<PAGE> 1
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): February 18, 1998
BECKMAN INSTRUMENTS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
----------------------------------------------
(State or other Jurisdiction of Incorporation)
001-10109 95-104-0600
- ------------------------ ------------------------------------
(Commission File Number) (IRS Employer Identification Number)
2500 Harbor Boulevard, Fullerton, CA 92834-3100
-----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(714) 871-4848
-----------------------------
Registrant's Telephone Number
<PAGE> 2
INDEX
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 5. Other Events ............................................. 1
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits ....................... 2
Signature ................................................................ S-1
Exhibit Index ............................................................ E-1
Exhibit 23.1 ............................................................. E-2
Exhibit 23.2 ............................................................. E-3
</TABLE>
<PAGE> 3
Item 5. Other Events.
On October 31, 1997, in connection with Beckman Instruments, Inc.'s
(the "Company" or "Beckman") acquisition (the "Acquisition") of Coulter
Corporation ("Coulter"), the Company entered into a $1.3 billion credit
facility, consisting of an $800.0 million revolving credit facility (the
"Revolving Credit Facility") and a $500.0 million term loan facility (the "Term
Loan").
As of February 1, 1998, there were $750.0 million outstanding under the
Revolving Credit Facility and $300.0 million outstanding under the Term Loan. In
addition, as of February 1, 1998, there was $100.0 million of the Company's
7.05% Debentures due 2026 (the "Old Debentures") outstanding. The Company
expects to incur $400.0 million of new indebtedness (the "Proposed Financing")
to prepay all of the Term Loan borrowings and to finance a tender offer of any
and all of its Old Debentures. In the event that less than all of the Old
Debentures are tendered in such tender offer, an amount equal to the untendered
principal amount thereof will be applied to repay a portion of the Revolving
Credit Facility.
In connection with the Proposed Financing, the Company prepared certain
financial statements and other information for Coulter for the six months ended
September 30, 1996 and 1997, certain financial statements for Coulter for the
seven months ended October 31, 1997 and certain pro forma financial statements
of the Company. Such information is provided in this Report under the captions:
(i) "Item 5. Results of Operations of Coulter: Six Months Ended September 30,
1997 as Compared to Six Months Ended September 30, 1996"; (ii) "Item 5. Cash
Flow for Coulter for Six Months Ended September 30, 1997"; (iii) "Item 7.
Selected Historical Financial Information of Coulter"; (iv) "Item 7. Pro Forma
Financial Statements"; and (v) "Item 7. Consolidated Financial Statements of
Coulter."
RESULTS OF OPERATIONS OF COULTER: SIX MONTHS ENDED SEPTEMBER 30, 1997 AS
COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 1996
The following table sets forth, for the period indicated, the results of
operations as a percentage of sales:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
---------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Sales............................................... 100% 100%
Operating costs and expenses
Cost of sales..................................... 52.3 51.6
Selling, general and administrative expenses...... 32.8 34.4
Operating income before research and development
expense........................................... 14.9 14.0
Research and development............................ 11.1 13.6
Operating income.................................... 3.8 0.4
Other (income) expense.............................. 1.1 0.3
Income before income taxes.......................... 2.7 0.1
Net earnings........................................ 1.9 0.1
</TABLE>
Coulter experienced net sales growth of 4.3% compared to the comparable
period in the prior year. Instrument sales increased 16.0% while reagent sales
were relatively unchanged. The release of the GEN*S and AC*T series of
hematology products during 1997 mainly accounted for the increase in instrument
sales, while reagent sales were adversely affected by increased discounting in
the U.S. and a strengthening dollar in overseas markets.
Gross profit margin as a percentage of sales decreased by less than 1% as
higher selling prices on GEN*S products were offset by increased warranty costs
in direct sales markets. In addition, competitive market pressures in the U.S.
and international markets contributed to overall lower sales prices on
instrument and reagent products, resulting in a decrease in gross profit.
1
<PAGE> 4
Selling, general, and administrative expenses as a percentage of sales
decreased by 1.6% primarily due to reduced expenses in the international
operations resulting from cost reduction measures and a strengthening U.S.
dollar. Research and development expenses as a percentage of sales decreased
2.5%, and in absolute dollars $6.2 million, due to a reorganization to improve
productivity and efficiency.
The net increase in non-operating expense of $2.7 million is attributable
to an increase in foreign exchange gains in the U.S., offset by Coulter's
portion of expenses relating to its investments in two development stage
companies.
For the six months ended September 30, 1997, Coulter's income before
provision of income taxes and net income increased $8.4 million and $6.1
million, respectively, compared to the comparable period in the prior year.
CASH FLOW FOR COULTER FOR SIX MONTHS ENDED SEPTEMBER 30, 1997
For the six months ended September 30, 1997, net cash provided by operating
activities was $29.8 million compared with $38.0 million of cash used in
operating activities for the comparable period in the prior year. An increase in
net income of $6.1 million and fluctuations in accounts receivable, inventories,
other assets, and accrued liabilities accounted for the increase. A significant
decrease in collection days in the U.S. contributed to a $28.9 decrease in
accounts receivable compared to a $16.6 million decrease in the comparable
period of the prior year. Inventory growth was $10.3 million, compared to $27.9
million in the prior year period, as inventory build up was reduced due to the
release of the GEN*S and AC*T products in fiscal year 1997. In addition, a
stronger U.S. dollar in overseas markets, especially Europe and Japan, also
contributed to the reduction in inventory. Other assets increased $2.2 million,
primarily due to a $4.2 million investment by Coulter for a 6.6% interest in
Lab-Interlink, Inc. Accrued liabilities decreased $0.5 million, compared to a
decrease of $26.6 million in the prior year period. Payments relating to the
Success Sharing bonus program and the termination of Coulter's defined benefit
plan accounted for the decrease in the comparable period of the prior year.
