................. 5.9 5.9
------ ------ ------ ------
447.4 350.4 10.4 808.2
------ ------ ------ ------
Operating income........................ 55.1 11.7 (10.4) 56.4
Nonoperating (income) expense:
Interest income....................... (2.2) (3.8) (6.0)
Interest expense...................... 7.1 6.6 37.9(j) 53.0
1.4(k)
Other, net............................ (1.8) (6.1) 3.0(d) (4.9)
------ ------ ------ ------
3.1 (3.3) 42.3 42.1
------ ------ ------ ------
Earnings before income taxes............ 52.0 15.0 (52.7) 14.3
Income tax provision (benefit).......... 15.6 4.1 (14.1)(l) 4.7
(0.9)(d)
------ ------ ------ ------
Net earnings............................ $ 36.4 $ 10.9 $(37.7) $ 9.6
====== ====== ====== ======
Weighted average common shares and
common share equivalents (in
millions)............................. 28.8 28.8
====== ======
Net earnings per share.................. $ 1.26 $ 0.33
====== ======
</TABLE>
See Notes to Pro Forma Financial Statements.
F-3
<PAGE> 17
PRO FORMA STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS, EXCEPT AMOUNTS PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
BECKMAN COULTER
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1996 MARCH 31, 1997 ADJUSTMENTS COMBINED
----------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Sales..................................... $1,028.0 $700.9 $1,728.9
Operating costs and expenses:
Cost of sales........................... 477.8 373.5 851.3
Selling, general and administrative..... 319.3 217.9 $ 21.1(i) 558.3
Research and development................ 108.4 85.8 (0.2)(d) 194.0
Restructuring charge.................... -- 5.9 5.9
-------- ------ ------ --------
905.5 683.1 20.9 1,609.5
-------- ------ ------ --------
Operating income.......................... 122.5 17.8 (20.9) 119.4
Nonoperating (income) expense:
Interest income......................... (5.8) (9.1) (14.9)
Interest expense........................ 18.1 13.6 71.5(j) 105.9
2.7(k)
Other, net.............................. (1.3) (6.8) 5.4(d) (2.7)
-------- ------ ------ --------
11.0 (2.3) 79.6 88.3
-------- ------ ------ --------
Earnings before income taxes.............. 111.5 20.1 (100.5) 31.1
Income tax provision (benefit)............ 36.8 5.5 (29.5)(l) 11.1
(1.7)(d)
-------- ------ ------ --------
Net earnings.............................. $ 74.7 $ 14.6 $(69.3) $ 20.0
======== ====== ====== ========
Weighted average common shares and common
share equivalents (in millions)......... 28.9 28.9
======== ========
Net earnings per share.................... $ 2.58 $ 0.69
======== ========
</TABLE>
See Notes to Pro Forma Financial Statements.
F-4
<PAGE> 18
NOTES TO PRO FORMA FINANCIAL STATEMENTS
The pro forma financial statements and related notes give effect to the
Acquisition accounted for as a purchase. The pro forma balance sheet assumes
that the Transactions were completed as of June 30, 1997 and the pro forma
statements of earnings assume that the Transactions were completed on January 1,
1996. Coulter's historical financial statements are for fiscal years ended March
31, and accordingly, the pro forma statement of earnings for the year ended
December 31, 1996 includes the results of Coulter for its fiscal year ended
March 31, 1997. Coulter's earnings for the quarter ended March 31, 1997 are also
included in its earnings for the six months ended June 30, 1997.
All interim financial data used to develop the pro forma balance sheet and
statements of earnings are unaudited, but in the opinion of management, reflect
all adjustments necessary (consisting only of normal recurring entries) for a
fair presentation thereof.
The unaudited pro forma statements of earnings are not necessarily
indicative of operating results which would have been achieved had the
Transactions been consummated as of January 1, 1996 and should not be construed
as representative of future earnings.
Under purchase accounting, the total estimated acquisition cost will be
allocated to Coulter's assets and liabilities based on their relative fair
values. Allocations are subject to valuations as of the date of the closing of
the Acquisition based on appraisals and other studies which are not yet
completed. Accordingly, the final allocations may be different from the amounts
reflected herein. The Company's preliminary analysis resulted in an estimated
allocation of $265.0 million to in-process research and development relating to
projects that have economic value that cannot be capitalized for purposes of
generally accepted accounting principles ("in-process R&D"), which, under
generally accepted accounting principles, will be expensed immediately after the
Acquisition is completed.
For purposes of the pro forma financial statements, the preliminary
allocation of the purchase price is summarized as follows (in millions):
<TABLE>
<S> <C> <C>
Purchase price.................................... $875.0
Estimated net assets acquired:
Current assets.................................... $ 372.1
Net equipment and other assets.................... 265.4
-------
Tangible assets acquired................ 637.5
Current liabilities............................... (420.2)
Other............................................. (182.3)
-------
Liabilities assumed..................... (602.5)
Minority interest................................. (1.2)
Purchase liability accruals....................... (124.4)
Deferred tax assets............................... 115.5
Deferred tax liabilities.......................... (25.5)
In-process R&D.................................... 265.0 264.4
------- ------
Estimated intangible assets............. $610.6
======
</TABLE>
The pro forma statements of earnings for the year ended December 31, 1996
and for the six months ended June 30, 1997 do not include the estimated $265.0
million write-off of in-process R&D, as it is a non-recurring charge. The charge
will be included in the actual consolidated statement of earnings of the Company
in the fiscal quarter in which the Acquisition closes.
The pro forma primary net earnings per share is based on the weighted
average number of common shares and common share equivalents of Beckman during
the periods ended December 31, 1996 and June 30, 1997.
F-5
<PAGE> 19
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
The following adjustments were recorded in the pro forma financial
statements:
(a) Reflects gross cash proceeds from borrowings of $935.8 million
under the New Credit Facility and $400.0 million provided by certain other
financing sources to consummate the Acquisition and refinance existing debt
of Beckman and Coulter. Debt financing fees and expenses related to the New
Credit Facility and such other financing sources are estimated to be $13.6
million, which will be capitalized and amortized over the term of such
debt.
(b) Reflects the purchase of Coulter for $875.0 million in cash and
the preliminary allocation of the purchase price based on the estimated
relative fair values of Coulter's assets and liabilities. The preliminary
purchase price allocation is as follows: $265.0 million of estimated
in-process R&D, $50.0 million write-up of land to estimated fair market
value, $17.0 million write-up of inventory to estimated fair market value,
$115.5 million of deferred tax assets, $25.5 million of deferred tax
liabilities, $610.6 million of intangible assets, and $304.0 million of
purchase and accrued liabilities relating to estimated costs to effect
synergies and eliminate duplicate activities.
The $304.0 million of purchase and accrued liabilities were reduced in
the pro forma financial statements by anticipated cash disbursements at
closing of $78.4 million relating to Coulter's sharing bonus plan and
acquisition costs. Purchase and accrued liabilities giving effect to such
reduction are reflected as adjustments for $131.6 million in accounts
payable and accrued expenses and $94.0 million in other liabilities.
The excess of the purchase price and liabilities assumed, including
deferred tax liabilities, over the estimated fair values of tangible and
intangible assets is reflected as goodwill of $232.0 million.
The $146.4 million reflects the elimination of stockholders' equity of
Coulter, net of amounts related to the spin-offs described in note (d).
(c) To refinance existing debt of Beckman and Coulter, including 100%
of the Old Debentures.
(d) Reflects the elimination of the assets, liabilities, equity and
results of operations of Coulter Pharmaceutical and Coulter Cellular (net
of the portion of Coulter Cellular which will be retained). Prior to the
Acquisition, Coulter intends to spin off to its stockholders 100% of
Coulter Pharmaceutical and two-thirds of its 68% equity interest in Coulter
Cellular.
(e) To reflect a tax-effected restructuring charge of $44.0 million
in the fiscal quarter in which the Acquisition closes for estimated costs
for closing duplicate facilities of Beckman which, in the opinion of
management, will have no further useful life as a result of the
Acquisition, and implementation of operating efficiencies, and certain
other costs.
(f) Reflects deferred tax liabilities recorded as a result of the
intangible assets recognized in connection with the Acquisition.
(g) Reflects one-time write-off of $265.0 million of estimated
in-process R&D identified in the preliminary purchase allocation.
(h) Reflects six months of operations for the period ended June 30,
1997. Operations for the three months ended March 31, 1997 are reflected in
these financial statements as well as in the twelve months ended March 31,
1997. The following are the summary results of operations of Coulter for
the three months ended March 31, 1997:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
Sales.................................................... $ 202.4
Operating income......................................... $ 7.6
Net income............................................... $ 10.4
</TABLE>
F-6
<PAGE> 20
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(i) To record the amortization of intangible assets and goodwill
discussed in footnote (b) above. Amortization was calculated on a
straight-line basis over the estimated useful life of 40 years.
(j) Reflects interest expense at an assumed average rate of 7.25% on
$1,423.6 million of outstanding debt. For each 0.25% change in assumed
average interest expense on the outstanding indebtedness, annual pro forma
interest expense would change by $3.6 million.