For the six months ended September 30, 1997, net cash used in investing
activities was $13.4 million compared with $27.9 million of cash used in
investing activities for the comparable period in the prior year. Capital
expenditures were $14.4 million, a reduction of $22.5 million from the prior
year period, mainly caused by a decrease in spending for computer hardware and
software. Offsetting the decrease in capital expenditures was an increase of
$6.2 million in cash used from investing activities resulting from an increase
in Coulter's leasing business due to the release of new products during the six
months ended September 30, 1997.
Net cash used in financing activities for the six months ended September
30, 1997 was $16.2 million compared to $47.9 million of net cash provided by
financing activities for the comparable period in the prior year. A reduction of
$54.0 million in proceeds from long-term debt coupled with an increase of $17.7
million in principal payments largely accounted for the increase in cash used in
financing activities.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Historical Financial Information of Coulter.................................. F-1
Pro Forma Financial Statements........................................................ F-2
Pro Forma Balance Sheet............................................................... F-3
Pro Forma Statement of Operations..................................................... F-4
Notes to Pro Forma Financial Statements............................................... F-5
COULTER CORPORATION AND SUBSIDIARIES:
Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-7
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 Operations for the seven months ended October 31, 1997 and
the years ended March 31, 1997, 1996 and 1995....................................... F-10
Consolidated Statements of Stockholders' Equity for the seven months ended October 31,
1997 and the years ended March 31, 1997, 1996 and 1995.............................. F-11
Consolidated Statements of Cash Flows for the seven months ended October 31, 1997 and
the years ended March 31, 1997, 1996 and 1995....................................... F-12
Notes to Consolidated Financial Statements............................................ F-13
Unaudited Condensed Consolidated Statements of Income for the six months ended
September 30, 1997 and 1996......................................................... F-31
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended
September 30, 1997 and 1996......................................................... F-32
Notes to Unaudited Condensed Consolidated Financial Statements........................ F-33
</TABLE>
2
<PAGE> 5
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: February 18, 1998
S-1
<PAGE> 6
SELECTED HISTORICAL FINANCIAL INFORMATION OF COULTER
The Selected Historical Financial Information below should be read in
conjunction with the Consolidated Financial Statements of Coulter included
elsewhere in this report and the information contained in "Item 5. Other
Events." The Selected Historical Financial Information for the six-month periods
ended September 30, 1997 and 1996 are derived from unaudited financial
statements and, in the opinion of management, include all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
data for such periods.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
-------------------
1997 1996
------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C>
SUMMARY OF OPERATIONS:
Sales...................................................... $330.3 $316.7
Cost of sales.............................................. 172.7 163.4
Selling, general and administrative expenses............... 108.3 108.9
Research and development expenses.......................... 36.8 43.0
------ ------
Operating income........................................... 12.5 1.4
Other expense (income), net................................ 3.7 1.0
------ ------
Income before income taxes................................. 8.8 0.4
------ ------
Net income................................................. $ 6.4 $ 0.3
====== ======
FINANCIAL POSITION (END OF PERIOD):
Current assets............................................. $355.6 $346.0
Current liabilities........................................ 274.8 277.8
Working capital............................................ 80.8 68.2
Property, plant and equipment, net......................... 129.8 126.3
Total assets............................................... 576.0 565.7
Long-term debt, less current maturities.................... 83.0 84.6
Stockholders' equity....................................... 152.9 137.0
OTHER DATA:
Capital expenditures....................................... $ 14.4 $ 36.9
Depreciation and amortization.............................. 12.5 11.8
Number of employees (unaudited)............................ 5,077 5,290
</TABLE>
- ---------------
F-1
<PAGE> 7
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of December 31, 1997 has
been prepared to illustrate the effect of the Proposed Financing and the
application of the net proceeds therefrom, as if they had occurred on December
31, 1997. The following unaudited pro forma statement of operations of Beckman
and Coulter for the year ended December 31, 1997 has been prepared to illustrate
the effect of the Acquisition, the Proposed Financing and the application of the
net proceeds therefrom, as if they had occurred as of January 1, 1997. The pro
forma statement of operations for the year ended December 31, 1997 includes the
results of Coulter for the ten months ended October 31, 1997. The results of
Coulter for the two months ended December 31, 1997 are included in Beckman's
consolidated statement of operations for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission in the Company's Annual Report
on Form 10-K on February 11, 1998. The pro forma adjustments also give effect to
the spin-off of Coulter's interest in Coulter Pharmaceutical, Inc. ("Coulter
Pharmaceutical") and a spin-off of a portion of the capital stock of Coulter
Cellular Therapies, Inc. ("Coulter Cellular"), which were completed prior to the
Acquisition, as if such spin-offs were completed prior to January 1, 1997. 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 unaudited 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 Acquisition, the Proposed Financing and the application of
the net proceeds therefrom 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 statement
of operations for synergies or costs, if any, that may be realized through the
combination of Beckman and Coulter. The pro forma financial statements,
including the notes thereto, should be read in conjunction with the Consolidated
Financial Statements of the Company, as filed with the Securities and Exchange
Commission in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
F-2
<PAGE> 8
PRO FORMA BALANCE SHEET
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
BECKMAN PRO FORMA PRO FORMA
DECEMBER 31, 1997 ADJUSTMENTS COMBINED
------------------ ----------- ----------
<S> <C> <C> <C>
Current assets:
Cash and equivalents............................... $ 33.1 $ (4.8)(a) $ 28.3
Short-term investments............................. 0.4 0.4
Trade receivables and other........................ 524.6 524.6
Inventories........................................ 332.3 332.3
Deferred income taxes.............................. 53.0 53.0
Other current assets............................... 33.3 33.3
-------- -------- --------
Total current assets............................ 976.7 (4.8)(a) 971.9
Property, plant and equipment, net................... 410.9 410.9
Intangible assets.................................... 444.9 444.9
Goodwill............................................. 402.8 402.8
Deferred income taxes................................ -- --
Other assets......................................... 95.7 4.8(a) 98.4
(2.1)(b)
-------- -------- --------
Total assets............................... $2,331.0 $ (2.1) $2,328.9
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable...................................... $ 49.0 $ $ 49.0
Current maturities of long-term debt............... 19.9 19.9
Accounts payable................................... 96.3 96.3
Accrued compensation............................... 84.6 84.6
Other accrued expenses............................. 575.5 575.5
Income taxes....................................... 69.6 (0.8)(c) 68.8
-------- -------- --------
Total current liabilities....................... 894.9 (0.8) 894.1
Long-term debt, less current maturities.............. 1,181.3 400.0(d) 1,181.3
(400.0)(d)
Deferred income taxes................................ 40.3 40.3
Other liabilities.................................... 132.7 132.7
-------- -------- --------
Total liabilities............................... 2,249.2 (0.8) 2,248.4
Stockholders' equity................................. 81.8 (2.1)(b) 80.5
0.8(c)
-------- -------- --------
Total liabilities and stockholders'
equity................................... $2,331.0 $ (2.1) $2,328.9
======== ======== ========
</TABLE>
See Notes to Pro Forma Financial Statements.
F-3
<PAGE> 9
PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT AMOUNTS PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
BECKMAN COULTER
YEAR ENDED 10 MONTHS ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1997 OCTOBER 31, 1997(e) ADJUSTMENTS(f) COMBINED
----------------- ------------------- -------------- ------------
<S> <C> <C> <C> <C>
Sales............................. $ 1,198.0 $ 592.1 $1,790.1
Operating costs and expenses:
Cost of sales................... 609.7 316.4 $ 5.7(g) 931.8
Marketing, general and
administrative............... 360.3 186.8 7.8(h) 568.4
13.5(h)
Research and development........ 123.6 64.8 188.4
In-process research and
development.................. 282.0 (282.0)(i) --
Restructuring charge............ 59.4 5.9 (59.4)(j) 5.9
-------- ------ ------ --------
Operating (loss) income........... (237.0) 18.2 314.4 95.6
Nonoperating expense:
Interest income................. (6.1) (6.5) (12.6)
Interest expense................ 29.4 10.6 50.6(k) 91.2
0.6(l)
Other, net...................... (8.4) (8.3) 4.7(m) (12.0)
-------- ------ ------ --------
Nonoperating expense, net......... 14.9 (4.2) 55.9 66.6
-------- ------ ------ --------
(Loss) earnings before income
taxes........................... (251.9) 22.4 258.5 29.0
Income tax provision (benefit).... 12.5 13.0 (6.0)(c) 19.5
-------- ------ ------ --------
Net (loss) earnings............... $ (264.4) $ 9.4 $264.5 $ 9.5
======== ====== ====== ========
Basic (loss) earnings per share... $ (9.58) $ 0.34
======== ========
Weighted average number of shares
outstanding..................... 27.6 27.6
======== ========
Diluted (loss) earnings per
share........................... $ (9.58) $ 0.33
======== ========
Weighted average number of shares
outstanding..................... 27.6 28.6
======== ========
</TABLE>
See Notes to Pro Forma Financial Statements.
F-4
<PAGE> 10
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 Proposed Financing and the application of the net proceeds therefrom
were completed as of December 31, 1997 and the pro forma statement of operations
assumes that the Acquisition, the Proposed Financing and the application of the
net proceeds therefrom were completed on January 1, 1997. The Acquisition was
consummated on October 31, 1997. Accordingly, the historical financial
statements for the Company for the fiscal year ended December 31, 1997 include
the results of Coulter from November 1, 1997, and the pro forma statement of
operations for the year ended December 31, 1997 also includes the results of
Coulter for the ten months ended October 31, 1997.
All interim financial data used to develop the pro forma balance sheet and
statement of operations 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 statement of operations is not necessarily
indicative of operating results which would have been achieved had the
Acquisition, the Proposed Financing and the application of the net proceeds
therefrom been consummated as of January 1, 1997 and should not be construed as
representative of future earnings.