(k) Reflects the amortization of debt financing fees and expenses
over the average five-year term of the New Credit Facility and certain
other financing sources.
(l) Reflects the tax effect of the amortization of intangible assets,
goodwill and interest expense related to the New Credit Facility and
certain other financing sources. Goodwill amortization of $2.9 million for
the six months ended June 30, 1997 and $5.8 million for the year ended
December 31, 1996 is not deductible for tax purposes. The effective tax
rates of 30% for the six months ended June 30, 1997 and 33% for the year
ended December 31, 1996 were applied to the pro forma adjustments
described.
F-7
<PAGE> 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Coulter Corporation:
We have audited the accompanying consolidated balance sheets of Coulter
Corporation (a Delaware corporation) and subsidiaries as of March 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended March 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Coulter
Corporation and subsidiaries as of March 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1997 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Miami, Florida,
May 27, 1997 (except with respect to
the matters discussed in Note Q, as to
which the date is
August 29, 1997).
F-8
<PAGE> 22
COULTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 28,782 $ 41,286
Accounts receivable, net of allowance for doubtful accounts of $7,070 in 1997
and $6,543 in 1996.......................................................... 189,484 173,507
Current portion of finance receivables, net.................................... 20,064 21,270
Inventories.................................................................... 117,502 103,866
Refundable income taxes........................................................ 1,527 2,885
Prepaid expenses and other current assets...................................... 23,607 17,179
-------- --------
Total current assets................................................... 380,966 359,993
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and
amortization of $114,219 in 1997 and $102,028 in 1996.......................... 131,059 105,915
-------- --------
LONG-TERM PORTION OF FINANCE RECEIVABLES, NET.................................... 32,255 37,197
-------- --------
OTHER ASSETS..................................................................... 54,768 56,939
-------- --------
$599,048 $560,044
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Foreign bank overdraft facilities.............................................. $ 852 $ 403
Current maturities of long-term debt........................................... 35,700 47,829
Note payable due to stockholder................................................ 4,000 --
Notes payable.................................................................. 16,310 15,327
Accounts payable............................................................... 38,829 41,450
Accrued liabilities............................................................ 93,351 107,015
Income taxes payable........................................................... 6,552 9,953
Estimated warranty costs....................................................... 15,578 13,870
Unearned service contract revenue.............................................. 33,975 35,636
-------- --------
Total current liabilities.............................................. 245,147 271,483
-------- --------
LONG-TERM DEBT, less current maturities.......................................... 135,468 71,895
-------- --------
NOTE PAYABLE DUE TO STOCKHOLDER.................................................. 14,550 21,550
-------- --------
ACCRUED PENSION COSTS (NOTE M)................................................... 6,731 6,524
-------- --------
ACCRUED POSTRETIREMENT BENEFIT COSTS............................................. 28,562 26,296
-------- --------
LONG-TERM UNEARNED SERVICE CONTRACT REVENUE...................................... 12,487 12,150
-------- --------
DEFERRED INCOME TAXES............................................................ 4,114 3,188
-------- --------
MINORITY INTERESTS (NOTES H AND I)............................................... 2,892 1,875
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTES G, O AND P)
STOCKHOLDERS' EQUITY:
Common stock:
Class A -- voting -- authorized and outstanding, 9,677 shares in 1997 and
10,000 shares in 1996 of $1 par value.................................... 10 10
Class B non-voting -- authorized 9,692 shares in 1997 and 10,000 shares in
1996; outstanding 1,060 shares in 1997 and 1,368 shares in 1996 of $1 par
value.................................................................... 1 1
Additional contributed capital................................................. 47,955 55,702
Retained earnings.............................................................. 107,795 93,187
Cumulative translation adjustment.............................................. (6,664) (3,817)
-------- --------
Total stockholders' equity....................................................... 149,097 145,083
-------- --------
$599,048 $560,044
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-9
<PAGE> 23
COULTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
NET SALES............................................................ $700,887 $685,320 $654,257
COST OF SALES........................................................ 373,424 349,192 340,494
-------- -------- --------
Gross profit............................................... 327,463 336,128 313,763
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......................... 217,890 216,920 204,825
RESEARCH AND DEVELOPMENT EXPENSES.................................... 85,787 87,352 73,454
RESTRUCTURING CHARGES................................................ 5,947 -- --
-------- -------- --------
Operating income........................................... 17,839 31,856 35,484
-------- -------- --------
OTHER (INCOME) EXPENSE:
Interest expense................................................... 13,572 11,223 13,969
Interest income.................................................... (9,048) (10,295) (11,618)
Foreign exchange (gain) loss....................................... (2,081) (2,940) 9,703
Other, net......................................................... (4,745) (3,799) (1,400)
-------- -------- --------
(2,302) (5,811) 10,654
-------- -------- --------
Income before provision for income taxes................... 20,141 37,667 24,830
PROVISION FOR INCOME TAXES........................................... 5,533 4,628 7,507
-------- -------- --------
Net income................................................. $ 14,608 $ 33,039 $ 17,323
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-10
<PAGE> 24
COULTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
CLASS A CLASS B ADDITIONAL CUMULATIVE
---------------- --------------- CONTRIBUTED RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ------- ------ ------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994................. 10,000 $10 1,368 $ 1 $ 55,702 $ 42,825 $(6,718) $ 91,820
Net income.............................. -- -- -- -- -- 17,323 -- 17,323
Translation adjustment.................. -- -- -- -- -- -- 8,992 8,992
------ --- ------ ----- -------- -------- ------- --------
Balance at March 31, 1995................. 10,000 10 1,368 1 55,702 60,148 2,274 118,135
Net income.............................. -- -- -- -- -- 33,039 -- 33,039
Translation adjustment.................. -- -- -- -- -- -- (6,091) (6,091)
------ --- ------ ----- -------- -------- ------- --------
Balance at March 31, 1996................. 10,000 10 1,368 1 55,702 93,187 (3,817) 145,083
Purchase of treasury stock (Note L)..... (323) -- (308) -- (7,747) -- -- (7,747)
Net income.............................. -- -- -- -- -- 14,608 -- 14,608
Translation adjustment.................. -- -- -- -- -- -- (2,847) (2,847)
------ --- ------ ----- -------- -------- ------- --------
Balance at March 31, 1997................. 9,677 $10 1,060 $ 1 $ 47,955 $107,795 $(6,664) $149,097
====== === ====== ===== ======== ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-11
<PAGE> 25
COULTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 14,608 $ 33,039 $ 17,323
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization..................................................... 25,141 23,682 18,764
Provision for doubtful accounts................................................... 2,609 2,222 3,031
Provision for inventory obsolescence.............................................. 12,370 7,777 7,594
Provision for postretirement benefit costs........................................ 3,218 2,850 2,757
Gain on termination of pension plan............................................... -- (3,776) --
Deferred income tax (benefit) expense............................................. (4,570) (4,722) 285
Loss (Gain) on disposal of property, plant and equipment.......................... 327 (1,063) 146
Unrealized foreign exchange (gain) loss on forward contracts...................... (703) (10,132) 6,476
CHANGE IN ASSETS AND LIABILITIES:
(Increase) decrease in-
Temporary investments............................................................. -- 3,758 4,638
Accounts receivable............................................................... (16,944) 12,496 (8,562)
Inventories....................................................................... (26,006) (20,401) (6,003)
Refundable income taxes........................................................... 1,358 181 (1,742)
Prepaid expenses and other current assets......................................... (3,474) 1,531 453
Other assets...................................................................... 3,751 4,015 (3,225)
Increase (decrease) in-
Accounts payable.................................................................. (2,621) (1,834) 2,801
Accrued liabilities............................................................... (13,664) 13,015 (3,865)
Income taxes payable.............................................................. (3,401) 3,469 (60)
Estimated warranty costs.......................................................... 1,708 (3,807) 890
Unearned service contract revenue................................................. (1,661) (201) 2,861
Accrued pension costs............................................................. 207 (13,847) 5,035
Accrued postretirement benefit costs.............................................. (952) (1,181) (678)
Long-term unearned service contract revenue....................................... 337 1,103 2,482
--------- --------- ---------
Net cash (used in) provided by operating activities............................... (8,362) 48,174 51,401
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment................................. 3,582 4,114 4,542
Capital expenditures................................................................ (58,017) (31,067) (31,086)
Finance receivables originated...................................................... (10,833) (17,685) (22,098)
Principal payments received from finance receivables................................ 15,339 29,677 27,772
Payment for business acquisition, net of cash acquired.............................. -- (22,198) --
Increase in minority interests...................................................... 1,017 317 762
--------- --------- ---------
Net cash used in investing activities............................................. (48,912) (36,842) (20,108)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................................................ 238,158 142,069 74,446
Principal payments of long-term debt................................................ (182,274) (134,619) (108,552)
Principal payments of note payable due to stockholder............................... (3,000) -- --
Purchase of treasury stock.......................................................... (7,747) -- --
Net proceeds (payments) from notes payable and foreign bank overdraft facilities.... 2,030 (2,890) 4,623
--------- --------- ---------
Net cash provided by (used in) financing activities............................... 47,167 4,560 (29,483)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.......................... (2,397) (9,564) 11,921
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................................. (12,504) 6,328 13,731
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................................ 41,286 34,958 21,227
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.............................................. $ 28,782 $ 41,286 $ 34,958
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.......................................................................... $ 13,406 $ 11,982 $ 13,740
========= ========= =========
Income taxes...................................................................... $ 12,742 $ 6,589 $ 7,422
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-12
<PAGE> 26
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- NATURE OF OPERATIONS
Coulter Corporation and subsidiaries (the "Company") is engaged in the
business of developing, manufacturing, distributing, financing and servicing
certain medical equipment (predominantly hematology instruments) and related
consumable products used in the healthcare industry, research centers and
universities. The Company's principal markets are North America, Europe and the
Far East.