Under purchase accounting, the total acquisition cost was allocated to
Coulter's assets and liabilities based on their relative fair values. The final
allocations may be different from the amounts reflected herein. The Company does
not believe that the final purchase price allocation will differ significantly
from the preliminary purchase price allocation recorded in fiscal 1997. The
Company's analysis resulted in an allocation of $282.0 million to in-process
research and development which, under generally accepted accounting principles,
was expensed immediately after the Acquisition was completed. For additional
information on the allocation of the purchase price, see Note 3 to Consolidated
Financial Statements of Beckman, as filed with the Securities and Exchange
Commission in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
The pro forma statement of operations for the year ended December 31, 1997
excludes the $282.0 million write-off of in-process research and development and
the $59.4 million restructuring charge, as they are non-recurring charges
associated with the Acquisition.
The pro forma basic net earnings per share is based on the weighted average
number of common shares of Beckman during the period ended December 31, 1997 and
the pro forma diluted net earnings per share reflects the impact of dilutive
securities issued and outstanding.
The following adjustments were recorded in the pro forma financial
statements:
(a) Reflects financing fees and expenses related to the Proposed
Financing estimated to be $4.8 million, which will be capitalized and
amortized over the term of such debt.
(b) To write-off unamortized financing fees and expenses on
refinanced debt of Beckman and Coulter, including 100% of the Old
Debentures. Such write-off will vary if less than 100% of the Old
Debentures are tendered.
(c) Reflects the tax effect of the pro forma adjustments. Goodwill
amortization of $7.8 million for fiscal 1997 and the $282.0 million
write-off of in-process research and development are not deductible for tax
purposes. The effective tax rate of 38% for fiscal 1997 was applied to the
other pro forma adjustments described.
(d) Reflects the increase in debt as a result of the Proposed
Financing and the reduction in debt upon application of the proceeds from
the Proposed Financing to pay down the existing Term Loan and the Old
Debentures.
(e) Reflects ten months of operations for the period ended October
31, 1997.
(f) The pro forma adjustments to the statement of operations do not
reflect the write-off of financing fees and expenses on refinanced debt of
Beckman and Coulter as they will be recorded as extraordinary charges, net
of tax. See (b), above.
F-5
<PAGE> 11
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(g) Represents additional cost of sales as a result of a step-up in
the basis of Coulter's inventory upon allocation of the acquisition cost.
(h) Reflects the amortization of goodwill of $7.8 million and
intangible assets of $13.5 million recorded as a result of the Acquisition.
Amortization of intangible assets was calculated on a straight-line basis
over periods ranging from 15-30 years. Amortization of goodwill was
calculated on a straight-line basis over 40 years.
(i) To eliminate the one-time write-off of $282.0 million of
in-process research and development identified in the purchase price
allocation of the Acquisition. The in-process research and development is
based upon the economic value of projects in process, which cannot be
capitalized under generally accepted accounting principles.
(j) To eliminate a non-recurring restructuring charge of $59.4
million recorded in fiscal 1997 for estimated costs for closing duplicate
facilities of Beckman which, in the opinion of management, have no further
useful life as a result of the Acquisition, and for implementation of
operating efficiencies, and certain other costs.
(k) Reflects interest expense for ten months at an assumed average
rate of 7.25% on approximately $1,100 million of additional outstanding
debt incurred to complete the Acquisition less amounts of Beckman and
Coulter debt repaid with the proceeds of such additional debt. Also gives
effect to the Proposed Financing and the application of the net proceeds
therefrom. Excludes approximately $4.5 million of interest expense due to
the fact that the incremental debt was assumed to be net of the $75.0
million paydown resulting from the Company's sale of financial assets,
primarily consisting of equipment subject to customer leases and lease
receivables. For each 0.25% change in assumed average interest expense on
the outstanding indebtedness, annual pro forma interest expense would
change by approximately $2.3 million.
(l) Reflects the amortization of $4.8 million of debt financing fees
and expenses incurred in connection with the Proposed Financing over an
assumed 7 1/2-year term.
(m) Reflects the elimination of Coulter's proportionate share of the
results of operations of Coulter Pharmaceutical and Coulter Cellular (net
of the portion of Coulter Cellular which was retained) included in
Coulter's historical results of operations. Prior to the Acquisition,
Coulter distributed as dividends to its stockholders 100% of its interest
in Coulter Pharmaceutical and two-thirds of its 68% equity interest in
Coulter Cellular.
F-6
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Coulter Corporation:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Coulter Corporation and subsidiaries (the
Company) for the seven months ended October 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As discussed in Note O, the stockholders of the Company sold all of their
issued and outstanding shares of Class A Common Stock and Class B Common Stock
to Beckman Instruments, Inc. This transaction has resulted in a gain to the
stockholders; however no adjustments to current assets or liabilities have been
reflected in the consolidated financial statements.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations of Coulter
Corporation and subsidiaries and their cash flows for the seven months ended
October 31, 1997 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Miami, Florida
December 12, 1997
F-7
<PAGE> 13
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 O, as to
which the date is
August 29, 1997).
F-8
<PAGE> 14
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> 15
COULTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SEVEN MONTHS ENDED OCTOBER 31, 1997
AND THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN
MONTHS
ENDED
OCTOBER YEARS ENDED MARCH 31,
31, ----------------------------------
1997 1997 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES.................................................. $387,488 $700,887 $685,320 $654,257
COST OF SALES.............................................. 203,974 373,424 349,192 340,494
-------- -------- -------- --------
Gross profit..................................... 183,514 327,463 336,128 313,763
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............... 132,761 217,890 216,920 204,825
RESEARCH AND DEVELOPMENT EXPENSES.......................... 40,419 85,787 87,352 73,454
RESTRUCTURING CHARGES...................................... -- 5,947 -- --
-------- -------- -------- --------
Operating income................................. 10,334 17,839 31,856 35,484
-------- -------- -------- --------
OTHER EXPENSE (INCOME):
Interest expense......................................... 7,223 13,572 11,223 13,969
Interest income.......................................... (4,770) (9,048) (10,295) (11,618)
Foreign exchange (gain) loss (Note G).................... (963) (2,081) (2,940) 9,703
Other, net (Note H)...................................... 808 (4,745) (3,799) (1,400)
-------- -------- -------- --------
2,298 (2,302) (5,811) 10,654
-------- -------- -------- --------
Income before provision for income taxes......... 8,036 20,141 37,667 24,830
PROVISION FOR INCOME TAXES................................. 9,058 5,533 4,628 7,507
-------- -------- -------- --------
Net (loss) income................................ $ (1,022) $ 14,608 $ 33,039 $ 17,323
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-10
<PAGE> 16
COULTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SEVEN MONTHS ENDED OCTOBER 31, 1997
AND 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
Sale of common stock (Note L)........... 216 -- -- -- 2,640 -- -- 2,640
Net loss................................ -- -- -- -- -- (1,022) -- (1,022)
Dividend distribution (Note H).......... -- -- -- -- -- (5,833) -- (5,833)
Translation adjustment.................. -- -- -- -- -- -- (1,474) (1,474)
------- --- ------ --- -------- ------- ------- --------
Balance at October 31, 1997............... 9,893 $10 1,060 $ 1 $ 50,595 $100,940 $(8,138) $143,408
======= === ====== === ======== ======= ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-11
<PAGE> 17
COULTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED OCTOBER 31, 1997
AND THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED YEARS ENDED MARCH 31,
OCTOBER 31, -------------------------------------
1997 1997 1996 1995
------------ --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................................ $ (1,022) $ 14,608 $ 33,039 $ 17,323
Adjustments to reconcile net (loss) income to net cash provided by (used
in) operating activities:
Depreciation and amortization.......................................... 15,647 25,141 23,682 18,764
Provision for doubtful accounts........................................ 1,483 2,609 2,222 3,031
Provision for inventory obsolescence................................... 7,955 12,370 7,777 7,594
Provision for postretirement benefit costs............................. 1,414 3,218 2,850 2,757
Gain on termination of pension plan.................................... -- -- (3,776) --
Deferred income tax (benefit) expense.................................. (3,572) (4,570) (4,722) 285
Loss (gain) on disposal of property, plant and equipment............... 476 327 (1,063) 146
Unrealized foreign exchange loss (gain) on forward contracts........... 2,496 (703) (10,132) 6,476
CHANGE IN ASSETS AND LIABILITIES:
(Increase) decrease
Temporary investments.................................................. -- -- 3,758 4,638
Trade receivable....................................................... 28,989 (16,944) 12,496 (8,562)
Inventories............................................................ (13,505) (26,006) (20,401) (6,003)
Refundable income taxes................................................ (1,158) 1,358 181 (1,742)
Prepaid expenses and other current assets.............................. (4,937) (3,474) 1,531 453
Other assets........................................................... 1,223 3,751 4,015 (3,225)
Increase (decrease)
Accounts payable....................................................... (5,236) (2,621) (1,834) 2,801
Accrued liabilities.................................................... 2,274 (13,664) 13,015 (3,865)
Income taxes payable................................................... 10,245 (3,401) 3,469 (60)
Estimated warranty costs............................................... (1,812) 1,708 (3,807) 890
Unearned service contract revenue...................................... (2,397) (1,661) (201) 2,861
Accrued pension costs.................................................. (487) 207 (13,847) 5,035
Accrued postretirement benefit costs................................... (312) (952) (1,181) (678)
Long-term unearned service contract revenue............................ (992) 337 1,103 2,482
-------- -------- ------- --------
Net cash provided by (used in) operating activities.................... 36,772 (8,362) 48,174 51,401
-------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment...................... 1,983 3,582 4,114 4,542
Capital expenditures..................................................... (17,976) (58,017) (31,067) (31,086)
Finance lease receivables originated..................................... (19,582) (10,833) (17,685) (22,098)
Principal payments received from finance lease receivables............... 15,292 15,339 29,677 27,772
Payment for business acquisition, net of cash acquired................... -- -- (22,198) --
(Decrease) increase in minority interests................................ (1,531) 1,017 317 762
-------- -------- ------- --------
Net cash used in investing activities.................................. (21,814) (48,912) (36,842) (20,108)
-------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................................. 47,839 238,158 142,069 74,446
Principal payments of long-term debt..................................... (178,257) (182,274) (134,619) (108,552)
Principal payments of note payable due to stockholder.................... -- (3,000) -- --
Proceeds from Beckman Instruments, Inc................................... 109,674 -- -- --
Purchase of treasury stock............................................... -- (7,747) -- --
Proceeds from sale of stock.............................................. 2,640 -- -- --
Net (payments) proceeds from notes payable and foreign bank overdraft