The Company's future sales and profitability are largely dependent upon its
ability to continue to develop, manufacture, market, finance and service certain
medical equipment and related consumable products as described above. Sales can
be significantly affected by a variety of factors, including, among other
things, the timing of new product development, the availability of competing
products, and competitor strategies to expand market share. Certain raw
materials and components used in the manufacture of the Company's products are
available from limited sources. Changes in raw material suppliers could result
in delays in production and higher raw material costs.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Coulter
Corporation and all domestic and foreign subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain 1996 balances have been reclassified to conform to the 1997
presentation.
Revenue Recognition
In general, revenue is recognized when a product is shipped. When a
customer enters into an operating-type lease agreement, revenue is recognized
over the life of the lease. Under a sales-type lease agreement, revenue is
recognized at the time of shipment with interest income recognized over the life
of the lease. Service revenues are recognized ratably over the life of the
service agreement or as service is performed, if not under contract.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments that have an
original maturity of three months or less.
Inventories
Inventories are stated at the lower-of-cost or market (principally using
the first-in, first-out method). Components of inventory cost include materials,
labor and manufacturing overhead. In evaluating whether inventory is stated at
the lower of cost or market, management considers such factors as inventory on
hand,
F-13
<PAGE> 27
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimated time to sell such inventory, and current market conditions. Reserves
are provided as appropriate. Inventory consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Finished goods................................. $ 79,094 $ 72,011
Work in process................................ 14,732 12,595
Raw materials.................................. 23,676 19,260
-------- --------
$117,502 $103,866
======== ========
</TABLE>
Finance Receivables
For leases that qualify as capital leases under Statement of Financial
Accounting Standards No. 13, the Company records in its consolidated balance
sheets the gross lease receivable and estimated residual value of the leased
equipment reduced by the unearned lease income and allowance for doubtful
accounts. The unearned lease income is ratably recognized as revenue so as to
reflect a constant periodic rate of return on the net investment over the term
of the leases, usually five years. Fees and costs related to the establishment
of a lease are recognized as an adjustment to the yield of the related lease
ratably over the life of the lease.
Most equipment leases include service contracts and agreements to provide a
specified quantity of consumable products at a fixed price (payable monthly)
over the term of the lease. All income from these contracts is recognized as the
services are rendered and the consumable products are provided.
The portfolio of lease receivables is reviewed by the Company to determine
an appropriate allowance for doubtful accounts balance. The allowance for
doubtful accounts includes management's estimate of the amounts expected to be
lost on specific leases and for losses on other as of yet unidentified leases
included in direct finance lease receivable at March 31, 1997 and 1996. In
estimating the potential losses on leases, management relies on historical
experience by lease type and current industry trends. The amounts that the
Company will ultimately realize could differ materially in the near term from
the amounts assumed in arriving at the allowance for doubtful accounts reported
in the consolidated financial statements at March 31, 1997 and 1996.
Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Equipment...................................... $149,562 $127,998
Buildings...................................... 68,106 62,979
Equipment leased to others..................... 5,204 3,812
Leaseholds and leasehold improvements.......... 6,978 6,268
-------- --------
229,850 201,057
Less -- Accumulated depreciation and
amortization................................. $114,219 $102,028
-------- --------
115,631 99,029
Land........................................... 15,428 6,886
-------- --------
$131,059 $105,915
======== ========
</TABLE>
F-14
<PAGE> 28
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation is provided in amounts sufficient to allocate the cost of
depreciable assets to operations over their estimated service lives principally
using the straight-line method. The estimated service lives are as follows:
<TABLE>
<S> <C>
Buildings ...................................... 15 - 50 years
Equipment ...................................... 3 - 10 years
</TABLE>
Leaseholds and leasehold improvements are amortized on a straight-line
basis over the shorter of the lives of the leases or the improvements (generally
five years). Equipment is leased to others under operating lease terms ranging
from one to five years which include cancellation provisions. Such equipment is
recorded at cost and is generally depreciated over five years, using the
straight-line method of depreciation.
Accrued Liabilities
Accrued liabilities consist of obligations that are recorded when expenses
are incurred. As of March 31, 1997 and 1996, such liabilities are as follows (In
thousands):
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Payroll......................................... $14,375 $ 16,247
Pension......................................... 1,887 13,951
Vacation........................................ 11,852 10,819
Bonuses......................................... 4,149 12,279
Restructuring................................... 5,947 --
Taxes, other than income........................ 10,227 11,958
Other........................................... 44,914 41,761
------- --------
$93,351 $107,015
======= ========
</TABLE>
Recently Issued Accounting Standards
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed Of" ("SFAS 121") in fiscal year 1997. SFAS 121 establishes
accounting standards for recording the impairment of long-lived assets, certain
identifiable intangibles and excess of cost over fair value of net assets
acquired (goodwill). The adoption of SFAS 121 had no impact on the Company's
financial position or the results of its operations.
Excess of Cost Over Fair Value of Net Assets Acquired
Excess of cost over fair value of net assets acquired (goodwill) is stated
on the basis of cost and is amortized, principally on a straight-line basis,
over the estimated future periods not exceeding twenty years. Such cost is
reviewed for impairment based on an assessment of future operations to ensure
that it is appropriately valued.
Estimated Warranty Costs
The Company's warranty policy provides for repairs or replacements due to
defects in materials and workmanship in instrument products it manufactures for
a period of up to one year from the date of sale. Accordingly, a provision is
made for the cost of such anticipated warranty expense by a charge to operations
in the period of sale.
F-15
<PAGE> 29
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the financial reporting
and tax bases of assets and liabilities.
Unearned Service Contract Revenue
The Company sells contracts to provide repair service on its equipment for
specified terms. The customer pays for the contract prior to the service being
rendered. The contract amount is recorded as unearned service contract revenue
and the deferred income is amortized to operations on a straight-line basis over
the term of the contract, which is generally one to five years.
Research and Development Costs
Research and development costs are charged to operations as incurred.
Disclosures about Fair Value of Financial Instruments
The Company's financial instruments include cash, cash equivalents, notes
payable, foreign bank overdraft facilities, long-term debt and forward
contracts. Each of the financial instrument's carrying value approximates fair
value mainly due to their short-term nature, except for long-term debt (See
Note F).
NOTE C -- INTERNATIONAL OPERATIONS
The following summarizes the combined financial data of consolidated
foreign subsidiaries (after elimination of intercompany transactions):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net assets................................. $113,602 $115,945 $ 95,912
======== ======== ========
Net sales.................................. $346,644 $355,394 $320,430
======== ======== ========
Net income................................. $ 16,787 $ 18,269 $ 13,614
======== ======== ========
</TABLE>
NOTE D -- LEASING ACTIVITIES
A summary of financial information regarding the Company's direct financing
lease activities is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CURRENT LONG-TERM CURRENT LONG-TERM
PORTION PORTION PORTION PORTION
-------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Future minimum lease payments............. $27,664 $39,819 $29,624 $45,858
Unearned lease income..................... (4,956) (6,307) (5,771) (7,345)
Allowance for doubtful accounts........... (2,644) (1,257) (2,583) (1,316)
------- ------- ------- -------
$20,064 $32,255 $21,270 $37,197
======= ======= ======= =======
</TABLE>
F-16
<PAGE> 30
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- LEASING ACTIVITIES (CONTINUED)
Future minimum lease payments receivable for direct financing leases
consist of the following at March 31, 1997 (In thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1998.............................................. $27,664
1999.............................................. 19,183
2000.............................................. 11,543
2001.............................................. 5,929
2002.............................................. 2,499
Thereafter........................................ 665
-------
$67,483
=======
</TABLE>
NOTE E -- NOTES PAYABLE, FOREIGN BANK OVERDRAFT FACILITIES AND NOTE PAYABLE DUE
TO STOCKHOLDER
Notes payable consist primarily of amounts due to banks at varying interest
rates ranging from 1.55% to 12.50% and are to be paid within twelve months.
Certain notes payable are secured by assets of foreign subsidiaries.
Additionally, certain foreign subsidiaries have unsecured overdraft facilities
with banks bearing interest up to 20.25%.
Additionally, the Company maintains a note payable due to a stockholder.
The note is unsecured and bears interest at a rate of 12% per annum. Principal
payments range from $1,000,000 to $1,550,000 due quarterly through March 2001.
Interest payments are due monthly.
F-17
<PAGE> 31
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- LONG-TERM DEBT
Long-term debt at March 31, 1997 and 1996, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to banks at rates ranging from 7% to 12%, secured by
finance receivables and related leased equipment. Notes mature as the
related finance receivables are paid.................................. $ 60,113 $ 61,239
Bankers acceptances and notes payable to bank at rates of 6.4% to 8.5%
under an agreement which expires in August 1998....................... 50,054 9,700
Lease loans and revolving term loan at rates ranging from 5% to 10.25%,
secured by assets of a foreign subsidiary, payable in monthly
installments through fiscal year 2002................................. 4,323 3,296
Notes payable to various banks at rates ranging from 5.8% to 8.75%, due
in quarterly and annual installments. This debt was incurred for and
secured by new building and improvements.............................. 3,079 3,960
Notes payable to bank at various interest rates ranging from 7.4% to
9.8% under the terms of a revolving credit agreement. Secured by
equipment leased to third parties and building. Payable in monthly
installments matching the life of applicable lease contracts, but not
exceeding 60 months................................................... 3,742 6,184
Payable for settlement of patent and royalties infringement (See Note
J).................................................................... 2,000 4,000
Mortgage notes secured by land and building at rates ranging from 9.6%
to 9.7%, payable in quarterly installments through 2014............... 7,710 8,969
Notes payable secured by land, building and trade receivables with
interest rates ranging from 1.55% to 4.25%. Principal and interest
payments are due on a quarterly and semi-annual basis through fiscal
year 2000............................................................. 8,234 9,368
Mortgage note secured by land and building at a fixed rate of 4.86%,
payable in equal monthly payments through May 2016.................... 14,180 --
Unsecured revolving line of credit, interest payments are due quarterly
based on LIBOR rate plus 1.5%, principal payment due August 1998...... 3,924 --
Other................................................................... 13,809 13,008
-------- --------
171,168 119,724
Less -- current maturities of long-term debt....................... 35,700 47,829
-------- --------
$135,468 $ 71,895
======== ========
</TABLE>
Future maturities of long-term debt are as follows (In thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1998............................................ $ 35,700
1999............................................ 83,194
2000............................................ 15,832
2001............................................ 10,007
2002............................................ 5,071
Thereafter...................................... 21,364
--------
$171,168
========
</TABLE>
The Company maintains bankers acceptances and a note payable revolving
credit agreement (the "Credit Agreement") up to a maximum of $60,000,000
principal amount of domestic and Eurodollar loan borrowings. This facility also
allows the Company to enter into forward contracts for the sale of foreign
currency (See Note G). The maximum borrowing amount is the lesser of $60,000,000
or the borrowing base, as defined, provided that the aggregate amount of issued
and unexpired letters of credit and drafts do not exceed
F-18
<PAGE> 32
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- LONG-TERM DEBT (CONTINUED)
$10,000,000. The Credit Agreement expires in August 1998. At March 31, 1997,
borrowings under the Credit Agreement of $50,054,000 were classified as
long-term debt. At March 31, 1996, borrowings of $9,700,000 were outstanding and
classified as current maturities of long-term debt.
Under the Credit Agreement, interest payable on the domestic note payable
is at the prime rate in effect for each interest period. Interest payable on the
Eurodollar and bankers acceptances is variable based on the LIBOR rate plus up
to 1.00% per annum.
The Credit Agreement is secured by certain domestic assets of the Company
and a licensing agreement relating to the use and benefit of certain intangibles
of the Company. The Credit Agreement is also guaranteed by the stockholders of
the Company.
The Credit Agreement contains certain covenants related to minimum
requirements for the maintenance of tangible net worth plus subordinated
indebtedness, maximum inventory to sales ratio, leverage ratio, consolidated
earnings before interest and taxes to net interest expense, intercompany
indebtedness and limitations on capital expenditures, investments and other
domestic indebtedness.
The Company is also restricted from making any distributions to the
stockholders. At March 31, 1997, the Company is in compliance with all required
covenants.
Based on the borrowing rates currently available to the Company for notes
payable and debt with similar terms and average maturities, management has
estimated the fair value of long-term debt to be $192,330,000 at March 31, 1997
and $140,745,000 at March 31, 1996.
NOTE G -- DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS
At March 31, 1997, 1996 and 1995, the Company had outstanding foreign
currency forward contracts which typically mature within one year. The purpose
of these contracts is to hedge the Company's foreign exchange exposure with
respect to foreign currency cash flows received from foreign subsidiaries. The
Company does not speculate in the foreign exchange market. The forward contracts
require the Company to sell foreign currencies at a contracted exchange rate. As
provided by the Credit Agreement, the Company is committed to sell such foreign
currencies to the bank. At March 31, 1997, 1996 and 1995 these sale commitments
were $64,552,000, $74,523,000, and $86,865,000 respectively. Additionally, the
Company is committed to sell $9,490,000, $12,801,000 and $16,708,000 in foreign
currencies to another bank as of March 31, 1997, 1996 and 1995, respectively.
Foreign exchange contracts are valued at the spot rate on March 31, 1997, 1996
and 1995, which approximates the quoted market rate. The difference between the
spot rate at inception of the foreign currency forward contract and the spot
rate at the consolidated balance sheets date results in an unrealized gain or
loss. The premium or discount represents the difference between the contracted
rate and the spot rate at the date of inception, and is amortized over the life
of the contract on a
F-19
<PAGE> 33
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
straight-line basis. The following summarizes the notional amount of contracts,
unrealized gains and losses and amortized premiums at March 31, 1997, 1996 and
1995: (In thousands)
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1995
---------------------- ----------------------- -----------------------
U.S. UNREALIZED U.S. UNREALIZED U.S. UNREALIZED
DOLLARS GAIN DOLLARS GAIN DOLLARS GAIN
CURRENCY EQUIV. (LOSS) EQUIV. (LOSS) EQUIV. (LOSS)
- -------------------------- ------- ---------- ------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
British pound............. $22,053 $ (746) $19,990 $ 281 $ 28,664 $(1,218)
Japanese yen.............. 15,034 1,490 23,278 2,035 26,131 (3,383)
German mark............... 15,459 1,274 16,702 272 20,206 (1,632)
French franc.............. 13,279 979 17,206 38 18,012 (1,095)
Canadian dollar........... 6,054 95 7,692 (45) 8,013 79
Australian dollar......... 2,163 10 2,456 (133) 2,547 10
------- ------ ------- ------- -------- -------
$74,042 3,102 $87,324 2,448 $103,573 (7,239)
======= ======= ========
Premium amortization...... 578 529 84
------ ------- -------
$3,680 $ 2,977 $(7,155)
====== ======= =======
</TABLE>
The unrealized gains or losses and amortized premiums will be offset by any
foreign currency exchange gains or losses realized upon the settlement of the
cash flows received from the foreign subsidiaries or through the translation of
the foreign subsidiaries' financial statements, which are denominated in the
various foreign currencies noted above. The unrealized gains or losses and
amortized premiums are included in foreign exchange gain in the accompanying
consolidated statements of income. The counterparties to these foreign currency
transactions are major financial institutions and accordingly, the Company does
not anticipate nonperformance by such counterparties. Additionally, the Company
does not enter into leveraged derivative transactions.
NOTE H -- INVESTMENT IN JOINT VENTURES
In February 1995, Coulter Pharmaceutical, Inc. ("CPI"), was organized and
established for the purpose of researching, developing and marketing certain
potential cancer-curing products. As of March 31, 1997, a joint-venture partner
and other investors have contributed $63,624,000 in cash for an 84% ownership
interest. The Company contributed certain technology (with no net book value) in
exchange for a 16% and 51% ownership interest in CPI as of March 31, 1997 and
1996, respectively. As a result of cash contributions from certain outside
investors, the Company recorded $7,231,000, $1,384,000 and $1,667,000 as other
income in the consolidated statements of income for the years ended March 31,
1997, 1996 and 1995, respectively. CPI incurred losses of $17,203,000,
$4,718,000 and $216,000 for the years ended March 31, 1997, 1996 and 1995,
respectively. The Company's proportionate share of such losses were $3,998,000,
$2,540,000 and $145,000 and have been recorded as other expense in the
consolidated statements of income for the years ended March 31, 1997, 1996 and
1995, respectively. Management believes that the Company has the ability to
significantly influence the operating and financial policies of CPI.
CPI executed a public offering of its stock during 1997. At March 31, 1997,
the market value of the Company's investment in CPI totalled $15,203,000. This
amount exceeds the carrying value of the Company's investment by $11,649,000.
In February 1997, Coulter Cellular Therapies, Inc. ("CCTI") was organized
and established for the purpose of researching, developing and marketing medical
technologies to treat cancer using cellular therapeutic monoclonal antibodies.
The Company contributed certain technology (with no net book value) in exchange
for a 68% ownership interest in CCTI. A joint-venture partner contributed cash
of $4,675,000 in
F-20
<PAGE> 34
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H -- INVESTMENT IN JOINT-VENTURES (CONTINUED)
exchange for the remaining 32%. As a result of the joint-venture partner's
contribution, the Company recorded $3,179,000 as other income in the
consolidated statements of income at March 31, 1997. The remaining contribution
of $1,496,000 was recorded as minority interest.