facilities............................................................. (299) 2,030 (2,890) 4,623
-------- -------- ------- --------
Net cash (used in) provided by financing activities.................... (18,403) 47,167 4,560 (29,483)
-------- -------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS............... (586) (2,397) (9,564) 11,921
-------- -------- ------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....................... (4,031) (12,504) 6,328 13,731
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD....................... 28,782 41,286 34,958 21,227
-------- -------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD............................. $ 24,751 $ 28,782 $ 41,286 $ 34,958
======== ======== ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non cash dividend to stockholders........................................ $ 5,833 $ -- $ -- $ --
Cash paid during the period for:
Interest............................................................... $ 10,603 $ 13,406 $ 11,982 $ 13,740
======== ======== ======= ========
Income taxes........................................................... $ 4,433 $ 12,742 $ 6,589 $ 7,422
======== ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-12
<PAGE> 18
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> 19
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>
MARCH 31, MARCH 31,
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>
MARCH 31, MARCH 31,
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> 20
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>
MARCH 31, MARCH 31,
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> 21
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>
SEVEN MONTHS YEAR ENDED MARCH 31,
ENDED OCTOBER 31, ----------------------------------
1997 1997 1996 1995
----------------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net assets................... $ 119,522 $113,602 $115,945 $ 95,912
======== ======== ======== ========
Net sales.................... $ 187,639 $346,644 $355,394 $320,430
======== ======== ======== ========
Net income................... $ 12,371 $ 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>
MARCH 31, 1997 MARCH 31, 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> 22
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> 23
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> 24
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> 25
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 $3,306,000, $7,203,000, $1,384,000 and
$1,667,000 as other income in the consolidated statements of income for the
seven months ended October 31, 1997 and for the years ended March 31, 1997, 1996
and 1995, respectively. CPI incurred losses of $14,219,000, $17,203,000,
$4,718,000 and $216,000 for the seven months ended October 31, 1997 and for the
years ended March 31, 1997, 1996 and 1995, respectively. The Company's
proportionate share of such losses were $2,209,000, $3,998,000, $2,540,000 and
$145,000 and have been recorded as other expense in the consolidated statements
of operations for the seven months ended October 31, 1997 and 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
F-20
<PAGE> 26
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H -- INVESTMENT IN JOINT VENTURES (CONTINUED)
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 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
operations at March 31, 1997. The remaining contribution of $1,496,000 was
recorded as minority interest. From February 1997 to September 1997, CCTI was
consolidated with the Company; however, at October 31, 1997, CCTI was accounted
for using the equity method of accounting.
CCTI incurred losses of $1,935,000 and $246,000 for the seven months ended
October 31, 1997 and for the two months ended March 31, 1997, respectively,
whereby the Company's proportionate share of $1,316,000 and $167,000,
respectively, were charged to the consolidated statements of income for the
seven months ended October 31, 1997 and for the year ended March 31, 1997,
respectively. 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.
In October 1997, the Board of Directors declared a dividend-in-kind to the
stockholders consisting of the common stock of both CPI and CCTI, 1,666,666 and
4,900,000 shares, respectively. Such stock had a book value of $5,833,000 at
October 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.
F-21
<PAGE> 27
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- SETTLEMENT OF PATENT INFRINGEMENT (CONTINUED)
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 seven month period
ended October 31, 1997 and for the years ended March 31, 1997, 1996 and 1995
royalty expense of $1,012,000, $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 extended employees' benefits; and
consulting fees. The Company believes that the accrued restructuring charge is
adequate to cover associated costs. 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.
In October 1997, the Company sold 216 shares of its Class A common stock to
the estate of a stockholder. The price per share was $12,222 and resulted in a
total sale price of approximately $2,640,000 in cash.
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
F-22
<PAGE> 28
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- BENEFIT PLANS (CONTINUED)
of income for the years ended March 31, 1997, 1996 and 1995 includes the
following components (In thousands):
<TABLE>
<CAPTION>
FOR THE SEVEN FOR THE YEAR ENDED MARCH 31,
MONTHS ENDED ----------------------------
OCTOBER 31, 1997 1997 1996 1995
---------------- ------ ------ ------
<S> <C> <C> <C> <C>
Service cost...................................... $ 468 $ 997 $ 810 $ 733
Interest cost..................................... 946 2,221 2,040 2,024
------ ------ ------ ------
$1,414 $3,218 $2,850 $2,757
====== ====== ====== ======
</TABLE>
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 7.50% for the seven months ended October 31, 1997,
7.75% for fiscal 1997, 8.50% for fiscal 1996 and 8.25% for fiscal 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 would have increased by $334,000 (or
24%) for the seven months ended October 31, 1997, $826,000 (or 26%) for fiscal
1997, $707,000 (or 25%) for fiscal 1996 and $427,000 (or 16%) for fiscal 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
F-23
<PAGE> 29
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- BENEFIT PLANS (CONTINUED)
Segment on a monthly basis. For the seven months ended October 31, 1997 and for
the years ended March 31, 1997, 1996 and 1995, the Company's contributions to
the SI Segment of the Plan were $2,750,000, $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 seven months ended October
31, 1997 and for the year ended March 31, 1997, the Company contributed
$3,680,000 and $7,290,000, respectively, to the RP Segment of The Plan.