CCTI incurred a loss of $246,000 for the two months ended March 31, 1997,
whereby the Company's proportionate share of $167,000 was charged to the
consolidated statements of income for the year ended March 31, 1997. At March
31, 1997, CCTI had a cash balance of $4,358,000; other assets of $221,000; and
accrued liabilities of $150,000 which are included in the consolidated balance
sheets at March 31, 1997.
NOTE I -- BUSINESS ACQUISITION
On June 30, 1995, the Company acquired Immunotech, S.A. and subsidiaries
("IOT") which is engaged in the research, development, manufacturing and
distribution of monoclonal antibodies. The principal office of IOT is located in
Marseille, France. This business acquisition was accounted for under the
purchase method of accounting. The total cost of this acquisition was
$25,444,000 which exceeded the fair value of net assets acquired of IOT by
$13,195,000. The excess of cost over fair value of net assets acquired
(goodwill) is recorded in other assets in the consolidated balance sheets and is
being amortized on a straight-line basis over twenty years.
The Company acquired 97% of the common stock and 100% of the outstanding
warrants of IOT. The purchase price was paid in cash, except for $2,000,000
which will be paid in two equal interest-free installments in fiscal years 1998
and 1999. The unpaid purchase price is included in current and long-term debt in
the consolidated balance sheets.
The following summarizes the results of operations of the Company on a
proforma basis (unaudited) with the assumption that IOT was acquired on April 1,
1994 (In thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
Net sales...................................... $702,803 $692,199
======== ========
Net income..................................... $ 33,681 $ 18,265
======== ========
</TABLE>
NOTE J -- SETTLEMENT OF PATENT INFRINGEMENT
In November 1993, the Company agreed to pay a plaintiff $8,000,000 as
consideration to release and discharge the Company from any claims, liabilities
and damage caused by the infringement of certain patents. This amount was
recorded as a settlement of such infringement in the year ended March 31, 1994.
Payments of $8,000,000 have been remitted through March 31, 1997.
Under the terms of the settlement, the Company is also obligated to pay
royalties on the net sales of certain equipment and related products at a
minimum of $1,000,000 per year through August 1998. For the years ended March
31, 1997, 1996 and 1995 royalty expense of $1,722,000, $1,895,000 and
$1,848,000, respectively, was recorded in the consolidated statements of income.
NOTE K -- RESTRUCTURING CHARGES
For the year ended March 31, 1997, the Company recorded estimated domestic
and foreign restructuring charges of $5,947,000. The objective of restructuring
is to reduce future costs and improve operating results. Restructuring included
the termination of certain employees and the discontinuance of certain research
and development activities. The charges consisted primarily of severance and
retirement incentive pay; the cost of
F-21
<PAGE> 35
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- RESTRUCTURING CHARGES (CONTINUED)
extended employees' benefits; and consulting fees. These restructuring charges
were included in accrued liabilities in the consolidated balance sheets at March
31, 1997. The function and number of employees terminated were as follows:
<TABLE>
<CAPTION>
FUNCTION NUMBER OF EMPLOYEES
-------------------------------------------------- -------------------
<S> <C>
Administration.................................... 33
Research & Development............................ 46
Sales & Marketing................................. 25
Manufacturing..................................... 46
---
150
===
</TABLE>
NOTE L -- CHANGE IN STOCKHOLDERS' EQUITY
In August and September 1996, the Company purchased 323 shares of its Class
A and 308 shares of Class B common stock from the estate of a stockholder. The
purchase price per share was $12,222 and $12,338, respectively, resulting in a
total purchase price of $7,747,000 paid in cash. The shares were subsequently
retired and cancelled.
NOTE M -- BENEFIT PLANS
Postretirement Benefits for Domestic Employees
The Company provides a Healthcare Benefits and Life Insurance Plan (the
"Plan") for retired domestic employees. Substantially all of the Company's
employees become eligible for benefits when they reach the age of 55 and meet
certain service requirements while working for the Company. Generally,
healthcare benefits are provided to individuals when they or their spouse become
eligible for Medicare benefits. Prior to eligibility for Medicare, retirees may
elect coverage if they pay the required participants' contribution.
The domestic accumulated postretirement benefit obligation represents the
present value of the estimated future benefits payable to current retirees and a
pro rata portion of estimated benefits payable to active employees after
retirement. The domestic postretirement benefit cost recorded in the
consolidated statements of income for the years ended March 31, 1997, 1996 and
1995 includes the following components (In thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost..................................................... $ 997 $ 810 $ 733
Interest cost.................................................... 2,221 2,040 2,024
------ ------ ------
$3,218 $2,850 $2,757
====== ====== ======
</TABLE>
F-22
<PAGE> 36
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- BENEFIT PLANS (CONTINUED)
The Company funds the postretirement benefit costs each year through the
payment of medical claims and insurance premiums. The following table sets forth
the amounts recognized in the Company's consolidated balance sheets at March 31,
1997 and 1996 (In thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $13,815 $16,643
Fully eligible active participants..................... 5,194 4,133
Other active participants.............................. 11,151 7,445
------- -------
30,160 28,221
Unrecognized loss...................................... (1,598) (1,925)
------- -------
Accrued postretirement benefit costs................... $28,562 $26,296
======= =======
</TABLE>
Annual net periodic postretirement benefit costs were calculated using the
assumed discount rate of 7.75% for 1997, 8.50% for 1996 and 8.25% for 1995. The
accumulated postretirement benefit obligation was determined by using a discount
rate of 7.75% at March 31, 1997 and 1996.
If the healthcare cost trend rate increased by an additional 1.0%, the
accumulated postretirement benefit obligation would have increased by $5,662,000
(or 19%) as of March 31, 1997 and $4,571,000 (or 16%) as of March 31, 1996. The
aggregate of the service and interest cost for 1997 would have increased by
$826,000 (or 26%), $707,000 (or 25%) for 1996 and $427,000 (or 16%) for 1995.
Savings Incentive and Retirement Plus Plan for Domestic Employees
The Coulter Corporation Savings Incentive and Retirement Plus Plan ("The
Plan") was established on March 31, 1996 by the Company as an amendment and
restatement of the Coulter Corporation Savings Incentive Plan established on
July 1, 1984. The Plan was created to provide various benefits through savings
and retirement contributions.
The Plan meets the requirements of the Employee Retirement Income Security
Act of 1974 ("ERISA") and the Internal Revenue Code Sections 401(a), 401(k) and
501(a). The Plan is exempt from federal income taxation and has received a
favorable tax determination letter from the Internal Revenue Service.
The Savings Incentive Segment ("SI Segment") of The Plan seeks to provide
retirement and other benefits for the employees, systematic savings, to
accumulate funds on a tax advantageous basis and to meet some of the larger
expenses incurred during their careers. The Company makes a matching
contribution equal to 100% of the first 1% of the savings contributions made by
the participant and 50% of the savings contribution from 2% to 6%. Savings
contributions in excess of 6% of annual compensation are not matched by the
Company. Participants' savings contributions and the Company's matching
contribution are paid to the SI Segment on a monthly basis. For the years ended
March 31, 1997, 1996 and 1995, the Company's contributions to the SI Segment of
the Plan were $4,801,000, $4,553,000 and $4,511,000, respectively.
The Retirement Plus Segment ("RP Segment") of the Plan is a defined
contribution plan designed to provide retirement, disability and death benefits
to employees. Participants may retire at normal retirement age (65) to receive
benefits and those who terminate after completing five years of employment are
fully vested in such benefits. Retirement benefits can be received at an earlier
age. The employer's contributions are based on the age and salary levels of
employees as defined in The Plan and are paid on a quarterly basis. Employees do
not contribute to the RP Segment of The Plan. For the year ended March 31, 1997,
the Company contributed $7,290,000 to the RP Segment of The Plan.
F-23
<PAGE> 37
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- BENEFIT PLANS (CONTINUED)
Defined Benefit Plan for Domestic Employees
On December 31, 1995 and March 31, 1996, the Company curtailed and
terminated, respectively, its defined benefit plan (Coulter Corporation Pension
Plan) for domestic employees. On January 1, 1996, the Coulter Corporation
Retirement Plus Plan ("Plus Plan") was established as a defined contribution
plan. The Plus Plan was funded by employees' rollover contributions from the
terminated plan as well as quarterly contributions paid by the Company. For the
three months ended March 31, 1996, the Company's contributions were $1,681,000.
Effective March 31, 1996, the investment activity, administrative functions
and governmental reporting of the Plus Plan was combined with the Savings
Incentive Plan for improved effectiveness and efficiency.
The termination of the defined benefit plan resulted in a gain of
$3,776,000 which was recorded as other income in the consolidated statements of
income for the year ended March 31, 1996. At March 31, 1996, the unfunded
defined benefit obligation of $12,270,000 was included in accrued liabilities in
the consolidated balance sheets. Full and final payment of such obligation
occurred in June 1996.
Domestic defined benefit pension costs recorded in the consolidated
statements of income for the years ended March 31, 1996 and 1995 included the
following components:
<TABLE>
<CAPTION>
U.S. PLAN
-------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Service cost during the year..................................... $ 2,914 $ 3,538
Interest on projected benefit obligation and service cost........ 4,889 5,675
Expected return on Plan assets................................... (3,039) (2,968)
Amortization of unrecognized net assets at transition............ (237) (315)
Loss on net assets during the year deferred for future
recognition.................................................... -- (713)
Amortization of unrecognized prior service cost and losses....... 157 259
------- -------
$ 4,684 $ 5,476
======= =======
</TABLE>
The following sets forth the unfunded status of the domestic plan at March
31, 1996:
<TABLE>
<CAPTION>
U.S. PLAN
1996
--------------
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligation:
Vested benefits.............................................. $16,059
Nonvested benefits........................................... 566
-------
Accumulated benefit obligation................................. 16,625
Fair value of assets held in the Plan.......................... (4,355)
-------
Unfunded defined benefit obligation included in accrued
liabilities.................................................. $12,270
=======
</TABLE>
The above amounts of the defined benefit obligation were measured based on
the following assumptions:
<TABLE>
<CAPTION>
U.S. PLAN
1996
---------
<S> <C>
Discount rate:
Pre-retirement................................................... 7.4%
Post-retirement.................................................. 7.4%
</TABLE>
F-24
<PAGE> 38
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- BENEFIT PLANS (CONTINUED)
Defined Benefit Plans for Foreign Employees
The Company also sponsors noncontributory and contributory defined benefit
plans (the "Plans") covering certain foreign employees. The Plans call for
benefits to be paid to eligible employees at retirement based primarily upon
age, years of service and compensation rate. Disability and death benefits are
also available.
The Company's funding policy is to contribute as required by income tax
laws. Contributions to the Plans reflect benefits attributed to employees'
services to date, as well as services expected to be earned in the future.
Assets of the Plans consist primarily of common and preferred stocks, investment
grade corporate bonds, government obligations and short-term money market
instruments.
Net foreign pension costs recorded in the Company's consolidated statements
of income included the following components for the years ended March 31, 1997,
1996 and 1995:
<TABLE>
<CAPTION>
FOREIGN PLANS
-------------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost during the year.................. $ 2,299 $ 2,221 $ 2,065
Interest on projected benefit obligation and
service cost................................ 2,805 2,795 2,317
Expected return on Plans assets............... (4,387) (5,701) (2,612)
Amortization of unrecognized net assets at
transition.................................. (143) (115) (119)
Gain on net assets during the year deferred
for future recognition...................... 818 2,875 305
------- ------- -------
$ 1,392 $ 2,075 $ 1,956
======= ======= =======
</TABLE>
The following sets forth the funded status of the Plans and the amounts
shown in the Company's consolidated balance sheets at March 31, 1997 and 1996:
<TABLE>
<CAPTION>
FOREIGN PLANS
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits............................................ $28,824 $25,305
Nonvested benefits......................................... 2,415 2,322
------- -------
Accumulated benefit obligation............................. 31,239 27,627
Effect of anticipated future compensation levels........... 9,617 8,981
------- -------
Projected benefit obligation............................... 40,856 36,608
Fair value of assets held in the Plans..................... 45,006 39,563
------- -------
Funded excess of projected benefit obligation over fair
value of assets held in the Plans........................ (4,150) (2,955)
Net unrecognized gain from past experience different from
that assumed and effects of changes in assumptions....... 10,076 8,889
Unrecognized prior service cost............................ (918) (667)
Unrecognized net assets at transition...................... 1,874 1,652
Pension costs included in accrued liabilities.............. (151) (395)
------- -------
Accrued pension costs...................................... $ 6,731 $ 6,524
======= =======
</TABLE>
F-25
<PAGE> 39
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- BENEFIT PLANS (CONTINUED)
The above amounts of the projected benefit obligation are measured based on
the following assumptions:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Discount rate:
Pre-retirement.................................................. 4.0 - 8.0% 5.5 - 8.5%
Post-retirement................................................. 4.0 - 8.0% 5.5 - 8.5%
Weighted-average rate of compensation increase.................... 3.0 - 6.0% 3.0 - 6.5%
Weighted-average of expected long-term rate of return on Plans
assets.......................................................... 3.0 - 8.5% 3.0 - 8.5%
Straight-line amortization of unrecognized net assets at
transition...................................................... 16 - 20 yrs. 16 - 20 yrs.
</TABLE>
NOTE N -- SIGNIFICANT CUSTOMER
During the years ended March 31, 1997, 1996 and 1995, a customer accounted
for approximately 17%, 16%, and 14% of total Company revenues. At March 31, 1997
and 1996 amounts due from this customer aggregated $22,726,000 and $19,766,000
and are included in accounts receivable in the accompanying consolidated balance
sheets.
NOTE O -- INCOME TAXES
The provision for income taxes for the years ended March 31, 1997, 1996 and
1995, includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense
U.S. Federal................................................. $ 1,230 $ 143 $1,932
U.S. state and local......................................... 383 200 499
Foreign...................................................... 8,490 9,007 4,791
------- ------- ------
10,103 9,350 $7,222
------- ------- ------
Deferred income tax (benefit) expense
U.S. Federal................................................. (4,000) (4,200) --
U.S. state and local......................................... (500) (600) --
Foreign...................................................... (70) 78 285
------- ------- ------
(4,570) (4,722) 285
------- ------- ------
Provision for income taxes..................................... $ 5,533 $ 4,628 $7,507
======= ======= ======
</TABLE>
F-26
<PAGE> 40
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O -- INCOME TAXES (CONTINUED)
The following is a summary of the Company's deferred tax asset (liability)
positions at March 31, 1997 and 1996 (In thousands):
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Nondeductible reserves:
Postretirement benefits...................... $ -- $ 10,853 $ -- $ 9,992
Warranty and installation.................... 4,921 -- 4,112 --
Inventories.................................. 5,407 -- 4,860 --
Vacation..................................... 4,093 -- 3,911 --
Unrealized foreign exchange gain............. (750) -- (1,014) --
Other........................................ 5,463 5,094 2,977 2,662
Excess of book over tax basis of net assets
used in leasing operations................... -- (11,669) -- (13,016)
Excess of book over tax basis of investments in
joint-ventures............................... -- (3,563) -- --
U.S. tax credit carryforwards.................. 900 19,900 -- 25,000
------- --------- ------- ---------
20,034 20,615 14,846 24,638
Valuation allowance............................ (6,392) (21,205) (4,923) (25,457)
------- --------- ------- ---------
$13,642 $ (590) $ 9,923 $ (819)
======= ========= ======= =========
</TABLE>
The current portion of deferred tax assets is included in prepaid expenses
and other current assets in the accompanying consolidated balance sheets. At
March 31, 1997, it includes $10,700,000 related to domestic operations and
$2,942,000 related to foreign operations (primarily operations in Japan). At
March 31, 1997, the non-current portion consists of a deferred tax asset of
$3,524,000, relating to operations in France and the U.S., which is included in
other assets, and a deferred tax liability of $4,114,000, which is reported as a
separate line item on the accompanying consolidated balance sheets.
The Company has recognized its domestic current and non-current deferred
tax assets derived from temporary books/tax differences as it expects to
generate sufficient taxable income in the future to realize these benefits. Such
deferred tax assets have been calculated using regular tax rates with a
corresponding reduction, through the valuation allowance, to reflect the
deferred tax assets at the lower alternative minimum tax rate. Domestic deferred
tax assets derived from tax credit carryforwards in the amount of $900,000 are
included in prepaid expenses, as such credits are projected to be utilized next
year. Other Domestic deferred tax assets derived from tax credit carryforwards
have been fully reserved, however, through the valuation allowance, due to
uncertainties regarding the Company's ability to generate sufficient taxable
income in the U.S. and limitations on the recognition of certain credit
carryforwards under U.S. tax laws. The deferred tax assets relating to
operations in France and Japan have been recognized, as in the opinion of
management it is more likely than not that the foreign subsidiaries to which the
deferred assets relate will generate sufficient taxable income to realize such
deferred tax assets. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of the future taxable
income necessary to realize such assets are reduced.
F-27
<PAGE> 41
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O -- INCOME TAXES (CONTINUED)
Below is a summary showing the amounts and expiration dates of the tax
credit carryforwards available on a tax basis to reduce future U.S. consolidated
federal income tax liabilities (In thousands):
<TABLE>
<CAPTION>
YEAR OF FOREIGN TAX INVESTMENT TAX R & D TAX
EXPIRATION CREDIT CREDIT CREDIT
--------------------------------------- ----------- -------------- ---------
<S> <C> <C> <C>
1999................................. $1,158 $ -- $ --
2000................................. -- 1 1,400
2001................................. 1,655 173 100
2002................................. -- -- 500
2003................................. -- -- 300
2004................................. -- -- 1,000
2005................................. -- -- 1,100
2006................................. -- -- 600
2007................................. -- -- 900
2008................................. -- -- 1,200
2009................................. -- -- 1,500
2010................................. -- -- 2,100
2011................................. -- -- 600
2012................................. -- -- 1,600
------ ---- -------
$2,813 $174 $12,900
====== ==== =======
</TABLE>
On an Alternative Minimum Tax ("AMT") basis, the carryforwards are the same
as above, except for the foreign tax credit. The AMT foreign tax credit
carryforward is $2,300,000 expiring in 1998, $2,200,000 expiring in 1999,
$700,000 expiring in 2000, $2,400,000 expiring in 2001 and $1,463,000 expiring
in 2002. The minimum tax credit carryforward is $4,900,000 and may be carried
forward indefinitely.