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 statement of
operations 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>
F-24
<PAGE> 30
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- BENEFIT PLANS (CONTINUED)
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>
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 seven months ended October
31, 1997 and for the years ended March 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
FOREIGN PLANS
-----------------------------------------------------
FOR THE
SEVEN MONTHS FOR THE YEAR ENDED MARCH 31,
ENDED OCTOBER 31, -------------------------------
1997 1997 1996 1995
----------------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost during the
year........................ $ 1,313 $ 2,299 $ 2,221 $ 2,065
Interest on projected benefit
obligation and service
cost........................ 1,728 2,805 2,795 2,317
Expected return on Plans
assets...................... (2,089) (4,387) (5,701) (2,612)
Amortization of unrecognized
net assets at transition.... (97) (143) (115) (119)
(Loss) gain on net assets
during the year deferred for
future recognition.......... (265) 818 2,875 305
------- ------- ------- -------
$ 590 $ 1,392 $ 2,075 $ 1,956
======= ======= ======= =======
</TABLE>
F-25
<PAGE> 31
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- BENEFIT PLANS (CONTINUED)
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>
The above amounts of the projected benefit obligation are measured based on
the following assumptions:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE SEVEN MONTHS MARCH 31,
ENDED OCTOBER 31, ---------------------------
1997 1997 1996
-------------------- ------------ ------------
<S> <C> <C> <C>
Discount rate:
Pre-retirement.................................... 4.0 - 7.0% 4.0 - 8.0% 5.5 - 8.5%
Post-retirement................................... 4.0 - 7.0% 4.0 - 8.0% 5.5 - 8.5%
Weighted-average rate of compensation increase...... 3.0 - 5.0% 3.0 - 6.0% 3.0 - 6.5%
Weighted-average of expected long-term rate of
return on Plans assets............................ 3.0 - 8.0% 3.0 - 8.5% 3.0 - 8.5%
Straight-line amortization of unrecognized net
assets at transition.............................. 16 - 20 yrs. 16 - 20 yrs. 16 - 20 yrs.
</TABLE>
NOTE N -- SIGNIFICANT CUSTOMER
During the seven months ended October 31, 1997 and the years ended March
31, 1997, 1996 and 1995, a customer accounted for approximately 17%, 17%, 16%,
and 14%, respectively, 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.
F-26
<PAGE> 32
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O -- SALE OF THE COMPANY
Effective November 1, 1997, the Company was acquired by Beckman
Instruments, Inc. (Beckman) who purchased 100% of the outstanding shares of the
Company's common stock pursuant to a Stock Purchase Agreement, dated August 29,
1997. The purchase price was $875,000,000 in cash, the assumption of
approximately $180,000,000 of indebtedness and $100,000,000 of other
obligations.
As of October 31, 1997, the Company recorded a payable due to Beckman for
$109,674,000 since certain of the Company's indebtedness had been extinguished
by Beckman. No repayment terms have been determined, however interest of 7% per
annum is being charged to the Company.
NOTE P -- INCOME TAXES
The provision for income taxes for the seven months ended October 31, 1997
and for the years ended March 31, 1997, 1996 and 1995, includes the following
components:
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS FOR THE YEAR ENDED MARCH 31,
ENDED OCTOBER 31, ------------------------------
1997 1997 1996 1995
-------------------- ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current income tax expense
U.S. Federal................................ $ 4,989 $ 1,230 $ 143 $1,932
U.S. state and local........................ 1,766 383 200 499
Foreign..................................... 5,875 8,490 9,007 4,791
------- ------- ------- ------
12,630 10,103 9,350 7,222
------- ------- ------- ------
Deferred income tax (benefit) expense
U.S. Federal................................ (3,882) (4,000) (4,200) --
U.S. state and local........................ (405) (500) (600) --
Foreign..................................... 715 (70) 78 285
------- ------- ------- ------
(3,572) (4,570) (4,722) 285
------- ------- ------- ------
Provision for income taxes.................... $ 9,058 $ 5,533 $ 4,628 $7,507
======= ======= ======= ======
</TABLE>
F-27
<PAGE> 33
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE P -- 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-28
<PAGE> 34
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE P -- 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 the seven months ended October 31, 1997
and for each of the three years ended March 31, 1997, is primarily due to the
effect of AMT, state and foreign income tax rates and the tax impact of the gain
on distribution of stock to shareholders of $5,332,000 for the seven months
ended October 31, 1997. Additionally, the Company recognized deferred tax
benefits related to changes in the valuation allowance of $2,300,000,
$4,500,000, $4,800,000 and $1,800,000 for the seven months ended October 31,
1997 and 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-29
<PAGE> 35
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE Q -- 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 $10,111,000 in the seven months ended
October 1997, $11,350,000 in fiscal 1997, $11,744,000 in fiscal 1996 and
$11,722,000 in fiscal 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-30
<PAGE> 36
COULTER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
NET SALES.............................................................. $330,279 $316,749
COST OF SALES.......................................................... 172,651 163,431
-------- --------
Gross profit................................................. 157,628 153,318
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................... 108,262 108,890
RESEARCH AND DEVELOPMENT EXPENSES...................................... 36,873 43,010
-------- --------
Operating income............................................. 12,493 1,418
-------- --------
OTHER EXPENSE (INCOME):
Interest expense..................................................... 6,541 6,030
Interest income...................................................... (4,204) (4,053)
Foreign exchange gain................................................ (2,092) (72)
Other, net........................................................... 3,460 (848)
-------- --------
3,705 1,057
-------- --------
Income before provision for income taxes..................... 8,788 361
PROVISION FOR INCOME TAXES............................................. 2,374 95
-------- --------
Net income................................................... $ 6,414 $ 266
======== ========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these statements.