The difference between the reported tax provision and the provision
computed by applying the statutory U.S. federal income tax rate currently in
effect to income before income taxes for each of the three years ended March 31,
1997, is primarily due to the effect of AMT, state and foreign income tax rates.
Additionally, the Company recognized deferred tax benefits related to changes in
the valuation allowance of $4,500,000, $4,800,000 and $1,800,000 for the years
ended March 31, 1997, 1996 and 1995, respectively.
A provision has not been made for U.S. income taxes, or additional foreign
income taxes, on undistributed earnings of foreign subsidiaries. It is not
practicable to estimate the amount of additional tax that might be payable on
the foreign earnings, however, the Company believes that U.S. foreign tax
credits would largely eliminate any U.S. tax and offset any foreign tax on such
earnings.
The Company's U.S. federal income tax returns for the years 1991 through
1993 are currently under review by the Internal Revenue Service ("IRS"). In the
opinion of management, the final result of the IRS's audit will not have a
material adverse effect on the Company's financial position or results of
operations.
The Company's subsidiary in Brazil is contesting a tax assessment issued
several years ago, covering 1989 through 1991. At this time, it is not possible
to estimate the amount of any additional tax liability. However, in the opinion
of management, the ultimate liability will be substantially offset by available
net operating loss carryforwards and will not have a material impact on the
Company's financial position and results of operations.
F-28
<PAGE> 42
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE P -- COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases a substantial portion of its warehouse, office space,
production and office equipment under long-term, noncancellable operating
leases. Rental expense was approximately $11,350,000 in 1997, $11,744,000 in
1996 and $11,722,000 in 1995.
As of March 31, 1997, commitments for base rentals for operating leases and
future payments for computer services rendered by an independent management
information systems company, excluding taxes and insurance, are as follows (In
thousands):
<TABLE>
<S> <C>
1998.............................................. $ 6,232
1999.............................................. 4,065
2000.............................................. 1,136
2001.............................................. 847
2002.............................................. 646
Thereafter........................................ 1,407
-------
$14,333
=======
</TABLE>
Legal Matters
In January, 1996, the Company notified Hematronix, Inc. ("Hematronix"), a
competitive reagent manufacturer, that it believed Hematronix was selling
certain reagents and controls that infringed certain Company owned patents. In
response to these claims by the Company, Hematronix filed a complaint on April
15, 1996 in the United States District Court for the Eastern District of
California against the Company. The complaint seeks a declaratory judgment that
certain patents of the Company are invalid and thus not infringed. The complaint
also includes antitrust and related business tort claims regarding the Company's
sales and leasing activities. Currently at issue are four (4) United States
patents and the various antitrust claims raised by Hematronix. The Company has
counterclaimed that Hematronix has willfully infringed each of the patents at
issue. In addition, the Company has answered Hematronix's antitrust complaint
and denied violation of any of the antitrust laws or business tort claims set
forth by Hematronix in the complaint.
A trial is set for 1998. The patent infringement matter will be tried first
and the antitrust issues will be tried in a separate trial. The Company's
management believes that it will prevail with regard to the infringement matters
in the patent actions, and that as a result of such finding the antitrust case
will not go forward. The Company is seeking a permanent injunction with regard
to the patents claimed to be infringed and reasonable royalties resulting from
such infringement.
Certain other claims, suits and complaints in the ordinary course of
business have been filed or are pending against the Company. In the opinion of
management, all such matters are without merit or are of such kind and involve
such amounts that their resolution, net of related insurance coverage, would not
have a material effect on the consolidated financial position or results of
operations of the Company.
Long Term Incentive Plan
Effective April 1, 1995, the Company established a Long Term Performance
Plan (the "LTPP") to inspire and reinforce outstanding performance in selected
key employees whose efforts contribute substantially to the achievement of the
Company's long term goals and objectives. The LTPP provides for financial awards
to certain employees based on the Company's achievement of certain financial
objectives during the cumulative period from April 1, 1995 to March 31, 1998.
The Company has accrued $3,800,000 and $1,500,000 related to the LTPP as of
March 31, 1997 and 1996, respectively. These amounts are included in accrued
liabilities in the accompanying consolidated balance sheets.
F-29
<PAGE> 43
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE Q -- SUBSEQUENT EVENT
On August 29, 1997, the Company and its stockholders entered into a Stock
Purchase Agreement (the "Agreement") with Beckman Instruments, Inc. ("Beckman").
In connection with the Agreement, Beckman will acquire all of the Company's
shares in exchange for $875 million in cash and the assumption of liabilities.
Beckman, a Delaware corporation, provides systems, chemistries, software and
supplies, which automate and simplify biological analysis for use in life
science and clinical diagnostics laboratories. The acquisition is intended to be
accounted for under the purchase accounting method. Completion of the
acquisition is subject to, among other things, regulatory approvals.
In the event the Agreement receives all required approvals, the Company
anticipates incurring liabilities related to the accelerated achievement of the
LTPP and the granting of other discretionary bonus awards for its U.S. and
foreign employees. The Company estimates that it will incur a total liability of
approximately $100 million related to these programs.
F-30
<PAGE> 44
COULTER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
-------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 18,866 $ 28,782
Accounts receivable, net of allowance for doubtful accounts of $7,299 at June 30,
1997 and $7,070 at March 31, 1997............................................... 172,066 189,484
Current portion of finance receivables, net....................................... 19,015 20,064
Inventories....................................................................... 121,702 117,502
Refundable income taxes........................................................... 2,180 1,527
Prepaid expenses and other current assets......................................... 24,709 23,607
-------- --------
Total current assets....................................................... 358,538 380,966
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and
amortization of $119,339 at June 30, 1997 and $114,219 at March 31, 1997.......... 131,018 131,059
-------- --------
LONG-TERM PORTION OF FINANCE RECEIVABLES, NET....................................... 34,135 32,255
-------- --------
OTHER ASSETS........................................................................ 51,031 54,768
-------- --------
$574,722 $599,048
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Foreign bank overdraft facilities................................................. $ 1,667 $ 852
Current maturities of long-term debt.............................................. 39,503 35,700
Note payable due to stockholder................................................... 5,000 4,000
Notes payable..................................................................... 17,686 16,310
Accounts payable.................................................................. 30,780 38,829
Accrued liabilities............................................................... 87,096 93,351
Income taxes payable.............................................................. 8,655 6,552
Estimated warranty costs.......................................................... 14,254 15,578
Unearned service contract revenue................................................. 35,905 33,975
-------- --------
Total current liabilities.................................................. 240,546 245,147
-------- --------
LONG-TERM DEBT, less current maturities............................................. 117,458 135,468
-------- --------
NOTE PAYABLE DUE TO STOCKHOLDER..................................................... 13,550 14,550
-------- --------
ACCRUED PENSION COSTS............................................................... 6,881 6,731
-------- --------
ACCRUED POSTRETIREMENT BENEFIT COSTS................................................ 29,105 28,562
-------- --------
LONG-TERM UNEARNED SERVICE CONTRACT REVENUE......................................... 11,347 12,487
-------- --------
DEFERRED INCOME TAXES............................................................... 4,065 4,114
-------- --------
MINORITY INTERESTS.................................................................. 2,265 2,892
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY:
Common stock --
Class A -- voting -- authorized and outstanding, 9,677 shares at June 30, 1997 and
March 31, 1997 of $1 par value.................................................. 10 10
Class B -- voting -- authorized 9,692 shares at June 30, 1997 and March 31, 1997;
outstanding 1,060 shares at June 30, 1997 and March 31, 1997 of $1 par value.... 1 1
Additional contributed capital.................................................... 47,955 47,955
Retained earnings................................................................. 108,267 107,795
Cumulative translation adjustment................................................. (6,728) (6,664)
-------- --------
Total stockholders' equity................................................. 149,505 149,097
-------- --------
$574,722 $599,048
======== ========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these balance sheets.
F-31
<PAGE> 45
COULTER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
NET SALES.............................................................. $159,671 $154,267
COST OF SALES.......................................................... 83,665 77,910
-------- --------
Gross profit................................................. 76,006 76,357
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................... 53,929 52,926
RESEARCH AND DEVELOPMENT EXPENSES...................................... 18,021 21,119
-------- --------
Operating income............................................. 4,056 2,312
-------- --------
OTHER (INCOME) EXPENSE:
Interest expense..................................................... 3,409 2,763
Interest income...................................................... (2,101) (2,096)
Foreign exchange loss................................................ 305 3
Other, net........................................................... 1,795 (3,050)
-------- --------
3,408 (2,380)
-------- --------
Income before provision for income taxes..................... 648 4,692
PROVISION FOR INCOME TAXES............................................. 176 1,231
-------- --------
Net income................................................... $ 472 $ 3,461
======== ========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these statements.
F-32
<PAGE> 46
COULTER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................. $ 472 $ 3,461
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................ 6,528 5,901
Provision for doubtful accounts.......................................................... 768 699
Provision for inventory obsolescence..................................................... 3,152 2,751
Provision for postretirement benefit costs............................................... 781 818
Deferred income tax benefit.............................................................. (1,999) (1,361)
Loss (Gain) on disposal of property, plant and equipment................................. 60 (52)
Unrealized foreign exchange loss on forward contracts.................................... 1,482 275
CHANGE IN ASSETS AND LIABILITIES:
(Increase) decrease in --
Accounts receivable...................................................................... 15,985 20,624
Inventories.............................................................................. (7,352) (18,418)
Refundable income taxes.................................................................. (653) (14)
Prepaid expenses and other current assets................................................ (542) (1,747)
Other assets............................................................................. 3,384 (1,653)
Increase (decrease) in --
Accounts payable......................................................................... (8,049) (6,916)
Accrued liabilities...................................................................... (6,255) (29,913)
Income taxes payable..................................................................... 2,103 1,794
Estimated warranty costs................................................................. (1,324) (1,623)
Unearned service contract revenue........................................................ 1,930 305
Accrued pension costs.................................................................... 150 (46)
Accrued postretirement benefit costs..................................................... (238) (292)
Long-term unearned service contract revenue.............................................. (1,140) 537
-------- --------
Net cash provided by (used in) operating activities...................................... 9,243 (24,870)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment........................................ $ 973 $ 2,835
Capital expenditures....................................................................... (6,439) (27,267)
Finance receivables originated............................................................. (6,827) (2,983)
Principal payments received from finance receivables....................................... 6,661 6,157
Increase (Decrease) in minority interests.................................................. (627) (574)
-------- --------
Net cash used in investing activities................................................ (6,259) (21,832)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................................................... 20,724 44,966
Principal payments of long-term debt....................................................... (35,822) (20,571)
Net proceeds from notes payable and foreign bank overdraft facilities...................... 1,040 3,232
-------- --------
Net cash (used in) provided by financing activities...................................... (14,058) 27,627
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS................................. 1,158 (1,022)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................................................... (9,916) (20,097)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD......................................... 28,782 41,286
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD............................................... $ 18,866 $ 21,189
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest................................................................................. $ 3,542 $ 3,075
======== ========
Income taxes............................................................................. $ 1,287 $ 3,201
======== ========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these statements.
F-33
<PAGE> 47
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. REPORT BY MANAGEMENT
The accompanying unaudited condensed financial statements of Coulter
Corporation and subsidiaries (the "Company") have been prepared by the Company
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information related to the Company's organization,
significant accounting policies and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These unaudited condensed financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to fairly state the financial
position and the results of operations for the periods presented and the
disclosures herein are adequate to make the information presented not
misleading. Operating results for the interim periods presented are not
indicative of the results that can be expected for a full year.
The Company's latest fiscal year ended on March 31, 1997. The accompanying
unaudited condensed financial statements have been prepared in connection with a
proposed business combination with Beckman Instruments, Inc. ("Beckman") (see
Note 6) and reflect results for the three months ended June 30, 1997 and 1996.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of sales and expenses during the reporting
period. Actual results could differ from those estimates.
3. INVENTORIES
Inventories are comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
-------- ---------
<S> <C> <C>
Finished goods................................ $ 83,463 $ 79,094
Raw materials................................. 27,034 23,676
Work in process............................... 11,205 14,732
-------- --------
$121,702 $117,502
======== ========
</TABLE>
4. RESTRUCTURING CHARGES
During the year ended March 31, 1997 the Company recorded restructuring
charges of $5,947,000. The objective of the charges was to reduce future costs
and improve operating results. The charge consisted primarily of severance and
retirement incentive pay; the cost of extended employees' benefits; and
consulting fees. The restructuring costs remaining to be paid at June 30, 1997
were $1,692,000 and are included in accrued liabilities in the March 31, 1997
condensed consolidated balance sheet. For the three-month period ended June 30,
1997, $3,077,000 was charged against this accrual. The Company believes the
balance of the accrued restructuring charges of $1,692,000 which is included in
accrued liabilities in the accompanying condensed consolidated balance sheet at
June 30, 1997 is adequate. At June 30, 1996, no accrued liabilities for
restructuring costs were recorded.
F-34
<PAGE> 48
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
Legal Matters
In January, 1996, the Company notified Hematronix, Inc. ("Hematronix"), a
competitive reagent manufacturer, that it believed Hematronix was selling
certain reagents and controls that infringe certain Coulter owned patents. In
response to these claims by the Company, Hematronix filed a complaint on April
15, 1996 in the United States District Court for the Eastern District of
California against the Company. The complaint seeks a declaratory judgment that
certain patents of the Company are invalid and thus not infringed. The complaint
also includes antitrust and related business tort claims regarding the Company's
sales and leasing activities. Currently at issue are four (4) United States
patents and the various antitrust claims raised by Hematronix. The Company has
counterclaimed that Hematronix has willfully infringed each of the patents at
issue. In addition, the Company has answered Hematronix's antitrust complaint
and denied violation of any of the antitrust laws or business tort claims set
forth by Hematronix in the complaint.
A trial is set for 1998. The patent infringement matter will be tried first
and the antitrust issues will be tried in a separate trial. The Company's
management believes that it will prevail with regard to the infringement matters
in the patent actions, and that as a result of such finding the antitrust case
will not go forward. The Company is seeking a permanent injunction with regard
to the patents claimed to be infringed and reasonable royalties resulting from
such infringement.
Certain other claims, suits and complaints in the ordinary course of
business have been filed or are pending against the Company. In the opinion of
management, all such matters are without merit or are of such kind and involve
such amounts that their resolution, net of related insurance coverage, would not
have a material effect on the consolidated financial position or results of
operations of the Company.
Taxes
A provision has not been made for U.S. income taxes, or additional foreign
income taxes, on undistributed earnings of foreign subsidiaries. It is not
practicable to estimate the amount of additional tax that might be payable on
the foreign earnings, however, the Company believes that U.S. foreign tax
credits would largely eliminate any U.S. tax and offset any foreign tax on such
earnings.
The Company's subsidiary in Brazil is contesting a tax assessment issued
several years ago, covering 1989 through 1991. At this time, it is not possible
to estimate the amount of any additional tax liability. However, in the opinion
of management, the ultimate liability will be substantially offset by available
net operating loss carryforwards and will not have a material impact on the
Company's financial position and results of operations.
The Company's U.S. federal income tax returns for the years 1991 through
1993 are currently under review by the Internal Revenue Service ("IRS"). In the
opinion of management, the final result of the IRS's audit will not have a
material adverse effect on the Company's financial position or results of
operations.
6. SUBSEQUENT EVENTS
Loan to Related Party
On August 26, 1997 the Company loaned $1,250,000 to a stockholder. Interest
on the loan is 8.5% per annum, with the entire principal balance and accrued
interest due on February 28, 1998. The loan balance may be prepaid by the
stockholder at any time.
F-35
<PAGE> 49
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Investment in Joint-Venture
On August 13, 1997, the Company purchased 500,000 shares of the voting
stock of Lab-InterLink, Inc. ("Lab-InterLink") for $6 per share or $3,000,000.
Lab-InterLink develops and markets laboratory automation systems. The Company's
purchase of Lab-InterLink stock amounts to a 6.6% ownership interest and is
being accounted for under the cost method of accounting.
Additionally, effective August 13, 1997 the Company entered into a
Revolving Credit Agreement (the "Credit Agreement") with Lab-InterLink. The
Credit Agreement provides up to $3 million in credit to Lab-InterLink and is due
on the earlier of December 31, 2000 or the date on which the Company declares
the principal balance due. Under the Credit Agreement, the Company is not
required to provide more than $1 million in advances to Lab-InterLink prior to
January 5, 1998.
Purchase Agreement
On August 29, 1997, the Company and its stockholders entered into a Stock
Purchase Agreement (the "Agreement") with Beckman. In connection with the
Agreement, Beckman will acquire all of the Company's shares in exchange for $875
million in cash and the assumption of liabilities. Beckman, a Delaware
corporation, provides systems, chemistries, software and supplies which
automate and simplify biological analysis for use in life science and clinical
diagnostics laboratories. The acquisition is intended to be accounted for under
the purchase accounting method. Completion of the acquisition is subject to,
among other things, regulatory approvals.
In the event the Agreement receives all required approvals, the Company
anticipates incurring liabilities related to the accelerated achievement of
certain incentive plans and the granting of other discretionary bonus awards for
its U.S. and foreign employees. The Company estimates that it will incur a total
liability of approximately $100 million related to these programs.
F-36
<PAGE> 50
EXHIBIT INDEX
FORM 8-K
Exhibit
Number
- -------
23.1 Consent of Arthur Andersen LLP dated October 15, 1997
E-1
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
As independent certified public accountants, we hereby consent to the use of
our report and to all references to our Firm included in this Form 8-K of
Beckman Instruments, Inc.
/s/ Arthur Andersen LLP
Miami, Florida,
October 15, 1997
E-2