F-31
<PAGE> 37
COULTER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................. $ 6,414 $ 266
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization............................................................ 12,478 11,828
Provision for doubtful accounts.......................................................... 1,526 1,140
Provision for inventory obsolescence..................................................... 7,146 6,451
Provision for postretirement benefit costs............................................... 1,541 1,622
Deferred income tax benefit.............................................................. (3,474) (5,240)
Loss on disposal of property, plant and equipment........................................ 335 146
Unrealized foreign exchange loss on forward contracts.................................... 1,459 983
CHANGE IN ASSETS AND LIABILITIES:
(Increase) decrease in --
Accounts receivable...................................................................... 28,867 16,642
Inventories.............................................................................. (10,270) (27,933)
Refundable income taxes.................................................................. (894) (46)
Prepaid expenses and other current assets................................................ (1,780) (2,316)
Other assets............................................................................. (3,018) (823)
Increase (decrease) in --
Accounts payable......................................................................... (7,136) (10,876)
Accrued liabilities...................................................................... (493) (26,552)
Income taxes payable..................................................................... 1,789 926
Estimated warranty costs................................................................. (1,833) (2,497)
Unearned service contract revenue........................................................ (1,438) (407)
Accrued pension costs.................................................................... 345 14
Accrued postretirement benefit costs..................................................... (238) (326)
Long-term unearned service contract revenue.............................................. (1,565) (967)
--------- ---------
Net cash provided by (used in) operating activities...................................... 29,761 (37,965)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment........................................ 2,549 4,076
Capital expenditures....................................................................... (14,367) (36,899)
Finance receivables originated............................................................. (14,126) (4,730)
Principal payments received from finance receivables....................................... 13,318 10,129
Decrease in minority interests............................................................. (777) (508)
--------- ---------
Net cash used in investing activities................................................ (13,403) (27,932)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................................................... 32,498 86,461
Principal payments of long-term debt....................................................... (47,812) (30,167)
Principal payments of notes payable due to stockholder..................................... (1,000) (1,000)
Purchase of treasury stock................................................................. -- (7,747)
Net proceeds from notes payable and foreign bank overdraft facilities...................... 85 390
--------- ---------
Net cash (used in) provided by financing activities...................................... (16,229) 47,937
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS................................. (1,823) (1,834)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................................................... (1,694) (19,794)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD......................................... 28,782 41,286
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD............................................... $ 27,088 $ 21,492
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest................................................................................. $ 6,681 $ 7,043
========= =========
Income taxes............................................................................. $ 2,910 $ 6,727
========= =========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these statements.
F-32
<PAGE> 38
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 six months ended September 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>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Finished goods.................................... $ 82,703 $ 81,653
Raw materials..................................... 27,745 32,232
Work in process................................... 10,178 11,463
-------- --------
$120,626 $125,348
======== ========
</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 March 31, 1997
were $5,713,000 and are included in accrued liabilities in the March 31, 1997
condensed consolidated balance sheet. For the six-month period ended September
30, 1997, $4,853,000 was charged against this accrual. The Company believes the
balance of the accrued restructuring charges of $860,000 which is included in
accrued liabilities in the accompanying condensed consolidated balance sheet at
September 30, 1997 is adequate.
F-33
<PAGE> 39
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.
Employment Agreements
The Company maintains employment agreements (the "Employment Agreements")
with certain executives. These Employment Agreements provide for severance
payments in the event these executives are involuntarily terminated following a
change of control of the Company (as defined). The Employment Agreements have
terms which range from one to three years.
F-34
<PAGE> 40
COULTER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. PURCHASE AGREEMENT
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 merger is intended to be
accounted for under the purchase accounting method. Completion of the
transaction 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.
7. SUBSEQUENT EVENTS
On October 20, 1997, the Board of Directors agreed to distribute as a
dividend all of the Company's shares of Coulter Pharmaceuticals, Inc. and 4.9
million shares of Coulter Cellular Therapies, Inc. to the respective
shareholders of record as of October 30, 1997. This distribution was completed
on November 14, 1997. In connection with this transaction, the Company expects
to incur a tax liability of $5 million.
F-35
<PAGE> 41
EXHIBIT INDEX
FORM 8-K
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C>
23.1 Consent of KPMG Peat Marwick LLP dated February 16, 1998.
23.2 Consent of Arthur Andersen LLP dated February 20, 1998.
</TABLE>
E-1
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Beckman Instruments, Inc.:
We consent to the inclusion of our report dated December 12, 1997, with respect
to the consolidated statements of operations, stockholders' equity, and cash
flows for seven months ended October 31, 1997 of Coulter Corporation and
subsidiaries (the Company), which report appears in the Form 8-K of Beckman
Instruments, Inc. dated February 18, 1998.
Our report dated December 12, 1997, contains an explanatory paragraph that
states that the stockholders sold all of the issued and outstanding stock of
the Company to Beckman Instruments, Inc. This transaction resulted in a gain to
the stockholders; however, no adjustments to current assets or liabilities have
been reflected in the consolidated financial statements.
/s/ KPMG Peat Marwick LLP
Miami, Florida,
February 16, 1998
E-2
<PAGE> 1
EXHIBIT 23.2
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,
February 20, 1998
E-3
